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2014 (10) TMI 870 - AT - Income TaxInterest paid to foreign suppliers without TDS - Addition made under section 40(a)(ia) - CIT(A) deleted the addition - Held that:- Interest would be taxable if it arose out of indebtedness. The words “any other form of indebtedness” from sources in the other territory could only mean interest arising or accruing as a separate “source” of income. It would not include interest payable on the unpaid purchase money agreed to be part of the sale consideration. There was nothing in the initial contract by way of novation converting the balance of consideration into a loan. Hence, the interest received by the seller cannot be regarded as interest on money lent notwithstanding the nomenclature adopted by the parties. The assessee was immune from liability either wholly or partly to income-tax in view of the provisions of the Double Taxation Avoidance Agreement between the Federal Republic of Germany and India. . Accordingly, the assessee is not liable to deduct TDS on that usance interest and the provisions of seciton195 r.w.s. 40(a)(ia) are not applicable - Decided in favour of assessee. Determination of arms length price for the international transaction on Libor plus - Held that:- assessee has justified the interest on the rate prevalent at that relevant point of time. Even though there may be same fraud involved in fixing the rate of international rates, as it became basis for subsequent international transactions at that point of time, We do not see any reason to differ from the LIBOR plus basis points for T.P. comparison. The Revenue cannot contend that rate of interest prevailing in India has to be adopted as the rates in India cannot be compared while loans are obtained abroad, even though funds are flown from India. What is required to be seen is whether the transaction is at arms length or not. Since, the international loan rates are based on LIBOR, we do not see any reason for differing from the Ld. CIT(A) order, which itself based on Coordinate Bench decisions that LIBOR plus basis points is at arm’s length. - Decided against revenue Expenditure incurred by assessee for implementing ERP at Haridwar Division - revenue v/s capital expenditure - CIT(A) allowed it as revenue - Held that:- The expenditure is for upgrading the existing enterprise resource packaging and since no asset has been created, we agree with the finding that expenditure cannot be treated as capital in nature. Therefore, we uphold the order of the Ld. CIT(A) - Decided against revenue Disallowance of an amount paid to Sonata Information Technology for I.T. Computer Software treating as capital expenditure - Held that:- As seen from the invoice, assessee has purchased software at ₹ 22,050 and with tax the total cost was at ₹ 22,932. In addition to that software, assessee also purchased 10 user licenses by paying an amount of ₹ 3,95,732 and also one year maintenance totaling to ₹ 85,418, the total invoices value is to an extent of ₹ 5,04,082. How the Ld. CIT(A) has arrived at ₹ 4,94,767 could not be ascertained. Be that as it may, consistent with his stand that license and maintenance fee are revenue expenditure, the amount of ₹ 3,95,732 and ₹ 85,418 are required to be allowed as revenue expenditure. That leaves us software cost of ₹ 22,932 and at best, this amount only can be considered as capital expenditure in nature. A.O. is directed to restrict the amount to that and allow applicable depreciation. The balance of the amount is to be allowed as revenue in nature. - Decided partly in favour of assessee Entitlement to relief under section 90 - Held that:- Even though DTAA refers to the tax paid in other State, it did not define the word ‘tax paid’. Therefore, reliance is to be taken from the Indian Income Tax Act. Since the term ‘paid’ includes incurred according to the method of accounting, and since, assessee has offered the income on the basis of accrual, even though not fully received, the word ‘incurred’ includes the amount ‘liability to pay’ and there is no dispute that this amount was subsequently discharged. As per the DTAA Article 11, the tax so charged shall not exceed 15% of the gross amount of the interest and accordingly, assessee provided for the tax at 15%. Since the facts are not in dispute and as the assessee has ultimately paid the entire amount of tax on the income so offered, we direct the A.O. to allow the amount as claimed.- Decided against revenue
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