PRINCIPAL COMMISSIONER OF INCOME TAX vs. M/S TECHNOTREE CONVERGENCE LTD.

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ITA/173/2021HC KarnatakaKAHC01000929202125 September 2024Bench: S.G.PANDIT,C.M. POONACHA5 pages
AI SummaryRemanded

What did the High Court hold?

The High Court disposed of the appeal based on the submissions made by both parties. The assessee argued that the appeal should be dismissed due to the tax effect being below Rs. 2 Crores, citing CBDT Circular No. 09/2024. The Revenue, in turn, requested liberty to revive the appeal if the case fell under exceptions mentioned in the circulars. The Court granted the liberty as prayed for by the Revenue. Consequently, the appeal was disposed of without deciding the substantial questions of law on merits. The Court explicitly stated that the questions of law were kept open to be adjudicated in an appropriate proceeding. No specific finding was given on the disallowance under Section 40(a)(ia) or the applicability of Section 195.

What were the facts?

The Revenue, comprising the Principal Commissioner of Income Tax and other officers, filed an appeal under Section 260-A of the Income Tax Act, 1961, against an order dated 03.06.2020 passed by the Income Tax Appellate Tribunal (ITAT), 'A' Bench, Bengaluru. The ITAT's order was in relation to ITA Nos. 2815 & 2830/Del/2013 for the assessment year 2008-09. The appeal challenges the ITAT's decision to set aside a disallowance made under Section 40(a)(ia) of the Act concerning payments made by the assessee, M/s. Technotree Convergence Ltd., in foreign currency. The core of the dispute revolves around the applicability of Section 195 and the nature of commission payments.

What were the issues?

1. Whether, on the facts and circumstances, the Tribunal was correct in law in setting aside the disallowance made under Section 40(a)(ia) of the Act for payments made in foreign currency, by holding that Section 195 is not applicable, despite the assessee failing to establish the nature of payments and not providing complete details about services rendered by payees for commission payments, and whether such payments fall outside the scope of fees for technical services? (Question of law and fact, concerning Section 40(a)(ia) and Section 195). 2. Whether, on the facts and circumstances, the Tribunal was correct in law in holding that the nature of commission payments is not in dispute, when the assessing authority had disputed it and made a disallowance under Section 40(a)(ia) as all conditions were fulfilled? (Question of law and fact, concerning Section 40(a)(ia)). Assessee's Contention: The tax effect in this appeal is less than Rs. 2 Crores, and therefore, the appeal should not be entertained by the Revenue in view of CBDT Circular No. 09/2024 dated 17.09.2024, which binds the Revenue. Revenue's Contention: The Revenue sought liberty to revive the appeal if the matter falls within the exceptions under Circular No. 09/2024 and Circular No. 5/2024 dated 15.03.2024.

Which sections of the Income-tax Act were involved?

Section 260-A,Section 40(a)(ia),Section 195

AI-generated summary — verify with the full judgment below

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NC: 2024:KHC:39907-DB ITA No. 173 of 2021

IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 25TH DAY OF SEPTEMBER, 2024 PRESENT THE HON'BLE MR JUSTICE S.G.PANDIT AND THE HON'BLE MR JUSTICE C.M. POONACHA INCOME TAX APPEAL NO. 173 OF 2021

BETWEEN:

1.

PRINCIPAL COMMISSIONER OF INCOME TAX, BMTC COMPLEX, KORAMANGALA, BENGALURU.

2.

THE ASSISTANT COMMISSIONER OF INCOME TAX, CIRCLE -16(1), NEW DELHI.

3.

INCOME TAX OFFICER, WARD - 16(2), NEW DELHI …APPELLANTS (BY SRI. SANMATHI E I., ADVOCATE)

AND:

M/S. TECHNOTREE CONVERGENCE LTD., 16TH FLOOR, DLF BUILDING NO.5,

Digitally signed by BHARATHI S Location: HIGH COURT OF KARNATAKA

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NC: 2024:KHC:39907-DB ITA No. 173 of 2021

TOWER-III, GURGOAN-122 002 PAN: AAACL7345L …RESPONDENT

(BY SRI. K.R. VASUDEVAN, ADVOCATE A/W SRI. ANKUR P.D., ADVOCATE)

THIS ITA/ INCOME TAX IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:03.06.2020 PASSED IN ITA NO.2815 AND 2830/DEL/2013 FOR THE ASSSESSMENT YEAR 2008-09 (ANNEXURE-A) PRAYING TO DECIDE THE FOREGOING QUESTION OF LAW AND/OR SUCH OTHER QUESTIONS OF LAW AS MAY BE FORMULATED BY THE HON'BLE COURT AS DEEMED FIT AND ETC.

THIS APPEAL, COMING ON FOR ADMISSION, THIS DAY, JUDGMENT WAS DELIVERED THEREIN AS UNDER:

CORAM: HON'BLE MR JUSTICE S.G.PANDIT and HON'BLE MR JUSTICE C.M. POONACHA

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NC: 2024:KHC:39907-DB ITA No. 173 of 2021

ORAL JUDGMENT (PER: HON'BLE MR JUSTICE S.G.PANDIT)

Heard the learned counsel Sri. E.I.Sanmathi for appellants/Revenue and learned counsel Sri. K.R.Vasudevan along with learned counsel Sri. Ankur.P.D., for the respondent/assessee.

2.

The Revenue is in appeal under Section 260-A of the Income Tax Act, 1961 (for short ‘the Act’) questioning the correctness and legality of order dated 03.6.2020 passed by the Income Tax Appellate Tribunal, ‘A’ Bench, Bengaluru (for short ‘Appellate Authority’) in ITA.Nos.2815 & 2830/Del/2013 for the assessment year 2008-09, raising the following substantial questions of law:

(1) "Whether on the facts and circumstances of the case, the Tribunal was right in law in setting aside disallowance made under section 40(a)(ia) of the Act in respect of payments made by assessee in foreign currency by holding that the provisions of section 195 are not applicable in the facts of present case ignoring that assessee had failed to establish nature

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NC: 2024:KHC:39907-DB ITA No. 173 of 2021

of payments and even during the appellate proceedings, the assessee had not submitted complete details about the nature of services rendered by the payees for which commission has been paid and whether this would fall beyond the scope for fee for technical services?"

(2) "Whether on the facts and circumstances of the case, the Tribunal was right in law in holding that the nature of commission payments are not in dispute when the assessing authority has clearly disputed the same and made disallowance under section 40(a)(ia) of the Act since all the conditions set out in said provision was fulfilled"?

3.

Learned counsel for the assessee submits that the tax effect in this appeal is less than Rs.2 Crores and therefore, the appeal should not be entertained at the instance of the revenue in view of the Circular No.09/2024 dated 17.09.2024 issued by the Central Board of Direct Taxes. It is also submitted that the aforesaid Circular binds the revenue.

4.

On the other hand, learned counsel for the revenue submits that he be granted liberty to revive the

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NC: 2024:KHC:39907-DB ITA No. 173 of 2021

appeal in case the matter falls within the exceptions under the aforesaid Circular dated 17.09.2024 and Circular No.5/2024 dated 15.03.2024.

5.

In view of the aforesaid submissions, the appeal is disposed of with liberty as prayed for by the learned counsel for the revenue. However, the question of law is kept open to be adjudicated in an appropriate proceeding.

Sd/- (S.G.PANDIT) JUDGE

Sd/- (C.M. POONACHA) JUDGE

SMJ List No.: 2 Sl No.: 5

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