2021 (2) TMI 1202 - AT - Income Tax

Disallowance on account of payment of Royalty - assessee company has failed to prove any legal backing to the agreement and there is nothing mentioned in the agreement regarding the justification for these payments - CIT-A deleted the addition - HELD THAT - Hon ble jurisdictional High Court in the case of the assessee for assessment year 2008-09 2015 (9) TMI 663 - DELHI HIGH COURT has dismissed the appeal of the revenue filed against the order of the ITAT. Thus, the issue stands settled in favour of the assessee. Hence , the appeal of the revenue is dismissed on this ground. Non-deduction of TDS on commission paid to foreign companies - HELD THAT - As held that the commission has been paid to foreign agents deciding outside India and they have not rendered any technical services and hence do not come under the provisions o f Section 9(1)(vii)(b) of the Income Tax Act, 1961. In the absence of any change in the position of the facts and proposition of the law, we hold that the disallowance made by the AO u/s 40(a)(ia) is not legally tenable . We affirm the order of the ld. CIT (A) on this ground.

Summary

Issues:
1. Disallowance of Royalty payment
2. Non-deduction of TDS on commission payment to foreign companies

Analysis:

Disallowance of Royalty payment:
The appeal by the revenue challenges the deletion of two additions made by the Assessing Officer (AO) under section 143(3) of the Income Tax Act, 1961. The first addition of ?38,12,375 was disallowed on account of 'disallowance on account of payment of Royalty' made to M/s Macnaught Pvt. Ltd. Australia. The AO treated the Royalty payment as capital expenditure, citing lack of legal backing to the agreement and absence of justification for the payments. However, the ld. CIT (A) allowed the appeal of the assessee, referring to previous ITAT decisions in favor of the assessee for earlier years. The jurisdictional High Court also dismissed the revenue's appeal for the assessment year 2008-09, settling the issue in favor of the assessee. Consequently, the Tribunal dismissed the revenue's appeal on this ground.

Non-deduction of TDS on commission payment to foreign companies:
The second addition of ?2,04,15,947 was disallowed by the AO on account of 'non-deduction of TDS on commission payment made to foreign companies' under section 40(a)(ia). The Co-ordinate Bench of the Tribunal had previously held that the commission paid to foreign agents, operating outside India and not providing technical services, did not fall under the purview of Section 9(1)(vii)(b) of the Income Tax Act, 1961. Given the consistent facts and legal position, the Tribunal found the disallowance by the AO under section 40(a)(ia) to be legally untenable. Consequently, the Tribunal affirmed the order of the ld. CIT (A) on this ground as well.

In conclusion, the Tribunal dismissed the revenue's appeal, upholding the decisions of the ld. CIT (A) in both instances. The judgment was pronounced in the open court on 17/02/2021 by Dr. B. R. R. Kumar, Accountant Member.