ASST CIT 9(2)(1), MUMBAI vs. BUREAU VERTIAS CERTIFICATION (I) P.LTD, MUMBAI

We have heard rival contentions and gone through the facts and circumstances of the case. We find that the AO disallowed the amount of TDS of Rs. 20,61,771/- by applying the provisions of section 40(a)(ii) of 3 & 5581/Mum/2015 M/s Bureau Veritas Certification (I)Pvt. Ltd., (A.Y:2011-12) the Act. The CIT(A) following the decision of Mumbai ITAT in the case of Karan Johar Vs. DCIT (2011) 11 taxmann.com 268 (Mum) allowed the claim of the assessee, wherein it is held that the TDS borne by the resident Indian payer is to be deemed as the income of the recipient and it is only out of such income of the recipient, the Indian payer is deemed to withhold the TDS at the appropriate rate and pay to the Govt. it was further observed by the Tribunal that what the Indian payer deposits to the Govt. cannot be construed as tax of the non-resident being borne by the Indian resident payer, but the amount paid is only out of the deemed income of the recipient and the same would not fall within the definition of tax on income for disallowance u/s 40(a)(ii) of the Act. The CIT(A) observed as under: -

“5.1.1 Vide this ground the appellant company has agitated against the disallowance of Rs.20,61,771/- u/s.40(a)(ii). The Ld. A.O. had observed in para 3 of the assessment order that the appellant company had claimed revenue expenses on account of royalty amounting to Rs.1,93,65,834/- including TDS and cess of Rs.20,61,771/-. After considering the reply of the appellant company, the ld AO disallowed an amount of Rs.20,61.771/- u/s.40(a)(ii) of I.T. Act 1961. During the appellate proceedings, the appellant filed a written submission which find place in para 4 of this order. It was submitted by the appellant that A.O. did not appreciate the provision of Sec.40(a)(ii). According to the appellant, the provisions of Section (a)(ii) would apply only in a situation where the appellant had paid taxes on his own income. It was further submitted that the payment of Rs.20,61,771/- was the TDS on the income of the foreign entity and not on income of the company. In support of its contention, the 4 & 5581/Mum/2015 M/s Bureau Veritas Certification (I)Pvt. Ltd., (A.Y:2011-12) appellant has relied upon judgement of Hon’ble Mumbai ITAT in case of Karan Johar Vs. Deputy Commissioner of Income Tax, (2011) 11 taxmann.com 268 (Mum) (supra), the relevant part of the judgement of Hon’ble Tribunal Mumbai ‘A’ Bench is reproduced as under;

"What was being paid by the Indian resident payer, be it 7' or the assessee when it was reimbursed was only the income of the non- resident payable as tax to the India Government. The same would not fall within the definition vi tax on income for disallowance under section 40(a) (ii). On this account also the amount reimbursed by the assessee to 'T' could not be disallowed under section 40(a) (ii) para 15."

5.1.2 The appellant has also relied upon the judgement of ITAT 'B' Bench in dated 05.04.2013 in the case of ACIT 2(1) vs. MIs. BOB Cards Ltd. The Hon'ble High Court of Jharkand in the case of Tata Yadogawa Ltd. in ITA Nos.13, 27, 29 & 30 of 2001 and 26 of 2002 dated 24.09.2010 has held that income tax paid by assessee in terms of collaboration agreement had to be treated as part of consideration for acquisition of know- how and, therefore, deduction tinder section 35AB was permissible not only in respect of remittances made by assessee to ESVV but also in respect of income tax paid on said remittances. Similarly, the Hon'ble High Court of Punjab and Haryana in the case of Dashmesh Transport Co. (F) Ltd. Vs. CIT in ITA

5 & 5581/Mum/2015 M/s Bureau Veritas Certification (I)Pvt. Ltd., (A.Y:2011-12) No.93 ITR 275 in similar circumstances has held that "the transferee may be made liable for the liability of the transferor. What really matters is that the liability of the transferor and not of the transferee and the mere fact that in certain circumstances that liability can be put on the shoulders of the transferee will not in any manner detract from the fact that the liability to tax all the same is that of the transferor. In view of aforesaid, the Tribunal was incorrect in holding that the amount of tax paid by the assessee on behalf of the transferor company was not allowable as deduction in view of provisions contained in section 40(a)(ii)."

5.1.3 From careful reading of Section 40(a)(ii) it is evident that the provisions of Section 40(a)(ii) would apply only in a situation where the appellant has paid taxes on his own income and not in respect to income of others on which the appellant has paid taxes as per conditions of the agreements. In view of the judgements of Hon'ble ITAT and High Courts, as discussed above and position of law as per provisions of Section 40(a)(ii), the disallowance of Rs.20,61,771/- made by the A.O. u/s.40(a)(ii) is deleted. This ground of appeal of the appellant is allowed.”

6 & 5581/Mum/2015 M/s Bureau Veritas Certification (I)Pvt. Ltd., (A.Y:2011-12) Respectfully, following the coordinate Bench decision, we dismiss the appeal of the Revenue. Consequently, both the appeals of the Revenue are dismissed.