Design & Engineering drawings are in the nature of “plant” and consideration thereof is not assessable as “fees for technical services” if delivered outside India

The assessee company provided design and engineering services, manufacture, delivery, technical assistance through supervision of erection and commissioning etc., to establish compressor house-I for RINL. The payments were made by RINL separately for each of the services/equipments provided/supplied by the assessee. It, inter alia, included payment made towards supply of design and engineering drawings. The assessee company claimed the said payment is not taxable under the Indian Income Tax Act as it was a transaction of sale of goods that has taken place outside India. In our view the decision of Delhi ITAT Bench in the case of Mannesman Demag Sack AG Vs.Add.CIT reported in (2008), 119 TTJ (Del) 543, on which reliance was placed by Ld DR, is not applicable to the facts of the instant case. In the case of Mannesman Demag Sack, supra, the decision was rendered on the basis of the terms of the contract which provided that technical services shall include supply of design and drawings. Hence on the facts of the case, the Tribunal held that design and drawing charges are in the nature of fee for technical services. However, it may be pertinent to note that the Tribunal in that case, accepted the alternative contention of the assessee that the said fee cannot be assessed in India, unless it is shown that some part of work has emanated from Indian territories. Hence on a conspectus of the matter, we are of the view that the amount received by the assessee for supply of design and engineering drawings is in the nature of plant and since the preparation and delivery has taken place outside Indian territories, the same can not be subjected to tax in India

Interest u/s 244A is not taxable in the year of grant of refund but has to be spread over the respective AYs to which it relates

The stand of the department that interest u/s 244(1A) accrues to the assessee only when it is granted to the assessee along with refund order issued u/s 240 is not correct. Interest accrues on a day to day basis on the excess amount paid by the assessee. The entitlement of interest is a right conferred by the statute and it does not depend on the order for the refund being made. An order for the refund is only consequential order which in law is required to be made more in the nature of complying with the procedural requirement, but the right to claim interest of the assessee is statutory right conferred by the Act. Accordingly, the interest has to be spread over and taxed in the respective years (K. Devayani Amma 328 ITR 10 (Ker) dissented from)

S. 41(1): Unclaimed liabilities (of earlier years), which are shown as payable in the accounts, are not taxable as income even if creditors untraceable & liabilities are non-genuine

S. 41(1) would apply in a case where there has been remission or cessation of liability during the year under consideration. In the present case, there was nothing on record to suggest there was remission or cessation of liability in the AY 2007-08. It is undoubtedly a curious case. Even the liability itself seems under serious doubt. The AO undertook the exercise to verify the records of the so-called creditors. Many of them were not found at all in the given address. Some of them stated that they had no dealing with the assessee. In one or two cases, the response was that they had no dealing with the assessee nor did they know him. Of course, these inquiries were made ex parte and in that view of the matter, the assessee would be allowed to contest such findings. Nevertheless, even if such facts were established through bi-parte inquiries, the liability as it stands perhaps holds that there was no cessation or remission of liability and that therefore, the amount in question cannot be added back as a deemed income u/s 41(1) of the Act. This is one of the strange cases where even if the debt itself is found to be non-genuine from the very inception, at least in terms of s. 41(1) of the Act there is no cure for it

Entire law on taxability of Permanent Establishment under DTAA, impact of Mutual Agreement Procedure (MAP) and computation of profits attributable to PE explained

Re Whether a subsidiary can be a Permanent Establishment: While under Article 5(6), a holding or a subsidiary company by themselves would not become PE of each other, a subsidiary can become a PE of the holding company if it satisfies the requirements of Article 5. Accordingly, any premises belonging to the subsidiary that is at the disposal of the parent (the “right-to-use test”) and that constitutes a fixed place of business (the “location test” and the “duration test”) through which the parent carries on its own business (the “business activity test”), gives rise to a PE of the parent under Art. 5(1). In addition under Art. 5(5) of the OECD Model, a subsidiary constitutes an agency PE of its parent if the subsidiary has the authority to conclude contracts in the name of its parent and habitually exercises this authority, unless these activities are limited to those referred to in Art. 5(4) or unless the subsidiary does not act in the ordinary course of its business as an independent agent within the meaning of Art. 5(6)

Action to recover tax before expiry of statutory period for filing appeal is high-handed

The AO’s insistence that the assessee should pay the amount is contrary to the provisions of the Finance Act which provides for a period of 3 months to file an appeal to the Tribunal. It is also contrary to the circular dated 01.01.2013 issued by the CBEC. The impugned communications, to say the least, is high handed. The statute has advisedly provided a period of three months to an assessee to file an appeal before the appellate authority and also obtain a stay. This is with a view to enable the assessee to seek proper advice and considered opinion on the adjudication order before taking a decision and then challenging the adjudication order in appeal proceedings

S. 14A disallowance has to be applied while computing book profits under clause (f) of Explanation to s. 115JA

The assessee’s contention that in view of the Proviso to s. 14A, the said provision could not have been invoked for AY 2000-01 in a revision u/s 263 is not acceptable because the assessment order was passed after the section was enacted (Honda Siel Power Products 340 ITR 53 (Del) (approved by SC) followed). The failure of the AO to invoke s. 14A had resulted in the order being erroneous and prejudicial to the interests of the Revenue. On the question of quantum of deduction to be made u/s 14A, the Tribunal has not gone into the said question of quantum. The deduction or quantum has to be decided in light of Maxopp Investment 347 ITR 272 (Delhi)

S. 220: AO’s action of coercive recovery is illegal and shocks the conscience. The Tribunal cannot remain a silent spectator to such illegal action

The action of the AO is in defiance of the directions laid down in UTI Mutual Funds 345 ITR 71 (Bom) that no recovery of tax should be made before the expiry of the time limit for filing an appeal before the higher forum has expired. The Court also has directed that when the bank account has been attached the revenue would not withdraw the amount unless it has furnished a reasonable prior notice to the assessee to enable the assessee to seek recourse to a remedy in law. The action of the AO in not only attaching the bank account but withdrawing the money from the bank was before the expiry of the time limit for filing appeal was only with a view to foreclose the option of the assessee of obtaining a stay from the Tribunal. The assessee received the order of the CIT(A) only on 16.11.2013 and had 60 days time to prefer an appeal there from. However, the AO attached the bank account of the assessee on 18.11.2013 itself i.e. within two days of communication of the order of the CIT(A). Further, not only the bank account was attached but the amounts were forcibly withdrawn on that date itself from the bank so as to completely foreclose the remedy available to the assessee under the Act

No s. 40A(3) disallowance for cash payments even if Rule 6DD(j) exception does not apply if there is no dispute as to genuineness of payment and business compulsion

S. 40A(3) and Rule 6DD are not intended to restrict business activities. The terms of s. 40A(3) are not absolute. Considerations of business expediency and other relevant factors are not excluded. Genuine and bona fide transactions are not taken out of the sweep of the section. It is open to the assessee to furnish to the satisfaction of the AO the circumstances under which the payment in the manner prescribed in s. 40A (3) was not practicable or would have caused genuine difficulty to the payee. It is also open to the assessee to identify the person who has received the cash payment. On facts, though the case of the assessee did not fall within the exclusion clause in Rule 6DD (j), s. 40A(3) will not apply because (a) there is no doubt as to the genuineness of the payment nor the identity of the payee, (b) the assessee was compelled to pay cash owing to the insistence of its principal and if it had not abided by the direction, the business would have suffered & (c) the exceptions in Rule 6DD are not exhaustive and the rule must be interpreted liberally (Attar Singh Gurmukh Singh 191 ITR 667 (SC), Hynoup Food & Oil Industries 290 ITR 702 (Guj) & Harshila Chordia 298 ITR 349 (Raj) referred)

S. 14A / Rule 8D disallowance cannot be made without showing how assessee’s claim/ computation is wrong

The AO disallowed the expenditure u/s 14A without first recording that he was not satisfied with the correctness of the claim as regards the claim that “no expenditure” was made by the assessee. The disallowance u/s 14A of the Income-tax Act, 1961 is plainly contrary to the provisions of the statute. The CIT allowed the appeal of the assessee and the Tribunal did not interfere. Challenging the order of the tribunal, the present appeal has been filed. We and are of the opinion that no point of law has been raised. Therefore, this appeal is dismissed.

Employees’ PF/ ESI Contribution is also covered by s. 43B & allowable as a deduction if paid by “due date” of filing ROI. ITC Ltd 112 ITD 57 (Kol) (SB) impliedly reversed

The only issue involved in this appeal is as to whether the deletion of the addition by the AO on account of employees’ contribution to ESI and PF by invoking the provision of s. 36(1)(va) read with s. 2(24)(x) of the Act was correct or not. In CIT vs. Alom Extrusion Ltd 390 ITR 306 the Supreme Court has held that the amendment to the second proviso to s. 43(B) as introduced by Finance Act, 2003, was curative in nature and is required to be applied retrospectively with effect from 1st April, 1988. Such being the position, the deletion of the amount paid by the Employees’ Contribution beyond due date was deductible by invoking the aforesaid amended provisions of s. 43(B) of the Act. We, therefore, find that no substantial question of law is involved in this appeal and consequently, we dismiss this appeal