2018 (6) TMI 839 - AT - Income Tax

Disallowance of 50% of management charges u/s 44C - treatment as Head Office expenditure - Held that - While deciding identical issue in case of assessee s Group Company M/s. Lloyd s Register Asia (India Branch Office), in AY 2005 06, the Tribunal 2015 (6) TMI 423 - ITAT MUMBAI has held that management charges paid to the Head Office do not come within the purview of section 44C - thus following the aforesaid decision of the Co ordinate Bench, we delete the 50% disallowance made out of management charges u/s 44C - Decided in favor of assessee. Applicability of 40(a)(i) on payment of management charges - Held that - Following the judgement of decision of the Hon ble Delhi High Court in CIT v/s Herbalife India International Pvt. Ltd. 2016 (5) TMI 697 - DELHI HIGH COURT it is held that provisions of section 40(a)(i) of the Act are not applicable to payment of management charges - Decided in favour of the assessee. No interest under section 234B of the Act is chargeable - Decided in favour of the assessee.

Summary

Issues involved:
- Disallowance of licence fee and management charges under section 44C of the Income Tax Act, 1961
- Applicability of provisions of section 40(a)(i) of the Act to payment of management charges
- Levy of interest under section 234B of the Act

Issue 1: Disallowance of licence fee and management charges under section 44C of the Income Tax Act, 1961:
- The assessee challenged the decision of the Commissioner (Appeals) upholding the disallowance of licence fee and management charges under section 44C of the Act as Head Office expenditure.
- The Tribunal noted that similar disputes in the assessee's Group Company cases were decided in favor of the assessee, where it was held that such charges do not fall under section 44C of the Act.
- Following the precedent, the Tribunal deleted the 50% disallowance made on management charges under section 44C of the Act.
- The Tribunal allowed the assessee's appeal on this issue.

Issue 2: Applicability of provisions of section 40(a)(i) of the Act to payment of management charges:
- The Assessing Officer disallowed management charges under section 40(a)(i) of the Act, stating it was in the nature of fees for technical services and tax was not deducted at the source.
- The Commissioner (Appeals) dismissed the ground raised by the assessee as infructuous.
- The Tribunal, following previous decisions, held that no disallowance under section 40(a)(i) of the Act can be made in respect of payment of management charges.
- The Tribunal allowed the ground raised by the assessee on this issue.

Issue 3: Levy of interest under section 234B of the Act:
- The Tribunal, considering the deletions made in the additions, held that the levy of interest under section 234B of the Act was not applicable.
- Following the decision in previous cases, the Tribunal decided in favor of the assessee on this issue.

Conclusion:
- The Tribunal partly allowed the assessee's appeal in ITA no.2856/Mum./2015, fully allowed ITA no.2857/Mum./2015, and dismissed the Revenue's appeal in ITA no.3920/Mum./2015.