2014 (1) TMI 445 - HC - Income Tax

Whether income tax component in technical know how fees is allowable u/s 35AB - Held that - Following assessee s own case for earlier years 1996 (12) TMI 132 - ITAT PATNA - The amounts in question payable to M/s. ESW, Austria, were not subject to taxation in India and no deduction of tax at source was called for in the case - As per the D.T.A.A between India and Austria amounts paid to M/s. ESW, Austria, for technical services rendered in Austria were taxable in Austria and not in India - There was no question of deduction of tax at source, from the payments made as M/s. ESW, Austria, did not maintain permanent establishment in India - Decided against Revenue.

Summary

Issues:
Appeal against ITAT decision on adjustment of income tax component in technical knowhow fees under Section 143(1)(a) of Income Tax Act.

Analysis:
1. The appeal was filed by the Revenue against the decision of the Income Tax Appellate Tribunal (ITAT) regarding the adjustment made under Section 143(1)(a) of the Income Tax Act in relation to the income tax component paid by the assessee on technical knowhow fees. The issue raised was whether the ITAT was justified in allowing the prima facie adjustment when there was no existing liability on the part of the assessee due to the refund of tax paid earlier.

2. The assessee had incurred expenses in the form of technical knowhow fees and paid income tax as per the order under Section 195 of the Income Tax Act. However, the CIT(A) canceled the order, leading to the refund of the income tax paid by the assessee. Subsequently, the assessee claimed income tax deduction under Section 35AB of the Income Tax Act on the technical knowhow fee and the income tax component. The Assessing Officer disallowed the income tax component, resulting in additional tax liability for the assessee.

3. The Commissioner of Income Tax (Appeals) disallowed the appeal filed by the assessee. However, the ITAT accepted the contention of the assessee based on previous judgments in the assessee's own case, where it was held that the Assessing Officer was not justified in making adjustments under Section 143(1)(a) by disallowing the claim under Section 35AB of the Act. The ITAT ruled in favor of the assessee, citing consistency with earlier decisions.

4. The assessee argued that previous judgments in similar issues had been confirmed by the Court, strengthening their case. The Revenue raised substantial questions of law, which had already been decided in favor of the assessee in a previous case. The Court, after reviewing the previous judgment, dismissed the appeal filed by the Revenue, stating that the substantial question of law had already been answered in favor of the assessee.

5. In conclusion, the Court ruled in favor of the assessee, dismissing the appeal filed by the Revenue. The judgment highlighted the consistency in decisions related to adjustments under Section 143(1)(a) and the disallowance of income tax components in technical knowhow fees, based on previous rulings in similar cases involving the assessee.