ACIT NON CORPORATE CIRCLE 22 (1), CHENNAI vs. M/S TAG CORPORATION, CHENNAI

This appeal by the Revenue is directed against the order passed by the Ld. Commissioner of Income Tax (Appeals)-10, Chennai, dated 30.01.2018 in for the assessment year 2013-14 passed U/s. 250(6) r.w.s. 143(3) of the Act.

The Revenue has raised two elaborate grounds in its appeal however the crux of the issue that is that the Ld.CIT(A) has erred in directing the Ld.AO to delete the disallowances made U/s.40(a)(ia) of the Act for non- deduction of tax at source U/s.195 of the Act towards expenditure incurred on testing charges paid/payable to the Canadian company.

The brief facts of the case are that the assessee is firm engaged in the business of manufacturing engineering goods, e-filed its return of income for the assessment year 2013-14 on 27.09.2013 admitting total income of Rs.26,82,54,076/-. The case was selected for scrutiny and notice U/s.143(2) & 142(1) of the Act was issued on 01.09.2014 & 04.06.2015 respectively. Finally assessment order was passed U/s. 143(3) of the Act on 21.03.2016 wherein the Ld.AO disallowed the expenditure incurred towards testing charges paid/payable to foreign company amounting to Rs.61,28,640/- by invoking the provisions of Section 40(a)(ia) of the Act.

At the outset the Ld.AR submitted before us that the issue is covered by the decision of the Tribunal in the assessee’s own case in to 2194/Mds/2015 for the assessment years 2010-11 to 2012-13 and the Ld.CIT(A) has only followed the decision of the Tribunal and allowed the appeal of the assessee and therefore no interference is called for in the order of the Ld.CIT(A). Hence it was pleaded that the appeal of the Revenue may be dismissed. The Ld.DR could not controvert to the submission of the Ld.AR, however he argued in support of the order of the Ld.AO.

We have heard the rival submissions and carefully perused the materials on record. On perusing the order of the Tribunal in the assessee’s own case for the assessment years 2010-11 to 2012-13 dated 15th July 2016 cited by the Ld.AR supra, we find the issue is covered by the decision of the Tribunal. The gist of the decision is reproduced herein below for reference:- “7. We have heard the rival submissions and carefully perused the materials available on record. From the facts of the case we find that the foreign entity has only rendered the service of testing the products manufactured by the assessee. While doing so, they did not make available any technology to the assessee and also there is a treaty between India and Canada. Therefore, the service rendered by the assessee cannot be said to be technical service and payment made for the same will not amount to payments made for fees for technical service. The payment made by the assessee will not amount to payment towards royalty because as held by the jurisdictional Madras High Court in the case of CIT Vs. Neyveli Lignite Corporation reported in 243 ITR 459, “royalty” connotes to the exclusive right over a thing for allowing another to make use of that thing which may be either physical or intellectual property or thing. Hence, in the case of the assessee the provisions of TDS will not apply and therefore the provisions of section 40(a)(ia) of the Act cannot be invoked. For the above stated reasons, we hereby direct the learned Assessing Officer to delete the addition of Rs.88,28,595/-, Rs.71,46,160/- Rs.95,20,080/- made for the assessment years 2010-11, 2011-12 & 2012-13 respectively by invoking the provisions of section 40(a)(ia) of the Act.”

In the result the appeal filed by the Revenue is dismissed.