2018 (6) TMI 1859 - AT - Income Tax

TDS u/s 195 - Addition on account of export commission - CIT(A) held that no TDS was deductible on payments made to foreign parties - Disallowance in respect of content and software development expenses u/s 40(a)(ia) - CIT(A) deleted addition HELD THAT - We find that both the issues have been considered by the the ITAT, Mumbai Bench G for AYs 2011-12 and 2012-13 2018 (2) TMI 2126 - ITAT MUMBAI treated that payment to M/s. Columbus Travel Media Ltd., and Zagat Survey LLC cannot be treated as royalty u/s.9(1)(vi) of the Act. Hence, assesses was not required to deduct tax accordingly, no disallowance can be made u/s.40(a)(i) of the Act. With regard to export commission paid to the foreign agents CIT(A) recorded a clear finding that commission has been paid for procuring export order and payment was made outside India. After relying on the CBDT Circular No.23 of 1969, 786 of 2000 and 7 of 2009, the CIT(A) held that no tax is deductible in respect of such export commission.CIT(A) also relied on the decisions of Welspring Universal 2015 (1) TMI 736 - ITAT DELHI and Faizan Shoes (P) Ltd. 2014 (8) TMI 170 - MADRAS HIGH COURT , which has been accepted by the Department and no SLP has been filed. Thus no infirmity in the order of CIT(A) for deleting the disallowance made on account of payment made to foreign parties without deduction of tax at source - Decided against revenue.

Summary

Issues:
1. Disallowance of export commission paid to foreign agents.
2. Disallowance of content and software development expenses under section 40(a)(ia).

Analysis:

Issue 1: Disallowance of export commission paid to foreign agents
The appeal by the revenue was against the CIT(A)'s order for AY 2013-14. The assessee, engaged in software development and export, filed its income return for the year and was subjected to scrutiny. The AO made additions to the total income, including disallowance of export commission paid to foreign parties. The assessee argued that the commission was paid to non-resident agents for procurement of orders, and hence, no income arose in the Indian tax jurisdiction. The CIT(A) deleted the addition based on earlier orders and legal precedents, including the judgment of the Madras High Court. The Tribunal upheld the CIT(A)'s decision, citing similar cases and legal provisions, and rejected the revenue's appeal.

Issue 2: Disallowance of content and software development expenses
Regarding the disallowance of expenses under section 40(a)(ia), the CIT(A) found that the assessee had not deducted TDS on a portion of content development expenses. The AO disallowed the amount, but the CIT(A) deleted the addition, following his earlier decisions for other assessment years. The Tribunal, consistent with its previous rulings, upheld the CIT(A)'s decision, stating that no TDS was required on certain payments based on legal interpretations and precedents. The revenue's appeal was dismissed, affirming the CIT(A)'s order.

In conclusion, the Tribunal dismissed the revenue's appeal, upholding the CIT(A)'s decisions on both issues. The Tribunal's ruling was based on legal interpretations, precedents, and consistency with earlier judgments.