2024 (5) TMI 590 - AT - Income Tax

Disallowance u/s 14A r.w.r. 8D - Expenditure incurred on earning exempt income - Sufficiency of own funds/interest free funds - HELD THAT - The factual finding of learned first appellate authority that the assessee had enough surplus interest free funds to take care of the investments made in exempt income yielding assets could not be controverted by the Revenue. That being the factual position on record, keeping in view the settled legal principles, we do not find any infirmity in the decision of learned first appellate authority in deleting the disallowance made u/r 8D(2)(ii). TDS u/s 195 - Disallowance u/s 40(a)(i) - assessee has paid an amount in foreign currency towards domain name registration - HELD THAT - The registrar is merely a facilitator in connecting the applicant to the registry database to check uniqueness of domain name. Once the uniqueness of applied domain name is checked, the registration of domain name is automatic on the payment of requisite fee. He has recorded a factual finding that the user of domain name has not even iota of knowledge about the code piece/computer program. Therefore, there cannot be any question of its usage/exploitation. The assessee has merely got right to use the functionality based on the computer program and not the computer program itself. The assessee has not exploited the code piece in any manner. Thus, he has concluded that the payments made cannot be treated as royalty under section 9(1)(vi) of the Act, nor Fee for Technical Services under Article 12(3) of India US DTAA. From the aforesaid observations of learned first appellate authority, it becomes quite clear that the payments made were not for use or right to use of any software, equipment, process etc. The Revenue has failed to bring any cogent evidence on record to controvert the factual finding of learned first appellate authority and establish on record that the payment made is for use or right to use of any computer software/program, equipment/process etc., as defined under section 9(1)(vi) of the Act. That being the case, we concur with the decision of learned first appellate authority on the issue.

Summary

Issues involved:
The issues involved in this judgment are the challenge to partial relief granted under section 14A of the Income-tax Act, 1961 and the challenge to the deletion of disallowance under Section 40(a)(i) of the Act.

Challenge to partial relief under section 14A:
The Revenue appealed against the partial relief granted by the first appellate authority regarding disallowance made under section 14A of the Income-tax Act, 1961 read with Rule 8D of the Income Tax Rules, 1962. The Assessing Officer had disallowed an amount towards interest expenditure and administrative expenses under Rule 8D(2). The first appellate authority deleted the disallowance of interest expenditure but sustained the disallowance of administrative expenses. The Tribunal upheld the decision of the first appellate authority, stating that the assessee had enough surplus interest-free funds to cover investments in exempt income-yielding assets, making the disallowance under Rule 8D(2)(ii) unsustainable. Therefore, the appeal on this ground was dismissed.

Challenge to deletion of disallowance under Section 40(a)(i):
The Revenue challenged the deletion of disallowance under Section 40(a)(i) of the Act related to payments made in foreign currency towards domain name registration. The Assessing Officer believed the payments fell under the category of royalty and required tax withholding under section 195 of the Act. However, the first appellate authority concluded that the payments were neither royalty nor Fee for Technical Services (FTS) and deleted the disallowance. The Tribunal concurred with the first appellate authority's decision, noting that the payments were for domain name registration, which did not involve the use or right to use any software or equipment as defined under section 9(1)(vi) of the Act. As the Revenue failed to provide evidence to the contrary, the appeal on this ground was also dismissed.

General Ground:
A general ground raised in the appeal was also dismissed by the Tribunal.

In conclusion, the appeal by the Revenue was dismissed by the Tribunal concerning the challenges to partial relief under section 14A and the deletion of disallowance under Section 40(a)(i) of the Income-tax Act, 1961. The Tribunal upheld the decisions of the first appellate authority in both instances.