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2014 (2) TMI 224 - AT - Income TaxDis-allowance u/s 14A of the Act r.w Rule 8D of the Rules Held that - The decision in Cheminvest Ltd. v. ITO 2009 (8) TMI 126 - ITAT DELHI-B followed - if the expenditure is incurred in relation to income which does not form part of total income it has to suffer dis-allowance irrespective of the fact whether any income is earned by the assessee or not Section 14A does not envisage any such exception - Thus, the dis-allowance has to be made u/s. 14A r.w.r. 8D - the assessee has made investments - Some of the investments made by the assessee are short term - Since assessee is paying capital gains tax on short term investments, the provisions of Rule 8D will not apply on them - The Assessing Officer is directed to re-compute dis-allowance u/s. 14A r.w.r. 8D after excluding short term investments Decided partly in favour of Assessee. Dis-allowance u/s 40(a)(ia) of the Act Advisory services provided Royalty to be paid or not Held that - The payments cannot be termed as Royalty as defined under the provisions of the Act - the term of Royalty as defined in the Act shows that it does not include any information provided in the course of advisory services - payments made to M/s. Fund Quest are not in the nature of Royalty and the services were rendered abroad, no part of income had accrued or arisen in India - The assessee is not liable to deduct tax at source on the payments so made order of the CIT(A) set aside Decided in favour of Assessee. Repairs of lease-hold premises Held that - The decision in Sundaram BNP Paribas Asset Management Co. Ltd. 2011 (1) TMI 1242 - ITAT CHENNAI - A perusal of the break up of the expenses which have been disallowed clearly shows that the expenditures are on the interior decorations and creation of the office atmosphere - The expenditure has not resulted in any building coming into existence nor has the existing building been modified or the structure altered - As the existing building has not been altered and there is no change to its structure as a result of the expenditure incurred by the assessee, it cannot be said that the expenditure incurred by the assessee is in the capital field - the expenditure incurred is in the revenue field - the expenditure on the repairs and maintenance in the form of electrical fittings, electrification, cabinet, work station, partition, cupboard, stand etc. are liable to be treated as a revenue expenditure order of the CIT(A) set aside and the AO is directed to grant the assessee the claim of revenue expenditure in regard to the said expenditure Decided in favour of Assessee. Depreciation on UPS Depreciation to be allowed at 15% OR 60% - Held that - The decision in Haworth (India) P. Ltd. Versus Deputy Commissioner of Income-tax 2013 (8) TMI 421 - ITAT DELHI followed - UPS is an integral part of the computer when a device is used as part of the computer in its functions, then it would be termed as a computer thus , the assessee is entitled to claim depreciation @ 60% on UPS Decided in favour of Assessee. Difference between TDS and actual tax - Investment management fee Held that - The assessee should not be taxed twice for the same income or taxed for the income which has not accrued to him - certain reversal entries were made to adjust the excess payments the tax has been paid on such excess payments - The income which has not accrued to the assessee is not liable to be taxed - The error was discovered during audit which was rectified - the addition made is unjustified The decision in COMMISSIONER OF INCOME-TAX Versus SUDHIR SEKHRI 2010 (4) TMI 50 - DELHI HIGH COURT followed Decided in favour of Assessee. Disallowance u/s 40(a)(ia) of the Act Payment made to mutual fund distributors TDS on brokerage/commission not paid as per section 194H of the Act Held that - Securities include Mutual Funds and the provisions of Section 194H excludes commission or brokerage paid on securities the services rendered by Mutual Fund brokers do not fall within the term Professional Services - The services of Mutual Fund brokers cannot be termed as technical services as well, as the brokers do not require any special qualification in the field of law, engineering, accountancy or technical consultancy - Even an ordinary graduate from humanities group can be a broker - The brokers do not provide any technical know-how either, thus services rendered by them cannot be termed as technical services Decided in favour of Assessee.
Issues Involved:
1. Disallowance under Section 14A read with Rule 8D. 2. Disallowance under Section 40(a)(i) regarding non-deduction of tax at source on payments to a non-resident firm. 3. Capitalization of expenses on extension and renovation of building. 4. Disallowance of excess depreciation on UPS. 5. Investment Management Fee. 6. Disallowance under Section 40(a)(ia) on payments made to mutual fund distributors. 7. Re-computation of book profit under MAT provisions. 8. Levy of interest under Sections 234B and 234D. Detailed Analysis: 1. Disallowance under Section 14A read with Rule 8D: The assessee contended that no expenditure was incurred to earn dividends. The Tribunal referred to the decision in Cheminvest Ltd. v. ITO, which held that disallowance under Section 14A applies irrespective of whether any income is earned. The Tribunal directed the Assessing Officer to re-compute disallowance under Section 14A read with Rule 8D after excluding short-term investments, as the capital gains arising from them are taxable. This ground of appeal was partly allowed. 2. Disallowance under Section 40(a)(i) regarding non-deduction of tax at source on payments to a non-resident firm: The assessee argued that the payment to M/s. Fund Quest was for advisory services rendered abroad and did not constitute 'Royalty' under the Act. The Tribunal agreed, stating that the payments did not fall under the definition of 'Royalty' as per Explanation 2 to Section 9(1)(vi). Since the services were rendered abroad and no income accrued in India, the assessee was not liable to deduct tax at source. This ground of appeal was allowed. 3. Capitalization of expenses on extension and renovation of building: The assessee claimed the expenses as revenue expenditure, while the authorities treated them as capital expenditure. The Tribunal, referring to a similar case (Sundaram BNP Paribas Asset Management Co. Ltd.), held that the expenses were for interior decoration and did not result in any structural change or creation of a new asset. Thus, the expenditure was revenue in nature, and this ground of appeal was allowed. 4. Disallowance of excess depreciation on UPS: The assessee claimed depreciation on UPS at 60%, treating it as part of the computer system. The Tribunal noted that various decisions had consistently treated UPS as an integral part of the computer, allowing 60% depreciation. This ground of appeal was allowed. 5. Investment Management Fee: The assessee argued that the difference in TDS and actual tax occurred due to excess invoicing, which was later reversed. The Tribunal held that the income which had not accrued to the assessee was not liable to be taxed. The addition made by the Assessing Officer was unjustified, and this ground of appeal was allowed. 6. Disallowance under Section 40(a)(ia) on payments made to mutual fund distributors: The Tribunal noted that the commission/brokerage paid to mutual fund distributors was covered under Section 194H, which excludes payments related to securities. The services rendered by the distributors did not qualify as professional or technical services under Section 194J. This ground of appeal was allowed. 7. Re-computation of book profit under MAT provisions: The Tribunal acknowledged the assessee's statement that the net profit under normal computation was higher than book profits computed under MAT provisions. Therefore, this ground of appeal was dismissed as academic. 8. Levy of interest under Sections 234B and 234D: The Tribunal noted that the levy of interest is consequential in nature. Therefore, this ground of appeal was dismissed. Conclusion: The appeal of the assessee was partly allowed based on the detailed analysis of each issue. The Tribunal provided specific directions and relied on relevant case laws to arrive at its conclusions. The order was pronounced on 19th July 2013 at Chennai.
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