TaxTMI 
TaxTMI 
2025 (5) TMI 106
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....assessee to explain why interest debited in the profit & loss account amounting to Rs. 24,53,696/- being expenditure not directly related for the enhancement of business income should not be disallowed. In reply assessee submitted as follows; In this regard, it is respectfully submitted that such interest free ICDs to subsidiaries, also engaged in the business of hospitality and being in a financial losses were given in order to fund/support the business venture and strategic investments of the company: owning to our business interest held in such companies. Thus, it was fully based on commercial expediency and strategic nature of investment made earlier. In this regard, is placed on the decision of Supreme Court in the case of Hero Cycles Pvt. Ltd. vs. CIT, Ludhiana, 281 CTR 481, 236 Taxman 447 dated 05-11-2015 and S A Builders Ltd. vs. CIT, Chandigarh 288 ITR-1, 206 CTR 63 / dt. 14/12/2016. " 2.1. The Assessing Officer did not agree with the same for the reasons as stated in para 3.3 of his order and disallowed a sum of Rs. 24,36,140/- after allowing credit of Rs. 17,556/- being interest received. 3. Aggrieved with the said order, the assessee filed an appeal befor....
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....expediency As stated above, the appellant is in the business of providing hospitality services and is also holding strategic investments in subsidiary companies engaged in the same business of hospitality, i.e., running and operating hotels. FFC is niche concept-based luxury hospitality company specializing in the business of Forest Camps and is a wholly owned subsidiary of the appellant. The appellant's shareholding in the said company represented strategic / controlling interest therein. The appellant, being a veteran in the said field, had also entered into management agreements (Refer pages 45-55 of the paperbook) with subsidiary companies for rendering management consultancy services, in lieu of management fee. During the year under consideration, the appellant had earned management consultancy and service fee of Rs. 77,88,894 (Refer, page 15 of the paperbook) Thus, the appellant held deep business interest in the said companies: (i) by way of controlling interest and ii) interest by way of management agreement. The said companies were at a fledgling stage and required complete training as also managerial and financial support. Accordingly, since....
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....y to its subsidiary FFC during the year had increased from Rs. 2.60 Crores to 4.18 Crores which prima facie shows that the subsidiary was in need of more funds during the year. Moreover, that in pursuance of the management agreement entered by the assessee with the associate concern, the assessee had earned consultancy and service fee of Rs. 77,88,894/-. Therefore, we do not agree with the order of the Ld. CIT(A) and direct the Assessing Officer to delete the disallowance of interest made by the Assessing Officer in respect of the loan given by the assessee company to M/s FFC. Accordingly, ground no.1 and 1.1 of the assessee are allowed. 8. Ground no.2 and 2.1 of the appeal is against the disallowance of retainership fees of Rs. 4,20,000/- u/s 40(a)(i) of the Act paid to Mr. Yusuf Ansari towards 'payment of retainership fees' for the alleged non-deduction of tax at source on the said payment. The assessee explained before the Assessing Officer that due tax was deducted in the said account but inadvertently the same was deposited with tax for AY 2013- 14 instead of AY 2012-13. The written submission of the assessee as mentioned in para 4.2 of the assessment order is reproduced as....
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....ction 114(g) of the Indian evidence Act which mandates as under: Section 114(g) in The Indian Evidence Act, 1872 (9) That evidence which could be and is not produced would, if produced, be unfavourable to the person who withholds it; The appellant, has further taken refuge in the 2nd proviso of Section 40(a)(ia) and claimed that as the payee has paid taxes on the said amount, the appellant company is deemed to have deducted tax on retainership fee paid to the payee. This argument of the appellant company has no legal locus standi has in such a case to substantiate such a claim, the deductor, in this case the appellant company was required to file a certificate from an Accountant under the first proviso to sub-section (1) of section 201 in Form 26A to DGIT(Systems) or the person so authorized by him as clearly laid down in Rule 31ACB of the Income Tax Rules. This has not been done by the appellant company. Accordingly, I hold that the AO has rightly made the disallowance on this account. The order of the AO on this account is upheld given the clear and unequivocal provisions of the Income Tax Act." 10. We have heard the rival contentions and pe....
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....p Lid. Kenya for Marketing survey done by them on our behalf for hospitality Sector in Kenya. Please note that they do not have any permanent establishment in India and as per DTAA the tax liability is not applicable on them in India as per 15CA & 15CB attached alongwith voucher, bill & remittance related documents. c) Rosamond Freeman Attanvood. SPA Consultants Ms. Resamond Awood a Srilankan Resident is our SPA Consultant, Please note that her stay in India was less than 120 days during A. Y 2013-14 and as per DTAA the tax liability is not applicable on her in India as per 15CA & 15CB attached alongwith voucher, bill & remittances related documents (which is placed on record.)" 11.2. The above reply of the assessee was not accepted by the Assessing Officer on the ground that there is no specific provision under the Act for making a payment to a non-resident without deduction of TDS unless a no objection certificate is obtained from income tax authority under section 195(2) of the Act. The Assessing Officer further considered the above payment as "Fee for Technical Services" (in short 'FTS') and held that the same was liable for TDS u/s 40(a)(i) of the Act and in view o....
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....ndividual * Any other aspect requiring coaching. From the above, it is clear that the services rendered fall within the ambit of technical services as they clearly fall within the ambit of 'managerial', 'technical or consultancy services' as envisaged in Section 9(1)(vii). The Legislature has not set out with precision as to what would constitute "technical" service to render it "technical service". The Hon'ble Madras High Court in the case of Skyceli Communications Ltd. 251 ITR 53 (Mad) had an occasion to examine the definition of 'fee for technical services' in the context of payment of fees by a cellular/Mobile phone subscriber to the operator of the cellular/mobile phone facility." The High Court said: The meaning of the word "technical" as given in the New Oxford Dictionary is adjective 1. of or relating to a particular subject, art or craft or its techniques: technical terms (especially of a book or article) 2. requiring special knowledge to be understood: a technical report. 3. of involving, or concerned with applied and industrial sciences: an important technical achievement. ....
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....d. Payment of Rs 5,61,700/- made to M/s Elephant pepper Camp Ltd, The appellant had, during the year under consideration, made payment of Rs. 5,61,700/- to Elephant Pepper Camp Ltd, Kenya for conducting market research for exploring opportunities in the hospitality sector in Kenya. The assessing officer disallowed the said amount under section 40(a)(i) of the Act on the ground that no TDS was deducted therefrom while remitting the same. The appellant submitted that Elephant Pepper Camp Ltd. is a company operating a tourist facility in Kenya and had undertaken a market research for the appellant and that payment made to the non-resident was not taxable in India under India-Kenya DTAA. The first question to be addressed is whether this market survey undertaken by the Kenya based company constitutes 'technical service'. The Madras High court as discussed supra has clearly held that a service rendered of such a nature will be technical service that will fall within the meaning of section 9(1)(vii). This has not been disputed by the appellant company. The appellant has simply submitted that no TDS was made as the payment made on account of the services....
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.... Fee for conducting market survey in Kenya for promotion of business of appellant. Rs.15,26,700 The appellant was not obligated to withhold tax from the impugned payments made to non-resident parties since the same were not chargeable to tax in India as per the provisions of the Act and/or the provisions of applicable DTAA entered into with respective countries. AO In the assessment order, the assessing officer disallowed the aforesaid expenses under section 40(a)(ia) on the grounds that - (i) such payments, made to non-residents for services rendered outside India, were in lieu of obtaining technical services within the meaning of section 9(1)(vii) of the Act, which were deemed to accrue or arise in India and consequently were chargeable to tax in India; ii) consequently the appellant was obliged to withhold tax therefrom under section 195 of the Act; and iii) the appellant had failed to obtain certificate for lower/nil deduction of tax at source before making remittance without deducting tax at source. CIT(A) The CIT(A) upheld the said disallowance made by the assessing officer by ho....
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.... payments would be in the nature of 'business profits' arising to the recipient in the ordinary course of his business of providing varying services. (Refer ACIT vs Paradigm Geophysical Pty Ltd: 117 TTJ 812 (Del Trib.), Bangkok Glass Industry Co. Ltd. vs ACIT: [2013] 34 taxmann.com 77 (Mad) Bharti Airtel Ltd vs ITO (TDS): [2016] 67 taxmann.com 223 (Del Trib.), DCIT vs Michelin ROH Co Ltd: (2022] 195 ITD 541 (Del Trib.), DCIT vs Welspun Corporation Ltd: [29017| 183 TTJ 697 (Ahd Trib.)) In view of the aforesaid, it is respectfully submitted that the amount received by Rosamond Freeman-Attwood from the appellant for the aforesaid services were not in the nature of FTS in absence of any Article in the DTAA relating to FTS and the same could at best, be said to fall under the head "Business Profits". Since there is no fixed place/permanent establishment of the Appellant in India, the income arising to Rosamond Freeman-Attwood on account of the aforesaid payments is not taxable in India. In view of the aforesaid, the amount paid to the non-resident cannot, it is submitted, be brought to tax in India. Accordingly, there was no default on the part of the ....
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....ition of the expression professional services' has been given in the said Article. The expression "other independent activities of a similar character" is to be read ejusdem generis with the expression "professional services". Article 14 of the DTAA, thus, it is submitted, covers (a) the services specifically mentioned in the inclusive definition of the expression "professional services"; (b) a service falling within the general definition and bearing the character of a professional service' though not specifically mentioned; and (c) any activity/ service even though not falling within the general scope and definition of professional service but is an activity/ service similar to being pursued/ carried on as profession. Attention in this regard, is invited to the following decisions wherein the term 'professional services' contained in Article 14 was given a wide interpretation and services such as technical and marketing consultancy service, including consultancy services for improvement and upgradation of products manufactured by the assessee and even software development services, were held to fall within the ambit of "Independent personal services':....
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.... of 183 days as per the said DTAA, the said payments made were not taxable in India. Accordingly, there was no default on the part of the appellant in not deducting tax at source from such payments, so as to warrant any disallowance under section 40(a)(i) of the Act and, therefore, disallowance made under section 40(a)(i) of the Act calls for being deleted. Re: Not-obtaining certificate for lower/nil deduction of tax As regard the allegation of the assessing officer that since the appellant had not filed application under section 195(2) of the Act for obtaining lower/Nil withholding tax order, the appellant did not have the right to argue that such income was not taxable in India, it is respectfully submitted, that the provisions of that section shall not apply where no portion of the payment made is chargeable to tax in India and, accordingly, there would be no need to make application to the assessing officer to determine the rate at which tax needs to be deducted at source. [Refer GE India Technology Centre (P) Ltd. vs CIT: 327 ITR 456] In terms of the aforesaid decision of the Supreme Court, since for the reasons stated hereinabove, the appellant was ....
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....er, the Ld. CIT(A) held that on perusal of Article 14 of India Srilanka DTAA, the services rendered by Rosamond Freeman- Attwood do not come under "Independent Professions Services" as the Ld. CIT(A) referred to Article 14 of India Srilanka DTAA and held that it was limited to independent activities of physicians, lawyers, engineers, architectures, dentists and accountants and confirmed the action of the Assessing Officer. 13.3. For the similar reasons stated in the case of Rosamond Freeman-Attwood quoting Article 16 of the India Kenya DTAA regarding "Independent Personal Services" the Ld. CIT(A) held that the nature of services rendered by M/s Elephant Pepper Camp Ltd. Kenya does not fall within the ambit of Article-16. The Ld. CIT(A) held that in view of the decision of the Hon'ble Madras High Court as discussed above, the market survey undertaken by M/s Elephant Pepper Camp Ltd., Kenya will constitute 'technical services' within the meaning of section 9(1)(vii) of the Act. For these reasons, the Ld. CIT(A) confirmed the disallowance made by the Assessing Officer. 13.4. The above view of the Assessing Officer and the ld. CIT(A) has been carefully considered but not found to....
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....in this category of services. This issue, regarding the scope of article 15 of Indo-US tax treaty, came up for consideration, almost one and a half decade ago, before a coordinate bench of this Tribunal in the case of Graphite India Ltd Vs DCIT [(2002) 86 ITD 384 (Kol)]. Speaking through one of us, i.e. the Accountant Member, the Tribunal had then, inter alia, observed as follows: ............................. 8. There is no change in the legal position; nothing contrary to the decision so rendered has been brought to our notice. Viewed in the light, software development service rendered by an individual, which essentially requires predominantly intellectual skill, dependent on individual characteristics of the person pursuing software development, and based on specialized and advanced education and expertise, is also a professional service. As regards the objection of the Assessing Officer that software development is not specifically covered by article 15(2), as evident from the opening words of this provision to the effect "the term 'professional services' includes (emphasis, by underlining, supplied by us)", the specific professions set out therein are....
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....ood was not taxable in India and therefore the assessee was not required to deduct the TDS u/s 40(a)(ia) of the Act. Therefore, the disallowance of Rs. 9,65,000/- made by the Assessing Officer and confirmed by the ld. CIT(A) is deleted. 13.9. For similar reasons, in the case of M/s Elephant Pepper Camp Ltd., the services rendered outside India and similarly, the India Kenya DTAA did not contain the separate provisions for taxing of "Fees for Technical Services" during the relevant period the disallowance of R.5,61,700/- is not sustainable. 13.10. Therefore, the disallowance of Rs. 5,61,700/- paid by the assessee to M/s Elephant Pepper Camp Ltd. is not taxable in India and therefore, the disallowance of Rs. 5,61,700/- is deleted. 14. Regarding the contention of the Assessing Officer that it was imperative on the part of the assessee to make an application u/s 195(2) of the Act for taking a certificate u/s 195(2) of the Act in respect of any payment made to a non-resident irrespective of the fact that the amount was taxable in India or not is not acceptable. In this regard, the head note of the decision of the Hon'ble Supreme Court in the case of GE India Technology Centre (....