TMI Blog2016 (3) TMI 274X X X X Extracts X X X X X X X X Extracts X X X X ..... eld the order of the CIT(A) and reject the ground raised by the revenue. - Decided in favour of assessee Disallowance of royalty payment u/s 40(a)(i) - non deduction of TDS on royalty payment as per section 195 - Held that:- A careful study of the provisions of section 40(a)(i) of the Act, it was clear that any payments referred to in the said section, which is payable outside India or in India to a non-resident on which tax is deductible under chapter XVIIB and such tax is not deducted or, after deduction has not been paid within the due dates under sec. 200(1) of the Act, then such payment is not allowed in computing the income from Business or Profession. In the present case on hand, though assessee deducted tax at source, it has deducted tax in subsequent year, but failed to deposit the same within the due date specified under sec. 200(1) of the Act. Therefore, we are of the opinion that the A.O. has rightly disallowed the Royalty payment under sec. 40(a)(i) of the Act. Eligibility for deduction towards Royalty - Held that:- A careful study of provisions of section 40(a)(i) of the Act and proviso provided therein, it is clear that where in respect of any such sum, tax has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .G. Chem Limited, Korea for use of their trade mark. Since, the international transaction did not exceed the monetary limit of ₹ 5 crores, no reference has been made to the Transfer Pricing Officer (TPO) for determining arms length price. However, for the immediate preceding assessment year 2006-07, the case was referred to the TPO for determination of ALP of the international transaction. During the previous assessment year, under similar circumstances, the royalty payment to its associated enterprises was disallowed. Since, the Royalty payment was disallowed in the earlier assessment year, the A.O. issued a show-cause notice dated 18.12.2009 to the assessee company, requiring it to explain as to why royalty payment to its associated enterprises i.e. L.G. Chem Limited, Korea amounting to ₹ 1,43,95,374/- should not be disallowed. 3. In response to the show cause notice, the assessee company filed a letter on 23.12.2009 and submitted that it has paid 0.2% of the total turnover for usage of their associated enterprises brand name LG. The main reason for disallowance of the royalty payment in the preceding assessment year was that the A.O. was of the opinion that the br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ffered by the assessee and also relied upon the ITAT order in assessee own case for earlier assessment year, held the issue in favour of the assessee and directed the A.O. to refer the matter to the TPO and obtain a ALP of the international transaction. The CIT(A) further directed the A.O. to delete/modify the additions towards Royalty payment based on the findings of the TPO. However, the CIT(A) confirmed the additions made by the A.O. towards royalty payment u/s 40(a)(i) of the Act, by holding that the assessee has failed to deduct TDS on royalty payment, therefore in view of the provisions of section 40(a)(i) of the Act, the A.O. was justified in disallowing the royalty. Aggrieved by the CIT(A) order, the revenue as well as assessee are in appeal before us. 5. The Ld. D.R. submitted that the CIT(A) was not correct in deleting the additions towards royalty payment based on the findings of the previous assessment years. The Ld. D.R. further argued that the A.O. made additions not only for ALP, but also hold that the transaction is a sham and the assessee is trying to shift the profit out of India in the guise of royalty payment, therefore, the additions made by the A.O. should ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in nature and therefore amendment has to be treated as retrospective w.e.f. 1.4.2005. The ITAT, Visakhapatnam bench in the case of Raja Mahendri Shipping and Oil Field Services Vs. ACIT 20 Taxman.Com 474 by following the judgment of Kolkata High Court, held that the amendment brought to Section 40(a)(i) of the Act by Finance Act, 2010 is retrospective in nature. Therefore, if the TDS was remitted to the Government account before the due date for filing the return of income u/s 139(1) of the Act, even as per the provisions of section 40(a)(i) of the Act, the expenditure is allowable in the year in which it was incurred. The A.R. further submitted that alternatively, if the bench is not inclined to accept the above submissions regarding retrospective nature of the amendment, the royalty expenditure may be directed to be allowed in the year in which the TDS was remitted i.e. for the assessment year 2008-09. 7. We have heard both the parties, perused the materials available on record and gone through the orders of the authorities below. The A.O. disallowed the royalty payment on the ground that the assessee has not proved the necessity of incurring royalty payment to its associated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... upported by bills and agreements. The TPO as well as AO has accepted the payment of Royalty as genuine and not sham transaction in the previous assessment year. The fact remains same for the assessment year under consideration. The revenue has failed to substantiate its arguments with any evidences to show that the royalty payment is not genuine. Therefore, we are of the opinion that the A.O. was not right in disallowing the Royalty payment. The CIT(A) has rightly deleted the additions and his order does not require any interference. Hence, we inclined to upheld the order of the CIT(A) and reject the ground raised by the revenue. 9. The next issue emanates from the assessee cross objection is disallowance of royalty payment u/s 40(a)(i) of the Act. The A.O. disallowed the royalty payment u/s 40(a)(i) of the Act for the reason that the assessee has not deducted TDS on royalty payment as per section 195 of the Act. The contention of the assessee was that it has deducted TDS on royalty and remitted the payment to the Government account within the due date specified u/s 139(1) of the Act. The assessee further contended that the judicial forums in this country, consistently held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssions and gone through the provisions of the Act. A careful study of provisions of section 40(a)(i) of the Act and proviso provided therein, it is clear that where in respect of any such sum, tax has been deducted in any subsequent year or has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribed under sub section 1 of section 200, such sum shall be allowed as a deduction in computing the income of the previous year in which such tax has been paid. In the present case on hand, the assessee has deducted TDS on royalty payment and paid the amount into the Government account in the financial year 2007-08, relevant to the assessment year 2008-09. Therefore, we are of the opinion that the assessee is eligible for deduction towards Royalty payment, in the year in which the TDS is deducted and remitted into to the Govt. account, i.e. for the assessment year 2008-09. Accordingly, we direct the A.O. to allow the deduction for the assessment year 2008-09. 12. In the result, the appeals filed by the revenue are dismissed and cross objections filed by the assessee are partly allowed. The above order was pronounced in the open court on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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