TMI Blog2017 (4) TMI 49X X X X Extracts X X X X X X X X Extracts X X X X ..... d are in the nature of employee benefits, though paid under secondment agreement, in respect of persons working for the assessee. It was in the furtherance of legitimate business interests of the assessee that these payments were made, and, therefore, the deduction was indeed admissible under section 37(1) of the Act. We uphold the grievance of the assessee. - ITA No. 2039/Ahd/2012 - - - Dated:- 28-3-2017 - Pramod Kumar AM and Mahavir Prasad JM] For The Appellant : Tushar Hemani For The Respondent : Mahesh Shah and Dilip Kumar ORDER Per Pramod Kumar AM: 1. By way of this appeal, the assessee appellant has challenged correctness of learned CIT(A) s order dated 10th Jul 2012, in the matter of assessment under section 143(3) of the Income Tax Act, 1961 (hereinafter referred to as the Act ) for the assessment year 2009-10. 2. Grievances raised by the assessee, in substance, are against learned CIT(A) s upholding (i) the disallowance , under section 40(a)(i), of ₹ 4,54,28,424, in respect of reimbursement of payroll costs, and of ₹ 16,86,463, in respect of reimbursement of related professional and legal fees, to Burt Hill Inc USA; (ii) the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by various High Courts. (e) The learned CIT (A) has grossly erred In law and on facts of the case in not considering provisions of Double Taxation Avoidance Treaty between India USA pursuant to which also the said reimbursements of pay roll costs legal fees do not amount to Fees for Included Services and therefore not chargeable to tax in India and consequently provisions of section 195 are not applicable as held by Supreme Court in the case of GE India Technology Centre Pvt. Ltd. (f) It is therefore prayed that the impugned addition made on erroneous presumptions is wrong on facts and circumstances of the case and may please be deleted. 2 (a) The learned CIT (A) has grossly erred in law and on facts of the case in confirming the action of the AO in making the impugned addition of ₹ 4,71,14,887/- without issuing any show cause notice to the appellant assessee of his Intention to make such addition/disallowance. The impugned assessment order has been passed In violation of the principle of natural Justice of affording reasonable opportunity of being heard and therefore such order is liable to be quashed. The learned CIT (A) failed to adjudicate the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d in law and on facts as well as on circumstances of the case in holding that the appellant cannot be granted deduction/exemption u/s. 10A of the I.T. Act in utter disregard to the fact that the appellant company is a unit registered with Software Technology Park of India (STPI), that the company is engaged in the business of providing Information Technology Enabled Services (ITES), that about 90% of the revenue of the company is derived from export of Information Technology Enabled Services and that the proceeds thereof has been realized in convertible foreign exchange by 30th September, 2009. On facts and circumstances of the case, the appellant company has complied with all the conditions for eligibility of deduction u/s 10A and is therefore eligible for deduction computed in accordance with the provisions of said section. (b) The learned CIT (A) has grossly erred in law and on facts of the case in confirming the action of the AO in ignoring the appellant's claim, vide paragraph 13 of submission dated 13/12/2011 as well as para 6 of submission dated 20th December, 2011; that though the appellant is entitled to deduction u/s. 10A, in the return of income filed for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t nature for the assessment year 2009-10 just because the assessee, rather than deducting tax at source under section 192, paid the advance taxes on behalf of the seconded employees in that particular assessment year. It is not the fact of tax deduction under section 192, but the nature of income embedded in related payments which is relevant for deciding whether or not section 195 will come into play. Of course, there are separate set of consequences for not discharging tax withholding obligations under section 192. However, the assessee has discharged these obligations and there are no pending issues about the same. Whether the seconded employees continue to be in employment of the foreign entities or not is wholly irrelevant for this purpose. What is relevant is that the income embedded in the payments in question is taxable in India under the head Salaries , and if that be so, there are no tax withholding obligations under section 195. That precisely is the undisputed position on the facts of this caseas duly accepted by the income tax authorities. The income embedded in the impugned payments being in the nature of income chargeable to tax under the head income from salaries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edded in a payment is not taxable under the Income Tax Act, 1961, the tax withholding liability does not get triggered at all. This is what Hon ble Supreme Court has also held in the case of G E Technology Centre Pvt Ltd Vs CIT [(2010) 327 ITR 456(SC)] . While holding so, Their Lordships have, inter alia, observed as follows: .The said expression in Section 195(1) shows that the remittance has got to be of a trading receipt, the whole or part of which is liable to tax in India. The payer is bound to deduct tax at source only if the tax is assessable in India. If tax is not so assessable, there is no question of tax at source being deducted. [See: Vijay Ship Breaking Corporation and Others Vs. CIT 314 ITR 309] . 9. One more aspect needs to be highlighted. Section 195 falls in Chapter XVII which deals with collection and recovery. Chapter XVII-B deals with deduction at source by the payer. On analysis of various provisions of Chapter XVII one finds use of different expressions, however, the expression sum chargeable under the provisions of the Act is used only in Section 195. For example, Section 194C casts an obligation to deduct tax at source in respect of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such obligations, ceases to hold good in law. We, therefore, uphold the grievance of the assessee, and direct the Assessing Officer to delete the impugned disallowance. 5. Ground no.1 and 2 are thus allowed. 6. As regards the second issue, i.e. ground no. 3, there is no dispute that the insurance premium of ₹ 12,77,927 has been paid for medical and other insurance of the employees of Burt Hill Inc USA who were on secondment to India and in accordance with statutory obligations of Burt Hill Inc USA. The Assessing Officer, however, disallowed the expenses on the ground that these persons were employees of Burt Hill Inc USA, and not the assessee. The Assessing Officer further noted that there is no evidence of business nexus between these expenses and the business of the assessee. These were also held to be personal expenses of the seconded employees. It was in the backdrop of these observations by the Assessing Officer that the impugned disallowance of ₹ 12,77,927 was made. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. Not satisfied, the assessee is in second appeal before us. 7. Having heard the rival contentions and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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