2014 (6) TMI 463 - AT - Income Tax

Tax Appeals Upheld: Non-Resident Payments Not Taxable, Expense Disallowance Reduced, Interest Recomputation Required

Commissioner of Income Tax Versus M/s. T. Abdul Wahid & Company, M/s. Farida Leather Company

Commissioner of Income Tax Versus M/s. T. Abdul Wahid & Company, M/s. Farida Leather Company - TMI Issues Involved:1. Disallowance under section 40(a)(ia) for non-deduction of tax at source on payments made to foreign commission agents.2. Disallowance of 15% of expenses on salary, wages, assortment expenses, and staff welfare.3. Deletion of interest charged under sections 234B and 234C of the Income Tax Act.Issue-wise Detailed Analysis:1. Disallowance under section 40(a)(ia) for non-deduction of tax at source on payments made to foreign commission agents:The Revenue appealed against the orders of the Commissioner of Income Tax (Appeals), which deleted the disallowance made under section 40(a)(ia) for non-deduction of tax at source on commission payments to foreign agents. The Assessing Officer had invoked section 40(a)(i) read with section 195, disallowing the deduction of commission payments as the assessee did not deduct TDS. The Commissioner of Income Tax (Appeals) held that the commission paid to non-residents for services rendered outside India was not chargeable to tax in India, and thus, TDS under section 195 was not required. This decision was supported by various judgments, including the Hon'ble Supreme Court in GE India Technology Centre P. Ltd. v. CIT (327 ITR 456) and other Tribunal decisions. The Tribunal upheld the Commissioner of Income Tax (Appeals)'s decision, emphasizing that the commission payments to non-residents were not taxable in India, thus section 195 was not applicable. Therefore, the disallowance under section 40(a)(i) was not justified.2. Disallowance of 15% of expenses on salary, wages, assortment expenses, and staff welfare:In the case of M/s. Farida Leather Company, the Assessing Officer disallowed 15% of expenses under 'salary & wages tannery,' 'wet blue assortment coaly,' and 'staff welfare' due to insufficient evidence/vouchers. The Commissioner of Income Tax (Appeals) reduced this disallowance to 50% of the initially disallowed amount, noting that the expenses were largely supported by vouchers, though some were evidenced by self-vouchers. The Tribunal found no reason to interfere with this decision and upheld the Commissioner of Income Tax (Appeals)'s findings, thereby rejecting the Revenue's grounds of appeal on this issue.3. Deletion of interest charged under sections 234B and 234C of the Income Tax Act:The Revenue challenged the deletion of interest charged under sections 234B and 234C. The Commissioner of Income Tax (Appeals) had directed the Assessing Officer to recompute the correct interest under these sections while giving effect to the impugned order, acknowledging that charging interest under sections 234A, 234B, 234C, and 234D was mandatory. The Tribunal found that the Commissioner of Income Tax (Appeals) did not direct the deletion of interest but rather its recomputation. Thus, the grounds of appeal raised by the Revenue on this issue were rejected.Conclusion:The Tribunal dismissed both appeals by the Revenue, upholding the decisions of the Commissioner of Income Tax (Appeals) on all issues. The orders pronounced in the open court on April 10, 2014, confirmed that the commission payments to non-residents were not taxable in India, the disallowance of 15% of certain expenses was excessive and needed reduction, and the interest under sections 234B and 234C needed to be recomputed correctly.