2022 (1) TMI 46 - HC - Income Tax

TDS u/s 195 - disallowance u/s 40(a)(i) on account of professional and consultancy charges to non residents - HELD THAT - As in the case of CIT vs. NGC Network (India) Pvt. Ltd. 2018 (5) TMI 1148 - BOMBAY HIGH COURT and CIT vs. Western Coalfields Ltd. 2010 (10) TMI 1126 - BOMBAY HIGH COURT the High Court of Bombay held that the person mentioned in Section 195 of the Act cannot be expected to do the impossible, namely, to apply the expanded definition of royalty inserted by Explanation 4 to Section 9(1)(vi) of the Act for the assessment years in question, at a time when such Explanation was not actually and factually in the statute. Therefore, question no.2 stands rejected. Disallowance u/s 14A r.w.r. 8D - HELD THAT - Tribunal considered the correctness of the same and held that the assessing officer neither examined the assessee s account nor recorded satisfaction about the correctness of the claim and that it is incumbent upon the assessing officer to indicate reasons for rejecting the assessee s claim. An alternate contention was also raised before the Tribunal contending that investment made for acquiring controlling interest in their Group concerns and not for income. In support of such contention, the assessee placed reliance on DCIT vs. Selvel Advertising 2015 (5) TMI 682 - ITAT KOLKATA . Before we examine as to whether the alternate contention was required to be considered, we are satisfied that the Tribunal rightly followed the earlier decision of the Tribunal and the disallowance was deleted. That apart, we note that identical issue was raised before this Court in the case of Commissioner of Income Tax vs. REI Agro 2013 (12) TMI 1517 - CALCUTTA HIGH COURT , which was dismissed by judgment dated 23rd December, 2013. Thus, we find that the question no.5 has to be decided against the revenue and in favour of the assessee. TDS u/s 194J - HELD THAT - Tribunal rightly held the amendment to Section 194J was with effect from 1st July, 2012 and the assessment year under consideration being 2008- 09, the same cannot be made applicable. Furthermore, the observations contained in Engineering Analysis Centre of Excellence P. Ltd. 2021 (3) TMI 138 - SUPREME COURT would also come in aid of the case of the assessee. Therefore, question no.7 stands rejected. Disallowance u/s 40(a)(i) paid as commission to non residents - Tribunal holding that commissions paid to the foreign agents outside India does not accrue or arise in India had become final.

Summary

Issues:
1. Disallowance of expenditure incurred on running and maintenance of aircrafts.
2. Disallowance of professional and consultancy charges to non-residents.
3. Disallowance of advertisement, publicity, and sales promotion expenses to non-residents.
4. Disallowance of expenditure in respect of earning dividend income and tax-free interest.
5. Disallowance of interest amount given to subsidiary companies for non-business purpose.
6. Disallowance of commission and sitting fees to directors without deducting tax at source.
7. Disallowance of commission to non-residents without considering supporting documents.

1. Disallowance of Expenditure on Aircrafts:
The appeal filed by the revenue challenged the Tribunal's deletion of disallowance of expenditure on aircrafts, which the revenue argued were also used for personal purposes of directors. The Court noted that the issue was similar to a previous case where the appeal was dismissed, binding the revenue. Therefore, the disallowance was upheld.

2. Disallowance of Professional Charges:
The Tribunal deleted the disallowance of professional and consultancy charges to non-residents. The Court referenced a Supreme Court decision and a High Court ruling, stating that the persons liable to deduct tax cannot be expected to do the impossible, excusing the alleged disobedience of law. Consequently, the disallowance was rejected.

3. Disallowance of Advertisement Expenses:
The disallowance of advertisement, publicity, and sales promotion expenses to non-residents was deleted by the Tribunal. The Court found that the expenses were in respect of income accrued outside the territory, following previous decisions. Thus, this disallowance was also rejected.

4. Disallowance of Dividend Income and Interest:
The Tribunal deleted the disallowance of expenses related to earning dividend income and tax-free interest. The Court found that the assessing officer did not provide reasons for rejecting the assessee's claim, and the disallowance was unjustified. The disallowance was overturned in favor of the assessee.

5. Disallowance of Interest Amount to Subsidiary Companies:
The disallowance of interest amount given to subsidiary companies for non-business purposes was challenged. The Court noted that the disallowance was similar to a previous case where the question was rejected. Therefore, this disallowance was also upheld.

6. Disallowance of Commission and Sitting Fees:
The disallowance of commission and sitting fees to directors without deducting tax at source was challenged. The Court found that the amendment to the relevant section was not applicable for the assessment year in question. Following previous rulings, this disallowance was rejected.

7. Disallowance of Commission to Non-Residents:
The disallowance of commission to non-residents without supporting documents was deleted by the Tribunal. The Court referenced previous decisions where similar questions were rejected. Consequently, this disallowance was also upheld.

In conclusion, the Court dismissed the appeal filed by the revenue, answering the substantial questions of law against the revenue. The connected application for stay was also dismissed with the appeal.