Foseco India Ltd., Pune V. Deputy Commissioner of Income-tax,

CO 2/PUN/2016

• Counselvise Citation: [2017] 123 COUNSELVISE.COM (IT) 2844 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 1 month(s) 5 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 10-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2009-2010
• Appeal Filed On: 04-01-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ATUL PODDAR
• Assessee Lawyers: P L KUREEL
• Keywords: Transfer pricing; International transaction; Non-deduction of tax
• Section: 143(3)

Judgement Text

] IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B, PUNE , ! ' # , $ % BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO.1386/PUN/2014 ! & & / ASSESSMENT YEARS : 2009-10 DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(2), PUNE. . APPELLANT VS. M/S. FOSECO INDIA LTD., GAT NO.922 929, PUNE NAGAR ROAD, SANASWADI, TALUKA SHIRUR, PUNE 412 208. PAN: AAACF1049H ..RESPONDENT C.O.NO.2/PUN/2016 (ARISING OUT OF ITA NO.1386/PUN/2014 ! & & / ASSESSMENT YEARS : 2009-10 M/S. FOSECO INDIA LTD., GAT NO. 922 929, PUNE NAGAR ROAD, SANASWADI, TALUKA SHIRUR, PUNE 412 208. PAN: AAACF1049H . APPELLANT VS. DY. COMMISSIONER OF INCOME TAX, CIRCLE 1(2), PUNE. . RESPONDENT / APPELLANT BY : SHRI P.L. KUREEL / RESPONDENT BY : SHRI ATUL PODDAR / DATE OF HEARING : 04.01.2017 / DATE OF PRONOUNCEMENT: 10.02.2017 2 ' / ORDER PER ANIL CHATURVEDI, AM: THIS APPEAL FILED BY THE REVENUE AND CROSS-OBJECTION OF T HE ASSESSEE ARE EMANATING OUT OF THE ORDER OF COMMISSIONE R OF INCOME TAX (A) IT, TP, PUNE DT.09.04.2014 FOR THE ASSE SSMENT YEAR 2009-10. 2. ASSESSEE IS A COMPANY STATED TO BE ENGAGED IN THE BUSINESS OF MANUFACTURING OF PRODUCTS USED IN METALLURGICAL INDUSTRY. ASSESSEE ELECTRONICALLY FILED ITS RETURN OF INCOME FOR A.Y. 200 9-10 ON 26.09.2009 DECLARING THE TOTAL INCOME OF RS.19,02,23,478. THE CASE WAS SELECTED FOR SCRUTINY AND ACCORDINGLY NOTICE W AS ISSUED AND SERVED UPON ASSESSEE ON 25.08.2010 AND IN RESPONSE TO WH ICH ASSESSEE FILED THE DETAILS. ON PERUSING THE DETAILS FILED BY THE ASSESSEE IT WAS NOTICED THAT ASSESSEE HAD ENTERED IN TO INTERNATIONAL TRANSACTIONS WITH ITS ASSOCIATED ENTERPRISE (AE), THE AGGREGATE OF SUCH TRANSACTIONS WAS RS.19,33,04,138/-. AO ACCORDINGLY MADE A REFERENCE U/S 92CA(3) OF THE ACT TO T RANSFER PRICING OFFICER (TPO) FOR VERIFICATION OF CORRECTNESS OR OTHER WISE OF THE ARMS LENGTH PRICE (ALP) OF INTERNATIONAL TRANSACTIONS. IN THE ORDER PASSED BY TPO U/S 92CA(3) OF THE ACT ORDER DT.1 7.01.2013 TPO DID NOT ACCEPT THE BENCH MARKING OF INTERNATIONAL TR ANSACTIONS DONE BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES A ND MADE AN UPWARD ADJUSTMENT OF RS.5,88,06,772/-. THE ASSESSEE W AS FURNISHED THE COPY OF THE ORDER PASSED BY THE TPO U/S 92CA(3) AND ASKED TO EXPLAIN AS TO WHY THE UPWARD ADJUSTMENT TO ALP OF INTERNATIONAL TRANSACTIONS MADE BY TPO NOT BE MADE TO T HE TOTAL 3 INCOME OF THE ASSESSEE. THE SUBMISSIONS OF THE ASSESSEE WAS CONSIDERED AND THEREAFTER THE ASSESSMENT WAS FRAMED U/ S 143(3) R.W.S. 144C(1) VIDE ORDER DT.30.05.2013 AND THE TOTAL INCOME WAS DETERMINED AT RS.25,11,30,250/-. AGGRIEVED BY THE ORDER O F AO, ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A), WHO VIDE OR DER DATED 09.04.2014 (IN APPEAL NO.PN/CIT(A)-IT/TP/DCIT CIR 1(2)/43/2013-14) GRANTED PARTIAL RELIEF TO ASSESSEE. AGGRIEV ED BY THE ORDER OF LD.CIT(A), REVENUE IS NOW IN APPEAL BEFORE US AND HAS RAISED THE FOLLOWING GROUNDS. 1. THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) IS CONTRARY TO LAW AND TO THE FACTS AND CIRCUMSTANCES OF THE CASE. 2. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN HOLDING THAT THE PAYMENT OF ROYALTY OF RS. 5,88,06,772/- MADE BY THE ASSESSEE TO FOSECO INTERNATIONAL WAS AT AN EXCESSIVE RATE AND WAS NOT PAID AT ARM'S LENGTH PRICE. 3. THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN FAILING TO APPRECIATE THAT THE ENHANCEMENT OF ROYALTY PAYMENT WAS MADE ONLY AFTER THE RBI PERMITTED ENHANCEMENT IN THE RATE OF ROYALTY PAYMENTS, AS NO SPECIFIC ADDITIONAL BENEFIT CONFERRED TO THE ASSESSEE. 4 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN FAILING TO APPRECIATE THAT BY VIRTUE OF TH E ROYALTY CONTRACT AGREEMENT DATED 01.06.2003, THE ASSESSEE HAD NOT ONLY ACQUIRED EXCLUSIVE LICENSE TO USE TRADE MARK FOR PROMOTION, DISTRIBUTION AND SALE OF PRODUCTS MANUFACTURED BY THE ASSESSEE, WHERE AS NO ADDITIONAL BENEFIT WAS RECEIVED BY THE ASSESSEE, IN VIEW OF THE NEW 'COLLABORATION AGREEMENT'. 5 THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) ERRED IN FAILING TO APPRECIATE THAT BY VIRTUE OF TH E NEW 'COLLABORATION AGREEMENT', NO ADDITIONAL BENEFI T WAS RECEIVED BY THE ASSESSEE. 6 FOR THESE AND SUCH OTHER GROUNDS AS MAY BE URGED AT THE TIME OF THE HEARING, THE ORDER OF THE LEARNED COMMISSIONER OF INCOME- TAX (APPEALS) MAY BE VACATED AND THAT OF THE ASSESSING OFFICER BE RESTORED. 4 7. THE APPELLANT CRAVES LEAVE TO ADD, AMEND, ALTER OR DELETE ANY OF THE ABOVE GROUNDS OF APPEAL DURING THE COURSE OF THE APPELLATE PROCEEDINGS BEFORE THE HONBLE TRIBUNAL. 3. ASSESSEE HAS ALSO FILED CROSS-OBJECTION AND HAS RAISED THE FOLLOWING GROUNDS : 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) WAS NOT JUSTIFIED AND GROSSLY ERRED IN CONFIRMING T HE DISALLOWANCE ON ACCOUNT OF COMMISSION PAID BY THE APPELLANT AMOUNTING TO RS.21,00,000/-. 2. THAT THE APPELLANT CRAVES LEAVE TO ADD, AMEND, MODIFY, RESCIND, SUPPLEMENT, OR ALTER ANY OF THE GROUNDS SATED HERE-IN-ABOVE, EITHER BEFORE OR AT TH E TIME OF HEARING OF THIS APPEAL. 4. WE FIRST TAKE UP REVENUES APPEAL FOR ADJUDICATION: 5. AT THE OUTSET, LD DR SUBMITTED THAT THOUGH THE REV ENUE HAS RAISED VARIOUS GROUNDS, BUT THE ONLY ISSUE WHICH REQUIRES ADJUDICATION IS WITH RESPECT TO DELETION OF ADDITION MADE ON PAYMENT OF RS.5,88,06,772/- MADE BY ASSESSEE TO FOSECO INTERNATIONAL. 6. TPO NOTICED THAT FOSECO INDIA LTD., HAD OBTAINED TECH NOLOGY FROM FOSECO INTERNATIONAL FOR MANUFACTURE OF METALLURGICA L CHEMICALS FOR WHICH IT ALSO PAID ROYALTY FOR TECHNICAL KNOWHOW FROM TIME TO TIME. DURING THE YEAR 2000, THE RESERVE BANK OF INDIA (RBI) PERMITTED PAYMENT OF ROYALTY UPTO 2% OF EXPORTS A ND 1% OF DOMESTIC SALES UNDER AUTOMATIC ROUTE ON USE OF TRADEMAR KS AND BRAND NAME. THE ASSESSEE UNDER THE PREVALENT SCHEME ENTERED INTO AGREEMENT FOR PAYMENT OF THE AFORESAID FEES FOR A PER IOD OF 7 YEARS. THEREAFTER RBI LIBERALIZED PAYMENT OF ROYALTY TO TH E EXTENT OF 5% ON LOCAL SALES AND 8% ON EXPORTS. TPO NOTICED THAT A SSESSEE 5 IMMEDIATELY TERMINATED ITS EARLIER AGREEMENT AND ENTERED INTO A NEW AGREEMENT UNDER THE PRETEXT OF TECHNOLOGICAL AGREEM ENT TO PAY THE ROYALTY AT A HIGHER RATE. TPO NOTICED THAT THE NEW AGREEMENT DOES NOT SHOW ANY SPECIFIC PURPOSE BEING CONFRONTED UPON THE ASSESSEE. HE THEREFORE HELD THAT NO BENEFIT WAS DERIVED BY THE ASSESSEE OUT OF ITS ROYALTY AGREEMENT DT.01.07.2004 AND T HEREFORE THE PAYMENT OF ROYALTY AT THE RATES DETERMINED BY THE REVISED ROYALTY AGREEMENTS WERE NOT JUSTIFIABLE MORE SO SINCE T HE ASSESSEE COULD NOT PROVE THAT THE TECHNOLOGY COMMENSURATED WITH THE NEW TERMS AND CONDITIONS THAT WERE PROVIDED BY THE A.E. HE THEREFORE CONSIDERED THE TRANSACTION OF PAYMENT OF ROYALTY BY THE ASSESSEE TO ITS A.E. TO BE NOT AT ARMS LENGTH AS HE WAS OF THE VIEW THAT ASSESSEE SHOULD HAVE PAID ROYALTY ONLY AS PER THE AGRE EMENT DT.30.07.2004 AND 01.07.2004. HE ACCORDINGLY DETERMINED THE ALP OF ROYALTY AND DETERMINED THE ROYALTY PAYABLE AT RS.1,37,95 ,728/- AND THUS DISALLOWED THE EXCESS ROYALTY PAYMENT OF RS.5,88,06,772/-. AGGRIEVED BY THE ORDER OF AO, ASSESSEE CARRIED THE MATTER BEFORE LD. CIT(A) WHO DECIDED THE ISSUE IN FAVOU R OF THE ASSESSEE BY FOLLOWING HIS OWN ORDER FOR EARLIER YEAR AND BY HOLDING AS UNDER : IT IS NOT KNOWN THAT ON WHAT MATERIAL THE LEARNED TPO HAS REACHED ABOVE CONCLUSION. IN THIS CONNECTION, IT I S SEEN THAT, ARTICLE 4.1 OF THE AGREEMENT EFFECTIVE FROM 01.06.2 003 STATE THAT AS CONSIDERATION FOR THE RIGHTS GRANTED UNDER CLAUSE 3, THE LICENSEE SHALL PAY THE LICENSOR THE ROYALTY. CLAUSE 3 ON GRANT OF LICENCE IS REPRODUCED AS UNDER : GRANT OF LICENCE 3.1 THE LICENSOR HEREBY GRANTS TO THE LICENSEE A NON-EXCLUSIVE NON-TRANSFERABLE LICENCE TO USE THE T RADE MARKS IN CONNECTION WITH THE PROMOTION, DISTRIBUTIO N AND SALE OF THE PRODUCTS SUBJECT AS HEREINAFTER PROVIDED. 3.2 THE LICENSEE SHALL NOT HAVE THE RIGHT TO GRANT SUB-LICENCES NOR IN ANY WAY SHARE OR PART WITH ITS 6 RIGHTS UNDER THIS AGREEMENT EXCEPT AS OTHERWISE AGREED IN WRITING BY THE LICENSOR. 3.3 THE LICENSEE UNDERTAKES NOT TO USE THE TRADE MARKS IN A COUNTRY OR TERRITORY WHERE THE LICENSOR HAS APPOINTED AN EXCLUSIVE LICENSEE. 2.2.21 SIMILARLY, CLAUSE 3 OF AGREEMENT DATED 01.07. 2004 IS REPRODUCED AS UNDER : 3.1 THE LICENSOR HEREBY GRANTS TO THE LICENSEE AN EXCLUSIVE RIGHT AND LICENCE UNDER THE INDUSTRIAL PROPERTY RIGHTS TO MANUFACTURE, HAVE MANUFACTURED, USE AND SELL THE PRODUCTS IN THE TERRITORIES OF IND IA SUBJECT AS HEREINAFTER PROVIDED. THE LICENSEE SHALL ALSO ENJOY THE RIGHT TO EXPORT PRODUCTS MANUFACTURED IN THE TERRITORIES OF INDIA, TO OTHER COUNTRIES, AS MAY BE AGREED FROM TO TIME BETWEEN THE PARTIES. 3.2 THE LICENSEE SHALL NOT HAVE THE RIGHT TO GRANT SUB-LICENCES NOR IN ANY WAY SHARE OR PART WITH ITS RIGHTS UNDER THIS AGREEMENT EXCEPT AS OTHERWISE AGREED IN WRITING BY THE LICENSOR. 3.3 THE LICENSEE UNDERTAKES NOT TO USE THE TRADE MARKS IN A COUNTRY OR TERRITORY WHERE THE LICENSOR HAS APPOINTED AN EXCLUSIVE LICENSEE. 2.2.22 FROM THE ABOVE, IT CAN BE SEEN THAT THE APPELLANT DID NOT HAVE THE LICENSE TO MANUFACTURE V IDE AGREEMENT EFFECTIVE FROM 01.06.2003. THEREFORE, TH E LEARNED TPOS CONCLUSION THAT THE APPELLANT ALREADY HAD LIC ENSE TO MANUFACTURE IS NOT BASED ON FACTS ON THE RECORD. T HE CONCLUSION SHOULD BE BASED ON FACTS AND NOT ON PRESUMPTION. LEGALLY SPEAKING, LICENCE TO USE TRAD EMARK AND LICENCE TO MANUFACTURE ARE DIFFERENT RIGHTS. ME RELY BECAUSE THE APPELLANT HAD A LICENCE TO USE THE TRAD EMARK, RIGHT TO USE KNOW-HOW AND RIGHT TO MANUFACTURE CANN OT BE PRESUMED TO HAVE BEEN IMPLICITLY GRANTED ALONG WITH THE LICENCES TO USE TRADEMARK. RIGHT TO USE EACH INTANG IBLE ASSET MAY HAVE DIFFERENT CONSIDERATION. I DO NOT AGREE WI TH THE LEARNED TPO'S PRESUMPTION THAT LICENSE TO USE TRADE MARK WILL AUTOMATICALLY MEAN RIGHT TO USE KNOW-HOW AND R IGHT TO MANUFACTURE. FURTHER, IF THE LEARNED TPO DISAGREES WITH THE AGREEMENT, THEN HE SHOULD BRING NECESSARY EVIDENCE ON RECORD WHICH, HE HAS NOT DONE. FURTHER, AS DISCUSSE D IN DETAIL IN MY APPELLATE ORDER OF AY 2005-06, 2007-08 AND 2008-09 THAT ROYALTY PAID AT ENHANCED RATE WAS JUST IFIED AS THE SCOPE OF THE AGREEMENT OF THE SUBSEQUENT AGREEM ENT IS WIDER THAN THE EARLIER AGREEMENT. 2.2.23 FURTHER, THE LEARNED TPO HAS HELD THAT THE A PPELLANT DID NOT DERIVE ANY ADDITIONAL BENEFIT FROM ITS AGRE EMENT DATED 01.07.2004. ON THIS CONCLUSION, IT MAY BE MEN TIONED THAT AFTER DETAILED DISCUSSION IN THE APPELLATE ORD ER OF AY 2005-06, 2007-08 AND 2008-09, I HAVE HELD THAT BENE FIT TEST IS NOT APPLICABLE TO THE ROYALTY PAYMENT AS FAR AS TRANSFER PRICING PRINCIPLES ARE CONCERNED. 7 2.2.24 FURTHER, ON THE LEARNED TPO'S ALTERNATIVE PO SITION OF COMPARABLE CUP OF ROYALTY PAYMENT RECEIVED BY ALTAIR NANOTECHNOLOGIES INC, I DO NOT ACCEPT THIS AS A VALID COMPARABLE CUP IN ABSENCE OF THE AGREEMENT OUTLINING MUTUAL RIGHTS AND LIABILITIES OF BOTH THE PARTIES R ELATED TO ROYALTY PAYMENT. THEREFORE, I DO NOT ACCEPT THE LEA RNED TPO'S ALTERNATIVE ARGUMENT. 2.2.25 I FIND THAT APART FROM THE TWO ARGUMENTS DIS CUSSED ABOVE, THE LEARNED TPO HAS NOT RAISED ANY ADDITIONA L ARGUMENT AGAINST THE APPELLANT. IN THESE CIRCUMSTAN CES, FOLLOWING MY OWN ORDER OF AY 2005-06, 2007-08 AND 2 008- 09, I DELETE THE ADJUSTMENT OF RS 5,88,06,772. 7. AGGRIEVED BY THE ORDER OF LD. CIT(A). REVENUE IS NOW IN APPEAL BEFORE US. 8. BEFORE US, AT THE OUTSET, LD.A.R. SUBMITTED THAT IDENTICAL ISSUE AROSE IN CASE OF ASSESSEE FOR A.Y. 2005-06 TO 2008 -09. THE CO-ORDINATE BENCH OF THE TRIBUNAL VIDE ORDER DT.30.11.2016 HAS DISMISSED THE APPEAL OF THE REVENUE. HE POINTED TO THE RELEVANT FINDINGS OF THE TRIBUNAL. HE THEREFORE SUBMITTED THAT SINCE THERE ARE NO CHANGES IN THE FACTS BETWEEN THE YEAR UNDER CO NSIDERATION AND THAT OF THE EARLIER YEARS, THE ORDER OF LD. CIT(A) NEE DS TO BE UPHELD. LD. D.R. DID NOT OBJECT TO THE SUBMISSIONS MADE B Y THE LD.A.R BUT HOWEVER SUPPORTED THE ORDER OF AO. 9. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. WE FIND THAT LD. CIT(A) WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE HAS NOTED THAT VIDE AGREEMENT DT.01.06.2003 THAT WAS ENTERED BETWEEN ASSESSEE AND IT S AE, ASSESSEE DID NOT HAD THE LICENCE TO MANUFACTURE WHEREAS AS PER TH E NEW AGREEMENT ASSESSEE HAD LICENCE TO MANUFACTURE. HE FURTHER HELD THAT TPOS CONCLUSION THAT ASSESSEE ALREADY HAD LICE NCE TO MANUFACTURE WAS NOT BASED ON FACTS ON RECORDS. LD. CI T(A) HAD 8 FURTHER FOLLOWED HIS OWN ORDER FOR ASSESSMENT YEARS 200 5-06 TO 2008-09. WE FIND THAT WHEN THE MATTER FOR A.Y. 2005-06 TO 2008- 09 WAS CARRIED BEFORE THE CO-ORDINATE BENCH OF THE TRIBU NAL, THE CO-ORDINATE BENCH OF THE TRIBUNAL UPHELD THE ORDER OF LD . CIT(A) BY HOLDING AS UNDER : 10. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE I S WITH REFERENCE TO ADJUSTMENT OF ROYALTY PAYMENT BY THE A SSESSEE TO ITS AE BY CONSIDERING IT TO BE EXCESSIVE. IT IS AN UNDISPUTED FACT THAT ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH FOSECO INTERNATIONAL ON 1.7.2004 AND THE PAYMENT OF ROYALTY IS AS PER THE AFORESAID AGREEMEN T. IT IS ALSO AN UNDISPUTED FACT THAT THE PERCENTAGE OF ROYA LTY PAYMENT MADE BY THE ASSESSEE TO ITS AE IS AS PER TH E LIBERALIZED SCHEME OF RBI. THE ONLY REASON FOR DISA LLOWANCE OF ROYALTY PAYMENT BY THE TPO/AO IS THAT THE AS PER THE EARLIER AGREEMENT ENTERED BY THE ASSESSEE THE RATE OF ROYALTY WAS LESS THAN THE RATE OF ROYALTY THAT WAS AGREED A S PER THE AGREEMENT DATED 1.7.2004 AND THEREFORE ACCORDING TO TPO THE PAYMENT OF ROYALTY WAS EXCESSIVE AND THAT NO BE NEFIT WAS DERIVED BY THE ASSESSEE BY MAKING THE EXCESS RO YALTY PAYMENT. WE FIND THAT LD CIT(A) WHILE DECIDING THE ISSUE HAS GIVEN A FINDING THAT THAT THE FIRST AGREEMENT DATED 30.4.2003 THAT WAS ENTERED INTO BY THE ASSESSEE WIT H FOSECO INTERNATIONAL WAS ONLY WITH RESPECT TO ACQUI SITION OF LICENCE TO USE THE TRADEMARK OF FOSECO WHEREAS THE SECOND AGREEMENT DATED 1.7.2004 ENTERED BY THE ASSESSEE WI TH FOSECO INTERNATIONAL WAS A MUCH WIDER AGREEMENT IN ITS SCOPE AS IT INTER ALIA GRANTED THE ASSESSEE RIGHT T O MANUFACTURE, HAVE MANUFACTURED, USE AND SELL THE PR ODUCTS IN INDIA AND OUTSIDE INDIA AND THUS THE SCOPE OF SE COND AGREEMENT WAS MUCH WIDER THAN THE FIRST AGREEMENT. HE HAS FURTHER GIVEN A FINDING THAT THE BENEFIT TEST ADOPT ED BY TPO/AO FOR DISALLOWING THE ROYALTY PAYMENT CANNOT BE APPLIED BECAUSE BENEFIT TEST IS APPLICABLE FOR AVAI LING SERVICES AND CANNOT BE APPLIED FOR ACQUISITION OF R IGHTS AND THAT THERE IS NO CONCEPT OF APPLICATION OF BENEFIT TEST UNDER INDIAN TRANSFER PRICING REGULATIONS. BEFORE US, REV ENUE HAS NEITHER BROUGHT ANY MATERIAL ON RECORD TO CONTROVER T THE FINDINGS OF LD.CIT(A) NOR HAS PLACED ON RECORD ANY CONTRARY BINDING DECISION. REVENUE HAS ALSO NOT PLACED ANY M ATERIAL ON RECORD TO DEMONSTRATE AS TO HOW THE DECISIONS RE LIED UPON BY THE LD AR ARE NOT APPLICABLE TO THE PRESENT FACT S. WE FURTHER FIND THAT THE DECISIONS RELIED UPON BY THE LD.AR AND THE DECISION OF THE HON'BLE BOMBAY HIGH COURT IN TH E CASE OF SGS INDIA PVT. LTD(SUPRA) ARE SQUARELY APPLICABLE T O THE PRESENT FACTS. IN VIEW OF THE AFORESAID FACTS, WE F IND NO REASON TO INTERFERE WITH THE ORDER OF LD.CIT(A) AND THUS THE GROUNDS OF REVENUE ARE DISMISSED. 11. AS FAR THE GROUNDS OF REVENUE IN A.Y. 2007 0 8 & 2008 09 ARE CONCERNED, SINCE BOTH THE PARTIES BEFORE U S HAVE SUBMITTED THAT THE GROUNDS RAISED BY THE REVENUE IN ITS APPEAL FOR AY 2007-08 AND 2008-09 ARE IDENTICAL TO THE 9 GROUND RAISED BY THE REVENUE IN AY 2005-06, WE THER EFORE FOR SIMILAR REASONS AS STATED HEREIN ABOVE WHILE DI SPOSING THE APPEAL FOR REVENUE FOR AY 2005-06 AND FOR SIMIL AR REASONS, DISMISS THE GROUNDS OF REVENUE IN AY 2007- 08 AND AY 2008-09. 12. IN THE RESULT ALL THE APPEALS OF REVENUE ARE DISMISSED. 10. BEFORE US, REVENUE HAS NOT POINTED OUT ANY DISTINGUISH ING FEATURE IN THE FACTS OF THE PRESENT CASE AND THAT OF TH E EARLIER YEARS NOR HAS PLACED ANY MATERIAL ON RECORD TO DEMONSTRATE T HAT THE ORDERS OF TRIBUNAL IN ASSESSEES OWN CASE FOR EARLIER YEAR S THAT WAS FOLLOWED BY LD. CIT(A) HAD BEEN SET ASIDE BY HIGHER JUDICIAL F ORUM. IN VIEW OF THESE FACTS, WE FIND NO REASON TO INTERFERE WITH THE ORDER OF LD. CIT(A) AND THEREFORE FOLLOWING THE SAME REASONING AS FO R A.Y. 2005-06 TO A.Y. 2008-09 AND FOR SIMILAR REASONS THE GROUN DS OF THE APPEAL OF REVENUE ARE DISMISSED. 11. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED. 12. WE NOW TAKE UP ASSESSEES CO FOR ADJUDICATION. 12.1 AO ON VERIFICATION OF THE DETAILS NOTED THAT ASSESSEE HAD PAID AGGREGATE COMMISSION OF RS.21,00,000/- TO NON-EXECUT IVE DIRECTORS AND THE DETAILS OF WHICH ARE GIVEN IN PARA 7 OF T HE ORDER. AO WAS OF THE VIEW THAT ASSESSEE WAS LIABLE TO DEDUCT TD S U/S 194H OF THE ACT AND SINCE THE TDS HAS NOT BEEN DEDUCT ED THE EXPENDITURE WAS NOT ALLOWABLE. HE ACCORDINGLY DISALLOWED TH E PAYMENT OF RS.21,00,000/-. AGGRIEVED BY THE ORDER OF AO A SSESSEE CARRIED THE MATTER BEFORE LD. CIT(A), WHO UPHELD THE ORDER OF AO BY HOLDING AS UNDER : 10 2.3.8 I HAVE CONSIDERED THE ARGUMENTS OF THE APPEL LANT. FIRST OF ALL, I FIND THAT THE APPELLANT HAS ONLY DI SCUSSED THE LAW AND HAS NOT DISCUSSED THE FACTS CLEARLY. THE AP PELLANT HAS STATED THAT PAYMENT WERE MADE TO NON-EXECUTIVE DIRECTORS FOR MERELY DIRECTING THE BUSINESS AND AFF AIRS OF THE COMPANY AND FOR THE TIME SPENT FOR BOARD MEETINGS. THIS WOULD CONSTITUTE 'MANAGERIAL SERVICES' WITHIN THE M EANING OF 'TECHNICAL SERVICE' U/S 194J RW EXPLANATION 2 TO SE CTION 9(1)(VII) LIABLE FOR TDS. ACCORDING TO THE LEARNED AO, IF THE PAYMENT DOES NOT FALL INTO EITHER OF THESE TWO SECT IONS AND THE LEARNED AO HAS HELD THAT IT WAS LIABLE FOR TAX DEDUCTION U/S 194H ACCORDING TO THE NOMENCLATURE OF THE PAYME NT, THEN I DO NOT FIND ANY ERROR IN THE LEARNED AO'S AP PROACH. ACCORDINGLY, I HOLD THAT THE LEARNED AO HAS RIGHTLY DISALLOWED RS 21,00,000 U/S 40(A)(IA). I CONFIRM TH E SAME. 13. AGGRIEVED BY THE ORDER OF LD. CIT(A), ASSESSEE IS NOW IN APPEAL BEFORE US. 14. BEFORE US, AT THE OUTSET, LD.A.R. SUBMITTED THAT IDENTICAL ISSUE AROSE IN ASSESSEES OWN CASE IN A.Y. 2005-06 TO 20 08-09. THE CO-ORDINATE BENCH OF THE TRIBUNAL WHILE DECIDING THE AP PEAL BY ORDER DT.09.04.2014 HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. HE POINTED TO THE RELEVANT FINDINGS OF THE TRIBU NAL. HE THEREFORE SUBMITTED THAT SINCE THERE ARE NO CHANGES IN THE FACTS IN THE YEAR UNDER CONSIDERATION AND THAT OF THE EARLIER YEA RS AND SINCE IN EARLIER YEARS ON SIMILAR FACTS, THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE, THE GROUND NEEDS TO BE DECIDED IN FAVOUR OF THE ASSESSEE. LD. D.R. ON THE OTHER HAND SUPPORTED THE ORDER OF AO AND LD. CIT(A) BUT HOWEVER DID NOT OBJECT TO THE SUBMISSIO NS MADE BY LD.A.R. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT GROUND IS WITH REFERENCE TO DISALLOWANCE OF COMMISSION TO NON-EXECUTIVE DIR ECTORS 11 FOR THE REASON THAT ASSESSEE DID NOT DEDUCT TDS U/S 1 94H BEFORE MAKING THE PAYMENT. WE FIND THAT IDENTICAL ISSUE OF DISALLOWAN CE OF EXPENDITURE ON ACCOUNT OF NON-DEDUCTION OF TDS AROSE IN CASE OF ASSESSEE IN EARLIER YEARS. THE CO-ORDINATE BENCH OF THE TRIBUNAL WHILE DECIDING THE ISSUE FOR A.Y. 2005-06 TO 2008-09 (ORDER DT.30.11.2016) HAS DECIDED THE ISSUE IN FAVOUR OF THE ASSESS EE BY HOLDING AS UNDER : 29. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIAL ON RECORD. THE ISSUE IN THE PRESENT CASE I S WITH REFERENCE TO DISALLOWANCE U/S 40(A)(IA) OF THE ACT ON ACCOUNT OF NON DEDUCTION OF TDS ON THE COMMISSION PAID BY A SSESSEE TO ITS NON EXECUTIVE DIRECTORS. IT IS AN UNDISPUTED FACT THAT THE COMMISSION HAS BEEN PAID TO THE NON EXECUTIVE D IRECTORS OF THE ASSESSEE. IT IS ALSO A FACT THAT THE COMMISS ION PAID IS NOT FOR ANY SERVICES RENDERED IN THE COURSE OF BUYI NG OR SELLING OF GOODS OR IN RELATION TO ANY TRANSACTION RELATING TO ANY ASSET, VALUABLE ARTICLE OR THING ARE REFERRED I N S.194H OF THE ACT. WE FIND THAT THE CO-ORDINATE BENCH OF TRI BUNAL IN THE CASE OF KIRLOSKAR OIL ENGINES (SUPRA) AND AFTER REL YING ON THE DECISION IN THE CASE OF BHARAT FORGE LTD, HAS DECID ED THE ISSUE IN FAVOUR OF ASSESSEE BY HOLDING AS UNDER: 6. BEFORE WE PROCEED WITH THE ISSUE IT WOULD BE RELEVANT TO REFERRED TO THE DEFINITION OF COMMISSI ON AS DEFINED IN EXPLANATION (I) TO SECTION 194H OF THE A CT. THE SAME IS REPRODUCED HERE-IN-UNDER: I) COMMISSION OR BROKERAGE INCLUDES ANY PAYMENT RECEIVED OR RECEIVABLE DIRECTLY OR INDIRECTLY, BY A PERSON ACTING ON BEHALF OF ANOTHER PERSON FOR SERVICES RENDERED (NOT BEING PROFESSIONAL SERVICES) OR FOR ANY SERVICES IN THE COURSE OF BUYING OR SELLING OF GOODS OR IN RELATION TO ANY TRANSACTION RELATING TO ANY ASSET, VALUABLE ARTICLE OR THING, NOT BEING SECURITIES; 7. UNDER THE PROVISIONS OF SECTION 194H TAX IS TO B E DEDUCTED AT SOURCE ON THE PAYMENTS MADE TO A RESIDENT BY WAY OF COMMISSION (NOT BEING INSURANCE COMMISSION REFERRED TO IN SECTION 194D) OR BROKERAG E. A BARE PERUSAL OF THE DEFINITION WOULD SHOW THAT IT IS AN INCLUSI9VE DEFINITION WHICH INCLUDES PAYMENTS MADE DIRECTLY OR INDIRECTLY FOR SERVICES RENDERED I N THE COURSE OF BUYING OR SELLING GOODS OR IN RELATION TO ANY TRANSACTION RELATING TO ANY ASSET, VALUABLE ARTICLE OR THING, NOT BEING SECURITIES. THE NON-EXECUTIVE DIRECTORS APPOINTED ON THE BOARD OF DIRECTORS OF TH E COMPANY DO NOT RENDER ANY OF THE SERVICES REFERRED TO IN THE DEFINITION OF COMMISSION OR BROKERAGE. A R OLE OF NON-EXECUTIVE DIRECTOR IS TO PROVIDE CONSTRUCTIV E 12 SUGGESTION FOR THE BETTER PERFORMANCE OF THE COMPAN Y AND TO PROTECT THE INTEREST OF THE ORGANIZATION/SHAREHOLDERS BY WHOM HE HAS BEEN NOMINATED ON THE BOARD. THUS, BY NO STRETCH OF IMAGINATION THE PAYMENTS MADE TO THE NON-EXECUTIVE DIRECTOR FALL WITHIN THE AMBIT OF TERM COMMISSION OR BROKERAGE AS DEFINED U/S. 194H OF THE ACT. 8. THE PROVISIONS RELATING TO DEDUCTION OF TAX AT S OURCE ON PAYMENT OF FEE FOR PROFESSIONAL OR TECHNICAL SERVICES ARE CONTAINED IN SECTION 194J. THE PROVISIONS OF SECTION 194J HAVE BEEN AMENDED BY THE FINANCE ACT, 2012 W.E.F 01-07-2012 VIDE WHICH CLAUSE (BA) HAS BEEN INSERTED IN SUB-SECTION (1) OF SECTION 194J. THE NEW CLAUSE INSERTED BY THE FINAN CE ACT, 2012 READS AS UNDER: [(BA)] ANY REMUNERATION OR FEES OR COMMISSION BY WHATEVER NAME CALLED, OTHER THAN THOSE ON WHICH TAX IS DEDUCTIBLE UNDER SECTION 192, TO A DIRECTOR OF A COMPANY, OR] THE MEMORANDUM EXPLAINING THE AMENDMENT BROUGHT IN BY THE FINANCE BILL 2012 IS AS UNDER: TDS ON REMUNERATION TO A DIRECTOR : UNDER THE EXISTING PROVISIONS OF THE INCOME TAX ACT, A COMPANY, BEING AN EMPLOYER, IS REQUIRED TO DEDUCT TAX AT THE TIME OF PAYMENT TO ITS EMPLOYEES INCLUDING MANAGING DIRECTOR/WHOLE TIME DIRECTOR. HOWEVER, THERE IS NO SPECIFIC PROVISION FOR DEDUCTION OF TAX ON THE REMUNERATION PAID TO A DIRECTOR WHICH IS NOT IN THE NATURE OF SALARY. IT IS PROPOSED TO AMEND SECTION 194J TO PROVIDE THAT TAX IS REQUIRED TO BE DEDUCTED ON THE REMUNERATION PAID TO A DIRECTOR, WHICH IS NOT IN THE NATURE OF SALARY, AT THE RATE OF 10% OF SUCH REMUNERATION. THIS AMENDMENT WILL TAKE EFFECT FROM IST JULY, 2012. THE PROVISIONS OF NEWLY INSERTED CLAUSES ARE ENFORCEABLE W.E.F 01-07-2012, THEREFORE, IT WILL HAVE NO APPLICATION IN THE ASSESSMENT YEARS UNDER APPEAL. 9. THE CO-ORDINATE BENCH OF THE TRIBUNAL IN THE CAS E OF BHARAT FORGE LTD. VS. ADDITIONAL COMMISSIONER OF INCOME TAX (SUPRA) HAD OCCASION TO DEAL WITH THIS ISSUE. THE TRIBUNAL HELD THAT NO TAX AT SOURCE WAS REQUIRED TO BE DEDUCTED U/S. 194J FROM THE PAYMENTS MADE TOWARDS THE DIRECTORS SITTING FEES PRIOR TO 0 1- 07-2012. THE RELEVANT EXTRACT OF THE FINDINGS OF T HE TRIBUNAL ARE REPRODUCED HERE-IN-BELOW: 8. WE HAVE CONSIDERED THE RIVAL ARGUMENTS MADE BY BOTH THE SIDES, PERUSED THE ORDERS OF 13 THE ASSESSING OFFICER AND THE CIT(A) AND THE PAPER BOOK FILED ON BEHALF OF THE ASSESSEE. WE HAVE ALSO CONSIDERED THE VARIOUS DECISIONS RELIED ON BY THE LEARNED COUNSEL FOR THE ASSESSEE. THE ONLY DISPUTE IN THIS GROUND IS REGARDING DEDUCTION OF TAX AT SOURCE FROM THE SITTING FEES PAID TO THE DIRECTORS. ACCORDING TO THE LEARNED COUNSEL FOR THE ASSESSEE THE PROVISIONS OF SECTION 194J IS NOT APPLICABLE FROM SUCH SITTING FEES SINCE FEES DOES NOT FALL IN ANY OF THE CATEGORIES OF PROFESSIONAL SERVICE AS PER EXPLANATION TO SECTION 194J. FURTHER, NO SUCH OBJECTION WAS TAKEN IN THE PAST BY THE DEPARTMENT FOR SUCH NON DEDUCTION AND IN VIEW OF INSERTION OF SUB SECTION (BA) TO SECTION 194J(1) TDS IS REQUIRED TO BE MADE OUT OF SUCH DIRECTOR SITTING FEES W.E.F., 01-07-2012. THEREFORE, FOR NON-DEDUCTION OF TAX AT SOURCE FROM THE SITTING FEES FOR THE IMPUGNED ASSESSMENT YEAR THERE IS NO DEFAULT ON THE PART OF THE ASSESSEE. ACCORDING TO THE REVENUE THE DIRECTOR IS ALSO A MANGER UNDER THE PROVISIONS OF THE COMPANIES ACT AND THEREFORE TECHNICAL PERSONNEL AND THEREFORE THE COMPANY IS LIABLE TO DEDUCT TAX AT SOURCE UNDER THE PROVISIONS OF SECTION 194J. 8.1 AS PER THE EXPLANATION TO PROVISIONS OF SECTION 194J PROFESSIONAL SERVICE MEANS SERVICES RENDERED B Y A PERSON IN THE COURSE OF CARRYING LEGAL, MEDICAL, ENGINEERING OR ARCHITECTURAL PROFESSION OR THE PROFESSION OF ACCOUNTANCY OR TECHNICAL CONSULTANCY OR INTERIOR DECORATION OR ADVERTISING OR SUCH OTHER PROFESSION AS IS NOTIFIED BY THE BOARD. WE, THEREF ORE, FIND FORCE IN THE SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT SITTING FEES PAID TO THE DIRECTOR S DOES NOT AMOUNT TO FEES PAID FOR ANY PROFESSIONAL SERVICES AS HAS BEEN MENTIONED IN THE EXPLANATION T O SECTION 194J(1). WE FURTHER FIND FROM THE MEMORANDUM EXPLAINING TO PROVISIONS OF THE FINANCE BILL 2012 THAT AS PER CLAUSE NO.71 IT WAS SPECIFICA LLY MENTIONED THAT THERE WAS NO SPECIFIC PROVISION FOR DEDUCTION OF TAX ON THE REMUNERATION PAID TO A DIRECTOR WHICH IS NOT IN THE NATURE OF SALARY. WE FIND THE PROVISIONS OF SECTION 194J(1)(BA) SPEAKS OF ANY REMUNERATION OR FEES OR COMMISSION BY WHATEVER NAME CALLED OTHER THAN THOSE ON WHICH TAX IS DEDUCTIBLE U/S. 192 TO A DIRECTOR OF A COMPANY ON WHICH TAX HAS TO BE DEDUCTED AT THE APPLICABLE RATE AND THE ABOVE PROVISION HAS BEEN INSERTED BY THE FINANCE ACT, 2012. WE, THEREFORE, FIND FORCE IN TH E SUBMISSION OF THE LEARNED COUNSEL FOR THE ASSESSEE THAT NO TAX IS REQUIRED TO BE DEDUCTED U/S. 194J OU T OF SUCH DIRECTORS SITTING FEES FOR THE A.Y. 2007-08. IN THIS VIEW OF THE MATTER, THE ORDER OF THE CIT(A) IS SET- ASIDE AND THE GROUND RAISED BY THE ASSESSEE ON THE ISSUE OF TDS ON SITTING FEES PAID TO DIRECTORS IS ALLOWED. 10. THE LD. DR HAS NOT BEEN ABLE TO DISTINGUISH THE FINDINGS OF THE TRIBUNAL IN THE CASE OF BHARAT FORGE 14 LTD. VS. ADDITIONAL COMMISSIONER OF INCOME TAX (SUPRA). RESPECTFULLY FOLLOWING THE SAME WE AFFIRM THE FINDINGS OF COMMISSIONER OF INCOME TAX (APPEALS ) ON THIS ISSUE AND DISMISS THE APPEALS OF THE REVENU E. 30. BEFORE US, LD DR COULD NOT POINT OUT ANY DISTIN GUISHING FEATURE IN THE FACTS OF THE PRESENT CASE AND THAT O F KIRLOSKAR OIL (SUPRA) NOR HAS PLACED ON RECORD ANY CONTRARY B INDING DECISION IN ITS FAVOUR. IN VIEW OF THE AFORESAID FA CTS, AND FOLLOWING THE SAME REASONING AS GIVEN BY THE CO-ORD INATE BENCH WHILE DECIDING THE ISSUE IN THE CASE OF KIRLO SKAR OIL (SUPRA), WE ARE OF THE VIEW THAT IN THE PRESENT CAS E ASSESSEE WAS NOT REQUIRED TO DEDUCT TDS U/S 194H ON THE PAYM ENT OF COMMISSION TO NON EXECUTIVE DIRECTORS AND THEREFORE PROVISIONS OF S.40(A)(IA) ARE NOT ATTRACTED AND THE REFORE NO DISALLOWANCE OF EXPENSES IS CALLED FOR. THUS THE GROUND OF ASSESSEE IS ALLOWED. 31. THUS THE CO OF ASSESSEE IS ALLOWED. 16. BEFORE US, REVENUE HAS FAILED TO POINT OUT ANY DIFFEREN CE IN THE FACTS IN THE YEAR UNDER CONSIDERATION AND THAT OF EA RLIER YEARS, FURTHER IT HAS ALSO NOT PLACED ANY MATERIAL ON RECORD TO SHOW THAT THE ORDER OF THE CO-ORDINATE BENCH OF THE TRIBUNAL IN ASS ESSEES OWN CASE FOR EARLIER YEARS HAS BEEN SET ASIDE BY HIGHER JUDICIAL FORUM. IN VIEW OF THESE FACTS AND FOLLOWING THE SAME REASO NING AS CONSIDERED WHILE DECIDING THE APPEAL OF ASSESSEE FOR A.Y. 200 5-06 TO 2005-09 AND FOR SIMILAR REASONS, SET ASIDE THE DISALLOWAN CE MADE BY AO. THUS THE GROUND OF ASSESSEE IS ALLOWED AND THE CROSS-OBJECTION OF THE ASSESSEE IS ALLOWED. 17. THUS THE CROSS-OBJECTION OF THE ASSESSEE IS ALLOWE D. 18. IN THE RESULT, THE APPEAL OF THE REVENUE IS DISMISS ED AND C.O., OF THE ASSESSEE IS ALLOWED. ORDER PRONOUNCED ON THE 10 TH DAY OF FEBRUARY, 2017. SD/- SD/- ( SUSHMA CHOWLA ) ( ANIL CHATURVEDI ) / JUDICIAL MEMBER $ / ACCOUNTANT MEMBER PUNE; DATED : 10 TH FEBRUARY, 2017. YAMINI 15 ' ( )'*+ ,+' / COPY OF THE ORDER FORWARDED TO : 1 . / THE APPELLANT 2. / THE RESPONDENT 3 . 4. 5. 6. THE CIT-(A)-IT/TP, PUNE. THE DIT(TP/IT), PUNE / CIT-I, PUNE. !' # 1 #$%, ' $% , / DR, ITAT, B PUNE; '() * / GUARD FILE. '! / BY ORDER, // TRUE COPY // , -./0 / ASSISTANT REGISTRAR, ' $% , / ITAT, PUNE.