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2021 (1) TMI 478 - AT - Income TaxTDS u/s 194J - disallowance of leased line charges (link service cost) on account of non-deduction of tax at source - leased line charges got the final dressing up as `Royalty’ u/s 9(1)(vi) - HELD THAT:- Once there is no liability to deduct tax at source at the material time, the fortiori is that there can be no question of disallowance u/s 40(a)(ia) of the Act. When the payment of leased line charges was made, no existing provision at that time made the assessee clearly liable to deduct tax at source. Since the leased line charges got the final dressing up as `Royalty’ u/s 9(1)(vi) of the Act after the close of the relevant Financial year, we have no hesitation in holding that - even though the amount became chargeable to tax as royalty in the hands of the recipient under the Act for the year under consideration - but the same did not fasten an obligation to deduct tax at source as the assessee could not have activated its sixth sense to ascertain beforehand that an obligation to deduct tax at source was in offing. As the scope of “Royalty” came to be expanded after the close of the financial year when the assessee had already paid lease line charges, we hold that the same could not have triggered deduction of tax at source so as to warrant any disallowance u/s.40(a)(ia) of the Act. Thus, ground No.1 by the assessee is allowed. Deduction u/s 10AA unit - Having held that the payment of leased line charges not as royalty oo question of making any separate disallowance in respect of 10AA unit. The finding rendered by the ld. CIT(A) in sustaining the disallowance and simultaneously allowing deduction u/s 10AA at the resultant enhanced income has, thus, become academic. Disallowance of expenditure on purchase of RSA tokens - AO did not allow the deduction despite the assessee’s contention that the RSA tokens were used in rendering services to its Associated Enterprise and were charged at a mark up at 15% along with other costs incurred by it in rendering services - HELD THAT:- As assessee was getting remunerated by its AE at cost plus 15%. The assessee specifically stated before the AO that the cost of RSA tokens was repaid by its AE with 15% mark up and such amount was considered as part of income of the year under consideration. Once the amount of expenditure, debited to the Profit and loss account, gets specifically credited to the Profit and loss account with a certain mark-up, there can be no question of disallowing the expenditure so charged while continuing to treat the amount credited as income. Thus RSA tokens are in the nature of revenue expenditure and hence deductible. Comparable selection - inclusion of Infosys Technologies Ltd. in the determination of the Arm’s Length Price of the international transaction - HELD THAT:- As seen that the international transaction is that of `Provision of software services’ for which the assessee was compensated at cost plus 15%. The assessee is acting as a captive unit to its AE for rendering software services. In contrast, the Infosys Technologies Ltd. is a giant company rendering on-shore and off-shore services at a very high scale. Thus we are satisfied that the ld. CIT(A) was justified in excluding this company from the list of comparables.
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