TMI Blog2023 (2) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... 13 of the India-Malaysia DTAA. On a reading of Article 13, it is evident, the source country has the power to tax the income in the nature of FTS at beneficial rate of 10%. The service rendered must be managerial, technical or consultancy services. In the facts of the present appeal, the departmental authorities have failed to demonstrate that the payment made was towards rendering of managerial, technical or consultancy services. Withholding of tax u/s 195 - Disallowance u/s 40(a)(i) - payment was made to an entity in Bangladesh for rendering legal services of the Act - HELD THAT:- In the facts of the present appeal, admittedly, the Bangladesh entity has no PE in India. Therefore, income, if considered to be business profit is not taxable in India. As per Article 13 of the DTAA, the payment made by the assessee cannot be treated as royalty. If at all, the payment can be considered to be towards rendering of independent professional services as per Article 15 of the DTAA. However, the payment made towards independent professional services is taxable in the country of residence of recipient, unless, the recipient has a faxed base regularly available to him in the source country ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al Member For the Assessee : Sh. A. K. Khanna, CA For the Revenue : Sh. Sanjay Kumar, Sr. DR ORDER Per Saktijit Dey, Judicial Member : This is an appeal by the assessee against the order dated 28.06.2019 of learned Commissioner of Income Tax (Appeals)-37, New Delhi pertaining to Assessment Year 2016-17. 2. In ground No. 1, the assessee has challenged disallowance of Rs. 3,09,195/- under section 40(a)(i) of the Income Tax Act, 1961. 3. Briefly the facts are, the assessee a resident corporate entity, is stated to be engaged in the business of providing mobile phone services for international use. For the Assessment year under dispute, the assessee filed its return of income on 30.11.2016 declaring total income of Rs. 3,18,77,680/-. In course of scrutiny assessment proceedings, the Assessing Officer noticed that during the year under consideration, the assessee has debited certain expenditure, being payment made to overseas entities, without withholding tax under section 195 off the Act. Therefore, he called upon the assessee to explain why such payment made should not be disallowed under section 40(a)(i) of the Act. Though, the assessee objected to the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 13, it is evident, the source country has the power to tax the income in the nature of FTS at beneficial rate of 10%. However, the service rendered must be managerial, technical or consultancy services. In the facts of the present appeal, the departmental authorities have failed to demonstrate that the payment made was towards rendering of managerial, technical or consultancy services. 6. That being the case, we hold that the assessee was not required to deduct tax at source under section 195 of the Act while making the disputed payment. Accordingly, we delete the disallowance made. This ground is allowed. 7. In ground No. 2, the assessee has challenged disallowance of Rs. 2,54,160/- under section 40(a)(i) of the Act. As could be seen from the facts on record, the disputed payment was made to an entity in Bangladesh for rendering legal services. The Assessing Officer disallowed the payment made by applying Section 40(a)(i) of the Act on the ground that the payment made required withholding of tax under section 195 of the Act. 8. In this case also, the reasoning of the Assessing Officer is vague and too general in nature. Neither the Assessing Officer nor learned Commissio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ning that such expenses are not covered within the ambit of Section 35D of the Act. Accordingly, he disallowed the deduction. The disallowance so made was upheld by learned Commissioner (Appeals). 12. Before us, learned Counsel submitted that the assessee had paid fee of Rs. 12,09,862/- to IIFL Holdings Ltd. towards getting approval from SEBI for issue of IPO. He submitted, since these were in the nature of preliminary expenses for business expansion, assessee claimed 1/10th of such expenses as deduction under section 35D. 13. He submitted, the proposed IPO was ultimately dropped because of adverse market condition. Since, the expenditure was incurred for the business of the assessee, it is otherwise allowable under section 37 of the Act. In support of such contention, he relied upon the following decision: Dhanaklakshmi Bank Ltd. Vs. CIT in ITA 456/2009 judgment dated 11.12.2018 (Kerala High Court) 14. Learned Departmental Representative relied upon the observation of the Assessing Officer and learned Commissioner (Appeals). 15. We have considered rival submissions and perused material on record. There is no dispute regarding the fact that the assessee has incur ..... X X X X Extracts X X X X X X X X Extracts X X X X
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