2019 (5) TMI 458 - AT - Income Tax

TDS u/s 195 - non-deduction of tax at source on the payment to non-residents which was disallowed u/s 40(a)(i) - India - UK DTAA - PE In India - HELD THAT - No material whatsoever to demonstrate and establish that the services were rendered in India in lieu of the payment under consideration. The Non-resident payees were not alleged to have a redence or place of business or business connection in India either. We note that the ITAT in the own case of the assessee 2014 (10) TMI 1003 - ITAT AHMEDABAD has held that the impugned payment is not subject to the provisions of section 195 of the Act. Thus the addition made by the AO under section 201(1) 201(1A) of the Act was directed to be deleted. Addition made by the AO under section 201(1) 201(1A) of the Act was directed to be deleted. - Decided in favour of assessee. Additional depreciation u/s 32(iia) on the machinery as given on lease - asset used for less than 180 days - AO disregarded the contention of the assessee by holding that the assets were used in the business of leasing and not in the business of manufacture. Thus the assessee is not entitled to the additional depreciation - HELD THAT - It is an undisputed fact that the assessee is engaged in the manufacturing business as well as in the business of leasing. Therefore the condition imposed under section 32(iia) of the Act gets fulfilled for claiming the additional depreciation. Regarding this we find support and guidance from the judgment of Hon ble Gujarat High Court in the case of Diamines Chemicals Ltd 2013 (12) TMI 373 - GUJARAT HIGH COURT claiming the deduction under Section 32(1)(iia) of the Income-tax Act setting up wind-mill has nothing to do with the power industry and what is required to be satisfied in order to claim additional depreciation is that the setting up of new machinery or plant should have been acquired and installed by an assessee, who was already engaged in the business of manufacture or production of any article or thing. We are of the considered opinion that the assessee is eligible for the additional depreciation under section 32(iia) of the Act. - Decided in favour of assessee.

Summary

Issues Involved:
1. Non-deduction of tax at source on payments to non-residents under section 40(a)(i) of the Income Tax Act.
2. Eligibility for additional depreciation under section 32(iia) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Non-deduction of Tax at Source on Payments to Non-residents:

The primary issue in the appeal was whether the assessee was liable for the deduction of TDS on payments made to foreign parties under section 195 of the Income Tax Act. The Revenue's contention was that the assessee failed to deduct TDS on payments amounting to ?1,22,19,321/- made to non-residents for consultancy and supervision services, which were disallowed under section 40(a)(i) of the Act.

The Tribunal noted that this was the second round of appeal, with the ITAT previously remitting the issue to the AO for fresh consideration. The AO, upon reevaluation, disallowed the expenses on the grounds that the services were rendered in India, and the assessee had adopted an approbating and reprobating approach by deducting TDS in some cases but not in others under similar circumstances.

The assessee contended that the payments were made for services rendered outside India, thus not chargeable to tax in India under sections 4, 5, and 9 of the Act. The assessee relied on the Supreme Court judgment in GE India Technology Cen. P. Ltd. Vs. CIT and other case laws to support its stance. The CIT(A) accepted the assessee's contentions, noting that the services were rendered outside India and the stay of the consultants in India did not exceed 90 days, thus not triggering taxability under the respective DTAAs.

The ITAT upheld the CIT(A)'s decision, reiterating that the assessee was not liable to deduct TDS under section 195 as the services were rendered outside India, and the retrospective amendment to section 9(1)(vii) by Finance Act 2010 could not impose a retrospective tax withholding liability. The Tribunal relied on its own previous order and other judicial precedents to conclude that no disallowance under section 40(a)(i) was warranted.

2. Eligibility for Additional Depreciation:

The second issue pertained to the disallowance of additional depreciation claimed by the assessee under section 32(iia) of the Act. The AO disallowed the claim on the grounds that the assessee was engaged in the business of leasing, not manufacturing, and thus not eligible for additional depreciation.

The assessee argued that it was engaged in manufacturing and that the additional depreciation was claimed on new machinery used in its business. The CIT(A) accepted the assessee's contention, relying on judicial precedents, including the Gujarat High Court's judgment in Diamines & Chemicals Ltd., which held that there is no requirement for a direct correlation between the new machinery and the manufacturing activity for claiming additional depreciation.

The ITAT upheld the CIT(A)'s decision, noting that the assessee was engaged in both manufacturing and leasing businesses, and the condition under section 32(iia) was fulfilled. The Tribunal referenced the Gujarat High Court's judgment and its own previous orders to conclude that the assessee was entitled to additional depreciation.

Conclusion:

The ITAT dismissed the Revenue's appeals, affirming that the assessee was not liable for TDS on payments to non-residents under section 195 and was eligible for additional depreciation under section 32(iia). The Tribunal's decision was based on a thorough analysis of the facts, applicable legal provisions, and judicial precedents.