TaxTMI 
TaxTMI 
2010 (10) TMI 695
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....at the sundry debtors amounting to Rs. 1,08,94,578/receivable by company on behalf of Emery USA were written off by the Emery, USA and consequently sundry debtors and corresponding amount payable to Emery, USA has been set off by the same amount. The Assessing Officer observed that though the transaction has been routed through balance sheet this will not prevent income from being chargeable to tax. Assessing Officer observed that essence of above transaction was that amount of Rs. 1,08,94,578/payable by the company to Emery USA is now no longer payable as Emery, USA has written off the same in its books. The Assessing Officer observed that considering the close business connections between the two there is no possibility of Emery, USA demanding the same from its Indian subsidiary any time in future. This would mean that the amount of Rs. 1,08,94,578/is in the nature of remission of liability for this assessee and the same should be added back to the business income u/s 41 of the Income Tax Act, 1961. 2.2 Upon assessee's appeal Ld. Commissioner of Income Tax (Appeals) noted that he agreed with the contention of the assessee's counsel that the facts of the case ....
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....) from the destination customer in India. The appellant company would retain its agreed scheduled fees for service provided and remit the balance amount to Emery USA. Consequently, the books of the appellant company provide the following for the 'collect system'. Amount receivable from the destination customer (in India) on behalf of Emery USA is shown as 'sundry debtors'. Amount company's scheduled fees for inbound services stands credited to the income account with a corresponding debit to Emery USA. The following accounting entry is passed for the amount receivable from destination customer in India: For freight collectible on behalf of Emery USA (Origin offices) Customer Account.....................Dr. To emery USA (EWW) ..............................Cr. [Being amount receivable from customer and payable to Emery USA (EWW)] Freight collectible on behalf of Emery USA (origin offices) no longer recoverable. Emery USA (EWW) ......................Dr. To Customer Account ..............................Cr. [Being the amount no longer recoverable from the destination customer in India and hence not payable to Emery USA (EWW)] It is to be appreciated ....
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....o 1. Business of assessee: Assessee engaged in the business of providing transponder capacity from the satellite operated by it to enable telecasting companies to transmit voice/ data programs to the customers around the world. Business of assessee: The assessee is in the business of freight forwarding providing services of freight handling, transportation, documentation and other related matters to the exporters and importers and providing facilities for storage, warehousing, carriage and distribution of merchandise by land, air and sea. 2. Issues involved: (i) Whether the services rendered by the assessee through their satellites for telecommunicatio n or broadcasting amount to "secret process" or only "process"? (ii) Whether the payment received by the assessee from their customers on account of use of their satellites for telecommunication and broadcasting, amounts to "royalty" and if so whether the same is liable to tax under section 9(1)(vi) of the Income Tax Act, 1961 ("The Act") read with the relevant provisions of the DTAA? Issues involved: (i) Whether reimbursement of communication expenses to Emery USA for the sharing the cost of connectivity ....
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....to this case. in the case of the said ruling, it was held that payment made in respect of bandwidth by dedicated leased circuits cannot be considered as Royalty. The ration of the said ruling is applicable to this case. Accordingly, it is respectfully submitted that the ratio of the said supreme court judgement may not be applied in our case. Without prejudice to the above, we respectfully submit that in case a reversal of the payable entry is considered as a remission or cessation of liabilities u/s 41(1) of the Act, then the corresponding write off of debtors should also be allowed as a deduction." 2.5 Ld. Departmental Representative on the other placed reliance upon the Apex Court decision in the case of TVS Sundaram Iyenger (supra) and also referred the decision of the Hon'ble Madras High Court in the case of C.I.T. vs. Aries Advertising P. Ltd. : 255 ITR 510; Allahabad High Court decision in the case of The Manufacturing Co. of India C.I.T. vs. Aries Advertising P. Ltd. : 222 ITR 324; Madras High Court decision in the case of Solid Containers vs. DCIT : 308 ITR 417. These case laws were relied for the proposition that amount though not a revenue in nature, a....
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....ncome. 1. The case law relied upon the ld. Ld. Commissioner of Income Tax (Appeals)'s and revenue are also then not applicable on the facts of the case. Accordingly, we set aside the orders of the authorities below and decide the issue in favour of the assessee. 2. The next issue raised is that: a) Under the facts and circumstances of the case in law, the Ld. C.I.T. (A) has erred in confirming the action of the Ld. Assessing Officer to disallow the communication expenses paid by the appellant amounting to Rs. 1,721,464 u/s 40(a)(i) of the Act by holding that the payment is in the nature of royalty u/s 9(1)(vi) read with clause (iva) of Explanation to 9(1)(vi) and ignoring the provisions of Double Taxation Avoidance Agreement between India and USA. b) Under the facts and circumstances of the case in law, the Ld. C.I.T. has erred in confirming the action of the Ld. Assessing Officer to disallow the communication expenses paid by the appellant amounting to Rs. 1,721,464/u/s 40(a)(i) of the Act on the ground that the subject payment is not reimbursement of expenses. 3.1 On this issue the Assessing Officer noted that assessee has made following payments to Emery Air....
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.... 3.4 Against this order the assessee is in appeal before us. 3.5 We have heard both the counsel and perused the records. Ld. counsel of the assessee submitted that the payment is actually reimbursement of communication expenses. Hence it is not under the nature of income. In this regard he referred that copies of invoices raised by Emery USA on the assessee clearly states that the payment is being made for reimbursement of communication expense incurred on your behalf for the Month of..................EMCON connectivity data circuit expenses. He further submitted as per the provision of section 40(a)(i), the disallowance can be made only if the payment made is chargeable to tax in the hands of the nonresident and tax was not deducted at source. As the payment made being Emery Airfreight Corporation, USA is in the nature of reimbursement of expense which was incurred by Emery USA on behalf of the assessee and the same is not in the nature of income in the hands of the Emery USA and cannot be the subject to tax, under the provisions of this Act. In this regard, he placed reliance upon C.I.T. vs. Dunlop Rubbers Co. Ltd. 142 ITR 493; Rolls Royce India Ltd. vs. ITO 25 ITD 137 and ....
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....r paragraph 8 of article 12 (Royalties and Fees for included services) apply, interest, royalties, and other disbursements paid by a resident of contracting sate to a resident of the other contracting state shall, for the purpose of determining the taxable profits of the first mentioned resident, be deductible under the same conditions as if they had been paid to a resident of the first mentioned state." (Emphasis supplied) Thus as per the provisions of Article 26(3) interest, royalties, and other disbursements to the nonresident should be treated as tax deductible while computing the taxable income of the payer as if the payments have been made to resident. The provisions of section 40(a)(i) disallows interest, royalty, fees for technical services or other sum chargeable under this Act, which is payable outside India, on which tax has not been paid or deducted under Chapter XVIIB. As per the provisions of section 195 (included in Chapter XVIIB) of the Act "any person responsible for paying to a nonresident, not being a company, or to a foreign company, any interest (not being interest on securities) or any other sum chargeable under the provisions of this Act (not being inco....
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....ellite. The same reads as under: Serial No. New Skies Satellite NV Meno 1. Business of assessee: Assessee engaged in the business of providing transponder capacity from the satellite operated by it to enable telecasting companies to transmit voice/ data programs to the customers around the world. Business of assessee: The assessee is in the business of freight forwarding providing services of freight handling, transportation, documentation and other related matters to the exporters and importers and providing facilities for storage, warehousing, carriage and distribution of merchandise by land, air and sea. 2. Issues involved: (i) Whether the services rendered by the assessee through their satellites for telecommunicatio n or broadcasting amount to "secret process" or only "process"? (ii) Whether the payment received by the assessee from their customers on account of use of their satellites for telecommunication and broadcasting, amounts to "royalty" and if so whether the same is liable to tax under section 9(1)(vi) of the Income Tax Act, 1961 ("The Act") read with the relevant provisions of the DTAA? Issues involved: (i) Whether reimbursement o....
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....the present case. The ratio of the ruling in the case of Dell is applicable to this case. in the case of the said ruling, it was held that payment made in respect of bandwidth by dedicated leased circuits cannot be considered as Royalty. The ration of the said ruling is applicable to this case. In the light of above ld. counsel submitted that the payments being made by Menlo to Emery USA are in the nature of reimbursement and are not royalty. 3.10 We find that similar issue was considered by the ITAT, Delhi Bench in the case of Expeditors International (India) (P) Ltd. vs. Addl. C.I.T. in ITA No. 2684/Del/2005 118 TTJ (Del)/652. In the said case it was held as under: "Business expenditure - Disallowance under s. 40(a)(i) - VSAT uplinking charges paid to parent company - charges reimbursed by the assessee company to its parent company for VSAT uplinking provided through SITA were not in the nature of fees for technical services and the same were paid merely for availing communication facility for transmitting data without there being any right conferred upon the assessee for use of any secret process or formula - same being not liable for deduction of tax at so....
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....e said services were not covered in the definition of "fees for technical services" as given in Explanation2 to Section 9(1)(vii). While supporting the decision of the Ld. Commissioner of Income Tax (Appeals) on the issue, the ld. counsel for the assessee has explained that the services in question were provided by its parent company through SITA whereby a global communication network was made available to all the associated concerns of Expeditors group including the assessee company. He has also placed on record a documentary evidence at page n. 253 of his paper book which supports his explanation that what had been made available by SITA was the communication facility essential for the business of the entire group as such. He has also placed on record a statement giving working as to how the charges paid by the parent company to SITA were apportioned amongst the different group companies operating in different countries including the assessee company. All these details furnished by the assessee on record clearly show that the charges reimbursed by the assessee company to its parent company for VSAT uplinking provided through SITA were not in the nature of fees for technical servi....
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....t any deduction of tax and there was no question of making any disallowance by invoking the provisions of Section 40(a)(iii) for nondeduction of tax from such reimbursement. In that view the disallowance made by the Assessing Officer by invoking the provisions of section 40(a)(i) and 40(a)(iii). Ground no. 2 of the Revenue's appeal dismissed. Accordingly, the tribunal held that there is no infirmity in the order passed by the Ld. Commissioner of Income Tax (Appeals) deleting the addition on account of global management expenses and VSAT expenses." 3.12 We find that Assessing Officer has made the disallowance by holding that the payment was liable for deduction of tax at source u/s 40(a)(i) and treating the payment as fees for technical services. Ld. Commissioner of Income Tax (Appeals) on the other hand had found merit in the assessee's submission that payment would not fall under fees for technical services under the purview of section 9(1)(viI). However, Ld. Commissioner of Income Tax (Appeals) opined that the same was coming under the purview of section 9(1)(iva) read with 9(1)(vi) which refers to payment for use or right to use in industrial, commercial or scientific equi....
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....sessee. The decisions referred by the Ld. Departmental Representative are clearly not applicable on the facts of the case. We further find considerable analogy in the issue before us and ITAT, Delhi Bench decision in the case of Expeditors International (India) (P) Ltd. vs. Addl. C.I.T. : 118 TTJ 652. Here also, the payment was made merely for availing communication facility for transmitting data without there being any right conferred upon the assessee for use of any secret process or formula. Furthermore, such expenditures were incurred by the Emery USA for other group companies also and only a part of reimbursement was sought from the assessee. Hence, in the background of the aforesaid discussion and precedent, we hold that the payment involved do not fall within the purview of section 40(a)(i) referred by the Assessing Officer and as discussed by us hereinabove. The action of the Ld. Commissioner of Income Tax (Appeals) in holding that the tax was to be deducted in terms of section 9(1)(iva) or 9(1)(vi) is also not cogent enough. Accordingly, we set aside the orders of the authorities below and decide the issue in favour of the assessee. Assessee's appeal (ITA No. 416/Del....
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....held that in absence of any evidence in support of the claim of reduction in income on account of system failure the claim of the assessee of reduction of Rs. 13,773,479/in income is not accepted and added back to the income. Before the ld. CIT(A) the assessee submitted that shipment wise detail of the erroneous booking of the revenue have been submitted to the AO at the time of assessment. Copy of the said detail was also submitted before the ld. CIT(A). Ld. CIT(A) observed that on perusal of the list of shipment wise detail it was not at all clear as to how such error occurred and also whether there was an error at all. Ld. CIT(A) asked the assessee to submit further factual details in this regard. In reply the assessee submitted that error crept into account while revenue data was transferred from the front end server to the back end accounting system recording the revenue. It was further stated that consequent to global takeover the business of the assessee has been taken over by M/s UPS In India. As a result of this take over the assessee had discontinued its operation and most of the employees have left the employment. It was stated that under these circumstances assessee was....
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....ound. Under the circumstances, this issue raised is dismissed as not pressed. 2. The next ground raised reads as under: a) Under the facts and circumstances of the case and in law, the Ld. C.I.T.(A) has erred in confirming the action of the Assessing Officer to disallow the communication expenses paid by the appellant amounting to Rs. 1,742,063/u/s 40(a)(i) of the Act by holding that the payment is in the nature of royalty u/s 9(1)(vi) read with clause (iva) of Explanation to 9(1)(vi) and ignoring the provisions of Double Taxation Avoidance Agreement between India and USA. b) Under the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) has erred in confirming the action of the Assessing Officer to disallow the communication expenses paid by the appellant amounting to Rs. 1,742,063/u/s 40(a)(i) of the Act on the ground that the subject payment is not reimbursement of expenses. 6.1 Since the issue is similar in A.Y. 200203 as referred in para 3 of ITA No. 929/Del/2008 above, following the reasoning given hereinabove, we set aside the orders of the authorities below in this case also and decide the issue in favor ....
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....us activities were described. In any case of the submissions which were made by the assessee before Ld. Commissioner of Income Tax (Appeals) were not available ;to the Assessing Officer probably on the ground that Assessing Officer might have given any opportunity to the assessee as stated by the assessee in the statement of facts. One component of the total expenses has been upheld by Ld. Commissioner of Income Tax (Appeals) and the other component has been deleted. In our opinion, as per natural principle of justice, Assessing Officer should have been given opportunity by the Ld. Ld. Commissioner of Income Tax (Appeals) and Ld. Commissioner of Income Tax (Appeals) has not also passed a speaking order so as it relates to ascertainment of proper facts. In any case if the submissions of assessee are to be believed then Assessing Officer should have been given the opportunity to meet the same so as to ascertain the facts. Keeping in view the entirety of facts, we are of the opinion that the matter regarding disallowance of Rs. 23,84,192/requires to be restored back to the file of Assessing Officer with a direction to ascertain the facts after giving a reasonable opportunity of ....