Case Note & Summary
The case involves appeals filed by the Revenue under Section 260-A of the Income Tax Act, 1961, against the order of the Income Tax Appellate Tribunal (ITAT), Bangalore, dated 21-12-2006. The assessee, M/s Robert Bosch (India) Ltd, had made payments of royalty to a non-resident without deducting tax at source. The Assessing Officer disallowed the expenditure under Section 40(a)(i) of the Act. The Commissioner of Income Tax (Appeals) and the ITAT held that the payment was not chargeable to tax in India, and therefore, Section 40(a)(i) was not applicable. The Revenue appealed to the High Court, contending that the expenditure should be disallowed regardless of chargeability. The High Court, after hearing the parties, held that Section 40(a)(i) applies only to payments which are chargeable to tax in India. Since the payment in question was not chargeable, no disallowance could be made. The court dismissed the appeals, confirming the order of the ITAT.
Headnote
A) Income Tax - Disallowance of Expenditure - Section 40(a)(i) of Income Tax Act, 1961 - Disallowance of expenditure for non-deduction of tax at source on payment to non-resident - The issue was whether payment of royalty to a non-resident without deduction of tax at source is disallowable under Section 40(a)(i) when the payment is not chargeable to tax in India - The court held that Section 40(a)(i) applies only to payments which are chargeable to tax in India; if the payment is not chargeable, no disallowance can be made - The court dismissed the revenue's appeal (Paras 1-10).
Issue of Consideration
Whether the expenditure incurred by the assessee towards payment of royalty to a non-resident without deduction of tax at source is liable to be disallowed under Section 40(a)(i) of the Income Tax Act, 1961, when the payment is not chargeable to tax in India.
Final Decision
The High Court dismissed the appeals, holding that Section 40(a)(i) of the Income Tax Act, 1961 applies only to payments which are chargeable to tax in India. Since the royalty payment to the non-resident was not chargeable to tax in India, no disallowance under Section 40(a)(i) could be made. The order of the ITAT was confirmed.
Law Points
- Section 40(a)(i) of Income Tax Act
- 1961
- disallowance of expenditure
- non-resident
- tax deduction at source
- chargeability to tax in India
Case Details
2013 LawText (KAR) (10) 7
ITA.No.507/2007 c/w ITA.No.508/2007, ITA.No.503/2007, ITA.No.505/2007
Justice Dilip B Bhosale, Justice B Manohar
Sri K V Aravind (for appellants), Sri K P Kumar, Senior Advocate, Miss Tanmayee Rajkumar, Sri T Suryanarayana (for respondent)
The Commissioner of Income Tax, Central Circle, Bangalore & The Assistant Commissioner of Income Tax, Circle 12(2), Bangalore
M/s Robert Bosch (India) Ltd, Bangalore
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Nature of Litigation
Appeal under Section 260-A of the Income Tax Act, 1961 against the order of the Income Tax Appellate Tribunal.
Remedy Sought
The Revenue sought to set aside the order of the ITAT and confirm the disallowance of expenditure under Section 40(a)(i).
Filing Reason
The Revenue was aggrieved by the ITAT's order holding that Section 40(a)(i) does not apply to payments not chargeable to tax in India.
Previous Decisions
The Assessing Officer disallowed the expenditure; the Commissioner of Income Tax (Appeals) and the ITAT allowed the assessee's appeal.
Issues
Whether the expenditure incurred by the assessee towards payment of royalty to a non-resident without deduction of tax at source is liable to be disallowed under Section 40(a)(i) of the Income Tax Act, 1961, when the payment is not chargeable to tax in India.
Submissions/Arguments
The Revenue argued that Section 40(a)(i) mandates disallowance of any expenditure on which tax has not been deducted at source, irrespective of whether the payment is chargeable to tax in India.
The assessee contended that Section 40(a)(i) applies only to payments which are chargeable to tax in India; since the royalty payment was not chargeable, no disallowance could be made.
Ratio Decidendi
Section 40(a)(i) of the Income Tax Act, 1961, which provides for disallowance of expenditure for non-deduction of tax at source, applies only to payments that are chargeable to tax in India. If the payment is not chargeable to tax, the provision does not apply and no disallowance can be made.
Judgment Excerpts
Section 40(a)(i) of the Income Tax Act, 1961 applies only to payments which are chargeable to tax in India.
Since the payment in question was not chargeable to tax in India, no disallowance under Section 40(a)(i) could be made.
Procedural History
The Assessing Officer disallowed the expenditure under Section 40(a)(i). The Commissioner of Income Tax (Appeals) allowed the assessee's appeal. The ITAT confirmed the order of the Commissioner. The Revenue filed appeals under Section 260-A before the High Court.
Acts & Sections
- Income Tax Act, 1961: Section 40(a)(i), Section 260-A
