The Commissioner of Income Tax-V vs Perot Systems TSI (India) Ltd.

A.K. Sikri, J.—Admittedly respondent-assessee is engaged in the business of manufacture and export of computer software. It operates through the STP units located at Noida, Gurgaon and Chennai. In the Income Tax return filed for the assessment year 1999-2000, it had claimed certain incomes as exempt from tax u/s 10A of the Income Tax Act. These included interest income from deployed or borrowed funds, interest income from bank deposits made in connection with software business and interest from security deposits made in connection with software business. The assessing officer disallowed the claim of exemption in respect of these incomes on the ground that they were not directly derived from the export business. This decision of the assessing officer rejecting the claim of exemption in respect of aforesaid incomes has been maintained till the level of Tribunal and insofar as that part is concerned, the assessee has accepted the same.

The dispute is regarding three items of incomes in respect of which exemption was sought u/s 10A of the Act, which was disallowed by the assessing officer but the Income Tax Appellate Tribunal has allowed the same. These are as under:

(i) Amount of 11.76 lakhs received by the assessee as reimbursement of expenses incurred in obtaining ISO certification.

(ii) Reimbursement of 9,00,215/ - relating to rent satellite charges, printing, stationery, etc. from HCL Technologies Ltd.

(iii) Corporate charges amounting to 20 lakhs earned from the sister concern, i.e., HCL Technologies Ltd.

Insofar as first item is concerned, the admitted facts are that the assessee had spent a sum of 23,52,000/ - in obtaining ISO quality certification. It was the case of the assessee that ISO certification was a critical factor for export activities. 50% of this amount was reimbursed by the EXIM Bank, which amounted to 11,76,000/ -. It was in this backdrop that the assessee had claimed exemption of the receipt of the aforesaid amount u/s 10A of the Act. The Tribunal found, on the basis of aforesaid facts, and rightly so, that the total expenses incurred by the assessee were much higher, namely, 23,52,000/ -, which was allowable as expenditure and, therefore, the aforesaid grant being 50% of the expenses incurred in obtaining ISO quality certification would qualify for exemption u/s 10A of the Act. Similar is the position in respect of other two claims which are dealt with by the ITAT in the following manner:

We have considered rival submissions. The assessee company, part of HCL Group of Company, incurred certain expenses on behalf of HCL Technologies Ltd. The same were reimbursed in the form of corporate charges. Similarly, the assessee was also reimbursed for the use of work stations belonging to the assessee for and on behalf of HCL Technologies Ltd. Thus, what is received by assessee is by way of reimbursement of expenses. This implies that such receipt will be given to reduce the expenses incurred. Since the expenses are debited to profit and loss account and while computing profits of eligible undertaking, profits were reduced to the extent of expenses. The amount received by way of reimbursement of expenses cannot be reduced from the profits of business of eligible industrial undertaking. The A.O. is, therefore, directed not to reduce the profits of business by the amount of 20 lacs received by way of corporate charges and 9,00,250/ - received by way of reimbursement recovered for use of work stations. Accordingly, Ground Nos. 6, 9 and 10 are ruled in favour of assessee.

Another issue relates to lease rent payment of 2,04,400/ - to Noida authorities. The dispute was as to whether it is to be treated as revenue expenditure or capital expenditure. The assessing officer had disallowed the same treating it as capital expenditure. Reversing this decision, ITAT has allowed it as revenue expenditure in the following manner:

We have considered rival submissions. As rightly contended by counsel for the appellant, the amount paid is not for acquiring any leasehold right by way of annual lease rent. Thus, the amount is regarding payment for continuing to enjoy leasehold rights. In such situation, the assessee do not acquire any new capital asset but merely maintains capital asset already acquired. Thus, the expenditure assumes the character of revenue in nature and not capital expenditure. We accordingly hold that the expenditure being revenue in nature are allowable as such.

We are, therefore, of the opinion that no substantial question of law arises. Dismissed.