2015 (6) TMI 901 - AT - Income Tax

Disallowance of building repair expenses - revenue v/s capital - Held that - The assessee has only replastered, re-furnished and re-plumbered its factory building. This is not the Revenue s case that the same has caused any increase in capacity of the building or otherwise. The Assessing Officer has been heavily swayed by the quantity of the material used (supra). We observe that this factor is not relevant in deciding such an issue of capital and revenue expenditure once it has not resulted in creation of a new asset giving enduring advantage. We quote hon ble Bombay high court decision in CIT vs. DBS Corporate Services (P) Ltd., (2012 (9) TMI 478 - BOMBAY HIGH COURT) in support. Thus, we accept the assessee s relevant ground and delete the impugned disallowance by treating these building repair expenses as revenue expenditure liable to be treated as current repair u/s.30 of the Act. - Decided in favour of assessee. Disallowance of commission expenditure u/s.40(a)(i) paid to foreign agents in lieu of procuring export order - Held that - The assessee places on record agreement dated 8th December, 2005 highlighting its payees obligations, Revenue therein fails to point out involvement of any technical component therein. The assessee s overseas agents have procured export orders and provided logistic support through adequate publicity etc. There is not even an iota of evidence to prove any technical service actually rendered to the assessee. Thus, the Revenue s contention relating to Section 9(1)(vii) aplicability stands negated. We hold that the assessee has not availed any technical services from its overseas agents so as to deduct TDS on the impugned export commission payments. The Hon ble Supreme Court in G.E. India Technology Centre P. Ltd., (2010 (9) TMI 7 - SUPREME COURT OF INDIA ) has held that Section 195 applies only when overseas payments are taxable in the recipients hands under the Act. Therefore, we delete the impugned disallowance. - Decided in favour of assessee.

Summary

Issues:
1. Disallowance of building repair expenses as capital expenditure.
2. Disallowance of commission expenses paid to foreign agents under section 40(a)(i) for non-deduction of TDS.

Analysis:

Issue 1: Disallowance of Building Repair Expenses
The Assessing Officer disallowed the expenditure on building repairs as capital expenditure, citing Section 30A Explanation, claiming it was not a current repair but creation of new assets with enduring benefits. The assessee argued that the repairs were to preserve existing assets, not create new ones. The dispute centered on whether the repairs constituted capital or revenue expenditure. The Tribunal noted the repairs did not result in new assets with enduring advantage, following a Bombay High Court decision. The Tribunal accepted the assessee's argument, treating the repair expenses as revenue expenditure under Section 30 of the Act.

Issue 2: Disallowance of Commission Expenses
The Assessing Officer disallowed commission expenses paid to foreign agents under section 40(a)(i) for non-deduction of TDS, treating it as payment for technical services. The Tribunal examined the agreement and found no evidence of technical services being provided by the agents. Referring to a Supreme Court decision, the Tribunal ruled that Section 195 applies only when overseas payments are taxable in the recipient's hands. As the commission payments were not taxable in India, the disallowance was deleted. The Tribunal allowed the assessee's appeal, emphasizing that TDS deduction was not required for the commission payments to foreign agents.

In conclusion, the Tribunal ruled in favor of the assessee, allowing the appeal and overturning both the disallowance of building repair expenses and commission expenses paid to foreign agents. The judgment highlighted the distinction between capital and revenue expenditure, emphasizing the need for enduring benefits to classify an expense as capital.