CIT & Ors. v. Infosys Technologies Ltd. & Ors.

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The Tax Publishers2013 TaxPub(DT) 0106 (Karn-HC) : (2013) 049 (I) ITCL 0516 : (2012) 349 ITR 0588 INCOME TAX ACT, 1961 --Deduction under section 80HHE--Computation of export turnover Foreign expenses incurred towards technical services--Expenditure was incurred by the assessee in foreign exchange towards technical services rendered outside India. The assessee claimed that as the expenditure was income towards development and products of softwares and, therefore, foreign expenditure was allowable under section 80HHE as export turnover. *Held:* Tribunal was not justified in allowing assessee's claim as expenditure towards foreign expenses was incurred for technical services rendered outside India, the same could not be allowed as deduction under section 80HHE. The amount was received for providing technical services outside India in connection with development of computer software and not in connection with export of computer software or its transmission to a place in India. The ITAT has failed to consider the said relevant documents which would clearly show that the expenses incurred in foreign exchange was towards technical services rendered outside India and not for development of software outside India. The ITAT has proceeded on the basis accepting the contention of the assessee that software is required to be developed outside India and amount spent in foreign exchange is towards development and export of the software at site and the same is to be included in the turnover is clearly erroneous and contrary to the certificate issued by the Chartered Accountant of the assessee for the above said assessment years. The said certificate would show that only for the assessment years 1997-98, the amount incurred in foreign exchange is shown towards export turnover relating to transmission to a place outside India and no amount has been shown towards providing technical services outside India in connection with development of software. Therefore, ITAT was not at all justified in holding that the expenses incurred in foreign currency is not towards rendering technical services outside India but towards development and export of the software and the same is liable to be set aside and once it is held that expenditure incurred for the above said assessment years pertains to technical services outside India the same has to be excluded from the turnover for the purpose of arriving at the deduction admissible under section 80HHE. [Para 9] Income Tax Act, 1961 Section 80HHE INCOME TAX ACT, 1961 --Capital or revenue expenditure--Club membership fees Enduring benefit--Expenditure incurred towards club membership fee was revenue in nature and could not be disallowed as capital expenditure. Income Tax Act, 1961 Section 37(1) INCOME TAX ACT, 1961 --Business expenditureAllowability Contribution to traffic police--Assessee paid contribution to traffic police which was disallowed by the revenue authorities. The Tribunal, however, allowed the expenses on the ground that it was from business consideration. *Held:* In order to claim deduction under section 37 the expenditure should be wholly for the purpose of business of assessee and it is well settled that it is the duty of the police to regulate the traffic and amount spent towards regulation of traffic can, at the most, be considered as donation as rightly held by assessing officer and, thus, could not be quantified as deduction under section 37(1). Income Tax Act, 1961 Section 37(1) SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2013 TaxPub(DT) 0106 (Karn-HC) : (2013) 049 (I) ITCL 0516 : (2012) 349 ITR 0588

INCOME TAX ACT, 1961

--Deduction under section 80HHE--Computation of export turnover Foreign expenses incurred towards technical services--Expenditure was incurred by the assessee in foreign exchange towards technical services rendered outside India. The assessee claimed that as the expenditure was income towards development and products of softwares and, therefore, foreign expenditure was allowable under section 80HHE as export turnover. Held: Tribunal was not justified in allowing assessee's claim as expenditure towards foreign expenses was incurred for technical services rendered outside India, the same could not be allowed as deduction under section 80HHE.

The amount was received for providing technical services outside India in connection with development of computer software and not in connection with export of computer software or its transmission to a place in India. The ITAT has failed to consider the said relevant documents which would clearly show that the expenses incurred in foreign exchange was towards technical services rendered outside India and not for development of software outside India. The ITAT has proceeded on the basis accepting the contention of the assessee that software is required to be developed outside India and amount spent in foreign exchange is towards development and export of the software at site and the same is to be included in the turnover is clearly erroneous and contrary to the certificate issued by the Chartered Accountant of the assessee for the above said assessment years. The said certificate would show that only for the assessment years 1997-98, the amount incurred in foreign exchange is shown towards export turnover relating to transmission to a place outside India and no amount has been shown towards providing technical services outside India in connection with development of software. Therefore, ITAT was not at all justified in holding that the expenses incurred in foreign currency is not towards rendering technical services outside India but towards development and export of the software and the same is liable to be set aside and once it is held that expenditure incurred for the above said assessment years pertains to technical services outside India the same has to be excluded from the turnover for the purpose of arriving at the deduction admissible under section 80HHE. [Para 9]

Income Tax Act, 1961 Section 80HHE

INCOME TAX ACT, 1961

--Capital or revenue expenditure--Club membership fees Enduring benefit--Expenditure incurred towards club membership fee was revenue in nature and could not be disallowed as capital expenditure.

Income Tax Act, 1961 Section 37(1)

INCOME TAX ACT, 1961

--Business expenditureAllowability Contribution to traffic police--Assessee paid contribution to traffic police which was disallowed by the revenue authorities. The Tribunal, however, allowed the expenses on the ground that it was from business consideration. Held: In order to claim deduction under section 37 the expenditure should be wholly for the purpose of business of assessee and it is well settled that it is the duty of the police to regulate the traffic and amount spent towards regulation of traffic can, at the most, be considered as donation as rightly held by assessing officer and, thus, could not be quantified as deduction under section 37(1).

Income Tax Act, 1961 Section 37(1)