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TMI Blog2023 (8) TMI 1610X X X X Extracts X X X X X X X X Extracts X X X X ..... 8D(2)(ii) (iii) - HELD THAT:- Assessee tried to show that interest free funds available are more than the investments giving rise to exempt income and the AO has nowhere proved the nexus between the interest bearing funds used for the purpose of investments giving rise to exempt income. We direct the AO to verify the interest free funds available and the investments giving rise to exempt income. The assessee will produce the books of accounts and the extract of details of investment before the AO. In term of the above, this issue is set aside to the file of the AO. Disallowance u/Rule 8D(2)(iii) of the Act i.e., 0.5% of average value of investment being administrative expenses, the AO will re-compute the disallowance only on the investments giving rise to exempt income and will exclude the investments which does not give exempt income. In term of the above, this also will be verified by the AO. Hence, this issue is remitted back to the file of the AO. Disallowance of interest expenditure on interest free funds to subsidiaries u/s.36(1)(iii) - HELD THAT:- After hearing both the sides and going through the facts neither the AO nor the CIT(A) has carried out any exercise to verify ava ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n term of the decision of Faizan Shoes Pvt. Ltd. [ 2014 (8) TMI 170 - MADRAS HIGH COURT ] wherein held provisions of Income-tax Act need to be examined irrespective of the fact whether the circular of the CBDT is withdrawn or not. Therefore, this Tribunal is of the considered opinion that the matter needs to be re-examined by the Assessing Officer. - In term of the above, this issue is allowed for statistical purposes. Disallowing additional depreciation - Addition of the claim of balance 50% of additional depreciation in the current year in respect of the assets acquired in the 2nd half of preceding year - HELD THAT:- Tribunal s decision for assessment year 2010-11 [ 2016 (3) TMI 1486 - ITAT CHENNAI ] wherein the Tribunal has already allowed the claim of assessee by holding that the balance 50% has to be allowed in the immediately next year as statting assessee is eligible for additional depreciation in the subsequent year since the machinery was put to use for 180 days in the earlier assessment year. Thus assessee is entitled for claim of additional depreciation. Therefore, we allow the claim of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... tment in both the years. But now, the issue being covered by the decision of Hon'ble Jurisdictional High Court in the case of Redington (India) Ltd., supra, we direct the AO to restrict the disallowance at 0.5% of the guarantee value. Accordingly, this common issue in both the appeals of assessee is partly-allowed. ITA No.796/CHNY/2017, AY 2012-13 6. The next issue in this appeal of assessee for the assessment year 2012-13 is as regards to the disallowance of expenses relatable to exempt income by invoking the provisions of section 14A r.w.rule 8D(2)(ii) & (iii) of the Income Tax Rules, 1962 by the AO and confirmed by the DRP. 7. We have heard rival contentions and gone through facts and circumstances of the case. We noted that the assessee company has received dividend income of Rs.46,23,760/- and claimed the same as exempt u/s.10(34) of the Act. The assessee suo-motto has disallowed a sum of Rs.1.07 lakhs i.e., expenses relatable to exempt income u/s.14A of the Act. The AO not convinced by the disallowance made by the assessee suo-motto, he computed disallowance under the provisions of section 14A r.w.rule 8D(2)(ii) i.e., interest expenses at Rs.2,13,77,531/- and administrati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only on the investments giving rise to exempt income and will exclude the investments which does not give exempt income. In term of the above, this also will be verified by the AO. Hence, this issue is remitted back to the file of the AO. 9. The next issue in this appeal of assessee is as regards to the disallowance of interest expenditure on interest free funds to subsidiaries u/s.36(1)(iii) of the Act amounting to Rs.22 crores. 10. We have heard rival contentions and gone through facts and circumstances of the case. The ld.counsel for the assessee drew our attention that the AO has disallowed the entire advances of Rs.22 crores given to its subsidiary Sundaram Fasteners Investments Ltd., (SFIL) i.e., outstanding loan amount. The ld.counsel stated that the AO has disallowed the entire loan amount instead of proportionate interest on the loan. According to ld.counsel, it is patent mistake and this was confirmed by DRP also without going into the fats. Now the ld.counsel for the assessee stated that the assessee has filed details of loans granted to subsidiaries and extract of balance sheet and profit & loss account for relevant assessment year 2012-13, wherein it is clear that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t year 2011-12. This issue of assessee's appeal is allowed for statistical purposes. 13. The next issue in this appeal of assessee is as regards to the order of DRP rejecting the claim of assessee and directing the AO to disallow software expenses amounting to Rs.1,13,63,636/-. 14. Brief facts are that the assessee has made payment for SAP license fee, application software, MS Office license fee, AMC, Antivirus software and onsite support. The DRP noted that the payments like purchase of MS office and other application software is to be considered as capital in nature as the same is not going to be used for short span but it is giving enduring benefit. The DRP directed that as regards to SAP licence fee, AMC, Antivirus software and onsite support, the AO can verify from records as to whether the payments for the same is one-time payment or it is in recurring nature of expenditure. He directed that in the case of recurring nature of expenditure, the same needs to be considered as revenue expenditure and the payments related to the year under consideration needs to be allowed. The payment which is to be in the nature of enduring benefit, is to be treated as capital expenditure. Agg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Tribunal do not find any reason to interfere with the order of the lower authority and accordingly, the same is confirmed. 15.1 The ld.counsel for the assessee as well the ld.CIT-DR agreed in term of the above, the matter can be restored back to the file of the AO for verification. Respectfully following the Co-ordinate Bench decision in assessee's own case in earlier year, we direct the AO to verify the nature of expenditure and then allow the claim accordingly. This issue of assessee's appeal is allowed for statistical purposes. 16. The next issue in this appeal of assessee is as regards to the disallowance of export commission for non-deduction of TDS amounting to Rs.1,93,64,267/- by invoking the provisions of section 40(a)(ia) of the Act, as the payment made to non-residents is in the nature of technical services i.e., FTS. 17. Brief facts are that the AO disallowed export commission paid to non-resident agents in the absence of any deduction of TDS u/s.195 of the Act, as according to AO, the income be chargeable to tax in term of section 9(1)(Vii)(b) of the Act. According to AO, the source of receipt is in India and hence, tax is deductible. The assessee relied on the CB ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . logistics, warehousing, inventory management, marketing support services, as well as those related services to ascertaining and providing information on the financial standing and creditability of the buyers, i.e., apart from canvassing orders for and on behalf of the assessee. The DTAAs between and USA & UK, the two countries where the agents are claimed to be residents, are on record. Article 7 of both deals with business profits, and which requires, for the business profits to be assessable in the other contracting state (India), the enterprise to have a permanent establishment (PE) thereat. There is no claim by the Revenue as to the nonresident payees having a PE in India. The question therefore boils down to if the services provided by them can be regarded as 'royalty and fee for included services' and 'royalties and fees for technical services', as defined under IndoUS (Article 12) and Indo-UK (Article 13) DTAAs. Article 12 of the Indo-US DTAA, in its relevant part, reads as under: Article 12 '3. The term "royalties" as used in this Article means: (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t part, reads as under: Paragraph 4 (in general) 'This memorandum describes in some detail the category of services defined in paragraph 4 of Article 12 (Royalties and Fees for Included Services). It also provides examples of services intended to be covered within the definition of included services and those intended to be excluded, either because they do not satisfy the tests of paragraph 4, or because, notwithstanding the fact that they meet the tests of paragraph 4, they are dealt with under paragraph 5. The examples in either case are not intended as an exhaustive list but rather as illustrating a few typical cases. For case of understanding, the example in this memorandum described U.S. persons providing services to Indian persons, but the rules of Article 12 are reciprocal in application. Article 12 includes only certain technical und consultancy services. But technical services, we mean in this context services requiring expertise in a technology. By consultancy services, we mean in this context advisory services. The categories of technical and consultancy services are to some extent overlapping because a consultancy service could also be a technical service. Howe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic. 4. For the purposes of paragraph 2 of this Article, and subject to paragraph 5, of this Article, the term "fees for technical services" means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph (b) of this Article is received; or (c) make available technical knowledge, ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erein the Tribunal has remanded the matter back to the file of the AO to re-examine the issue afresh in the light of provisions of the Act and the decision of the Hon'ble Madras High Court in the case of CIT vs. Faizan Shoes Pvt. Ltd., 367 ITR 155, by observing in para 24 as under:- "24. We have considered the rival submissions on either side and perused the relevant material available on record. It is not in dispute that the circular issued by the CBDT was withdrawn and the issue in respect of commission paid / payable to the foreign agency. In the case before us, the provisions of Income-tax Act need to be examined irrespective of the fact whether the circular of the CBDT is withdrawn or not. Therefore, this Tribunal is of the considered opinion that the matter needs to be re-examined by the Assessing Officer. Accordingly, the orders of both the authorities below are set aside and the issue of disallowance made by the Assessing Officer under Section 40(a)(ia) of the Act is remitted back to the file of the Assessing Officer. The Assessing Officer shall re-examine the issue afresh in the light of the provisions of Income-tax Act after considering the withdrawal of circular issued ..... 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