2017 (2) TMI 797 - AT - Income Tax

TDS u/s 195 - Disallowance under section 40(a)(i) - subscription fees paid to DTT Swiss Verein for non-deduction of tax at source - DTAA - Held that - Prerequisite condition for going through the procedure of 195 is that, income should be first held to be chargeable to tax in India. The assessee, as noted above, has made out its case in a very elaborate manner as to why the payment made to DTT Switzerland is not liable for tax in India. However, both the authorities have not properly adjudicated these aspects. Therefore, in the interest of justice, we are of the opinion that this matter should go back to the file of the Assessing Officer who shall decide, firstly, whether the payment of subscription fee to DTT is liable to tax in India under the provisions of the Act or not; and secondly, he should also to examine whether it is in the nature of reimbursement of expenses. If it is found that the payment made to DTT Switzerland is in the nature of reimbursement of expenses, then assessee cannot be held to be liable for deducting TDS. With this direction, the matter is restored back to the file of the Assessing Officer and accordingly, ground No.1 is treated as party allowed for statistical purposes. disallowance of payment of professional fees - non deduction of tds - Held that - CIT (A) has reckoned the payment as fees for technical services without elaborating or elucidating the nature of payment. So far as the benefit under India-New Zealand DTAA, the payment of professional fee is not taxable under Article 14, which deals with Independent personal services . The language of Article 14 is similar to the language of India-Canada DTAA which has been reproduced hereinabove. Here also DTT New Zealand neither has any fixed base/ PE nor had any of its employees/professionals stayed in India for the period exceeding 183 days in any consecutive twelve months period. Accordingly, under the DTAA the professional fee paid to DTT is not taxable in India. However, Article 12(4) of India-New Zealand DTAA dealing with fees for technical services imbibes same definition as has been given under the Income Tax Act. Our finding given on the issue of FTS under Section 9 (1) (vii) will apply mutatis mutandis here also. Therefore, in view of our finding given therein, the said payment cannot be held to be taxable in India either under Section 9 (1) (vii) or under Section 9 (1) (i). Accordingly, disallowance made by the AO u/s 40(a) (i) is directed to be deleted. Interest u/s 244A - Held that - As it has been pointed out by the learned Sr. Counsel that for one month i.e. September, 2003 the rate of interest was two third percent instead of half percent in terms of Rule 119A. The AO has not correctly worked out the interest in accordance the said Rule. Accordingly, the AO is directed to examine the working of the interest and rate of interest and grant correct interest in accordance with the Law. Disallowance of payment of professional fees made to DTT Australia - Held that - T he payment of professional fee to DTT Australia is held not to be taxable u/s 9(1)(i) or 9(1)(vii) or in terms of Article 12(4) of DTAA, which has make available clause and is similar to India Canada DTAA. Thus, the disallowance made by the AO and as confirmed by the CIT (A) is directed to be deleted. Disallowance of Satyanarayan puja expenses - Held that - Satyanarayan puja is done at the business premises for the larger interest of the professional and employees of the assessee firm. It was more in the nature of goodwill gesture and keeping good relationship and environment amongst the colleagues. If any expenditure which is incurred for the general benefit of the professionals and employees, the same cannot be held to be incurred for non-business purposes. Thus the puja expenses have been allowed for business purposes. - Decided in favour of assessee Disallowance of entertainment expenses - Held that - We find that there is no reason to tinker with the disallowance upheld by the learned CIT (A), because the assessee could not furnish any details to controvert the finding. The disallowance as confirmed by the learned CIT (A) appears to be reasonable because personal nature expenditure cannot be ruled out in the entertainment expenses in absence of details. - Decided against assessee

Issues Involved:
1. Payment of subscription fees to Deloitte Touche Tohmatsu (DTT).
2. Payments for professional services to DTT entities in Canada, New Zealand, and Australia.
3. Interest under section 244A.
4. Disallowance of Satyanarayan Puja expenses.
5. Disallowance of entertainment expenses.

Detailed Analysis:

1. Payment of Subscription Fees to Deloitte Touche Tohmatsu (DTT):
The primary issue was whether the subscription fees paid to DTT, a Swiss Verein, were chargeable to tax in India, necessitating tax deduction at source under section 195. The assessee argued that the payments were not chargeable to tax as they represented reimbursement of operational expenses and invoked the principle of mutuality. The Assessing Officer (AO) and the Commissioner of Income Tax (Appeals) [CIT(A)] disallowed the deduction under section 40(a)(i) for non-deduction of tax, relying on the ITAT Mumbai Bench decision in Arthur Andersen & Co. and the Supreme Court decision in Transmission Corporation of Andhra Pradesh Ltd. The Tribunal, however, emphasized that the prerequisite for section 195 is that the sum must be chargeable to tax under the Act. The Tribunal remanded the matter to the AO to determine if the subscription fees were chargeable to tax and if they were indeed reimbursements.

2. Payments for Professional Services to DTT Entities:
The assessee made payments for professional services to DTT entities in Canada, New Zealand, and Australia without deducting tax at source, arguing that the services were rendered outside India and were not taxable under sections 9(1)(i) or 9(1)(vii) of the Income Tax Act or the relevant Double Taxation Avoidance Agreements (DTAAs). The AO disallowed these payments under section 40(a)(i). The CIT(A) upheld the disallowance, categorizing the payments as fees for technical services. The Tribunal, however, found that these payments did not fall under the definition of fees for technical services as per the DTAAs and the Income Tax Act. The Tribunal concluded that the payments were not taxable in India and thus no tax was required to be deducted at source, directing the deletion of the disallowance.

3. Interest under Section 244A:
The assessee contended that the AO failed to grant the correct interest under section 244A for the month of September 2003. The Tribunal directed the AO to re-examine the interest calculation and grant the correct interest as per the law.

4. Disallowance of Satyanarayan Puja Expenses:
The AO disallowed the expenses incurred for Satyanarayan Puja, considering them non-business in nature. The CIT(A) upheld the disallowance. The Tribunal, however, accepted the assessee's argument that the expenses were for the benefit of employees and professionals, promoting goodwill and maintaining good relationships. The Tribunal allowed the expenses, citing similar decisions in other cases.

5. Disallowance of Entertainment Expenses:
The AO disallowed a portion of the entertainment expenses due to lack of details, and the CIT(A) scaled down the disallowance. The Tribunal upheld the CIT(A)'s decision, finding it reasonable given the absence of detailed evidence from the assessee.

Conclusion:
The Tribunal provided a detailed analysis of each issue, emphasizing the need to determine the taxability of payments before invoking provisions for tax deduction at source. The Tribunal remanded the matter of subscription fees to the AO for further examination, allowed the professional fees payments as non-taxable, directed re-examination of interest under section 244A, and allowed the Satyanarayan Puja expenses while upholding the disallowance of a portion of the entertainment expenses.

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