2013 (4) TMI 814 - AT - Income Tax

Summary

Issues Involved:

1. Disallowance of commission payments to non-resident sales agents u/s 40(a)(i) and u/s 37.
2. Disallowance of revenue expenditure classified as "expenditure on R & D" u/s 37.
3. Disallowance of depreciation on UPS attached to computers.

Summary:

1. Disallowance of Commission Payments to Non-Resident Sales Agents:

The Assessee contested the disallowance of Rs. 18,60,71,511/- towards commission payments to non-resident sales agents, which was upheld by the CIT(A) u/s 40(a)(i) for failure to deduct tax at source. The Assessee argued that the commission paid for services rendered outside India was not chargeable to tax under the Act, referencing the Supreme Court decision in M/s. Toshuku Ltd. and CBDT Circular No. 786. The Tribunal, relying on its previous decision for A.Y. 2005-06 and the Supreme Court ruling in GE India Technology Centre vs. CIT (327 ITR 456), held that the Assessee was not liable to deduct tax at source u/s 195(1) as the income was not taxable in India. The Tribunal allowed the appeal on this ground.

Regarding the disallowance under Section 37, the Tribunal referred to its earlier order for A.Y. 2009-10, confirming that the commission was incurred wholly and exclusively for business purposes. The Tribunal emphasized that the expenditure met all conditions under Section 37(1) and was supported by documentary evidence, such as agreements and emails, demonstrating the services rendered by the agents. The disallowance of Rs. 9,88,29,729/- was deleted.

2. Disallowance of Revenue Expenditure on R & D:

The Assessee challenged the disallowance of Rs. 2,11,68,564/- classified as "expenditure on R & D" by the CIT(A). The Tribunal noted that the issue was covered by its earlier decision in ITA No. 85/PNJ/2012, where it was established that the expenditure was not claimed as scientific research u/s 35 but as normal revenue expenditure u/s 37. The Tribunal confirmed the deletion of the disallowance, allowing the Assessee's claim.

3. Disallowance of Depreciation on UPS:

The Assessee disputed the disallowance of Rs. 1,49,782/- by restricting depreciation on UPS attached to computers at 15% instead of the claimed 60%. The Tribunal referred to decisions from the Delhi High Court and other Tribunals, which allowed 60% depreciation on UPS as part of the computer system. Following these precedents, the Tribunal set aside the CIT(A)'s order and directed the Assessing Officer to allow 60% depreciation on UPS.

Conclusion:

The appeal filed by the Assessee was allowed on all grounds. The Tribunal's order was pronounced in the open court on 26.04.2013.