2013 (6) TMI 48 - HC - Income Tax

Payments to sister concerns - disallowance u/s 40A(2)(a) - ITAT deleted the addition - Held that - As the payments made by the assessee to its sister concerns was reimbursement for the salaries of the employees who have been deputed by the sister concerns to work with the respondent assessee & it is not the case of the revenue that the assessee had made any payment for consideration extraneous to any allegation that the amounts paid to its sister concerns were over and the above the salaries due to the employees. Tribunal conclusion that the expenditure was incurred for salaries and thus no occasion to invoke Section 40(a)(ia) requires no entertainment. Disallowance of interest expenditure - interest free advances for non business purposes - the Tribunal upheld the finding of fact of the CIT(A) that no advances for non business purposes had been made by the assessee - Held that - As applying the decision of CIT v. Reliance Utility & Powers Ltd. 2009 (1) TMI 4 - HIGH COURT BOMBAY to hold that the respondent was in possession of its own interest free funds to the extent of Rs.72 lacs. it has to be presumed that interest free advances have been made out the same - no reason to entertain this question.

Issues:
1. Payments to sister concerns for services rendered - disallowance under Section 40(a)(ia)
2. Tax implication of payments made to sister concerns
3. Invocation of Section 40(a)(ia) for technical and professional services
4. Disallowance of interest expenditure for interest-free advances

Analysis:

1. Payments to sister concerns for services rendered - disallowance under Section 40(a)(ia):
The Assessing Officer disallowed payments made by the respondent assessee to sister concerns for salaries of deputed employees under Section 40(a)(ia) for failure to deduct tax. The CIT(A) upheld this disallowance, but the Tribunal found that the payments were reimbursement for salaries of deputed employees, not over and above the due amounts. As it was a factual finding, the Tribunal concluded that the expenditure was incurred for salaries, and Section 40(a)(ia) was not applicable. Therefore, the Tribunal's decision was upheld, and the question was not entertained.

2. Tax implication of payments made to sister concerns:
The Tribunal did not consider the tax evasion complexion of the payments to sister concerns, as argued by the revenue. However, since this question was considered a facet of the first issue and the main finding was based on facts, the Tribunal did not independently address this question.

3. Invocation of Section 40(a)(ia) for technical and professional services:
The Tribunal held that the invocation of Section 40(a)(ia) was not correct for payments made for technical and professional services where tax was deductible at source. The Tribunal's decision was based on factual findings, and thus, the question was admitted for further consideration.

4. Disallowance of interest expenditure for interest-free advances:
The Assessing Officer disallowed interest expenditure due to interest-free advances for non-business purposes. However, the Tribunal upheld the CIT(A)'s finding that no such advances were made. Citing a previous court decision, the Tribunal presumed that the respondent had enough interest-free funds, leading to no disallowance. As this decision was based on factual findings and previous legal precedent, the question was not entertained.

In conclusion, the Tribunal's decisions on the issues regarding payments to sister concerns and interest expenditure were upheld based on factual findings and legal interpretations. The question related to the invocation of Section 40(a)(ia) for technical and professional services was admitted for further consideration.

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