TMI Blog2018 (5) TMI 1853X X X X Extracts X X X X X X X X Extracts X X X X ..... interest on loan given by the assessee to its AE - determining the cost of interest on the international transaction in respect of interest to be charged on the loan advanced to AE - HELD THAT:- In this regard we are of the view that for the purpose of credit rating of the assessee as well as the credit rating of the AE should be taken into account. In similar facts & circumstances in the own case of the assessee. We restore the issue to the file of TPO/AO for the fresh adjudication according to law and in the light of above stated discussion. Thus the ground of appeal of the assessee is allowed for statistical purposes. Disallowance u/s. 14A r.w.s. Rule 8D - HELD THAT:- Disallowance made under the second limb of Rule 8D(2)(ii) of the Rules is hereby directed to be deleted. With regard to the third limb of Rule 8D(2)(iii) of the Rules, we hold that the assessee has got investments in foreign companies, the dividend earned from which would be taxable income and hence should be outside the ambit of disallowance u/s 14A read with Rule 8D of the Rules. Similarly, investments made in subsidiary companies would have to be reckoned as strategic investments and hence the same should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es, copy of advertisements, copy of invoice, subscription renewal forms etc. We find that in the earlier years in assessee’s own case, the CIT-A had granted relief to the assessee by placing reliance on ‘make available’ clause prevailing in various tax treaties , but the same is not done by the AO and DRP in the instant case. Assessee had filed various documents with detailed factual and legal submissions with supporting evidences before the ld AO, which had not been appreciated by the AO and DRP in the proper perspective. Hence we deem it fit and appropriate, to remand this entire issue to the file of the AO, for de novo adjudication of this issue afresh in accordance with law. The assessee is also directed to cooperate with the ld AO by producing the necessary evidences in support of its contentions. Disallowance on account of delayed deposit of employees’ contribution to PF and ESI - assessee failed to furnish the supporting evidence evidencing that the amount of PF/ESI has been deposited within time of income tax return filing as specified u/s 139(1) - HELD THAT:- assessee failed to furnish the supporting evidence evidencing that the amount of PF/ESI has been deposited w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ORDER PER Waseem Ahmed, Accountant Member:- This appeal by the assessee is directed against the order of Dispute Resolution Panel-2, (DRP for short) dated 17.10.2016. Assessment was framed by DCIT, Circle-8(1), Kolkata u/s 144C(13)/143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) vide his order dated 29.11.2016 for assessment year 2012-13 and grounds raised by assessee read as under:- 1.0 Determination of arm's length price for Corporate Guarantee fees 1.1 On the facts and in the circumstances of the case in law, the Learned Transfer Pricing Officer (hereinafter referred to as Ld, TPO ) and accordingly Learned Assessing Officer (hereinafter referred to as Ld. AO ) erred in treating the Corporate Guarantee extended by the appellant to its Associated Enterprise (AE) as international transaction and Dispute Resolution Panel (hereinafter referred to as Ld, Panel ) erred in confirming the same as an international transaction without appreciating the fact that it does not fall within the ambit of International transaction u/s 92B of the Act. 1.2 The Ld.AO/TPO and the Ld. Panel failed to appreciate the fact that corporate guarant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act against the suo-moto disallowance made by the appellant. 3.4 On the facts and in the circumstances of the case in law, the Ld. Panel erred in confirming disallowance of ₹ 3,51,52,181/- u/s 14A proposed by the Ld. AO without appreciating that the Ld. AO did not bring any evidence on record of any expenditure being incurred over and above the amount identified and offered to tax by the appellant. 3 5 On the facts and in the circumstances of the case in law and without prejudice to Grounds taken here-in-above, the Ld. Panel as well as Ld. AO while computing alleged disallowance under Rule 8D (ii) and Rule 8D (iii) ought to have excluded:- - investments on which no exempt dividend income was earned during the year; - strategic investments made in subsidiaries/ group companies out of business exigencies and consequently erred in confirming the disallowance of ₹ 3,51,52,181/- in the present case. 3.6 On the facts and in the circumstances of the case in law and without prejudice to grounds taken here-in-above, the Ld. Panel as well as the Ld. AO grossly erred in ignoring the decision of Kolkata Tribunal in the appellant's own case in DCIT -vs- EI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expenditure incurred on running and maintenance of aircrafts including depreciation to the extent of ₹ 53,32,210/- being 10% of the total expenditure of ₹ 5,33,22,099/- ignoring the decision of Hon'ble Kolkata Tribunal in appellant's own case in DCIT -vs- EIH Limited (2015) I.T.A. No. 426/Ko1/2006 for AY 2002-03 6.0 Non-grant of set off of long term capital loss against deemed short term capital gain 6.1 On the facts and in the circumstances of the case in law, the Ld. Panel erred in confirming the action of the Ld. AO in not allowing set-off u/s 74 of long term capital loss amounting to ₹ 1AO,51,830/-with deemed short term capital gain computed as per section 50(1) of the Act. 6.2 On the facts and in the circumstances of the case in law, the Ld. Panel while confirming the action of Ld. AO in denying set-off u/s 74 failed to appreciate that Section 50 being a deeming provision its scope extended only up to computation of capital gain, however such gain arising from transfer of long term capital assets, retained the character of long term capital gain for all other provisions and is eligible for set off u/s 74 against brought forward loss from ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... facts and in the circumstances of the case in law, the Ld. Panelgrossly erred in confirming the action of the Ld. AO in not allowing deduction of provision for bad and doubtful debts written back on the alleged ground that the same was not claimed in correct forum or method by way of timely revision of return ignoring the fact that the same did not tantamount to lodging of fresh claim for deduction but for allowing correct amount of provision written back inadvertently claimed at a lesser amount in the return of income. 9.3 On the facts and in the circumstances of the case and without prejudice to grounds taken herein above, in any event, the Hon'ble ITAT may please consider and allow the claim of the appellant made on account of provision for bad and doubtful debts written back of ₹ 51,77,916/- on the principle laid down by the Hon'ble Supreme Court of India in the case of National Thermal Power Corporation Limited (Supra). 10.0 Short grant of credit for tax deducted at source and tax collected at source 10.1 On the facts and in the circumstances of the case, Ld. AO erred in not granting TDS/TCS credit to the extent of ₹ 1,18,60,966/- without assigni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d assessee filed objections before the ld DRP who upheld the order of TPO. Being aggrieved by the order of the ld. DRP and the final order of the AO, the assessee is in appeal before us. 4. The ld. AR contended that the impugned issue has been decided by the jurisdictional ITAT in the own case of the assessee in ITA No.110/Kol/2016 vide order dated 12.01.2018. On the other hand the ld. DR vehemently supported the order of authorities below. 5. We have heard the contentions of both the parties and perused the materials available on records. At the outset we note that the impugned issue has already been decided in favour of assessee by this Tribunal in its own case in ITA No. 110/Kol/2016 for the AY 2011-12 vide order dated 12.1.2018. The relevant extract of the order is reproduced below : 12.10. We note that M/s. EIH flight is a startup company, it required funds primarily for acquisition of capital assets for setting up its operation and guarantee facilities given by the assessee/assessee company to the lender bank is normal business practice and obligation towards a subsidiary. Since the AE was a startup company, the assessee extended corporate guarantee to the third ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r this Explanation, five categories of transactions have been clarified to have been included in the definition of 'international transactions'. Clauses (a) (b) and (d) do not cover guarantee, lending or loans. Other two, (c) and (e) deal with (i) capital financing, and (ii) business restructuring or reorganization. Clause (c ) refers to lending or guarantee. But the Explanation which is for removal of doubts or is clarificatory, cannot be read independent of Section 92B(1). Section 92B(1), provides those transactions as international transactions which are in the nature of purchase, sale or lease of tangible or intangible property (explained by clauses (a) and (b) of the Explanation), or provision of services, (explained by clause (d) of the Explanation), or lending or borrowing money (explained by Clause (c) of Explanation). The plain reading of provisions of sec. 92B(1) of the Act indicate that the various transactions mentioned in section 92B(1) of the Act, (i.e. purchases, sales, provision for services, lending or borrowing or any other transaction) should have bearing on the profits, incomes, losses or assets of such enterprises. In our opinion, the condition preceden ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed a fee of 0.5% on the AE for rendering this service. On this factual aspect, the Tribunal as well as the Hon ble High Court held that it is an international transaction. Since in the case in hand, the assessee has not charged a penny from the AE, so the facts of the case are different and case law is distinguishable and, therefore, the Hon ble High Court s order cannot come to the rescue of the Revenue. We find that the ld. AR pointed out that in the said case, the Hon ble Bombay High Court did not answer the specific question as to whether the issuance of corporate guarantee is inherently within the ambit of definition of international transaction irrespective of whether or not such transactions have any bearing on profits, income, lossess or assets of such enterprises u/s. 92B of the Act. We also note that the Ahmedabad Bench of this Tribunal supra after considering the decision of the Hon ble Bombay High Court in Everest Kanto Cylinder Ltd. (supra) observed as under: We are unable to see, in the judgment of Hon ble Bombay High Court, any support to the proposition that issuance of corporate guarantee is inherently within the ambit of definition of international transa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for short) on account of interest on loan given by the assessee to its AE. 7. The assessee to extend the financial help to its subsidiary company namely M/s. EIH Flight service ltd. Mauritius has advanced loan without interest. The reason for not charging the interest was submitted by the assessee that the loan was provided by it in the capacity of shareholder to protect the investment of its AE. The assessee also submitted that the loan amount was subsequently converted into equity shares in part. However the TPO rejected the contention of assessee and considered the transaction entered between the assessee and EIH Flight as an international transaction. Accordingly the TPO was of the view that the assessee should have earned an arm's length interest rate from its AE for this transaction. Thus the TPO used the LIBOR rate plus 400 bps to determine the interest amount on the loan provided to the AE. The average LIBOR for the year under consideration was worked out at 0.9211% only. Thus the cost of funds comes to 4.92% (0.92%+4%) and accordingly ARM length interest was computed at 8.92% (4.92%+400bps). Thus the TPO worked out the arm length of interest amount for the openi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this purpose the credit rating of the assessee as well as the credit rating of the AE should be taken into account. Accordingly we deem it fit to remand the issue to the ld. TPO to determine the basis points on the basis of the aforesaid parameters and such other relevant parameter in accordance to law. Therefore, we remand this issue for this limited purpose back to the ld TPO / ld AO and to determine the issue as directed by us. Accordingly, the Grounds 2.1. 2.2. raised by the assessee are allowed for statistical purposes and Ground 1 raised by the revenue is dismissed. Respectfully following the same we restore the issue to the file of TPO/AO for the fresh adjudication according to law and in the light of above stated discussion. Thus the ground of appeal of the assessee is allowed for statistical purposes. 11. Next issue raised by assessee in this appeal is that Ld. DRP erred in confirming the order of AO by sustaining the disallowance of ₹3,51,52,181/- u/s. 14A r.w.s. Rule 8D of the Income Tax Rule, 1962. 12. The assessee during the year has earned dividend income of ₹19,07,36,227/- which was claimed exempted u/s 10(34) of the Act. The assessee in re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance u/s 14A of the Act. The assessee also claimed to have made investment out of its own surplus fund. Therefore no disallowance on account of interest expense can be made by the AO. The AO also erred in not netting of the interest income with the interest cost while making the disallowance u/s 14A of the Act. 13.1 However, the ld. DRP after considering the submissions of assessee confirmed the order of AO by observing as under:- DRP directions: The assessee has fled elaborate submissions which have been considered by the panel. In compliance to the provisions of law, a part of his expenses would necessarily have to be disallowed under section 14A read with Rule 8D if funds have been borrowed at a cost and if the taxpayer has investments in shares or mutual funds, the income from which, when received, would be tax free. The owned funds of the assessee would not merit any distinction in these circumstances as the alternative usage of funds is into main business activity of the assessee that would beer taxable returns. Either way the statute intends to lower the tax advantage conferred on the assessee where the expense on earning exempt income are directly o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnot be any disallowance of interest under Rule 8D(2)(ii) of the Rules by applying the ratio laid down in the decision of the Hon ble Bombay High Court in the case of CIT vs Reliance Utilities Power Ltd reported in (2009) 313 ITR 340 (Bom) wherein it was held that the presumption would go in favour of the assessee if the interest free funds are more than the loans taken by the assessee , then it would be presumed that the investments were made out of own funds of the assessee. The said ratio would squarely apply to the facts of the instant case. Hence we hold that the disallowance made under the second limb of Rule 8D(2)(ii) of the Rules is hereby directed to be deleted. 2.2. With regard to the third limb of Rule 8D(2)(iii) of the Rules, we hold that the assessee has got investments in foreign companies, the dividend earned from which would be taxable income and hence should be outside the ambit of disallowance u/s 14A of the Act read with Rule 8D of the Rules. Similarly, investments made in subsidiary companies would have to be reckoned as strategic investments and hence the same should be excluded while working out the disallowance under Rule 8D(2)(iii) of the Rules. Similar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions of assessee confirmed the order of AO by observing as under:- DRP directions: The panel had allowed relief on this ground. The legal position has now changed as the department cannot challenge the directions of DRP. The assessee repaid ₹ 88568539/- under the lease finance arrangement. The assessee capitalized the leased asset in its balance sheet. The assessee had relied on the case of M/s ICDS Ltd vs. CIT [2013] 350 ITR 527 (SC). The AO has distinguished it on the facts for this period. ICDS Ltd. Ia the lessor in this case while the assessee is a lessee hence factually it is different. The AO has placed reliance on the case of Rio Tinto India (P) Ltd /vs- ACIT-15(1), New Delhi [2012] taxmann.com 124 (Del Tribunal] involving a case of Finance Lease (here the lessee uses the asset for substantially the whole of its useful life and the lease payments are calculated to cover the full cost together with interest charges). It is thus an ingenious way of asset acquisition. Basis above, the AO has concluded- Thus, keeping in view the aforesaid leasing arrangement between the assessee and M/s Orix and L T, the action of the assessee regarding capitalization ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing part of the paper book vide pages 87 to 98, we find that the ownership / title on the vehicles always lies with M/s Orix Auto Infrastructure Services Limited (lessor) during the subsistence of the lease vide clause 8 of the lease deed. We find that during the subsistence of this lease arrangement and till the vehicles are delivered back to the lessor, the lessee shall insure the vehicles with the lessor s name as the owner vide clause 11 of the lease deed. Clause 15 of the Lease deed clearly specifies that upon expiration or earlier termination of the lease, the lessee shall deliver to the lessor the said vehicles at a place designated by the lessor. We hold that since the ownership does not vest with the assessee at any point of time during the subsistence of the lease, the claim of allowability of depreciation u/s 32 of the Act as owner of the vehicles, does not arise. We hold that the lease arrangement cannot be considered as one of hire purchase as per Circular No. 9/1943 No. 9 [R.Dis.No. 27(4)-IT/43] dated 23.3.1943, since the terms of the agreement does not provide that the equipments shall eventually become the property of the hirer or confer on the hirer an option to pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal value did not make the assessee in effect a financier. No inference could be drawn from the registration certificate as to ownership of the legal title of the vehicle. If the lessee was in fact the owner, he would have claimed depreciation on the vehicles, which, as specifically recorded in the order of the Tribunal, was not the case. (iii) That the entire lease rent received by the assessee was assessed as business income in its hands and the entire lease rent paid by the lessee been treated as deductible revenue expenditure in the hands of the lessee. This reaffirmed the position that the assessee was in fact the owner of the vehicle, in so far as section 32 of the Act is concerned. (iv) That, therefore, the assessee was the owner of the vehicles. As the owner, it used the assets in the course of its business, satisfying both requirements of section 32 of the Act and, hence, was entitled to claim depreciation in respect of additions made to the trucks, which were leased out. (v) That for purposes of the assessee's claim to the higher rate of depreciation, the interpretation of the term purposes of business , used in second proviso to section 32(1) of the Act wou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... termination of the lease arrangement. We find that the case law relied upon by the Learned DR on the decision of Delhi Tribunal need not be discussed as the issue is squarely covered by the High Court and Supreme Court in favour of the assessee. Respectfully following the aforesaid decisions, we find no infirmity in the order of the ld CITA in this regard. Accordingly, the Ground No. 4 raised by the revenue is dismissed. Respectfully taking the consistent view of this Tribunal as discussed above, we reverse the order of Ld. DRP and direct the AE to delete the same. This ground of appeal of the assessee is allowed. 22. Next issue raised by assessee in ground No.5 is that Ld. DRP erred in confirming the order of AO by sustaining the disallowance of aircraft maintenance charges including the depreciation for ₹5,33,22,000/-. 23. The assessee has claimed the expenses of ₹2,06,28,623/- towards running, repairs, maintenance of two aircrafts. The assessee also claimed depreciation for ₹3,26,93,476/- only in respect of aircrafts. However, AO held that 10% of such expenses are not connected with the business of the assessee. Accordingly, he made the disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld TDS officer to look into the alleged violations, if any, on the same and the ld AO cannot resort to make any disallowance of expenditure on that count on an estimated basis. We also draw support from the decision of the Hon ble Gujarat High Court in the case of Sayaji Iron and Engineering Co vs CIT reported in 253 ITR 749 (Guj) in this regard. Based on these findings and judicial precedent relied upon, we hold that no disallowance of expenditure on maintenance of aircrafts need to be made on an estimated basis towards expenditure incurred for non-business purposes. Hence the issue of maintenance of aircrafts being utilized for business purposes are proved beyond doubt and there is no question of making any disallowance on that count. Once it is established that the aircrafts were used only for business purposes, there is no question of disallowance of depreciation, being proportionate or otherwise, on the same. Hence the provisions of section 38(2) of the Act are not at all applicable to the facts of the instant case. We also find that similar issue had cropped up for the Asst Years 2007-08 to 2009-10 in assessee s own case ITA Nos. 1431/1557/Kol/2011 ; ITA Nos. 932 866/Kol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reon had to be construed only for business purposes. To this extent, the reliance on the Gujarat High Court decision in 253 ITR 749 is well placed and supports the case of the assessee. We also find lot of force in the arguments of the Learned AR that if at all there is any personal element involved in the aforesaid expenditure, the same have to be taxed as perquisite in the hands of the directors and it is only for the TDS officer to look into the violations, if any, on the same and hence on that ground also, no disallowance of expenditure could be appreciated. We find that the Learned AO had made the entire addition based on surmises and conjectures and made on ad hoc basis. It is well founded proposition that what is apparent is real and the allegation to prove the contrary is on the person making such allegation. The following decisions support our view in this regard:- CIT vs Daulat Ram Rawatmull (1973) 87 ITR 349 (SC) Sukhdayal Rambilas vs CIT (1982) 136 ITR 414 Madura Knitting Co vs CIT (1956) 30 ITR 764 (Mad) In view of the aforesaid facts and circumstances and respectfully following the judicial precedents thereon, we have no hesitation in deleting the addition ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... RP directions: The assessee company claimed set off of Long Term Capital loss amounting to ₹ 1,40,51,830. The AO has to follow the classification as done by the assessee. The assessee cannot take recourse as it suits to their needs to shifting classifications between short and long term gains to suit its needs. This is a typical case of running with hares and hunting with hounds. This is not permissible in the scope of the Act. The contention of the assessee is that section 50 is only for computational purposes which is a correct interpretation to the extent only. Section 50 reads as under:- [Special provision for computation of capital gains in case of depreciable assets. 50. Notwithstanding anything contained in clause (42A) of section 2, where the capital asset is an asset forming part of a block of assets in respect of which depreciation has been allowed under this Act or under the Indian Income-tax Act, 1922 (11 of 1922), the provisions of sections 48 and 49 shall be subject to the following modifications:- (1) where the full value of the consideration received or accruing as a result of the transfer of the asst together with the full value of such consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s per provisions of law. It has to be a harmonious interpretation and such set off cannot be allowed unless specifically permissible in the income determinative scheme of the IT Act 1961. The AO is bound to follow the Act as it exists. The objection is dismissed accordingly. Aggrieved by the above finding of Ld.DRP, the assessee is in appeal before the Tribunal. 30. Ld. AR for the assessee before us reiterated the same arguments that were made before Ld. DRP whereas Ld. DR for the Revenue vehemently relied on the order of Authorities Below. 31. We have heard the rival contentions of both the parties and perused the material available on record. At the outset, we find that this issue has already been decided by this co-ordinate Bench of this Tribunal in assessee s own case (supra), the relevant extract of this order is reproduced below:- 5.1. We have heard the rival submissions and perused the materials available on record. It is not in dispute that the asset that was the subject matter of transfer was a residential property which was held by the assessee for a period exceeding 36 months. Hence the asset held was a long term capital asset in the hands of the assessee. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contained in Section 2(29B) of the Income Tax Act, 1995 (hereinafter referred to as 'the Act'), it was admittedly a long-term capital asset. Further the Assessing Officer rejected the claim for exemption under Section 54E of the Act on the ground that the assessee had claimed depreciation on this asset and, therefore, provisions of Section 50 were applicable. Though this was upheld by the Commissioner of Income Tax (Appeals), the Income Tax Appellate Tribunal allowed the appeal of the assessee herein holding that the assessee shall be entitled for exemption under Section 54E of the Act. The High Court has confirmed the view of the Commissioner of Income Tax (Appeals) and dismissed the appeal of the Revenue. While doing so the High Court has relied upon its own judgment in the case of CIT v. ACE Builders (P.) Ltd. [2006] 281 ITR 210/[2005]144 Taxman 855 (Born.). The High Court has observed that Section 50 of the Act which is a special provision for computing the capital gains in the case of depreciable assets is not only restricted for the purposes of Section 48 or Section 49 of the Act as specifically stated therein and the said fiction created in sub-section (l) (2) of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f a long term capital asset is invested or deposited (whole or any part of the net consideration) in the specified assets, the assessee shall not be charged to capital gains. Therefore, the exemption under Section 54E of the LT. Act cannot be denied to the assessee on account of the fiction created in Section 50. 2. We are in agreement with the aforesaid view taken by the High Court. 3. We are informed that the Gujrat High Court as well as Guahati High Court have also taken the same view in the following cases: i) CIT vs. Polestar Industries [2014] 41 taxmann.com 237/221 Taxman 423 ii) CIT vs. Assam Petroleum Industries (P) Ltd. [2003] 262 ITR 587/131 Taxman 699 (Gau) 4. We are also informed that against the aforesaid judgments no appeal has been filed. 5. In view of the foregoing, we do not find any merit in the instant appeal which is, accordingly, dismissed. 5.2. We find that the reliance placed by the ld AR on the decision of Hon ble Bombay High Court in the case of CIT vs Manali Investment reported in (2013) 219 Taxman 113 (Bom) wherein it was held that short term capital gain computed u/s 50 of the Act on long term depreciable assets can be set off agai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by observing as under:- DRP directions: The AO has to follow the lawful limits as provided in section 195 in this scenario. The assessee has made the following payments; Particulars Amount (Rs in lacs) Professional and consultancy fees 1,87,92,741 Advertisement, participation and sales 1,58,99,732 Promotion Marketing development expenses 32,68,660 Business fairs and exhibition 47,78,397 Inspection fees 11,34,053 Total 5,30,91,353 It was submitted that the remittances did not qualify under the definition of Royalties/FTS as provided under Article 12 or Article 13 of the applicable tax treaties as the same did not pass the filer of making technology available hence these could not be taxed. The AO also could not tax them under article 5 on account of absence of PE or under article 7 also there was no other details field to substantiate the contention ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 169,761 The Oberoi, Bangalore 9,805,671 The Oberoi Vanyavilas, Ranthambore 2,113,523 Maidens Hotel, Delhi 3,806 OFS New Delhi (New Project) 63,794,695 Oberoi Centre for Learning Development 10,765 Oberoi Flight Services, Chennai 5,000 The Oberoi Udaivilas, Udaipur 13,647,420 Oberoi Contact Centre 3,738,353 Head Office, Kolkata 73,122,322 Total 282,383,789 Nature of Expenditure Annexure -1 Room Reservation commission Annexure-2 Participation/Listing Fees Annexure-3 Inspection Fees Annexure-4 Advertisement in Magazine/Website listing Annexure-5 Telephone Expenses Annexure-6 Membership/Annual Subscription Annexure-7 Reimbursement of expenses at actual Annexure-8 Salary/Advance against Salary Annexure-9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hefs etc) . The services are rendered outside India and the payments are made outside India. Therefore under the domestic law, the remuneration for such services are not taxable in India. Even otherwise, the recruitment services providers are based in Indonesia or Thailand. Both the countries have treaties with India and do not have any FTS clause at all. None of such services providers have any PE in India. Therefore any remittance made in this regard is not taxable in India. 6.6. Professional / Consultancy Charges The payees are mainly from the USA, UK and Australia. The professional services rendered do not fall in the category of Royalty as per the India- Australia Tax Treaty. Further that treaty does not have any exclusive FTS clause. As regards the USA and UK, the FTS/ included service definitions are very narrow. Services rendered to the assessee do not fall under make available category. Therefore in the absence of PE in India, the payments made to the payees outside India do not call for any TDS. 6.7. Management Fees Management fees is paid to the Thai SPA management firm. For argument sake, even if the payment is considered taxable in India under the dom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y use or right to use of any equipment, copy right, scientific work etc. and hence should not qualify as Royalty under Section 9(1)(vi) of the Act. The said remittance were also not for rendering any managerial, technical or consultancy services and hence should not qualify as Fees for Technical Service (FTS) under section 9(1)(vii) of the Act. The activity of advertisement does not per se involve any technical expertise. It has to be treated as business income of the service provider. It is pertinent to note that the Ld CIT(A) in the case of the assessee itself in the A.Y.2006-07 followed by subsequent years has categorically held that the payments to foreign parties on account of advertisement outside India should not be taxable in India as per the provisions of section 9(1)(vii) of the Income tax Act. The relevant extract of the ClT(A) order for the assessment year 2006-07 is reproduced as follows: In my considered view, the payments to the foreign parties on account of advertisement outside India should not be taxable in India as per the provisions of section 9(1)(vii) of the Income tax Act, since earning through advertisement are not in nature of managerial, techni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ctivity or job formed a part. The services, therefore, were an integral part of the main work undertaken by the assessee of publicity, marketing and promotion of the Indian hot worldwide. The services described in the various articles of the agreement had not much significance independently and were an integral part of the arrangement between the assessee and the Indian hotels or clients for publicity, marketing and advertising of hotel business. That the payments under the agreements being entirely made by the Indian hotels to the assessee-company for the main services, the incidental or ancillary services not being independent of and separable from the main job undertaken by the assessee in the peculiar facts of the case, it was neither possible nor desirable to apportion or attribute any part of the consideration received by the assessee thereto. The various services rendered by the assessee to enable it to complete efficiently and effectively the job undertaken by it as an integrated business arrangement to provide the services relating to advertising , publicity and sales promotion including reservations of the Indian Hotels worldwide in mutual interest could not be conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d on decision 'of ITAT Delhi in case of Sheraton International Inc Vs. Deputy Director of Income-tax reported in (2007) 293 ITR (A.T.) 68 (ITAT) (Del) b) Singapore - Article 12 The concerned services are not covered within the scope of fees for technical services' as defined in the Article 12(4) for the following reasons: Such services do not involve any managerial; technical or consultancy nature. Such services do not involve application or enjoyment of the right, property or information. Does not make available technical knowledge, experience, skill, know-how or processes which enable the person acquiring the services to apply the technology contained therein. The concept of 'make available' has been elaborately explained herein above. Consist of development and transfer of a technical plan or technical design but excludes any service does not enable the service provider to apply the technology contained therein. Reliance in this connection is placed on decision of ITAT Delhi in case of Sherator International Inc Vs. Deputy Director of Income-tax reported in (2007) 293 ITR (A. T.) 68 (ITAT) (Del). c) UK - Article -13 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvice. Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. . Reliance in this connection is placed on decision of IT AT Delhi in case of Sherator International Inc Vs. Deputy Director of Income-tax reported in (2007) 293 ITR (A.T.) 68 (ITAT) (Del) e) Brazil In the tax treaty entered into with India and Brazil, Paras of Article 12 of the DTAA deal with the meaning of the term 'Royalties and the rate at which such income is to be taxed. Obviously, there is no reference to the Fees for technical services in Article 12 of the DTAA. Thus it is evident that the fee for technical services does not fall within the purview of Article 12. Obviously, the application of Article 12 is ruled out. In that view of the matter, such income would remain included under Article :- The amount falls under Article 7 as 'Business profits' and is hence not chargeable to tax because of the absence of any PE in India. In this connection, reliance is placed on the decision of Hon'ble Mumbai ITAT in case of McKinsey Company (Thailand) Co. Ltd Vs Deputy Director of Income-tax (International Taxation) 4(1), ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a rate lower or a scope more restricted than the rate of scope provided for in this Convention, Agreement or Protocol with effect from the date on which the present Convention or the relevant Indian Conventio Agreement or Protocol enters into force, whichever enters into force later. Since USA is member of OECD, the Article 12 of India-USA DTAA can be applied. The DTAA with the USA provides restricted scope of fees for technical services due to presence of 'make available' in Article-12 of the OTAA. Since in the instant case, the services do not involve make available of technical knowledge, the same is out of purview of the fees for technical services within the scope of DTAA between India and France. Accordingly withholding tax is not applicable for the services pertaining to advertisements. Reliance in this connection is placed on the decision of Mumbai ITAT in the case of DDIT vs IATA BSP India reported in TS-367-ITAT-2014(Mum). The Hon'ble tribunal held as follows: As per clause 7 of the Protocol in the India-France tax treaty, if under any convention, agreement or Protocol signed after 1st September 1989 between India and a third state which is a member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are ancillary and subsidiary to the enjoyment of any property; make available technical knowledge, experience, skill know-how or processes or consist of the development and transfer of technical plan or technical design. The concept of 'make available' has been elaborately explained herein above. Broadly speaking, the term 'make available' means that the person acquiring the technical service is enabled to independently apply the technology. The word 'enable' is used in the sense that the technical services should be such that they make the recipient able or wiser in the subject matter. Thus, where the recipient of technical services does not get equipped with the knowledge or expertise and the recipient would not be able to apply it in future independently without support from the service provider, it will not be a case of technical service having been 'made available'. And in such cases the concerned transaction would not be taxable in India and subject to withholding tax in India. In such cases, the income of the recipient shall be treated as business income under the Article 7. Since the entire operation of the service provider is carried outside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rious foreign recruitment agents (specially for SPAs, chefs etc.). The services are normally rendered outside India and the payments are made outside India as well. Further, since this does not involve any know how or technical expertise, the same is not covered within the scope of section 9(1)(vii) of the Income tax Act. Therefore under the domestic law, the remuneration for such services is not taxable in India. Taxability under DTAA with Indonesia and Thailand During the year under consideration, recruitment service has been availed from these vendors based out of Indonesia and Thailand. Both the treaties does not contain any FTS clause. Thus it is evident that the fee for technical services does not fall within the purview of Article 12. Obviously, the application of Article 12 is ruled out. In that view of the matter, such income would remain included under Article 7. The amount falls under Article 7 as 'Business profits' and is hence not chargeable to tax because of the absence of any PE in India. In this connection, reliance is placed on the decision of Hon'ble Mumbai ITAT in case of McKinsey Company (Thailand) Co. Ltd Vs Deputy Director of Income-ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... detailed factual and legal submissions with supporting evidences before the ld AO, which had not been appreciated by the ld AO and ld DRP in the proper perspective. Hence we deem it fit and appropriate, to remand this entire issue to the file of the ld AO, for de novo adjudication of this issue afresh in accordance with law. The assessee is also directed to cooperate with the ld AO by producing the necessary evidences in support of its contentions. Accordingly, the Ground Nos. 6.1. 6.2 raised by the assessee are allowed for statistical purposes. Respectfully following decision of this Tribunal we allow the appeal for statistical purpose in terms of above direction. This ground of assessee is allowed for statistical purpose. 37. Next issue raised by assessee in ground No.8 is that Ld.DRP erred in confirming the order of AO by sustaining the disallowance of ₹59,598/- on account of delayed deposit of employees contribution to PF and ESI. 38. The AO during the course of assessment proceedings observed that assessee failed to deposit employees contribution to PF/ESI for ₹59,598/- within due date as prescribed under the relevant Act of PF/ESI. Therefore, AO di ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l debts written back for ₹51,77.916/- inadvertently in the income tax return. He further submitted that the claim was made before the AO vide letter dated 21.03.2016 but same was not considered by the AO. 44. The matter was carried before the Ld. DRP which also denied the claim made by the assessee during the course of assessment proceedings on the ground that said claim was not made in the income tax return. Being aggrieved by this order of Ld. DRP assessee came in appeal before us. 45. Ld. AR further submitted that assessee can make additional claim during the assessment proceedings in view of the judgment referred by Hon'ble Bombay High Court in the case of CIT vs. Pruthvi Brokers Shareholders Pvt. Ltd. 349 ITR 336 (Bom). On the other hand, Ld. DR vehemently relied on the order of Authorities Below. 46. We have heard the rival contentions of both the parties and perused and carefully considered the material on record; including the judicial pronouncements cited and placed reliance upon. At the outset, we note that assessee is entitled to make additional claim without filing the revised return of income. We find guidance and support in the judgment of Hon& ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... his section on such dividend; and (c) the domestic company is not a subsidiary of any other company : Provided that the same amount of dividend shall not be taken into account for reduction more than once; (ii) the amount of dividend, if any, paid to any person for, or on behalf of, the New Pension System Trust referred to in clause (44) of section 10. Explanation.-For the purposes of this sub-section, a company shall be a subsidiary of another company, if such other company, holds more than half in nominal value of the equity share capital of the company.] A plain look at the above statutory provision makes it clear the AO should charge the dividend distribution tax after excluding the dividend income from subsidiary company. Therefore, we direct the AO to adjudicate the issue of dividend distribution tax after giving effect of the amount of dividend received from subsidiary company. Hence, in terms of above, this ground of assessee s appeal is allowed for statistical purpose. 51. Next issue raised by assessee in ground No.12 is that Ld. DRP erred in not granting set off of Minimum Alternate Tax (MAT for short) credit brought forward from Assessment Year 2011-12. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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