2016 (7) TMI 1468 - HC - Income Tax

Court rules in favor of assessee on various expense issues, disallowances, and capital expenditure treatment.

Director of Income Tax (International Taxation) Versus Skanska Cementation International Ltd (Formerly Kvaener)

The court ruled in favor of the assessee in all issues, including the deletion of additions for reimbursement of expenses to the Head Office, expenditure ... TDS u/s 195 - payments were made to several parties outside India for reimbursement of expenses incurred by the then KCIL (UK) (sub-contractor) for the purpose of Dahej Project - Held that:- There was absolutely no operation in India which would give rise to a tax liability in India as far as the foreign company was connected and Tribunal was, therefore, right in its conclusion.' Learned C I T(A) relied upon the decision in the case of Wallace Pharmaceutical Pvt. Ltd.[2005 (9) TMI 26 - AUTHORITY FOR ADVANCE RULINGS] in which applicant was a Indian Company and tax resident of India. Penser is tax resident of USA but operating internationally. It was found from facts that Penser has rendered consultancy services in India, therefore, consultancy fees was held to be deemed income of Penser in India. The facts of this case are therefore, clearly distinguishable from the facts of this case. Considering the facts on this issue and in the absence of specific finding and material brought on record by the A O, we do not find any justification to sustain the findings of authorities below. We accordingly set aside the orders of authorities below and delete the entire disallowance - Decided in favour of assessee Issues Involved:1. Deletion of addition for reimbursement of expenses to Head Office.2. Deletion of addition for expenditure incurred by the Head Office.3. Deletion of expenditure incurred by subcontractor and claimed by the assessee.4. Deletion of expenditure debited in P & L Account belonging to subcontractor.5. Deletion of disallowance under Section 40(a)(i) of the Act.6. Deletion of addition treating capital expenses as revenue expenses.Detailed Analysis:1. Deletion of Addition for Reimbursement of Expenses to Head OfficeThe court addressed the deletion of the addition of Rs. 4,83,71,408/- being reimbursement of expenses to the Head Office. The issue was previously decided in favor of the assessee in Tax Appeal No.2130 of 2010 and 2145 of 2010. Adopting the same reasoning, the court answered this issue in favor of the assessee and against the Department.2. Deletion of Addition for Expenditure Incurred by the Head OfficeSimilarly, the court dealt with the deletion of the addition of Rs. 1,82,55,408/- being expenditure incurred by the Head Office. This issue was also decided in favor of the assessee in the aforementioned appeals. The court adopted the same reasoning and ruled in favor of the assessee.3. Deletion of Expenditure Incurred by Subcontractor and Claimed by the AssesseeThe court examined the deletion of expenditure incurred by the subcontractor amounting to Rs. 68,63,154/-. The learned Tribunal had observed that the grounds in the departmental appeal were similar to those considered in the assessment year 1998-99. Following the same order and reasons, the court ruled in favor of the assessee.4. Deletion of Expenditure Debited in P & L Account Belonging to SubcontractorThe court reviewed the deletion of expenditure debited in the P & L Account amounting to Rs. 1,09,70,601/-. The Tribunal had followed the reasoning from the assessment year 1998-99. The court, adopting the same reasoning, ruled in favor of the assessee.5. Deletion of Disallowance under Section 40(a)(i) of the ActThe court addressed the deletion of disallowance of Rs. 1,42,85,226/- under Section 40(a)(i). The Tribunal observed that the payments were made to parties outside India for reimbursement of expenses incurred by the subcontractor for a project, with no element of income. The Tribunal noted that the Assessing Officer (AO) did not provide evidence that the recipients were liable to tax in India. The court, adopting the Tribunal's detailed reasoning, ruled in favor of the assessee.6. Deletion of Addition Treating Capital Expenses as Revenue ExpensesThe court examined the deletion of the addition of Rs. 27,04,23,415/- treating capital expenses as revenue expenses. The Tribunal noted that the temporary structures at the project site were for business purposes and were to be removed upon project completion, indicating no enduring benefit or asset creation. The Tribunal concluded that these were revenue expenses, not capital expenses. The court, adopting this detailed reasoning, ruled in favor of the assessee.ConclusionThe court disposed of all appeals by answering the questions in favor of the assessee and against the department, adopting the detailed reasonings provided by the Tribunal and previous judgments.