9911796707
TMI Blog2013 (2) TMI 429X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment proceedings, the Assessing Officer noticed that assessee has credited in its profit and loss account of Rs. 11,38,88,714/- which is claimed to be the net after reducing the vendor cost. AO observed that similar issue had come up for consideration in assessment year 2003-04 through a revision order, which was prompted by the fact that the assessee had claimed TDS credit on the gross receipts without bringing the said gross to profit and loss account. Assessee has not been able to properly correlate the invoices with the client and the vendor. AO observed that the amounts of TDS as per the TDS certificates are different in rates and following the revision order for assessment year 2003-04, he allowed proportionate credit being the credit to be granted is average. Aggrieved, assessee filed appeal before the first appellate authority. 4. During the course of appellate proceedings, assessee was asked to correlate the client and job wise billings vis-à-vis the vendors cost, to which, assessee has submitted the details as required. Ld CIT(A) considered the submissions of assessee and also detailed filed before him. He observed that assessee has failed to correlate the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid to the Central Government shall be treated as payment of tax on behalf of the person from whose income, the deduction was made, or of the owner of the security, or depositor etc. and credit shall be given to the amount for the amount so deducted in the assessment made under this Act, for the assessment year for which such income is assessable. From here, it can be clearly noticed that the prescription of section 199 mandates allowing of credit for TDS in the year in which the income on which such tax deducted, is offered for taxation . As the assessee-offered the entire amount of Rs. 6.96 crores to tax in the instant year out of gross receipts of Rs. 21.77 crores, in our considered opinion, there is no justification in allowing only the proportionate part of the tax deducted at source. We, therefore, overturn the impugned order on this score as well. We, therefore, set aside the impugned order." We also observe that the authorities below have followed the revision order of ld CIT for assessment year 2003-04 while taking the view that the credit will be given for TDS only to the extent of the amount credited in P&L account. Since, the view taken in assessment year 2003-04 is r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowed 30% towards common facility charges and ld CIT(A) reduced the disallowance to 20%. When the issue for assessment year 2005-06 had come up for consideration before the Tribunal, the coordinate bench following the decision of another coordinate bench in the case of Batlivala & Karanai vs ACIT, 2 SOT 379, held as under: "6. We are in considered agreement with the views so expressed by the coordinate bench. We have also noted that in the present case, the Assessing Officer has made no effort to demonstrate as to what would be fair market value of services and proceeded to disallow the same on adhoc basis as overall percentage of expenditure incurred. The disallowance in the present case is thus based on quantum of expenditure incurred rather than the fair market value of services for which expenditure is incurred. This approach, in our humble understanding, is contrary to the scheme of the Company. In any event, as noted by the Hon'ble Jurisdictional High Court in the case of Indo Saudi Travel Services P. Ltd.,(supra), the legal proposition that payment to a sister concern cannot be disallowed under section 40A(2)(b) of the Act unless tax avoidance motive is established, is al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any without appreciating the facts that royalty payment was made for the use of the proprietary materials." 14. The Assessing Officer that a sum of Rs. 90,00,000 has been paid by the assessee to its holding company i.e. TLG India towards royalty for the year under consideration. Before the AO, it was explained by the assessee that the assessee company is engaged in the same business as that of the parent company i.e. TLG India Pvt Ltd., and TLG had obtained, from its parent company Leo Burnett Worldwide Inc, certain proprietary material. Under an agreement entered into by the assessee with the parent company, TLG was to provide the assessee company all such technique and proprietary material to be used by it for the purpose of its business in consideration of royalty to be paid to TLG. Accordingly, assessee was to pay a maximum of 5% of the gross capitalized billings of the company as royalty. The Assessing Officer noted that instead of proving the reasonableness of the payment, assessee has spoken more on the significance of so many intangible proprietary assets that the Leo Burneet held and the prerogative enjoyed by TGLG for transacting the same with the assessee who is a 100% ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roprietary material in question. In view of our observations while dealing in Ground No.1 above, it is a condition precedent for making disallowance under section 40A(2)(b) of the Act to first determine the fair market value of this services in question and then disallow the amount paid in excess of such fair market value. That exercise has clearly not done in the present case. We have also noted that in the present case, the Assessing Officer has made no effort to demonstrate as to what would be fair market value of services and proceeded to disallow the same on adhoc basis as overall percentage of expenditure incurred. The disallowance in the present case is thus based on quantum of expenditure incurred rather than the fair market value of services for which expenditure is incurred. This approach, in our humble understanding, is contrary to the scheme of the Company. In any event, as noted by the Hon'ble Jurisdictional High Court in the case of Indo Saudi Travel Services P. Ltd.,(supra), the legal proposition that payment to a sister concern cannot be disallowed under section 40A(2)(b) of the Act unless tax avoidance motive is established, is also relevant. In the present case, l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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