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2018 (3) TMI 1195 - AT - Income TaxLiability to deduct tax u/s 195 - disallowance of ‘drawing expenses’ in respect of purchase of drawings from ACTA International PTE Ltd, Singapore - Held that:- The purchase of drawings & designs by the assessee from ATCA Singapore did not qualify as “fees for technical services” within Article 12(4) of the tax treaty between India & Singapore because no facts are brought on record by the Revenue that as a consequence of supply of project specific designs, there was transfer of any technology. In that view of the matter the payment of ₹ 1,11,19,501/- was not chargeable to tax in India and hence the assessee did not have any obligation to deduct tax at source. The disallowance under Section 40(a)(i) was therefore not warranted. Accordingly the disallowance being amount paid to ATCA Singapore is hereby deleted. Ground No. 1 of the assessee’s appeal is allowed. Payments made to PD Dubai, we find that the assessee had purchased the drawings from an individual, Mr. PredagEror who was resident of UAE. In these circumstances we agree with the Ld. AR of the assessee that the relevant applicable Articlefor ascertaining the taxability of the payment was Article 14 and not Article 22 of the DTAA between India & UAE. From plain reading of Article 14, we find that the right to tax the income from professional activities by the resident of Dubai vested with the Contracting State of the payee, i.e. UAE alone and not the Source Country i.e. India. It therefore follows that in the present case the sum of ₹ 63,07,123/- paid for procurement of drawings to PD, Dubai was taxable in UAE alone. Since the payment in question was not liable to tax in India, there is no question of making any disallowance under Section 40(a)(i) of the Act. CIT(A)’s action of deleting the disallowance upheld Disallowance of payment of Director’s remuneration - whether where the terms of appointment was not expressly approved by the Central Government as per the provisions of Companies Act, 1956, is the remuneration paid to Managing Director allowable as deduction? - Held that:- The appellant company has made all endeavors for approval from the Ministry of Corporate Affairs and the managing director in question has been continued as the managing director from year 2004 onwards and his remuneration has been allowed as deduction from then continuously. In the year 2007 the managing director was appointed for five years of which two years from 2007 to 2009 was in fact approved by the Ministry of Corporate Affairs. When the assessee company took up the matter with the Ministry they in turn asked for certain documents to be furnished which was duly complied with the assessee company. Thereafter without refusing or approving the appointment of the managing director the Ministry did not respond at all and mean while the managing director Mr. S.K.Todi continued to discharge his services as per the appointment and has drawn salary, which needs to be allowed. Thus we are inclined to allow remuneration drawn by the assessee and allow this ground of appeal preferred by the assessee. Allowance of expenditure on account of advertisement was business expenditure - Held that:- The assessee company was developing a residential township project in East Kolkata. The flats and bungalows being developed were marketed primarily to non-resident Indians. The 1stBilat Bangla Utsav organized in London, was meant to cater to the non-resident Bengali diaspora residing there. The assessee had therefore sponsored the aforesaid programme with a view to advertise and obtain publicity for its residential project in United Kingdom. Having regard to these facts, we find that the assessee had sufficiently discharged its onus to prove that the sponsorship expenses of ₹ 2,00,000/- paid to Bilat Bangla Utsav was incurred in the course of and for the purposes of its business. The order of the Ld. CIT(A) deleting the disallowance of advertisement expenses to the extent of ₹ 2,00,000/- is therefore upheld. Allowability of expenditure on account of load testing machine as revenue expenditure - Held that:- For carrying out the load bearing capacity tests the equipment was embedded in the pile shaft and concrete poured in the test pile was allowed to be cured for 14 days. Once equipment was ready for testing, the machine was internally pressurized through instrumentation cables for conducting the load test. The machine in question was sacrificial in nature because once equipment was submerged in the concrete pile; it could not be retrieved. Having regard to these peculiar facts, we are of the considered view that the payment made by the assessee for purchasing load bearing equipment for conducting test regarding load bearing capacity of the piles was constructing was in the nature of revenue expenditure and therefore formed part of the land development cost. Disallowance made u/s 40(a)(ia) - payment of tax on tax on TDS was made but due to inadvertent error as wrong assessment year was quoted on challans - Held that:- As the assessee had duly deducted and paid the taxes on expenses of ₹ 8,15,20,814/- and therefore no disallowance was warranted under Section 40(a)(ia) of the Act as there was no violation as contemplated in the said provision. The action of the Ld. CIT(A) deleting the disallowance is therefore upheld. Disallowance of expenses under the advertisement - Held that:- The assessee had provided impeachable evidence before the Ld. AO to substantiate the incurrence of the advertisement expenses. We agree with the finding of the Ld. CIT(A) that the fact that the payee had denied having any transaction with the assessee did raise doubt on the genuineness of the transaction but that statement alone could not be sufficient to treat the expenses as bogus, particularly in the light of the specific evidence substantiating the incurrence of expenditure furnished by the assessee. In such case, the duty was cast on the Ld. AO to make further enquiries in the matter which we find was not carried out by the Ld. AO either in the course of assessment or in the remand proceedings. Thus expenditure allowed.
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