2015 (8) TMI 309 - AT - Income Tax

Dis-allowance u/s.40(a)(ia) - commission paid to overseas agents without deduction of tax - CIT(A) deleted disallowance - Held that - FAA accepting the contentions of the assessee has given a categoric finding that the payments were made to overseas agents for the services rendered outside India in marketing of its products. The foreign agents have no PE in India and the remittances were made to them in foreign exchange through brokers. The Revenue has not been able to controvert the aforesaid findings. Since, the commissions paid to the overseas agents were not taxable in India, there was no question of deduction of tax at source u/s.195 on such payments. The Hon ble Apex Court in the case of GE India Technology Cen. (P) Ltd., Vs. CIT (2010 (9) TMI 7 - SUPREME COURT OF INDIA) has held that if the remittances is not taxable in India, the question of deducting tax on the said amount does not arise. Also see CIT Vs. Faizan Shoes (P) Ltd., (2014 (8) TMI 170 - MADRAS HIGH COURT). No error in the findings of CIT(Appeals) on the issue - Decided in favour of assessee. Disallowance of expenditure on overhauling of windmills as current repairs u/s.37(1) - CIT(A) deleted disallowance - Held that - The fact that the expenditure has been incurred on overhauling of wind mill machinery has not been disputed by Revenue. It is equally un-disputed that with the overhauling of wind mill machinery, there is no change in the capacity or structure of the wind mill. The overhauling of wind mills was carried out to sustain their production efficiency. We are of the considered opinion that the expenditure on overhauling of windmills is allowable as revenue expenditure u/s.37(1) of the Act. Therefore, this ground of appeal of the Revenue is also dismissed.- Decided in favour of assessee.

Summary

Issues:
1. Disallowance u/s.40(a)(ia) of the Income Tax Act for commission paid to overseas agents.
2. Treatment of expenditure on overhauling of windmills as 'current repairs' u/s.37(1) of the Act.

Issue 1: Disallowance u/s.40(a)(ia) - Commission to Overseas Agents

The Revenue appealed against the order of the Commissioner of Income Tax(Appeals)-I, Coimbatore regarding disallowance u/s.40(a)(ia) for commission paid to overseas agents without tax deduction. The assessee argued that the payments were for services rendered abroad, not taxable in India, and remittances were in foreign exchange. The CIT(Appeals) ruled in favor of the assessee, citing precedents like GE India Technology Cen. (P) Ltd. vs. CIT and ACIT vs. Farida Shoes (P) Ltd. The Tribunal upheld the decision, stating that since the payments were not taxable in India, tax deduction was not required, following the decision in CIT vs. Faizan Shoes (P) Ltd.

Issue 2: Treatment of Expenditure on Overhauling of Windmills

The second issue involved the treatment of expenditure on overhauling windmills as 'current repairs' u/s.37(1) of the Act. The assessee had incurred a substantial amount on overhauling wind mill generators. Initially, depreciation was claimed, but later modified to claim it as revenue expenditure. The Assessing Officer rejected the claim, stating no new asset was created. The Tribunal referred to Goetze (India) Ltd. vs. CIT, emphasizing the need for revised returns for claim adjustments. However, the Tribunal found that the expenditure on overhauling windmills was for sustaining production efficiency, not altering capacity or structure, making it allowable as revenue expenditure u/s.37(1) of the Act. Consequently, the Tribunal dismissed the Revenue's appeal, as the expenditure was deemed valid.

In conclusion, the Tribunal upheld the CIT(Appeals) decision on both issues, dismissing the Revenue's appeal for lack of merit. The judgment provided detailed analysis and legal reasoning, citing relevant precedents and statutory provisions to support the conclusions reached.