The Income Tax Appellate Tribunal (ITAT), Delhi bench, while deleting a disallowance made by the income tax department, held that since there is no provision in the Indo-UAE double tax treaty regarding the fee for technical services, no withholding of tax can be made.
The department, during the assessment proceedings against the assessee, M/s. Chadha Power, disallowed reimbursement of expenses made to two non-resident entities i.e. Chadha Projects JLT, Dubai of Rs.1,30,51,568/- and Rs.21,33,805/-to Chadha Power (SA) Pty. Ltd., South Africa.
The assessee explained that the said reimbursement of expenses of both the entities were for carrying out market research for feasibility and expansion of market in neighboring countries particularly in Gulf and African region and day-to-day coordination in activities for the assessee, negotiation and procurement of orders, securing of materials, supply and distribution of materials to destination sites, logistic support and follow up and liaisoning for projects under execution etc.
The Two-Member bench of the Tribunal comprising ITAT President Mr. G S Pannu and the Judicial Member Mr. Amit Shukala held that sans any adverse material, AO cannot question the wisdom and business expectancy in which wake of such evidences and record which has been duly appreciated and taken note of by the ld. CIT (A).
“The documents which have been referred to in the first appellate order, as incorporated above, clearly show that both the entities i.e. Dubai based and South Africa based has assisted in the business development as well as procurement of huge business orders which was in line with the assessee’s business i.e. supply, installation, commissioning and maintenance of DG sets, power equipment and its spares/accessories. There is no adverse material on record to rebut the aforesaid documents as highlighted by the ld. CIT (A) above. Therefore, we do not find any reason to uphold the addition on the ground that there are no commercial activities. Accordingly, the finding of ld. CIT (A) is confirmed,” the bench said.
“Insofar as the disallowance made u/s 40(a)(i) of the Act is concerned, the AO held that the said payment of reimbursement of expenses is in the nature of fee for technical services. As noted by the ld. CIT (A), there is no FTS clause in the India UAE DTAA regarding fee of technical services and, therefore, there cannot be any question of withholding of tax. Accordingly, disallowance u/s 40(a)(i) cannot be made. The aforesaid finding of ld. CIT (A) is accordingly confirmed,” the bench added.
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