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TMI Blog2017 (6) TMI 448X X X X Extracts X X X X X X X X Extracts X X X X ..... their business or profession in India having regard to the fact that foreign companies operating through branches in India sometimes try to reduce the incidence of tax in India by inflating their claims in respect of head office expenses. In our opinion, the FAA has rightly held that IT recharge does not fall under the head administrative expenses and therefore provisions of section 44C will not be applicable. Management fees - We find that the FAA had bifurcated the expenses claimed under the said head and had held that part of the expenses were to be limited by the provisions of section 44C of the Act, that he had relied upon the order of his predecessor for the earlier year, that in that order the then FAA had held half of the management charges had to taxed as same was fee for technical services. In our opinion, order of the FAA does not suffer from any legal or factual infirmity as the issue was decided after analysing the schedule 3 of the management services agreement. So, confirming his order we decide the issue against the AO. Levy of interest u/s. 234B - Held that:- Hon’ble Jurisdictional High Court in case of NGC Network Asia LLC (2009 (1) TMI 174 - BOMBAY HIGH CO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rading for above activities. Details of filing of returns of income, returned incomes, assessed incomes, etc. , can be summarised as under :- A. Y. ROI filed on Returned Income Assessment dt. Assessed Income 2008-09 30/09/2008 ₹ 55, 20, 269/- 07/02/2011 ₹ 1, 96, 32, 080/- 2009-10 30/09/2009 ₹ 1. 30crores 14/02/2012 ₹ 2, 97, 86, 310/- ITA/519/Mum/2013, AY. 2008-09: 2. First ground of appeal, raised by the AO, is about treatment of licence fee, IT recharge and 50%of management services as head officer expenditure covered by section 44C of the Act. During the assessment proceedings, the AO found that as per the licence agreement dated 16/ 07/2003between Lloyds Register(LR)and Lloyds Register Quality Assurance Ltd. (LRQAL) , LR had granted licence to use brand LR for royalty and that licence fee was payable as per Schedule 6 of the agreement, that LRQA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he basis of revenue in pursuance of the Agreement, that IT recharge and management charges had been allocated mainly on total sales except one item, namely chairman group consolidation. After considering the submission of the assessee, the FAA held that as per the license fee agreement royalty was payable to LRQAL to LR, that royalty was a function of profits as provided in the Schedule, that royalty was payable at different rates, that it was payable to LR through LRQAL (UK) head office. He referred to the Explanation to section 44C and held that HO expenses meant executive and general administrative expenditure incurred by the assessee outside India, that it included expenditure incurred in respect of rent, rate taxes, repairs or insurance of any premises outside used for the purpose of business/profession, salary, wages, annuity, pension, fees etc. , that it also included expenditure incurred on travelling by any employee or other person in managing the affairs of any office outside India, that royalty/licence fee paid by the assessee was not hit by the definition of HO expenditure as envisaged by section 44C. He directed the AO not to consider royalty/license fee expenditure ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... like to reproduce paragraph 14 of the said order and it reads as under: 14. Section 44CC, is a non obstante clause stating that notwithstanding anything to the contrary contained in sections 28 to 43A in the case of an assessee, being non-resident, no allowance shall be made in computing the income chargeable under the head Profits and gains of business or profession , in respect of so much of expenditure in the nature of head office expenditure as is in excess of the amount computed as an amount equal to five percent of the adjusted total income ; or the amount of so much of the expenditure in the nature of head office expenditure incurred by the assessee as is attributable to the business or profession of the assessee in India, whichever is less . The meaning of the term head office expenditure for the purpose of section 44CC has been enumerated in clause (iv) of Explanation to section 44CC. The said clause reads as under: iv) head office expenditure means executive and general administration expenditure incurred by the assessee outside India, including expenditure incurred in respect of (a) rent, rates, taxes, repairs or insurance of any premises outsi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rent, rates, taxes, repairs, insurance, salary, wages, bonus, commission, etc. , or travelling by any employee. Expenditure under the License fee have nothing to do with these kind and nature of expenditures. Thus, the entire payment of license fees do not fall within the ambit of section 44CC as illustrated in clauses (a) to (c) of the Explanation and, therefore, the learned CIT(A) has rightly held that royalty or license fees expenditure cannot be treated as head office expenditure. Respectfully following the above, we hold that royalty/licence fee is covered by the provisions of section 44C of the Act. 2. 3. 1. As far as IT recharge in concerned we would like to mention that On a combined reading of the Explanatory Memorandum explaining the provisions of the Finance Bill, 1976, introducing section 44C in the Income-tax Act, 1961, as well as Circular No. 202 dated 5/07/ 1976 (105 ITR (St. )17), issued by the Central Board of Direct Taxes, it is clear that the section is intended to be made applicable only in the cases of those non-residents who carry on businesses in India through their branches. The section was introduced with a view to getting over difficulties in s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erest could be imposed on the assessee. Respectfully following the above judgment, 2nd Ground is decided against the AO. ITA/389/Mum/2013, AY. 2008-09: 5. First effective ground of appeal(GOA-2), raised by the assessee, is about 50% of manage - ment charges. The FAA had , as stated earlier, held that half of the charges were in the definition of HO expenditure, as per the provisions of section 44C of the Act. We have dealt the issue paragraph 3. 2. 3. Considering the discussion held in that paragraph we dismiss Ground no. 2, raised by the assessee. 6. Next effective ground of appeal(GOA -3 4) is about application of section 40(a)(ia) of the Act to management charges. During the assessment proceedings, the AO held that the assesse had to deduct tax at source on all the payments unless he had approached the AO and had obtained certificates for NIL TDS. The FAA dismissed the appeal filed by the assessee in that regard. 6. 1. Before us, the DR supported the order of the AO . The AR contended that the Hon ble Supreme Court in the case of GE India Technology Centre P. Ltd. (327ITR456) had held that obligation to deduct tax at source would arise only when an amount was chargea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o a non-resident has an adverse consequence to the payer. Since it is mandatory in terms of section 40(a)(i) for the payer to deduct tax at source from the payment to the non-resident, the latter receives the payment net of tax deducted at source. The object of article 26(3) of the Double Taxation Avoidance Agreement was to ensure non-discrimination in the condition of deductibility of the payment in the hands of the payer where the payee is either a resident or a non-resident. That object would get defeated as a result of the discrimination brought about qua non-resident by requiring the tax to be deducted at source while making payment of fees for technical services in terms of section 40(a)(i) of the Act. Respectfully, following the above judgment, we allow grounds no. 3-4. 7. Last ground of appeal (GOA-5) is about exchange rate to be applied. During the assessment proceedings the AO observed that license fee was paid as the percentage of profit and not as percentage of sales, that the assesse had passed on the benefits derived by it on account of its own efficiencies and caused deduction to the licensor, that expenses were paid on the basis of Debit notes in bonds rai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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