2022 (5) TMI 942 - AT - Income Tax

Disallowance u/s 40(a)(i) - tds liability on reimbursement of expenses to appellant s associated enterprises - HELD THAT - The Tribunal in assessee s own case for assessment year 2011-2012 2022 (5) TMI 846 - ITAT BANGALORE on identical facts had held that license fees has been paid for the use of software. It was further held by the Tribunal that the assessee s holding company procures software from third party and shared the cost with the assessee along with other group companies on a proportionate basis without any mark up. Therefore, it was concluded by the ITAT that the reimbursement of such expenses by the assessee cannot be held liable for TDS. Thus we hold that the assessee is not liable for TDS in respect of payment to M/s.Brand Union Worldwide Limited, London. Therefore, the expenditure cannot be disallowed by invoking the provisions of section 40(a)(ia) - assessee appeal allowed. Write back of excess provision towards additional salary - HELD THAT - In view of the remand report, it is clear that for the current assessment the assessee had added back the provision on salary and offered the same as income. In the meanwhile the A.O. for assessment year 2008-2009 had disallowed the said expenses as provision and added back the same to income, which tantamount to double taxation of provision of additional salary. Since the A.O. in the remand report has clearly stated that the assessee s claim is correct, we direct the A.O. to delete a sum of Rs.10 lakh from the taxable income for the relevant assessment year, since the same had suffered tax in previous assessment year, namely, A.Y. 2009-2010. It is ordered accordingly. Allowability of education cess paid as a tax deductible expenditure - HELD THAT - As relying on decision of Kolkata bench of Tribunal in the case of Kanoria Chemicals Industries Ltd 2021 (10) TMI 1153 - ITAT KOLKATA we hold that payment of education cess including secondary and higher education cess is not allowable as deduction. Therefore, we reject ground 3 raised by the assessee.

Summary

Issues:
1. Disallowance u/s 40(a)(i) of the I.T. Act amounting to Rs.1,20,013
2. Write back of excess provision towards additional salary of Rs.10,00,000
3. Allowability of education cess paid as a tax deductible expenditure

Issue 1: Disallowance u/s 40(a)(i) of the I.T. Act amounting to Rs.1,20,013

The Assessing Officer disallowed Rs.1,20,013 u/s 40(a)(i) of the I.T. Act, claiming it was payment for professional services and hence chargeable to tax in India. The CIT(A) upheld this view. However, the Tribunal referred to a previous case where it was held that reimbursement of expenses for software usage without any mark-up is not liable for TDS. Citing the decision of the Tribunal in the previous case, the Tribunal ruled in favor of the assessee, stating that the reimbursement to M/s. Brand Union Worldwide Ltd., London, was not liable for TDS under section 40(a)(ia) of the I.T. Act.

Issue 2: Write back of excess provision towards additional salary of Rs.10,00,000

The A.O. disallowed the provision for additional salary of Rs.10 lakh, which was added back to the income of the assessee for the previous assessment year. The CIT(A) rejected the claim of the assessee. However, based on a remand report from the A.O. stating that the claim of the assessee was correct and to avoid double taxation, the Tribunal directed the A.O. to delete the sum of Rs.10 lakh from the taxable income for the relevant assessment year.

Issue 3: Allowability of education cess paid as a tax deductible expenditure

The Tribunal considered the claim of deduction of education cess including secondary and higher educational cess while computing the total income. Referring to a Kolkata Bench decision, the Tribunal held that education cess is not allowable as a deduction, following the precedent set by the Hon'ble Supreme Court in the case of CIT Vs. K. Srinivasan. Consequently, the Tribunal rejected the claim for deduction of education cess paid.

In conclusion, the appeal filed by the assessee was partly allowed, with the Tribunal ruling in favor of the assessee on the disallowance u/s 40(a)(i) and write back of excess provision issues, but rejecting the claim for the deduction of education cess as a tax-deductible expenditure.