The Chennai bench of the Income Tax Appellate Tribunal (ITAT), while granting relief to Dong Woo Surface Tech India Pvt.Ltd, held that the supervisory fee paid by them to its parent company shall be deductible as expenditure as per the income tax law.
The assessee is in the business of manufacture, supply and installation of industrial furnaces and related services. The assessee has carried out manufacturing and installation ofindustrial furnaces under supervision of its parent company M/s. Dong Woo HST Co. Ltd. The technology required for process concerning heat treatment, coating, furnace of metal was provided by its parent company through an agreement and the assessee paid supervisory charges to the latter as per the said agreement and claimed deduction of the same while filing their income tax return for the concerned year.
The Assessing Officer, during the course of re-opening the assessment, disallowed such expenses and passed an order making addition by observing that the payment made to its parent company for rendering supervisory fees is nothing but shifting of profit from one tax territory to another tax territory without any actual business expediency and as against which no particular service is received.
On appeal, the first appellate authority deleted the order. The Revenue filed an appeal challenging the first appellate order.Theassessee argued that the said payment has been made after withholding necessary TDS applicable as per law.
While allowing the above contention of the assessee, the Tribunal bench comprising Judicial Member and Accountant Member Therefore, we are of the considered view that supervisory fees paid by the assessee to its parent company M/s. Dong Woo HST Co. Ltd. in pursuant to an agreement dated 25.12.2007 is genuine expenditure incurred wholly and exclusively for the purpose of business of the assessee and which is supported by necessary evidences.
“What is required to be seen is whether particular expenditure is incurred wholly and exclusively for the purpose of business of the assessee and further such expenditure is supported by necessary evidences. In this case, the assessee has filed all possible evidences including agreement between parties to prove genuineness of expenditure incurred for supervisory services. The assessee had also furnishednecessary supporting evidences including travel documents of expatriates, who visited India for rendering services. Therefore, we are of the considered view that the Assessing Officer was erred in disallowing expenditure incurred by the assessee for payment made to its parent company for rendering supervisory services. This legal position is supported by the decision of the Hon’ble Supreme Court in the case of CIT Vs ChandulalKeshavlal& Co. (1960) 38 ITR 601 (SC), where it was held that in deciding whether a payment of money is a deductible expenditure, one has to take into consideration questions of commercial expediency and the principles of ordinary commercial trading. If any payment or expenditure is incurred for the purpose of trade of the assessee, it does not matter that payment may inure to the benefit of a third party. Another test is whether the transaction is properly entered into as a part of the assessee’s legitimate commercial undertaking in order to facilitate the carrying on of its business and it is immaterial that a third party also benefits thereby,” the Tribunal said.
“In the present case, there is no doubt of whatsoeverwith regard to genuineness of payment made by the assessee to its parent company, because such payment was made in pursuant to agreement between parties and further, the assessee has deducted applicable TDS as per law. The assessee had also furnished other supporting evidences to prove receipt of services from its parent company,” it added.
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