2016 (11) TMI 432 - AT - Income Tax

Feng Sui Consultancy charges - nature of expenses - revenue or capital - charges related to the layout and location of the various items of its assets - AO had treated the expenditure as capital expenditure because he was of the opinion that the expenditure was incurred in relation with the fixed capital assets - FAA has given a categorical finding of fact that the payment was made only on account of consultancy and it was for Re-allocation/re adjustment of furniture or certain other items - Held that - FAA was justified in holding that expenditure did not bring into existence any asset. In the case of Estel Technologies Pvt. Ltd. (2010 (11) TMI 1046 - ITAT DELHI), the Tribunal has allowed the expenditure incurred by the assessee under the head Vastu-Puja as revenue expenditure. Respectfully following the above order and considering the facts of the case, we hold that the order of the FAA does not suffer from any legal infirmity - Decided against revenue TDS u/s 195 - Disallowance of professional charges u/s.40 (a)(i) - non deduction of tax while making payments to non-resident companies - Held that - All the payments made by an Indian assessee does not attract the provisions of Chapter XVIIB. It is a fact that payments were made to the non-residents who had not rendered any services in India and the job was carried out outside India. There is nothing on record to prove that the non-resident entity had rendered any technical service to the assessee. The FAA had analysed the invoice issued by the nonresident and had found that payment was made only for job-work done and no royalty was paid by the assessee. The non-resident entity did not have any PE in India. Therefore, in our opinion, the FAA were justified in holding that the tax deducted at source provisions were not applicable for such remittances.- Decided against revenue

Summary

Issues:
1. Treatment of Feng Sui consultancy charges as capital expenditure.
2. Disallowance of professional charges under section 40(a)(i) of the Act.

Analysis:

Issue 1: Treatment of Feng Sui consultancy charges as capital expenditure

The Assessing Officer (AO) challenged the order of the Commissioner of Income Tax (Appeals) regarding Feng Sui consultancy charges of ?43.05 lakhs. The AO considered the expenditure as capital in nature, disallowing depreciation. The First Appellate Authority (FAA) ruled in favor of the assessee, stating the expenditure was revenue in nature as it did not create any new asset. The Tribunal upheld the FAA's decision, citing a similar case and confirming that the expenditure did not result in the creation of an asset. Therefore, the first ground of appeal was decided against the AO.

Issue 2: Disallowance of professional charges under section 40(a)(i) of the Act

The AO disallowed professional charges of ?43.60 lakhs under section 40(a)(i) as tax was not deducted for payments to non-resident companies for technical services. The FAA, after reviewing the case and relevant tax laws, found that tax deduction was not required as the payments were for services rendered outside India and did not attract tax liability in India. The Tribunal agreed with the FAA, emphasizing that the non-resident entities did not provide technical services in India and had no permanent establishment. Referring to a similar case involving live coverage of cricket matches, the Tribunal upheld the FAA's decision, ruling that the tax deduction provisions were not applicable in this scenario. Consequently, the second ground of appeal was decided against the AO.

In conclusion, the appeal filed by the AO was dismissed, and the orders of the FAA were upheld by the Tribunal.