2021 (11) TMI 523 - AT - Income Tax

TDS u/s 195 - disallowance of design expenses u/s.40(a)(i) - Whether purchases of design were purchases of goods on which provisions of Section 9(1)(vii) r.w.s. 195 are not applicable? - it was the contention of the assessee that it has made purchases of the designs from the foreign party which is in the nature of purchase of good - HELD THAT - We have to see whether the payment made by the assessee to the foreign party was chargeable to tax in India. Admittedly, the services were rendered by the foreign party in its country. Likewise, the foreign party did not had any permanent establishment in India. Thus, the income was accrued and arose to such foreign party in a country outside India. Hence, the same is not taxable in India under the realm of section 9(1)(vii) of the Act being same is provided outside India. Thus, there cannot be any question of deducting the TDS under the provisions of section 195. There was the explanation to section 9 brought under the statute by the Finance Act 2010 retrospectively with effect from 1976. As per this explanation the income of the foreign party shall be chargeable to tax in India if it relates to the fee for technical services irrespective of the fact whether such non-resident has/has not a place of business or business connection in India or non-resident has/has not rendered services in India - it seems that the amount paid by the assessee to the foreign party as fee for technical services is subject to tax in India despite the fact such foreign party does not have any permanent establishment in India. However we find that such explanation whether the services rendered in India or not was brought in the statute by the Finance Act 2010. The financial year before us is 2008-09 and at that relevant point of time such explanation was not available. Admittedly, the services were not rendered by the foreign party in India. Thus, for the purpose of TDS the provisions which are applicable for the relevant year has to be seen. We hold that the assessee was not subject to the provisions of TDS under the provisions of section 195 of the Act. Accordingly we do not find any infirmity in the order of the learned CIT (A). Thus, we decline to interfere in his order. Hence the ground of appeal of the Revenue is dismissed. Non-deduction of TDS with respect to the exhibition expenses - HELD THAT - For payment made to M/s First Rain Exhibition (India) Pvt Ltd is concerned, we find that assessee has made payment to impugned party after deducting eligible tax at source. In this respect, the assessee has furnished TDS certificate in from 16A. Hence, we hold that the learned CIT (A) rightly deleted the addition under section 40(a)(ia) to this extent. Amount paid to M/s Messe Frankfurt Trade Fair India (P) Ltd. - AR at the time of hearing before us has submitted that the impugned amount represent the reimbursement of the expenses. Thus the provisions of TDS will not be applicable in the case on hand. However, the assessee has not furnished any details in support of his contention. Therefore we are dismissing the contention of the assessee. It is transpired that the assessee can be granted immunity from disallowances of expenses on account of non-deduction of taxes provided that the assessee (payer) furnishes the certificate in the prescribed form. Thus the onus is upon the assessee. However we find that assessee has not furnished the necessary certificate in form 26A prescribed by the CBDT. Accordingly, we do not find any infirmity in the order of the learned CIT (A). Amount paid to M/s Messe Frankfurt Exhibition GMBH(DE) - claim of the assessee was not relied upon by the AO for the reason that the invoice was containing place of exhibition at Mumbai. However this finding of the AO was held factually incorrect by the learned CIT(A). The learned CIT(A) has given categorical finding that the invoice against which payment was made to the impugned party, the place of exhibition is Germany not Mumbai India - CIT(A) in view of above and other documentary evidences such as travelling details deleted the addition made by the AO. From the preceding discussion, we note that the finding given by the learned CIT(A) have not been controverted by the learned DR before us based on documentary evidence - exhibition services were availed by the assessee in Germany i.e. outside India. Hence the same is not taxable in India under the preview of section of section 9(1) of the Act. Accordingly the assessee was not liable to deduct withholding tax u/s 195 - Therefore we do not find any infirmity in the order of the learned CIT (A) and direct to the AO to delete the addition made to this extent. Late payment of employees contribution towards PF/ESI - Addition u/s 36(1)(iv) read with section 43B - HELD THAT - There is no confusion or ambiguity to the fact that the contribution of employer s contribution and administrative charges are governed under the provisions of section 36(1)(iv) read with section 43B - Admittedly the assessee has made employer s contribution and administrative charges within the due date as specified deduction 139(1) of the Act. Accordingly we do not find any infirmity in the order of the learned CIT (A). Regarding the employee s contribution, we note that there is no ambiguity that the assessee was entitled for making the payment within the grace period as per provided under the Act. No infirmity in the order of the learned CIT (A). However any payment of employee s contribution beyond the grace period is not allowed for deduction. Hence the ground of appeal of the revenue is dismissed and the CO of the assessee is also dismissed. Addition on account of depreciation, interest and running expenses for the vehicle registered in the name of the director - Legal ownership of asset - HELD THAT - Admittedly, it is necessary for the assessee to own the assets for claiming the depreciation on the assets. But the word own has not been defined under the provisions of the Act whether the ownership refers to the legal ownership or the beneficial ownership. Undoubtedly, the assessee in the present case is not the legal owner of the vehicles but it has made the payment for the acquisition of the cars. Thus it can be inferred that the assessee owns the cars in the capacity of beneficial owner. Thus, in our considered view the assessee is entitled for the depreciation and interest expenses on the car. Other expenses of fuel and maintenance on such cars, we find that the AO has made the disallowance in adhoc manner which are not permitted under the provisions of law. As such, the AO was under the obligation to pinpoint the personal expenses incurred by the assessee but he has not done so. Dominion ownership of the car rest with the company. The company being a body corporate is different from the individuals. In other words in a body corporate there cannot be any element of personal expenses as alleged by the AO. - Decided in favour of assessee. Addition u/s 36(1)(iii) on account of diversion of interest bearing fund - as per AO assessee is paying huge interest on borrowed fund and on the other hand, it has provided loan/ advances to certain parties from where no interest was charged - HELD THAT - As the own fund of the assessee exceeds the amount of interest free loan and advances there cannot be any disallowance of interest expenses in a situation where the own fund exceeds the amount of investment made by the assessee. As such, there is a presumption that the investment has been made by the assessee out of its own without involving any borrowed fund. - Decided against revenue. Disallowance of expenditure towards scholarship fee - HELD THAT - Admittedly, the assessee failed to file any supporting evidences with regard to the impugned expenditure. Thus the same was disallowed by the AO in absence of supporting evidences which were subsequently confirmed by the learned CIT(A). We find that that primary onus lies upon the assessee to prove that the claim of deduction is genuine and incurred for the purpose of business based on documentary evidence. But in the case on hand the assessee failed to discharge primary onus cast upon it. Even at the time of hearing the learned AR has not brought anything on record by submitting the supporting evidences. Thus in such facts and circumstances, we do not find any reason to interfere into the finding of the learned CIT (A). Disallowances of commission expenses u/s 40(a)(ia) - HELD THAT - AR has not brought anything on record evidencing that the TDS has been deducted by the assessee on the impugned amount of commission expenses. Thus, in the absence of supporting documents, we do not find any merit in the argument of assessee - assessee cannot be absolved from the liability of deducting the TDS on the amount of commission merely on the reasoning that such amount was not shown as payable at the end of the financial year. Accordingly, we do not find any reason to interfere in the finding of the authorities below. Hence the ground of appeal raised by the assessee in CO is dismissed.

Summary

Issues Involved:
1. Deletion of addition for non-deduction of TDS on design expenses.
2. Deletion of addition for non-deduction of TDS on exhibition expenses.
3. Deletion of addition for late payment of employees' contribution to PF/ESI.
4. Deletion of disallowance on depreciation, interest, and related expenses on cars.
5. Deletion of disallowance of interest payment under Section 36(1)(iii) of the Act.

Issue-wise Detailed Analysis:

1. Deletion of Addition for Non-Deduction of TDS on Design Expenses:
The Revenue argued that the CIT(A) erred in deleting the addition of ?1,31,60,555/- made by the AO for non-deduction of TDS under Section 195 read with Section 40(a)(i) of the Act. The assessee contended that the design expenses were for the purchase of designs/themes from foreign parties, not for technical services, and thus, TDS provisions were not applicable. The CIT(A) agreed with the assessee, stating that the designs were purchased as commodities, not services, and hence, TDS provisions under Section 195 were not applicable. The Tribunal upheld the CIT(A)'s decision, noting that the transaction was an outright purchase and not a service contract, and therefore, TDS was not required.

2. Deletion of Addition for Non-Deduction of TDS on Exhibition Expenses:
The Revenue contended that the CIT(A) erred in deleting the addition of ?24,18,696/- for payments made to non-residents for exhibition expenses in Germany and ?2,52,641/- for non-deduction of TDS. The assessee argued that the payments were for exhibitions held outside India, and thus, not taxable in India. The CIT(A) found that the payments were indeed for exhibitions in Germany and not in India, and therefore, TDS was not applicable. The Tribunal upheld this finding, confirming that the services were rendered outside India and thus not subject to TDS under Section 195.

3. Deletion of Addition for Late Payment of Employees' Contribution to PF/ESI:
The AO disallowed ?2,86,495/- for late payment of employees' contribution to PF/ESI. The CIT(A) allowed the deduction for payments made within the grace period but disallowed ?69,773/- paid beyond the grace period. The Tribunal upheld the CIT(A)'s decision, noting that payments made within the grace period are allowable, but any payment beyond the grace period is not deductible.

4. Deletion of Disallowance on Depreciation, Interest, and Related Expenses on Cars:
The AO disallowed ?6,44,080/- for depreciation, interest, and running expenses on a car registered in the director's name. The CIT(A) allowed 75% of the expenses, recognizing the car's use for business purposes. The Tribunal upheld the CIT(A)'s decision, stating that the car was beneficially owned by the company and used for business purposes, thus eligible for depreciation and related expenses.

5. Deletion of Disallowance of Interest Payment under Section 36(1)(iii) of the Act:
The AO disallowed ?5,90,700/- for interest on borrowed funds allegedly diverted towards interest-free loans and advances. The CIT(A) deleted the addition, noting that the assessee had sufficient own funds to cover the advances. The Tribunal upheld the CIT(A)'s decision, referencing the presumption that investments are made from own funds when they exceed the interest-free loans and advances.

Conclusion:
The Tribunal dismissed the Revenue's appeal and partly allowed the assessee's cross-objections, confirming the CIT(A)'s decisions on all issues. The Tribunal emphasized that the transactions in question were either outright purchases or involved services rendered outside India, thus not attracting TDS provisions. Additionally, it upheld the CIT(A)'s findings on the timely payment of PF/ESI contributions and the beneficial ownership of business assets.