Revenue's Appeal Dismissed, CIT (A) Decisions Upheld on Royalty & TDS, Tribunal Ruling 17/02/2021

The Tribunal dismissed the revenue's appeal, upholding the decisions of the ld. CIT (A) in both instances. The first addition disallowed on account of 'Royalty payment' was settled in favor of the assessee by the jurisdictional High Court, citing lack of legal backing to the agreement and absence of justification for the payments. The second addition disallowed for 'non-deduction of TDS on commission payment to foreign companies' was found legally untenable by the Tribunal, affirming the ld. CIT (A)'s order. The judgment was pronounced on 17/02/2021.

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Issues:
1. Disallowance of Royalty payment
2. Non-deduction of TDS on commission payment to foreign companies

Analysis:

Disallowance of Royalty payment:
The appeal by the revenue challenges the deletion of two additions made by the Assessing Officer (AO) under section 143(3) of the Income Tax Act, 1961. The first addition of Rs. 38,12,375 was disallowed on account of 'disallowance on account of payment of Royalty' made to M/s Macnaught Pvt. Ltd. Australia. The AO treated the Royalty payment as capital expenditure, citing lack of legal backing to the agreement and absence of justification for the payments. However, the ld. CIT (A) allowed the appeal of the assessee, referring to previous ITAT decisions in favor of the assessee for earlier years. The jurisdictional High Court also dismissed the revenue's appeal for the assessment year 2008-09, settling the issue in favor of the assessee. Consequently, the Tribunal dismissed the revenue's appeal on this ground.

Non-deduction of TDS on commission payment to foreign companies:
The second addition of Rs. 2,04,15,947 was disallowed by the AO on account of 'non-deduction of TDS on commission payment made to foreign companies' under section 40(a)(ia). The Co-ordinate Bench of the Tribunal had previously held that the commission paid to foreign agents, operating outside India and not providing technical services, did not fall under the purview of Section 9(1)(vii)(b) of the Income Tax Act, 1961. Given the consistent facts and legal position, the Tribunal found the disallowance by the AO under section 40(a)(ia) to be legally untenable. Consequently, the Tribunal affirmed the order of the ld. CIT (A) on this ground as well.

In conclusion, the Tribunal dismissed the revenue's appeal, upholding the decisions of the ld. CIT (A) in both instances. The judgment was pronounced in the open court on 17/02/2021 by Dr. B. R. R. Kumar, Accountant Member.

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