2015 (12) TMI 1323 - AT - Income Tax

Clean development mechanism (CDM) receipts - whether are not subsidies but trading receipt? - Held that - Commissioner of Income Tax (Appeals) allowed the claim of the assessee holding that clean development mechanism would constitute capital receipt in the hands of the assessee following the decision of the co-ordinate Bench in assessee s own case for the assessment year 2009-10. Thus we hold that carbon credit receipts are capital in nature and thus, we uphold the order of the Commissioner of Income Tax (Appeals) and reject the grounds raised by the Revenue on this issue. - Decided in favour of assessee. Foreign commission payment - TDS liability u/s 195 - whether made only for the purpose of managing sales of the assessee outside India by means of engaging agents and as per the provisions of section 9(1)(vii) of the Act any payment made for the purpose of rendering managerial services outside India shall be considered only as payment made for fees for technical services? - Held that - Supreme Court in the case of GE India Technology Centre Private Limited Vs CIT (2010 (9) TMI 7 - SUPREME COURT OF INDIA) wherein held that the assessee is not liable to deduct TDS when nonresident provided service outside India. It was held that when the services are provided outside India, the commission payments made to non-resident cannot be treated as income deemed to accrue or arise in India, therefore the provisions of section 195 has no application. It is clear that in order to invoke the provisions of Section 195 of the Income tax Act, the income should be chargeable to tax in India. Here, the commission payments to non-resident in the case of the appellant are not chargeable to tax in India and therefore the provisions of Section 195 are not applicable. In the case of appellant, the facts are similar and the decision of the Hon ble Supreme Court and also the jurisdictional Tribunal decision referred to above is squarely applicable. Hence, the Assessing Officer is correctly directed to delete the addition made u/s 40(a)(ia for non-deduction of TDS in respect of commission payments to non-resident.- Decided in favour of assessee. Entitlement for deduction under section 80IA on windmills - Held that - All the business undertakings are wind mills and they have claimed the benefit of deduction under Section 80IA of the Income Tax Act for the assessment years in question and for the subsequent years as well. Having exercised their option and their losses have been set off already against other income of the business enterprise, the assessee in this appeal falls within the parameters of Section 80IA of the Income Tax Act. See Velayudhasamy Spinning Mills (2010 (3) TMI 860 - Madras High Court ) - Decided in favour of the assessee

Summary

Issues Involved:
1. Nature of Clean Development Mechanism (CDM) Receipts.
2. Disallowance of Foreign Commission Payment under Section 40(a)(i) of the Income Tax Act.
3. Entitlement for Deduction under Section 80IA of the Income Tax Act on Windmills.

Issue-wise Detailed Analysis:

1. Nature of Clean Development Mechanism (CDM) Receipts:

The first issue concerns whether CDM receipts should be considered as subsidies or trading receipts. The Tribunal had previously decided in favor of the assessee for the assessment year 2009-10, holding that such receipts are capital in nature and not revenue receipts. The Revenue contended that these receipts should be taxed as revenue receipts. However, the Tribunal reaffirmed its stance, citing the earlier decision, which stated that carbon credits are an entitlement received to improve the environment and are capital receipts. The Tribunal emphasized that carbon credits are not generated from business activities but due to global environmental concerns, and thus, the receipts from their sale should not be taxed as revenue income. Consequently, the Tribunal upheld the order of the Commissioner of Income Tax (Appeals) and rejected the Revenue's grounds on this issue.

2. Disallowance of Foreign Commission Payment under Section 40(a)(i) of the Income Tax Act:

The second issue pertains to the disallowance of foreign commission payments made by the assessee to non-resident agents without deducting TDS, which the Assessing Officer treated as fees for technical services. The Commissioner of Income Tax (Appeals) deleted the disallowance, relying on the jurisdictional High Court's decision in the case of ITO Vs. Faizan Shoes and the Supreme Court's decision in G.E. India Technology Centre Pvt. Ltd. The Tribunal agreed with the Commissioner of Income Tax (Appeals), noting that the payments made to foreign agents for procuring export orders do not fall under the category of fees for technical services and are not taxable in India. Therefore, the provisions of Section 195 do not apply, and the disallowance under Section 40(a)(i) was rightly deleted.

3. Entitlement for Deduction under Section 80IA of the Income Tax Act on Windmills:

The third issue involves the assessee's claim for deduction under Section 80IA for the installation of windmills. The Assessing Officer disallowed the claim, stating that the jurisdictional High Court's decision in the case of Sri Velayudhasamy Spinning Mills Pvt. Ltd. was not final as the Department had filed a Special Leave Petition (SLP) before the Supreme Court. However, the Commissioner of Income Tax (Appeals) allowed the claim, following the jurisdictional High Court's decision. The Tribunal upheld the Commissioner of Income Tax (Appeals)'s order, noting that the decision of the jurisdictional High Court should be followed unless overturned by the Supreme Court. Therefore, the Tribunal sustained the order allowing the deduction under Section 80IA and rejected the Revenue's grounds on this issue.

Conclusion:

The Tribunal dismissed the appeal of the Revenue, upholding the orders of the Commissioner of Income Tax (Appeals) on all three issues. The Tribunal's decision reinforces the position that CDM receipts are capital in nature, foreign commission payments to non-resident agents are not taxable in India, and the deduction under Section 80IA for windmills should be allowed based on the jurisdictional High Court's decision.