DCIT Vs Acropetal Technologies Pvt. Ltd (ITAT Bangalore)
ITAT Bangalore disallowance u/s 40(a)(i) of the Income Tax Act for non-deduction of TDS for payments not qualifying as fees for technical services and not being business income taxable in India is sustainable
Facts-
The assessee filed the return of income for AY 2013-14 on 17.3.2014 by declaring an income of Rs.8,67,63,830 and the return for AY 2014-15 on 12.9.2014 declaring an income of NIL. The case was selected for scrutiny through CASS and notice u/s. 143(2) was duly served on the assessee. AO made disallowance u/s 14A r.w.r. 8D; addition towards foreign exchange gain; disallowance of expenses for setting up of office; disallowance u/s 40(a)(i) for non-deduction of TDS on onsite project expenses.
CIT(A) partially allowed the appeal of the assessee by deleting disallowance u/s 14A and section 40(a)(i). Being aggrieved, revenue has preferred the present appeal.
Conclusion-
Held that applying the ratio laid down by the Hon’ble Delhi High Court in the case of PCIT v. Era Infrastructure India Ltd. (supra), we delete the addition made by the AO u/s. 14A for both the assessment years.
Held that the assessee is not liable to deduct tax at source for the reimbursement of the salary cost made to the vendor Datamatics Solutions Inc., USA for deployment of manpower. Further the vendor Link List Ltd., UAE does not have a permanent establishment in India and therefor the impugned payments cannot be taxed in India and thereby no tax is deductible at source on these payments. In view of these discussions as per the DTAA between India and USA / UAE, the impugned payments are not fees for technical services and not business income taxable in India. Therefore no disallowance is warranted u/s. 40(a)(i) for non-deduction of tax at source by the assessee.
FULL TEXT OF THE ORDER OF ITAT BANGALORE
These appeals by the revenue is against the order of CIT(A)-1, Bangalore dated 24.9.2018 for the assessment years 2013-14 & 201415.
2. The common issue arising in both these appeals are as under:-
(i) Deletion of addition made u/s. 14A of the Act
(ii) Deletion of addition made u/s. 40(a)(i)
3. For the AY 2013-14, the revenue raised one more ground pertaining to CIT(Appeals) deleting the addition of Rs.9,74,734 made by the AO treating as capital in nature. During the course of hearing, the ld. DR did not press for this ground, therefore the same is dismissed a not pressed.
4. The assessee is into the business of manufacture and export of software. The assessee filed the return of income for AY 2013-14 on 17.3.2014 by declaring an income of Rs.8,67,63,830 and return for AY 2014-15 on 12.9.2014 declaring an income of NIL. The case was selected for scrutiny through CASS and notice u/s. 143(2) was duly served on the assessee. The AO made the following disallowances:-
