Tribunal allows appeal, exempts training services expenditure, finds non-resident payment not taxable.

The Tribunal allowed both appeals, deleting the disallowance under section 40(a)(i) for the expenditure on general training services. It was held that the payment to the non-resident entity was not taxable in India as the services were rendered outside India and did not qualify as Fees for Technical Services. The Tribunal also remanded the additional grounds of appeal regarding the application of the India-UK Tax Treaty rate for Dividend Distribution Tax liability to the AO for further consideration.

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Issues Involved:

1. Disallowance of expenditure towards general training services under section 40(a)(i) of the Income Tax Act, 1961.
2. Additional grounds of appeal regarding deduction of education cess and application of India-UK Tax Treaty rate for Dividend Distribution Tax (DDT) liability.

Summary:

1. Disallowance of Expenditure Towards General Training Services:

The primary issue in both appeals for AY 2013-14 and 2014-15 was the disallowance of expenditure on general training services amounting to Rs.92,24,879/- paid outside India under section 40(a)(i) of the Income Tax Act, 1961. The CIT(A) confirmed the AO's order, treating the payment to the non-resident entity (SCB, Singapore) as taxable in India and thus requiring TDS deduction. The assessee argued that the payment was not taxable in India as the services were rendered outside India, and the non-resident entity did not have a Permanent Establishment (PE) in India. The CIT(A) also classified the expenditure as Fees for Technical Services (FTS), which the assessee contested, arguing that the training services for soft skills, leadership, and general communication do not qualify as technical services under the Act or the Double Taxation Avoidance Agreement (DTAA). The Tribunal found that similar issues were decided in favor of the assessee for AY 2014-15, where it was held that such training services do not involve the transfer of technology and thus do not qualify as FTS. Consequently, the Tribunal allowed the appeals for both years, deleting the disallowance.

2. Additional Grounds of Appeal:

The assessee also filed additional grounds of appeal for both years, seeking deduction of education cess and application of the India-UK Tax Treaty rate for DDT liability. The assessee did not press the ground regarding education cess due to statutory amendments. However, the assessee pressed the ground regarding the application of the Tax Treaty rate for DDT liability. The Tribunal admitted the additional grounds based on legal precedents, including the Supreme Court's decision in National Thermal Power Corporation Ltd. vs. Commissioner of Income Tax, which allows consideration of new legal claims if relevant facts are on record. The Tribunal remanded the issue to the AO for adjudication, directing the AO to consider the Special Bench decision in DCIT vs. Total Oil India Private Ltd.

Conclusion:

Both appeals were partly allowed. The Tribunal deleted the disallowance under section 40(a)(i) for both years and remanded the additional grounds of appeal to the AO for further adjudication.

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