Ita/422/2008 Of The Commissioner Of Income Tax v. M/S. Infosys Technologies Ltd

IN THE HIGH COURT OF KARNATAKA AT BANGALORE DATED THIS THER DAY OF JUNE 2014 PRESENT THR HON’BLEK MR JUSTICE N. KUMAR AND THR HON’ BLE MR JUSTICE B. MANOHAR ITA NO. 422/2008 & ITA NOS.194/2008 C/W 192/2008 IN ITA NO.422 /2008 BETWEEN: 1.THRB COMMISSIONER OF INCOME TAXC.R.BUILDING, QUEENS ROAD|BANGALORE 2 THR ASSISTANT COMMISSIONER OF INCOME TAXCIRCLE-1(4), BANGALORE.|... APPELLANTS (BY SRI K V ARAVIND, ADVOCATE) AND: 1.M/S INFOSYS TECHNOLOGIES LTDPLOT NO.44 & 97-A, 3RD CROSSBLECTRONIC CITY.HOSUR ROAD,BANGALORE. |—. RESPONDENT (BY SRI.T SURYANARAYANA, ADVOCATE FOR M/S KING &|PARTRIDGE) THIS APPEAL IS FILED UNDER SECTION 260-A OF.THE INCOME TAX ACT, 1961 PRAYING TO ALLOW THE|APPBRAL AND SBT ASIDE THR ORDERS PASSEKD BY THINCOME TAX APPELLATE TRIBUNAL, BANGALORE IN ITA NO.635/BANG/2006 DATED 02.11.2007 CONFIRMING THE|ORDEROF|THEAPPELLATECOMMISSION BRANILCONFIRM|THE.ORDERPASSEDBY|THERDY.COMMISSIONER OF INCOME TAX, CIRCLE —- = 11(8BANGALORE AND BIC. IN ITA NO 1194/2008BBRITIWE1. THRE COMMISSONIBR OF INCOME TAXC.R.BUILDING, QUEENS ROAD,BANGALORE,2. THERE ASSISTANT COMMISSIONEOF INCOME TAX.DBPUTY COMMISSIONER OF INCOME TAXCIRCLE-11(4),BANGALORE|_. APPELLANTS |(BY SRI K V ARAVIND - ADVOCATE) AND:1.M/S.INFOSYS TECHNOLOGIES LTD.,PLOT NO.44 & 97A,3RD CROSS, ELECTRONIC CITY,HOSUR ROAD,BANGALORE.—. RESPONDENT | (BY SRI.T SURYANARAYANA, ADVOCATE FORM/S KING & PARTRIDGE, ADVS.) THIS APPEAL IS FILED U/S.260-A OF I.T.ACT 1961ARISING OUT OF ORDER DATED 17-10-2007 PASSED IN|ITA NO. 969/BANG/2006 FOR THE ASSESSMENT YEARS2003-2004, PRAYING TO FORMULATE THE SUBSTANTIALQUESTIONS OF LAW STATED THEREIN AND ALLOW THE|APPBKRAL AND SBT ASIDE THR ORDER PASSBD BY THITAT, BANGALORE IN ITA NO. 969/BANG/2006 DATED 17-|10-2007 CONFIRMING THR ORDER OF THR APPBKRLLATCOMMISSIONBR AND ASSISTANT COMMISSIONBR OF]INCOME TAX, CIRCLE - 11(3), BANGALORE. IN ITA NO 1192/2008 BBRTWEHE 1.THB COMMISSONIBR OF INCOME TAXC.R.BUILDING,QUEENS ROAD,BANGALORE, 2 THR ASSISTANT COMMISSIONER OF INCOME TAXDBPUTY COMMISSIONER OF INCOME TAXCIRCLE-11(4),BANGALORE.|... APPBLLANTS (BY SRI K V ARAVIND - ADVOCATE) AND: 1.M/S.INFOSYS TECHNOLOGIES LTD.,PLOT NO.44 & 97A,3RD CROSS, ELECTRONIC CITY,HOSUR ROAD,BANGALORE.—. RESPONDENT | (BY SRI.T SURYANARAYANA, ADVOCATE FOR M/S KING &|PARTRIDGE, ADVS.) THIS APPEAL IS FILED U/S.260-A OF I.T.ACT, 1961ARISING OUT OF ORDER DATED 17-10-200/ PASSED IN]ITA NO. 653/BNG/2006, FOR THE ASSESSMENT YEAR2002-2003, PRAYING TO FORMULATE THE SUBSTANTIALQUESTIONS OF LAW STATED THEREIN AND ALLOW THE|APPBKRAL AND SBT ASIDE THR ORDER PASSBD BY THITAT BANGALORE IN ITA NO. 6953/BNG/2006, DATED 1710-2J0O0O0/ CONFIRM THE ORDERS OF THERE APPBCOMMISSIONBR AND ASSISTANT COMMISSIONBR OF]INCOME TAX, CIRCLE - 11(3), BANGALORE. THRSK APPBALS COMING ON FOR HRBRARING THIDAY,KUMAR J., DELIVERED THE FOLLOWING: JUDGMMBENT These three appeals preferred by the revenueis |against the same assessee for different years ofassessment. ITA 422/2008 relates to the assessmentyear 2001-02. ITA 192/2008 relates to assessmentYCarl2002-03andITA)194/2008|relates TOassessment year 2003-04. — 2. The substantial questions of law raised by the revenue in ITA 422/2008 read as under: 1.Whether the Appellate Authorities were)correct in holding that an amount ofRs. 10,39,88,322/- paid to M/s AT & T andMCI Telecommunications towards downlinking charges is an allowable deduction|even when no IDS u/s.195 of the Act has|been made and provisions of section|40(a)(l) of the Act has not been complied|with?correct in holding that an amount ofRs. 10,39,88,322/- paid to M/s AT & T andMCI Telecommunications towards downlinking charges is an allowable deduction|even when no IDS u/s.195 of the Act has|been made and provisions of section|40(a)(l) of the Act has not been complied|with? 2?Whether the Appellate Authorities were)correctinholdingthat|aSUTTofRs.1,15,71,400/- paid to Gartner, USA,correctinholdingthat|aSUTTofRs.1,15,71,400/- paid to Gartner, USA, revenue in ITA 422/2008 read as under: 1.Whether the Appellate Authorities were)correct in holding that an amount ofRs. 10,39,88,322/- paid to M/s AT & T andMCI Telecommunications towards downlinking charges is an allowable deduction|even when no IDS u/s.195 of the Act has|been made and provisions of section|40(a)(l) of the Act has not been complied|with?correct in holding that an amount ofRs. 10,39,88,322/- paid to M/s AT & T andMCI Telecommunications towards downlinking charges is an allowable deduction|even when no IDS u/s.195 of the Act has|been made and provisions of section|40(a)(l) of the Act has not been complied|with? 2?Whether the Appellate Authorities were)correctinholdingthat|aSUTTofRs.1,15,71,400/- paid to Gartner, USA,correctinholdingthat|aSUTTofRs.1,15,71,400/- paid to Gartner, USA, Rs.1,11,196/- paid to Gartner, Australiaand Rs.3,67,032/- paid to Gartner, U.K. (in|all 1,20,49,628/-) towards subscriptionservice 1s an allowable deduction despitethe assessee failing to deduct tax at sourceu/s. 195 of the Act and contrary to Section40(a)(t) of the Act? 3.Whether the Appellate Authorities werecorrect in holding that expenditure due to.exchange rate variation arising in foreigncurrency and exchange variation (EEFC) ofRs.32,61,803/- tis not deductible eitherfrom export turnover or total turnover whencomputing deduction u/s.SOHHE of theAct?|correct in holding that expenditure due to.exchange rate variation arising in foreigncurrency and exchange variation (EEFC) ofRs.32,61,803/- tis not deductible eitherfrom export turnover or total turnover whencomputing deduction u/s.SOHHE of theAct?| 4 Whether the Appellate Authorities were)correct in holding that expenditure towardstravelEXPENSES,professionalcharges,maintenanceallowanceandotherEXPEeNsesIn|foreignCUrFeNncyofRs.8,46,36,076/- is not deductible eitherfrom export turnover or total turnover when|computing deduction u/s.SOHHE of theAct?correct in holding that expenditure towardstravelEXPENSES,professionalcharges,maintenanceallowanceandotherEXPEeNsesIn|foreignCUrFeNncyofRs.8,46,36,076/- is not deductible eitherfrom export turnover or total turnover when|computing deduction u/s.SOHHE of theAct? 5.Whether the Appellate Authorities werecorrectinholding that|paymentsofRs. 10,39,88,322/- paid to M/s AT&T andMCI Telecommunications towards downslinking charges cannot be excluded fromexport turnover as well as total turnoverforthe purpose of computation of deductionu/s.10A of the Act?correctinholding that|paymentsofRs. 10,39,88,322/- paid to M/s AT&T andMCI Telecommunications towards downslinking charges cannot be excluded fromexport turnover as well as total turnoverforthe purpose of computation of deductionu/s.10A of the Act? 6.Whether the Appellate Authorities werecorrect in holding that when computingtotal turnover the business profits of the|entire business of the assessee need not betaken but only that of SOHHE of the Act|units should be taken for the purpose of|computation of deduction u/s.8SOHHE ofthe Act?correct in holding that when computingtotal turnover the business profits of the|entire business of the assessee need not betaken but only that of SOHHE of the Act|units should be taken for the purpose of|computation of deduction u/s.8SOHHE ofthe Act? 7 Whether the Appellate Authorities were)correctIn|holding that(oSUMofRs. 1,83,20,669/-debitedtowardsprovision for post sales customers supportservice 1s qn alloiwaqhle deduction when thparticulars of the same was not furnished|nor method of arrwing at it was _ notdisclosed and consequently recorded acorrectIn|holding that(oSUMofRs. 1,83,20,669/-debitedtowardsprovision for post sales customers supportservice 1s qn alloiwaqhle deduction when thparticulars of the same was not furnished|nor method of arrwing at it was _ notdisclosed and consequently recorded a perverse finding as the same had not|accrued?accrued? 7 Whether the Appellate Authorities were)correctIn|holding that(oSUMofRs. 1,83,20,669/-debitedtowardsprovision for post sales customers supportservice 1s qn alloiwaqhle deduction when thparticulars of the same was not furnished|nor method of arrwing at it was _ notdisclosed and consequently recorded acorrectIn|holding that(oSUMofRs. 1,83,20,669/-debitedtowardsprovision for post sales customers supportservice 1s qn alloiwaqhle deduction when thparticulars of the same was not furnished|nor method of arrwing at it was _ notdisclosed and consequently recorded a perverse finding as the same had not|accrued?accrued? 8,Whether the Appellate Authorities werecorrectinholdingthat|(oSUMof|Rs.4,25,000/-paidtowardsclubmembership fee is an allowable business|expenditure when the same is capital in|nature?correctinholdingthat|(oSUMof|Rs.4,25,000/-paidtowardsclubmembership fee is an allowable business|expenditure when the same is capital in|nature? 9gWhether the Appellate Authorities were)correctinholdingthat|(oSUMofRs. 8,93,40,000/-receivedOTLsaleof“Onscan International Notification System’|to M/s Onscan INC., California is a|TEVeEChUEXPEMse€NOT|takingintoconsideration the agreement entered into)between the parties which shows that it|was a capital asset attracting short term)capital gains?correctinholdingthat|(oSUMofRs. 8,93,40,000/-receivedOTLsaleof“Onscan International Notification System’|to M/s Onscan INC., California is a|TEVeEChUEXPEMse€NOT|takingintoconsideration the agreement entered into)between the parties which shows that it|was a capital asset attracting short term)capital gains? 10.Whether the Appellate Authorities werecorrectinholdingthat|(oSUMof|Rs.8,93,40,000/- had been claimed as an|expenditurewhichhadbeenalreadyallowed during the earlier assessment YearsincludingA. Y.2O000-0andconsequently recorded a perverse finding?| 3. Some of these questions of law do arise for|consideration for the two subsequent years also. |Therefore, they are taken up for considerationtogether and by a common order these three appealsare disposed of. QUESTION No.1: Whether the appellate authorities were correct inholding that an amount of Rs.10,39,88,322/- paid to|M/s AT & T and MCI Telecommunication towards|down linking charges is an allowable deduction even)when no TDS under Section 195 of the Act has been|made and provisions of Section 40(a)(1) of the Income|Tax Act has not been complied with?| In a proceeding initiated against the assessee|under|Section 201(1)er(1A)1nNITA)532er033/B/2002 & ITA 833-837/Bang/2003, the tribunalby an order dated 12.08.2005 held that the assesseewas not in default for non-deduction of tax on-account of the payment made for down linking charges. Such payment cannot be treated as royaltyunder Section 9(1)(vii) of the Income Tax Act. Following the said judgment, when there was no|liability to deduct the TDS in respect of the aforesaidtransaction, the tribunal has rejected the case of theRevenue. It 1s submitted that against the order dated12.08.2005, the revenue has preferred a Special LeavePetition to the Apex Court. However, as on todaywhen it has been held in the aforesaid proceedings,the assessee was not in default for non-deduction of.tax as the said payment cannot be treated aS aroyalty, theauthorities|WETEnotjustified1ndisallowing the expenditure. Therefore, no fault to befound with the order passed by the tribunal. As the said question arises for consideration in all the three appeals, we do not find any justificationto interfere with the said order passed by the tribunaland in fact, no substantial question of law do arise forconsideration. QUESTION No.2: As the said question arises for consideration in all the three appeals, we do not find any justificationto interfere with the said order passed by the tribunaland in fact, no substantial question of law do arise forconsideration. QUESTION No.2: Whether the appellate authorities were correct inholding that that a sum of Rs.1,15,71,400/- paid to|M/s Gartner — USA, Rs.1,11,196/- paid to M/s Gartner— Australia and Rs.3,67,032/- paid to M/s Gartner —U.K. (in all Rs.1,20,49,628/-) towards subscriptioncharges is an allowable deduction despite the assessee|failing to deduct the tax at source under Section 195 ofthe Act and contrary to Section 40(a)(1) of the Act?| In all the three appeals, relying on the judgment|of the tribunal in ITA 145-148/Bang/04, the tribunalheld that the assessee cannot be treated as in defaultfor making the payment to that company andtherefore, the contention of the revenue was rejecteddismissing the appeals. TheOrderotthetribunal|1nITA)145-148/Bang/04 was the subject matter of an appealbefore this Court in ITA.No.613-616/06, relating tothe very same assessee and the very same clients M/sGartner. This Court answering the said question oflaw held as under: IIn IT Appeal Nos.2804, 2805 and2807 of 2005 and connected cases, wherein| identical contentstons had been raised, thisCourt by separate order passed today, hasreversed the decision of the Tribunal inWipro’s case in IT Appeal Nos.150 to 154 of|2DOO4dated30[th]December,2YIOO04Therefore, following the reasons assigned inITA Nos.2804, 2805 and 2807 of 2005,|disposed of by us by a separate order'today, we hold that the order of the Tribunaldated I1[th]November, 2005 impugned inthese appeals, where the Tribunal hasrelied upon its earlier decision in WiproLtd..s case (supra) in arriving at the|conclusion that the payment made by the|respondent — assessee to M/s.Gartner, anon-resident company would not amount toroyalty, cannot be sustained and the same.1s liable to be set aside. We answer the|substantial question of law framed in allthese appeals as to whether the Tnbunalwas Justified in holding that the paymentmade by the respondent to M/s.Gartner, anon-resident company did not amount toroyalty, in the negative in favour of theRevenue and against the assessee and_accordingly, pass the following order: All the appeals are allowed. The orderpassed by the Tribunal, Bangalore Bench|‘BY, im ITA WNos.145 to 148/Bang/ 200dated 11[th]November, 2005 ts set aside andthe order passed by the appellate authorityconfirming the order passed by the AO isrestored.” From the aforesaid order, it 1s clear this Court.has set-aside the order passed by the tribunal in ITA145-148/Bang/04 and held the assessee is liable todeduct tax. Therefore, the findings recorded by thetribunal in al these three appeals relying on thetribunal’s earlier decision in ITA Nos.145-148/2004requires to be set-aside. Accordingly, it is set-aside.However, it is Submitted that the assessee has_preferred a Special Leave Petition against thoseorders. Therefore, the assessing authority may passa consequential order, taking note of the judgmentof the Apex Court to be rendered. That wouldmeet the ends of justice. The said substantial question of law is answered in favour of the revenueand against the assessee. QUESTION No.3: Whether the appellate authorities were correct inholding that the expenditure due to exchange ratevariation arising in foreign currency and exchangevariation EEFC of Rs.32,61,803/- is not deductable|either from export turnover or total turnover without)computing deduction under Section SOHHE of the Act?| The said question arose for consideration before this Court in the assessee’s case reported in 2012(349) ITR, 606 (Kar) where it has been held as under: question of law is answered in favour of the revenueand against the assessee. QUESTION No.3: Whether the appellate authorities were correct inholding that the expenditure due to exchange ratevariation arising in foreign currency and exchangevariation EEFC of Rs.32,61,803/- is not deductable|either from export turnover or total turnover without)computing deduction under Section SOHHE of the Act?| The said question arose for consideration before this Court in the assessee’s case reported in 2012(349) ITR, 606 (Kar) where it has been held as under: “We have heard the learned counselappearing for the parties and scrutinizedthe material on record. Both the firstappellateauthority|andtheAppellateTribunal have anstwered the above saidsubstantial question of law in favour of theassessee and against the Revenue. Thesaid concurrent finding arrived at by theauthorities is Justified as the fluctuation inthe valuation of currency which has to beconverted to foreign currency has direstnexus to the export of software and can never be included as income from othersources. Wherefore, the said finding does)not suffer from any error or illegality as tocallfor|interferenceIn|this|appeal.Accordingly,WweaAanS Wthefourthsubstantial question of law also against the|Revenue and in favour of the assessee.Accordingly, we hold that the appeal is|devoid of merits”. As the said issue is already covered by a.Judgment of this Court, we do not find anyjustification to interfere with the order passed by thetribunal. QUESTION No.4: Whether the appellate authorities were correct in|holding that expenditure towards travel expenses,professional charges, maintenance allowance andother expenses in foreign currency of Rs.8,46,36,076/ -is not deductible either from export turnover or total|turnover when computing deduction under Section|SOHHE of the Act? In the assessee’s case, this Court in ITA|Nos.2973 c/w 2972, 2974 & 3015/2005 decided on 13.02.2013 held the assessing officer has to examine the material relevant for the period of assessment tobe produced by the assessee and to record a findingas to the nature of the activity keeping in view thelegal position discussed in the aforesaid judgment andanswered the question related to exclusion ofexpenses strictly keeping in view the kind of amountssought to be excluded in the case of export turnoverbeing attributable to the export of computer soitware,in which event, the exclusion being only freight,telecommunication charges or insurance attributableto the delivery of the computer software outside Indiaand if it is the case of providing technical servicesoutside India in connection with development ofcomputer software, then the actual expenditure, ifany, incurred in foreign exchange in_ providingtechnical services outside India should be excluded.and therefore, the matter was remanded back to theassessing authority. Therefore the order of the tribunal requires to beset-aside and the matter is to be remanded for an.enquiry keeping in mind the observations made bythis Court in the aforesaid Judgment. Orderedaccordingly. QUESTION No.o: Whether the appellate authorities were correct in|holding that payments of Rs.10,39,88,322/- paid to|M/s AT&T and MCI Telecommunications towards downlinking charges cannot be excluded from exportturnover as well as total turnover for the purpose of|computation of deduction u/s.10A of the Act?| A perusal of the order passed by the assessing|officer which is produced as Annexure G at page Ol,at page 38/ —-— Annexure 2 which deals wicomputation of deduction under Section 1OA, theassessing.oftticerhas|deductedaSUTTofRs.10,39,88,322/- towards M/s AT&I and MCITelecommunicationCXPCIIScsbothfrom|exportturnover and total turnover and therefore, there is no merit in the said question of law as the assessee hasalready been granted the benefit. | QUESTION No.6: QUESTION No.o: Whether the appellate authorities were correct in|holding that payments of Rs.10,39,88,322/- paid to|M/s AT&T and MCI Telecommunications towards downlinking charges cannot be excluded from exportturnover as well as total turnover for the purpose of|computation of deduction u/s.10A of the Act?| A perusal of the order passed by the assessing|officer which is produced as Annexure G at page Ol,at page 38/ —-— Annexure 2 which deals wicomputation of deduction under Section 1OA, theassessing.oftticerhas|deductedaSUTTofRs.10,39,88,322/- towards M/s AT&I and MCITelecommunicationCXPCIIScsbothfrom|exportturnover and total turnover and therefore, there is no merit in the said question of law as the assessee hasalready been granted the benefit. | QUESTION No.6: Whether the appellate authorities were correct in|holding that when computing total turnover thebusiness profits of the entire business of the assessee|need not be taken but only that of SOHHE of the Act|units should be taken for the purpose of computation of|deduction u/s.SOHHE of the Act?| This question arose for consideration before this|Court in ITA 5921/2007 decided on 19.12.2013 in thecase ot [he Commissioner ot Income-lax vs. SaskenCommunication Technologies Limited where it hasbeen held that the total turnover of the businessreferred to under Sub-sSection (3) of Section 30HHEcannot be construed as the total turnover of thebusiness carried on by the assessee. The totalturnover refers only to the business carried on undersection SOHHE viz., the business of software.|Therefore, if the assessee is carrying on business ofcomputer software and is exporting such computer soitware and is also supplying it to the domesticmarket, then the total turnover of the businessincludes the total turnover of export and the totalturnover in the domestic market. But, merelybecause the assessee 1S owning two more units whichfall under section 10A, which is also engaged incomputer business and is in the export business_neither the profit earned by 10A units nor the totalturnover of the said 1OA units is liable to be included.in the total turnover. Therefore, in computing theprofits of the said units, the turnover of 1OA units—could be added to find out the profit from export ofcomputer|softwareundersection SOHHEandtherefore, the said question was held against therevenue and in favour of the assessee. | Therefore, the order passed by the appellate|tribunal granting the benefit to the assessee cannotbe found fault with and accordingly, the said issue is also held in favour of the assessee and against theTEVENUE. Question No./: Whether the appellate authorities were correct inholding that a sum of Rs.1,83,20,669/- debitedtowards provision for post sales customers supportservice 1s an allowable deduction when the particulars|of the same was not furnished nor method of arriving|at it was not disclosed and consequently recorded a)perverse finding as the same had not accrued? This question arose for consideration in theassessee’s case itself before this Court which isdecided on 09.12.2011 and reported in 2012 (349) ITR610 held as under: I9, We have gwen careful! consideration to the contention of thelearned counsel appearing for the partiesand scrutinized the material on record. 10. The material on record would|clearly show that the order was passed bythe Trbunal on 9.9.2005. Therefore thebenefit of the decision of the MHon’bleSupreme Court in Rotork Controls India (P.)Ltd.’s case stated (supra) was not available to the Tribunal. In the said decision, theHon’ble Supreme Court has laid down the|conditions which are required to be satisfied|for making claim in respect of post sale)customer service qnd has laid down the'§principles pertaining to the same. In Rotork|Controls India (P) Ltd’s case stated (Supra)the Hon’ble Supreme Court has consideredthe principles laid down having regard tothe facts of the said case and has statedthat in each case all the conditions to be|satisfied are to be considered. 10. The material on record would|clearly show that the order was passed bythe Trbunal on 9.9.2005. Therefore thebenefit of the decision of the MHon’bleSupreme Court in Rotork Controls India (P.)Ltd.’s case stated (supra) was not available to the Tribunal. In the said decision, theHon’ble Supreme Court has laid down the|conditions which are required to be satisfied|for making claim in respect of post sale)customer service qnd has laid down the'§principles pertaining to the same. In Rotork|Controls India (P) Ltd’s case stated (Supra)the Hon’ble Supreme Court has consideredthe principles laid down having regard tothe facts of the said case and has statedthat in each case all the conditions to be|satisfied are to be considered. 11. On perusal of the order passed bythe Tribunal we find that the above saidfactors which are required to be satisfied,|have not been considered by the Tribunaland the Tribunal has only considered the|past experience and the expenses incurred|in the previous year, on the basis of whichtheclaimWasmade.Underthecircumstances, the Tribunal being the final|authority on the question offact, is required|to consider the claim made by the assesseewith reference to the decision in RotorkControls India (P.) Ltd.’s case stated (supra). 12.Accordingly,WE|refrainfromexpressing any opinion on the merits of the|case in view of the order of remand|proposed to be passed by us. Accordingly,|it is unnecessary to answer the substantialquestion of law and the matter is remitted to|the Iribunal by selling aside the findingallowing the claim, confirming the order'passed by the appellate authority allowing|the claim of Rs.2,19,18,587/- towards postsales customers support. Appeal is disposed of accordingly inthe light of the principles laid down inRotokk Controls India (P.) Ltd.’s case (Supra)|and the matter is remanded to the Tribunal|to pass fresh orders in accordance with lawon the said question. All the contentions on|the said question are kept open to be urgedbefore the tribunal”. In view of the aforesaid judgment, the findings|recorded by the tribunal requires to be set-aside andthe matter is to be remanded to the tribunal for freshconsideration in terms of the directions issued in theaforesaid case in the assessee’s case itself. Question No.8: &. Whether the Appellate Authorities were correct|in holding that a sum of Rs.4,25,000/- paid towards|club membership fee is an allowable businessexpenditure when the same is capital in nature? This question came up for consideration in the|assessee’s case itself which is reported in(2012) 349°ITR 582decided on 21.10.2011, wherein it is held as_under: “Re : Substantial question of law (1) inall the appeals : © The only reason assigned by theAssessing Officer to hold that expenditure|incurred towards acquisition of membershipof various clubs by the respondent-assessee|is that the benefit conferred on the assesseeis of enduring nature and therefore, it is acapital expenditure. Further, the appellate|authority on consideration of the contention|of the learned counsel appearing for the|parties, held that the expenditure incurred|towards acquisition of membership of theclubikTevenueexpenditureaS|theacquisition of membership of the club would| only confer certain benefits which cannot be|said to be so enduring as to amount tocapital expenditure, it would only enable the|assessee to avail benefits conferred by the|club due to acquisition of membership. In|the decision relied upon by the learnedcounsel appearing for the assessee in|Empire Jute Co. Ltd.’s case (1980) 124 ITR|I (SC), the Hon’ble Supreme Court has heldthat the expenditure towards acquisition ofclub is not capital expenditure but ts|~revenuUexpenditure.TheIncome-tqaxAppellate Tribunal has confirmed the order|passed by the appellate authority. It Its|well-settled that factors to be borne in mindwhile consideringthequestionas|Towhether expenditure is revenue or capital innature have been laid down by the Hon'bleSupreme Court in Empire Jute Co. Ltd.’scase (1980) 124 ITR 1(SC), which read as|under: (i) It is not a universally true proposition thatwhat may be a capital receipt in the handsof the payee must necessarily be capital|expenditure in relation to the payer. The|fact that a certain payment constitutes| income or capital receipt in the hands of therecipient is not material in determiningwhether the payment is revenue or capitaldisbursement qua the payer. (iu) There may be cases where expenditure,even if incurred for obtaining an advantage|of enduring benefit, may, none the less, be|on revenue account and the test of enduring|benefit may break down. It is not everyadvantage of enduring nature acquired by|an assessee that brings the case within the|principle laid down in this test. What ts)material to consider is the nature of theadvantage in a commercial sense and it is|only where the advantage is in the capital|fieldthattheexpenditurewouldbe|disallowable on an application of this test. —Iftheadvantageconsistsmerelyinfacilitatingtheassessee’stradingoperations or enabling the management and|conduct of the assessee’s business to be|carried on more efficiently or more profitably|while leaving the fixed capital untouched,the expenditure would be on _ revenuaccount, even though the advantage may|endure for an indefinite future. The test of| enduring benefit is, therefore, not a certain|or conclusive test and it cannot be applied|blindly and mechanically without regard tothe particular facts and circumstances of agiven case. (ii) What is an outgoing of capital and whatis an outgoing on account of revenuedependsOTLwhattheexpenditure ikcalculated to effect from a practical and|business point of view rather than upon thejuristic classification of the legal rights, tfany, secured, employed or exhausted in the|process. The question must be viewed in)the larger context of business necessity orexpediency." | In the decision relied upon by thelearned counsel appearing for the assesseeas referred to above, it has been specifically|held that acquisition of membership of theclub would be revenue expenditure and not|capital expenditure and decision of this|Court relled upon by the learned counselappearing for the assessee in CIT vs. Wipro|Systems (2010) 325 ITR 234 (Karn) wouldalso show that the amount spent towards| the membership acquired by the assesseeShould be treated as revenue expenditure. —Therefore, the concurrent finding arrived atby the appellate authority and the Income-tax Appellate Tribunal that the expenditureincurred for acquisition of membership ofthe club is revenue expenditure, is Justifiedand cannot at all said to be perverse or'arbitrary so as to call for interference in thts|appeal. Accordingly, we answer the first!substantial question of law in all _ thappeals against the Revenue and in favour|of the assessee.” In view of the aforesaid judgment, the said|substantial question of law is answered against therevenue and in favour of assessee. Question No.9: Whether the Appellate Authorities were correct in|holding that a sum of Rs.8,93,40,000/- received onsale of “Onscan International Notification System” to)M/s Onscan INC., California is a revenue expense nottaking into consideration the agreement entered into|between the parties which shows that it was a capital|asset attracting short term capital gains? The question for consideration is whether the|aforesaid consideration received by the assessee is tobe treated as a capital gain or a business profit. In the assessee’s case reported in(2012) 349°ITR 598, this Court held, such considerations|constitute business profit and not capital gain. Thatwas a case where the revenue was contending that itwas a business profit and not a capital gain. Question No.9: Whether the Appellate Authorities were correct in|holding that a sum of Rs.8,93,40,000/- received onsale of “Onscan International Notification System” to)M/s Onscan INC., California is a revenue expense nottaking into consideration the agreement entered into|between the parties which shows that it was a capital|asset attracting short term capital gains? The question for consideration is whether the|aforesaid consideration received by the assessee is tobe treated as a capital gain or a business profit. In the assessee’s case reported in(2012) 349°ITR 598, this Court held, such considerations|constitute business profit and not capital gain. Thatwas a case where the revenue was contending that itwas a business profit and not a capital gain. In the instant case, the revenue was considering|it as capital gain and not business profit. In view ofthe aforesaid judgment, the said considerationamount is to be treated as a business profit andrightly the Tribunal held that the assessee is entitledto deduction under Section 10-A of the Act treating itas a business profit and therefore, the said issue isheld in favour of the assessee and against theTEVENUE. It is submitted that the Question No.10 would.not arise for consideration and the same is not.pressed. o. The following substantial question of law arisefor consideration in ITA NOs.192 and 194 ot JOOS: IWhether the Appellate Authorities werecorrect in holding that expenses in foreigncurrency should be allowed from expert turnover for the benefit of computation fordeduction under Section 10-A of the Act?”| The Tribunal in answering this question, has|followed its earlier decision in ITA No.5s0/B/2001,193-795, 742 & 732-734/Bang/98 dated 31.38.2000for the assessment years 1993-94 to 1996-97 andalfirmed the order of the CIT (Appeals). The resultantposition is deduction of expenditure incurred inforeign currency by the appellant barring thetelecommunications charges from export turn over onthe footing that the same relate to technical servicesrendered out side India, is held not to be in order. However,thedeductionottelecommunicationscharges to the tune of Rs.13,35,43,266/- from exportturn over is held to be in order as the same is in.accordance with the explanation (2)(iv) to Section 10-Aof the Act. The argument of the revenue is, unless aclear finding 1s recorded regarding the export turnover arising out of export activity and technicalservices rendered and the nature of expenses, the.Appellate Authorities were not justified in holding thatthe same cannot be excluded from export turn over. 6. Per contra, learned counsel appearing for theassessee pointed out insofar as deduction under.section 80-HHE of the Act is concerned, it relates toboth export activity as well as providing technicalservices out side India and therefore, only in thosecases a computation is to be made under each head“the amount of expenditure incurred”. The saidprincipal is not an obligation to claim under Section10-A of the Act as, it only deals with export of articles or things or computer software and has no applicationwith the technical services rendered outside the.country. Even in respect of export activity, eitherbefore the export activity takes place or after expiryactivity before the sale is completed, technical servicesmay be necessary. The expenditure incurred in thataction cannot be excluded and therefore, he submits,as the claim is under Section 10-A of the Act, theTribunal was justified in passing the impugned ordergranting the benefit. ¢/. Both the Appellate Authorities have notapplied their mind to the difference that exist betweensection 18HHE and Section 10-A of the Act. Theyhave followed the judgment rendered in connectionwith Sections 8OHHE and SOHHC. Therefore, theimpugned finding cannot be _ sustained. It isnecessary for the authorities to determine on thebasis of the material produced by the assessee as towhether the technical services rendered is post-sales ¢/. Both the Appellate Authorities have notapplied their mind to the difference that exist betweensection 18HHE and Section 10-A of the Act. Theyhave followed the judgment rendered in connectionwith Sections 8OHHE and SOHHC. Therefore, theimpugned finding cannot be _ sustained. It isnecessary for the authorities to determine on thebasis of the material produced by the assessee as towhether the technical services rendered is post-sales services or pre-sales services and then decide in thelight of two statutory provisions and the variousdecisions on the point whether assessee is entitled toexclusionoftheexpenditureincurredtowards|technical|services.Therefore,as|hone|otherauthorities have applied their mind in this regard, itisappropriate to set aside the judgment and remand thematter back to the assessing authority to make thealoresaid computation. The Assessing Authority alsoshall decide whether the said amount has to be.deducted when it 1s deducted from export turn overwhether it has to be deducted trom total turn over.also in the ght of various decisions.| 6. The appeals are disposed of. Ordered|accordingly. BRN & RS/* sD/- JUDGE| SD/-JUDGE|