2013 (11) TMI 522

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..... The assessee during the period from 1.4.1999 to 31.1.2000 made a payment of US$ 278885.75 to Master Card International which comes to Rs.119.47 lakhs in Indian rupee. The said payment was made without deduction of tax at source. The AO considering the provisions of section 40(a)(i) of the Income-tax Act, disallowed the claim of the assessee. Being aggrieved, assessee filed appeal before the first appellate authority. 5. On behalf of assessee, it was contended that provisions of section 40(a)(i) are not applicable as the amount of licence fee paid to Master Card is not payment of royalty as per section 9(1)(vi) and Article 12 of DTAA agreement. It was further submitted that the activities of Master card are carried out in India. Hence, there is no question of deducting tax. Ld CIT(A) vide para 14 confirmed the action of AO by following the ITAT order in assessee's own case in earlier years. Hence, this appeal by the assessee. 6. At the time of hearing, ld A.R. fairly conceded that above issue is covered against the assessee in assessee's own case for assessment years 1996-97 in I.T.A. No.2223/M/2000 and in A.Y. 1998-99 in I.T.A. No.4579/M/2003 by a common order dated 27.3.20....

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....n the relevant years. In this case, admittedly, no tax has been paid for the year under consideration and therefore we do not feel it necessary to restore the matter. This ground of the assessee is rejected." 7. However, ld A.R. submitted that the payer had paid the taxes and accordingly, deduction should be allowed to the assessee subject to verification. Ld D.R. submitted that no evidences have been filed by the assessee that amount has been paid by the payee and, therefore, order of ld CIT(A) be confirmed. 8. Considering above submissions of ld representatives of parties and the earlier orders of the Tribunal in assessee's own case for assessment years 1996-97, 1998-99 and 1999-2000 (supra) and also in the absence of any evidence on record that payee has paid the taxes on the amount paid by the assessee as fee to Master Card, we do not find any reason to interfere with the order of ld CIT(A). Hence, Ground No.1 of appeal is rejected. 9. Ground Nos.2 & 3 are as under:     "2. On the facts and in the circumstances of the case and in law, the learned AO has erred in disallowing the losses incurred of Rs.17,21,15,970 and the learned CIT (A) has erred in se....

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....he AO to verify the claim of the assessee and allow the claim on the basis of actual payment in respect of taxes paid relating to New York and Tokyo Branch. Hence, assessee is in further appeal before the Tribunal. 14. During the course of hearing, ld A.R. referred to pages 22-34 of PB and submitted that assessee had paid taxes relating to New York and Tokyo Branch and had claimed deduction on the basis of actual payment. He submitted that claim made by the assessee should be allowed. 15. On the other hand, ld D.R. submitted that ld CIT(A) has given direction to the AO to verify the claim and allow the claim on the basis of actual payment in respect of taxes paid relating to assessee's New York and Tokyo Branch and hence, there is no grievance of the assessee. 16. We agree with ld D.R. that assessee should have no grievance against the order of ld CIT(A) as ld CIT(A) has directed the AO to allow claim of the assessee on the basis of actual payment in respect of taxes paid relating to assessee's New York and Tokyo Branch after verification. Hence, Ground No.4 of appeal is rejected. 16. Ground No.5 of appeal reads as under:      "5. On the facts and....

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....enses Exempt Income Exempt Income of Treasury Division Total Income of Treasury Division Expenses apportioned towards Exempt Income 31,368,387 1,098,865,940   19,987,916,145 Expenses apportioned towards Exempt Income = Rs.1,724,525;   19. Ld CIT(A) has stated that he does not agree with assessee that no expenses have been incurred for earning dividend exempt income and interest on tax free bonds. Ld CIT(A) has stated that the disallowance worked out by the assessee of Rs.17,24,525 relating to earning of exempt income is not a reasonable method. He has stated that assessee has not incurred any direct interest expenses and directed the AO to disallow 0.5% of average investment for expenses on account of earning of exempt income and, accordingly, recompute the disallowance to be made. Being aggrieved, assessee is in further appeal before the Tribunal. 20. During the course of hearing, ld A.R. referred ITAT order in assessee's own case for assessment year 1999-2000 I T.A. No. 4580/M/2003 dated 30.11.2010 (supra) and submitted that the Tribunal restored the matter on the above issue to the file of AO with a direction to reexamine the issue to d....

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....sonably said to have been incurred on tax exempt income before making any disallowance u/s.14A of the Act. On perusal of the order of the Tribunal for assessment year 2003-04 (supra), we observe that assessee stated that the disallowance of 0.5% of tax free income would be reasonable. However, assessee also referred the decision dated 29.11.2011 of ITAT Kolkata in I.T.A. No.1625/Kol/2010 in the case of DCIT v. The Diamond Co. Ltd. , wherein, the issue was whether 1% disallowance was justified on the total dividend income and the Tribunal directed the AO to restrict the disallowance of 1% of the exempt income as expenses relating to exempt income. Now the question arises as to whether the disallowance of Rs.17,24,525/- proposed by the assessee as per calculations made at page 16 of the ld CIT(A)'s order and also mentioned hereinabove, is reasonable or the disallowance @ 0.5% of average investment should be disallowed towards expenses on account of earning of exempt income. Since similar issue was considered by the Tribunal in assessee's appeal for assessment year 2003-04 (supra) and the Tribunal restored the matter to the file of AO with a direction that a reasonable disallowance u/....

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....ard International without deducting tax. Hence, AO is justified in disallowing the payments. However, ld CIT(A) has directed the AO to verify the claim of the assessee regarding taxes paid in this year under consideration in respect of earlier years and allow them as per law. Ld A.R. during the course of hearing submitted that requisite details are placed at pages 70-75 of PB. Therefore, there is no question to verify and deduction should be allowed in assessment year itself. However, ld D.R. submitted that there is no discussion on the above issue in the assessment order but ld CIT(A) has given the direction to the AO to allow the claim as per law on verification and there should be no grievance to the assessee on it. 24. We find substance in the submission of ld D.R. that ld CIT(A) has given direction to the AO to allow claim of the assessee per law after verification and, therefore, no interference is called for. Before we part with this ground, we observe that in the statement of facts and also at page 75 of PB, assessee has stated the total amount of Rs.96,18,000 but in the order of ld CIT(A) in para 33 and also in the ground of appeal taken, the amount mentioned is Rs.98,1....