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2017 (9) TMI 1929 - AT - Income TaxDisallowance u/s 14A r.w.r. 8D - HELD THAT - Assessee rightly points out, rule 8D has no application in the present year as it is held to be applicable with effect from the assessment year 2008-09 in the case of Godrej Boyce Mfg Co Ltd vs. DCIT 2010 (8) TMI 77 - BOMBAY HIGH COURT . The only basis of impugned disallowance is Rule 8D but then, as noted above, it was not really applicable in the year before us. In this view of the matter, we uphold the plea of the assessee and delete the impugned disallowance . TDS u/s 195 - disallowance u/s 40(a)(i) - failure to comply with the provisions of Chapter XVII-B from the commission paid to BG Energy Holding Ltd., a non-resident company - HELD THAT - We find that the issue of taxability of commission in the hands of a non-resident came up for a detailed examination before this Tribunal, in the case of DCIT vs. Welspun Corp Ltd 2017 (1) TMI 1084 - ITAT AHMEDABAD and the Tribunal decided the issue in favour of the assessee In the present case, the commission payments have been made to an entity tax resident in United Kingdom. The benefit of Indo UK Double Taxation Avoidance Agreement is thus clearly admissible to the recipient. Coming to the treaty provisions, it is not even the case of the Assessing Officer that the UK based entity had a permanent establishment in India, and the commission paid to this entity, therefore, cannot be taxed as business profits. It is only elementary that, in the absence of a PE, Article 7 of the applicable DTAA does not allow taxation of business profits in the source country. As for the taxability under the fees for technical services clause, it is important to bear in mind the fact that the Indo UK DTAA has a make available clause in its article dealing with fees for technical services. As for the connotations of make available clause in the treaty, there are at least two non-jurisdictional High Court decisions, namely Honble Delhi High Court in the case of DIT v. Guy Carpenter Co Ltd. 2012 (5) TMI 31 - DELHI HIGH COURT and in the case of CIT v. De Beers India Minerals (P.) Ltd. 2012 (5) TMI 191 - KARNATAKA HIGH COURT in favour of the assessee, and there is no contrary decision by Honble jurisdictional High Court or by Honble Supreme Court. The rendition of services for earning commission cannot be of such a nature that there is a transfer of technology, in the sense it is required to fulfil the make available clause in the Indo UK DTAA. It is also elementary that in a case in which the provisions of the DTAA are applicable, the provisions of the Income Tax Act apply only to the extent the same are beneficial to the assessee. In view of these discussions, quite clearly, even if the commission income in the hands of the recipient is taxable under the provisions of Section 9, the provisions of the Indo UK DTAA will come to the rescue of the assessee. Whichever way one looks at it, whether in the light of the provisions of the Act or the Indo UK DTAA, the conclusions of the CIT(A) do not call for any interference. Disallowance u/s 14A r.w.r. 8D - HELD THAT - In respect of Assessment Year 2008-09, it is important to bear in mind the fact that this is the year in which the Rule 8D had admittedly come into force and as per assessee s claim that it had sufficient interest free funds. No disallowance is made by the Assessing Officer in respect of interest payments. The disallowance has been made on the basis of the formula set out in Rule 8D in respect of administrative expenses and we see no infirmity in the order of CIT(A) in confirming this disallowance. Ground No.2 is thus dismissed. Purchase commission and guarantee commission for AY 2003-04 which was not claimed in AY 2003-04 and disclosed by way of a note in statement of total income filed along with return of income that the same will be claimed in the year of payment - HELD THAT - So far as this grievance of the assessee is concerned, it is sufficient to take not of the fact that the assessee had incurred certain expenditure on account of purchase commission and guarantee commission in respect of assessment year 2003-04 which was not claimed in that particular year on the ground that tax was not deducted at source, with the caveat as set out in the note to the computation of income, that deduction will be claimed in the year in which the payment is made Learned Counsel submits that though the stand so taken by the assessee was erroneous inasmuch as no tax was deductible but the assessee cannot be put to the double disadvantage in the sense that neither the amount is deductible in the year in which expenditure is incurred nor the deduction is permitted in the year in which the tax is deducted, though wrongly, in respect of such payments. We are, therefore, urged to direct the Assessing Officer to allow the payment of purchase commission and guarantee commission for the year 2003-04 which was not claimed in that year on the ground that taxes were not deducted from the same and has been claimed in the present year on the basis that now taxes has been deducted and paid. Learned Departmental Representative very fairly does not oppose the contention so advanced by the assessee. Thus bearing in mind entirety of the case, we see merits in the stand of the assessee and direct the Assessing Officer to allow the claim, upon verification about the factual elements embedded in the submissions of the learned Counsel, in accordance with law. This issue is thus remitted to the file of the Assessing Officer for necessary factual verification. The additional ground is thus allowed for statistical purposes. Addition made on account of refund of value added tax receivable by the applicant for AY 2007-08 - CIT(A) deleted the addition on the ground that VAT has not been routed through profit and loss account and therefore , it has not been claimed as expenditure - HELD THAT - We see no merits in the stand of the Assessing Officer. Once it is not in dispute that the assessee has not claimed any deduction at the time of making payment of VAT, the refund of such VAT cannot be brought to tax in the hands of the assessee. The action of the CIT(A) does not indeed call for any interference. We, therefore, approve the order of the CIT(A) on this point and decline to interfere in the matter.
Issues Involved:
1. Disallowance under Section 14A of the Income-tax Act, 1961. 2. Disallowance under Section 40(a)(i) r.w.s. 195 of the Income-tax Act for commission payments to non-resident companies. 3. Refund of Value Added Tax (VAT). 4. Setoff of brought forward business loss. Issue-wise Detailed Analysis: 1. Disallowance under Section 14A of the Income-tax Act, 1961: - Assessment Year 2007-08: The assessee's appeal challenged the disallowance of ?23,09,009 under Section 14A read with Rule 8D. The tribunal noted that Rule 8D was applicable only from AY 2008-09 as per the case of Godrej Boyce Mfg Co Ltd vs. DCIT. Consequently, the disallowance was deleted, and the appeal was allowed. - Assessment Year 2008-09: The assessee contested the disallowance of ?30,40,260 under Section 14A read with Rule 8D. The tribunal upheld the CIT(A)'s order, confirming the disallowance based on the formula in Rule 8D, as it was applicable from AY 2008-09. The appeal was dismissed. - Assessment Year 2009-10: The assessee challenged the disallowance of ?4,44,267 under Section 14A read with Rule 8D. The tribunal upheld the CIT(A)'s order, confirming the disallowance based on Rule 8D. The appeal was dismissed. 2. Disallowance under Section 40(a)(i) r.w.s. 195 of the Income-tax Act for commission payments to non-resident companies: - Assessment Year 2007-08: The department's appeal contested the deletion of ?2,40,95,000 disallowed for non-deduction of TDS on commission paid to BG Energy Holdings Ltd. The tribunal upheld the CIT(A)'s order, stating the commission was not taxable in India as the services were rendered outside India and did not constitute fees for technical services. The appeal was dismissed. - Assessment Year 2008-09: The department's appeal contested the deletion of ?1,09,66,000 disallowed for non-deduction of TDS on commission to BG Energy Holdings Ltd. The tribunal upheld the CIT(A)'s order, following the same reasoning as in AY 2007-08. The appeal was dismissed. - Assessment Year 2009-10: The department's appeal contested the deletion of ?1,18,24,000 disallowed for non-deduction of TDS on commission to BG Energy Holdings Ltd. The tribunal upheld the CIT(A)'s order, following the same reasoning as in previous years. The appeal was dismissed. 3. Refund of Value Added Tax (VAT): - Assessment Year 2008-09: The department's appeal contested the deletion of ?1,47,85,477 added to the income as VAT refund. The tribunal upheld the CIT(A)'s order, noting that the assessee had not claimed a deduction for the VAT paid, and thus, the refund could not be taxed. The appeal was dismissed. 4. Setoff of brought forward business loss: - Assessment Year 2008-09: The assessee raised an additional ground for allowing purchase and guarantee commission not claimed in AY 2003-04. The tribunal remitted the matter to the Assessing Officer for verification and allowed the claim if found correct. The appeal was allowed for statistical purposes. - Assessment Year 2009-10: The assessee raised an additional ground for setoff of ?8,80,500 towards brought forward business loss. The tribunal remitted the matter to the Assessing Officer for consequential relief. The appeal was allowed for statistical purposes. Conclusion: - The appeals of the department for AYs 2007-08, 2008-09, and 2009-10 were dismissed. - The appeal of the assessee for AY 2007-08 was allowed. - The appeals of the assessee for AYs 2008-09 and 2009-10 were partly allowed for statistical purposes.
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