Disallowance under s 40

Payment made to a non-resident company for testing and certification done by a non-resident company to its Indian client for its export activity is not liable for a deduction of tax at source, as held by DelTrib in Havells India Ltd v Addl CIT — In favour of: The assessee.

Income deemed to accrue or arise in India — To seek an exemption under s 9(1)(vii)(b), the onus lies upon the assessee to prove that the services were in fact utilised, either in a business carried on outside India or for the purpose of making or earning any income from any source outside India.

Appeal (Appellate Tribunal) — As an appellate authority, the Tribunal has to see whether the assessment framed has been framed in accordance with the law and if there is sufficient material to support it. If that is not so, it is not for the Tribunal to start an investigation suo moto and to thereby fill up the lacunae.

Business expenditure — Pre-operative expenses incurred by the assessee for the purpose of an expansion of its existing business in the same line of products are assessable as revenue expenditure.

The expenditure incurred in raising a loan by convertible debentures would be admissible as revenue expenditure.

Decided on: 27 May 2011.