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Issues involved: Appeal filed by Revenue against order of Commissioner of Income Tax (Appeals)-III, Chennai for the impugned assessment year, involving deletion of addition on account of unexpired value of Annual Maintenance Contracts and non-deduction of tax at source u/s 40(a)(i) of Income-tax Act, 1961.
Issue 1 - Unexpired value of Annual Maintenance Contracts: The assessee recognized income on pro rata basis for the duration of AMC contracts, not offering income for unexpired period outside the relevant previous year. Assessing Officer made an addition for unexpired value of AMCs, but CIT(Appeals) deleted the addition, considering the liability of the assessee for meeting maintenance obligations and the possibility of contract termination by customers. ITAT Chennai upheld CIT(Appeals)' decision, stating that income accrued day by day and was not fully realized at the time of entering into the AMC, aligning with the matching concept of income and expenses. Issue 2 - Non-deduction of tax at source u/s 40(a)(i): The Revenue contended that the payment made to a non-resident for market survey constituted fees for technical services falling under Section 9(1)(vii) of the Act, obliging the assessee to deduct tax at source. However, CIT(Appeals) ruled in favor of the assessee, citing DTAA between India and Mauritius and the absence of a permanent establishment in India for the non-resident. ITAT Chennai acknowledged the technical nature of the services but remitted the issue back to the Assessing Officer for fresh consideration, emphasizing the need to analyze the impact of DTAA provisions on the tax liability. The judgment was pronounced on May 25, 2012, at Chennai.
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