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2022 (6) TMI 228 - AT - Income TaxDeduction u/s 80JJAA - AO disallowed the claim holding that the business of software development will not fall under the category of industrial undertaking, assessee is not engaged in the business of manufacturing or production of articles or things and the employees, being software engineers, would not fall under the definition of “workmen” as defined u/s 80JJAA - HELD THAT:- We notice that the various contentious issues with regard to the deduction allowable u/s 80JJAA of the Act has been resolved in the case of CIT vs. Texas Instruments India P Ltd [2021 (4) TMI 1049 - KARNATAKA HIGH COURT]. Both the parties agreed that this issue may be restored to the file of the assessing officer for examining it afresh in the light of decision rendered by Hon’ble jurisdictional High Court, referred above. Nature of expenses - disallowance of annual maintenance contract and software expenses claimed as revenue expenses - HELD THAT:- We hold that there is no requirement of disallowance made u/s 40(a)(i)/40(a)(ia) as the payments have been made prior to the decision rendered in the case of Samsung Electronics Co [2009 (9) TMI 526 - KARNATAKA HIGH COURT] - Accordingly, we set aside the order passed by CIT(A) on this issue and direct the AO to delete the disallowance made u/s 40(a)(i)/40(a)(ia). For capitalisation of software expenses - We are of the view that this issue also requires fresh examination at the end of the AO. Accordingly, we set aside the order passed by CIT(A) on this issue and restore the same to the file of AO with the direction to examine this issue, follow the above cited binding decisions of the jurisdictional High Court and take appropriate decision. The assessee is also directed to furnish all the relevant information to the AO. Disallowance of claim of communication expenses - As submitted that the said payment does not quality to be royalty as per Article 12 of India-US treaty and hence it is not liable for tax deduction at source - AO, however, held that the assessee would be liable to deduct tax at source on the above said payment in terms of sec. 9(1)(vi) of the Act and accordingly disallowed the above said expenditure - HELD THAT:- In the instant case, the assessee has reimbursed the data link charges to its AE, which in turn has entered into agreement with third party vendors for providing data link facility. It can be noticed that the assessee has made the payment for using the facility provided by a third party vendor. Accordingly, following the decisions rendered in the above cited cases, we hold that this payment shall not fall under the category of royalty within the meaning of Article 12 of DTAA. Since it is not shown that the provider of the link facility had permanent establishment in India, the payment cannot be taxed in India and hence the provisions of sec.195 are not applicable. We noticed that the AO/CIT(A) relied upon the Explanations 5 & 6 inserted in sec. 9(1)(vi) of the Act by Finance Act, 2012. Since it is a prospective amendment, the disallowance u/s 40(a)(i) cannot be invoked for the year under consideration relying upon the above said amendment. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete this disallowance. Disallowance of Legal and Professional fees u/s 40(a)(i) - HELD THAT:- In the instant case, the assessee has availed legal and professional services in USA. In the above said case, it has been held that the “professional services would not fall under the category of “Fee for technical services” within the meaning of sec. 9(1)(vii) - Following the same, we hold that the view taken by Ld CIT(A) cannot be sustained. Under Sec. 90(2) of the Act, the provisions of the Income tax Act are required to be applied only if they are more beneficial to the assessee. We noticed that under the Income tax Act, this receipt is not taxable in India in the hands of non-residents. Hence, the provisions of Income tax Act are more beneficial to the non-residents. There is no necessity to refer to the provisions of India-USA DTAA. In any case, we notice that, in order to bring the impugned payments within the Article 12 of India-USA DTAA, the services should have been “made available” technical knowledge etc to the assessee herein. In the instant case, the assessee has only availed professional services of non-residents in connection with tax compliances and the technical knowledge has not been “made available”. Since the make available clause fails, the impugned payments cannot be taxed as Fee for Included services under Article 12 of the India-USA DTAA. In this view of the matter, there is no necessity to refer to Article 15 also. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance of legal and professional fees made u/s 40(a)(i). - Decided in favour of assessee.
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