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2024 (8) TMI 276 - AT - Income TaxTDS u/s 195 - disallowance of professional fee paid to EVA Delith, Germany without deduction of TDS - addition u/s 40(a)(i) - HELD THAT - As Ms. Eva M.Delith does not has fixed base in India nor she did visited India at all for the period during the previous year relevant to the assessment years under appeals and hence, her income is taxable only in Germany. Hence, there is no need to deduct TDS out of the remittances made to her. Therefore, the disallowance made by invoking the provisions of section 40(a)(i) of the Act is not warranted and the same is deleted. Since the facts are identical in other four assessment years i.e., 2012-13 to 2015-16 also, taking a consistent view, the disallowance made by invoking the provisions of section 40(a)(i) of the Act towards payments made to Ms. Eva M.Delith is not warranted and the same is deleted. Accordingly, this issue raised by the assessee in all these five assessment years is allowed. Disallowance of professional fee paid to BDO Deutsche Warentreuhand, Germany towards local VAT compliance support services rendered outside India u/s. 40(a)(i) - HELD THAT - Admittedly, the party BDO Deutsche Warentreuhand, Germany is a foreign party providing professional services in making VAT return and compliance services in Germany. This issue now stands covered in favour of assessee by the decision of Co-ordinate Mumbai Bench of this Tribunal in the case of BSR Co. 2016 (5) TMI 356 - ITAT MUMBAI held that the different types of professional services rendered to an Indian company by overseas companies outside India in relation to audit, taxation, transfer pricing, information technology, background checks etc., would be independent personnel services and since these professional overseas companies had not fixed base or PE in India, the payments made to them would not be chargeable to tax in India and consequently, no TDS is to be deducted. Consequently, no disallowance under 40(a)(i) of the Act can be made. Hence this issue of assessee s appeal is allowed. Disallowance of segregation charges paid to non-residents towards warehousing, unpacking, repacking of goods and supplying to customers in Germany u/s. 40(a)(i) - HELD THAT - We noted that the assessee company is exporting their products being automobile components to their clients at Germany mostly to M/s. Volkswagen. As its client is having several factories in Germany and client is insisting for supplying of their products to various factories as per their requirement and hence, there are segregation charges as the agent has to store the component in their warehouses hired by assessee and store the components as and when they are shipped in bulk from India and pack it and repack it at the required lots and deliver it to the clients factory. Hence, these payments are made to non-resident and from the very nature of services, these cannot be called as technical services and even there is no permanent establishment of the payee. Once there is no PE in India of either the agents or the supplier company i.e., Volkswagen, no TDS is to be deducted for the same in view of the decision in the case of Turbo Energy Ltd. 2017 (5) TMI 1749 - ITAT CHENNAI Services rendered by the non-resident do not fall under the category of technical and managerial services and even these services were rendered outside India and there is no permanent establishment or business connection with the non-resident in India. Accordingly, we are of the view that providing of the services outside India cannot be taxed in India as the non-resident has no permanent establishment in India - Decided in favour of assessee. Payment to Union of Japanese Scientists and Engineers (JUSE), Japan in connection with 60th Anniversary Deming Prize for non-deduction of tax u/s. 40(a)(i) - We noted that the assessee has applied for and has won deming award from Japanese Scientists and Engineers (JUSE) and for that purpose, the assessee has advertised in the deming prize advertisement towards 60th anniversary. This payment is not in the nature of technical services but this will fall under business income and that also out of India. As pointed out by ld.counsel that this issue is squarely covered by the decision Brahmos Aerospace Pvt. Ltd. 2016 (9) TMI 705 - ITAT DELHI wherein held that payments made to foreign entities are in nature of rent, advertisement and exhibition expenses and therefore are in the nature of business receipts in hands of payee. Such business receipts are taxable in India only if payee had 'PE' in India within meaning of relevant DTAA. From the facts, it has been observed that foreign entities did not have PE in India and therefore payments were not chargeable to tax in India. Accordingly, the assessee was under no obligation to deduct taxes at source while making these payments. Disallowance made by AO towards corporate social responsibility - HELD THAT - We are of the view that these expenditures are in the nature of revenue because all these expenditures are for the welfare of the community and from the very nature mentioned above, we are convinced that these expenditures are allowable as revenue. Even the amendment blocking these expenditures is from 01.04.2015 relevant to assessment year 2015-16. The issue before us is for assessment years 2011-12 to 2013-14 and hence, we direct the AO to allow these expenses. Disallowance of interest free advances given to Rane Foundation after taking loan on interest from bank - only plea of assessee before us was that the assessee has sufficient interest free funds available and hence, no interest apportioning can be disallowed on the ground that interest free advance was given to Rane Foundation - HELD THAT - This issue is squarely covered by the decision of Reliance Utilities and Power Ltd. 2009 (1) TMI 4 - BOMBAY HIGH COURT and HDFC Bank Ltd. 2014 (8) TMI 119 - BOMBAY HIGH COURT Hence, we remit this issue back to the file of the AO for verification purpose and he will verify whether the interest free funds are available with the assessee, which is more than the interest free advances given to Rane Foundation. In term of the above, this issue is allowed in both the assessment years 2011-12 2012-13 subject to verification by the AO. Disallowance of claim u/s. 80G - We find force in the arguments of ld.counsel and as agreed by ld. Senior DR, the matter is restored back to the file of the AO and AO is directed to verify the certificate given by Rane Foundation, wherein assessee has contributed Rs. 40 lakhs. Accordingly, this issue is allowed for statistical purposes. Disallowance of claim of market research and development expenses paid in USA by non-deduction of TDS - addition invoking the provisions of section 40(a)(i) - HELD THAT - DTAA between India-USA and Article 12(4)(b) of the DTAA and noted that the Hon ble Karnataka High Court in the case of CIT vs. De Beers India Minerals (P) Ltd. 2012 (5) TMI 191 - KARNATAKA HIGH COURT has considered identical issue although in term of DTAA between India and Netherland but these are identical to the clauses India-Us DTAA The company has entered into an agreement with Rane Holdings America Inc., for carrying out market survey for its company product in USA and the scope of services is to provide market related information and research but there is no provision for making available any technical knowledge by the non-resident. Therefore, in our view, the payment will constitute business profit as it will not constitute fee for technical services under DTAA between India-USA under Article 12(4)(b) of the DTAA and hence, no disallowance can be made. Taking a consistent view, no disallowance can be made by invoking the provisions of section 40(a)(i) of the Act towards market research and development expenses paid to Rane Holdings America Inc. Decided in favour of assessee.
Issues Involved:
1. Condonation of delay in filing appeals. 2. Disallowance of professional fees paid to Eva Delith. 3. Disallowance of professional fees paid to BDO Deutsche Warentreuhand. 4. Disallowance of segregation charges paid to non-residents. 5. Disallowance of payment to Union of Japanese Scientists and Engineers. 6. Disallowance of Corporate Social Responsibility (CSR) expenditure. 7. Disallowance of interest-free advances given to Rane Foundation. 8. Disallowance of donation under Section 80G. 9. Disallowance of market research and development expenses paid in the USA. Issue-wise Detailed Analysis: 1. Condonation of Delay in Filing Appeals: - 99 Days Delay (ITA 1477/CHNY/2018): The appeal was filed late due to oversight by tax consultants during a busy compliance period. The delay was condoned as the cause was deemed reasonable. - 167 Days Delay (ITA 885/CHNY/2020): The delay fell within the COVID-19 pandemic period, and the Supreme Court had directed that delays during this period be condoned. The delay was thus condoned. 2. Disallowance of Professional Fees Paid to Eva Delith: - Facts: The assessee paid professional fees to Eva Delith for marketing support services in Germany without deducting TDS. - Arguments: The services did not involve managerial, technical, or consultancy knowledge and were not taxable under the India-Germany DTAA. - Tribunal Decision: The services were deemed independent personal services under Article 14 of the India-Germany DTAA, and since Eva Delith had no fixed base in India and did not visit India, her income was taxable only in Germany. The disallowance was deleted. 3. Disallowance of Professional Fees Paid to BDO Deutsche Warentreuhand: - Facts: The assessee paid fees for VAT compliance services in Germany without deducting TDS. - Arguments: The services were professional in nature, and the non-resident did not have a PE in India, making the fees non-taxable in India. - Tribunal Decision: The services were deemed professional and not technical, and since the non-resident had no PE in India, the disallowance was deleted. 4. Disallowance of Segregation Charges Paid to Non-Residents: - Facts: Payments were made for warehousing, unpacking, and repacking services in Germany without deducting TDS. - Arguments: The services were logistical, not managerial or technical, and the non-residents had no PE in India. - Tribunal Decision: The services were not technical or managerial, and since the non-residents had no PE in India, the disallowance was deleted. 5. Disallowance of Payment to Union of Japanese Scientists and Engineers: - Facts: Payment was made for advertisement in connection with the 60th Anniversary Deming Prize without deducting TDS. - Arguments: The payment was for advertisement, not technical services, and was not taxable in India. - Tribunal Decision: The payment was deemed business income earned outside India, not taxable in India, and the disallowance was deleted. 6. Disallowance of Corporate Social Responsibility (CSR) Expenditure: - Facts: The assessee incurred CSR expenses for community welfare. - Arguments: The expenses were for the welfare of the community and should be allowed as business expenditure. - Tribunal Decision: The expenses were deemed revenue in nature and allowable up to assessment year 2014-15. The disallowance was deleted for assessment years 2011-12 to 2013-14. 7. Disallowance of Interest-Free Advances Given to Rane Foundation: - Facts: Interest-free loans were given to Rane Foundation, and a proportionate interest was disallowed. - Arguments: The advances were made from surplus funds, and the assessee had sufficient reserves. - Tribunal Decision: The matter was remanded to the AO to verify the availability of interest-free funds. If sufficient funds were available, no disallowance should be made. 8. Disallowance of Donation under Section 80G: - Facts: The AO disallowed the claim for deduction under Section 80G without discussion. - Arguments: The donation was made to a registered trust with approval under Section 80G. - Tribunal Decision: The matter was remanded to the AO for verification of the certificate. If verified, the deduction should be allowed. 9. Disallowance of Market Research and Development Expenses Paid in the USA: - Facts: Payments were made for market research services in the USA without deducting TDS. - Arguments: The services were not technical and were not taxable in India under the India-USA DTAA. - Tribunal Decision: The services did not constitute 'fee for technical services' under the DTAA, and no disallowance was warranted. The disallowance was deleted for assessment years 2012-13 to 2015-16. Conclusion: The appeals were allowed for statistical purposes for assessment year 2012-13 and allowed for assessment years 2011-12, 2013-14, 2014-15, and 2015-16. The Tribunal provided detailed reasoning for each issue, emphasizing the applicability of DTAA provisions and the nature of services rendered.
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