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2022 (8) TMI 1556 - AT - Income TaxDisallowance of sub-contracting expense - AO disallowed the same holding it to be mere provision - DRP affirmed the disallowances made on the ground that it is an unascertained liability and the assessee had not deducted tax at sources - contention of A.R. is that the expenses claimed in this assessment year is reversed in the subsequent year and offered to tax and therefore no disallowance is warranted in the year under consideration - HELD THAT - The liability of the assessee to deduct TDS arises on making the provisions even on debiting the same to suspense account or any other account by whatever name called, which will also include a provision created in the books of account of the assessee. Therefore, it is not possible for the assessee to argue that there was no accrual of expenditure in accordance with the mercantile system of account followed by assessee. Therefore, TDS obligation do catch triggered. In view of this, we are of the opinion that the expenditure cannot be allowed in the assessment year under consideration. Assessee made alternative argument that the provision was reversed in the next year in its books of accounts and same was offered to tax and disallowance of this assessment year amounts to double taxation in this assessment year as well as in the next subsequent assessment years. We find force in the argument of the assessee s counsel. We direct the AO that if the provisions has been disallowed in the assessment year 2014-15, and the reversal of the same in the next assessment year, the same cannot be taxed to that extent on reversal of provisions. Being so, we direct the AO to take note of this in AY 2015-16 in which the assessee made reversal of the provisions. This ground of assessee is disposed of as above. Disallowance of professional consultancy charges paid to Homeplus Company Ltd. - disallowance u/s 40(a)(ia) of the Act by merely holding that the submissions made by the Assessee is not satisfactory - HELD THAT - In this case, AO treated the payment of professional charges to Home Plus Company Ltd. as fees for technical services. In the present case, the payment has been made towards training services and the training services cannot be treated as technical, managerial or consultancy in nature, in terms of DTAA between India and Korea. As relying on Lyods Registered Industrial Services (India) Pvt. Ltd. 2009 (11) TMI 670 - ITAT MUMBAI we are inclined to hold that the assessee is not liable to deduct TDS on the payment made to Home Plus Company Ltd. towards fee for training service charges. This ground of appeal of the assessee is allowed. Disallowance of professional consultancy charges paid - disallowance u/s 40(a)(ia) by merely holding that the submissions made by the Appellant is not satisfactory - HELD THAT - In our opinion, this issue squarely covered by the judgement of De Beers India Minerals Pvt. Ltd. 2012 (5) TMI 191 - KARNATAKA HIGH COURT recipient after receiving of technology may use or may not use the technology. It has no bearing on the taxability aspect is concerned. When the technical service is provided, that technical service is to be made use of by the recipient of the service in further conduct of his business. Merely because his business is dependent on the technical service which he receives from the service provider, it does not follow that he is making use of the technology which the service provider utilizes for rendering technical services. The crux of the matter is after rendering of such technical services by the service provider, whether the recipient is enabled to use the technology which the service provider had used. Therefore, unless the service provider makes available his technical knowledge, experience, skill, know-how or process to the recipient of the technical service, in view of the clauses in the DTAA, the liability to tax is not attracted. From the aforesaid discussion it is clear that test is whether the recipient of the service is equipped to carry on his business without reference to the service provider. If he is able to carry on his business in future without the technical service of the service provider in respect of services rendered then, it would be said that technical knowledge is made available. Disallowance of reimbursement of salary cost - AO held that the payments made partake the character of fees for technical services in terms of explanation 2 to Section 9(1)(vii) of the Act, and therefore in the absence of tax deduction at source, a disallowance u/s 40(a)(ia) is warranted - HELD THAT -After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in the case of Abbey Bus Services Pvt. Ltd. 2020 (12) TMI 570 - KARNATAKA HIGH COURT held that it is evident that the seconded employees have to work at such place as the assessee may instruct and the employees have to function under the control, direction and supervision of the assessee and in accordance with the policies, rules and guidelines applicable to the employees of the assessee. The employees in their capacity as employees of the assessee had to control and supervise the activities of another company. Therefore, the assessee for all practical purposes has to be treated as employer of the seconded employees and expenses incurred by the seconded employees which were reimbursed by the assessee is not liable to deduction to tax at source. There is no obligation in law for deduction of tax at source on payments made for reimbursement of costs incurred by a nonresident enterprise and therefore, the amount paid by the assessee was not to suffer tax deduction at source under section 195. Thus, substantial question of law is answered against revenue. Re-computation of deduction u/s 10AA - DRP directed AO to reduce the expenses both from the export turnover as well as the total turnover but while doing so, AO did not give effect to the directions - HELD THAT - After hearing both the parties, we are of the opinion that this is squarely covered by the judgement of HCL Technologies Ltd. 2018 (5) TMI 357 - SUPREME COURT wherein held Total turnover has been defined in sections 80HHC and 80HHE only to exclude additional items given under section. But for this additional exclusion, there was no need to define total turnover . Export turnover is a component of total turnover. If the entire turnover represents export proceeds, then the export turnover and the total turnover are identical. It is clear that any exclusion in the export turnover in the numerator will automatically imply exclusion in the denominator as well because export turnover is always a component of total turnover. Decided in favour of assessee. Non-grant of set off of accumulated Minimum Accumulated Tax ( MAT ) credit - assessee wants the direction to AO to grant accumulated MAT credit claimed in the return of income. We accede to the request of the assessee s counsel. Levy of interest u/s 234A - AR. stated that levy of interest u/s 234A of the Act is bad in law as the assessee has filed return of income in time and if it is charged u/s 234A of the Act, it has to be charged on returned income not on the assessed income - Accordingly, we remit this issue to the filed of AO for reconsideration for the purpose of computation of interest u/s 234A, if it is chargeable. Taxability of assets received from Tesco Stores Limited on a Free of Cost basis - whether it is 'benefit arising from the business' of the Appellant and chargeable to tax u/s 28(iv)? - HELD THAT - We find force in the arguments of the assessee s counsel. If the depreciation on assets is considered as part of operating profit margin arising from the transaction, and the income from which it is offered to tax, no addition u/s 28(iv) of the Act is warranted, which is already subject to tax pursuant to APA and no further addition is necessary, otherwise it amounts to double taxation. Accordingly, we allow this ground taken by the assessee. Disallowance of consulting charges paid - HELD THAT - There is no dispute that the project for which feasibility report obtained for establishment of setting up of new project, which said to be Abdon project. If the project was not taken up and it was incurred for the conducting feasibility of that project and that expenditure to be allowed as a revenue expenditure as the assessee has not derived any enduring benefit on incurring of this expenditure. Accordingly, this issue is remitted to the file of AO to verify whether a project has been taken up or not and if it is not taken up, this expenditure to be allowed as revenue expenditure. Disallowance of sub-contract expenditure - As decided earlier if no deduction has been made on this payment, this expenditure cannot be allowed in this assessment year under consideration. However, we make it clear that if it is reversed in the next assessment year, it cannot be treated as income on reversal. Grant of foreign tax credit - After hearing both the parties, we remit this issue to the file of AO to grant foreign tax credit in accordance with law.
Issues Involved:
1. Disallowance of sub-contracting expenses. 2. Disallowance of professional consultancy charges paid to Homeplus Company Ltd. 3. Disallowance of professional consultancy charges paid to Tesco Stores Ltd. 4. Disallowance of reimbursement of salary cost. 5. Re-computation of deduction under Section 10AA of the Income-tax Act. 6. Non-grant of set-off of accumulated Minimum Alternate Tax (MAT) credit. 7. Levy of interest under Section 234A of the Act. 8. Taxation of assets received free of cost under Section 28(iv) of the Act. 9. Disallowance of consulting charges paid to DTZ International Property Advisors Pvt. Ltd. 10. Grant of foreign tax credit. Detailed Analysis: 1. Disallowance of Sub-Contracting Expenses: - The assessee claimed a deduction for sub-contracting expenses, which was disallowed by the Assessing Officer (AO) on the grounds that it was a mere provision and no tax was deducted at source (TDS). The Tribunal held that since the assessee did not deduct TDS, the expenditure cannot be allowed as a deduction in the assessment year under consideration. However, if the provision is reversed in the subsequent year, it cannot be taxed again, thereby preventing double taxation. 2. Disallowance of Professional Consultancy Charges Paid to Homeplus Company Ltd.: - The AO disallowed the consultancy charges paid to Homeplus, treating them as fees for technical services under Section 40(a)(ia) of the Act. The Tribunal found that the payments were for training services, which do not qualify as technical, managerial, or consultancy services under the India-Korea DTAA. Therefore, the assessee was not liable to deduct TDS, and the disallowance was overturned. 3. Disallowance of Professional Consultancy Charges Paid to Tesco Stores Ltd.: - Similar to the Homeplus issue, the AO disallowed charges paid to Tesco Stores, considering them as fees for technical services. The Tribunal, relying on the Karnataka High Court decision in CIT v. De Beers India Minerals (P.) Ltd., held that the payments did not meet the 'make available' criterion under the India-UK DTAA, and thus, disallowance under Section 40(a)(i) was not warranted. 4. Disallowance of Reimbursement of Salary Cost: - The AO disallowed the reimbursement of salary costs for seconded employees, treating it as fees for technical services. The Tribunal, referencing the decision in DIT v. Abbey Business Services India (P.) Ltd., held that the seconded employees were under the control of the assessee, and the reimbursement was merely cost-to-cost without any income element. Thus, the disallowance was incorrect. 5. Re-computation of Deduction Under Section 10AA: - The AO reduced certain expenses only from export turnover without a corresponding reduction from total turnover, affecting the deduction under Section 10AA. The Tribunal, following the Supreme Court's decision in CIT v. HCL Technologies Ltd., held that expenses should be reduced from both export and total turnover, allowing the assessee's claim. 6. Non-grant of Set-off of Accumulated MAT Credit: - The assessee sought the set-off of accumulated MAT credit. The Tribunal directed the AO to grant the MAT credit as claimed in the return of income. 7. Levy of Interest Under Section 234A: - The assessee contended that interest under Section 234A was not applicable as the return was filed on time. The Tribunal remitted the issue to the AO for reconsideration, directing that interest, if chargeable, should be computed on the returned income. 8. Taxation of Assets Received Free of Cost Under Section 28(iv): - The AO taxed assets received free of cost as benefits arising from business under Section 28(iv). The Tribunal found that since depreciation on these assets was considered in computing operating profit margin under an Advance Pricing Agreement, taxing them again would result in double taxation. Thus, no addition was warranted. 9. Disallowance of Consulting Charges Paid to DTZ International Property Advisors Pvt. Ltd.: - The AO treated the consultancy charges for a feasibility report as capital expenditure. The Tribunal, noting that the project was shelved and no enduring benefit was derived, directed the AO to verify and allow the expenditure as revenue if the project was not pursued. 10. Grant of Foreign Tax Credit: - The AO denied foreign tax credit for units eligible for deduction under Section 10AA. The Tribunal, referencing the Karnataka High Court decision in Wipro Ltd. v. DCIT, remitted the issue to the AO to grant the credit in accordance with the law. Conclusion: The Tribunal allowed several grounds in favor of the assessee, providing relief from disallowances and directing the AO to reconsider issues concerning MAT credit, interest under Section 234A, and foreign tax credit. The appeals were allowed for statistical purposes.
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