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2024 (1) TMI 19 - AT - Income TaxTDS u/s 195 - Disallowance u/s 40(a)(ia) - non deduction of tds on payments to various overseas entities for translating its products into foreign language (other than English) for sale in foreign countries - AO held that the assessee had also not furnished Forms 15CA and 15CB for necessary verification - CIT(A) allowed the appeal of the assessee while observing that the assessee had made payments to various parties located outside India, who did not have permanent establishment in India. thus the assessee was not required to deduct TDS HELD THAT - We observe that Ld. CIT(A) has not given any justification while allowing the appeal of the assessee on this issue. CIT(A) has made no observation whatsoever regarding the applicability of Tax Treaty provisions to the aforesaid payment, neither as he made any observations as to why such payments do not qualify as fee for technical services under the Income Tax Act, nor as he made any observations as to why Section 195 of the Act is not applicable to the aforesaid payments and further, CIT(A) has also not given any comments on whether Form No. 15CA 15CB were furnished before him for necessary verification. Accordingly, we observe that from the contents of the order passed by Ld. CIT(A), it is not clear as to on what basis relief was afforded to the assessee on this issue. Further, in this case it is observed that the assessee had made payments to both companies as well as individuals residing outside of India in respect of the aforesaid services availed by him. CIT(A) has not made any observations with respect to the aforesaid payments and the relevant Tax Treaty provisions as may be applicable to the various countries of which the recipients were residents viz. Netherlands, France, Dubai, South Korea, Vietnam, Indonesia, Beijing PR, China etc. Accordingly, in the interest of justice the matter is restored to the file of Ld. CIT(A) to pass a detailed / speaking order giving reasons for allowing relief to the assessee on this issue.Ground No. 1 of the Department s appeal is allowed for statistical purposes. Disallowance of Compensation claim on Termination of Marketing Rights - assessee submitted that the aforesaid amount was paid by the assessee for termination of Marketing Rights of various dealers / distributors of the company - CIT(A) allowed the appeal of the assessee - HELD THAT - CIT(A) passed a non-speaking order while allowing the appeal of the assessee on this issue. CIT(A) in the appellate order has not controverted any of the findings made by the AO at the time of making the aforesaid disallowance, we observe that neither has been the initial agreement towards granting of marketing rights to various parties was furnished before Ld. CIT(A) and neither was be subsequent termination agreement furnished before Ld. CIT(A). We observe that the assessee has sought to produce a termination agreement before us for our perusal, but apparently the other party too of the parties to the agreement has not signed the same. CIT(A) has not given any justification in allowing the appeal of the assessee on this issue. It was submitted before us that it was due to the marketing offers of the concerned persons to whom the compensation towards marketing rights was paid that there was a substantial increase in the sales / turnover of the assessee companies. CIT(A) in our view has passed a non-speaking order while allowing the appeal of the assessee on this issue. Income received but not accrued - CIT(A), allowing the appeal of the assessee on this issue - HELD THAT - CIT(A) has simply accepted the version of the assessee and allowed the appeal of the assessee primarily on the ground that the aforesaid income was offered to tax by the assessee in the subsequent assessment year. However, while allowing the appeal of the assessee, CIT(A) has given no concrete finding or any basis for holding that as to why the aforesaid income, which was received by the assessee during the year under consideration, did not accrue to the assessee and on the basis on which accounting practice, the recognition of Revenue was deferred to the succeeding assessment year. Accordingly, in the interest of justice, the matter is being restored to the file of Ld. CIT(A) to give a detailed and reasoned findings as to why the aforesaid income did not accrue to the assessee during the year under consideration. Interest disallowed u/s 36(1)(iii) - AO observed that the assessee had given interest free advances to various parties - CIT(A) gave relief to the assessee and the ground that the assessee was having substantial interest free funds available with it - HELD THAT - Once it is found that the assessee is having substantial interest free funds available with it in the form of capital, reserves and surplus and non- interest bearing sundry creditors, then it has to be presumed that the interest free advances had been given by the assessee from its own interest free funds available with it. Secondly, Ld. CIT(A) also observed that majority of the advances had been given by the assessee in previous years only. Also observed by Ld. CIT(A) while granting relief to the assessee that in respect of most of the advances, it is seen that the provisions of Section 36(1)(iii) of the Act was not attracted since the advances were given for business purposes of the assessee in the course of business. Accordingly, in our considered view, looking into the facts of the instant case and observations made by Ld. CIT(A) while allowing the appeal of the assessee on this issue, we are of the considered view that Ld. CIT(A) has not erred in facts and law while allowing the appeal of the assessee.
Issues Involved:
1. Disallowance under Section 40(a)(ia) of the Act. 2. Compensation claim on Termination of Marketing Rights. 3. Income received but not accrued. 4. Interest disallowed under Section 36(1)(iii). Summary: 1. Disallowance under Section 40(a)(ia) of the Act: The Department contended that the assessee made payments to overseas entities without deducting TDS under Section 195, resulting in a disallowance of Rs. 43,42,468/-. The CIT(A) allowed the appeal, noting that the entities had no permanent establishment in India and thus were not subject to TDS. However, the Tribunal found that the CIT(A) did not provide adequate justification, particularly regarding the applicability of Tax Treaty provisions and the nature of the payments as "fee for technical services." The matter was remanded to the CIT(A) for a detailed order. 2. Compensation claim on Termination of Marketing Rights: The Department argued that the assessee failed to provide agreements justifying the compensation of Rs. 60,50,000/- paid for terminating marketing rights. The CIT(A) allowed the appeal, citing commercial expediency and a Supreme Court judgment supporting the business purpose of the payment. However, the Tribunal noted that the CIT(A) passed a non-speaking order without addressing the AO's findings or verifying the agreements. The issue was remanded to the CIT(A) for further verification. 3. Income received but not accrued: The AO added Rs. 1,50,00,000/- to the assessee's income, arguing that it had accrued during the year. The CIT(A) allowed the appeal, accepting the assessee's accounting policy of deferring the income to the subsequent year. The Tribunal found that the CIT(A) did not provide concrete findings or justify the deferment based on accounting standards. The matter was remanded to the CIT(A) for a detailed and reasoned order. 4. Interest disallowed under Section 36(1)(iii): The AO disallowed Rs. 48,25,919/- in interest, arguing that the assessee gave interest-free advances for non-business purposes. The CIT(A) allowed the appeal, noting that the assessee had substantial interest-free funds and that most advances were for business purposes. The Tribunal upheld the CIT(A)'s decision, agreeing that the interest-free advances were made from the assessee's own funds and for business purposes. Combined Result: Both the Department's appeals were partly allowed for statistical purposes, and the assessee's Cross Objections were partly allowed.
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