Commissioner Of Income Tax Delhi ... vs Hughes Software Systems Limited
2008 Latest Caselaw 1983 Del

*            THE HIGH COURT OF DELHI AT NEW DELHI


%                                 Judgment delivered on 07.11.2008

+            ITA 641/2007

COMMISSIONER OF INCOME TAX
DELHI -IV, NEW DELHI                                        ... Appellant


                                  - versus -


HUGHES SOFTWARE SYSTEMS LIMITED                             ... Respondent

Advocates who appeared in this case:

For the Appellant : Ms Prem Lata Bansal with Mr Sanjeev Rajpal For the Respondent : Mr Ajay Vohra with Ms Kavita Jha and Mr Sriram Krishna

CORAM:-

HON'BLE MR JUSTICE BADAR DURREZ AHMED HON'BLE MR JUSTICE RAJIV SHAKDHER

1. Whether Reporters of local papers may be allowed to see the judgment ?

2. To be referred to the Reporter or not ?

3. Whether the judgment should be reported in Digest ?

BADAR DURREZ AHMED, J (ORAL)

1. This appeal is directed against the order dated 29.09.2006

passed by the Income Tax Appellate Tribunal in ITA 2167/Del/2002

pertaining to the assessment year 1998-1999. The issue that is sought

to be raised in this appeal relates to the allowability of direct expenses

said to have been incurred by the assessee in respect of a project known

as the Jakarta Project in Indonesia.

2. The extent of direct expenses claimed by the assessee was Rs

37,18,958/-. The assessee had entered into an agreement with PT

Radio Telepon, Indonesia also known as Ratelindo for installation,

testing and commissioning of a fixed digital radio cellular network

system and related services. The assessee did not have the necessary

expertise to execute the said project and, therefore, assigned the same

to its parent company being Hughes Network Systems, USA (HNS).

There was no formal agreement between the assessee and the parent

company (HNS). However, they had an understanding vide letter dated

06.05.1997 that the total amount received by the assessee in relation to

this project by way of the amounts received from the parent company

(HNS) for services provided, would be taken into account for arriving

at the profit earned by the assessee, after deducting actual estimated

costs of rendering these services. It was also stated in the said letter

dated 06.05.1997 that a final settlement between the parent company

and the assessee would be arrived at for the project to allow the assesee

the approximate profit anticipated at the start of the project except for

any reduction of profit which is attributable to the items of work

directly and completely under the assessee's control.

3. The project suffered an overall loss which was absorbed by

the parent company. However, during the relevant year the assessee

received in aggregate a sum of Rs 1,56,18,541/- towards completion of

phase-II of the project. According to the assessee, it was entitled to

deduct both direct and indirect expenses which had been incurred by it

from this sum of Rs 1,56,18,541/- to arrive at the net income of the

assessee in respect of this project. The Assessing Officer, however,

was of the view that what the assessee received was net income itself

and, therefore, no further deduction by way of expenses could be

entertained. Consequently, the Assessing Officer disallowed the

expenses claimed by the assessee.

4. Being aggrieved by the assessment order, the assessee

preferred an appeal before the Commissioner of Income Tax (Appeals)

who, by an order dated 28.02.2002, allowed the claim of the assessee

towards direct expenses but disallowed the claim in respect of indirect

expenses. The Commissioner of Income Tax (Appeals) returned a

clear-cut finding that the direct expenses incurred by the appellant

company on the project to the extent of Rs 37,18,958/- cannot be

denied as the same were fully identifiable.

5. Being aggrieved by this finding with regard to direct

expenses, the revenue preferred the said appeal being ITA

2167/Del/2002 before the Income Tax Appellate Tribunal. It may be

pertinent to note that the assessee also filed an appeal against the order

of the Commissioner of Income Tax (Appeals) being aggrieved by the

disallowance of their claim of indirect expenses. Both the appeals were

disposed of by the said order dated 29.09.2006. The present appeal,

however, is concerned only with the issues raised by the revenue in its

appeal in respect of direct expenses before the Tribunal.

6. We have examined the material on record as well as the

orders passed by the Assessing Officer, the Commissioner of Income

Tax (Appeals) and the Tribunal and we note that the Tribunal has

confirmed the finding returned by the CIT (Appeals) that the direct

expenses incurred by the assessee were allowable as they were

identifiable. The Tribunal also noted that the revenue could not show

any material to controvert the finding of the CIT (Appeals) and show

that the direct expenses allowed were not actually incurred by the

assessee for the completion of phase-II of the Jakarta Project. This, we

find is essentially a finding of fact. No perversity has been pointed out

and as such we are not interfering with the order passed by the

Tribunal. No substantial question of law arises for our consideration.

The appeal is dismissed.

BADAR DURREZ AHMED, J

RAJIV SHAKDHER, J November 07, 2008 SR