TaxTMI 
TaxTMI 
2021 (11) TMI 523
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.... the ground that the payments made to the nonresidents for the expenditure related to exhibition in India and Rs. 2,52,641/- for non-deduction of TDS without adducing any supporting evidence, out of total addition of Rs. 30,66,571/-. 3. The Ld. CIT(A) has erred in law and on facts in deleting the addition of Rs. 2,86,495/- out of total addition of Rs. 3,56,268/- in lieu of late payment of employees contribution to PF despite the fact that such late payment is not allowable as deduction u/s 36(1)(va) and is required to be treated as income u/s 2(24)(x). 4. The Ld. CIT(A) has erred in law and on facts in deleting the disallowance on account of depreciation on cars, interest and related expenses of Rs. 4,83,060/- out of total disallowance of Rs. 6,44,080/-. 5. The Ld. CIT(A) has erred in law and on facts in directing to delete the disallowance of interest payment u/s 36(i)(iii) of the Act despite the fact that the expenses on payment of interest on the borrowed fund which has been diverted towards interest free loan and advance and non-business purposes. On the fact and in the circumstances of the case and in law, the CIT(A) ought to have upheld the order of the Assessing Offi....
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....f design requires expertise/skill. Thus the assessee has obtained the services of the technical person for the impugned design which might have transferred to the assessee in the form of computer software or drawing on paper. Thus in effect the assessee has acquired design involving the intellectual skill and expertise. In other words the assessee has not acquired any material as claimed by the assessee. 8. Regarding the contention of the assessee that the foreign party is not having the permanent establishment, it was observed by the AO that the design services were utilized by the assessee in India. Likewise, explanation to section 9 of the Act clarifies that fees for technical services are taxable in India irrespective of the fact that the non-resident has a residence or place of business or business connection in India. 9. The AO further observed that article 12 of the DTAA between India and Germany provides that fee for technical services can be taxed in the other contracting State i.e. in India. 10. In view of the above, the AO disregarded the contention of the assessee by holding that the assessee failed to deduct the tax under the provisions of section 195 read with sect....
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....ts etc. The nature of transaction is similar to development of software by various companies and such software are available on shelf for general use or any party can assign specific work to develop software to serve that party. In the former case it is outright purchase even if the software is transferred through compact disc/computer or any other magnetic media, while in other case it will be work contract. In the case of work contract, the question of deduction of TDS arises but for such thing there will be written agreement with terms and conditions and requirement of the product to be developed from the purchaser or contractor. In the case of appellant no such agreement or order has been placed to such parties. There are no evidences that appellant company assigned any such work to these outside parties. The party confirmed that they have developed their own design/theme which were sold to appellant along with other parties in such business. It is in this regard, the ratio of Hon'ble Bombay High Court in the case of Glenmark Pharmaceuticals 324 ITR 199 and Hon'ble Supreme Court in the case of CIT vs. Silver Oak Laboratories (Civil Application 18012 of 2009) has relevance w....
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....onstrate and establish that the design and development services for which the impugned payments were made by the assessee to non-residents were rendered in India, assessee did not have any liability under section 195 r.w.s.9(1)(vii) to deduct tax at source from these payments and consequently, same cannot be disallowed u/s.40(a)(i) of the Act." It is therefore on both ground i.e. firstly the purchases of designs were purchases of goods on which provisions of section 9(1)(vii) r.w.s. 195 are not applicable and even if such purchase or acquisition taken as consultancy then also such provisions were not applicable for previous year, the disallowances so made by A.O. u/s.40(a)(i) of the Act are therefore neither justified nor sustainable." 15. Being aggrieved by the order of the learned CIT (A), the Revenue is in appeal before us. 16. The learned DR before us contended that the assessee has got the software developed by hiring the professionals who provided intellectual and expert services to the assessee. The fact of development of the software by the assessee can also be traced from the invoices raised by the overseas parties. Accordingly, it was contended that the assessee has m....
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....through the disc or Internet and there is no physical form of such software. Thus in the books of the assessee such transaction for purchasing of the software shall be treated as outright purchases. But the answer will be different in a situation where the assessee gets a particular/specific software developed by hiring the professionals and expert persons. Then such transaction shall be treated as availing the services of the experts and the payment to them shall be considered as fees for technical services. But, in the case on hand there is no such allegation/finding of the AO that the assessee has hired the experts technical persons for availing the professional, managerial or consultancy services. 22. Besides the above, the learned CIT (A) has given categorical finding that the foreign party has given clarification that design/theme were developed at its own and made sales to the assessee as well other customers. The learned DR at the time of hearing has not brought anything on record contrary to the finding of the learned CIT (A). Thus in such facts and circumstances it can be inferred that the transaction between assessee and the foreign party for the design expenses was in ....
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....de by the assessee to foreign party for design/theme represent fee for technical services for the sake of understanding. We have to see whether the payment made by the assessee to the foreign party was chargeable to tax in India. Admittedly, the services were rendered by the foreign party in its country. Likewise, the foreign party did not had any permanent establishment in India. Thus, the income was accrued and arose to such foreign party in a country outside India. Hence, the same is not taxable in India under the realm of section 9(1)(vii) of the Act being same is provided outside India. Thus, there cannot be any question of deducting the TDS under the provisions of section 195 of the Act. 25. We are also conscious to the fact that there was the explanation to section 9 brought under the statute by the Finance Act 2010 retrospectively with effect from 1976. As per this explanation the income of the foreign party shall be chargeable to tax in India if it relates to the fee for technical services irrespective of the fact whether such non-resident has/has not a place of business or business connection in India or non-resident has/has not rendered services in India. From this expl....
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....ecedents supporting the proposition that rendition of services in India is a sine qua non for its taxability in India." 8. It is thus clear that till 8th May 2010, the prevailing legal position was that unless the technical services were rendered in India, the fees for such services could not be brought to tax under Section 9(1)(vii). The law amended was undoubtedly retrospective in nature but so far as tax withholding liability is concerned, it depends on the law as it existed at the point of time when payments, from which taxes ought to have been withheld, were made. The tax-deductor cannot be expected to have clairvoyance of knowing how the law will change in future. A retrospective amendment in law does change the tax liability in respect of an income, with retrospective effect, but it cannot change the tax withholding liability, with retrospective effect. The tax withholding obligations from payments to non-residents, as set out in Section 195, require that the person making the payment "at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, de....
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.... M/s Messe Frankfurt Trade Fair India (P) Ltd Rs. 3,92,626/- 2. M/s First Rain Exhibition India Pvt. Ltd. Rs. 2,52,641/- 3. M/s Messe Frankfurt Exhibition GMBH(DE) Rs. 24,18,696/- 29. As per the assessee, the payment made to M/s Messe Frankfurt Trade Fair India (P) Ltd. for Rs. 3,92,626/- represents the reimbursement made to it which was incurred on account of various expenses on behalf of the assessee. Furthermore, all such expenses are below the threshold limit provided under the statute and therefore no TDS was required to be deducted. 29.1 The assessee further submitted that the payment to M/s First Rain Exhibits (India) Pvt. Ltd. for Rs. 2,52,641/- was paid after deducting the TDS and therefore the same cannot be disallowed. 30. Likewise, the assessee contended that the payment to M/s Messe Frankfurt Exhibition GMBH(DE) for Rs. 24,18,696/- was incurred in connection with the exhibition held in Germany which was not chargeable to tax in India as the services were rendered outside India. Accordingly the question of deducting the TDS under the provisions of section 195 of the Act does not arise. 31. However the AO disregarded the contention of the assessee by ob....
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.... trade fare took place in Germany therefore not taxable in India. Beside this the assessee also contended that there are two type of bill of exhibition i.e. HEIMTEXTIL INDIA'2008 and HEIMTEXTIL in Frankfurt/M(14/1-17/1/2009) and the payment made to the impugned party was in connection with the later one. Thus the AO wrongly presumed payment made for HEIMTEXTIL INDIA'2008. 40. The learned CIT(A) after considering the submission of the assessee was pleased to allow part relief by deleing the addition made on account of payment made to M/s Messe Frankfurt Exhibition GMBH(DE) for Rs. 24,18,696/- and M/s First Rain Exhibition (India) Pvt. Ltd. for Rs. 2,52,641/- by observing as under: "I am partly inclined with A.O. that as far as payment to M/s Frankfurt Trade fairs India of Rs. 254833/- dt. 08/04/08 and of Rs. 137793/- dt. 17/06/08, No TDS was deducted on one hand and appellant failed to submit the details with evidence to support that such payments were reimbursement of expenses below the limit of applicability of TDS provision. Rather the same were lumpsum payment hence disallowances u/s40(a)(ia) of the Act for such amount of Rs. 392626 (254833 + 137793) is upheld and confirmed. ....
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....31 of paper book) and foreign bill transaction advices (page 27 & 28 of paper book) clearly reflect that invoices were for appellant's stand at "HEIMTEXTIL in Frankfurt/M (14/6 - 17/01/09), hall 10.0, stand no.B65 + hall 6.0, Stand no. C18" and payment made in 'Euros' outside India. The A.O. is directed to allow this expenditure and delete the addition of Rs. 2418696/-. It is therefore out of total disallowances and addition of Rs. 3066571/-, the disallowances and addition of Rs. 2671373/- (252641 + 2418696) is directed to be deleted while addition of Rs. 392626/- is upheld and confirmed. The difference of Rs. 2572 (3066577 - 2671373 - 392626) is on account of difference in amount as per claim in I.T. and invoice related to payment to Mess. Frankfurt Exhibition dt. 23/10/08 and 26/11/08. The appellant gets part relief. This ground is treated as partly allowed." 41. Being aggrieved by the order of the learned CIT (A) both the Revenue and assessee are in cross appeal before us. The Revenue is in appeal against deletion of addition for Rs. 26,71,337/- whereas the assessee is in cross objection against confirmation of addition for Rs. 3,92,626/-. 42. Both the learned DR....
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.... in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to subsection (1) of section 201, then, for the purpose of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the resident payee referred to in the said proviso." 47. It is also important to refer the provisions of section 201 of the Act which reads as under: "[Provided that any person, including the principal officer of a company, who fails to deduct the whole or any part of the tax in accordance with the provisions of this Chapter on the sum paid to a resident or on the sum credited to the account of a resident shall not be deemed to be an assessee in default in respect of such tax if such resident- (i) has furnished his return of income under section 139; (ii) has taken into account such sum for computing income in such return of income; and (iii) has paid the tax due on the income declared by him in such return of income, and the person furnishes a certificate to this effect from an accountant in such form as may be prescribed68:" 48. Fro....
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....Act. Accordingly the assessee was not liable to deduct withholding tax under section 195 of the Act. Therefore we do not find any infirmity in the order of the learned CIT (A) and direct to the AO to delete the addition made to this extent. 52. Thus in view of the above, the ground of appeal of the Revenue is dismissed whereas the ground raised in the CO by the assessee is also dismissed. 53. The 3rd issue raised by the revenue is that the learned CIT(A) erred in deleting the addition made by the AO for Rs. 2,86,495/- representing the late payment of employees contribution towards PF/ESI. 54. The AO during the assessment proceedings found that the assessee has not deposited employee's contribution towards the PF/ESI within the time specified under the relevant Act i.e. Provident fund Act/ESI. Accordingly the AO disallowed the same under the provisions of section 36(1)(va) and treated the same as income of the assessee under the provisions of section 2(24)(ix) of the Act. 55. Aggrieved assessee preferred an appeal to the learned CIT (A). 56. The assessee before the learned CIT (A) submitted that the AO has made the disallowance of the entire amount of Rs. 3,56,268/- which is co....
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....ujarat High Court in the case of CIT vs. Amoli Organics Pvt. Ltd 41 taxman.com 149. 60. In view of the above, the learned CIT (A) made the disallowance of Rs. 69,773/- representing the employee's contribution towards PF/ESI which was paid after period of grace period of 5 days. 61. Being aggrieved by the order of the learned CIT (A) both the Revenue and the assessee are in appeal before us. The revenue is against deletion of addition made for Rs. 2,86,495/- whereas the assessee is in CO against confirmation of addition for Rs. 69,773/-. The assessee ground in CO reads as under: "3. The Ld. CIT(A) has erred in law and on facts in not allowing a sum of Rs. 69,773/- on account of late payment of employee contribution to provident fund." 62. Both the learned DR and the AR before us vehemently supported the order of the authorities below as favourable to them. 63. We have heard the rival contentions of both the parties and perused the materials available on record. There is no confusion or ambiguity to the fact that the contribution of employer's contribution and administrative charges are governed under the provisions of section 36(1)(iv) read with section 43B of the Act. Admitte....
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....st on such car amounting to Rs. 3,14,805/- and Rs. 2,00,533/- respectively. Likewise, the AO found that the car running expenses pertaining to this car i.e. registered in the name of the director cannot be allowed as deduction but such expenses were mixed with the other car running expenses. Thus the AO assumed 10% of the total car running expenses pertaining to the impugned car. Thus the AO disallowed the car expenses of Rs. 1,28,742/- only and added to the total income of the assessee. 68. Aggrieved assessee preferred an appeal to the learned CIT (A), who provided part relief to the assessee by observing as under: "I am partly inclined with appellant that on the similar facts, Hon'ble ITAT Ahmedabad after considering various case laws as relied on by A.O., allowed the claim of depreciation to company for the vehicle registered in the name of director following the ratio of Hon'ble Supreme Court in the case of Mysore Minerals. It is undisputed that said car is reflected as asset of the company. The appellant took a loan and repaid through EMI including interest i.e. source of purchase are of appellant and A.O. himself not disputed the car was used for the purpose of business th....
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....ellant's director, it was purchased out of the funds of the appellant-company and it is also not in dispute that the motor car was purchased for the purpose of business of the appellant. Thus the motor car being, business asset of the appellant and purchased for the purpose of business and used as such by the appellant, in view of the decision in the case of Mysore Minerals Ltd. [1999] 239 ITR 775 (SC) referred to above and other decisions cited by the learned authorised representative, I hold that the disallowance made by the Assessing Officer on this ground is not justified and hence the same is directed to be deleted. 22. 2 In the present case it is not disputed that investment was made by the assessee in purchase of the motor car. It is shown as asset in the balancesheet of the company. If expenditure for running the vehicle was incurred by the assessee, the assessee is de facto owner of the vehicle. It is not disputed that it was used for the purpose of business of the assessee company. The hon'ble Rajasthan High Court in the case of CIT v. Mohd. Bux Shokat Ali (No. 2) [2002] 256 ITR 357 (Raj) held that where vehicle was purchased by the firm used by it for the purpo....
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....& surplus, no such disallowance of interest can be made u/s 36(1)(iii) of the Act in view of ratio of various case laws as relied on by appellant. Hon'ble ITAT Ahmedabad in the case of Shital Kumar Shankarlal Prajapati as relied on by appellant allowed the ratio of Hon'ble Bombay High Court in the case of Reliance Utilities and Power Limited 313 ITR 340 and held so. The A.O. though excluded the trade debtor after examination of ledger account of some of the parties but failed to establish direct nexus of advance of loan from interest bearing fund. It is therefore the disallowances so made are neither justified nor sustainable. The A.O. is directed to allow such interest and delete the addition of Rs. 590700/-. The appellant gets relief accordingly. This ground is allowed." 78. Being aggrieved by the order of the learned CIT(A), the Revenue is in appeal before us. 79. Both the learned DR and learned AR before us vehemently supported the order of the authorities below as favourable to them. 80. We heard the rival contention of both the parties and perused the material available on record. From the preceding discussions we note that the own fund of the assessee exceeds the amount o....
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....32521/- out of Commission expenses. 7. The appellant craves leave to add, alter, amend or withdraw any of the grounds of appeal on or before of the final hearing of appeal." 84. The first issue raised by the assessee in CO is general in nature. Hence the same is dismissed being general ground. 85. The second issue raised by the assessee in CO is that the learned CIT(A) erred in confirming the disallowances of Exhibition expenses in part for Rs. 3,92,626/- only. 86. At the outset we note that the issue has been dealt with ground no. 2 of Revenue's appeal where the issue has been decided in the favour of the Revenue. For the detailed discussion, please refer to paragraph no. 44 to 50 of this order. Accordingly, the ground of assessee's CO is dismissed. 87. The 3rd issue raised by the assessee in CO is that the learned CIT(A) erred in confirming the part disallowances of Rs. 69,773/- on account of late payment of employee's contribution towards EPF/ESI. 88. At the outset we note that the issue has been dealt with ground no. 3 of Revenue's appeal where the issue has been decided against the assessee. For the detailed discussion, please refer to paragraph no. 64 to 65 of this ord....
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....cumentary evidence. But in the case on hand the assessee failed to discharge primary onus cast upon it. Even at the time of hearing the learned AR has not brought anything on record by submitting the supporting evidences. Thus in such facts and circumstances, we do not find any reason to interfere into the finding of the learned CIT (A). Hence of ground of assessee's CO is dismissed. 98. The issue raised in ground No. 5 by the assessee is that the learned CIT (A) erred in not allowing the deduction of Rs. 1,61,020.00 for car depreciation, interest and running expenses. 99. At the outset we note that the issue has been dealt with ground no. 4 of Revenue's appeal where the issue has been decided in favor of the assessee. For the detailed discussion, please refer to paragraph no.71 to 74 of this order. Accordingly the ground of assessee's CO is allowed. 100. The last issue raised by the assessee in CO is that the learned CIT(A) erred in confirming the disallowances of commission expenses of Rs. 1,32,521/- only. 101. The assessee during the year incurred commission expenses of Rs. 65,47,564/- only. Out of total commission expenses, the assessee failed to deduct tax at source on the....