Home Case Index All Cases Income Tax Income Tax + AT Income Tax - 2018 (10) TMI AT This
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2018 (10) TMI 1168 - AT - Income TaxTDS u/s 195 - expenses incurred for the purpose of business of the PE - no TDS has been deducted on the salary paid to the employees - reason given by the AO for making disallowance was that the assessee could not substantiate, whether these expenses were related to the business of the PE or were incurred wholly and exclusively for the purpose of business - India Mauritius DTAA - Held that:- Para 3 of Article 7 provides the determination of profits of PE by allowing the deduction of expenses which are incurred for the purpose of business of the PE including executive and general administrative expenses so incurred in which the PE is situated. Accordingly, all the expenses incurred for the purpose of the business of the PE are to be allowed. There is no restriction on the allowability of such expenses subject to any limitation of the taxation laws of the contracting state (India). The phraseology used in Article 7 (3) is different from other treaties, for instance Article 7(3) of Indo US Treaty DTAA provides that deduction of expenses which are incurred for the purpose of business of the PE would be in accordance with provisions subject to the limitation of the taxation laws of that State. Similar phraseology has been used in India UAE DTAA after the protocol. Once in a treaty no such restriction has been provided for applying the limitation of the domestic taxation laws, then such limitation given under the Indian Income Tax cannot be imported in such an Article. If the expenditure has been incurred on the payment of salary or reimbursement of salary of the employees, then same has to be allowed while computing the profit and loss of the PE in full and without any restriction of deductibility as per the provision of Income Tax Act. No infirmity in the order of the Ld. CIT(A) that restriction in allowing the expenditure invoking provision of section 40(a)(i) of the Income Tax Act cannot be read Indo Mauritius DTAA and accordingly, disallowance by invoking the provision of section 40(a)(i) cannot be made. Hence disallowance of salary paid to the employees has rightly been deleted by the Ld. CIT(A). Consequently ground No. 1 as raised by the revenue is dismissed. Operating contract expenditure with the payment made to the non resident - TDS has not been deducted and therefore same are to be disallowed u/s 40(a)(i) - Held that:- Nowhere it has been brought on record that the payment made to these non-residents were income in the hands of such non-residents which is to be taxed in terms of section 195(2); secondly, the provision of section 40(a)(i) cannot be invoked while allowing the expenditure in terms of Article 7(3) in Indo Mauritius DTAA as held in the earlier part of the order. Thus, there is no infirmity in the order of the CIT(A) while deleting the said disallowance. Disallowance of expenditure relating to travel and entertainment - Held that:- Once AO has not disputed the fact that assessee has been carrying out its various activities through various projects in India, then any such expenditure relating to the project cannot be disallowed. One of the allegations of the CIT DR that assessee has filed additional evidence before the Ld. CIT(A) and therefore, same cannot be entertained, but we are unable to appreciate such a contention raised because apparently there is no additional evidence which has been filed during the course of first appellate proceedings and all the requisite details have been filed before the AO alongwith letters addressed to him, the copies of which have been placed on the paper book. Once the details of expenditure have been given and no defect or error has been pointed out by the AO, then same is to be held as allowable expenditure. Accordingly, the order of the Ld. CIT(A) in deleting the said addition is upheld. Revenue appeal dismissed.
|