2015 (4) TMI 766 - AT - Income Tax

Tribunal decision: ATP payments disallowed, IMG liability rejected, TNTA & AITA payments upheld

International Merchandising Corporation & Others Versus ADIT & Others

International Merchandising Corporation & Others Versus ADIT & Others - [2015] 42 ITR (Trib) 523 (ITAT [Del]) Issues Involved:1. Deletion of payments to Association of Tennis Professionals (ATP) under Section 40(a)(i).2. Addition of amounts shown as liability in the name of IMG Canada.3. Disallowance of payment to Tamil Nadu Tennis Association (TNTA) and All India Tennis Association (AITA) under Section 40(a)(i).4. Disallowance of reimbursement of expenses.Issue-Wise Detailed Analysis:1. Deletion of Payments to Association of Tennis Professionals (ATP) under Section 40(a)(i):The revenue contended that the CIT(A) erred in deleting the payments made to ATP, arguing that Section 40(a)(i) covers any sum chargeable under the Act payable outside India or to a non-resident, on which TDS is deductible unless a certificate of NIL withholding is obtained. The assessee argued that ATP is a governing body and not a sports association, thus Section 194E does not apply.The Tribunal held that Section 194E read with Section 115BBA applies to payments made to a non-resident sports association or institution. ATP, being a governing body of the worldwide men's professional tennis circuit, qualifies as a non-resident sports institution. Therefore, the disallowance made by the AO was found to be in order, and the CIT(A)'s order was reversed. This ground of the revenue was allowed.2. Addition of Amounts Shown as Liability in the Name of IMG Canada:The revenue argued that the CIT(A) erred in deleting the addition of amounts shown as liability payable to IMG Canada. The CIT(A) had previously deleted an identical addition for Assessment Year 2001-02, observing that the amount was kept payable to IMG Canada as the games were not held and the amount was not repatriated due to non-availability of permission from the Government of India.The Tribunal upheld the CIT(A)'s decision, noting that the issue had acquired finality in the assessee's favor for Assessment Year 2001-02, and there was no change in facts. The ground raised by the revenue was thus rejected.3. Disallowance of Payment to Tamil Nadu Tennis Association (TNTA) and All India Tennis Association (AITA) under Section 40(a)(i):The AO disallowed payments to TNTA and AITA under Section 40(a)(i), arguing that the assessee failed to deduct tax at the time of payment. The CIT(A) held that the payments were not covered under any specific sections under Chapter XVII B of the Act, thus no withholding was required.The Tribunal found that the payments to TNTA and AITA were contributions towards the development and promotion of tennis and were not specified payments eligible for deduction of taxes. The payments were made to residents within India, and Section 40(a)(i) applies to non-residents or foreign companies. Therefore, the disallowance was not warranted, and the CIT(A)'s order was upheld. The revenue's appeal on this ground was dismissed.4. Disallowance of Reimbursement of Expenses:The AO disallowed reimbursement of expenses on the grounds that the necessary evidence was not produced. The CIT(A) upheld the disallowance following the order for Assessment Year 2005-06. The assessee argued that the expenses were incurred wholly and exclusively for business purposes and provided evidence to support the claim.The Tribunal found that the evidence provided by the assessee had not been specifically examined by the authorities below. Therefore, the matter was remitted back to the AO for a fresh examination, granting adequate opportunity to the assessee. The ground raised by the assessee was allowed for statistical purposes.Conclusion:The appeals were partly allowed, with the Tribunal upholding the disallowance of payments to ATP, rejecting the addition of amounts shown as liability to IMG Canada, dismissing the disallowance of payments to TNTA and AITA, and remitting the issue of reimbursement of expenses back to the AO for fresh examination.