TMI Blog2013 (12) TMI 1728X X X X Extracts X X X X X X X X Extracts X X X X ..... order of learned CIT(A) in deleting a sum of ₹ 1,85,891/- as deduction out of disallowance of ₹ 2,68,099/- made by the Assessing Officer on the ground that said expenditure pertained to earlier accounting year. 4. We have heard the representative of the parties and considered the orders of the authorities below. 5. During the course of hearing learned Departmental Representative relied on the order of Assessing Officer and whereas learned Authorised Representative supported the order of learned CIT(A). 6. We observe that the Assessing Officer made disallowance of ₹ 2,68,099/- on the ground that the assessee is following mercantile system of accounting and said expenses, details of which are given by learned CIT(A) at page No. 2 of the impugned order, relate to prior period expense and therefore the same were disallowed. On perusal of the details of expenditure from page No. 2 of the order of learned CIT(A), we observe that nature of said expenditure is mainly of electricity, telephone, travel bills claimed as reimbursement by the employees in F.Y. 2001-02, which pertain to last month/months of F.Y. 2000- 01 and other miscellaneous expenses. The assessee s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on said payments. 7. Relevant facts are that the assessee is engaged in the business of software development/Information Technology Enabled services. The assessee carried on its operations from its registered office at Mumbai as well as its foreign located branches at USA, UK and Japan. The assessee incurred an expenditure of ₹ 9,44,57,453/- in connection with its business activities of the Branches. The Assessing Officer has stated that no TDS u/s. 195 had been made by the assessee and a show-cause notice was issued asking the assessee why provisions of section 40(a)(i) of the Act should not be invoked. The assessee made its submission inter-alia that payments were made by its branches abroad and it had resulted into income in the hands of the payees/recipient of those foreign countries whose income was not taxable in India. Therefore no TDS u/s. 195 was made. It was also contended that the assessee had not made any payments to those foreign recipients from India and all payments were made by the foreign branches to those parties who were situated abroad. Since recipients were non-resident of India and the payments in the hands of the recipients is not taxable in India be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es viz. rent, traveling and conveyance expenses, electricity expenses etc. On behalf of the assessee it was contended that provisions of section 195 are not applicable to payments made by the assessee s branches abroad since income had accrued to the recipients in those countries and not in India. As per provisions of DTAA with respective countries such sums are not taxable in India and section 90 of the Income Tax Act overrides all other provisions of the Income Tax Act if provisions of DTAA are more beneficial. Since income of the recipients, even if it is considered to be business profit is not taxable in India as said recipients have no permanent establishment in India. Hence such payments made by the assessee s foreign branches in those countries to the suppliers/recipients of the amount towards expenditure cannot be regarded as income accrued or deemed to accrue in India to the payees within the meaning of section 5 and section 9 of the Income Tax Act, no TDS is required to be deducted and accordingly section 40(a)(i) is not applicable. The assessee also placed reliance on the decision of Authority of Advance Rulings in the cases of Airport Authority of India (193 CTR 487) an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of fees for technical services defined in Explanation (2) below section 9(i)(vii) of the Act. Learned CIT(A) held that payment had been made for services outside India and is for earning income from a source outside India, payment gets excluded from the definition of fees for technical services on account of exclusion provision in sub-clause (b) of clause (vii) of section 9(1) of the Income Tax Act. Learned CIT(A) held that the issue of tax withholding under section 195 of the Act on the payment made is therefore dependent upon the condition of said payment resulting in income having accrued in India to the foreign enterprise and is not dependent upon said payment being taken as deductible in the case of the payer in the computation of its income chargeable to tax as erroneously held by the Assessing Officer. Learned CIT(A) further held that provisions of section 195 of the Act is not applicable and consequently there is no case for tax withholding and hence disallowance u/s. 40(a)(i) of the Act on account of non-withholding of the tax, is not justified. Accordingly, learned CIT(A) directed the Assessing Officer to delete the same. Being aggrieved, the Department is in appea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... refore as per provisions of section 5(2)(b) read with section 9(1)(i) of the Act, service is utilised in India and accordingly payment made is chargeable to tax. Hence TDS was required to be deducted as per provisions of section 195 of the Act. Learned DR also referred decision of Hon'ble Andhra Pradesh High Court in the case of Elkem Technology Vs. DCIT (250 ITR 164) and decision of ITAT, Mumbai bench in the case of Ashapura Minichem Ltd. Vs. ACIT (40 SOT 220). Learned DR submitted that the order of learned CIT(A) be reversed by confirming action of the Assessing Officer. Learned DR further submitted that it may also be considered that there is no finding as to where services were utilised and accordingly matter could be restored to the Assessing Officer to find out specifically as to whether services were utilised in India or only at abroad. 13. On the other hand learned Authorised Representative supported the order of learned CIT(A). He conceded that the assessee is an Indian resident company being incorporated under Indian Companies Act, 1956 and its branches in foreign countries are to be considered as part and parcel of the assessee. However, he submitted that provisi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not arise. He submitted that Hon'ble Karnataka High Court relied upon the decision of Hon'ble Apex Court in the case of GE India Technology Centre (P) Ltd. (supra), wherein Hon'ble Apex Court also held that when the payment is not made within India, then question of making deduction u/s. 195 doe not arise. Learned AR submitted that decision of learned CIT(A) be confirmed. 14. We have carefully considered the orders of the authorities below and submissions of the representative of the parties as also cases cited before us. 15. There is no dispute to the fact that the assessee s branches operating in foreign countries namely Japan, UK and USA had made payments to the foreign suppliers for services received by them in foreign countries. Now, question arises as to whether the assessee was required to deduct TDS u/s. 195 of the Act on the said payments made to the foreign suppliers for services rendered by them to assessee s foreign branches abroad. On perusal of section 195 of the Act, we observe that TDS is required to be deducted on the payments made/credited to a non-resident only if, said payment is chargeable to tax under provisions of Income Tax Act. During the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t that rent has also been paid by the assessee in respect of property which is situated in the said country abroad and as per Article 6 of the DTAA with respective country it is taxable in that country and not in India. Accordingly, there is no tax payable by the recipient in India for rent received in respect of property situated abroad. Hence, provisions of section 195 are also not applicable in respect thereof. 17. Considering above facts and also in the light of decision of Hon'ble Apex Court in the case of GE India Technical Centre Pvt. Ltd. (supra), if payment is not made to a non-resident which is not taxable under the provisions of Income Tax Act, question of making deduction u/s. 195 of Act does not arise. Consequently, no disallowance u/s. 40(a)(i) of the Act could be made. In view of the above, we uphold the order of learned CIT(A) and reject ground No. 1 of the appeal taken by the Department. 18. Before we part with this, we may state that cases cited by learned DR (supra) are not relevant to the facts before us as in those cases it was found that services were utilised in India and accordingly it was held that payments made by the Indian company to the foreig ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
