Tax Management India. Com
Law and Practice  :  Digital eBook
Research is most exciting & rewarding
  TMI - Tax Management India. Com
Follow us:
  Facebook   Twitter   Linkedin   Telegram

TMI Blog

Home

2022 (9) TMI 312

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... n with such profession or business with such amount. Such amount may also be deducted while computing the profits and gains of business or profession for the purpose of arriving at the business or professional income chargeable to tax. Therefore, if the disputed amount is neither debited from the profit and loss account of the business or profession nor has been deducted while computing the profits and gains of business or profession, Section 40 do not come into operation as such amount cannot be said to have been deducted in computing the income chargeable under such head. If an assessee has paid any amount on account of fees for technical services outside India or in India to a non-resident but has not debited such amount to the profit and loss account and has also not been claimed as deduction in computing the income chargeable under the head profits and gains of business or profession, this Court is of the considered view that, no disallowance in respect thereof can be made by invoking the provisions of Section 40a(ia). FAA observed that the total payment has not been charged to the profit and loss account which has been disallowed by the assessing officer by invoking the .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... Tax Act, 1961 (for short the Act ) is at the instance of the revenue and is directed against an order dated February 17, 2016 passed by the Income Tax Appellate Tribunal, B Bench, Kolkata (for short the Tribunal ) in ITA no. 806/Kol/11 and ITA no. 872/Kol/2011 both relating to the assessment year 2007-2008. 2. The assessee company is engaged in the business of manufacture and sale of various industrial and mechanical gases, cryogenic and non-cryogenic plants and vessels. A show cause notice was issued to the assessee alleging that tax was not deducted at source in terms of the provisions of Section 40(a)(ia) of the Act in respect of the advances lying on 31-03-2007 for import of capital goods. 3. In the reply to the show cause notice, the assessee contended that the said advances was made towards import of capital goods on FOB basis at foreign sea ports, leading to transfer of title to the goods outside India and hence there is no income chargeable to tax in India and therefore the provisions of Section 195 of the Act are not attracted. It was also contended that such advances to suppliers have also not been charged to Profit and loss Account for the relevant assessment ye .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... luation. 9. Being aggrieved against the order dated March 30, 2011 passed by the Tribunal as aforesaid, the Revenue preferred this appeal under Section 260A of the Act. 10. The revenue suggested the following substantial questions of law in this appeal:- (a) Whether on the facts and in the circumstances of the case the Learned Income Tax Appellate Tribunal, B Bench Kolkata erred in law as well as on facts in upholding the order of CIT Appeal in Holding that provision of Section 5, Section 9, Section 195 of the Income Tax Act, 1961 that withholding of tax from payment made by the Assessee to the Foreign Company, Offshore, is not attracted under Section 195 of the Income Tax Act, 1961, whereas the technical services extended by the said Foreign Company was having sufficient territorial and economic nexus with India as there was commonness of Interest between the Assessee and Foreign Company and therefore, payment of composite contract price including the cost of Technical Contract Service was covered under Section 9(1) (vii) of the Income Tax Act, 1961 and the Assessee company was liable to deduct tax on all payments made to the Foreign Company including advances in the .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... technical service paid to a nonresident shall be deemed to be the income that had arisen in India under Section 9(1)(vii) of the Act for which the assessee ought to have deducted TDS under Section 195 of the Act. 12. Mr. Rai further contended that the first appellate authority as well as the learned Tribunal proceeded to decide the issue regarding disallowance of amount under Section 40(a)(ia) of the Act by approaching the said issue from a wrong angle. He contended that the first appellate authority and the Tribunal directed deletion of the disallowance made by the assessing officer under Section 40(a)(ia) of the Act only on the ground that the said amount was not debited to the profit and loss account by totally misreading the provisions laid down under Section 40(a)(ia) of the said Act. 13. On the issue regarding computation of long term capital gains, Mr. Rai contended that the learned Tribunal ought not to have interfered with the order passed by the first appellate authority in as much as the assessee did not challenge the valuation made by the DVO before the first appellate authority. 14. Mr. Khaitan, learned Senior counsel appearing for the assessee respondent seri .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... nts mentioned under Section 40, on which tax is deductible at source, shall not be deducted unless tax is deducted at source or after deduction has not been paid within the stipulated time frame. 20. The interpretation of the word deducted assumes significance in order to decide the applicability of Section 40 of the Income Tax Act. 21. The Oxford Advanced Learner s Dictionary defines the word deduct which when used as a verb shall mean to take away money, points etc. from a total amount. The synonym of deduct is subtract. 22. The word deduction has been defined in the said dictionary to mean the process of taking an amount of money away from a total. An amount can be deducted in computing the business or professional income by taking away the said amount from the total profits and gains of such business and profession. While computing the income chargeable to tax under the head profits and gains of business or profession an amount may be deducted from the profits and gains of business and profession in order to take away the said amount from the total chargeable amount under the said head. 23. While preparing the profit and loss account of a business or professio .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

..... e profit and loss account and has also not been claimed as expenditure while computing the total taxable income under the head income from business or profession, the assessing officer was not justified in making the disallowance of Rs.72, 89, 71, 972/- and accordingly directed deletion of the said disallowance. The learned Tribunal affirmed the said finding of the first appellate authority. 26. The first appellate authority and the Tribunal rightly interpreted the provisions of Section 40 of the said Act. 27. The Punjab and Haryana High Court in the case of Mark Auto Industries (supra) did not interfere with the findings of the learned Tribunal holding that the provisions contained in Sections 40(a)(i) were not attracted in case the assesseee had not claimed deduction for the amount paid for technical knowhow. The Karnataka High Court in Tally Solutions (supra) also held that when no amount was claimed as revenue expenditure, no disallowance under Section 40(a)(i) and (ia) of the Act would be made. The aforesaid decisions also support the view of this Court on the issue as to applicability of the provisions of Section 40a(ia) of the Act. 28. The decision in the case of Re .....

X X   X X   Extracts   X X   X X

→ Full Text of the Document

X X   X X   Extracts   X X   X X

 

 

 

 

Quick Updates:Latest Updates