TaxTMI 
TaxTMI 
2011 (1) TMI 66
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....tion 40(a)(iii) clearly spells out that any payment which is chargeable under the head 'Salaries', if payable outside India and if the tax has not been paid thereon, will not be eligible for getting deduction; (ii) in the instant case, the salaries have been paid outside India by the assessee but the assessee has not deducted tax at source; (iii) the permanent establishment of the assessee lies in India and the business of the assessee over-whelmingly is run in India and thus, salary paid by the company to the non-residents outside India can be deemed to arise and accrue in India; (iv) the failure to deduct tax on interest paid outside India under similar circumstances has been held to be covered under section 409(a) in CIT v. Vijay Ship Broking Corpn. (2003) 261 ITR 113 (Guj.)." 3. The only common issue for consideration in the case of M/s. Mother Dairy Foods Processing Pvt. Ltd. and in the case of M/s. Mother Dairy Fruits & Veg. Products Ltd. relates to deleting the disallowance of Rs. 19,17,202 and Rs. 4,73,864 respectively being salary paid to non-resident staff outside India. The facts of the case stated in brief are that the assessees paid salary to staffs at Neth....
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....ource and no disallowance could be made under section 40(a)(iii) of the Act, is liable to be rejected and the same was rejected as such. In CIT v. Vijay Singh Broking Corporation 261 ITR 113, Hon'ble Gujarat High Court on identical issue has held that as the assessee did not deduct tax at source under section 195(1) of the Act on interest payable outside India or on which tax had not been paid, the assessee was not entitled to deduction under section 40(a)(i) of the Act. In the case of Van Oord ACZ India Pvt. Ltd. v. ACIT (supra) it has been held that on a combined reading of provisions of section 40(a)(i) and section 195 or 197 of the Act, it was clear that where deduction of tax was required to be made under section 195(1) it could not be avoided, unless NIL deduction or deduction at lower rate was authorized by the assessing officer under section 195(3) or section 197. If income-tax was not deducted at source from payments of such sums the amount was not deductible. The payer was not expected to step into the shoes of the assessing officer for examining whether the receipts in the hands of the recipients were income or not and whether he was liable to pay tax thereon or not. The....
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.... further submitted that the decision of ITAT in assessment year 2002-03 has given its decision without noticing the relevant provisions of section 9, which specifically exclude from its purview payment of salaries to non-resident employees, rendering services outside India. As per provisions of section 9(1)(ii) income which falls under head 'salaries' shall be deemed to accrue or arise in India, if it is earned in India. Explanation to section 9(1)(ii) provides that the income of nature referred to in clause (ii) of section 9(1) for services rendered in India and the rest period or leave period, which is preceded and succeeded by the services rendered in India and forms part of the service contract of employment shall be regarded as income earned in India. Clause (iii) of 9(1) takes into ambit the income chargeable under the head 'salaries" payable by a Govt. to a citizen of India for services rendered outside India. It has been submitted that the admitted position is that the assessee has a branch office in Netherland. The branch office receives remittance in India through banking channels. The remittance being to self, section 195 does not apply. The branch office pays salary to ....
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....als with the income under the head 'salaries' if it is earned in India. Its importance lies in its discarding the test of source in favour of earning test in the imposition of charge of income under the head 'salary'. The result of this provision is that the place of payment or receipt of salary is immaterial. If the salary is earned in India, that is, by dint of service rendered in India, it is deemed to accrue or arise in India and is taxable wheresoever the salary may happen to be paid or stipulated to be paid by the service contract. In the instant case the services have not been rendered in India but in Netherlands. Hon'ble Delhi High Court in the case of Van Oord ACZ India (P.) Ltd. (supra) has held that liability to deduct tax at source arises only when the sum paid to the non-resident was chargeable to tax in India. Once that was chargeable to tax, it was not for the assessee to find out how much amount of receipt was chargeable to tax, but it was the obligation of the assessee to deduct the tax at source on the entire sum paid by him to the recipient. Under section 195 of the Act, the obligation to deduct tax at source was attracted only when the payment was chargeable to ....
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....ble assets under section 50, which is a deeming provision; (b) that loss on transfer of capital asset is not a capital loss under section 47(iv) as it is not considered under the definition of 'transfer'. " 12. In this case the facts of the case stated in brief are that original assessment was completed on 27/12/2005 on total income of Rs. 10,74,25,660. Subsequently the assessment was reopened on the ground that loss of Rs. 4,66,00,609 was arrived at by setting off the short term gain of Rs. 83,54,694 against the loss of Rs. 5,59,55,303. On a query during the course of assessment proceedings, it was explained that transfer of assets from assessee to its subsidiary has resulted in capital loss under section 50(1) of the Income-tax Act on depreciable assets and capital gains on assets, which were yet to be capitalized. As these assets were transferred by the holding company to its subsidiary company, the capital gain and loss arising on account of the transfer were exempt by virtue of section 47(iv) of the Income-tax Act. Accordingly, the assessee had worked out net capital loss of Rs. 4,06,00,609 and was claimed exempt by virtue of section 47(iv) of the I. T. Act, 1961. This c....
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....Rs. 4,76,00,609 was not claimed. 14. The ld. CIT (Appeals) after examining the facts of the case deleted the addition by observing as under :- "4.3.1. I have perused the assessment order and the submissions made by the appellant. The issue under consideration is about the taxability of capital gains on sale of capital work-in-progress which has been netted out against the loss incurred on sale of assets and net capital loss is stated to be exempt under section 47(iv) of the Act. Undoubtedly, in terms of inclusive definition of 'capital assets' under section 2(14), the capital work in progress is a capital asset. Moreover, there is 'transfer' under section 2(14) of the capital assets, and accordingly the provisions of section 50 would be applicable. However, in this case the transfer of assets by the appellant is to its wholly owned subsidiary company namely MDFPL and, therefore, provisions of section 47(iv) are applicable. There is unanimity between the AO and the appellant company that the provisions of sub clauses (a) & (b) of section 47(iv) are satisfied and, therefore, the provisions of section 47(iv) are clearly applicable. 4.3.2. Under these facts, the only issue for....