M/s. Maharaja Shree Umaid Mills Ltd. Jaipur, Jaipur V. DCIT Circle-6, Jaipur, Circle-6, Jaipur

ITA 784/JPR/2019

• Counselvise Citation: [2020] 111 COUNSELVISE.COM (IT) 2095 (ITAT-JAIPUR)
• Duration Of Justice: 11 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-04-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2015-2016
• Appeal Filed On: 27-05-2019
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Transfer pricing; Salary income; Double taxation relief; Additional depreciation; Deemed to accrue or arise in india; Retrospective amendment; Advance ruling; Question of law; Non compliance; TDS; Rule 8D; Set aside
• Section: 32; 10; 143(3); 14A; 40(a)(ia); 32(1)(iia); 195; 144C; 13

Judgement Text

VK;DJ VIHYH; VF/KDJ.K] T;IQJ U;K;IHB] T;IQJ IN THE INCOME TAX APPELLATE TRIBUNAL, JAIPUR BENCHE S,B JAIPUR JH FOT; IKY JKO] U;KF;D LNL; ,OA JH FOE FLAG ;KNO] YS[KK LNL; DS LE{K BEFORE: SHRI VIJAY PAL RAO, JM & SHRI VIKRA M SINGH YADAV, AM VK;DJ VIHY LA- @ ITA NO. 784/JP/2019 FU/KZKJ.K O'K Z @ ASSESSMENT YEAR : 2015-16 M/S MAHARAJA SHREE UMAID MILLS LTD. KHAITAN BHAWAN, M.I. ROAD, JAIPUR. CUKE VS. THE DCIT, CIRCLE-6, JAIPUR. LFKK;H YS[KK LA-@THVKBZVKJ LA-@ PAN/GIR NO.: AABCM1849 B VIHYKFKHZ@ APPELLANT IZR;FKHZ@ RESPONDENT FU/KZKFJRH DH VKSJ L S@ ASSESSEE BY : SHRI P.C.PARWAL (C.A.) JKTLO DH VKSJ LS @ REVENUE BY : SMT. RUNI PAL (JCIT) LQUOKBZ DH RKJH[ K@ DATE OF HEARING : 13/03/2020 MN?KKS'K.KK DH RKJH[ K@ DATE OF PRONOUNCEMENT: 28/04/2020 VKNS'K@ ORDER PER: VIKRAM SINGH YADAV, A.M. THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A), AJMER DATED 01.04.2019 FOR THE ASSESSMENT Y EAR 2015-16 WHEREIN THE ASSESSEE HAS TAKEN THE FOLLOWING GROUNDS OF APPEALS :- 1. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF RS.2,44,530/- U/S 14A READ WITH RUL E 8D. 2. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF DEPRECIATION OF RS.46,630/- ON WIND MILL BY TREATING THE CIVIL WORK & FOUNDATION AS BUILDING ON WHICH DEPREC IATION IS ALLOWED @ 10% AND ELECTRICAL ITEMS/ COMPONENTS AS PLANT & MAC HINERY ON WHICH DEPRECIATION IS ALLOWED @ 15% INSTEAD OF APPLICABLE RATE OF 80% CLAIMED BY THE ASSESSEE. 3. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF ADDITIONAL DEPRECIATION OF RS.2,02, 91,277/- CLAIMED U/S 32(1)(IIA) OF IT ACT, 1961 ITA NO. 784/JP/2019 M/S MAHARAJA SHREE UMAID MILLS LTD. VS. DCIT 2 4. THE LD. CIT(A) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE DISALLOWANCE OF COMMISSION OF RS.19,56,000/- PAID T O NON RESIDENTS U/S 40(A)(IA) OF IT ACT, 1961. 2. IN GROUND NO. 1, THE ASSESSEE HAS CHALLENGED THE CONFIRMATION OF THE DISALLOWANCE OF RS.2,44,530/- U/S 14A READ WITH RUL E 8D. 3. THE LD AR SUBMITTED THAT DURING THE YEAR, THE AS SESSEE HAS SHOWN TOTAL INVESTMENT OF RS.242.03 LACS ON WHICH DIVIDEND OF R S.27,225/- WAS EARNED WHICH WAS CLAIMED EXEMPT U/S 10 OF THE ACT. THE ASS ESSEE EXPLAINED THAT IT HAS NOT INCURRED ANY EXPENDITURE IN EARNING THE DIV IDEND INCOME, THUS, NO DISALLOWANCE IS CALLED FOR. THE AO OBSERVED THAT AS SESSEE HAS DEBITED INTEREST EXPENSE OF RS.1213.31 LACS IN ITS PROFIT &LOSS ACCO UNT. THERE IS A NEXUS BETWEEN EXPENDITURE INCURRED AND INVESTMENT MADE BY THE ASSESSEE. ADDITIONALLY, MANAGERIAL/ ADMINISTRATIVE COST FOR M AKING THE INVESTMENT CANNOT BE DENIED. ACCORDINGLY, BY INVOKING THE PROV ISION OF SECTION 14A R.W. RULE 8D OF THE IT RULES, HE MADE DISALLOWANCE OF RS .2,44,530/-, BEING 1% OF THE AVERAGE INVESTMENT OF RS.2,44,53,000/-. 4. IT WAS FURTHER SUBMITTED THAT ON APPEAL, THE LD. CIT(A) CONFIRMED THE DISALLOWANCE BY HOLDING THAT ASSESSEE HAS NOT FURNI SHED ANY FUND FLOW STATEMENT TO SUBSTANTIATE THE CONTENTION MADE IN TH E WRITTEN SUBMISSION. THE AO HAS COMPUTED THE DISALLOWANCE STRICTLY IN ACCORD ANCE WITH SECTION 14A READ WITH RULE 8D. 5. IT WAS SUBMITTED THAT ON PERUSAL OF RULE 8D, IT IS EVIDENT THAT THE AO CAN APPLY RULE 8D(2) ONLY WHEN HE IS NOT SATISFIED WITH THE CLAIM MADE BY THE ASSESSEE THAT NO EXPENDITURE HAS BEEN INCURRED IN R ELATION TO THE INCOME NOT INCLUDIBLE IN THE TOTAL INCOME. IN THE PRESENT CASE , ASSESSEE HAS NOT INCURRED ANY EXPENDITURE IN EARNING THE DIVIDEND INCOME. THE INVESTMENT IN SHARES WERE MADE IN EARLIER YEARS OUT OF INTEREST FREE FUN DS AVAILABLE WITH THE ASSESSEE AND NO BORROWED FUNDS WERE UTILIZED. THIS IS EVIDENT FROM THE FACT ITA NO. 784/JP/2019 M/S MAHARAJA SHREE UMAID MILLS LTD. VS. DCIT 3 THAT AS ON 31.03.2015, THE SHARE CAPITAL AND RESERV E & SURPLUS STOOD AT RS.17,152.52 LACS AS AGAINST INVESTMENT OF RS.242.0 3 LACS AND THUS, OWN FUNDS WERE 70.86 TIMES OF THE INVESTMENT. ON SUCH I NVESTMENT, ASSESSEE RECEIVED DIVIDEND INCOME OF RS.27,225/- DURING THE YEAR WHICH WAS DIRECTLY CREDITED IN THE BANK ACCOUNT. NO EXPENDITURE BY WAY OF INTEREST, STAFF, CONVEYANCE, TELEPHONE, ETC. HAS BEEN INCURRED IN EA RNING SUCH DIVIDEND INCOME DURING THE YEAR. THE AO HAS NOT SPECIFIED AS TO HOW THE CLAIM OF THE APPLICANT THAT IT HAS NOT INCURRED ANY EXPENDITURE FOR EARNING THE DIVIDEND INCOME IS NOT CORRECT. IN THESE CIRCUMSTANCES DISAL LOWANCE COMPUTED BY THE AO U/R 8D IS UNJUSTIFIED. 6. IT WAS FURTHER SUBMITTED THAT THE LD. AO HAS DI SALLOWED 1% OF AVERAGE VALUE OF THE INVESTMENT IN VIEW OF NOTIFICATION NO. 43/2016 DATED 02/06/2016 STATING THE SAME TO BE CLARIFICATORY NOTIFICATION. IT IS A SETTLED LAW THAT ANY NOTIFICATION WHICH INCREASES THE TAX BURDEN CANT B E SAID TO BE CLARIFICATORY SO AS TO HAVE RETROSPECTIVE EFFECT. HONBLE SUPREME CO URT IN CASE OF CIT VS. ESSAR TELEHOLDINGS LIMITED 162 DTR 225 WITH REFEREN CE TO RULE 8D INSERTED W.E.F. 24.03.2008, AFTER CONSIDERING RULE 8D AMENDE D FROM 02.06.2016 HELD THAT THE SAME HAS PROSPECTIVE APPLICABILITY. IN VIE W OF THE SAME, DISALLOWANCE MADE BY AO UNDER THE AMENDED RULE 8D EFFECTIVE FROM 2.06.2016 IS BAD IN LAW. 7. IT WAS FURTHER SUBMITTED THAT IT MAY ALSO BE NOT ED THAT THE DIVIDEND EARNED ON SHARES CLAIMED EXEMPT IS ONLY RS.27,225/- WHEREAS AO HAS DISALLOWED THE EXPENDITURE AT RS.2,44,530/-. THIS I S ILLOGICAL AND IRRATIONAL. EVEN IF THE AMOUNT OF RS.27,225/- IS TAXED, THE BUR DEN OF TAX WOULD BE LOWER THAN THAT IMPOSED BY THE AO BY DISALLOWING THE EXPE NDITURE OF RS.2,44,530/-. 8. PER CONTRA, THE LD. DR IS HEARD WHO HAS RELIED O N THE ORDER OF THE LOWER AUTHORITIES. ITA NO. 784/JP/2019 M/S MAHARAJA SHREE UMAID MILLS LTD. VS. DCIT 4 9. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PER USED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE DISALLOWANCE OF EXPENDITURE U/S 14A EXCEEDS THE DIVIDEND INCOME CLAIMED AS EXEMPT BY TH E ASSESSEE. THE THEREFORE, DISALLOWANCE ON ACCOUNT OF ADMINISTRATIV E EXPENSES UNDER RULE 8D(III) IS HEREBY RESTRICTED TO THE EXTENT OF EXEMP T INCOME SO CLAIMED BY THE ASSESSEE. IN THE RESULT, THE GROUND OF APPEAL IS P ARTLY ALLOWED. 10. IN GROUND NO. 2, THE ASSESSEE HAS CHALLENGED TH E DISALLOWANCE OF DEPRECIATION OF RS.46,630/- ON WINDMILL BY TREATING THE CIVIL WORK & FOUNDATION AS BUILDING ON WHICH DEPRECIATION IS ALLOWED @ 10% AND ELECTRICAL ITEMS/ COMPONENTS AS PLANT & MACHINERY ON WHICH DEPRECIATI ON IS ALLOWED @ 15% INSTEAD OF RATE OF 80% CLAIMED BY THE ASSESSEE. 11. IT WAS SUBMITTED THAT DURING THE YEAR, ASSESSEE HAS CLAIMED DEPRECIATION OF RS. 28,55,49,555/- IN THE P & L A/C . THIS INCLUDES DEPRECIATION OF RS.17,17,062/-CLAIMED @80% ON THE WINDMILL WHICH COMPRISED OF THE CIVIL WORK CARRIED OUT FOR THEIR INSTALLATION AND THE ELE CTRICITY WORK INCLUDING CABLING & ELECTRICITY LINES. THE AO OBSERVED THAT THE CIVIL WORK AND THE ELECTRICAL WORK ARE THE ANCILLARY ITEMS CONNECTED WITH THE INSTALLA TION OF THE WINDMILL. THESE ITEMS SHOULD HAVE BEEN PROVIDED DEPRECIATION UNDER THE HEAD BUILDING @ 10% AND PLANT & MACHINERY @ 15%. ACCORDINGLY, HE MA DE DISALLOWANCE OF RS.46,630/-. ON APPEAL, THE LD. CIT(A) CONFIRMED TH E DISALLOWANCE BY HOLDING THAT AO HAS ALLOWED DEPRECIATION STRICTLY IN ACCORD ANCE WITH THE RATE OF DEPRECIATION PROVIDED IN NEW APPENDIX-1 OF INCOME T AX RULES. 12. IN THIS REGARD, THE LD. AR SUBMITTED THAT THE C IVIL CONSTRUCTION IS IN THE NATURE OF FOUNDATION AND ALLIED WORK WITHOUT WHICH THE TOWER OF THE WIND POWER PLANT CANNOT BE INSTALLED. WHETHER A CIVIL ST RUCTURE IS A PART OF THE PLANT OR PART OF THE BUILDING IS TO BE EXAMINED WITH REFE RENCE TO THE FUNCTIONAL TEST OF SUCH STRUCTURE. IF WITHOUT SUCH STRUCTURE THE PL ANT CANNOT FUNCTION, THEN THE COST OF STRUCTURE IS PART OF THE PLANT. SIMILARLY, ERECTION AND INSTALLATION OF ITA NO. 784/JP/2019 M/S MAHARAJA SHREE UMAID MILLS LTD. VS. DCIT 5 ELECTRIC ITEMS ARE PART & PARCEL OF THE WINDMILL AN D WITHOUT THESE ITEMS WINDMILL CANNOT RUN. IN PRESENT CASE ALSO, WITHOUT THE EXPENDITURE ON CIVIL CONSTRUCTION INCURRED BY WAY OF FOUNDATION OF THE P LANT, INTERNAL LINES AND THE ALLIED WORK THE PLANT COULD NOT FUNCTION AND THEREF ORE, THE EXPENDITURE INCURRED ON ALL THESE ITEM IS A PART OF WIND PLANT. THUS, THE ASSESSEE HAS CORRECTLY CLAIMED DEPRECIATION @80%. SIMILAR ISSUE HAS BEEN DECIDED BY THE HONBLE RAJASTHAN HIGH COURT & ITAT, JAIPUR BENCH I N FAVOUR OF THE ASSESSEE AS UNDER:- CIT VS. K.K. ENTERPRISES (2014) 108 DTR 109 (RAJ) CIT VS MEHRU ELECTRICALS & MECHANICAL ENGINEERS PVT . LTD (2016) 141 DTR 342 (RAJ) ACIT VS. M/S VIJAY SOLVEX LTD. (ITA NO.377/JP/12 OR DER DT. 03.04.2018 (JAIPUR) (TRIB) IN VIEW OF ABOVE, DISALLOWANCE OF DEPRECIATION OF R S.46,630/- CONFIRMED BY LD. CIT(A) IS UNCALLED FOR AND SAME BE DIRECTED TO BE DELETED. 13. PER CONTRA, THE LD. DR IS HEARD WHO HAS RELIED ON THE LOWER AUTHORITIES. 14. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE MATERIAL AVAILABLE ON RECORD. WE FIND THAT THE MATTER IS NO MORE RES INTEGRA AND IS COVERED BY THE DECISION OF THE HONBLE RAJASTHAN HI GH COURT IN CASE OF K.K. ENTERPRISES AND MEHRU ELECTRICALS (SUPRA) AND WE FA IL TO UNDERSTAND THAT WHERE THE SAID DECISIONS WERE BROUGHT TO THE NOTICE OF LD CIT(A), WHAT STOPPED HIM IN FOLLOWING THE SAME, BEING THE DECISI ON OF THE HONBLE JURISDICTIONAL HIGH COURT. IN THE RESULT, THE GROU ND OF APPEAL IS ALLOWED. 15. IN GROUND NO. 3, THE ASSESSEE HAS CHALLENGED TH E DISALLOWANCE OF ADDITIONAL DEPRECIATION OF RS.2,02,91,277/- CLAIMED U/S 32(1)(IIA) OF IT ACT, 1961. ITA NO. 784/JP/2019 M/S MAHARAJA SHREE UMAID MILLS LTD. VS. DCIT 6 16. IN THIS REGARD, THE LD AR SUBMITTED THAT THE A SSESSEE CLAIMED ADDITIONAL DEPRECIATION OF RS.2,02,91,277/- ON THOS E PLANT & MACHINERY WHICH WERE USED FOR LESS THAN 180 DAYS IN THE PREVIOUS YE AR 2013-14. THE AO OBSERVED THAT ADDITIONAL DEPRECIATION CLAIM PERTAIN S TO PLANT & MACHINERY INSTALLED AND PUT TO USE IN AY 2014-15, THEREFORE, SAME IS NOT ALLOWABLE IN CURRENT AY 2015-16. SECTION 32(1)(II)(A) ALLOWS ADD ITIONAL DEPRECIATION @ 20% OF THE COST OF NEW PLANT & MACHINERY WHICH HAS BEEN ACQUIRED AND INSTALLED. THERE IS NO PROVISION IN THE LAW WHICH ALLOWS THE A SSESSEES CLAIM FOR CARRY FORWARD OF ADDITIONAL DEPRECIATION. ACCORDINGLY, HE DISALLOWED THE CLAIM OF ADDITIONAL DEPRECIATION. THE LD. CIT(A) HELD THAT T HE AMENDMENT IN CLAUSE (IIA) OF SUB-SECTION 1 OF SECTION 32 WAS INSERTED W .E.F. 01.04.2013 TO INCLUDE OR IN THE BUSINESS OF GENERATION OR GENERATION AND DISTRIBUTION OF POWER. BEFORE THE AMENDMENT INSERTED BY THE FINANCE ACT, 2 012, ADDITIONAL DEPRECIATION WAS NOT ADMISSIBLE ON ANY PLANT OR MAC HINERY ACQUIRED OR INSTALLED BY AN ASSESSEE ENGAGED IN THE BUSINESS OF GENERATION AND DISTRIBUTION OF POWER. THEREFORE, DISALLOWANCE OF A DDITIONAL DEPRECIATION OF RS.2,02,91,277/- WAS CONFIRMED. AGAINST THE SAID FI NDINGS, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL. 17. AT THE OUTSET, THE LD AR SUBMITTED THAT FINDING OF LD. CIT(A) IN DISALLOWING THE CLAIM OF ADDITIONAL DEPRECIATION IS FACTUALLY AND LEGALLY INCORRECT. THE ASSESSEE HAS NOT CLAIMED ADDITIONAL DEPRECIATION WITH REFERENCE TO PLANT & MACHINERY INSTALLED IN THE BUS INESS OF GENERATION OF POWER. HE HAS CLAIMED ADDITIONAL DEPRECIATION ON OT HER PLANT &MACHINERY WHICH WERE ACQUIRED AND INSTALLED IN AY 2014-15 BUT SINCE THEY WERE USED FOR LESS THAN 180 DAYS, ADDITIONAL DEPRECIATION WAS CLAIMED AT 10% AND THE BALANCE 10% IS CLAIMED IN THE YEAR UNDER CONSIDERAT ION. HENCE, THE REASONS FOR DISALLOWING THE CLAIM OF ADDITIONAL DEP RECIATION BY LD. CIT(A) IS MISPLACED. ITA NO. 784/JP/2019 M/S MAHARAJA SHREE UMAID MILLS LTD. VS. DCIT 7 18. IT WAS SUBMITTED THAT THE PARLIAMENT IN FINANCE BILL, 2015 W.E.F. AY 2016-17 HAS INTRODUCED THIRD PROVISO TO SECTION 32( 1)(II) PROVIDING FOR CARRY FORWARD OF THE BALANCE 50% OF THE ADDITIONAL DEPREC IATION IN THE IMMEDIATELY SUCCEEDING PREVIOUS YEAR IN WHICH THE PLANT & MACHI NERY IS ACQUIRED AND INSTALLED. IN THE MEMORANDUM, IT IS EXPLAINED THAT TO ENCOURAGE INVESTMENT IN PLANT OR MACHINERY BY THE MANUFACTURING AND POWER S ECTOR, ADDITIONAL DEPRECIATION OF 20% OF THE COST OF NEW PLANT OR MAC HINERY ACQUIRED AND INSTALLED IS ALLOWED UNDER THE EXISTING PROVISIONS OF SECTION 32(1)(IIA) OF THE ACT OVER AND ABOVE THE GENERAL DEPRECIATION ALLOWAN CE. ON THE LINES OF ALLOWABILITY OF GENERAL DEPRECIATION ALLOWANCE, THE SECOND PROVISO TO SECTION 32(1) INTER ALIA PROVIDES THAT THE ADDITIONAL DEPRE CIATION WOULD BE RESTRICTED TO 50% WHEN THE NEW PLANT OR MACHINERY ACQUIRED AND IN STALLED BY THE ASSESSEE IS PUT TO USE FOR THE PURPOSES OF BUSINESS OR PROFE SSION FOR A PERIOD OF LESS THAN ONE HUNDRED AND EIGHTY DAYS IN THE PREVIOUS YE AR. NON-AVAILABILITY OF FULL 100% OF ADDITIONAL DEPRECIATION FOR ACQUISITION AND INSTALLATION OF NEW PLANT OR MACHINERY IN THE SECOND HALF OF THE YEAR MAY MOTIVA TE THE ASSESSEE TO DEFER SUCH INVESTMENT TO THE NEXT YEAR FOR AVAILING FULL 100% OF ADDITIONAL DEPRECIATION IN THE NEXT YEAR. TO REMOVE THE DISCRI MINATION IN THE MATTER OF ALLOWING ADDITIONAL DEPRECIATION ON PLANT OR MACHIN ERY USED FOR LESS THAN 180 DAYS AND USED FOR 180 DAYS OR MORE, IT IS PROPOSED TO PROVIDE THAT THE BALANCE 50% OF THE ADDITIONAL DEPRECIATION ON NEW P LANT OR MACHINERY ACQUIRED AND USED FOR LESS THAN 180 DAYS WHICH HAS NOT BEEN ALLOWED IN THE YEAR OF ACQUISITION AND INSTALLATION OF SUCH PLANT OR MACHINERY, SHALL BE ALLOWED IN THE IMMEDIATELY SUCCEEDING PREVIOUS YEAR . THE AMENDMENT BEING A BENEFICIAL AMENDMENT, ONLY TO REMOVE AMBIGUITY AND HARDSHIP HAS RETROSPECTIVE EFFECT AS HELD IN THE FOLLOWING CASES :- ITA NO. 784/JP/2019 M/S MAHARAJA SHREE UMAID MILLS LTD. VS. DCIT 8 CIT VS. SHRI T.P. TEXTILES (P.) LTD. (2017) 246 TAX MAN 324 (MAD.) (HC): IN VIEW OF SECTION 32(1)(IIA), THERE IS NO LIMITATI ON PLACED ON ASSESSEE IN CLAIMING BALANCE ADDITIONAL DEPRECIATION IN ASSESSM ENT YEAR WHICH FOLLOWS ASSESSMENT YEAR IN WHICH MACHINERY HAS BEEN BOUGHT AND USED FOR LESS THAN 180 DAYS. AS A MATTER OF FACT, WITH EFFECT FROM 01. 04.2016, THE AMBIGUITY IF ANY, IN THIS REGARD IN THE MIND OF THE AO STANDS RE MOVED BY VIRTUE OF THE LEGISLATURE INCORPORATING IN THE STATUTE, THE NECES SARY CLARIFICATORY AMENDMENT. PERUSAL OF EXTRACT OF MEMORANDUM RELIED UPON WOULD SHOW THAT LEGISLATURE RECOGNISED FACT THAT MANNER IN WHICH RE VENUE CHOSE TO INTERPRET PROVISION, AS IT STOOD PRIOR TO ITS AMENDMENT WOULD LEAD TO DISCRIMINATION, IN RESPECT OF PLANT AND MACHINERY WHICH WAS USED FOR L ESS THAN 180 DAYS AS AGAINST THAT WHICH WAS USED FOR 180 DAYS OR MORE. A MENDMENT IS CLARIFICATORY IN NATURE AND NOT PROSPECTIVE. THE MEMORANDUM ONLY CLARIFIES AS TO HOW THE UNAMENDED PROVISION HAD TO BE READ ALL ALONG. CIT VS. RITTAL INDIA (P) LTD. (2016) 380 ITR 428 (K AR) (HC): THE RETURN OF INCOME WAS FILED FOR THE ASSESSMENT Y EAR 2010-11 DECLARING THE TOTAL INCOME OF RS.4,26,76,850/-. IN THE DRAFT ASSESSMENT ORDER UNDER SECTION 143(3) READ WITH SECTION 144C DATED 14.3.20 14, THE ASSESSING OFFICER HAS DETERMINED THE TOTAL INCOME AT RS.7,84, 12,208/- AS THERE WAS A DISALLOWANCE UNDER SECTION 32 (1) (IIA) OF RS.3,53, 65,893/- BEING ADDITIONAL DEPRECIATION AND AN ADDITION OF RS.3,69,463/- DUE T O TRANSFER PRICING ADJUSTMENTS. THE ASSESSING OFFICER DISALLOWED THE S AME SINCE THE ADDITIONAL DEPRECIATION UNDER SECTION 32(1)(IIA) WA S ALLOWABLE ONLY IN THE FIRST YEAR OF PURCHASE. THE DISPUTE RESOLUTION PANE L HELD THAT THE CLAIM OF ADDITIONAL DEPRECIATION ON ASSETS INSTALLED DURING THE PERIOD 1.10.2008 WAS ALLOWABLE AND DIRECTED ALLOWANCE OF ADDITIONAL DEPR ECIATION CLAIMED BY THE ASSESSEE UNDER SECTION 32(1) (IIA) OF THE ACT. THE TRIBUNAL ALLOWED THE CLAIM BASED ON ITS OWN DECISION IN ASSESSEES OWN C ASE FOR ASSESSMENT YEAR ITA NO. 784/JP/2019 M/S MAHARAJA SHREE UMAID MILLS LTD. VS. DCIT 9 2008-09. THE TRIBUNAL ALSO RELIED ON THE DECISION O F THE COORDINATE BENCHES OF THE TRIBUNAL IN THE CASE OF M/S. COSMO F ILMS LTD WHEREIN, IT IS HELD THAT THE ADDITIONAL DEPRECIATION ALLOWED UNDER SECTION 31(L)(IIA) IS A ONE TIME BENEFIT TO ENCOURAGE INDUSTRIALIZATION AND THE RELEVANT PROVISIONS HAS BEEN CONSTRUED REASONABLY AND PURPOSIVE. HONBL E HIGH COURT FOLLOWING THE JUDGMENT OF THE DIVISION BENCH OF THIS COURT DA TED 24TH NOVEMBER 2015 IN ITA NO. 268/2014 (THE COMMISSIONER OF INCOM E TAX AND ANOTHER VS. M/S. RITTAL INDIA PVT. LTD.) AND FOR THE REASON S STATED THEREIN, HELD THAT NO INTERFERENCE IS CALLED FOR IN THE ORDER OF THE T RIBUNAL OR THAT ANY QUESTION OF LAW ARISES IN THIS APPEAL FOR CONSIDERA TION BY THIS COURT. IN VIEW OF ABOVE, DISALLOWANCE OF ADDITIONAL DEPREC IATION OF RS.2,02,91,277/- CONFIRMED BY LD. CIT(A) IS UNCALLED FOR AND SAME BE DIRECTED TO BE DELETED. 19. PER CONTRA, THE LD. DR IS HEARD WHO HAS RELIED ON THE LOWER AUTHORITIES. 20. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE MATERIAL AVAILABLE ON RECORD. THERE IS NO DISPUTE THAT THE A SSESSEE IS ELIGIBLE FOR ADDITIONAL DEPRECIATION ON NEW PLANT AND MACHINERY AS PER THE PROVISIONS OF SECTION 32(1)(IIA) OF THE ACT. THE CASE OF THE REV ENUE IS THAT SUCH ADDITIONAL DEPRECIATION CAN BE CLAIMED ONLY IN THE FIRST YEAR IN WHICH THE ASSET IS ACQUIRED AND INSTALLED, AND CANNOT BE CARRIED FORWA RD TO BE CLAIMED IN THE SUBSEQUENT YEAR. THE CASE OF THE ASSESSEE IS THAT SINCE NEW PLANT AND MACHINERY WAS USED FOR LESS THAN 180 DAYS IN THE FI RST YEAR AND THUS, IT HAS CLAIMED HALF OF THE ADDITIONAL DEPRECIATION, IT IS ELIGIBLE FOR CARRIED FORWARD OF UNCLAIMED REMAINING HALF OF ADDITIONAL DEPRECIATION AND THE SAME SHOULD BE ALLOWED IN THE SECOND YEAR AND IN SUPPORT HAS RELIE D ON THE AMENDMENT BROUGHT IN BY THE FINANCE ACT, 2015 WHEREBY THIRD P ROVISO TO SECTION 32(1)(II) HAS BEEN INSERTED WITH EFFECT FROM 1.4.2016 WHICH R EADS AS UNDER: ITA NO. 784/JP/2019 M/S MAHARAJA SHREE UMAID MILLS LTD. VS. DCIT 10 PROVIDED ALSO THAT WHERE AN ASSET REFERRED TO IN C LAUSE (IIA) OR THE FIRST PROVISO TO CLAUSE (IIA), AS THE CASE MAY BE, IS ACQ UIRED BY THE ASSESSEE DURING THE PREVIOUS YEAR AND IS PUT TO USE FOR THE PURPOSES OF BUSINESS FOR A PERIOD OF LESS THAN ONE HUNDRED AND EIGHTY DA YS IN THAT PREVIOUS YEAR, AND THE DEDUCTION UNDER THIS SUB-SECTION IN R ESPECT OF SUCH ASSET IS RESTRICTED TO FIFTY PER CENT OF THE AMOUNT CALCU LATED AT THE PERCENTAGE PRESCRIBED FOR AN ASSET UNDER CLAUSE (II A) FOR THAT PREVIOUS YEAR, THEN, THE DEDUCTION FOR THE BALANCE FIFTY PER CENT OF THE AMOUNT CALCULATED AT THE PERCENTAGE PRESCRIBED FOR SUCH AS SET UNDER CLAUSE (IIA) SHALL BE ALLOWED UNDER THIS SUB-SECTION IN TH E IMMEDIATELY SUCCEEDING PREVIOUS YEAR IN RESPECT OF SUCH ASSET. 21. THE AFORESAID PROVISIONS THUS STATUTORILY PROVI DES FOR CARRY FORWARD OF THE BALANCE 50% OF THE ADDITIONAL DEPRECIATION IN T HE IMMEDIATELY SUCCEEDING PREVIOUS YEAR IN WHICH THE PLANT & MACHINERY IS ACQ UIRED AND INSTALLED AND THOUGH THE SAID PROVISIONS HAVE BEEN INTRODUCED WIT H EFFECT FROM 1.4.2016, THE COURTS IN CASE OF SHRI T.P TEXTILES AND RITTAL INDIA (SUPRA) HAVE HELD THE SAME TO BE CLARIFICATORY IN NATURE AND THUS HAVE A RETROSPECTIVE APPLICATION. THEREFORE, RESPECTFULLY FOLLOWING THE SAID DECISION S, THE CLAIM OF REMAINING ADDITIONAL DEPRECIATION IS HEREBY ALLOWED AND THE M ATTER IS DECIDED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE. IN THE RE SULT, THE GROUND OF APPEAL IS ALLOWED. 22. IN GROUND NO. 4, THE ASSESSEE HAS CHALLENGED TH E DISALLOWANCE OF COMMISSION OF RS.19,56,000/- PAID TO NON RESIDENTS U/S 40(A)(IA) OF IT ACT, 1961. ITA NO. 784/JP/2019 M/S MAHARAJA SHREE UMAID MILLS LTD. VS. DCIT 11 23. IT WAS SUBMITTED BY THE LD AR THAT DURING THE YEAR, ASSESSEE PAID COMMISSION OF RS.19,56,000/- TO THE FOLLOWING FOREI GN AGENTS FOR SECURING THE EXPORT ORDERS ON WHICH NO DEDUCTION OF TAX AT SOURC E WAS MADE:- NAME OF PARTY COMMISSION PAID (RS IN LAKHS) A.S. LAKSHMI, CANADA 3.32 AARTIIMPEX, CANADA 11.07 ALBATEX TEXTILE RAW MATERIALS, ISRAEL 3.64 ROMINA MELWANI DRAYANANI, CHILE 1.53 TOTAL 19.56 24. THE AO OBSERVED THAT NON DEDUCTION OF TAX ON PA YMENT TO NON RESIDENTS RESULTS IN NON COMPLIANCE OF SEC. 195 OF THE ACT AND THUS, BY REFERRING EXPLANATION 2 TO SEC. 195, HE DISALLOWED COMMISSION PAYMENT OF RS.19,56,000/- U/S 40(A)(IA) OF IT ACT. THE LD. CI T(A) CONFIRMED THE ORDER OF AO STATING THAT AS PER EXPLANATION 2 TO SECTION 195 , ASSESSEE IS REQUIRED TO DEDUCT TAX AT SOURCE ON PAYMENT MADE TO NON-RESIDEN TS WHETHER OR NOT HE HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CO NNECTION OR ANY OTHER PRESENCE IN ANY MANNER WHATSOEVER IN INDIA. FURTHER , ASSESSEE HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO SHOW THAT THE SUM RECEIVED BY THE NON- RESIDENT IN FORM OF SELLING COMMISSION WAS NOT CHAR GEABLE TO TAX UNDER THE INCOME TAX ACT. 25. THE LD. AR SUBMITTED THAT SECTION 195 CASTS AN OBLIGATION ON ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT ANY SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT TO DEDUCT TAX AT SOURCE THER EON AT THE RATES ENFORCE. EXPLANATION 2 TO THIS SECTION FURTHER CLARIFIES THA T OBLIGATION TO DEDUCT TAX AT SOURCE IS THERE IRRESPECTIVE OF WHETHER OR NOT THE NON-RESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDI A OR ANY OTHER PRESENCE IN ITA NO. 784/JP/2019 M/S MAHARAJA SHREE UMAID MILLS LTD. VS. DCIT 12 ANY MANNER WHATSOEVER IN INDIA. THUS, THE OBLIGATIO N TO DEDUCT TAX AT SOURCE ARISES ONLY WHEN THE PAYMENT MADE TO THE NON-RESIDE NT IS CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT. SECTION 9 DEALS WI TH CHARGEABILITY OF INCOME DEEMED TO ACCRUE OR ARISE IN INDIA IN CASE OF NON-R ESIDENT. AS PER SECTION 9(1)(I), ALL INCOME ACCRUING OR ARISING, WHETHER DI RECTLY OR INDIRECTLY, THROUGH OR FROM ANY BUSINESS CONNECTION IN INDIA SHALL BE D EEMED TO ACCRUE OR ARISE IN INDIA. SECTION 9(1)(II) TO 9(1)(VII) DEALS WITH THE TAXABILITY OF THE SALARY INCOME, DIVIDEND INCOME, INTEREST INCOME, ROYALTY I NCOME AND INCOME BY WAY OF FEES FOR TECHNICAL SERVICES. AN EXPLANATION SIMI LAR TO THAT PROVIDED IN SECTION 195 IS ALSO INTRODUCED IN SECTION 9 WITH RE TROSPECTIVE EFFECT FROM 01.06.1976 BUT SAME IS APPLICABLE ONLY WITH REFEREN CE TO PAYMENT OF INTEREST, ROYALTY AND FEES FOR TECHNICAL SERVICES TO A NON-RE SIDENT. THUS, EXPLANATION TO SECTION 9 IS NOT APPLICABLE TO SECTION 9(1)(I). 26. IT WAS FURTHER SUBMITTED THAT IN THE PRESENT CA SE, NONE OF THE NON- RESIDENTS TO WHOM PAYMENT OF COMMISSION IS MADE HAD ANY PLACE OF BUSINESS IN INDIA. THE PAYMENT OF COMMISSION MADE TO THEM IS NOT ATTRIBUTABLE TO ANY OPERATION CARRIED BY THEM IN INDIA. THUS, THESE NON RESIDENTS HAVE NO BUSINESS CONNECTION IN INDIA. APART FROM THIS ALL T HE NON RESIDENTS ARE FROM THE COUNTRY WITH WHOM THERE IS A DOUBLE TAXATION AV OIDANCE AGREEMENT WITH INDIA. AS PER THESE AGREEMENTS, INCOME OF NON-RESID ENTS WOULD BE CHARGEABLE TO TAX IN INDIA IF THEY HAVE A PERMANENT ESTABLISHM ENT IN INDIA. NONE OF THE PERSON TO WHOM THE PAYMENT IS MADE HAS ANY PE IN IN DIA AND THEREFORE, THE INCOME ON ACCOUNT OF SALES COMMISSION DOES NOT ACCR UE OR ARISES IN INDIA. HENCE, SECTION 195 IS NOT APPLICABLE ON SUCH PAYMEN T. THE LD. CIT(A) HAS OBSERVED THAT ASSESSEE HAS NOT BROUGHT ANY EVIDENCE ON RECORD TO SHOW THAT PAYMENT PAID TO NON-RESIDENT IS NOT CHARGEABLE TO T AX UNDER THE INCOME TAX ACT BUT HE HAS NOT BROUGHT ANY MATERIAL ON RECORD T HAT THESE NON RESIDENTS HAVE ANY PE OR BUSINESS CONNECTION IN INDIA. THE HO NBLE SUPREME COURT IN CASE OF JANKI RAM BAHADUR RAM VS. CIT 57 ITR 21 HAS HELD THAT IT IS FOR THE ITA NO. 784/JP/2019 M/S MAHARAJA SHREE UMAID MILLS LTD. VS. DCIT 13 REVENUE TO ESTABLISH THAT PROFIT EARNED IN A TRANSA CTION IS WITHIN THE TAXING PROVISION AND IS ON THAT ACCOUNT LIABLE TO BE TAXED AS INCOME. THEREFORE, WITHOUT BRINGING ANY MATERIAL ON RECORD THAT THESE PERSONS HAVE ANY PE/ BUSINESS CONNECTION IN INDIA, IT CANNOT BE ASSUMED THAT INCOME HAS ACCRUED OR ARISEN TO THE NON-RESIDENT IN INDIA. HENCE, THE PAYMENT OF COMMISSION TO FOREIGN AGENTS IS NOT LIABLE FOR DEDUCTION OF TAX U /S 195 OF THE ACT. RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS:-. PCIT VS. NOVA TECHNOCAST PVT. LTD.(2018) 166 DTR 04 26 (GUJ.) (HC) M/S JLC ELECTROMET PVT. LTD. VS. ACIT ITA NO.1494/J P/18 ORDER DT. 04.09.2019 (JAIPUR) SATYAM POLYPLAST VS. DCIT ITA NO.158/JP/19 ORDER DT . 14.05.2019 (JAIPUR) DCIT VS. MC FILLS ENTERPRISE (P.) LTD. (2019) 174 I TD 667 (AHD) EVOLV CLOTHING CO. (P) LTD. VS. ACIT (2018) 168 DTR 1 (MAD) IN VIEW OF ABOVE, DISALLOWANCE OF COMMISSION EXPENS ES OF RS.19,56,000/- CONFIRMED BY LD. CIT(A) IS UNCALLED FOR AND SAME BE DIRECTED TO BE DELETED. 27. PER CONTRA, THE LD. DR SUBMITTED THAT THE A.O. HAS GIVEN A FINDING THAT THE PAYMENTS MADE BY THE ASSESSEE ARE IN THE NATURE OF FEE FOR TECHNICAL SERVICES AND THEREFORE, AS PER THE PROVISIONS OF SE CTION 9(1)(VII) OF THE ACT, THE SAID PAYMENTS ARE CHARGEABLE TO TAX IN INDIA AN D CONSEQUENTLY THE ASSESSEE WAS UNDER OBLIGATION TO DEDUCT TAX AT SOUR CE FAILING WHICH THE SAID PAYMENT WAS NOT ALLOWABLE AS DEDUCTION AS PER THE P ROVISIONS OF SECTION 40(A)(I) OF THE ACT. THUS, THE LD DR HAS SUBMITTED THAT ONCE THE PAYMENT IN QUESTION IS HELD TO BE FEE FOR TECHNICAL SERVICES, THEN THE SAME IS LIABLE FOR TDS. HE HAS RELIED UPON AND SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 28. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PE RUSED THE MATERIAL AVAILABLE ON RECORD. THE A.O. NOTED THAT THE ASSESS EE HAS PAID AN AMOUNT OF ITA NO. 784/JP/2019 M/S MAHARAJA SHREE UMAID MILLS LTD. VS. DCIT 14 RS 19,56,000/- AS COMMISSION TO FOREIGN AGENTS AND NO TDS WAS DONE ON SUCH COMMISSION PAYMENTS. ACCORDINGLY, THE A.O. AS KED THE ASSESSEE TO EXPLAIN THE REASONS FOR NON-DEDUCTION. IN RESPONSE, THE ASSESSEE FILED ITS REPLY AND CONTENDED THAT THE PAYMENTS WAS NOT LIABL E TO TDS AS THE SAME WAS PAID TO FOREIGN AGENTS WHO WERE NON RESIDENTS W HOSE INCOME WAS NOT TAXABLE IN INDIA. THE A.O. DID NOT ACCEPT THIS CONT ENTION OF THE ASSESSEE AND TREATED THESE PAYMENTS AS FEE FOR TECHNICAL SERVICE S AND CONSEQUENTLY MADE THE DISALLOWANCE U/S 40(A)(I) OF THE ACT AND RELEVA NT FINDINGS OF THE AO IN PARA 6.6 TO 6.8 READS AS UNDER: '6.6 HERE, IT WOULD PROPER TO EXAMINE THE PROVISION S OF SECTION 9(1)(VII) OF THE INCOME TAX ACT, 1961, WHICH ARE CI TED AS UNDER:- 'INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. 9.(1) THE FOLLOWING INCOMES SHALL BE DEEMED TO ACCR UE OR ARISE IN INDIA :-- (VII) INCOME BY WAY OF FEES FOR TECHNICAL SERVI CES PAYABLE BY-- (A) THE GOVERNMENT; OR (B) A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE FE ES ARE PAYABLE IN RESPECT OF SERVICES UTILISED IN A BUSINESS OR PROFE SSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MA KING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA; OR (C) A PERSON WHO IS A NON-RESIDENT, WHERE THE FEES ARE PAYABLE IN RESPECT OF SERVICES UTILISED IN A BUSINESS OR PROFE SSION CARRIED ON BY SUCH PERSON IN INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE IN INDIA. EXPLANATION [2].--FOR THE PURPOSES OF THIS CLAUSE, 'FEES FOR TECHNICAL SERVICES' MEANS ANY CONSIDERATION (INCLUDING ANY LU MP SUM ITA NO. 784/JP/2019 M/S MAHARAJA SHREE UMAID MILLS LTD. VS. DCIT 15 CONSIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SE RVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDE RTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD 'SALARIES'.] AS NOTED ABOVE, SECTION 9(1)(VII) WOULD CLASSIFY AN D COVER ALL INCOMES AS ACCRUING AND ARISING IN INDIA WHICH PARTAKE THE CHARACTER OF PAYMENT ON ACCOUNT OF 'FEE FOR TECHNICAL SERVICES', WHICH I N TURN, HAS BEEN DEFINED TO INCLUDE ANY PAYMENT FOR RENDERING OF ANY MANAGERIAL OR CONSULTANCY SERVICES RENDERED BY THE NON-RESIDENT A GENT. IN THE INSTANT CASE, SINCE THE ASSESSEE WAS NOT ABLE TO SELL HIS G OODS ON HIS OWN OFFSHORE, HE HAS TO ENGAGE THE MANAGERIAL ACUMEN AN D EXPERTISE OF THE NON-RESIDENT IN LIEU OF A CONSIDERATION, TERMED AS 'COMMISSION'. THIS IS TO SAY THAT THE PAYMENT BY THE RESIDENT ASSESSEE IN CONNECTION WITH HIS BUSINESS IN INDIA TO A PERSON OUTSIDE INDIA MAKING USE OF HIS EXPERTISE IN SALE OF SIMILAR GOODS IN A PARTICULAR COUNTRY IS NOTHING BUT A FEE WHICH HAS BEEN PAID BY THE RESIDENT ASSESSEE TO THE NON-R ESIDENT FOR THE TECHNICAL SERVICES RENDERED BY HIM. 6.7 THIS BEING THE STATED POSITION AND THE FACTUM O F THE CASE, THE PAYMENT MADE BY THE ASSESSEE TO A NON-RESIDENT IS S QUARELY COVERED BY THE PROVISIONS OF SECTION 195 OF THE INCOME TAX ACT , 1961 WHICH CALL FOR DEDUCTION OF TAX AT APPROPRIATE RATE AT THE TIME OF PAYMENT TO A NON- RESIDENT. IN VIEW OF THESE PROVISIONS WHICH FIND PL ACE IN THE STATUTE, THE PROVISIONS OF SECTION 40(A)(IA) ARE ALSO ATTRACTED WHEREVER TDS ON PAYMENT OF COMMISSION TO A NON-RESIDENT HAS NOT BEE N MADE AT APPROPRIATE RATES. THESE PROVISIONS BAR DEDUCTION O F ANY PAYMENT ON ACCOUNT OF COMMISSION [FEE FOR TECHNICAL SERVICES] MADE TO A NON- RESIDENT, WITHOUT TDS. ITA NO. 784/JP/2019 M/S MAHARAJA SHREE UMAID MILLS LTD. VS. DCIT 16 6.8 IN THESE CIRCUMSTANCES, THERE IS ABSOLUTELY NO BASIS TO CONCLUDE THAT INCOME (WHICH IS COMMISSION IN OUR CASE) IS NOT TAX ABLE UNDER INCOME TAX ACT, 1961. THE ASSESSEE IN THESE CIRCUMSTANCES IS LIABLE TO DEDUCT TAX AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACC OUNT OF PAYEE OR AT THE TIME OF PAYMENT WHICHEVER IS EARLIER. ALTERNATI VELY, THE ASSESSEE HAS TO OBTAIN CERTIFICATE FOR NO DEDUCTION OR LOWER DED UCTION OF TAX ON THE PAYMENTS AS REQUIRED U/S 195(2) OF THE ACT. THE FOR EIGN AGENTS CAN ALSO OBTAIN CERTIFICATES FOR NON-DEDUCTION OR LOWER DEDUCTION OF TAX ON AMOUNT RECEIVABLE/RECEIVED AS PRESCRIBED U/S 195(3) OF ACT. SINCE, THESE CONDITIONS HAVE NOT BEEN CERTIFIED PAYMENTS H AVE BEEN MADE TO NON-RESIDENTS WITHOUT DEDUCTION OF TAX AS REQUIRED U/S 195 OF THE ACT. CONSEQUENTLY, THE EXPENDITURE ON EXPORT COMMISSION AND OTHER RELATED CHARGES PAYABLE TO A NON- RESIDENT FOR SERVICES REN DERED OUTSIDE INDIA IS NOT ALLOWABLE EXPENDITURE AND THEY DESERVE TO BE DISALLOWED U/S 40(A)(IA) OF THE ACT. THEREFORE, AN AMOUNT OF RS. 1 9,56,000/- IS DISALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASS ESSEE.' 29. THE A.O. AFTER HOLDING THE PAYMENTS AS FEE FOR TECHNICAL SERVICES HAS INVOKED PROVISIONS OF SECTION 40(A)(I) OF THE ACT A ND DISALLOWED THE SAME. ON APPEAL, THE LD. CIT(A) HAS CONFIRMED THE DISALLOWAN CE MADE BY THE A.O. IN PARA 7.3 WHICH READS AS UNDER: '7.3 I HAVE GONE THROUGH THE ASSESSMENT ORDER, STAT EMENT OF FACTS, GROUNDS OF APPEAL AND WRITTEN SUBMISSION CAREFULLY. IT IS SEEN THAT THE AO AFTER DISCUSSING THE PROVISIONS OF SECTION 195, INCLUDING THE EXPLANATION 2, HAS CONCLUDED THAT THE APPELLANT WAS REQUIRED TO DEDUCT THE TAX AT SOURCE WHILE MAKING THE PAYMENT OF ABOVE REFERRED EXPENSES EVEN, TO THE NON- RESIDENT PERSONS, WHETHER OR NOT THE NON-RESIDENT PERSON HAD A RESIDENCE OR PLACE OF BUSINESS OR BUSI NESS CONNECTION IN INDIA OR ANY OTHER PRESENCE IN ANY MANNER WHATSOEVE R IN INDIA. THE EXPLANATION 2 HAS BEEN INSERTED BY THE FINANCE ACT OF 2012 WITH ITA NO. 784/JP/2019 M/S MAHARAJA SHREE UMAID MILLS LTD. VS. DCIT 17 RETROSPECTIVE EFFECT FROM 01.04.1962. I AM OF THE C ONSIDERED VIEW THAT THE ARGUMENT OF THE APPELLANT THAT SINCE THE NONRES IDENT PERSONS WHOM THE PAYMENTS WERE MADE DID NOT HAVE PLACE OF BUSINE SS OR BUSINESS CONNECTION IN INDIA, THEREFORE, THE APPELLANT WAS N OT REQUIRED TO DEDUCT TAX AT SOURCE ON THE ABOVE REFERRED PAYMENTS, IS NO T CORRECT. REGARDING THE SECOND ARGUMENT OF THE APPELLANT THAT THE INCOM E OF THE RECIPIENTS OF THE ABOVE REFERRED EXPENSES WAS NOT 'SUM CHARGEA BLE UNDER THE PROVISIONS OF INCOME TAX ACT, 1961 THEREFORE THE PR OVISIONS OF SECTION 195(1) ARE NOT APPLICABLE TO THESE PAYMENTS', THE A /R OF THE APPELLANT WAS SPECIFICALLY REQUESTED TO CLARIFY WHETHER ANY R ULING WAS OBTAINED FROM THE AUTHORITY FOR ADVANCE RULING U/S 245R(2), REGARDING NON TAXABILITY OF THE INCOME OF THE RECIPIENT IN INDIA UNDER THE INCOME TAX ACT. THE A/R SUBMITTED THAT NO SUCH RULING WAS OBTA INED FROM AAR BY THE RECIPIENTS OF THE ABOVE REFERRED EXPENSES. THER E IS NO OTHER EVIDENCE ON RECORD TO SHOW THAT THE SUM RECEIVED BY THE NON-RESIDENTS IN THE FORM OF SELLING COMMISSION (RS. 19,56,000) W AS NOT CHARGEABLE TO TAX UNDER THE INCOME TAX ACT. THERE IS NO ORDER OR FINDING BY ANY INCOME TAX AUTHORITY THAT THE ABOVE REFERRED SUM OF RS. 19,56,000/- WAS NOT CHARGEABLE TO TAX UNDER I.T. ACT, 1961. THE REFORE, I AM OF THE CONSIDERED VIEW THAT THE APPELLANT WAS REQUIRED TO DEDUCT TAX AT SOURCE WHILE MAKING PAYMENT OF SELLING COMMISSION (RS. 19, 56,000/-) TO NON- RESIDENT, WHETHER OR NOT THE NON-RESIDENTS HAD A RE SIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA. THE DECIS ION RELIED UPON BY THE APPELLANT ARE APPLICABLE ONLY WHEN THERE IS EVI DENCE ON RECORD TO SHOW THAT THE SUM PAID BY THE ASSESSEE WAS NOT CHAR GEABLE TO TAX UNDER THE INCOME TAX ACT. THEREFORE, DISALLOWANCE O F RS. 19,56,000/- MADE BY THE AO IS HEREBY CONFIRMED.' 30. THE LD. CIT(A) HAS UPHELD THE DISALLOWANCE BY R ELYING ON THE EXPLANATION TO SECTION 195 OF THE ACT WITHOUT GOING INTO THE ISSUE WHETHER THE ITA NO. 784/JP/2019 M/S MAHARAJA SHREE UMAID MILLS LTD. VS. DCIT 18 PAYMENT IN QUESTION IS CHARGEABLE TO TAX IN INDIA I N THE HANDS OF THE NON- RESIDENT RECIPIENTS OR NOT. BEFORE US, THE LD AR H AS VEHEMENTLY CONTENDED THAT IN ABSENCE OF PE OF THE RECIPIENT, THE PAYMENT IS NOT CHARGEABLE TO TAX IN INDIA AND CONSEQUENTLY NO TDS WAS REQUIRED TO BE DE DUCTED ON SUCH PAYMENT. WE NOTE THAT NEITHER THE A.O. NOR THE LD. CIT(A) HAS EXAMINED THE ACTUAL NATURE OF SERVICES RENDERED BY THE AGENTS SO AS TO BRING THEM IN THE AMBIT OF THE FEE FOR TECHNICAL SERVICES. EVEN WHERE THE CLAIM OF THE ASSESSEE AS SALES COMMISSION IS TO BE CONSIDERED, THE ACTUAL NATURE OF PAYMENT IS REQUIRED TO BE EXAMINED. THE ASSESSEE HAS EVEN NOT CLAIMED THE BENEFIT UNDER ANY DTAA IF ANY BETWEEN THE INDIA AND THE COU NTRY OF RECIPIENT OF THESE PAYMENTS. SINCE NEITHER THE A.O. NOR THE LD. CIT(A) HAVE EXAMINED THIS ISSUE BY CONSIDERING THE RELEVANT FACTS AS WELL AS THE RESPECTIVE DTAAS IF ANY BETWEEN THE INDIA AND THE COUNTRY OF THE RECIPIENT/ NON-RESIDENT, THEREFORE, IN OUR CONSIDERED OPINION, THIS ISSUE REQUIRES A PROPE R VERIFICATION AND EXAMINATION. ACCORDINGLY, WE SET ASIDE THIS ISSUE T O THE RECORD OF THE LD. CIT(A) FOR ADJUDICATION OF THE SAME AFRESH. NEEDLES S TO SAY THAT IF THE PAYMENT MADE BY THE ASSESSEE IS NOT CHARGEABLE TO T AX IN THE HANDS OF THE RECIPIENT THEN THE SAME IS NOT LIABLE FOR TDS MEREL Y BECAUSE OF THE EXPLANATION TO SECTION 195 OF THE ACT AS IT IS A PR EREQUISITE CONTENTION FOR INVOKING PROVISIONS OF SECTION 195 OF THE ACT THAT THE PAYMENT IS CHARGEABLE TO TAX IN INDIA IN THE HANDS OF THE RECIPIENT. NEED LESS TO SAY, THE ASSESSEE BE AFFORDED AN OPPORTUNITY OF HEARING BEFORE DECIDING THE ISSUE. IN THE RESULT, THE GROUND OF APPEAL IS ALLOWED FOR STATISTICAL PURPOSE S. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS DISPOSED OFF IN LIGHT OF AFORESAID DIRECTIONS. ORDER PRONOUNCED ON 28 /04/2020. SD/- SD/- FOT; IKY JKO FOE FLAG ;KNO ITA NO. 784/JP/2019 M/S MAHARAJA SHREE UMAID MILLS LTD. VS. DCIT 19 (VIJAY PAL RAO) (VIKRAM SINGH YADAV) U;KF;D LNL;@ JUDICIAL MEMBER YS[KK LNL;@ ACCOUNTANT MEMBER TK;IQJ@ JAIPUR FNUKAD@ DATED:- 28/04/2020. * SANTOSH. VKNS'K DH IZFRFYFI VXZSFKR@ COPY OF THE ORDER FORWARDED TO: 1. VIHYKFKHZ@ THE APPELLANT- M/S MAHARAJA SHREE UMAID MILLS LTD., JAIPUR. 2. IZR;FKHZ@ THE RESPONDENT- DCIT, CIRCLE-6, JAIPUR. 3. VK;DJ VK;QDR@ CIT 4. VK;DJ VK;QDR@ CIT(A) 5. FOHKKXH; IZFRFUF/K] VK;DJ VIHYH; VF/KDJ.K] T;IQJ@ DR, ITAT, JAIPUR. 6. XKMZ QKBZY@ GUARD FILE {ITA NO. 784/JP/2019} VKNS'KKUQLKJ@ BY ORDER, LGK;D IATHDKJ@ ASST. REGISTRAR