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2018 (11) TMI 1582 - ITAT DELHITDS u/s 195 OR 192 - Disallowance of Project Management Expenses on ground of non deduction of Tax at Source - Reimbursement of salary - Held that:- Reimbursement of salary to LOR Cyprus is not in the nature of any technical or consultancy fee and that the same falls outside the purview of Articles 12 and 13. Our view is supported from the decision of DCIT vs. Mahanagar Gas Ltd. [2016 (5) TMI 27 - ITAT MUMBAI]and ADIT vs. Marks and Spencers Reliance India P. Ltd. [2017 (5) TMI 1638 - BOMBAY HIGH COURT] which has been affirmed by the Hon’ble Bombay High Court. Accordingly, we are of the considered view that it is only the mark up which is liable to withholding tax u/s 195 of the Act and not the reimbursement of actual cost to LOR Cyprus. At this juncture, it will also be relevant to take note of another important submission of the Ld. AR in which it has been clarified that the non-resident LOR Cyprus has deducted TDS u/s 192 of the Act while making payments to the seconded employees and as such there is no loss to the revenue. Payments have been charged to tax in India u/s 192, the assessee could not be treated as assessee in default for non-deduction of TDS - Disallowance of the project management expenses u/s 40(a)(i) r.w.s. 195 of the Act has rightly been deleted. Disallowance of interest expenses on estimated rate of 12% on the ground that same pertains to Capital Work In Progress (CWIP) - Held that:- DR was not able to controvert the factual and legal findings of the Ld. CIT (Appeals) wherein the disallowance has been deleted by holding that the CWIP is towards current business needs and same could not be considered as capital in nature. The Ld. CIT (Appeals) has also held that the respondent/assessee has sufficient own funds and further that the net worth of the company is far more than the value of CWIP and as such there is no nexus between the borrowed funds and the CWIP. We also note that the assessing officer has accepted the claim of interest in AY 2011-12 wherein, on identical facts, no such disallowance was made. In these circumstances, the department cannot be allowed to agitate this issue in the year under reference. Capitalization of Software expenses - AO was of the view that Software expense incurred by the respondent/assessee is of capital nature and same is required to be clubbed with ‘Computer and other peripherals’- AO made a disallowance after allowing depreciation @ 60% - Held that:-Admittedly, the expenses claimed under the head software expense include AMC, consumables and license fee. We are conscious of the fact that the expenses towards AMC, consumables and license fee are regular feature in modern business particularly big organizations like the respondent/ assessee which is obliged to incur these expenses every year. Also, the very nature of these expenses is such that the subscriber/purchaser only gets the ‘right to use’ for a limited period of time and as such it could not be said these expenses provide any benefit of enduring nature. It is also relevant to take note of the fact that no new asset has comes into existence by incurring of such expenses and even the assessing officer has accepted the claim with regard to AMC expenses in AY 2011-12. The finding and reasoning of the CIT (Appeals) that software expenses are of revenue nature is well founded and in consonance with decision of the Hon’ble Jurisdictional High Court in the case of CIT v. G.E. Capital Services Ltd. [2007 (7) TMI 185 - DELHI HIGH COURT which has been followed in the case of the sister-concern of the respondent/assessee DLF Home Developers Ltd.. Accordingly, we hereby confirm the order of the Ld. CIT (Appeals) and uphold the deletion of disallowance of software expenses - Revenue appeal dismissed.
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