TaxTMI 
TaxTMI 
2018 (5) TMI 1853
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....sociated Enterprise (AE) as international transaction and Dispute Resolution Panel (hereinafter referred to as "Ld, Panel") erred in confirming the same as an international transaction without appreciating the fact that it does not fall within the ambit of "International transaction" u/s 92B of the Act. 1.2 The Ld.AO/TPO and the Ld. Panel failed to appreciate the fact that corporate guarantee has been advanced by the appellant as a matter of commercial prudence to protect the business interest of the group by fulfilling the shareholder's obligation as any financial incapacitation would jeopardize the investment of the appellant. 1.3 Without prejudice to the above, the Ld. AO /TPO and Ld. Panel failed to appreciate the corporate guarantee extended by the appellant is part and parcel of the management agreement entered into with the AE and therefore, the Ld. AO/TPO erred in demanding an additional charge on the corporate guarantee and Ld. Panel in confirming the same. 1.4 Without prejudice to the above, the Ld. Panel erred in arbitrarily confirming the arm's length guarantee commission rate of 3%, when a nominal guarantee commission rate of 0.3%-0.5....
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....he year; - strategic investments made in subsidiaries/ group companies out of business exigencies and consequently erred in confirming the disallowance of Rs. 3,51,52,181/- in the present case. 3.6 On the facts and in the circumstances of the case& in law and without prejudice to grounds taken here-in-above, the Ld. Panel as well as the Ld. AO grossly erred in ignoring the decision of Kolkata Tribunal in the appellant's own case in DCIT -vs- EIH Limited (2015) I.T.A. No. 426/Ko1/2006 and disallowing proportionate interest cost under Section 14A read with Rule 8D(2)(ii) without appreciating that various investments on which exempt income was earned were made in past years out of own/surplus funds and no evidence was brought to prove any nexus between the borrowed funds and the amount invested. 3*7 On the facts and in the circumstances of the case & in law and without prejudice to grounds take herein above, the Ld. Panel as well as the Ld. AO erred in not allowing netting off of interest expenditure with interest income while computing disallowance of proportionate interest cost under Section 14A read with Rule 8D(2)(ii). 4.0 Disallowance of pr....
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....s per section 50(1) of the Act. 6.2 On the facts and in the circumstances of the case & in law, the Ld. Panel while confirming the action of Ld. AO in denying set-off u/s 74 failed to appreciate that Section 50 being a deeming provision its scope extended only up to computation of capital gain, however such gain arising from transfer of long term capital assets, retained the character of long term capital gain for all other provisions and is eligible for set off u/s 74 against brought forward loss from long term capital asset. 6.3 On the facts and in the circumstances of the case & in law, the Ld. Panel while confirming the action of Ld. AO grossly erred in not applying the ratio decidendi laid down in the decision of the Supreme Court in the case of CIT - vs.- Dempo Company Limited [Civil Appeal No. 4797/2008 - SC] applicable in the case of the appellant. 7.0 Disallowance u/s 40(a)(i) of the Act 7.1 On facts and in the circumstances of the case& in law, the Ld. AO while giving effect to the direction of the Ld. Panel erred in confirming the disallowance u/s 40(a)(i) of the Act of Rs. 5,30,91,623/- for alleged non deduction of tax u/s 195. ....
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....ve, in any event, the Hon'ble ITAT may please consider and allow the claim of the appellant made on account of provision for bad and doubtful debts written back of Rs. 51,77,916/- on the principle laid down by the Hon'ble Supreme Court of India in the case of National Thermal Power Corporation Limited (Supra). 10.0 Short grant of credit for tax deducted at source and tax collected at source 10.1 On the facts and in the circumstances of the case, Ld. AO erred in not granting TDS/TCS credit to the extent of Rs. 1,18,60,966/- without assigning any reasons. 11.0 Dividend Distribution Tax 11.1 On the facts and in the circumstances of the case, the Ld. AO erred in calculating Dividend Distribution Tax on gross dividend of Rs. 51,44,12,473/- without excluding dividend received from subsidiary companies exempt u/s 1150(1A) of the Act amounting to Rs. 7,43,40,000/- 12.0 MAT credit set off 12.1 On the facts and in the circumstances of the case, the Ld. AO erred in not granting set off of MAT credit brought forward from AY 2011-12 without assigning any reasons. 13.0 That the appellant craves leave to add to and to alter, a....
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.... been decided in favour of assessee by this Tribunal in its own case in ITA No. 110/Kol/2016 for the AY 2011-12 vide order dated 12.1.2018. The relevant extract of the order is reproduced below : "12.10. We note that M/s. EIH flight is a startup company, it required funds primarily for acquisition of capital assets for setting up its operation and guarantee facilities given by the assessee/assessee company to the lender bank is normal business practice and obligation towards a subsidiary. Since the AE was a startup company, the assessee extended corporate guarantee to the third party borrowers as a matter of commercial prudence to protect its interest by fulfilling the shareholders obligation. We agree with the contention of the ld AR that the corporate guarantee as provided by the assessee was a matter of commercial prudence to protect and by fulfilling the shareholder obligation, as any financial incapacitation of the subsidiary would jeopardize the investment of the assessee. For that we rely on the order of the Coordinate Bench of this Tribunal in the case of Tega Industries Ltd. Vs DCIT (ITA No.1912/Kol/2012 wherein it was held that the provision of corporate guarante....
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.... purchase, sale or lease of tangible or intangible property (explained by clauses (a) and (b) of the Explanation), or provision of services, (explained by clause (d) of the Explanation), or lending or borrowing money (explained by Clause (c) of Explanation). The plain reading of provisions of sec. 92B(1) of the Act indicate that the various transactions mentioned in section 92B(1) of the Act, (i.e. purchases, sales, provision for services, lending or borrowing or any other transaction) should have bearing on the profits, incomes, losses or assets of such enterprises. In our opinion, the condition precedent of a transaction having a bearing on profits, incomes, losses, or assets would apply to each of the aforesaid transactions namely purchase, sale, or lease of tangible or intangible property or provision of services, or lending or borrowing money or any such transaction. This understanding of ours gets further clarified by way of insertion of Explanation in section 92B(1) by the Finance Act 2012 with retrospective effect from 01.04.2002 vide clause (a) to (d). We find that in the said explanation, clause (e) alone has been carved out as an exception wherein, the transaction thereo....
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....uarantee is inherently within the ambit of definition of 'international transaction' irrespective of whether or not such transactions have any "bearing on profits, income, lossess or assets of such enterprises" u/s. 92B of the Act. We also note that the Ahmedabad Bench of this Tribunal supra after considering the decision of the Hon'ble Bombay High Court in Everest Kanto Cylinder Ltd. (supra) observed as under: "We are unable to see, in the judgment of Hon'ble Bombay High Court, any support to the proposition that issuance of corporate guarantee is inherently within the ambit of definition of 'international transaction' under section 92B irrespective of whether or not such transactions have any 'bearing on profits' incomes, losses, or assets of such enterprises'. Revenue, therefore, does not derive any help from the said decision." 12.14. The ld CIT DR would have had a case where a fee has been charged for the intra service which has been rendered (in the context of corporate guarantee), and, therefore, the assessee or the Court has treated it as an international transaction, then the charge of corporate guarantee has to be in accordance with Arm's Length prin....
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....contention of assessee and considered the transaction entered between the assessee and EIH Flight as an international transaction. Accordingly the TPO was of the view that the assessee should have earned an arm's length interest rate from its AE for this transaction. Thus the TPO used the LIBOR rate plus 400 bps to determine the interest amount on the loan provided to the AE. The average LIBOR for the year under consideration was worked out at 0.9211% only. Thus the cost of funds comes to 4.92% (0.92%+4%) and accordingly ARM length interest was computed at 8.92% (4.92%+400bps). Thus the TPO worked out the arm length of interest amount for the opening balance of loan amount @ 17.75% and for the fresh loan given during the year @ 8.92% which comes in aggregate to Rs. 3,32,83,015.00. Accordingly the TPO worked out transfer pricing adjustment amounting to INR 3,32,83,015.00 only. 8. Aggrieved by the order of the TPO, the assessee filed objections before the Ld. DRP. The ld DRP confirmed the order of the ld TPO and held that interest free loan provided its AE was not in the nature of shareholder activity. Therefore the assessee was entitled for the interest on the amount of lo....
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.... Ground 1 raised by the revenue is dismissed." Respectfully following the same we restore the issue to the file of TPO/AO for the fresh adjudication according to law and in the light of above stated discussion. Thus the ground of appeal of the assessee is allowed for statistical purposes. 11. Next issue raised by assessee in this appeal is that Ld. DRP erred in confirming the order of AO by sustaining the disallowance of Rs.3,51,52,181/- u/s. 14A r.w.s. Rule 8D of the Income Tax Rule, 1962. 12. The assessee during the year has earned dividend income of Rs.19,07,36,227/- which was claimed exempted u/s 10(34) of the Act. The assessee in relation to such income has suo motu disallowed the expense of Rs.29,20,022/- only. The details of disallowance made by the assessee at its own in relation to dividend income stand as under:- Sl.No. Particulars Amount 1. Demat charges 496/- 2. 10% of directors fees 76,000/- 3. 5% of H.O staff maintenance expense Engaged in the maintenance accounts 5,45,463/- 4. 7% travelling, conveyance, printing, postage General charges etc. 22,98,063/- However, AO during the course of assessment pr....
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....ee that would beer taxable returns. Either way the statute intends to lower the tax advantage conferred on the assessee where the expense on earning exempt income are directly or indirectly loaded on to the taxable income to lower the tax burden thereof. There are various decisions of Delhi ITAT and other authorities of more recent judgments wherein these aspects have been covered: i) (2014) 47 taxman.com 237 (*Del-Trib.) in the case of GEBR Pfeiffer (I) Pvt. Ltd. ii) (2014) 49 taxmann.com 527 (Delhi-Trib.) in the case of East West Rescue (P) Ltd. vs. DCIT, Circle-3(1), New Delhi iii) (2014) 50 taxman.com 271 (Delhi-Trib) in the case of Joint Investment Pvt. Ltd. vs. ACIT Circle-4(1) the above citations enumerate circumstances on invoking rule 8D while making disallowances u/s. 14A and are clearly to be applied in case of the appellant. Besides, the elaborate submissions made about own funds being used do not further the case of the appellant as the appellant has availed of loans. The contention of the assessee is accordingly not tenable as the funds available for specific purposes have to be used as such and absence of relevant corroborative evi....
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.... investments made in subsidiary companies would have to be reckoned as strategic investments and hence the same should be excluded while working out the disallowance under Rule 8D(2)(iii) of the Rules. Similarly, the investments which had yielded dividend income alone, are to be considered while working out the disallowance under Rule 8D(2)(iii) of the Rules as has been held by the decision of this tribunal in the case of REI Agro Ltd reported in 144 ITD 141. But we find that if the disallowance made under second limb of Rule 8D(2) of the Rules is deleted, then the disallowance made by the ld AO would remain at Rs. 23,77,882/- and whereas the assessee itself had voluntarily disallowed Rs. 42,48,850/-. Hence we direct the ld AO to adopt the disallowance figure of Rs. 42,48,850/- which had already been disallowed by the assessee and hence no further disallowance in that regard is to be made." Respectfully following the same, we reverse the order of DRP and direct the AO to delete the same. Hence this ground of appeal of the assessee is allowed. 16. Next issue raise by assessee in ground No.4 is that Ld. DRP erred in confirming the disallowance made by the AO for Rs.8,85,6....
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.... way of asset acquisition. Basis above, the AO has concluded- 'Thus, keeping in view the aforesaid leasing arrangement between the assessee and M/s Orix and L&T, the action of the assessee regarding capitalization of the concerned assets in the balance sheet and in view of the decision of the Hon'ble Tribunal cited supra, it is quite clear that the principal repayment of the lease rental is nothing but payment of cost of purchase in installment and has to be treated as a capital expenditure that the leased assets are not capitalized for income tax depreciation purposes by the assessee is not good enough a reason for not treating the principal repayment in the instant case as a capital expenditure. It is quite evident that under a mutual understanding the lessor has already claimed income tax depreciation on the impugned assets. "in the light of the above discussions, it is held that the principal repayment of Rs. 8,85,68,539/- is a capital expenditure in the hand of the assessee and is hence disallowed for deduction. A sum of Rs. 8,85,68,539/- is thus, added back in computing the income of the assessee.' The directions in the earlier period being for ....
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....re purchase as per Circular No. 9/1943 No. 9 [R.Dis.No. 27(4)-IT/43] dated 23.3.1943, since the terms of the agreement does not provide that the equipments shall eventually become the property of the hirer or confer on the hirer an option to purchase the equipments. We hold that merely because the lease arrangement has been considered as finance lease for the purpose of AS 19, that itself does not render the lessee (assessee herein) as the owner of asset for IT Act for claiming depreciation. We find that AS 19 provides for various situations in order to decide as to whether the lease can be considered as finance lease or operating lease for the limited purpose of such AS 19. We find that the assessee had duly complied with the Circulars laid down in this regard more so when the CBDT has itself clarified vide Circular No. 2/2001 dated 9.2.2001 that the AS 19 will have no implication on the allowance of depreciation on assets under the provisions of IT Act. It is well settled that the CBDT Circulars are binding on the revenue. As per this Circular No. 2/2001 dated 9.2.2001, in a lease transaction, the owner of the assets is entitled to depreciation. In the instant case, the lessor (O....
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....tion in respect of additions made to the trucks, which were leased out. (v) That for purposes of the assessee's claim to the higher rate of depreciation, the interpretation of the term "purposes of business", used in second proviso to section 32(1) of the Act would not be any different from that ascribed to it under section 32(1) of the Act. Therefore, the assessee fulfilled even the requirements for a claim of a higher rate of depreciation and was entitled thereto." Though this decision has been rendered on the allowability of depreciation on leased assets from the angle of the lessor, the principle laid down could be made very much applicable to the facts of the instant case for allowability of lease rentals in the hands of the assessee (lessee). We also find that the issue is squarely covered by the decision of the Hon'ble Rajasthan High Court (Jaipur Bench) in the case of Rajshree Roadways vs Union of India & Ors reported in (2003) 263 ITR 206 (Raj) wherein it was held that :- Held, that under the agreement there was a clause that after completion of lease period, if one per cent. of the total consideration of the trucks was paid, the les....
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....s of Rs.2,06,28,623/- towards running, repairs, maintenance of two aircrafts. The assessee also claimed depreciation for Rs.3,26,93,476/- only in respect of aircrafts. However, AO held that 10% of such expenses are not connected with the business of the assessee. Accordingly, he made the disallowance of Rs.53,32,210/- including the depreciation for 10% of total expenditure and added to the total income of assessee. 24. Aggrieved, assessee preferred an appeal before Ld. DRP who confirmed the order of AE by observing as under :- "DRP directions: The element of personal or non-business usage cannot be ruled out. The precedents are there in case of the assessee. The panel declines to interfere on this count and the objection is accordingly dismissed." Being aggrieved by this order of Ld. DRP assessee is in second appeal before us. 25. Ld. AR for the assessee reiterated the same arguments that were placed before Ld. DRP whereas Ld. DR for the Revenue vehemently relied on the order of Authorities Below. 26. We have heard the rival contentions of both the parties and perused the material available on record. At the outset, we find that same issue has already ....
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....rtionate or otherwise, on the same. Hence the provisions of section 38(2) of the Act are not at all applicable to the facts of the instant case. We also find that similar issue had cropped up for the Asst Years 2007-08 to 2009-10 in assessee's own case ITA Nos. 1431/1557/Kol/2011 ; ITA Nos. 932 & 866/Kol/2012 and ITA Nos. 352& 191/Kol/2013 respectively wherein it was held that :- 3.3. We have heard the rival submissions and perused the materials available on record. We find that this issue is squarely conveyed by the decision of the co-ordinate bench of this tribunal in assessee's own case for Asst Year 2006-07 in ITA No. 314 & 318/Kol/2011 dated 1.6.2016 wherein it was held that :- 9.1. We have heard the rival submissions and perused the materials available on record. We find that this issue is squarely covered in assessee's own case for the Asst Years 2003-04, 2004-05 & 2005-06 in ITA No. 57/Kol/2007 ; 1846/Kol/2007 and 299/Kol/2010 dated 9.12.2015 respectively, wherein it was held that :- 6.3. We have heard the rival submissions and perused the materials available on record. We find that this issue is squarely covered by the decision of the co-ordinate....
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.... CIT vs Daulat Ram Rawatmull (1973) 87 ITR 349 (SC) Sukhdayal Rambilas vs CIT (1982) 136 ITR 414 Madura Knitting Co vs CIT (1956) 30 ITR 764 (Mad) In view of the aforesaid facts and circumstances and respectfully following the judicial precedents thereon, we have no hesitation in deleting the addition made in the sum of Rs. 42,80,883/- on an estimated basis. Accordingly, the Ground No. 4 raised by the assessee is allowed. In view of the aforesaid facts of the case and respectfully following the co-ordinate bench decision (supra), we hold that no addition need to be made on an estimated basis towards running and maintenance of aircrafts. Accordingly, the ground nos. 6 & 7 raised by the assessee are allowed. 3.4. Respectfully following the said decision, we hold that no addition could be made on an estimated basis towards running and maintenance of aircrafts. Accordingly, the grounds raised by the assessee in this regard for various assessment years are allowed and grounds raised by the revenue in this regard are dismissed. 4.2. Respectfully following the aforesaid decision, we hold that no disallowance could be made on an est....
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....respect of which depreciation has been allowed under this Act or under the Indian Income-tax Act, 1922 (11 of 1922), the provisions of sections 48 and 49 shall be subject to the following modifications:- (1) where the full value of the consideration received or accruing as a result of the transfer of the asst together with the full value of such consideration received or accruing as a result of the transfer of any other capital asset falling within the block of the assets during the previous year, exceeds the aggregate of the following amounts, namely:- (i) expenditure incurred wholly and exclusively in connections with such transfer or transfers; (ii) the written down value of the block of assets at the beginning of the previous year; and (iii) the actual cost of any asset falling within the block of assets acquired during the previous year, Such excess shall be deemed to be the capital gains arising from the transfer of short-term capital asset; (2) where any block of assets cease to exist as such, for the reason that all the assets ins that block are transferred during the previous year, the cost of acquisition of the block of assets ....
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.... the relevant extract of this order is reproduced below:- "5.1. We have heard the rival submissions and perused the materials available on record. It is not in dispute that the asset that was the subject matter of transfer was a residential property which was held by the assessee for a period exceeding 36 months. Hence the asset held was a long term capital asset in the hands of the assessee. It is not in dispute that the assessee had claimed depreciation on the said property in the returns of earlier years and hence becomes depreciable asset. We hold that merely because the depreciable asset has been sold and the sale consideration received thereon exceeds the written down value of such asset, the character of the asset (i.e being a long term capital asset) does not undergo any change. May be, it would be eligible to taxed in terms of deeming fiction u/s 50 of the Act as short term capital gains on sale of depreciable assets. We hold that the deeming fiction created by section 50 of the Act that the capital gain arising on transfer of a depreciable asset shall be treated as capital gain arising on transfer of short term capital asset is only for the purpose of sections 48....
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....e case of CIT v. ACE Builders (P.) Ltd. [2006] 281 ITR 210/[2005]144 Taxman 855 (Born.). The High Court has observed that Section 50 of the Act which is a special provision for computing the capital gains in the case of depreciable assets is not only restricted for the purposes of Section 48 or Section 49 of the Act as specifically stated therein and the said fiction created in sub-section (l) & (2) of Section 50 has limited application only in the context of mode of computation of capital gains contained in Sections 48 and 49 and would have nothing to do with the exemption that is provided in a totally different provision i.e. Section 54E of the Act. Section 48 deals with the mode of computation and Section 49 relates to cost with reference to certain mode of acquisition. This aspect is analysed in the judgment of the Bombay High Court in the case of ACE Builders (P.) Ltd. (supra) in the following manner: "In our opinion, the assessee cannot be denied exemption under Section 54E, because, firstly, there is nothing in Section 50 to suggest that the fiction created in Section 50 is not only restricted to Sections 48 and 49 but also applies to other provisions. On the contra....
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....appeal has been filed. 5. In view of the foregoing, we do not find any merit in the instant appeal which is, accordingly, dismissed." 5.2. We find that the reliance placed by the ld AR on the decision of Hon'ble Bombay High Court in the case of CIT vs Manali Investment reported in (2013) 219 Taxman 113 (Bom) wherein it was held that short term capital gain computed u/s 50 of the Act on long term depreciable assets can be set off against long term capital loss u/s 74 of the Act. 5.3. Respectfully following the decisions of the Hon'ble Supreme Court and Hon'ble Bombay High Court supra, we hold that the assessee is indeed entitled to set off the brought forward long term capital loss of Rs. 9,77,54,843/- against the deemed short term capital gain of Rs. 7,18,74,000/- in the facts of the case. The ld AO is accordingly directed to give benefit of the same to the assessee based on the correctness of the claim of brought forward loss figure made by the assessee. Accordingly, the Ground Nos. 5.1 & 5.2 raised by the assessee are allowed for statistical purposes as directed above." Respectfully following the proposition laid down in the decision of this coordina....
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....r of making technology available hence these could not be taxed. The AO also could not tax them under article 5 on account of absence of PE or under article 7 also there was no other details field to substantiate the contention of the assessee. The Ld. AR stated that certain agreements/material was filed before the AO in connection with the above remittances. In this context, it was merely submitted before the panel that all these operations were carried out outside India, in accordance with clause (a) of Explanation 1 to Section 9(1)(i), the various remittances cannot be considered to accrue or arise in India hence not chargeable to tax in India under Section 9(1)(i) of the Act. AO will examine the nature of such remittances within time frame available and only such proceeds which fall within the relevant taxation statute u/s. 9 r/w 195 along with concerned treaty shall be brought to tax. The objection is thus disposed of." Aggrieved by this the assessee has come up in appeal before us. 35. Before us Ld. AR for the assessee reiterated the same arguments that were placed before Ld. DRP whereas Ld. DR for the Revenue vehemently relied on the order of lower authorities and requ....
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.... Annexure-10 Recruitment Charges Annexure-11 Management Fees Annexure-12 Aircraft repair & Maintenance Annexure-13 Professional/Consultancy Annexure-14 Marketing and development 6.3. Advertisement in Magazines / Website Listing The assessee explained that magazines are printed outside India and / or the Websites are listed outside India. The assessee being in the luxury hospitality, its business heavily depends on clients from the western world. Consequently, as in the past it spent a considerable sum of money on advertisements both in the print and web media. As already explained in the past years, such advertisements are printed mostly in USA and some in the UK etc. The servers of the web are also located outside India. As already explained, the target for the advertisements are the foreign tourists. Hence, in those cases, what is ensured is that these foreign advertisements are circulated in the US/ Canada and in UK and European Countries. Accordingly, the payments do not attract tax withhol....
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....nagement Fees Management fees is paid to the Thai SPA management firm. For argument sake, even if the payment is considered taxable in India under the domestic law, the same is not taxable in India under the India Thailand tax treaty. As mentioned earlier, the Thai treaty does not have any exclusive FTS clause. Hence in the absence of any PE in India, these payments made to the service providers do not call for any TDS. 6.8. Marketing & Development Payments are made to the tax residents of USA / Mauritius. While USA has 'make available' clause in the 'Included Services Article' , Mauritius does not have any exclusive FTS clause. In view of the above, no tax withholding is called for. 6.9. Apart from this, the assessee had given an exclusive submission before the ld AO vide letter dated 19.11.2015 with regard to non-applicability of withholding tax under domestic law as well as DTAA of the respective countries for each of the aforesaid expenditure as under:- 1. Advertisements in magazines and web site listing The assessee being in the luxury hospitality, its business heavily depends on clients for the western world. Consequently,....
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....account of advertisement outside India should not be taxable in India as per the provisions of section 9(1)(vii) of the Income tax Act, since earning through advertisement are not in nature of "managerial, technical or consultancy services. In my view the income at best can be considered as business profits in the hands of the payees. However, in absence of Permanent Establishment of the payees in India, the amount would not be taxable in India. Since the income was not taxable in India, there was no obligation on part of the appellant to withhold tax on such payments. Thus, in the instant case, the provisions of section 40(a)(ia) do not apply." (A copy of CIT(A) order for A.Y.2006-07 is attached as Annexure 15) Further, Reliance in this connection is placed on the decision of SHERATON INTERNATIONAL INC vs DEPUTY DIRECTOR OF INCOME-TAX reported in (2007) 293 ITR (A.T.) 68 (ITAT)(Del). The Delhi IT AT held as follows: Held, (i) that the payments in question made for rendering the services in question could be said to have accrued or arisen in India by invoking the deeming provisions of section' only if the sum was payable by the Indian hotels or client....
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....e job undertaken by it as an integrated business arrangement to provide the services relating to advertising , publicity and sales promotion including reservations of the Indian Hotels worldwide in mutual interest could not be considered in isolation to say that part of the consideration received by the assessee was in the nature of "royalties" or "fees for technical services" defined in Explanation 2 to Section 9(1)(vi) or to Section 9(1)(vii) or of "royalties" or "fees for included services" as defined in article 12(3) and 12(4) of the DTAA between India and the U.S.A. In view of the above, it is submitted that the services provided by the foreign residents in relation to advertisement is not covered within the scope of royalties or fees for technical services under section 9(1)(vi) or 9(1)(vii) of the Income Tax Act. a) India - Australia DTAA In Australia DTAA, fees for technical services (FTS) is defined within the definition of royalty. The DTAA define~ FTS as follows: "the rendering of any services (including those of technical or other personnel), which make available technical knowledge, experience, skill, know-how or processes or consist....
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....t enable the service provider to apply the technology contained therein. Reliance in this connection is placed on decision of ITAT Delhi in case of Sherator International Inc Vs. Deputy Director of Income-tax reported in (2007) 293 ITR (A. T.) 68 (ITAT) (Del). c) UK - Article -13 The concerned services are not covered within the scope of 'fees for technical services' as defined in the Article 13(5) for the following reasons: . * Such services do not involve rendering of any technical or consultancy services; * Such services are not ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment is received by the vendor. It is understood that, in order for a service to be considered "ancillary and subsidiary" to-the application or enjoyment of some right, property, or information for which a payment is received, the service must be related to the application or enjoyment of the right, property, or information. * Such services are not ancillary and subsidiary to the enjoyment of any property; * Do not make available technical knowledge, experience, skill....
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....e would remain included under Article :- The amount falls under Article 7 as 'Business profits' and is hence not chargeable to tax because of the absence of any PE in India. In this connection, reliance is placed on the decision of Hon'ble Mumbai ITAT in case of McKinsey & Company (Thailand) Co. Ltd Vs Deputy Director of Income-tax (International Taxation) 4(1), Mumbai in IT APPEAL NO. 7624 (MUM.) OF 2010 f) Belgium - Article 12 read with protocol of the DTAA As per Article 12(3)(b), the term "fees for technical services" means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature, including the provision of services of technical or other personnel Further. the protocol to the DTAA provides that if under any Convention or Agreement between India and a third State being a member or the OECD which enters into force after 1st January, 1990, India limits its taxation on royalties or fees for technical services to a rate lower or a scope more restricted than the rate or scope provided for in the present Agreement on the said items of income, the same rate or scope as provided for in that Convention....
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....ements. Reliance in this connection is placed on the decision of Mumbai ITAT in the case of DDIT vs IATA BSP India reported in TS-367-ITAT-2014(Mum). The Hon'ble tribunal held as follows: * As per clause 7 of the Protocol in the India-France tax treaty, if under any convention, agreement or Protocol signed after 1st September 1989 between India and a third state which is a member of the OECD, India limits its taxation at source inter alia on FTS to a rate lower or a scope more restricted than the rate or scope provided for in the India- France tax treaty, the same scope as provided for in that convention, agreement or Protocol on the said items of income shall also apply under the India- France tax treaty. * On 12 September 1989, India has entered into a tax treaty with USA, which is a member of OECD and as per Article 12(4)(b) thereof, the scope of FIS is restricted. India has also entered into tax treaty with Portuguese Republic on 11 September 1998 and as per Article 12(4)(b) thereof, the concept of FIS is further restricted to mean the services which make available technical knowledge, experience, skill, know-how or processes or consist of the dev....
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....t would not be able to apply it in future independently without support from the service provider, it will not be a case of technical service having been 'made available'. And in such cases the concerned transaction would not be taxable in India and subject to withholding tax in India. In such cases, the income of the recipient shall be treated as business income under the Article 7. Since the entire operation of the service provider is carried outside India, there is no existence of any PE in India and in such cases the concerned transaction would not be taxable in India and subject to withholding tax in India. Reliance in this connection is placed on decision of IT AT Delhi in case 01 Sheraton International Inc Vs. Deputy Director of Income-tax reported in (2007) 293 ITR (A.T.) 68 (ITAT) (Del) Marketing and Development Expenses During the concerned assessment year various foreign remittances have been made to foreign vendors towards marketing and development services. The exact nature of service provided by each vendor is explained as follows. a) CORNELL UNIVERSITY SCHOOL OF H. ITHACA NEW YORK, 14850, USA - The vendor is an education in....
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....the fee for technical services does not fall within the purview of Article 12. Obviously, the application of Article 12 is ruled out. In that view of the matter, such income would remain included under Article 7. The amount falls under Article 7 as 'Business profits' and is hence not chargeable to tax because of the absence of any PE in India. In this connection, reliance is placed on the decision of Hon'ble Mumbai ITAT in case of McKinsey & Company (Thailand) Co. Ltd Vs Deputy Director of Income-tax (International Taxation) 4(1), Mumbai in IT APPEAL NO. 7624 (MUM.) OF 2010. Management fees paid to Banyan Tree Resorts &Spas(Thailand Co. Ltd.) Management fees has been paid to the Thai SPA management Firm. The tax treaties between India and Thailand does not contain any FTS clause. Thus it is evident that the fee for technical services does not fall within the purview of Article 12. Obviously, the application of Article 12 is ruled out. In that view of the matter, such income would remain included under Article 7. The amount falls under Article 7 as 'Business profits' and is hence not chargeable to tax because of the absence of any PE in India. I....
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....n terms of above direction. This ground of assessee is allowed for statistical purpose. 37. Next issue raised by assessee in ground No.8 is that Ld.DRP erred in confirming the order of AO by sustaining the disallowance of Rs.59,598/- on account of delayed deposit of employees' contribution to PF and ESI. 38. The AO during the course of assessment proceedings observed that assessee failed to deposit employees contribution to PF/ESI for Rs.59,598/- within due date as prescribed under the relevant Act of PF/ESI. Therefore, AO disallowed the same and added to the total income of assessee. 39. Aggrieved, assessee preferred an appeal before Ld. DRP. The assessee before Ld. DRP submitted that the amount of PF/ESI on account of employees' contribution was deposited within the due date of filing the income tax return specified u/s 139(1) of the Act. Accordingly, Ld. DRP directed the AO to verify the submission of assessee and adjudicate the same. Being aggrieved by this order of Ld. DRP assessee came in appeal before us. 40. Ld. AR for the assessee submitted that the amount of PF/ESI was deposited within due date of income tax return filing as specified u/s 139(1) of the Act ....
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.... the case of CIT vs. Pruthvi Brokers & Shareholders Pvt. Ltd. 349 ITR 336 (Bom). On the other hand, Ld. DR vehemently relied on the order of Authorities Below. 46. We have heard the rival contentions of both the parties and perused and carefully considered the material on record; including the judicial pronouncements cited and placed reliance upon. At the outset, we note that assessee is entitled to make additional claim without filing the revised return of income. We find guidance and support in the judgment of Hon'ble Bombay High Court in the case of Pruthvi Brokers & Shareholders Pvt. Ltd. (supra) the relevant extract is reproduced below:- "24. A Division Bench of the Delhi High Court dealt with a similar submission in CIT v. Jai Parabolic Springs Ltd. [2008] 306 ITR 42 / 172 Taxman 258 . The Division Bench, in paragraph 17 of the judgment held that the Supreme Court dismissed the appeal making it clear that the decision was limited to the power of the assessing authority to entertain a claim for deduction otherwise than by a revised return and did not impinge on the powers of the Tribunal. In paragraph 19, the Division Bench held that there was no prohibition on....
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....e AO should charge the dividend distribution tax after excluding the dividend income from subsidiary company. Therefore, we direct the AO to adjudicate the issue of dividend distribution tax after giving effect of the amount of dividend received from subsidiary company. Hence, in terms of above, this ground of assessee's appeal is allowed for statistical purpose. 51. Next issue raised by assessee in ground No.12 is that Ld. DRP erred in not granting set off of Minimum Alternate Tax (MAT for short) credit brought forward from Assessment Year 2011-12. 52. At the outset, it was observed that the grievance of assessee relates to non-granting of set off MAT credit brought forward from AY 2011-12. In this regard we direct the AO to grant the MAT credit brought forward from earlier years as per the provision of law. Hence, the matter is remitted back to the file of AO in terms of above direction and to adjudicate the same in accordance with law. 53. In the result, assessee's appeal stands partly allowed for statistical purpose. Order pronounced in the open court 16/05/2018 ============= Document 1 Singapore Singapore U.K. Carrier Ltd U.K U.K EIH Limited ....
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.....S.A 2,009,153 U.S.A 188,291 Trip Advisor U.S.A 81,709 U.S.A 27,849 Trip Advisor U.S.A 40,669 Usibe U.S.A 311,211 Virtuoso U.S.A 322,409 Questex Media Group Lic U.S.A 255,880 Elite Traveller U.S.A 690,286 Travcoa Corporation U.S.A 138,600 Teresa Perez Tours Brazil 134,922 Annexure-1 Annexure-6 Annexure-1 Annexure-7 Odysseus Deluxe Travel Collection Belgium 291,060 Annexure-1 Annexure - 8 Sodhi Travel France 83,369 Frohlichstrasse Switzerland 57,801 Annexure-1 Annexure-8 Tour Asia Roemer Ag Switzerland 39,068 Dertour Gmbh Co Kg Germany 19,080 Annexure-1 & 9 Annexure-18 Sybille Geisler Germany 348,164 Belgrave Group Ltd Ireland 42,040 Annexure-1&9 Annexure-18 Clup Viaggi Italy 41,907 Blue Room Marketing Spain 49,546 Kirunna Travels Spain 81,026 Annexure-1 & 8 Annexure-18 Nobel Tours Spain 38,704 Politours Spain 738,796 American Express International Inc Hongkong 1,558,395 Annexure-1 Dancing Wolf Hongkong 463,187 Not Applicab ....