M/s Clearwater Technology Services Pvt. Ltd., Bangalore V. ITO, Bangalore

ITA 1297/BANG/2011

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 63731 (ITAT-BANGALORE)
• Duration Of Justice: 9 month(s) 12 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-09-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2008-2009
• Appeal Filed On: 16-12-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SUSAN THOMAS JOSE
• Keywords: Depreciation; Double taxation relief; Services rendered outside India; Deemed to accrue or arise in india; Retrospective amendment; Permanent establishment; Question of law; Unabsorbed depreciation
• Section: 143(3); 10B; 15

Judgement Text

PAGE 1 OF 23 ITA NO.1297/BA NG/2011 1 IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH B BEFORE SHRI GEORGE GEORGE K, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.1297/BANG/2011 (ASSESSMENT YEAR 2008-09) M/S CLEARWATER TECHNOLOGY SERVICES PVT. LTD., NO.17, 100 FEET ROAD, BTM 1 ST STAGE, BANGALORE-76. PA NO. AABCC 8515A VS THE INCOME TAX OFFICER, WARD-11(1), BANGALORE. (APPELLANT) (RESPONDENT) DATE OF HEARING : 17.09.2012 DATE OF PRONOUNCEMENT : 28.09.2012 APPELLANT BY : SMT. SHEETAL BORKAR, ADVOCA TE RESPONDENT BY : SMT. SUSAN THOMAS JOSE, JCIT ORD ER PER GEORGE GEORGE K : THIS APPEAL INSTITUTED BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF THE CIT(A)-I, BANGALORE DATED 24.10.2011. THE RELEVANT ASSESSMENT YEAR IS 2008-09. THE ORDER OF THE CIT(A) ARISE OUT OF THE ORDER PASSED UNDER SECTION 143(3) OF THE ACT DATED 30/11/2010. 2. THE ASSESSEE IN ITS MEMORANDUM OF APPEAL HAS RA ISED NINE GROUNDS OF APPEAL. GROUND NOS. 1, 8 AND 9 ARE GENE RAL IN NATURE AND NO SPECIFIC ADJUDICATION IS CALLED FOR; HENCE, THE SAM E ARE DISMISSED AS INCONSEQUENTIAL. PAGE 2 OF 23 ITA NO.1297/BA NG/2011 2 2.1 GROUND NOS.2, 3 AND 4 RELATES TO THE ISSUE AS TO WHETHER DEDUCTION UNDER SECTION 10B IS TO BE QUANTIFIED BEF ORE SETTING OFF OF UNABSORBED DEPRECIATION AND LOSSES OF EARLIER YEARS. GROUND NOS.5, 6 & 7 RELATES TO THE ISSUE AS TO WHETHER THE INCOME TAX A UTHORITIES ARE JUSTIFIED IN INVOKING THE PROVISIONS OF SECTION 40A(I) OF THE ACT AND DISALLOWING THE PAYMENT OF RS.30,59,752/- TO M/S NOVATEL, USA. WE SHALL DISPOSE OFF THE GROUNDS IN CHRONOLOGICAL ORDER. 3. GROUND NOS.2, 3 AND 4 READS AS FOLLOWS:- 2) THE LEARNED CIT(A) OUGHT TO HAVE ALLOWED THE DEDUCT ION UNDER SECTION 10B OF THE ACT TO THE EXTENT OF RS.52,44,417/- BY QUANTIFYING THE EXPORT INCOME OF TH E RELEVANT ASSESSMENT YEAR BEFORE SETTING OFF OF THE UNABSORBED DEPRECIATION AND LOSSES OF THE EARLIER YE ARS IN THE PRECEDING YEAR. 3) THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT T HE RELIEF UNDER SECTION 10B IS REQUIRED TO BE QUANTIFI ED OUT OF THE RELEVANT YEARS INCOME AND REQUIRED TO BE ALL OWED SINCE THE SAID INCOME IS EXCLUDED FOR COMPUTATION O F TAXATION UNDER THE ACT AND THE UNABSORBED LOSSES AN D DEPRECIATION ARE REQUIRED TO BE SET OFF ONLY AGAINST THE OTHER TOTAL INCOME COMPUTED UNDER THE PROVISIONS OF THE ACT. 4) THE LEARNED CIT(A) OUGHT TO HAVE FOLLOWED THE LATER JUDGMENT OF THE KARNATAKA HIGH COURT WHICH WAS BIND ING ON HIM AND ALSO OUGHT TO HAVE APPRECIATED THE RATIO OF THE HIGH COURT IN THE CASE OF HIMATSINGIKA SEIDA LTD., IS SUB- JUDICE BEFORE THE HONBLE SUPREME COURT. 3.1 THE FACTS IN RELATION TO THE ABOVE GROUNDS ARE AS FOLLOWS:- THE ASSESSEE IS A COMPANY. IT IS ENGAGED IN THE B USINESS OF IT ENABLED SERVICES (CALL CENTERS). FOR THE CONCERNED ASSESSMENT YEAR, THE PAGE 3 OF 23 ITA NO.1297/BA NG/2011 3 RETURN OF INCOME WAS FILED ON 30/9/2008 DECLARING N IL INCOME AFTER CLAIMING DEDUCTION UNDER SECTION 10B OF THE ACT AMOUNTING TO RS.52,44,470/-. THE SCRUTINY ASSESSMENT WAS COMPLETED VIDE ORDER DATED 3 0/11/2010 WHEREIN THE ASSESSING OFFICER HAD COMPUTED DEDUCTION UNDER SECT ION 10B OF THE ACT AFTER SETTING OFF OF EARLIER YEAR LOSSES AND DETERMI NED THE ALLOWABLE DEDUCTION UNDER SECTION 10B OF THE ACT AT RS.4,10,0 18/- AGAINST THE REDUCTION IN THE CLAIM OF SECTION 10B OF THE ACT. 3.2 THE ASSESSEE BEING AGGRIEVED CARRIED THE MATTE R IN APPEAL BEFORE THE FIRST APPELLATE AUTHORITY. 3.3 THE CIT(A), FOLLOWING THE JUDGMENT OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V HIMMATSINGKE SEIDA LTD. V REPORTED IN 286 ITR 255 (KAR.) AND HIS OWN ORDER IN THE CASE OF M/S CRO SSDOMAIN SOLUTIONS PVT. LTD. IN ITA NO.52/DC-11(2)/A-I/08-09(A.Y.2006-07) D ATED 12/9/2011, DISMISSED THE APPEAL OF THE ASSESSEE. 3.4 THE ASSESSEE, BEING AGGRIEVED IS IN APPEAL BEF ORE US. 3.5 AT THE VERY OUTSET, THE LEARNED AR SUBMITTED T HAT THE ISSUE IN QUESTION IS SQUARELY COVERED BY THE HONBLE JURISDICT IONAL HIGH COURT IN THE CASE OF CIT V YOKOGAWA INDIA LTD. (2012) 341 ITR 38 5 (KAR.). 3.6 THE LEARNED DR PRESENT WAS DULY HEARD. 3.7 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSE D THE MATERIALS ON RECORD. THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF YOKOGAWA INDIA LTD. (SUPRA) HAD HELD THAT DEDUCTION U/S 10B IS ALLOWABLE WITHOUT PAGE 4 OF 23 ITA NO.1297/BA NG/2011 4 SETTING OFF THE BROUGHT FORWARD LOSS. THE HONBLE HIGH COURT WAS CONSIDERING THE FOLLOWING SUBSTANTIAL QUESTIONS OF LAW:- (I) WHETHER THE APPELLATE AUTHORITIES FAILED TO TA KE INTO CONSIDERATION THAT THE AMENDMENT TO SECTION 10A BY T HE FINANCE ACT OF 2000 WITH EFFECT FROM APRIL 1, 2001, THE DEDUCTION OF PROFITS AND GAINS AS EARNED BY AN UNDERTAKING FROM THE EXPORT OF ARTICLES OR THINGS O R COMPUTER SOFTWARE IS REQUIRED TO BE ALLOWED FROM TH E TOTAL INCOME OF THE ASSESSEE AND CONSEQUENTLY THE LO SS FROM THE NON-STP UNIT IS REQUIRED TO BE SET OFF AGA INST THE INCOME OF THE OTHER STP UNIT BEFORE ALLOWING DEDUCTION UNDER SECTION 10A OF THE AMENDED ACT? (II) WHETHER THE TRIBUNAL WAS CORRECT IN HOLDING TH AT THE DEDUCTION UNDER SECTION 10A OR SECTION 10B OF THE A CT DURING THE CURRENT ASSESSMENT YEAR HAS TO BE ALLOWED WITHOUT SETTING OFF BROUGHT FORWARD UNABSORBED LOSS ES AND THE DEPRECIATION FROM EARLIER ASSESSMENT YEAR OR CURRENT ASSESSMENT YEAR EITHER IN THE CASE OF NON-ST P UNITS OR IN THE CASE OF THE VERY SAME UNDERTAKING? (EMPHASIS SUPPLIED) 3.8 THE RELEVANT FINDINGS OF THE HONBLE HIGH COU RT AT PARAS 19, 20, 31 TO 33 READS AS FOLLOWS:- 19. IT IS AFTER THE DEDUCTION UNDER CHAPTER VI-A T HAT THE TOTAL INCOME OF AN ASSESSEE AS ARRIVED AT. CHA PTER VI-A DEDUCTIONS ARE THE LAST STAGE OF GIVING EFFECT TO ALL TYPES OF DEDUCTIONS PERMISSIBLE UNDER THE ACT. AT T HE END OF THIS EXERCISE, THE TOTAL INCOME IS ARRIVED A T. TOTAL INCOME IS THUS, A FIGURE ARRIVED AT AFTER GIVING EF FECT TO ALL DEDUCTIONS UNDER THE ACT. THERE CANNOT BE ANY FURTHER DEDUCTION FROM THE TOTAL INCOME AS THE TOTA L INCOME IS ITSELF ARRIVED AT AFTER ALL DEDUCTIONS. PAGE 5 OF 23 ITA NO.1297/BA NG/2011 5 20. FROM THE AFORESAID DISCUSSION IT IS CLEAR THAT THE INCOME OF 10A UNIT HAS TO BE EXCLUDED BEFORE ARRIVI NG AT THE GROSS TOTAL INCOME OF THE ASSESSEE. THE INCOM E OF 10A UNIT HAS TO BE DEDUCTED AT SOURCE ITSELF AND NO T AFTER COMPUTING THE GROSS TOTAL INCOME. THE TOTAL INCOME USED IN THE PROVISIONS OF SECTION 10A IN THIS CONTE XT MEANS THE GLOBAL INCOME OF THE ASSESSEE AND NOT THE TOTAL INCOME AS DEFINED IN SECTION 2(45). HENCE, T HE INCOME ELIGIBLE FOR EXEMPTION U/S 10A WOULD NOT ENT ER INTO COMPUTATION AS THE SAME HAS TO BE DEDUCTED AT SOURCE LEVEL. --------------------------------------------------- ----------- 31. AFTER MAKING ALL SUCH COMPUTATION THE ASSESSEE WOULD BE ENTITLED TO THE BENEFIT OF SET OFF OR CARR Y FORWARD OF LOSS AS PROVIDED U/S 72 OF THE ACT. TH AT IS THE BENEFIT WHICH IS GIVEN TO THE ASSESSEE UNDER TH E ACT IRRESPECTIVE OF THE NATURE OF BUSINESS WHICH HE IS CARRYING ON. THE SAID BENEFIT IS AVAILABLE EVEN TO UNDERTAKINGS U/S 10B OF THE ACT. THE EXPRESSION DEDUCTION OF SUCH PROFITS AND GAINS AS DERIVED BY A N UNDERTAKING SHALL BE ALLOWED FROM THE TOTAL INCOME OF THE ASSESSEE, HAS TO BE UNDERSTOOD IN THE CONTEXT WITH WHICH THE SAID PROVISION IS INSERTED IN CHAPTER III OF THE ACT. SUB-SECTION (4) OF SECTION 10A CLARIFIES THIS POSITION. IT PROVIDES THAT THE PROFITS DERIVED FRO M EXPORT OF ARTICLES OR THINGS FROM COMPUTER SOFTWARE SHALL BE THE AMOUNT WHICH BEARS TO THE PROFITS OF T HE BUSINESS OF THE UNDERTAKING, THE SAME PROPORTION AS THE EXPORT TURNOVER IN RESPECT OF SUCH ARTICLES OR THIN GS OR COMPUTER SOFTWARE BEARS TO THE TOTAL TURNOVER OF TH E BUSINESS CARRIED ON BY THE UNDERTAKING. THEREFORE, IT IS CLEAR THAT THOUGH THE ASSESSEE MAY BE HAVING MORE TH AN ONE UNDERTAKING FOR THE PURPOSE OF SECTION 10A IT I S THE PROFIT DERIVED FROM EXPORT OF ARTICLES OR THINGS OR COMPUTER SOFTWARE FROM THE BUSINESS OF THE UNDERTAK ING PAGE 6 OF 23 ITA NO.1297/BA NG/2011 6 ALONE THAT HAS TO BE TAKEN INTO CONSIDERATION AND S UCH PROFIT IS NOT TO BE INCLUDED IN THE TOTAL INCOME OF THE ASSESSEE. IT IS ONLY AFTER THE DEDUCTION OF THE SAI D PROFITS AND GAINS, THE INCOME OF THE ASSESSEE HAS T O BE COMPUTED. 32. THE PROVISIONS OF THIS SUB-SECTION WILL APPLY E VEN IN THE CASE WHERE AN ASSESSEE HAS OPTED OUT OF SECTION 10A BY EXERCISING HIS OPTION UNDER SUB-SECTION (8). AS DISCUSSED, IT IS PERMISSIBLE FOR AN ASSESSEE TO OPT IN AND OPT OUT OF SECTION 10A. IN THE YEAR WHEN THE ASSESS EE HAS OPTED OUT, THE NORMAL PROVISIONS OF THE ACT WOU LD APPLY. THE PROFITS DERIVED BY HIM FROM THE STP UNDERTAKING WOULD SUFFER TAX IN THE NORMAL COURSE SUBJECT TO VARIOUS PROVISIONS OF THE ACT INCLUDING THOSE OF CHAPTER VI-A. IF IN SUCH A YEAR, THE ASSESSEE H AS SUFFERED LOSSES, SUCH LOSSES WOULD BE SUBJECT TO IN TER SOURCE AND INTER HEAD SET OFF. THE BALANCE IF ANY THEREAFTER CAN BE CARRIED FORWARD, FOR BEING SET OF F AGAINST PROFITS OF THE SUBSEQUENT ASSESSMENT YEARS I N THE NORMAL COURSE. UNABSORBED DEPRECIATION ALSO ME RITS A SIMILAR TREATMENT. 33. AS THE INCOME OF 10-A UNIT HAS TO BE EXCLUDED A T SOURCE ITSELF BEFORE ARRIVING AT THE GROSS TOTAL IN COME, THE LOSS OF NON 10-A UNIT CANNOT BE SET OFF AGAINST THE INCOME OF 10-A UNIT U/S 72. THE LOSS INCURRED BY TH E ASSESSEE UNDER THE HEAD PROFITS AND GAINS OF BUSINE SS OR PROFESSION HAS TO BE SET OFF AGAINST THE PROFITS AN D GAINS IF ANY, OF ANY BUSINESS OR PROFESSION CARRIED ON BY SU CH ASSESSEE. THEREFORE AS THE PROFITS AND GAINS UNDER SECTION 10-A IS NOT BE INCLUDED IN THE INCOME OF TH E ASSESSEE AT ALL, THE QUESTION OF SETTING OFF THE LO SS OF THE ASSESSEE OF ANY PROFITS AND GAINS OF BUSINESS AG AINST SUCH PROFITS AND GAINS OF THE UNDERTAKING WOULD NOT ARISE. SIMILARLY, AS PER SECTION 72(2), UNABSORBED BUSINESS LOSS IS TO BE FIRST SET OFF AND THEREAFTER UNABSORBED DEPRECIATION TREATED AS CURRENT YEARS DEPRECIATION U /S PAGE 7 OF 23 ITA NO.1297/BA NG/2011 7 32(2) IS TO BE SET OFF. AS DEDUCTION U/S 10A HAS T O BE EXCLUDED FROM THE TOTAL INCOME OF THE ASSESSEE, THE QUESTION OF UNABSORBED BUSINESS LOSS BEING SET OFF AGAINST SUCH PROFIT AND GAINS OF THE UNDERTAKING WO ULD NOT ARISE. IN THAT VIEW OF THE MATTER, THE APPROAC H OF THE ASSESSING AUTHORITY WAS QUITE CONTRARY TO THE AFORESAID STATUTORY PROVISIONS AND THE APPELLATE COMMISSIONER AS WELL AS THE TRIBUNAL WERE FULLY JUST IFIED IN SETTING ASIDE THE SAID ASSESSMENT ORDER AND GRAN TING THE BENEFIT OF SECTION 10A TO BE ASSESSEE. HENCE, THE MAIN SUBSTANTIAL QUESTION OF LAW IS ANSWERED IN FAV OUR OF THE ASSESSEES AND AGAINST THE REVENUE. 3.9 RESPECTFULLY FOLLOWING THE DICTUM LAID DOWN BY T HE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF YOKOGAWA I NDIA LTD. (SUPRA), WE HOLD THAT THE DEDUCTION U/S 10A/10B OF THE ACT IS TO BE CALCULATED WITHOUT SETTING OFF OF THE CARRIED FORWARD BUSINESS LOSS OF THE ASSESSEE IN RESPECT OF THE EARLIER ASSESSMENT YEARS. IT IS ORDERED ACCO RDINGLY. ACCORDINGLY, GROUND NOS.2, 3 AND 4 ARE ALLOWED. 4. GROUND NOS.5, 6 AND 7 READS AS FOLLOWS:- 5) THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT M /S NOVATEL USA BEING A NON-RESIDENT COMPANY HAVING NO PERMANENT ESTABLISHMENT IN INDIA, IT WAS NOT CHARGE ABLE TO TAX UNDER THE ACT IN RESPECT OF ITS INCOME EARNE D FROM THE APPELLANT FOR PROVIDING FACILITY OUTSIDE INDIA A ND CONSEQUENTLY THE PROVISIONS OF SECTION 195 OF THE AC T WERE NOT APPLICABLE. 6) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT EXPLANATION TO SEC.9 IS OF NO APPLICATION TO THE AP PELLANT AND THERE WAS NO DEEMED INCOME IN INDIA IN RESPECT OF THE NON-RESIDENT COMPANY OUT OF THE PAYMENTS MADE BY THE APPELLANT AND CONSEQUENTLY THE APPELLANT HAD NO OBLI GATION PAGE 8 OF 23 ITA NO.1297/BA NG/2011 8 TO DEDUCT TAX AT SOURCE WHEN REMITTANCES WERE MADE AND ACCORDINGLY, NO DISALLOWANCE UNDER SECTION 40(A)(I) OF THE ACT WAS REQUIRED TO BE MADE ON THE PAYMENT OF RS.30,59,752/- TO M/S NOVATEL, USA. 7) ON THE FACTS, THE LEARNED CIT(A) OUGHT TO HAVE ACCE PTED THE EXPLANATION OFFERED BY THE APPELLANT AND REFRAIN ED FROM UPHOLDING THE DISALLOWANCE UNDER SECTION 40(A) (I) OF THE ACT. 4.1 THE ASSESSEE HAD MADE PAYMENTS OF RS.30.59 LAK HS TOWARDS VOICE CHARGES TO M/S. NOVATEL OF USA (NOVATEL) WHER EIN TDS, ACCORDING TO THE AO, WAS REQUIRED TO BE MADE AS THE FEE FOR TECH NICAL SERVICES (FTS) WAS LIABLE FOR TDS U/S 195 OF THE ACT. AS NO TDS W AS EFFECTED ON THOSE PAYMENTS, THE AO RESORTED TO DISALLOW THE ENTIRE EXP ENDITURE INCURRED U/S 40(A)(I) OF THE ACT. 4.2 BEFORE THE CIT (A), IT WAS CHALLENGED AS TO W HETHER THE PAYMENTS OF RS.30.59 LAKHS TOWARDS VOICE CHARGES TO NOVATEL CAN BE HELD AS SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT AP PEARING IN S. 195(1) OF THE ACT? 4.3 AFTER HAVING CONSIDERED THE LENGTHY AND EXHAUS TIVE CONTENTIONS OF THE ASSESSEE, DULY RECORDED IN HIS ORDER AND ALSO TAKING COGNIZANCE OF THE FINDINGS OF THE EARLIER BENCH OF THE TRIBUNAL IN T HE CASE OF INFOSYS TECHNOLOGIES LTD V. DCIT IN ITA NO.1140/BANG/2009 D ATED 21.1.2011, THE CIT (A) HAD DECIDED THE ISSUE AGAINST THE ASSESSEE. THE REASONING OF THE CIT (A) IN REJECTING THE ASSESSEES CONTENTIONS IS EXTRACTED AS UNDER: PAGE 9 OF 23 ITA NO.1297/BA NG/2011 9 9.1. THUS, THE CRUCIAL WORDS ARE CHARGEABLE UND ER THE PROVISIONS OF THE ACT. IN OTHER WORDS, THE SUM SHOULD BE TAXABLE IN THE HA NDS OF THE PAYEE NON-RESIDENT. IT BECOMES CHARGEABLE WH EN AN ELEMENT OF PROFIT GETS EMBEDDED IN SUCH SUM. I HAVE ALWAYS HELD THAT UNLESS THE SUM IS PAID AS LOAN OR C HARITY, IT INHERENTLY COVERS AN ELEMENT OF PROFIT THEREIN AN D THEREFORE BECOMES COMPULSORILY TAXABLE AS BUSINESS PROFIT IN THE HANDS OF THE NON-RESIDENT. NOW, THER EFORE REMAINS THE QUESTION FOR ANSWER WHETHER IN THIS CA SE SUM RECEIVED BY NOVATEL, USA IS TAXABLE UNDER INCOME - TAX ACT 1961? THE ANSWER IN THE PRESENT CONTEXT OF PREVAILING LAW HAS TO BE IN THE AFFIRMATIVE. IT HA S TO BE TREATED AS INCOME DEEMED TO HAVE ACCRUE TO NOVATEL IN INDIA AFTER THE INSERTION OF EXPLANATION TO SEC. 9 BY F A 2007 W. R. .E. F 1.6.1976 READING AS UNDER:- WHERE INCOME..THE TERRITORY OF INDIA. THIS AMENDMENT HAD BEEN BROUGHT TO STATUTE BOOK TO OVERCOME THE DECISION OF SUPREME COURT IN THE CASE ISHIKAWAJRNA HARIMA HEAVY INDUSTRIES LTD V. DIRECT OR OF INCOME-TAX (2007) 288 ITR 408 (SC). IN THAT CAS E, IT HAD BEEN HELD THAT THAT..TO BE RENDERED IN INDIA 7.1. IN SIMPLE TERMS, THE AMENDMENT IS CLARIFICATOR Y ONLY. THUS, THE SOURCE RULE WAS FROM THE BEGINNING I.E., SINCE 1976 TO BRING TO TAX ALL PAYMENTS BY A RESIDENT TO A NON- RESIDENT IF SUCH PAYMENT IS INCLUSIVE OF SOME PROFIT IN THE HANDS OF SUCH NON-RESIDENT. EVEN INDIAS DTAA RECOGNIZED SUCH RULE. BUT GRADUALLY, IT BECAME OBLITERATED BY THE SITUS RULE. THE SITUS RULE STATE S THAT IN ORDER TO BE TAXABLE IN INDIA SUCH SUM HAS TO BE EITHER PAID IN INDIA OR THE CORRESPONDING SERVICE HAS TO B E RENDERED IN INDIA. BUT THE AMENDMENT HAD NOW BLOWN THE ASH OVER THE FIRE GENERATING BOTH HEAT AND LIGHT. HERE PAGE 10 OF 23 ITA NO.1297/B ANG/2011 10 HEAT IS S.9 SAND LIGHT IS PROVISIONS OF S. 5 OF I.T . ACT. THUS, LAW HAS BECOME SIMPLE NOW ON THIS ISSUE THAT SEC. 5 WHICH DEFINES SCOPES OF TOTAL INCOME NOW INCLUDES I NCOME DEEMED TO ACCRUE OR ARISE IN INDIA AND DOES SNOT HA VE TO ACTUALLY ACCRUE OR ARISE IN INDIA AND BY A RESIDENT I NDIAN. THUS, THE AMENDMENT HAS ALSO OVERCOME THE RATIOS OF SEVERAL DECISIONS WHICH HELD THAT BUSINESS PROFITS NOT BEING COVERED IN SEC. 9 OF INCOME-TAX ACT DOES NOT ACCRUE OR ARISE IN INDIA UNLESS THE SITUS OF PAYMENT OR SERVICE IS NOT IN INDIA. THUS, THE SUPREMACY OF SOU RCE RULE OVER SITUS RULE HAS BEEN REAFFIRMED BY SUCH CLARIFICATORY AMENDMENT. IN THIS CASE, THE NOVATEL U S CANNOT DENY THAT THE SUM RECEIVED IS NOT INCLUSIVE O F ANY PROFIT ELEMENT AND THE SERVICE HAS BEEN PROVIDED AS A CHARITY. AND SINCE THE SOURCE OF PAYMENT IS IN INDIA , THE SUM BECOMES CHARGEABLE UNDER THE PROVISIONS OF THE ACT. THEREFORE, THE SUM HAS TO BE TREATED AS DEEMED INCO ME IN THE HANDS OF THE APPELLANT U/S 40(A)(I) OF INCOM E-TAX ACT R. W. S. 195(1) OF INCOME-TAX ACT. NEVERTHELES S, I HAVE A FEELING THAT THE APPELLANT WAS IN FULL KNOWL EDGE THAT TO SUCH PAYMENT TDS IS APPLICABLE AND, THEREFOR E, IN EARLIER YEARS, IT HAD APPLIED FOR NO-DEDUCTION CERTI FICATES AND HAD RECEIVED THE SAME ON THE PLEA OF SITUS THEO RY. HOWEVER, ADMITTEDLY NO SUCH APPLICATION HAD BEEN FI LED EVEN IN THE FACT OF CHANGE IN LAW BY FA 2007 QUOTED SUPRA. 10. IN A NUTSHELL, I CONFIRM THE ORDER OF THE AO. ADDITION IS UPHELD. 4.4 DURING THE COURSE OF HEARING BEFORE THIS BENC H, THE LEARNED AR CAME UP WITH A EXTENSIVE SUBMISSION, THE SUM AND SUBSTANCE OF WHICH IS AS UNDER: (I) THAT THE ASSESSEE WAS ENGAGED IN PROVIDING VOIC E BASED CALL CENTER SERVICES TO THE CLIENTS IN USA; AND FOR THAT THE TELECOM INFRASTRUCTURE WAS PROVIDED BY TATA COMMUNICATION AN D RELIANCE COMMUNICATIONS AT INDIA AND VERIZON BY USA; PAGE 11 OF 23 ITA NO.1297/B ANG/2011 11 (II) THAT THE NOVATEL WAS A TELECOM VOICE SERVICE P ROVIDER IN USA AND NOVATEL WAS HELPING THE ASSESSEE FOR CONNEC TING TO THE USA TELECOM NETWORK; THAT ALL THE CALLS WHICH R ECEIVED FROM USA OR MADE TO USA REQUIRED THE HELP OF LOCAL TELECOM VOICE SERVICE PROVIDER AT USA AND NOVATEL WAS PROVI DING THIS SERVICE TO THE ASSESEE; AND THAT THIS SERVICE OF NO VATEL WAS PROVIDED COMPLETELY IN USA AND THERE WAS NO PERMANEN T ESTABLISHMENT OF ITS IN INDIA. IN THIS CONNECTION, THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WITH NOVATEL, USA; - THAT THE NOVATEL WAS AN US ORIGIN AND HAD EITHER ANY PERMANENT ESTABLISHMENT IN INDIA NOR RENDERED ANY SE RVICE IN INDIA; AND THAT FOR THE SERVICES RENDERED OUTSIDE I NDIA, NOVATEL WAS ENTITLED TO SERVICE CHARGES; (III) THAT THE ASSESSEE HAD ENTERED INTO AN AGREEME NT WITH NOVATEL WHEREBY THE NON-RESIDENT WAS PAID SERVICE CH ARGES FOR PROVIDING TELECOM VOICE SERVICES IN USA; AND THAT S INCE THE RECIPIENT DID NOT HAVE ANY PERMANENT ESTABLISHMENT I N INDIA, THE TELECOM VOICE SERVICE WAS NOT CHARGEABLE IN IND IA IN THE ABSENCE OF ITS PERMANENT ESTABLISHMENT IN INDIA; - THAT EVEN IF TELECOM VOICE SERVICE HAS BEEN RECEI VED BY THE NON-RESIDENT ON ACCOUNT OF BUSINESS CONNECTION MENT IONED IN S. 9(1)(I) OF THE ACT, THEN, THE SAME WAS NOT CHARGEAB LE IN INDIA BECAUSE THE NON-RESIDENT WAS NOT HAVING ANY PERMANEN T ESTABLISHMENT IN INDIA; AND THAT THE TELECOM SERVIC ES PROVIDED BY THE PAYEE OUTSIDE INDIA CANNOT BE TREATED AS TECHN ICAL SERVICES; - THAT THE AMOUNT PAID FOR SUCH SERVICES COULD NEIT HER BE TREATED AS FEE FOR TECHNICAL SERVICES NOR ROYALTY AND AS SUCH, NO TAX WAS TO BE DEDUCTED AT SOURCE ON PAYMENT FOR TELE COM SERVICES PROVIDED BY NOVATEL. THE AMOUNT PAID TO NO VATEL WAS NOT ITS INCOME ACCRUING IN INDIA U/S 9(1)((VII) OR S. 9(1)(VI) OR UNDER DOUBLE TAXATION AVOIDANCE AGREEMENT [DTAA] BE TWEEN PAGE 12 OF 23 ITA NO.1297/B ANG/2011 12 INDIA AND USA. THUS, THE LIABILITY TO TDS U/S 195 W OULD NOT ARISE IN THE HANDS OF THE ASSESSEE; - THAT THE CBDT CIRCULAR NO.333 DATED 2.4.1982 HAD STATED THAT A SPECIFIC PROVISION IN DTAA IS TO BE FOLLOWED IRRESPECTIVE OF THE PROVISION IN INCOME-TAX ACT; RELIES ON THE CASE LAWS : (A) CIT V. P.V.A.L.KULANDAGAN CHETTIAR (2004) 267 ITR 6 54 (SC); (B) SUCHITRA COMPONENTS LTD V. CCE 2007 (115) ECC 2007; (C) CCE V. MYSORE ELECTRICAL INDUSTRIES LTD. 2006 (204) ELT 517 (SC); (D) GE INDIA TECHNOLOGY CENTRE (P) LTD V. CIT & ANR (20 10)327 ITR 456(SC); (E) RULING OFAAR IN THE CASE OF IND TELESOFT (P) LTD., IN RE (2004) 267 ITR 725; (F) RULING OF AAR IN THE CASE OF SPAHI PROJECTS (P) LTD (2009) 315 ITR 374; (G) DCIT V. HYDERABAD INDUSTRIES LTD (2008) 24 SOT 98 ( HYD) - THAT THE AMENDMENT MADE IN FINANCE ACT 2010 RETROSPECTIVELY IS APPLICABLE TO CLAUSES (V)(VI) AND (VII) OF S. 9(1) AND NOT CLAUSE (I) THEREOF WITH AN INTENTION T O PROVIDE A LEGAL FICTION FOR SERVICES WHICH ARE RENDERED IN IN DIA. HOWEVER, EXPLANATION TO S. 9(2) IS APPLICABLE TO CL AUSES (V),(VI) & (VII) OF S. 9(1) AND NOT TO CLAUSE (I) T HEREOF. - FURTHER EXPLANATION 2 TO S. 9(1)(VII) OF THE ACT AL SO CLARIFIES THE MEANING OF FEES FOR TECHNICAL SERVICES. S. 9 OF THE ACT DEALS WITH INCOME DEEMED TO ACCRUE OR ARISE IN INDI A. IN THE PRESENT CASE, THE INCOME OF THE NON-RESIDENT WAS IN THE FORM OF SERVICE CHARGES PAID AND, HENCE, S. 9(1) WI LL ONLY BE APPLICABLE BECAUSE THE OTHER SUB-CLAUSES WILL NOT B E APPLICABLE AS THE PAYMENT WAS NOT IN THE NATURE OF P AYMENT REFERRED TO IN OTHER SUB-CLAUSES; (III) THAT THE NON-RESIDENT WAS NOT RENDERING ANY SE RVICE OF MANAGERIAL, TECHNICAL OR CONSULTANCY IN NATURE AND, THUS, IT WAS ALSO NOT COVERED UNDER THE EXPRESSION FEES FOR TECHNICAL SERVICE; PAGE 13 OF 23 ITA NO.1297/B ANG/2011 13 - THAT THE I.T ACT AS WELL AS DTAA HAVE NOT DEFINED THE TERM MANAGERIAL, TECHNICAL OR CONSULTANCY AND THE LE GENDARY DICTIONARY MEANING IS MANAGERIAL MEANS RELATING T O MANAGER OR MANAGEMENT EXPERIENCE OF SKILLS. TECHNICAL SER VICES REQUIRE SPECIAL KNOWLEDGE OR PRACTICAL SKILL IN THE FIELD OF A PARTICULAR SUBJECT. - THAT THE PAYMENT IN RESPECT OF TELECOM VOICE SERVI CES TO THE NON-RESIDENT WAS PAID FOR THE SERVICES RENDERED OUTSIDE INDIA AND, HENCE, TAX WAS NOT LIABLE TO BE DEDUCTED ; RELIES ON THE CASE LAW: JCIT V. GEORGE WILLIAMSON ( ASSAM) LTD. (2009) 116 ITD 328 (GAU); (IV) THAT IN CIRCULAR NO.786 DT. 7.2.2000, IT HAS BEEN CLARIFIED THAT TDS U/S 195 WILL ARISE IF THE PAYMENT OF SERVI CE CHARGES TO THE NON-RESIDENT IS CHARGEABLE TO TAX IN INDIA. WHEN THE NON-RESIDENT OPERATES OUTSIDE THE COUNTRY AND NO PAR T OF HIS/ITS INCOME ARISE IN INDIA AND THE PAYMENT IS DIR ECTLY REMITTED ABROAD AND IT CANNOT BE SAID THAT THE PAYME NT BY THE NON-RESIDENT IS RECEIVED IN INDIA AND SUCH PAYMENTS ARE NOT TAXABLE IN INDIA. THUS, THE BOARD WAS OF THE VIEW T HAT THE SERVICE CHARGES PAID FOR THE SERVICES RENDERED OUTS IDE INDIA WAS NOT LIABLE FOR TAXATION IN INDIA AND, THEREFORE , NO TDS WAS REQUIRED TO BE MADE; RELIES ON THE CASE LAWS : (A) ASIA SATELLITE TELECOMMUNICATIONS CO. LTD V. DIT (2 011) 332 ITR 340(DEL); (B) ASST. DIT (INTL. TAXN.) V. WIZCRAFT INTERNATIONAL ENTERTAINMENT (P) LTD (2011) 8 ITR (TRIB) 334 MUM BAI BENCH. IN CONCLUSION, IT WAS PRAYED THAT THE AO BE DIRECTED NOT TO TREAT THE ASSESSEE AS A DEFAULTER AS THERE WAS NO OBLIGATION ON THE PART OF THE PAGE 14 OF 23 ITA NO.1297/B ANG/2011 14 ASSESSEE TO DEDUCT TAX U/S 195 OF THE ACT WHILE MAK ING PAYMENT TO A NON- RESIDENT. 4.5 IN THE MEANWHILE, THE LEARNED AR IN HER APPLI CATION DATED 12.9.2012 SOUGHT THE PERMISSION OF THIS BENCH TO RA ISE THE FOLLOWING ADDITIONAL GROUND, NAMELY: IN THE ALTERNATIVE, THE LEARNED CIT (APPEALS) OUGH T TO HAVE APPRECIATED THAT A SUBSTANTIAL PAYMENT WAS MADE TO NOVATEL, USA BEFORE 31 ST MARCH AND HENCE SECTION 40(A)(I) IS NOT APPLICABLE TO THE SUMS PAID, AS PER THE RATIO OF ITAT, SPECIAL BENCH DECISION IN THE CASE O F MERILYN SHIPPING AND TRANSPORTS V. ADDL. CIT (2012) 16 ITR (TRIB) 1 (VIZAG)(SB) WHEREIN IT WAS HELD THAT S . 40(A)(I) IS APPLICABLE ONLY TO THE SUMS PAYABLE AS O N THE DATE OF BALANCE SHEET I.E., 31 ST MARCH AND NOT THE SUMS ALREADY PAID DURING THE YEAR WITHOUT DEDUCTING TAX AT SOURCE. TO STRENGTHEN THE ASSESSEES CONTENTIONS, A COPY OF LEDGER EXTRACT OF NOVATEL LTD IN THE BOOKS OF THE ASSESSEE WAS ALSO F URNISHED. 4.6 ON THE OTHER HAND, THE LEARNED D R CAME UP WI TH THE FOLLOWING SUBMISSION: (I) THAT THE ASSESSEES VEHEMENT CONTENTION OF LACK OF PERMANENT ESTABLISHMENT OF NOVATEL IN INDIA HAD LOS T ITS RELEVANCE AS AMENDMENT TO EXPLANATION TO S.9(2) W. E. F. 1.6.1976. ALSO THE AMENDMENT BROUGHT IN BY THE FINA NCE ACT, 2012 BY WAY OF INSERTION OF EXPLANATION 2 TO S. 195(1 ) W. R. E. F. 1.4.1962 IS ALSO RELEVANT HERE. THUS, WHETHER OR N OT NOVATEL HAD PERMANENT ESTABLISHMENT, THE ASSESSEE WAS UNDER OBLIGATION TO DEDUCT TAX U/S 195; PAGE 15 OF 23 ITA NO.1297/B ANG/2011 15 - THAT THE ASSESSEES ARGUMENT THAT ITS SERVICES WE RE NOT COVERED BY THE TERMS ROYALTY/FEES FOR TECHNICAL/MANAGE RIAL SERVICES ETC., IS MISCONCEIVED IN VIEW OF THE AMEND MENTS BROUGHT IN TO S.9(1)(VI) BY FINANCE ACT 2012 WITH RE TROSPECTIVE EFFECT FROM 1.6.1976. (II) THAT AT PAGE 23 OF THE PAPER BOOK, THE DETAILE D DIAGRAM HAD INDICATED THE PROCESS UNDER THE CAPTION TECHNICAL INFRASTRUCTURE. THUS, IT WOULD, IN THE LANGUAGE E MPLOYED BY THE ASSESSEE, REMUNERATION FOR PROVIDING TECHNICAL SUPP ORT; AND THAT THE ASSESSEE HAD DEDUCTED TAX ON PAYMENTS MADE TO VERIZONE, SINGAPORE. WHEN TAX WAS DEDUCTED ON PAYME NTS TO VERIZONE [SINCE VERIZONE HAD PERMANENT ESTABLISHMEN T/SERVICES CONSTITUTE TECHNICAL FEE] AND THAT FROM THE DIAGRAM IT TRANSPIRES THAT THE SERVICES OF VEROZONE AND NOVATE L WERE NOT ANYTHING DIFFERENT. HOWEVER, NO TDS WAS EFFECTED IN THE CASE OF NOVATEL, BUT, WHILE MAKING PAYMENTS TO VERIZONE, TDS WAS EFFECTED; (III) THAT THOUGH THE ASSESSEE HAD HEAVILY RELIED ON THE FINDINGS OF THE HONBLE TRIBUNALS EARLIER BENCH IN THE CAS E OF INFOSYS TECHNOLOGY (SUPRA) IN JANUARY, 2011, THE WISDOM OF TH E APEX COURTS PREVAILED IN THE CASE OF GE INDIA TECHNOLOG Y. SINCE THE AMENDMENTS TO S. 195 AND S. 9 IN THE FINANCE ACT, 2 012 WITH RETROSPECTIVE EFFECT ALONG WITH THE JUDGMENT OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF SAMSUNG EL ECTRONICS [345 ITR 494 (KAR) IN OCTOBER 2011] HAD CHANGED THE SITUATION. (IV) PLACING RELIANCE AS WELL AS CLARIFYING THE RULI NGS OF THE HONBLE SUPREME COURT IN THE CASES OF (I) TRANSMISS ION CORPORATION; AND (II) GE ELECTRONICS, IT WAS SUBMIT TED THAT THE PLEA OF THE ASSESSEE THAT THE INCOME WAS NOT CHARGE ABLE TO TAX AT ALL IN INDIA WAS FALLACIOUS AS THE ACT DOES NOT EMPOWER THE ASSESSEE TO SIT ON THE JUDGMENT ON WHAT TRADING REC EIPT IN THE HANDS OF NOVATEL WOULD CONSTITUTE INCOME. IN CONCLUSION, IT WAS PRAYED BY THE LEARNED DR THAT I N VIEW OF RETROSPECTIVE AMENDMENTS TO S. 195 AND S. 9 AND IN VIEW OF THE AS SESSEES ADMISSION THAT PAGE 16 OF 23 ITA NO.1297/B ANG/2011 16 THE TERMINOLOGY USED TECHNICAL INFRASTRUCTURE FOR SE RVICES OF NOVATEL AND VERIZONE AND ALSO IN CONFORMITY WITH THE RULING OF T HE HONBLE SUPREME COURT IN THE CASE OF TRANSMISSION CORPORATION, THE STAND OF THE AO REQUIRES TO BE UPHELD. 4.7 IN THE REJOINDER, THE LEARNED AR SUBMITTED THA T THE PAYMENTS MADE TO VERIZONE, SINGAPORE HAD PERMANENT ESTABLISH MENT IN INDIA, WHEREAS NAVATEL, USA DID NOT HAVE PERMANENT ESTABLISHMENT I N INDIA. 4.8 WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE RELEVANT MATERIALS AVAILABLE ON RECORD AND ALSO THE CASE LAW S ON WHICH EITHER PARTY HAD PLACED STRONG RELIANCE. THE AOS BRIEF REASON ING IN DISALLOWING THE ENTIRE EXPENDITURE OF RS.30.59 LAKHS U/S 40(A)(I) OF THE ACT WAS THAT THE ASSESSEE HAD FAILED TO EFFECT TDS FOR THE PAYMENT MA DE TO NOVATEL OF USA TOWARDS VOICE CHARGES. ACCORDING TO THE AO, THE FE E FOR TECHNICAL SERVICE IS LIABLE FOR TDS U/S 195 OF THE ACT. 4.9 ON AN APPEAL, THE CIT (A) TOOK A STAND THAT T HE AMENDMENT OVERCOMES THE RATIOS OF SEVERAL DECISIONS WHICH HEL D THAT BUSINESS PROFITS NOT BEING COVERED IN S.9 OF THE ACT DOES NOT ACCRUE OR ARISE IN INDIA UNLESS THE SITUS OF PAYMENT OR SERVICE IS NOT IN INDIA. HE HAD, FURTHER, REASONED THAT NOVATEL CANNOT DENY THAT THE SUM RECEIVED WAS N OT INCLUSIVE OF ANY PROFIT ELEMENT AND, THEREFORE, THE SUM HAS TO BE TR EATED AS DEEMED INCOME IN THE HANDS OF THE ASSESSEE. HOWEVER, THE LEARNED AR TOOK A STRONG VIEW THAT THE ASSESSEE HAD ENTERED INTO AN AGREEMENT WIT H NOVATEL AND THE NON- RESIDENT [NOVATEL] WAS PAID SERVICE CHARGES FOR HAV ING LENT TELECOM VOICE PAGE 17 OF 23 ITA NO.1297/B ANG/2011 17 SERVICES IN USA. FURTHER, IT WAS ARGUED THAT SINCE THE RECIPIENT DID NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA, THE TELECOM VO ICE SERVICE WAS NOT CHARGEABLE IN INDIA. IT WAS, FURTHER, JUSTIFIED TH AT EVEN IF TELECOM VOICE SERVICE HAS BEEN RECEIVED BY THE NON-RESIDENT ON ACC OUNT OF BUSINESS CONNECTION MENTIONED IN S. 9(1)(I) OF THE ACT, THEN , THE SAME WAS NOT CHARGEABLE IN INDIA SINCE THE NON-RESIDENT WAS NOT HAVING ANY PERMANENT ESTABLISHMENT IN INDIA AND, THUS, THE TELECOM SERVI CES PROVIDED BY THE PAYEE OUTSIDE INDIA CANNOT BE TREATED AS TECHNICAL SERVI CES. 4.10 THIS BENCHS ATTENTION WAS DRAWN BY THE LEARN ED AR TO THE EFFECT THAT THE AMOUNTS PAID FOR SUCH SERVICES COUL D NEITHER BE TREATED AS FEE FOR TECHNICAL SERVICES NOR ROYALTY AND AS SUCH NO TAX WAS LIABLE TO BE DEDUCTED AT SOURCE ON PAYMENT FOR TELECOM SERVICES P ROVIDED BY NOVATEL. 4.11 AT THIS JUNCTURE, THE LEARNED AR TOOK US TO THE BOARDS CIRCULAR NO.333 DATED 2.4.1982. ON A PERUSAL OF THE SAID CI RCULAR, IT IS NOTICED THAT WHEN THERE IS CONFLICT BETWEEN THE PROVISIONS OF TH E I. T. ACT, 1961 AND THE PROVISIONS OF THE DOUBLE TAXATION AVOIDANCE AGREEME NT, IT WAS CLARIFIED IN THE SAID CIRCULAR AS UNDER: 3.WHERE A DOUBLE TAXATION AVOIDANCE AGREEMENT PROVIDES FOR A PARTICULAR MODE OF COMPUTATION OF IN COME, THE SAME SHOULD BE FOLLOWED, IRRESPECTIVE OF THE PROVISIONS IN THE I.T. ACT. WHERE THERE IS NO SPEC IFIC PROVISION IN THE AGREEMENT, IT IS THE BASIC LAW, I. E., THE I. T. ACT THAT WILL GOVERN THE TAXATION OF INCOME. [SOURCE: (1982) 137 ITR (ST) 1] PAGE 18 OF 23 ITA NO.1297/B ANG/2011 18 4.11 WE HAVE ALSO CLOSELY PERUSED THE CLAUSES (V), (VI) AND (VII) OF S.9 (1) WHICH HAS BEEN AMENDED RETROSPECTIVELY BY FINANCE ACT 2010. MOREOVER EXPLANATION 2 TO S. 9(1)(VII) OF THE ACT CLARIFIES THE MEANING OF FEES FOR TECHNICAL SERVICES. ALSO S.9 OF THE ACT DEALS WIT H THE INCOME DEEMED TO ACCRUAL OR ARISES IN INDIA. HOWEVER, IN THE CASE O N HAND, THE INCOME OF THE NON-RESIDENT NOVATEL WAS IN THE FORM OF SERVICE C HARGES PAYMENT. AS CLAIMED BY THE ASSESSEE, THE NON-RESIDENT NOVATEL HAD NOT RENDERED ANY SERVICES OF MANAGERIAL, TECHNICAL OR CONSULTANCY IN NATURE WHICH EXPRESSLY DID NOT COVER UNDER THE EXPRESSION FEES FOR TECHNI CAL SERVICES. THE INCOME-TAX ACT OR THE DTAA FOR THAT MATTER HAD NOT DEFINED THE TERM MANAGERIAL, TECHNICAL OR CONSULTANCY. WE HAVE THUS BEEN LEFT WITH ONLY TO REFER THE DICTIONARIES. ACCORDING TO WELL ESTABLIS HED DICTIONARIES THE MEANING FOR MANAGERIAL RELATES TO A MANAGER OR MANAGEMENT, MANAGERIAL RESPONSIBILITIES/DECISIONS/SKILLS ETC. HOWEVER, IN THE PRESENT CASE, THE PAYMENT MADE TO A NON-RESIDENT IN RESPECT OF TELECOM VOICE SERVICES AVAILED OUTSIDE INDIA CANNOT BE TERMED AS FEES FOR TECHNIC AL SERVICES. 4.12 AT THIS POINT OF TIME, IT MAY NOT BE INAPPRO PRIATE TO RECALL THE RULING OF THE HONBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. DE BEERS INDIA MINERALS PVT. LTD REPORTED IN 346 ITR 467 (KA R). THE ISSUE BEFORE THE HONBLE COURT, IN BRIEF, WAS THAT THE ASSESSEE ENGA GED IN PROSPECTING AND MINING FOR DIAMONDS ENTERED INTO AN AGREEMENT WITH A NETHERLANDS COMPANY FOR CONDUCTING AIR BORNE SURVEY AND PROVIDING HIGH R ESOLUTION GEOPHYSICAL DATA. HOWEVER, THE AO TOOK A VIEW THAT THE CONSIDE RATION WAS CHARGEABLE TO TAX AS FEES FOR TECHNICAL SERVICES UNDER ARTICLE 12 OF THE INDIA NETHERLANDS DTAA AND, ACCORDINGLY, HELD THAT THE ASS ESSEE HAD FAILED TO PAGE 19 OF 23 ITA NO.1297/B ANG/2011 19 DEDUCT TAX AT SOURCE [TDS] U/S 195 OF THE ACT. TH E STAND OF THE AO HAS BEEN NEGATED BY THE CIT (A) AS WELL AS THE TRIBUNAL ON THE GROUND THAT THOUGH THE DUTCH COMPANY HAD PERFORMED SERVICES USIN G TECHNICAL KNOWLEDGE AND EXPERTISE, SUCH TECHNICAL EXPERIENCE ETC., HAD NOT BEEN MADE AVAILABLE TO THE ASSESSEE. 4.13 ON AN APPEAL BY THE REVENUE, THE HONBLE COUR T HAD HELD AS UNDER: ARTICLE 12(5) OF THE DTAA DEFINES FEES FOR TECHNI CAL SERVICES TO MEAN PAYMENTS IN CONSIDERATION FOR THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES W HICH MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, ETC ., OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNI CAL PLAN OR TECHNICAL DESIGN. TO BE SAID TO MAKE AVAI LABLE, THE SERVICE SHOULD BE AIMED AT AND RESULT IN TRANSM ITTING TECHNICAL KNOWLEDGE ETC., SO THAT THE PAYER OF THE S ERVICE COULD DERIVE AN ENDURING BENEFIT AND UTILIZE THE KNOWLEDGE OR KNOW-HOW ON HIS OWN IN FUTURE WITHOUT THE AID OF THE SERVICE PROVIDER IN OTHER WORDS, TO FIT INTO TERMINOLOGY MAKING AVAILABLE, THE TECHNICAL KNOWLE DGE, SKILLS ETC., MUST REMAIN WITH THE PERSON RECEIVING THE SERVICE EVEN AFTER THE PARTICULAR CONTRACT COMES TO AN END. IT IS NOT ENOUGH THAT THE SERVICES OFFERED AR E THE PRODUCT OF INTENSE TECHNOLOGICAL EFFORT AND A LOT O F TECHNICAL KNOWLEDGE AND EXPERIENCE OF THE SERVICE PROVIDER HAS GONE INTO IT. THE TECHNICAL KNOWLEDGE OR SKILLS OF THE PROVIDER SHOULD BE IMPARTED TO AND AB SORBED BY THE RECEIVER SO THAT THE RECEIVER CAN DEPLOY SIMIL AR TECHNOLOGY OR TECHNIQUES IN THE FUTURE WITHOUT DEPEN DING UPON THE PROVIDER. ON FACTS, WHILE THE DUTCH COMPAN Y PERFORMED THE SURVEYS USING SUBSTANTIAL TECHNICAL SK ILLS, IT HAS NOT MADE AVAILABLE THE TECHNICAL EXPERTISE I N RESPECT OF SUCH COLLECTION OR PROCESSING OF DATA TO THE PAGE 20 OF 23 ITA NO.1297/B ANG/2011 20 ASSESSEES WHICH THE ASSESSEE CAN APPLY INDEPENDENTL Y AND WITHOUT ASSISTANCE AND UNDERTAKE SUCH SURVEY INDEPENDENTLY. CONSEQUENTLY, THE CONSIDERATION IS NO T ASSESSABLE AS FEES FOR TECHNICAL SERVICES. 4.14 AS RECENTLY AS IN MAY, 2012, THE HONBLE MUMBA I TRIBUNAL HAD AN OCCASION TO DECIDE AS TO WHETHER THE AMOUNT REMI TTED BY THAT ASSESSEE TOWARDS ADVERTISEMENTS COULD BE ASSESSED AS BUSINES S PROFITS AS PER S. 9, BUT, HAVING REGARD TO FACT THAT NON-RESIDENT ADVERT ISING COMPANY HAD NO PERMANENT ESTABLISHMENT IN INDIA, THE AMOUNT IN QUE STION COULD BE BROUGHT TO TAX IN INDIA? AND WHETHER IN THE AFORESAID CIRCU MSTANCES, THE ASSESSEE WAS LAIBLE TO EFFECT TDS UNDER S. 195 OF THE ACT. 4.15 AFTER DULY ANALYZING THE ISSUE, THE HONBLE L BENCH OF MUMBAI TRIBUNAL IN THE CASE OF DCIT, SPL. RANGE 23, MUMBAI V. SANDOZ (P) LTD REPORTED IN (2012) 137 ITD 326 (MUMBAI) HAD DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. THE RELEVANT FINDINGS OF HONBLE BEN CH ARE EXTRACTED AS UNDER: (PAGE 329) THERE IS NO DISPUTE TO THE FACT THA T ASSESSEE REMITTED THE AMOUNT TOWARDS EXPENSES TO TH E ADVERTISING AGENCIES OF RUSSIA THROUGH ITS PARENT COMPANY NPS WHICH IS A RESIDENT OF SWITZERLAND. THE RE WAS NO DISPUTE TO THE FACT THAT THE ENTIRE ADVERTIS EMENT ACTIVITY HAD BEEN CARRIED OUT OUTSIDE INDIA. THERE ARE NO FACTS BROUGHT ON RECORD THAT NPS HAS A PE IN INDIA. CONSIDERING ABOVE FACTS AND ALSO THE FACT THAT THER E IS DTAA AGREEMENT BETWEEN INDIA AND SWITZERLAND AND AL SO BETWEEN INDIAN AND RUSSIA, THE SAID AMOUNT REMITTED BY THE ASSESSEE TOWARDS ADVERTISEMENTS EVEN IF ASSESSA BLE COULD BE ASSESSED AS BUSINESS PROFITS AS PER SECTIO N 9 BUT HAVING REGARD TO THE FACT THAT THESE NON-RESIDE NT PAGE 21 OF 23 ITA NO.1297/B ANG/2011 21 COMPANIES I.E., RECIPIENTS AND/OR ADVERTISING COMPA NIES HAVE NO PE IN INDIA, THE ASSESSEE RIGHTLY CONTENDED THAT THE SAID AMOUNT COULD NOT BE TAXED IN INDIA UNDER S ECTION 5(2). APEX COURT HAS HELD IN GE INDIA TECHNOLOGY CE N. P) LTD V. CIT (2010) 327 ITR 456/193 TAXMAN 234 THAT TDS IS REQUIRED TO BE DEDUCTED UNDER SECTION 195 ON LY IF WHOLE OR A PART OF THE REMITTANCES IS LIABLE TO TAX IN INDIA. IF TAX IS NOT ASSESSABLE, THERE IS NO QUEST ION TO DEDUCT TDS. THEREFORE, THE FINDINGS OF AUTHORITIES BELOW THAT THE ASSESSEE IS LIABLE TO DEDUCT TDS UND ER SECTION 195 HAS NO MERIT BECAUSE THE PROVISIONS OF SECTION 195 WILL BE APPLICABLE ONLY IF AN INCOME IS CHARGEABLE TO TAX UNDER THE ACT. ACCORDINGLY, SECTIO N 40(A)(I) DOES NOT APPLY. HENCE, THE AUTHORITIES BEL OW WERE NOT JUSTIFIED TO DENY THE CLAIM OF THE ASSESSEE UNDER SECTION 40(A)(I) AS THE ASSESSEE HAS NOT COMM ITTED ANY DEFAULT IN NOT DEDUCTING TDS UNDER SECTION 195 4.16 ALSO THE HONBLE SUPREME COURT IN THE CASE O F GE INDIA TECHNOLOGY CENTRE (P) LTD V. CIT & ANR REPORTED IN 327 ITR 456 (SC) HAS MADE IT IMPLICIT THAT THE MOST IMPORTANT EXPRESSION IN S. 195 (1) CONSIS TS OF THE WORDS CHARGEABLE UNDER THE PROVISIONS OF THE A CT . A PERSON PAYING INTEREST OR ANY OTHER SUM TO A NON-RESIDENT IS NOT L IABLE TO DEDUCT TAX, IF SUCH SUM IS NOT CHARGEABLE TO TAX UNDER THE I.T. AC T. 4.17 MOREOVER, THE HONBLE EARLIER BENCH OF THIS TRIBUNAL HAD CONSIDERED A SIMILAR ISSUE IN THE CASE OF INFOSYS TE CHNOLOGIES LTD V. DCIT IN ITA NO.1140/BANG/2009 DATED 21.1.2011. AFTER DUE C ONSIDERATION OF THE ISSUE AND ALSO IN CONFORMITY WITH THE RULING OF THE HONBLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE P. LTD V. CIT REPORTED IN 327 ITR 456 (SC), THE HONBLE EARLIER BENCH HAD DECIDED THE ISSUE IN FAVOUR OF THE PAGE 22 OF 23 ITA NO.1297/B ANG/2011 22 ASSESSEE. THE RELEVANT PORTION OF THE FINDINGS OF THE HONBLE BENCH IS REPRODUCED AS UNDER: 4.9. THE PAYMENTS MADE TO SERVICE PROVIDERS SUCH AS AT AND T OR MCI TELECOMMUNICATIONS ARE FOR THE USE OF BANDWIDTH PROVIDED FOR DOWN LINKING SIGNALS IN THE UNITED STATES. THE PAYMENTS MADE ARE NOT IN THE NATURE OF MANAGERIAL, CONSULTANCY OR TECHNICAL SERVICES NOR IS IT FOR THE USE OF OR RIGHT TO USE INDUSTRIAL, COMMERCIAL O R SCIENTIFIC EQUIPMENT. THE SERVICE PROVIDES SUCH AS MCI TELECOMMUNICATIONS OR AT AND T ONLY ENSURES THAT THE SUFFICIENT BANDWIDTH IS AVAILABLE ON AN ONGOING BAS IS TO THE ULTIMATE USERS TO UPLINK AND DOWNLINK THE SIGNA LS. 4.10. THE MADRAS HIGH COURT IN THE CASE OF SKY CELL COMMUNICATION SERVICES LTD V. DCIT MANU/TN/0461/2001 2521 ITR 53 HAS HELD THAT PAYMENT FOR USE OF MOBILE PHONE SERVICES WOULD NOT CONSTITUTE ROYALTIES OR FEES FOR TECHNICAL SERVICES . PAYMENTS MADE FOR BANDWIDTH ARE AKIN TO THE PAYMENTS MADE FOR USE OF MOBILE PHONE SERVICES. 4.11. THE BANGALORE BENCH OF THE ITAT IN THE CASE O F WIPRO LTD V. ITO 80 TTJ 191 HAS HELD THAT PAYMENT FO R BANDWIDTH WOULD CONSTITUTE NEITHER ROYALTIES NOR FEE S FOR TECHNICAL SERVICES EITHER UNDER THE ACT OR UNDER TH E AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION WITH USA . THIS DECISION WAS FOLLOWED BY THE TRIBUNAL IN THE ASSESSEES OWN CASE [ITA NO.532 AND 533/BANG/2002 AND ITA NO.365 AND 367/BANG/2003 AND ITA NO.365 AND 367/BANG/2005 DATED 12.8.2005]. MOREOVER, THE RECENT DECISIONS OF THE AAR IN THE FOLLOWING CASES HAVE DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE. DELL INTERNATIONAL SERVICES INDIA (P) LTD V. CIT MANU/AR/0002/2008 305 ITR 37; PAGE 23 OF 23 ITA NO.1297/B ANG/2011 23 ISRO SATELITE CENTRE (ISAC) V. DIT MANU/AR/0010/2008 307 ITR 59; AND CABLE AND WIRELESS NETWORKS INDIA (P) LTD V. DIT MANU/AR/0018/2009 315 ITR 72. 4.18 IN AN OVERALL CONSIDERATION OF THE FACTS AND CIRCUMSTANCES OF THE ISSUE AND ALSO IN CONFORMITY WITH JUDICIAL VIEWS REFERRED SUPRA, WE ARE OF THE CONSIDERED VIEW THAT THE ASSESSEE HAD NO OBLIGA TION WHATSOEVER TO DEDUCT TAX AT SOURCE WHEN THE PAYMENTS MADE TO NOVAT EL AND AS SUCH, NO DISALLOWANCE U/S 40(A)(I) OF THE ACT WAS CALLED FOR . IT IS ORDERED ACCORDINGLY. SINCE THE ISSUE HAS BEEN DECIDED IN FAVOUR OF THE A SSESSEE, THE ADDITIONAL GROUND SOUGHT TO BE RAISED BY THE ASSESSEE BECAME SU PERFLUOUS AND AS SUCH THE SAME HAS NOT BEEN ADDRESSED TO. ACCORDINGLY, GROUNDS NO.5, 6 & 7 ARE ALLOWED. 5. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. THE ORDER PRONOUNCED ON THE 28 TH DAY OF SEPTEMBER, 2012 AT BANGALORE. SD/- SD/- (JASON P BOAZ) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COPY TO : 1. THE REVENUE 2. THE ASSESSEE 3. THE CIT CONCERNE D. 4. THE CIT(A) CONCERNED. 5. DR 6. GF MSP/ BY ORDER SENIOR PRIVATE SECRETARY, ITAT, BA NGALORE.