TaxTMI 
TaxTMI 
2010 (9) TMI 749
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....rom the record are as under. 3. The assessee firm is engaged in the business of export & import as well as trading in different commodities. The assessee had made the provision of Rs.38,41,257/- in respect of the compensation to be paid to foreign company namely M/S. Swissgen NV of London (UK) and claimed the same as an expenditure in the profit and loss account. The assessee has entered into a contract for supply of Indian Natural Whitish Sesame Seeds to M/s. Swissgen NV London, UK (in short foreign buyer). Two different contracts were entered into; One for 95 MT and another for 190 MT. One M/S. Radhasons International was broker through whom the contracts for sale were entered into by the assessee with the foreign buyer at the price of U....
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....he term 'Business Profits' which is the subject matter of taxability under Article-7. The assessee has not brought any material on record to demonstrate that in the hands of foreign buyer the compensation amount would be business profits so that recourse to Article-7 may be allowed. (iii) DTAA between U.K. and India will apply only to the Resident of one or more country. Nothing is brought on record to suggest that M/s. Swissgen N.V. London, UK is a Resident of U.K. (iv) The compensation is taxable in India u/s.9(1)(i) since it is an income deemed to accrue or arise in India. (v) The assessee was required to deduct TDS u/s.195 on provision for compensation made in the Books for A.Y. 2005-06, which it has not done." 4. Assessee challenge....
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....ich has been debited to the P&L A/c. The Assessing Officer is very much justified in disallowing the compensation of Rs. 38,41,257/- u/s 40(a). Accordingly, this ground of appeal is dismissed." 5. Now, the assessee is in appeal before us. 6. We have heard the rival submissions of the parties and also perused the records as well as the paper book filed by the assessee. We have also considered the precedents cited by both the parties. The Learned Counsel argues that compensation paid by the assessee was in respect of its trading contract with M/s. Swissgen NV London, UK. It is argued that the arbitration award was passed in financial year 2004-05 more particularly on 13th August 2004 and the same was communicated to the assessee. The assess....
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....sel further argued that the Hon'ble Special Bench has already considered the decision of the Hon'ble High Court of Karnataka in the case of CIT vs. Samsung Electronics Ltd. 320 ITR 209. It is argued that, so far as the interest element in the compensation is concerned the same is merged with the compensation and it looses its original character and assumes the character of judgment debt. For the said proposition, he relied on the decision of Hon'ble High Court of Bombay in the case of Islamic Investment Co. vs. UOI 265 ITR 254. Per contra, the Learned D.R. supported the order of the A.O. as well as the Learned CIT (A) and submitted that in the case of Samsung Electronics Ltd.(supra) it is held that whether the income of the non-resident mad....
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....s profit within the meaning of article 7 of the DTAA between India & UK; and (ii) nothing is brought on record to suggest or prove that the foreign party is a Resident of UK and apart from that there is no discussion in the assessment order. The Learned CIT (A) was of the opinion that the status of the buyer namely M/s. Radhasons International whether it was a resident or non-resident had not been clarified. In our opinion, both the parties have not understood the issue in a proper prospective. So far as character of the compensation is concerned, in our opinion, it is a business profit and is covered under Article 7 of DTAA of UK and India as it is arising out of the trading contract entered into by the assessee and M/s. Swissgen NV London....
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....is also covered in favour of the assessee by the decision of Hon'ble jurisdictional High Court in the case of Islamic Investment Co. vs. UOI 265 ITR 254 (Bom). In the said case the Hon'ble High Court has held that the amount payable to the non-resident in view of the decree or arbitration award looses its original character and assumes the character of a judgment debt. In sum and substance, interest partake the character of the compensation. We, therefore, hold that for the reasons given hereinabove, there was no justification for disallowing amount of the compensation claimed by the assessee on the reason for non-deduction of the tax. We, therefore, delete the addition and allow the ground taken by the assessee. 10. The next issue is disa....