Rane (Madras) Limited, CHENNAI V. DCIT, CHENNAI

ITA 1493/CHNY/2015

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 7962 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 7 month(s) 23 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-02-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 09-02-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 22-06-2015
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Assessee Lawyers: S.P. CHIDAMBAR
• Keywords: Business income; Double taxation relief; Bonafide belief; Services rendered outside India; Deemed to accrue or arise in india; Retrospective amendment; Non-deduction of tax; TDS
• Section: 32; 147; 131; 68; 246; 69; 145; 27; 148; 54; 37; 6; 56; 263; 63; 132; 12; 28; 144; 10; 90; 154; 2; 11; 15; 271(1)(b); 139; 143(3); 92; 195; 207; 9(1); 9(1); 9(1)

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , ' # . $ & ' BEFORE SHRI M. BALAGANESH, ACCOUNTANT MEMBER AND SHRI DUVVURU RL REDDY, JUDICIAL MEMBER ./ I.T.A. NO. 1493/MDS/2015 / ASSESSMENT YEAR : 2010-11 RANE (MADRAS) LIMITED, 'MAITHRI', NO. 132, CATHEDRAL ROAD, CHENNAI - 600 086. [PAN: AACCR 9772M] VS. DEPUTY COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT, CHENNAI - 600 101. ( / APPELLANT) ( / RESPONDENT) ) * / APPELLANT BY : SHRI R. VIJAYARAGHAVAN, ADVOCATE & SHRI S.P. CHIDAMBAR, ADVOCATE -.) * / RESPONDENT BY : SHRI A.V. SREEKANTH, JCIT * /DATE OF HEARING : 09.02.2017 * /DATE OF PRONOUNCEMENT : 14.02.2017 /O R D E R PER M. BALAGANESH, ACCOUNTANT MEMBER: THIS APPEAL OF THE ASSESSEE ARISE OUT OF THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS)-17, CHENNAI VI DE PROCEEDINGS IN ITA NO. 7/2013-14 DATED 22.01.2015 FOR THE ASSESSMENT YEAR 2010-11 AGAINST THE ORDER OF ASSESSMENT PASSED BY THE DCIT (LTU), CHENNAI (HE REIN AFTER REFERRED TO AS LD. :-2-: I.T.A. NO. 1493/MDS/2015 AO) U/S. 143(3) OF THE INCOME TAX ACT (HEREIN AFTER REFERRED TO AS THE ACT) DATED 18.03.2013. 2. THE ONLY ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER DISALLOWANCE U/S. 40(A)(I) OF THE ACT CAN BE INVOKED IN THE FACT S AND CIRCUMSTANCES OF THE CASE. 3. THE BRIEF FACTS OF THIS ISSUE IS THAT DURING TH E COURSE OF ASSESSMENT PROCEEDINGS, THE LD. AO OBSERVED THAT THE ASSESSEE HAD MADE FOLLOWING PAYMENT WITHOUT DEDUCTION OF TAX AT SOURCE TO THE FOLLOWING PERSONS: S.NO. NAME OF THE RECIPIENT NATURE OF PAYMENT AMOUNT(RS.) REASONS STATED FOR NON-TDS 1. ALIANZA ESTRATEGICA PORTUARIA, MEXICO WAREHOUSING 26,09,058 CARGO SERVICE RENDERED OUTSIDE INDIA 2. CAMRETT LOGISTICS INCOME TAX ACT. USA -DO- 26,55,949 -DO- 3. STRATEGIC OUTSOURCING SOLUTIONS, USA -DO- 33,925 -DO- THE LD. AO SHOW CAUSED TO EXPLAIN AS TO WHY THE AB OVE PAYMENT MADE TO NON- RESIDENTS SITUATED OUTSIDE INDIA WITHOUT THE DEDUCT ION OF TAX SOURCE SHOULD NOT BE SUBJECTED TO THE PROVISIONS OF SECTION 195 OF TH E ACT AND AS TO WHY THE PROVISIONS OF SECTION 40(A)(I) COULD NOT BE INVOKED THERE ON. IN RESPONSE, THE ASSESSEE SUBMITTED BEFORE THE LD. AO AS BELOW: :-3-: I.T.A. NO. 1493/MDS/2015 RANE MADRAS LIMITED (RML) UTILIZES THE WAREHOUSE FA CILITY OF M/S. CAMRETT LOGISTICS INC., USA AND S S SOLUTIONS, USA (NON-RESIDENTS). THE WAREHOUSE FACILITY IS SITUATED OUTSIDE INDIA AN D THE SERVICES ARE RENDERED BY THE NON-RESIDENTS OUTSIDE INDIA. CAMRET T ACTS AS A CONDUIT FOR THE GOODS OF RML TO TRW AUTOMOTIVE, US AND RENDERS WAREHOUSING, SORTING AND DELIVERY OF GOODS. THE NON-RESIDENTS DID NOT CARRY ON ANY ACTIVITY IN INDIA AND THE SERVICES ARE PROVIDED BY THE NON-RESIDENTS OUTSIDE INDIA. THE PAYMENT FOR ABOVE SERVICES DOES NOT INVOLVE ANY MANAGERIAL, TECHNICAL OR CONSULTANCY KNOWLEDGE AND HENCE, IT WO ULD NOT FALL WITHIN THE MEANING OF 'FEE FOR TECHNICAL SERVICE' A S DEFINED UNDER THE ACT. THE PAYMENT FOR WAREHOUSE CHARGES WILL NOT BE DEEM ED TO ACCRUE OR ARISE IN INDIA, AS THE WAREHOUSE IS NOT SITUATED IN INDIA. HENCE, THE PAYMENT IS NOT CHARGEABLE TO TAX IN INDIA AND T AX IS NOT REQUIRED TO BE DEDUCTED AT SOURCE. THE SERVICES RENDERED BY CAMRETT LOGISTICS AND S S SOLUTIONS USA CANNOT BE CONSIDERED AS FEE FOR TECHNICAL SERVICES. AS PER PARAGRAPH 4 OF ARTICLE 12 OF THE DTAA BETWEEN USA AND INDIA, FEES FOR INCLUDED SERVICES COULD BE TAXABLE IN THE CONTRACTI NG STATE ONLY IF SUCH SERVICES 'MAKES AVAILABLE' THE TECHNICAL SKILL , KNOWLEDGE, EXPERIENCE, KNOW-HOW OR PROCESS TO THE RECIPIENT OF THE SERVICES, SO THAT THE RECIPIENT CAN APPLY THE TECHNOLOGY CONTAIN ED THEREIN. WITH REGARD TO THE PAYMENT MADE TO ALIANZA ESTRATEG ICA PORTUARIA. MEXICO, THE SERVICES RENDERED BY THE SAID ENTITY, V IZ., STRIPPING CONTAINER INTO WAREHOUSE, STUFFING OF CARGO, WAREHO USING OF CARGO, ETC., WOULD NOT FALL WITHIN THE MEANING OF 'FEE FOR TECHNICAL SERVICE' AS DEFINED UNDER THE INCOME TAX ACT AND HENCE, THE PAYMENT IS NOT CHARGEABLE TO TAX IN INDIA AND TAX IS NOT REQUIRED TO BE DEDUCTED AT SOURCE. :-4-: I.T.A. NO. 1493/MDS/2015 THE LD. AO WENT TO THE RELEVANT CLAUSES OF THE AGRE EMENT ENTERED INTO BY THE ASSESSEE THAT THE AFORESAID PARTIES AND CONCLUDED T HAT THE PAYMENTS HAVE BEEN MADE NOT ONLY FOR THE PURPOSE OF UTILISING THE WARE HOUSE FACILITY OF THE NON- RESIDENT BUT ALSO FOR THE PURPOSE OF MANAGING THE S ALES AFFAIR OF THE ASSESSEE OUTSIDE INDIA BY MEANS OF UTILISING THE LOGISTIC SE RVICES OF NON-RESIDENT. ACCORDINGLY, HE CONCLUDED THAT THE PAYMENT WERE MAD E TOWARDS MANAGEMENT SUPPORT SERVICE OUTSIDE INDIA WHICH FALLS UNDER THE AMBIT OF FEE FOR TECHNICAL SERVICES (FTS) U/S. 9(1)(VII) OF THE ACT AND HELD T HAT THE SAME WOULD BE CHARGEABLE TO TAX IN INDIA WARRANTING DEDUCTION OF TAX AT ONCE IN TERMS OF SECTION 195 OF THE ACT. THE LD. AO ALSO HELD THAT THE FACT OF ASSESSEE NOT HAVING ANY PE IN INDIA DOES NOT EXONERATE THE ASSESSEE FROM DEDUC TION OF TAX SOURCE AS THE SAME WOULD HAVE RELEVANCE ONLY FOR THE INCOME CHARG EABLE AS BUSINESS INCOME AND NOT OTHERWISE. WITH REGARD TO THE RELIANCE PLA CED BY THE ASSESSEE ON THE PROVISION OF DOUBLE TAXATION AVOIDANCE AGREEMENT (D TAA), HE HELD THAT INDIA DOES NOT HAVE DTAA WITH MEXICO AND HENCE TAXABILITY HAD TO BE DETERMINED IN ACCORDANCE WITH SECTION 4 AND 5 R.W.S. 9(1)(VII) OF THE ACT AND HELD THAT THE INCOME WOULD BE DEEMED TO ACCRUE OR ARISE IN INDIA. HE ALSO PLACED RELIANCE ON THE EXPLANATION NARRATED BY THE FINANCE ACT, 2010 W ITH RETROSPECTIVE EFFECT FROM 01.06.1976. IN SUPPORT OF HIS CONTENTION AND HELD THAT THE SUBJECT MENTIONED PAYMENT DESERVES TO BE DISALLOWED U/S. 40(A)(I) OF THE ACT FOR NON-DEDUCTION OF TAX AT SOURCE AND ACCORDINGLY ADDED THE SAME TO THE TOTAL INCOME OF THE ASSESSEE. :-5-: I.T.A. NO. 1493/MDS/2015 3.1 WITH REGARD TO THE PAYMENTS MADE TO CAMRETT LOG ISTICS INC., USA AND STRATEGIC OUTSOURCING SOLUTIONS, USA, THE LD. AO OB SERVED THAT THE ASSESSEE AGREED THAT THE PAYMENTS WERE MADE TOWARDS 'SORTING ' WHICH CAN BE TREATED AS FEE FOR INCLUDED SERVICES (FIS). THE ASSESSEE STAT ED THAT SINCE THE TECHNICAL SKILL/KNOWLEDGE/EXPERIENCE/KNOW-HOW/PROCESSES WAS N OT 'MADE AVAILABLE' TO THE ASSESSEE AS CONTEMPLATED IN ARTICLE 12 OF INDO-US D TAA AND HENCE THE SAME WOULD NOT BE CHARGEABLE TO TAX IN TERMS OF DTAA. IT WAS ARGUED THAT RENDERING OF THESE SERVICES ABROAD DO NOT INVOLVE TRANSFER OF ANY TECHNICAL KNOWLEDGE THAT CAN BE UTILISED BY THE ASSESSEE AND SINCE THE ASSES SEE HAS NO PRESENCE AT ABROAD, THE NON-RESIDENT MANAGES THE AFFAIRS OF THE COMPANY FOR SMOOTH RUNNING OF THE ASSESSEE'S BUSINESS. THE LD. AO OBSERVED TH AT THE QUESTION OF TRANSFER OF ANY TECHNICAL/KNOWLEDGE OR KNOW-HOW/PROCESS DOES NO T RISE AT ALL. SINCE, THE SUBJECT MENTIONED PAYMENTS WERE EFFECTED WITHOUT TH E DEDUCTION OF TAX SOURCE U/S. 195 OF THE ACT, HE HELD THAT THE SAME REQUIRES TO BE ADDED BACK TO THE TOTAL INCOME U/S. 40(A)(I) OF THE ACT. 4. THE LD. CIT(A) ON GOING THROUGH THE CONTENTIONS OF THE ASSESSEE UPHELD THE ORDER OF THE LD. AO. AGGRIEVED, THE ASSESSEE I S IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS: 2.1 THE LEARNED CIT(A) ERRED IN CONFIRMING THE DISA LLOWANCE MADE BY THE ASSESSING OFFICER ('AO') IN RESPECT OF WAREHOUS E CHARGES PAID TO ALIANZA ESTRATEGICA PORTUARIA S.A.DE C.V' MEXICO, C AMRETT LOGISTICS INC., USA, STRATEGIC OUTSOURCING SOLUTIONS, USA TOTALLING TO RS.52,98,932 UNDER SECTION 40(A)(I) OF THE ACT. :-6-: I.T.A. NO. 1493/MDS/2015 2.2 THE LEARNED CIT(A) ERRED IN CONCLUDING THAT NON -RESIDENT HAS BUSINESS CONNECTION IN INDIA WITHOUT APPRECIATING T HAT THE NON-RESIDENTS RENDERS WAREHOUSING AND SORTING SERVICE IN ITS INDE PENDENT CAPACITY AND DOES NOT CARRY ON ANY BUSINESS ACTIVITY IN INDIA. 2.3 THE LEARNED CIT(A) FAILED TO APPRECIATE THAT TH E SERVICES RENDERED BY THE NON-RESIDENTS ARE NOT MANAGERIAL IN NATURE. 2.4 THE LEARNED CIT(A) FAILED TO CONSIDER THE FACT THAT THE WAREHOUSE FACILITY IS SITUATED OUTSIDE INDIA AND THE INCOME W AS EARNED BY THE NON- RESIDENT OUTSIDE INDIA IN TERMS OF SECTION 5 AND SE CTION 9 OF THE ACT AND HENCE NOT CHARGEABLE TO TAX. 2.5 WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED THAT THE PAYMENT IS NOT CHARGEABLE TO T AX IN INDIA UNDER SECTION 9(1 )(VII)(B) OF THE ACT, AS IT RELATES TO SERVICES UTILIZED FOR THE PURPOSE OF MAKING OR EARNING INCOME FROM ANY SOURCE OF INCOME OUTSIDE INDIA. 2.6 WITHOUT FURTHER PREJUDICE TO THE ABOVE, THE LEA RNED CIT(A) FAILED TO APPRECIATE THAT THE SERVICES RENDERED BY THE CAMRET T LOGISTICS, USA AND STRATEGIC OUTSOURCING SOLUTIONS, USA ARE NOT IN THE NATURE OF 'FEE FOR INCLUDED SERVICES' AS THEY HAVE NOT MADE AVAILABLE ANY TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW, OR PROCESS TO THE APPELLANT AS PER ARTICLE 12 OF DOUBLE TAXATION AVOIDANCE AGREEMENT W ITH USA. 2.7 WITHOUT FURTHER PREJUDICE TO ALL THE ABOVE, THE CIT(A) OUGHT TO HAVE APPRECIATED THAT PROVISIONS OF SECTION 40(A)(I) OF THE ACT IS NOT APPLICABLE AS THE PAYMENT IN RESPECT OF WAREHOUSING CHARGES IS ALREADY 'PAID' BY THE APPELLANT. :-7-: I.T.A. NO. 1493/MDS/2015 5. THE LD. AR ARGUED THAT THE PAYMENT OF WAREHOUSE CHARGES OF RS. 26,09,058/- TO ALIANZA EXTRATEGICA PORTUARIA, MEXIC O FOR RENDERING FOLLOWING SERVICES OUTSIDE INDIA:- A) MANAGING THE SALE AFFAIRS OF THE ASSESSEE COMPA NY OUTSIDE INDIA BY MEANS OF LOGISTIC SERVICES B) PROVIDING SERVICES FOR PAYMENT OF PORT CHARGES , THC CHARGES, ETC., ON BEHALF OF THE ASSESSEE COMPANY. C) PROVIDING SERVICES FOR MERCHANDISE VERIFICATIO N PREVIEW, SECURITY FEE, ETC., D) STRIPPING CONTAINER INTO WAREHOUSE. E) CLEANING AND WASHING CONTAINER. F) DELIVERY OF EMPTY CONTAINER. G) STUFFING CARGO INTO TRUCK, ETC., 5.1 HE ARGUED THAT THE AFORESAID SERVICES DO NOT BY ANY STRETCH OF IMAGINATION COULD BE CONSTRUED AS FEE FOR TECHNICAL SERVICES AS THEY ARE PURELY LOGISTIC SERVICES WHICH DO NOT INVOLVE ANY T ECHNICAL SKILL/ EXPERTISE/ EXPERIENCE TO RENDER THE SAME. HE ALSO ARGUED THAT THERE IS NO TRANSFER OF ANY TECHNOLOGY/ENABLING THE ASSESSEE TO USE IT ON I TS OWN. MOREOVER, THESE SERVICES WOULD BE CONSIDERED ONLY AS BUSINESS INCOM E WHICH WOULD BE TAXABLE ONLY IF THE SAID NON-RESIDENT HAS GOT PERMANENT EST ABLISHMENT (PE) IN INDIA. ADMITTEDLY THE NON-RESIDENT DOES NOT HAVE ANY PE IN INDIA. HE ARGUED THAT IN THE CASE EVEN THOUGH THE EXPLANATION TO SECTION 9(2 ) WAS INTRODUCED WITH :-8-: I.T.A. NO. 1493/MDS/2015 RETROSPECTIVE EFFECT, THE ASSESSEE COULD NOT HAVE F ORESEEN THIS AMENDMENT AT THE TIME OF MAKING THE PAYMENT AND IT IS ALREADY SE TTLED THAT THE TDS OBLIGATION COULD BE FASTENED ON THE ASSESSEE BASED ON THE LAW PREVAILING AT THE TIME OF MAKING THE PAYMENT. MOREOVER, THIS ISS UE IS DIRECTLY COVERED BY THE DECISION IN THIS TRIBUNAL IN THE CASE OF BRAKES INDIA LTD., VS. DCIT (LTU) RETURNED IN 144 ITD 403(2004)(CHENNAI), WHEREIN IT WAS HELD AS BELOW: 47. IN OUR OPINION, NATURE OF SERVICES MENTIONED ABOVE WILL COMENOT WITHIN THE DEFINITION OF 'FEES FOR TECHNICA L SERVICES' GIVEN UNDER EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT . BY VIRTUE OF SUCH SERVICES, THE CONCERNED RECIPIENTS HAD NOT MADE AVA ILABLE TO THE ASSESSEE ANY NEW TECHNICAL OR SKILL WHICH ASSESSEE COULD USE IN ITS BUSINESS. THE SERVICES RENDERED BY THE SAID PARTIES RELATED TO CLEARING, WAREHOUSING AND FREIGHT CHARGES, OUTSIDE INDIA. THE LOGISTICS SERVICE RENDERED WAS ESSENTIALLY WAREHOUSING FACILITY. IN O UR OPINION, THIS CANNOT BE EQUATED WITH MANAGERIAL, TECHNICAL OR CON SULTANCY SERVICES. EVEN IF IT IS CONSIDERED AS TECHNICAL SERVICE, THE FEE WAS PAYABLE ONLY FOR SERVICES UTILIZED BY THE ASSESSEE IN THE BUSINESS O R PROFESSION CARRIED ON BY THE SAID NON-RESIDENTS OUTSIDE INDIA. SUCH BUSIN ESS OR PROFESSION OF THE NON-RESIDENTS, EARNED THEM INCOME OUTSIDE INDIA . THUS, IT WOULD FALL WITHIN THE EXCEPTION GIVEN UNDER SUB-CLAUSE (B ) OF SECTION 9(1) OF THE ACT. IN ANY CASE, UNDER SECTION 195 OF THE ACT, ASSESSEE IS LIABLE TO DEDUCT TAX ONLY WHERE THE PAYMENT MADE TO NON-RESID ENTS IS CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT. IN THE CIRCUMSTANCES MENTIONED ABOVE, ASSESSEE WAS JUSTIFIED IN HAVING A BONAFIDE BELIEF THAT THE PAYMENTS DID NOT WARRANT APPLICATION OF SE CTION 195 OF THE ACT. IN SUCH CIRCUMSTANCES, WE ARE OF THE OPINION THAT I T COULD NOT HAVE BEEN SADDLED WITH THE CONSEQUENCES MENTIONED UNDER SECTION 40(A)(I) :-9-: I.T.A. NO. 1493/MDS/2015 OF THE ACT. DISALLOWANCES WERE RIGHTLY DELETED BY T HE ID. CIT(APPEALS). NO INTERFERENCE IS CALLED FOR. GROUND NOS.7 AND 8 ARE DISMISSED. 5.2 WITH REGARD TO THE PAYMENT MADE TOWARDS SORTING TO CAMRETT LOGISTICS INC., USA FOR RS. 26,55,949/- AND TO STRATEGIC OUTS OURCING SOLUTIONS, USA FOR RS. 33,925/- WITHOUT THE DEDUCTION OF TAX AT SOURCE , THE LD. AR ARGUED THAT THESE SERVICES MAY AT BEST BE TERMED AS FEE FOR INC LUDING SERVICES (FIS) AND SINCE SUCH SERVICES DO NOT MAKE AVAILABLE TECHNIC AL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESS CONSISTING OF THE DEVELO PMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN TO THE ADVANCE O F THE ASSESSEE COMPANY AS PER INDO-USA DTAA. HE PLACED RELIANCE ON THE DECIS ION OF HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT VS ORS. VS. DE BEERS INDIA MINERALS (P) LTD., REPORTED IN 346 ITR 467 (2012) IN THIS REGARD. HEN CE HE ARGUED THAT THE ASSESSEE IS NOT LIABLE OF DEDUCTION OF TAX SOURCE A ND HENCE NO DISALLOWANCE U/S. 40(A)(I) OF THE ACT WOULD APART IN THE INSTANT CASE. IN RESPONSE TO THIS LD. DR VEHEMENTLY RELIED ON THE ORDERS OF THE LOWE R AUTHORITIES. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND FRO M THE NATURE OF SERVICES RENDERED BY THE NON-RESIDENT TO THE ASSESS EE, THE SAME ARE ONLY LOGISTIC SERVICES WHICH DOES NOT INVOLVE ANY TECHNI CAL SKILL, EXPERTISE OR TRANSFER OF TECHNICAL KNOWLEDGE THEREON, SO AS TO F ALL WITHIN THE AMBIT OF FEE FOR TECHNICAL SERVICES (FTS). WE ALSO FIND THAT TH E NATURE OF SERVICES :-10-: I.T.A. NO. 1493/MDS/2015 RENDERED BY NON-RESIDENT WOULD HAVE TO BE CONSIDERE D ONLY AS BUSINESS INCOME IN THE HANDS OF NON-RESIDENT WHICH CAN BE TA XED ONLY IN THE EVENT OF EXISTENCE OF PE IN INDIA. WE FOUND THAT THE LD. AO HAD CATEGORICALLY STATED IN HIS ORDER THAT THE NON-RESIDENT DO NOT HAVE ANY PE IN INDIA. 6.1 WE FIND THAT PURSUANT TO THE AMENDMENT BROUGHT IN THE EXPLANATION TO SECTION 9(2) THOUGH RETROSPECTIVE IN OPERATION COUL D HAVE APPLICABILITY ONLY FOR THE PURPOSE OF TAXABILITY OF INCOME AND THE SAID AM ENDMENT CANNOT BE MADE APPLICABLE WITH RETROSPECTIVE OPERATION FOR WITHHOL DING TAX LIABILITY. IN OTHER WORDS, THE RETROSPECTIVE AMENDMENT CANNOT BE MADE A PPLICABLE FOR TDS PROVISIONS AS THE ASSESSEE COULD BE EXPECTED TO COM PLY WITH THE TDS PROVISIONS AS PER THE LAW PREVAILING ON THE DATE OF PAYMENT AND IT CANNOT BE EXPECTED TO FORESEE WHAT AMENDMENT WOULD COME IN FU TURE, WHICH WOULD HAVE RETROSPECTIVE APPLICATION. THE TAX DEDUCTOR C ANNOT BE EXPECTED TO HAVE CLAIRVOYANCE OF KNOWING HOW THE LAW WILL CHANGE IN FUTURE. A RETROSPECTIVE AMENDMENT IN LAW DOES CHANGE THE TAX LIABILITY IN R ESPECT OF AN INCOME WITH RETROSPECTIVE EFFECT, BUT IT CANNOT CHANGE THE TAX WITHHOLDING LIABILITY WITH RETROSPECTIVE EFFECT. THE PROVISIONS OF SECTION 19 5 AND OTHER TDS PROVISIONS UNDER CHAPTER XVII B OF THE ACT ARE VERY CLEAR OBLI GATING THE TAX DEDUCTOR TO FOLLOW THE LAW AND DEDUCT TAX THEREON BY THE RATES IN FORCE AS PREVAILING ON THE DATE OF CREDIT TO THE ACCOUNT OF THE PAYEE OR A T THE TIME OF PAYMENT THEREON. WE FIND THAT THE DECISION RELIED UPON BY THE LD. AR ON THE CO- :-11-: I.T.A. NO. 1493/MDS/2015 ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF BRAK ES INDIA LTD., VS. DCIT (LTU) REPORTED IN 144 ITD 403 IS VERY WELL FOUNDED . THE OPERATIVE PORTION OF THIS ORDER IS ALREADY REPRODUCED HEREIN ABOVE. THE RELIANCE PLACED BY THE DECISION OF CO-ORDINATE BENCH OF AGRA TRIBUNAL IN T HE CASE OF METRO & METRO VS ACIT RETURNED IN 147 ITD 207 (AGRA) IS ALSO WELL FOUNDED. IN THE CASE OF PROPERTY, THE DECISION RENDERED THEREON IS NOT REIT ERATED HEREIN. 6.2 ADMITTEDLY THE DISALLOWANCE MADE BY THE LD. AO IS ONLY FOR NON- DEDUCTION OF TAX AT SOURCE AND ACCORDINGLY ONLY THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT IS INVOKED BY HIM. THERE IS NO DISPUTE AS TO THE ALLOWABILITY OF SUCH PAYMENTS AS AN ELIGIBLE DEDUCT ION OTHERWISE. WE ALSO FIND THAT EXPECTING A PERSON TO FORESEE THE FUTURE AMEND MENT IN THE STATUTE VIS-A- VIS TAX WITHHOLDING LIABILITY WOULD ONLY RESULT IN IMPOSSIBILITY OF PERFORMANCE ON THE PART OF THE TAX DEDUCTOR. IN THIS REGARD, THE FAMOUS MAXIM WOULD COME TO THE RESCUE OF THE ASSESSEE (TAX DEDUCTOR): ' LEX NON COGIT AD IMPOSSIBLIA, MEANING: THAT THE LAW CANNOT COMPEL THE PERSON TO DO SOMETHING WHICH IS IMPOSSIB LE TO PERFORM.' WE ALSO FIND THAT THE HON'BLE SUPREME COURT IN THE CASE OF KRISHNASWAMY S. PD. AND ANR. VS UNION OF INDIA, REPORTED IN 281 ITR 305 (SC) HAS ALSO ACCEPTED AND APPROVED THIS LEGAL MAXIM. :-12-: I.T.A. NO. 1493/MDS/2015 7. IN VIEW OF THESE FINDINGS AND RESPECTFULLY FOLLO WING THE VARIOUS JUDICIAL DECISIONS RELIED UPON HEREIN ABOVE, WE HAVE NO HESI TATION IN DIRECTING THE LD. AO TO DELETE THE DISALLOWANCE OF PAYMENT OF WAREHOU SE CHARGES FOR THE SUM OF RS. 26,09,058/- U/S. 40(A)(I). 8. WITH REGARD TO PAYMENT OF WAREHOUSING CHARGES T O CAMRETTE LOGISTICS INC. USA AMOUNTING TO RS. 26,55,949/- AND STRATEGIC OUTSOURCING SOLUTIONS, USA AMOUNTING TO RS. 33,925/-, WE FIND THAT THE ASS ESSEE HAD AGREED BEFORE THE LD AO THAT THE PAYMENTS WERE MADE TO THE NON RE SIDENTS TOWARDS SORTING SERVICES RENDERED OUTSIDE INDIA AND ACCORDINGLY THE SAME WOULD FALL APPARENTLY UNDER THE AMBIT OF FTS. WE FEEL THAT W HAT IS TO BE SEEN IS AS TO WHETHER THE SAME WOULD ALSO FALL UNDER THE AMBIT OF FTS AS PER THE INDO US DTAA AND THERE IS A TRANSFER OF TECHNOLOGY BY MAKIN G AVAILABLE THE SAID TECHNOLOGY TO ENABLE THE ASSESSEE TO USE THE SAME I N INDIA ON ITS OWN. IN OUR CONSIDERED OPINION AND IN THE FACTS AND CIRCUMS TANCES, THE ANSWER IS EMPHATIC NO. IN OUR CONSIDERED VIEW, IN ORDER TO BE COVERED BY THE PROVISIONS OF ARTICLE 12(4)(B) OF INDO US DTAA, NOT ONLY THE SERVICES SHOULD BE OF TECHNICAL IN NATURE BUT SUCH AS TO RESULT IN MAKING THE TECHNOLOGY AVAILABLE TO THE PERSON RECEIVING THE TECHNICAL SER VICES. WE ALSO AGREE THAT MERELY BECAUSE THE PROVISION OF THE SERVICE MAY REQ UIRE TECHNICAL INPUT BY THE PERSON PROVIDING THE SERVICE, IT CANNOT BE SAID THA T TECHNICAL KNOWLEDGE, SKILLS, ETC ARE MADE AVAILABLE TO THE PERSON PURCHASING THE SERVICE. AS TO WHAT ARE :-13-: I.T.A. NO. 1493/MDS/2015 THE CONNOTATIONS OF MAKING THE TECHNOLOGY AVAILABL E TO THE RECIPIENT OF TECHNICAL SERVICES, AS IS APPROPRIATELY SUMMED UP IN PROTOCOL TO INDO -US DTAA, GENERALLY SPEAKING, TECHNOLOGY WILL BE CONSI DERED MADE AVAILABLE WHEN THE PERSON ACQUIRING THE SERVICE IS ENABLED TO APPLY THE TECHNOLOGY. IN THE INSTANT CASE, THE SERVICES RENDERED ARE OUTS IDE INDIA AND THERE IS NO OPPORTUNITY FOR THE ASSESSEE TO BE UTILIZED IN INDI A. HENCE IT COULD BE SAFELY CONCLUDED THAT THE NON RESIDENTS DO NOT MAKE AVAIL ABLE ANY TECHNOLOGY, SKILL OR EXPERTISE ENABLING THE ASSESSEE TO USE IT IN IND IA. 8.1. IN THE MEMORANDUM OF UNDERSTANDING TO THE DTA A BETWEEN INDIA AND USA, A DESCRIPTION CONCERNING FEES FOR INCLUDED SER VICES IN ARTICLE 12 AND PARAGRAPH 4 (IN GENERAL) HAVE BEEN GIVEN. EXAMPLES OF SERVICES INTENDED TO BE COVERED WITHIN THE DEFINITION OF INCLUDED SERVIC ES 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 EX PLAINS THAT ARTICLE 12(4)(B) REFERS TO TECHNICAL OR CONSULTANCY SERVICE S THAT MAKE AVAILABLE TO THE PERSON ACQUIRING THE SERVICES, TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW- HOW, OR PROCESSES, OR CONSIST OF THE DEVELOPMENT AN D TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN TO SUCH PERSON. THE MEMORA NDUM EXPLAINS CATEGORY OF SERVICES REFERRED TO ARTICLE 12(4)(B) AS NARROWE R THAN THE CATEGORY DESCRIBED IN PARAGRAPH 4(A) BECAUSE IT EXCLUDES ANY SERVICE THAT DOES NOT MAKE TECHNOLOGY AVAILABLE TO THE PERSON ACQUIRING T HE SERVICE. IT FURTHER :-14-: I.T.A. NO. 1493/MDS/2015 EXPLAINS THAT GENERALLY SPEAKING, TECHNOLOGY WILL B E CONSIDERED MADE AVAILABLE WHEN THE 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 TEC HNICAL KNOWLEDGE, SKILLS, ETC., ARE MADE AVAILABLE TO THE PERSON PURCHASING T HE SERVICE, WITHIN THE MEANING OF PARAGRAPH 4(B). SIMILARLY, THE USE OF A PRODUCT WHICH EMBODIES TECHNOLOGY SHALL NOT PER SE BE CONSIDERED TO MAKE T HE TECHNOLOGY AVAILABLE. THE MEMORANDUM OF UNDERSTANDING IS A TOOL TO UNDERS TAND AS TO WHAT MEANING WAS INTENDED TO BE CONVEYED IN THE DTAA BET WEEN COUNTRIES. 8.1.1. THE MEMORANDUM FURTHER EXPLAINS WITH EXAMPLE S 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 TEC HNICAL DESIGNS, OR MAKING TECHNOLOGY AVAILABLE AS DESCRIBED IN PARAGRA PH 4(B), INCLUDE : 1. ENGINEERING SERVICES (INCLUDING THE SUB-CATEGORI ES OF BIO-ENGINEERING AND AERONAUTICAL, AGRICULTURAL, CERAMICS, CHEMICAL, CIVIL, ELECTRICAL, MECHANICAL, METALLURGICAL, AND INDUSTRIAL ENGINEERI NG) ; 2. ARCHITECTURAL SERVICES ; AND 3. COMPUTER SOFTWARE DEVELOPMENT. UNDER PARAGRAPH 4(B), TECHNICAL AND CONSULTANCY SER VICES COULD MAKE TECHNOLOGY AVAILABLE IN A VARIETY OF SETTINGS, ACTI VITIES AND INDUSTRIES. SUCH SERVICES MAY, FOR EXAMPLES, RELATE TO ANY OF T HE FOLLOWING AREAS : 1. BIO-TECHNICAL SERVICES ; :-15-: I.T.A. NO. 1493/MDS/2015 2. FOOD PROCESSING ; 3. ENVIRONMENTAL AND ECOLOGICAL SERVICES ; 4. COMMUNICATION THROUGH SATELLITE OR OTHERWISE ; 5. ENERGY CONSERVATION ; 6. EXPLORATION OR EXPLOITATION OF MINERAL OIL OR NA TURAL 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 HOUSE S WHICH IS MORE DURABLE THAN THE STANDARD PRODUCTS OF ITS TYPE. AN INDIAN BUILDER WISHES TO PRODUCE THIS PRODUCT FOR ITS OWN USE. IT RENTS A PLANT AND CONTRACTS WITH THE U.S. COMPANY TO SEND EXPERTS TO INDIA TO S HOW ENGINEERS IN THE INDIAN COMPANY HOW TO PRODUCE THE EXTRA-STRONG WALLBOARD. THE U.S. CONTRACTORS WORK WITH THE TECHNICIANS IN THE I NDIAN FIRM FOR A FEW MONTHS. ARE THE PAYMENTS TO THE U.S. FIRM CONSIDERE D 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, TH EY HAVE ELEMENTS OF BOTH TYPES OF SERVICES. THE SERVICES MAKE AVAILABLE TO THE INDIAN COMPANY TECHNICAL KNOWLEDGE, SKILL AND PROCESSES. EXAMPLE 4 :-16-: I.T.A. NO. 1493/MDS/2015 FACTS : A U.S. MANUFACTURER OPERATES A WALLBOARD FABRICATIO N PLANT OUTSIDE INDIA. AN INDIAN BUILDER HIRES THE U.S. COMPANY TO PRODUCE WALLBOARD AT THAT PLANT FOR A FEE. THE INDIAN COMPANY PROVIDES T HE RAW MATERIALS, AND THE U.S. MANUFACTURER FABRICATES THE WALLBOARD IN ITS PLANT, USING ADVANCED TECHNOLOGY. ARE THE FEES IN THIS EXAMPLE P AYMENTS FOR INCLUDED SERVICES ? ANALYSIS : THE FEES WOULD NOT BE FOR INCLUDED SERVICES. ALTHOU GH THE U.S. COMPANY IS CLEARLY PERFORMING A TECHNICAL SERVICE, NO TECHN ICAL KNOWLEDGE, SKILL, ETC., ARE MADE AVAILABLE TO THE INDIAN COMPANY, NOR IS THERE ANY DEVELOPMENT AND TRANSFER OF A TECHNICAL PLANT OR DE SIGN. THE U.S. COMPANY IS MERELY PERFORMING A CONTRACT MANUFACTURI NG SERVICE. EXAMPLE 5 FACTS : AN INDIAN FIRM OWNS INVENTORY CONTROL SOFTWARE FOR USE IN ITS CHAIN OF RETAIL OUTLETS THROUGHOUT INDIA. IT EXPANDS ITS SAL ES OPERATION BY EMPLOYING A TEAM OF TRAVELLING SALESMEN TO TRAVEL A ROUND THE COUNTRYSIDE SELLING THE COMPANYS WARES. THE COMPANY WANTS TO MODIFY ITS SOFTWARE TO PERMIT THE SALESMEN TO ASSESS THE C OMPANYS CENTRAL COMPUTERS FOR INFORMATION ON WHAT PRODUCTS ARE AVAI LABLE IN INVENTORY AND WHEN THEY CAN BE DELIVERED. THE INDIAN FIRM HIR ES 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 INCL UDED SERVICES ? 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 :-17-: I.T.A. NO. 1493/MDS/2015 COMPANY THE TECHNICAL PLAN (I.E., THE COMPUTER PROG RAMME) WHICH IT HAS DEVELOPED. EXAMPLE 6 FACTS : AN INDIAN VEGETABLE OIL MANUFACTURING COMPANY WANTS TO PRODUCE A CHOLESTEROL-FREE OIL FROM A PLANT WHICH PRODUCES OI L NORMALLY CONTAINING CHOLESTEROL. AN AMERICAN COMPANY HAS DEVELOPED A PR OCESS FOR REFINING THE CHOLESTEROL OUT OF THE OIL. THE INDIAN COMPANY CONTRACTS WITH THE U.S. COMPANY TO MODIFY THE FORMULAS WHICH IT USES S O AS TO ELIMINATE THE CHOLESTEROL, AND TO TRAIN THE EMPLOYEES OF THE INDIAN COMPANY IN APPLYING THE NEW FORMULAS. ARE THE 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 : THE INDIAN VEGETABLE OIL MANUFACTURING FIRM HAS MAS TERED THE SCIENCE OF PRODUCING CHOLESTEROL-FREE OIL AND WISHES TO MAR KET THE PRODUCT WORLDWIDE. IT HIRES AN AMERICAN MARKETING CONSULTIN G FIRM TO DO A COMPUTER SIMULATION OF THE WORLD MARKET FOR SUCH OI L AND TO ADVERSE IT ON MARKETING 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 SUBSTANTIAL :-18-: I.T.A. NO. 1493/MDS/2015 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 COMPANY THROUGH THE SERVICE CONTRACT IS COMM ERCIAL INFORMATION. THE FACT THAT TECHNICAL SKILLS WERE REQUIRED BY THE PERFORMER OF THE SERVICE IN ORDER TO PERFORM THE COMMERCIAL INFORMAT ION SERVICE DOES NOT MAKE THE SERVICE A TECHNICAL SERVICE WITHIN THE MEA NING 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 EXAMP LES OF CASES WHERE FEES WOULD BE INCLUDED UNDER PARAGRAPH 4, BUT ARE E XCLUDED BECAUSE OF THE CONDITIONS OF PARAGRAPH 5. 8.2. THE MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF RAYMOND LTD. VS. DCIT 86 ITD 791 (MUM) HAD AN OCCASION TO DEAL WITH A CASE OF PAYMENT OF COMMISSION BY AN INDIAN COMPANY TO A NON RESIDENT I N CONNECTION WITH PUBLIC ISSUE OF GLOBAL DEPOSITORY RECEIPTS (GDR) FOR SERVI CES RENDERED OUTSIDE INDIA. THE QUESTION BEFORE THE TRIBUNAL WAS WHETHER THE CO MMISSION SO PAID CAN BE SAID TO BE FEES FOR INCLUDED SERVICES I.E., FEES FOR TECHNICAL SERVICES UNDER ARTICLE 13(4)(C) OF THE INDO-UK DTAA WHICH IS THE S AME AS THAT OF ARTICLE 12(4)(B) OF THE TREATY BETWEEN INDIA AND SINGAPORE. AFTER CONSIDERING ARTICLE 12(4)(B) OF THE INDO-US DTAA (WHICH ARE SIMILAR TO ARTICLE 12(4) AND 13(4) OF THE TREATY BETWEEN INDIA AND SINGAPORE / UK (AS THE CASE MAY BE)), AND AFTER :-19-: I.T.A. NO. 1493/MDS/2015 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 QUALI FIES SUCH RENDERING OF SERVICES WITH WORDS TO THE EFFECT THAT THE SERVI CES SHOULD ALSO MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILLS E TC. TO THE PERSON UTILIZING THE SERVICES. THESE WORDS ARE WHICH MAKE AVAILABLE. THE NORMAL, PLAIN AND GRAMMATICAL MEANING OF THE LANGUA GE EMPLOYED, IN OUR UNDERSTANDING, IS THAT A MERE RENDERING OF SERV ICES IS NOT ROPED IN UNLESS THE PERSON UTILIZING THE SERVICES IS ABLE TO MAKE USE OF THE TECHNICAL KNOWLEDGE ETC. BY HIMSELF IN HIS BUSINESS OR FOR HIS OWN BENEFIT AND WITHOUT RECOURSE TO THE PERFORMER OF TH E SERVICES IN FUTURE. THE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL ETC. MUS T REMAIN WITH THE PERSON UTILIZING THE SERVICES EVEN AFTER THE RENDER ING OF THE SERVICES HAS COME TO AN END. A TRANSMISSION OF THE TECHNICAL KNO WLEDGE, 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 THE RESULT OF THE RENDERING OF SERVI CES IS ENVISAGED WHICH WILL REMAIN AT THE DISPOSAL OF THE PERSON UTI LIZING THE SERVICES. THE FRUITS OF THE SERVICES SHOULD REMAIN AVAILABLE TO THE PERSON UTILIZING THE SERVICES IN SOME CONCRETE SHAPE SUCH AS TECHNIC AL KNOWLEDGE, EXPERIENCE, SKILLS ETC. 8.3. SIMILAR VIEWS WERE EXPRESSED BY THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT & ORS VS DE BEERS INDIA MINERALS (P) LT D REPORTED IN (2012) 346 ITR 467 (KAR) WHEREIN IT WAS HELD THAT :- :-20-: I.T.A. NO. 1493/MDS/2015 IF THE ASSESSEE IS ABLE TO CARRY ON HIS BUSINESS IN FUTURE WITHOUT THE TECHNICAL SERVICE OF THE SERVICE PROVIDER IN RESPEC T OF SERVICES RENDERED THEN, IT WOULD BE SAID THAT TECHNICAL KNOWLEDGE IS MADE AVAILABLE FURGO HAS NOT MADE AVAILABLE THE TECHNICAL KNOWLEDG E WITH WHICH THEY RENDERED TECHNICAL SERVICE THOUGH FURGO RENDERED TECHNICAL SERVICES AS DEFINED UNDER SECTION 9(1)(VII) EXPLANATION 2, I T DOES NOT SATISFY THE REQUIREMENT OF TECHNICAL SERVICES AS CONTAINED IN D TAA LIABILITY OF TAX IS NOT ATTRACTED THE CASE ON HAND DOES NOT FALL I N THE SECOND PART OF THE FEE FOR TECHNICAL SERVICES CLAUSE IN DTAA DEA LING WITH DEVELOPMENT AND TRANSFER OF PLANS AND DESIGNS BOTH THE SUBSTA NTIAL QUESTIONS OF LAW ANSWERED IN FAVOUR OF THE ASSESSEE AND AGAINST THE REVENUE APPEAL DISMISSED. 8.4. APPLYING THE DEFINITION OF FIS IN THE TREATY T O THE FACTS OF THE PRESENT CASE IN THE LIGHT OF THE VARIOUS DECISIONS REFERRED TO ABOVE, IT CANNOT BE SAID THAT THE RENDERING OF SERVICES BY THE NON RESIDENTS TO THE ASSESSEE MADE AVAILABLE TO THE ASSESSEE, SUCH SERVICES , FOR ITS FUTURE USE OR UTILIZATION ON A REASONABLY PERMANENT BASIS. HENCE THE PAYMENTS MAD E THEREON BY THE ASSESSEE WOULD NOT FALL UNDER THE AMBIT OF FEES FOR TECHNICAL SERVICES OR FEES FOR INCLUDED SERVICES AS PER THE TREATY. THE PROVI SIONS OF SECTION 90(2) OF THE ACT ARE VERY CLEAR THAT THE ASSESSEE IS ENTITLED TO TAKE THE BENEFIT OF THE TREATY IF THE SAME IS BENEFICIAL TO IT. HENCE THE PROVIS IONS OF THE TREATY WOULD PREVAIL OVER THE ACT. :-21-: I.T.A. NO. 1493/MDS/2015 9. ACCORDINGLY, THE GROUNDS 2.1 TO 2.7 RAISED BY TH E ASSESSEE ARE ALLOWED. 10. THE NEXT ISSUE TO BE DECIDED IN THIS APPEAL IS AS TO WHETHER THE LD CITA WAS JUSTIFIED IN UPHOLDING THE DISALLOWANCE MADE U/ S 40(A)(I) OF THE ACT IN RESPECT OF PAYMENTS MADE FOR PROFESSIONAL / TECHNIC AL SERVICES IN THE FACTS AND CIRCUMSTANCES OF THE CASE. 11. THE BRIEF FACTS OF THIS ISSUE IS THAT THE ASSES SEE MADE PAYMENTS TO THE FOLLOWING PARTIES :- TRW AUTOMOTIVE JAPAN TOWARDS PROFESSIONAL CHARGES RS. 9,99,087/- TRW AUTOMOTIVE USA TOWARDS ENGINEERING REWORK CARRI ED OUT AT CUSTOMER END - RS. 2,36,106/- THE ASSESSEE STATED THAT THE PAYMENTS WERE MADE TO THESE TWO PARTIES IN ORDER TO GET THE SUPPORT SERVICES, SINCE THE SERVIC ES WERE RENDERED OUTSIDE INDIA, THE SAME IS ALLOWABLE AS PER CBDT CIRCULAR N O. 786 DATED 7.2.2000. THE LD AO HELD THE ABOVEMENTIONED SERVICES TO BE TE CHNICAL SERVICES AND INVOKED PROVISIONS OF SECTION 9(1)(VII) OF THE ACT AS INCOME DEEMED TO ACCRUE OR ARISE IN INDIA IN THE HANDS OF THE NON RESIDENTS AND CONSEQUENTIALLY FASTENED TDS OBLIGATION ON THE ASSESSEE. HE ALSO PLACED RELIANCE ON THE RETROSPECTIVE AMENDMENT IN EXPLANATION TO SECTION 9 (2) BY FINANCE ACT 2010 WITH RETROSPECTIVE EFFECT FROM 1.6.1976 TO SUPPORT HIS CONCLUSION. HE FURTHER :-22-: I.T.A. NO. 1493/MDS/2015 HELD THAT AS PER INDO JAPAN DTAA, ANY CONSIDERATION PAID FOR THE SERVICES OF MANAGERIAL, TECHNICAL OR CONSULTANCY NATURE, INCLUD ING THE PROVISIONS OF SERVICES OF TECHNICAL OR OTHER PERSONNEL IS TAXABLE ONLY IN INDIA. HE HELD THAT THE SUBJECT MENTIONED PAYMENTS DESERVE TO BE DISALL OWED U/S 40(A)(I) FOR NON DEDUCTION OF TAX AT SOURCE AND ACCORDINGLY ADDED TH E SAME TO THE TOTAL INCOME OF THE ASSESSEE. 12. THE ASSESSEE APART FROM REITERATING THE SUBMI SSIONS MADE BEFORE THE LD AO IMPRESSED ON THE LD CITA ON THE MAKE AVAILABL E THEORY AND STATED THAT THERE WAS NO TRANSFER OF TECHNOLOGY OR TECHNICAL EX PERTISE OR SKILL TO THE ASSESSEE ENABLING THE ASSESSEE TO USE THE SAME ON I TS OWN AND HENCE THE SUBJECT MENTIONED PAYMENTS WOULD NOT FALL UNDER THE AMBIT OF FTS AS PER INDO-JAPAN TREATY. IT WAS ALSO ARGUED THAT THE A MENDMENT IN EXPLANATION TO SECTION 9(2) OF THE ACT WITH RETROSPECTIVE EFFEC T FROM 1.6.1976 COULD NOT BE MADE APPLICABLE FOR TDS OBLIGATIONS AND HENCE NO DI SALLOWANCE U/S 40(A)(I) OF THE ACT WOULD OPERATE AGAINST THE ASSESSEE. THE LD CITA NOT CONVINCED UPHELD THE ORDER OF THE LD AO IN THIS REGARD. 13. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE US ON THE FOLLOWING GROUNDS:- 3.1 THE LEARNED CIT(A) ERRED IN CONFIRMING THE DIS ALLOWANCE MADE BY THE ASSESSING OFFICER ('AO') IN RESPECT OF THE PAYM ENT MADE TO TRW AUTOMOTIVE JAPAN CO. LTD., JAPAN AND TR W AUTOMOTIV E, USA TOWARDS :-23-: I.T.A. NO. 1493/MDS/2015 TECHNICAL I ENGINEERING REWORK CHARGES TOTALLING TO RS.12,35,193/- UNDER SECTION 40(A)(I) OF THE ACT. 3.2 THE LEARNED CIT(A) FAILED TO CONSIDER THE FACT THAT THE SERVICES WERE RENDERED BY THE NON- RESIDENTS OUTSIDE INDIA A ND THE INCOME WAS EARNED BY THE NON-RESIDENT OUTSIDE INDIA IN TERMS O F SECTION 5 AND SECTION 9 OF THE ACT AND HENCE NOT CHARGEABLE TO TA X. 3.3 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED T HE FACT THAT WHEN THE SERVICES HAVE BEEN UTILIZED FOR THE PURPOSE OF MAKING OR EARNING SOURCE OF INCOME OUTSIDE INDIA, THE CHARGES ARE NOT DEEMED TO ACCRUE IN INDIA AS FEE FOR TECHNICAL SERVICES UNDER SECTIO N 9(1)(VII)(B) OF THE ACT. 3.4 WITHOUT PREJUDICE TO THE ABOVE, THE APPELLANT SUBMITS THAT THE SERVICES RENDERED BY TRW AUTOMOTIVE, USA ARE NOT IN THE NATURE OF 'FEE FOR INCLUDED SERVICES' AS THEY HAVE NOT MADE AVAILA BLE ANY TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW, OR PROCESS TO THE APPELLANT AS PER ARTICLE 12 OF DOUBLE TAXATION AVOIDANCE AGREEME NT WITH USA. 3.5 WITHOUT FURTHER PREJUDICE TO ALL THE ABOVE, TH E CIT(A) OUGHT TO HAVE APPRECIATED THAT PROVISIONS OF SECTION 40(A)(I ) OF THE ACT IS NOT APPLICABLE AS THE PAYMENT IN RESPECT OF TECHNICAL/E NGINEERING REWORK CHARGES IS ALREADY 'PAID' BY THE APPELLANT. :-24-: I.T.A. NO. 1493/MDS/2015 14. THE LD AR REITERATED THE SUBMISSIONS MADE BEFO RE THE LD CITA. IN RESPONSE TO THIS, THE LD DR VEHEMENTLY RELIED ON TH E ORDERS OF THE LOWER AUTHORITIES. 15. WE HAVE HEARD THE RIVAL SUBMISSIONS. WE FIND FROM THE NATURE OF SERVICES RENDERED BY TRW AUTOMOBILE JAPAN AND TRW A UTOMOBILE USA , THOUGH THE SAME FALL UNDER THE AMBIT OF FEES FOR TE CHNICAL SERVICES AS PER THE PROVISIONS OF THE ACT, BUT THE SAME DOES NOT FALL A S SUCH AS PER THE RESPECTIVE DTAAS IN VIEW OF THE FACT THAT IT CANNOT BE SAID T HAT THE RENDERING OF SERVICES BY THE NON RESIDENTS TO THE ASSESSEE MADE AVAILABLE TO THE ASSESSEE , SUCH SERVICES , FOR ITS FUTURE USE OR UTILIZATION ON A R EASONABLY PERMANENT BASIS. FOR THE DETAILED REASONING GIVEN FOR THE GROUNDS 2. 1 TO 2.7 HEREINABOVE ON THE MAKE AVAILABLE THEORY, WE HOLD THAT THE SUBJECT MENTIONED PAYMENTS MADE TO TRW AUTOMOBILE JAPAN AND TRW AUTOMOBILE USA BY THE ASSESSEE WOULD NOT FALL UNDER THE AMBIT OF FEES FOR TECHNICA L SERVICES OR FEES FOR INCLUDED SERVICES AS PER THE TREATY. THE PROVISIO NS OF SECTION 90(2) OF THE ACT ARE VERY CLEAR THAT THE ASSESSEE IS ENTITLED TO TAK E THE BENEFIT OF THE TREATY IF THE SAME IS BENEFICIAL TO IT . HENCE THE PROVISIO NS OF THE TREATY WOULD PREVAIL OVER THE ACT. HENCE WE HOLD THAT THE ASSESSEE IS N OT OBLIGATED TO DEDUCT TAX AT SOURCE AND HENCE NO DISALLOWANCE U/S 40(A)(I) OF THE ACT WOULD OPERATE IN :-25-: I.T.A. NO. 1493/MDS/2015 THE FACTS AND CIRCUMSTANCES OF THE CASE. ACCORDINGL Y THE GROUNDS 3 TO 3.5 RAISED BY THE ASSESSEE ARE ALLOWED. 16. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED ON TUESDAY, THE 14TH DAY OF FEBRUA RY, 2017 AT CHENNAI. SD/ - ( ' # . $ ) (DUVVURU RL REDDY) /JUDICIAL MEMBER SD/ - ( ) (M. BALAGANESH) / ACCOUNTANT MEMBER /CHENNAI, 3 /DATED: 14TH FEBRUARY, 2017 JPV * -&45 65 /COPY TO: 1. ) APPELLANT 2. -.) /RESPONDENT 3. 7 ( )/CIT(A) 4. 7 /CIT 5. 5 -&& /DR 6. 9 /GF