https://www.taxtmi.com/css/info/rss_sitemap/rss_feed.css?v=1746094055 https://www.taxtmi.com Business/Tax/Law/GST/India/Taxation/Policies/Legal/Corporate Tax/Personal Tax/Vat Law/Legal Information/Tax Information/Legal Services/Tax Services Tax Management India. Com / MS Knowledge Processing Pvt. Ltd. All rights reserved. One stop solution for Direct Taxes and Indirect Taxes https://www.taxtmi.com/caselaws?id=769834 https://www.taxtmi.com/caselaws?id=769834 Addition u/s 36(1)(iii) - Interest free loan given to subsidiary on account of commercial expediency - HELD THAT:- Assessee company had signed a specific agreement with the FFC and had submitted that the profitability of its associate FFC would impact the financial status and the business of the assessee concern. CIT(A) took a very narrow view of the expression "commercial expediency" by observing from the financials of the FFC that it had earned profit during the year and therefore, it was out of scope of commercial expediency. We have carefully considered the same but do not agree with it. Transition of FFC from loss making to marginal profit was only during the year and that it would not per-se end the requirement of 'commercial expediency'. This is best left to the assessee to judge its requirement of commercial expediency unless the AO makes it out a case that commercial expediency is no longer required. The commercial expediency does not mean the support by a holding company to its associate concern only when the associate concern is in a loss. CIT(A) observed that the loan from the holding company to its subsidiary FFC during the year had increased from Rs. 2.60 Crores to 4.18 Crores which prima facie shows that the subsidiary was in need of more funds during the year. Moreover, that in pursuance of the management agreement entered by the assessee with the associate concern, the assessee had earned consultancy and service fee. Therefore, direct the AO to delete the disallowance of interest made by the AO in respect of the loan given by the assessee company. Disallowance of retainership fees u/s 40(a)(i) - 'payment of retainership fees' for the alleged non-deduction of tax at source on the said payment - HELD THAT:- As assessee has filed copy of ledger account and relevant TDS certificate substantiating that TDS was deposited before the due date of filing of return for relevant assessment year. This issue is restored back to the file of the AO to verify the above contention of the assessee and to take into cognizance the TDS deducted and decide the issue afresh as per law. Ground Nos.2 and 2.1 is partly allowed as per the above observation. Taxability in India - Disallowance of payment made to foreign nationals - HELD THAT:- As services rendered by Rosamond Freeman-Attwood falls under the category of "Independent Personal Service and since, the stay was less than 120 days, therefore, the amount paid to Rosamond Freeman-Attwood was not taxable in India and therefore the assessee was not required to deduct the TDS u/s 40(a)(ia). Therefore, the disallowance made by the AO and confirmed by the ld. CIT(A) is deleted. For payment to M/s Elephant Pepper Camp Ltd., the services rendered outside India and similarly, the India Kenya DTAA did not contain the separate provisions for taxing of "Fees for Technical Services" during the relevant period the disallowanceis not sustainable. Contention of the AO that it was imperative on the part of the assessee to make an application u/s 195(2) for taking a certificate u/s 195(2) of the Act in respect of any payment made to a non-resident irrespective of the fact that the amount was taxable in India or not is not acceptable. Hon'ble Supreme Court in in the case of GE India Technology Centre (P.) Ltd. [2010 (9) TMI 7 - SUPREME COURT] has held that section 195(2) of the Act gets attracted to cases where payment made is a composite payment in which certain proportion of payment has an element of 'income' chargeable to tax in India. However, as held earlier, the payment to foreign entities is not taxable in India and therefore there was no requirement for the assessee to seek a certificate for non deduction of TDS in respect of the aforesaid payments u/s 195(2) of the Act. Disallowance of payments by AO was that the assessee had not submitted any document evidencing the service received from the aforesaid persons and the purpose of the payment made to these parties - The same is not acceptable firstly for the reason that the Assessing Officer made the disallowance u/s 40(a)(ia) of the Act and not under section 37(1) of the Act. Further, necessary documents regarding the services rendered have been submitted by the assessee Therefore, we hold that the AO was not correct in making the disallowance and the same is deleted. Case-Laws Income Tax Fri, 25 Apr 2025 00:00:00 +0530