High Court Of Karnataka
CIT, Central Circle VS. Infosys Technologies Ltd.
Assessment Year : 1998-99
Section : 37(1)
V.G. Sabhahit And S.N. Satyanarayana, JJ.
IT Appeal No. 1189 Of 2006
November 22, 2011
1. This appeal is filed by the revenue being aggrieved by the order passed by the Income-tax Appellate Tribunal (hereinafter called as ITAT) in ITA No. 1130/Bang./2003 dated 7.4.2006, wherein me appeal filed by the revenue has been dismissed and the appeal filed by the assessee in ITA. No. 1022/2003 is allowed in part confirming the order-passed by the Commissioner of Income-tax (Appeals).
2. The material facts leading up to this appeal are as under:
The assessee is an exporter of software and filed return of income on 27.11.1998 showing the return of income at Rs. 3,33,94,389/-, which was processed under Section 143(1) of the Income-Tax Act (hereinafter called as the ‘Act’) on 23.8.2000 accepting the income returned. After scrutiny of the assessment made on 23.8.2000, a notice was issued under Section 143(2) of the Act. In response to which the assessee furnished details. The notice pertains to payment of Rs. 1,93,521/-. to clubs to acquire corporate membership, the expenditure incurred in a sum of Rs. 8,74,278/- towards ISO certification and the amount spent towards repairs and maintenance of leased premises in a sum of Rs. 33,40,422/-, which was proposed as revenue expenditure by the assessee. Further, it was also proposed by the assessee that the fluctuation in the value of currency regarding actual’ amount realised by the assessee could not have been taken as benefit of the assessee.
3. The Assessing Officer after considering the contentions raised by the assessee held that the expenditure incurred towards acquisition of corporate membership in the clubs, amount spent towards obtaining ISO Certification and the amount spent towards repair and maintenance of leased premises ought to be treated as capital expenditure and not as revenue expenditure as claimed by the assessee. Further, he held that the contention of the assessee that he should have the benefit of fluctuation in the value of currency in respect of software export, cannot be accepted. Accordingly. the Assessing Officer passed the order of assessment. Being aggrieved by the said order an appeal was preferred by the assessee.
4. The Appellate authority by order dated 4.7.2003 allowed the appeal and held that the expenses incurred towards acquisition of corporate membership in clubs, expenses incurred towards obtaining ISO certification and amount spent towards repairs and maintenance on the leased premises should be treated as revenue expenditure and not as capital expenditure. It also upheld the contention of the assessee that assessee is entitled to have the benefit of fluctuation in the value of rupee in respect of value of export of software made by him. Accordingly, allowed the appeal. Being aggrieved by the same the revenue preferred appeal and the assessee also has preferred appeal regarding the other findings, which are not the subject-matter of this appeal. The ITAT by a common order-dismissed the appeal filed by the revenue. Being aggrieved by the same, this appeal is filed raising the following substantial questions of law for consideration of this Court, which are as under:
(1) Whether the Appellate authorities were correct in holding that corporate membership fee paid by the assessee to acquire membership of a club in a revenue expense and not a capital expense as held by the Assessing Officer?
(2) Whether the Appellate authorities were correct in holding that amount paid to obtain ISO certification useful for number of years in international business is a revenue expense and not a capital expense as held by the Assessing Officer?
(3) Whether the Appellate authorities were correct in holding that the expenditure incurred towards repairs and maintenance of leased premises of Rs. 33.40,422/- is a revenue expenditure and not a capital expenditure and that assessee would be entitled to depreciation u/s 32(1) Explanation 1 as held by the Assessing Officer?
(4) Whether the Appellate authorities were correct in holding that exchange rate fluctuation should be taken into consideration for computing Section 80HHE deduction by reversing the finding of the Assessing Officer that as per Explanation -C to Section 80HHE of the Act only actual amount of foreign exchange received in India can be included in the export turnover for computation of deduction u/s. 80HHE of the Act?
5. We have heard the learned Counsel appearing for the parties. The substantial questions of law 1 to 3 are no more res integra, as in respect of the same assessee, the expenses incurred towards obtaining corporate membership, the amount spent towards obtaining ISO certificate and the expenses incurred towards repair and maintenance of leased premises have been held to be revenue expenditure and not as capital expenditure as contended by the revenue. The said substantial questions of law have been answered against the revenue and in favour of the assessee in ITA. No. 2975/2005, disposed off on 21.10.2011, ITA. No. 3011/2005 disposed off on 21.10.2011 and ITA.No.2973/2005 disposed off on 4.11.2011 respectively. Accordingly, following the reasons assigned in the said judgments rendered by this Court, substantial questions of law 1 to 3 are answered against the revenue and in favour of the assessee.
6. Regarding the 4th substantial question of law, the learned counsel submitted that if there is any fluctuation in the valuation of rupee in terms of the foreign exchange which is brought into India, the same cannot be taken into account and has to be included in other receipts and submitted that it has to be answered in favour of the revenue.
7. On the other hand, the learned Counsel appearing for the respondent submitted that when the export of software has already been done and invoices have been issued in terms of the foreign currency, if there is any fluctuation in the valuation of the rupee in terms of the conversion of value into foreign currency, there is direct nexus between the transaction of export of software and cannot be treated as income from other sources.
8. We have heard the learned Counsel appearing for the parties and scrutinised the material on record. Both the first appellate authority and the appellate Tribunal have answered the abovesaid substantial question of law in favour of the assessee and against the revenue. The said concurrent finding arrived at by the authorities is justified as the fluctuation in the valuation of currency which has to be converted to foreign currency has direct nexus to the export of software and can never be included as income from other sources. Wherefore, the said finding does not suffer from any error or illegality as to call for interference in this appeal. Accordingly, we answer the 4th substantial question of law also against the revenue and in favour of the assessee. Accordingly, we hold that the appeal is devoid of merits and pass the following:
The appeal is dismissed.
Note: The above is true transcription of the judgment dictated to me by late Hon’ble Shri Justice V.G. Sabhahit presiding over the Division Bench with Hon’ble Shri Justice S.N. Satyanarayana in Open Court on 22.11.2011.
[Citation : 349 ITR 606]