CA DINESH R SHAH Study Group Meeting on RECENT DIRECT TAXES JUDGEMENTS

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1 THE CHAMBER OF TAX CONSULTANTS 3, Rewa Chambers, Ground Floor, 31, New Marine Lines, Mumbai Tel.: / Fax: office@ctconline.org Website: CA DINESH R SHAH Study Group Meeting on A. OTHERS RECENT DIRECT TAXES JUDGEMENTS Date: 7 th March, (1) Company Book Profit under Section 115JB B & B Infra-tech Ltd V/s. Income tax Officer. (2017) 146DTR (Karnataka HC) 103 (issue No.19) Provision of Se 115JB have overriding effect upon other provisions of the Act and the mechanism or operation of the Section is a complete code by itself and therefore any deduction which is otherwise not provided by the explanation would be outside the scope of operation off S.115 JB. Apollo Tyres Ltd V/s CIT (2002) 174 ITR (SC) 521 (2002) 255 ITR 273 (SC) applied. Conclusions:- Provision of Se.115JB have overriding effect upon other provisions of the Act and the mechanism or operation of the Section is a complete code by itself and therefore any deduction which is otherwise not provided by the explanation would be outside the scope of operation of Se.115JB. 2. Deduction under Se.80G. CIT V/s. Gulab Devi Memorial Hospital Trust. (2017) 146 DTR (P &H) 34 (issue No 17) Registration under Se.12A and the exemption u/s 10 (23C) (vi) and (via) by itself does not entitle the assessee to grant of exemption under 80G. Even if Substantial Surplus is generated but the same is found to have been ploughed back for building infrastructure assets. Which in turn are used for Educational/ Charitable purposes the Institution would not lose its Charitable Character, Generated Surplus having been ploughed back for expansion purposes and charges for assessee s services being extremely reasonable, assessee was entitled to renewal of registration under Se.80G (5). 3. Company. Book Profit under Se.115JB:- Torm Shipping India (P) Ltd. V/s ITO/ (2017) 145 DTR (Mumbai) Tribunal 152 (8) 1

2 Provision for leave encashment made on actuarial basis cannot be treated as an un ascertained liability and therefore such provision debited by the assessee company in P& L A/c account be added while computing the book profit under Se.115JB. 4. Deemed Dividend: u/s 2 (22) (e ) Gopal and Sons HUF V/s CIT (2017) 391 ITR 1 (S.C) Loan to Shareholder HUF-payment made by family for purchase of share Constituting substantial interest in Company- share Certificates issued in name of Karta. Karta having more than 20 percent interest in and entitled to not less than 20 percent of Income of family Loan from Company is deemed dividend in hands of family. 5. Book Profit: Computation of Income:- Karnataka State Industrial Infrastructure Development Corp. Ltd. V/s Dy CIT (2017) 54 ITR (Tribunal) 425 Capital Gains- Long Term Capital gains. Benefit of Indexed cost of acquisition to be considered for purpose of computing tax Liability. 6. Income from House Property Annual letting Value:- Informed Technologies India Ltd V/s Dy CIT (2017) 54 ITR (Tribunal) 397 Mumbai. Annual letting value: Property let in earlier period and vacant for whole relevant year- Vacancy of property not for self- occupation by assessee. Assessee holding property for purpose of letting out- Annual value of property to be taken. At nil I.T At 1961 Se.23 (1) ( c) 7. Income from House Property:- Interest free Deposits. Sobha Interiors (P) Ltd V/s Dy. CIT (2017) 162ITD (Benglore) 267. While computing ALV of house property let our by assessee, notional interest on interest free security deposit has to be taken into consideration. 8. Se. 14A rule 8D 2 (11) Grindwell Norton Ltd V/s Addln CIT (2017) 147 DTR (Mumbai) Tribunal. 185 (37) Assessee s non- Interest bearing funds being much more than its Investments which have yielded tax-free dividend Income no disallowance under Se.14A can be made out of Interest Expenses by applying the provisions of rule 8D (2) (ii) B. CHARITABLE TRUST 1. Charitable Trust: Exemption under Se.11 ITO V/s Moradabad Development Authority. (2017) 146 DTR Del Tribunal 120 (issue 21 & 22) Assessee- authority formed with the main object of town planning g having been granted registration u/s 12A and the Revenue having accepted in the earlier years that the activities carried out by the assessee were charitable in nature, it is entitled to exemption u/s 11 in the relevant assessment year as well as in the absence of any change in the Charitable purpose pursued by the assessee. 2

3 2. Accumulation of Income u/s 11(2): Specific purpose:- CIT V/s Gokula Education Foundation (issue No 14) A.Y & A.Y As long as the objects of the trust are charitable in character and as long as the purpose or purposes mentioned in Form No 10 are for achieving the objects of the trust merely because the details are not furnished. The assessee can not be denied benefit of the exemption u/s 11 (2). Further form No 10 was already filed and the revised Form No 10 filed for sub- head of the purposes falling under the main head of the objects of the trust was accepted by the CIT (A) in the proceedings of the appeal, Appeal is a continuous proceeding and it cannot be said that Revised form No 10 could not at all be considered for allowing the claim made u/s 11 (2). Tribunal was right in allowing the claim of the assessee under Se.11(2). 3. Charitable Trust & Depreciation: ITO (Exemption) V/s Shri Sadguru Seva Trust. (2017) ITR (Tribunal)OL.237 Reported in (54 Volume Part 3) Acquisition of Capital asset claimed as application of Income to Charitable purposes- Depreciation on asset allowable- Assessee eligible for depreciation in current year. 4. Se.80G (5) Charitable Purpose:- Definition CIT V/s Dr. Virendra Swaroop Education Foundation. Education - Speciation deduction- Donation to Charitable Institutions Renewal of approval - Nothing on record showing activities of assessee not charitable. Surplus funds utilized for setting up new Institutions. Surplus not distributed as profits amongst members of society Assessee eligible for approval 5. Charitable Purpose objects of General Public utility. Quality Circle Forum of India V/s Dy CIT (2017) 162 ITD (Hydrabd Tribunal) 122. Where revenue had granted registration under Section 12 to assessee treating activities as charitable, merely charging of fees for carrying out such activities would not loose character of charity. C. CAPITAL GAINS 1. Capital Gain Exemption u/s 54 (issue No.19) Smt. Nirmala Yadav V/s ITO (2017) 146 DTR (Jd) Tribunal 63 Assessee purchased a new Residential Plot on 28/7/2010 for Rs.23,00,000/-. Which was much more than the net sale consideration of Rs.13 lakhs arising on Account of the sale of old property on 10th Feb, Thereafter, the assessee commenced construction which was completed by December Thus even before the due date prescribed u/s 139 (1) being 31st July 2010, Investment of larger amount than the net consideration was made,. That apart, construction of the house was also completed within the prescribed time limit of three years- Therefore assessee is entitled to Exemption u/.s 54F- Same cannot be denied on the ground that the assessee did not 3

4 deposit the sale consideration of the property as per the scheme notified by the Government under Se.54F (4) 2. Capital Gain s: Long Term Capital Gains:- Asst. CIT V/s Sanjay B. Pahadia (2017) 54 ITR (Tribunal) 37 Mumbai. Long Term Capital Gains:- Exemption- Sale of residential House Property and Investment of Sale consideration in another Residential Property- conversion of two flats into one flat- assessee acquiring flats with intention to use them as on e residential unit- Whether flats constructed as such by builder or flats altered or combined into one at the Instance of Assessee- No distinction- Assessee entitled to exemption. SS 54 & 54F. [Raman Kumar Sari (2014) 3 ITR OL 127 Bom/ CTR Bombay 257 relied upon by the Appellant CIT V/s Devdas Naik (2014) 366 ITR 12 (Bombay) 3. Investment in Bonds:- CIT II Pune V/s Subhash Vinayak Supnekar. (2017) 77 taxxmann.com 226 Bombay. When amount received as advance under an agreement to sell a Capital assets is Invested in specified bonds benefits of Section 54EC is available to assessee. 4. Capital Gain: Transfer of shares when take place. Y.V. Ramana V/s CIT I Visakhapatnam. (2017) 162 ITD 662 (8) Transfer of Shares takes place not on date of agreement or receipt of consideration but on date on which transfer is executed and endorsed by concerned company; period specified in Section 54 EC and 54F for making Investment is to be calculated from the date of execution. 5. Profit on sale of property used for residence: Gopal Saran Darbari V/s ITO(2017) 162 ITD 342 (Delhi) Even if an assessee acquires a new house on credit i.e. payment for which may be made in future, assessee can not be denied benefit of deduction under Se.54 became. What is required by sub- clause (1) of Se.54 (1) is that cost of new house should be equal to or more than amount of Long term Capital Gain. D. INCOME FROM BUSINESS 1. Method of Valuation of Closing Stock:- Change of Method. Bajaj Auto Ltd V/s Commissioner of ITO (2017) 146 DTR (Bombay High Court) 210 (issue 27) Accounts- Valuation of Closing Stock Change of Method. What the assessee has changed is the method of ascertaining the cost for the purpose of Stock Valuation and not the Method of accounting employed by the assessee for the purpose of Stock Valuation as such Method as before continues to be cost or market value whichever is lower. It is only for determining the cost for the purpose of this method 4

5 that instead of lowest purchase price during the year the basis of weighted average cost was adopted. Even otherwise formula adopted by the assessee was more scientific than the one which was adopted earlier. Adoption of the new method by the assessee is accordingly clearly bona fide. New System of accounting was followed by the assessee in the subsequent assessment years as well Tribunal was not right in rejecting the change in the method of valuation of Closing Stock. 2. Deduction Under Se.801B:- Profits and Gain Derived from Industrial Undertaking. Principal CIT V/s Shree Mahavir Food Ltd. (2017) 146 DTR (Meghalaya) 189 (issue No 22) Transport subsidy Tribunal was justified in regarding the transport subsidiary as part of operational profits and was justified in holding the assessee entitled to deduction under Se.80 1B on the transport subsidy. CIT V/s Mehalaya Steel Ltd. (2016) 132 DTR (SC) 273 applied. 3. Depreciation Allowability (issue No 22) CIT V/s Bhushan Steel & Stripes Ltd (2017) 146 DTR (Del) 169. Assessee lessee of hotel premises with option to purchase the leased property on expiry of three years from the commencement of the lease. Note the Assessee has given security Deposit of Rs.3-16 Crores-Though the document of Lease was not Registered (i.e. The Tribunal was justified in holding that non registration of the agreement did not imply that the benefit otherwise available under Se.53A of the Transfer of Property Act 1882 of being entitled to continue in possession in part performance of an agreement to sell had to be denied]. Thus Assessee, lessee of Hotel premises with option to purchase the leased property on expiry of three years from the commencement of the lease was entitled to depreciation. 4. Accounts- Method of Accounting: Project Completion Method or Percentage completion Method:- Paras Buildtech India (P) Ltd V/s CIT (2017) 145 DTR (Del) 313. Tribunal having accepted the finding of CIT (A) that assessee was a developer and not contractor, was not justified in holding that advance amount received by the assessee should be treated as Income in its hands in the year. In which the advance amounts were received and in applying AS-7 i.e. the percentage completion method to the assessee. Expenses of construction were not debited to the Profit & Loss A/c the assessee. It was shown as cost of construction or block of buildings. It is only as and when a conveyance deed was executed or possession delivered that the receipt was shown as Income. 5. Disallowance Under Se.40A(3) Exceptional or unavoidable circumstances. Ajmeer Food Products (P) Ltd V/s Jt. CIT/ DTR (JP) Tribunal 57 (issue No5) 5

6 Assessee having made payments in cash in view of the insistence of the payee and identity and the genuineness of the transactions not being in dispute impugned disallowance u/s 40A (3) is not sustainable. 6.. Business Expenditure: Allowability:- Advertisement and Sales Promotion Expenses vis-avis freebies given to doctors:- Dy. CIT V/s Phl Pharma (P) Ltd Mumbai. (2017) 146 DTR (Mumbai Tribunal) 149 issue No (28) Prohibition imposed by C; 68 of Indian Medical Council Regulations, 2002 is applicable only to medical practitioners and not to pharmaceuticals companies. Circular No 5/2012 dt. 1 st August 2012 which has enlarged the scope of Indian Medical Council Regulations 2002 can not be applied to the pharmaceutical companies more so it has no retrospective effect Expenditure incurred by the assessee pharmaceutical companies on seminars conferences etc and distribution of free samples of medicines to doctors is allowable as business expenditure and is not hit by explanation 1 to Se.37 (1) 7. Accounting.Method of Accounting. Asst CIT V/s Layer Exporters (P) Ltd. (2017) 53 ITR (Tribunal) 416 Mumbai (issue No 4) Development and Construction of Building on ownership basis and sale thereof Principle of consistency- Project completion Method- Department cannot disregard Method earlier accepted receipts taxable only in year in which project completed and possession of flat or occupancy certificate given for flat. Se.145A. 8. Rejection of Accounts: CIT V/s Parth Laboratories (P) Ltd (2017) 391 ITR 70 Gujarat H.C A.O making addition on account of suppressed sales due to decline in gross profit finding that there was justification for decline in gross profit and deletion of additions as in earlier years. No question of law arises 9. Stock Exchange Membership Cards & Depreciation. J.M. Financial Services Ltd. V/s Joint CIT (2017) 54 ITR (Tribunal) 120 Mumbai. Depreciation- Intangible Assets: Bombay Stock Exchange and National Stock Exchange Membership Cards Entitled to depreciation. (Techno Shares and Stock Ltd V/s CIT (2010) 327 ITR 323 (S.C) applied. 10. Depreciation on Goodwill: Dy CIT V/s Zydus Wellness Ltd. (2017) 162 ITD 604 (issue No 7) Depreciation on goodwill arising on amalgamation claimed by assessee company during course of assessment proceedings vide a revised computation of Income without filing revised return of Income was allowable. 11. Business Income V/s Income from Other Sources. 6

7 CIT V/s Green Infra Ltd (2017) 146 DTR (Bombay) 262 (29) Interest on fixed deposits- finding of Tribunal that business was set up / commenced not being chellanged Interest on Fixed deposits for Short duration constituted business Income. 12. Accounting- Gross Profit Rate:- CIT V/s Popular A rt Palace (P) Ltd. (2017) 391 ITR 352 (Rajsthan H.C) A.O estimating gross profit rate at 35 percent CIT (A) and Appellate Tribunal abruptly deducting profit without assigning reasons- Estimate of 32 percent to be adopted considering average profit of six years shown by assessee I.T Act 1961 (Se.145) 13 Deduction u/s 80 1B & filing of Return of Income. Dy CIT V/s Siroya Developers (2017) 162 ITD 718 (8) (Mumbai Tribunal) Deduction u/s 80 1B can be allowed only when return is filed on or before due date specified under Se.139 (1) if return is filed belatedly assessee will not be entitled to such deduction. 14 Cost when assets purchased from related Party(?) Sanyo BPL (P) Ltd V/s Dy CIT Banglore. (2017) 162 ITD Page3 176 (Banglore) Explanation 3 to Section 43 (1 )where assessee having purchased assts from related party assigned inflated value to those assets in order to claim higher depreciation. A.O was justified in determing actual cost of Assets by Invoking Explanation 3 to Se 43 (1). 15. Setting up of Business: Globex Engergia (P) Ltd V/s Asst. CIT (2017) 162 ITD Page 532 (Mumbai Tribunal) Even if assessee does not earn any business Income during year, but business Income during year, but business is set up it would amount to carry on business and therefore, business expenses would be allowable. 16. Prior Period Expenses:- Dy CIT V/s Zadus Wellness Ltd (Ahd) (2017) 162 ITD 604 (Ahmedabad Triubunal) Where custodial fees paid by assessee pertaining to earlier year has crystallized during relevant assessment year, same being legitimate business Expenditure could not have been disallowed as prior period expenditure. 17 Share trading and future and options Losses:- ITO V/s PKS Holdings, (2017) 162 ITD Page 1 (Kol) Where assessee, a dealer in both shares and property incurred loss on derivatives, being future option loss on transactions entered into NSE he would be entitled to set off same against profit on sale of property. E. SEC.68 & 69 UNEXPLAINED CASH CREDIT & DEPOSITS EXP. 7

8 1. Income: Cash Credit:- Genuineness: (15) Kamal Raheja V/s ITO (2017) 145 DTR (Lucknow) Tribunal 225. There was sufficient balance in the account of the assessee. Assessee had taken Loan from the Assessee in the earlier also and there was opening balance of Rs.4,10,000/-. Thus the assessee is a regular creditor of the assessee and it has a PAN. Thus the identity of the Creditor and genuineness of the transaction are proved and consequently, the burden which lay upon the assessee stand discharged. Hence impugned addition is deleted. 2. Bogus Purchases: Arun Shimpi V/s Income tax Officer. (2017) 53 ITR (Tribunal) 151 (Mumbai) A Bench. Unexplained Expenditure Bogus Purchases IT (A) restricted disallowance on inference that assessee- actually made purchases in open market but inflated Invoices, Department accepting net profit rate of percent earned by assessee in preceding year. Additions to be made to make profit Cum Parable with what that of preceding year. Se.69C. 3. Cash Credit Share Application Money:- Principal CIT V/s N.C Cables Ltd. (2017) 391 ITR (Delhi) 11 Assessee Furnishing documents to evidence genuineness of transaction and identity and creditworthiness of parties Failure by A.O to conduct adequate and proper inquiry into materials while invoking Section 68. No addition can be made under Section 68. CIT V/s Lovely Exports (P) Ltd (2009) 319 ITR St.5 (S.C) 4. Share Application Money. Rajmandir Estates (P) Ltd. V/s Principal CIT Kolkata III (2015) 77 taxxmann.com.285 (SC) SLP dismissed against High Court ruling that where assessee with a small amount of authorized share capital raised huge sum on account of premium exercise of reversionary powers by commissioner opining that this could be a case of money laundering was justified. 5.. Bank Deposits:- Unexplained Money. Asst. CIT Central Circle 10 New Delhi V/s Vikas. Gutgutia (2017) 77 Taxmann.com 268 (Delhi Tribunal) Turnover of assessee for the year being 3=25 Crores and deposit of cash in bank amounting to Rs.40=19 lakhs natural inference that could be drawn was that deposits in the bank were made out of cash sales deposits could not be considered as unexplained money. 6. Bogus Purchases: ITO Ward 19 (2) (2) Mumbai V/.s Karsan Nandu (2017) 77 taxamnn.com 275 Mumbai Tribunal. 8

9 Where A.O held that purchases made by assessee from Seven parties was mere accommodation entries and not real purchases and accordingly treated expenditure on purchases as unexplained Expenditure under Section 69C and added same to returned Income. Invoking of Section 69C in instant case was on a wrong footing. 7. CASH CREDIT: Sundry Creditors. ITO V/s Standard Leather (P) Ltd. (2017) 162 ITD (Kol) 285 Sundry Creditors could not be treated as bogus where corresponding purchases from them were admitted and payments to same Sundry Creditors continuing from Earlier years were accepted by Assessing Officer as genuine payments 8. Income Cash Credit: genuineness of transaction of trading in commodities:- JVR Forging Ltd V/s Asst CIT (2017) 147 DTR (Chd Tribunal) 105 (34) Assessee has filed documentary Evidence before the authorities below in support of genuineness of the transaction of sale and purchase of commodities- Further Income of assessee of the transaction of sale and purchase of commodities. Further Income of assessee from trading in commodities having been accepted in earlier year on business Income. Revenue could not be allowed to invoke Se.68. F. ASSESSMENT REASSESSMENT & REVISION TO APPEAL. 1. Reassessment: Change of opinion:- (issue No.21) CIT V/s ARONI COMMERCIAL LTD. (2017) 146 DTR (Bom) 145 Issue examined during assessment under Se.143 (3). A query was raised during the regular assessment proceedings and it was responded to by the Assessee. This is a case where the AO did apply his mind as evidenced by the quarry raised to the very issue which is now sought to be raised as the basis for reopening the assessment and the AO was satisfied with the response to the quarry during the regular assessment proceedings. View taken by the Tribunal that the reopening notice is without jurisdiction as it is founded on a mere change of opinion is sustainable. 2. Reassessment Reason to believe:- (issue No.18) Virbhadra Singh V/s Dy CIT (2017) 146 DTR (Himachal Pradesh H.C) 65. When the genuineness of Loaners- agricultural Income and Sources were doubtful as also the fact of receipt of Loan by assessee and its repayment came to the notice only during Investigation conducted u/s SS 131 & 133(6) and the A.O having considered the entire material before issuing notice u/s 148 for which proper sanction was also received from Joint CIT Writ petition to quash the notice under Section 148 was not maintainable. 3. Revision under Section 264 Utanka Roy V/s Director of I.T (International taxation) & (2017) 146 DTR (Cal) 27 (issue No 16) Revision under Section 264. Maintainability of petition claiming Income not taxable in India- Income received by the assessee for services rendered outside India has to be 9

10 considered as Income received out of India and cannot be taxed in India- Revision Petition u/s 264 against intimation under Section 143 (1) assessing the Income was maintainable Power under Section 264 is wide enough to grant appropriate relief to an assessee. 4. Revision under Section 264 Dr. Jyoti Vajpayee V/s CIT (2017) 145 DTR (All) 324 (12) On the facts of the case, assessee was entitled to exemption under Se.10(8) revision under Se.264 was maintainable through return was processed u/s 143 (1) 5. Assessment in Search Cases:- Ashok Nanda V/s. Dy. CIT (2017) 54 ITR (Tribunal) 54 (Indore) Search and Seizure: Assessment in Search Cases: Unexplained Income. Addition made on basis of Dumb Paper not valid. I.T Act Assessment Validity- Return Selected for Scrutiny in violation of CBDT guidelines. S.F. Chougule V/s Joint CIT (2017) 146 DTR (Pune) Tribunal 213 (30) Return manually selected for scrutiny without obtaining prior approval of Chief CIT being violation of CBDT guidelines contained in FNO 225/92/2009/IT II. Scrutiny assessment made by A.O was without jurisdiction hence annulled Instructions issued by CBDT are to be strictly followed by the authority and in the absence of the same. The assessment order is liable to be quashed. 7. Se.147: Re-assessment Notice-undated reasons:- Charajiv Lal Aggarwal V/s ITO (2017) 54 ITR (tribunal) 349 Amrisar. No suggestion in reasons that A.O made any positive enquiry before coming to conclusion that Income chargeable to tax has escaped assessment- Reopening on borrowed Satisfaction impermissible. 8. Maintainces of Book. Qualtiy Circle Forum of India V/s Dy CIT (2017) 162 ITD Page 122. (Hydrabad Tribunal) Where books of account of assessee were audited it gives an impression that there exists books of account hence A.O was not justified in disallowing 20% of Expenditure. 9. Set off of from one source against Income from another sources under same head of Income:- Dy CIT V/s. Diamonds Co. Ltd. (2017) 162 ITD (kol) 131 Capital Loss on STT paid shares- Loss arising on Sale- purchase of shares on which STT was paid could not be set off against gains arising from sale- purchase of shares on which STT was not paid. 10. Levy of Interest:- Tax on distributed profits of domestic Companies:- Informed Technologies India Ltd V/.s Dy CIT (2017) 162 ITD (Mumbai Tribunal)

11 Where assessee Company paid dividend distribution tax within stipulated time period of 14 days from date of declaration of dividend impugned assessment order levying interest under Section 115P was to be set aside. G. PENALITIES. (1) Penalty under Se 271 (1) ( c) of I.T Act Prince Consultancy (P) Ltd V/s Dy CIT (2017) 54 ITR (Tribunal) 334 Mumbai. Concealment of Income- Furnishing inaccurate particulars of Income satisfaction of AO mandatory- A.O not certain whether he has to proceed on basis that assessee has concealed his Income or had furnished inaccurate particulars of Income. A.O failed to apply mind at time of issuing penalty notice to assessee. Levy of penalty invalid Se.271 (1) ( c) & 274. H. TAX DEDUCTED AT SOURCES & TCS 1. TDS: Under Section 194I. Rent Vis-à-vis Passenger Service Fees:- CIT V/s Jet Airways (India) Ltd (2017) 146 DTR (Bombay) 124 (20) Passenger Service fees paid by the assessee airline to the airport operator was not covered under the definition of Rent given in the explanation (1) to Se.194 I 2. TDS. Assessee in default: Submission of incorrect PAN of deductee vis-à-vis applicability of S.2 06AA; Office of Xenphed Jaipur V/s ITO (2017) 146 DTR (JP) Tribunal 19 (issue No 16) Assessee payer having failed to discharge its obligation to verify the PAN submitted by the payee which has been eventually found to be incorrect by the Department at the time of processing of the TDS return. AO was justified in raising demand for the differential tax that the assessee should have deducted in terms of Se 206AA on account of submission of incorrect PAN by the payee 3. Expenses of sending SMS: Whether Royalty V/s 194J (?) Gapshap Technology India (P) Ltd V/s. Dy CIT (TDS) 1 (1) Mumbai. (2017) 162 ITD 643 (8) Where assessee was engaged in sending SMS and for sending SMS it availed Services of a telecom operator and it had neither any access nor control over equipment of telecom operator. Payment made to telecom operator could not be treated in nature of Royalty in terms of Section 194J (Note assessee deducted TDS under Section 194C from payment made to telecom operator]. 4. Software for Resale whether Se.194J Applicable (?) i.e. Royalty Payment V/.s Resale (35) CIT V/s Vinzas Solution India (P) Ltd (2017) 147 DTR Madras (105) Provisions of Se.9(1) (vi) dealing with and defining Royalty can not be made applicable to a situation of outright purchase and sale of software Tribunal was correct in deleting the disallowance u/s 40 (a) (ia). Considering that the payments were not in the nature of Royalty subject to TDS under Se.194J. 11

12 5. Business Expenditure Disallowance under Se.40 (a) (ia) Original Logistics India (P) Ltd V/s Jt. CIT. (2017) 147 DTR (Tribunal) Chennai of Bench) 89 (34) Amount paid vis-à-vis payable No. Expenses outstanding at the close of the financial year, Provisions of Se 40 (a) (ia) can not be applied. I. INTERNATIONAL TAXATION. 12