2024 (6) TMI 1215 - AT - Income Tax

Computation of book profit u/s 115JB - as per AO discrepancies in the deduction claimed by the assessee for brought forward loss or unabsorbed depreciation and recomputed the deduction, allowing a lesser amount - as per assessee calculation of book profits must relate to the entries made in the books for the relevant year and such calculation must start from the profit as shown in P L account. Thereafter, the amount of loss brought forward or unabsorbed deprecation, whichever is less, as per the books of account, must be considered - HELD THAT - We are of the view that assessee s claim of deduction for computing book profit under section 115JB of the Act requires fresh verification in the light of the Chart furnished by the assessee, which has been reproduced in the order. Accordingly, the issue is restored back to the Assessing Officer for fresh adjudication after factually verifying assessee s claim. TDS u/s 195 - payments have been made to non-residents without deducting tax at source - Disallowance made u/s 40(a)(i) - as submitted by assessee repair and maintenance work was carried out outside India and no part of it was carried out in India - also in absence of Permanent Establishment (PE) of such non-resident companies in India, business profit cannot be taxed in India - HELD THAT - AO has failed to demonstrate with cogent evidence that the make available condition enshrined in the concerned treaties are satisfied. In fact, learned first appellate authority has recorded a categorical factual finding that in course of rendition of service technical knowledge, know-how, skill, etc. has not been made available to the service recipient by the service provider. Thus, in absence of any contrary material brought on record by the Revenue, we concur with the view expressed by learned first appellate authority. Once the payments do not qualify as FTS under the respective treaty provisions, in terms with section 90(2) of the Act, treaty provisions being more beneficial would override the provisions contained in the domestic law. That being the legal position, in our view, the payments made to the residents of USA, UK, Australia, Canada and Singapore, being not chargeable to tax in India, section 195 is not applicable. Accordingly, we hold that the assessee was not required to deduct tax at source while making payment to residents of the aforesaid countries. Payments made to entities in UAE , admittedly, in India UAE treaty, there is no provision concerning taxability of FTS. Thus, in absence of any such provision, the payments made to the residents of UAE can either be taxed as business income or as other income in terms with Article 7 or 22, respectively. On reading of Article 7 it becomes clear that business profits can be taxed in the source country only if the resident of other country has a PE in the source country. In the facts of the present appeal, admittedly, none of the entities had any PE in India. Therefore, the payments made to them cannot be taxed in India as business profits. Even, they cannot be taxed as other income in India as Article 22 of India UAE treaty makes it clear that the other income can only be taxed in the country of residence. Thus, in our view, the payments made to the entities in UAE are not taxable in India as per the treaty provisions, hence, there is no requirement for deduction of tax at source on the payments made. Second category comprising of Netherlands, Spain and France . Admittedly, the definition of FTS in the treaty provisions with these countries are wider in scope and do not contain the make available clause. However, it requires to be examined whether the nature of services would fall within the category of technical consultancy or managerial services. As per the work process followed by the assessee, as discussed earlier, certain parts of helicopters are sent for routine repair/overhaul in terms with the guidelines of DGCA to keep the helicopters airworthy. The parts of helicopters were sent outside India for repair/overhaul and the repair/overhaul is carried out outside India. The repaired/overhauled parts are sent back to India to be fixed in the helicopters. In fact, learned Commissioner (Appeals) has given a categorical factual finding to the aforesaid effect. The Revenue has failed to bring any material on record to demonstrate that any non-resident technical personnel visited to render any technical service in India or the repair and maintenance work was carried out through any PE in India. When, the entire repair and maintenance of helicopter parts was carried out outside India and nothing was done in India by the non-resident payees, in our view, the payments made to the non-residents are not chargeable to tax in India. Therefore, there was no obligation on the assessee to withhold tax under section 195 - Decided in favour of assessee. Disallowance of advances written off - addition made as assessee failed to furnish adequate evidence in support of its claim - CIT(A) deleted addition - HELD THAT - Commissioner (Appeals) after examining the facts and materials on record has recorded that the amount in dispute represents the advances given earlier by the assessee in its normal course of business for purchase of spare consumables, repairs and maintenance, freight clearing forwarding charges, lodging boarding charges, etc. The amount has become irrecoverable owing to nonfulfillment of certain conditions. Advances were pertaining to two to three years prior to assessment year 2011-12 and that no expenses were booked by the assessee. Revenue has not brought any contrary materials on record to disturb the aforesaid factual finding of learned Commissioner (Appeals). Therefore, we do not find any infirmity in the decision of learned first appellate authority. Ground raised is dismissed.

Summary

Issues Involved:
1. Computation of book profit under section 115JB of the Income-tax Act, 1961.
2. Disallowance under section 40(a)(i) of the Income-tax Act, 1961.
3. Deletion of disallowance of advances written off.

Issue-wise Detailed Analysis:

1. Computation of Book Profit under Section 115JB:
The dispute in the assessee's appeal pertains to the computation of book profit under section 115JB of the Income-tax Act, 1961. The assessee, engaged in aviation services, filed its return declaring NIL income under normal provisions and book profit under section 115JB. The Assessing Officer (AO) found discrepancies in the deduction claimed by the assessee for brought forward loss or unabsorbed depreciation and recomputed the deduction, allowing a lesser amount. The Commissioner (Appeals) upheld the AO's decision. The assessee argued that the AO miscalculated the deduction and that the computation should relate to the entries made in the books for the relevant year. The Tribunal agreed that the assessee's claim requires fresh verification and restored the issue to the AO for fresh adjudication, ensuring a reasonable opportunity of being heard is provided.

2. Disallowance under Section 40(a)(i):
The Revenue's appeals concern the disallowance made under section 40(a)(i) for payments made to non-residents without deducting tax at source. The assessee argued that the payments were for repair and maintenance services carried out outside India, and as per various Double Taxation Avoidance Agreements (DTAAs), the payments do not qualify as Fees for Technical Services (FTS) due to the absence of a Permanent Establishment (PE) in India or the non-fulfillment of the 'make available' condition. The AO treated the payments as FTS and disallowed them. The Commissioner (Appeals) deleted the additions, stating the services were not technical in nature and were carried out outside India. The Tribunal upheld this decision, agreeing that the payments were not taxable in India under the respective DTAAs, thus no tax was required to be deducted at source.

3. Deletion of Disallowance of Advances Written Off:
In the appeal for the assessment year 2011-12, the Revenue challenged the deletion of disallowance of advances written off. The AO disallowed the claim due to insufficient evidence. However, the Commissioner (Appeals) found that the advances were given in the normal course of business and had become irrecoverable due to non-fulfillment of conditions, thus representing a business loss allowable under section 37 of the Act. The Tribunal upheld this decision, noting that the Revenue failed to provide contrary evidence.

Conclusion:
The assessee's appeal regarding the computation of book profit under section 115JB is allowed for statistical purposes, requiring fresh verification by the AO. The Revenue's appeals concerning disallowance under section 40(a)(i) and deletion of disallowance of advances written off are dismissed.