2017 (5) TMI 413 - AT - Income Tax

TDS u/s 195 - tax to be deducted at source with regard to the payment made to agents - Held that - There is no doubt that the persons receiving the commission incomes were located outside India and they had no permanent establishment in India. It is also a fact that services were not rendered in India. In the circumstances, we are of the opinion that considering the peculiar facts and circumstances of the case it has to be held that provisions of section 40(a)(i) could not be applicable to the payments made by the assessee to the foreign agents. Considering the above, we are of the opinion that the FAA was not justified in sustaining the partial disallowance. So, reversing his order, we decide the first ground of appeal in favour of the assessee. Disallowance made u/s. 14A - Held that - As stated earlier, the assessee had not these the issue before the FAA. Before us, it was argued that the AO had made disallowance of ₹ 17.18 lakhs, that the AO was not justified in making disallowance under the head interest expenditure, that the assessee had sufficient own interest-free funds to make investments, that it had made strategic investment, that the AO had not arrived at the conclusion that disallowance made by the assessee was not as per the provisions of the law. The DR stated that order of the AO did not require any interference. We have admitted the additional ground, raised by the assessee with regard to 14A disallowance. In our opinion, in the interest of Justice, the matter should be restored back to the file of the AO for fresh adjudication. He is directed to afford a reasonable opportunity hearing to the assessee. Second ground is decided in favour of the assessee, in part.

Summary

Issues:
1. Additional ground of appeal regarding disallowance u/s. 14A of the Act.
2. Tax deduction at source for payments made to non-resident agents u/s. 40(a)(i) r.w.s. 195 of the Act.

Issue 1: Additional Ground of Appeal - Disallowance u/s. 14A of the Act

The assessee filed an additional ground of appeal related to the disallowance under section 14A of the Income Tax Act. The Appellate Tribunal admitted the additional ground, acknowledging that the issue raised by the assessee was of a legal nature. The ground pertained to disallowance under section 14A of the Act, specifically related to Rule 8D of the Income Tax Rules, 1962. The Tribunal decided to allow the additional ground concerning the disallowance u/s. 14A of the Act, indicating a thorough consideration of the legal aspect raised by the assessee.

Issue 2: Tax Deduction at Source for Payments to Non-Resident Agents

The primary contention in this issue revolved around tax deduction at source concerning payments made to non-resident agents under section 40(a)(i) r.w.s. 195 of the Act. The Assessing Officer (AO) disallowed an expenditure of &8377; 3.66 lakhs, asserting that the payments made by the assessee to a foreign agent were in the nature of fee for technical services, necessitating tax deduction at source. The First Appellate Authority (FAA) considered the circulars issued by the CBDT and held that the assessee was not liable to deduct tax at source for payments made before the withdrawal of certain circulars. The FAA directed the AO to examine the payments made before and after the withdrawal of the circulars for appropriate action. The Appellate Tribunal, after considering the facts and circumstances, held that section 40(a)(i) could not be applied to the payments made to foreign agents, citing precedents and the absence of taxable income accruing in India to the agents. The Tribunal reversed the FAA's decision, ruling in favor of the assessee and allowing the appeal.

In conclusion, the Appellate Tribunal's judgment addressed the additional ground of appeal related to disallowance u/s. 14A of the Act and the issue of tax deduction at source for payments to non-resident agents. The detailed analysis and legal considerations in both issues resulted in a partial allowance of the appeal filed by the assessee. The Tribunal's decision showcased a comprehensive evaluation of the legal aspects and factual circumstances surrounding the disputed matters, ultimately providing a balanced and reasoned judgment.