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2011 (5) TMI 566 - HC - Income TaxTDS u/s 195 - remuneration/royalty paid by it to other subsidiaries by assessees holding companies - DTAA - disallowance u/s 40 - Held that:- In so far as Article 9 of the DTAA is concerned, it is brought into focus because of the reason that the royalty is paid to the foreign companies and there is a Double Tax Avoidance Agreement between the Indian Government and the Switzerland Government - Tribunal also noticed that the assessee had supplied plethora of documents before the lower authorities in respect of both the assessment years and tabulated those documents in the impugned order and found that the AO had not discussed or referred to even those documents - As to the question that no independent evaluation of the value and utility of technical services were carried out, the learned counsel argued that such was never a practice in a case where highly specialized and restricted technology was imparted - The fact of the matter was that the remuneration was fixed at a very reasonable rate in spite of the Government regulations having permitted payment of remuneration at much higher rate It is held that expenditure was neither excessive nor unreasonable, the same could not be disallowed under Section 40 A (2) of the Act - assessee has been able to discharge its burden namely it was a justifiable and reasonable business expenditure and thus should be allowed under Section 37 of the Act - Tribunal has held that the assessee having discharged the initial onus, burden shifted to the Revenue to show that the payment of royalty was excessive or unreasonable having regard to the legitimate needs of business or that the assessee has made less than ordinary profits and the Revenue has not discharged the said onus - Revenue has not specified as to how much ordinary profit was supposed to be and basis of its determination, before treating royalty payment as excessive and unreasonable. Coming to Section 92 of the Act, the CBDT has itself clarified in its Circular No. 14 dated 27.11.2001 that Section 92 of the Act does not apply in respect of „payment of royalty etc which are not the part of regular business carried on between a resident and a non- resident. This aspect is suitably dealt with by the Tribunal and we agree with its reasoning.Decided in favor of the assessee
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