2023 (11) TMI 187 - AT - Income Tax

TDS u/s 195 on payment of secondment cost - disallowance made u/s. 40(a)(i) for non deduction of tds - payment to the US and other entities were not in the nature of reimbursement, and the assessee is under obligation to deduct TDS - as per AO payment so made would be fees for included services under DTAA and fees for technical services u/s 9(1)(vii) - CIT(A) deleted the addition - assessee being resident corporate assessee is stated to be engaged in manufacturing and sale of moving machineries - HELD THAT - The undisputed position that emerges is that the assessee has reimbursed the salary cost of seconded employees on cost-to-cost basis without any profit element. The assessee has duly deducted tax at source from these payments u/s 192 which is evidenced by the copies of Form 16 as placed on record. The same would show that the stated employees have worked under the supervision and control of the assessee. Once tax has been deducted u/s 192, there would be no requirement of TDS u/s 195 again while reimbursing the same to the foreign entity on cost-to-cost basis. Decided in favour of assessee. Depreciation on computer software @60% - AO, treating the same as intangible asset, restricted the same to the extent of 25% and made disallowance - HELD THAT - The functioning of the computer and the software was interlinked and inseparable. Therefore, the software would be eligible for same rate of depreciation. We are of the considered opinion that software is an integral part of computer system and the same would be eligible for same rate of depreciation as applicable to computer system - See M/S. COMPUTER AGE MANAGEMENT SERVICES PVT. LTD. 2019 (7) TMI 1153 - MADRAS HIGH COURT - Decided in favour of assessee.

Summary

Issues:
The judgment involves two main issues:
1. Disallowance u/s 40(a)(i) for lack of deduction at source on certain foreign payments made by the assessee.
2. Rate of depreciation on computer software.

Issue 1: Disallowance u/s 40(a)(i) for lack of deduction at source on certain foreign payments made by the assessee:

In the Assessment Year 2010-11, the revenue appealed against the order of the Commissioner of Income Tax (Appeals) regarding the disallowance made under section 40(a)(i) of the IT Act for payment of secondment cost to M/s. Caterpillar US without deduction of tax at source u/s. 195 of the IT Act. The revenue contended that the payments were for managerial services and should have been subject to TDS. However, the assessee argued that the payments were reimbursed on a cost-to-cost basis without any profit element, and tax was deducted at source u/s 192. The Tribunal found in favor of the assessee, citing previous decisions and finality of the issue in the assessee's favor. The Tribunal held that the payments did not require TDS u/s 195 since tax was already deducted u/s 192, and dismissed the revenue's appeal.

Issue 2: Rate of depreciation on computer software:

Regarding the depreciation on computer software, the assessee claimed a depreciation rate of 60%, while the Assessing Officer restricted it to 25% considering it as an intangible asset. The assessee argued that the software was an integral part of the computer system and should be eligible for the same rate of depreciation as the computer system itself. The Tribunal agreed with the assessee, citing the decision of the High Court of Madras, and upheld the higher depreciation rate of 60%. The revenue's appeal against this decision was dismissed.

Conclusion:
The Tribunal dismissed the revenue's appeal regarding the disallowance under section 40(a)(i) and upheld the higher depreciation rate of 60% on computer software. The cross-objections by the assessee challenging the validity of reassessment proceedings were deemed academic and dismissed.