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2013 (11) TMI 474 - AT - Income TaxRectification of mistake u/s 154 - Disallowance of expenditure u/s 40(a)(ia) of the Income Tax Act - Commission was paid to non-residents agents for rendering services in respect of procuring export orders from various countries - Assessee paid commission at 5% on FOB value of the shipment of the product to the foreign agents and is also not in dispute that the agent is not authorized to market the products to any third party and it does not have any business connection in India - Their services are also not utilized in India – Held that:- Following the decision in the case of CIT v. EON Technology[2011 (11) TMI 20 - DELHI HIGH COURT], and also the Coordinate bench decision in the case of Armayesh Global v. ACIT [2012 (5) TMI 124 - ITAT Mumbai], it has been held that the income of the non resident cannot be considered as accrued or arisen or deemed to accrue or arise in India as the services of the said agents were rendered/utilized outside India and the commission was also payable/paid outside India - In the absence of permanent establishment in India, the income of the said agents cannot be subjected to tax in India and hence assessee was not liable to deduct tax on payments made to the said agents. Therefore, provisions of section 40(a)(ia) have no application on the given facts. - Decided in favor of assessee. The ITAT, Mumbai in the case of DCIT vs. Ardeshi B. Cursetjee & Sons Ltd [2008 (3) TMI 500 - ITAT MUMBAI] has held that commission paid to nonresident agents outside India for services rendered outside India were not chargeable to tax in India. In the facts and circumstances, commission paid by appellant to the non resident commission agent was not chargeable under the provisions of I.T. Act. Disallowance of Ocean Freight Expenses paid by the assessee company to a non resident shipping company M/s Transmode Overseas Partners, Germany by invoking section 40(a)(ia) of the Act – Held that:- Section 194C deals with work contracts including carriage of goods and passengers by any mode of transport other than railways. This section applies to payments made by a person referred to in clauses (a) to (u) of sub-section (1) to any "resident". (termed as contractor). It is clear from the section that the area of operation of TDS is confined to payments made to any "resident". On the other hand, section 172 operates in the area of computation of profits from shipping business of non-resident ship-owner or characterer, he steps into the shoes of the principal. Accordingly, provisions of section 172 shall apply and those of Sections 194 C and 195 will not apply - Assessee company is not required to deduct tax at source from the ocean freight paid by it of Rs.58,82,475/- to M/s. Transmode Overseas Partners, Germany – Decided in favor of Assessee. Disallowance of an amount of Rs.6.00 lakhs claimed as legal expenses – Held that:- Reliance has been placed upon the judgment in the case of DCIT vs. Mahindra Realty & Inf. Developers Ltd [2013 (9) TMI 113 - ITAT MUMBAI], wherein it was held that even though the expenditure may be of enduring nature, the same cannot be considered as capital in nature always unless an asset was created. Expenditure incurred on website development is although enduring in nature, the intent and purposes behind the development is not to create an asset but only to provide a means for disseminating the information about the assessee among its clients – Similar views are expressed in the case of CIT vs. Indian Visit.com P. Ltd.[2008 (9) TMI 8 - DELHI HIGH COURT], wherein it has been held that Just because a particular expenditure may result in an enduring benefit would not make such an expenditure of a capital nature. What is to be seen is what is the real intent and purpose of the expenditure and as to whether there is any accretion to the fixed capital of the assessee - In the case of expenditure on a website, there is no change in the fixed capital of the assessee. Although the website may provide an enduring benefit to an assessee, the intent and purpose behind development of a website is not to create an asset but only to provide a means for disseminating the information about the assessee – In the instant case, it has been held the ratio of the above decisions that expenditure is correctly allowed as revenue expenditure – Decided in favor of Assessee. Disallowance of interest expenses of.3,18,600 - Assessee has paid interest and financial charges of Rs. 10,104,198/. It is also noticed that assessee has made investment amounting to Rs. 20,05,600/ and gave loan of Rs. 6,50,000/ to M/s Alpanso Netsecure Pvt. Ltd being associate company – Held that:- No part of the interest could be disallowed on the reason that assessee had advanced interest free advances to its sister concern. It is also a fact that assessee has invested money in a sister concern and if any disallowance is required the same has to be considered under section 14A which is the case not here as assessee has not earned any exempt income. Since assessee’s available capital is more than the borrowed funds, presumption as decided by the Hon'ble jurisdictional High Court in the case of Reliance Utilities and Power Ltd [2009 (1) TMI 4 - HIGH COURT BOMBAY] equally apply - Amount of Rs.3,18,600 cannot be disallowed as it has no nexus to the other finance charges claimed by assessee as business expenditure – Decided in favor of Assessee.
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