Chapter III of DTAA between India and Mauritius did not provide for taxing any fees paid for technical services. Only for a reason that DTAA is silent on a particular type of income, we cannot say that such income will automatically become business income of the recipient. In our opinion, when DTAA is silent on an aspect, the provisions of the Act has to be considered and applied. This aspect has not been dealt with by the authorities below. We are, therefore, of the opinion that this issue requires a fresh look by the A.O.
Here, the payments made by the assessee were to non-residents Indian who were working abroad. Assessee had made no deduction of tax at source whatsoever. As per the assessee, they were working for its business carried on in Nigeria and hence, by virtue of Section 9(1)(vii)(b) of the Act, the fees payable to such non-residents could not be considered as income accruing or arising to them in India.
The plain reading of sec. 36(1)(ii) contemplates two situations. According to the first situation, any sum paid to an employee as a bonus or commission for services rendered would be allowed to the assessee. The second part exhibits the other condition that the deduction mentioned in the first situation could be allowed, if such sum would have not been payable to an employee as a profit or dividend meaning thereby if the amount of commission or bonus is receivable by an employee in the shape of profit/dividend then such commission paid to such employee would not be allowed as a deduction.
The assessee is solely responsible for executing the contract with the persons to whom he has given forklift vehicles on hire and it was only for fulfilment of this contract that he has also engaged the forklift vehicles from the outside parties. In case of hiring from outside parties the responsibility and the risk involved for performing the contract work lay with the assessee only and no such risk and responsibility seems to have been transferred to outside parties vis-à-vis his principals.
In the instant case, there is nothing to suggest that the AO found the payment of remuneration to director excessive having regard to either (a) fair market value of the services or facilities; or (b) the legitimate needs of the business of the assessee; or (c) the benefits derived by or accruing to the assessee on receipt of such services or facilities. The AO while making the disallowance observed that disallowance was made keeping in view quantum and nature of business of the assessee. But how quantum or nature of business affected payment of salary to its director, has not been elaborated.
In the present case, the assessee can be said to have discharged its onus under section 68 of the Act in proving the genuineness of the share capital in respect of the impugned 22 shareholders in the light of proposition laid down by the Supreme Court and Delhi High Court in the cases cited above. The appellant has given all the necessary details in order to establish the identity of the aforementioned share applicants. It is also observed that all the share applicants are corporate assessees, incorporated under Indian Companies Act.
During the year under consideration the appellant received dividend income on surplus funds invested with various mutual funds through Citibank who acted as investment adviser with no cost to the appellant company. The dividends were directly credited to the bank account of the appellant electronically by ECS. No interest was paid by the appellant during the year. As such, the appellant did not incur any expenditure on earning dividend income and section 14A and the I.T. Act, 1961 did not apply.
In the instant case, the claim of the CIT is that the assessee is the owner of house properties situated at Trichy and Bangalroe and therefore, the said decision is not squarely applicable to the facts of the case. In our considered view, if the house properties situated at Trichy and Bangalore are owned by the assessee’s wife then the same cannot be considered as owned by the assessee for disallowing exemption u/s 54F of the Act.
Without any motive it is quite unnatural that any individual would extend the monetary benefit to any person in this day to day world. The Hon’ble Delhi High Court in the case of Rajeev Tandon v. ACIT (supra) has observed that in such circumstances the taxation authorities were entitled to look into the surrounding circumstances.
Assessee here, in our opinion, did fall within the concept of rendering a formal education and could not be equated with a coaching institute. We are, therefore, of the opinion that assessee could not have been denied the eligible exemption under Sections 11 and 12 of the Act for a reason that it was not doing charitable activity as defined under Section 2(15) of the Act.
