JOHN DEERE INDIA PVT.LTD,,PUNE vs. ASSISTANT COMMISSIONER OF INCOME TAX,, PUNE

PER R.S.SYAL, VP :

This appeal by the assessee is directed against the order passed by the Commissioner of Income-tax (Appeals) on 20-03-2017 in relation to the assessment year 2007-08.

2 ITA No.1254/PUN/2017 John Deere India Pvt. Ltd.,

was observed that the assessee had made payments to the tune of

Rs.5,19,28,969/- on account of various I.T. support services, use or

right to use software, access to server (scientific equipment) and

leased line charges to Deere & Co., USA, its Associated Enterprise

(AE), without complying with the provisions relating to deduction

of tax at source. Such an amount was grossed up u/s 195A to

Rs.6,10,92,905/-. Notice was issued u/s.148 of the Act on

29-03-2014, which was followed by the assessment order dated

16-02-2015, making an addition of Rs.6,10,92,905/- u/s.40(a)(i) of

the Act. The assessee assailed the assessment order making

disallowance u/s.40(a)(i) of the Act. The ld. CIT(A) not only

sustained the disallowance but also made further enhancement in

respect of two more payments, totaling Rs.5,22,59,060/-, made by

the assessee to Deere & Co., USA towards Reimbursement of

expatriate salary (Rs.4,58,66,353/-) and Payment made on account

of web based training (Rs.63,92,707/-) without tax withholding.

The assessee is aggrieved by the impugned order.

material on record. The AO has noted that the assessee made

payment of Rs.5,19,28,969/- to Deere & Co., USA towards I.T.

3 ITA No.1254/PUN/2017 John Deere India Pvt. Ltd.,

support services, use or right to use software, access to server

(scientific equipment) and leased line charges on which no

deduction of tax at source was made. This constituted the basis for

the present addition u/s.40(a)(i) of the Act. The AO was inspired to

initiate the reassessment proceedings on the basis of an order passed

in the case of the assessee u/s.201(1)/201(1A) of the Act for the

year under consideration, by which the assessee was treated as

assessee in default in respect of the above referred payments. When

the assessee preferred appeal against the order passed

u/s.201(1)/(1A) before the ld. CIT(A), the ld. first appellate

authority, similar to the action taken in the impugned order, also

resorted to enhancement with reference to the amount of tax

deductible on Reimbursement of expatriate salaries and Payment

made on account of web based training. Thus, it is seen that the

extant assessment order as well as the impugned order, making

disallowance u/s.40(a)(i), are based on the respective orders passed

in the proceedings u/s.201(1)/(1A) of the Act for the same year. It

is a matter of record that the assessee preferred an appeal against the

order passed by the ld. CIT(A) in relation to section 201(1)/(1A)

before the Tribunal, which has since been decided in ITA Nos. 905

& 906/PUN/2015 vide order dated 23-01-2019, a copy of which has

4 ITA No.1254/PUN/2017 John Deere India Pvt. Ltd.,

been placed on the record. Relevant discussion regarding leased

line charges has been made at page 81 para 95 onwards of the order.

After considering the legal position on this issue, the Tribunal has

come to a conclusion in para 101 of its order that the assessee did

not default in non-deduction of tax at source out of the payments

made for leased line charges and further the said leased line charges

were in the nature of reimbursement of expenses. In sofaras the

purchase of software license is concerned, the Tribunal has

discussed this issue on page 78 para 90 by holding that it was a case

of purchase of copyrighted article which could not be considered as

Royalty. As regards the third payment of I.T. Support service

charges, the Tribunal has discussed this issue at page 79 para 91 of

its order. It has been held that the payment of I.T. Support charges,

i.e. Internet charges, use of e-mail charges and backup support

services etc. could not be considered as Royalty as no technology

was made available to the assessee and it was only a service

provided to the assessee by its USA Associated Enterprise.

are concerned, we find that the first item is Reimbursement of salary

paid to expatriates. The Tribunal discussed this issue on page 88

5 ITA No.1254/PUN/2017 John Deere India Pvt. Ltd.,

page 107 of its order and came to the conclusion that such an

amount was not in the nature of `fees for technical services’ as the

assessee had deducted tax at source from such salary payments

u/s.192 of the Act. On the last item of enhancement, namely,

Payment made on account of web based training, the Tribunal

discussed this issue on pages 87 and 88 of its order and finally held

in para 106 that no technical knowledge was imparted by the service

provider and hence, there was no liability upon the assessee to

deduct tax at source on the aforesaid payments.

u/s.40(a)(i) of the Act in the instant proceedings, including the

enhancement made by the ld. CIT(A) on two scores, have emanated

from the order passed by the authorities u/s.201(1)/201(1A) of the

Act. Since the Tribunal in its aforenoted order has held that the

assessee is not liable for deduction of tax at source, the sequitur is

that there cannot be any disallowance u/s.40(a)(i) of the Act as the

same can be made only when a person responsible for paying any

sum including royalty and fees for technical services etc., outside

India or in India to a non-resident, not being a company or a foreign

company, fails to deduct tax at source, on which tax is deductible.

6 ITA No.1254/PUN/2017 John Deere India Pvt. Ltd.,

As the disallowance u/s.40(a)(i) is a corollary of liability of the

assessee to deduct tax at source, no disallowance under this section

can stand once the assessee has been held to be not responsible for

deduction of tax at source on such amounts. In view of the

foregoing discussion, we are satisfied that the disallowance made by

the AO and as further enhanced by the ld. CIT(A), has no legal legs

to stand on. The same is, therefore, deleted.

of re-assessment proceedings, which is hereby dismissed.

Sd/- Sd/- (PARTHA SARATHI CHAUDHURY) (R.S.SYAL) JUDICIAL MEMBER VICE PRESIDENT पुणे Pune; �दनांक Dated : 22nd July, 2019 सतीश

7 ITA No.1254/PUN/2017 John Deere India Pvt. Ltd.,

आदेश क� क� क� �ितिलिप क� �ितिलिप �ितिलिप अ�ेिषत �ितिलिप अ�ेिषत अ�ेिषत/Copy of the Order is forwarded to: अ�ेिषत आदेश आदेश आदेश अपीलाथ� / The Appellant; 1. ��यथ� / The Respondent; 2. 3. The CIT(A)-7, Pune 4. The Pr.CIT-6, Pune िवभागीय �ितिनिध, आयकर अपीलीय अिधकरण, पुणे 5. “सी” / DR ‘C’, ITAT, Pune; 6. गाड� फाईल / Guard file. आदेशानुसार आदेशानुसार आदेशानुसार/ BY ORDER, आदेशानुसार

// True Copy // Senior Private Secretary आयकर अपीलीय अिधकरण ,पुणे / ITAT, Pune

Date 1. Draft dictated on 22-07-2019 Sr.PS 2. Draft placed before author 22-07-2019 Sr.PS 3. Draft proposed & placed JM before the second member 4. Draft discussed/approved JM by Second Member. 5. Approved Draft comes to Sr.PS the Sr.PS/PS 6. Kept for pronouncement on Sr.PS 7. Date of uploading order Sr.PS 8. File sent to the Bench Clerk Sr.PS 9. Date on which file goes to the Head Clerk 10. Date on which file goes to the A.R. 11. Date of dispatch of Order. *