2013 (12) TMI 886 - AT - Income Tax

Tax not deducted at source on commission to non-resident selling agents - Held that - The assessee paid commission to M/s Wallace Cartwright & Co - None of the authorities have verified agreement between the assessee and the said company, based on which payments were effected to them - No examination has also been done as to whether there existed any DTAA between India and Tunisia and what was the definition of technical services if any in such DTAA. Reimbursement made to subsidiary for expenses incurred - Held that - None of the authorities have verified the base on which the reimbursements had been done - The issue has been restored for fresh adjudication. Disallownace u/s 14A - Held that - The disallowance under Section 14A could not have been made since Rule 8D of Income-tax Rules, 1962 was not applicable for that assessment year - Rule 8D is applicable w.e.f. A.Y. 2008-09 - Decided against Revenue.

Summary

Issues:
1. Disallowance under Section 40(a)(i) of Income-tax Act, 1961 for commission paid to non-resident selling agents and reimbursement of expenses to a subsidiary company.
2. Disallowance under Section 14A of the Act.

Issue 1 - Disallowance under Section 40(a)(i) of the Act:
The appellant, engaged in manufacturing and selling tractors, debited a sum as commission to selling agents without deducting tax at source. The Assessing Officer disallowed the sum under Section 40(a)(ia) for non-deduction of tax, stating that the services utilized in India did not fall within the exception clause of Section 9(1)(vii) (b) of the Act. A similar disallowance was made for reimbursements to overseas offices. The CIT(Appeals) deleted the disallowance, citing the decision of GE India Technology Centre (P.) Ltd. The Revenue appealed, arguing that the CIT(Appeals) did not examine the agreements and profit elements. The tribunal found lack of verification on agreements and DTAA definitions, remitting the issue back to the Assessing Officer for fresh consideration.

Issue 2 - Disallowance under Section 14A of the Act:
The Revenue raised a grievance that the CIT(Appeals) deleted a disallowance under Section 14A. The Tribunal noted a similar issue in a previous case and upheld the CIT(Appeals) decision based on the Tribunal's previous ruling. Consequently, the ground of the Revenue was dismissed.

In conclusion, the appeal by the Revenue was partly allowed for statistical purposes, with the issue of disallowance under Section 40(a)(i) remitted back for fresh consideration by the Assessing Officer. The disallowance under Section 14A was upheld based on a previous ruling.