ITR (TRIB) VOL 25 PART 4

ITR’S TRIBUNAL TAX REPORTS (ITR (TRIB)) -- PRINT AND ONLINE EDITION

ONLINE EDITION

SUBJECT INDEX TO CASES REPORTED

Charitable purposes --Definition--Amendment disqualifying assessee for exemption where commercial activity undertaken--Assessee entering into agreement with concessionaire for development of indoor cricket academy--Carrying on of commercial and profit motive activities for long duration--Not charitable or welfare activity--Effect of amendment of section 12AA(3 ) w. e. f. 1-6-2010--Cancellation of registration from 1-6-2010 not from date of signing of agreement--Income-tax Act, 1961 , s. 12AA(3) -- Mumbai Cricket Association v. Director of Income-tax (Exemption) (Mumbai) . . . 151

PRINT EDITION

Volume 25 : Part 4 (Issue dated : 5-8-2013)

SUBJECT INDEX TO CASES REPORTED

Appeal to Commissioner (Appeals) --Power to admit additional evidence--Assessee making out case of insufficient time for complying with requirement--Additional evidence to be admitted--Income-tax Rules, 1962, r. 46A-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521

Business expenditure --Business--Commencement of business--Assessee not granted registration as vendor by Ministry of Defence as supplier--No supply taking place--Business of assessee not set-up--Expenditure rightly disallowed--Assessee after obtaining registration participating in tenders invited by Ministry of Defence--Assessee in state of readiness to obtain orders--Expenditure allowable--Income-tax Act, 1961, s. 37-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521

----Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable--Income-tax Act, 1961, ss. 5(2), 9(1)(i), (vi), (vii), 40(a)(i), 195--Double Taxation Avoidance Agreement between India and Ireland, art. 12(2)(b)--Double Taxation Avoidance Agreement between India and the U. S. A., art. 12-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

----Discount under employees’ stock option scheme--Employees cost--Not a capital expenditure--Not a contingent liability--Deductible during vesting period with reference to market price of shares at time of grant of options to employees--Discount claimed as deduction during vesting period to be reversed in relation to unvesting or lapsing options at appropriate time--Income to be adjusted at time of exercise of option by difference in discount calculated with reference to market price at time of grant of option and at time of exercise of option--Income-tax Act, 1961, ss. 17, 37, 43(2)-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602

----Employees stock option scheme--Discount on issue of options allowable as deduction--Income-tax Act, 1961, s. 37-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602

Capital or revenue expenditure --Artwork charges--Artwork having life of six months or less--No enduring advantage--Not capital expenditure--Income-tax Act, 1961-- Parle Agro P. Ltd. v. Assistant CIT (Mumbai) . . . 551

Cash credits --Burden of proof--Share application moneys--Shareholders non-resident entities--Balance-sheets, certificates of incorporation, confirmations and certificates of good standing, filed by assessee--Foreign inward remittance certificates showing remittance by banking channels--Approval of Foreign Investment Promotion Board to raise capital--Discharge of primary burden cast on assessee--Identity and creditworthiness of creditors and genuineness of transaction proved--Moneys received cannot be treated as income of assessee--Income-tax Act, 1961, s. 68-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521

Costs --Department--Assessing Officer and Commissioner (Appeals) performing statutory functions--No case for imposition of costs on them-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521

Deduction of tax at source --Recipient of income not having primary tax liability--Payer cannot have vicarious tax withholding liability--Income-tax Act, 1961, s. 195-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

Depreciation --Rate of depreciation--Computer accessories and peripherals--Depreciation applicable at 60 per cent.-- Hughes Systique India P. Ltd. v. Assistant CIT (Delhi) . . . 556

Double taxation avoidance --Non-resident--Royalty--Definition in Agreement exhaustive--Amendment of definition in Act not applicable--Reimbursement to assessee by Indian company of lease line charges paid by assessee to overseas operators on behalf of Indian company--Not payment for use of equipment--Not royalty--Reimbursement at cost--Not taxable--Income-tax Act, 1961, s. 9(1)(vi), Expln. 5 --Double Taxation Avoidance Agreement between India and the U. S. A., arts. 3(2), 12-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

----Provisions of Act or of Agreement whichever more beneficial applicable to assessee--Effect of retrospective amendments to domestic law--Income-tax Act, 1961, s. 90(2)-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

Exemption --Export--Method of computation--Communication charges to be excluded from export turnover as well as total turnover--Income-tax Act, 1961, s. 10A-- Zavata India P. Ltd. v. Deputy CIT (Hyderabad) . . . 504

Income-tax authorities --Duties--Natural justice--If record available with Department and assessee points towards it--Authorities to verify that evidence and decide allowability-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521

Income-tax --General principles--Accounting--No accounting principle determinative in computation of total income under Act--Effect of Guidelines issued by other authority-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602

International transactions --Arm’s length price--Determination--Appeal to Appellate Tribunal--Power to admit additional evidence--Applicability of comparable uncontrolled price method not properly dealt with by Dispute Resolution Panel and Transfer Pricing Officer--Documents subsequently procured and necessary for proper ascertainment of transfer pricing adjustment--Assessee prevented by sufficient cause from producing them in assessment proceedings--Additional evidence to be admitted--Issue of transfer pricing adjustment to be restored to Transfer Pricing Officer--Income-tax Act, 1961, s. 92CA(3)-- Hughes Systique India P. Ltd. v. Assistant CIT (Delhi) . . . 556

----Arm’s length price--Determination--Selection of comparables--Companies which have suffered events like merger or demerger, impacting financial results, those having supernormal profit, those functionally dissimilar, those acting as intermediary having outsourced their activity, those whose directors involved in fraud, those whose turnover exceeding Rs. 200 crores not to be treated as comparables--Direction to Assessing Officer to determine arm’s length price of each comparable objected by assessee--Matter remanded--Income-tax Act, 1961, s. 92C-- Zavata India P. Ltd. v. Deputy CIT (Hyderabad) . . . 504

Interpretation of taxing statutes --Noscitur a sociis-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

Non-resident --Advance tax--Interest--Entire payments to non-resident liable to deduction of tax at source--Non-resident not liable for interest under sections 234B and 234C--Income-tax Act, 1961, ss. 234B, 234C-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

----Payment for marketing, management and sales support services to Indian company--Employees of assessee visiting India--Services provided in India and outside--No technical know-how made available--Assessee governed by Double Taxation Avoidance Agreement--Payment not for included services but business income to extent of services in India--Payment for service outside India not taxable--Income-tax Act, 1961, s. 9(1)(vi), Expln. 5 , (vii)--Double Taxation Avoidance Agreement between India and the U. S. A. art. 12(4)(b)-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

Words and phrases --“Expenditure†--Means not only “paying out“ but also “incurring“-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602

----“Technical service†-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

SECTIONWISE INDEX TO CASES REPORTED IN THIS PART

Double Taxation Avoidance Agreement between India and Ireland :

Art. 12(2)(b) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

Double Taxation Avoidance Agreement between India and the U. S. A. :

Arts. 3(2) --Double taxation avoidance--Non-resident--Royalty--Definition in Agreement exhaustive--Amendment of definition in Act not applicable--Reimbursement to assessee by Indian company of lease line charges paid by assessee to overseas operators on behalf of Indian company--Not payment for use of equipment--Not royalty--Reimbursement at cost--Not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

Art. 12 --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

----Double taxation avoidance--Non-resident--Royalty--Definition in Agreement exhaustive--Amendment of definition in Act not applicable--Reimbursement to assessee by Indian company of lease line charges paid by assessee to overseas operators on behalf of Indian company--Not payment for use of equipment--Not royalty--Reimbursement at cost--Not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

Art. 12(4)(b) --Non-resident--Payment for marketing, management and sales support services to Indian company--Employees of assessee visiting India--Services provided in India and outside--No technical know-how made available--Assessee governed by Double Taxation Avoidance Agreement--Payment not for included services but business income to extent of services in India--Payment for service outside India not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

Income-tax Act, 1961 :

S. 5(2) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

S. 9(1)(i), (vi), (vii) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

S. 9(1)(vi), Expln. 5 --Double taxation avoidance--Non-resident--Royalty--Definition in Agreement exhaustive--Amendment of definition in Act not applicable--Reimbursement to assessee by Indian company of lease line charges paid by assessee to overseas operators on behalf of Indian company--Not payment for use of equipment--Not royalty--Reimbursement at cost--Not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

S. 9(1)(vi), Expln. 5, (vii) --Non-resident--Payment for marketing, management and sales support services to Indian company--Employees of assessee visiting India--Services provided in India and outside--No technical know-how made available--Assessee governed by Double Taxation Avoidance Agreement--Payment not for included services but business income to extent of services in India--Payment for service outside India not taxable-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

S. 10A --Exemption--Export--Method of computation--Communication charges to be excluded from export turnover as well as total turnover--Income-tax Act, 1961, Zavata India P. Ltd. v. Deputy CIT (Hyderabad) . . . 504

S. 17 --Business expenditure--Discount under employees’ stock option scheme--Employees cost--Not a capital expenditure--Not a contingent liability--Deductible during vesting period with reference to market price of shares at time of grant of options to employees--Discount claimed as deduction during vesting period to be reversed in relation to unvesting or lapsing options at appropriate time--Income to be adjusted at time of exercise of option by difference in discount calculated with reference to market price at time of grant of option and at time of exercise of option-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602

S. 37 --Business expenditure--Business--Commencement of business--Assessee not granted registration as vendor by Ministry of Defence as supplier--No supply taking place--Business of assessee not set-up--Expenditure rightly disallowed--Assessee after obtaining registration participating in tenders invited by Ministry of Defence--Assessee in state of readiness to obtain orders--Expenditure allowable-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521

----Business expenditure--Discount under employees’ stock option scheme--Employees cost--Not a capital expenditure--Not a contingent liability--Deductible during vesting period with reference to market price of shares at time of grant of options to employees--Discount claimed as deduction during vesting period to be reversed in relation to unvesting or lapsing options at appropriate time--Income to be adjusted at time of exercise of option by difference in discount calculated with reference to market price at time of grant of option and at time of exercise of option-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602

----Business expenditure--Employees stock option scheme--Discount on issue of options allowable as deduction-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602

S. 40(a)(i) --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

S. 43(2) --Business expenditure--Discount under employees’ stock option scheme--Employees cost--Not a capital expenditure--Not a contingent liability--Deductible during vesting period with reference to market price of shares at time of grant of options to employees--Discount claimed as deduction during vesting period to be reversed in relation to unvesting or lapsing options at appropriate time--Income to be adjusted at time of exercise of option by difference in discount calculated with reference to market price at time of grant of option and at time of exercise of option-- Biocon Ltd. v. Deputy CIT (LTU) [SB] (Bangalore) . . . 602

S. 68 --Cash credits--Burden of proof--Share application moneys--Shareholders non-resident entities--Balance-sheets, certificates of incorporation, confirmations and certificates of good standing, filed by assessee--Foreign inward remittance certificates showing remittance by banking channels--Approval of Foreign Investment Promotion Board to raise capital--Discharge of primary burden cast on assessee--Identity and creditworthiness of creditors and genuineness of transaction proved--Moneys received cannot be treated as income of assessee-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521

S. 90(2) --Double taxation avoidance--Provisions of Act or of Agreement whichever more beneficial applicable to assessee--Effect of retrospective amendments to domestic law-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

S. 92C --International transactions--Arm’s length price--Determination--Selection of comparables--Companies which have suffered events like merger or demerger, impacting financial results, those having supernormal profit, those functionally dissimilar, those acting as intermediary having outsourced their activity, those whose directors involved in fraud, those whose turnover exceeding Rs. 200 crores not to be treated as comparables--Direction to Assessing Officer to determine arm’s length price of each comparable objected by assessee--Matter remanded-- Zavata India P. Ltd. v. Deputy CIT (Hyderabad) . . . 504

S. 92CA(3) --International transactions--Arm’s length price--Determination--Appeal to Appellate Tribunal--Power to admit additional evidence--Applicability of comparable uncontrolled price method not properly dealt with by Dispute Resolution Panel and Transfer Pricing Officer--Documents subsequently procured and necessary for proper ascertainment of transfer pricing adjustment--Assessee prevented by sufficient cause from producing them in assessment proceedings--Additional evidence to be admitted--Issue of transfer pricing adjustment to be restored to Transfer Pricing Officer-- Hughes Systique India P. Ltd. v. Assistant CIT (Delhi) . . . 556

S. 195 --Business expenditure--Disallowance--Payments liable to deduction of tax at source--Payments in respect of online advertising--Presence in India of non-resident only through its website--Does not constitute permanent establishment in India--Receipts not arising on account of any business connection in India--Service rendered by wholly automated process--No transfer of any technology--Not technical services--Income of non-resident not chargeable in India--Assessee not liable to deduct tax at source--Payment allowable-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

----Deduction of tax at source--Recipient of income not having primary tax liability--Payer cannot have vicarious tax withholding liability-- ITO v. Right Florists P. Ltd. (Kolkata) . . . 639

S. 234B --Non-resident--Advance tax--Interest--Entire payments to non-resident liable to deduction of tax at source--Non-resident not liable for interest under sections 234B and 234C-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

S. 234C --Non-resident--Advance tax--Interest--Entire payments to non-resident liable to deduction of tax at source--Non-resident not liable for interest under sections 234B and 234C-- WNS North America Inc. v. Assistant Director of Income-tax (International Taxation) (Mumbai) . . . 582

Income-tax Rules, 1962 :

R. 46A --Appeal to Commissioner (Appeals)--Power to admit additional evidence--Assessee making out case of insufficient time for complying with requirement--Additional evidence to be admitted-- Russian Technology Centre P. Ltd. v. Deputy CIT (Delhi) . . . 521