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2021 (8) TMI 501 - AT - Income TaxTDS u/s 195 - commission paid to non-resident India u/s. 40(a)(ia) of the Act for export of sales of machine and commission paid to non-resident - HELD THAT - As decided in own case 2018 (4) TMI 1879 - ITAT AHMEDABAD AO was not justified to hold that the commission payable to the overseas agents was deemed to accrue or arise in India and is taxable under the Act in view of the specific provisions of sections 5(2)(b) read with section 9(1)(i) - there was no liability on the part of the appellant to deduct tax under section 195 or approach the I.T. Authorities for a no deduction tax certificate. - Decided in favour of assessee. Disallowance of depreciation on non-compete fees - Assessee stated that the non-compete payment being in the nature of payment and commercial right as referred to in section 32(1)(ii) has been capitalized and depreciation has been claimed at the rate applicable to the block of Intangible assets - HELD THAT - As decided in own case 2018 (4) TMI 1879 - ITAT AHMEDABAD non-compete fee paid by the appellant to Mr. Patel is a capital expenditure and the appellant has acquired an intangible right which is depreciable and depreciation claimed is allowable under section 32(1)(ii) of the Act. The asset is depreciable as the contract is enforceable only for three years and it is not forever. The disallowance made by the AO is therefore, directed to be deleted. - Decided in favour of assessee.
Issues Involved:
1. Deletion of addition made on account of commission paid to non-resident u/s. 40(a)(ia) of the IT Act. 2. Deletion of addition made on account of disallowance of depreciation on non-compete fees. Issue-wise Detailed Analysis: 1. Deletion of Addition on Account of Commission Paid to Non-Resident u/s. 40(a)(ia) of the IT Act: The Revenue challenged the deletion of an addition of ?92,29,916/- made by the Assessing Officer (A.O.) on account of commission paid to non-resident agents without deducting tax at source. The assessee argued that the services were rendered outside India and, as per sections 5 and 9 of the Income Tax Act, no part of the commission income was received or deemed to be received in India. The assessee relied on the Supreme Court's decision in CIT vs. Toshoku Ltd., which held that commission earned by non-residents for services rendered outside India cannot be deemed to have accrued or arisen in India. The A.O. disagreed and made the disallowance. However, the CIT(A) granted relief to the assessee, leading to the Revenue's appeal. The Tribunal upheld the CIT(A)'s decision, stating that the commission income did not accrue or arise in India as the services were rendered outside India by non-resident agents who had no permanent establishment in India. The Tribunal relied on the Supreme Court's judgment in GE India Technology Center Pvt. Ltd. vs. CIT, which clarified that TDS is required only if the income is chargeable to tax in India. 2. Deletion of Addition on Account of Disallowance of Depreciation on Non-Compete Fees: The second issue involved the deletion of an addition of ?1,26,36,422/- made by the A.O. on account of disallowance of depreciation on non-compete fees. The assessee had paid non-compete fees of ?10.96 crores to protect its business interests and claimed depreciation on this amount, treating it as an intangible asset under section 32(1)(ii) of the Act. The A.O. disallowed the claim, arguing that the non-compete fees did not fall within the ambit of intangible assets eligible for depreciation. The CIT(A) reversed this decision, allowing the depreciation claim. The Tribunal upheld the CIT(A)'s decision, referring to various judicial pronouncements that recognized non-compete fees as capital expenditure, which confers a commercial right and is thus eligible for depreciation under section 32(1)(ii). The Tribunal cited several cases, including CIT vs. Ingersoll Rand International Ind. Ltd. and ACIT vs. Real Image Tech (P) Ltd., where non-compete fees were treated as intangible assets eligible for depreciation. The Tribunal concluded that the non-compete fee paid by the assessee was a capital expenditure that provided an intangible right, making it depreciable under section 32(1)(ii). Conclusion: The Tribunal dismissed the Revenue's appeal, affirming the CIT(A)'s decisions on both issues. The Tribunal's judgment was supported by precedents and judicial interpretations, ensuring that the commission paid to non-residents for services rendered outside India was not subject to TDS, and the non-compete fees were eligible for depreciation as intangible assets. The Tribunal's order was consistent with the principles established by higher judicial authorities, providing a comprehensive resolution to the issues raised by the Revenue.
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