This document provides a detailed analysis of the Income Tax Appellate Tribunal’s final decision on the case between CAE Simulation Training Pvt. Ltd., New Delhi and DCIT, Circle-4(2), New Delhi, concerning the assessment year 2017-18. The case number is ITA 2573/DEL/2022, presided over by Judicial Member Ms. Astha Chandra and Hon’ble President Shri G.S. Pannu.
The appeal filed by the appellant, CAE Simulation Training Pvt. Ltd., challenged the order dated 30.08.2022, passed by the National Faceless Appeal Centre (NFAC), Delhi. The case was filed on 2022-10-21, and the final order was pronounced on 2023-09-18. The main issues in this case were the disallowance of depreciation on CISCO IP Phones and the disallowance under Section 40(a)(i) for non-deduction of tax at source.
During the hearing on 17.07.2023, the appellant was represented by S/Sh. Rohit Jain, Advocate, Anshul Sachhar, and Ms. Somya Jain, CA. The Revenue was represented by Shri Sanjay Kumar, Sr. DR.
The appellant argued that the assessment order dated 27.12.2019 and the impugned order dated 30.08.2022 were illegal and violated principles of natural justice. They contended that the disallowance of depreciation on CISCO IP Phones and the disallowance under Section 40(a)(i) were unjustified.
The Revenue supported the orders of the authorities below, stating that the disallowances were made correctly based on the relevant laws and facts of the case.
The Tribunal carefully considered the submissions and reviewed the orders passed by the authorities below. The Tribunal found that the issue of eligible rate of depreciation on CISCO IP Phones was covered by a decision in the appellant’s own case for AY 2016-17, which directed the AO to classify items based on their functional dependency on computers. The Tribunal remitted this issue back to the AO for re-adjudication.
The Tribunal observed that the AO had treated CISCO IP Phones as part of plant and machinery, restricting depreciation to 15% instead of the 60% claimed by the appellant. The Tribunal remitted the issue back to the AO, directing them to follow the ratio laid down in the case of CISCO Systems Capital (India) Pvt. Ltd. vs Addl. CIT and classify items based on their functional dependency on computers.
The Tribunal found that the payments made to Symbiotics Ltd., UK were not in the nature of royalty under Article 13 of the India-UK DTAA, as the appellant did not have access to any software or intellectual property of Symbiotics Ltd. The Tribunal held that the payments were for candidate reports, which were delivered electronically and did not constitute royalty. Consequently, the appellant had no obligation to withhold tax under Section 195 of the Act, and the disallowance under Section 40(a)(i) was deleted.
The Tribunal concluded that the appeal filed by the appellant was allowed for statistical purposes, with the issue of depreciation remitted to the AO for re-adjudication and the disallowance under Section 40(a)(i) deleted.
Order pronounced in the open court on 18th September, 2023.
(G.S. PANNU)
PRESIDENT
(ASTHA CHANDRA)
JUDICIAL MEMBER
This case highlights the importance of adhering to judicial precedents and the need for a thorough examination of functional dependencies in determining eligible depreciation rates. It also emphasizes the importance of accurately characterizing payments under international tax treaties to determine tax obligations.
The appellant, CAE Simulation Training Pvt. Ltd., is a private limited company engaged in the business of training pilots and providing services related to the assessment of pilot candidates. For the assessment year 2017-18, the appellant filed its return declaring an income of Rs. 15,03,98,960/-. The case was selected for complete scrutiny through CASS, and statutory notices were issued to the appellant.
The appellant argued that the AO’s classification of CISCO IP Phones as plant and machinery, thereby restricting depreciation to 15%, was incorrect. They contended that CISCO IP Phones should be classified as computers, eligible for a higher depreciation rate of 60%. Additionally, the appellant challenged the disallowance of Rs. 1,03,45,058 under Section 40(a)(i) for non-deduction of tax at source on payments made to Symbiotics Ltd., UK.
The Revenue argued that the AO’s classification and disallowance were based on the relevant laws and facts of the case. They supported the AO’s decision to restrict depreciation and disallow payments under Section 40(a)(i).
The Tribunal observed that the issue of eligible rate of depreciation on CISCO IP Phones was covered by a previous decision in the appellant’s own case for AY 2016-17. The Tribunal directed the AO to classify items based on their functional dependency on computers and allow depreciation accordingly. Regarding the disallowance under Section 40(a)(i), the Tribunal found that the payments to Symbiotics Ltd., UK were not in the nature of royalty under Article 13 of the India-UK DTAA. The appellant did not have access to any software or intellectual property of Symbiotics Ltd., and the payments were for candidate reports delivered electronically. Therefore, the appellant had no obligation to withhold tax under Section 195 of the Act.
The Tribunal’s decision in the case of CAE Simulation Training Pvt. Ltd. vs DCIT, Circle-4(2), New Delhi, reaffirms the importance of accurately characterizing payments under international tax treaties and determining eligible depreciation rates based on functional dependencies. The Tribunal’s directive to re-adjudicate the issue of depreciation and delete the disallowance under Section 40(a)(i) underscores the necessity for thorough examination and adherence to legal principles.
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