TMI Blog2021 (11) TMI 523X X X X Extracts X X X X X X X X Extracts X X X X ..... effect from 1976. As per this explanation the income of the foreign party shall be chargeable to tax in India if it relates to the fee for technical services irrespective of the fact whether such non-resident has/has not a place of business or business connection in India or non-resident has/has not rendered services in India - it seems that the amount paid by the assessee to the foreign party as fee for technical services is subject to tax in India despite the fact such foreign party does not have any permanent establishment in India. However we find that such explanation whether the services rendered in India or not was brought in the statute by the Finance Act 2010. The financial year before us is 2008-09 and at that relevant point of time such explanation was not available. Admittedly, the services were not rendered by the foreign party in India. Thus, for the purpose of TDS the provisions which are applicable for the relevant year has to be seen. We hold that the assessee was not subject to the provisions of TDS under the provisions of section 195 of the Act. Accordingly we do not find any infirmity in the order of the learned CIT (A). Thus, we decline to interfere in his ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) and direct to the AO to delete the addition made to this extent. Late payment of employees contribution towards PF/ESI - Addition u/s 36(1)(iv) read with section 43B - HELD THAT:- There is no confusion or ambiguity to the fact that the contribution of employer s contribution and administrative charges are governed under the provisions of section 36(1)(iv) read with section 43B - Admittedly the assessee has made employer s contribution and administrative charges within the due date as specified deduction 139(1) of the Act. Accordingly we do not find any infirmity in the order of the learned CIT (A). Regarding the employee s contribution, we note that there is no ambiguity that the assessee was entitled for making the payment within the grace period as per provided under the Act. No infirmity in the order of the learned CIT (A). However any payment of employee s contribution beyond the grace period is not allowed for deduction. Hence the ground of appeal of the revenue is dismissed and the CO of the assessee is also dismissed. Addition on account of depreciation, interest and running expenses for the vehicle registered in the name of the director - Legal ownership of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pon it. Even at the time of hearing the learned AR has not brought anything on record by submitting the supporting evidences. Thus in such facts and circumstances, we do not find any reason to interfere into the finding of the learned CIT (A). Disallowances of commission expenses u/s 40(a)(ia) - HELD THAT:- AR has not brought anything on record evidencing that the TDS has been deducted by the assessee on the impugned amount of commission expenses. Thus, in the absence of supporting documents, we do not find any merit in the argument of assessee - assessee cannot be absolved from the liability of deducting the TDS on the amount of commission merely on the reasoning that such amount was not shown as payable at the end of the financial year. Accordingly, we do not find any reason to interfere in the finding of the authorities below. Hence the ground of appeal raised by the assessee in CO is dismissed. - ITA No.630/Ahd/2015, C.O.No.56/Ahd/2015 (In ITA No.630/Ahd/2015) - - - Dated:- 30-9-2021 - Shri Waseem Ahmed, Accountant Member And Ms. Madhaumita Roy, Judicial Member For the Revenue : Shri Shyam Prasad, Sr. D.R. For the Assessee : Shri Mehul Patel, A.R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue is that the learned CIT (A) erred in deleting the addition made by the AO for ₹ 1,31,60,000/- representing the payment made to foreign parties on account of non-deduction of Tax under the provisions of section 195 read with section 40(a)(i) of the Act. 4. The necessary facts as culled out from the order of the authorities below are that the assessee in the present case is a private limited company and engaged in the business of export and trading of cloth such as made up/bed sheets, pillow cover, curtains etc. The assessee in the year under consideration has claimed design expenses for ₹ 1,31,60,555/- paid to the parties based outside India. Such expenses were incurred without deducting the Tax under the provisions of section 195 of the Act. On question by the AO vide show cause notice dated 5th December 2011, the assessee vide letter dated 10th December 2011 submitted that the design expenses represents the purchases of the design/theme for its products such as bed sheets/ cover etc. from the foreign party. As per the assessee, the provisions of the TDS are not applicable on the purchases of such design as the same is in nature of purchases and not services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e particular design developed for its own use. As such the assessee has selected a design/theme which was developed by the foreign party on its own for the purpose of sale to customer. As such the design/theme purchased by it is nothing but a commodity and therefore it is outside the purview of the provisions of TDS. Accordingly it cannot be alleged that the assessee has availed any technical services and paid the fee for technical services. The assessee in support of his contention has filed the clarification received from the foreign party stating that it has sold the design to the assessee and no design has been developed for the assessee. Furthermore, the banks have remitted the payment without insisting any certificate of the chartered accountant for the non-deduction of TDS. 13 The assessee also submitted that out of the total payments of ₹ 1,31,60,555/- a sum of ₹ 1,36,175/- represents the payments made in India. Therefore the entire amount of ₹ 1,31,60,555/- cannot be considered for the purpose of disallowance under the provisions of section 40(a)(i) read with section 195 of the Act. 14. The learned CIT (A) after considering the submission of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd expertise and supplied through computer. But, A.O. failed to appreciate that there are numerous such product available across the shelf where skill and technical expertise is involved and the same are transferred through computer still the same is purchase and sale of commodity. There are various factors involved in the business as carried on by appellant particularly in export. The appellant earned/received substantial amount through export to Germany and the colour combination, designs, themes liked by people over there matters a lot. If such designs/themes are already available from supplier like M/S.GRADA textile GmbH who had already done research and development and acquired copy right, then purchase from them about such design, theme, combination can only be held as purchase of commodities and not of consultancy. The appellant's alternative arrangement about even if such purchases are in the nature of consultancy but the services are not rendered in India was over emphasized by A.O. to treat it as acceptance by appellant on one hand, while reliance on the amendment with retrospective date for applicability of.IDS on other hand. I am inclined with appellant that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disallowance on account of nondeduction of TDS. It is for the reason that the provisions of TDS are not attracted in relation to the purchase transactions. 18. Both the learned DR and the AR before us vehemently supported the order of the authorities below to the extent favourable to them. 19. We have heard both the parties and perused the materials available on record. The issue in the present case relates whether the assessee has incurred design expenses without deducting the TDS under the provisions of section 195 read with section 40(a)(i) of the Act. Admittedly, the assessee is not liable to deduct the TDS on the purchases of the materials. In the present case it was the contention of the assessee that it has made purchases of the designs from the foreign party which is in the nature of purchase of goods. On the other hand it was contended by the AO that such design requires technical skills and expertise and therefore he concluded that same reflects fee for technical services under the provisions of section 9(1)(vii) of the Act and therefore the assessee was liable to deduct the Tax under section 195 of the Act. 20. Assuming, the contention of the AO is correct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... From the material on record, it appears that there was agreement between the assessee and Naimisha to provide detailed design and drawings for the project. However, as per the requirement of the assessee Naimisha was required to supply the drawings and design prepared by Bob. Even the payment has been made by assessee to Naimisha directly for supply of drawings and design as per clause/Article 4.3 of the agreement and different amounts were required to be paid/paid with respect to different designs and drawings for different components of the project viz. Infotower-I, Infotower II etc. It is required to be noted that even Bob is not signatory to the agreement and agreement is between the assessee and Naimisha only. Under the circumstances, the payment made by the assessee towards supply of design and drawings to Naimisha and the payment made under the agreement is rightly held to be outright purchase and not as a Royalty. The view taken by the Tribunal in holding that the payment made towards supply of design and drawings to a non-resident was outright purchase and therefore, not taxable as royalty under section 9(1) was to be agreed with. [Para 8.6] 23. Moving further, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explanation whether the services rendered in India or not was brought in the statute by the Finance Act 2010. The financial year before us is 2008-09 and at that relevant point of time such explanation was not available. Admittedly, the services were not rendered by the foreign party in India. Thus, for the purpose of TDS the provisions which are applicable for the relevant year has to be seen. In holding so we draw support and guidance from the judgment of Hon ble Bench of ITAT in case of DCIT vs. Virola International reported in 42 taxmann.com 286 where it was held as under: 7. The law laid down by Hon'ble Supreme Court, in the case of Ishikawajma- Harima Heavy Industries Ltd. (supra) , binds everyone under Article 141 of the Constitution of India. The legal position thus was that unless the services are rendered in India, the same cannot be brought to tax as 'fees for technical services' under Section 9. However, this legal position did undergo a change when Finance Act 2010 received assent of the President of India on 8th May 2010. Explaining the scope of this amendment, a coordinate bench of this Tribunal, in the case of Ashapura Minichem Ltd. v. Asstt. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... law as it stands that point of time. Section 40(a)(i) provides that, inter alia, notwithstanding anything to the contrary in sections 30 to 38, any amount payable outside India, or payable in India to a non-resident, shall not be deducted in computing the income chargeable under the head 'profits and gains of business or profession' on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted . The disallowance under section 40(a)(i) is not for the payments made to non-residents, which are taxable in India, but for the payments on which tax was deductible at source but tax has not been deducted, and such deductibility of tax at source, as we have discussed above, has to be in the light of the legal position as it stood at the point of time when payment was made or credited- whichever is earlier. Clearly, therefore, the disallowance under section 40(a)(i) can come into play only when the assessee had an obligation to deduct tax at source from payments to non-residents, and the assessee fails to comply with such an obligation. In view of these discussions, so far as payments made before 8th May 2010 are concerned, the assessee did not have an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ever the AO disregarded the contention of the assessee by observing that the payment to M/s Messe Frankfurt Trade Fair India (P) Ltd for ₹ 3,92,626/- was not supported by any documentary evidence. Furthermore there was no breakup of the expenses furnished by the assessee along with any bills or vouchers in support of its claim. 32. Similarly, the AO found that there was no documentary evidence furnished by the assessee suggesting that it has deducted the TDS on the payment made to M/s First Rain Exhibition (India) Pvt Ltd. for ₹ 2,52,641/- . 33. Likewise, the assessee has not furnished any supporting documents with respect to the exhibition organized in the Germany. As such it was found out from the bank advices and the invoices filed by the assessee that the exhibition was organized in Mumbai and not in Germany. This fact is also supported on the travelling expenses to Germany which were incurred in the month of January 2009 whereas the payment relates to the exhibition which was taken place in the earlier month. Accordingly the AO concluded that the claim of the assessee is factually incorrect. 34. In view of the above the AO disallowed the expenses of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rather the same were lumpsum payment hence disallowances u/s40(a)(ia) of the Act for such amount of ₹ 392626 (254833 + 137793) is upheld and confirmed. In reference to payment of ₹ 252641/- to M/s First Rain Exhibits India Ltd, the appellant contended that TDS of ₹ 57251- was made. This is supported by fact that appellant made payment of ₹ 1,26,250/- vide ch. no. 459313/- dt. 08/09/2008 and of ₹ 120666/- vide ch. no. 463994 dt. 17/10/2008 to settle the account with deduction of TDS of ₹ 5725/-. The details of such deduction and deposit of TDS is verifiable from appellant's TDS return and challan of ₹ 552648/- for TDS u/s 194C paid on 06/11/2008. It is therefore, disallowances so made u/s 40(a)(ia) of the Act for this amount is neither justified nor sustainable. The A.O. is directed to delete the disallowance addition so made of ₹ 252641/-. For both the payments as discussed above for Mumbai Exhibition fair, appellant's reliance on ratio of various case laws are not applicable on the facts. Invoices to M/s Frankfurt Trade fairs India, the invoice no.H1/2008/R-11 dt. 17/04/2008 reflect various types of charges bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enue and assessee are in cross appeal before us. The Revenue is in appeal against deletion of addition for ₹ 26,71,337/- whereas the assessee is in cross objection against confirmation of addition for ₹ 3,92,626/-. 42. Both the learned DR and learned AR before us vehemently supported the order of the authorities below to the extent favourable to them. 43. We have heard the rival contentions of both the parties and perused the materials available on record. Admittedly the AO has made disallowances on account of exhibition expenses paid to 3 parties which have been detailed in previous paragraph. As far as payment of ₹ 2,52,641/- made to M/s First Rain Exhibition (India) Pvt Ltd is concerned, we find that assessee has made payment to impugned party after deducting eligible tax at source. In this respect, the assessee has furnished TDS certificate in from 16A which is placed on page 37 of paper book. Hence, we hold that the learned CIT (A) rightly deleted the addition under section 40(a)(ia) to this extent. 44. Now coming to disallowance made by the AO for the amount paid to M/s Messe Frankfurt Trade Fair India (P) Ltd. for ₹ 3,92,626/-. The cont ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed68: 48. From the preceding discussion it is transpired that Payers defaulting in deducting TDS from payments to resident payees need not to be deemed as Assessee in Default in the following conditions: (A) Payee has included the impugned amount on which tax was not deducted/short deducted by the payer in his return of income filed under section 139 and pays the taxes due on returned income and (B) Payer produces a certificate in prescribed form from a CA to the effect that the payee has included the income in return and paid taxes thereof. 49. The CBDT has prescribed Form No. 26A for CA certificate to be obtained and furnished by payer evidencing compliance by payee. 50. From the above discussion, it is transpired that the assessee can be granted immunity from disallowances of expenses on account of non-deduction of taxes provided that the assessee (payer) furn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e under the provisions of section 36(1)(va) and treated the same as income of the assessee under the provisions of section 2(24)(ix) of the Act. 55. Aggrieved assessee preferred an appeal to the learned CIT (A). 56. The assessee before the learned CIT (A) submitted that the AO has made the disallowance of the entire amount of ₹ 3,56,268/- which is comprising of employers contribution, employees contribution and administrative charges for ₹ 1,73.892/-, ₹ 1,66,934/- and ₹ 15,442/- respectively. As far as payment of employers contribution and administrative expenses are concerned, the same is allowable under the provisions of section 36(1)(iv) of the Act read with section 43B of the Act. 57. The assessee regarding the employee s contribution submitted that the payment has been made within the grace period of the due date as specified under the relevant Act. Accordingly as per the assessee the employees contribution cannot be treated as income under the provisions of section 2(24)(x) r.w.s. 36(1)(va) of the Act. 58. However the learned CIT (A) with respect to the amount of employer s contribution and administrative expenses of ₹ 1,73,89 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 63. We have heard the rival contentions of both the parties and perused the materials available on record. There is no confusion or ambiguity to the fact that the contribution of employer s contribution and administrative charges are governed under the provisions of section 36(1)(iv) read with section 43B of the Act. Admittedly the assessee has made employer s contribution and administrative charges within the due date as specified deduction 139(1) of the Act. Accordingly we do not find any infirmity in the order of the learned CIT (A). 64. Regarding the employee s contribution, we note that there is no ambiguity that the assessee was entitled for making the payment within the grace period as per provided under the Act. In holding so we draw support and guidance from the judgment of Hon ble Jurisdictional High Court in case of CIT vs. Amoli Organics Pvt. Ltd 41 taxman.com 149 where it was held as under: Under particular Act or law, in the present case under the Provident Fund Act, if the assessee was entitled to make payment within the grace period and if withi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r considering various case laws as relied on by A.O., allowed the claim of depreciation to company for the vehicle registered in the name of director following the ratio of Hon ble Supreme Court in the case of Mysore Minerals. It is undisputed that said car is reflected as asset of the company. The appellant took a loan and repaid through EMI including interest i.e. source of purchase are of appellant and A.O. himself not disputed the car was used for the purpose of business though partly in the absence of log book. It is in this regard, provisions of section 38(2) of the Act are important which permit the part use of assets and allowability of such part depreciation. Considering all these facts, I treat that the said car was partly used and only 75% of such deprecation and incidental expenses are for the purpose of business, while 25% are required to be disallowed. It is therefore AO is directed to allow 75% of total disallowance i.e. ₹ 483060 (75% of 644080), while balance of ₹ 161020 (644080 483060) is upheld and confirmed. The appellant gets part relief. This ground is partly allowed. 69. Being aggrieved by the order of the learned CIT (A) both the Revenue ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... disputed that investment was made by the assessee in purchase of the motor car. It is shown as asset in the balancesheet of the company. If expenditure for running the vehicle was incurred by the assessee, the assessee is de facto owner of the vehicle. It is not disputed that it was used for the purpose of business of the assessee company. The hon'ble Rajasthan High Court in the case of CIT v. Mohd. Bux Shokat Ali (No. 2) [2002] 256 ITR 357 (Raj) held that where vehicle was purchased by the firm used by it for the purpose of its business but it was registered in the name of one of the partners then the firm would be entitled to depreciation on vehicle. The hon'ble Delhi High Court in the case of CIT v. Basti Sugar Mills Co. Ltd. [2002] 257 ITR 88 (Delhi) held that where vehicle was owned and used by the assessee but no registration was done in its name then the assessee would still be entitled to depreciation on such vehicle. Therefore, the assessee has right to claim depreciation thereon. This ground of the Revenue is accordingly rejected. 72. Regarding the other expenses of fuel and maintenance on such cars, we find that the AO has made the disallowance in adhoc ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The A.O. is directed to allow such interest and delete the addition of ₹ 590700/-. The appellant gets relief accordingly. This ground is allowed. 78. Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us. 79. Both the learned DR and learned AR before us vehemently supported the order of the authorities below as favourable to them. 80. We heard the rival contention of both the parties and perused the material available on record. From the preceding discussions we note that the own fund of the assessee exceeds the amount of interest free loan and advances of ₹ 49,22,496/- which can be verified from balance sheet reproduced as under: SOURCE OF FUNDS: SHARE HOLDERS FUND SHARE CAPITL A 69,080,000 65,080,000 SHARE APPLICATION MONEY 35,000,000 0 RSERVES SURPLUS B ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue raised by the assessee in CO is general in nature. Hence the same is dismissed being general ground. 85. The second issue raised by the assessee in CO is that the learned CIT(A) erred in confirming the disallowances of Exhibition expenses in part for ₹ 3,92,626/- only. 86. At the outset we note that the issue has been dealt with ground no. 2 of Revenue s appeal where the issue has been decided in the favour of the Revenue. For the detailed discussion, please refer to paragraph no. 44 to 50 of this order. Accordingly, the ground of assessee s CO is dismissed. 87. The 3rd issue raised by the assessee in CO is that the learned CIT(A) erred in confirming the part disallowances of ₹ 69,773/- on account of late payment of employee s contribution towards EPF/ESI. 88. At the outset we note that the issue has been dealt with ground no. 3 of Revenue s appeal where the issue has been decided against the assessee. For the detailed discussion, please refer to paragraph no. 64 to 65 of this order. Accordingly the ground of assessee s CO is dismissed. 89. The 4th issue raised by the assessee in CO is that the learned CIT (A) erred in confirming the disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me of hearing the learned AR has not brought anything on record by submitting the supporting evidences. Thus in such facts and circumstances, we do not find any reason to interfere into the finding of the learned CIT (A). Hence of ground of assessee s CO is dismissed. 98. The issue raised in ground No. 5 by the assessee is that the learned CIT (A) erred in not allowing the deduction of ₹ 1,61,020.00 for car depreciation, interest and running expenses. 99. At the outset we note that the issue has been dealt with ground no. 4 of Revenue s appeal where the issue has been decided in favor of the assessee. For the detailed discussion, please refer to paragraph no.71 to 74 of this order. Accordingly the ground of assessee s CO is allowed. 100. The last issue raised by the assessee in CO is that the learned CIT(A) erred in confirming the disallowances of commission expenses of ₹ 1,32,521/- only. 101. The assessee during the year incurred commission expenses of ₹ 65,47,564/- only. Out of total commission expenses, the assessee failed to deduct tax at source on the amount of ₹ 1,32,521/- under section 194H of the Act. On question the assessee also ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
