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Income Tax Appellate Tribunal, ‘A’ BENCH, CHENNAI
Before: SHRI N.R.S. GANESAN & SHRI D.S. SUNDER SINGH
आदेश /O R D E R
PER N.R.S. GANESAN, JUDICIAL MEMBER:
This appeal of the assessee is directed against the order of CIT(A) -1, Madurai dated 20.01.2016 and pertains to assessment year 2010-11.
Shri M.Viswanathan, the learned representative for the assessee submitted that the first issue arises for consideration is disallowance made by the assessing officer under Section 14A of the Act. According to the learned representative, the assessee has not incurred any expenditure to earn dividend from foreign companies. According to the learned representative, the dividend income earned by the assessee from foreign companies are taxable in India. Therefore, there cannot be any disallowance under Section 14A of the Act.
On the contrary, Shri Shiva Srinivas, the learned department representative submitted that during the year under consideration, the assessee has invested a sum of Rs.21.50 crores and received dividend income of Rs.40.50 lakhs. The assessee has claimed the above dividend income of Rs.40.50 lakhs as exempted under Section 10(34) of the Act.
Therefore, it is not correct to say that the assessee has invested only in foreign companies and the dividend received from the foreign company is taxable in India. Since admittedly, the assessee has earned dividend income and also claimed the same exempted under Section 10(34) of the Act, the Assessing Officer has to necessarily compute the disallowance by applying the provisions of Rule 8D of the Income Tax Rules. In fact, the disallowance was computed strictly by applying the provisions of rule 8D.
We have considered the rival submissions on either side and also perused the material available on record. The only objection of the learned representative of the assessee is that the investment made in foreign companies to earn dividend income was not for earning income exempted from taxation. Therefore, there cannot be any disallowance of expenditure in relation to that investment. However, the details of the investment made in foreign companies are not made available on record. As rightly submitted by the department representative, the assessee has invested Rs.21.50 crores during the year under consideration and also earned Rs.40.50 lakhs as income exempted from taxation. Therefore, the disallowance has to be computed by applying the provisions of Rule 8D(2) of Income Tax Rules. Even though the assessee claims that there was no expenditure for earning dividend income, Section 14A read with Rule 8D mandates the assessing officer to compute the disallowance. However, if any investment is made which resulted taxable income such investment cannot be considered for the purpose of computing disallowance. Since the details of investment made in foreign companies which resulted in taxable income is not available on record, this Tribunal is unable to uphold the contentions of the learned representative of the assessee.
Accordingly, the order of the CIT(A) is confirmed.
The next ground of appeal is with regard to disallowance made by the assessing officer under Section 40(a)(i)(a) of the Act. Shri M.Viswanathan, the learned representative for the assessee submitted that during the year under consideration, the assessee has paid commission for the services rendered outside India. According to the learned representative, the payments were in fact made to UK company for the services rendered in UK. The recipient of the foreign company do not have any permanent establishment in India. The assessee also do not have any branch in UK to receive the goods dispatched from India. Therefore, the payment made to UK company is not subjected to taxation in India. Hence, the question of disallowance under Section 40(a)(i)(a) of the Act does not arise for consideration.
6. On the contrary, Shri Shiva Srinivas, the learned department representative submitted that the assessee dispatched the goods to UK and other European countries. The assessee claimed before the assessing officer that the foreign company rendered their services outside India. Therefore, the commission received by them is not taxable in India. Referring to the order of the CIT(A), the learned department representative submitted that the recipient is none other than the appellants own subsidiary company which was admittedly controlled and managed by the directors in India. Moreover, the assessee admitted before the CIT(A) the recipient company had transported goods from India. Therefore, the services were very much rendered in India.
Hence, the assessee is liable to deduct the tax in respect of the payment made to subsidiary companies.
We have considered the rival submissions on either side and also perused the material available on record. Though the assessee claims that the payment was made to UK company for the services rendered outside India, in fact the UK company is a subsidiary company of the assessee and transported the goods from India. This fact was admitted by the assessee before the CIT(A). Therefore, this Tribunal is of the considered opinion that the services are in fact rendered in India. Hence, the payment made to UK company is taxable in India. Therefore, the assessee is liable to deduct tax on the payment made to UK company.
In view of the above, this Tribunal do not find any reason to interfere with the order of the lower authority and accordingly, the same is confirmed.
In the result, the appeal of the assessee stands dismissed. 9.
Order pronounced on 28th October, 2016 at Chennai.