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Microsoft Global Services Center (India) (P.) Ltd. v/s Assistant Commissioner of Income-tax, Circle 16 (2), Hyderabad

Company & Directors' Information:- MICROSOFT CORPORATION (INDIA) PVT LTD [Active] CIN = U74899DL1988PTC032549

Company & Directors' Information:- GLOBAL I T SERVICES PRIVATE LIMITED [Active] CIN = U72200DL2004PTC127805

Company & Directors' Information:- GLOBAL E-SERVICES PRIVATE LIMITED [Active] CIN = U17116MH1947PTC005768

Company & Directors' Information:- S C I INDIA LIMITED [Active] CIN = U24110BR1984PLC001994

Company & Directors' Information:- A. S. INDIA LIMITED [Active] CIN = U70100MP2009PLC022300

Company & Directors' Information:- THE INDIA COMPANY PRIVATE LIMITED [Active] CIN = U74999TN1919PTC000911

Company & Directors' Information:- S K GLOBAL SERVICES LIMITED [Strike Off] CIN = U74140WB2008PLC130221

Company & Directors' Information:- K & S GLOBAL SERVICES PRIVATE LIMITED [Active] CIN = U93000DL1996PTC082621

Company & Directors' Information:- MICROSOFT GLOBAL SERVICES CENTER (INDIA) PRIVATE LIMITED [Active] CIN = U74140DL2005PTC134963

Company & Directors' Information:- I - GLOBAL SERVICES PRIVATE LIMITED [Active] CIN = U72900GJ2010PTC059452

Company & Directors' Information:- INDIA CORPORATION PRIVATE LIMITED [Active] CIN = U65990MH1941PTC003461

Company & Directors' Information:- GLOBAL SERVICES (C & F ) PRIVATE LIMITED [Active] CIN = U60300MH1982PTC027712

Company & Directors' Information:- M. K. GLOBAL SERVICES PRIVATE LIMITED [Strike Off] CIN = U72300MH2014PTC259803

Company & Directors' Information:- GLOBAL INDIA SERVICES PRIVATE LIMITED [Strike Off] CIN = U74120MH2013PTC242295

    IT Appeal No. 1865 of 2012

    Decided On, 29 December 2014

    At, Income Tax Appellate Tribunal Hyderabad


    For the Appellant: Jayesh Sanghvi, Aditya Bajoria, Sumanth Karlapudi, Advocates. For the Respondent: D. Sudhakar Rao, Advocate.

Judgment Text

Income Tax Appellate Tribunal, Hyderabad Bench 'B'

B. Ramakotaiah, Accountant Member

1. This appeal by assessee is directed against the order of A.O. under section 143(3) read with section 92CA read with section 144C of the Income Tax Act, 1961.

2. Assessee-company is engaged in the business of computer software consultancy services and as it has transactions with its AE, matter was referred to TPO and on the advice/order given by TPO, arms length price was determined. Assessee objected before DRP and DRP gave partial relief on the issue of T.P. adjustments. Assessee is not objecting to such adjustments. However, one of the issue which was agitated before DRP is of excluding the expenditure of Rs.75,77,529 as part of export turnover invoking Explanation-2(iii) to section 10B of the Act by A.O., while calculating the deduction under section 10B. It was the contention by assessee that this expenditure has been incurred for delivering the software services outside India by the applicant and not accessing the internet. DRP, however, did not agree with that contention. Assessee made the alternate claim that once the expenditure is excluded from export turnover, it is to be excluded from total turnover as well, supported by various decisions of ITAT and also decision of Hon'ble Bombay High Court in the case of CIT v. Gem Plus Jewellery India Ltd. [2011] 330 ITR 175/[2010] 194 Taxman 192 DRP however, while accepting that decisions are in favour of assessee and since the matter is further contested, to keep the matters alive the A.O's action was upheld. Assessee is aggrieved and raised ground No.2 on the above issue.

3. We have heard the Ld. Counsel and Ld. D.R. This issue is covered by the Coordinate Bench decision in assessee's own case for A.Y. 2007-08 ACIT v. Microsoft Global Services Centre (P.) Ltd. [IT Appeal No. 2124 (Hyd.) of 2010, dated 18-5-2012] wherein it was held as follows :

'6. We have heard rival contentions and perused the material on record and have also examined the decisions cited at the Bar. The issue involved in the present appeal should not detain us for too long in the face of judicial pronouncements laying down the principles. The Hon'ble Karnataka High Court while considering a similar issue in the case of Tata Elxisi Ltd. v. Asstt. CIT [2008] 115 TTJ 423 (Bang.) held as follows :-

"The formula for computation of the deduction under section l0A would be as under :

Profits of the business x export turnover

Total turnover

From the aforesaid judgments, what emerges is that there should be uniformity in the ingredients of both the numerator and the denominator of the formula, since otherwise it would produce anomalies or absurd results. Section l0-A is a beneficial section. It is intended to provide incentives to promote section. It is intended to provide incentives to promote exports. The incentive is to exempt profits relatable to exports. In the case of combined business of an assessee, having export business and domestic business, the legislature intended to have a formula to ascertain the profits from export business by apportioning the total profits of the business on the basis of turnovers. Apportionment of profits on the basis of turnover was accepted as a method of arriving at export profits. In the case of Section 80HHC, the export profit is to be derived from the total business income of the assessee, whereas in Section l0-A, the export profit is to be derived from the total business of the undertaking. Even in the case of business of an undertaking, it may include export business and domestic business, in other words, export turnover and domestic turnover. The export turnover would be a component or part of a denominator, the other component being the domestic turnover. In other words, to the extent of export turnover, there would be a commonality between the numerator and the denominator of the formula. In view of the commonality, the understanding should also be the same. In other words if the export turnover in the numerator is to be arrived at after excluding certain expenses, the same should also be excluded in computing the export turnover as a component of total turnover in the denominator. The reason being the total turnover includes export turnover. The components of the export turnover in the numerator & the denominator cannot be different Therefore, though there is no definition of the term 'term turnover' in Section l0A, there is nothing in the said Section to mandate that, what is excluded from the numerator that is export turnover would nevertheless form part of the denominator. Though when a particular word is not defined by the legislature and an ordinary meaning is to be attributed to the same the said ordinary meaning to be attributed to such word is to be in conformity with the context in which it is used When the statute prescribes a formula and in said formula, 'export turnover' is defined, and when the 'total turnover' includes export turnover, the very same meaning given to the export turnover by the legislature is to be adopted while understanding the meaning of the total turnover, when the total turnover includes export turnover. If what is excluded in computing the export turnover is included while arriving at the total turnover, when the export turnover is a component of total turnover, such an interpretation would run counter to the legislative intent and impermissible. If that were the intention of the legislature, they would have expressly stated so. If they have not chosen to expressly define what the total turnover means, then when the total turnover includes export turnover, the meaning assigned by the legislature to the export turnover is to be respected and given effect to, while interpreting the total turnover which is inclusive of the export turnover. Therefore the formula for computation of the deduction under Section 10-A, would be as under :

Profits of the business X Export turnover

(Export turnover + domestic turnover total turnover)

11. In that view of the matter, we do not see any error committed by the Tribunal in following the judgments rendered in the context of Section BOHHC in interpreting Section 10-A when the principle underlying both these provisions is one and the same. Therefore/ we do not see any merit in these appeals. The substantial question of law framed is answered in favour of the assessee and against the revenue."

7. Following the aforesaid decision of Karnataka High Court, the ITAT Pune Bench in the case of Serum Institute of India Ltd., Pune v. Addl. CIT Cir-6, Pune in ITA No.948/Hyd/2005 dated 18-1-2012 to which one of us is an author held that parity of constituents between the export turnover and total turnover needs to be maintained while computing deduction u/s 10A of the Act. For ready reference, the relevant observation of the Tribunal is extracted here under:

"The above extracts contains the in depth analysis as to the formula for determining the allowable deduction, numerator-denominator analysis and finally, they arrive at the need for maintaining the 'parity' of the constituents between the 'export turnover' and 'total turnovers'. On the impugned issue of inclusion/exclusion, the judgments pronounced in the context of section 80HHC are equally relevant for the applicability of the section 10A and in fact section 10B too. These are the beneficial provisions and there is need for explaining them to the advantage of the assessee. It is not that all times the inclusions help the assessee. Some time exclusions help too. Therefore, depending on the facts of the each of the cases, the said inclusion or exclusion needs to be decided. But, in all cases, the principle of parity in matters of inclusion or exclusion has to be maintained."

8. Similarly, in the case of ITO v. Sak Soft Ltd. [2009] 20 DTR 514 Special Bench of the Tribunal has held that while computing the deduction u/s 10A or 10B of the Act, freight, telecom charges, insurance attributable to delivery of articles or things or computer software outside India or the expenses, if any, incurred in foreign exchange for providing technical services outside India are to be excluded from both export turnover and from the total turnover which are numerator or denominator in the formula. The ITAT Hyderabad Bench in case of Patni Telecom (P) Ltd. v. ITO [2009] 120 ITD 105 also held similar view. Respectfully following the aforesaid decisions, we hold that professional fee, communication charges and insurance expenditure once are excluded from the export turnover, for maintaining principle of parity, the same also has to be excluded from total turnover. Therefore, in the aforesaid view of the matter, we uphold the order passed by the CIT (A) and the grounds raised by the Revenue are rejected.'

3.1 The same order was also followed in assessee's own case for A.Y. 2009-2010 in ITA.No.1295/Hyd/2014 dated 19.11.2014. Since the issue is already covered in favour of assessee by orders of ITAT in earlier years and also covered in favour of assessee by the decision of Hon'ble Bombay High Court in the case of Gem Plus Jewellery India Ltd. (supra), we direct the A.O. to exclude amounts from total turn over which are excluded from the export turnover to maintain the parity. The ground raised by assessee is accordingly considered as allowed.

4. Ground No.3 pertains to the issue of non-granting of TDS and advance tax and levy of adjusting interest under 244A of the Act. It was the contention that without giving opportunity to assessee A.O. has given credit to the TDS of only Rs.4,18,312 as against Rs.8,65,898 claimed by assessee and as against Rs.1,89,00,000 claimed as advance tax, the final order dated 26.10.2012 gave credit for Rs.1,69,33,680. Since no opportunity was given to assessee, there was short grant of Rs.24,13,406 and corresponding levy of interest. In support of claim, Ld. Counsel placed on record Form 26AS indicating that the claims are supported by Form 26AS of the department. In respect of this, as A.O. has given less credit Assessee wants direction on this.

4.1 As seen from the Form 26AS as well as the claims made by assessee in the return of income, assessee did claim TDS of Rs.8,65,898 and advance tax of Rs.1,89,00,000 totaling to Rs.1,97,65,898. However, A.O. allowed amount of Rs.1,73,51,992. Since the claim of assessee was also supported by Form 26AS maintained by department, we direct the A.O. to give credit accordingly and re-workout the tax computations.

5. Grou

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nd No.4 pertains to issue of adjusting interest under section 244A of the Act. A.O. adjusted amount of Rs.2,35,956 in arriving at the tax demand. It is the contention of assessee that no such interest was granted to assessee and therefore, adjustment of the same is not correct. This requires detailed verification by A.O. As no discussion was made in the order, we are unable to examine the contentions. We deem it fit to restore the issue to the file of A.O. to verify and give opportunity to assessee to explain, before adjusting any interest if any granted to assessee earlier. With this direction, ground is considered as allowed. 6. Ground No.5 is with reference to levy of interest under section 234C and 234D of the Act which are consequential in nature. A.O. is directed to re-work out the above consequent to reworking of total income and giving credit to the pre paid amounts claimed. 7. Ground No.6 is initiation of penalty proceedings under section 271(1)(c) of the Act, which is premature to be adjudicated at this point of time. Accordingly, ground No.6 is rejected. 8. In the result, appeal of assessee is partly allowed for statistical purposes.