2023 (4) TMI 840 - AT - Income Tax

Tribunal grants relief in part to assessee on disallowances, remands issue for verification, and allows prior period expenses.

Electronics Corporation of India Limited, Versus Commissioner of Income Tax, Circle 17 (1), Hyderabad.

Electronics Corporation of India Limited, Versus Commissioner of Income Tax, Circle 17 (1), Hyderabad. - TMI Issues Involved:1. Disallowance of payments due to non-deduction of tax under Section 195.2. Disallowance of prior period expenses.Detailed Analysis:Issue 1: Disallowance of Payments Due to Non-Deduction of Tax Under Section 195The primary contention of the assessee was against the disallowance of payments made to various foreign entities without deducting tax at source under Section 195 of the Income Tax Act, 1961. The payments in question were:1. Rs.2,31,24,998/- to BAE Systems, USA for site testing charges.2. Rs.26,09,609/- to Syscom Instruments SA, Switzerland for factory acceptance test, final commissioning, and training.3. Rs.14,77,500/- and Rs.27,75,000/- to Grintek Eswation, South Africa for operation, maintenance, and training charges.The assessee argued that the payments to BAE Systems, USA, were part of a composite contract for the purchase and installation of equipment, and thus, should not be treated as 'Fee for Technical Services' under the Double Taxation Avoidance Agreement (DTAA) between India and the USA. The tribunal agreed with the assessee, noting that the services provided were ancillary and subsidiary to the sale of equipment and thus fell under the exception in Paragraph 5(a) of Article 12 of the DTAA. Consequently, the tribunal held that these payments were not subject to deduction of TDS.For the payments made to Syscom Instruments SA, Switzerland, the assessee admitted that the MFN clause was not applicable and did not press for the deletion of disallowance. Therefore, the tribunal upheld the disallowance made by the authorities.Regarding the payments to Grintek Eswation, South Africa, the tribunal remanded the matter back to the Assessing Officer for verification of whether taxes were deducted at source and deposited with the Central Government. If verified, relief should be granted to the assessee.Issue 2: Disallowance of Prior Period ExpensesThe assessee also contested the disallowance of Rs.59,23,000/- as prior period expenses. The assessee argued that these expenses were in the nature of sales reversals, expenditure on raw materials, administrative expenses, depreciation, and other receipts, and were accounted for in accordance with accepted accounting principles. The tribunal noted that the assessee had also accounted for prior period income during the same year and relied on a previous decision by the Hyderabad bench of the Tribunal in the case of Deccan Cements Limited vs. DCIT, which allowed the claim of prior period expenses. The tribunal allowed the assessee's claim, emphasizing that both prior period expenses and income should be considered for computing the income of the assessee.Conclusion:The tribunal partly allowed the appeal of the assessee for statistical purposes. The disallowance related to payments made to BAE Systems, USA, was overturned, while the disallowance related to Syscom Instruments SA, Switzerland, was upheld. The issue concerning payments to Grintek Eswation, South Africa, was remanded for verification. Additionally, the tribunal allowed the claim for prior period expenses.