2018 (2) TMI 1344 - AT - Income Tax

Tribunal affirms tax decisions on non-resident commissions & directs re-calculation for exempt dividends

The Tribunal upheld the Commissioner's decision to delete the disallowance under section 40(a)(i) of the Income Tax Act concerning commission paid to ... Disallowance u/s 40(a)(i) - non deduction of tds on account of commission paid to non-resident parties - Held that:- DRP has decided a similar issue in favour of the assessee for A.Y. 2011-12 [2016 (7) TMI 1419 - ITAT KOLKATA] by following the Tribunal’s order in assessee’s own case for the earlier years and the Department has not challenged the same by filing an appeal before the Tribunal as held where payments are made to agents of non-resident ship-owners or charters for carriage of passengers etc. shipped at a port in India, since the agent acts on behalf of the non-resident shipowner or charterer, he steps into the shoes of the principal. Accordingly, provisions of Section 172 of the Act shall apply and those of sections 194C and 195 - Decided against revenue Disallowance u/s 14A r.w.r. 8D - Held that:- No disallowance under section 14A was suo motu made by the assessee nor it was the case of the assessee before the Assessing Officer that no expenditure was incurred by it for earning the exempt income. AO, in our opinion, therefore, was not required to record any satisfaction as contemplated in section 14A before making a disallowance under the said provision. We, therefore, find no merit in this contention of the assessee. Merit in the alternative contention raised by the assessee that while working out the disallowance as per Rule 8D(2)(iii), AO should have taken into consideration only those investments on which exempt income was actually earned by the assessee during the year under consideration as it is duly supported by the decision of this Tribunal in the case of DCIT vs. REI Agro Limited [2013 (5) TMI 582 - ITAT KOLKATA]. We accordingly direct AO to re-compute the disallowance under section 14A as per Rule 8D(2)(iii) by taking into consideration only the value of those investments, which actually fetched exempt income to the assessee during the year under consideration. Issues:1. Disallowance under section 40(a)(i) of the Act on account of commission paid to non-resident parties.2. Disallowance under section 14A of the Act read with Rule 8D regarding exempt dividend income.Issue 1 - Disallowance under section 40(a)(i) of the Act on account of commission paid to non-resident parties:The appeal involved cross-appeals against the order of the Commissioner of Income Tax (Appeals). The primary issue in the Revenue's appeal (ITA No. 1982/KOL/2016) was the deletion of the addition made by the Assessing Officer on account of disallowance under section 40(a)(i) of the Act concerning commission paid to non-resident parties. The Assessing Officer disallowed the commission paid to non-resident agents based in Hong Kong and British Virgin Islands due to the absence of Double Tax Avoidance Agreements with those jurisdictions. However, the Commissioner (Appeals) deleted the disallowance following a similar decision by the Tribunal in the assessee's case for a previous year. The Tribunal upheld the Commissioner's decision, citing consistent precedent in favor of the assessee.Issue 2 - Disallowance under section 14A of the Act read with Rule 8D regarding exempt dividend income:In the assessee's appeal (ITA No. 1894/KOL/2016), the main issue was the disallowance of expenses under section 14A of the Act concerning exempt dividend income. The Assessing Officer computed the disallowance under Rule 8D(2)(iii) at Rs. 1,24,000, representing 0.5% of the average value of investments. The Commissioner (Appeals) upheld this disallowance. The Tribunal noted that while the Assessing Officer was not required to record satisfaction before making the disallowance, the computation should consider only investments generating exempt income. Citing a precedent, the Tribunal directed the Assessing Officer to recompute the disallowance accordingly. Consequently, the Revenue's appeal was dismissed, and the assessee's appeal was partly allowed.In conclusion, the Tribunal's judgment addressed the disallowances under sections 40(a)(i) and 14A of the Income Tax Act, providing detailed reasoning and legal interpretations to resolve the issues raised in the appeals.