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TMI Blog2015 (11) TMI 184X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee has raised its grievance regarding upholding of disallowance of overseas representation charges and reimbursement of expenses to overseas representatives due to non-deduction of tax at source. Vide ground No. 3.1 to 3.5 the assessee has raised various arguments against upholding of this addition. Ground No. 4 is for levy of interest u/s 234B which is consequential and do not require any addition. Ground No. 5 is against initiation of penalty proceedings u/s 271(1)(c) which is premature and in view of the above ground No. 4 and 5 are dismissed. 2. The revenue is aggrieved on three deletions made by DRP. Ground No. 1 relates to deletion of addition of Rs. 5,16,542/- made by the AO for excess claim of depreciation made by Assessee on computer peripherals. 2.1 Ground N.2 relates to the action of the learned DRP by which it had deleted the addition amounting to Rs. 13,93,42,766/- which the A.O had made for non deduction of tax at source on tour expenses. 2.2 Ground No. 3 relates to the action of DRP, whereby it deleted the addition of Rs. 3,42,96,779/- made by AO u/s 40(a)(ia) on account of payment to overseas representatives without deduction of tax at source. 3. In Asst. Y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which one relates to transfer pricing adjustment on account of brand building expenditure and other related to addition on account of non deduction of TDS on payments to overseas agents on account of reimbursement of expenses and on account of payment of representation charges. Ld. AR submitted that the addition on account of overseas representations charges and reimbursement of expenses to overseas representatives is covered in favour of assessee by order of Hon'ble Tribunal dated 19th December, 2014 in the case of assessee itself for assessment years 2007-08 and 2008-09. 6. Ld. AR invited our attention to para 12 onwards of Tribunal order and submitted that Hon'ble Tribunal after analysing the functions of agents and that of the asesseee had arrived at the conclusion that the payments made by assessee were not in the nature of managerial, technical or consultancy services and therefore were beyond the scope of section 9(i)(vii) of the Act and therefore the assessee was not required to deduct TDS. Ld. AR submitted that the above Tribunal order has been upheld by Hon'ble Delhi High Court in ITA No. 489 and 491/2015 vide order dated 10th August, 2015 and in this respect filed a cop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a vis AMP expenses incurred by for comparables for promotion of their inbound business would be inappropriate. Further highlighting the difference between inbound and outbound business of assessee Ld. AR submitted that in bound services provided by assessee can be classified as B2B market whereas services handed in outbound services can be classified as B2C and obviously the expenditure in B2C marketing will be much more because of various reasons. Inviting our attention to a decision of Delhi Bench of Tribunal in the case of Destination of the World vs. ACIT (ITA No. 5534/Del/2010). Ld. AR submitted that Hon'ble Tribunal held that there is a material difference between inbound and outbound services segments. In view of the above arguments the Ld AR submitted that it would be inappropriate to benchmark AMP expenses to sales ratio of the inbound segment for AMP expenses to sale ratio of outbound business. Ld. AR prayed that this issue can be sent back to AO to consider the same in accordance with law and in accordance with case law of Sony Ericson Mobile Services as decided by Hon'ble Delhi High Court. 7. The learned DR, on the other hand agreed to the proposition of learned AR re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me is deemed to accrue or arose only when the payments are made for managerial, technical or consultancy services and Hon'ble Tribunal after analysing the various agreements entered into by assessee has arrived at a conclusion that these services were not in the nature of managerial, technical or consultancy and therefore the case law relied upon by Ld. DR is totally distinguishable from the facts and circumstances of the present cases. Regarding the reliance placed by Ld. AR on the case law of Chennai Tribunal Ld. AR submitted that he has not argued on these lines as the issue herein is not relating to as to whether TDS is applicable on of expenses paid or expenses payable. Therefore this case law is also of no help to revenue. 9. We have heard the parties and have gone through the material placed on record. The appeals were originally heard on 24.8.2015. However at the time of dictation it was felt that agreements entered into by assesee with overseas agents were not on record. The Hon'ble Tribunal vide its decision dated 19th December, 2014 had concluded the issue in favour of assessee after examining the terms and conditions of agreements with overseas agents and since the agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or consultancy services then he should allow the same as the Hon'ble Delhi High Court has upheld the decision of Hon'ble Tribunal for assessment year 2007-08 and 2008-09. 9.3 In view of the above Ground No. 3 in both years is allowed for statistical purposes. 10. Ground No. 4 and 5 in assessment year 2009-10 and ground No. 7 and 8 in assessment year 2010-2011 are against the levying of interest u/s 234B and initiating of penalty proceedings. These Grounds are consequential and premature respectively, therefore, these are dismissed. 10.1 As regards ground 4 in assessment year 2010-11 we find that AO had disallowed an amount of Rs. 13,52,224/- as advertisement & publicity charges paid to non-resident entities without tax deduction at source. The issue of advertisement and publicity charges will also be examined by AO afresh keeping in view the terms and conditions of the agreement of Advertisement and AO will examine the nature of services rendered by such payees. Therefore the issue of advertisement of publicly expenses is restored to A.O for re-adjudication. As regards amount paid amounting to Rs. 19,39,692/- representing AMC for computer software we find that the payment is cle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rectly to the hotel or tour agent etc. It cannot be said that foreign tour operators or hotels etc are having business connection in terms of the explanation 2 of section 9(1) of the Act. It clearly lays down that the income may be deemed to accrue or arise in India in case income is received, directly or indirectly from a: i. business connection in India, ii. property in India, iii. asset or source of income in India, iv. from transfer of capital asset situated in India Hon'ble Supreme Court in the matter of CIT vs. Aggarwal & Co. (R.D.) [56 ITR 20], has held that the definition of the expression "business connection" given in the Act is an inclusive one. The expression undoubtedly means some things more than "business". A business connection is not equivalent to carrying on of a business but involves a relation between a business carried on by a nonresident which yields profits or gains and some activity carried out in the taxable territories which contributes directly or indirectly to the earning of those profits or gains. It predicates an element of continuity between the business of the non- resident and the activity in the taxable territories. A stray or isolated transact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax under the domestic law as well as the DT AA. Accordingly , in the light of the discussion made about section 40(a)(i) in para 6.4.1 above, the Panel holds that the payments made by the taxpayer do not cover all the ingredients of section 40(a)(i) of the Act and therefore, the taxpayer was not liable to deduct tax at source. The action of the AO is accordingly, not upheld." 11.4 In assessment year 2007-08 & 2008-09, the Hon'ble Tribunal vide its order dated 19.12.2014 had dismissed the appeals of Revenue on similar issues which have been upheld by the Hon'ble Delhi High Court in its order dated 10.08.2015. In view of the above respectfully following the above orders we do not find any infirmity in the order of the DRP. Therefore, Ground No.2 is dismissed. 11.5 Now coming to ground No. 3 we find that assessee had claimed an amount of Rs. 3,42,96,779/- on account of following expenses :- S.No. Particulars Amount(rs.) 1. Travelling Expenses-Staff 72,21,402 2. Participation expenses 41,40,902 3. Overseas Representation charges 1,90,80,872 4. Reimbursement of expense to overseas Representatives 38,53,603 Total 3,42,96,779 11.6 The DRP has held that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) of the Act. In fact the correct amount is Rs, 10,17,14,264/-. We find that A.O had disallowed the amount of Rs. 10,17,14,264/-claimed by assesses as tour expenses. Ld. DRP has held that amounts paid by assessee to various entities in different countries were transactions representing principle to principle basis and therefore no taxable income arose out of those expenses. Similar issue of Tour Expenses has been considered by Hon'ble Tribunal in its order dated 19.12.2014, which has been upheld by Hon'ble Delhi High Court vide its order dated 10.08.2015. Respectfully following the above, Ground No.1 is dismissed. 12.1 In Ground No. 2 the revenue is aggrieved with the action of Ld. DRP by which it had reduced the amount of disallowance from Rs. 3,76,59,563/- to Rs. 1,23,01,374/-. The relevant finding of Ld. DRP are contained in para from 6.1 to 6.2. We find that amount of Rs. 3,76,59,563/- consists of payments made by assessee under six heads namely travelling expenses (staff and Directors), participation expenses, Overseas representation charges, reimbursement of Expenses, Advertisement and Publicity of other charges. Out of these six heads of expenditure the Ld. DRP has delete ..... X X X X Extracts X X X X X X X X Extracts X X X X
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