2019 (10) TMI 1127 - AT - Income Tax

TDS u/s 195 - Permanent establishment(PE) in India - payments to M/s.BNP Paribas Investment Singapore Ltd., Singapore as distribution fee for arranging subscription for the units - HELD THAT - The assessee has admittedly sent payments abroad by remittances in foreign currency and no part of the payments are made by assessee in India or to any person in India on behalf of BNP Paribas, Singapore. We have observed that as per DTAA entered into between India and Singapore, the fees for technical services can be brought to tax in India under Article 12 , clause 4 of India-Singapore DTAA , if technical know how is made available which enables person acquiring the said technical know how or technical knowledge to apply the technology contained therein , while we have observed that in the instant case BNP Paribas , Singapore did not made available any technical knowledge , know how , experience, skill or processes to the assessee which could enable the assessee to apply technology contained therein rather the fee is paid towards services rendered by BNP Paribas, Singapore for distribution of funds being units or shares on behalf of the assessee. The aforesaid payments made by the assessee in our considered view did not fall within the ambit of Article 3 and 4 of Indo-Singapore DTAA and thus cannot be categorized as Royalty payments or fees for technical services. These are payments made for managerial services rendered by BNP Paribas, Singapore to assessee for distribution of units of Mutual Fund and no technical know how or knowledge is made available to the assessee by the said BNP Paribas, Singapore which could enable assessee to apply the said technical know how contained therein. Moreover, the services were rendered abroad by payee and payments were also made by assessee by remitting payment abroad in foreign currency. Keeping in view aforesaid provisions/clauses as are contained in India-Singapore DTAA, these payments cannot be held to be taxable in India and consequently assessee was not required to deduct income-tax at source u/s 195 of the 1961 Act while remitting payment abroad to said BNP Paribas, Singapore. It is well established principle in tax-matters that taxing statute provisions under domestic law or treaty provisions whichever are beneficial to the assessee shall be applicable. The treaty provision in the instant case contains make available clause, while BNP Paribas did not made available any technical know how or knowledge to the assessee which could enable assessee to apply technical knowledge contained therein We are inclined to delete aforesaid additions made by the AO by invoking provisions of Section 40(a)(i) of the 1961 Act read with Section 195 of the 1961 Act which stood later confirmed by learned CIT(A). In our considered view, if the said payments are not taxable in India in the hands of the Non-resident recipient , then provisions of Section 195 shall have no applicability. Additions/disallowances earlier made by AO by invoking provisions of Section14A of the 1961 Act read with Rule 8D - disallowance made while computing book profits u/s.115JB - HELD THAT - We are in agreement with this contentions of the assessee keeping in view decision of Special Bench of Delhi Tribunal in the case of M/s. Vireet Investment Pvt. Ltd. 2017 (6) TMI 1124 - ITAT DELHI that only those investments which actually yielded exempt income during the year under consideration should be considered for making disallowance u/s 14A and hence we are restoring this issue to file of the AO with direction to compute disallowance u/s.14A r.w.r.8D(2)(iii) by taking into account only those investments which actually yielded dividend income during the year under consideration, keeping in view ratio of decision of Special Bench of Delhi tribunal in the case of Vireet Investment 2017 (6) TMI 1124 - ITAT DELHI . Thus, with these observations, we set aside this matter back to the file of the AO for re-determination of disallowance of expenditure incurred in relation to earning of an exempt income u/s.14A of the 1961 Act. This ground in Revenue s appeal is allowed for statistical purposes. Disallowance of payments towards sub-advisory fee made to Fund Quest u/s.40(a)(i) - HELD THAT - Issues concerning payments made by assessee by remitting abroad in foreign currency to the same party Fund Quest, France was decided by Chennai- tribunal in assessee s own case for ay 2008-09 in 2014 (2) TMI 224 - ITAT CHENNAI by holding in favour of the assessee as reproduced above and Respectfully following aforesaid decision of the ITAT, Chennai Benches, we dismiss this ground raised by Revenue . While dismissing this ground raised by Revenue, we are guided by principles of judicial discipline and principles of consistency in taxingstatute as laid down by Hon ble Supreme Court in the case of Radha Soami Satsang v. Satsang 1991 (11) TMI 2 - SUPREME COURT Disallowance of expenses - expenses incurred by assessee in the nature of repairs and improvement made to leasehold building not owned by assessee which was used for office premises - Allowable revenue expenditure - HELD THAT - Each year is a separate unit and the facts may vary from year to year. CIT(A) followed the decision of tribunal for earlier year viz. ay 2008-09. We have observed that detailed investigation of each of these expenses were not done by authorities below to arrive at decision whether benefit of enduring nature was derived by assessee by incurring these expenses .We are inclined to restore this issue back to file of the AO to look into nature of each of these expenses and then to arrive at decision whether these expenses are to be capitalized or to be held to be revenue in nature, after considering the amended provisions of Section 30 and 32 of the 1961 Act. The assessee is directed to provide details of each of these expenses incurred by it to enable authorities to arrive at decisions whether the expenses were incurred on capital field or were revenue in nature. Needless to say that the AO shall provide with proper and effective opportunity of heard to the assessee in accordance with principles of natural justice in accordance with law in the denovo set aside assessment proceedings. TDS u/s 194J - payment made towards commission and brokerage to mutual fund distributors without deduction of income-tax at source - HELD THAT - Issue decided in assessee s own case for ay 2008-09 in 2014 (2) TMI 224 - ITAT CHENNAI

Summary

Issues Involved:
1. Maintainability of Revenue's appeals for AY 2013-14 and 2014-15 due to low tax effect.
2. Disallowance under Section 40(a)(ia) for payments to BNP Paribas Investment Singapore Ltd.
3. Disallowance under Section 14A read with Rule 8D for earning exempt income.
4. Disallowance under Section 40(a)(i) for payments to Fund Quest.
5. Treatment of expenses on repairs/improvements to leasehold premises.
6. Disallowance under Section 194J for commission and brokerage payments to mutual fund distributors.
7. Disallowance under Section 14A while computing book profits under MAT provisions.

Issue-Wise Detailed Analysis:

1. Maintainability of Revenue's Appeals for AY 2013-14 and 2014-15:
The Revenue's appeals for AY 2013-14 and 2014-15 were dismissed due to low tax effect, as the tax amounts involved were below ?50,00,000/-. This dismissal was in compliance with CBDT Circular No. 17/2019 dated 08.08.2019, which mandates that appeals with low tax effect should not be maintained. Both parties agreed on this, and the Tribunal ordered accordingly.

2. Disallowance under Section 40(a)(ia) for Payments to BNP Paribas Investment Singapore Ltd.:
The assessee made payments to BNP Paribas Investment Singapore Ltd. without deducting tax at source under Section 195. The AO considered these payments as fees for technical services under Section 9(1)(vii) and disallowed the expenses under Section 40(a)(i). The CIT(A) upheld the AO's decision. However, the Tribunal found that the payments were not for technical services as defined in the India-Singapore DTAA since no technical knowledge was made available to the assessee. Therefore, the payments were not taxable in India, and the assessee was not required to deduct tax at source. The Tribunal ordered the deletion of the disallowance of ?37,61,716/-.

3. Disallowance under Section 14A Read with Rule 8D for Earning Exempt Income:
The AO disallowed ?11,72,157/- under Section 14A read with Rule 8D, considering the assessee had substantial investments yielding exempt income. The CIT(A) directed the AO to re-compute the disallowance following the ITAT's decision in the assessee's own case for AY 2008-09. The Tribunal upheld the CIT(A)'s direction but emphasized that only investments yielding exempt income during the year should be considered, following the Special Bench decision in Vireet Investment Pvt. Ltd.

4. Disallowance under Section 40(a)(i) for Payments to Fund Quest:
The AO disallowed payments to Fund Quest, France, considering them as royalty under Section 9(1)(vi). The CIT(A) deleted the disallowance, following the ITAT's decision in the assessee's own case for AY 2008-09, which held that such payments were not royalty and were not taxable in India. The Tribunal upheld the CIT(A)'s decision, emphasizing judicial discipline and consistency.

5. Treatment of Expenses on Repairs/Improvements to Leasehold Premises:
The AO treated expenses on repairs and improvements to leasehold premises as capital expenditure. The CIT(A) allowed the expenses as revenue expenditure, following the ITAT's decision in the assessee's own case for AY 2008-09. The Tribunal remanded the issue back to the AO to examine the nature of each expense and determine whether they provided an enduring benefit, considering the amended provisions of Sections 30 and 32.

6. Disallowance under Section 194J for Commission and Brokerage Payments to Mutual Fund Distributors:
The AO disallowed commission and brokerage payments to mutual fund distributors under Section 40(a)(ia), considering them as fees for professional or technical services under Section 194J. The CIT(A) deleted the disallowance, following the ITAT's decision in the assessee's own case for AY 2008-09, which held that such payments were not professional or technical services. The Tribunal upheld the CIT(A)'s decision, emphasizing judicial discipline and consistency.

7. Disallowance under Section 14A While Computing Book Profits under MAT Provisions:
The CIT(A) deleted the disallowance under Section 14A while computing book profits under MAT provisions, following the Special Bench decision in Vireet Investment Pvt. Ltd. The Tribunal remanded the issue back to the AO to compute book profits under Section 115JB by making disallowance of expenditure incurred in relation to earning exempt income, following the Special Bench decision.

Conclusion:
The Tribunal partly allowed the appeals of both the assessee and the Revenue for AY 2011-12. Similar directions were given for AY 2012-13 to 2014-15, with the Revenue's appeals for AY 2013-14 and 2014-15 being dismissed due to low tax effect. The Tribunal emphasized judicial discipline and consistency, remanding certain issues back to the AO for re-examination.