9911796707
|
Home
Forgot password New User/ Regiser ⇒ Register to get Live Demo
2018 (8) TMI 2086 - AT - Income TaxDisallowance of expenditure claimed to be personal in nature - disallowing adhoc 7.5% of total travel and conveyance expenses incurred by the Appellant on grounds that these expenses are personal in nature - HELD THAT - As noted that the disallowance has been made on the ground that the expenses are personal in nature. That is exactly what the Assessing Officer states in the impugned assessment order and he also specifically follows the orders on that issue in the preceding assessment year. On this aspect however we have Hon ble jurisdictional High Court s judgement in the case of Sayaji Iron Engineering Company Limited vs. CIT 2001 (7) TMI 70 - GUJARAT HIGH COURT observed that it cannot be stated that when the vehicles are used by the directors even if they are personally used by the directors the vehicles are personally used by the company because a limited company by its very nature cannot have any personal use . The limited company is an inanimate person and there cannot be anything personal about such an entity. The view that we are adopting is supported by the provision of section 40(c) and section 40A(5) of the Act. Addition of Income reflected in Form 26AS - CIT(A) held that amount incorrectly reflected in Form 26AS ought to be included in income even though it has not been received by the Appellant - HELD THAT - CIT(A) has not even disputed the fact of lower actual receipt of interest and yet he has confirmed the interest as shown in 26AS because that is what is shown by the State Bank of India. That approach is certainly incorrect. Once the assessee produces reasonable evidence establishing a particular quantum of interest income in his hands and such evidence is not found fault with he cannot be taxed on some other figure merely because a tax deductor states that figure. Obviously the assessee has no control over such inputs which are clearly incorrect. In view of these discussions in our considered view the impugned addition must stand deleted. We order so. TDS u/s 195 - Disallowance of payments made to non-residents under section 40(a)(i) - Indian taxability of payments to US residents - connotations of make available clause - HELD THAT - There is no dispute on the legal position that unless the technical services payment for which is sought to be taxed as fees for technical services (termed as fees for included services in the Indo US tax treaty) make available the technical skill knowledge and know-how the same cannot be brought to tax as such. It is also beyond dispute that the provisions of the Income Tax Act 1961 in a case covered by a double taxation avoidance agreement entered into under section 90- as is admittedly the present case apply only to the extent these provisions are more favourable to the assessee. Once the assessee is out of the ambit of Indian taxability thus there is no occasion to deal with the taxability requirements under the Income Tax Act. The reasons for holding that these services satisfy make available clause have been specifically and unambiguously rejected by us the authorities below have not made out any case for application of tax deduction requirements on these payments. In any case we have carefully examined the material on record and nature of each payment and we donot find any situation in which services can be said to have made available technical skill knowledge and know how in the legal sense of make available clause as discussed above. As a matter of fact we did ask the learned Departmental Representative to point out one case in which the make available clause can be said to be satisfied on merits but there was no specific assistance beyond reliance on the orders of the authorities below. These orders and the reasoning contained therein however does not meet our approval. Once there is no material to hold the taxability of these amounts in India there can be no tax withholding liability under section 195 either and as a corollary thereto the very foundation of impugned disallowance under section 40(a)(i) ceases to hold good in law. We uphold the plea of the assessee and having noted that no case has been made out for satisfaction of make available clause- as is the sine qua non for Indian taxability of such payments to US residents we direct the Assessing Officer to delete the impugned disallowance. - Decided in favour of assessee.
Issues Involved:
1. Disallowance of expenditure claimed to be personal in nature. 2. Addition of income reflected in Form 26AS. 3. Disallowance of payments made to non-residents under section 40(a)(i) of the Act. Issue-wise Detailed Analysis: 1. Disallowance of Expenditure Claimed to be Personal in Nature: The first issue concerns the disallowance of 7.5% of travel and conveyance expenses amounting to Rs. 9,15,660/- by the Assessing Officer (AO), on the grounds that these expenses are personal in nature. This disallowance was made on an adhoc basis, following similar disallowances in previous years. The CIT(A) upheld this disallowance, leading the assessee to appeal further. The Tribunal noted the Hon’ble jurisdictional High Court’s judgment in the case of Sayaji Iron & Engineering Company Limited vs. CIT, which clarified that expenses incurred by a company for the personal use of directors, as per their terms of service, should be considered business expenditure and not disallowable. Respecting this precedent, the Tribunal upheld the assessee’s plea and deleted the disallowance, allowing Ground No. 1. 2. Addition of Income Reflected in Form 26AS: The second issue pertains to the addition of Rs. 3,37,791/- based on the information in Form 26AS, showing interest income from State Bank of India. The assessee declared Rs. 1,10,327/- as received interest, but the AO added the balance amount as reflected in Form 26AS. The CIT(A) upheld this addition, stating that until the TDS return is revised, the amount remains taxable. The Tribunal found this approach incorrect, emphasizing that once the assessee provides reasonable evidence of the actual receipt of interest, which is not disputed, they cannot be taxed on a different figure merely based on the tax deductor’s statement. Consequently, the Tribunal deleted the impugned addition, allowing Ground No. 3. 3. Disallowance of Payments Made to Non-residents under Section 40(a)(i) of the Act: The third issue involves the disallowance of Rs. 2,47,13885 paid to the US-based associated enterprise Berry Plastic Corporation Inc., for various support services, due to the failure to deduct tax at source. The CIT(A) upheld this disallowance, asserting that the services provided were specific and customized, thus fulfilling the "make available" clause under Article 12 of the India-USA Double Tax Avoidance Agreement. The Tribunal, however, found the CIT(A)’s reasoning irrelevant and not in line with established legal interpretations. Referring to the decision in Shell Global Solutions International Inc Vs Income Tax Officer, the Tribunal clarified that the "make available" clause requires the technical knowledge to be imparted and absorbed by the recipient for future use without the service provider’s aid. Since the services in question did not meet this criterion, the Tribunal concluded that the payments were not taxable in India, and thus, no tax withholding was required. Consequently, the Tribunal directed the deletion of the disallowance, allowing Ground No. 4. Conclusion: The appeal was partly allowed, with the Tribunal pronouncing the judgment in the open court on August 2, 2018.
|
