The Commissioner Of Income Tax v. Capgemini India Ltd

bsb IN THE HIGH COURT OF JUDICATURE AT BOMBAYORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 2501 OF 2011 The Commissioner of Income Tax … Appellant v/s Capgemini India Ltd. … Respondent Mr.Tejveer Singh for the appellant. Mr.Atul K. Jasani for the respondent. CORAM: S.C. DHARMADHIKARI & G.S. KULKARNI, JJ. DATED : 30TH APRIL, 2014 P. C. : 1This appeal filed by the revenue questions the order passed by the Income Tax Appellate Tribunal delivered on 25[th] May, 2011. The assessment year is 2006-2007. 2The three grounds based on which the questions of law have been framed, are considered by the Tribunal. 3We find that at para 5 of the present appeal memo the grounds have been summarized. They have been overlapping to some extent and unhappily worded but what we could cull out therefrom is that, the first ground relates to the adjustment contemplated by Section 10A of the Income Tax Act, 1961. The Tribunal has directed that the loss of one unit can be adjusted against the profit of another unit but after allowance of deduction under Section 10A of such profitable units. The loss of one unit under Section 10A of the Act shall be adjusted against the income liable for deduction under the same section but in relation to the income from other unit. As far as that aspect is concerned, the counsel agree that the same is answered in favour of the assessee and against the revenue. This controversy has been dealt with by a Division Bench of this Court in the case of Hindustan Uni Liver Ltd. v/s. Deputy Commissioner of Income Tax & anr., reported in (2010) 325 ITR 102. The parties agree that the discussion of the Division Bench and particularly at paragraph 17 of the judgment covers the point. 4We are of the opinion that the Division Bench dealt with the controversy raised before us directly. The finding of the Division Bench, therefore, would conclude this issue. The first question, therefore, cannot be termed as a substantial question of law. 5In relation to the second question, Mr.Tejveer Singh submitted that the Assessing Officer rightly directed the deduction of data line cost from export turn over. In that regard he invites our attention to Section 10A of the Act, 1961 and the Explanation II (iv) below the same. Mr.Singh submits that the export turnover is defined to mention the consideration in respect of export and that may include computer software received in or brought into India by convertible foreign exchange in accordance with sub-section (3) of Section 10A but that does not include freight, telecommunication charges. He submits that, in this case the data line cost, therefore, should have been deducted from this consideration. 6Mr.Jasani submits that the Tribunal has not decided any wider or larger controversy. It has gone through the factual position. There were two contentions raised and which have been noted by the Income Tax Appellate Tribunal. The Tribunal found merit in the alternate contention. The Tribunal found that, in the present case the assessee has produced sufficient material which would prove that the costs which are attributable and which are allegedly incurred, have not been incurred in relation to the exports. The Tribunal found that the expenses have been incurred in the business of software development in India. They could not be considered as expenditure attributable to delivery of computer software outside India. Therefore, Mr.Jasani would submit that this finding of fact deserves to be sustained and in upholding the order of the Tribunal this Court should record a conclusion that the same does not raise any substantial question of law. found that the expenses have been incurred in the business of software development in India. They could not be considered as expenditure attributable to delivery of computer software outside India. Therefore, Mr.Jasani would submit that this finding of fact deserves to be sustained and in upholding the order of the Tribunal this Court should record a conclusion that the same does not raise any substantial question of law. 7 Upon perusal of paragraphs 3 and 4 of the order under challenge, we find much substance in the argument of Mr.Jasani. The dispute was regarding deduction of data line costs from export turnover. The assessee incurred the data line costs and which have been worked out before the Assessing Officer. The figures are mentioned in paragraph 3 of the order of the Tribunal. The Assessing Officer asked the assessee to explain why its expenditure should not be deducted from the export turnover in view of the above explanation of Section 10A. The assessee explained that it was incurred in the business of development and export of computer software. The software development work was carried out in India at its development centers in India and also in some cases on sites. The assessee was not engaged in any technical services outside India. It did not incur any freight expenses. It explained that the telecommunication charges were incurred in the business of software development at the software undertakings of the assessee in India. The alternate argument was that the exercise that the assessee had undertaken was justified in the light of the law laid down by the Tribunal and particularly the Special Bench in the case of Income Tax Officer v/s Sak Soft Ltd., reported in 313 ITR (AT) 353. Reliance was also placed upon a judgment of this Court in the case of Commissioner of Income Tax v/s Gem Plus Jewellery India Ltd., reported in (2011) 330 ITR 175 (Bom.). The Tribunal may have discussed the alternate contention but what it has expressed on primary contention, according to us, does not raise any substantial question of law. The primary contention was that the expenses which the Assessing officer desired to pick were not incurred in relation to export and, therefore, cannot be termed as deductions permissible from export turnover. These expenses have been incurred for the purposes of the business of software development at the software units in India. It is that finding which the Assessing officer was unable to controvert or unable to bring any contrary material to disprove the same. It is in that light that the Tribunal found that the Assessing Officer could not have insisted on the deduction. It is that exercise undertaken by the Assessing Officer which has not been upheld but rather disapproved by the Tribunal. This is a finding purely on the facts and pertaining to the business of the assessee. The facts pertaining to the assessee's business of software development, the charges and which are claimed to have incurred, are in relation to the business of software development within India. They could not be said to be costs deductible from export turnover for the purposes of Section 10A of the Act. In such circumstances, we are of the opinion that any wider controversy or larger question does not require any answer. We can leave that aspect open for the decision in an appropriate case. In the facts and circumstances of the present case and in relation to the business of the assessee before us, it is not necessary to go into the other contentions raised before us by the revenue. 8Insofar as the last question and which has been formulated at para 4(3) on page 5 of memo of appeal, we are of the opinion that the Tribunal has directed the Assessing officer to recompute the transfer pricing adjustment. The Tribunal may have expressed some prima facie opinion in relation thereto, however, it has directed the Assessing officer to complete the same after giving an opportunity to 8Insofar as the last question and which has been formulated at para 4(3) on page 5 of memo of appeal, we are of the opinion that the Tribunal has directed the Assessing officer to recompute the transfer pricing adjustment. The Tribunal may have expressed some prima facie opinion in relation thereto, however, it has directed the Assessing officer to complete the same after giving an opportunity to the assessee in accordance with law. It is in these circumstances that we are unable to find any substance in the complaint of Mr.Tejveer Singh that direction of the Tribunal or prima facie observations are binding the Assessing Officer in the fresh exercise. When the exercise is afresh the Assessing officer is directed to act in accordance with law, then, we do not think that any prima facie observation of the Tribunal will bind the Assessing officer or guide him to consider the claim in the particular manner. Additionally, we clarify that all contentions and objections in relation to this claim of both sides are kept open. The Assessing Officer shall decide the claim or issue strictly in accordance with law. 9In the light of the above clarification, we do not feel that this question as well can be said to be a substantial question of law. Consequently, the appeal must fail. It is accordingly dismissed. No order as to costs. (G.S. KULKARNI, J.) (S.C.DHARMADHIKARI, J.)