TaxTMI 
TaxTMI 
2019 (5) TMI 995
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....rder of the Ld. Commissioner of Income Tax (Appeals) is erroneous, arbitrary, opposed to law and facts of the case and is, thus, untenable. 2.1 The only issue raised by the assessee pertains to the disallowance of Rs. 12,03,535/- made by the assessee towards the payment of the rent which has been treated to be for non business purpose by the Assessing Officer owing to the absence of any agreements filed before him. 2.2 Before us, the assessee has filed additional evidences under Rule 29 consisting of rent agreements invoices issued by the company. We find that the additional evidences are required for adjudication of the matter at hand and goes to the root of the addition made by the Assessing Officer and as upheld by the Ld. CIT(A). 2.3 Since, the Revenue did not get the opportunity to go through the evidences filed for the first time before us, in the fitness of things we deem it proper to refer the matter back to the file of the Assessing Officer to adjudicate and pass an order on this issue in accordance with the provisions of the Income Tax Act,1961 after taking due consideration of the additional evidences filed and on giving proper opportunity to the assessee to mak....
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....ii) of the Act and merely stated that investments made in its subsidiaries were used by them for some business purposes. As a result, the assessing officer disallowed the interest paid u/s 36 (1)(iii) of the Act and added Rs. 17,12,967/- to the returned income of the assessee. 3.3 Before the Ld. CIT(A), the assessee filed written submission, the extract of ITAT order in the case of assessee for A.Y 2009-10 on the said matter. The relevant portion of the submission is reproduced as under:- Aggrieved by this, the assessee has come up in appeal before us and reiterated the submissions made before the learned CIT (Appeals). It was stated that the assessee company is engaged in the business of export of Information Technology Services and Software Development. The wholly owned subsidiaries of the assessee to whom the money has been advanced are providing market support to the assessee. Reliance was placed on the judgment of the Hon'ble Supreme Court in the case of Hero Cycles (P) Ltd. Vs. CIT 379 ITR 347 (SC) and that of Hon'ble Punjab & Haryana High Court in the case of Bright Enterprises Pvt. Ltd. Vs. CIT [2016] 381 ITR 107 and CIT Vs. Kapsons Associates (2016) 381....
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....mstances of the respective case. For instance, if the directors of the sister-concern utilize the amount advanced to it by the assessee for their personal benefit, obviously it cannot be said that such money was advanced as a measure of commercial expediency. However, money can be said to be advanced to a sister-concern for commercial expediency in many other circumstances (which need not be enumerated here). However, where it is obvious that a holding company has a deep interest in its subsidiary, and hence if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee would, in our opinion, ordinarily be entitled to deduction of interest on its borrowed loans." 8. In view of the above, we observe that even the Hon'ble Supreme Court has endorsed the view that since a holding company has a deep interest in its subsidiary and if the holding company advances borrowed money to a subsidiary and the same is used by the subsidiary for some business purposes, the assessee is entitled to deduction of interest on the borrowed funds. In the present case, there is no dispute about the fact that the am....
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....e assessee filed written submission, the extract of ITAT order in the case of assessee for A.Y 2009-10 on the said matter. The relevant portion of the submission is reproduced as under:- "The basic issue is whether the tax is to be deducted while making these impugned payments. The Assessing Officer has invoked the provisions of section 40(a)(1) of the Act in this regard. The provisions of section 40(a)(1) of the Act to the extent relevant in the present case reads as under: " 40(a)(1) Notwithstanding anything to the contrary in [sections 30 to 38], the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession": (a) in the case of any assessee-- [(i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable,- (A) outside India; or (B) in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, ....
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....ng to scope of total income in respect of a non-resident are provided in sub- section (2) of said section, which read as under: "5(2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non- resident includes all income from whatever source derived which- (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. Explanation 1-lncome accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India. Explanation 2 - For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India." 28. From the bare perusal of the provisions of the above section, it is quite clear that a non-re....
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....ws and views in India for transmission out of India;] [(d) in the case of a non-resident, being- (1) an individual who is not a citizen of India; or (2) a firm which does not have any partner who is a citizen of India or who is resident in India; or (3) a company which does not have any shareholder who is a citizen of India or who is resident in India, no income shall be deemed to accrue or arise in India to such individual, firm or company through or from operations which are confined to the shooting of any cinematograph film in India;] [Explanation 2 : For the removal of doubts, it is hereby declared that "business connection" shall include any business activity carried out through a person who, acting on behalf of the non-resident, (a) has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident unless his activities are limited to the purchase of goods or merchandise for the non-resident; or (b) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the nonresident; or (c) habitually....
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....case. Nowhere in the entire order he has given any finding as to whether the nature of income in the hands of the non resident is that of 'income accrued in India' or 'income deemed to have accrued' in India. He just kept on harping the fact that the ultimate beneficiary of the services is the assessee in India. Even the CIT(A) while adjudicating the issue could not give any appropriate finding in this regard. The relevant portion of the CIT(A)'s findings are recorded at page 12 para 10.3, in later part of this paragraph, he states as under: "The payment are made by the appellant company and these are in the nature of marketing support services and selling expenditure for getting more and more business abroad. The services provided by the nonresident entities for promoting sales and legal/profession services are as per the terms of contract which is entered by these entities within the appellant company with the responsibility of the appellant company. Therefore the source of income for the entities abroad is the agreement with the appellant company and by virtue of these services there is a direct benefit to the appellant company and hence the payment ....
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....-resident company These activities have been culled out from the judgement by the CBDT itself in its circular No. 23[F.NO. 7A/38/69-IT(A-11)], dated 23.07.1069 33. In the present case, no finding has been brought on record by any of the lower authorities that non- resident entities have any such connection with India as illustrated above. All along the assessee has been maintaining that the non-resident entities to whom it has made the payments do not have any business connection with India. The Assessing Officer as well as the learned CIT (Appeals) had nowhere in their orders recorded any such finding though we must add that they have not even intended to make any investigation in this regard. However, we also observe that this stance has been consistently taken by the assessee before the lower authorities as well as before us and even the learned D.R. while arguing before us could not controvert the said submission of the assessee. In this manner, we do not hesitate to conclude that no services were rendered by non-residents in India. This conclusion of ours is also based on the proposition as laid down by the Delhi High Court in the case of CIT Vs. EON Technolo....
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.... exempt the transaction or reduce the rigor of taxation to the benefit of the non-resident, the provisions of the treaty override the provisions of the domestic law. These fundamental principles are well-settled by the judgments of the Supreme Court in P.V.A.L. KulandaganChettiar (2008) 267 ITR 654 (SC) and Azadi Bachao Andalon (2003) 263 ITR 706 (SC). 38. On going through the relevant article provided in the DTAA, we observe that invariably in all the DTAAs to which we are concerned, the income is taxable in India only if that foreign entity carries on business in India through a permanent establishment situated in India. We again observe that no such finding with regard to existence of any permanent establishment in India has been brought on record by any of the lower authorities or even by the learned D.R. at the time of hearing before us. In view of this, the position emerges that the payment to a person who happens to be a resident of country with whom India has entered into DTAA and where the business profits are taxed only in the country and does not have a permanent establishment in India, the said payments are not chargeable to tax in India. In view of this also, ....
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....he assessee has done detailed transfer pricing study in the relevant assessment year, which was subject to the reference under section 92CA(1) of the Act to the Transfer Pricing Officer and the Transfer Pricing Officer has suggested no adjustment with respect to the Arm's Length Price on the transaction between the assessee and its associate enterprises. 40. Now the question arises whether the payment made by the assessee can be held to be in the nature of 'fee for technical services'. There is no dispute with respect to the fact that the issue of 'fees technical services' was never raised by the Assessing Officer. In his order running into 22 pages he has nowhere mentioned and even nowhere showed his suspicion as regards the payment being in the nature of 'fees for technical services' that is the reason why at the assessment stage, the assessee was never confronted by any query with respect to the payments being that of the nature of 'fees for technical services'. The contention of the learned D R . before us was that the learned CIT (Appeals) has held these payments to be in the nature of 'fees for technical services'. We have ....
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....not to be forgotten that the learned CIT (Appeals) assumes coterminus powers with that the Assessing Officer In fact, he enjoys the powers of enhancement also. Therefore, in case he had any apprehension as to the real nature of the payment, who stopped him to carry out further investigations in this regard? In the absence of any finding given by the Assessing Officer or the CIT (Appeals) in this regard, we are not inclined to examine the case of the assessee with a view whether the payments are in the nature of 'fees for technical services' or not. It is not a case where certain queries were put either by the Assessing Officer or by the learned CIT (Appeals) to the assessee with respect to the payments being 'fees for technical services', which the assessee failed to reply. It is also not a case where the assessee had not co-operated with the lower authorities in order to find out the real nature of the payments made to the non-residents. All the relevant agreements and invoices were filed before the lower authorities. In view of this, the assessee cannot be punished at this stage without there being any fault of his, specially in view of the fact ....
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....rcentage of prescribed depreciation and A.O noted that the assessee have shown plant and machinery and computers and software under to separate blocks in which machinery and plants are untitled to deprecation at 15% and computers and computer software at 60%. A.O held that additional depreciation is available to plant and machinery and not to computer and software as the same h a v e n o t b e e n used in the production/manufacture of an article/things. A.O further held that computers and merely used in processing of date or preparing software which is not manufacture into a new article/things and therefore additional depreciation of Rs. 14,91,858/- was disallowed. 5.2 The extract of CIT(A)-2, Chandigarh's order in the case of assessee for A.Y 2009- 10 on the said matter. The relevant portion of the submission is reproduced as under: "The appellant made submission that the assessee company is engage in the business of export of I. T services and software development and computers and other I. T equipments are the plant and machinery of the company The computes are used for providing services towards clients. It was submitted that appellant being in the business of s....
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....ments are the plant and the machinery of the appellant company and the same are used in the product of the manufacture. The article / things It was also submitted that in the case of the appellant company the Worthy CIT(A), Patiala in appeal No. ROT/CHD/119/IT/CIT(A)/PTA/08-09 for A. Y 2003-04 has held the activities of the appellant as manufacturing or producing an article or things. The order of the CIT(A) was confirmed by the Hon'ble IAT, Chd Bench, Chandigarh. " 5.3 Ld. CIT(A) has held that the order of the AO cannot be sustained on this ground relying on the judgment of Hon'ble Gujarat High Court in the case of CIT vs. Statronics & Enterprises Pvt. Ltd. (2007) 288 ITR 455 . 5.4 Before us, the Ld. AR heavily relied on the order of the Ld. CIT(A) and on the judgment of the Hon'ble High Court quoted above while the Ld. DR argued that the said judgment quoted by the Ld. AR is not applicable to the facts of the case. 5.5 We have heard the arguments of both the parties. 5.6 The gist of the additional depreciation is as under: In case of any new machinery or plant (excluding ships and aircraft) acquired and installed after March 31, 2005 by an assessee wh....