2024 (11) TMI 1033 - HC - Income Tax

Deduction u/s. 80IA - initial assessment year for claiming deduction - Tribunal held that the unabsorbed depreciation and carried forward losses of the earlier years which had already been set off against the other income, could not be notionally carried forward and taken into consideration for the purpose of computation of deduction u/s. 80IA - HELD THAT - The issue arising in the first two substantial questions of law are covered in favour of the assessee by a judgment of Supreme Court in the case of Velayudhaswamy Spinning Mills Ltd 2010 (3) TMI 860 - MADRAS HIGH COURT . Disallowance of agency commission paid to non-resident without deducting tax at source, u/s. 40 a i - HELD THAT - The facts are admitted to the effect that the commission agents are situated abroad. The factum of rendition of services abroad is also admitted. It is also not in question that no payments were made in India and that the commission was remitted through banking channels directly to the agents. In the facts of the present case, Circular No.786 issued by the Central Board of Direct Taxes, is clear to the effect that export commission would not be liable to tax. There has admittedly been no determination of tax made by any other authority holding the recipients of the commission to be taxable in India. Hence, the determination of taxability made by the assessee, and the decision to remit without deduction, is, in this case, unimpeachable. Hence, we see no infirmity in the order of the Income Tax Appellate Authority having accepted the case of the assessee. The third substantial question of law is also answered in favour of the assessee.

Summary

Issues:
1. Interpretation of initial assessment year for deduction u/s. 80IA
2. Treatment of unabsorbed depreciation and carried forward losses for deduction u/s. 80IA
3. Disallowance of agency commission without TDS deduction under Section 40(a)(i) of the Income Tax Act

Analysis:

Issue 1:
The first issue revolves around determining the initial assessment year for claiming deduction under section 80IA. The Income-tax Appellate Tribunal's interpretation was challenged, arguing that the initial assessment year should signify the commencement of operation of the eligible undertaking. The Supreme Court's judgment in Velayudhaswamy Spinning Mills Ltd V. Assistant Commissioner of Income Tax supported the assessee's position, favoring a broader interpretation of the initial assessment year.

Issue 2:
Regarding the treatment of unabsorbed depreciation and carried forward losses for deduction under section 80IA, the Income-tax Appellate Tribunal's decision was contested. The Tribunal ruled against considering these losses for computing the deduction, contrary to the assessee's claim that these losses should be factored in as the eligible undertaking's only source of income. The Supreme Court's precedent in Velayudhaswamy Spinning Mills Ltd case was cited to support the assessee's stance.

Issue 3:
The final issue pertains to the disallowance of agency commission without tax deduction at source under Section 40(a)(i) of the Income Tax Act. The assessing authority disallowed the expenditure, citing the obligation to deduct tax on foreign payments. However, the assessee argued that the payments to non-resident agents were not taxable in India as per Circular No.786. The High Court upheld the assessee's position, emphasizing that in the absence of a determination of tax liability by the revenue authorities, the decision not to deduct tax was valid. The judgment in GE India Technology Centre (P) Ltd case was invoked to support the assessee's stance, ultimately leading to the dismissal of the tax appeal.

This detailed analysis highlights the key legal issues addressed in the judgment, providing a comprehensive understanding of the court's reasoning and the application of relevant legal principles.