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2016 (1) TMI 169 - ITAT KOLKATA

2016 (1) TMI 169 - ITAT KOLKATA - TMI - Disallowance u/s 14A - Held that:- applicability of Rule 8D as prospective for and from AY 2008-09 and not retrospective. We further find that the assessee had already offered and identified an amount of ₹ 12,73,10,367/- and ₹ 7,51,731/- being interest on loan and de mat charges respectively for disallowance being related to exempted income. According to us, in view of the above facts and circumstances, no further disallowance can be called for .....

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the accounts of the assessee. According to us, assessee’s claim is reasonable and is to be accepted. There is no scope for further disallowance of 1% of the exempted income in view of the above reasons and facts of the case - Decided in favour of assessee

Disallowance on account of claim of provisions for leave encashment - Held that:- We find that Ld. counsel for the assessee stated that the deduction on account of provision of leave encashment was made on the basis of the judgment .....

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in term of the decision of Hon'ble Supreme Court. On this, Ld. CIT DR has not objected to the same. Accordingly, we set aside this issue to the file of the AO to await the decision of Hon'ble Supreme Court and decide the issue accordingly. This issue of assessee’s appeal is remitted back to the file of AO and allowed for statistical purposes.

Addition on deemed dividend under section 2(22)(e) - Held that:- We find from the findings of CIT(A) that he has admitted the additional evidenc .....

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ng to ld. Counsel, the assessee is out of the mischief of the provisions of section 2(22)(e) of the Act i.e. the deemed dividend. In terms of the above, we remit the issue to the file of AO to re-decide after considering the clauses of Memorandum of Association of the lender company and also NBFC certificate of Oberoi Investment Pvt. Ltd.. Accordingly, this issue of both the appeals assessee is set aside and allowed for statistical purposes.

Disallowance of depreciation in respect of .....

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et out the property being a farm house is on rent to EIH Limited and if a property is actually let out, then the expectation of its letting out becomes an actual reality and such property cannot be expected to let from year to year at any figure higher than the rent which is being produced actually by the property in question. Hence, even as per the deeming provision of Section 23(l)(a), in the case of let out property, only the actual rent received was required to be considered as annual value .....

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the view that the CIT(A) has rightly deleted the addition - Decided in favour of assessee

Disallowance u/s 40(a)(ia) - non-deduction of tax u/s. 195 for legal services to residence of Thailand and Australia - Held that:- these expenses in foreign currency represent on account of professional services rendered by non-residents from their offices in foreign countries. The parties reside in foreign countries namely, Thailand and Australia. Admitted position is that to these payments the .....

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he Assessee: Shri R. N. Bajoria, Sr. Advocate and Shri A. K. Gupta, FCA For The Revenue: Shri Debasish Roy, JCIT, Sr. DR ORDER Per Mahavir Singh, JM: These four cross appeals by assessee and revenue are arising out of order of CIT(A)-VIII, Kolkata in appeal Nos. 294/CIT(A)-VIII/Kol/09-10 for AY 2007-08 dated 18.11.2011 and ITA No.246/CIT(A)-VIII/10-11 for AY 2008-09 dated 27.04.2012. Assessments were framed separately by DCIT, Circle-8, Kolkata u/s.143(3) of the Income-tax Act, 1961 (hereinafter .....

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r exempted income @ 1%. For this, assessee has raised following ground no.1 and revenue has raised following ground no.1: Assessee s ground No. 1(a). That on the facts and in the circumstances of the case, the Ld. CIT(A) erred in sustaining disallowance to the extent of ₹ 6,44,193/- u/s. 14A of the Income-tax Act, 1961 (hereinafter referred to as Act . 1(b) That on the facts and in the circumstances of the case the Ld. CIT(A) failed to appreciate that the investment made by the appellant w .....

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gs required the assessee to explain as to why the expenditure relatable to the exempted income should not be disallowed by invoking the provisions of section 14A of the Act read with Rule 8D of the Rules. The assessee explained before the AO that it had already offered a sum of ₹ 12,73,10,367/- and ₹ 7,51,731/- being interest on loan and demat charges respectively incurred in connection with earning of dividend income and long term capital gains. Hence, no other expenditure was incur .....

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sis and this practice is being consistently followed. The AO was not satisfied by the explanation of the assessee and he made further disallowance of ₹ 83,93,827/- by invoking the provisions of section 14A of the Act on account of proportionate management expenses. Aggrieved, assessee preferred appeal before CIT(A), who restricted the disallowance at 1% of the exempted income and ordered accordingly, by observing as under: I have carefully gone through 'the assessment order and the sub .....

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view, there is no reason to differ from the AO that some management expenses were incurred by the appellant company for earning tax free income. Hence, this fact is above doubt that a part of the expenditure claimed by the appellant in its Profit and Loss Account should be relatable, to earning of the exempted income and thus should be disallowed u/s. 14A of the Act. Now comes the question of computing the quantum of disallowance. Rule 8D has been inserted in the income tax rules to compute the .....

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,93,827/- which, in my view, is very high. Based on the facts of the appellant's case and relying on my own order in the case of EIH Limited , one of the group companies of the appellant, for the Assessment Year 2007-08, I restrict the disallowance to 1% of the exempt income of ₹ 6,44,19,369/ i.e. ₹ 6,44,193/-. My order in the case of EIH Limited is based on the order of Hon ble ITAT, Kolkata, in the case of DCIT Vs. EIH Associated Hotels Limited 126 TTJ 246, which is another gro .....

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igh Court in the case of Godrej & Boycee Mfg. Co. Ltd. Vs. DCIT (2010) 328 ITR 81 (Bom) has held that applicability of Rule 8D as prospective for and from AY 2008-09 and not retrospective. We further find that the assessee had already offered and identified an amount of ₹ 12,73,10,367/- and ₹ 7,51,731/- being interest on loan and de mat charges respectively for disallowance being related to exempted income. According to us, in view of the above facts and circumstances, no further .....

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made in return having regard to the accounts of the assessee. According to us, assessee s claim is reasonable and is to be accepted. There is no scope for further disallowance of 1% of the exempted income in view of the above reasons and facts of the case. Accordingly, this issue of revenue s appeal is dismissed and that of the assessee is allowed. 5. Coming to assessee s appeal in ITA No. 1030/Kol/2012 for AY 2008-09. Similar is the issue as regards to disallowance of expenses qua exempted inco .....

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at the investment made by the appellant was to retain management control in group companies. 1(c) That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) failed to appreciate that no additional expenses were actually incurred to earn exempt income and accordingly erred in rejecting the 'assessee's computation without any valid reason. 1(d) That on the facts and in the circumstances of the case, the Ld. CIT(Appeals) erred in upholding the action of the A.O. in applyin .....

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of ₹ 14,21,34,269/- and de mat charges of ₹ 6,85,115/- relatable to exempted income and added to total income as expenditure disallowable u/s. 14A of the Act. The AO during the course of assessment proceedings considered the explanation of the assessee and noted that, it is not possible that the investment activity would not have required any time and energy of any employee, resources etc. of the company. Somebody has to take the effort to decide the investment pattern and the natur .....

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panies while computing the disallowance u/s. 14A of the Act read with Rule 8D of the Rules. Aggrieved, assessee came in appeal before Tribunal. 7. We have heard rival submissions and gone through facts and circumstances of the case. We find that the assessee company has already identified and disallowed interest on loan amounting to ₹ 14,21,35,269/- and de mat charges at ₹ 6,85,115/- under the provisions of section 14A of the Act read with Rule 8D of the Rules being expenses relatabl .....

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the CIT(A), we could not find that there is any specific item of expenditure is related to earning of exempt income. Unless there is a direct or proximate connection between the exempt income and that of the expenditure incurred, the provisions of section 14A read with Rule 8D of the Rules cannot be attracted or invoked. It is also a fact that there is no fresh investment made by the assessee during the year and these investments are primarily made in group companies with the intention to acquir .....

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ule 8D of the Rules was invoked. There is no satisfaction recorded by the AO for invoking Rule 8D of the Rules despite the fact that the assessee has disclosed huge expenditure for earning of exempted income and the same was disallowed himself, the correctness of which is not in doubt. The assessee has enclosed details of investment made in group concerns and subsidiary companies in its paper book at page 8 and details of dividend income earned at page 13. In view of the above facts and circumst .....

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he Act read with Rule 8D of the Rules. Accordingly, this issue of assessee s appeal is allowed. 8. The next common issue in both the appeals of assessee in ITA Nos. 230 & 1030/Kol/2012 is as regards to the order of CIT(A) confirming the disallowance made by AO on account of claim of provisions for leave encashment. The issue and grounds raised by assessee in both the years is identical. Hence, we will take the facts from AY 2007-08 in ITA No. 230/Kol/2012 and decide the issue. The ground No. .....

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d facts are that the assessee claimed deduction on account of provision for leave encashment based on the decision of Hon ble Calcutta High court amounting to ₹ 2,80,926/- in the case of Exide Industries Ltd. Vs. Union of India (2007) 292 ITR 470 (Cal). The AO while framing assessment u/s. 143(3) of the Act rejected the claim of the assessee on the premises that the decision of Hon ble Calcutta High Court is pending before Hon ble Supreme Court. The CIT(A) also confirmed the action of AO. .....

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Hon'ble jurisdictional High Court vide order 08-05-2009 by following observations:- Pending hearing and final disposal of the Civil Appeals, Department is restrained from recovering penalty and interest which has accrued till date. It is made clear that as far as the outstanding interest demand as of date is concerned, it would be open to the Department to recover that amount in case Civil Appeal of the Department is allowed. We further make it clear that the assessee would, during the pende .....

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o the file of the AO to await the decision of Hon'ble Supreme Court and decide the issue accordingly. This issue of assessee s appeal is remitted back to the file of AO and allowed for statistical purposes. 11. The next common issue in these two appeals of the assessee in ITA Nos. 230 & 1030/Kol/2012 is against the order of CIT(A) confirming the addition made by AO on account of loan received from a company in which assessee has shares by invoking the provisions of section 2(22)(e) of th .....

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ter mentioned in 3(a) above to the Assessing Officer for necessary verification, is not permissible under the provision of section 251(1)(a) of the Act. The facts and circumstances are exactly identical and the grounds raised are identically worded except the amount, hence we will take the facts from AY 2007-08 and decide the issue. 12. Briefly stated facts are that the assessee company during FY 2006-07 relevant to this AY 2007-08 received advances from its associate concerns as under: Oberoi I .....

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availability of funds. But the AO treated the above advances as deemed dividend in the hands of the assessee by invoking the provisions of section 2(22)(e) of the Act by noting the following reasons: 1) Through Oberoi properties Private Limited, the shareholders of the company (Mr. Prithvi Raj Singh Oberoi, Mr. Vikramjit Singh Oberoi and Mr. Arjun Singh Oberoi) have substantial holding in Oberoi Holdings Private Limited and Oberioi Buildings and Investments Private Limited. 2) The appellant com .....

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ssee preferred appeal before CIT(A), who deleted the disallowance in respect of advances received from Oberoi Holdings Pvt. Ltd., the registered and beneficial shareholders for this concern are Oberoi Properties Pvt. Ltd., Oberoi Investments Pvt. Ltd. and Oberoi Building and Investments Pvt. Ltd. Similarly, the registered and beneficial shareholders for Oberoi Building & Investment Pvt. Ltd. are Oberoi Investment Pvt. Ltd., Oberoi Holding Pvt. Ltd. and Oberoi Properties Pvt. Ltd. Thus analyz .....

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o the AO for examining whether the lender is in the business of money lending? The assessee during appellate proceedings before CIT(A) filed NBFC certificate of Oberoi Investment Pvt. Ltd. and also submitted that as per Memorandum of Association of lender company, it is one of the objects to carry on money lending business and accordingly, the provisions of section 2(22)(e) of the Act will not apply but the CIT(A) set aside the issue for reexamination after considering the NBFC certificate. Aggr .....

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ated that the issue can be set aside to the file of AO, who will consider the certificate of NBFC of Oberoi Investment Pvt. Ltd. and also Memorandum of Association of the lender company explaining that one of the objects is to carry on money lending business. Once there is money lending business, according to ld. Counsel, the assessee is out of the mischief of the provisions of section 2(22)(e) of the Act i.e. the deemed dividend. In terms of the above, we remit the issue to the file of AO to re .....

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additions made u/s. 2(22)(e) of the Act by the Assessing Officer amounting to ₹ 25,000,000/- on account of advance received from Oberoi Plaza Pvt. Ltd. and ₹ 12,500,000/- from M/s. Bombay Plaza Pvt. Ltd. and instead referring the issue back to the Assessing Officer for fresh adjudication. 16. We find from the facts of the case that the AO applied the provisions of section 2(22)(e) of the Act in case of loan taken by assessee from Oberoi Plaza Pvt. Ltd. and Bombay Plaza Pvt. Ltd. sinc .....

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view that let it be examined by the AO and decide the issue afresh. Accordingly, this issue of both the appeals of assessee and one appeal of revenue is set aside to the file of AO and allowed for statistical purposes. 17. The next common issue in these two appeals of assessee in ITA Nos. 230 & 1030/K/2012 for AY 2007-08 and 2008-09 is as regards to the order of CIT(A) confirming the action of AO in disallowing depreciation in respect of premise forming part of block of assets, which was ear .....

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09 also and Ld. Counsel for the assessee stated that the facts and circumstances are exactly identical and issue is similar. Hence, for the sake of brevity, we are deciding the issue by taking the facts from AY 2007-08. 18. Briefly stated facts are that the AO during the course of assessment proceedings disallowed depreciation on building house as guest house at Naila Fort and other fixed assets used therein at ₹ 10,76,681/-. Before AO, assessee claimed that depreciation is otherwise allow .....

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efore CIT(A), who confirmed the disallowance of depreciation by observing as under: While passing the assessment order the AO had duly added back the depreciation on guest house based on appellant s submission. Thus, in my considered view the contention of the appellant that the original assets used in Naila fort were very old and in most cases the values had been exhausted from the block is not acceptable. Had it been really the case the appellant would not have quantified the depreciation and .....

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d together and the depreciation is to be computed on the entire block without distinguishing the same with reference to actual use, It may so happen that the asset may be in use but the value may be 'NIL' for reason that it's WDV is adjusted against the sale proceeds. Thus there is no provision in the Act which discriminates the allowability of depreciation on fixed assets on the basis of its use or any restriction had been provided in the statute as in the case of section 37(4); whi .....

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t - 29. As per amended Section 32, deduction is to be allowed - "In the case of any block of assets, such percentage on the written down value thereof as may be prescribed". Thus, the depreciation is allowed on block of assets, and the Revenue cannot segregate a particular asset therefrom on the ground that it was not put to use. 30. With the aforesaid amendment, the depreciation is now to be allowed on the written down value of the block of assets‟ at such percentage as may be p .....

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ministration Reforms Commission (Report No. 12, para 20), the existing system in this regard requires the calculation of depreciation in respect of each capital asset separately and not in respect of block of assets. This requires elaborate book-keeping and the process of checking by the Assessing Officer is time consuming. The greater differentiation in rates, according to the date of purchase, the type of asset, the intensity of use, etc., the more disaggregated has to be the record- keeping. .....

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preciable assets in each of the four classes of assets, namely, buildings, machinery, plant and furniture." 31. It becomes manifest from the reading of the aforesaid Circular that the Legislature felt that keeping the details with regard to each and every depreciable assets was time consuming both for the assessee and the Assessing Officer. Therefore, they amended the law to provide for allowing of the depreciation on the entire block of assets instead of each individual asset. The block of .....

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s regards to the order of CIT(A) in confirming the disallowance of depreciation of residential property let out. At the outset, Ld. Counsel for the assessee stated that he has instructions from the assessee not to press this issue. Hence, the same is dismissed as not pressed. 21. The next common issue in these appeals of revenue in ITA Nos. 233 & 1041/Kol/2012 is as regards to the order of CIT(A) in deleting the addition made by AO by enhancing the annual value of property already let out on .....

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ssing Officer to make his submissions or comments thereon. 22. Briefly stated facts are that the assessee company is owner of a property at Oberoi farm, village Kapashera, New Delhi. The assessee for this property entered into an agreement with EIH Ltd., a group company, letting out this property on rent. As per agreement, the property is to be used by EIH Ltd. as residence and office of one of its Dy. M.D for a rental of ₹ 30,000/- per month. The AO during the course of assessment proceed .....

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assessment order, the submissions made by the appellant and various judgments referred. Based on the above I decide these grounds of appeal as under: In the assessment order the AO has concluded that the rent agreement entered into between the appellant company and EIH Limited was not at arm's length. In his view, the rental value of the subject property cannot be Rs,30,000/- per month and it should be much higher than this amount. He tried to substantiate his claim by performing internet se .....

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of assessee from house property amount actually received by it from its tenant has to be taken into consideration and not an amount at which the property might expect to let out. I have carefully considered the judgment of the Hon'ble jurisdictional High Court and found that the facts of that case are quite similar to that of the appellant's case. Thus, in my view the said judgement should be applied in the present case. In my considered view, the appellant has rightly contended that if .....

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rit in the contention of the appellant that only real income should be taxable in the hands of the appellant, In support of its contention the appellant placed reliance on a number of decisions of various appellate authorities including the Apex Court, which in my view bears substantial relevance in appellant's case. The AO in the assessment order has failed to prove that the appellant has actually earned any income in excess of ₹ 30,000/- per month against the subject property which h .....

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ication in this contention. Moreover, on enquiry I find that EIH Limited is also assessable to income tax by the same Assessing Officer. The assessment proceeding of EIH Limited for the FY 2007-08 has already been concluded and the AO has accepted the rent expenses incurred by EIH Limited. Thus, in reality, the same AO has verified and was satisfied with the claim of rent expenses in the hands of EIH Ltd. which was ₹ 30,000/- per month. In my considered view, the AO cannot deviate from his .....

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Section 23 is a deeming provision and determination of annual value does not depend on actual realization of rent. The AO while applying clause (a) of Section 1 to Section 23 in the assessee case failed to appreciate that in the present case actually let out the property being a farm house is on rent to EIH Limited and if a property is actually let out, then the expectation of its letting out becomes an actual reality and such property cannot be expected to let from year to year at any figure h .....

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rty, the assessee was not entitled to anything over and above the agreed rent. The said action of the AO has resulted in taxing notional income in the hands of the assessee, which never accrued and hence cannot be brought to tax. Accordingly, we are of the view that the CIT(A) has rightly deleted the addition and hence, we confirm the order of CIT(A) on this issue. This common issue of revenue s appeal is dismissed. 24. The last issue in revenue s appeal for AY 2008-09 in ITA No. 1041/Kol/2012 i .....

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65,587/- paid by the assessee to various non-resident parties without deducting tax at source u/s. 195 solely relying upon the fresh evidences filed by the assessee before him in relation to AY 2008-09. That on the facts and circumstances of the case and in law, the Ld. Cit(A) has violated rule 46A by non affording the AO to give his comments on the fresh evidences or counter the same before deleting the disallowance u/s. 40(a)(ia) of ₹ 2,20,65,587/-. 25. Brief facts are that the assessee .....

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e has not deducted the TDS, he disallowed this foreign payments claimed by the assessee under the head professional consultancy fees by invoking the provisions of section 40(a)(i) of the Act. Aggrieved, assessee preferred appeal before CIT(A), who allowed the claim of the assessee by observing, in his appellate order, as under: I have perused the submission of the appellant in detail. In fact, the A.O. while applying the provisions of section 40(a)(i) did not offer any specific reason for making .....

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onal services involved, such as registration. of the trade marks etc. or providing of consultancy services were fully provided from outside India. Therefore, as per the treaty provisions, in my view, the remittances in question can only be taxed in India, if the recipients have a permanent establishment or provide services through a fixed base in India. In other words, the remittances made abroad can be taxed in India only under the 'Residency rule' and not under the 'Source rule' .....

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rofessional and consultancy charges" since there was no liability to deduct tax by the A.O. 26. We have heard rival contentions and gone through facts and circumstances of the case. We find that the assessee has filed complete address of each party including the country of residence had been clearly specified. The specimen copies of the bills raised by the foreign parties were filed as well. So countries of residence of the parties were established. The assessee before AO stated the reasons .....

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utside India and that the payees did not have any permanent establishment or 'fixed base' in India. Therefore, it was claimed before the AO that in terms of provisions of section 195 of the Act it was not required to deduct tax at source from the foreign remittances made during the year. Before CIT(A) also it was clarified that when services rendered are in the nature of professional services, then those provisions of DTAA are to be applied which specifically deal with professional servi .....

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ough professional & consultancy services may be considered as 'fees for technical services" (FTS) under domestic law yet under the provisions of DTAA the same would be treated as FTS only if the said services "make available" to the recipient of services technical knowledge, skills etc. possessed or deployed by the provider of services. This "make available" clause is present in all the DTAAs which are applicable to the non-resident payees in the assessee's c .....

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s in its paper book at pages 23 to 36. These details were filed before AO in response to query No.21 of requisition dated 13.08.2010 in the shape of sample bills of the parties. 27. We find that admittedly, these expenses in foreign currency represent on account of professional services rendered by non-residents from their offices in foreign countries. The parties reside in foreign countries namely, Thailand and Australia. Admitted position is that to these payments the provisions of DTAA will a .....

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ed vide para 8 and 9 as under: 8. For the Assessment Year 2008-09 there are other grounds of appeal. The first ground is allowability of legal expenses, paid in Thailand, in relation to arbitration proceedings held in Thailand, and second is claim for deduction u/s. 40(a)(iii). As regards legal expenses paid in Thailand. We find that the assessee submitted before the DRP, that the law firm to whom the payment was made in Thailand is (a) a resident of Thailand; (b) does not have any office or age .....

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21-7-2017 Goods and Services Tax

20-7-2017 Goods and Services Tax

20-7-2017 Goods and Services Tax

19-7-2017 Goods and Services Tax

19-7-2017 Income Tax

18-7-2017 Customs

17-7-2017 Customs

14-7-2017 Income Tax

13-7-2017 Central Excise

13-7-2017 Customs

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