2015 (8) TMI 36 - AT - Income Tax

Disallowance under section 14A - CIT(A) restricted addition to 2% as against 10% disallowed by the Assessing Officer - Held that - CIT(Appeals) restricted disallowance under section 14A to 2% relying on the decision of the co-ordinate Bench of this Tribunal in assessee s own case for the assessment year 2001-02. Thus we do not find any infirmity in the order passed by the Commissioner of Income Tax (Appeals) - Decided against revenue. Disallowance u/s 40(a)(i) in respect of the amounts paid by the assessee to M/s. Amalgamation Pvt. Ltd. - Non deduction of TDS - CIT(A) deleted addition - Held that - It is understood from the facts of the case that Amalgamation Pvt Ltd is a holding company under which several other group companies are working. Whatever expenditure is incurred by the holding company in London to share the office space, advertisement expenses, travelling, telephone charges etc., are being shared by all of them as per the understanding they had with the holding company. The share of expenditure paid by the subsidiary companies are in the form of reimbursement of expenditure incurred by the holding company on behalf of subsidiary companies. Since the reimbursement of expenditure by the holding company is not leading to any accrual of income in the hands of that company, the question of making TDS on such income does not arise. Further the amounts paid outside India in the instant case are not falling under either royalty, interest or fee for technical services, therefore they are not chargeable to tax in India. The decision of the Hon ble Supreme Court in the case of G.E. India Technology Centre P Ltd, (2010 (9) TMI 7 - SUPREME COURT OF INDIA) comes to the rescue of the appellant.- Decided against revenue.

Summary

Issues:
1. Disallowance under section 14A of the Act - Restriction to 2% of exempt income
2. Disallowance under section 40(a)(i) in respect of payments to M/s. Amalgamation Pvt. Ltd.

Issue 1: Disallowance under section 14A of the Act - Restriction to 2% of exempt income

The Revenue appealed against the Commissioner of Income Tax (Appeals) directing the Assessing Officer to restrict disallowance under section 14A to 2% of exempt income instead of the 10% initially adopted. The Assessing Officer disallowed 10% of the dividend income earned by the assessee as expenses attributable to earning the dividend income under section 14A. The Commissioner of Income Tax (Appeals) restricted the disallowance to 2% based on a previous Tribunal order in the assessee's own case for the assessment year 2001-02. The Tribunal upheld the Commissioner's decision, citing no infirmity in the order and rejecting the Revenue's grounds.

Issue 2: Disallowance under section 40(a)(i) in respect of payments to M/s. Amalgamation Pvt. Ltd.

The Revenue challenged the Commissioner of Income Tax (Appeals) directing the deletion of disallowance made under section 40(a)(i) for payments to M/s. Amalgamation Pvt. Ltd. The Assessing Officer proposed disallowance due to non-deduction of TDS on payments made to M/s. Amalgamation Pvt. Ltd. The Commissioner of Income Tax (Appeals) considered whether TDS provisions applied to these payments and concluded that since the amounts were reimbursement of expenses incurred by the holding company on behalf of the subsidiary company, TDS provisions did not apply. The Tribunal upheld the Commissioner's decision, finding no reason to interfere with the deletion of the disallowance, and dismissed the Revenue's appeals.

In conclusion, the Tribunal affirmed the decisions of the Commissioner of Income Tax (Appeals) in both issues, upholding the restriction of disallowance under section 14A to 2% of exempt income and the deletion of disallowance under section 40(a)(i) for payments to M/s. Amalgamation Pvt. Ltd. The appeals by the Revenue were dismissed, and the orders were pronounced in open court on 22.5.2015.