TaxTMI 
TaxTMI 
2009 (3) TMI 219
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....blems on account of labour unrest. In order to avoid this problem, the assessee-company was formed to start a new-business in the same line but with the ultimate object of taking over the business as well as assets and the personnel of M/s M. Bhaskar Kini & Co. (P) Ltd. On the basis of the above understanding, when the new company started operations, the entire staff support came from the old company, M/s M. Bhaskar Kini & Co. (P) Ltd. The assessee company utilized the services of the old company for ail its operational activities. In consideration, the assessee-company was paying corresponding amounts to M/s M. Bhaskar Kini & Co. (P) Ltd. The assessee was claiming such payments as deductions on a regular basis. The Department accepted this position as well. 4. But for the impugned assessment year, the AO held a view that the payments made by the assessee-company to M/s M. Bhaskar Kini & Co. (P) Ltd. was excessive in terms of laws stated in s. 40A(2)(a). On that ground, the AO disallowed the sum of Rs. 8,50,000 out of the total claim of Rs. 24 lakhs. 5. In first appeal, it was argued before the CIT(A) that in order to invoke provisions of law contained in s. 40A, the AO has to es....
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.... justified and CIT(A) has rightly deleted the same. Therefore, we hold that the CIT(A) is justified in deleting the disallowance of Rs. 8,50,000. This issue is decided against the Revenue. 8. The next ground raised by the Revenue is that the CIT(A) has erred in not confirming the disallowance of Rs. 1,57,28,744 made by the AO against the charter hire payments made by the assessee-company to foreign companies. It is the case of the Revenue that charter hire payments made by the assessee-company were taxable in India under s. 9(1)(vi) and, therefore, s. 195 applies on the assessee for deducting tax at the time of payments. 9. In the course of assessment proceedings, the AO found that the assessee has not deducted tax from the payments made to non-resident companies towards charter hire charges. The assessee had made such payments of Rs. 1,57,28,744. The AO held that the payments made by the assessee-company were in the nature of royalties and, therefore, such royalties are taxable in India by virtue of s. 9(1)(vi)(c). As the assessee-company has not made deduction of tax at source, the AO applied s. 40(a)(i) which provides that any interest, royalty, fees or technical services or o....
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....oyalty payments so as to attract the provisions of s. 195. He accordingly held that the AO has erred in invoking s. 40(a)(i) to disallow the expenses of charter hire charges. He deleted the disallowance. 12. Sec. 9(1)(vi)(c) provides that any income by way of royalty payable by a person who is a resident except where the royalty is payable in respect of any right, property or information used or services utilized for the purpose of a business or profession carried on by such person outside India or for the purposes of business or profession carried on by such person outside India or for the purpose of making or earning any income from any source outside India shall be deemed to accrue or arise in India and hence chargeable to tax. Royalty for that purpose means consideration for the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in s. 44BB. 13. We have to examine whether the charter hire payments made by the assessee-company amounted to royalty payment within the above legal context. In the present case, the payments cannot be held to be royalty paid for obtaining any right for the assessee for any purposes explain....
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....on of that section and consequently invoking of s. 40 (a)(i) does not arise. Therefore, we find that the CIT(A) is justified in deleting the disallowance made by the AO. This issue is decided against the Revenue. 18. The third ground raised by the Revenue is that the CIT(A) has erred in deleting the addition of Rs. 28,01,698. It is the case of the Revenue that the CIT(A) has failed to consider the facts discussed in the assessment order and AO's inability to verify the veracity of the claim of expenses made by the assessee for want of proper evidence. 19. The AO has made a disallowance of Rs. 28,01,698 under s. 37 in respect of certain payments made in cash for engaging of labour for smooth functioning of assessee's business in different ship-yards. The payments are claimed to have been made to certain persons who acted as leaders of the labourers. The AO was of the opinion that the assessee on his own has prepared the vouchers and hence the payments should be disallowed. In first appeal, the CIT(A) found that the disallowance was not called for. He accordingly deleted the same. The Revenue is aggrieved and therefore, the above ground. 20. The AO in the course of assessment proc....