2015 (5) TMI 745

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....enue. 3. The learned CIT erred in law in holding that additions made us 92CA(3) should not be set off against current year's business loss as was done by the learned A.O. The learned CIT failed to appreciate that view taken by the learned A.O. was one of the possible views and hence provisions of section 263 cannot be invoked qua this issue following Hon'ble Supreme Court decision in the case of Malabar Industrial Co. Ltd. 243 ITR 83. 4. The learned CIT also erred in applying provisions of section 263 of the Act to the disallowance us40(a)(i) when learned A.O. had taken a possible view under the provisions of the law. 5. The Learned CIT invoked provisions us 263 and passed order us 263 based on incorrect observations and without appreciating the contentions raised by the assessee. 6. The learned CIT erred in law and on fact in not appreciating the judicial precedents, which held that no surcharge and cess should be added to withholding tax rates provided us 195 in view of DTAA between India and respective countries. 7. Without prejudice to foregoing, even on merits of the case the appellant has withheld appropriate tax under section 195 of the Act, on the man....

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....f management charges of Rs. 3,64,61,642- us. 195 of the Act. As against this, TDS of Rs. 28,53,891- was only deducted. This resulted in short deduction of TDS of Rs. 33,42,765- us. 195 attracting the provisions of 40(a)(ia) of the Act. In view of this, the proportionate amount of Rs. 1,96,69,109- was required to be disallowed us. 40(a)(i) and added back to the total income. This being not done resulted into underassessment of Rs. 1,96,69,109-." 2.2. The vehement objection of the assessee was that there is no such provision in the IT Act to compute the income as suggested vide order us. 92CA(3) independently, without considering the other provisions of the Act. The assesse has also objected about the proposed revision in the said show cause notice in respect of the short deduction of TDS. Ld. Commissioner was of the view that the order of the AO was prejudicial to the interest of the revenue hence held as under- "3.1 Set-off of Arm's Length price against brought forward losses The Assessing Officer has allowed the additions made on account of arms' length price computed us 92CA(3) to be set off against brought forward bases. He has not examined that since determining of ar....

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....nature of payment on which TDS was deducted. This is not the case where the AO has not applied his mind. In respect of the proposed direction of Ld. Commissioner, Ld. AR has drawn our attention on an order of DRP passed us. 144C(5) of IT Act, dated 09-12-2011 wherein it was directed as under- "19.2 We do not find any support in law for the AO's view. Section 92CA(3) is only a procedural section-lays down how income arising from international transactions should be computed- it neither changes the nature of income nor creates any new head of chargeable income under the Act. Hence we agree with the assessee and direct the AO to allow the benefit of set offcarry forward of losses as per the regular provisions of the Act." Ld. AR has therefore pleaded that even in the subsequent year a higher authority of the revenue department has discarded the view as taken by the Ld. Commissioner in the impugned order passed us. 263 of IT Act. About the short deduction of TDS, Ld. AR has pleaded that all the relevant facts and informations were very much before the AO wherein it was informed that the assessee suo moto has deducted the tax on the eligible amount but on the balance amount deducted ....

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.... cannot exceed 15 per cent and 10 per cent respectively. The expression 'tax' is defined in article', 2(I) to include 'income-lax' and is stated to include 'surcharge' thereon, so far as India is concerned Article 2(2) further extends the scope of the 'tax' by laying down that it shall also cover 'any identical or substantially similar taxes which are imposed by either contracting State after the date of signature of the present agreement in addition to, or in place of, the taxes referred to in paragraph 1' [Para 6] The education cess, as introduced in India initially in year 2004, was nothing but in the nature of a additional surcharge. It was described as such in the Finance Act introducing the said cess. [Para 8] Article 2(1) of the applicable tax treaty provides that the taxes covered shall include tax and surcharge thereon. Once one comes to conclusion that education is nothing but an additional surcharge, it is only corollary thereto that the education cess will also be covered by the scope of article 2. Accordingly, provisions of articles 11 and 12 must find precedence over the provisions of the Income-tax Act and restrict the taxab....