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2009 (3) TMI 219 - AT - Income TaxDisallowance of staff salary and allied expenses pertaining to sister concern - AO held that the payments made by the assessee-company to M/s M. Bhaskar Kini & Co. (P) Ltd. was excessive in terms of laws stated in s. 40A(2)(a) - disallowed the sum out of the total claim - CIT(A) deleted the disallowance made AO. HELD THAT:- AO has no case that no such payments were made by the assessee-company to M/s M. Bhaskar Kini & Co. (P) Ltd. There is also no case that the services of the employees of M/s M. Bhaskar Kini & Co. (P) Ltd. were not utilized by the assessee-company. The legal requirements of claiming the expenditure have been established by the assessee-company. AO has not brought anything on record to show that the payments made by the assessee-company to M/s M. Bhaskar Kini & Co. (P) Ltd. were excessive when compared to the remuneration attributable to the services rendered by the employees. AO also has no case that the extent of services utilized by the assessee-company from the employees of M/s M. Bhaskar Kini & Co. (P) Ltd. was not necessary to carry on the business of the assessee. Therefore, we find that the disallowance was not justified and CIT(A) has rightly deleted the same. This issue is decided against the Revenue. Non-deduction of tax for payment of ship charter hire charges - Royalty u/s 9(1)(vi) - Whether the payment made by the assessee is a royalty and whether it is taxable in India - AO has erred in invoking s. 40(a)(i) to disallow the expenses - - Ejusdem generis - CIT(A) has erred in not confirming the disallowance made by the AO - HELD THAT:- The assessing authority has treated. the payments made by the assessee-company under the category of royalty. The expression 'royalty' further means the use of any patent, invention, model, design, secret formula or process or trade mark or similar property. The meaning of the word "property" should be read in the company of the words like patent, invention, model, etc. The principle of interpretation of ejusdem generis applies here. The assessee has not made the payments for the purpose of any such property. Therefore, it is very clear that the payments made by the assessee-company were in the nature of simple payments for chartering ships on hire for doing the business outside India. Therefore, the payments do not satisfy the test laid down in s. 9. When s. 9 is not satisfied, there cannot be a case that income is deemed to accrue or arise in India as a result of hire payments made by the assessee-company to foreign ships. The liability u/s. 195 is cast on the assessee only when the payment is made to a non-resident, which is chargeable under the provisions of the IT Act. Here, the payments made by the assessee do not fall under s. 9 and the payments do not take the character of any sum chargeable to tax under this Act. Therefore, s. 195 docs not come into operation. When s. 195 does not apply to the present case, there is no violation of that section and consequently invoking of s. 40 (a)(i) does not arise. Therefore, we find that CIT(A) is justified in deleting the disallowance made by the AO. This issue is decided against the Revenue. Claim of expenses made by the assessee for want of proper evidence - AO disallowed u/s. 37- payments made in cash for engaging of labour - AO was of the opinion that the assessee on his own has prepared the vouchers and hence the payments should be disallowed - CIT(A) deleted the same. HELD THAT:- The claim of expenses cannot be disallowed only on the ground that the mode of evidence produced by the assessee is not sufficient. The deductibility of the expenditure has to be examined in the light of the facts and circumstances of the case. The AO has made comparison of the expenditure for earlier assessment years. But it is to be seen that in all the cases considered for the earlier assessment years, only those payments which were in excess were taken note of. AO has to compare the entire cash payments of those assessment years. The comparison made by the AO is not on a level ground. As a matter of consistency, we find that the assessee has claimed similar expenses in the past assessments as well and the AO has allowed such expenses. The quantum of expenditure claimed by the assessee for the impugned assessment year is comparable to the total turnover and income returned by the assessee. Therefore, in the facts and circumstances of the case, we find that the disallowance is not called for and the CIT(A) has rightly deleted the same.
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