TMI Blog2008 (10) TMI 255X X X X Extracts X X X X X X X X Extracts X X X X ..... lso claimed to be deducted by the assessee company from the said amount. During the course of assessment proceedings, it was found by the AO that the bill raised by AT T Worldwide Communication Services,Singaporeon the assessee company for the aforesaid amount of Rs. 1,31,58,290 was dt.23rd Nov., 2001. Even the tax of Rs. 13,15,829 deducted from the said amount was found to be deposited by the assessee company in the RBI,New Delhion23rd Nov., 2001. As the audit report of the assessee company was also dt.23rd Nov., 2001, the AO noted that not only the bill dt. 23rd Nov., 2001 was entered in its books of account by the assessee company for the year under consideration ending on 31st March, 2001 at the time of finalisation of audit i.e. on 23rd Nov., 2001 but even tax was deducted and paid on that date. He held that the assessee company thus has deducted and paid tax in respect of the sum of Rs. 1,31,58,290 payable outside India to AT T, Singapore in the subsequent year i.e. the previous year relevant to asst. yr. 2002-03 and it was thus, not entitled to claim deduction for the said amount in computing its income chargeable under the head "Profits and gains of business or profession" ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se. There is no force in the argument of the appellant that if the appellant has deducted but not paid, the legal requirement is fulfilled. The second condition of payment, according to the appellant, is independent of first condition. Thus the TDS may be paid even if no tax has been deducted. This is possible only if the assessee pays the tax from its own funds. The law does not require an assessee to pay TDS from its own funds. In the circumstances if TDS has been made it has to be paid by 31st May in view of conditions provided under r. 30 of the IT Rules. The law regarding TDS has to be read with rules and has to be interpreted in letter and spirit. The facts clearly show that the appellant has neither determined nor paid the TDS before November, 2001 as the liability was neither determined nor crystallised before November, 2001. The appellant, company has clearly fudged with the accounts. In my view it is a fit case to process for the prosecution on this issue alone. For the reasons mentioned above the addition of Rs. 1,31,58,290 is confirmed." 5. The learned CIT(A) thus confirmed the addition of Rs. 1,31,58,290 made by the AO relying not only on the provisions of s. 40(a)(i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ited our attention to the copy of written submission filed before the learned CIT(A) placed on page No. 99 of his paper book to show that all these submissions were duly made on behalf of the assessee before the learned CIT(A) also. He contended that even the fact that the AO himself had invoked the provisions of s. 40(a)(i) to disallow the amount payable to AT T,Singaporeitself was sufficient to show that the existence of the said liability payable by the assessee outsideIndiawas accepted by him. Relying on the decision of Hon'ble Supreme Court in the case of Calcutta Co. Ltd vs. CIT (1959) 37 ITR 1 (SC) he contended that the deduction on account of the said liability payable to AT T, Singapore is allowable by applying the matching principle also. 7. The learned Departmental Representative, on the other hand, relied on the orders of the authorities below in support of the Revenue's case that the disallowance on account of amount payable by the assessee company to AT T, Singapore outside India was fully sustainable in view of the specific provisions contained in s. 40(a)(i). 8. We have considered the rival submissions and also perused the relevant material on record. It is obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following amounts shall not be deducted in computing the income chargeable under the head 'Profits and gains of business or profession',- (a) in the case of any assessee- (i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable outside India, on which tax has not been paid or deducted under Chapter XVII-B: Provided that where in respect of any such sum, tax has been paid or deducted under Chapter XVII-B in any subsequent year, such sum, shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid or deducted." 10. As is evident from the relevant provisions of s. 40 (a)(i) extracted above, if no tax has been paid or deducted under Chapter XVII-B from any sum chargeable under the Act which is payable outside India, the same shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession" notwithstanding anything to the contrary contained in ss. 30 to 38. The proviso to s. 40(a)(i) further makes it clear that where in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e said amount was deducted by the assessee company only in the month of November, 2001 i.e. during the previous year relevant to asst. yr. 2002-03 and it was thus entitled to claim deduction for the said amount only in that year as per the proviso to s. 40(a)(i) and not in the year under consideration. Accordingly, we hold that the disallowance made by the AO of the deduction claimed by the assessee on this issue by invoking the provisions of s. 40(a)(i) was fully sustainable and the learned CIT(A) was justified in confirming the same. The impugned order of the learned CIT(A) on this issue is accordingly upheld dismissing ground No. 1 of the assessee's appeal. 11. Ground No. 2 relates to the addition of Rs. 3,98,36,108 made by the AO and confirmed by the learned CIT(A) on account of amount received/receivable by the assessee company from Birla AT T Communications Ltd. ('Birla AT T' for short). 12. In its balance sheet filed along with its return of income for the year under consideration, the assessee company had shown a sum of Rs. 3,95,06,026 as brand building fund under the head "Liabilities". In the notes on account, it was stated in this regard that the assessee company has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13. The aforesaid addition made by the AO was challenged by the assessee company in an appeal filed before the learned CIT(A) and the submissions made before the AO were reiterated on its behalf before the learned CIT(A). The learned CIT(A), however, did not find merit in the said submissions and confirmed the addition made by the AO on this issue for the following reasons given in para No. 5.3 of his impugned order: "5.3 I have perused the assessment order and the explanations of the learned Authorised Representatives carefully. After going through the same, I do not see any reason to differ from the findings of the AO on the issue. The appellant company was requested by the undersigned to show that the royalty receipt from M/s Birla AT T Communications Ltd. is a capital receipt for brand building and not a revenue receipt. They were also requested to show that this amount has also not been claimed as revenue expenditure by M/s Birla AT T Communication. To this it was stated that they have strained relations with them and it is difficult to get any information from them. This amount was received on account of royalty from M/s Birla AT T Communications Ltd. by the appellant and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . He also invited our attention to the copy of letter placed at pp. 89 to 91 of his paper book and submitted that as clearly spelt out therein, the arrangement between AT T Corporation, USA and the assessee company was confined to collection of amount in question from Birla AT T on behalf of AT T Corporation, USA and to incur the specified expenditure on behalf of the said US company out of the said funds. He contended that as per the said arrangement, the assessee company was not going to get any remuneration for the limited work to be performed by it and therefore, there was no question of any income arising to it out of the said arrangement. Referring to the details given on p. 119 of his paper book, he submitted that the amount in question received by the assessee company from Birla AT T during the year under consideration has been substantially spent by it in the subsequent years for incurring the specified expenditure on behalf of AT T Corporation, USA which supports its case that there was no element of any income that had accrued to the assessee on this count. 15. The learned Departmental Representative, on the other hand, submitted that even if it is accepted that the am ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oration, USA was the relevant thing to be looked into and not the Service Mark License Agreement between AT T Corporation, USA and Birla AT T. It appears that both the AO and the learned CIT(A), however, relied more on the said agreement to draw an inference about the nature of the amount in question received by the assessee company and the taxability thereof in its hands. They, however, appear to have not assigned the due importance to the agreement/arrangement between the assessee company and AT T Corporation, USA whereby the terms and conditions of the appointment of the assessee company as a designee and independent contractor were finalised which in fact were relevant and material to ascertain the exact nature of amount in question received by the assessee company. Before us, the learned counsel for the assessee has filed only the copy of letter dt.10th Sept., 1998addressed by AT T Corporation,USAto Birla AT T informing about the selection of the assessee company as its designee and an independent contractor to perform brand services. However, in the absence of any other details given therein about the terms and conditions determining the rights and obligations of both the par ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
