DCIT CORPORATE CIRCLE 6(2), CHENNAI vs. SUNDARAM CLAYTON LTD., CHENNAI

PER G.MANJUNATHA, AM: These cross appeals filed by the Revenue and assessee

are directed against separate, but identical orders of the

learned CIT(A)-15, Chennai, both dated 27.12.2017 and pertain

to assessment year 2013-14 & 2014-15.Since, facts are

identical and issues are common, for the sake of convenience,

these appeals filed by the Revenue and assessee were heard

2 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

together and are being disposed off by this consolidated

order.

of appeal for both assessment years, therefore, for the sake of

brevity, grounds of appeal filed for the assessment year 2013-

14 in ITA No.1376/Chny/2018 are reproduced as under:-

“1).The Order of the Commissioner of Income Tax (Appeals) is contrary to the law and facts of the case.

2) The Learned A.R CIT(A) erred in directing the AO to verify the assessee submission with the respect to assessment record and to restrict the disallowance of excess deduction claimed u/s 35(2AB).

2.1) The Ld CIT(A) ought to have appreciated that the DSIR is the central agency which assessee the R&D work done by the assessee and quantified the eligible amount The assessee is not eligible to claim more than that is certified by the DSIR itself.

2.2) The Ld CIT(A) failed to note that the assessee claimed the excess deduction u/s35(2AB).

3)The CIT(A) erred in restricting the disallowance u/s 14A to the amount of dividend income.

3.1)The CIT(A) ought to have appreciated that as per section 251(1)(a) of the Act, the “power to set aside” are “ examining the issue afresh” has been omitted with effect from 01.06.2001 as per Finance Act 2001.

3.2) The order of the Hon’ble ITAT on the similar issue in the case of M/s.EIH Associated Hotels Limited (2013-TOIL-796--

ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

ITAT-MAD, dt. 17.07.2013) has not been accepted by the Department and further appeal in TCVA No.227 of 2014 is pending before the Hon’ble High Court.

3.3 The Ld CIT(A) ought to have appreciated that as per the decision of Honourable Karnataka HC in the case of M/s United Brewaries Ltd Vs DCIT reported in 241 taxman 299 (Karnataka) with respect to investment in subsidiaries is very much applicable to the facts of the present case.

3.4) The CIT(A) ought to have appreciated that the investments made by the assessee company in its subsidiary company is also entitled for dividend and hence the same should be treated on par with the other investments made

3.7) The CIT(A) ought to have appreciated that as per the proviso to section 32(1)(iia) of the Act where the asset is acquired and put to use by the assessee for the purpose of business for a period of less one hundred and eighty days in that previous year deduction under this subsection shall be restricted to fifty per cent of such asset.

3.8) The Ld CIT(A) ought to have appreciated that the department has filed an appeal u/s260Abefore the Hon’ble High Court in the case of Sundaram Fasteners Ltd for the A Y 2008-09 against the order of ITAT on the same issue

3.9) The CIT(A) ought to have appreciated the decision in the case of Bharat Hotels Ltd (2016) 380 ITR 552/65 taxmnn.com 39 (Delhi)(HC), wherein it was he’d that the additional depreciation was allowable on the plant and machinery only for the year in which the capacity expansion had taken place

4 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

which had resulted in the substantial increase in the installed capacity Each assessment year was separate and independent assessment year The provision of section 32 of the Act did not provide for carry forward of the residual additional depreciation

4) For these and other grounds that may be adduced at the time of hearing, it is prayed that the Order of the Commissioner of Income Tax (Appeals) be set aside and that of the Assessing Officer be restored.”

of appeal for both assessment years, therefore, for the sake of

brevity, grounds of appeal filed for the assessment year 2013-

14 in ITA No.1355/Chny/2018 are reproduced as under:-

“1. The commissioner of Income Tax (Appeals) erred in upholding the disallowance of interest expenditure u/s 14A of the Income tax Act read with Rule 8D(2)(ii) amounting to Rs. 2,41,82,017/-.

The learned CIT (A) ought to have appreciated that the appellant has sufficient internal accruals to cover the entire amount of the investments made and that no part of the borrowed funds were used by the appellant to make the investments.

The learned CIT (A) ought to have appreciated that no part of the borrowed funds could be attributed for making the investments and consequently no part of interest expenditure could be disallowed by invoking section 14A r.w. Rule 8D(2)(ii).

Ground No 2:

ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

The learned CIT (A) erred in not providing a specific direction in his order allowing our claim of deduction u/s 35(1)(iv) of the capital expenditure in respect of the R&D building.

The learned CIT (A) ought to have appreciated that the clause (2) of section 35(2AB) restricts that the expenditure claimed u/s 35(2AB) should not be again claimed under any other provisions of the Act. But since this amount is claimed only u/s 35(1)(iv) and not under section 35(2AB), the said clause is not applicable to the case.

The learned CIT(A) ought to have appreciated that the appellant had also submitted the workings for the quantum of deduction claimed under section 35(2AB) and section 35(1)(iv) of the Act to substantiate that the capital expenditure incurred on R&D building was not claimed as deduction twice and the same was duly accepted by the CIT (A).

Ground No 3: The learned CIT(A) erred in upholding the disallowance u/s 40(a)(i) of the Income tax Act in respect of the foreign remittances made by the appellant.

The learned CIT (A) ought to have appreciated that the foreign remittances made to various nonresidents towards warehousing & logistics services, export commission, payments for registration of trademark and independent personal services are not subject to with-holding taxes as per the provisions of DTAA. AIs the services of warehousing & logistics services, export commission are not of the nature of technical services but are in the nature of business profits.

The learned CIT(A) ought to have appreciated that the payments of the nature of business profits are taxable in India only to the extent attributable to the PE in India Since there is no PE of the non-resident in India the same is not taxable in India. In the case of Independent Personal Services the stay in India by the non-resident was less than 182 days and hence not taxable as per DTAA. Since no tax was needed to be

6 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

deducted the said expenditure could not be disallowed u/s 40(a)(i) ofthe Income tax Act.”

No.1376/Chny/2018 for the assessment year 2013-14 are that

the assesse company is engaged in the business of

manufacture of automotive components and application. The

assessee has filed its return of income for the assessment year

2013-14 on 30.11.2013 and for assessment year 2014-15 on

30.11.2014 declaring total loss of Rs.26,13,44,210/- and total

income of Rs.5,67,16,260/- for the assessment year 2014-15.

The assessments for the impugned assessment year has been

completed u/s.143(3) of the Income Tax Act, 1961, where the

Assessing Officer has made various additions including

additions towards disallowance of expenditure u/s.14A of the

Act, disallowance of expenditure incurred for R&D u/s.35(2AB)

/ 35(1)(iv) of the Act, disallowance of various expenditure

incurred in foreign currency u/s.40(a)(i) of the Act for non-

deduction of TDS u/s.195 of the Act and disallowance of

balance 50% additional depreciation claimed on new plant

7 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

&machinery acquired and put to use during the relevant

previous year.

appellate authority and challenged various additions made by

the Assessing Officer. The learned CIT(A) vide its appellate

order dated 27.12.2017 has partly allowed appeal filed by the

assessee, where he has allowed partial relief in respect of

additions made towards disallowance of expenditure u/s.14A of

the Act, deleted additions made towards disallowance of

balance 50% of additional depreciation and further deleted

additions made by the Assessing Officer towards disallowance

of capital expenditure incurred on R&D u/s.35((1)(iv) of the Act.

However, he confirmed additions made by the Assessing

Officer towards disallowance of various payments made to non-

residents u/s.40(a)(i) of the Act for non-deduction of TDS

u/s.195 of the Act. Aggrieved by the order of the learned CIT(A),

the Revenue as well as assessee are in appeal before us.

assessment years from the appeal of Revenue as well as the

8 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

assessee is disallowance of expenditure incurred relatable to

exempt income u/s.14A of the Income Tax Act, 1961.During

financial year relevant to the assessment year 2013-14 and

2014-15, the assessee has earned dividend income, which was

claimed exempt u/s.10(34) of the Income Tax Act, 1961. The

assessee had also made suo motu disallowance of expenditure

relatable to exempt income, as identified by the assesse. The

Assessing Officer had invoked Rule 8D of Income Tax

Rules,1962 and determined disallowances of direct

expenditure, interest expenditure and other expenditure at Rs.2,70,38,767/- for the assessment year 2013-14 and

Rs.2,50,46,342/- for the assessment year 2014-15. The

learned CIT(A), on appeal, has allowed partial relief where he

has confirmed additions made towards disallowance of direct

expenditure under Rule 8D(2)(i). However, recomputed

disallowance of interest expenditure under Rule 8D(2)(ii), after

excluding investments in subsidiary companies from total

investments. Similarly, the learned CIT(A) has also directed the

Assessing Officer to recompute disallowances under Rule

8D(2)(iii) by excluding investments in subsidiary companies.

9 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

submitted that issue is squarely covered in favour of the

assessee by the decision of the Tribunal in assessee’s own

case for assessment year 2012-13 in ITA No. 3398/Chny/2018,

where under identical set of facts the Tribunal has deleted

additions made by the Assessing Officer towards interest

expenditure under Rule 8D(2)(ii) and further directed the

Assessing Officer to recompute disallowance of other

expenditure under Rule 8D(2)(iii) by considering only those

investments which earned exempt income for the year by

following the decision of ITAT., Delhi Special Bench in the case

of ACIT Vs. Vireet Investments Pvt .Ltd. ( 165 ITD 27)(SB ) .

although the issue is covered in favour of the assessee by

decision of the ITAT, Chennai in assessee’s own case, but fact

remains that assessee itself has computed suo motu

disallowances of direct expenditure of Rs.42.49 lakhs in the

original return of income filed for relevant assessment year.

Therefore, disallowances required u/s.14A should be restricted

10 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

to the extent of suo motu disallowances computed by the

assesse.

available on record and gone through orders of the authorities

below. As regards direct expenses relatable to exempt income,

as required to be computed under Rule 8D(2)(i), the assessee

itself has computed total disallowance of Rs.42.49 lakhs and

hence, question of reduction of disallowance computed by the

assessee in its original return of income does not arise.

Therefore, disallowance computed by the assessee under Rule

8D(2)(i), is restricted to suo motu disallowance as computed by

the assessee for both assessment years.

was claim of the assessee that it has sufficient own funds in the

form of share capital and reserve, which is over and above total

investments made in dividend bearing investments. We find

that co-ordinate Bench of ITAT., Chennai in assessee’s own

case has considered identical issue and after considering

11 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

relevant facts and has also by following decision of Hon’ble

Bombay High Court in the case of CIT Vs. HDFC Bank Ltd.

(366 ITR 505) held that no disallowance could be made towards

interest expenditure, when assessee has sufficient own funds,

which is over and above the amount of investments in exempt

bearing investments. We further noted that the Hon’ble Bombay

High Court in the case of CIT Vs. Reliance Utilities &Power Ltd.

( 33 ITR 340) has held that when mixed funds are used for

making investments in exempt bearing investments, then it

would have to be presumed that investments made in exempt

bearing investments are out interest free funds available with

the assessee. In this case, the assessee has filed necessary

details to prove that it has own funds in excess of investments

made in shares and securities which yielded exempt income.

Therefore, by following the decision of ITAT, Chennai in

assessee’s own case for earlier assessment year, we are of the

considered view that Assessing Officer as well as learned

CIT(A) were erred in disallowing interest expenditure under

Rule 8D(2)(ii) of IT Rules, 1962. Hence, we direct the Assessing

12 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

Officer to delete disallowance of interest expenditure made

u/s.14A of the Act.

average value of investments under Rule 8D(2)(iii), we find that

it is well settled principle of law that only those investments

which yield exempt income for the relevant assessment year

needs to be considered for computation of disallowance of

other expenses under section 14A r.w.r 8D(2)(iii) of IT Rules,

1962. We further noted that the coordinate Bench has taken

similar view in assessee’s own case for the assessment year

2012-13 in ITA No.3398/Chny/2018, where the Tribunal by

following the decision of ITAT., Delhi Special Bench in the case

of ACIT vs. Vireet Investments Pvt.Ltd. (supra) has directed the

Assessing Officer to consider only those investments which

yielded exempt income for the relevant previous year to

compute disallowance under Rule 8D(2)(iii) of IT Rules, 1962.

Therefore, consistent with view taken by coordinate Bench, we

direct the Assessing Officer to recompute disallowance under

Rule 8D(2)(iii) by considering only those investments which

yield exempt income for the relevant assessment years.

13 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

assessment year 2013-14 is disallowance of R&D expenditure

u/s.35(2AB) and section 35(1)(iv) of the Act. During the year

under consideration, the assessee has incurred capital

expenditure other than building a sum of Rs.86,75,846/- and

revenue expenditure of Rs.6,09,24,237/- for research &

development expenditure and claimed 200% weighted

deduction u/s.35(2AB) of the Act amounting to

Rs.13,92,00,166/-. In support of its claim, the assessee has

produced certificate from the Department of Scientific and Industrial Research in form 3CL, in which DSIR has certified a

sum of Rs.85,81,000/- for capital expenditure other than

building and a sum of Rs.5,89,43,000/- for revenue expenditure

and thus, out of total expenditure claimed by the assessee of

Rs.6,09,24,237/-, the DSIR has certified and quantified a sum

of Rs.6,75,24,000/-. The Assessing Officer has allowed

weighted deduction of 200% under section 35(2AB) on the

basis of certificate issued by DSIR in form 3CL and accordingly,

disallowed a sum of Rs.41,52,000/- out of total deduction

claimed by the assessee u/s.35(2AB) of the Act. Further, the

14 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

assessee has also claimed 100% deduction of R&D

expenditure incurred towards building construction amounting

to Rs.1,02,85,856/-. Since the capital expenditure is not entitled

for weighted deduction u/s.35(2AB) of the Act, the Assessing

Officer has disallowed capital expenditure on R&D on building

amounting to Rs.1,02,85,856/-.

CIT(A) has erred in confirming disallowance of capital

expenditure on R&D u/s.35(1)(iv) amounting to

Rs.1,02,85,856/- without appreciating fact that any capital

expenditure, which was not claimed as deduction u/s.35(2AB)

can be claimed u/s.35(1)(iv) of the Act.In this regard, the

assessee has relied upon decision of Hon’ble Madras High

Court in the case of M/s.Tube Investments Ltd. Vs. CIT 216 ITR

weighted deduction claimed u/s.35(2AB), any uncertified

portion of R&D expenditure is not eligible for only weighted

deduction u/s.35(2AB) of the Act. However, actual expenditure

incurred towards R&D expenditure can be claimed as deduction

15 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

either u/s.35(1) or 37 of the Act, because said expenditure was

wholly and exclusively incurred for business of the assessee.

order of the Assessing Officer submitted that authority for

certifying eligible deduction u/s.35(2AB) is DSIR and hence,

the Assessing Officer has rightly allowed weighted deduction

u/s.35(2AB),as per certificate of DSIR in Form 3CL. As regards

disallowance of capital expenditure on R&D Building, the

Assessing Officer has brought out clear facts to the effect that

any expenditure relating to R&D building is claimed

u/s.35(2AB) cannot be considered u/s.35(1)(iv) of the Act.

Therefore, there is no error in the reasons given by the

Assessing Officer to disallow capital expenditure on R&D

building.

available on record and gone through orders of the authorities

below. As regards disallowance of uncertified portion of

expenditure incurred towards R&D u/s.35(2AB) of the Act, we

find that although, DSIR has not certified expenditure for the

16 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

purpose of section 35(2AB), but the assessee has placed on

record various evidences to prove that said expenditure is

incurred wholly and exclusively for purpose of business of the

assessee. Once a particular expenditure was incurred wholly

and exclusively for purpose of business of the assessee, then

such expenditure needs to be allowed either under specific

head of expenditure or under residual head of expenditure

u/s.37(1) of the Act. If any expenditure is not certified by DSIR

in Form 3CL, then the same is not entitled for weighted

deduction u/s.35(2AB) of the Act, but there is no restriction

under law to claim such expenditure u/s.35(1) / 37(1) of the Act.

The learned CIT(A), after considering relevant facts has rightly

deleted additions made by the Assessing Officer towards

disallowance of uncertified portion of R&D expenditure. Hence,

we are inclined to uphold the findings of learned CIT(A) and

reject ground taken by the Revenue.

on R & D building u/s.35(1)(iv), it was claim of the assessee that

capital expenditure on R&D building has not been claimed

u/s.35(2AB) of the Act and hence, same is very much

17 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

allowable u/s.35(1)(iv) of the Act. We find that the Hon'ble

Jurisdictional High Court of Madras in the case of M/s. Tubes

Investments Ltd vs. CIT(supra), has considered an identical

issue and held that in order to claim deduction u/s.35(1)(iv),

approval of the authority prescribed u/s.35(2AB) is not an

essential pre-requisite, if it is found that a part of the claim falls

within ambit of section 35(1)(iv) of the Act. Further, mere fact

of a claim not having been found admissible u/s.35(2AB) will

not constitute a bar to allow an expenditure u/s.35(1)(iv), if that

expenditure is capital expenditure and falls squarely within ambit of section 35(1)(iv) of the Act. In this case, the assessee

has filed necessary evidence to prove that capital expenditure

on R&D building has not been claimed u/s.35(2AB) of the Act.

Therefore, we are of the considered view that once capital

expenditure was incurred for scientific research purposes, then

same is eligible for deduction u/s.35(1)(iv) of the Act. The

Assessing Officer as well as learned CIT(A) without

appreciating fact has simply disallowed capital expenditure on

R&D building u/s.35(1)(iv) of the Act. Hence, we direct the

Assessing Officer to delete additions made towards

18 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

disallowance of capital expenditure on R&D building

u/s.35(1)(iv) of the Act.

ground no.3 of revenue appeal for assessment year 2013-14 is

disallowance of balance 50% of additional depreciation claimed

on assets acquired and put to use for less than 180 days during

the preceding previous years. The facts with regard to

impugned dispute are that the assessee has acquired and put

to use certain new plant and machinery, which are eligible for

additional depreciation of 20%, as per clause (iia) of section

32(1) of the Act. Since assets acquired and put to use are used

for less than 180 days in the year of acquisition, the assessee

has claimed 50% of actual depreciation and balance 50% of

depreciation was brought forward and claimed during impugned

assessment year. The Assessing Officer has disallowed

balance 50% of additional depreciation claimed on plant and machinery on the ground that there is no provision, under the

Act to carry forward additional depreciation to subsequent

years.

19 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

erred in directing the Assessing Officer to allow balance of

additional depreciation carry forward from earlier assessment

year, without appreciating fact that as per proviso to section

32(1)(iia) of the Act, where an asset is acquired and put to use

for the purpose of business for a period of less than 180 days in

that previous year deduction under this sub-section will be

restricted to 50% of such asset.

strongly supporting order of the learned CIT(A) submitted that

additional depreciation should be allowed based on the amount

of investments made in new plant and machinery and further, if

such plant and machinery was used for less than 180 days

during preceding previous year, then balance 50% of additional

depreciation should be allowed in subsequent years, because

there is no bar under the Act to claim full additional

depreciation, if other conditions prescribed for claiming

additional depreciation are fulfilled.

20 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

available on record and gone through orders of the authorities

below. There is no dispute with regard to fact that the assessee

has acquired additional plant and machinery over and above

prescribed limit, which is eligible for 20% additional

depreciation as per section 32(1(iia) of the Act. The only dispute

is with regard to period of acquisition of said asset and claiming

depreciation as per proviso (iia) to section 32(1) of the Act. The

Assessing Officer has disallowed balance 50% of additional

depreciation on the ground that there is no provision under the

Act to carry forward balance additional depreciation to

subsequent years. It was claim of the assessee that additional

depreciation should be allowed, if conditions prescribed for

claiming additional depreciation are fulfilled. We find that the

Hon’ble Karnataka High Court in the case of CIT Vs. Rittal India

Pvt .Ltd. (2016) 380 ITR 423 (Kar) has considered an identical

issue and held that if plant and machinery is eligible for

additional depreciation u/s.32(1)(iia) and such plant and

machinery is put to use for less than 180 days in said financial

year, then balance of additional depreciation can be claimed in

21 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

subsequent years. The Hon’ble Madras High Court in the

cases of Brakes India Ltd. vs. DCIT (2017 – TIOL 710-HC-

MAD-IT) and TVS Motors Company Ltd. Vs.ACIT (2017 – TIOL

553-HC-MAD-IT) has considered an identical issue and held

that balance of 50% of additional depreciation can be claimed

in subsequent years, provided conditions for claiming

additional depreciation is satisfied. In this case, there is no

dispute with regard to fact that assessee has satisfied

conditions prescribed for claiming additional depreciation.

Therefore, we are of the considered view that assessee is

entitled for balance 50% additional depreciation in subsequent

years, when it was claimed only 50% of additional depreciation

in the year of acquisition and put to use said plant and

machinery. The learned CIT(A), after considering relevant

submissions has rightly deleted additions made by the

Assessing Officer towards disallowance of balance 50%

additional depreciation. Hence, we are inclined to uphold

findings of the learned CIT(A) and reject ground taken by the

Revenue.

22 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

assessment year 2013-14 and 2014-15 of assessee appeal is

disallowance of various payments made to non-residents u/s.

40(a)(i) of the Act for non-deduction of tax deducted at source

u/s.195 of the Act. The Assessing Officer has disallowed

warehousing & logistic service charges paid to non-residents

u/s. 40(a)(i) of the Act on the ground that the impugned

payment is in the nature of fees for technical services and said

payment is directly relatable to income earning activity situated

in India and hence, it falls under definition of fees for technical

services as defined u/s. 9(1)(vii)(b) of the Act. Similarly, the

Assessing Officer has disallowed professional fees paid to

Tileke & Gibbins International Ltd. towards professional

services on the ground that said payment is in the nature of

fees for technical services . Likewise, the Assessing Officer has

disallowed payments made to Mr. Yoshikazu Tsuda towards

consultancy charges by holding that period of stay of the

consultant in India is more than 183 days and hence, same is

taxable in India, as per section 9(1)(i) of the Act, since he

becomesa resident in India u/s. 6(1)(a) of the Act. Similarly, for

23 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

assessment year 2014-15, the Assessing Officer has

disallowed rework charges and subscription charges paid to

non-residents on the ground that payment is in the nature of

fees for technical services, which falls under definition as per

section 9(1)(vii)(b) of the Act . The Assessing Officer has also

made disallowance towards fees paid to Michigan University

and Centre for creative leadership towards tuition fee for

course conducted by them to the employees of the assessee on

the ground that same was covered by definition of royalty in

Explanation 2 to section 9(1)(vi) of the Act. It was claim of the assessee before the Assessing Officer that payments to

warehousing and logistic service charges and export

commission is covered by Article 7 of DTAA and hence, which

is in the nature of business profits and not liable to tax in India,

consequently, requirement of deduction of TDS u/s.195 does

not arise. The assessee further claimed that professional fees

paid to Tileke & Gibbins International Ltd. is also covered by

Article 7 as business profits and hence, is not taxable in India.

Likewise, Independent professional service rendered by non-

24 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

residents is not liable to tax in India, if stay of said consultant is

less than 183 days in India.

available on record and gone through orders of the authorities

below. As regards warehousing and logistic service charges

paid to four parties amounting to Rs.89,82,340/-, we find that

warehousing & logistic service charges is covered by Article 7

of DTAA as business profits of the respective DTAAs and

hence, is outside scope of definition of section 9(1)(vii)(b) of the

Act. We further noted that in order to bring any payment within

the ambit of royalty or fees for technical services under section

9(1)(vii)(b) of the Act, recipient of service should be made

available for technical knowledge of such service . In this case,

payments made by assessee towards warehousing and logistic

service charges and also rework & subscription charges is a

mere payment for rendering services by non-residents in the

territory of outside India. Therefore, we are of the considered

view that said payment is not in the nature of fees for technical

services which can be brought to tax u/s.9(1)(vii)(b) of the Act.

Since the payments are in the nature of business profits, as per

25 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

Article 7 of respective DTAAs, same cannot be brought to tax

in India in the absence of any permanent establishment in India

of the service provider. Since payment is not liable for tax in

India, the assessee is not required to deduct TDS u/s.195 of the

Act and consequently, payments cannot be disallowed

u/s.40(a)(i) of the Act. The Assessing Officer as well as learned

CIT(A) without appreciating facts has simply made additions

u/s.40(a)(i) of the Act and hence, we direct the Assessing

Officer to delete additions made towards warehousing and

logistic service charges for the assessment year 2013-14 and

rework and subscription charges for the assessment year 2014-

15.

International Ltd., we find that Article 12 of the India-Thailand

DTAA does not cover fees for technical services. Further,

payment made for professional services is covered by Article 7

as business profits and hence, is not taxable in India, because

service provider does not have permanent establishment in

India. Since the payment is not liable tax in India, the assessee

is not required to deduct TDS as per section 195 of the Act and

26 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

consequently, payments cannot be disallowed u/s.40(a)(i) of the

Act.

towards consultancy charges amounting to Rs.87,056/-, we find

that the assessee has placed on record necessary evidence to

prove that Consultant stay in India is less than 183 days and

hence, said payment is not taxable in India, as per Article 14 of

DTAA between India and Japan. Since payment is outside

scope of tax in India, the assessee is not required to deduct

TDS u/s.195 of the Act and consequently, said payment cannot

be disallowed u/s.40(a)(i) of the Act.

Center for Creative Leadership for assessment year 2014-15

amounting to Rs.11,79,390/-, we find that payments made for

teaching in/by educational institutions are excluded from the

definition of fees for technical services as per Article 12(5)(c) of

respective DTAAs and hence, said payments are outside

scope of taxation in India. Since the impugned payment is not

liable to tax in India, the assessee is not liable to deduct TDS

27 ITA Nos.1376, 1254, 1355 & 1356/Chny/2018

u/s.195 of the Act and consequently, payment cannot be

disallowed u/s.40(a)(i) of the Act. The Assessing Officer as well

as the learned CIT(A) without appreciating relevant facts has

simply made additions towards various payments u/s.40(a)(i) of

the Act. Hence, we direct the Assessing Officer to delete

additions made towards payments made to non-residents

u/s.40(a)(i) of the Act.

for assessment years 2013-14 & 2014-15 are partly allowed.

Order pronounced in the open court on 14th June, 2021

Sd/- Sd/- ( वी.दुगा� राव) (जी.मंजुनाथ) (V.Durga Rao) (G.Manjunatha) #या�यक सद&य /Judicial Member लेखा सद&य / Accountant Member चे#नई/Chennai, )दनांक/Dated 14th June, 2021 DS आदेश क� ��त+ल,प अ-े,षत/Copy to: 1. Appellant 2. Respondent 3. आयकर आयु.त (अपील)/CIT(A) 4. आयकर आयु.त/CIT 5. ,वभागीय ��त�न2ध/DR 6. गाड� फाईल/GF.