2016 (2) TMI 668 - AT - Income Tax

Applicability of TDS provision - Disallowance u/s 40(a)(ia) - payment made on account of offshore supply of equipments - Held that - We hold that the provisions of section 40(a)(ia) of the Act are applicable only in the cases where any interest commission or brokerage rent royalty fees for professional services or fees for technical services has been paid or payable to a resident. In the case of assessee company the payments were made to a non resident German company the fact which is undisputed on record. Hence the provisions of section 40(a)(ia) cannot be invoked in this case. As the subject mentioned payments are not chargeable to tax in India in terms of section 195 of the Act. Hence no disallowance could be made u/s. 40(a)(i)/40(a)(ia) of the Act. - Decided in favour of assessee Adoption of valuation done by the DVO(District Valuation Officer) for the purpose of computing capital gains - Held that - As it could be seen that even the provisions of section 50C contemplates the adoption of fair market value for the purpose of valuation of the property. We hold that once the determination of fair market value is under consideration all the relevant factors i.e. land area available for construction should be taken into account irrespective of the actual land area conveyed. Accordingly we are in agreement with the area of land as adopted by the ld.DVO . However we find that as per the valuation of property is concerned it is not correct on the part of ld.DVO to add towards 15% frontage on both sides of the road in order to arrive at the total rate at 990/- per sq.ft as ultimately the ld.DVO adopted the guideline value rate of Senniamman Koil Street at 861/- per sq.ft. In view of the above we hold that the land should be valued by adopting the rate at 861/sq.ft for the area of 4, 54, 353 sq.ft. Accordingly assessee gets a relief for the rate of 129/sq.ft. The Ld. AO is directed to rework the capital gains by adopting 861/- per sq.ft being the guideline value in the same manner in which the Ld DVO had carried out the valuation. Valuation of building - the assessee has adopted 1, 34, 02, 000/- as sale consideration attributable to the building in the sale deed - Held that - As we find from the ld. DVO s report that the same valuation has been adopted for the building. We hold that no interference needs to be made with regard to the valuation of the building.

Summary

Issues Involved:
1. Applicability of section 40(a)(ia) of the Income Tax Act on payment for offshore supply of equipment.
2. Correctness of the valuation done by the DVO for computing capital gains.

Issue-Wise Detailed Analysis:

1. Applicability of Section 40(a)(ia) on Payment for Offshore Supply of Equipment:
The first issue concerns whether the provisions of section 40(a)(ia) of the Income Tax Act, 1961, could be invoked for the payment of Rs. 72,89,71,972/- made for offshore supply of equipment. The assessee argued that no tax was required to be deducted at source (TDS) on this transaction since the equipment was purchased and paid for outside India, and thus, the sum was not chargeable to tax in India under section 195 of the Act. The Assessing Officer (AO) disagreed, treating the transaction as a composite technical contract and invoking section 9(1)(vii) of the Act, thereby disallowing the payment under section 40(a)(ia).

The Tribunal held that the provisions of section 40(a)(ia) apply only to payments made to residents, whereas the payments in question were made to a non-resident German company, Linde AG. Thus, section 40(a)(ia) was not applicable. If disallowance were to be made, it should be under section 40(a)(i), which concerns payments to non-residents. However, since the payment was not charged to the Profit & Loss account and was part of capital work-in-progress, it was not subject to disallowance under section 40(a)(i) either. The Tribunal concluded that the payments were not chargeable to tax in India, and no disallowance could be made under sections 40(a)(i) or 40(a)(ia). Consequently, the assessee's appeal was allowed, and the revenue's appeal was dismissed.

2. Correctness of Valuation Done by the DVO for Computing Capital Gains:
The second issue involved the correctness of the valuation done by the District Valuation Officer (DVO) for computing capital gains on the sale of property. The AO had adopted the stamp duty valuation of Rs. 53.50 crores for computing capital gains, but the DVO later valued the property at Rs. 27,13,27,000/-. The CIT(A) directed the AO to adopt the DVO's valuation.

The Tribunal reviewed the DVO's methodology, noting that the DVO had used a guideline value of Rs. 861 per sq. ft and added 15% for frontage on both sides of the road, arriving at Rs. 990 per sq. ft. The Tribunal found the addition of 15% for frontage to be incorrect and held that the land should be valued at Rs. 861 per sq. ft for the net area of 4,54,353 sq. ft. Consequently, the AO was directed to rework the capital gains using this rate. The Tribunal upheld the DVO's valuation for the building, which matched the assessee's declared value of Rs. 1,34,02,000/-. Thus, the assessee's appeal was partly allowed on this issue.

Conclusion:
The Tribunal allowed the assessee's appeal regarding the non-applicability of TDS provisions on offshore payments and partly allowed the appeal concerning the correct valuation for capital gains computation, directing the AO to adopt the rate of Rs. 861 per sq. ft for the land. The revenue's appeal was dismissed. The judgment was pronounced in open court on 17-02-2016.