TMI Blog2011 (3) TMI 202X X X X Extracts X X X X X X X X Extracts X X X X ..... ipient and it is only out such income of the recipient, the Indian Payer is deemed to withhold the TDS at the appropriate rates and pay to the Government - what the Indian payer deposits to the Government cannot be construed as tax of the Non-resident being borne by the Indian Resident Payer, but the amount paid is only out of the deemed income of the recipient - In the result the appeal filed by the assessee is allowed - IT APPEAL NO. 1033 (MUM.) OF 2009 - - - Dated:- 31-3-2011 - P.M. JAGTAP, SMT. ASHA VIJAYARAGHAVAN, JJ. Vijay Mehta for the Appellant. R.S. Srivastava for the Respondent ORDER Asha Vijayaraghavan, Judicial Member ‑ This appeal filed by the assessee is directed against the order dated 11-1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 40(a) of the Act the assessee was asked to explain why the withholding tax paid should be considered as special effect cost and why it should not be disallowed under section 40(a)(ii) being tax paid on behalf of the foreign party. 3. The assessee's authorized representative vide letter dated 28-9-2007 submitted their contention as under: "Bills for payment of Tata Elexsi for special effect is enclosed. The said expenses are shown as cost of production of KHNH. In this regard please be informed that M/s. Tata Elexsi has outsourced some of the activities of the special effect to M/s. DFL which is a non resident concern and while remitting the payment for the outsourcing activities withholding tax was borne by M/s. Tata Elexsi which is b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distinction between the income tax paid by the assessee on its own income and income tax paid on behalf of any other person. In this case it was the tax liability of DLF which assessee has paid. Hence assessee cannot take the plea that the withholding tax borne by the assessee is also an element of cost of the assessee and the said amount does not refer to any tax which is paid by the assessee. The nature of the payment does not alter if the payment is made by a third party. The sum of Rs. 471491 is undoubtedly the tax paid by the assessee on behalf of DLF and the payment is hit by the provisions of section 40(a)(ii). In view of the above the AO disallowed the assessee's claim of special effect expenditure of Rs. 471491. 5. Aggr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The action of the AO is upheld." 7. Aggrieved the assessee is in appeal before us and raised the following ground. "On the facts and in the circumstances of the case and in law, the Hon'ble CIT(A) grossly erred in confirming the disallowance of Rs. 4,71,491 made by the Ld. A.O. by invoking provisions of section 40(a)(ii) of the Income-tax Act, 1961. The appellant prays that the said disallowance may be deleted". 8. The Ld. Counsel for the assessee Shri Vijay Mehta submitted that as per the contract between the assessee and Tata Elxsi, the amount payable by the assessee to Tata Elxsi is Rs. 76 lakhs plus tax if any they have to bear in case of sub-contract with Non-Resident and Travel expenses. Obtaining the services of Non-resident i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was payment of the liability to tax of another person who was the transferor and not of the assessee and the mere fact that in certain circumstances that liability was put on the shoulders of the assessee will not in any manner detract from the fact that the tax was one payable by the transferor." 11. The Ld. Departmental Representative Shri R.S. Srivastava submitted that section 40(a)(ii) reads as follows: "Any sum paid on account of any rate of tax levied on the profits or gains of any business or profession or assessed at a proportion of, or otherwise on the basis of any such profits or gains." 12. The Keyword is 'any' and therefore the provision under section 40(a)(ii) specific and no exemption is provided. The DR also pointed ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... up. That is the amount payable to the assessee is notionally increased and from such notionally increased income, the TDS at the appropriate rate is paid by the resident payer section 195A which deals with grossing up reads as under: "Income payable "net of tax"- In a case other than that referred to in sub section (1A) of section 192, where under an agreement or other arrangement, the tax chargeable on any income referred to in the foregoing provisions of this Chapter is to be borne by the person by whom the income is payable, the, for the purposes of deduction of tax under those provisions such income shall be increased to such amount as would, after deduction of tax thereon at the rates in force for the financial year in which such in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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