2019 (9) TMI 1683 - AT - Income Tax

Disallowance u/s 40(a)(i) - re-characterizing the reimbursement of expenses paid by assessee to its associated enterprise as royalty - disallowing the said claim u/s 40(a)(i) of the Act for non deduction of tax at source - HELD THAT - First of all the said payment has been made by assessee to the entities in earlier years also and no disallowance whatsoever has been made either by AO or TPO in this regard. Assessee before us has produced assessment orders / TPO s orders for the earlier years. Further as far as the nature of payment is concerned wherein the assessee has filed necessary documentation before the authorities below and even before us it cannot be said that reimbursement of expenses for leaseline are in the realm of royalty and section 9 of the Act or Article 12 of DTAA is attracted. First of all we observe that since there is no amendment to the provisions of DTAA and same being beneficial would be applicable and the payment made by assessee cannot be held to be royalty. Payment of leaseline charges is not equipment royalty. Vide para 101 it was further held that where it is case of reimbursement of expenses there is no requirement to deduct tax at source. Hon ble Supreme Court also in DIT (IT) Vs. A.P. Moller Maersk A S 2017 (2) TMI 993 - SUPREME COURT and BNP Paribas SA 2018 (3) TMI 1987 - BOMBAY HIGH COURT have held that when it is case of reimbursement of expenses then there is no requirement of deduction of tax from such payments. Accordingly we hold that there is no merit in the orders of authorities below in holding the assessee liable for such non deduction of tax at source. Reversing the same we allow the claim of assessee and disallowance made under section 40(a)(i) of the Act is thus deleted. The ground of appeal No.2 raised by assessee is thus allowed. Unabsorbed depreciation in the hands of assessee - HELD THAT - As assessee pointed out that the same was consequential to the decision in earlier years. So we direct the Assessing Officer to verify the plea of assessee in this regard and re-work the unabsorbed depreciation to be adjusted against current year s income. Assessee pointed out that there is double disallowance made by AO that there are no brought forward losses of earlier years and credit for the same cannot be allowed merely because the assessee had contested the additions in appeal before the Tribunal. We direct the Assessing Officer that in case there is some relief given by the Tribunal in earlier years effect of the same may be allowed to re-compute the unabsorbed depreciation in the hands of assessee. The ground of appeal No.3 is thus allowed.

Summary

Issues Involved:
1. General Ground on Total Income Assessment
2. Disallowance under Section 40(a)(i) of the Act
3. Disallowance of Unabsorbed Depreciation
4. Non-grant of Brought Forward Credit of Minimum Alternate Tax (MAT)
5. Levy of Interest under Section 234B and 234C of the Act
6. Initiation of Penalty Proceedings under Section 271(1)(c) of the Act

Issue-wise Detailed Analysis:

1. General Ground on Total Income Assessment:
The ground of appeal No.1 raised by the assessee is general and hence does not require any adjudication.

2. Disallowance under Section 40(a)(i) of the Act:
The assessee contested the disallowance of Rs. 4.35 crores under Section 40(a)(i) by re-characterizing the reimbursement of expenses paid to Vishay Intertechnology Asia Pte Ltd., Singapore as "Royalty." The assessee argued that the payments were reimbursements for leased line charges, IT charges, and other related costs incurred globally and allocated without any markup. The Assessing Officer (AO) considered these payments as royalty under Section 9 of the Income Tax Act and Article 12 of DTAA between India and Singapore, leading to disallowance for non-deduction of tax at source. The Dispute Resolution Panel (DRP) upheld this disallowance. However, the Tribunal found that the payments were reimbursements and not royalty, referencing decisions from the Supreme Court and High Courts, and thus, there was no obligation to deduct tax at source. The disallowance under Section 40(a)(i) was deleted.

3. Disallowance of Unabsorbed Depreciation:
The assessee claimed set-off of brought forward unabsorbed depreciation of Rs. 53,07,389. The AO disallowed this based on assessment records indicating no unabsorbed depreciation. The Tribunal directed the AO to verify the assessee's claim and re-compute the unabsorbed depreciation, considering any relief granted by the Tribunal in earlier years. This ground was allowed.

4. Non-grant of Brought Forward Credit of Minimum Alternate Tax (MAT):
The ground of appeal No.4 concerning the non-grant of brought forward MAT credit of Rs. 1,27,15,701 was not pressed by the assessee and hence dismissed as not pressed.

5. Levy of Interest under Section 234B and 234C of the Act:
The levy of interest under Section 234B and 234C was considered consequential, depending on the outcome of other issues.

6. Initiation of Penalty Proceedings under Section 271(1)(c) of the Act:
The initiation of penalty proceedings under Section 271(1)(c) was deemed premature and hence dismissed.

Conclusion:
The appeal of the assessee was allowed in part, with specific directions for verification and re-computation by the AO. The Tribunal's decision emphasized the nature of reimbursements and the applicability of DTAA provisions, leading to the deletion of disallowances and directions for re-assessment of unabsorbed depreciation. The other grounds were either not pressed or considered consequential/premature.