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2016 (8) TMI 1153 - AT - Income TaxTDS u/s 195 - Disallowance on account of foreign commission - whether the commission paid to non resident agents could be disallowed when it was paid without deduction of tax at source under section 195? - Held that - The payment of commission in the hands of the non-resident agent as long as such an agent carries out its activities outside India does not result in taxability in the hands of the agent in India. Accordingly the provisions of Section 195 and therefore 40(a)(i) donot come into play. Learned CIT(A) was thus quite justified in granting the impugned relief. - Decided in favour of assessee Disallowance on account of product registration fees - Held that - We find that this issue is now covered in favour of the assessee by Hon ble jurisdictional High Court s judgments in the cases of CIT Vs Torrent Pharmaceuticals Ltd 2013 (4) TMI 570 - GUJARAT HIGH COURT and CIT vs Cadila Healthcare Ltd 2013 (3) TMI 539 - GUJARAT HIGH COURT wherein Their Lordships have inter alia held that the product registration expenses is eligible for deduction as revenue expenditure. - Decided in favour of assessee Disallowance on account of electric installations - Held that - This issue is also covered in favour of the assessee by order in assessee s own case for the assessment year 2005-06. Learned CIT(A) has merely followed this decision in deleting the addition - Decided in favour of assessee
Issues Involved:
1. Deletion of disallowance on account of foreign commission. 2. Deletion of disallowance on account of product registration fees. 3. Deletion of disallowance on account of electric installations. Detailed Analysis: 1. Deletion of Disallowance on Account of Foreign Commission: The Assessing Officer (AO) challenged the deletion of disallowance of ?37,67,237 made on account of foreign commission. The AO contended that the commission paid to non-resident agents without tax deduction at source under Section 195 should be disallowed under Section 40(a)(i). The Tribunal referred to a coordinate bench decision in the case of ITO Vs Excel Chemicals India Pvt Ltd, where it was held that commission paid to non-resident agents for services rendered outside India is not taxable in India. The Tribunal emphasized that the AO overlooked Explanation 1 to Section 9(1)(i), which states that only income attributable to operations carried out in India can be taxed. Since the non-resident agents did not carry out any operations in India, their commission income was not taxable in India. The Tribunal also referred to the Supreme Court's decision in G E India Technology Centre Pvt Ltd Vs CIT, which clarified that tax deduction at source is required only when the payment has an element of income chargeable to tax in India. Therefore, the Tribunal upheld the CIT(A)'s decision to delete the disallowance. 2. Deletion of Disallowance on Account of Product Registration Fees: The AO disallowed ?30,86,537 out of the total ?38,78,253 incurred by the assessee for product registration fees, treating it as capital expenditure. The assessee argued that the expenditure was a routine marketing expense necessary for selling products in foreign markets, and the registration fees were recurring in nature. The Tribunal referred to the jurisdictional High Court's judgments in CIT Vs Torrent Pharmaceuticals Ltd and CIT vs Cadila Healthcare Ltd, which held that product registration expenses are deductible as revenue expenditure. Consequently, the Tribunal upheld the CIT(A)'s decision to delete the disallowance. 3. Deletion of Disallowance on Account of Electric Installations: The AO disallowed ?10,66,974 on account of electric installations, treating it as capital expenditure. The Tribunal noted that this issue was already decided in favor of the assessee in the assessment year 2005-06 by a coordinate bench. The CIT(A) followed this precedent, and the Tribunal saw no reason to interfere with the CIT(A)'s decision. Conclusion: The Tribunal dismissed the appeal filed by the AO, upholding the CIT(A)'s decisions on all three issues. The cross-objection filed by the assessee was also dismissed as infructuous. The judgment was pronounced in the open court on 16th August 2016.
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