2013 (12) TMI 1573 - AT - Income Tax

Puja expense incurred on occasion of Diwali and Mahurat are customary expenses and going by the turnover of the assessee-company and the nature of the business of the assessee, we feel that these are incurred for the harmony of the assessee-company s employees and these are for the purpose of business. Similar are the reasons for incurring temple expense Addition on account of cess on green leaf - Hld that - This issue is covered by the decision of Hon ble jurisdictional High Court in the case of AFT Industries Ltd. V. CIT (2004 (7) TMI 81 - CALCUTTA High Court ), wherein it has been decided by Hon ble jurisdictional High Court that cess on green leaf is a normal business expenditure TDS liability - disallowance u/s 40(a)(ia) - Held that - The commission paid to foreign agents, who are not having permanent establishment business place in India and they are providing services outside India and even the payment is directly made outside India in foreign exchange. Assessee s income does not accrue or arise in India and once income does not accrue or arise in India, the assessee is not liable to deduct TDS on foreign payments

Issues:
1. Allowance of puja and temple expenses as business expenditure.
2. Deletion of addition on account of cess on green leaf.
3. Disallowance due to non-deduction of TDS under section 40(a)(ia) of the Income-tax Act.

Analysis:

Issue 1: Allowance of Puja and Temple Expenses
The first issue in this appeal concerns the allowance of puja and temple expenses as business expenditure. The Revenue challenged the order of the Commissioner of Income-tax (Appeals) directing the Assessing Officer to allow these expenses. The Assessing Officer had disallowed the puja and temple expenses of the assessee-company as non-business expenditure. However, the Commissioner of Income-tax (Appeals) allowed the claim of the assessee, considering the expenses as incurred for the welfare and entertainment of staff, which could lead to better profits for the company. The Appellate Tribunal found that these customary expenses, incurred on occasions like Diwali and Mahurat, were for the harmony of the company's employees and thus for the purpose of business. Consequently, the Tribunal confirmed the order of the Commissioner of Income-tax (Appeals) and dismissed this issue of the Revenue's appeal.

Issue 2: Deletion of Addition on Account of Cess on Green Leaf
The second issue pertains to the deletion of an addition on account of cess on green leaf. The Revenue contested the deletion of this addition by the Commissioner of Income-tax (Appeals), citing a pending Special Leave Petition (SLP) before the Supreme Court against a decision of the Calcutta High Court. However, the Appellate Tribunal noted that the issue was covered by a decision of the jurisdictional High Court, which determined that cess on green leaf constituted a normal business expenditure. As the jurisdictional High Court's decision favored the assessee, the Tribunal confirmed the order of the Commissioner of Income-tax (Appeals) on this issue, resulting in the dismissal of the Revenue's appeal.

Issue 3: Disallowance Due to Non-Deduction of TDS
The final issue in this appeal concerns the disallowance made due to the non-deduction of Tax Deducted at Source (TDS) under section 40(a)(ia) of the Income-tax Act. The Assessing Officer disallowed a commission paid to a foreign agent for failing to deduct TDS. However, the Commissioner of Income-tax (Appeals) allowed the claim of the assessee, citing a Supreme Court decision clarifying that TDS obligations arise only when the sum is chargeable under the Act. The Tribunal upheld the Commissioner's decision, noting that the commission was paid to foreign agents without a permanent establishment in India, and the services were rendered outside India. As the income did not accrue or arise in India, the Tribunal confirmed the deletion of the disallowance, in line with the Supreme Court's ruling. Therefore, this issue of the Revenue's appeal was also dismissed.

In conclusion, the Appellate Tribunal dismissed the Revenue's appeal on all three issues, upholding the decisions of the Commissioner of Income-tax (Appeals) in allowing the puja and temple expenses, deleting the addition on account of cess on green leaf, and permitting the deduction of TDS in the case of foreign payments.

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