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TMI Blog2010 (1) TMI 624X X X X Extracts X X X X X X X X Extracts X X X X ..... holding the disallowance of depreciation amounting to Rs.54,74,602/-. The facts of the case staled in brief are that the assessee M/s SMS Demag Pvt. Ltd. is a subsidiary of M/s SMA, Demag AG Germany. M/s SMS Demag India Pvt. Ltd. is engaged in the business of supply as assemblies/sub-assemblies of metallurgical equipment, profession of consultation and technical service in design and engineering lo ferrous and non-ferrous sectors. During the course of assessment proceedings, the Assessing Officer noted that an information was received from Additional DIT International Taxation Range-2 that assesses company had made payment of royally. As per the order u/s 201/201(1A) of the Act passed by the Income-lax Officer TDS 1(2) (International Taxati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able on computers which resulted in addition of Rs.54,74,602/-. 4. Before the Id. C1T(A) it was submitted that the expenditure of Rs. 1,82,48,673/-was incurred on installation/maintenance of software and considering the nature of cost, the assessee had chosen to capitalize the said amount in the books of account. The amount was capitalized in the relevant Assessment Year. However, the remittance for the same was made only in 2006. It was also submitted that the payment was not in the nature of royalty for technical services. It was also admitted that the software was installed and used and payment for the same was made in 2006 and it was not chargeable to tax in the year under consideration. The assessee placed reliance on the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... towards purchase of software it could not be treated as in the nature of royalty or fee for technical services. Ld.A.R. of the assessee further submitted that as per Article 24 of DTAA entered into between Republic of India and Federal Republic of Germany, the nationals of contracting state shall not be subject in other contracting state to any taxation or any requirement connected therewith which is more burdensome than the taxation and connected requirement to which nationals of other state in the same circumstances and under the same conditions are or may be subjected to. Ld. A.R. of the assessee also clarified that even if it is assumed for argument sake that the payment made to parent company was in the nature of royalty or fee for te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hargeable to tax in India as the amount has been paid on genuine basis and the provisions of sec. 195 were clearly attracted. It has also been submitted that assessee has made payment in the year under consideration to its parent company which is an admitted fact. Subsequent to its payment the treatment as capital expenditure has no nexus to the deduction of tax on said payments to Ihe payee and burden to deduct TDS is not determined in the nature of outgo whether it was capital or revenue. Further, it was also submitted that the payment was royalty and, therefore, provisions of sec. 40(a) (i) were applicable. Ld. Sr. D.R. relying on the decision of l.T.A.T. in the case of Credit Llyonnais v. DCIT (2005) TIOL 102 I.T.A.T..MM submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that payment made outside India should be in the nature of interest, royally, fee for technical services or other sum chargeable under the Act. The Assessing Officer has simply reopened the assessment on the basis of information received from Additional D1T (International Taxation Range-2, New Delhi) and disallowed depreciation on assets capitalized in the books of account. The Id. CIT(A) has also not examined the nature of the expenditure incurred towards installation of software named SAP. She has treated the payment without any discussion in the nature of royalty/fee for technical services or interest. According to her, the payment made may fall in any of the categories. Apparently, the payment made towards installation of software is no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f DTAA with India and Germany the foreign national cannot be subjected to provisions of section 40(a)(i) of the Act. Therefore, the Id. CIT (A) was not justified in holding that the amount paid by the assessee for acquisition of computers was chargeable to tax in India. Accordingly, this ground of appeal is decided in favour of the assessee. 8. As regards the claim of assessee for depreciation on assets capitalized, depreciation cannot be disallowed on the ground that at the time of remittance no tax was deducted at source. Provisions of section 40(a)(i) are not applicable for claim for deduction u/s 32 of the Act. Accordingly, in our considered opinion, the assessing officer was not justified in disallowing 50% of depreciation on the grou ..... X X X X Extracts X X X X X X X X Extracts X X X X
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