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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 ..... & 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 Rs. 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 Rs. 4,98,65,250/- & Rs. 10,16,00,710/- respectively. Subsequently revised return was filed for the assessment year 2011-12 on 26.04.2012 declaring total income of Rs. 8,96,18,170/-.The cases were selected for scrutiny under CASS and notice U/s.143(2) of the Act was issued on 25.08.2011 & 13.08.2013 for the assessment years 2010-11 & 2011-12 respectively. Finally assessment order was passed U/s.143(3) of the Act on 11.03.2013 & 21.02.2014 for the assessment years 2010-11 & 2011-12 respectively wherein the Ld.AO made several additions amongst which additions were made invoking the provisions of Section 40(a)(ia) and 14A r.w.r. 8D of the Rules. 4. Ground No.: 2(i): Invoking Section 40(a)(ia) of the Act towa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sioner, 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 Section 9(2) can only apply to income by way of interest, by way of royalty and by way of fees for technical services and not to brokerage or job wise commission on activities incidental to procurement of orders. 27. The Assessing Officer, in effect, held that income could be deemed to accrue or arise in India under Section 9(1)(vii) of the IT Act even if the nonresident did not have place of business or business connection in India or had not rendered services in India. The exceptions provided under Section 9(1)(vi)(b) / 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 contention of the Department was accepted it would mean obliteration of the expression "sum chargeable under the provisions of the Act" from Section 195(1)." 32. Where there is no liability in India, there can be no question of disallowance under Section 40(a)(i) or Section 40(a)(ia) of the IT Act on the ground of non-deduction of tax at source. Moreover, where a non-resident has no permanent establishment in India, there can be no liability either under the domestic law or under Double Taxation Avoidance Agreement. In any case, even if a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 services means consideration, including lumpsum consideration for rendering any managerial, technical or consultancy services. 38. In the instant case, the Assessing Officer has, in the assessment order, accepted that the appellant assessee has paid commission charges to overseas agents. It is not the case of the Assessing Officer that any lumpsum consideration has been made for any specific managerial, technical or consultancy services. 39. On a overall reading of the Explanation, it is apparent that fees for technical services does not contemplate commis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 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 the assessee and the expenditure incurred by the assessee towards investment that earns exempt income. For example:- during a particular year the assessee would not have earned any dividend income though it has made heavy investments during the previous year or the earlier years, but the assessee is bound to incur cost for acquiring / maintaining /dis-investing such investments. Hence it cannot be inferred that the dividend income would be directly proportional to the expenditure incurred on the investment earning exempt income. Therefore we do not find any merit in the order of the Ld.CIT(A) for havi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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