TMI Blog2014 (9) TMI 312X X X X Extracts X X X X X X X X Extracts X X X X ..... in substance, rental payments made by the assessee to ITDL - Just because certain obligations, terms & conditions etc. have been agreed to between the parties, it does not lead to a conclusion that there is no hirer and hiree relationship - The fact remains that the assessee bills ITDL for the total contract work done and ITDL also bills the assessee for hire charges payable. Method of settlements of accounts is of no consequence - even a credit entry attracts provisions of Sec.195 – when services were not rendered in India, the amount shall not be taxable and consequently S.195 is not attracted and consequently the disallowance made u/s 40(a)(ia) is bad in law - Decided partly in favour of assessee. - ITA no. 3342,3400,3343/Del/2010 & ITA no. 5188/Del/2011 - - - Dated:- 4-4-2014 - U.B.S. BEDI AND J.SUDHAKAR REDDY, JJ. For the Appellant : Subodh Gupta and Mukesh Aggarwal. For the Respondent : Sanjeev Sharma and Vivek Kumar. ORDER:- PER : J.Sudhakar Reddy All these appeals are filed by the sseessee and pertain to Assessment Years 2005-06, 2006-07, 2007-08 and 2008-09. ITA 3342/Del/2010, 3343/Del/2010 and 3400/Del/2010 are directed against a common order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gued that the expenses were incurred in Thailand and the nexus with the Indian Project is not proved. 6. After hearing rival contentions and perusing the papers on record, we find that the assessee has furnished a detailed reply to the AO as regards the expenses in question. A perusal of the nature of expenditure clearly demonstrates these are in the revenue field. The AO has disallowed the expenses in question by observing as under: 4. Head office expenses of ₹ 13,74,033/-:- These expenses are shown in Form no.3CEB. And the assessee has claimed that the expenses of ₹ 13,74,033/- were incurred by the HO of the assessee in Thailand in relation to the operations in India on account of salaries, welfare expenses and on travelling etc. These expenses are mainly initial project start up expenses for mobilizing of man power etc. These expenses have been claimed as expenses in the profit and loss account for the year as these are incurred directly in relation to project execution in India. If these were the start up expenses, these should have been capitalized in other wise also, supporting documents are not submitted, therefore disallowed and added to the incom ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Main Contractor shall vitiate the contract, or relieve the sub contractor from any of his other liabilities or obligations under the sub contract, but the value of such variation shall be taken into account by the main contractor. The value of the variation shall be ascertained as appropriate by the Main contractor after consultation with the sub contractor with .. 3.1. Subject to all terms and conditions under this sub contract agreement, the sub contractor shall efficiently and faithfully perform all the sub contracting works, to furnish all necessary drilling equipment together with essential supporting equipments and materials for the execution of excavation works . 3.3 The Main Contractor shall procure on behalf of the Contractor 5 units of Hydraulic Crawler Drill for contractor's works under terms acceptable to the Main Contractor, provided however that the contractor shall re-imburse the costs thereof in the amount of Baht 43 million to the Main Contractor by monthly instalments from month 5 to no 32 as specified .... 4.3 The Main Contractor agrees to pay when due (in advance) for the cost of mobilization and demobilization, in India from Mumbai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of this case. He relied on the judgement of Hon'ble Delhi High Court in the case of CIT v. Career Launcher India Ltd. ITA 939/2000 dt. 19 th April, 2012 for the proposition that the entire agreement entered into between the parties has to be seen as a whole and that on a holistic appraisal of the agreement, one would come to a conclusion that in case of the assessee, there was no payment of hire charges. He also relied on the decision of Hon'ble Delhi High Court in CIT v. NIIT Ltd. for the proposition that when the relation between the parties is not of a lessor and lessee, S.194 I does not apply. 7.3 The Ld.DR on the other hand opposed the contentions of the assesse and submitted that certain machinery was given to the assessee on hire and the assessee had incurred expenditure on account of hire charges. He submitted that the assessee has claimed the same, as hire charges, in its books of accounts and under the facts and circumstances S.195 is applicable as the payment is made to a non-resident. As the assessee has not deducted tax at source, S.40(a)(i) was rightly invoked by the A.O. He took this Bench to pages 5 to 8 of the Ld.Commissioner of Income Tax (Appeals) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntention of the appellant regarding these expenses is that no payment was made it to the payee either by cash or by cheque or by any other mode. All that has been done is that ITD had adjusted the hire charges from the dues to the appellant on account of contract work done by the appellant for ITD. Thus only a book entry was made and no amount was actually paid on account of hire charges. This contention of the appellant is not acceptable. Section 195 of the Act states as under: Any person responsible for paying to a non-resident. not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head Salaries ) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by wry other mode. whichever is earlier, deduct income tax thereon at the rates in force; 6.1 Admittedly the payee is a non-resident and the payments made to the payee were chargeable to tax. From a perusal of the above provisions of section 195 it is seen that the obligation to deduct income tax is cast on a person at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Act. In fact the appellant itself has stated that the ITD has duly shown these payments in its return of income and there is no prejudice to revenue on this account. 6.4 The appellant's reliance on section 191 of the Act is misplaced. Section 191 states that income tax shall be payable by the assessee direct on its income in cases where provision has not been made for deduction of tax under Chapter VII or where provision for deduction is there but tax has not been deducted in accordance with those provisions. This section does not absolve the payer of his obligation to deduct tax if the same is deductible in accordance with the provisions of the Chapter. Obligations cast on the payer and the payee, under the provisions of the Act are different in nature. Section 191 of the Act is an additional safety net to take care of situations in which taxes may not be collected through IDS. However, in those cases where there are express provisions for TDS, it is the obligation of the payer to fulfill those obligations. Thus section 191 is applicable to payees in certain situations but does not help the appellant in any way. 6.5 The next contention of the appellant is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a resident of Thailand; (b) does not have any office or agent or branch in India, (c ) none of the partners or employees are present in India during any of the arbitration proceedings, (d) that the entire arbitration proceeds were held in Thailand in terms of the agreement between the parties, (e) the payment to the law firm was made by head office in Thailand, (e) the services were performed in Thailand. 9. After hearing rival contentions we find that the DRP has not applied its mind to the facts of this case or considered the arguments raised by the assessee. It dismissed the submissions of the assessee on the ground that the facts are para materia to hire charges paid on machinery, which was considered by us in ground no.2 above. There is no comparison between the two issues. As on facts the Ld.D.R. could not controvert the submissions of the assessee, and as the services were rendered outside India and the payment was made outside India, by the head office of the company, in our view S.195 is not attracted. The Hon'ble Bombay High Court in the case of CIT v. Sri Chirag and Bhakta in [IT Appeal 1073 of 2012] has held that when services were not rendered in India, the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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