Batlivala & Karani Securities( India) Pvt Ltd, Kolkata V. D.C.I.T Cir - 5,kolkata, Kolkata

ITA 1235/KOL/2013

• Counselvise Citation: [2016] 132 COUNSELVISE.COM (IT) 4534 (ITAT-KOLKATA)
• Duration Of Justice: 3 year(s) 1 month(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 08-07-2016
• Appeal Filed By: Assessee
• Bench Allotted: B
• Next Hearing Date: 02-06-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 13-05-2013
• Court: TRIBUNAL
• Department Lawyers: DEBASISH LAHIRI
• Keywords: Business income; Double taxation relief; Earning of tax free income; Services rendered outside India; Retrospective amendment; Permanent establishment
• Section: 143(3); 14A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH: KOL KATA [BEFORE SHRI N. V. VASUDEVAN, JM & SHRI M. BALAGAN ESH, AM] I.T.A NOS.1234 & 1235/KOL/2013 ASSESSMENT YEARS: 2008-09 & 2009-10 BATLIVALA & KARANI SECURITIES (INDIA) VS. DEPUTY COMMISSIONER OF INCOME-TAX, PVT. LTD. (PAN: AABCB4650R) CIRCLE-5, KOLKATA. ( APPELLANT ) ( RESPONDENT ) DATE OF HEARING: 02.06.2016 DATE OF PRONOUNCEMENT: 08.07.2016 FOR THE APPELLANT: SHRI VIJAY MEHTA, CA FOR THE RESPONDENT: SHRI DEBASISH LAHIRI, JCIT, SR. DR ORDER PER SHRI M. BALAGANESH, AM: THESE APPEALS BY ASSESSEE ARE ARISING OUT OF SEPARA TE ORDERS OF CIT(A)-VI, KOLKATA VIDE APPEAL NOS. 220/CIT(A)-VI/CIRCLE-5/10- 11/KOL DATED 06.02.2013 AND 272/CIT(A)-VI/CIRCLE-5/11-12/KOL DATED 07.02.2013. ASSESSMENTS WERE FRAMED BY ADDL. CIT, RANGE-5, KOLKATA U/S. 143(3) AND 115WE(3 ) OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERRED TO AS THE ACT) FOR AYS 2008 -09 & 2009-10 VIDE HIS SEPARATE ORDERS DATED 09.12.2010 AND 21.12.2011. AS THE ISS UES INVOLVED IN BOTH THE APPEALS ARE IDENTICAL , THEY ARE TAKEN UP TOGETHER AND DISPOSED OF BY THIS COMMON ORDER FOR THE SAKE OF CONVENIENCE. 2. THE FIRST ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE PAYMENTS MADE BY THE ASSESSEE TO ITS UK AND SINGAPORE SUBSIDIARIES W OULD FALL WITHIN THE AMBIT OF FEES FOR TECHNICAL SERVICES AND IF SO WHETHER THE DISAL LOWANCE U/S 40(A)(I) OF THE ACT COULD BE MADE IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 3. THE FACTS IN ASST YEAR 2008-09 ARE CONSIDERED H ERE FOR ADJUDICATION IN RESPECT OF THIS ISSUE AND DECISION RENDERED THEREON WOULD APPL Y WITH EQUAL FORCE FOR ASST YEAR 2009-10 ALSO AS THE ISSUE INVOLVED IS IDENTICAL IN ASST YEAR 2009-10 ALSO. THE BRIEF FACTS 2 ITA NO. 1234&1235/K/2013 BATLIVALA & KARANI SECURITIES (I) P.LTD. AY 2008-09 & 2009-10 OF THIS ISSUE ARE THAT THE ASSESSEE COMPANY IS A ST OCKBROKER COMPANY. THE ASSESSEE CARRIES ON BUSINESS OF BROKERAGE ON BEHALF OF INSTI TUTIONAL CLIENTS. DURING THE PREVIOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDER ATION, THE ASSESSEE HAD MADE PAYMENTS TO TWO OF ITS WHOLLY OWNED SUBSIDIARIES NA MELY, M/S B&K SECURITIES LTD. (U.K.) AND M/S. B&K SECURITIES PVT. LTD. (SINGAPORE ). M/S B&K SECURITIES LTD (U.K.) IS ENGAGED IN BUSINESS OF PROVIDING MARKETING SUPPO RT SERVICES FOR CLIENTELE IN U.K. THE SERVICES RENDERED BY B&K (U.K) WERE FOR EXPANSION O F ASSESSEE'S BUSINESS. FOR THIS PURPOSE A 'REPRESENTATION AGREEMENT' WAS ENTERED BE TWEEN THE ASSESSEE AND B&K ON 15.11.2006. AS PER THE TERMS OF THE SAID AGREEMENT LUMP SUM PAYMENT OF 18,000 POUNDS PER MONTH WAS MADE BY THE ASSESSEE TO THE U. K. COMPANY. ON THE SAID PAYMENT, THERE IS NO DISPUTE SINCE TDS WAS DEDUCTED BY THE A SSESSEE WHILE MAKING THE SAID PAYMENT. THE REPRESENTATION AGREEMENT WAS REVISED O N 03.10.2007 W.E.F. 01.10.2007. AS PER THE SAID AGREEMENT THE ASSESSEE WAS TO REIMB URSE THE COST INCURRED BY THE U.K. COMPANY AND IN ADDITION WAS TO PAY A MARK-UP OF 29% ON COST FOR THE MARKETING SERVICES PROVIDED BY THE U.K. COMPANY. M/S B&K SECURITIES PTE LTD (SINGAPORE) IS ENGAGED IN BUSINESS, INTER ALIA, OF RESEARCH AND MARKETING SERVICES FOR SECURITIES/MARK ETS LOCALLY AND OVERSEAS. B&K SINGAPORE HAD PROVIDED VARIOUS SERVICES, SUCH AS R ESEARCH AND MARKETING SERVICES TO THE APPELLANT. THE SERVICES RENDERED BY B&K WERE FOR EX PANSION OF ASSESSEE'S BUSINESS NOT ONLY IN SINGAPORE BUT ALSO IN ENTIRE SOUTH EAST ASI AN COUNTRIES. FOR THIS PURPOSE A 'BUSINESS SERVICES AGREEMENT' WAS ENTERED BETWEEN T HE ASSESSEE AND B&K ON 01.04.2007 STIPULATING THE TERMS AND CONDITIONS. IT IS SUBMITTED THAT THE ASSESSEE HAS DEDUCTED TDS ON PAYMENTS MADE ON ACCOUNT OF RESEARC H SERVICES. WITH REGARD TO MARKETING SERVICES, AS PER THE AGREEMENT, THE ASSES SEE WAS TO REIMBURSE THE COST INCURRED BY THE SINGAPORE COMPANY AND IN ADDITION W AS TO PAY A MARK-UP OF 29% ON COST FOR THE MARKETING SERVICES PROVIDED BY THE SIN GAPORE COMPANY. 3 ITA NO. 1234&1235/K/2013 BATLIVALA & KARANI SECURITIES (I) P.LTD. AY 2008-09 & 2009-10 3.1. THE DETAILS OF PAYMENTS MADE TO B & K SECURIT IES LTD, U.K. ARE AS BELOW:- M/S. BATLIVALA & KARANI SECURITIES (INDIA) P. LTD. DETAILS OF PAYMENTS MADE TO B&K SECURITIES LTD. U.K . ON ACCOUNT OF MARKETING SUPPORT SERVICES SR. NO. PERIOD NATURE OF EXPENSES AMOUNT REMARKS 1. 01.04.2007 TO 30.09.2007 LUMPSUM PAYMENT OF 18,000 POUNDS PER MONTH AS PER AGREEMENT DATED 15.11.2006 96,88,845 THERE IS NO DISPUTE ON THIS PAYMENT 2. 01.10.2007 TO 31.03.2008 I) REIMBURSEMENT OF ACTUAL EXPENSES AS PER AGREEMENT DATED 01.10.2007 II) MARK UP @ 29% ON EXPENSES REIMBURSED AS PER AGREEMENT DATED 01.10.2007 1,07,09,273 32,25,600 I)NO TDS WAS DEDUCTED ON THE SAID PAYMENT SINCE IT WAS REIMBURSEMENT OF ACTUAL EXPENSE (EXCEPT FOR THE PERIOD FROM 01.01.2008 TO 31.03.2008 WHEREIN TAX WAS DEDUCTED BY OVERSIGHT AND PAID. II) TAX WAS DEDUCTED AND PAID AND THERE IS NO DISPUTE ON THIS PAYMENT. 3.2. THE DETAILS OF PAYMENTS MADE TO B & K SECURI TIES LTD, SINGAPORE ARE AS BELOW:- M/S. BATLIVALA & KARANI SECURITIES (INDIA) P. LTD. DETAILS OF PAYMENTS MADE TO B&K SECURITIES LTD. SIN GAPORE ON ACCOUNT OF MARKETING SUPPORT SERVICES SR. NO. PERIOD NATURE OF EXPENSES AMOUNT REMARKS 1. 01.04.2007 TO 30.09.2008 I) REIMBURSEMENT OF ACTUAL EXPENSES AS PER AGREEMENT DATED 01.04.2007 II) MARK UP @ 29% ON EXPENSES REIMBURSED AS PER AGREEMENT DATED 01.04.2007 1,59,18,988 52,07,491 I)NO TDS WAS DEDUCTED FROM THE SAID PAYMENT SINCE IT WAS REIMBURSEMENT OF ACTUAL EXPENSES II) TAX WAS DEDUCTED AND PAID AND THERE IS NO DISPUTE ON THIS PAYMENT. ON ACCOUNT OF RESEARCH SERVICES SR. NO. PERIOD NATURE OF EXPENSES AMOUNT REMARKS 2. 01.04.2007 TO 31.08.2007 PAYMENT MADE AS PER AGREEMENT DATED 01.04.2007 46,19,765 THERE IS NO DISPUTE ON THIS PAYMENT 4. IT WAS SUBMITTED BEFORE THE ASSESSING OFFICER THAT THE ASSESSEE HAD DEDUCTED TDS ON THE SERVICE FEE PAID BY THE ASSESSEE TO ITS SUBS IDIARIES BUT NOT DEDUCTED TDS ON REIMBURSEMENT OF EXPENDITURE SINCE IT WAS NOT IN TH E NATURE OF INCOME. THE ASSESSING 4 ITA NO. 1234&1235/K/2013 BATLIVALA & KARANI SECURITIES (I) P.LTD. AY 2008-09 & 2009-10 OFFICER WAS OF THE VIEW THAT THE ASSESSEE SHOULD HA VE DEDUCTED TDS ON THE ENTIRE AMOUNT REMITTED TO U.K AND SINGAPORE COMPANY SINCE THE PAYMENT MADE BY ASSESSEE WAS ON ACCOUNT OF FEES FOR TECHNICAL SERVICES AND H ENCE TAXABLE IN THE HANDS OF NON- RESIDENT. FOR HOLDING THAT ASSESSEE OUGHT TO HAVE D EDUCTED TAX AT SOURCE IRRESPECTIVE OF THE FACT WHETHER THE PAYMENT IS TAXABLE IN THE HAND S OF NON-RESIDENT IN INDIA, THE ASSESSING OFFICER HAS RELIED UPON THE DECISION OF T RANSMISSION CORPORATION OF A.P LTD. V. CIT [239 ITR 587 (SC)]. 4.1. BEFORE THE CIT(A), IT WAS SUBMITTED THAT THE S UBSIDIARIES ONLY RENDERED MARKETING SUPPORT SERVICES WHICH WERE NOT COVERED IN THE DEFI NITION OF FEES FOR TECHNICAL SERVICES AS DEFINED UNDER EXPLANATION TO S. 9(1)(VII) OF THE ACT. IT WAS CONTENDED THAT TDS IS REQUIRED TO BE DEDUCTED ON THE INCOME ELEMENT ACCRU ING IN THE HANDS OF NON-RESIDENT. IT WAS SUBMITTED THAT THE ASSESSEE HAS DEDUCTED TDS ON THE MARK UP FEE CHARGED TO ITS SUBSIDIARIES BUT HAS NOT DEDUCTED TDS ON THE REIMBU RSEMENT OF EXPENSES. IT WAS SUBMITTED THAT THE SUBSIDIARIES INCUR CERTAIN EXPE NDITURE ON BEHALF OF THE ASSESSEE WHICH ARE REIMBURSED BY THE ASSESSEE AT COST. IT WAS SUB MITTED THAT SUCH REIMBURSEMENT DOES NOT GIVE RISE TO INCOME IN THE HANDS OF THE SUBSIDI ARIES AS A RESULT NO TDS IS REQUIRED TO BE DEDUCTED ON THE AMOUNT PAID AS REIMBURSEMENT. IN ORDER TO SUPPORT THE SAID CONTENTION, RELIANCE WAS PLACED ON THE DECISION OF THE HON'BLE SUPREME COURT IN THE CASE OF G.E. INDIA TECHNOLOGY V. CIT (327 ITR 456). HOWEVER, THE LD. CIT(A) HELD THAT THE PAYMENTS MADE BY THE ASSESSEE ARE FOR CONS IDERATION OF VARIOUS SERVICES PROVIDED BY THE SUBSIDIARIES. HE HELD THAT AS PER T HE PROVISIONS OF S. 195 OF THE ACT TDS IS NOT TO BE DEDUCTED ON INCOME BUT ON GROSS PAYMEN T. HE FURTHER HELD THAT THE ASSESSEE IS NOT TO SEE THE INCOME OR PROFIT OF THE DEDUCTEE BUT ONLY THE AMOUNT OF PAYMENT. HENCE, HE UPHELD THE ACTION OF THE ASSESSING OFFICE R AND CONFIRMED THE DISALLOWANCE MADE U/S 40(A)(I) OF THE ACT. 5. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US FOR THE ASST YEAR 2008-09 ON THE FOLLOWING GROUNDS:- I. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) ERRED IN AFFIRMING THE DISALLOWANCE OF RS.2,17,79,771/- UNDE R SECTION 40(A)(IA) OF THE ACT AS A RESULT OF WRONGLY APPLYING THE PROVISIONS OF SECTIO N 195 OF THE ACT; 5 ITA NO. 1234&1235/K/2013 BATLIVALA & KARANI SECURITIES (I) P.LTD. AY 2008-09 & 2009-10 II. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LD. CIT(A) FAILED TO APPRECIATE THAT THE ASSESSEE DULY COMPLIED WITH THE REQUIREMENTS OF SECTION 195 AS WELL AS SECTION 40(A)(IA) OF THE ACT BY DEDUCTING TAX FR OM FEES PAYABLE TO THE SAID DISBURSES UNDER THE CONTRACT FOR SERVICES AND THEREFORE, THER E WAS NO SCOPE FOR INVOKING THE PROVISIONS OF SECTION 40(A)(IA) OF THE ACT. 6. PAYMENTS TO SINGAPORE SUBSIDIARY LD. AR. ARGUED THAT SINGAPORE SUBSIDIARY IS ENGAGE D IN BUSINESS, INTER ALIA, OF RESEARCH AND MARKETING SERVICES FOR SECURITIES/MARK ETS LOCALLY AND OVERSEAS. B&K HAD PROVIDED VARIOUS SERVICES, SUCH AS RESEARCH AND MAR KETING SERVICES TO THE ASSESSEE. THE SERVICES RENDERED BY SINGAPORE COMPANY WERE FOR EXP ANSION OF ASSESSEE'S BUSINESS NOT ONLY IN SINGAPORE BUT ALSO IN ENTIRE SOUTH EAST ASI AN COUNTRIES. FOR THIS PURPOSE A 'BUSINESS SERVICES AGREEMENT' WAS ENTERED BETWEEN T HE ASSESSEE AND B&K ON 01.04.2007 STIPULATING THE TERMS AND CONDITIONS. T HE SERVICES TO BE RENDERED BY SINGAPORE COMPANY TO THE ASSESSEE, AND WHICH WERE I N FACT RENDERED ABOUT WHICH THERE IS NO DISPUTE FORMING PART OF CLAUSE 4.1 OF THIS AG REEMENT, WHICH READS AS UNDER: 'THE PROVISION OF RESEARCH/MARKETING SERVICES IN SI NGAPORE IN A FORM THAT MAY BE MUTUALLY AGREED UPON BY THE PARTIES FROM TIME TO TIME IN RES PECT OF THE REGIONAL MARKETS COVERING SINGAPORE, MALAYSIA/ THAILAND, INDONESIA, HONG KONG AND ANY OTHER JURISDICTION OR A COMBINATION OF ANY SUCH JURISDICTIONS. FOR THE SERVICES RENDERED BY SINGAPORE COMPANY AND WHICH THE ASSESSEE UTILIZED FOR REINFORCING ITS OVERALL BUSINESS OPERATIONS, THE SE RVICE PROVIDER WAS TO BE PAID SERVICE FEES; AND IN ADDITION GRANTED REIMBURSEMENT OF THE EXPENDITURE INCURRED. THE RELEVANT CLAUSES FROM THIS WRITING FOR RESOLVING THE DISPUTE D ISSUE ARE REPRODUCED BELOW FOR THE SAKE OF CONVENIENCE :- REIMBURSEMENT OF EXPENSES AND SERVICE FEE 5.1 IN CONSIDERATION OF THE BUSINESS SERVICES TO BE RENDERED BY THE SERVICE PROVIDER UNDER THIS AGREEMENT THE SERVICE RECIPIENT AGREES TO REIMBURSE ALL COSTS AND EXPENSES INCURRED BY THE SE RVICE PROVIDER WITH THE PRIOR CONSENT OF THE SERVICE RECIPIENT IN PROVI DING THE BUSINESS SERVICES AND REFLECTED IN THE BOOKS AND RECORDS OF THE SERVICE PROVIDER. 5.2 ADDITIONALLY, THE SERVICE RECIPIENT AGREES TO PAY A SERVICE FEE EQUAL TO 29% OF THE COSTS AND EXPENSES REIMBURSED IN ACCO RDANCE WITH 5.1 ABOVE. IT WAS SUBMITTED THAT THE SUBSIDIARY OPERATES EXCLU SIVELY IN RESPECTIVE PLACE OF ORIGIN IN SINGAPORE. NO PART OF THE ACTIVITIES TAKES PLACE IN INDIA NOR THE SERVICES THEY PROVIDE 6 ITA NO. 1234&1235/K/2013 BATLIVALA & KARANI SECURITIES (I) P.LTD. AY 2008-09 & 2009-10 WERE UTILIZED FOR CARRYING ON THE BUSINESS IN INDIA . THEY WHOLLY PERTAIN TO TRANSACTIONS WITH THE INSTITUTIONAL CLIENTS ABROAD. IT IS SUBMIT TED THAT THE COMPANY EXPLORES THE POSSIBILITY OF EXTENDING THE ASSESSEE'S SPHERE OF O PERATIONS BY REPRESENTING THE ASSESSEE BEFORE THE ASSESSEE AND EXISTING AND POTENTIAL INST ITUTIONAL CLIENTS IN SINGAPORE. 7. PAYMENTS TO U.K. SUBSIDIARY THE LEARNED AR ARGUED THAT THE U.K. SUBSIDIARY IS E NGAGED IN THE BUSINESS OF INTRODUCING OVERSEAS CLIENTS TO THE ASSESSEE. THE S ERVICES RENDERED BY U.K. COMPANY WERE FOR EXPANSION OF ASSESSEE'S BUSINESS NOT ONLY IN U.K. BUT ALSO IN ENTIRE EUROPEAN AREA. FOR THIS PURPOSE A 'REPRESENTATION AGREEMENT' WAS ENTERED BETWEEN THE ASSESSEE AND U.K. COMPANY ON 17.11.2006 WHICH WAS FURTHER MO DIFIED ON 03.10.2007 W.E.F. 01.10.2007. IT IS SUBMITTED THAT AS PER THE EARLIE R AGREEMENT DATED 17.11.2006 THE ASSESSEE WAS TO PAY LUMP SUM AMOUNT OF 18,000 POUND S PER MONTH. THE ASSESSEE DEDUCTED TDS WHILE MAKING THE SAID PAYMENT HENCE, T HERE IS NO DISPUTE. AS PER THE NEW AGREEMENT DATED 03.10.2007 W.E.F. 01.10.2007, THE A SSESSEE WILL REIMBURSE THE ACTUAL EXPENSES INCURRED BY THE U.K. COMPANY AND IN ADDITI ON WILL PAY A SERVICE FEE @ 29% FOR THE SERVICES RENDERED BY U.K. COMPANY. IT IS SU BMITTED THAT NO TDS WAS DEDUCTED WHILE MAKING THE PAYMENT FOR REIMBURSEMENT OF COST SINCE IT WAS REIMBURSEMENT OF ACTUAL EXPENSES AND THERE WAS NO ELEMENT OF INCOME IN THE SAID PAYMENT. 8. IN ESSENCE, IT WAS ARGUED THAT THE SERVICES REN DERED BY BOTH THE SUBSIDIARIES ARE IN THE NATURE OF MARKETING SUPPORT SERVICES AND NOT IN THE NATURE OF FEES FOR TECHNICAL SERVICES AS ALLEGED BY THE LOWER AUTHORITIES. TH E LEARNED AR MADE HIS ARGUMENTS BASED ON THE FOLLOWING PROPOSITIONS:- (A) THE PAYMENTS ARE NOT FOR FEES FOR TECHNICAL SERVICE S WITHIN THE MEANING OF ARTICLE 13 / 12 OF DTAA WITH UK AND SINGAPORE AS T HE CASE MAY BE. (B) AS THERE IS NO PERMANENT ESTABLISHMENT OF UK AND SI NGAPORE SUBSIDIARIES IN INDIA, PAYMENTS MADE TO THEM ARE NOT TAXABLE IN IND IA UNDER ARTICLE 7 OF DTAA WITH UK AND SINGAPORE. 7 ITA NO. 1234&1235/K/2013 BATLIVALA & KARANI SECURITIES (I) P.LTD. AY 2008-09 & 2009-10 (C) IN ANY CASE, PAYMENTS ARE NOT FOR FEES FOR TECHNICA L SERVICES AS PER THE PROVISIONS OF THE IT ACT. (D) EXPLANATION TO SECTION 9(2) HAS BEEN INSERTED RETRO SPECTIVELY W.E.F. 1.6.1976 VIDE FINANCE ACT, 2010 AND HENCE, CANNOT BE INVOKED FOR IMPOSING TDS OBLIGATION IN RESPECT OF PAYMENTS ALREADY MADE IN F.Y. 2007-08. (E) IN ANY CASE, PAYMENT FALLS WITHIN THE EXCEPTION PRO VIDED U/S 9(1)(VII)(B) OF THE ACT AS THE SAME IS MADE FOR EARNING INCOME FROM A S OURCE OUTSIDE INDIA. (F) IN ANY CASE, TDS PROVISIONS ARE NOT APPLICABLE TO P AYMENTS WHICH ARE IN THE NATURE OF REIMBURSEMENT OF EXPENSES. (G) SINCE FOR ALL THE ABOVE REASONS, PAYMENTS ARE NOT L IABLE TO TAX IN INDIA, THERE IS NO TDS OBLIGATION U/S 195 OF THE ACT AS LAID DOWN BY T HE HONBLE APEX COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE P LTD VS CIT REPORTED IN 327 ITR 456 (SC). (H) IN ANY CASE, AT THE MOST, THIS IS A CASE OF SHORT DEDUCTION AND NOT NON-DEDUCTION AND HENCE, DISALLOWANCE CANNOT BE MADE U/S 40(A)(I) OF THE ACT. 9. THE LEARNED AR ARGUED THAT THE PAYMENTS MADE T O SUBSIDIARIES DO NOT FALL WITHIN THE DEFINITION OF FEES FOR TECHNICAL SERVICE S AS PER THE PROVISIONS OF THE ACT OR THE DTAA BETWEEN INDIA & SINGAPORE VIDE ARTICLE 12(4) A ND INDIA & UK TREATY VIDE ARTICLE 13(4). HE STATED THAT AS PER INDIA SINGAP ORE TREATY, FEES FOR TECHNICAL SERVICES ARE DEFINED AS UNDER:- 4. THE TERM 'FEES FOR TECHNICAL SERVICES' AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR SERVICES OF A MA NAGERIAL TECHNICAL OR CONSULTANCY NATURE (INCLUDING THE PROVISION OF SUCH SERVICES TH ROUGH 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 DESCRIB ED IN PARAGRAPH 3 IS RECEIVED: OR (B) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL KNOW-HOW OR PROCESSES, WHICH ENABLES THE PERSON ACQUIRING THE SERVICES TO APPLY THE TECHNOLOGY CONTAINED THEREIN: OR 8 ITA NO. 1234&1235/K/2013 BATLIVALA & KARANI SECURITIES (I) P.LTD. AY 2008-09 & 2009-10 (C) CONSIST OR THE DEVELOPMENT AND TRANSFER OF A TE CHNICAL PLAN OR TECHNICAL DESIGN, BUT EXCLUDES ANY SERVICE THAT DOES NOT ENABLE THE P ERSON ACQUIRING THE SERVICES TO APPLY THE TECHNOLOGY CONTAINED THEREIN. SIMILARLY HE ARGUED THAT AS PER THE INDIA U.K. TREA TY, FEES FOR TECHNICAL SERVICES ARE DEFINED AS UNDER:- ARTICLE 13 (4) 4. FOR THE PURPOSES OF PARAGRAPH 2 OF THIS ARTICL E, AND SUBJECT TO PARAGRAPH 5, OF THIS ARTICLE, THE TERM FEES FOR TECHNICAL SERVICES MEA NS PAYMENTS OF ANY KIND OF ANY PERSON IN CONSIDERATION FOR THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONN EL) WHICH; (A) ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT DESCRIB ED IN PARAGRAPH 3(A) OF THIS ARTICLE IS RECEIVED; OR (B) ARE ANCILLARY AND SUBSIDIARY TO THE ENJOYMENT OF TH E PROPERTY FOR WHICH A PAYMENT DESCRIBED IN PARAGRAPH 3(B) OF THIS ARTICLE IS RECEIVED; OR (C) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKI LL, KNOW-HOW OR PROCESSES, OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TEC HNICAL PLAN OR TECHNICAL DESIGN. HE ARGUED THAT WITH REGARD TO SINGAPORE TREATY, THE PAYMENTS MADE WOULD ADMITTEDLY NOT FALL UNDER ARTICLE 12(4)(A) AND 12(4) (C ). SI MILARLY IN RESPECT OF U.K. TREATY, THE PAYMENTS MADE WOULD ADMITTEDLY NOT FALL UNDER ARTIC LE 13 (4)(A) AND 13(4)(B). HE ARGUED THAT AS COULD BE SEEN FROM THE ABOVE DEFINIT ION OF FEES FOR TECHNICAL SERVICES THAT IN ORDER TO FALL UNDER ARTICLE 12(4)(B) OF SIN GAPORE TREATY AND ARTICLE 13(4)(C ) OF U.K. TREATY, ANY CONSIDERATION PAID FOR SERVICES OF MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES WOULD BE COVERED UNDER THE SAID DEFINITION ONLY IF SUCH SERVICES MAKE AVAILABLE ANY TECHNICAL KNOWLEDGE, EXPERIENCE, KNOW HOW OR PR OCESSES. IN THE PRESENT CASE, AS IS EVIDENT FROM THE FACTS STATED HEREINABOVE, NO TECHN ICAL SERVICES ARE BEING MADE AVAILABLE TO THE ASSESSEE BY ITS FOREIGN SUBSIDIARIES. AS A R ESULT, EVEN ASSUMING WITHOUT ADMITTING THAT THE PAYMENT IS FEES FOR TECHNICAL SERVICES U NDER THE ACT, THE PAYMENTS MADE BY ASSESSEE TO ITS SUBSIDIARY COMPANIES WOULD NOT FALL WITHIN THE DEFINITION OF FEES FOR TECHNICAL SERVICES UNDER THE DTAA SINCE THERE IS NO TECHNICAL KNOWLEDGE MADE AVAILABLE TO THE ASSESSEE. INSTEAD THE SUBSIDIARY I S ONLY PROVIDING MARKETING SERVICES TO THE ASSESSEE. IT WAS SUBMITTED THAT IT WOULD ALSO B E RELEVANT TO STATE THAT AS PER SECTION 90(2) OF THE ACT, IF THE CENTRAL GOVERNMENT HAS ENT ERED IN TO A DOUBLE TAXATION 9 ITA NO. 1234&1235/K/2013 BATLIVALA & KARANI SECURITIES (I) P.LTD. AY 2008-09 & 2009-10 AVOIDANCE AGREEMENT WITH THE GOVERNMENT OF ANY COUN TRY OUTSIDE INDIA, THEN IN RELATION TO THE ASSESSEE TO WHOM SUCH AGREEMENT APP LIES, THE PROVISIONS OF INCOME-TAX ACT WOULD APPLY ONLY TO THE EXTENT THEY ARE MORE BE NEFICIAL TO THE ASSESSEE I.E. IF THE TREATY PROVISIONS ARE MORE BENEFICIAL TO THE ASSESS EE, IT WILL PREVAIL OVER THE PROVISIONS OF THE INCOME-TAX ACT. IT WAS SUBMITTED THAT, IN TH E PRESENT CASE, TREATY BETWEEN INDIA AND SINGAPORE IS MORE BENEFICIAL TO THE ASSESSEE AN D NO ADDITIONAL TAX LIABILITY ARISES UNDER THE SHELTER OF TREATY. IN VIEW OF THE ABOVE, IT WAS SUBMITTED THAT THE PAYMENTS WOULD NOT FALL UNDER THE DEFINITION OF FEES FOR TE CHNICAL SERVICES AS PER DTAA AND HENCE NO TAX IS REQUIRED TO BE DEDUCTED ON THE SAID PAYMENT. THE LEARNED AR ALSO MADE VARIOUS ARGUMENTS INDEPEND ENTLY IN SUPPORT OF VARIOUS PROPOSITIONS AS LAID OUT HEREINABOVE. 10. IN RESPONSE TO THIS, THE LEARNED DR STATED THA T THE SUPPLEMENTARY AGREEMENT ENTERED INTO BY THE ASSESSEE WAS ONLY TO CIRCUMVENT TDS PROVISIONS WHEREIN ACTUAL EXPENSES WERE SOUGHT TO BE REIMBURSED PLUS MARK UP OF 29% WAS AGREED UPON AS CONSIDERATION PAYABLE BY THE ASSESSEE TO ITS SUBSID IARIES. THE NATURE OF BUSINESS CARRIED OUT BY THE ASSESSEE IS HIGHLY TECHNICAL IN NATURE A ND HENCE THE SERVICES RENDERED BY THE SUBSIDIARIES OF THE ASSESSEE IN ORDER TO PROMOTE TH E BUSINESS OF THE ASSESSEE IN INDIA SHOULD ALSO BE CONSTRUED ONLY AS RENDERING OF TECHN ICAL SERVICES AND ACCORDINGLY THE CONSIDERATION PAID THEREON IS TO BE TREATED AS FEES FOR TECHNICAL SERVICES. THE ASSESSEE IS NOT CARRYING ON ANY TRADING ACTIVITY IN INDIA. AC CORDINGLY HE VEHEMENTLY RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 11. IN DEFENCE, THE LEARNED AR STATED THAT THE RE VENUE HAD NOT DISPUTED THE CONTENTS OF THE SUPPLEMENTARY AGREEMENT ENTERED INTO BY THE ASSESSEE AND THEY HAVE GRIEVANCE ONLY ON THE LIMITED ASPECT OF THE COMPLIANCE WITH T DS PROVISIONS IN RESPECT OF PAYMENTS MADE PURSUANT TO SUCH SUPPLEMENTARY AGREEM ENT. IN THIS SCENARIO, THE ARGUMENT OF THE LEARNED DR THAT THE SAID AGREEMENT WAS ENTERED INTO TO CIRCUMVENT TDS PROVISIONS IS TO BE REJECTED. HE FURTHER ARGU ED THAT NO TECHNICAL SERVICES, IF ANY, HAVE BEEN MADE AVAILABLE TO THE ASSESSEE AND THERE WAS NO TRANSFER OF TECHNOLOGY BY THE 10 ITA NO. 1234&1235/K/2013 BATLIVALA & KARANI SECURITIES (I) P.LTD. AY 2008-09 & 2009-10 SUBSIDIARIES TO THE ASSESSEE IN INDIA IN ORDER TO F ALL WITHIN THE AMBIT OF FEES FOR TECHNICAL SERVICES AS PER THE TREATY. 12. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUS ED THE MATERIALS AVAILABLE ON RECORD INCLUDING THE PAPER BOOK FILED BY THE ASSESS EE COMPRISING OF COPY OF AGREEMENT WITH B&K SECURITIES LTD, UK (PAGES 1 TO 6 OF PB) ; COPY OF AGREEMENT WITH B&K SECURITIES PTE LTD (SINGAPORE) (PAGES 7 TO 16 OF PB ) ; COPY OF COMPUTATION OF INCOME OF ASSESSEE (PAGES 19-21 OF PB) ; COPY OF FINANCIAL ST ATEMENTS OF THE ASSESSEE (PAGES 22-24 OF PB) ; RELEVANT PAGES OF THE TREATY WITH SINGAPOR E AND UK (PAGES 45-51 OF PB) AND COPIES OF VARIOUS JUDGMENTS RELIED UPON IN SUPPORT OF VARIOUS CONTENTIONS ADDRESSED BY THE LEARNED AR (PAGES 52 TO 127 OF PB) . 12.1. WE FIND THAT THE MOOT QUESTION TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE PAYMENTS MADE BY THE ASSESSEE TO ITS FOREIGN SUBSID IARIES WOULD FALL UNDER THE AMBIT OF FEES FOR TECHNICAL SERVICES AS PER THE DTAA. WE FIND FROM THE ARTICLE 12 OF SINGAPORE TREATY AND ARTICLE 13 OF THE UK TREATY DEFINING THE TERM FEES FOR TECHNICAL SERVICES , THE CONSIDERATION PAID FOR RENDERING OF MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES WOULD BE COVERED UNDER THE SAID DEFINITION ONLY IF SUCH SERVICES MAKE AVAILABLE ANY TECHNICAL KNOWLEDGE, EXPERIENCE, KNOWHOW, OR PROCES SES. THE NATURE OF SERVICES RENDERED BY THE SUBSIDIARIES TO THE ASSESSEE WERE I N RESPECT OF SIMPLE MARKETING SERVICES OF INTRODUCING FOREIGN INSTITUTIONAL INVESTORS TO I NVEST IN THE CAPITAL MARKETS IN INDIA SO THAT THE ASSESSEE WOULD IMPROVE ITS BUSINESS AND IN COME IN INDIA. WE FIND THAT NO TECHNICAL SERVICE IS BEING MADE AVAILABLE TO THE ASSESSEE BY ITS SUBSIDIARIES AND AS A RESULT, THE PAYMENTS MADE TO SUBSIDIARIES WOULD NOT FALL WITHIN THE DEFINITION OF FEES FOR TECHNICAL SERVICES AS ADMITTEDLY NO TECHNICAL KNOWL EDGE WAS MADE AVAILABLE TO THE ASSESSEE BY THE SUBSIDIARIES. 12.2. ARTICLE 12(4) AND 13(4) OF THE SINGAPORE AND UK TREATY RESPECTIVELY REPRODUCED HEREINABOVE IS THE SAME AS ARTICLE 12(4)(B) OF DTAA BETWEEN INDIA AND USA. IN THE MEMORANDUM OF UNDERSTANDING TO THE DTAA BETWEEN IND IA AND USA, A DESCRIPTION CONCERNING FEES FOR INCLUDED SERVICES IN ARTICLE 12 AND PARAGRAPH 4 (IN GENERAL) HAVE BEEN GIVEN. EXAMPLES OF SERVICES INTENDED TO BE COV ERED WITHIN THE DEFINITION OF 11 ITA NO. 1234&1235/K/2013 BATLIVALA & KARANI SECURITIES (I) P.LTD. AY 2008-09 & 2009-10 INCLUDED SERVICES AND THOSE INTENDED TO BE EXCLUDED HAVE BEEN GIVEN. THE MEMORANDUM EXPLAINS HOW PARAGRAPH 4( B ) OF ARTICLE-12 HAS TO BE UNDERSTOOD. THE MEMORANDUM EXPLAINS THAT ARTICLE 12(4)(B) REFERS TO TECHNICAL OR CONSULTANCY SERVICES THAT MAKE AVAILABLE TO THE PERSON ACQUIRING THE SER VICES, TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW, OR PROCESSES, OR CONSI ST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLANT OR TECHNICAL DESIGN TO SUCH PERSO N. THE MEMORANDUM EXPLAINS CATEGORY OF SERVICES REFERRED TO ARTICLE 12(4)(B) A S NARROWER THAN THE CATEGORY DESCRIBED IN PARAGRAPH 4( A ) BECAUSE IT EXCLUDES ANY SERVICE THAT DOES NOT MAK E TECHNOLOGY AVAILABLE TO THE PERSON ACQUIRING THE SERVICE. IT F URTHER EXPLAINS THAT GENERALLY SPEAKING, TECHNOLOGY WILL BE CONSIDERED MADE AVAILABLE WHEN T HE PERSON ACQUIRING THE SERVICE IS ENABLED TO APPLY THE TECHNOLOGY . THE FACT THAT THE PROVISION OF THE SERVICE MAY REQUIRE TECHNICAL INPUT BY THE PERSON PROVIDING THE SERVICE DOES NOT PER SE MEAN THAT TECHNICAL KNOWLEDGE, SKILLS, ETC., ARE MA DE AVAILABLE TO THE PERSON PURCHASING THE SERVICE, WITHIN THE MEANING OF PARAG RAPH 4( B ). SIMILARLY, THE USE OF A PRODUCT WHICH EMBODIES TECHNOLOGY SHALL NOT PER SE BE CONSIDERED TO MAKE THE TECHNOLOGY AVAILABLE . THE MEMORANDUM FURTHER EXPLAINS WITH EXAMPLES AS TO HOW ARTICLE 12(4)(B) HAS TO BE UNDERSTOOD AS FOLLOWS: TYPICAL CATEGORIES OF SERVICES THAT GENERALLY INVO LVE EITHER THE DEVELOPMENT AND TRANSFER OF TECHNICAL PLANTS OR TECHNICAL DESIGNS, OR MAKING TECHNOLOGY AVAILABLE AS DESCRIBED IN PARAGRAPH 4( B ), INCLUDE : 1. ENGINEERING SERVICES (INCLUDING THE SUB-CATEGORIES OF BIO-ENGINEERING AND AERONAUTICAL, AGRICULTURAL, CERAMICS, CHEMICAL, CIV IL, ELECTRICAL, MECHANICAL, METALLURGICAL, AND INDUSTRIAL ENGINEERING) ; 2. ARCHITECTURAL SERVICES ; AND 3. COMPUTER SOFTWARE DEVELOPMENT. UNDER PARAGRAPH 4( B ), TECHNICAL AND CONSULTANCY SERVICES COULD MAKE TE CHNOLOGY AVAILABLE IN A VARIETY OF SETTINGS, ACTIVITIES AND INDUSTRIES. SUCH SERVICES MAY, FOR EXAMPLES, RELATE TO ANY OF THE FOLLOWING AREAS : 1. BIO-TECHNICAL SERVICES ; 2. FOOD PROCESSING ; 12 ITA NO. 1234&1235/K/2013 BATLIVALA & KARANI SECURITIES (I) P.LTD. AY 2008-09 & 2009-10 3. ENVIRONMENTAL AND ECOLOGICAL SERVICES ; 4. COMMUNICATION THROUGH SATELLITE OR OTHERWISE ; 5. ENERGY CONSERVATION ; 6. EXPLORATION OR EXPLOITATION OF MINERAL OIL OR NATU RAL GAS ; 7. GEOLOGICAL SURVEYS ; 8. SCIENTIFIC SERVICES ; AND 9. TECHNICAL TRAINING. THE FOLLOWING EXAMPLES INDICATE THE SCOPE OF THE CO NDITIONS IN PARAGRAPH 4( B ) : EXAMPLE 3 FACTS : A U.S. MANUFACTURER HAS EXPERIENCE IN THE USE OF A PROCESS FOR MANUFACTURING WALLBOARD FOR INTERIOR WALLS OF HOUSES WHICH IS MOR E DURABLE THAN THE STANDARD PRODUCTS OF ITS TYPE. AN INDIAN BUILDER WISHES TO P RODUCE THIS PRODUCT FOR ITS OWN USE. IT RENTS A PLANT AND CONTRACTS WITH THE U.S. C OMPANY TO SEND EXPERTS TO INDIA TO SHOW ENGINEERS IN THE INDIAN COMPANY HOW TO PROD UCE THE EXTRA-STRONG WALLBOARD. THE U.S. CONTRACTORS WORK WITH THE TECHN ICIANS IN THE INDIAN FIRM FOR A FEW MONTHS. ARE THE PAYMENTS TO THE U.S. FIRM CON SIDERED TO BE PAYMENTS FOR INCLUDED SERVICES ? ANALYSIS : THE PAYMENTS WOULD BE FEES FOR INCLUDED SERVICES. T HE SERVICES ARE OF A TECHNICAL OR CONSULTANCY NATURE; IN THE EXAMPLE, THEY HAVE EL EMENTS OF BOTH TYPES OF SERVICES. THE SERVICES MAKE AVAILABLE TO THE INDIAN COMPANY TECHNICAL KNOWLEDGE, SKILL AND PROCESSES. EXAMPLE 4 FACTS : A U.S. MANUFACTURER OPERATES A WALLBOARD FABRICATIO N PLANT OUTSIDE INDIA. AN INDIAN BUILDER HIRES THE U.S. COMPANY TO PRODUCE WA LLBOARD AT THAT PLANT FOR A FEE. THE INDIAN COMPANY PROVIDES THE RAW MATERIALS, AND THE U.S. MANUFACTURER FABRICATES THE WALLBOARD IN ITS PLANT, USING ADVANC ED TECHNOLOGY. ARE THE FEES IN THIS EXAMPLE PAYMENTS FOR INCLUDED SERVICES ? ANALYSIS : 13 ITA NO. 1234&1235/K/2013 BATLIVALA & KARANI SECURITIES (I) P.LTD. AY 2008-09 & 2009-10 THE FEES WOULD NOT BE FOR INCLUDED SERVICES. ALTHOU GH THE U.S. COMPANY IS CLEARLY PERFORMING A TECHNICAL SERVICE, NO TECHNICAL KNOWLE DGE, SKILL, ETC., ARE MADE AVAILABLE TO THE INDIAN COMPANY, NOR IS THERE ANY D EVELOPMENT AND TRANSFER OF A TECHNICAL PLANT OR DESIGN. THE U.S. COMPANY IS MERE LY PERFORMING A CONTRACT MANUFACTURING SERVICE. EXAMPLE 5 FACTS : AN INDIAN FIRM OWNS INVENTORY CONTROL SOFTWARE FOR USE IN ITS CHAIN OF RETAIL OUTLETS THROUGHOUT INDIA. IT EXPANDS ITS SALES OPER ATION BY EMPLOYING A TEAM OF TRAVELLING SALESMEN TO TRAVEL AROUND THE COUNTRYSID E SELLING THE COMPANYS WARES. THE COMPANY WANTS TO MODIFY ITS SOFTWARE TO PERMIT THE SALESMEN TO ASSESS THE COMPANYS CENTRAL COMPUTERS FOR INFORMATION ON WHAT PRODUCTS ARE AVAILABLE IN INVENTORY AND WHEN THEY CAN BE DELIVERED. THE INDIA N FIRM HIRES A U.S. COMPUTER PROGRAMMING FIRM TO MODIFY ITS SOFTWARE FOR THIS PU RPOSE. ARE THE FEES WHICH THE INDIAN FIRM PAYS TREATED AS FEES FOR INCLUDED SERVI CES ? ANALYSIS : THE FEES ARE FOR INCLUDED SERVICES. THE U.S. COMPAN Y CLEARLY PERFORMS A TECHNICAL SERVICE FOR THE INDIAN COMPANY, AND IT TR ANSFERS TO THE INDIAN COMPANY THE TECHNICAL PLAN (I.E., THE COMPUTER PROGRAMME) W HICH IT HAS DEVELOPED. EXAMPLE 6 FACTS : AN INDIAN VEGETABLE OIL MANUFACTURING COMPANY WANTS TO PRODUCE A CHOLESTEROL- FREE OIL FROM A PLANT WHICH PRODUCES OIL NORMALLY C ONTAINING CHOLESTEROL. AN AMERICAN COMPANY HAS DEVELOPED A PROCESS FOR REFINI NG THE CHOLESTEROL OUT OF THE OIL. THE INDIAN COMPANY CONTRACTS WITH THE U.S. COM PANY TO MODIFY THE FORMULAS WHICH IT USES SO AS TO ELIMINATE THE CHOLESTEROL, A ND TO TRAIN THE EMPLOYEES OF THE INDIAN COMPANY IN APPLYING THE NEW FORMULAS. ARE TH E FEES PAID BY THE INDIAN COMPANY FOR INCLUDED SERVICES ? ANALYSIS : THE FEES ARE FOR INCLUDED SERVICES. THE SERVICES AR E TECHNICAL, AND THE TECHNICAL KNOWLEDGE IS MADE AVAILABLE TO THE INDIAN COMPANY. EXAMPLE 7 FACTS : 14 ITA NO. 1234&1235/K/2013 BATLIVALA & KARANI SECURITIES (I) P.LTD. AY 2008-09 & 2009-10 THE INDIAN VEGETABLE OIL MANUFACTURING FIRM HAS MAS TERED THE SCIENCE OF PRODUCING CHOLESTEROL-FREE OIL AND WISHES TO MARKET THE PRODUCT WORLD WIDE. IT HIRES AN AMERICAN MARKETING CONSULTING FIRM TO DO A COMPUTER SIMULATION OF THE WORLD MARKET FOR SUCH OIL AND TO ADVERSE IT ON MARK ETING STRATEGIES. ARE THE FEES PAID TO THE U.S. COMPANY FOR INCLUDED SERVICES ? ANALYSIS : THE FEES WOULD NOT BE FOR INCLUDED SERVICES. THE AM ERICAN COMPANY IS PROVIDING A CONSULTANCY SERVICE WHICH INVOLVES THE USE OF SUB STANTIAL TECHNICAL SKILL AND EXPERTISE. IT IS NOT, HOWEVER, MAKING AVAILABLE TO THE INDIAN COMPANY ANY TECHNICAL EXPERIENCE, KNOWLEDGE OR SKILL, ETC., NOR IS IT TRANSFERRING A TECHNICAL PLAN OR DESIGN. WHAT IS TRANSFERRED TO THE INDIAN C OMPANY THROUGH THE SERVICE CONTRACT IS COMMERCIAL INFORMATION. THE FACT THAT T ECHNICAL SKILLS WERE REQUIRED BY THE PERFORMER OF THE SERVICE IN ORDER TO PERFORM THE COMMERCIAL INFORMATION SERVICE DOES NOT MAKE THE SERVICE A TECHNICAL SERVI CE WITHIN THE MEANING OF PARAGRAPH 4(B). PARAGRAPH 5 PARAGRAPH 5 OF ARTICLE 12 DESCRIBES SEVERAL CATEGOR IES OF SERVICES WHICH ARE NOT INTENDED TO BE TREATED AS INCLUDED SERVICES EVEN IF THEY SATISFY THE TESTS OF PARAGRAPH 4. SET FORTH BELOW ARE EXAMPLES OF CASES WHERE FEES WOULD BE INCLUDED UNDER PARAGRAPH 4, BUT ARE EXCLUDED BECAUSE OF THE CONDITIONS OF PARAGRAPH 5. 12.2.1. THE MEMORANDUM OF UNDERSTANDING IS A TOOL T O UNDERSTAND AS TO WHAT MEANING WAS INTENDED TO BE CONVEYED IN THE DTAA BETWEEN COU NTRIES. SINCE THE WORDING OF ARTICLE 12(4) AND 13(4) OF THE TREATY WITH SINGAPOR E AND UK RESPECTIVELY AND ARTICLE 12(4)(B) OF THE DTAA BETWEEN INDIA AND US ARE IDENT ICAL, THE MOU TO THE INDO-US TREATY CAN BE LOOKED INTO TO SEE WHAT MEANING INDIA AND SINGAPORE / UK (AS THE CASE MAY BE) WOULD HAVE CONTEMPLATED IN THE TREATY. THE LAW IS SETTLED THAT A DTAA WITH ONE COUNTRY CAN BE COMPARED WITH THE DTAA WITH ANOT HER COUNTRY IN CASE OF AMBIGUITY AND IN ORDER TO UNDERSTAND THE TRUE SCOPE AND MEANI NG OF THE CONCERNED DTAA. THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF A.E.G. TELEFUNKEN V. CIT [1998] 231 ITR 129 COMPARED THE DTAA WITH GERMAN DEMOCRATIC REPUBLIC WITH THE DTAA WITH FINLAND TOWARDS THIS END. 15 ITA NO. 1234&1235/K/2013 BATLIVALA & KARANI SECURITIES (I) P.LTD. AY 2008-09 & 2009-10 12.2.2. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF RAYMOND LTD. VS. DCIT 86 ITD 791 (MUM) HAD TO DEAL WITH A CASE OF PAYMENT OF COMMISSION B Y AN INDIAN COMPANY TO A NON RESIDENT IN CONNECTION WITH PUBLIC ISSUE OF GLOBAL DEPOSITORY RECEIPTS (GDR) FOR SERVICES RENDERED OUTSIDE INDIA. THE QUESTION BEFORE THE TRIBUNAL WAS WHETHER THE COMMISSION SO PAID CAN BE SAID TO B E FEES FOR INCLUDED SERVICES I.E., FEES FOR TECHNICAL SERVICES UNDER ARTICLE 13(4)(C) OF THE INDO-UK DTAA WHICH IS THE SAME AS THAT OF ARTICLE 12(4)(B) OF THE TREATY BETW EEN INDIA AND SINGAPORE. AFTER CONSIDERING ARTICLE 12(4)(B) OF THE INDO-US DTAA (W HICH ARE SIMILAR TO ARTICLE 12(4) AND 13(4) OF THE TREATY BETWEEN INDIA AND SINGAPORE / UK (AS THE CASE MAY BE)), AND AFTER REFERRING TO THE MEMORANDUM OF UNDERSTANDING TO THE INDO-US DTAA, THE TRIBUNAL HELD AS FOLLOWS: WHEREAS SECTION 9(1)(VII) OF THE ACT STOPS WITH T HE RENDERING OF TECHNICAL SERVICES, THE DTAA GOES FURTHER AND QUALIFIES SUCH RENDERING OF SERVICES WITH WORDS TO THE EFFECT THAT THE SERVICES SHOULD ALSO M AKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILLS ETC. TO THE PERSON UT ILIZING THE SERVICES. THESE WORDS ARE WHICH MAKE AVAILABLE. THE NORMAL, PLA IN AND GRAMMATICAL MEANING OF THE LANGUAGE EMPLOYED, IN OUR UNDERSTANDING, IS THAT A MERE RENDERING OF SERVICES IS NOT ROPED IN UNLESS THE PERSON UTILIZIN G THE SERVICES IS ABLE TO MAKE USE OF THE TECHNICAL KNOWLEDGE ETC. BY HIMSELF IN HIS B USINESS OR FOR HIS OWN BENEFIT AND WITHOUT RECOURSE TO THE PERFORMER OF THE SERVIC ES IN FUTURE. THE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL ETC. MUST REMAIN WITH THE PERSON UTILIZING THE SERVICES EVEN AFTER THE RENDERING OF THE SERVICES H AS COME TO AN END. A TRANSMISSION OF THE TECHNICAL KNOWLEDGE, EXPERIENCE , SKILLS ETC. FROM THE PERSON RENDERING THE SERVICES TO THE PERSON UTILIZING THE SAME IS CONTEMPLATED BY THE ARTICLE. SOME SORT OF DURABILITY OR PERMANENCY OF T HE RESULT OF THE RENDERING OF SERVICES IS ENVISAGED WHICH WILL REMAIN AT THE DIS POSAL OF THE PERSON UTILIZING THE SERVICES. THE FRUITS OF THE SERVICES SHOULD REM AIN AVAILABLE TO THE PERSON UTILIZING THE SERVICES IN SOME CONCRETE SHAPE SUCH AS TECHNICAL KNOWLEDGE, EXPERIENCE, SKILLS ETC. 12.3. APPLYING THE DEFINITION OF FTS IN THE TREATY TO THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THE VARIOUS DECISIONS REFERRED TO ABOVE, I T CANNOT BE SAID THAT THE RENDERING OF SERVICES BY THE SINGAPORE AND UK SUBSIDIARIES TO TH E ASSESSEE MADE AVAILABLE TO THE ASSESSEE , SUCH SERVICES , FOR ITS FUTURE USE OR UT ILIZATION ON A REASONABLY PERMANENT BASIS. HENCE THE CONSIDERATION PAID THEREON BY THE ASSESSEE WOULD NOT FALL UNDER THE AMBIT OF FEES FOR TECHNICAL SERVICES AS PER THE TRE ATY. 16 ITA NO. 1234&1235/K/2013 BATLIVALA & KARANI SECURITIES (I) P.LTD. AY 2008-09 & 2009-10 12.4. NOW THE PROVISIONS OF SECTION 90(2) OF THE ACT WOULD HAVE TO BE SEEN WHICH STATES THAT THE PROVISIONS OF DTAA WOULD PREVAIL OV ER THE ACT TO THE EXTENT IT IS BENEFICIAL TO THE ASSESSEE. IN VIEW OF THE AFORESA ID FINDING THAT THE PAYMENT MADE IS NOT FEES FOR TECHNICAL SERVICES AS PER THE TREATY, IT W OULD BE ACADEMIC TO LOOK INTO THE FACT WHETHER THE SAID PAYMENT WOULD BE FEES FOR TECHNICA L SERVICES AS PER THE PROVISIONS OF THE INCOME TAX ACT. THE APPLICABILITY OF TDS PROV ISIONS THEREON DUE TO RETROSPECTIVE AMENDMENT IN EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT BY THE FINANCE ACT 2010 WITH EFFECT FROM 1.6.1976 NEED NOT BE GONE INTO. W E ALSO FEEL THAT THE ASPECT OF APPLICABILITY OF TDS PROVISIONS ON THE REIMBURSEMEN T COMPONENT ALSO BECOMES IRRELEVANT IN THE FACTS OF THE CASE IN VIEW OF THE AFORESAID FINDINGS. SIMILARLY THE APPLICABILITY OF THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT FOR SHORT DEDUCTION OF TAX AT SOURCE ALSO BECOMES ACADEMIC IN NATURE AND NO DECIS ION IS HEREBY RENDERED THEREON. THE QUESTION AS TO WHETHER THE PAYMENT BY THE ASSES SEE TO ITS SUBSIDIARY IN UK AND SINGAPORE COMPRISED PARTLY OF REIMBURSEMENT OF EXPE NSES OR NOT ALSO DOES NOT REQUIRE ANY CONSIDERATION, IN VIEW OF THE CONCLUSION THAT T HE PAYMENT IN QUESTION DOES NOT, EVEN OTHERWISE, ATTRACT THE PROVISIONS OF SEC.40(A)(I) O F THE ACT. 12.5. SINCE THE PAYMENT MADE BY THE ASSESSEE TO I TS SUBSIDIARIES IS NOT FEES FOR TECHNICAL SERVICES, THEN THE SAME WOULD BE CONSTRUE D AS ONLY BUSINESS INCOME IN THE HANDS OF THE SUBSIDIARIES WHICH WOULD GET TAXED IN INDIA ONLY IN THE EVENT OF EXISTENCE OF PERMANENT ESTABLISHMENT (PE) IN INDIA. WE FIND THAT THE LEARNED AO HAD CATEGORICALLY STATED IN MORE THAN ONE PLACE IN HIS ORDER THAT THE SINGAPORE AND UK SUBSIDIARIES DO NOT HAVE ANY PE IN INDIA. THE RETR OSPECTIVE AMENDMENT IN THIS REGARD IN EXPLANATION 2 TO SECTION 195(1) OF THE ACT WITH EFF ECT FROM 1.4.1962 WAS INSERTED BY THE FINANCE ACT 2012. THE OBLIGATION TO DEDUCT TAX AT SOURCE HAS TO BE COMPLIED ONLY AS PER THE LAW THAT IT PREVAILS ON THE DATE OF PAYMENT . ADMITTEDLY THE PAYMENT IN QUESTION WAS MADE BY THE ASSESSEE TO ITS SUBSIDIARIES PRIOR TO THE FINANCE ACT 2012. IT IS NOT POSSIBLE TO FASTEN AN OBLIGATION TO DEDUCT TAX AT S OURCE ON THE BASIS OF A RETROSPECTIVE AMENDMENT TO THE LAW AS HAS BEEN LAID DOWN BY THE C O-ORDINATE BENCH DECISION OF THIS TRIBUNAL IN THE CASE OF DCIT VS SUBHOTOSH MAJUMDER REPORTED IN (2016) 65 TAXMANN.COM 42 (KOLKATA TRIB.) DATED 27.11.2015 WH EREIN IT WAS HELD THAT :- 17 ITA NO. 1234&1235/K/2013 BATLIVALA & KARANI SECURITIES (I) P.LTD. AY 2008-09 & 2009-10 THE TAX DEDUCTOR IS NOT EXPECTED TO KNOW HOW THE LAW WILL CHANGE IN FUTURE. A RETROSPECTIVE 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 OBLIGATIO NS 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 PAYEE OR AT TH E TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHE R MODE, WHICHEVER IS EARLIER, DEDUCT INCOME TAX THEREON AT THE RATES IN FORCE. WHEN THESE OBLIGATIONS ARE TO BE CHARGED AT THE POI NT OF TIME WHEN PAYMENT IS MADE OR CREDITED, WHICHEVER IS EARLIER, SUCH OBLIGATIONS CAN ONLY BE DISCHARGED IN THE LIGHT OF THE LAW AS IT STANDS THAT POINT OF TIME. SECTION 40(A)(I) OF THE ACT PROVIDES THAT INTER ALIA, NOTWITHSTANDING ANYTHING TO THE CONTRAR Y IN SECTIONS 30 TO 38 OF THE ACT, ANY AMOUNT PAYABLE OUTSIDE INDIA, OR PAYABLE IN IND IA TO A NON-RESIDENT, SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARGEABLE UNDER T HE 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. ACCORDINGLY, TH E ASSESSEE CANNOT BE FAULTED FOR NOT DEDUCTING TDS AND CONSEQUENTLY, THE DELETION OF DISALLOWANCE BY COMMISSIONER (APPEALS) IS CONFIRMED. [PARA 20] IN THE RESULT, THE APPEAL OF REVENUE IS DISMISSE D. [PARA 21] 12.6. WE FIND THAT AS PER ARTICLE 7 OF UK AND SING APORE TREATY, IN THE ABSENCE OF PE IN INDIA, THE BUSINESS INCOME ALSO WOULD NOT GET TAXED IN INDIA. HENCE WE HOLD THAT THE PAYMENT MADE BY THE ASSESSEE TO ITS SUBSIDIARIES IS NOT CHARGEABLE TO TAX IN INDIA IN THE HANDS OF THE SUBSIDIARIES IN INDIA. THE PROVISIONS OF SECTION 195(1) OF THE ACT MANDATES A REQUIREMENT THAT THE INCOME SHOULD BE CHARGEABLE TO TAX IN INDIA TO ASSUME JURISDICTION IN INDIA. IN THE INSTANT CASE, IT IS PROVED BEYON D DOUBT THAT THE SUBSIDIARIES DO NOT HAVE ANY INCOME CHARGEABLE TO TAX IN INDIA AND HENCE THE DECISION RENDERED BY THE HONBLE APEX COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTR E P LTD VS CIT REPORTED IN 327 ITR 456 (SC) SUPPORTS THE CASE OF THE ASSESSEE. THIS DECISION HAS BEEN RENDERED AFTER DULY CONSIDERING THE CASE LAW VEHEMENTLY RELIED UPON BY THE LEARNED AO ON THE DECISION OF THE HONBLE APEX COURT IN THE CASE OF TRANSMISSION CORP ORATION OF A.P. LTD VS CIT REPORTED IN 239 ITR 587 (SC) VIDE PARA 10 OF THE JUDGEMENT AT PAGES 465 & 466. WE ARE ALSO IN COMPLETE AGREEMENT WITH THE ARGUMENTS A DVANCED BY THE LEARNED AR THAT THE VARIOUS CASE LAWS RELIED UPON BY THE LEARNED CITA I N HIS ORDER VIDE PARAS 7 TO 12 WERE RENDERED PRIOR TO RENDERING OF HONBLE SUPREME COUR T DECISION IN GE INDIA TECHNOLOGY CASE ON 9.9.2010. HENCE WE DONT DEEM IT FIT AND A PPROPRIATE TO DISCUSS THOSE CASE LAWS FOR THE PURPOSE OF ADJUDICATION OF THIS ISSUE. 18 ITA NO. 1234&1235/K/2013 BATLIVALA & KARANI SECURITIES (I) P.LTD. AY 2008-09 & 2009-10 12.7. IN VIEW OF THE AFORESAID FINDINGS , WE HAVE NO HESITATION IN DIRECTING THE LEARNED AO TO DELETE THE DISALLOWANCE MADE U/S 40(A)(I) OF THE ACT IN RESPECT OF PAYMENTS MADE TO FOREIGN SUBSIDIARIES. IN VIEW OF THE ABOVE CONCL USION, THE OTHER PROPOSITIONS ADVANCED BY THE LEARNED AR BEFORE US ARE NOT TAKEN UP FOR CO NSIDERATION. ACCORDINGLY, THE GROUND NOS. 1 & 2 RAISED BY THE ASSESSEE FOR THE AS ST YEAR 2008-09 ARE ALLOWED . 13. WE FIND THAT THE FACTS FOR THE ASST YEAR 2009 -10 IN RESPECT OF THE IMPUGNED ISSUE ARE EXACTLY SIMILAR EXCEPT VARIANCE IN THE MARK UP OF 10% INSTEAD OF 29% IN RESPECT OF PAYMENTS MADE TO SINGAPORE SUBSIDIARY. HENCE THE D ECISION RENDERED IN ASST YEAR 2008-09 WOULD APPLY WITH EQUAL FORCE FOR THE ASST Y EAR 2009-10 ALSO IN RESPECT OF THIS ISSUE. ACCORDINGLY, THE GROUND NOS 1 & 2 RAISED BY THE ASS ESSEE FOR THE ASST YEAR 2009-10 ARE ALLOWED . 14. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LEARNED CITA IS JUSTIFIED IN CONFIRMING THE DISALLOWANCE MADE U/S 1 4A OF THE ACT IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 14.1. BRIEFLY STATED FACTS ARE THAT DURING THE PREV IOUS YEAR RELEVANT TO THE ASSESSMENT YEAR UNDER CONSIDERATION, THE ASSESSEE RECEIVED EXE MPT INCOME OF RS. 1,68,786/- . THE ASSESSING OFFICER MADE A DISALLOWANCE U/S 14A R.W. RULE 8D OF THE ACT AMOUNTING TO RS. 6,45,802/-@ 0.5% OF AVERAGE INVESTMENTS ON ACCO UNT OF ADMINISTRATIVE EXPENSES ON THE PREMISE THAT THE ASSESSEE MUST HAVE INCURRED CE RTAIN EXPENDITURE FOR EARNING EXEMPT INCOME. WHILE CALCULATING THE SAID DISALLOWANCE THE ASSESSING OFFICER EXCLUDED THE INVESTMENTS MADE IN FOREIGN SUBSIDIARIES BUT DID NO T EXCLUDE THE INVESTMENTS FROM MUTUAL FUNDS, THE DIVIDEND OF WHICH WAS TAXABLE. B EFORE THE LD. CIT(A), IT WAS CONTENDED THAT THE ASSESSING OFFICER HAS GROSSLY ER RED IN APPLYING RULE 8D WHILE MAKING DISALLOWANCE U/S 14A OF THE ACT. IT WAS ALSO SUBMITTED THAT THE ASSESSING OFFICER HAS WRONGLY INCLUDED THE VALUE OF INVESTMEN T IN MUTUAL FUNDS WHILE MAKING THE SAID DISALLOWANCE. THE LD. CIT(A), IN PRINCIPLE UPH ELD THE ACTION OF THE ASSESSING OFFICER BUT GRANTED PART RELIEF TO THE ASSESSEE BY EXCLUDING THE VALUE OF INVESTMENT IN MUTUAL FUNDS WHILE CALCULATING AVERAGE INVESTMENTS AS PER RULE 8D(III). 19 ITA NO. 1234&1235/K/2013 BATLIVALA & KARANI SECURITIES (I) P.LTD. AY 2008-09 & 2009-10 14.2. THE LEARNED AR ARGUED THAT THE MAJORITY OF I NVESTMENTS (I.E. 93.20%) IN RESPECT OF WHICH DISALLOWANCE HAS BEEN MADE BY THE ASSESSIN G OFFICER ARE IN THE SUBSIDIARY COMPANIES OF THE ASSESSEE. THE SAID FACT IS EVIDENT FROM THE INVESTMENT SCHEDULE ON PG 27 OF THE P.B. IT IS SUBMITTED THAT THE PURPOSE OF INVESTING IN THE SAID COMPANIES WAS TO ACQUIRE CONTROLLING STAKE FOR THE PURPOSE OF BUSINE SS AND NOT TO EARN ANY EXEMPT INCOME. IT IS SUBMITTED THAT NO DISALLOWANCE U/S 14A OF THE ACT CAN BE MADE WHEN INVESTMENT IS IN SUBSIDIARY COMPANIES SINCE THE PURPOSE OF INVEST MENT IS TO GAIN CONTROLLING STAKE. IN RESPONSE TO THIS, THE LEARNED DR RELIED ON THE DECI SION OF HONBLE CALCUTTA HIGH COURT IN THE CASE OF DHANUKA & SONS REPORTED IN (2011) 12 TAXMANN.COM 227 (CAL HC). 15. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE HOLD THAT THE INVESTMENTS MADE IN SUBSIDIARY COMPANIES ARE TO BE TREATED AS STRATEGIC INVESTMENTS AND HENCE THE DISALLOWANCE U/S 14A OF THE ACT WOULD NOT OPERATE A T ALL AS THE INVESTMENT MADE THEREON IS NOT WITH AN INTENTION TO EARN ANY EXEMPT INCOME IN THE FORM OF DIVIDEND BUT ONLY FOR OBTAINING CONTROLLING INTEREST IN THE SAID COMPANIE S AND TO FURTHER THE BUSINESS INTERESTS OF THE ASSESSEE IN THE SAID COMPANY. RELIANCE IN T HIS REGARD IS PLACED ON THE DECISION OF THE CO-ORDINATE BENCH OF DELHI TRIBUNAL IN THE CASE OF INTERGLOBE ENTERPRISES LTD VS DCIT REPORTED IN (2014) 40 CCH 0022 DELTRIB IN ITA NO. 1362 & 1032 /DEL/ 2013 , ITA NO. 1580/DEL/2013 DATED 4.4.2014 FOR ASST YEARS 2008-09 & 2009-10, WHEREIN IT WAS HELD THAT : HOWEVER, WE FIND THAT THE CALCULATION OF DISALLOWAN CE UNDER RULE 8D(III) MADE BY THE ASSESSING OFFICER AND UPHELD BY LD CIT(A) IS NOT CO RRECT IN VIEW OF THE FACT THAT ASSESSING OFFICER HAD INCLUDED THE VALUE OF TOTAL I NVESTMENTS FOR CALCULATION OF DISALLOWANCE WHEREAS IN OUR OPINION THE VALUE OF TH OSE INVESTMENTS SHOULD HAVE BEEN INCLUDED WHICH WERE MADE FOR THE PURPOSE OF EARNING EXEMPT INCOME. THE ASSESSEE HAD MADE SIGNIFICANT INVESTMENTS IN THE SHARES OF SUBSI DIARY COMPANIES WHICH ARE DEFINITELY NOT FOR THE PURPOSE OF EARNING EXEMPT INCOME. THE H ON'BLE TRIBUNAL IN I.T.A. NO.3349/DEL/2011 IN THE CASE OF PROMAIN LTD., AFTER RELYING UPON A KOLKATTA JUDGMENT OF TRIBUNAL IN I.T.A. NO.1331 HAS HELD THAT STRATEGIC INVESTMENT HAS TO BE EXCLUDED FOR THE PURPOSE OF ARRIVING AT DISALLOWANCE UNDER RULE 8D(I II). THE TRIBUNAL HAD RELIED UPON THE FINDINGS OF KOLKATTA TRIBUNAL IN THE CASE OF REI AG RO LTD. V. DCIT IN I.T.A. NO./ 1331/DEL/2011 DATED 29.7.2011. THE RELEVANT PORTION OF TRIBUNAL FINDINGS AS CONTAINED IN THE KOLKATA TRIBUNAL ARE REPRODUCED BELOW:- (III) FURTHER IN RULE 8D(2)(II), THE WORDS USED IN NUMERATOR B ARE THE AVERAGE VALUE OF THE INVESTMENT, INCOME FROM WHICH DOES NOT FORM OR SHALL NOT FORM PART OF THE TOTAL INCOME AS APPEARING IN THE BALANCE SHE ET AS ON THE FIRST DAY AND IN THE LAST DAY OF THE PREVIOUS YEAR. THE ASSESSING O FFICER WAS WRONG IN TAKING 20 ITA NO. 1234&1235/K/2013 BATLIVALA & KARANI SECURITIES (I) P.LTD. AY 2008-09 & 2009-10 INTO CONSIDERATION THE INVESTMENT OF `.103 CRORES M ADE DURING THE YEAR WHICH HAS NOT EARNED ANY DIVIDEND OR EXEMPT INCOME. IT IS ONL Y THE AVERAGE OF THE VALUE OF THE INVESTMENT FROM WHICH THE INCOME HAS BEEN EARNE D WHICH IS NOT FALLING WITHIN THE PART OF THE TOTAL INCOME THAT IS TO BE CONSIDER ED. THUS,. IT IS NOT THE TOTAL INVESTMENT AT ALL BEGINNING OF THE YEAR AND AT THE END OF THE YEAR, WHICH IS TO BE CONSIDERED BUT IT IS THE AVERAGE OF THE VALUE OF IN VESTMENTS WHICH HAS GIVEN RISE TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME WHICH IS TO BE CONSIDERED. THE TERM AVERAGE OF THE VALUE OF INVES TMENT IS USED TO TAKE CARE OF CASES WHERE THERE IS THE ISSUE OF DIVIDEND STRIPING . IV) UNDER RULE 8D(2)(III), WHAT IS DISALLOWABLE IS AN AMOUNT EQUAL TO PERCENTAGE OF THE AVERAGE VALUE OF INVESTMENT THE I NCOME FROM WHICH DOES NOT OR SHALL NOT FORM PART OF THE TOTAL INCOME/. THUS, UND ER SUB CLAUSE (III), WHAT IS DISALLOWED IS PERCENTAGE OF THE NUMERATOR B IN RU LE 8D(2)III). THIS HAS TO BE CALCULATED ON THE SAME LINES AS MENTIONED EARLIER I N RESPECT OF NUMERATOR B IN THE RULE 8D(2)(II). THUS, NOT ALL INVESTMENTS BECOM E THE SUBJECT MATTER OF CONSIDERATION WHEN COMPUTING DISALLOWANCE U/S 14A R EAD WITH RULE 8D. THE DISALLOWANCE U/S 14A READ WITH RULE 8D IS TO BE IN RELATION TO THE INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME AND THIS CAN BE DONE ONLY BY TAKING INTO CONSIDERATION THE INVESTMENT WHICH HAS GIVEN RISE T O THIS INCOME WHICH DOES NOT FORM PART OF THE TOTAL INCOME. (A.Y.) (I.T.A. NO.13 31/KOL/2011 DATED 29.7.2011. FOLLOWING THE ABOVE JUDICIAL PRECEDENTS, WE HELD TH AT VALUE OF STRATEGIC INVESTMENTS SHOULD BE EXCLUDED FOR THE PURPOSE OF DISALLOWANCE UNDER RULE 8D)III) FACTS, WE DIRECT THE ASSESSING OFFICER TO CALCULATE THE DISALLOWANCE UND ER RULE8D(III) BY EXCLUDING THE VALUE OF STRATEGIC INVESTMENTS IN THE CALCULATION OF DISA LLOWANCE. AS REGARDS DISALLOWANCE UNDER RULE 8D(I) AND 8D(II) WE HAVE ALREADY HELD TH AT NO DISALLOWANCE IS WARRANTED. WE FIND THAT THE CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF DCIT VS SELVEL ADVERTISING P LTD REPORTED IN (2015) 58 TAXMANN.COM 196 (KOLKATA TRIB.) ALSO HAD TAKEN A SIMILAR VIEW. RESPECTFULLY FOLLOWING THE JUDICIAL PRECEDENTS RELI ED UPON HEREINABOVE, WE HEREBY DIRECT THE LEARNED AO TO RECOMPUTED THE DISALLOWANCE U/S 1 4A OF THE ACT AFTER ELIMINATING THE STRATEGIC INVESTMENTS MADE IN SUBSIDIARIES AND INVE STMENTS YIELDING TAXABLE INCOME. ACCORDINGLY THE GROUND NO. 3 RAISED BY THE ASSESSEE FOR THE ASST YEARS 2008-09 AND 2009-10 IS ALLOWED FOR STATISTICAL PURPOSES . 16. THE NEXT ISSUE TO BE DECIDED IN THE APPEAL FOR THE ASST YEAR 2009-10 IS WITH REGARD TO THE DISALLOWANCE OF CLUB EXPENSES TO THE TUNE OF RS. 1,36,500/-. THE BRIEF FACTS OF THIS ISSUE ARE THAT THE PAYMENT WAS MADE BY THE ASSESSEE ON BEHALF OF ITS DIRECTOR SHRI MANOJ MURARKA ON ACCOUNT OF MEMBERSHIP FEE OF A CLU B. THE LEARNED AO TREATED THE SAME AS PERSONAL EXPENSES AND DISALLOWED IN THE ASS ESSMENT WHICH WAS UPHELD BY THE 21 ITA NO. 1234&1235/K/2013 BATLIVALA & KARANI SECURITIES (I) P.LTD. AY 2008-09 & 2009-10 LEARNED CITA. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US. THE LEARNED AR ARGUED THAT THE SAME WAS PAID ON ACCOUNT OF BUSINESS EXPED IENCY AND FOR SMOOTH CONDUCT OF THE BUSINESS OF THE ASSESSEE. 17. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND THAT THE LEARNED CITA HAD OBSERVED IN HIS ORDER THAT THE ASSESSEE HAD NOT PRO VIDED EVEN THE BASIC DETAILS AS TO IN WHOSE NAME THE MEMBERSHIP IS TAKEN AND WHO WERE THE OTHER PERSONS VISITING IN THE NAME OF THE DIRECTOR AND WHETHER IT WAS IN THE NAME OF INDIVIDUAL OR CORPORATE MEMBERSHIP. WE FIND THAT THESE FACTS ARE CRUCIAL F OR THE PURPOSE OF DECIDING THE ISSUE. HENCE WE DEEM IT FIT AND APPROPRIATE TO SET ASIDE T HIS ISSUE TO THE FILE OF THE LEARNED AO TO DECIDE THIS ISSUE AFRESH, IN ACCORDANCE WITH LAW , WITH A DIRECTION TO THE ASSESSEE TO PRODUCE THE NECESSARY EVIDENCES IN SUPPORT OF ITS C LAIM. ACCORDINGLY, THE GROUND NO. 4 RAISED BY THE ASSESSEE FOR THE ASST YEAR 2009-10 IS ALLOWED FOR STATISTICAL PURPOSES. 18. IN THE RESULT, THE APPEALS OF THE ASSESSEE IN ITA NO. 1234/KOL/2013 AND ITA NO. 1235/KOL/2013 ARE ALLOWED FOR STATISTICAL PURPOSES. ORDER IS PRONOUNCED IN THE OPEN COURT ON 08.07.201 6 SD/- SD/- (N. V. VASUDEVAN) (M. BALAGANESH) JUDICIAL MEMBER ACCOUNTAN T MEMBER DATED : 8TH JULY, 2016 JD.(SR.P.S.) COPY OF THE ORDER FORWARDED TO: 1 . APPELLANT BATLIVALA & KARANI SECURITIES (INDIA) P VT. LTD., 7, LYONS RANGE, 3 RD FLOOR, ROOM NO. , KOLKATA-700 001. 2 RESPONDENT DCIT, CIR-5, KOLKATA. 3 . THE CIT(A), KOLKATA 4. 5. CIT , KOLKATA DR, KOLKATA BENCHES, KOLKATA / TRUE COPY, BY ORDER, ASSTT. REGISTRAR .