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TMI Blog2019 (3) TMI 1882X X X X Extracts X X X X X X X X Extracts X X X X ..... dition of Rs. 1,67,252/- on account of disallowance u/s40(a)(ia) of the Income Tax Act, 1961 towards advertisement and sales promotion expenses for nondeduction of TDS without considering the facts and circumstances of the case. The same be deleted. 3) The Learned CIT{A) has erred in considering payment amounting to Rs. 2,22,395/- made to Chemical Abstract Services USA for subscribing to the online platform to access scientific --database i.e. the right to use the copyrighted material as royalty liable to TDS u/s 195 of the Income Tax Act, 1961 and not business income as claimed by the assessee. The Learned CIT(A) has erred in disallowing the said expenditure for non-deduction of TDS without considering the facts and circumstances of the case the same be allowed. b) The Learned CIT(A) has erred in considering payment amounting to Rs. 1,29,840/- made to TSGE DOO Solvenia for project work expenses for submission of Plant protection details as Fees for Technical Services liable to TDS u/s 195 of the Income Tax Act, 1961 and not business income as claimed by the assessee. The Learned CIT{A) has erred in disallowing the said expenditure for non-deduction of TDS without considering t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of suppressed interest income not accounted by the assessee in its return of income (as against the details gathered from Form no. 26AS). Rs. 10,63,137/- 7. Addition made u/s 14A of Rs. 9,45,010/- to the "book profit" for computing the tax liability as per the MAT provisions u/s. 115JB. - 8. Addition of the disallowance of the provision for doubtful debts of Rs. 43,61,278/- to the "book profit" for computing the tax liability as per the MAT provisions u/s. 115JB. - On the basis of the aforesaid additions/disallowances the A.O assessed the income of the assessee at Rs. 30,21,48,860/- (under the normal provisions) and worked out its "book profit" u/s. 115JB at Rs. 29,00,40,776/-. 4. Aggrieved, the assessee carried the matter in appeal before the CIT(A), who though partly allowed the appeal but upheld the aforesaid additions/disallowances made by the A.O. 5. The assessee being aggrieved with the order of the CIT(A) has carried the matter in appeal before us. The Ld. Authorised Representative (for short "A.R‟) for the assessee submitted that the CIT(A) has erred in upholding the addition of Rs. 9,74,625/- made by the A.O u/s 36(1)(va) r.w.s. 2(24)(x) of the I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the definition of "works contract" as envisaged in Explanation (iv) to Sec. 194C, therefore, no liability was cast upon the assessee to deduct any tax at source at the time of credit/payment of the amount to the said party. In fact, it was the contention of the ld. A.R that as the supplier part had manufactured and supplied the products according to the specifications and requirements of the assessee by making purchases of the material from a third party, therefore, as per Sec. 194C(7) - Explanation (iv)(e) the said transaction stood clearly excluded from the sweep of the definition of "works" as envisaged in the said statutory provision. In support of her aforesaid contention the ld. A.R relied on the order of a coordinate bench of the Tribunal viz. ITAT, Chandigarh Bench "A" in the case of Punjab Tractors Ltd. Vs. ITO(TDS-II), Chandigarh (copy placed on record). As regards the disallowance under Sec. 40(a)(i) of the payment of Rs. 2,22,395/- made by the assessee to M/s. Chemical Abstracts Service, USA, it was submitted by the Ld A.R that as the said amount was paid for subscribing to the online platform to access the scientific database of the said concern i.e. for the right to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount of disallowance u/s. 14A for computing the "book profit" u/s. 115JB of the I.T Act. In support of her aforesaid contention the Ld. AR relied on the order of the ITAT, Special bench in the case of ACIT & Anr. Vs. Vireet Investment Pvt. Ltd. & Anr. (2017) 165 ITD 27 (Del)(SB). Further, the Ld. A.R submitted that the A.O had also erred in adding the "Provision for doubtful debts‟ of Rs. 43,61,278/- while computing the "book profit" of the assessee for working out its tax liability u/s. 115JB of the I.T Act. In support of her contention that "Provision for bad and doubtful debts‟ were not to be added for working out the "book profit‟ under Sec. 115JB the ld. A.R relied on the judgment of the Hon‟ble High Court of Bombay in the case of CIT Vs. Salgaonkar Mining Industries (P) Ltd. (2015) 235 Taxman 96 (Bom), which was rendered in context of Sec. 115JA of the IT Act. 6. Per contra, the Ld. Departmental Representative (for short "D.R‟) rebutting the contentions advanced by the counsel for the assessee relied on the order of the CIT(A) as regards the disallowance made by the A.O u/s. 36(1)(va) r.w.s 2(24)(x) of Rs. 9,74,625/- on account of late payment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which our attention was drawn by the Ld. A.R during the course of hearing of the appeal. On a perusal of the details, it stands revealed that the aforementioned party had supplied the designed art-work and printed leaflets as per the specifications and the requirements of the assessee. It is the case of the assessee before the lower authorities that as the aforementioned products were manufactured by the supplier party after using the material procured from a third party and not from the assessee, therefore, the same did not fall within the realm of the definition of "work" as contemplated in Explanation (iv) to Sec. 194C of the IT Act. Rather, it is the case of the assessee that as the designed art-work and printed leaflets supplied by the aforementioned party as per the requirements and specifications of the assessee were not by using any material purchased from the assessee, therefore, the same was clearly excluded from the definition of "work" as per Explanation (iv)(e) to Sec. 194C of the IT Act. Apart there from, we find that the aforesaid contention of the assessee that the designed art-work and printed leaflets supplied by the aforesaid party was not manufactured by using a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration and delete the addition of Rs. 1,67,252/- sustained by him. The Ground of appeal no. 2 is allowed. 10. We shall now advert to the sustainability of the disallowances made by the A.O/CIT(A) u/s. 40(a)(i) of the payments made by the assessee to various foreign concerns, as under:- i) M/s. Chemical Abstracts Service, USA : Rs. 2,22,395/- : a). The assessee had made the payment to the aforementioned party for subscribing its online platform to access the scientific database on chemistry research. The A.O characterising the aforementioned payment as "royalty" had held the assessee as being in default for not deducting tax at source on the aforesaid amount u/s. 195 and resultantly disallowed the said amount u/s. 40(a)(i) of the IT Act. In sum and substance, the A.O holding a conviction that the payment made by the assessee to the aforementioned party was towards "royalty", thus concluded that the latter was liable for deduction tax at source in respect of the said payment u/s. 195 of the I.T Act. On appeal, the CIT(A) concurred with the A.O that the payment made towards subscription to specialized knowledge provided through computer access would constitute royalty. b). We ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee that as the payment was made for services that were utilized for the purpose of export sales for its customers located outside India, therefore, the same cannot be deemed to have accrued or arisen in India as per the provision of section 9(1)(vii)(b) of I.T Act. b) We have perused the definition of FTS in Explanation 2 to Sec. 9(1)(vii) of the IT Act. Further, as per Article 12 of the IndiaSlovenia tax treaty, the term "fees for technical services" means payments of any amount, other than those mentioned in Articles 14 and 15 of the convention in consideration for the services of managerial, technical or consultancy nature, including the provision of services of technical or other personnel. On a perusal of the correspondence between the assessee and the representative of the aforesaid concern viz. TSGE DOO, Slovenia, placed on record by the ld. A.R, it can safely be gathered that the assessee had availed the services of the said concern for providing assistance for the submission of an application to support the new registration of its product viz. Sulphur 80 WG (800 g/Kg Sulphur formulation) in Slovenia. In sum and substance, the aforesaid foreign entity had pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lovenia, therefore, the same would not fall within the sweep of FTS. As the said foreign entity viz. TSG DOO, Slovenia did not have a PE in India, therefore, the same could not have been assessed as its "business income‟ under Article 7 in India. We thus being of the considered view that as the assessee was under no statutory obligation to deduct tax at source u/s 195 on the payment made to the aforesaid foreign entity, therefore, the same could not have been disallowed u/s 40(a)(i) of the I.T Act. We thus vacate the order of the CIT(A) to the extent he had upheld the disallowance u/s 40(a)(i) in context of the aforesaid transaction and delete the addition of Rs. 1,29,840/- made by the A.O. The Ground of appeal no. 3(b) raised by the assessee is allowed. iii). M/s Liteam Corporate Image Planning & Design, Shanghai: Rs. 4,91,920/-. a). The assessee had made the payment to the aforementioned foreign entity for designing of seminar related material. The AO/CIT(A) being of the view that as the said payment was in the nature FTS, therefore, on the failure on the part of the assessee to deduct tax at source u/s. 195 on the said amount had disallowed the same u/s.40(a)(i) of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... course of the set aside proceeding afford an opportunity to the assessee to reconcile the income and TDS shown in the its return of income, as against that reflected in its Form 26AS. The Ground of appeal no. 4 is allowed for statistical purposes. 12. We shall now advert to the contention advanced by the assessee as regards the working of the "book profit" by the A.O/CIT(A) for computing its tax liability under the MAT provisions envisaged u/s. 115JB of the I.T Act. We find substantial force in the contention advanced by the Ld. A.R that the disallowance made u/s. 14A cannot be considered while computing the "book profit" for of the assessee u/s. 115JB of the I.T Act. Our aforesaid view is fortified by the order of the "Special bench‟ of the ITAT, Delhi in the case of ACIT & Anr. Vs. Vireet Investment Pvt. Ltd. & Anr. (2017) 165 ITD 27 (Del)(SB). We thus in terms of our aforesaid observation direct the AO to exclude the amount of disallowance computed under Sec. 14A for the purpose of computing the " book profit" u/s. 115JB in the hands of the assessee. Insofar the contention of the assessee that the lower authorities had erred in adding the provision for doubtful debts of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 9(2)of the Income Tax Act, 1961" (ii) "Whether in law and on the facts and in the circumstances of the case, the Ld.CIT(A) was correct in ignoring the decision of Hon'ble ITAT in the case of DCIT LTU Vs DICGC Ltd. (33 taxmann.com 634)" (iii) "The appellant prays that the order of the CIT(A) on the above grounds be set aside and that of the A.O. be restored" (iv) "The appellant craves leave to amend or alter any grounds or add a new ground which may be necessary". 15. The revenue is aggrieved with the order of the CIT(A), to the extent he had set aside the order of the A.O and had vacated the additions/disallowances made by him u/s. 40(a)(i) of the I.T Act by observing that the said respective payments did not fall within the realm of section 195 r.w.s. 9(i)(vii) and the Explanation therein provided. 16. We find that the AO had disallowed the legal & professional fees paid by the assessee to the non-resident entities u/s. 40(a)(i) of the IT Act. On appeal, it was observed by the CIT(A) that the payments were made by the assessee for the services rendered by the non-resident entities in various countries in order to facilitate the registration of the chemical p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny technical services provided by them, but were for the normal services rendered, therefore, the same did not cast any obligation on the assessee to deduct tax at source in respect of the said amounts under Sec. 195 of the I.T Act. As the payments in the hands of the respective foreign payees were in the nature of their normal business income, which as per Article 7 could not be taxed in India in the absence of their PE in India, therefore, the assessee remained under no obligation to deduct tax a source on the said amounts under Sec. 195 of the IT Act. In our considered view as no infirmity emerges from the order of the CIT(A), therefore, we uphold the same. 19. Insofar the payments made by the assessee for the other services viz (i) miscellaneous export expenses and; (ii) advertisement and sales promotion expenses are concerned, we find that the CIT(A) had deleted the disallowance made by the A.O u/s. 40(a)(i) in respect of the said amounts by observing that as the said amounts were in the nature of business incomes in the hands of the foreign payees or in the nature of reimbursement of the expenses, therefore, no liability was cast upon the assessee to deduct tax at source in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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