2016 (3) TMI 735 - HC - Income Tax

Tds u/s 195 - Held that - As no income has accrued or arisen to the non-resident sub-arrangers in India, the question of deduction of tax under section 195 of the Act will not arise. This is in addition to a possible view on facts taken by the impugned order that the services rendered by non-resident sub-arrangers to the Respondent Assessee would not fall within the category of managerial, technical or consultancy services in terms of the Explanation (2) to section 9(1) (vii) of the Act so as to deemed to accrue or arise in India. - Decided in favour of assessee Mobilization of IMD - whether allowable as a deduction in the current year as per ITAT whereas the assessee had amortized the same in its books of accounts for a period of 5 years no expenses amortized were directly due to the benefit received by assessee as long term deposit from SBI for 5 years ? - Held that - The issue is no longer res integra in view of the decision of the Apex Court in Taparia Tools Ltd. v/s Joint CIT, reported in (2015 (3) TMI 853 - SUPREME COURT ) wherein on application of the principle of matching concept upheld the view of the Assessing Officer to spread the interest paid in the very first year over a period of five years because the term of the debt was five years and the Assessee therein had itself in its books of account amortized the interest over a period of five years. In Appeal, the Apex Court while reversing the decision of this Court held that normally the ordinary rule is that the Revenue expenditure incurred in a particular year is to be allowed in the year of expenditure and the Revenue cannot deny a claim for entire expenditure as deduction made by the Assessee. However, the apex Court also held that in case the expenditure is shown over a number of years and so claimed while determining its income, then it would open to Revenue only on the principles of matching concept to deal with the submission as the Assessee. It is not so in this case. The Apex Court held that once the return has been filed making a particular claim, then the Assessing Officer was bound to carry out assessment by applying provisions of the Act and he could not go beyond the return. - Decided in favour of assessee

Summary

Issues:
1. Taxability of interest earned on NOSTRO account
2. Applicability of section 40(a)(i) regarding tax withholding
3. Tax treatment of income chargeable at special rate u/s 10(15)
4. Allowability of expenses incurred on mobilization of IMD
5. Deductibility of expenses incurred for mobilizing deposits under IMD Scheme

Analysis:

Issue 1:
The appeal challenged the taxability of interest earned on NOSTRO account. The Tribunal's decision was based on the withdrawal of the appellant's challenge due to the Revenue's additional ground of consequential disallowance u/s 14A. The court concluded that this issue did not raise any substantial question of law and thus was not entertained.

Issue 2:
Regarding the applicability of section 40(a)(i), the case involved the failure to withhold taxes under section 195 for payments to non-resident sub-arrangers. The CIT(A) and Tribunal held that the payments were in the nature of commission/brokerage, not fees for technical services, and thus no tax withholding was required. The court upheld this decision, emphasizing that no income accrued to the non-residents in India, as the services were rendered outside India.

Issue 3:
The Tribunal's decision on the tax treatment of income chargeable at a special rate u/s 10(15) was upheld. It was determined that the income should be considered on a gross basis, not on a net basis. The court found this decision to be reasonable and not arbitrary.

Issue 4:
The question of the allowability of expenses incurred on the mobilization of IMD was extensively discussed. The Assessing Officer disallowed a portion of the expenses for failing to deduct tax under section 195. However, the CIT(A) and Tribunal ruled in favor of the assessee, stating that the expenses were deductible in their entirety in the year of expenditure. The court cited relevant case law and upheld this decision, emphasizing the principle of matching concept.

Issue 5:
The final issue revolved around the deductibility of expenses incurred for mobilizing deposits under the IMD Scheme. The court referred to the decision in Taparia Tools Ltd. and held that once an expenditure claim is made in the return of income, the Assessing Officer is bound to assess it accordingly. As the issue was settled by precedent, the court found no substantial question of law and did not entertain it.

In conclusion, the appeal was dismissed, and no costs were awarded. The judgment provided detailed analysis and reasoning for each issue raised, ensuring a comprehensive understanding of the legal principles applied.