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2012 (9) TMI 335 - AT - Income TaxDisallowance of service charges - services agreement between the assessee and its holding company - allegation of clear intention of reducing the tax liability of the assessee and increasing the non-taxable profits - Held that:- CIT (A) has identified some of the expenditure on electricity, rent advertisements etc which is selective and not appropriate according to the facts. - considering the extent of expenditure in both the cases and the fact that in both the companies are reporting the above amount as service charges recovered/paid from/to each other, no reason to doubt that assessee has not incurred the expenditure and the other company has not provided any services - also levy of service tax exists in each month's bill at 12.5% as if only tax avoidance is main issue in allocation of expenditure to assessee, there is no need for allocating the expenditure to assessee paying service tax at 12.5% directly on the gross amount - direction to AO to allow the expenditure - in favour of assessee. Disallowance of deputation charges - common services in the areas of Finance, Accounts, Taxation, Legal, Administration, HRD, education, Training, Research etc. - Held that:- the expenses on account of deputation charges as well as other expenses are not covered under the aforesaid agreement. The other reasons given by the AO for making the impugned disallowance cannot also be sustained - in favour of assessee. Non deduction of TDS while making payment towards purchase of software - Disallowance u/s 40(a)(ia) - the payment in question is in the nature of Royalty as per AO - Held that:- Following the view expressed by the Hon'ble Dellhi High Court in the case of DIT v. Ericsson AB (2011 (12) TMI 91 - DELHI HIGH COURT) that consideration paid merely for right to use cannot be held to be royalty which is favourable to the Assessee to hold that the consideration received by the Assessee for software was not royalty. Admittedly the Assessee who is a non resident does not have a permanent establishment and therefore business income of the Assessee cannot be taxed in India in the absence of a permanent establishment - as the assessee was asked to explain whether the facts involved in assessee's own case (payments to non residents) wherein payments made to non-residents has held that the amounts are royalty in nature are similar to the payments made to the Indian Companies where the assessee expressed inability to furnish the details immediately and has no objection if the matter is examined by AO direction to AO to examine the issue afresh in the light of facts before the Hon'ble High Court of Karnataka and the facts involved in payments made to Indian Companies and decide the issue fresh after giving due opportunity to assessee. Disallowance of an amount u/s 14A while computing the book profits under section 115JB - Held that:- Once AO has made the disallowance on account of interest expenditure, it was for assessee to produce evidence that the investments were made out of free surplus funds of assessee and that no part of the interest bearing funds had been used for the purposes of making the investments. As the assessee failed to prove the disallowance of the proportionate interest expenditure has to be necessarily made by the mandatory method prescribed in Rule 8D - No reason to interfere with the orders of the authorities for disallowing proportionate expenditure under section 14A and consequent to the above disallowance, the same is also to be disallowed under section 115JB working as well - against assessee.
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