2022 (9) TMI 1251 - AT - Income Tax

Tribunal Upholds Deletion of Disallowance under Income Tax Act

ACIT, Circle 8 (2), New Delhi Versus M/s. Exclusive Motors Pvt. Ltd.

ACIT, Circle 8 (2), New Delhi Versus M/s. Exclusive Motors Pvt. Ltd. - TMI Issues:1. Disallowance of extended warranted expenses due to non-deduction of TDS under Section 195 of the Income Tax Act, 1961.Analysis:The appeal pertains to the assessment year 2016-17 and revolves around the disallowance of Rs. 3,75,68,310 made by the Assessing Officer on account of extended warranty expenses paid by the assessee without deducting TDS under Section 195 of the Income Tax Act, 1961. The assessing officer contended that the assessee, a resident corporate entity and exclusive dealer of Bentley Cars in India, acted as a dependent agent of a UK-based entity, CCPL, for providing extended warranty services. The AO concluded that the amount remitted to CCPL towards extended warranty is taxable in India through a Permanent Establishment (PE) and hence, tax should have been deducted at source. The Commissioner (Appeals), however, held that the assessee is not a dependent agent of CCPL and CCPL does not have any business connection or PE in India, leading to the deletion of the disallowance under Section 40(a)(i) of the Act.Upon considering the submissions and material on record, the Tribunal noted that the extended warranty offered by the assessee to customers was optional and not compulsory. The customers had the choice to purchase extended warranty, and the assessee negotiated prices independently with customers. The Tribunal observed that the sales invoices for extended warranty were in the name of the assessee and did not mention CCPL, indicating a direct contractual relationship between the assessee and customers. The Tribunal found no evidence to support the AO's claim that the assessee acted as a dependent agent PE of CCPL. Consequently, the Tribunal affirmed the factual finding of the Commissioner (Appeals) and dismissed the appeal, upholding the deletion of the disallowance.In conclusion, the Tribunal dismissed the appeal, emphasizing that the assessee's independent status and lack of a dependent agent relationship with CCPL led to the deletion of the disallowance under Section 40(a)(i) of the Act. The judgment highlights the importance of analyzing the contractual relationships, obligations, and factual circumstances to determine the tax implications of transactions involving non-resident entities and the applicability of TDS provisions under the Income Tax Act, 1961.