Renault Nissan Technology & Business Centre India Private Limited v. Commissioner of Income-tax 5, Chennai
[Citation -2020-LL-0717-24]

Citation 2020-LL-0717-24
Appellant Name Renault Nissan Technology & Business Centre India Private Limited
Respondent Name Commissioner of Income-tax 5, Chennai
Court HIGH COURT OF MADRAS
Relevant Act Income-tax
Date of Order 17/07/2020
Judgment View Judgment
Keyword Tags telecommunication charges • rectification application • computation of deduction • nature of reimbursement • special economic zone • expenditure incurred • computing deduction • technical support • consultation fees • services rendered • expenses incurred • transfer pricing • foreign currency • foreign exchange • export turnover • total turnover • sez premises
Bot Summary: The assessee is a Private Limited Company incorporated under the Companies Act, on 21st September 2007 as a joint venture between Renault Group B.V and Nissan International Holding B.V. The assessee is an undertaking registered as a Special Economic Zone which is eligible to claim deduction under Section 10AA of the Income Tax Act, 1961 and it renders services out of this SEZ premises in Chennai. Further these reimbursements constitute a part of operating cost base of the assessee which has been recovered by the assessee from their associated enterprises at their respective arms length markups. In the draft Assessment Order, the Assessing Officer refers to the show cause notice issued to the assessee, calling upon the assessee to explain as to why the expenditure incurred in foreign exchange be not excluded from the ''export turnover'', while computing deduction under Section 10 AA of the Act. The assessee filed an application before the DRP, in which, on this specific issue they have stating that the assessee operates on a cost plus model, the total turnover comprises of total cost plus arm's length mark up. The Tribunal did not decide as to whether it was expenses incurred by the assessee in respect of services rendered by the assessee outside India. The assessee has explained the Assessing Officer did not take into consideration as to whether there were any services outside India and held against the assessee and proceeded to make a draft assessment. For all the above reasons, appeal filed by the assessee is allowed and the order passed by the Tribunal is set aside and the order passed by the DRP is restored and the substantial questions of law is answered in favour of the assessee.


T.C.A.No.212 of 2018 IN HIGH COURT OF JUDICATURE AT MADRAS DATED : 17.07.2020 CORAM HON'BLE MR.JUSTICE T.S.SIVAGNANAM & HON'BLE MRS.JUSTICE V.BHAVANI SUBBAROYAN T.C.A.No.212 of 2018 M/s.Renault Nissan Technology & Business Centre India Private Limited. TP 2/1, Ascendas IT Park, Mahindra World City, Natham Sub Post Office, Chennai - 603002. ... Appellant Vs. Commissioner of Income Tax 5 121 M.G.Road, Nungambakkam, Chennai - 600 034. ... Respondent Tax Case Appeal is filed under Section 260A of Income Tax Act, 1961 against order dated 16.11.2016 made in ITA.No.1009/Mds/2014 on file of Income Tax Appellate Tribunal, Madras 'D' Bench, for assessment year 2009 - 10. For Appellant : Mr.N.V.Balaji For Respondent : M/s.R.Hemalatha Senior Standing Counsel http://www.judis.nic.in 1/16 T.C.A.No.212 of 2018 JUDGMENT (Judgment was delivered by T.S.SIVAGNANAM.J) This appeal filed by assessee under Section 260A of Income Tax Act, 1961 (the 'Act' for brevity), is directed against order dated 16.11.2016 in ITA.No.1009/Mds/2014 on file of Income Tax Appellate Tribunal, Madras 'D' Bench, Chennai, for assessment year 2009 - 10. 2. appeal was admitted on 05.06.2018, on following substantial questions of law. 1. Whether Tribunal erred in holding that expenditure incurred in foreign currency by appellant was to be excluded from export turnover for purpose of computing deduction under Section 10AA of Income Tax Act, 1961, when same is against provisions of Act? 2. Is finding of Tribunal that expenditure incurred in foreign currency by appellant needs to be excluded from export turnover for purpose of computation of deduction under Section 10AA of Income Tax Act, 1961 vitiated by perversity and arbitrariness? http://www.judis.nic.in 2/16 T.C.A.No.212 of 2018 3. We have heard Mr.N.V.Balaji, learned counsel appearing for appellant/assessee, and M/s.R.Hemalatha, learned Standing Counsel appearing for respondent/revenue. 4. assessee is Private Limited Company incorporated under Companies Act, on 21st September 2007 as joint venture between Renault Group B.V ( RGBV ) and Nissan International Holding B.V ( NIHBV ). assessee is undertaking registered as Special Economic Zone ( SEZ ) which is eligible to claim deduction under Section 10AA of Income Tax Act, 1961 and it renders services out of this SEZ premises in Chennai. assessee filed its Return of Income for assessment year 2009 10 (hereinafter 'under consideration' for brevity) on 30.09.2009, returning total income of Rs.5,83,39,429/-, after claiming deduction of Rs.29,96,00,054/- under Section 10AA of Act. assessment was completed under Section 143(3) of Act and Assessing Officer proposed to exclude following expenditure incurred in foreign currency from 'export turnover' of assessee for purpose of computing deduction under Section 10AA of Act. http://www.judis.nic.in 3/16 T.C.A.No.212 of 2018 Particulars Amount Travel Expenses 41,199,254 IT & Technical support services 115,521,782 Professional and consultation fees 5,364,145 Reimbursement to Renault Global 69,851,671 Management Reimbursement to Nissan Motor Co., Ltd 29,635,976 ( NML ) Total 261,572,828 5. assessee contended that what can be excluded is only expenditures in nature of freight, telecommunication charges and insurance, if attributable, for delivery of articles or things outside India or any foreign currency expenditures which have been specifically incurred for rendering services outside India and no other expenditure could have been deducted from 'export turnover', while computing deduction under Section 10AA of Act. This submission made by assessee did not find favour with Assessing Officer who passed draft Assessment Order dated 25.03.2003 under Section 143(3) read with Section 144(c)(i), determining assessed income at Rs.20,68,24,860/-. assessee, being aggrieved by draft Assessment Order, filed application before Dispute Resolution Panel (hereinafter 'the DRP' for brevity). DRP accepted case of assessee and issued http://www.judis.nic.in 4/16 T.C.A.No.212 of 2018 directions dated 20.12.2013, directing Assessing Officer not to exclude said expenditures from turnover of assessee, holding that said expenditures were not incurred for purpose of rendering service outside India. It appears that assessee filed rectification application with regard to professional and consultation fee stating that DRP did not consider said issue specifically for exclusion or inclusion. However, said rectification application is stated to have been dismissed on 12.03.2014, holding that professional and consultation fee needs to be excluded from export as well as total turnover for purposes of computing deduction under Section 10AA of Act. However said issue has not been further agitated by assessee and issue before Tribunal was with regard to expenditures incurred in foreign exchange which have been set out in tabular column above. 6. Tribunal by impugned order allowed Revenue's appeal and aggrieved by same, assessee is before this Court by way of this Tax Case Appeal. http://www.judis.nic.in 5/16 T.C.A.No.212 of 2018 7. We have perused order passed by Tribunal and we find that Tribunal did not assign any reason as to why finding / directions issued by DRP are not sustainable. finding rendered by Tribunal on above issue is in paragraph no.4 of impugned order. Tribunal opined that foreign currency expenditures cannot be considered as part of 'export turnover' and at same time it also cannot form part of 'total turnover'. Tribunal referred to decision in case of ITO Vs. Saksoft Limited [(2009) 121 TTJ 865 (ITAT) Chennai] and directed Assessing Officer not to exclude same in 'export turnover' as well as in 'total turnover' while computing deduction under Section 10AA of Act. 8. We find that Tribunal did not specifically adjudicate contention raised by Revenue before it. Revenue Appeal was on ground that DRP erred in deleting exclusion of foreign currency expenditures from 'export turnover' by holding that they are either reimbursed or advanced to employees; that expenditures incurred are not in respect of services rendered by assessee outside http://www.judis.nic.in 6/16 T.C.A.No.212 of 2018 India; when definition of 'Export Turnover' as per Section 10AA neither distinguishes nor excludes reimbursements or advances. 9. This contention raised by Revenue was not decided by Tribunal. Therefore, it is submission of Ms.R.Hemalatha, learned standing counsel that in event, Court not agreeing with submissions of Revenue, matter may be remanded back to Tribunal for fresh decision. 10. Before we consider such plea, we need to take note of crux of issue which was raised by assessee before Assessing Officer at first instance, reply to show cause notice issued by Assessing Officer, in their application before DRP and their submissions before Tribunal in appeal filed by Revenue. If facts are culled out from all proceedings, one should get answer to controversy which would help us to answer Substantial Question of Law framed for consideration. http://www.judis.nic.in 7/16 T.C.A.No.212 of 2018 11. In Accountant's Report in Form No.56F for assessment year under consideration, it has been stated that in respect of reimbursement of IT support, Travel and Technical related expenditure, there is no element of any provision of services and actual cost incurred has been reimbursed. Further these reimbursements constitute part of operating cost base of assessee which has been recovered by assessee from their associated enterprises at their respective arms length markups. Therefore, arms length nature of reimbursement transactions also reviewed, aggregated and analysed under TNMM analysis conducted for segments discussed in report. Report states that reimbursement of IT support and Travel & Technical related expenses appears to be consistent with arm's length standard from Indian transfer pricing perspective. 12. Subsequently, assessee submitted two letters, of which, letter dated 13.02.2013 would be relevant. Among other things, assessee referred to explanation 1 to Section 10 AA of Act and stated that Company has not incurred any expenditure in foreign exchange http://www.judis.nic.in 8/16 T.C.A.No.212 of 2018 on freight, telecommunication charges and insurance and thus, no amount is deductible from ''export turnover'' on this count. In draft Assessment Order, Assessing Officer refers to show cause notice issued to assessee, calling upon assessee to explain as to why expenditure incurred in foreign exchange be not excluded from ''export turnover'', while computing deduction under Section 10 AA of Act. In response to said show cause notice, assessee once again reiterated definition of ''export turnover'' in Explanation 1 to Section 10 AA of Act and submitted that term 'expense' used in above context would be only expenses in nature of freight, telecommunication or insurance and not any other expenses. assessee also relied upon certain decisions of Hon'ble Supreme Court and other High Courts and Tribunals. Assessing Officer did not agree with assessee in referring to decisions and explanation 1 to Section 10 AA of Act, though noted that explanation states that expenses should be incurred in foreign exchange in rendering of service outside India, without considering whether any services was rendered by assessee outside India, holding that said provision is patent and clear and expenditures incurred by assessee in foreign http://www.judis.nic.in 9/16 T.C.A.No.212 of 2018 exchange should be excluded from 'export turnover' for purpose of computing deduction under Section 10 AA of Act. 13. assessee filed application before DRP, in which, on this specific issue they have stating that assessee operates on cost plus model, total turnover comprises of total cost plus arm's length mark up. Further they have specifically stated that they have no element of any provision of services and only actual cost incurred has been reimbursed to assessee; these reimbursements constitute part of operating cost base of assessee which has been recovered from associated enterprises and foreign exchange expenditures are components of total turnover, as these are reimbursed at arm's length mark up. After referring to decision in case of CIT Vs. Lakshmi Machine Works [(2007) 290 ITR 667], Commissioner of Income Tax Vs. Sudarshan Chemicals Industries Limited (2000 (245) ITR 769), CIT Vs. K.Rajendranathan Nari [(2004) 265 ITR 35 (Kerala)] and decision of Special Bench of Tribunal in case of ITO Vs.. Saksoft Limited [2009 121 TTJ 865 (ITAT) Chennai], assessee submitted that it follows cost plus model approach and total http://www.judis.nic.in 10/16 T.C.A.No.212 of 2018 turnover of Company comprised of Cost plus arm's length mark up and that there is no reimbursement of any expenditures so as to exclude same from 'export turnover' and 'total turnover'. While considering said submission, DRP took note of definition of ''export turnover'' in explanation 1 to Section 10AA and observed that it necessary that any expenses incurred in foreign exchange by assessee should be in respect of rendering of services outside India. While framing points for determination, DRP observed that question is whether expenditures incurred by assessee in foreign exchange was in respect to services outside India. After steering clear as to what would be 'export turnover' as defined under Act, DRP exempted expenditures incurred by assessee and held that expenditures are not in respect to services rendered by assessee outside India and therefore, it cannot be excluded from 'export turnover' and Assessing Officer was directed to delete exclusion of foreign exchange from export turnover of business and deduction under Section 10 AA to be recomputed as follows: http://www.judis.nic.in 11/16 T.C.A.No.212 of 2018 PARTICULARS AMOUNT (INR ) Travel Expenses 41,199,254 IT&Technical Support Services 115,521,782 Reimbursement to Renault Global management 69,851,671 Reimbursement to Nissan Motor Company Ltd., 29,635,976 14. Revenue filed appeal before Tribunal. To be noted main ground on which Revenue were on appeal before Tribunal was on direction of DRP to exclude foreign exchange expenditure. Unfortunately, Tribunal did not discuss matter but proceeded on basis that foreign currency expenditures cannot be considered as part of 'export turnover' and at same time, it cannot form part of 'total turnover'. Tribunal did not decide as to whether it was expenses incurred by assessee in respect of services rendered by assessee outside India. assessee was faced with this issue at very first instance before Assessing Officer. assessee has explained, nevertheless, Assessing Officer did not take into consideration as to whether there were any services outside India and held against assessee and proceeded to make draft assessment. Before DRP, which is fact finding expert body, assessee placed all materials and established that assessee did not render any services http://www.judis.nic.in 12/16 T.C.A.No.212 of 2018 outside India and they operate on cost plus model and reimbursement constitute part of operating cost which was recovered by assessee from their associated enterprises. This factual matrix had not been examined by Tribunal. 15. We find that no useful purpose would be served in remanding matter to Tribunal for fresh consideration as submitted by Revenue as alternate submission. principal submission of Revenue is to support order passed by Tribunal and seeking for dismissal of this appeal. Even in grounds of appeal filed by Revenue before Tribunal, cost plus model of functioning by assessee appears to be have not been disputed but their contention was that definition of ''export turnover'' in explanation 1 to Section 10 AA does not distinguish or exclude reimbursement or advances. In our considered view, issue is not as to whether reimbursement or advances, but issue is whether these were incurred by assessee in foreign exchange in respect of rendering services outside India. If it is established that no services have been rendered outside India and assessee has been reimbursed actual cost only, question of exclusion from 'export turnover' does not arise. http://www.judis.nic.in 13/16 T.C.A.No.212 of 2018 16. submission of Ms.R.Hemalatha, learned standing counsel is that expenses should have direct nexus with interest of industrial undertaking. In support of such contention, reliance is placed on decision of Division Bench of this Court in CIT VS. Menon Impex Private Limited [2003 (128) Taxmann 11 (madras)] which was affirmed by Hon'ble Supreme Court of India in India Comnet International Private Limited Vs. ITO [2012 (26) Taxmann.com 349 (SC)]. 17. In our considered view, decision referred to by Revenue may not be of assistance to their case because, dispute is not with regard to whether there is direct nexus between amount and activity of industrial undertaking. issue in instant case is whether at all expenses were incurred for rendering any of services outside India. On facts, it has been established that no such services have been rendered. Therefore, we are of considered view that Tribunal fell in error in reversing decision of DRP. http://www.judis.nic.in 14/16 T.C.A.No.212 of 2018 18. For all above reasons, appeal filed by assessee is allowed and order passed by Tribunal is set aside and order passed by DRP is restored and substantial questions of law is answered in favour of assessee. No costs. (T.S.S.J.,) (V.B.S.J.,) 17.07.2020 sk Index : yes/no Internet : yes/no Speaking Order/Non-Speaking Order To Commissioner of Income Tax 5 121 M.G.Road, Nungambakkam, Chennai - 600 034. http://www.judis.nic.in 15/16 T.C.A.No.212 of 2018 T.S.SIVAGNANAM.J., and V.BHAVANI SUBBAROYAN.J., sk T.C.A.No.212 of 2018 17.07.2020 http://www.judis.nic.in 16/16 Renault Nissan Technology & Business Centre India Private Limited v. Commissioner of Income-tax 5, Chennai
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