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2015 (6) TMI 981 - AT - Income TaxDeduction u/s.80IA on windmill power generation - CIT(A) allowed claim - Held that - The issue is squarely covered by the judgment of jurisdictional high court in the case of Velayudhaswamy Spinning Mills (P) Ltd (2010 (3) TMI 860 - Madras High Court ) wherein held that the business undertaking of the assessee is wind mill power generation/hosiery goods, etc., and it has claimed the benefit of deduction under Section 80IA of the Income Tax Act for the assessment year in question and for the subsequent years as well. Having exercised its option and its losses have been set off already against other income of the business enterprise, the assessee in this appeal falls within the parameters of Section 80IA of the Income Tax Act. Being so, we are inclined to confirm the order of the Commissioner of Income Tax (Appeals) on this issue. - Decided in favour of assessee Disallowance made u/s.40(a)(i) r.w.s 195 - non deduction of TDS - CIT(A) deleted the addition - Held that - nature of services mentioned above will come not within the definition of fees for technical services given under explanation 2 to Section 9(1)(vii) of the Act. By virtue of such services, the concerned recipients had not made available to the assessee any new technic or skill which assessee could use in its business. The services rendered by the said parties related to clearing, warehousing and freight charges, outside India. The logistics service rendered was essentially warehousing facility. In our opinion, this cannot be equated with managerial, technical or consultancy services. Even if it is considered as technical service, the fee was payable only for services utilized by the assessee in the business or profession carried on by the said nonresidents outside India. Such business or profession of the non-residents, earned them income outside India. Thus, it would fall within the exception given under sub-clause (b) of Section 9(1) of the Act. In any case, under Section 195 of the Act, assessee is liable to deduct tax only where the payment made to non-residents is chargeable to tax under the provisions of the Act. In the circumstances mentioned above, assessee was justified in having a bonafide belief that the payments did not warrant application of Section 195 of the Act. In such circumstances, we are of the opinion that it could not have been saddled with the consequences mentioned under Section 40(a)(i) of the Act. Disallowances were rightly deleted by the ld. CIT(Appeals). - Decided in favour of assessee
Issues Involved:
1. Deleting the restriction of deduction under Section 80IA on windmill power generation. 2. Deleting the disallowance under Section 40(a)(i) read with Section 195 of the Income Tax Act regarding foreign agency commission and warehousing charges. Detailed Analysis: Issue 1: Deleting the Restriction of Deduction under Section 80IA on Windmill Power Generation Facts of the Issue: The assessee, engaged in the manufacture and export of steel forgings, also generated electricity through a windmill for self-consumption. The assessee claimed a deduction under Section 80IA(4) amounting to Rs. 5,28,75,459/-, which was restricted by the Assessing Officer (AO) to Rs. 4,63,48,720/- by adjusting brought forward losses and unabsorbed depreciation. Assessing Officer's Stand: The AO argued that as per Section 80IA(5), the profits and gains of the eligible business should be computed as if it were the only source of income. Thus, brought forward losses should be adjusted against the profits of the eligible business before claiming the deduction. The AO relied on the decisions of the Special Bench of ITAT, Ahmedabad in ACIT Vs. Gold Mine and Shares & Finance Pvt. Ltd., and ITAT, Hyderabad in Hyderabad Chemicals Supplies Ltd. Vs. ACIT. Commissioner of Income Tax (Appeals) Decision: The Commissioner of Income Tax (Appeals) relied on the jurisdictional High Court's judgment in Velayudhaswamy Spinning Mills (P) Ltd vs. ACIT, which held that only the losses from the initial assessment year onwards should be considered for set-off, and not the losses of earlier years that were already set off against other income. Tribunal's Decision: The Tribunal confirmed the Commissioner of Income Tax (Appeals)'s order, stating that the issue is squarely covered by the jurisdictional High Court's judgment in Velayudhaswamy Spinning Mills (P) Ltd. Therefore, the Revenue's ground was dismissed. Issue 2: Deleting the Disallowance under Section 40(a)(i) read with Section 195 of the Income Tax Act Facts of the Issue: The assessee incurred foreign agency commission of Rs. 4,47,37,475/- and warehousing charges of Rs. 3,00,82,166/-. The AO disallowed these expenses under Section 40(a)(i) for non-deduction of tax at source as required under Section 195. Assessing Officer's Stand: The AO disallowed the expenses on the grounds that: 1. No tax was deducted on the commission paid to foreign agents as required under Section 195. 2. The Board's circulars allowing foreign agent commission without TDS were withdrawn. 3. The AO relied on the AAR ruling in SKF Boilers and Driers Pvt. Ltd., which held that the income arising from commission payable to foreign agents is deemed to accrue in India. Commissioner of Income Tax (Appeals) Decision: The Commissioner of Income Tax (Appeals) observed that: - The agents were non-residents operating outside India. - The commission related to services provided outside India. - The non-residents had no permanent establishment in India. - The commission was remitted outside India. The Commissioner relied on the Supreme Court's judgment in GE India Technology Centre P. Ltd. v CIT, which held that TDS obligations under Section 195 arise only if the payment is chargeable to tax in India. The Commissioner concluded that the non-residents' income was not chargeable to tax in India, and thus, the assessee was not liable to deduct TDS. Tribunal's Decision: The Tribunal upheld the Commissioner of Income Tax (Appeals)'s order, noting that the issue was covered by the earlier order of the Tribunal in the assessee's own case for the assessment year 2010-2011. The Tribunal also cited similar views from other cases, including Vilas N. Tamhankar and CIT vs. Faizan Shoes Pvt. Ltd. The Tribunal concluded that the payments did not warrant TDS under Section 195, and thus, the disallowance under Section 40(a)(i) was rightly deleted. The Revenue's ground was dismissed. Conclusion: The Tribunal dismissed the Revenue's appeal, confirming the deletion of the restriction of deduction under Section 80IA and the deletion of disallowance under Section 40(a)(i) read with Section 195. The judgments relied upon and the legal principles applied were consistent with the established precedents and jurisdictional High Court rulings.
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