Wp/13314/2017 Of Mphasis Limited v. The Deputy Commissioner Of Income Tax

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATEBD THIS THER DAY OF AUGUST, 20138. BBRHRORKE THR HON’BLE MR.JUSTICE B. VBEBRAPPA ;WRIT PETITION NO.13314 OF 2017 (TIT) BETWEEN: MPhasis Limited, Rept by its Executive Vice President andChief Financial Officer,ori. Suryanarayanan Venkatasubramanian,Aged about 58 years,Bhagmane World Technology Centre,Marathhalli Outer Ring Road,Mahadevapura,Bengaluru — 560 048....Petitioner (By Sri. A. Shankar, Advocate) AND: Ll.The Deputy Commissioner of Income-Tax,Circle-4(1)(2),p[/&]Floor, BMTC Building, 80 feet Road,Koramangala VIth Block,Bengaluru — 560 095 iaThe Pr. Commissioner of Income-Tax,Bangalore -4,Bangalore -4, BMTC Building, 80 feet Road,Koramangala VIth Block,Bengaluru — 560 O95....RespondentKoramangala VIth Block,Bengaluru — 560 O95....Respondent (By Sri. K.V.Aravind, Advocate) This Writ Petition is filed under Articles 226 and 227of the Constitution of India praying to direct the R1 to not torecover the disputed taxes mentioned in the order passedunder section 154 oft the Act dated 08.03.2017 as reterred inAnnexure-D for the assessment year 2013-14 till disposal ofthe application pending before the Competent Authoritiesunder mutual agreement procedure (MAP) and etc. This Writ Petition coming on for|Orders, this day, the|Court made the following: ORDER The petitioner has filed the present Writ Petition|for issue of a writ in the nature of mandamus to direct|the respondent No.1 not to recover the disputed taxesmentioned in the order passed under Section 194 of theActdated08.03.2017videAnnexure-|)forthe.assessment year 2013-14 till disposal of the applicationpending before the competent authorities under MutualAgreement Procedure; to direct the respondent No.1 notto recover the disputed taxes mentioned in the orderpassed under Section 154 of the Act dated 08.03.2017.as per Annexure-D for the assessment year 2013-14 tilldisposal of appeals filed before the Commissioner of Income Tax (Appeals); to direct the respondents not totake nay coercive steps for recovery of disputed taxes.and further, to direct the respondents not withhold anyrefunds otherwise due to the petitioner for theimpugned year or other years. 2.|It is the case of the petitioner that thepetitionerengaged|1nNthebDUSINESSoT softwaredevelopment and maintenance services (“InformationTechnology/IT”’),TT|enabledSeETVICEe(Tes)|andIntrastructureTechnologyoutsourcing(ITO’).Accordingly he has filed return of income for theassessment year 2013-14 on 30.11.2013 declaring totalincome of4427,33,44,6040/-. The software supportservices are rendered both offshore (i.e. in India) andonsite (i.e. at clients location). For onsite assignments.of petitioner, the development of software is usuallysub-contractedTO the.respective RSIOUDentities|(“overseas subsidiaries), operating in the overseas tax jurisdiction of the end customers. The overseassubsidiaries to whom the onsite work is subcontracted|by the petitioner are tax residents of USA, Germany,Netherlands, UK, Singapore and China. The payments.to the overseas subsidiaries for the services rendered,would be made directly by the petitioner. 3.|The1[!$]respondentpassedafinalassessment order dated 06.02.2017 under Section|143(3) read with Section 144C of the Act determiningthe total income of the petitioner at=113,67,98,371/-and total tax payable as per the assessment order atV239,64,00,210/-. Aggrieved by the said assessmentorder the petitioner has filed an appeal before theCommissioner of Income tax (Appeals). The petitioneralso filed an application for stay before the appellateauthority and the same was rejected by order dated24.03.2017 and the other application filed before the 2[/&]respondent/Principal Commissioner of Income Tax is pending. The petitioner having apprehension that therespondent may take coercive steps to recover thedisputed demand and tax, has filed the present writpetition before this Court for the relief sought for. 3.|The1[!$]respondentpassedafinalassessment order dated 06.02.2017 under Section|143(3) read with Section 144C of the Act determiningthe total income of the petitioner at=113,67,98,371/-and total tax payable as per the assessment order atV239,64,00,210/-. Aggrieved by the said assessmentorder the petitioner has filed an appeal before theCommissioner of Income tax (Appeals). The petitioneralso filed an application for stay before the appellateauthority and the same was rejected by order dated24.03.2017 and the other application filed before the 2[/&]respondent/Principal Commissioner of Income Tax is pending. The petitioner having apprehension that therespondent may take coercive steps to recover thedisputed demand and tax, has filed the present writpetition before this Court for the relief sought for. 4I have heard the learned counsel for the'parties to the lis. 5.|sri A. Shankar, learned counsel for thepetitioner contendED that the recovery proceedings ofincomeattributableTOMAPare|illegalandunsustainable in law and liable to be stayed. He furthercontendedthat.withoutprejudiceTO hisCaSE€disallowance of|=281,69,31,406/- made under Section|40(a)(1a) of the Act requires deduction to be grantedunder section 1OAA of the Act. It is further contended|that payment made to Associate Enterprises are fallingunder Section 28 of the Act, consequent to theprovisions of Section 4QO(a)(ia) of the Act is notapplicable. The allowances of deductions under Section SOJJAA of the Act has to be considered. He would|further contend that if the impugned action of therespondent is not stayed, the very purpose for which thewrit petition is filed will be frustrated. Therefore, hesought to allow the writ petition. 5.|In support of his contentions, learnedcounsel relied on the Division Bench judgment of thisCourt in the case ofCommissioner of Income Tax and another vs. M/s M Pact Technology Services Put. Ltd.made1nI.T.A.No.228/2013dated11.07.2018wherein this Court has held that the disallowance underSection 4O(a)(ia) of the Act is to be made of theexpenses incurred and claimed by the assessee butbefore the payment of which, the assessee has failed todeduct tax at source. The genuineness of theexpenditure is not in dispute. The dispute is whetherTax Deducted at Source was to be made before makingthe payment. Without going into the nature of the transaction, ultimately held that if the deductions undersection 4QO(a)(ia) of the Act is not allowed, the samewould been to be added to the profits of the undertatingon which the assessee would be entitled for deduction|under Section 10A of the Act and therefore, he sought toallow the petition. 6.Per contra Sri.K.V.Aravind, learned counselappearing for the respondent sought to justify theimpugned action and contended that the petitioner hasfiled an application for stay during pendency of theappealbeforetheCommissioneroT|IncomeTax|(Appeals). The CBDT has issued instruction No.1914,.datedO2.02.1998,|OfficeMemorandum|dated29.02.2016. The first respondent disposed of theapplication by order dated 24.03.2017 and thereafter,the petitioner has preferred application before thesecondrespondentandthesecondrespondentconsidering the consent of the representative of the 6.Per contra Sri.K.V.Aravind, learned counselappearing for the respondent sought to justify theimpugned action and contended that the petitioner hasfiled an application for stay during pendency of theappealbeforetheCommissioneroT|IncomeTax|(Appeals). The CBDT has issued instruction No.1914,.datedO2.02.1998,|OfficeMemorandum|dated29.02.2016. The first respondent disposed of theapplication by order dated 24.03.2017 and thereafter,the petitioner has preferred application before thesecondrespondentandthesecondrespondentconsidering the consent of the representative of the petitioner directed payment of=65 crores against=93 28)crores being 15% of the total demand of|V099.29 Crores,which works out to 10.90% oft the total current demandfor the assessment year 2009-10 and 2013-14. Therequirement of payment of 195% as contemplated inOffice Memorandum dated 29.02.2017 issued by CBDThas been modified to 2O% vide Oftice Memorandum|dated 31.07.2017. Hence, direction to pay 65% whichwould be 10.90% is in fact very reasonable and thepetitioner cannot raise any grievance on the said order. —He further contended that the Assessing Officer both inproceeding under Section 201 and Section 143 of theAct has elaborately dealt with the contentions of theassessee and it has been made out that the amountpaid to the non resident companies who are taxableunder the Act and assessee was required to deduct taxat source under Section 195 of the Act. Therefore,|petitioner has not made out any prima-facie case to interference by this Court under Articles 226 and 227 ofthe Constitution ot India. He further contended that thestay of recovery of dues to the Government is not madeout by the petitioner. Therefore, he sought for writpetition. T sri. K.V.Aravind, learned counsel fairlysubmits that the Appellate Authority may be directed todispose of the appeal within a period of eight weeks.from the date of receipt of the copy of this order and tillthen the interim order granted by this Court shallcontinue and enure to the benefit of petitioner. The saidsubmission is place on record. 8.In view of the rival contentions urged by thelearned counsel for the parties, it is not in dispute thatthe 1[!$]respondent Deputy Commissioner Income Tax byan order dated 06.02.2017 the exercising powers undersection 143(3) read with Section 144(c) of the Act has determined the total income of the petitioner at=713,67,98,3/71/- and total tax payable by the petitionerwas ati4239,64,00,210/-. Subsequently the amountwas modified and the tax payable by the petitioner was=1,72,16,77,880/-. It is also not in dispute that the)petitioner being aggrieved by the said assessment order,filed an appeal before the Commissioner for IncomeTax(Appeals). The said appeal is pending before theAppellate Authority. That does not mean that thepetitioner cannot escape from the tax payable as per theorders passed by the Deputy Commissioner Income Taxdated 08.03.2017 exercising powers under section 154.ot Income Tax Act. QOTherefore, without adverting to merits anddemerits of the arguments urged by the learned counselfor the parties, it is suffice to direct the AppellateAuthority, 1.e., Commissioner of Income Tax (Appeals) todecide the appeal on merits as expeditious as possible, not later than 10 weeks from the date of receipt ofcertified copy of this order. 10.|For the reasons’ stated above the writpetition is|dispose of" The Commissioner ot [IncomeTax appeals is directed to dispose of the appeal pendingbefore him on merits within ten weeks from the date oftreceipt of certified copy of this Order. Till suchconsideration of the appeal, the interim order grantedby this Court shall enure to the benefit of the petitionerand the Commissioner shall decide the appeal withoutseeking further time. All the contentions of both theparties are left open to be urged before the AppellateAuthority.| Ordered accordingly. Sd/-|JUDGE kem