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2015 (4) TMI 766 - ITAT DELHI

2015 (4) TMI 766 - ITAT DELHI - [2015] 42 ITR (Trib) 523 (ITAT [Del]) - Dis-allowance u/s section 40(a)(i) - Non deduction of TDS u/s 194E - Payment made to Association of Tennis Professionals, a non-resident sports association - Addition on account of unclaimed liability - Dis-allowance of payment made to Tamil Nadu Tennis Association on account of non deduction of TDS - Disallowance u/s 40(a)(i) - Dis-allowance of expenses - reimbursement of expenses - Held that:- It is evident that section 19 .....

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the above, the order of the ld CIT(A) is reversed and the order of the AO is restored.

Unclaimed liability - At no stage it has been established that the liability to pay the above surplus has extinguished. Even if the amount cannot be repatriated to Canada, the amount belongs to IMG Canada and it can be spent or utilized in India as per the directions of IMG Canada.s the facts and circumstances of the present case are pari materia with the case of the appellant in A. Y .2001-02, and .....

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yment is made to a resident and within India and not to a non-resident or a foreign company, which is a condition precedent to invoke section 40 (a)(i) of the Act. As such the AO had not even correctly invoked section 40(a)(i) of the Act. Thus the specific ground of the revenue is that the ld CIT(A) has erred in ignoring the fact that the provision of section 40(a)(i) of the Act talks not only talks about interests, royalty Fee For Technical Services but ‘other sum’ chargeable under the Act, is .....

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at the payment made to AITA a resident is to obtain necessary sanction/ approval for conducting Chennai Open Tournament is not covered under any of the specific TDS provisions under Chapter XVIIB of the Act. The AO in the order has not stated any of the section under which the assessee should have withheld taxes. Therefore for the reason stated with regard to similar payment to TNTA the sum paid to AITA cannot be disallowed u/s 40(a)(ia) or even u/s 40(a)(i) of the Act and so we do not find any .....

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nting permission to conduct the tournament organized by the assessee. The said payments were of 20% share of income generated by sale of tickets. In such circumstances it cannot be said that such payments were for the use of logo of TNTA on the contrary the logo is used is that of ATP (U.S.A.). In the light of the above we had rejected the additional grounds preferred by the Revenue in Assessment Year 2006-07 and direct to delete the disallowances made in Assessment Year 2007-08 and Assessment Y .....

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rt the claim that expenses reimbursed were incurred wholly and exclusively for the purpose of the business of the assessee. The aforesaid evidence has not been specifically examined by any of the authorities below, therefore we consider it appropriate to remit the matter back to the file of AO, who shall decide the issue de-novo, after granting adequate opportunity to the assessee. Lest, it be stated here that such fresh examination be made, without being influenced by the disallowance made in A .....

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Appellant : Sh. S.K.Aggarwal, CA Sh. Sujay Paul, CA For the Respondent : Satpal Singh, Sr. DR ORDER Per A. T. Varkey, JUDICIAL MEMBER These are six appeals, four appeals filed by the Revenue and two by the assessee relate to Assessment Year 2005-06 to 2009-10. Since the issues involved in these appeals are common, therefore, they were heard together and are being decided by this consolidated order. In appeal No. 1012/Del/2011, for Assessment Year 2005-06, the revenue has raised the following gr .....

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ra India Financial Corporation Ltd. towards title sponsorship, without appreciating that since the games were not held and since Sahara India has not demanded the money back, the same has become the income of the assessee. 2. The revenue has also raised the following two additional grounds:- i) On the facts and in the circumstances of the case, the ld the Commissioner of Income Tax (appeal) has erred in deleting the additions made under section 40(a)(i) by the AO holding that the assessee was no .....

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of Tennis Profession (ATP) by the assessee and disallowed by the AO u/s 194 E read with section 40(a)(i)of the Income Tax Act, 1961 (herein after the Act ). 4. The AO in this regard has observed that the assessee was required to deduct TDS u/s 194E on the payment to ATP and in absence thereof the expenditure was disallowed u/s 40 (a)(i) of the Act. The ld CIT(A) however has held as under:- In respect of the payment of ₹ 20,30,554/- made in Foreign Currency to the Association of Tennis Prof .....

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)(i) of the Act. 5. Before us the ld DR submitted that provisions of section 194E apply to the facts and therefore the ld CIT(A) was wrong in reversing the disallowance. The ld AR on the other hand, submitted that section 194E does not apply as ATP is just a governing body of sport and not a sports association. 6. Having considered the rival submissions and facts on records we find that section 194E provides that where any income referred to in section 115BBA is payable to a non-resident sportsm .....

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yable to such association or institution in relation to any game (other than a game the winnings wherefrom are taxable under section 115BB) or sport played in India, income tax is payable at the rate of 10% thereon. 8. Accordingly the disallowance so made by the AO is found to be in order. The Hon ble Calcutta High Court in the case of Indcom Vs. CIT (TDS) (2011) 11 Taxmann.com 109 (Cal) held as under after taking note of the provisions of laws applicable to the issue in hand i.e. sections 2(24) .....

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ncome from whatever source derived which- (a)is received or is deemed to be received in India in such year by or on behalf of such person; or (b)accrues or arises or is deemed to accrue or arise to him in India during such year. Explanation 1.-Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance-sheet prepared in India. Explanation 2.-For the removal of doubts, .....

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onnection in India, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of a capital asset situate in India. Explanation.-For the purposes of this clause- (a)in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in Indi .....

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India for transmission out of India; (d)in the case of a non-resident, being- (1)an individual who is not a citizen of India; or (2)a firm which does not have any partner who is a citizen of India or who is resident in India; or (3)a company which does not have any shareholder who is a citizen of India or who is resident in India, no income shall be deemed to accrue or arise in India to such individual, firm or company through or from operations which are confined to the shooting of any cinemat .....

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newspapers, magazines or journals; or (b)being a non-resident sports association or institution, includes any amount guaranteed to be paid or payable to such association or institution in relation to any game (other than a game the winnings wherefrom are taxable under section 115BB) or sport played in India, the Income-tax payable by the assessee shall be the aggregate of- (i)the amount of Income-tax calculated on income referred to in clause (a) or clause (b) at the rate of ten per cent; and (i .....

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a)his total income in respect of which he is assessable under this Act during the previous year consisted only of income referred to in clause (a) or clause (b) of sub-section (1); and (b)the tax deductible at source under the provisions of Chapter XVIIB has been deducted from such income. 194E. Payments to non-resident sportsmen or sports associations.-Where any income referred to in section 115BBA is payable to a non-resident sportsman (including an athlete) who is not a citizen of India or a .....

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ent any sum by way of- (a)fees for professional services, or (b)fees for technical services, shall, at the time of credit of such sum 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 any other mode, whichever is earlier, deduct an amount equal to five per cent of such sum as Income-tax on income comprised therein : Provided that no deduction shall be made under this section- (A)from any sums as aforesaid credited or paid before the 1st .....

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n individual or a Hindu undivided family, whose total sales, gross receipts or turnover from the business or profession carried on by him exceed the monetary limits specified under clause (a) or clause (b) of section 44AB during the financial year immediately preceding the financial year in which such sum by way of fees for professional services or technical services is credited or paid, shall be liable to deduct Income-tax under this section :] [Provided also that no individual or a Hindu undiv .....

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rofession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of section 44AA or of this section; (b)"fees for technical services" shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9; (c)where any sum referred to in sub-section (1) is credited to any account, whether called "Suspense account" or by any other name, in the books of account .....

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ny other consequences which he or it may incur, be deemed to be an assessee in default in respect of the tax : Provided that no penalty shall be charged under section 221 from such person, principal officer or company unless the Assessing Officer is satisfied that such person or principal officer or company, as the case may be, has without good and sufficient reasons failed to deduct and pay the tax." 10. Thereafter the Hon ble Calcutta High Court held as under:- 3. A plain reading of the a .....

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the meaning of section 2(24)(ix) of the Act. Similarly, such income should be deemed to accrue or arise in India being income accruing or arising, whether directly or indirectly, through or from any source of income in India as provided in section 9(1)(i) of the Act. 4. Section 115BBA of the Act, as quoted above, explicitly makes the aforesaid income of a foreign cricket team for participating in a cricket match in India taxable being an amount payable to such association or institution in rela .....

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tax from that amount paid to the team at the source. In our opinion, such contention is not tenable for the simple reason that it was the appellant who made a lump sum amount to the team-manager and as indicated in the proviso to section 115BBA(1) of the Act, no deduction in respect of any expenditure is permissible for calculation of the income under the said provision from the total amount received by the foreign team for such participation. Thus, in our opinion, the additional amount paid in .....

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ssity to give weightage to those words. Further, it was held that section 195 of the Act uses the word "payer" and not the word "assessee" and the payer is not an assessee. The payer, the Court proceeded, became an assessee-in-default only when he failed to fulfil the statutory obligation under section 195(1). If the payment does not contain the element of income, according to the said decision, the payer cannot be made liable and be declared to be an assessee-in-default. 7. .....

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ed administrative expenses are not taxable in India and consequently, his client had no liability to deduct at source under section 194E of the Act. 11. From the above, it is evident that section 194E read with section 115 BBA apply to payments made to a non-resident sports association or an institution. In the instant case, ATP is undisputedly a governing body of the world wide men s professional Tennis Circuit responsible for ranking of its players and co-ordinating the Tennis tournament in th .....

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eleted the said addition by observing as under:- 6.1 I have considered the submissions made on behalf of the appellant and the facts on record. I have also perused the order of the CIT(A)-XXIX, New Delhi referred to above. It is noticed that the Ld. CIT(A)-XXIX, New Delhi had deleted the identical addition made in the appellant's own case in Assessment Year 2001-02 with the following observations made (Refer to Para 3 and 3.1 of the CIT(A)'s order):- "3..........The Sahara Cup for 1 .....

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d any deduction in any earlier assessment years and no benefits has been received in any subsequent year. IMG Canada has also not waived its claim of receiving the money. It has been confirmed that the amount is receivable from the appellant. The appellant has also shown the amount as payable in its balance sheet to IMG Canada. At no stage it has been established that the liability to pay the above surplus has extinguished. Even if the amount cannot be repatriated to Canada, the amount belongs t .....

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lant in A. Y .2001-02, and there being no change in the facts during the year under consideration vis-a-vis the facts of AY 2001-02 with respect to the amount/liability involved in this matter, for the reasons as discussed in the aforesaid order of the CIT(A)-XXIX, New Delhi this ground of appeal is allowed. As a result, ground of Appeal No. 3 is allowed. 14. Having considered the rival submission we feel the issue was concluded by the order of ld CIT(A) for Assessment Year 2001-02 whereby ident .....

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held as under:- The assessee has not deducted tax out of payment of ₹ 11,00,000/- made to Tamil Nadu Tennis Association and has submitted a copy of letter (undated) from TNTA, stating that the amount of ₹ 11,00,000/- received from you towards development fund has been treated as such and has not been considered in our P&L account. This should be treated as donation and, therefore, no tax is deductible. The assessee had already made the payments and this certificate is obtained l .....

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under any of the specific sections under Chapter XVII B of the Act and therefore assessee is not required withhold taxes. 18. Before us the ld DR supported the disallowance u/s 40(a)(i) of the Act. And the AR submitted that in order to promote the business of Tennis and Chennai Open Tournament in the State of Tamil Nadu, a contribution was made towards development and promotion of Tennis by the assessee. 19. We have considered the rival submission and perused the records and find that the paymen .....

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Act. As such the AO had not even correctly invoked section 40(a)(i) of the Act. Thus the specific ground of the revenue is that the ld CIT(A) has erred in ignoring the fact that the provision of section 40(a)(i) of the Act talks not only talks about interests, royalty Fee For Technical Services but other sum chargeable under the Act, is misconceived because section 40(a)(i) is neither been invoked nor can be invoked because payments are admittedly paid to a resident and even if disallowance can .....

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under any of the specific section provide under chapter XVII B of the Act and deleted the same. 22. Having considered the rival submission we find that the payment made to AITA a resident is to obtain necessary sanction/ approval for conducting Chennai Open Tournament is not covered under any of the specific TDS provisions under Chapter XVIIB of the Act. The AO in the order has not stated any of the section under which the assessee should have withheld taxes. Therefore for the reason stated with .....

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13 for Assessment Year 2008-09 (Appeal of the assessee) (d) ITA No.678/Del/2013 for Assessment Year 200910 (Appeal of the assessee) 24. All the grounds in the aforesaid four appeals relates to following disallowance, made u/s 40(a)(i)/ 40(a)(ia) of the Act. Sl No. Particulars Payments to ATP (U.S.A) IMG (U.S.A) TNTA (India) AITA (India) 1. A.Y.2006-07 Department Rs.20,88,947/- Ground No.1 &2 Rs.11,11,111/- Ground No.1 &2 Rs.18,49,345/- Addl Ground 1 & 2 Rs.47,50,000/- Addl Ground 1 & .....

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essment. So to that extent the ld CIT(A) order for Assessment Year 2006-07 stands reversed and order of the DRP for Assessment Year 2007-08 and the order of the ld CIT(A) order for Assessment Year 2008-09 stands upheld. As regards, the payment to IMG USA is concerned, we find that the AO has observed that according to the assessee aforesaid sum had been paid as a reimbursement of the expenditure incurred for organizing a free trip to USA for teenagers, before the commencement of the tournament C .....

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income of the assessee, taxable in India and it has been concluded as under:- As such, payment of ₹ 10,85,541/- by PE to HP and receipt of such amount by HO cancel each other while computing the taxable income of the PE. Thus, even if assessee's argument that it was payment to self and, therefore, not liable to withholding tax is accepted in view of the decision of Hon'ble ITAT in the case of ABN Amro Bank (supra), it would not help the assessee as the assessee cannot be allowed de .....

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Head office for organizing a trip are liable of deduction of TDS, particularly when the claim is that such an expenditure is a mere reimbursement of expenses. The Hon ble Calcutta High Court in the case of ABN Amro Bank Vs. CIT had held that section 40(a)(i) is in-applicable when payment are made to Head office and held as under:- An unnecessary complication has been created by the interpretation made of section 40(a)(i) of the Income Tax Act read with section 195 of the Act by both the appellan .....

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terpretation is supported by the phrase in parenthesis, namely, not being income chargeable under the head "salaries". Therefore, the meaning of this section is that such interest must be chargeable under the provisions of this Act. To simplify the matter, this interest must be accounted for or credited in the account of some person who is chargeable under the Act. In other words, this remittance of interest must result in an income which is chargeable under the Act. In those circumsta .....

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that for the purpose of computation of expenditure the branch and the head office are to be taken as separate entities but for the purpose of payment of tax to be deducted at source on interest payment, it is to be taken as one bank and no deduction is to be made as sought to be made by the learned counsel for the appellant. Such contentions are totally unfounded in our opinion. The permanent establishment and the head office have to be taken as separate entities for all purposes. But in the ma .....

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extend. As a result, ground raised by the revenue is dismissed for Assessment Year 2006-07 to the extent of the aforesaid payments. And ground no. 2 of the assessee for Assessment Year 2007-08 is allowed. 28. The next issue relates payments made to Tamil Nadu Tennis Association (TNTA) and AITA. 29. Having considered the rival submission we have already held while deciding the appeal for Assessment Year 2005-06 that the disallowance made u/s 40(a)(ia) of the Act and now challenged u/s 40(a)(i) in .....

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ht of the above we had rejected the additional grounds preferred by the Revenue in Assessment Year 2006-07 and direct to delete the disallowances made in Assessment Year 2007-08 and Assessment Year 2009-10. As a result the grounds raised by the assessee in the appeal for Assessment Year 2007-08 and 2009-10 are allowed. 30. The solitary issue that is reaming which has been raised in the assessee s appeal for Assessment Year 2006-07 for disallowance of ₹ 49,81,932/- being the reimbursement o .....

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ssessment year 2005-06, for the reasons as discussed in the aforesaid order of the undersigned, disallowance of the payments totalling ₹ 49,81,932/-on account of reimbursement of expenses by the appellant to its Associated Enterprises is confirmed. In this context, it may be appropriate to reproduce the findings of the undersigned in Para 7.4 of the appellate order for assessment year 2005-06 referred to above:- "7.4 I have considered the written submission on behalf of the appellant, .....

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t has been held to mean an expenditure which is voluntary in nature and commercially expedient. In the present case the Assessing Officer has given a finding of fact that the assessee-company has not been able to prove that the reimbursement of expenses to the Associated Enterprises were made in the course of business or on account of commercial expediency. I also feel that if at all the appellant's claim is bona fide, it could have produced documents in the form of audited financials and th .....

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cer is upheld and ground of appeal No. 4 is dismissed. Accordingly, it is held that the payments of ₹ 49,81,932/- were not related to the business of the appellant and therefore not allowable under section 37 of the Act. As a result, Ground of Appeal No. 3 is dismissed. 31. Before us the ld AR has submitted that reimbursements were incurred wholly and exclusively for business purposes only and hence, deductible under section 37 of the Act. In the first instance, due to administrative conve .....

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he MD of the Branch, he was responsible for taking care of all the operation carried on the branch in India. He was also responsible for taking strategic decisions towards betterment of the branch business in India. Accordingly, during his term of secondment in India, it would be evident that Mr Ravi Krishnan was working as an employee of India branch during relevant previous year and the expenses incurred were purely business expenditure. The ld AR took our attention to the month-wise break up .....

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imon Lock for attending Lakme Fashion week. Salary of Mr Ravi Krishnan was paid by IMG America Pty Ltd on account of administrative convenience and charged back to the Appellant on a cost to cost basis. The withholding taxes/ income taxes as applicable to such transaction were duly deducted/ deposited/ paid in India (Refer Form 16 for Mr Ravi Krishnan for the subject A Y on page no. 58 to 59 of paper book). Health insurance charges of Mr Ravi Krishnan (Rs 368,496) - Such expense incurred on Ravi .....

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d to the Appellant. The details for such expenses along with the copy of third party invoices on sample basis has been enclosed on page DO. 60 to 67 of paper book. Travel expenses (Simon Lock) (Rs 182,569) - The expenses incurred on account of air ticket of Simon Lock for attending Lakme Fashion Week event were initially paid by IMG America Pty Ltd and cross charged to the Appellant. The event is an event of the Appellant and all income there from has been offered to tax. This expense was clearl .....

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