Deputy Director of Income tax, (International Taxation), Bangalore V. M/s Carl Zeiss India P Ltd, Bangalore

ITA 1251/BANG/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90032 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-07-2015
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Next Hearing Date: 08-07-2015
• Assessment Year: 2009-2010
• Appeal Filed On: 08-10-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief; Wholly owned subsidiary; Non-deduction of tax
• Section: 143(3); 194C

Judgement Text

IN THE INCOME TAX APPELLATE TRI BUNAL BANGALORE BENCH B, BANGALORE BEFORE SHRI VIJAY PAL RAO, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER IT(IT)A NO.1251(B)/2014 (ASSESSMENT YEAR : 2009-10) THE DEPUTY COMMISSIONER OF INCOME-TAX, (INTERNATIONAL TAXATION) CIRCLE-1(1)ROOM NO.604, NRUPATHUNGA ROAD, BANGALORE-560 001 APPELLANT VS M/S CARL ZEISS INDIA (P)LTD. INDIA BRANCH OFFICE, PLOT NO.3, JIGANI LINK ROAD, BANGALORE-560 099 PAN NO.AABCC 1589Q RESPONDENT AND IT(IT)A NO.1258(B)/2014 (ASSESSMENT YEAR : 2009-10) M/S CARL ZEISS INDIA (P)LTD. INDIA BRANCH OFFICE, PLOT NO.3, JIGANI LINK ROAD, BANGALORE-560 099 PAN NO.AABCC 1589Q APPELLANT VS THE DEPUTY COMMISSIONER OF INCOME-TAX, (INTERNATIONAL TAXATION) CIRCLE-1(1)ROOM NO.604, NRUPATHUNGA ROAD, BANGALORE-560 001 RESPONDENT AND C.O.NO.29(B)/2015 (IN IT(IT)A NO.1251(B)/2014 M/S CARL ZEISS INDIA (P)LTD. INDIA BRANCH OFFICE, PLOT NO.3, JIGANI LINK ROAD, BANGALORE-560 099 PAN NO.AABCC 1589Q CROSS OBJECTOR ITA NO.1251 & 1258(B)/14 & CO NO.29(B)/15 2 VS THE DEPUTY COMMISSIONER OF INCOME-TAX, (INTERNATIONAL TAXATION) CIRCLE-1(1)ROOM NO.604, NRUPATHUNGA ROAD, BANGALORE-560 001 RESPONDENT REVENUE BY : SHRI KRISHNAN NARAYANAN, CA ASASESEE BY : DR. P.K.SRIHARI, ADDL.CIT DATE OF HEARING : 08-07-2015 DATE OF PRONOUNCEMENT : 24-07-2015 0O R D E R PER SHRI VIJAY PAL RAO, JM: THESE CROSS APPEALS IN IT(IT)A NO.1251(B)/14 AND I T(IT)A NO.1258(B)/14 AND CROSS OBJECTION IN C.O.NO.29(B)/1 5 IS BY THE ASSESSEE ARE DIRECTED AGAINST THE ORDER DATED 11-08-2014 OF CIT(A)-IV, BANGALORE FOR THE ASSESSMENT YEAR 2009-10. 2. THE ASSESSEE IS A 100% SUBSIDIARY OF CARL ZEISS , AG GERMANY. THE CARL ZEISS GROUP MANUFACTURES AND SELLS OPTICAL PRODUCTS. THE ASSESSEE IS ENGAGED MAINLY AS A FRONT OFFICE FOR CA RL ZEISS GROUP IN INDIA. THE BRANCH OFFICE IN INDIA FACILITATES THE SALE OF CARL ZEISS GROUP PRODUCTS IN INDIA, APART FROM PROVIDING SALES SUPPORT TO ITS PRODUCTS IN INDIA. THE ASSESSEE FILED ITS RETURN OF INCOME ON 30-09-2009. DURING THE COURSE OF ASSESSMENT PROCEEDINGS, THE AO NOTED THAT THE ASSES SEE HAS CLAIMED RS.1,12,51,602/- UNDER THE HEAD COST OF SENIOR MANA GEMENT PERTAINING TO ACTIVITIES OF CARL ZEISS INDIA BRANCH, THE SAME HAS BEEN REIMBURSED TO THE ITA NO.1251 & 1258(B)/14 & CO NO.29(B)/15 3 HEAD OFFICE AS PAYMENT IS BEING MADE FROM THERE WHI CH IS AS PER THE AGREEMENT DATED 16-09-2006 BETWEEN HAD OFFICE AND B RANCH OFFICE. ON QUERY, BY THE AO, THE ASSESSEE SUBMITTED THAT DURIN G THE FINANCIAL YEAR A SUM OF RS.15,69,598/- AND RS.21,76,060/- HAS BEEN R EIMBURSED TO CARL ZEISS, SINGAPORE PTE LTD. BEING THE COST ALLOCATED BASED ON THE PROPORTION OF WORK PERFORMED. THUS, IT WAS SUBMITTED THAT THE COST REIMBURSED BY THE ASSESSEE IS IN THE NATURE OF REIMBURSEMENT ON A CTUAL BASIS WITHOUT ANY MARK-UP. THE AO DID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND WAS OF THE VIEW THAT THE SERVICES PROVIDED BY THE H EAD OFFICE THROUGH MR. VENKATECHALAM RAMAN MR. HEATHER LIM AND MR.R. MURUG ANANDAM FALL UNDER THE CATEGORY OF FEE FOR TECHNICAL SERVICES ( FTS ). THUS, THE AO HELD THAT THE REMITTANCE IN TRUTH AND REALITY IS CONSIDE RATION FOR TECHNICAL SERVICES DISGUISED AS REIMBURSEMENT OF EXPENSES. S INCE THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE, THE SAID PAYMENT OF RS.1, 12,51,602/- WAS DISALLOWED AND ADDED TO THE TOTAL INCOME. 3. THE AO FURTHER NOTED FROM THE SCHEDULE-15ANNEXE D TO THE P&L ACCOUNT THAT THE ASSESSEE HAS CLAIMED AN AMOUNT OF RS.2,45,55,427/- AS ADVERTISEMENT AND SALES PROMOTION EXPENSES. THE AO FOUND THAT THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE, AS PER THE PROVISIONS OF RESPECTIVE SECTIONS AS UNDER; ITA NO.1251 & 1258(B)/14 & CO NO.29(B)/15 4 SL.NO DESCRIPTION OF THE EXPENSES SECTION UNDER WHI CH TDS OUGHT TO BE DEDUCTED AMOUNT INVOLVED 1 PRINTING 194C 4,38,909 2 REIMBURSEMENT OF EXPENSES 194C 7,97,687 3 SALES PROMOTION 194C 94,93,367 4 STALL CHARGES 194C 3,25,000 5 TRAINING CHARGES 194J 6,87,200 TOTAL 1,17,42,163 3.1 THUS, THE AO MADE THE ADDITION IN RESPECT OF TH E EXPENDITURE DISALLOWED ON ACCOUNT OF ADVERTISEMENT, SALES PROMO TION AND REIMBURSEMENT TO THE HEAD OFFICE AS UNDER; ADD: EXPENDITURE DISALLOWED A) ADVT. & SALES PROMOTION EXPENSES 1,17,42,163 B)PAYMENT BY CARL ZEISS SINGAPORE I) VENKATACHALAM RAMAN 75,05,944 II)HEATHER LIM 15,69,598 III) R. MURUGANANDAM 21,76,060 TOTAL 1,21,51,601 4. THE ASSESSEE CHALLENGED THE ACTION OF THE AO BEF ORE THE CIT(A) AND CONTENDED THAT REIMBURSEMENT TO HEAD QUARTER IS NOT FTS. THE ASSESSEE REFERRED TO THE AGREEMENT UNDER WHICH THE PAYMENT WAS MADE AS WELL AS THE PROVISIONS OF DTAA BETWEEN INDIA AND MA URITIUS. THE ASSESSEE HAS ALSO POINTED OUT THAT THE PAYMENT WAS MADE AND THE ITA NO.1251 & 1258(B)/14 & CO NO.29(B)/15 5 AMOUNT WAS REMITTED ONLY AFTER OBTAINING A CERTIFIC ATE FROM THE AO U/S 195(2). THE CIT(A) ACCEPTED THE CONTENTIONS OF THE ASSESSEE SOFAR AS THE PAYMENT IN RESPECT OF HEATHER LIM OF RS.15,69,598/- AND DELETED THE ADDITION MADE BY THE AO WHEREAS THE ADDITION MADE B Y THE AO IN RESPECT OF THE PAYMENT ON ACCOUNT OF SERVICES RENDERED BY V ENKATACHALAM RAMAN (MD) AND RAMU PILLAI MURUGANANDAM, (IT SPECIALIST) HAS BEEN UPHELD BY THE CIT(A) BY HOLDING THAT THE PAYMENT WAS IN THE N ATURE OF FTS. AS REGARDS DISALLOWANCE U/S 40(A)(IA) IN RESPECT OF AD VERTISEMENT AND SALES PROMOTION EXPENSES, THE CIT(A) DELETED THE SAID DIS ALLOWANCE BY HOLDING THAT NONE OF THE PAYMENT FALLS UNDER THE PROVISIONS OF SECTION 194C OR 194J OF THE IT ACT. SINCE A PART OF RELIEF WAS GIV EN TO THE ASSESSEE, THEREFORE, BOTH THE REVENUE AS WELL AS ASSESSEE HAV E CHALLENGED THE IMPUGNED ORDER OF THE CIT(A) BY FILING CROSS APPEAL S AND CROSS OBJECTION. 5. THE REVENUE HAS RAISED THE FOLLOWING GROUNDS; 1. THE LD.CIT(A) HAS ERRED IN PARTLY ALLOWING THE APPEAL OF THE ASSESSEE WHICH IS OPPOSED TO LAW, EQUITY, FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LD.CIT(A) ERRED IN LAW BY HOLDING THAT THE S ERVICES RENDERED BY SRI HEATHER LIM (CHIEF OFFICER HR AND Q UALITY) IS OF NEITHER TECHNICAL/CONSULTANCY NOR MANAGERIAL IN NATURE. 3.THE LD. CIT()A) ERRED IN LAW BY HOLDING THAT SERV ICES RENDERED BY SRI HEATHER LIM (CHIEF OFFICER HR & Q UALITY) ITA NO.1251 & 1258(B)/14 & CO NO.29(B)/15 6 IS OF NEITHER TECHNICAL/CONSULTANCY OR MANAGERIAL I N NATURE AND IS NOT LIABLE TO DEDUCT TDS. 4. THE LD.CIT(A) ERRED IN NOT APPRECIATING THE RELI ANCE OF THE AO IN THE CASE OF AT AND S INDIA(P)LTD VS CIT (2006 ) 287 ITR 421(AAR) AS PER WHICH ANY CONSIDERATION PAID FO R RENDERING OF A MANAGERIAL TECHNICAL OR CONSULTANCY SERVICES WHICH INCLUDE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL, FALLS WITHIN THE MEANING OF FEE FOR TECH NICAL SERVICES AND HENCE ATTRACTS SEC.9(1)(VII) OF THE IT ACT. 5. THE LD.CIT(A) ERRED IN DELETING THE DISALLOWANCE MADE U/S 40A(IA) OF THE IT ACT BY HOLDING THAT THE AO H AS NOT VERIFIED THE AGREEMENTS ENTERED WITH THE VENDORS, W HEREIN THE ASSESSEE DID NOT SUBMIT ANY SUCH AGREEMENTS BEF ORE THE AO. 6. THE LD.CIT(A) HAS NOT CALLED FOR ANY REMAND REPO RT FROM THE AO TO EXAMINE THE NATURE OF PAYMENT AS PER AGREEMENTS. 7. THE APPELLANT CARVES LEAVE TO ADD TO AND /OR TO ALTER, AMEND, MODIFY THE GROUNDS HEREIN ABOVE OR PRODUCE FURTHER DOCUMENTS BEFORE OR AT THE TIME OF HARING O F THIS CASE. 6. IN THE CROSS APPEAL THE ASSESSEE HAS RAISED THE FOLLOWING GROUNDS; 1.ORDER BAD IN LAW AND ON FACTS THE ORDER PASSED BY THE DDIT UNDER SECTION 143(3) READ WITH SECTION 144C(3) OF THE IT ACT AND THE LD. CIT(A) U/S 250 OF THE ACT, ON THE ISSUE OF DISALLOWANCE OF PAY MENTS OF ITA NO.1251 & 1258(B)/14 & CO NO.29(B)/15 7 RS.9,682,004 TO CARL ZEISS SINGAPORE PTE.LTD. (CZ SINGAPORE) IS BAD IN LAW AND ON FACTS. 2. DISALLOWANCE OF PAYMENT OF RS.9,682,004 TO CZ SINGAPORE 2.1 THE CIT(A) ERRED IN CONFIRMING THE DISALLOWANC E MADE BY THE DDIT OF RS.9,682,004 IN RELATION TO PAY MENTS BY THE APPELLANT TO CZ SINGAPORE PERTAINING TO ACTI VITIES OF THE FOLLOWING EMPLOYEES OF CZ SINGAPORE; VENKATACHELAM RAMAN AND RAMUPILLAI MURUGANANDAM. 2.2 THE CIT(A) ERRED IN NOT HOLDING THAT THE PAYME NTS TO CZ SINGAPORE WERE REIMBURSEMENTS ON ACTUAL BASIS WI THOUT ANY MARK-UP OR OTHER ADMINISTRATIVE CHARGES. 2.3 THE CIT(A) ERRED IN HOLDING THAT THE EMPLOYEES OF CZ SINGAPORE HAD RENDERED MANAGERIAL, TECHNICAL AND CONSULTANCY SERVICES TO THE APPELLANT. 2.4 WITHOUT PREJUDICE TO THE ABOVE, THE DDIT/CIT(A ) ERRED IN DISALLOWING THE PAYMENTS MADE BY THE APPEL LANT TO CZ SINGAPORE U/S 40(A)(I) OF THE ACT, INSPITE OF TH E FACT THAT THE APPELLANT HAD OBTAINED A NIL WITHHOLDING CERTIF ICATE U/S 195(2) OF THE ACT FOR NON-DEDUCTION OF TAX AT SOURC E ON PAYMENTS TO BE MADE TO CZ SINGAPORE. THE APPELLANT CRAVES LEAVE TO ADD TO OR ALTER, BY DELETION, SUBSTITUTION OR OTHERWISE, THE ABOVE GROU NDS OF APPEAL, AT ANY TIME BEFORE OR DURING THE HEARING OF THE APPEAL. ITA NO.1251 & 1258(B)/14 & CO NO.29(B)/15 8 THE APPELLANT SUBMITS THAT THE ABOVE GROUNDS ARE INDEPENDENT AND WITHOUT PREJUDICE TO ONE ANOTHER. 7. GROUND NO.1 TO 4 OF REVENUES APPEAL AND GROUND S RAISED IN THE ASSESSEES APPEAL ARE IN RESPECT OF THE COMMON ISS UE OF PAYMENT MADE BY THE ASSESSEE UNDER COST SHARING ARRANGEMENTS AND CL AIMED AS REIMBURSEMENT TO THE HEAD OFFICE. AS WE HAVE ALRE ADY STATED IN THE FACTS OF THE CASE THAT THE ASSESSEE HAS MADE A TOTAL PAYM ENT OF RS.1,12,51,602/- BEING REIMBURSEMENT OF THE EXPENDI TURE IN RESPECT OF THE SERVICES RENDERED BY THREE PERSONS NAMELY SHRI VENKATACHELAM RAMAN,(MD) SHRI HEATHER LIM (CO,HR & QUALITY AND SH RI RAMUPILLAI MURUGANANDAM, (IT SPECIALIST). THE AUTHORITIES BEL OW HAVE CONFINED THEIR FINDING ON DISALLOWANCE OF THE PAYMENT ON QUESTION WHETHER THE SAID PAYMENT WAS IN THE NATURE OF FTS AND THEREFORE, THE INCOME IN THE HANDS OF THE NON-RESIDENT IS TAXABLE IN INDIA, AS PER THE PROVISIONS OF SECTION 9(1)(VII) OF THE IT ACT, AS WELL AS UNDER THE PROVI SION OF DTAA BETWEEN INDIA AND SINGAPORE. IT IS PERTINENT TO NOTE THAT THE ASSESSEE HAS REMITTED THE AMOUNT IN QUESTION TO THE NON-RESIDENT AFTER OBTAINING A CERTIFICATE FROM THE AO U/S 195(2) DATED 25-01-2009 . THE AO WHILE GRANTING THE CERTIFICATE U/S 195(2) HAS DULY RECORD ED THE FACT THAT THE PAYMENT IN QUESTION IS IN RESPECT OF AVAILING THE S ERVICES OF CARL ZEISS PTE.LTD. SINGAPORE UNDER THE AGREEMENT DATED 01-10- 2006 FOR PROVIDING CERTAIN MANAGERIAL AND HUMAN RESOURCES TO INDIA BRA NCH. THE AO ALSO HAVE NOTED THE FACTS THAT THE PAYMENT WERE IN CONNE CTION WITH THE SALARIES ITA NO.1251 & 1258(B)/14 & CO NO.29(B)/15 9 AND OTHER COST OF MANAGERIAL AND HR OFFICIALS CHARG ED TO INDIAN BRANCH WHICH INCLUDES THE COST OF MD, CHIEF OFFICER, HR & QUALITY, WEB. ADMINISTRATOR FOR IT APPLICATION SPECIALISTS. THUS , AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESEE THAT THESE SERVICES PROV IDED BY NON-RESIDENT FROMSINGAPORE DOES NOT FALL UNDER THE AMBIT OF TECH NICAL KNOWLEDGE, SKILL, KNOW-HOW, EXPERTISE ETC. AS REQUIRED BY DEFINITION OF FTS AS PER ARTICLE-12 OF INDO-SINGAPORE DTAA, THE AO ALLOWED THE ASSESSEE TO MAKE THE REMITTANCE IN PARA-4 OF THE SAID CERTIFICATE AS UND ER; 4. THE ASSESSEES SUBMISSIONS CAREFULLY AND AFTER THE SAME THE ASSESSEE HEREBY AUTHORIZED TO MAKE REMITTA NCE AND SGD 340, 822 WITHOUT DEDUCTION OF TDS TO M/S CA RL ZEISS PTE LTD. SINGAPORE. THIS CERTIFICATE IS ONL Y PROVISIONAL AND IS ISSUED AT THE REQUEST OF THE ASSESSEE. THE ALLOWABILITY OF THE ABOVE COSTS IS SUBJECTED TO VER IFICATION AT THE TIME OF REGULAR ASSESSMENT OF M/S CARLZEISS IND IA PTE.LTD. 7.1 NOW THE QUESTION ARISES WHETHER AFTER OBTAININ G THE CERTIFICATE U/S 195(2) THE ASSESSEE CAN BE HELD LIABLE TO DEDUC TION TDS AND FURTHER, PENALIZE U/S 40A(I) OF THE ACT FOR NON-DEDUCTION OF TDS. IT IS PERTINENT TO NOTE THAT THE PROVISIONS OF SEC.40(A) CAN BE INVOK ED ONLY WHEN THERE IS A FAILURE ON THE PART OF THE ASSESSEE TO COMPLY WITH THE PROVISIONS OF CHAPTER-XVIIB. THE PAYMENT IN QUESTION WAS TO A N ON-RESIDENT CO. AND THEREFORE, THE PROVISIONS OF DEDUCTION OF TDS AS PR OVIDED U/S 195 ARE ITA NO.1251 & 1258(B)/14 & CO NO.29(B)/15 10 RELEVANT. SINCE THE ASSESSEE HAS ALREADY MADE AN A PPLICATION U/S 195(2) OF THE ACT FOR SEEKING PERMISSION FROM THE CONCERNE D AUTHORITY TO REMIT THE SAID PAYMENT TO THE NON-RESIDENT WITHOUT DEDUCT ION OF TAX AT SOURCE AND THE AO CONCERNED HAS DETERMINED THE TAX DEDUCTA BLE AT SOURCE AS NIL AND ALLOWED THE ASSESSEE TO REMIT THE SAID AMOUNT W ITHOUT DEDUCTION OF TDS. THEREFORE, ONCE THE ASSESSEE HAS COMPLIED WI TH THE PROVISIONS OF SEC.195 AND OBTAINED A CERTIFICATE FROM THE AO IN A CCORDANCE WITH THE REQUIREMENT OF SEC.195(2) THAN, THE ASSESSEE CANNOT BE PENALIZED BY INVOKING THE PROVISIONS OF SEC.40A(I) OF THE ACT. ACCORDINGLY, WITHOUT GOING INTO THE ISSUE OF THE NATURE OF PAYMENT WHETH ER FTS OR NOT WE ARE OF THE VIEW THAT ONCE ASSESSEE HAS COMPLIED WITH THE P ROVISIONS OF SEC.195 BY OBTAINING THE CERTIFICATE U/S 195(2) THEN, NO DI SALLOWANCE CAN BE MADE IN RESPECT OF THE SAID AMOUNT PAID TO THE NON-RESID ENT BY INVOKING THE PROVISION OF SEC.40A (I) OF THE ACT. HENCE, THIS I SSUE IS DECIDED IN FAVOUR OF THE ASSESSEE AND CONSEQUENTLY, GROUND NO.1 TO 4 OF THE REVENUES APPEAL ARE DISMISSED AND THE GROUNDS RAISED IN THE ASSESSE ES APPEALS ARE ALLOWED. 8. GROUND NOS.5 & 6 OF THE REVENUES APPEAL. THE ISSUE RAISED BY THE REVENUE IN THESE GROUNDS IS RELATING TO THE DIS ALLOWANCE MADE U/S 40(A)(IA) OF THE ACT WAS DELETED BY THE CIT(A). 9. WE HAVE ALREADY REPRODUCED THE DETAILS OF EXPEN SES UNDER THE HEAD ADVERTISEMENT AND SALES PROMOTION EXPENSES OF RS.1,17,42,163/- ITA NO.1251 & 1258(B)/14 & CO NO.29(B)/15 11 WHICH WAS DISALLOWED BY THE AO FOR WANT OF DEDUCTIO N OF TAX AT SOURCE. THE AO HAS HELD THAT THE EXPENSES ON ACCOUNT OF PRI NTING, REIMBURSEMENT, SALES PROMOTION, STALL CHARGES ARE C OVERED U/S 194C FOR THE PURPOSE OF TDS AND THE EXPENSES ON ACCOUNT OF T RAINING CHARGES ARE COVERED U/S 194J OF THE ACT. THE CIT(A) DELETED T HE ADDITION/DISALLOWANCE MADE BY THE AO BY HOLDING THA T THESE PAYMENTS WERE NOT MADE FOR WORK CONTRACT EXECUTED BY THE REC IPIENTS, BUT THE AO FAILED TO ESTABLISH THAT THE PAYMENT WAS IN RELATIO N TO THE WORK CONTRACT EXECUTED IN RELATION TO ADVERTISEMENT, BROADCASTING , TELECASTING, CARRIAGE OF GOODS AND PASSENGERS AND CATERING, AS REQUIRED U NDER SECTION 194 C OF THE ACT. AS REGARDS THE TRAINING CHARGES THE CIT( A) DELETED THE ADDITION ON THE SIMILAR REASON THAT THE AO HAS NOT EXAMINED THE TERMS AND CONDITIONS OF THE AGREEMENT AS TO HOW THE PAYMENT I S COVERED U/S 194J OF THE ACT. 10. WE HAVE HEARD THE LEARNED DR AS WELL AS THE LE ARNED AR AND CONSIDERED THE MATERIAL ON RECORD. 10.1 THE PROVISIONS OF SECTIONS 40 A(IA) CAN BE I NVOKED IN RESPECT OF THE AMOUNT PAID BY THE ASSESSEE ON ACCOUNT OF A SPE CIFIC NATURE OF PAYMENT AS PROVIDED UNDER CLAUSE (IA) OF SEC.40A. FOR THE SAKE OF READY REFERENCE, WE QUOTE CLAUSE-IA AS UNDER; ITA NO.1251 & 1258(B)/14 & CO NO.29(B)/15 12 40 NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SEC.30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AN GAINS OF BUSINESS OR PROFESSIO N. (A) IN THE CASE OF ANY ASSESSEE;- (IA) ANY INTEREST, COMMISSION OR BROKERAGE, (RENT, ROYALTY,) FEES FOR PROFESSIONAL SERVICES OR FEES FO R TECHNICAL SERVICES PAYABLE TO A RESIDENT, OR AMOUNT S PAYABLE TO A CONTRACTOR OR SUB-CONTRACTOR OR SUB- CONTRACTOR, BEING RESIDENT, FOR CARRYING OUT ANY WO RK (INCLUDING SUPPLY OF LABOUR FOR CARRYING OUT ANY WO RK0 ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER- XVIIB AND SUCH TAX HAS NOT BEEN DEDUCTED OR AFTER DEDUCTION (HAS NOT BEEN PAID ON OR BEFORE THE DUE D ATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139. PROVIDED.. THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR OR HAS BEEN DEDUCTED DURING THE PREVIOUS YEAR BUT PAID AFT ER THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139, SUCH SUM SHALL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID. 11. THUS, IT IS CLEAR THAT AN AMOUNT WHICH IS CLA IMED AS AN EXPENDITURE CAN BE DISALLOWED BY INVOKING THE PROVI SIONS OF SECTION 40A(IA), IF THE SAID AMOUNT IS PAID BY THE ASSESSEE ON ACCOUNT OF INTEREST, COMMISSION OR BROKERAGE, RENT, ROYALTY, FEE FOR PRO FESSIONAL SERVICES, FEE FOR TECHNICAL SERVICES TO A RESIDENT OR AMOUNT PAYA BLE TO CONTRACTORS OR SUB-CONTRACTORS. IN THE CASE ON HAND, THE AO HAS G IVEN THE DETAILS OF THE PAYMENT IN PARA-6 AS UNDER; ITA NO.1251 & 1258(B)/14 & CO NO.29(B)/15 13 SL.NO DESCRIPTION OF THE EXPENSES SECTION UNDER WHI CH TDS OUGHT TO BE DEDUCTED AMOUNT INVOLVED 1 PRINTING 194C 4,38,909 2 REIMBURSEMENT OF EXPENSES 194C 7,97,687 3 SALES PROMOTION 194C 94,93,367 4 STALL CHARGES 194C 3,25,000 5 TRAINING CHARGES 194J 6,87,200 TOTAL 1,17,42,163 12. AS IT IS MANIFEST FROM THE DETAILS THAT THESE PAYMENTS WERE MADE ON ACCOUNT OF PRINTING, SALES PROMOTION, STALL CHARGES, TRAINING CHARGES ETC. THOUGH THE PAYMENTS MAY BE UNDER SOME AGREEMENTS BETWEEN THE AUTHORITIES, BUT THE SAME DOES NOT MEAN THAT THE PAYMENT WAS TO A CONTRACTOR OF A SUB-CONTRACTOR FOR EXECUTI ON OF THE WORK CONTRACT ON BEHALF OF THE ASSESSEE. THE REQUIREMENT OF DEDU CTION OF TAX AT SOURCE UNDER CHAPTER-XVIIB AND AS PER SEC.194C OF THE IT A CT, THE PAYMENT IS FOR GETTING THE WORK DONE THROUGH THE CONTRACTOR OR SUB -CONTRACTOR ON BEHALF OF THE ASSESSEE WHICH MEANS IF THE ASSESSEE IS CARR YING OUT ITS BUSINESS ACTIVITY AND GET ITS OWN WORK THROUGH THE CONTRACTO R OR SUB-CONTRACTOR. IN THE CASE ON HAND THERE IS NO ALLEGATION BY THE AO T HAT THE PAYMENT WAS ON ACCOUNT OF THE WORK EXECUTED UNDER THE WORK CONT RACT TO CONTRACTOR OR SUB-CONTRACTOR. THE PAYMENT IS MADE SIMPLY FOR PRIN TING, SALES PROMOTION, STALL CHARGES AND TRAINING CHARGES WHICH DOES NOT F ALL UNDER THE SCOPE OF ITA NO.1251 & 1258(B)/14 & CO NO.29(B)/15 14 SEC.194C OR 194J. ACCORDINGLY, WE DO NOT FIND ANY ERROR OR ILLEGALITY IN THE ORDER OF THE CIT(A) FOR THIS ISSUE. 13. IN THE CROSS OBJECTION, THE ASSESSEE HAS RAISE D AN ALTERNATIVE PLEA IN RESPECT OF DISALLOWANCE MADE U/S 40(A)(IA). SINCE THE ISSUE IN THE REVENUES APPEAL IS DECIDED IN FAVOUR OF THE ASSESS EE THEREFORE, THE CROSS OBJECTION FILED BY THE ASSESSEE BECOMES INFRUCTUOUS . 14. IN THE RESULT, THE REVENUES APPEAL AND CROSS OBJECTION OF THE ASSESSEE ARE DISMISSED AND THE ASSESSEES APPEAL IS ALLOWED. PRONOUNCED IN THE OPEN COURT ON THE 24-07-2015. SD/- SD/- (JASON P BOAZ) (VIJA Y PAL RAO) ACCOUNTANT MEMBER JUDICIAL MEMBER D A T E D : 24-07-2015 PLACE: BANGALORE AM* COPY TO : 1 APPELLANT 2 RESPONDENT 3 CIT(A)-II BANGALORE 4 CIT 5 DR, ITAT, BANGALORE. 6 GUARD FILE BY ORDER AR, ITAT, BANGALORE