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TMI Blog2018 (10) TMI 715X X X X Extracts X X X X X X X X Extracts X X X X ..... (6) r.w.s. 143(3) of the Act. 2. The assessee has raised several identical grounds in its appeals and the cruxes of the issues are that (i) The Ld.CIT(A) has erred in confirming the order of Ld.AO with respect to the addition made by invoking Section 40(a)(ia) of the Act, being payment made to overseas entity towards fees for technical services without deduction of tax U/s.195 of the Act amounting to ₹ 4,42,30,697/- ₹ 2,55,18,179/- for the assessment years 2010-11 2011- 12 respectively. (ii) The Ld.CIT(A) has erred in confirming the order of the Ld.AO with respect to addition made by invoking Rule 14A r.w.r. 8D(iii) of the Rules amounting to ₹ 68,512/- for the assessment year 2010-11. 3. The brief facts of the case are that the assessee is a company engaged in the manufacturing of textile garments, filed its return of income electronically for the assessment years 2010-11 2011-12 on 26.09.2010 28.09.2011 admitting total income of ₹ 4,98,65,250/- ₹ 10,16,00,710/- respectively. Subsequently revised return was filed for the assessment year 2011-12 on 26.04.2012 declaring total income of ₹ 8,96,18,170/-.The cases were selected f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessing Officer erred in arriving at the conclusion that payments made by the appellant assessee could not be said to have been made for the purpose of overseas commission. The Assessing Officer as also the learned Tribunal misinterpreted the Explanation 2 of Section 9(1)(vii) of the IT Act, whereunder fee for technical services means any managerial, technical or consultancy services. It is nobody's case that the service rendered by the overseas agent was either managerial or technical. As held by the Appellate Commissioner, payment for research with regard to need for products was incidental to the job of procuring orders on commission basis. Consultancy services contemplate comprehensive expert technical advisory services based on technical expertise and research, of business and marketing strategies as a whole, including adoption of cost effective measures, organizational and infrastructural requirements, business management, personnel management and other strategies, for business efficacy of a business entity as a whole and not mere market survey of the need for any particular product. The amendment with retrospective effect from 1.6.1976 by insertion of Explanation to S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, paid to a non-resident. Where there is no liability, the question of tax deduction does not arise. Where no part of the income is chargeable in India, even clearance under Section 195(2) or 195(3) of the IT Act is not necessary. The decision of the Karnataka High Court in Commissioner of Income Tax (International Taxation) v. Samsung Electronics Co. Ltd. reported in (2010) 320 ITR 209 (Kar), has been overruled by the Supreme Court in GE India Technology Centre P. Ltd. v CIT, reported in (2010) 327 ITR 456 (SC). The Supreme Court held as under: This reasoning flows from the words 'sum chargeable under the provisions of the Act' in Section 195(1). The fact that the Revenue had not obtained any information per se cannot be a ground to construe Section 195 widely so as to require deduction of TAS even in a case where an amount paid is not chargeable to tax in India at all. We cannot read Section 195, as suggested by the Department, namely, that the moment there is remittance the obligation to deduct TAS arises. If we were to accept such a contention it would mean that on mere payment income would be said to arise or accrue in India. Therefore, as stated earlier, if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt who operates outside the country would not attract tax, if payment was remitted abroad directly. Merely because an entry had been made in the books of accounts of the appellant/assessee, that would not mean that the nonresident agent had received payment in India and, therefore, disallowance under Section 40(a)(i) of the IT Act was found uncalled for. 36. The expression fees for technical services has been defined in Explanation (2) of Section 9(1)(vii) of the Income Tax Act to mean any consideration (including any lumpsum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personal) but does not include consideration for any construction assembly, mining or like project undertaken by the recipient or consideration, which would be income of the recipient chargeable under the head salaries. Explanation (B) to Section 40(a)(i) provides that the expression fees for technical services in Section 40(a)(i) shall have the same meaning as in Explanation 2 to Clause (vii) of sub-section (1) of Section 9. 37. On a reading of Explanation (2) to Section 9(1)(vii), fees for technical se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is apparent from the facts of the case, that the assessee has made huge investments in shares which earn dividend income exempt from tax. According to Section 14A of the Act the expenditure incurred towards earning exempt income cannot allowed as deduction from the taxable income of the assessee. In the case of the assessee, it is evident that for the process of decision making as to which shares the assessee has to invest, dis-invested, and at what point of time etc., will involve cost. Such expenditures incurred towards earning dividend income which is exempt from tax cannot be claimed as deduction from the taxable profit of the assessee company. As per the provisions of the Act, the assessee is bound to compute the actual expenses incurred by it towards investment that would earn exempt income and disallow the same. In the case of the assessee, such computation is neither made nor the expenditure towards earning exempt disallowed by the assessee. Therefore we are of the view that the Ld.AO was right in his realm to invoke the provisions of Section 14A r.w.r.8D of the Rules. Further it is pertinent to mention that there is no correlation between the dividend income earned by ..... X X X X Extracts X X X X X X X X Extracts X X X X
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