BGR Investment Holdings Company Limited, CHENNAI V. DCIT, CHENNAI

CO 41/CHNY/2017

• Counselvise Citation: [2017] 119 COUNSELVISE.COM (IT) 3445 (ITAT-CHENNAI)
• Duration Of Justice: 4 month(s) 12 day(s)
• Appeal Type: Cross Objection
• Pronouncement Date: 08-09-2017
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: D
• Assessment Year: 2013-2014
• Appeal Filed On: 26-04-2017
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: VIJAYAPRABHA JT
• Assessee Lawyers: CA JHARNA B HARILAL
• Keywords: Capital asset; Search and seizure; Double taxation relief; Deemed to accrue or arise in india; Non-deduction of tax; Revenue expenditure; Capital expenditure
• Section: 143(3)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL BENCH D, CHENNAI , . !' $%, ' $( BEFORE SHRI SANJAY ARORA, ACCOUNTANT MEMBER AND SHRI GEORGE MATHAN, JUDICIAL MEMBER ./ITA NO.476 /MDS/2017 ' ' )' / ASSESSMENT YEAR : 2013-14 BGR INVESTMENT HOLDING COMPANY LTD., NEW NO.60, OLD NO.100, IV STREET, ABHIRAMAPURAM, CHENNAI 600 018. [PAN: AACS 7054B] VS. DY. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-1(2), CHENNAI 600 034. ( /APPELLANT ) ( / RESPONDENT ) ./ITA NO.507/MDS/2017 & CO.NO.41/MDS/2017 ' ' )' / ASSESSMENT YEAR : 2013-14 ASST. COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE-1(2), CHENNAI 600034. VS. BGR INVESTMENT HOLDING COMPANY LTD., NEW NO.60, OLD NO.100, IV STREET, ABHIRAMAPURAM, CHENNAI 600 018. [PAN: AACS 7054B] ( /APPELLANT ) ( / RESPONDENT/CROSS OBJECTOR ) %* + , / APPELLANT BY : MS. CA JHARNA B HARILAL, FCA -.%* + , / RESPONDENT BY : MS. VIJAYAPRABHA, JT. CIT / + 0 / DATE OF HEARING : 31.08.2017 1) + 0 / DATE OF PRONOUNCEMENT : 08.09.2017 /O R D E R PER SANJAY ARORA, AM : THESE ARE CROSS APPEALS BY THE ASSESSEE AND THE RE VENUE DIRECTED AGAINST THE ORDER BY THE COMMISSIONER OF INCOME TAX (APPEAL S)-1, CHENNAI (CIT(A) 2 ITA NOS.476 & 507/MDS/2017 & CO.NO.41/MDS/2017 (IN ITA NO.507/MDS/2017) BGR INVESTMENT HOLDING CO. LTD. V. DY. CIT/ASST. CI T (AY 2013-14) FOR SHORT) DATED 02/12/2016, PARTLY ALLOWING THE AS SESSEES APPEAL CONTESTING ITS ASSESSMENT U/S. 143(3) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) FOR ASSESSMENT YEAR (AY) 2013-14 VIDE THE ORDER DATED 1 4.01.2016. THE ASSESSEE HAS IN ADDITION ALSO PREFERRED A CROSS OBJECTION. 2. THE ONLY ISSUE ARISING IN THE INSTANT APPEALS IS THE MAINTAINABILITY OR OTHERWISE IN LAW OF THE ASSESSEES CLAIM FOR DEDUCT ION IN RESPECT OF A SUM OF . 1,06,67,930/-, PAID AS PROFESSIONAL CHARGES TO ONE, M/S. PROSKAUER ROSE LLP, USA, STATED TO BE A LAW FIRM, BY THE ASSESSEE, AN I NVESTMENT HOLDING COMPANY. THE BASIS OF THE DISALLOWANCE IS THE NON-DEDUCTION OF TAX AT SOURCE U/S. 195, ATTRACTING DISALLOWANCE U/S. 40(A)(I) AND, IN ANY C ASE, BEING CAPITAL IN NATURE, SO THAT IT IS INADMISSIBLE U/S. 37(1). THE ASSESSEES CASE QUA THE LATTER OBJECTION HAVING NOT BEEN ACCEPTED BY THE LD. CIT(A), IS IN A PPEAL IN ITS RESPECT, WHILE THE REVENUE APPEALS THE DELETION OF THE DISALLOWANCE ON THE GROUND OF NON- APPLICATION OF SEC. 40(A)(I). THE ASSESSEES CO IS SUPPORTIVE. 3. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATER IAL ON RECORD. WE SHALL CONSIDER THE ASPECT OF DEDUCTION U/S. 37( 1) FIRST. THIS IS AS ONLY WHERE THE AMOUNT IS DEDUCTIBLE THAT THE NON OBSTANTE PROVISION OF S. 40(A)(I) COULD OPERATE TO RENDER IT NON-DEDUCTIBLE ON THE SA TISFACTION OF THE CONDITION/S SPECIFIED THEREIN. THE PAYMENT ADMITTEDLY IS FOR RE PRESENTING THE ASSESSEE (AND ONE OR MORE OF ITS US AFFILIATES, REFERRED TO COLLE CTIVELY AS THE CLIENTS) FOR THE PURPOSE OF BIDDING ON AND POTENTIALLY ACQUIRING THE BUSINESS AND ASSETS OF QUAL TEQ, INC. AND ITS AFFILIATES IN THEIR CHAPTER 11 BA NKRUPTCY PROCEEDINGS CURRENTLY ON IN THE US BANKRUPTCY COURT FOR THE NEW DISTRICT OF ILLINOIS, REFERRED TO AS THE PROJECT IN THE ENGAGEMENT LETTER DATED OCTOBER 12 , 2012 (PB PAGES 17 20). IT IS STATED BEFORE US THAT THE ACQUISITION DID NOT MA TERIALIZE, AND THE EXPENSE WAS THUS ABORTIVE. RELYING ON CIT V. UNITED BREWERIES LTD. [2010] 321 ITR 546 (KAR), IT IS PLEADED THAT THE EXPENDITURE INCURRED IN CONNECTION WITH ACQUIRING A 3 ITA NOS.476 & 507/MDS/2017 & CO.NO.41/MDS/2017 (IN ITA NO.507/MDS/2017) BGR INVESTMENT HOLDING CO. LTD. V. DY. CIT/ASST. CI T (AY 2013-14) CAPITAL ASSET, BEING IN THE NATURE OF A FEE PAID TO WARD CONSULTATION FOR THE BUSINESS EXPANSION, IS TO BE REGARDED AS REVENUE EX PENDITURE INASMUCH AS THE EXPENDITURE INCURRED MAY OR MAY NOT RESULT IN THE A CQUISITION OF A CAPITAL ASSET, THE VERY PURPOSE OF THE EXPENDITURE BEING TO FIND O UT THE PRUDENCE OR THE FEASIBILITY OF ACQUIRING THE ASSET BY SEEKING AN EX PERT OPINION THEREON. THE REVENUE, ON THE OTHER HAND, IS OF THE VIEW THAT IF THE PROJECT HAD BEEN ACQUIRED, THE RELEVANT EXPENDITURE WOULD BE CAPITALIZED. EVEN IF THEREFORE THE VENTURE DID NOT MATERIALIZE, THE EXPENDITURE WOULD REMAIN CAPIT AL IN NATURE (PARA 23 OF THE IMPUGNED ORDER IO). RELIANCE FOR THE PURPOSE IS P LACED ON A NUMBER OF DECISIONS, VIZ. SWADESHI COTTON MILLS CO LTD V. CIT [1967] 63 ITR 65 (SC); KWALITY FUN FOODS AND RESTAURANTS (P.) LTD. [2013] 356 ITR 170 (MAD) (REFER PARAS 24 AND 25 OF IO). WITHOUT DOUBT, THE CHARACTE R OF THE EXPENDITURE WOULD NOT ALTER MERELY BECAUSE THE OBJECT OR THE PURPOSE FOR WHICH IT IS INCURRED DOES NOT FRUCTIFY. THE SUCCESS OF THE EXPENDITURE DOES N OT DETERMINE ITS ADMISSIBILITY, OR RESULT IN A CHANGE IN ITS CHARACTER, AS EXPLAINE D BY THE APEX COURT IN CIT V. RAJENDRA PRASAD MOODY [1978] 115 ITR 519 (SC). IN S WADESHI COTTON MILLS CO. LTD. (SUPRA), A DECISION BY A LARGER BENCH OF THE APEX COURT, THE AMOUNT PAID ON CANCELLATION OF A CONTRACT FOR PURCHASE OF MACHINERY, CLAIMED AS A BUSINESS LOSS, WAS HELD AS ONLY CAPITAL EXPENDITURE . THE DECISION STANDS FOLLOWED AND APPLIED IN A NUMBER OF DECISIONS BY TH E HONBLE HIGH COURTS, INCLUDING THE HON'BLE JURISDICTIONAL HIGH COURT. IN KWALITY FUN FOODS AND RESTAURANTS (P.) LTD. (SUPRA), AGAIN, FOLLOWING ANOTHER DECISION BY THE APEX COURT, THE HON'BLE COURT HELD THAT THE LOSS OF ADVA NCE PAID BY THE ASSESSEE, A MANUFACTURER OF ICE CREAM, FOR CONSTRUCTING A COLD STORAGE PLANT, CLAIMED AS A BUSINESS LOSS, WAS ONLY CAPITAL EXPENDITURE. THE BA SIS OF THE DECISION IN UNITED BREWERIES LTD. (SUPRA) IS THAT A FEASIBILITY REPORT IS BEING PREPA RED WITH A VIEW TO DECIDE IF THE PROJECT IS TO BE TAKEN UP OR NOT. IN THE PRESENT CASE, ON THE OTHER HAND, THE DECISION TO ACQUIRE, OR UNDERTAKE THE PRO JECT, BY FOLLOWING THE LEGAL PROCESS, HAS ALREADY BEEN ARRIVED AT, AND IT IS ON FOLLOWING THE SAME THAT THE 4 ITA NOS.476 & 507/MDS/2017 & CO.NO.41/MDS/2017 (IN ITA NO.507/MDS/2017) BGR INVESTMENT HOLDING CO. LTD. V. DY. CIT/ASST. CI T (AY 2013-14) EXPENDITURE HAS BEEN INCURRED. THE SAID DECISION WO ULD THUS BE OF NO ASSISTANCE TO THE ASSESSEE. WHY, THE EXPENDITURE ON FEASIBILIT Y STUDIES, ETC., DECIDEDLY CAPITAL, IS COVERED BY SEC. 35D OF THE ACT. AGAIN, THE ISSUE INVOLVED IN CIT V. RELAXO FOOTWEARS LTD. [2007] 293 ITR 231 (DEL), ANOTHER DECISION RELIED UPON BY THE ASSESSEE, IS IN RESPECT OF CAPITAL ISSUE AND PREOPERATIVE EXPENSES. THE SAME ARE CLEARLY CAPITAL IN NATURE, AND FOR WHICH R EFERENCE MAY BE MADE TO THE DECISIONS IN THE CASE OF BROOKE BOND INDIA LTD. V. CIT [1997] 225 ITR 798 (SC) AND CHALLAPALLI SUGAR LTD. V. CIT [1975] 98 ITR 167 (SC), BEING IN RELATION TO CAPITAL ISSUE AND PREOPERATIVE EXPENSES RESPECTIVEL Y. WHETHER THE NEW UNIT IS BEING SET UP AS A PART OF THE EXISTING BUSINESS OR NEW BUSINESS, IS WHOLLY IRRELEVANT. WHY, NEW ADDITIONS TO ASSETS, VIZ. BY W AY OF PLANT AND MACHINERY, ETC. FOR THE EXISTING BUSINES KEEP TAKING PLACE ALL THE TIME, AND DOES NOT CEASE TO BE THE ACQUISITION OF A CAPITAL ASSET FOR THAT REAS ON. THE ADVANCE FOR MACHINERY IN SWADESHI COTTON MILLS CO. LTD (SUPRA) ; KWALITY FUN FOODS AND RESTAURANTS (SUPRA); AND HASIMARA INDUSTRIES LTD. V. CIT [1998] 231 ITR 842 (SC), RELIED UPON BY THE HON'BLE JURISDICTIONAL HIGH COURT, WAS ONLY FOR THE EXISTING BUSINESS. THE PRINCIPLE INVOLVED IS WELL SETTLED, A ND THE ASSESSEES CASE IN THIS REGARD IS WHOLLY WITHOUT MERIT. THE MOOT QUESTION, HOWEVER, TO BE ANSWERED IS IF W HAT WAS BEING ACQUIRED IS INDEED A CAPITAL ASSET, AN ACQUISITION OF AND, T HUS, AN ENHANCEMENT IN THE PROFIT-MAKING APPARATUS OF THE ASSESSEE COMPANY. TH E LD. AR WOULD TOWARD THIS DRAW OUR ATTENTION TO OBJECT CLAUSE 1 OF THE ASSESS EES MEMORANDUM OF ASSOCIATION (PB PGS. 21-25), WHICH READS AS UNDER, STATING, ON THAT BASIS, THAT THE COMPANY WOULD EARN DIVIDEND INCOME FROM THE SHA RES BOUGHT: 1. TO CARRY ON THE BUSINESS OF INVESTMENT COMPANY IN A LL ITS BRANCHES TO BUY, UNDERWRITE, INVEST IN AND ACQUIRE AND HOLD, SELL AND DEAL IN SHARES, STOCKS, DEBENTURES, DEBENTURES STOCKS, BOND S, OBLIGATIONS AND SECURITIES ISSUED OR GUARANTEED BY ANY COMPANY CONS TITUTED OR CARRYING ON BUSINESS IN INDIA OR ABROAD AND DEBENTU RES STOCKS, BONDS, OBLIGATIONS AND SECURITIES ISSUED OR GUARANTEED BY ANY GOVERNMENT, STATE OR AUTHORITY, BODY CORPORATE OR ANY PERSON WH ETHER IN INDIA OR 5 ITA NOS.476 & 507/MDS/2017 & CO.NO.41/MDS/2017 (IN ITA NO.507/MDS/2017) BGR INVESTMENT HOLDING CO. LTD. V. DY. CIT/ASST. CI T (AY 2013-14) ELSEWHERE AND TO DEAL WITH AND TURN TO ACCOUNT THE SAME, PROVIDED ALWAYS THAT NO PART OF INVESTMENT IMPOSING UNLIMITE D LIABILITY ON THE COMPANY SHALL BE MADE. THE SAME IS FOLLOWED BY OBJECT CLAUSES 2 & 3, WHICH READ AS UNDER: 2. TO CARRY ON THE BUSINESS OF ASSISTING, PROMOTIN G AND PARTICIPATING IN THE CREATION, EXPANSION, MODERNISATION OF INDUST RIAL ENTERPRISE BY MEANS OF PROVIDING FINANCE IN THE FORM OF LONG AND I OR MEDIUM TERM LOANS AND/OR BY SPONSORING AND UNDERWRITING NEW ISS UES OF SHARES AND SECURITIES AND/OR PROVIDING GUARANTEE AND UNDERTAKI NG OBLIGATIONS. 3. TO CARRY ON GENERALLY AND UNDERTAKE ANY BUSINESS COMMONLY CARRIED ON HIRE PURCHASE, LEASING INVESTMENT AND NO N-BANKING FINANCIAL COMPANIES. WE DO NOT FIND THE PURPOSE OF ACQUISITION OF A BUS INESS OR ASSET/S OF ANOTHER COMPANY PER SE , AS AN OBJECT OF THE COMPANY. THIS ASPECT WAS CONSIDERED BY THE LD. CIT(A), WHO HOLDS THAT THE AS SESSEES BUSINESS IS OF HOLDING INVESTMENT, AND IT IS NOT ITS BUSINESS TO H UNT FOR POSSIBLE VENTURES. DOES IT MEAN THAT THE PROPOSED ACQUISITION, WHICH THOUGH DID NOT MATERIALIZE, WOULD HAVE BEEN ULTRA VIRES THE COMPANY? IF SO, SO WOULD BE THE EXPENDITURE. W HAT ARE ITS IMPLICATIONS? WOULD IT, FOR THAT REASON, BE HIT BY EXPLANATION TO S. 37(1), OR BE ALLOWABLE, NEVERTHELESS? CONTINUING FURTHER, TRU E, THE ACQUISITION COULD BE BY WAY OF SHARES, BUT THEN THIS CANNOT BE PRESUMED IN VIEW OF THE CLEAR LANGUAGE OF THE ENGAGEMENT LETTER, STATING FOR THE PURPOSE OF BIDDING ON AND POTENTIALLY ACQUIRING THE BUSINESS AND ASSETS OF QUAL TEQ, INC. AND ITS AFFILIATES. HOW COULD, ONE MAY ASK, THE SHARES BE ACQUIRED IF THE I NDIVIDUAL (OR COMBINATION OF) ASSETS OF THE COMPANY ARE BEING PUT TO SALE? IT IS ONLY WHERE THE COMPANY ITSELF IS AVAILABLE ON BLOCK, THAT ITS SHARES COULD BE BID FOR AND ACQUIRED. IT NEEDS TO BE BORNE IN MIND THAT THE ENGAGEMENT LETTER DOES NOT S PEAK OF PURCHASE OF SHARES OR EVEN OF THE CONTROLLING INTEREST IN THE SAID COM PANY OR ITS AFFILIATES . FURTHER, EVEN ASSUMING THAT THE SHARES ARE ACQUIRED, THE ASS ESSEE-COMPANY COULD SELL THE SHARES, EARNING PROFIT. HOWEVER, NEITHER EARNING DI VIDEND, AS THE LD. AR WOULD CANVASS, NOR SELLING THE SHARES SOON AFTER, SEEMS T O BE A LIKELY COURSE IN VIEW OF 6 ITA NOS.476 & 507/MDS/2017 & CO.NO.41/MDS/2017 (IN ITA NO.507/MDS/2017) BGR INVESTMENT HOLDING CO. LTD. V. DY. CIT/ASST. CI T (AY 2013-14) THE BANKRUPTCY PROCEEDINGS. THE SHARES MAY HAVE, FO R ALL WE KNOW, AND FOR THAT REASON, BEEN DELISTED, AND BEING PURCHASED BY PARTI CIPATING IN THE BIDDING PROCESS BY OBSERVING A SEPARATE LEGAL PROCEDURE IN ITS REGARD. PRAY, HOW, AGAIN, ONE WONDERS, THE SHARES OF A BANKRUPT COMPANY INCRE ASE MERELY BY HOLDING THEM? RATHER, WHY WOULD THE SELLER SELL THEM IN THA T CASE AND, IN ANY CASE, ANYBODY COULD PURCHASE THEM, EARNING PROFIT. YES, T HE ASSESSEE COULD TURN AROUND THE TARGET COMPANY OR FACILITATE THE SAME, S O THAT IT COULD SELL THE SHARES AT A PROFIT. AGAIN, HOWEVER, THE MOOT QUESTION WOUL D BE AS TO HOW THE ASSESSEE COMPANY, AN INVESTMENT HOLDING COMPANY, WOULD TURN IT INTO ACCOUNT? DOES IT HAVE THE WHEREWITHAL TO TURN AROUND THE BUSINESS OF THE TARGET COMPANY? COULD IT POSSIBLY EVALUATE THE WORTH OF THE INDIVIDUAL AS SETS, WHICH WOULD AGAIN BE, FOR MOST PART, TECHNICAL IN NATURE, VIZ. SPECIALIZED PL ANT AND MACHINERY, USED BY THAT COMPANY, AND WHICH WOULD ALSO INCLUDE AN ASSESSMENT OF ITS OPERATING CAPACITY AND CAPABILITY; THE BALANCE OPERATING LIFE, ETC., A S WELL AS THE OPTIONS AVAILABLE IN THE MARKET, AND THEN SCOUT FOR THEIR SALE INASMUCH AS THERE SEEMS TO BE NO READY MARKET FOR THE SAME. IN FACT, UNLESS BACKED UP BY A DEQUATE EXPERIENCE AND CLARITY ON THE VARIOUS PROCESSES INVOLVED, IT WOULD NOT BE POSSIBLE TO BID AGAIN, A HIGHLY TECHNICAL MATTER. THIS WOULD ALSO T HROW LIGHT ON THE DIFFERENT BUSINESS PROCESSES INVOLVED, AND THE CONCOMITANT BU SINESS PLAN TO TURN THE INVESTMENT INTO ACCOUNT, OF COURSE, CONSISTENT WITH THE LOCAL LAWS. WE ASK THESE QUESTIONS AS ONLY UPON A CLARITY ON THE INVESTMENT OBJECTIVES AND PURPOSE, AS WELL AS THE MODUS OPERANDI , COULD THE NATURE OF THE ACQUISITION BE DETERMINED AND, FURTHER, WHETHER THE SAME WOULD CONSTITUTE AN INVESTMENT OR A CURRENT ASSET (STOCK-IN-TRADE) IN THE HANDS OF THE ASSESSEE-COMPA NY. NOTABLY, THE ENGAGEMENT LETTER CLEARLY SPEAKS OF REPRESENTING YOU, I.E., THE ASSESSEE COMPANY AND ONE OR MORE OF ITS US AFFILIATES TO BE FORMED (FOR THE PURPOSE). ALSO RELEVANT IS THE FINANCIAL CAPACITY INASMUCH AS LINES OF CREDIT FOR ACQUIRING SUCH ASSETS MAY NOT BE FORTHCOMING. WE ARE AFRAID TO SAY, WE HAVE NO CL UE AS TO THE BUSINESS MODEL OF THE ASSESSEE. SURELY, WHERE A STOCK-IN-TRADE, TH E EXPENDITURE ON ITS ACQUISITION 7 ITA NOS.476 & 507/MDS/2017 & CO.NO.41/MDS/2017 (IN ITA NO.507/MDS/2017) BGR INVESTMENT HOLDING CO. LTD. V. DY. CIT/ASST. CI T (AY 2013-14) IS ONLY REVENUE EXPENDITURE, IN THE NATURE OF A BUS INESS LOSS. ON THE OTHER HAND, WHERE A CAPITAL ASSET, THE IMPUGNED EXPENDITURE WOU LD BE A CAPITAL LOSS, INADMISSIBLE U/S. 37(1). THERE IS, AFTER ALL, NO B AR IN LAW FOR AN INVESTMENT COMPANY TO ALSO MAKE AN INVESTMENT, THAT IS, INVEST IN A SOURCE OF INCOME. IN OUR VIEW, THE MATTER NEEDS FURTHER EXAMINATION. THE LD. CIT(A) OUGHT NOT TO HAVE RESTED THE ISSUE BY MERELY STATING THAT IT DOE S NOT FORM PART OF ITS BUSINESS, BUT REQUIRED THE ASSESSEE TO JUSTIFY ITS CASE IN TH IS REGARD. WHERE NOT A PART OF THE ASSESSEES BUSINESS, THE EXPENDITURE GETS OUSTED AT THE THRESHOLD, AND THERE IS NO NECESSITY OF PROCEEDING FURTHER, WHICH COULD ONLY B E IN THE ALTERNATIVE, I.E., ASSUMING OTHERWISE, AS WHERE THIS FINDING IS REVERS ED IN FURTHER APPEAL. THE MATTER, ACCORDINGLY, BOTH FOR DETERMINING THE BUSIN ESS PURPOSE AS WELL AS THE NATURE OF THE ACQUISITION BE IT OF THE BUSINESS O R THE INDIVIDUAL ASSETS OF QUAL TEQ INC. AND ITS AFFILIATES, IS RESTORED TO THE FIL E OF THE LD. CIT(A), WHO SHALL ADJUDICATE BY ISSUING DEFINITE FINDINGS OF FACT AND AFTER ALLOWING THE ASSESSEE A FAIR OPPORTUNITY OF PRESENTING ITS CASE BEFORE HIM. HE MAY, AT HIS OPTION, SEEK THE COMMENTS/REPORT FROM OR EVEN CAUSE VERIFICATION BY THE AO IN THE MATTER ON ANY ASPECT THEREOF. THE NEXT QUESTION THAT ARISES FOR CONSIDERATION IS IF THE PAYMENT ATTRACTS TAX DEDUCTION AT SOURCE U/S. 195, WOULD IT BE HIT BY S. 40(A)(I) FOR THE CURRENT YEAR INASMUCH AS NO TAX HAS ADMITTEDLY BEEN DEDUCTED OR DEPOSITED. THE REVENUE CLAIMS THE IMPUGNED PAYMENT TO BE A FEE FOR TECHNIC AL SERVICES, DEFINED IN EXPLANATION 2 TO SECTION 9(1)(VII), WHICH READS AS UNDER: INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. (1) THE FOLLOWING INCOMES SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA : ( I ) TO ( VI ). ( VII ) INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYA BLE76 BY ( A ) THE GOVERNMENT ; OR ( B ) A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE FEES ARE PAYABLE IN RESPECT OF SERVICES UTILISED IN A BUSINESS OR PROFE SSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA ; OR ( C ) A PERSON WHO IS A NON-RESIDENT, WHERE THE FEES AR E PAYABLE IN RESPECT OF SERVICES UTILISED IN A BUSINESS OR PROFE SSION CARRIED 8 ITA NOS.476 & 507/MDS/2017 & CO.NO.41/MDS/2017 (IN ITA NO.507/MDS/2017) BGR INVESTMENT HOLDING CO. LTD. V. DY. CIT/ASST. CI T (AY 2013-14) ON BY SUCH PERSON IN INDIA OR FOR THE PURPOSES OF M AKING OR EARNING ANY INCOME FROM ANY SOURCE IN INDIA: SURELY, THE PAYMENT BEING BY A RESIDENT PERSON IS S OUGHT TO BE COVERED BY CLAUSE (B) OF THE PROVISION. NOW, CLEARLY, IF THE BUSINESS IS BEING ACQUIRED FOR RUNNING IT, THE PAYMENT WOULD BE EXCEPTED BY THE FIRST LIMB OF THE SAVING. IF, ON THE OTHER HAND, THE ACQUISITION IS OF AN ASSET/S, AGAIN, IT I S THIS ASSET, LOCATED OUTSIDE INDIA, WHICH BECOMES THE SOURCE OF INCOME, UNLESS OF COURS E THE ASSET IS, UNDER THE BUSINESS PLAN, TO BE BROUGHT TO INDIA. THIS ISSUE, THEREFORE, TO THIS EXTENT, GETS LINKED WITH THE FIRST ISSUE, FOR DETERMINING WHICH THE MATTER HAS BEEN SET ASIDE TO THE FILE OF THE LD. CIT(A). FURTHER, WHERE THE ACQU ISITION IS BY WAY OF SHARES, THEIR SITUS SHALL CONTINUE TO BE OUTSIDE INDIA AND, THUS, EXCE PTED BY THE SECOND LIMB OF THE PROVISION. NO TAX U/S. 195 IS ACCORDING LY LIABLE TO BE DEDUCTED AT SOURCE. AS SUCH, EXCEPT WHERE THE ASSET IS PROPOSED TO BE BROUGHT TO INDIA, THE AMOUNT PAID SHALL NOT ACCRUE OR ARISE IN INDIA. IT IS THEREFORE ONLY WHERE THE ASSET/S (TO BE) ACQ UIRED IS TO BE, UNDER THE BUSINESS PLAN, BROUGHT INTO INDIA THAT THE PAYMENT, A FEE FOR TECHNICAL SERVICES, SHALL ACCRUE OR ARISE IN INDIA. IT IS ONLY IN SUCH A CASE THAT THE APPLICABILITY OF ARTICLE 15 OF THE INDO US DTAA SHALL HAVE TO BE SEE N, WHICH READS AS UNDER: INDEPENDENT PERSONAL SERVICES 1. INCOME DERIVED BY A PERSON WHO IS AN INDIVIDUAL OR FIRM OF INDIVIDUALS (OTHER THAN A COMPANY) WHO IS A RESIDENT OF A CONTRACTING STATE FROM THE PERFORMANCE IN THE OTHER CONTRACTING STATE OF PROFESSIONAL SERVICES OR OTHER INDEPENDENT ACTIVITIES OF A SIMIL AR CHARACTER SHALL BE TAXABLE ONLY IN THE FIRST-MENTIONED STATE EXCEPT IN THE FOLLOWING CIRCUMSTANCES WHEN SUCH INCOME MAY ALSO BE TAXED IN THE OTHER CONTRACTING STATE: (A) IF SUCH PERSON HAS A FIXED BASE REGULARLY AVAILABLE TO HIM IN THE OTHER CONTRACTING STATE FOR THE PURPOSE OF PERFORMI NG HIS ACTIVITIES; IN THAT CASE, ONLY SO MUCH OF THE INCOME AS IS ATTRIBUTABLE TO THAT FIXED BASE MAY BE TAXED IN THAT OTHER STATE; (OR) (B)IF THE PERSON'S STAY IN THE OTHER CONTRACTING STATE IS FOR A PERIOD OR PERIODS AMOUNTING TO OR EXCEEDING IN THE AGGREGATE 90 DAYS IN THE RELEVANT TAXABLE YEAR. 2. THE TERM 'PROFESSIONAL SERVICES' INCLUDES INDEPENDENT SCIENTIFIC LITERARY, ARTISTIC, EDUCATIONAL OR TEACHING ACTIVIT IES AS WELL AS THE 9 ITA NOS.476 & 507/MDS/2017 & CO.NO.41/MDS/2017 (IN ITA NO.507/MDS/2017) BGR INVESTMENT HOLDING CO. LTD. V. DY. CIT/ASST. CI T (AY 2013-14) INDEPENDENT ACTIVITIES OF PHYSICIANS, SURGEONS, LAWYERS, ENGINEERS, ARCHITECTS, DENTISTS AND ACCOUNTANTS. WITHOUT DOUBT, THE SERVICES RENDERED BY THE PAYEE F IRM ARE IN THE NATURE OF PROFESSIONAL SERVICES COVERED UNDER ARTICLE 15. THE INCOME ARISING SHALL THEREFORE BE LIABLE TO BE SUBJECT TO TAX ONLY IN TH E CONTRACTING STATE, I.E., OF WHICH THE PAYEE, RENDERING SERVICES, IS A RESIDENT, USA, IN THE INSTANT CASE. THE EXCEPTIONS, BEING WITH REGARD TO THE 90 DAY STAY IN THE OTHER CONTRACTING STATE (INDIA) AS WELL AS A FIXED BASE THEREAT, ARE CLEARL Y NOT APPLICABLE IN THE PRESENT CASE. AS SUCH, ART. 15 SHALL OPERATE TO EXCLUDE WIT HHOLDING TAX, EVEN WHERE, ON ACCOUNT OF THE ASSET/S (TO BE) ACQUIRED BEING BROUG HT TO INDIA, MAKES THE RELEVANT INCOME AS ACCRUING OR ARISING IN INDIA. AS SUCH, EITHER WAY, NO TAX IS DEDUCTIBLE U/S. 195 ON THE IMPUGNED PAYMENT, SO THAT THE SAME COULD NOT BE DISALLOWED F OR NON-DEDUCTION THEREOF U/S. 40(A)(I) OF THE ACT. WE DECIDE ACCORDINGLY. 4. IN THE RESULT, THE ASSESSEES APPEAL IS ALLOWED FOR STATISTICAL PURPOSES; THE REVENUES APPEAL IS DISMISSED; AND THE ASSESSEES C O IS DISMISSED AS INFRUCTUOUS. ORDER PRONOUNCED ON SEPTEMBER08, 2017 AT CHENNAI . SD/- SD/- ( !' $% ) (GEORGE MATHAN) ' / JUDICIAL MEMBER ( ) (SANJAY ARORA) /ACCOUNTANT MEMBER /CHENNAI, 2 /DATED, SEPTEMBER 8, 2017. EDN 3 + -'045 65)0 /COPY TO: 1. %* /APPELLANT 2. -.%* /RESPONDENT 3. / 70 ( )/CIT(A) 4. / 70 /CIT 5. 5 89 -'0' /DR 6. 9' : /GF