M/s. Havells India Ltd., New Delhi V. Addl. CIT, New Delhi

ITA 1300/DEL/2010

• Counselvise Citation: [2011] 134 COUNSELVISE.COM (IT) 3885 (ITAT-DELHI)
• Duration Of Justice: 1 year(s) 2 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-05-2011
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 18-05-2017
• Assessment Year: 2005-2006
• Appeal Filed On: 25-03-2010
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: SURENDER PAL
• Assessee Lawyers: ROHIT JAIN ADV SHRI ANSHUL
• Keywords: Double taxation relief

Judgement Text

PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH C : NEW DELHI BEFORE SHRI AMIT SHUKLA , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 1300/DEL/2010 (ASSESSMENT YEAR: 2005 - 06 ) HAVELLS INDIA LTD, 1/7, RAM KISHORE ROAD, CIVIL LINES, NEW DELHI PAN: AACH0351E VS. ADDL CIT, RANGE - 12, NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI ROHIT JAIN, ADV SHRI ANSHUL, ADV REVENUE BY: SHRI SURENDER PAL, SR. DR DATE OF HEARING 01/03/2018 DATE OF PRONOUNCEMENT 2 4 / 05 / 2018 O R D E R PER PRASHANT MAHARISHI , A. M. 1. THIS APPEAL OF THE ASSESSEE IS REMANDED BACK BY THE HON'BLE DELHI HIGH COURT VIDE ORDER DATED 21.05.2012 FOR ASSESSMENT YEAR 2005 - 06. THE HON'BLE DELHI HIGH COURT HAS RESTORED THE ISSUE RELATING TO APPLICABILITY OF INDO US TREATY TO THE RECEIPT IN QUESTION AND CONSEQUENTLY APPLICABILITY OF PROVISION OF SECTION 40(A)(IA) OF THE ACT BACK TO THE TRIBUNAL. 2. THE BRIEF FACTS OF THE CASE SHOWS THAT THE ASSESSEE HAS PAID RS. 1471095/ - TO M/S. CSA INTERNATIONAL ISA FOR THE PURPOSE OF OBTAINING WITNESS TESTING OF ACT CONTRACTOR AS PART OF CB REPORT AND KEMA CERTIFICATION. THE LD AO DISALLOWED THE ABOVE SUM APPLYING THE PROVISION OF SECTION 40(A)(IA) OF THE ACT. THE MATTER REACHED UP TO THE LEVEL OF COORDINATE BENCH WHICH DELETED THE ABOVE ADDITION BY HOLDING THAT TECH NICAL SERVICES ARE UTILIZED FOR THE PURPOSE OF MAKING OR EARNING ANY INCOME FROM A SOURCE OUTSIDE INDIA AND THEREFORE, PAYMENT WAS NOT COVERED BY THE SECOND EXCEPTION TO SECTION 9(1)(VII)(B) OF THE ACT AND THEREFORE, DISALLOWANCE U/S 40(A)(IA) CANNOT BE MA DE. THE HON'BLE DELHI HIGH COURT HELD THAT THE ABOVE SUM IS CHARGEABLE TO TAX AS FEES FOR PAGE | 2 TECHNICAL SERVICES IN THE HANDS OF THE US COMPANY AS PER THE PROVISION OF ACT. AS THE COORDINATE BENCH HAS HELD THAT THE ABOVE SUM IS NOT CHARGEABLE TO TAX UNDER THE ACT NOW THE HON'BLE HIGH COURT DIRECTED ITAT TO EXAMINE THE APPLICABILITY OF THE TREATY AND THEN CONSEQUENTLY DISALLOWANCE U/S 40(A)(IA) OF THE ACT. 3. THE LD AR SUBMITTED THAT THE PAYMENT IS MADE TO RESIDENT OF USA AND THE DOUBLE TAXATION AVOIDANCE AGREEMEN T BETWEEN INDIA AND U SA PROVIDED THAT IF SUCH FEES FOR TECHNICAL SERVICES DOES NOT MAKE AVAILABLE IT THEN SAME IS NOT CHARGEABLE TO TAX IN INDIA ACCORDING TO DTAA. THE LD AR RELIED UPON THE SEVERAL DECISION OF THE COORDINATE BENCH TO SUBMIT THAT SUCH SERVICES ARE NOT MADE. 4. THE LD DR SUBMITTED THAT THOUGH THE COORDINATE BENCH HAS NOT DEALT WITH THE PROVISION OF DTAA, HOWEVER, THE LD CIT(A) HAS DEA LT WITH THE WHOLE ISSUE IN DETAIL. HE REFERRED TO PARA NO. 5.1 OF THE ORDER OF THE LD CIT(A) WHEREIN, THIS HAS BEEN DISCUSSED. HE RELIED ON ITS. 5. WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND ALSO PERUSED THE DIRECTION OF THE HON'BLE DELHI HIGH COURT. THE NATURE OF THE SERVICES PROVIDED TO THE ASSESSEE SHOWS THAT THE ASSESSEE HAS PAID ABOVE SUM FOR WITNESS TESTING OF ACT CONTRACTOR AS PART OF CB REPORT AND KEMA CERTIFICATION THROUGH CSA INTERNATIONAL . IT IS A AGENCY SPECIALIZING IN PRODUCT TESTING AND CERTIFICATION ON ELECTRICAL AND ELECTRONICS PRODUCTS. KEMA CERTIFICATION ENABLES THE COMPANY TO SELL ITS PRODUCTS FREELY WITHIN THE EUROPEAN U NION. ASSESSEE COMPANY IS EXPORTING ITS PRODUCTS OUTSIDE INDIA AND THE CERTIFICATE FROM KEMA THROUGH CSA IS REQUIRED TO ENABLE THE COMPANY TO EXPORT THESE PRODUCTS. SUCH CERTIFICATION IS NOT REQUIRED BY THE BUYERS IN INDIA BUT BUYERS OUTSIDE INDIA. THE ASS ESSEE HAS SUBMITTED THE COPIES OF THE INVOICES. WE HAVE ALSO PERUSED ALONG WITH THOSE INVOICES THE CERTIFICATE OF COMPLIANCE ISSUED BY THAT PARTY I.E. CSA INTERNATIONAL. AFTER THE CERTIFICATION THE PRODUCTS LISTED WHICH ARE CERTIFIED ARE ELIGIBLE TO BEAR T HE CSA MARK ALONG WITH THE INDICATORS. THE KEMA CERTIFICATION ALLOWS THE PRODUCTS OF THE ASSESSEE TO BE FREELY TRADED WITHIN EUROPEAN UNION. WHEN THIS CERTIFICATION IS ANNEXED TO THE PRODUCTS IT SHOWS THAT IT COMPLIES WITH COMMITMENT TO SEVERAL PROCEDURES RELEVANT TO PAGE | 3 EUROPEAN UNION DIRECTIVES. THE PRODUCT COMPLIES WITH SUCH DIRECTION IS CERTIFIED BY THE AGENCY. THE AGENCY KNOWS THE DRILLS REQUIRED FOR TESTING THOSE PRODUCT TO COMPLY WITH EUROPEAN UNION DIRECTIVE. IT HAS ALSO KNOWLEDGE ABOUT THE STANDARDS OF THE STANDARDIZATION COMMITTEES OF EUROPEAN UNION. IT ALSO PROVIDES THE MANDATORY CERTIFICATION FOR IMPORT IN BRAZIL. NOW EXAMINING THESE SERVICES IT IS IMPORTANT TO KNOW THAT WHETHER SUCH SERVICES FALLS UNDER THE ARTICLE 12 OF INDO US DTAA AS FEES FOR INC LUDED SERVICES. THE ABOVE SERVICES HAVE BEEN DEFINED IN ARTICLE 12(4) OF THE DTAA WITH RESPECT TO ITS MEANING AND ARTICLE 12(5) DESCRIBES THE SERVICES WHICH DOES NOT INCLUDE IN THE FIS. ACCORDING TO ARTICLE 12(4)(A) ANY CONSIDERATION FOR RENDERING OF TECHN ICAL OR CONSULTANCY SERVICES MEANS FEES FOR INCLUDED SERVICES IF SUCH SERVICES ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT PROPERTY OR INFORMATION FOR WHICH A PAYMENT OF ROYALTY IS RECEIVED. SUCH IS NOT THE CASE BEFORE US. ACCORDING TO ARTICLE 12(4)(B) SUCH SERVICES CAN BE FEES FOR INCLUDED SERVICES IF IT MAKE AVAILABLE SUCH TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW - HOW OR PROCESSES TO THE RECIPIENT OF THOSE SERVICES, I.E. SUCH PERSON SHOULD BE ABLE TO INDEPENDENTLY PER FORM THOSE ACTIVITIES WITHOUT THE HELP OF THE SERVICE PROVIDER . AS PER MEMORANDUM OF UNDERSTANDING DATED 15.05.1989 OF THE DTAA WITH RESPECT TO ARTICLE 12(4), IT IS STATED THAT GENERALLY SPEAKING TECHNOLOGY WILL BE CONSIDERED MADE AVAILABLE ' WHEN THE PERS ON ACQUIRING THE SERVICE IS ENABLED TO APPLY THE TECHNOLOGY. THE FACT THAT THE PROVISION OF THE SERVICES MAY REQUIRED TECHNICAL INPUT BY THE PERSON PROVIDING THOSE SERVICES DOES NOT PER SE MEAN THAT THE TECHNOLOGY OR TECHNICAL KNOWLEDGE ETC ARE MADE AVAIL ABLE TO THE PERSONS PURCHASING THAT SERVICES . THE IDENTICAL ISSUE HAS BEEN CONSIDERED BY THE COORDINATE BENCH IN 2 - SOT - 249 IN NQA QUALITY SYSTEMS REGISTRAR LTD VS. DCIT WHERE THE UK COMPANY WAS AUTHORIZED TO ISSUE ISO CERTIFICATION AND IT WAS HELD THAT SU CH SERVICES DOES NOT RESULT IN MAKING AVAILABLE THOSE SERVICES TO THE RECIPIENT . THE REVENUE COULD NOT SHOW THAT HOW THE ASSESSEE WOULD BE ABLE TO MAKE SUCH CERTIFICATION ON ITS OWN. WE ARE ALSO OF THE VIEW THAT AS ASSESSEE IS NOT AN ACCREDITED INSTITUTE TO CARRY OUT SUCH ACTIVITIES ON ITS OWN AS PROVIDER OF THE SERVICES PAGE | 4 HAS NOT MADE SUCH SERVICES AVAILABLE TO THE ASSESSEE. IN VIEW OF THIS IT DOES NOT SATISFY THE CRITERIA LAID DOWN UNDER ARTICLE 12(4)(B) AS FEES FOR INCLUDED SERVICES ACCORDING TO INDO US DTAA , HENCE, SERVICES ARE NOT CHARGEABLE TO TAX IN INDIA . ACCORDINGLY , NO TAX SHOULD HAVE BEEN DEDUCTED THEREON, AND HENCE, NO DISALLOWANCE U/S 40A(I) OF THE ACT CAN BE MADE. HENCE, WE DIRECT THE LD AO TO DELETE THE DISALLOWANCE OF RS. 1471095/ - U/S 40(A)( I) OF THE ACT. IN VIEW OF THIS GROUND NO. 1 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. 6. IN THE RESULT APPEAL OF ASSESSEE IS ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 2 4 / 05 / 2018 . - S D / - - S D / - ( AMIT SHUKLA ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 4 / 05 / 2018 A K KEOT COPY FORWARDED TO 1. APPLICANT 2. RESPONDENT 3. CIT 4. CIT (A) 5. DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI