2016 (5) TMI 117 - HC - Income Tax

Disallowance u/s 37 - allowable business expenditure - Held that - We find that two Authorities have taken a concurrent view that the expenditure of ₹ 1.13 crores is for business purposes i.e. increasing its sales and was in fact incurred. Therefore, allowable as deduction under Section 37 of the Act. The view taken by the Commissioner of Income Tax (Appeals) as well as the Tribunal is essentially a finding of fact. The view taken is a possible view on the facts and the same has not been shown to be perverse and / or arbitrary in any manner. - Decided in favour of assessee Fees for technical services - tds liability - nature of payment - disallowance u/s 40(a)(i) - Held that - The issue raised herein stands concluded against the Revenue and in favour of the respondent assessee by the decision of this Court in CIT Vs. Gujarat Reclaim & Rubber Products Ltd. (2015 (12) TMI 1078 - BOMBAY HIGH COURT) and Director of Income Tax (IT)I Vs. M/s. Credit Lyonnais (2016 (3) TMI 735 - BOMBAY HIGH COURT) wherein held there was no occasion to deduct tax at source in respect of the payment made to the nonresident agent. The income of nonresident commission agent cannot be considered as income arising or accruing in India. Therefore, the provisions of Section 40(a)(i) would have no application - Decided in favour of assessee

Summary

Issues involved:
1. Disallowance of payment claimed by the assessee under Section 37(1) of the Income Tax Act.
2. Disallowance of payment made to Mr. J.V. Smith under Section 40(a)(i) for failure to deduct tax at source.

Analysis:

1. Disallowance of payment claimed by the assessee under Section 37(1) of the Income Tax Act:
The case involved a payment of commission of ?1.13 crores to Mr. John V. Smith for promoting sales of plywood in foreign countries. The Assessing Officer disallowed this payment, considering the agreement suspicious due to discrepancies like the name of the recipient and the nature of services. However, the Commissioner of Income Tax (Appeals) found that the payment was genuine and established a direct connection between export sales and the commission paid. The Commissioner concluded that the payment was allowable under Section 37 of the Act. The Tribunal upheld this decision, stating that the expenditure was for business purposes and allowable as a deduction. The court agreed with the lower authorities, emphasizing that their findings were based on facts and not shown to be perverse or arbitrary. Therefore, the disallowance under Section 37(1) was not justified, and the appeal on this issue was dismissed.

2. Disallowance of payment made to Mr. J.V. Smith under Section 40(a)(i) for failure to deduct tax at source:
The Revenue raised an issue regarding the deduction claimed by the assessee for payment to Mr. J.V. Smith, arguing that it constituted fees for technical services and should have had tax deducted at source under Section 40(a)(i). However, the Revenue's counsel acknowledged that similar issues had been decided in favor of the assessee in previous court decisions. Citing specific cases where such issues were resolved, the counsel conceded that the matter was settled against the Revenue. Consequently, the court found no substantial question of law arising from this issue and did not entertain it. As a result, the appeal was dismissed without any order as to costs.