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2021 (6) TMI 606 - AT - Income TaxTDS u/s 195 - Disallowance u/s 40(a)(i) in respect to payment made to Trans Coral Shipping, FZE ,Sharjah (UAE) arbitrarily - HELD THAT:- The fact that the commission receipt earned by the assessee company is paid to the agent and the same has been determined as 1/3rd of commission receipt plus incentive where the total receipts exceeds a pre-determined threshold cannot be sole determinative of a joint venture and is mere a mode of determination of fees as agreed between the two companies. The nature of such payment is therefore clearly that of sales promotion expenditure for services rendered outside of India where the corresponding revenues have been offered to tax by the assessee company. CIT(A) has also treated the same as sales promotion expenses and has recorded a similar finding and therefore, the nature of payment is not in dispute. Such sales promotion expenditure paid and credited to the account of the non-resident entity for the services rendered outside India will not fall in the category of the income received or deemed to be received in India as well as accrues or arises or deemed to accrue or arise in India. Further, the provisions of section 9(1)(vii) are not attracted in the instant case as the assessee company has utilized the services of the non-resident service provider outside of India for the purposes of earning commission income from its customers/shipping companies outside of India. In other words, where the source of assessee’s income for which the services are utilized is outside of India and the services are also rendered outside of India, the deeming provisions of section 9(1)(vii) are not attracted. Thus, the said amount paid to non-resident entity does not fall in the scope of total income of non-resident entity and consequently it is not chargeable to tax in India under the provisions of the Act. Even otherwise, the said income in the hands of non-resident has to be considered in the light of the provisions of DTAA between India and the Country of the nonresident, i.e UAE. In the absence of Permanent Establishment of the nonresident in India during the financial year relevant to impugned assessment year and any income attributable to such Permanent Establishment, such business income is not chargeable to tax in India. When the amount paid by the assessee is not chargeable to tax in India then the assessee is not liable to deduct TDS u/s 195 and consequently the provisions of Section 40(a)(i) of the Act cannot be invoked for making the disallowance. Disallowance so made by the AO U/s 40(a)(i) of the Act is hereby deleted and ground of appeal is allowed. Disallowance of expenses debited to profit & loss account, i.e. vehicle, diesel & Petrol expenses, entertainment expenses, telephone & mobile expenses and travelling expenses - HELD THAT:- We find that the expenses have been disallowed for the reason that personal use of vehicles and incurrence of other expenditure for personal purposes of the directors of the company cannot be denied. The assessee being a corporate entity, there cannot be any personal expenditure and secondly, where the directors of the company are alleged to have benefitted from use of vehicle and incurrence of other expenditure, the same can be brought to tax in their individual hands by way of perquisites being provided by the company. However, as far as the assessee is concerned, where the expenses are incurred for the purposes of the business, the same cannot be disallowed. In the result, the disallowance so made is directed to be deleted and the ground of appeal is allowed.
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