9911796707
TMI Blog2017 (7) TMI 914X X X X Extracts X X X X X X X X Extracts X X X X ..... he details of expenditure incurred which are claimed to have been provided to the Assessing Officer vide submission dated 29.12.2009. The assessee has also produced details of purchases made from companies in the countries visited. Considering the purchases made of 4,27,88,689/-, the travel expenditure of 14,01,331/- does not appear excessive. Moreover, the Assessing Officer has not pointed out any defects in the bills/vouchers relating to travel, or found that it was in the nature of personal expenditure. Therefore, the Ld. CIT(A) has observed that no cogent material exists for disallowance of 25% of the expenditure claimed. Therefore, the Ld. CIT(A) has rightly deleted the addition - Decided against revenue Disallowance of business promotion expenses - Held that:- The assessee has submitted that these items were purchased for festival gifting to clients, which were necessary in the interest of promotion of his business, and were normal business expenditure. Hence, it is apparent that the expenditure concerned has not created capital assets, and the numbers of items purchased indicate that they are intended for gifts. Considering the explanation offered by the assessee, the expend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r any of the aforesaid grounds of appeal and amend, alter or add any other ground of appeal. 3. The brief facts of the case are that the assessee filed his return of income of ₹ 53,45,880/- on 31.10.2007 for the A.Y. 2007-08. During scrutiny assessment proceedings, the Assessing Officer found that the assessee had received income of $205,1201- (equivalent to ₹ 92,20,144/-) on which he had paid tax in the USA amounting to $53,212/- (Rs. 23,91,879). The assessee submitted that he carried on a business of consultancy in the USA through a limited liability partnership firm, in which he had 99% share. As the income was earned and received by him in the USA, he was liable to tax not in India, but in the USA, as per Article 7 and 15 of the India-USA Double Taxation Avoidance Agreement (DTAA). The Assessing Officer held that the provisions of Article 15 of the DTAA related to Independent Personal Services, which are in the nature of professional services limited to specific professions, and did not apply to the case of the assessee. Moreover, on perusing the copy of the tax return filed by the assessee in the USA, the assessing officer found that the assessee's stay in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso examined the income tax returns filed in the USA by the appellant and by the firm 'Thalay International' in which the appellant has 99% share. It is observed that the appellant has been carrying on the business activity through the limited liability partnership in the USA since several years, and its work consists of providing strategic advice and devising business strategy for its clients. This work, as submitted by the assessee, is carried out through its registered office in the U,SA, and the furnishing of these services for a period aggregating more than 90 days in the 12 month period, constitutes a 'permanent establishment' in the USA as per Article 5 of the India-USA DTAA. I find that the provisions of Article 5, clause (2)(i) do not require that the appellant be present in the USA for more than 90 days, but that the activities of furnishing of services should continue within the Contracting State for more than 90 days. hence, as per the terms of the DTAA, a resident of either Contracting State, was liable to tax in the other state, if the income from fees for services (other than fees for included Services as per Article 12) was derived from activities ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... correct that the definition of professional services is an inclusive, not exhaustive, one, and could include the sort of consultancy and advisory services carried out by the appellant's firm. But to my mind, the activities would fall within the meaning of 'business profits' as per Article 7 of the DT AA, wherein clause 7 reads- "For the purposes of the convention, the term 'business profits' means income derived from any trade or business including income from the furnishing of services other than included services as defined in Article 12 (royalties and fees for included services)..... ". Article 7 renders liable to tax the profits of the enterprise i.e. profits derived from the activities of the permanent establishment in the Contracting State. 6.2 It is to be understood that a resident taxpayer is liable to taxation in India on global income, regardless of the place of accrual or receipt thereof. However, the tax laws of certain foreign countries also provide for the taxation in that country of the income which actually accrues or arises or is received in that country although the assessee may not be resident in that country. This would result ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re of personal expenditure. It is held, therefore, that no cogent material exists for disallowance of 25% of the expenditure claimed. The It disallowance ofRs.3,50,332/- is accordingly deleted. 9. At ground no. 5, the issue is of disallowance of business promotion expenses, on items of expenditure held to be capital in nature. The appellant has produced the purchase bills concerned, and it is seen that the bill of ₹ 41,552/- dated 18.10.2006 consists of 13 items, including one microwave oven for ₹ 4,400/-, one music system, ten phones, etc. The bill of ₹ 32,600/- dated 4.11.2006 is for 4 pieces of mobile phones, and not one, as assumed by the AO. The appellant has submitted that these items were purchased for festival gifting to clients, which were necessary in the interest of promotion of his business, and were normal business expenditure. It is apparent that the expenditure concerned has not created capital assets, and the numbers of items purchased indicate that they are intended for gifts. Considering the explanation offered by the appellant, the expenditure is held to be revenue in nature, and the addition made of ₹ 74,152/- is deleted. 10. The fi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it was in the nature of personal expenditure. Therefore, the Ld. CIT(A) has observed that no cogent material exists for disallowance of 25% of the expenditure claimed. Therefore, the Ld. CIT(A) has rightly deleted the addition in dispute, which does not need any interference on our part, therefore, we uphold the order of the Ld. CIT(A) on the issue in dispute and accordingly, we dismiss the ground no. 2 raised by the Revenue. 8.3 With regard to ground no. 3, we find that issue of disallowance of business promotion expenses, on items of expenditure held to be capital in nature. On this issue, the assessee has produced the purchase bills concerned, and it appears that the bill of ₹ 41,552/- dated 18.10.2006 consists of 13 items, including one microwave oven for ₹ 4,400/-, one music system, ten phones, etc. The bill of ₹ 32,600/- dated 4.11.2006 is for 4 pieces of mobile phones, and not one, as assumed by the AO. The assessee has submitted that these items were purchased for festival gifting to clients, which were necessary in the interest of promotion of his business, and were normal business expenditure. Hence, it is apparent that the expenditure concerned has no ..... X X X X Extracts X X X X X X X X Extracts X X X X
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