Dy. CIT v. Xansa India Ltd. - Taxpublishers.in

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The Tax Publishers2016 TaxPub(DT) 4748 (Del-Trib) Dy. CIT v. Xansa India Ltd. INCOME TAX ACT, 1961 --Business disallowance under section 40(a)(i)--Payment to non-resident without deducting taxPayment for management services--No technical knowledge made available--No PE in India--Where assessee has made the certain payments under the head legal and professional expenditure without deduction of tax under section 195, AO was not justified in disallowing it for want of tax deduction since it was towards management services and not in the nature of technical fee as no technical knowledge was made available and recipient was not having any PE in India, therefore, it cannot be taxed as business profits.--Assessee made the certain payments under the head legal and professional expenditure without deduction of tax under section 195. AO submitted that the payment of legal and professional fees was chargeable to tax in India in view of the provisions of section 9(1)(vii). Therefore, invoking the provisions of section 40(a)(i) the amount was disallowed. *Held:* Payment was towards management services and the same was not in the nature of technical fee. It would not make available technical knowledge, technical plan and design to assessee. Therefore, it could not be characterized as royalty or fee for technical services. The recipient had no permanent establishment in India and in absence of PE the said payment being in the nature of business profits would not be taxable in India. Section 40(a)(i) was wrongly invoked by AO. Income Tax Act, 1961 Section 40(a)(i) *REFERRED :* FAVOUR : In assessee's favour. A.Y. : INCOME TAX ACT, 1961 --Business disallowance under section 40A(2)(b)--Excessive or unreasonable expensesPaid extra amount for convenient delivery place----Where assessee had paid liasioning charges to RPPPL, being 10% of the amount paid for purchase of diesel for the additional facility of delivery of diesel at its premises, AO was not justified in disallowing expenses under section 40A(2)(b) without pointing out how much expenditure was excessive or unreasonable. --Assessee had paid liasioning charges to RPPPL, being 10% of the amount paid for purchase of diesel as per the agreement, for the additional facility of delivery of diesel at its premises. Such charges were, however, disallowed by the AO under section 40A(2)(b) on the ground that there was no legitimate business need for incurring such expenditure. *Held:* Where any expenditure had been incurred by the assessee and paid to a specified person and AO forms an opinion that such expenditure was excessive or unreasonable having regard to the fair market value of the goods or services or the legitimate needs of the business, then he can disallow so much of the expenditure as was considered excessive or unreasonable. However, in the instant case, AO had not pointed out how much expenditure was excessive or unreasonable, and disallowance was made without any basis, therefore, same was to be deleted. SUBSCRIBE FOR FULL CONTENT

The Tax Publishers2016 TaxPub(DT) 4748 (Del-Trib)

Dy. CIT v. Xansa India Ltd.

INCOME TAX ACT, 1961

--Business disallowance under section 40(a)(i)--Payment to non-resident without deducting taxPayment for management services--No technical knowledge made available--No PE in India--Where assessee has made the certain payments under the head legal and professional expenditure without deduction of tax under section 195, AO was not justified in disallowing it for want of tax deduction since it was towards management services and not in the nature of technical fee as no technical knowledge was made available and recipient was not having any PE in India, therefore, it cannot be taxed as business profits.--Assessee made the certain payments under the head legal and professional expenditure without deduction of tax under section 195. AO submitted that the payment of legal and professional fees was chargeable to tax in India in view of the provisions of section 9(1)(vii). Therefore, invoking the provisions of section 40(a)(i) the amount was disallowed. Held: Payment was towards management services and the same was not in the nature of technical fee. It would not make available technical knowledge, technical plan and design to assessee. Therefore, it could not be characterized as royalty or fee for technical services. The recipient had no permanent establishment in India and in absence of PE the said payment being in the nature of business profits would not be taxable in India. Section 40(a)(i) was wrongly invoked by AO.

Income Tax Act, 1961 Section 40(a)(i)

REFERRED :

FAVOUR : In assessee's favour.

A.Y. :

INCOME TAX ACT, 1961

--Business disallowance under section 40A(2)(b)--Excessive or unreasonable expensesPaid extra amount for convenient delivery place----Where assessee had paid liasioning charges to RPPPL, being 10% of the amount paid for purchase of diesel for the additional facility of delivery of diesel at its premises, AO was not justified in disallowing expenses under section 40A(2)(b) without pointing out how much expenditure was excessive or unreasonable. --Assessee had paid liasioning charges to RPPPL, being 10% of the amount paid for purchase of diesel as per the agreement, for the additional facility of delivery of diesel at its premises. Such charges were, however, disallowed by the AO under section 40A(2)(b) on the ground that there was no legitimate business need for incurring such expenditure. Held: Where any expenditure had been incurred by the assessee and paid to a specified person and AO forms an opinion that such expenditure was excessive or unreasonable having regard to the fair market value of the goods or services or the legitimate needs of the business, then he can disallow so much of the expenditure as was considered excessive or unreasonable. However, in the instant case, AO had not pointed out how much expenditure was excessive or unreasonable, and disallowance was made without any basis, therefore, same was to be deleted.