Turbo Energy Private Limited Vs DCIT (ITAT Chennai)
The AO held that the payments were made for managerial services and taxable u/s. 9(1)(vii) of IT Act. Since the assessee failed to deduct the tax at source u/s. 195 of the IT Act, disallowed the payments u/s.40(a)(i) of IT Act. The Ld. CIT(A) deleted the addition finding that the services rendered by non-resident do not fall under managerial or technical services within the meaning of IT Act and the services are rendered outside India and non-resident party has no permanent establishment or business connection in India. Accordingly, relying on the decision of the Hon’ble Apex Court in G.E. Technological Centre Pvt. Ltd., the Ld. CIT(A) allowed the appeal of the assessee. During the appeal, the Ld.AR argued that the services were rendered by the non-resident are liasoning services but not the managerial and technical services. Further, argued that even if the services rendered outside India are to be taxable, it is taxable as business profits in which case, only the profits required to be brought to tax if there is a permanent establishment or business connection in India. Since the assessee has no permanent establishment, the application of Sec. 9(1)(vii) and Sec. 195 has no application.
The assessee has produced the copy of the agreement before the Ld. CIT(A). The Ld. CIT(A) examined the Explanation of the assessee and the document placed before the CIT and concluded that the services rendered by the non-resident do not fall under the category of technical or managerial services. Ld. CIT(A) further stated that the services are rendered outside India and there is no permanent establishment or business connection to the non-resident in India. This fact has not been disputed by the Revenue. The profits of the services rendered outside India cannot be taxed in India unless the non-resident has permanent establishment/or business connection in India as envisaged in Sec. 9(1) of IT Act.
ITAT held that payment made to non-resident without deducting the tax at source u/s. 195 of the Act, does not come under the provisions of section 9(1)(vii) of the Act and consequently, assessee need not to deduct TDS u/s. 195 of the Act and thus, question of disallowance of said payment u/s. 40(a)(i) of the Act does not arise.
FULL TEXT OF THE ORDER OF ITAT CHENNAI
This bunch of four cross appeals filed by the assessee and, as well as the revenue are directed against common order passed by the learned Commissioner of Income Tax (Appeals)-9, Chennai, dated 07.08.2019 and relevant to assessment years 2015-16 & 2016-17. Since, facts are identical and issues are common, for the sake of convenience, the appeals filed by the assessee as well as revenue are disposed off by this consolidated order.
2. The assessee, has more or less raised common grounds of appeal for both assessment years. Therefore, for the sake of brevity grounds of appeal filed for assessment year 2015-16 are reproduced as under:
1. The Order of The Commissioner of Income tax (Appeals) is contrary to law, facts and in the circumstances of the case.
2 The Commissioner of Income . tax (Appeals) erred in confirming the disallowance u/s 80IC amounting to Rs.4, 72,27,891 /- in respect of its unit engaged in the business of turbocharger assembly and core assembly at Rudrapur, Uttarakhand.
2.1 The Commissioner of Income tax (Appeals) ought to have appreciated that the appellant’s factory set up at Rudrapur is engaged in the business of manufacture or production of article or thing as the end product is commercially different and distinct from the inputs contained in section 2 (29) (BA) and therefore eligible for deduction u/s 80IC.
2.2 The CIT(A) ought to have appreciated that the Central Excise Department has recognized that appellant is engaged in manufacture of article and hence entitled to exemption from Duty and also an Inspector from Income Tax Department had inspected the facility and had reported that the unit was engaged in manufacture of articles
3. The Commissioner of Income tax (Appeals) erred in confirming the weighted deduction claimed u/s 35(2AB) amounting to Rs.5,81,972/-
3.1 The Commissioner of Income tax (Appeals) ought to have appreciated that the above R&D expenditure is certified as eligible in the audit report filed in pursuance of the above section and due compliance of all procedures by the appellant prescribed in the statute. Following the decision of assessee’s own case in ITA No- 351/2013 dated 03.05.2017 the claim of the appellant should be allowed.
3.2 The appellant relies on the following decisions:-
