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2014 (9) TMI 193 - AT - Income TaxPayments made to non-residents – Income accrue or arises - Accrual of income - Royalty" u/s.9(1)(vi) - Whether income to the non-resident can be said to have accrued or arisen in India and whether the income under the head "Income from Business" or "Fees for Technical services" u/s.9(1)(vii) of the Act as held by the CIT(A) or could it be classified under the head "Royalty" u/s.9(1)(vi) of the Act – Held that:- The payments made by the Assessee to the nonresident is not "Fees for Technical Services", the Assessee cannot avoid its obligation to deduct tax at source u/s.195 of the Act - payment made for use of shrink wrapped software or off the shelf software and access to database - the payment for purchase of shrink wrapped soft-ware was in the nature of royalty - payment is in the nature of "Royalty" - Decided against Revenue. Payments made to the non-resident on or before the last date of the previous year and nothing remained "Payable" the provisions of Sec.40(a)(i) of the Act applicable or not – Held that:- Since the assessee had not deducted tax at source on payments, the AO invoking the provisions of section 40(a)(ia) of the Act disallowed the claim of the assessee for deduction of the sum while computing income - as on the last date of the previous year relevant to AY 2005-06, the amounts due and payable to the sub-contractors had been paid and nothing remained payable and that provisions of Sec.40(a)(ia) of the Act cannot be invoked to make disallowance where the amounts do not remain payable but had been actually paid - There was no clear finding of the AO/CIT(A) nor material to show that the Assessee had in fact made payments on or before the last date of the previous year to the non-residents – thus, the matter is remitted back to the AO for consideration – Decided in favour of Assessee. Fee paid to specialists who maintain records of online consumers – Held that:- Following the decision in The Commissioner of Income Tax Versus M/s. Gem Plus Jewellery India Ltd. [2010 (6) TMI 65 - BOMBAY HIGH COURT] - the consequence of disallowance u/s 36(1)(va) r.w.s. 2 (24)(x) of the Act, would be the business profit of the assessee would increase and exemption u/s 10A has to be allowed with reference to enhanced profits – Decided against Revenue. Deduction u/s 10A – Reduction of leased line expenses from turnover – Held that:- Following the decision in Commissioner of Income-tax Versus Tata Elxsi Ltd. [2011 (8) TMI 782 - KARNATAKA HIGH COURT] - whatever is excluded from export turnover should also be excluded from the total turnover - The fact that the revenue has not accepted the decision of the Hon'ble Karnataka High Court and has filed an SLP before the Hon'ble Supreme Court cannot be the basis not to follow the decision of the Hon'ble Karnataka High Court – Decided against Revenue. Employees contribution to provident fund not paid before the due date – Held that:- CIT(A) rightly was of the view that the amounts received by an assessee from employees towards PF contributions etc. shall be "income" and S. 36(1)(va) which provides that if such sums are contributed to the employees account in the relevant fund on or before the due date specified in the PF etc. legislation, the assessee shall be entitled to a deduction - the second Proviso to s. 43B (b) provided that any sum paid by the assessee as an employer by way of contribution to any provident fund etc. shall be allowed as a deduction only if paid on or before the due date specified in 36(1)(va) - after the omission of the second Proviso w.e.f 1.4.2004, the deduction is allowable under the first Proviso if the payment is made on or before the due date for furnishing the return of income – relying upon Commissioner of Income Tax Versus M/s. Alom Extrusions Limited [2009 (11) TMI 27 - SUPREME COURT] - the deletion of the second Proviso has been held to be with retrospective effect – Decided against Revenue.
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