M/s. Magnon Solutions Pvt. Ltd., New Delhi V. DCIT, New Delhi

CO 190/DEL/2015

• Counselvise Citation: [2018] 123 COUNSELVISE.COM (IT) 3770 (ITAT-DELHI)
• Duration Of Justice: 2 year(s) 11 month(s) 10 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 21-05-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 10-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: S R SENAPATI
• Assessee Lawyers: LALIT
• Keywords: Gift; Business expenditure; Double taxation relief; Rule of consistency; Deemed to accrue or arise in india; Retrospective amendment; Permanent establishment; Non-deduction of tax
• Section: 40A(3); 143(3); 5(2); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : E NEW DELHI BEFORE SH. BHAVNESH SAINI , JUDICIAL M EMBER AND SH. O.P. KANT , ACCOUNTANT MEMBER ITA NO .5878 /DE L/ 2014 ASSESSMENT YEAR: 2011 - 12 DCIT, CIRCLE - 6(1), NEW DELHI VS. MAGNON SOLUTIONS PVT. LTD., N - 238, GREATER KAILASH - I, NEW DELHI PAN : AADCM7504M ( APPELLANT ) (RESPONDENT) AND C.O. NO. 190/DEL/2015 [IN ITA NO .5878 /DEL/ 2014] ASSESSMENT YEAR: 2011 - 12 MAGNON SOLUTIONS PVT. LTD., N - 238, GREATER KAILASH - I, NEW DELHI VS. DCIT, CIRCLE - 6(1), NEW DELHI PAN : AADCM7504M ( APPELLANT ) (RESPONDENT) DEPARTMENT BY SH. S.R. SENAPATI, SR.DR ASSESSEE BY SH. GAUTAM JAIN , ADV.; SH. PIYUSH K. KAMAL, ADV & SH. LALIT MOHAN, CA DATE OF HEARING 26.04.2018 DATE OF PRONOUNCEMENT 21.05.2018 ORDER PER O.P. KANT , A. M. : THIS APPEAL BY THE R EVENUE AND CROSS OBJECTION BY THE ASSESSEE ARE DIRECTED AGAINST ORDER DATED 21/08/2014 PASSED BY THE LD. COMMISSIONER OF INCOME - TAX (APPEALS) - IX, NEW DELHI , [IN SHORT THE LD. CIT(A) ] FOR ASSESSMENT YEAR 2011 - 12. BOTH APPEAL 2 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 AND CROSS OBJECTION BEING EMANATED FROM THE SAME IMPUGNED ORDER, BOTH WERE HARD TOGETHER AND DISPOSE D OF BY WAY OF THIS CONSOLIDATED ORDER FOR CONVENIENCE. 2. THE GROUN DS RAISED IN THE APPEAL OF THE R EVENUE ARE REPRODUCED AS UNDER: 1. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE FACTS & IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 12,62,929/ - IN RESPECT OF PAYMENT MADE TO M/S RACKSPACE, USA WHEN THE ASSESSEE WAS 1FAOFE~TODEDUCT TDS ON THE AFORESAID PAYMENT IN LIGHT OF THE RETROSPECTIVE AMENDMENT TO SECTION 9 VIDE THE FINANCE ACT, 2010, WHICH HAD CLARIFIED THAT EVEN IF THE NON - RESIDENT HAS NO BUSINESS CONNECTION IN INDIA OF HAS NOT RENDERED A NY SERVICE IN INDIA, THEN ALSO THE PAYMENTS RECEIVED SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA? 2. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 54,580/ - WHEN RS. 29,580/ - HAS BEEN MADE IN CONTRAVENTION OF SECTION 40A(3) AND RS. 25.000/ - WAS DISALLOWED AS THE ASSESSEE WAS NOT ABLE TO JUSTIFY THE EXPENDITURE U/S 37(1) OF THE INCOME TAX ACT, 1961? 3. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE & IN LAW, THE LD. CIT(A) HAS ERRED IN DELETING THE ADDITION OF RS. 20,90,688/JJLIZS~37(1) ON ACCOUNT OF REMUNERATION PAID TO DIRECTOR PAID IGNORING THE FACTS THE AO IN THIS ORDER HAS ESTABLISHED THE REMUNERATION IS PAID WITHOUT ANY PROFESSIONAL KNOWLEDGE AND HIGHEST AS COMPARE TO OTHER EMP LOYEES OF COMPANY EXCEPT HER HUSBAND? 4. THAT THE ORDER OF THE LD. CIT(A) IS ERRONEOUS AND IS NOT TENABLE ON FACTS AND IN LAW. 5. THAT THE GROUNDS OF APPEAL ARE WITHOUT PREJUDICE TO EACH OTHER. 3 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 6. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER, AMEND OR FOREGO ANY GROUND(S) OF THE APPEAL RAISED ABOVE AT THE TIME OF THE HEARING. 2.1 T HE GROUNDS RAISED BY THE ASSESSEE IN CROSS OBJECTION ARE REPRODUCED AS UNDER: 1. THAT THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED BOTH IN LAW AND ON FACTS IN SUSTAINING DISALLOWANCE OF SUM OF RS.8,25,000/ - REPRESENTING EXPENDITURE INCURRED DURING THE INSTANT YEAR. 1.1 THAT FINDING OF THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) THAT SINCE THE EVENT WAS HELD IN SUBSEQUENT FINANCIAL YEAR THEREFORE EXPENDIT URE REPRESENTS ADVANCE PAID IS NOT BASED ON CORRECT APPRECIATION OF FACTS AND PROVISION OF LAW AND HENCE UNTENABLE. 3. B RIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSESSEE , A PRIVATE LIMITED COMPANY WAS ENGAGED IN PROVIDING INFORMATION TECHNOLOGY (IT) RELATED SERVICES IN THE FIELD OF WEB DESIGN, E - COMMERCE , APPLICATION DEVELOPMENT, ONLINE ADVERTISING ETC. FOR THE YEAR INTO CONSIDERATION I.E. ASSESSMENT YEAR 2011 - 12, THE ASSESSEE FILED RETURN OF INCOME ON 29/09/201 1 DECLARING TOTAL INCOME OF RS. 34,2 0,610 / - . THE CASE WAS SELECTED FOR SCRUTINY AND NOTICE UNDER SECTION 143(2) OF THE INCOME - TAX ACT, 1961 ( IN SHORT THE ACT ) WAS ISSUED AND COMPLIED WITH. IN THE ASSESSMENT COMPLETED UNDER SECTION 143(3) OF THE A CT ON 20/02/2014, THE ASSESSING OFFICER MAD E CERTAIN ADDITIONS/DISALLOWANCES TO THE RETURNED INCOME. AGGRIEVED W ITH THE ADDITIONS/DISALLOWANCES, THE ASSESSEE FILED APPEAL BEFORE THE LD. CIT(A), WHO PARTLY ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED WITH THE RELIEF ALLOWED TO THE ASSESSEE, THE REV ENUE IS IN APPEAL BEFORE THE T RIBUNAL RAISING THE 4 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 GROUNDS AS REPRODUCED ABOVE AND THE ASSESSEE IS BEFORE THE TRIBUNAL BY WAY OF CROSS OBJECTION TO THE APPEAL OF REVENUE. 4. THE GROUND NO. 1 OF THE AP PEAL BY THE REVENUE RELATES TO ADDITION OF RS. 12,62,929/ - DELETED BY THE LD. CIT(A). THIS ADDITION WAS MADE BY THE ASSESSING OFFICER UNDER SECTION 40(A)(I) OF THE ACT FOR NON - DEDUCTION OF TAX AT SOURCE IN RESPECT OF PAYMENT MADE TO M/S RACKSPACE , USA. IN THE GROUNDS, THE DELETION OF THE ADDITION HAS BEEN CHAL LENGED BY THE R EVENUE STATING THAT IN THE LIGHT OF RETROSPECTIVE AMENDMENT TO SECTION 9 VIDE THE F INANCE A CT , 2010, WHICH HAS CLARIFIED THAT EVEN IF NON - RESIDENT HAS NO BUSINESS CONNECTION IN INDIA OR HAS NOT RENDERED ANY SERVICE IN INDIA, THE PAYMENT RECE IVED SHALL BE DEEMED TO ACCRUE OR ARISING INDIA IN THE HANDS OF THE NON - RESIDENT . 5. BEFORE THE ASSESSING OFFICER, THE ASSESSEE CONTESTED THAT ABOVE PAYMENT WAS MADE TO NON - RESIDENT PERSON FOR WEB HOSTING CHARGES FOR AVAILING DEDICATED SPACE ON SERVERS STATIONED OUTSIDE INDIA, UNDER THE CONTROL OF USA COMPANY AND SINCE THE ASSESSEE DID NOT HAVE CONTROL OR EVEN PHYSICAL ACCESS TO THE SYSTEMS PROVIDING SERVICES, THEREFORE , SAID CHARGES CANNOT BE TREATED AS ROYALTY AND NO INCOME DEEMED TO ACCRUE OR ARISE IN INDIA AS PER THE ACT . THE ASSESSEE ALSO SUBMITTED THAT THE PAYMENT ARE NOT IN THE NATURE OF ROYALTY OR FTS EVEN AS PER THE INDO - USA DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) AND THUS, T HE RECIPIENT BEING NON - RESIDENT , HAVING NO PE IN INDIA, IS NOT L IABLE TO TAX IN INDIA. HOWEVER, ACCORDING TO THE LD. ASSESSING OFFICER, M/S RACKSPACE HAS PROVIDED NOT ONLY WEB SPACE, BUT A HOST OF TECHNICAL SERVICES THROUGH THEIR DEDICATED SUPPORT TEAM TO THE 5 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 ASSESSEE AS WELL AS TO THE PERSONS, TO WHOM THE ASSESSEE RES OLD THE WEB SPACE PROVIDING HIGH LEVEL OF SECURITY FOR DATA STORED ON THE SERVERS, INCLUDING BACKUPS AND RESTORATION, FIREWALLS, INTRUSION DETECTION, PROTECTION FROM TROJANS, WORMS ETC. IN VIEW OF THE ASSESSING OFFICER THE SERVICES PROVIDED ARE IN THE NATU RE OF FEE FOR TECHNICAL SERVICES (FTS). THE LD. ASSESSING OFFICER RELIED ON THE EXPLANATION TO THE SECTION 9 INSERTED BY THE FINANCE ACT, 2010, ACCORDING TO WHICH EVEN IF THE NON - RESIDENT HAS NO BUSINESS CONNECTION IN INDIA OR HAS NOT RENDERED ANY SERVICE IN INDIA, THEN ALSO THE PAYMENT RECEIVED DEEMED TO ACCRUE OR ARISING INDIA. THIS EXPLANATION HAS BEEN MADE EFFECTIVE RETROSPECTIVELY FROM 01/06/1976. SINCE, NO TAX WAS DEDUCTED BY THE ASSE SSEE ON THE SAID PAYMENT OF RS. 12,62,929/ - , THE ASSESSING OFFICER DI SALLOWED THE SAID EXP ENDITURE IN TERMS OF SECTION 40 (A)(I) OF THE ACT. THE LD. CIT(A) DELETED THE ADDITION OBSERVING AS UNDER: 7.3 THE REASON GIVEN BY AO AND THE SUBMISSION OF THE APPELLANT ARE CONSIDERED. REGARDING THE APPLICABILITY OF SECTION 40(A)(I), THE NATURE OF PAYMENT NEEDS TO BE EXAMINED. THE AO HAS CONSIDERED THE AMOUNT AS FEE FOR TECHNICAL SERVICES AND HENCE THE PAYMENT IS CONSIDERED AS INCOME IN THE HANDS OF NON - RESIDENT PAYEE LEADING TO APPLICATION OF TDS PROVISION. THE PAYMENTS ARE TOWARDS PURCHASES OF WEB SPACE AND SERVERS OUTSIDE INDIA. THE EXTENDED TECHNICAL SERVICES AS MENTIONED BY AO IN THE ASSESSMENT ORDER ARE NOTHING BUT ASSOCIATED PROVISION WITH THE SPACE TAKEN ON THE SERVER. THE PAYMENT IS EQUIVALENT TO RENT PAID TOWARDS THE SPACE AVAILABLE IN THE SERVER. THE ASSOCIATED SUPPORT SYSTEM OF THE SERVER SPACE CANNOT BE CONSIDERED AS A SEPARATE TECHNICAL AND COUNSEL TANCY SERVICE. ONCE, A SPACE IS GIVEN IN THE SERVER, THE SECURITY SYSTEM AVAILABLE WITH THE SPACE IS INBUILT INTO 6 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 IT. THERE IS NO SEPARATE CHARGE FOR THE SECURITY SYSTEM AND OTHER SUPPORTING SYSTEM. HENCE, SUCH PROVISIONS CANNOT BE BROUGHT UNDER THE CONCEPT OF TECHNICAL SERVICES . THE AO ALSO APPLIED ARTICLE 12 OF THE DTAA BETWEEN USA AND INDIA INSTEAD OF ARTICLE 7 WHICH IS MO RE APPROPRIATE. SINCE THE RECIPIENT HAVE NO PERMANENT ESTABLISHMENT IN INDIA, THE PAYMENT MADE IS NOT CHARGEABLE TO TAX IN INDIA AS PER THE DECISION OF THE APEX COURT IN THE CASE GE INDIA TECHNOLOGY CENTRE PVT. LTD. VS. CIT (2010) 327 ITR 456 (SC). IN VIEW OF THIS, THE ADDITION MADE IS DELETED AND THE GROUNDS OF APPEAL ARE ALLOWED. 6. BEFORE US, THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER AND REFERRED THE RELEVANT EXPLANATION TO SECTION 9 OF THE ACT TO SUPPORT THE GROUND RAISED. 7. ON THE CONTRARY, THE LD. COUNSEL OF THE ASSESSEE FILED A PAPERBOOK CONTAINING PAGES 1 TO 244 AND SUBMITTED THAT THE PAYMENT IN THE HANDS OF THE NON - RESIDENT RECIPIENT ARE IN THE NATURE OF RENT PAID TOWARDS THE SPACE TAKEN ON SERVER, WHICH COULD BE BUSINESS PROFIT AND NOT TAXABLE AS FEE FOR TECHNICAL SERVICES (FTS) EITHER UNDER THE PROVISIONS OF THE ACT OR UNDER THE DTAA. THE LD. COUNSEL DRAWN OUR ATTENTION TO COPY OF AGREEMENT DATED 29/08/2012 BETWEEN M/S RECKSPACE INDIA LTD AND THE ASSESSEE ( AVAILABLE ON P AGE 209 TO 215 OF THE PAPER BOOK ) , COPY OF LEDGER ACCOUNT OF WEB HOSTING PURCHASE ALONG WITH SAMPLE INVOICES ( AVAILABLE ON PAGE 152 TO 166 OF THE PAPER BOOK ) COPY OF LEDGER ACCOUNT OF EMAIL MAILING CHARGES ALONG WITH SAMPLE SALE INVOICES ( AVAILABLE ON PAGE 167 TO 208 OF THE PAPER BOOK) ETC . THE LD. COUNSEL SUBMITTED THAT THE ASSESSEE IS RE SELLER OF WEB HOSTING SPACE AND NO SERVICES EITHER OF THE NATURE OF TECHNICAL OR CONSULTANCY HAS BEEN AVAILED BY THE ASSESSEE. ACCORDING TO HIM, 7 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 THE PAYMENT MADE TO NON - RE SIDENT COMPANY WAS IN THE NATURE OF RENT PAID FOR WEBSPACE, WHICH COULD ONLY BE TAXED AS BUSINESS PROFIT IN THE HANDS OF NON - RESIDENT, BUT IN ABSENCE OF ANY PERMANENT ESTABLISHMENT OF THE NON - RESIDENT COMPANY, SAID PAYMENT CANNOT BE TAXED AS BUSINESS PROFI T. HE ALTERNATIVELY SUBMITTED THAT EVEN IF THE PAYMENT IS CONSIDERED AS FEE FOR TECHNICAL SERVICES, THEN, EVEN ACCORDING TO THE ARTICLE 12 OF DTAA BETWEEN THE USA AND THE INDIA, FOR FALLING THE SERVICE UNDER FEE FOR INCLUDED SERVICES (FIS) , THE SERVICE SHO ULD MAKE AVAILABLE KNOWLEDGE OR KNOW - HOW TO THE ASSESSEE SO AS IT COULD INDEPENDENTLY PROVIDE SUCH TECHNICAL SERVICES TO ITS C USTOMERS. ACCORDING TO THE LD. C OUNSEL, NO SUCH TECHNICAL KNOWLEDGE OR TECHNICAL KNOW - HOW HAS BEEN PROVIDED TO THE ASSESSEE BY T HE NON - RESIDENT AND ONLY WEBSPACE HAS BEEN RENTED, WHICH THE ASSESSEE HAS FURTHER RESOLD TO ITS INDIAN CUSTOMERS, AND THUS THE SAID PAYMENT CANNOT FALL UNDER FEE FOR INCLUDED SERVICES UNDER THE DTAA BETWEEN THE USA AND THE INDIA. HE FURTHER SUBMITTED THAT IN CASE OF THE NON - RESIDENT, IF THE TREATY PROVISIONS ARE MORE BENEFICIAL AS COMPARED TO THE PROVISIONS OF THE ACT, THE N TREATY PROVISIONS WOULD APPLY . 7.1 REFERRING TO THE GROUND OF THE R EVENUE, HE SUBMITTED THAT THE EXPLANATION TO SECT ION 9 HAS BEEN INSERTED BY THE F INANCE A CT , 2010 RETROSPECTIVELY, W.E.F 1 - 6 - 1976. HE SUBMITTED THAT THE PRESIDENT OF INDI A HAS GIVEN ASSENT OF THE SAID FINANCE A CT ON 13/05/2010, WHEREAS THE CONCERNED PREVIOUS YEAR IN THE CASE OF THE ASS ESSEE STARTED ON 01/04/2010 AND, T HEREFORE , IT CANNOT BE 8 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 EXPECTED RETROSPECTIVELY FROM THE ASSESSEE TO DEDUCT TAX AT SOURCE ON THE PAYMENTS MADE TO NON - RESIDENT PRIOR TO SAID DATE . 7.2 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE RELEVANT MATERIAL ON RECORD. IN THE INSTANT CASE THE ASSESSING OFF ICER TREATED THE PAYMENT OF RS.12,62, 929/ - MADE TO M/S RACKSPACE USA AS FEE FOR TECHNICAL S ERVICES (FTS) UNDER SECTION 9(1)(VII) OF THE ACT INVOKING EXPLANATION BELOW SECTION 9(2) OF THE ACT. ACCORDING TO THE ASSESSING OFFICER, THE SERVICES O F HIGH - LEVEL SECURITY DATA STORING, FIREWALLS, INTRUSION DETECTION ETC . ALONGWITH THE WEB SPACE PROVIDED ARE IN THE NATURE OF TECHNICAL SERVICES AND IN VIEW OF EXPLANATION BELOW SECTION 9(2) , EVEN IF , THE NON - RESIDENT HAS RENDERED SERVICES OUTSIDE INDIA , S AME DEEMED TO ACCRUE OR ARISE IN INDIA . FOR READY REFERENCE, THE RELEVANT EXPLANATION IS REPRODUCED AS UNDER: EXPLANATION. FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT FOR THE PURPOSES OF THIS SECTION, INCOME OF A NON - RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CLAUSE ( V ) OR CLAUSE ( VI ) OR CLAUSE ( VII ) OF SUB - SECTION (1) AND SHALL BE INCLUDED IN THE TOTAL INCOME OF THE NON - RESIDENT, WHETHER OR NOT, ( I ) THE NON - RESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA; OR ( II ) THE NON - RESIDENT HAS RENDERED SERVICES IN INDIA. 7. 2.1 THE ABOVE EXPLANATION IS IN RELATION TO INCOME UNDER CLAUSE (V) I.E. THE INCOME BY WAY OF INTEREST, OR CLAUSE (VI) I.E. INCOME BY WAY OF ROYALTY OR CLAUSE (VII) I.E. INCOME BY WA Y OF F EE FOR TECHNICAL SERVICES. THE ASSESSING OFFICER T R E A T E D THE DEEMED INCOME BY WAY OF FTS AND ACCORDING TO HIM EVEN IF THE NON - RESIDENT HAS NOT RENDERED SUCH SERVICES IN INDIA, IT IS LIABLE TO 9 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 TAX. THUS, WE NEED TO EXAMINE FROM THE A G R E E M E N T , INVOICE, DOCUMENTS ETC., THE NATURE OF PAYMENT, WHETHER SAME FALLS IN FEE FOR TECHNICAL SERVICES OR NOT. 7. 2.2 FROM THE AGREEMENT BETWEEN THE ASSESSEE AND THE NON - RESIDENT, WHICH IS AVAILABLE ON PAGE 209 OF THE PAPER BOOK, IT IS EVIDENT THAT THE ASSESSEE AGREED TO A CT AS RESELLER. THE RELEVANT PART OF THE AGREEMENT IS REPRODUCED AS UNDER: AGREEMENT 1. APPOINTMENT. BY EXECUTION OF THIS AGREEMENT, WE APPOINT YOU AS A RACKSPACE PARTNER AND GRANT YOU THE NON - EXCLUSIVE RIGHT TO (I) REFER CUSTOMERS TO RACKSPACE FOR HOSTING SERVICES AND/OR (II) RESELL HOSTING SERVICES THAT RACKSPACE PROVIDES TO YOU TO THIRD PA RTIES PURSUANT TO THE FOLLOWING TERMS AND CONDITIONS. 7.2. 3 FURTHER , THE HOSTING SERVICES AND HOSTED SYSTEMS ARE DEFINED IN THE SAID AGREEMENT A S UNDER: HOSTING SERVICES MEANS RAEKSPA CE S COMMERCIALLY AVAILABLE SERV ICES AS DESCRIBED ON THE RACKSPACE WEBSITE WWW.RACKSNACE.CO M . INCLUDING: (I) DEDICATED HOSTING SERVICES; (II) CLOUD HOSTING SERVICES (CLOUD SERVERS TM , CLOUD SITES , CLOUD TILES AND RACKSPACE CLOUD DRIVE (JUNGLEDISK)); AND (III) EMAIL HOSTING SERVIC ES AND APPLICATION SERVICES (RACKSPACE ERNAIK HOSTED MICROSOFT EXCHANGE AND MICROSOFT SHAREPOINT). HOSTED SYSTEM MEANS, FOR DEDICATED HOSTING SERVICES, A COMBINATION OF HARDWARE, SOFTWARE AND NETWORKING ELEMENTS THAT COMPRISE AN INFORMATION - TECHNOLO GY - SYSTEM. THE HOSTED SYSTEM MAY CONSIST OF A DEDICATED SYSTEM, THE RIGHT TO USE CERTAIN PARTS OF A SHARED SYSTEM THAT RACKSPACE MAINTAINS FOR MANY CUSTOMERS OR A COMBINATION OF SOME DEDICATED ETEMCNTS AND SOME SHARED ELEMENTS. 7.2.4 F ROM THE ABOVE AGREEMENTS , IT IS EVIDENT THAT THE ASSESSEE HAS PURCHASED WEB SPACE ON SERVER OF NON - RESIDENT, WHICH INCLUDED DEDICATED HOSTING SERVICES, CLOUD HOSTING, EMAIL HOSTING SERVICES AND APPLICATION. THE WEB SPACE PURCHASED HAS 10 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 BEEN FURTHER SOLD TO INDIAN CUSTOME RS. THUS, ACTUALLY THE ASSESSEE IS BUYER AND SELLER OF THE WEB SPACE OF NON - RESIDENTS ALONGWITH COMMERCIAL SERVICES AND NO SERVICES HAVE BEEN AVAILED BY THE ASSESSEE. THE ASSESSEE HAS PURCHASED WEB SPACE FROM THE FOREIGN COMPANIES FOR THE PURPOSE OF RESELL ING THE SAME AND IT SHOULD NOT BE CONFUSED WITH THE WORD SERVICES WHICH HAVE BEEN USED BY THE FOREIGN COMPANIES FOR SELLING THE PRODUCTS LIKE WEB HOSTING. THE ASSESSEE HAS PURCHASED DEDICATED SERVER SPACE WITH A VIEW TO RESALE THE SAME TO INDIAN CUSTOMER S. THUS THE INCOME IN THE HAND OF THE NON - RESIDENT FALLS IN THE CATEGORY OF BUSINESS PROFIT AND THEREFORE THE PAYMENT CANNOT BE CLASSIFIED AS FEE FOR TECHNICAL SERVICES UNDER THE PROVISIONS OF THE ACT. 7.2. 5 THE COMBINATION HARDWARE, SOFTWARE AND NETWORKI NG ELEMENTS CONTROLLED BY THE NON - RESIDENT ARE NOT STATIONED IN INDIA. THE SYSTEMS ARE LOCATED OUTSIDE INDIA AND THE ASSESSEE HAS BEEN PROVIDED RIGHT TO USE CERTAIN PARTS OF THE SYSTEM OVER THE INTERNET. IN SUCH CIRCUMSTANCES , IN ABSENCE OF ANY PERMANENT ESTABLISHMENT OF THE NON - RESIDENT, THE INCOME FROM PAYMENT IS NOT TAXABLE IN THE HANDS OF NON - RESIDENT IN INDIA. 7.2.6 FURTHER, THE LD. COUNSEL HAS ARGUED WITHOUT PREJUDICE THAT EVEN IF INCOME FROM PAYMENT TO THE NON - RESIDENT IS CONSIDERED AS FEE FRO M T ECHNICAL S ERVICES (FTS) WITHIN THE PROVISIONS OF THE A CT, IT IS NOT TAXABLE UNDER THE PROVISIONS OF THE DTAA AS NO KNOWLEDGE OR KNOW - HOW HAS BEEN PROVIDED TO THE ASSESSEE IN RESPECT OF THE WEBSPACE HOSTING. THE RELEVANT ARTICLE OF THE INDIA USA DTAA IS REPRODUCED AS UNDER: ARTICLE 12 11 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 ROYALTIES AND FEES FOR INCLUDED SERVICES 1. ROYALTIES AND FEES FOR INCLUDED SERVICES ARISING IN A CONTRACTING STATE AND PAID TO A RESIDENT OF THE OTHER CONTRACTING STATE MAY BE TAXED IN THAT OTHER STATE. 2. HOWEVER, SUCH ROYALTIES AND FEES FOR INCLUDED SERVICES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THEY ARISE AND ACCORDING TO THE LAWS OF THAT STATE; BUT IF THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR INCLUDED SERVICES IS A RESIDENT OF THE O THER CONTRACTING STATE, THE TAX SO CHARGED SHALL NOT EXCEED: A. IN THE CASE OF ROYALTIES REFERRED TO IN SUB - PARAGRAPH (A) OF PARAGRAPH 3 AND FEES FOR INCLUDED SERVICES AS DEFINED IN THIS ARTICLE (OTHER THAN SERVICES DESCRIBED IN SUB - PARAGRAPH (B) OF TH IS PARAGRAPH): I. DURING THE FIRST FIVE TAXABLE YEARS FOR WHICH THIS CONVENTION HAS EFFECT, A. 15 PER CENT. OF THE GROSS AMOUNT OF THE ROYALTIES OR FEES FOR INCLUDED SERVICES AS DEFINED IN THIS ARTICLE, WHERE THE PAYER OF THE ROYALTIES OR FEES IS THE GOVERNMENT OF THAT CONTRACTING STATE, A POLITICAL SUB - DIVISION OR A PUBLIC SECTOR COMPANY; AND B. 20 PER CENT. OF THE GROSS AMOUNT OF THE ROYALTIES OR FEES FOR INCLUDED SERVICES IN ALL OTHER CASES; AND I I. DURING THE SUBSEQUENT YEARS, 15 PER CENT. OF THE GROSS AMOUNT OF ROYALTIES OR FEES FOR INCLUDED SERVICES; AND B. IN THE CASE OF ROYALTIES REFERRED TO IN SUB - PARAGRAPH (B) OF PARAGRAPH 3 AND FEES FOR INCLUDED SERVICES AS DEFINED IN THIS ARTICLE THAT ARE ANCILLARY AND SUBSIDIARY TO THE ENJOYMENT OF THE PROPERTY FOR WHICH PAYMENT IS RECEIVED UNDER PARAGRAPH 3(B) OF THIS ARTICLE, 10 PER CENT. OF THE GROSS AMOUNT OF THE ROYALTIES OR FEES FOR INCLUDED SERVICES. 3. THE TERM 'ROYALTIES' AS USED IN THIS ARTICLE MEANS: A. B. .. 4. FOR PURPOSES OF THIS ARTICLE, 'FEES FOR INCLUDED SERVICES' MEANS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR THE RENDERING OF ANY TECHNICAL OR COUNSEL TANCY SERVICES (INCLUDING THROUGH THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) IF SUCH SERVICES: A. ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT DESCRIBED IN PARAGRAPH 3 IS RECEIVED; OR B. MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW - HOW. OR PROCESSES, OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. .. (EMPHASIS SUPPLIED EXTERNALLY) 7.2. 7 I N THE INSTANT CASE, THE R EVENUE HAS NOT BROUGHT ON RECORD ANY MATERIAL WHICH COULD ESTABLISH THAT THE ASSESSEE HAS BEEN MADE AVAILABLE KNOWLEDGE OR KNOW - HOW ETC IN RESPECT OF THE SO - CALLED SERVICES AND THEREFORE ANY PAYMENT WITH REGARD TO THOSE SO - CALLED SERVICES DOES NOT SATISFY CONDITIONS OF ARTICLE 12 OF THE INDIA US A DTAA AND HENCE CANNOT BE TREATED AS FEE FOR INCLUDED SERVICES IN TERMS OF THE DTAA. SINCE THE PROVISIONS OF THE DTAA 12 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 BEING MORE BENEFICIAL TO THE NON - RESIDENT, THOSE PROVISIONS WILL BE PREFERRED OVER T HE PROVISIONS OF THE ACT. 7.2. 8 THE CONTENTION OF THE LD. DR THAT IN VIEW OF AMENDMENT TO THE EXPLANATION BELOW SECTION 9(2) OF THE ACT, WHICH HAS BEEN MADE EFFECTIVE RE TROSPECTIVELY W.E.F. 01/04/1976 , THE INCOME IN THE HANDS OF THE NON - RESIDENT WILL DEE MED TO ACCRU E AS FEE FOR TECHNICAL SERVICES , EVEN IF THE SERVICES ARE NOT RENDERED IN INDIA. THIS AMENDMENT TO THE EXPLANATION WAS INTRODUCED BY WAY OF FINANCE ACT 2010, WHICH GOT ASSENT OF THE HON BLE PRESIDENT OF THE INDIA ON 13/05/2010, WHEREAS IN THE C ASE OF THE ASSESSEE THE RELEVANT PREVIOUS YEAR STARTED ON 01/04/2010. NOW THE CONTENTION OF THE LD. DR IS THAT SAID EXPLANATION HAS BEEN INTRODUCED RETROSPECTIVELY AND THEREFORE THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE ON SUCH PAYMENT. THE ISSUE B EFORE US IS WHETHER AN ASSESSEE CAN BE FORCED TO DEDUCT TAX ON PAYMENT MADE TO NON - RESIDENT, IN VIEW OF THE AMENDMENT, PRIOR TO GETTING ASSENT OF THE HON BLE PRESIDENT OF INDIA. IN OUR OPINION, IT IS IMPOSSIBLE FOR A PERSON TO GO INTO PAST AND THEN DEDUCT TAX AT SOURCE. THE P AYER HAS ACTED IN A BONAFIDE MANNER APPLYING THE LAW PREVALENT AT THE TIME OF REMITTANCE. HE CANNOT BE H ELD AS ASSESSEE IN DEFAULT ON AC COUNT OF RETROSPECTIVE AMENDMENT CARRIED OUT SUBSEQUENTLY IN CHARGING SECTION OF THE STATUTE. IT IS NOT POSSIBLE FOR A TAXPAYER TO FORESEE THE RETROSPECTIVE AMENDMENT & DEDUCT THE TAX ON SUCH PAYMENT. SIMILAR FINDING HAS BEEN GIVEN BY THE T RIBUNAL IN THE C ASE OF KPMG VS. ACIT, IN ITA NO.6286 TO 6694/MUM/2012, REPORTED IN 2016 ITR (TRIB.) 070, WHICH IS REPRODUCED AS UNDER: 13 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 4.10. IT IS FURTHER NOTED BY US THAT THE LAW AS IT STOOD IN THE YEAR BEFORE US I.E. A.Y. 2007 - 08, PROVIDED A MANDATORY CONDITION THAT SERVICES SHOULD BE RENDERED IN INDIA BEFORE IT COULD BE MADE TAXABLE U/S 9(1)(VII). THIS REQUIREMENT OF RENDERING SERVICE S IN INDIA WAS DONE AWAY WITH INSERTION OF AN EXPLANATION BY THE FINANCE ACT, 2010, WITH RETROSPECTIVE EFFECT. BUT THE ISSUE THAT ARISES HERE IS THAT EVEN IF A RETROSPECTIVE AMENDMENT MAY LEGALLY CHANGE THE DETERMINATION OF TAX LIABILITY IN THE HANDS OF RE CIPIENT OF INCOME WITH THE RETROSPECTIVE EFFECT, BUT WHETHER IT CAN ALSO CREATE AN OBLIGATION UPON THE PAYER TO DEDUCT TAX AT SOURCE, THAT TOO WITH RETROSPECTIVE EFFECT. THIS ISSUE HAS ALSO BEEN DISCUSSED AND DECIDED IN FAVOUR OF THE ASSESSEE IN MANY CASES BY HOLDING THAT OBLIGATION TO DEDUCT TAX AT SOURCE CANNOT BE CREATED WITH THE HELP OF AN AMENDMENT MADE WITH RETROSPECTIVE EFFECT. IT IS NOTED THAT SIMILAR ISSUE CAME BEFORE AGRA BENCH OF THE TRIBUNAL IN THE CASE OF DCIT VS. VIROLA INTERNATIONAL (SUPRA); SOME RELEVANT OBSERVATIONS OF THE HON BLE BENCH ARE REPRODUCED HEREUNDER: 6. HON BLE SUPREME COURT, IN THE CASE OF ISHIKAWAJIMA HARIMA HEAVY INDUSTRIES LTD VS DIT (288 ITR 408), HAD HELD THAT IN ORDER TO BRING A FEES FOR TECHNICAL SERVICES TO TAXABILITY I N INDIA, NOT ONLY THAT SUCH SERVICES SHOULD BE UTILIZED IN INDIA BUT THESE SERVICES SHOULD ALSO BE RENDERED IN INDIA. ANALYZING THIS LEGAL POSITION, HON BLE BOMBAY HIGH COURT HAS, IN THE CASE OF CLIFFORD CHANCE VS DCIT (318 ITR 237), OBSERVED AS FOLLOWS: ' THE APEX COURT HAD OCCASION TO CONSIDER THE ABOVE QUESTION IN THE CASE OF ISHIKAWAJMA - HARIMA HEAVY INDUSTRIES LTD. VS. DIRECTOR OF IT (2007) 288 ITR 408 (SC), WHEREIN, WHILE INTERPRETING THE PROVISIONS OF S. 9(1)(VII)(C) OF THE ACT, THE SUPREME COURT HELD AS UNDER (P. 444): SEC. 9(1)(VII)(C) OF THE ACT STATES THAT A PERSON WHO IS A NON - RESIDENT, WHERE THE FEES ARE PAYABLE IN RESPECT OF SERVICES UTILIZED IN A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON IN INDIA, OR FOR THE PURPOSES OF MAKING OR EARNIN G ANY INCOME FROM ANY SOURCE OF INDIA . READING THE PROVISION IN ITS PLAIN SENSE, AS PER THE APEX COURT IT REQUIRES TWO CONDITIONS TO BE MET THE SERVICES WHICH ARE THE SOURCE OF THE INCOME THAT IS SOUGHT TO BE TAXED, HAS TO BE RENDERED IN INDIA, AS WELL A S UTILIZED IN INDIA, TO BE TAXABLE IN INDIA. BOTH THE ABOVE CONDITIONS HAVE TO BE SATISFIED SIMULTANEOUSLY. THUS FOR A NON - RESIDENT TO BE TAXED ON INCOME FOR SERVICES, SUCH A SERVICE NEEDS TO BE RENDERED WITHIN INDIA, AND HAS TO BE PART OF A BUSINESS OR PR OFESSION CARRIED ON BY SUCH PERSON IN INDIA. IN THE ABOVE JUDGMENT, THE APEX COURT OBSERVED THAT (P. 444) : SEC. 9(1)(VII) OF THE ACT MUST BE READ WITH S. 5 THEREOF, WHICH TAKES WITHIN ITS PURVIEW THE TERRITORIAL NEXUS ON THE BASIS WHEREOF TAX IS REQUIRED TO BE LEVIED, NAMELY, (A) RESIDENT; AND (B) RECEIPT OF ACCRUAL OF INCOME . ACCORDING TO THE APEX COURT, THE GLOBAL INCOME OF A RESIDENT ALTHOUGH IS SUBJECTED TO TAX, THE GLOBAL INCOME OF A NON - RESIDENT MAY NOT BE. THE ANSWER TO THE QUESTION WOULD DEPEND U PON THE NATURE OF THE CONTRACT AND THE PROVISIONS OF THE DTAA. WHAT IS RELEVANT IS RECEIPT OR ACCRUAL OF 14 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 INCOME, AS WOULD BE EVIDENT FROM A PLAIN READING OF S. 5(2) OF THE ACT SUBJECT TO THE COMPLIANCE WITH 90 DAYS RULE. AS PER THE ABOVE JUDGMENT OF THE A PEX COURT, THE INTERPRETATION WITH REFERENCE TO THE NEXUS TO TAX TERRITORIES ALSO ASSUMES SIGNIFICANCE. TERRITORIAL NEXUS FOR THE PURPOSE OF DETERMINING THE TAX LIABILITY IS AN INTERNATIONALLY ACCEPTED PRINCIPLE. AN ENDEAVOR SHOULD, THUS, BE MADE TO CONSTR UE THE TAXABILITY OF A NONRESIDENT IN RESPECT OF INCOME DERIVED BY IT. HAVING REGARD TO THE INTERNATIONALLY ACCEPTED PRINCIPLE AND THE DTAA, NO EXTENDED MEANING CAN BE GIVEN TO THE WORDS INCOME DEEMED TO ACCRUE OR ARISE IN INDIA AS EXPRESSED IN S. 9 OF T HE ACT. SEC. 9 INCORPORATES VARIOUS HEADS OF INCOME ON WHICH TAX IS SOUGHT TO BE LEVIED BY THE REPUBLIC OF INDIA. WHATEVER IS PAYABLE BY A RESIDENT TO A NON - RESIDENT BY WAY OF FEES FOR SERVICES, THUS, WOULD NOT ALWAYS COME WITHIN THE PURVIEW OF S. 9(1)(VII ) OF THE ACT. IT MUST HAVE SUFFICIENT TERRITORIAL NEXUS WITH INDIA SO AS TO FURNISH A BASIS FOR IMPOSITION OF TAX. WHEREAS A RESIDENT WOULD COME WITHIN THE PURVIEW OF S. 9(1)(VII) OF THE ACT, A NON - RESIDENT WOULD NOT, AS SERVICES OF A NON - RESIDENT TO A RES IDENT UTILIZED IN INDIA MAY NOT HAVE MUCH RELEVANCE IN DETERMINING WHETHER THE INCOME OF THE NON - RESIDENT ACCRUES OR ARISES IN INDIA. IT MUST HAVE A DIRECT LINK BETWEEN THE SERVICES RENDERED IN INDIA. WHEN SUCH A LINK IS ESTABLISHED, THE SAME MAY AGAIN BE SUBJECTED TO ANY RELIEF UNDER THE DTAA. A DISTINCTION MAY ALSO BE MADE BETWEEN RENDITION OF SERVICES AND UTILIZATION THEREOF. WITH THE ABOVE UNDERSTANDING OF LAW LAID DOWN BY THE APEX COURT, IF ONE TURNS TO THE FACTS OF THE CASE IN HAND AND EXAMINES THEM O N THE TOUCHSTONE, S. 9(1)(VII)(C) WHICH CLEARLY STATES ....... WHERE THE FEES ARE PAYABLE IN RESPECT OF SERVICES UTILIZED IN A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON IN INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE IN INDIA . IT IS THUS, EVIDENT THAT S. 9(1)(VII)(C), READ IN ITS PLAIN, ENVISAGES THE FULFILLMENT OF TWO CONDITIONS : SERVICES, WHICH ARE SOURCE OF INCOME SOUGHT TO BE TAXED IN INDIA MUST BE (I) UTILIZED IN INDIA, AND (II) RENDERED IN INDIA. IN THE PRESENT C ASE, BOTH THESE CONDITIONS HAVE NOT BEEN SATISFIED SIMULTANEOUSLY.' 7. THE LAW LAID DOWN BY HON BLE SUPREME COURT, IN THE CASE OF ISHIKAWAJMA - HARIMA HEAVY INDUSTRIES LTD. VS. DIRECTOR OF INCOME TAX (SUPRA), BINDS EVERYONE UNDER ARTICLE 141 OF THE CONSTITUT ION OF INDIA. THE LEGAL POSITION THUS WAS THAT UNLESS THE SERVICES ARE RENDERED IN INDIA, THE SAME CANNOT BE BROUGHT TO TAX AS FEES FOR TECHNICAL SERVICES UNDER SECTION 9. HOWEVER, THIS LEGAL POSITION DID UNDERGO A CHANGE WHEN FINANCE ACT 2010 RECEIVED A SSENT OF THE PRESIDENT OF INDIA ON 8TH MAY 2010. EXPLAINING THE SCOPE OF THIS AMENDMENT, A COORDINATE BENCH OF THIS TRIBUNAL, IN THE CASE OF ASHAPURA MINICHEM LTD VS ADIT (131 TTJ 291), HAS EXPLAINED THUS: (THIS LEGAL POSITION) DOES NO LONGER HOLD GOOD I N VIEW OF RETROSPECTIVE AMENDMENT W.E.F. 1ST JUNE, 1976 IN S. 9 BROUGHT OUT BY THE FINANCE ACT, 2010. UNDER THE AMENDED EXPLANATION TO S. 9(1), AS IT EXISTS ON THE STATUTE 15 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 NOW, IT IS SPECIFICALLY STATED THAT THE INCOME OF THE NON - RESIDENT SHALL BE DEEMED T O ACCRUE OR ARISE IN INDIA UNDER CL. (V) OR CL. (VI) OR CL. (VII) OF S. 9(1), AND SHALL BE INCLUDED IN HIS TOTAL INCOME, WHETHER OR NOT (A) THE NONRESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CONNECTION IN INDIA; OR (B) THE NON - RESIDENT HAS RE NDERED SERVICES IN INDIA. IT IS THUS NO LONGER NECESSARY THAT, IN ORDER TO ATTRACT TAXABILITY IN INDIA, THE SERVICES MUST ALSO BE RENDERED IN INDIA. AS THE LAW STANDS NOW, UTILIZATION OF THESE SERVICES IN INDIA IS ENOUGH TO ATTRACT ITS TAXABILITY IN INDIA. TO THAT EFFECT, RECENT AMENDMENT IN THE STATUTE HAS VIRTUALLY NEGATED THE JUDICIAL PRECEDENTS SUPPORTING THE PROPOSITION THAT RENDITION OF SERVICES IN INDIA IS A SINE QUA NON FOR ITS TAXABILITY IN INDIA. 8. IT IS THUS CLEAR THAT TILL 8TH MAY 2010, THE PRE VAILING LEGAL POSITION WAS THAT UNLESS THE TECHNICAL SERVICES WERE RENDERED IN INDIA, THE FEES FOR SUCH SERVICES COULD NOT BE BROUGHT TO TAX UNDER SECTION 9(1)(VII). THE LAW AMENDED WAS UNDOUBTEDLY RETROSPECTIVE IN NATURE BUT SO FAR AS TAX WITHHOLDING LIAB ILITY IS CONCERNED, IT DEPENDS ON THE LAW AS IT EXISTED AT THE POINT OF TIME WHEN PAYMENTS, FROM WHICH TAXES OUGHT TO HAVE BEEN WITHHELD, WERE MADE. THE TAX DEDUCTOR CANNOT BE EXPECTED TO HAVE CLAIRVOYANCE OF KNOWING HOW THE LAW WILL CHANGE IN FUTURE. A RE TROSPECTIVE AMENDMENT IN LAW DOES CHANGE THE TAX LIABILITY IN RESPECT OF AN INCOME, WITH RETROSPECTIVE EFFECT, BUT IT CANNOT CHANGE THE TAX WITHHOLDING LIABILITY, WITH RETROSPECTIVE EFFECT. THE TAX WITHHOLDING OBLIGATIONS FROM PAYMENTS TO NON - RESIDENTS, AS SET OUT IN SECTION 195, REQUIRE THAT THE PERSON MAKING THE PAYMENT AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME - TAX THEREON AT THE RATES IN FORCE . WHEN THESE OBLIGATIONS ARE TO BE DISCHARGED AT THE POINT OF TIME WHEN PAYMENT IS MADE OR CREDITED, WHICHEVER IS EARLIER, SUCH ASSESSMENT YEAR : 2008 - 0 9 PAGE 6 OF 7 OBLIGATIONS CAN ONLY BE DISCHARGED IN THE LIGHT OF THE LAW AS IT STANDS THAT POINT OF TIME. SECTION 40(A)(I) PROVIDES THAT, INTER ALIA, NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 38, ANY AMOUNT PAYABLE OUTSIDE INDIA, OR PAYABLE IN INDIA TO A NON - RESIDENT, SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII - B AND SUCH TAX HAS NOT BEEN DEDUCTED'. THE DISALLOWANCE UNDER SECTION 40(A)(I) IS NOT FOR THE PAYMENTS MADE TO NON - RESIDENTS, WHICH ARE TAXABLE IN INDIA, BUT FOR THE PAYMENTS ON WHICH TAX WAS DEDUCTIBLE AT SOURCE BUT TAX HAS NOT BEEN DEDUCTED, AND SUCH DEDUCTIBILITY OF TAX AT SOURCE, AS WE HAVE DISCUSSED ABOVE, HAS TO BE IN THE LIGHT OF THE LEGAL POSITION A S IT STOOD AT THE POINT OF TIME WHEN PAYMENT WAS MADE OR CREDITED - WHICHEVER IS EARLIER . CLEARLY, THEREFORE, THE DISALLOWANCE UNDER SECTION 40(A)(I) CAN COME INTO PLAY ONLY WHEN THE ASSESSEE HAD AN OBLIGATION TO DEDUCT TAX AT SOURCE FROM PAYMENTS TO NON - RE SIDENTS, AND THE ASSESSEE FAILS TO COMPLY WITH SUCH AN OBLIGATION. IN VIEW OF THESE DISCUSSIONS, SO FAR AS PAYMENTS MADE BEFORE 8TH MAY 2010 ARE CONCERNED, THE ASSESSEE DID NOT HAVE ANY TAX WITHHOLDING LIABILITIES FROM 16 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 FOREIGN REMITTANCES FOR FEES FOR TECH NICAL SERVICES UNLESS SUCH SERVICES WERE RENDERED IN INDIA, AND A FORTIORI NO DISALLOWANCE CAN BE MADE UNDER SECTION 40(A)(I) FOR ASSESSEE S FAILURE TO DEDUCT TAX AT SOURCE FROM SUCH PAYMENTS. 9. IN THE CASE BEFORE US, THERE IS NO MATERIAL WHATSOEVER TO DEMONSTRATE AND ESTABLISH THAT THE DESIGN AND DEVELOPMENT SERVICES, FOR WHICH IMPUGNED PAYMENTS WERE MADE, WERE RENDERED IN INDIA. THEREFORE, THE ASSESSEE DID NOT HAVE ANY LIABILITY UNDER SECTION 195 R.W.S. 9(1)(VII) TO DEDUCT TAX AT SOURCE FROM THESE PAYMENTS. ONCE WE COME TO THE CONCLUSION THAT THE ASSESSEE DID NOT HAVE ANY OBLIGATION TO DEDUCT TAX AT SOURCE FROM THESE PAYMENTS, IN THE LIGHT OF THE ABOVE DISCUSSIONS AND AS COROLLARY THERETO, NO DISAL LOWANCE CAN BE MADE IN RESPECT OF THESE PAYMENTS. AS WE HAVE COME TO THESE CONCLUSIONS IN THE LIGHT OF THE PROVISIONS OF THE DOMESTIC LAW, I.E. INCOME TAX ACT, ITSELF, THERE IS NO NEED TO DEAL WITH THE TAXABILITY OF INCOMES EMBEDDED IN THESE PAYMENTS UNDER THE PROVISIONS OF THE APPLICABLE TAX TREATIES. THAT WOULD BE RELEVANT WITH RESPECT TO TAXABILITY OF THESE PAYMENTS IN THE HANDS OF THE RECIPIENTS, BUT, FOR THE REASONS SET OUT ABOVE AND IN THE LIGHT OF THE LEGAL POSITION DISCUSSED ABOVE, WILL BE ACADEMIC IN THE PRESENT CONTEXT. AS REGARDS LEARNED DEPARTMENTAL REPRESENTATIVE VEHEMENT RELIANCE ON A DECISION OF CHENNAI A BENCH OF THIS TRIBUNAL IN THE CASE OF ACIT VS EVOLV CLOTHING PVT. LTD [(2013) 33 TAXMANN.COM 309] WHEREIN ON THE BASIS OF TAXABILITY OF INCO ME ALONE, THE COORDINATE BENCH HAS CONFIRMED THE DISALLOWANCE UNDER SECTION 40(A)(I), WE CAN ONLY SAY THAT A DECISION CANNOT BE AN AUTHORITY FOR A LEGAL QUESTION WHICH HAS NOT BEEN DEALT WITH IN THAT DECISION, OR NOT HAVING BEEN RAISE D IN THAT CASE. 10. I N VIEW OF THESE DISCUSSIONS, AS ALSO BEARING IN MIND ENTIRETY OF THE CASE, WE UPHOLD THE CONCLUSIONS ARRIVED AT BY THE LEARNED CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. AS WE HAVE DECIDED THIS APPEAL ON THIS SHORT LEGAL POINT REGARDING SCOPE OF SECTIO N 40(A)(I) R.W.S SECTION 195, WE SEE NO NEED TO DEAL WITH OTHER ERUDITE CONTENTIONS OF THE PARTIES AS ALSO FINDINGS OF THE LEARNED CIT(A), WHICH, GIVEN OUR ADJUDICATION ON THIS LEGAL ISSUE, ARE NOW RENDERED ACADEMIC IN THE PRESENT CONTEXT. 4.11. IT IS NOTE D BY US THAT IN THE CASE BEFORE US, THE ASSESSMENT ORDER INVOLVED IS IN A.Y. 2007 - 08 AND THEREFORE, AMENDMENT MADE BY THE FINANCE ACT, 2010 CANNOT BE PRESSED INTO SERVICE TO CREATE AN OBLIGATION UPON THE ASSESSEE FOR DEDUCTION OF TAX AT SOURCE, WHICH OTHER WISE, WAS NOT UPON THE ASSESSEE, AS PER LAW EXISTING AT THE TIME OF MAKING OF IMPUGNED REMITTANCES. 7.2. 9 I N VIEW OF THE ABOVE, THIS AMENDMENT ALSO CANNOT BE APPLIED RETROSPECTIVELY FOR DEDUCTION OF TAX AT SOURCE. 7.2. 10 IN VIEW OF THE AFORESAID DISCUSSION, THE PAYMENT MADE BY THE ASSESSEE TO THE NON - RESIDENT IS NOT TAXABLE IN THE HANDS OF THE 17 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 NON - RESIDENT AS FEE FOR TECHNICAL SERVICES . A CCORDINGLY , WE DO NOT FIND ANY INFIRMITY IN THE FINDING OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE AND UPHOLD THE SAME. THE GROUND NO. 1 OF THE APPEAL IS ACCORDINGLY DISMISSED. 8. THE GROUND NO. 2 OF THE APPEAL R ELATES TO DIS ALLOWANCE OF RS.54, 580/ - , WHICH CONSISTS OF DISALLOWANCE ON ACCOUNT OF DIWALI EXPENSES, BY INVOKING PROVISIONS OF S ECTION 40(A)(3 ) OF THE A CT ON THE SUM OF RS.29, 580/ - AND UNDER SECTION 37(1) OF THE A CT ON THE SUM OF RS. 25,000/ - . 8.1 AS REGARD TO DISALLOWANCE OF RS. 29,580/ - , ACCORDING TO THE ASSESSING OFFICER, THREE BILLS OF CASH PURCHASE AMOUNTING TO RS. 15,000/ - , RS.13,340/ - AND RS. 1,240/ - ARE OF SAME DATE , I.E. , 1/11/2010 AND PAYMENT HAS BEEN M ADE TO THE SAME PERSON AND THUS, IN VIEW OF PROV ISION OF SECTION 40A(3) OF THE A CT, AGGREGATE CASH PAYMENT BEING EXCEEDING RS 20,000 AND MADE TO A PERSON IN A DA Y, NO DEDU CTION CAN BE ALLOWED. 8.2 AS REGARD TO DISALLOWANCE OF RS. 25,000/ - , ACCORDING TO THE ASSESSING OFFICER , THE ASSESSEE HAD NOT SUBMITTED JUSTIFICATION OF PURCHASE OF 400 DESK FRAMES AND ALSO DID NOT PROVIDE LIST OF THE PERSONS TO WHOM THOSE GIFTS HAD BEEN GI VEN AND HOW THE SAID GIFTS HELPED THE BUSINESS OF THE ASSESSEE AND THUS HE DISALLOWED 50% OF THE INVOICE OF RS. 50,000/ - FOR PURCHASE OF DESK FRAMES. 8.3 BEFORE THE LD. CIT(A), THE ASSESSEE CLAIMED THAT CASH EXPENDITURE OF RS.29,580/ - WAS NO T INCU RRED ON SAME DATE AND RS. 15,000 WAS INCURRED ON 30/10/2010 AND REMAINING AMOUNT OF RS. 14,580 WAS INCURRED ON 01/11/2010 AND , THUS , PROVISIONS 18 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 OF SECTION 40A(3) ARE NOT APPLICABLE IN THE CASE OF THE ASSESSEE. SIMILARLY , IN RESPECT OF DISALLOWANCE OF RS. 25, 000, THE ASSESSEE SUBMITTED THAT SAME WERE INCURRED FOR GIVING DIWALI GIFTS TO EMPLOYEES, VENDOR AND OTHER CLIENTS AS GIFT ON FESTIVAL OF DIWALI. THE LIST OF PERSONS TO WHOM, THE GIFTS WERE GIVEN WAS ALSO PROVIDED. THE ASSESSEE JUSTIFIED THAT SUCH GIFTS ARE PART OF MAKING A BUSINESS/PERSONAL RELATIONSHIP BETWEEN THE ASSESSEE COMPANY AND THE PERSONS DEALING WITH THE COMPANIES AND THUS IT WAS FOR THE PURPOSE OF THE BUSINESS. AFTER CONSIDERING THE DETAILED SUBMISSION OF THE ASSESSEE, THE LD. CIT(A) DELETED T HE ADDITION OBSERVING AS UNDER: 6.3 THE REASON GIVEN BY AO AND THE SUBMISSION OF THE APPELLANT IS CONSIDERED. THE APPELLANT HAS CLAIMED THE EXPENSES AS DIWALI EXPENSES WHICH IS CUSTOMARY IN INDIAN SOCIETY AND THE CORPORATE GIFT HAS BECOME THE ORDER OF TH E DAY FOR THE BUSINESS. THE GIFTS GIVEN TO EMPLOYEES CAN BE CONSIDERED AS EXPENSES FOR EMPLOYEE WELFARE AND INCENTIVES. THUS, 50% OF DISALLOWANCES MADE ON PURCHASE OF DESK FRAME IS NOT JUSTIFIED. SIMILARLY, THE CASH PURCHASES MADE ON THREE OCCASION APPEARS TO BE GENUINE WHICH ARE INCURRED FOR CUSTOMARY SWEET PACKETS, NAMKEENS AND WRAPPING PAPERS. THE AO HAS NOT BEEN ABLE TO BRING ANY EVIDENCE ON RECORD THAT SUCH EXPENDITURE WERE NEVER INCURRED BY THE APPELLANT. AT THE SAME TIME, AO IS NOT IN A POSITION TO D ECIDE THE AREA IN WHICH A BUSINESS HOUSE SHOULD SPEND THE MONEY TO FURTHER THE BUSINESS. IN VIEW OF THIS, THE ADDITION MADE IS DELETED AND THE GROUNDS OF APPEAL ARE ALLOWED. 8. 4 BEFORE US, THE LD. DR RELIED ON THE ORDER OF THE ASSESSING OFFICER. 8. 5 ON THE CONTRARY, LD. COUNSEL OF THE ASSESSEE RELIED ON THE ORDER OF THE LD. CIT(A) AND FILED WRITTEN SUBMISSION WHICH IS REPRODUCED AS UNDER: 19 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 IT IS SUBMITTED AN AMOUNT OF RS. 50,000/ - WAS PAID (COPY OF INVOICE PLACED AT PAGE 144 OF PAPER BOOK) AND PAYMENT HAS BEEN MADE THROUGH ACCOUNT PAYEE CHEQUE (COPY OF BANK ACCOUNT STATEMENT SHOWING PAYMENT OF RS. 15,000/ - ON 25.10.2010 AND RS. 35,000/ - ON 19.11.2010 PALCED AT PAGE 146 - 147 OF PAPER BOOK) AND OUT OF WHICH 50% HAS DISALLOWED ON ADHOC BASIS AND THERE WAS NO JUSTIFICATION TO MAKE A PART DISALLOWANCE OF EXPENDITURE INCURRED AND CLAIMED BY THE ASSESSEE. IT IS SUBMITTED THAT IT IS WELL SETTLED POSITION OF LAW THAT THERE CAN BE NO PART DISALLOWANCE OF AN EXPENDITURE INCURRED AND CLAIMED BY THE APPELLANT COMPANY AS HAD BEEN HELD IN THE FOLLOWING JUDGMENTS: A) 91 ITR 544 (SC) CIT V DHANRAJGIRJI RAJA NARSINGIRJI B) 118 ITR 261 (SC) SASSOON J DAVID AND CO. (P) LTD V CIT C) 254 ITR 377 (DEL) CIT V DALMIA CEMENT (P) LTD D) 265 ITR 77 (ALL) ABBAS WAZIR (P) LTD V C IT THAT THERE IS NO SUCH JUSTIFICATION TO MAKE AN AD - HOC DISALLOWANCE AND THEREFORE, THE SAME TOO IS UNTENABLE AS HAS BEEN HELD IN THE FOLLOWING CASES: A) 102 TTJ 882 (PUNE) LAVRIDS KNUDSEN MASKINFABRIK (INDIA) LIMITED. VS ADDITIONAL COMMISSIONER OF INC OME - TAX B) 43 DTR 116 (TM) (AGRA) ITO VS. MAYUR AGGARWAL C) 254 ITR 673 (GUJ) DINESH MILLS LTD. VS. COMMISSIONER OF INCOME TAX. D) 73 ITI) 189 (DEL) GOODYEAR INDIA LTD V ITO E) 106 TTJ 1065 (DEL) HUGHES ESCORTS COMMUNICATIONS LIMITED. VS JOINT COMMISSIONER OF INCOME - TAX. F) 94 TTJ 423 (ASR) SUNDER MAI SAT PAL VS. INCOME TAX OFFICER G) 81 TTJ 448 (JODH) DCIT VS. SURFACE FINISHING EQUIPMENT IT IS SETTLED LAW THAT, NO DISALLOWANCE CAN BE MADE ON THE BASIS OF SUSPICION. RELIANCE FOR THE PR OPOSITION IS PLACED ON ON UMA CHARAN SHAW BROS. COS. CIT REPORTED IN 37 ITR 271. IT HAS BEEN FURTHER HELD IN THE FOLLOWING CASES THAT SUSPICION HOWSOEVER STRONG CANNOT TAKE THE PLACE OF PROOF: 20 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 A) 37 ITR 151(SC) OMAR SALAY MOHAMMAD SAIT V C IT B) 26 ITR 736 (SC) DHIRAJLAL GIRDHARILAL V CIT, BOMBAY C) 26 ITR 775 (SC) DHAKESHWARI COTTON MILLS LTD. V CIT D) 37 ITR 288 (SC) LAI CHAND BHAGAT AMBICA RAM V CIT 8. 6 W E HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. BEFORE US TWO AMOUNTS OF DISALLOWANCE I.E. RS.29, 580/ - AND RS. 25,000 / - ARE IN DISPUTE. WITH REGARD TO THE FIRST DISALLOWANCE OF RS. 29,580/ - , THE ASSESSEE HAS SUBMITTED BEFORE THE LD. CIT(A) THAT EXPENDITURE OF RS. 15,000 WAS INCURRED ON 30/10/2010 AND REMAINING EXPEND ITURE OF RS. 14,580/ - WAS INCURRED ON 01/11/2010. THIS FACTUAL FINDING HAS NOT BEEN CONTROVERTED BY THE LD. DR BEFORE US. FURTHER THE LD. CIT(A) HAS FOUND THE CASH PURCHASES INCURRED FOR PURCHASE OF CUSTOMARY SWEET PACKETS, ETC TO BE GENUINE. WITH REGARD TO THE DISALLOWANCE OF RS. 25,000, OUT OF PURCHASE OF RS. 50,000 FOR DESK FRAME S , ALSO THE LD. CIT(A) OBSERVED AS CUSTOMARY EXPENSES IN INDIAN SOCIETY AND ACCORDINGLY HELD AS BUSINESS EXPENSES. WE FIND THAT THE ASSESSEE HAS MADE PAYMENT IN CHEQUE FOR PURCHASE OF ARTICLES DISTRIBUTED ON THE DIWALI FESTIVAL AND ALSO PROVIDED LIST OF THE EMPLOYEES, VENDOR S ETC . TO WH OM THOSE GIFTS WERE DISTRIBUTED . IN SUCH CIRCUMSTANCES, IN OUR VIEW THE ASSESSEE HAS DISCHARGED ITS ONUS AND THE R EVENUE HAS NOT BROUGHT ON RECORD AN Y CONTRARY EVIDENCE OF NOT INCURRING THE SAID EXPENSES AND THUS THE FINDING OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE IS JUSTIFIED. SINCE , WE DO NOT FIND ANY ERROR IN THE FINDING OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE, ACCORDINGLY , WE UPHOLD THE SAME. 21 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 T HE GROUND OF THE APPEAL OF THE R EVENUE, IS ACCORDINGLY DISMISSED. 9. THE GROUND NO. 3 OF THE APPEAL RELATES TO DISALLOWANCE OF RS.20,90,688/ - UNDER SECTION 37 (1) OF THE A CT ON ACCOUNT OF REMUNERATION PAID TO THE RELATIVE OF DIRECTORS. 9.1 THE FACTS IN BRIE F, QUA THE ADDITION IN DISPUTE ARE THAT THE ASSESSING OFFICER OBSERVED REMUNERATION OF RS. 20,90, 688/ - PAID TO MRS . MUNISHA BAJPEI, WHO HAPPEN S TO BE WIFE OF ONE OF THE DIRECTOR OF THE ASSESSEE COMPANY. THE ASSESSEE SUBMITTED DETAILS OF EDUCATIONAL QUALIFIC ATIONS AND EXPERIENCE OF MRS. MUNISHA BAJPEI TO JUSTIFY THE REMUNERATION PAID TO HER, HOWEVER THE ASSESSING OFFICER DID NOT FIND HER QUALIFIED FOR THE JOB FOR WHICH SHE WAS PAID THE REMUNERATION AND OBSERVED THAT SHE DID ONLY BASIC COURSES. IN VIEW OF THE ASSESSING OFFICER, THE REMUNERATION WAS PAID JUST BECAUSE, SHE IS WIFE OF A DIRECTOR. ACCORDINGLY HE DISALLOWED THE SAID REMUNERATION. BEFORE THE LD. CIT(A), THE ASSESSEE FILED DETAILED SUBMISSION. THE LD. CIT(A) DELETED THE DISALLOWANCE OBSERVING AS UNDER: 10.3 THE REASON GIVEN BY AO AND THE SUB MISSION OF THE APPELLANT ARE CONSIDERED. THE APPELLANT SUBMITTED THAT ALONG WITH THE VARIOUS DEGREES, THE DIRECTOR ALSO ACQUIRED PRACTICAL KNOWLEDGE ON THE JOB. THE FORMAL QUALIFICATIONS ARE NOT NECESSARY FOR CREATIVITY. THERE ARE SEVERAL INSTANCES OF SUCC ESSFUL PROFESSIONAL AND BUSINESSMAN IN THE WORLD TO ACHIEVED GREAT SUCCESSES WITHOUT FORMAL QUALIFICATION ON THE FIELD THEY ARE WORKING. SITTING IN THE OFFICE ROOM, THE AO IS NOT IN A POSITION TO COME INTO THE SHOES OF BUSINESS MAN AND DECIDE WHAT IS GOOD F OR THE BUSINESS. BEFORE DECIDING ABOUT THE QUALIFICATION OF THE DIRECTOR TO RECEIVE A PARTICULAR AMOUNT, THE AO SHOULD HAVE 22 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 MADE FURTHER ENQUIRY AND ESTABLISH CERTAIN FACTS TO COME INTO A PROPER CONCLUSION. IN THE ABSENCE OF ANY EVIDENTIARY FINDING, THE AD DITION MADE PURELY ON THE BASIS OF ASSUMPTIONS CANNOT BE SUSTAINED AND HENCE DELETED. THE GROUNDS OF APPEAL ARE ALLOWED. 9.2 BEFORE US, THE LD. DR RELIED ON THE FINDING OF THE LD. ASSESSING OFFICER AND SUBMITTED THAT REMUNERATION PAID TO WIFE OF THE DIRECTOR WAS NOT INCURRED WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF THE BUSINESS AND THEREFORE THE ASSESSING OFFICER WAS JUSTIFIED IN DISALLOWING THE SAID REMUNERATION. 9.3 ON THE CONTRARY, THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT SAID REMUNERATION TO MRS. MUNISHA BAJPEYEE WAS ALLOWED IN PREVIOUS AND SUBSEQUENT YEARS. HE FILED LIST OF THE ASSESSMENT YEAR IN WHICH, SUCH REMUNERATION WAS ALLOWED. ACCORDING TO THE LD. C OUNSEL , IN VIEW OF THE RULE OF CONSISTENCY, NO DISALLOWANCE IS TENABLE IN THE YEAR UNDER CONSIDERATION. IN SUPPORT OF THE PROPOSITION, THE LD. COUNSEL RELIED ON THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF CIT VERSUS EXCEL INDUSTRIES, 358 ITR 295 (SC ). THE LD. COUNSEL REFERRED TO THE COPY OF CERTIFICATES OF EDUCATIONAL QUALIFICATIONS OF MRS. MUNISHA BAJPAYEE AVAILABLE ON PAGE 203 TO 233 OF THE PAPERWORK AND SUBMITTED THAT THE REMUNERATION RECEIVED BY MRS . MUNISHA BAJPAYEE HAS BEEN TAXED IN HER HANDS A LSO . 9.4 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. THE LD. COUNSEL OF THE ASSESSEE SUBMITTED THAT SAID REMUNERATION TO MRS . MUNISHA BAJPAI HAS BEEN ALLOWED IN FOLLOWING YEARS, WHICH INCLUDE ASSESSMENT YEAR 2013 - 14 , WH ERE THE CASE WAS COMPLETED UNDER SCRUTINY: 23 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 ASSESSMENT YEAR SALARY PAID TO MUNISHA BAJPAYEE DISALLOWANCE, IF ANY ASSESSMENT U/S WHETHER INCOME OFFERED TO TAX IN HANDS OF MUNISHA BAJPAI 2009 - 10 12,13,253 ------- 147 YES 2010 - 11 21,18,917 ------- 143(1) YES 2011 - 12 20,90,688 20,90,688 143(3) YES (PAGE 239 OF PAPER BOOK) 2012 - 13 21,00,000 -------- 143(1) YES 2013 - 14 14,89,200 -------- 143(3) YES 2014 - 15 15,46,875 -------- 143(1) YES 9.5 THIS FACT OF REMUNERATION IN EARLIER AND SUBSEQUENT YEAR TO MRS . MUNISHA BAJPAI HAS NOT BEEN DISPUTED BY THE LD. DR . I F THE SAID REMUNER ATION HAS BEEN ACCEPTED BY THE R EVENUE IN EARLIER AND SUBSEQUENT YEAR , AS JUSTIFIED AND NO OTHER CONTRARY FACTS HAVE BEEN BROUGHT ON RECORD IN RESPECT OF THE YEAR UNDER CONSIDERATION, I N OUR OPINION FOLLOWING THE RULE OF CONSISTENCY, THE ASSESSING OFFICER IS NOT JUSTIFIED IN DISALLOWING THE SAID REMUNERATION UNDER SECTION 37(1) OF THE A CT. WE ARE ALSO NOT AGREED WITH THE FINDING OF THE ASSESSING OFFICER FOR REQUIREMENT OF FORMAL DEGREES FOR CARRYING OUT JOB RESPONSIBILITIES IN A COMPANY. THE FORMAL QUALIFICATIONS ARE NOT NECESSARY FOR CREATIVE JOB LIKE DESIGNERS. IN OUR OPINION, THE FINDING OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE IS WELL REASONED AND WE DO NOT FIND ANY INFIRMITY IN THE SAME, ACCORDINGLY , WE UPHO LD THE SAME. THE GROUND OF THE R EVENUE IS ACCORDINGLY DISMISSED. 10. THE GROUND NUMBERS 4 TO 6 OF THE APPEAL OF THE REVENUE ARE GENERAL IN NATURE, AND THEREFORE WE ARE NOT REQUIRED TO ADJUDICATE UPON. 24 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 11. IN GROUND NO. 1 AND 1.1 OF THE CROSS OBJECTION, THE ASSESSEE HAS CHALLENGED DISALLOWANCE OF RS. 8, 25,000/ - SUSTAINED BY THE LD. CIT(A). 11.1 THE FACTS IN BRIEF QUA THE DISALLOWANCE ARE THAT THE ASSESSING OFFICER OBSERVED EXPENDITURE OF RS. 8, 25,000/ - ON ACCOUNT OF THE SPONSORSHIP FEES, WHICH ACCORDING TO HIM WAS IN RESPECT OF THE EVENT HELD ON 27 TH AND 28TH APRIL, 2011 I.E. IN PREVIOUS YEAR CORRESPONDING TO ASSESSMENT YEAR 2012 - 13. THE ASSESSEE SUBMITTED THAT IN RESPECT OF THE EXPENDITURE, AN INVOICE WAS RECEIVED FROM M /S NETWORK PLAY M EDIA PRIVATE LIMITED AND TAX WAS DEDUCTED ON PART PAYMENT MADE DURING THE YEAR UNDER CONSIDERATION. ACCORDING TO THE ASSESSEE, IT WAS A DEFINED LIABILITY AND ACCORDINGLY EXPENSES WERE BOOKED IN THE YEAR UNDER CONSIDERATION. 11.2 ABOVE CON TENTIONS OF THE ASSESSEE WERE NOT ACCEPTED BY THE LD. ASSESSING OFFICER AND ACCORDING TO HIM, THE SPONSORSHIP FEES ARE IN RESPECT OF THE EVENT WHICH OCCURRED IN SUBSEQUENT FINANCIAL YEAR AND THUS , IT WAS A CONTINGENT LIABILITY AND IN THE NATURE OF ADVANCE , WHICH WOULD BE ASCERTAINED AFTER COMPLETION OF THE EVENT ONLY, ACCORDINGLY , HE DISALLOWED THE SAID EXPENSE IN THE YEAR UNDER CONSIDERATION. THE LD. CIT(A) UPHELD THE FINDING OF THE ASSESSING OFFICER. 11.3 BEFORE US, THE LD. COUNSEL OF THE ASSESSEE REFERR ED TO COPY OF INVOICE ISSUED BY M/S NETWORK PLAY MEDIA PRIVATE LIMITED AND SUBMITTED THAT FINDING OF THE LD. ASSESSING OFFICER IS CONTRARY TO THE JUDGMENTS OF HON BLE A PEX C OURT IN THE CASE OF M/S TAPARIA TOOLS LTD VS. JCIT , REPORTED IN 372 ITR 605 AND BHA RAT 25 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 EARTH MOVERS VERSUS CIT REPORTED IN 245 ITR 428. ACCORDING TO THE LD. COUNSEL , THE SAID PARTY HAS ALREADY RENDERED PART OF THE SERVICES OF FINALIZATION OF ARRANGEMENT IN RELATION TO EVENT AND ACCORDINGLY THE SAID PARTY RAISED INVOICE TO THE EXTENT OF T HE PAYMENT MADE. IN VIEW OF THE LD. COUNSEL , IT IS ASCERTAINED LIABILITY AND THEREFORE EXPENSES BOOK ED ARE JUSTIFIED AS BUSINESS EXPENDITURE. 11.4 THE LD. DR, ON THE OTHER HAND , RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 11.5 WE HAVE HEARD THE RIVAL SUBMISSION AND PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS NOT IN DISPUTE THAT INVOICE OF RS. 8, 25,000/ - WAS RAISED ON 18/03/2011 I.E. IN THE YEAR UNDER CONSIDERATION AND SAME WAS PAID ALSO IN THE YEAR UNDER CONSIDERATION. NOW TH E QUESTION BEFORE US IS WHETHER THIS LIABILITY WAS ASCERTAINED. WE FIND TH AT HON BLE A PEX C OURT IN THE CASE OF BHARAT EARTH MOVERS (SUPRA) HAS OBSERVED AS UNDER: 4. THE LAW IS SETTLED; IF A BUSINESS LIABILITY HAS DEFINITELY ARISEN IN THE ACCOUNTING YEAR, THE DEDUCTION SHOULD BE ALLOWED ALTHOUGH THE LIABILITY MAY HAVE TO BE QUANTIFIED AND DISCHARGED AT A FUTURE DATE. WHAT SHOULD BE CERTAIN IS THE INCURRING OF THE LIABILITY. IT SHOULD ALSO BE CAPABLE OF BEING ESTIMATED WITH REASONABLE CERTAINTY THOUGH THE A CTUAL QUANTIFICATION MAY NOT BE POSSIBLE. IF THESE REQUIREMENTS ARE SATISFIED THE LIABILITY IS NOT A CONTINGENT ONE. THE LIABILITY IS IN PRAESENTI THOUGH IT WILL BE DISCHARGED AT A FUTURE DATE. IT DOES NOT MAKE ANY DIFFERENCE IF THE FUTURE DATE ON WHICH TH E LIABILITY SHALL HAVE TO BE DISCHARGED IS NOT CERTAIN. 11.6 IN THE INSTANT CASE, WE NOTE THAT THE INVOICE, WHICH IS ENCLOSED WITH THE SYNOPSIS FILED , HAS BEEN RAISED IN RESPECT OF DELIVERABLES AS PER THE CONTRACT AGREED BETWEEN THE PARTIES. SINCE THE LIA BILITY WAS ESTIMATED WITH REASONABLE CERTAINTY, RESPECTFULLY 26 ITA NO.5878/DEL/2014 & C.O. NO. 190/DEL/2015 FOLLOW ING THE FINDING OF THE HON BLE APEX C OU RT IN THE CASE OF BHARAT EARTH M OVERS (SUPRA), WE ALLOW THE CLAIM OF THE ASSESSEE OF BUSINESS EXPENDITURE IN RESPECT OF THE PAYMENT MADE TO M/S NETWOR K PL AY MEDIA PRIVATE LIMITED OF RS.8, 25,000/ - . ACCORDINGLY, THE GROUNDS OF THE CROSS OBJECTION ARE ALLOWED. 1 2. IN THE RESULT, APPEAL OF THE R EVENUE IS DISMISSED, WHEREAS THE CROSS OBJECTION OF THE ASSESSEE IS ALLOWED. THE DECISION IS PRONOUN CED IN THE OPEN COURT ON 2 1 S T MAY , 201 8 . S D / - S D / - ( BHAVNESH SAINI ) ( O.P. KANT ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 1 S T MAY , 201 8 . RK / - (D.T.D . ) COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(A) 5 . DR ASST. REGISTRAR, ITAT, NEW DELHI