Pr. Commissioner of Income-tax-10, Mumbai v. Concentrix Services (I) Pvt. Ltd
[Citation -2019-LL-0904-106]

Citation 2019-LL-0904-106
Appellant Name Pr. Commissioner of Income-tax-10, Mumbai
Respondent Name Concentrix Services (I) Pvt. Ltd.
Court HIGH COURT OF BOMBAY
Relevant Act Income-tax
Date of Order 04/09/2019
Assessment Year 2008-09
Judgment View Judgment
Keyword Tags interest expenditure incurred • special purpose vehicle • share application money • deduction of interest • allowable expenditure • guarantee commission • business expenditure • foreign exchange • business purpose • capital borrowed • rate fluctuation • interest payment • working capital • money advanced • loan repayment • interest paid • alp
Bot Summary: Whether on facts and in the circumstances of the case and in law, the Tribunal was justified in directing the A.O ::: Uploaded on - 16/09/2019 ::: Downloaded on - 19/09/2019 12:24:26 ::: 3 905 ITXA 778-2017 wt nob 867-17.doc to delete the disallowance u/s 36(1)(iii) of the IT Act, 1961 without appreciating the fact that the acquisition of business by way of investing into shares of that company through either Special Purpose Vehicle or directly cannot be considered to be ordinary event of the business and therefore, cannot be termed as expenditure incurred for the purpose of assessee s business, which is providing IteS services 5. The Assessing Officer disallowed the above interest and the finance expenses claimed under section 36(1)(iii) of the Act on the ground that it relate to acquisition of shares of foreign subsidiary and not related to the business of the Respondent. For the purpose of extension of its business in the above countries it had three ways available to it i.e. set up a branch in those countries or to form new companies in those countries or acquire a company operating in those countries in the similar line of business. Mr.Kotangale, learned counsel appearing in support of the Appeal states that the interest payment on the loan and finance expenditure on account of foreign exchange variations in the loan repayment could not have been allowed as business expenditure. Therefore the interest expenditure incurred on loans taken for investment in acquiring controlled interest in a Company which was in the same line of business as that of the Respondent would be allowable expenditure under section 36(1)(iii) of the Act. The submission on behalf of the Revenue that the Petitioner is in the business of BPO and Call Centre activities and not in the business of investment means the ::: Uploaded on - 16/09/2019 ::: Downloaded on - 19/09/2019 12:24:26 ::: 8 905 ITXA 778-2017 wt nob 867-17.doc prime business of the assessee is of running BPO and Call Centres and as recorded by the Tribunal the entire funds were borrowed so as to expand the business activities of BPO and Call Centres in Canada by acquiring a Canadian Company. The object of the expenditure clearly is for the purpose of the business and therefore the interest incurred on the funds borrowed for investment in M/s.Minacs Canada has to be allowed as a deduction under section 36(iii) of the Act.


IN HIGH COURT OF JUDICATURE AT BOMBAY ORDINARY ORIGINAL CIVIL JURISDICTION INCOME TAX APPEAL NO. 778 OF 2017 with INCOME TAX APPEAL NO. 867 OF 2017 Not on board Pr. Commissioner of Income Tax-10 Mumbai .. Appellant Vs M/s.Concentrix Services (I) Pvt. Ltd., .. Respondent Mr.Ashok Kotangale i/b Padma Diwakar, for Appellant. Mr.J.D.Mistri-Senior Advocate a/w Mr.Atul K.Jasani, for Respondent. CORAM : M.S.SANKLECHA & NITIN JAMDAR, JJ. Date : 4 September 2019. P.C. : Income Tax Appeal No.867 of 2017- Not on Board. Mentioned. Upon mentioning taken on Board to be heard along with Income Tax Appeal No.778 of 2017 which is on Board as they arise from common impugned order dated 25 August 2016 passed by Income Tax Appellate Tribunal, (Tribunal). 2. Mr.Kotangale learned counsel appearing in support of Appeals seeks liberty to change name of Respondent to its ::: Uploaded on - 16/09/2019 ::: Downloaded on - 19/09/2019 12:24:26 ::: 2 905 ITXA 778-2017 wt nob 867-17.doc present name i.e. Concentrix Services India Private Limited. Amendment as sought for allowed. Amendment to be carried out forthwith. Re-verification dispensed with. 3. These two appeals under section 260A of Income Tax Act challenge common order dated 25 August 2016 passed by Tribunal. common impugned order dated 25 August 2016 allowed Respondent-assessee s two appeals relating to Assessment Year 2008-09 and 2009-10. Thus two appeals. 4. Revenue urges following three identical questions of law in both appeals for our consideration:- 1. Whether on facts and in circumstances of case and in law, Tribunal was justified in directing AO/ TPO to adopt 0.5% as ALP of guarantee commission charges provided by Respondent Co.; without appreciating that TPO had determined ALP taking into consideration entity, country specific, currency risks and also considering leveraged position taken by assessee company which had impact on its working capital? 2. Whether on facts and in circumstances of case and in law, Tribunal was justified in its direction that money advanced to AE as share application money is not to be considered as loan, ignoring fact that this money was being utilized as working capital and not deposited in escrow account in cases where monies are received in cases of share application? 3. Whether on facts and in circumstances of case and in law, Tribunal was justified in directing A.O ::: Uploaded on - 16/09/2019 ::: Downloaded on - 19/09/2019 12:24:26 ::: 3 905 ITXA 778-2017 wt nob 867-17.doc to delete disallowance u/s 36(1)(iii) of IT Act, 1961 without appreciating fact that acquisition of business by way of investing into shares of that company through either Special Purpose Vehicle or directly cannot be considered to be ordinary event of business and therefore, cannot be termed as expenditure incurred for purpose of assessee s business, which is providing IteS services? 5. Regarding Question Nos.1 and 2. (a) Mr.Kotangale learned counsel appearing in support of appeals very fairly states that both these questions stand concluded against Revenue and in favour of Respondent-assessee in Respondent s own case by order of this Court dated 4 September 2019 in ITXA No.303 of 2006 (Principal Commissioner of Income Tax-10 Mumbai vs Couceutrix Services India Pvt. Ltd. [formerly known as Minacs Pvt. Ltd.]). Both these questions on identical facts have been decided in favour of Respondent-assessee. (b) It is not case of Revenue, that there is any distinction in facts and/or law in subject Assessment years, which would make order dated 4 September 2019 in ITXA No.303 of 2006 inapplicable to this case. (c) In above view, these two questions do not give rise to any substantial question of law. Thus not entertained. ::: Uploaded on - 16/09/2019 ::: Downloaded on - 19/09/2019 12:24:26 ::: 4 905 ITXA 778-2017 wt nob 867-17.doc 6. Regarding Question No.3. (a) Respondent is engaged in business of providing Information Technology enabled Services such as Call Centres, BPO services, etc. During subject Assessment Year 2008-09 and 2009- 10, Respondent had claimed expenses on account of interest and finance expenses as allowable expenditure under section 36(1)(iii) of Act. above interest and finance expenses (exchange rate fluctuation loss) is in connection with loans taken for DBS Bank for acquisition of Company i.e. M/s Minacs Canada. However, Assessing Officer disallowed above interest and finance expenses claimed under section 36(1)(iii) of Act on ground that it relate to acquisition of shares of foreign subsidiary and not related to business of Respondent. (b) Being aggrieved with order of Assessing Officer for both years, Respondent filed appeals to Commissioner of Income-Tax (Appeals) (CIT(A)) who upheld view of Assessing Officer for Assessment Year 2008-09. However as far as Assessment Year 2009-10 is concerned CIT(A) allowed Respondent's appeal. This by holding that expenditure of interest and finances on loan taken were in nature of business expenditure and therefore allowable was deduction under section 36(1) (iii) of Act. (c) Being aggrieved with order of CIT(A) both ::: Uploaded on - 16/09/2019 ::: Downloaded on - 19/09/2019 12:24:26 ::: 5 905 ITXA 778-2017 wt nob 867-17.doc Revenue as well as Respondent-assessee filed appeals for Assessment Year 2009-10 and 2008-09 respectively, before Tribunal. d) Tribunal by common impugned order disposed of both appeals as issue is identical. It found on facts that Respondent-assessee wanted to expand its business operations in North America and European countries. For purpose of extension of its business in above countries it had three ways available to it i.e. set up branch in those countries or to form new companies in those countries or acquire company operating in those countries in similar line of business. It was business decision of Respondent-assessee to opt for third method as indicated hereinabove and having taken that decision it set up Special Purpose Vehicle in Canada only to acquire shares in M/s.Minacs Canada from its existing shareholders. This had to be done in view of regulatory restrictions of Canada which prohibited Appellant from investing directly in Canadian Company. impugned order of Tribunal found that acquisition of shares in M/s.Minacs Canada by Respondent is for purpose of its business. impugned order of Tribunal further records that interest bearing funds were utilised for purchasing these shares of M/s.Minacs Canada through Special Purpose Vehicle and interest was paid on loan and loss and gain in view of foreign exchange variations characterised as finance expenses. interest paid on borrowed ::: Uploaded on - 16/09/2019 ::: Downloaded on - 19/09/2019 12:24:26 ::: 6 905 ITXA 778-2017 wt nob 867-17.doc funds was allowed as deduction under section 36(1)(iii) of Act. This by Tribunal placing reliance upon decision of this Court in case of Commissioner of Income-Tax v. Srishti Securities Private Limited [2010] 321 ITR 498 (Bom), wherein this Court has held that interest paid on borrowed funds for purpose of acquiring controlling interest in another company would be allowable business expenditure. So far as Finance expense is concerned, Tribunal notes fact that for earlier Assessment Year namely 2007-08 profit / gain made on account of foreign exchange variations on loan taken was allowed by Assessing Officer. However when same resulted in loss Assessing Officer sought to deny same. This Tribunal found went against principles of consistency and therefore held that loss/expenditure on account of finance expenses was allowable. It was in aforesaid circumstances that Tribunal allowed appeal of Respondent-assessee for Assessment Year 2008-09 and dismissed Revenue's appeal for Assessment Year 2009-10. (e) Mr.Kotangale, learned counsel appearing in support of Appeal states that interest payment on loan and finance expenditure on account of foreign exchange variations in loan repayment could not have been allowed as business expenditure. This in view of fact that Respondent is not in business of investment in shares but was in business of Information Technology enabled Services, BPO and Call Centres. ::: Uploaded on - 16/09/2019 ::: Downloaded on - 19/09/2019 12:24:26 ::: 7 905 ITXA 778-2017 wt nob 867-17.doc (f) We note that it is undisputed that business of Respondent-assessee is of running of BPO and Call Centres. Nor is it disputed that M/s.Minacs Canada is also in business of Information Technology enabled Services i.e. BPO and Call Centre. It was business decision of Respondent to enhance/expand its activities and presence in world market for that purpose had acquired controlling interest in business of M/s.Minacs Canada which was in same line of business as Appellant. To make above investment for purpose of its business loan was taken. Therefore interest expenditure incurred on loans taken for investment in acquiring controlled interest in Company which was in same line of business as that of Respondent would be allowable expenditure under section 36(1)(iii) of Act. In Srishti Securities Pvt.Ltd., (supra) interest expenditure under section 36(1)(iii) of Act had been disallowed by Assessing Officer on ground that primary object of acquiring shares was only to acquire controlling interest in Company. Thus not for purposes of business. This Tribunal negatived. Further in Appeal this Court has held that where assessee claims deduction of interest paid on capital borrowed, all that assessee has to show is that borrowed funds were used for business purpose and if so then interest will have to be allowed as deduction. submission on behalf of Revenue that Petitioner is in business of BPO and Call Centre activities and not in business of investment means ::: Uploaded on - 16/09/2019 ::: Downloaded on - 19/09/2019 12:24:26 ::: 8 905 ITXA 778-2017 wt nob 867-17.doc prime business of assessee is of running BPO and Call Centres and as recorded by Tribunal entire funds were borrowed so as to expand business activities of BPO and Call Centres in Canada by acquiring Canadian Company. Thus loan was taken for purpose of business. This is finding of fact which has not been shown to be perverse. expansion of ones activities in Canada would require acquisition of Company by purchasing shares therein so as to expand assessee's business. object of expenditure clearly is for purpose of business and therefore interest incurred on funds borrowed for investment in M/s.Minacs Canada has to be allowed as deduction under section 36 (1)(iii) of Act. So far as finance expenditure is concerned, it would follow allowing of interest expenditure. This expenditure is incurred in respect of above loan taken for purpose of business and allowable u/s 36(1)(iii) of Act. In fact, it was so allowed by Revenue in Assessment Year 2007-08. (g) In above view question as proposed does not give rise to any substantial question of law as it is essentially finding of fact and covered by decision of this Court in Srishti Securities (supra). Thus not entertained. 7. Accordingly, Appeals are dismissed. No order as to costs. (NITIN JAMDAR, J.) (M.S.SANKLECHA, J.) Pr. Commissioner of Income-tax-10, Mumbai v. Concentrix Services (I) Pvt. Ltd
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