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2011 (3) TMI 674 - AT - Income TaxJustification of commission to its group concerns abroad - The disallowance was made for two reasons by the AO. First one was that assessee could not prove the business purpose since the involvement of the group company in the related transactions was not demonstrated. According to AO there was no written agreement between the group concerns and assessee and neither the percentage of commission and who fixed the commission were known. - Secondly AO relied on section 40(a)(i) of the Act considering such payment to be for technical services. - Held that:- Just because group concern also produced same product in the respective country, would not be sufficient to come to a conclusion that assessee need not have made any exports to such country but the supply ought have been made only by the group concern in the said country. There could have been a myriad of reasons for the assessee and assessee’s group concerns abroad, to source its’ supplies from assessee, to its’ ultimate customers and such a decision taken by a businessman could not have been question by an Assessing Officer without conclusively proving that such sourcing was a colourable exercise. The order the TPO mentioned above clearly prove that there was no colourable exercise nor excessive billing. - Decided in favor of assessee. Nature of commission - fee for technial services - No doubt technical service would definitely include managerial services. However in our opinion canvassing of orders abroad could not be for managerial services nor can it be said to be for any consultation. Thus definitely technical services as per Explanation 2 to section 9(1)(vii) of the Act would have no application. When an assessee is not obliged to deduct tax on a payment made to non-resident, then in view of the decision of Hon'ble Apex Court in the case of GE India Technology Cent. (P.) Ltd. (2010 -TMI - 77380 - SUPREME COURT OF INDIA ) there was no question of any failure to deduct such tax being fastened on it. - Decided in favor of assessee.
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