DCIT, Hyderabad v. M/s. Virtusa (India) Ltd, Hyderabad

ITA 1502/HYD/2010 | 2004-2005
Pronouncement Date: 26-12-2011 | Result: Partly Allowed

Appeal Details

RSA Number 150222514 RSA 2010
Assessee PAN AABCV4077E
Bench Hyderabad
Appeal Number ITA 1502/HYD/2010
Duration Of Justice 1 year(s) 24 day(s)
Appellant DCIT, Hyderabad
Respondent M/s. Virtusa (India) Ltd, Hyderabad
Appeal Type Income Tax Appeal
Pronouncement Date 26-12-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted A
Tribunal Order Date 26-12-2011
Assessment Year 2004-2005
Appeal Filed On 02-12-2010
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL HYDERABAD BENCH A HYDERABAD BEFORE SHRI H.S. SIDHU JUDICIAL MEMBER AND SHRI CHANDRA POOJARI ACCOUNTANT MEMBER ITA NO. 1502/HYD/2010 ASSESSMENT YEAR: 2004-05 DCIT CIRCLE-3(3) HYDERABAD. VS. M/S. VIRTUSA (INDIA) LTD. HYDERABAD. (PAN: AABCV 4077E) (APPELLANT) (RESPONDENT) C.O. NO. 06/HYD/2011 (ARISING OUT OF ITA 1502/H/2010) ASSESSMENT YEAR: 2004-05 M/S. VIRTUSA (INDIA) LTD. HYDERABAD. (PAN:AABCV 4077E) VS. DCIT CIRCLE-3(3) HYDERABAD. (APPELLANT) (RESPONDENT) REVENUE BY: SRI V. SRINIVAS ASSESSEE BY: SMT. DIVYA SANTHANAM DATE OF HEARING: 28.11.2011 DATE OF PRONOUNCEMENT: O R D E R PER BENCH: THE APPEAL PREFERRED BY THE REVENUE AND THE CROSS OBJECTION PREFERRED BY THE ASSESSEE ARE DIRECTED AG AINST THE ORDER OF THE CIT (A)-III HYDERABAD AND THEY PERTAI N TO THE ASSESSMENT YEAR 2004-05. 2. THE FIRST GROUND RAISED IN THE APPEAL OF THE REV ENUE IS GENERAL IN NATURE AND NO ADJUDICATION IS REQUIRED. ITA NO. 1502/HYD/2010 & CO NO. 06/HYD/2011 M/S. VIRTUSA INDIA LTD. HYD. L.L ========================== 2 3. THE SECOND GROUND IN THE REVENUE APPEAL IS THE C IT(A) ERRED IN HOLDING THAT IF THE (I) LINK CHARGES AND I NTEREST CHARGES OF RS. 88 48 254 AND (II) PER DIEM EXPENSES AT RS. 1 11 18 124 WERE EXCLUDED FROM THE EXPORT TURNOVER THE SAME HAVE TO BE EXCLUDED FROM THE TOTAL TURNOVER AL SO WHEN SUCH AN ADJUSTMENT TO THE TOTAL TURNOVER IS NOT CONTEMPLATED IN THE PROVISIONS LAID DOWN BELOW SECT ION 10A. 4. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THIS GR OUND IS COVERED BY THE DECISION OF SPECIAL BENCH OF THE TRI BUNAL IN THE CASE OF ITO VS. SAK SOFT LIMITED 121 TTJ 865 ( CHENNAI SB) WHEREIN IT WAS HELD THAT WHATEVER AMOUNT IS DED UCTED FROM THE EXPORT TURNOVER THE SAME SHOULD ALSO BE D EDUCTED FROM THE TOTAL TURNOVER FOR THE PURPOSE OF COMPUTIN G DEDUCTION UNDER SECTIONS 10A AND 10B OF THE ACT. IN VIEW OF THE ABOVE FINDINGS OF THE SPECIAL BENCH WE ARE INC LINED TO DECIDE THIS ISSUE IN FAVOUR OF THE ASSESSEE AND AGA INST THE REVENUE. HENCE THE SECOND GROUND RAISED BY THE RE VENUE IS DISMISSED. 5. THE THIRD GROUND RAISED BY THE REVENUE IS AS FOL LOWS: THE CIT (A) HAS ERRED IN HOLDING THAT THE DISALLOWANCE MADE UNDER SECTION 43B WILL HAVE TO BE CONSIDERED FOR THE PURPOSE OF WORKING OUT THE ELIGIBLE PROFITS UNDER SECTION 10A SINCE THE PROVISIONS OF SECTION 10A(1) PROVIDE THAT THE INCOME SHOULD HAVE BEEN DERIVED FROM THE EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE. 6. THE DR STRONGLY RELIED ON THE ORDER OF THE ASSES SING OFFICER. ON THE OTHER HAND WITH REGARD TO THIS IS SUE THE ITA NO. 1502/HYD/2010 & CO NO. 06/HYD/2011 M/S. VIRTUSA INDIA LTD. HYD. L.L ========================== 3 LEARNED AUTHORIZED REPRESENTATIVE SUBMITTED THAT AS PER SECTION 10A(1) OF THE ACT PROFIT AND GAINS AS DERI VED BY THE UNDERTAKING FROM EXPORT OF COMPUTER SOFTWARE IS E LIGIBLE FOR DEDUCTION FROM THE TOTAL INCOME OF THE ASSESSEE. B Y REFERRING TO THE PROVISIONS OF SECTION 29 OF THE AC T THE INCOME REFERRED TO IN SECTION 28 SHALL BE COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SECTION 43B AND T HE ASSESSEE SUBMITTED THAT THE PROFIT AND GAINS ELIGIB LE FOR DEDUCTION UNDER SECTION 10A OF THE ACT SHALL BE A FTER CONSIDERING THE DISALLOWANCE OR ALLOWANCE AS PROVID ED UNDER SECTION 43B OF THE ACT STATED THAT UNDER SECTION 1 0A IT WAS MENTIONED FOR ALLOWANCE OF DEDUCTION UNDER THAT SECTION FROM THE TOTAL INCOME OF THE ASSESSEE. IT IS FURTH ER STATED THAT SINCE THE ENTIRE PROFITS IN THEIR CASE WERE D ERIVED ONLY FROM THE UNDERTAKING ENGAGED IN THE BUSINESS OF EXP ORT OF COMPUTER SOFTWARE ELIGIBLE FOR DEDUCTION UNDER SECT ION 10A AND THEY HAVE NOT DERIVED PROFITS FROM ANY OTHER BU SINESS OTHER THAN THE SAID UNDERTAKING THE LEARNED AUTHO RIZED REPRESENTATIVE CONTENDED THAT THE ASSESSING OFFICER WAS NOT JUSTIFIED IN EXCLUDING THE SAID DISALLOWANCE UNDER SECTION 43B OF THE ACT FROM DEDUCTION UNDER SECTION 10A AND SIMULTANEOUSLY BROUGHT THE SAME TO TAX AS INCOME FR OM OTHER SOURCES. 7. AFTER CONSIDERING THE SUBMISSIONS OF BOTH THE PA RTIES WE ARE OF THE OPINION THAT SIMILAR ISSUE CAME UP F OR CONSIDERATION BEFORE THE TRIBUNAL IN THE CASE OF PA TNI TELECOM (P) LTD. VS. INCOME-TAX OFFICER (2009) 120 ITD 105 WHEREIN IT HELD AS FOLLOWS:- ITA NO. 1502/HYD/2010 & CO NO. 06/HYD/2011 M/S. VIRTUSA INDIA LTD. HYD. L.L ========================== 4 12. ONE MORE GROUND IN ADDITION TO COMMON GROUND RAISED IN THE APPEAL FOR ASSESSMENT YEAR 2000-01 IS IN RESPECT OF DISALLOWANCE OF EMPLOYEES CONTRIBUTION TO PF AFTER DUE DATE. THE AO ASSESSED RS.2 52 340 AS EMPLOYEES CONTRIBUTION TO PF WHICH WAS NOT DEPOSITED AND CREDITED TO P & L A/C AS INCOME FROM OTHER SOURCES CONSIDERING PROVISIONS OF S. 56(2)(IC) R/W SS. 2(24)(X) AND 36(1) (VA) OF THE IT ACT. THE ASSESSEE DID NOT OBJECT TO THIS BEFORE THE AO. HOWEVER THE CIT (A) AFTER CONSIDERING THE SUBMISSIONS F THE ASSESSEE CONFIRMED THE ORDER OF THE AO. THE CONTENTION OF THE LEARNED AUTHORIZED REPRESENTATIVE IS THAT EMPLOYEES CONTRIBUTION TO PF PAID AFTER THE DUE DATE IS NOT TAXABLE UNDER THE HEAD INCOME FROM OTHER SOURCES. IT SHOULD BE ASSESSED AS INCOME FROM BUSINESS AS THE ASSESSEE COMPANY IS ALREADY ENGAGED IN THE BUSINESS OF DEVELOPMENT AND EXPORT OF COMPUTER SOFTWARE AND THE EMPLOYEES ARE EMPLOYED IN THE COURSE OF SUCH BUSINESS. THE CONTENTION OF THE LEARNED AUTHORIZED REPRESENTATIVE IS NOT ACCEPTABLE IN VIEW OF THE CLEAR PROVISIONS OF SS. 2(24)(X) 36(1)(VA) AND 56(2)(IC) OF THE ACT. THE UNPAID PF CONTRIBUTION OF EMPLOYEES CANNOT BE SAID TO BE A BUSINESS RECEIPT. IF THIS RECEIPT IS ALLOWED OR TO BE TREATE D AS BUSINESS RECEIPT THEN THE ASSESSEE WILL BE ENTITLED TO SET OFF OF ALL BUSINESS EXPENDITURES AGAINST THIS RECEIPT WHICH IS NOT PERMISSIBLE. THE ASSESSEES BUSINESS IS IN SOFTWARE AND NOT IN DEALING WITH CONTRIBUTION OF PF OF EMPLOYEES. WE ARE THEREFORE INCLINED TO UPHOLD THE ORDER OF THE CIT (A). ACCORDINGLY THE ORDER OF THE CIT (A) ON THIS ISSUE IS CONFIRMED. 8. IN VIEW OF THE ABOVE ORDER OF THE TRIBUNAL WE A RE OF THE OPINION THAT IT CANNOT BE CONSIDERED AS BUSINES S INCOME AND THE SAME TO BE CONSIDERED AS INCOME FROM OTHE R SOURCES AND ON THIS EXEMPTION UNDER SECTION 10A I S NOT ALLOWABLE. ACCORDINGLY WE ARE INCLINED TO REVERS E THE FINDING OF THE CIT (A) ON THIS ISSUE. THIS GROUND OF THE ITA NO. 1502/HYD/2010 & CO NO. 06/HYD/2011 M/S. VIRTUSA INDIA LTD. HYD. L.L ========================== 5 REVENUE IS ALLOWED. THE APPEAL FILED BY THE REVEN UE IS PARTLY ALLOWED. 9. NOW WE DEAL WITH THE CROSS OBJECTION FILED BY T HE ASSESSEE. THE FACTS RELATING TO GROUND NO. 1 ARE T HAT THE ASSESSEE HAS OBJECTED TO THE DECISION OF THE ASSESS ING OFFICER IN TREATING THE AMOUNTS OF RS.3 32 64 411/- AND RS. 2 99 55 472/- SHOWN AS TOWARDS REIMBURSEMENT OF MISCELLANEOUS EXPENSES AND TRAVEL EXPENSES RESPECTI VELY AS PART OF TOTAL TURNOVER IN THEIR CASE. IN THE WRITT EN SUBMISSIONS FILED BY THE LEARNED AUTHORIZED REPRESE NTATIVE OF THE ASSESSEE IT WAS SUBMITTED THAT MISCELLANEOUS E XPENSES WERE INCURRED BY THE ASSESSEE IN PROVIDING SERVICES TO THE CLIENTS OF VIRTUSA CORPORATION USA. THESE EXPENSES INCLUDE CUSTOMER SPECIFIC SOFTWARE LICENSE ON-SITE TRAVEL DEDICATED TOOLS AND COMMUNICATION INFRASTRUCTURE. THE SAME W ERE REIMBURSED AS PER EXHIBIT-B OF THE SERVICES AGREEME NT BETWEEN THE ASSESSEE COMPANY AND VIRTUSA CORPORATIO N. IT WAS FURTHER SUBMITTED THAT THE TRAVEL EXPENSES INCU RRED BY THE EMPLOYEES OF THE ASSESSEE COMPANY FOR TRAVELING OUTSIDE INDIA WERE REIMBURSED BY VIRTUSA CORPORATION USA IN ACCORDANCE WITH SAID SERVICE AGREEMENT. STATING TH AT SUCH AMOUNTS WERE MERE REIMBURSEMENT OF ACTUAL EXPENSES INCURRED BY THE COMPANY AND NO TURNOVER IS INVOLVED THEREIN THE ASSESSEE CONTENDED THAT THE SAME SHOULD NOT BE TREATED AS PART OF TOTAL TURNOVER. IN THIS REGARD REFEREN CE WAS MADE TO THE DECISION IN THE CASE OF CIT VS. INDUSTRIAL E NGINEERING PROJECTS PVT. LIMITED 202 ITR 1014 (DEL.). IT WAS FURTHER SUBMITTED THAT THE ASSESSEE HAS INCURRED SUCH EXPEN SES ON TRAVEL OF ITS EMPLOYEES WHO WENT ABROAD FOR ON-SIT E WORK AT THE REQUEST OF THEIR CLIENT VIRTUSA CORPORATION US A. LASTLY ITA NO. 1502/HYD/2010 & CO NO. 06/HYD/2011 M/S. VIRTUSA INDIA LTD. HYD. L.L ========================== 6 STATING THAT SUCH EXPENSES WERE INCURRED ON BEHALF OF VIRTUSA CORPORATION AND THE SAME WERE REIMBURSED BY THE LAT TER THE ASSESSEE CONTENDED THAT THE SAME SHOULD NOT BE ADDE D TO THE TOTAL TURNOVER. THE DR RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE MATERIAL AVAILABLE ON RECOR D. WE FIND THAT A SIMILAR ISSUE CAME UP FOR CONSIDERATION BEFORE THIS TRIBUNAL IN THE CASE OF DCIT VS. IBS SOFTWARE SERVI CES PVT. LTD. (129 ITD 21) (COCHIN) WHEREIN IT WAS HELD THAT REIMBURSEMENT OF MISCELLANEOUS EXPENSES AND TRAVEL EXPENSES ARE TO BE REDUCED BOTH FROM EXPORT TURNOVE R AS WELL AS FROM TOTAL TURNOVER WHILE COMPUTING DEDUCTI ON U/S. 10A OF THE ACT. SAME VIEW HAS BEEN TAKEN IN THE CA SE OF PATNI TELECOM (P) LTD. VS. INCOME-TAX OFFICER (200 9) 120 ITD 105 (HYD). ACCORDINGLY WE ALLOW THE GROUND TA KEN BY THE ASSESSEE IN ITS CROSS OBJECTION. 11. GROUND NO. 2 IS WITH REGARD TO DEDUCTION OF LIN K AND INTERNET CHARGES FROM EXPORT TURNOVER. THIS ISSUE CAME FOR CONSIDERATION IN THE REVENUE APPEAL WHEREIN WE HELD THAT THE ABOVE ELEMENTS ARE TO BE DEDUCTED BOTH FROM EXP ORT TURNOVER AS WELL AS FROM TOTAL TURNOVER BY PLACING RELIANCE ON THE ORDER OF THIS TRIBUNAL IN THE CASE OF SAK SOFT LTD. (SUPRA). BEING SO THIS GROUND IS INFRUCTUOUS AND THE SAME I S DISMISSED. 12. THE THIRD GROUND IS WITH REGARD TO PER DIEM EX PENSES OF RS.1 11 18 124 ARE INDIRECTLY INCURRED IN FOREIG N EXCHANGE BY THE RESPONDENT AND THEREFORE OUGHT TO HAVE BEEN ITA NO. 1502/HYD/2010 & CO NO. 06/HYD/2011 M/S. VIRTUSA INDIA LTD. HYD. L.L ========================== 7 DEDUCTED FROM THE EXPORT TURNOVER IN ACCORDANCE WIT H CLAUSE (IV) OF EXPLANATION 2 TO SECTION 10A OF THE ACT. 13. THIS ISSUE CAME FOR CONSIDERATION IN THE REVEN UE APPEAL WHEREIN WE HELD THAT THE ABOVE ELEMENTS ARE TO BE DEDUCTED BOTH FROM EXPORT TURNOVER AS WELL AS FROM TOTAL TURNOVER BY PLACING RELIANCE ON THE ORDER OF THIS T RIBUNAL IN THE CASE OF SAK SOFT LTD. (SUPRA). BEING SO THIS GROUND IS INFRUCTUOUS AND THE SAME IS DISMISSED. 14. IN THE RESULT THE APPEAL OF THE REVENUE AND CR OSS OBJECTION FILED BY THE ASSESSEE ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON __26 TH DECEMBER 2011 SD/- SD/- (CHANDRA POOJARI) (H.S. SIDHU) ACCOUNTANT MEMBER. JUDICIAL MEMBER . HYDERABAD DATED THE _26 TH DECEMBER 2011 COPY FORWARDED TO: 1. M/S VIRTUSA (INDIA) LTD. 6-3-1192 MY HOME TYCO ON BEGUMPET HYDERABAD. 2. DCIT CIRCLE-3(3) 7 TH FLOOR B- BLOCK IT TOWERS ACGUARDS HYDERABAD. 3. CIT(A)-III HYDERABAD. 4. CIT AP HYDERABAD. 5. THE DR ITAT HYDERABAD. TPRAO/