2015 (2) TMI 394 - AT - Income Tax

Depreciation @ 60% on UPS treating it as part of computers - Held that - Following the order of the Chennai Bench of the Tribunal in the case Sundaram Asset Management vs. DCIT 2014 (2) TMI 224 - ITAT CHENNAI , we hereby hold that UPS is to be treated as part of the computer and the depreciation is to be allowed accordingly, thereby we confirm the order of the Ld. CIT (A) - Decided in favour of assessee. Applicability of Sec.40 (a)(i) with respect to reimbursement of communication expenses paid to non-residents and expenditure on managing sales affairs outside India - Held that - As there is no income earned by Respondentassessee which is subject to tax but is only a reimbursement of communication expenses paid to non-residents, no dis-allowance warranted. See DIT(IT)-1 V. WNS Global Services (UK) Ltd 2013 (10) TMI 215 - BOMBAY HIGH COURT . - Decided in favour of assessee. For expenditure on managing sales affairs outside India the assessee paid certain amounts to overseas agents for procurement of export orders. The agents have not provided any managerial/technical services. The payments received by the nonresident Indian are not taxable in India, thus Sec.195 have no application to assessee s case. See ACIT V. Farida Shoes (P) Ltd 2013 (11) TMI 907 - ITAT CHENNAI - Decided in favour of assessee.

Summary

Issues:
- Disallowance of excess depreciation claimed on UPS
- Applicability of Sec.40(a)(i) of the Act on reimbursement of communication expenses and expenditure on managing sales affairs outside India

Analysis:

Issue 1: Disallowance of excess depreciation on UPS
The Revenue challenged the allowance of depreciation at 60% on UPS treated as part of computers for the assessment years 2007-08 and 2008-09. The Assessing Officer disallowed the excess claim of depreciation, but the CIT (A) deleted the addition, citing precedents where UPS was considered an integral part of computers. The Tribunal upheld the CIT (A)'s decision, emphasizing that UPS should be treated as part of the computer, allowing depreciation at 60%.

Issue 2: Applicability of Sec.40(a)(i) on reimbursement of communication expenses and sales affairs expenditure
- *Reimbursement of communication expenses:* The Assessing Officer disallowed payments made for utilizing leased lines and backup servers outside India, treating them as royalty under Sec.9(1)(vi). However, the CIT (A) deleted the disallowance based on the Tribunal's decision in the assessee's case for the assessment year 2005-06. The Tribunal upheld the CIT (A)'s decision, noting that the reimbursement was not taxable income but a recovery of actual expenses.
- *Expenditure on managing sales affairs outside India:* The Assessing Officer disallowed expenditures on managing sales affairs outside India for non-compliance with Sec.195. The CIT (A) deleted the disallowance, citing relevant case law and the Supreme Court's decision in GE India Technology Center Pvt Ltd Vs. CIT. The Tribunal agreed with the CIT (A) that the case was identical to previous rulings, confirming the deletion of the disallowance.

In conclusion, all three appeals by the Revenue were dismissed, with the Tribunal upholding the decisions of the CIT (A) on all issues, providing detailed analysis and legal references to support their findings.