TaxTMI 
TaxTMI 
2014 (10) TMI 870
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....3,183. (iii) Disallowance of ERP Software expenditure at Rs. 16,12,034. (iv) In addition to the above, A.O. also restricted the relief under section 90 to Rs. 13,55,386 as against claim of Rs. 19,58,878. 4. In appeal, Ld. CIT(A) gave relief with reference to addition under section 92CA(4) and disallowance under section 40(a)(ia) while partly allowing the claim of software expenditure. He rejected the contention on the relief claimed under section 90. Hence, both Revenue and Assessee are in appeal. The issues are decided as under. ITA.No.1140/Hyd/2013 - Revenue Appeal. 5. In the Revenue appeal, the Revenue has raised 5 grounds, out of which, grounds No. 1 and 5 are general in nature. 5.1 Ground No.2 pertains to the deletion of addition made under section 40(a)(ia). Assessee claimed usance interest to the above extent paid on imported raw materials. Assessee gets material by opening LCs on which credit period of 60 to 180 days are available. In case of delay of payment for the material or release of the material, assessee pays interest to the foreign suppliers. It was the contention of the A.O. that usance interest is nothing but interest which is covered by the provisions of s....
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....d 22nd July, 2011 vide paras 39 to 41 which is as under : "39. We have heard both the parties on this issue and perused the material on record. The issue before us is whether the assessee is liable to deduct tax at source on the usance interest u/s. 195 of the I.T. Act on the credit availed by it for purchasing from a non-resident under Letter of Credit opened in favour of the nonresident. This issue came for consideration in the case of Vijay Ship Breaking Corporation vs. DCIT (86 ITD 497) (Rajkot) where the Tribunal decided the issue in favour of the assessee and held that usance interest did not all within the term of "interest" as given in section 2(28A) and it will take character of purchase price and, therefore, assessee was not liable to deduct tax at soured from the said payment of interest and hence disallowance of interest made u/s. 40(a)(i) was not attracted. However, this view was reversed by Gujarat High Court in the case of CIT vs. Vijay Ship Breaking Corporation (supra) and held that the usance interest paid by the assessee was chargeable under the provisions of the I.T. act, 1961 and since the assessee was responsible of paying to non-resident, they were liable to ....
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....le "industrial or commercial income" of the foreign enterprise was not taxable in India, the rents, royalties, interest, dividends, etc., derived by the foreign enterprise from sources in India were taxable. The items, rents, royalties, dividends, etc., were taxable only if they satisfied he conditions mentioned for their liability to tax as envisaged in the various specific articles, Art. VIII referred to taxability of interest in India. Interest would be taxable if it arose out of indebtedness. The words "any other form of indebtedness" from sources in the other territory could only mean interest arising or accruing as a separate "source" of income. It would not include interest payable on the unpaid purchase money agreed to be part of the sale consideration. There was nothing in the initial contract by way of novation converting the balance of consideration into a loan. Hence, the interest received by the seller cannot be regarded as interest on money lent notwithstanding the nomenclature adopted by the parties. The assessee was immune from liability either wholly or partly to income-tax in view of the provisions of the Double Taxation Avoidance Agreement between the Federal Rep....
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....e by stating as under : "5.3 In the course of the appellate proceedings, the AR relied on the following decisions: (i) Four Soft Ltd v DCIT [2012] 16 ITR (Trib) 73 (Hyd) (ii) Siva Industries & Holdings Ltd v ACIT [2011] 59 DTR 182 (Chennai) 5.4 In the case of Siva industries, the ITAT held as follows: "Once the transaction between the assessee and the AE is in foreign currency and the transaction is an international transaction, then the transaction would have to be looked upon by applying the commercial principles in regard to international transaction. If this is so, then the domestic prime lending rate would have no applicability and the international rate fixed being LlBOR would come into play. In the circumstances, we are of the view that it is LIBOR rate which has to be considered while determining the arm's length interest rate in respect of the transaction between the assessee and the AEs. 5.5. This decision was also followed in the case of Tech Mahindra 46 SOT 141 (Mum)(URO). 5.6. The jurisdictional ITAT has taken the same view in the case of Four Soft Ltd. The assessee had given a loan to its subsidiary in Netherlands. The TPO determined the arm's len....
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....dia has to be adopted as the rates in India cannot be compared while loans are obtained abroad, even though funds are flown from India. What is required to be seen is whether the transaction is at arms length or not. Since, the international loan rates are based on LIBOR, we do not see any reason for differing from the Ld. CIT(A) order, which itself based on Coordinate Bench decisions that LIBOR plus basis points is at arm's length. Accordingly, Revenue ground No.3 is dismissed. 12. Ground No.4 raised by the Revenue is with reference to allowance of expenditure incurred by assessee for implementing ERP at Haridwar Division as revenue. Assessee incurred expenditure of Rs. 29,30,908 towards implementing ERP. A.O. treated the amount as capital in nature and after allowing depreciation, the net disallowance was arrived at Rs. 16,12,034. It was submitted before the Ld. CIT(A) that software expenses of Rs. 1,80,000 was towards professional charges in the nature of fee paid to professionals for services rendered in respect of ERP software and the license fee for ERP package was about Rs. 27,50,908. Ld. CIT(A) after examining the invoices furnished by assessee decided the issue in favour ....
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.... 5,04,082. How the Ld. CIT(A) has arrived at Rs. 4,94,767 could not be ascertained. Be that as it may, consistent with his stand that license and maintenance fee are revenue expenditure, the amount of Rs. 3,95,732 and Rs. 85,418 are required to be allowed as revenue expenditure. That leaves us software cost of Rs. 22,932 and at best, this amount only can be considered as capital expenditure in nature. A.O. is directed to restrict the amount to that and allow applicable depreciation. The balance of the amount is to be allowed as revenue in nature. Assessee's ground No.2 is partly allowed. 16. In Ground No.3 assessee is contesting the action of the A.O. in restricting relief under section 90 to an amount of Rs. 13,55,386 as against Rs. 19,58,878 claimed by assessee. 17. Assessee had incurred tax liability of Rs. 19,58,878 in Brazil on the interest of Rs. 1,30,59,184 earned from its wholly owned subsidiary, Vijai Electrical Do Brazil Ltda. The subsidiary had deducted withholding tax of $ 58566.96, which as per the conversion rate as on 31.3.2008 amounted to Rs. 13,55,386. However, as assessee was liable to pay Rs. 19,58,878, it claimed benefit for this sum. The Assessing Officer hel....
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....interest. What is of immediate relevance to the issue in appeal is Article 23 which provides that the first mentioned State, India in the present case, shall allow as a deduction from income tax an amount equal to 'the tax paid' in that other State, i.e. Brazil. In other words, the deduction permitted under the DTAA is the amount of tax 'paid' and not 'payable' in Brazil. 7.5. Such an interpretation is also in consonance with the common sense interpretation of the intention of the DTAA to avoid hardship due to the requirement to pay tax in both countries. There would be no point in allowing deduction of amounts that are merely payable in Brazil but which may remain unpaid by a hypothetical recalcitrant tax payer. 7.6. The AR has also filed a copy of the Law No.4131 of 3.9.1962 of the Central bank of Brazil. A perusal of this document which deals with the Regulation of the Application of Foreign Capital and Remittances Abroad and Other Measures, does not contain any provision that may be relevant to the facts and issue in this appeal. The AR has also not explained how this law is relevant nor how it may be treated to be superseding the DTAA. 7.7. Since the....