2015 (12) TMI 889 - AT - Income Tax

Tds u/s 195 - disallowance under section 40(a)(i)in respect of the amount paid to non-resident M/s. Fund Quest for the purpose of investment management - non deuction of TDS - whether the payments made by the assessee to Fund Quest is in the nature of royalty? - Held that - A perusal of the term of Royalty as defined in the Act shows that it does not include any information provided in the course of advisory services. We do not agree with the findings of the CIT(Appeals) on the issue. Since, 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. The findings of the CIT(Appeals) on this issue are set aside - Decided in favour of assessee. Disallowance of expenditure incurred on improvement/renovation of leasehold building - CIT(A) deleted the addition - Held that - The expenditure incurred by the assessee for demolition, painting, flooring, partition, modular and electrical works on the leasehold premises is revenue expenditure. Thus, we uphold the orders of the Commissioner of Income Tax (Appeals) on this issue and reject the grounds of appeal raised by the Revenue. See Sundaram BNP Paribas Asset Management Co. Ltd. v. ACIT 2011 (1) TMI 1242 - ITAT CHENNAI - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of payments made to non-resident for investment management.
2. Disallowance of expenditure on improvement/renovation of leasehold building.

Analysis:

Issue 1: Disallowance of payments made to non-resident for investment management
The Revenue appealed against the Commissioner of Income Tax (Appeals) orders for the assessment years 2009-10 & 2010-11 regarding disallowance of payments to non-resident M/s. Fund Quest. The Revenue argued that the payments should be treated as royalty, while the assessee contended that a similar issue was decided in their favor by the Tribunal for the earlier assessment year. The Tribunal examined the nature of the services provided by Fund Quest and concluded that the payments did not qualify as royalty under the Income Tax Act. Relying on the earlier decision, the Tribunal upheld the deletion of disallowance by the Commissioner of Income Tax (Appeals) and dismissed the Revenue's appeal.

Issue 2: Disallowance of expenditure on improvement/renovation of leasehold building
The second issue involved the disallowance of expenditure on improvement/renovation of a leasehold building. The assessee claimed that the expenses were revenue expenditure, citing a previous Tribunal decision for the assessment year 2008-09. The Revenue contended that the expenses should be treated as capital expenditure. The Tribunal analyzed the nature of the expenses, considering the interior decoration and creation of office atmosphere. Following the precedent set by a previous decision and Explanation 1 to section 32(1), the Tribunal held that the expenditure incurred on demolition, painting, flooring, partition, and electrical works was revenue expenditure. Consequently, the Tribunal upheld the Commissioner of Income Tax (Appeals) decision to delete the disallowance, dismissing the Revenue's appeal.

In conclusion, both appeals of the Revenue were dismissed by the Tribunal based on the detailed analysis and application of relevant legal provisions and precedents in each issue.