PCIT Vs Sony India Software Centre Pvt. Ltd. (Karnataka High Court)
Free Prototypes from AE Not Taxable u/s 28(iv) & Employee Training Payments to Singapore Consultant Not FTS – Revenue’s Appeal Dismissed-HC Karnataka
In a significant ruling, the Karnataka High Court dismissed the Revenue’s appeal filed against Assessee. The dispute revolved around (i) addition of ₹1.44 crore towards value of assets received free of cost from Associated Enterprises (AEs) treated as income u/s 28(iv), & (ii) disallowance of ₹9.59 lakh u/s 40(a)(i) on account of payments made to a Singapore consultant for conducting employee workshops, for which no TDS was deducted.
AO had held that the free equipment constituted a business benefit taxable u/s 28(iv) & that the consultancy payments were in the nature of fees for technical services (FTS) chargeable to tax in India. Accordingly, additions were made in the assessment order dated 19.05.2021.
CIT(A) deleted both additions by relying on Tribunal precedents including Tesco Bengaluru Pvt. Ltd. & Lloyds Register Industrial Services (India) Pvt. Ltd., holding that (i) depreciation on all assets including free-of-cost assets was already factored under the APA while computing ALP, & (ii) training charges for performance & career management cannot be regarded as FTS. Tribunal upheld the CIT(A)’s view vide order dated 13.12.2024.
