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TMI Blog2011 (6) TMI 888X X X X Extracts X X X X X X X X Extracts X X X X ..... s return of income for the assessment years 1997-98 to 2001-02 and the assessments were completed. Thereafter, the AO received information from the ITO, International Taxation, that the assessee during the previous years relevant to the above assessment years had neither deducted tax at source nor paid the tax deducted under chapter- XVIIB in respect of technical services fees paid to M/s European Testing Centre, (M/s ETC in short) Ireland and the ITO, International Taxation had passed an order u/s 201(1) and 201(1A) of the IT Act holding that the assessee was liable to deduct tax in respect of payments for product testing expenses to M/s ETC, Ireland. On verification of the return of income filed by the assessee for all these years, the AO noticed that the assessee had claimed deduction u/s 40(a)(i) in respect of the payments and since the assessee was liable to deduct tax at source on this amount, but the assessee had neither deducted nor paid the tax under chapter-XVIIB of the IT Act, the AO held that the assessee company was not entitled to deduction u/s 40(a)(i) of the IT Act. Thus, the AO held the assessee is an assessee in default u/s 201(1) 201(1A) of the IT Act. Theref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TD 136 (ITAT, Del.) 4.1. The learned counsel for the assessee further submitted that the CIT(A) has relied on the decision of the Hon ble Karnataka High Court in the case of M/s Samsung holding that the tax is liable to be deducted at source irrespective of whether the payments are taxable in India or not, but that this decision has been reversed by the Hon ble Supreme Court in the case of M/s GE India Technology Centre Pvt. Ltd., Vs CIT reported in 327 ITR 456(SC). Without prejudice to the above argument, learned counsel for the assessee submitted that the alternate plea of the assessee that the tax has to be allowed in the year of remittance of TDS should be considered by the Tribunal. He drew our attention to TDS challans for the Assessment years 1997-98 to 2001-02, given at pages 34 to 40 of the paper book and also the challans for the assessment years 2003-04, 2004-05 and 2005-06, at pages 93,95,97-99 of the paper book. With regard to certain payments, he submitted that the challans are not readily available, however, there are no arrears outstanding u/s 201 of the Act. In support of his contention, he stated that the powers of the CIT(A) are co-terminus with that of the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther tax liability by the assessee for the relevant assessment years and if it is found that the assessee has paid the taxes and also there is also no tax liability with regard to testing charges paid to M/s Nicholas Piramal, the AO shall allow the deduction u/s 40(a)(i) of the IT Act in the years of payment. 5.1. In the result, the alternative claim of the assessee for all the assessment years are allowed, subject to verification by the AO. 5.2. The second issue raised by the assessee is with regard to disallowance of reimbursement of expenses made to M/s Allergan Australia Pvt.Ltd. This issue is arising only for the assessment years 1997-98 and 1998-99. 5.3. The brief facts of the case are that the employees of the assessee had been sent to Allergan, Australia for training and Allergan Australia Pvt.Ltd., had made the payments towards travel, consultancy, recruitment, etc. of the employees on behalf of the assessee. The assessee had booked the expenses of ₹ 30.00 lakhs (Rs.27.00 lakhs in FY:1996-97 and ₹ 3.00 lakhs in FY: 1997-98 relevant to AY: 1997-98 and 1998-99 respectively), as payable to M/s Allergan Australia in its books. However, the RBI denied permi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e income chargeable under the head profit gains of business or profession ought to be reduced by the same amount in the year in which the liability was reversed i.e. assessment year 2004-05. Therefore, we confirm the additions for the assessment years 1997-98 and 1998-99 and direct the AO to reduce the same from the business income of AY: 2004-05, after verification of the fact that the assessee has in fact reversed the same amount pertaining to these expenses. This ground of appeal is accordingly allowed for statistical purposes. 7. As regards issue no.3 relating to denial of depreciation on plant machinery acquired during the financial year 1997-98, this issue is arising for the assessment years 1998-99, 2000-01 2001-02. 7.1 The brief facts of the case are that the assessee had entered into a contract with M/s Nicholas Piramal and the products manufactured are ophthalmic which require particular type of moulds. M/s Nicholas Piramal had the particular type of machinery to manufacture the moulds and as per the manufacturing agreement with M/s Nicholas Piramal, the assessee also could purchase the second machinery which would be installed in the premises of M/s Nicholas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... letter dated 02-05-2011 issued by M/s Piramal Health Care (the erstwhile M/s Nicholas Piramal India Ltd.,) to the effect that the CLCP moulds were purchased during the financial year 1995-96 for ₹ 2.75 Crores and these machines were used for manufacturing of certain products during the FYs: 1997-98 1998-99 and they continue to hold the machines on behalf of M/s Allergan India Pvt. Ltd., in their Pithampur factory and they have also not claimed depreciation under the IT Act on the above mentioned machines at any time in the past. 8.2 Having heard both the parties and having considered the material on record, we find that for allowing the claim of depreciation on any machinery, sec.32 of the IT Act provides that the machinery should be owned wholly or partly by the assessee and used for the purpose of business or profession of the assessee. There is no dispute that the assessee owns the machinery, but the only dispute is whether it is used for the purpose of assessee s business or profession. The assessee has entered into contract for manufacture of certain ophthalmic solutions and for the said purpose the machinery was purchased and installed in the premises of M/s Nichol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e submitted that as per the provisions of the Act, the assessee will not be entitled to claim depreciation, only if the asset was sold, discarded, destroyed or demolished, but as the machines continued to physically exist as the assets of M/s Nicholas Piramal, the assessee is entitled to claim depreciation thereon. For this purpose, he placed reliance upon the following decisions; 1. CIT Vs Bharat Aluminium Co.,Ltd.,(2010) reported in 187 Taxman 111(Del.) 10. The learned DR on the other hand, supported the orders of the authorities below and submitted that the machinery having become obsolete has been written off in the books of assessee. He submitted that having become obsolete, it has to be considered as being discarded and therefore, the assessee is not entitled to claim depreciation on the said machinery. He submitted that the assessee ought to have reduced the value of asset by the written down value of the machinery and claimed depreciation for the balance of the block of assets. Thus, according to him, the disallowance of depreciation on the machinery is justified. 10.1 Having heard both the parties and having considered the material on record, we find that the ques ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the FYs: 1997-98, the assessee had issued a few demonstration equipments to Doctors for trial usage and as per the accounting policy followed by the assessee, the value of demonstration equipments were written off in the books of account over a period of three years and the same was claimed during the said assessment years. The AO for the assessment years 1998-99 1999-2000 had disallowed the write off made in the books and treated the same as capital expenditure and allowed the depreciation at 25% on written down value. However, no depreciation was granted from assessment year 2000-01 onwards. On appeal, the CIT(A) confirmed the orders of the AO by holding that the equipments are used for demonstration purposes and not used in the business of the assessee company. 11.2 Aggrieved, the assessee is in second appeal before us. 11.3 The learned counsel for the assessee submitted that the assessee being a trader in the equipment had distributed the demonstration equipment to Doctors in order to increase its business and therefore, the expenditure is revenue in nature as incurred for the purpose of running of the business. He also submitted that the treatment given for the expe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee has entered into a contract of manufacturing agreement with M/s Nicholas Piramal to manufacture certain products. M/s Nicholas Piramal was required to perform quality control testing of products with ETC prior to sale and for such quality control validation charges were incurred. The assessee reimbursed the validation charges to M/s Nicholas Piramal without deducting tax at source. The AO treated these charges as payments for contract for services attracting tax deduction u/s 194C of the IT Act. Due to the failure of the assessee company to deduct tax at source, the same was disallowed and the CIT(A) confirmed the disallowance. 14.2 Aggrieved, the assessee is in second appeal before us. 15. The learned counsel for the assessee submitted that M/s Nicholas Piramal was under an obligation to carry out the testing activity before the sale of such products and the testing is done at the behest of the assessee. The charges incurred by M/s Nicholas Piramal has been reimbursed by the assessee. He submitted that it is not a contract of service and the payment is not thus liable to TDS. For this purpose, he relied on the following CBDT Circulars; 1. Circular No.681 dat ..... X X X X Extracts X X X X X X X X Extracts X X X X
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