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2016 (6) TMI 94 - ITAT CHENNAI

2016 (6) TMI 94 - ITAT CHENNAI - [2016] 48 ITR (Trib) 321 - Disallowance u/s.40(a)(ia) - payment made to Central Power Research Institute of Bangalore, Ministry of Power, Government of India - main contention of the ld.A.R is that nothing is payable at the end of the close of the Financial year, as such the issue is squarely covered by the order of the Special Bench of the Tribunal in the case of Merilyn Shipping and Transports v. Addl. CIT [2012 (4) TMI 290 - ITAT VISAKHAPATNAM ]- Held that:- T .....

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remit this issue to the file of the ld. Assessing Officer with similar direction. These grounds raised by the assessee u/s.40(a)(ia) of the Act is partly allowed for statistical purposes

TDS u/s 195 - Disallowance u/s.40(a)(i) on payment made to M/s.Korea Electro Technology Research Institute - withholding tax liability - Held that:- The services availed by the assessee is nothing but technical services and the fees paid for technical services only and the assessee is liable for dedu .....

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fact that export proceeds emanated from persons situated outside India did not constitute them as source of income. - Decided against assessee - I.T.A. No. 412/Mds./2015 - Dated:- 6-5-2016 - Shri Chandra Poojari, Accountant Member And Shri Duvvuru RL Reddy, Judicial Member For the Appellant : Mr. G. Baskar, Advocate For the Respondent : Mr. P. Radhakrishnan, JCIT, D. R ORDER Per Chandra Poojari, Accountant Member This appeal of the assessee is directed against the order of the Commissioner of In .....

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by the order of the Special Bench of the Tribunal in the case of Merilyn Shipping and Transports v. Addl. CIT [2012] 16 ITR (Trib) 1 (Visakhapatnam) [SB]. In our opinion, there is a force in the argument of the ld.A.R and the Special Bench cited supra considered this issue and decided the issue in favour of the assessee. Further, the Co-ordinate Bench of this Tribunal in the case of Shri N.Palanivelu Vs. ITO reported in [2015] 40 ITR (Trib) 325 [Chennai] vide order dated 29.04.2015 wherein held .....

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f the year relevant to the assessment year in respect of these payments. However, the assessee has not brought on record, the details of outstanding expenses or schedule of sundry creditors showing whether the impugned amount is outstanding at the end of the close of the previous year relevant to the assessment year either in the name of the party or outstanding expenses. Hence, in the interest of justice, we are remitting the issue back to the file of the Assessing Officer with direction to ver .....

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e file of the ld. Assessing Officer with similar direction. These grounds raised by the assessee u/s.40(a)(ia) of the Act is partly allowed for statistical purposes. 4. The next ground for our consideration is with regard to disallowance u/s.40(a)(i) of the Act on payment made to M/s.Korea Electro Technology Research Institute. 5. Before us, the ld.A.R submits that there is no human interface in carrying out the certifying work and it was done by the machines without human interface or intervent .....

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is that in cases where the assessee does not withhold taxes u/s.195 of the Act, the AO is required to determine the income component involved in the sum on which the withholding tax liability is to be computed and the payer would be considered as being in default for not withholding of tax only in relation to such income component. Further, he submits that the issue in dispute is to be examined in the light of the Double Taxation Avoidance Agreement (DTAA) with contracting state. Accordingly, he .....

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o the US Company on account of testing and certification services is taxable in the hands of the US Company in India and assessee was liable to deduct tax at source while making payment thereof, since the export activities have been fulfilled in India, source of income was located in India and not outside India, and the mere fact that export proceeds emanated from persons situated outside India did not constitute them as source of income. 7. We have heard both the parties and perused the materia .....

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ing under section 9 of the Act. In that case, the assessee was a company incorporated under the French laws which were applicable to possessions in Pondicherry in India. It had a textile mill in Pondicherry and its activity consisted in the manufacture of yarn and textiles as well as export of textiles from Pondicherry. The entire business operations were confined to the territory of Pondicherry. After the merger of Pondicherry with India in August, 1962, the Income-tax Act was extended to Pondi .....

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tside Pondicherry and was, therefore, taxable under the Act, the assessee maintained that the receipts were only in Pondicherry and since the exports were made from Pondicherry, the income accrued or arose to the assessee in the territory of Pondicherry which was outside the purview of the Act. The Madras High Court observed that the import entitlements arose out of the export activity which was carried on by the assessee only in Pondicherry, that no part of the manufacturing or selling activity .....

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taxable territories. This argument was rejected by the Madras High Court by holding that "the right to receive the import entitlements arose when the export commitment was fulfilled by the assessee in Pondicherry, though such amount was subsequently ascertained or quantified". It was also argued on behalf of the Revenue before the High Court that the import entitlement should be regarded as a source of income in the taxable territories and under section 9(1) of the Act, the income ari .....

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lements constituted a source of income within the meaning of section 9 of the Act as to deem the import entitlements as having accrued or arising in India." This earlier judgment of the Madras High Court does not appear to have been brought to the notice of the Division Bench which decided the later case. The observations of the Madras High Court in the earlier case, which we have quoted above, clearly suggest that the export activity or export sales were the source of the import entitlemen .....

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d in India and not outside. Moreover, just as in the Madras case it was held that the mere fact that the import entitlements which had their source in Bombay, did not constitute a source of income within the meaning of section 9 of the Act, we have also to hold in the present case that the mere fact that the export proceeds emanated from persons situated outside India did not constitute them as the source of income. 12. The question as to what is a source of income has been dealt with in some au .....

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y R. S. Pathak J. (as he then was) in the following words in Seth Shiv Prasad v. CIT [1972] 84 ITR 15 (All) at page 18 : "A source of income, therefore, may be described as the spring or fount from which a clearly defined channel of income flows. It is that which by its nature and incidents constitutes a distinct and separate origin of income, capable of consideration as such in isolation from other sources of income, and which by the manner of dealing adopted by the assessee can be treated .....

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e of income is located may not necessarily be the place where the income also accrues, that question is not material in the present case because herein we are concerned only with the question as to the location of the source. The real question is whether the export sales proceeds received from goods manufactured and exported from India constitute a source inside or outside India. To decide the same we have to take a pragmatic and a practical view and not approach the question from a theoretical .....

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tracts are concluded in India. Thereafter, the goods are exported in pursuance of the contract and the export proceeds are sent by the importer and are received in India. The importer of the assessee's products is no doubt situated outside India, but he cannot be regarded as a source of income. The receipt of the sale proceeds emanate from him from outside India. He is, therefore, only the source of the monies received. The income component of the monies or the export receipts is located or .....

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