ROSOBORONSERVICE (INDIA) LTD, NAVI MUMBAI V. ASST CIT (TDS) 3(2), MUMBAI

ITA 154/MUM/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 8335 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 19 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 27-02-2017
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Next Hearing Date: 22-12-2016
• Assessment Year: 2009-2010
• Appeal Filed On: 08-01-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ASGAR ZAIN V P
• Assessee Lawyers: SANJAY RANE
• Keywords: Double taxation relief; Principle of natural justice; Services rendered outside India; Deemed to accrue or arise in india; Additional evidence
• Section: 143(3); 201(1)

Judgement Text

I IN THE INCOME TAX APPELLATE TRIBUNAL I BENCH, MUMBAI BEFORE SHRI C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAMIT KOCHAR, ACCOUNTANT MEMBER ./ I.T.A. NO.154/ MUM/2015 ( / ASSESSMENT YEAR : 2009-10) M/S ROSOBORONSERVICE (INDIA) LTD., PLOT NO. R-700, TTC INDUSTRIAL AREA, MIDC RABALE, POST: GHANSOLI, NAVI MUMBAI 400 701. / V. ACIT TDS- 3(2), 10 TH FLOOR, SMT. K.G. MITTAL AYURVEDIC BUILDING, OPP. CHARNI ROAD STATION (WEST), MUMBAI 400 002. ./ PAN : AADCR0040B ( / APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY : SHRI SANJAY RANE REVENUE BY : SHRI ASGARZAIN V P , DR / DATE OF HEARING : 30-01-2017 / DATE OF PRONOUNCEMENT : 27-02-2017 / O R D E R PER RAMIT KOCHAR, ACCOUNTANT MEMBER THIS APPEAL, FILED BY THE ASSESSEE, BEING ITA NO. 154/MUM/2015, IS DIRECTED AGAINST THE APPELLATE ORDER DATED 1ST OCTO BER, 2014 PASSED BY THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS)- 14, M UMBAI (HEREINAFTER CALLED THE CIT(A)), FOR ASSESSMENT YEAR 2009-10, THE APPELLATE PROCEEDINGS BEFORE THE LEARNED CIT(A) ARISING FROM THE ORDER DA TED 17 TH JANUARY, 2014 PASSED BY LEARNED ASSESSING OFFICER ( HEREINAFTER C ALLED THE AO ) U/S 201(1)/201(1A) OF THE INCOME-TAX ACT,1961 (HEREINAF TER CALLED THE ACT). ITA 154/MUM/2015 2 2. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE IN MEMO OF APPEAL FILED WITH THE INCOME-TAX APPELLATE TRIBUNAL, MUMBAI (HER EINAFTER CALLED THE TRIBUNAL) READ AS UNDER:- 1) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) -14 HAS ERRED IN HOLDING THAT THE ASSESSEE WAS LIABLE TO DEDUCT THE TAX ON SALARY PAID MR. A.D. NEGREEV AND MR. ALEXANDER V. GORELYSHEV FOR MANAGER IAL FEES. SHE OUGHT NOT TO HAVE DONE SO. 2) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AN D IN LAW, THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) -14 HAS CATEGORICALLY SAID IN HER ORDER DTD.01.10.2014, THAT SHE DOES NOT FIND ANY CONGRUITY WITH THE ORDER OF THE LEARNED. CIT (A) - 22. AT THE SAM E TIME, SHE HAS PASSED ORDER SAYING APPEAL IS DISMISSED. SHE OUGHT TO BE UNAMBIGUOUS IN HER VIEWS IN DECIDING THE APPEAL. THE LEARNED CIT (A) - 22, WAS NOT JUSTIFIED IN HOLDIN G THAT THE PAYMENT FALLS UNDER THE PROVISIONS OF SECTION 194J OF THE INC OME TAX ACT, 1961, I.E. FEES FOR PROFESSIONAL OR TECHNICAL SERVICES ON WHICH TDS IS REQUIRED TO BE MADE, WHEREAS THE AMOUNT PAID / PAYABLE TO TWO NO N-RESIDENT DIRECTORS, I.E. MR. AD. NEGREEV AND MR. ALEXANDER V. GORELYSHEV ARE SALARIES FOR THE SERVICES RENDERED OUTSIDE INDIA AS THEIR EMPLOYMENTS ARE EXERCISED IN RUSSIAN FEDERATION, WHICH ARE NOT TAX ABLE IN INDIA. HE OUGHT NOT TO HAVE DONE SO. 3) ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, BOTH, THE LEARNED ACIT- TDS -3 (2) AND THE LEARNED CI T (A) -14 ERRED IN RECOGNISING THE FACT, THE APPELLANT HAS ALREADY PREFER RED APPEAL BEFORE THE ITAT, MUMBAI AGAINST THE ORIGINAL ORDER PASSED BY THE LEARNED ITO - 10 (3) (4) U/S 143 (3) OF THE INCOME TAX ACT, 1961 AGAINST DISALLOWANCE OF SALARIES PAID/PAYABLE TO TWO NON-RES IDENT DIRECTORS. THE APPEAL IS YET TO BE HEARD BY THE ITAT AS 'D' BENCH DID NOT FUNCTION ON THE SCHEDULED DATES IN THE LAST CALENDAR YEAR. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE A.O. DU RING THE PROCEEDINGS U/S 201(1)/201(1A) OF THE ACT OBSERVED THAT THE ASSESSE E HAS MADE PAYMENT OF RS. 42 LACS TO ITS DIRECTORS IN RUSSIA ON WHICH TAX HAS NOT BEEN DEDUCTED AT SOURCE. THE ASSESSEE WAS SHOW CAUSED ON THIS ISSUE AND IN REPLY THE ASSESSEE SUBMITTED THAT THE SAID PAYMENT WAS MADE T O ITS TWO FOREIGN ITA 154/MUM/2015 3 DIRECTORS ONE MR. A.D. NEGREEV AND MR. ALEXANDER V. GORELYSHEV AND BOTH THESE DIRECTORS WERE EMPLOYEES OF THE COMPANY. THE Y WERE NON-RESIDENT DIRECTORS WHO WERE NOT TAX-RESIDENT OF INDIA . HENC E, THEIR SALARIES ARE NOT TAXABLE IN INDIA , AND THAT IS WHY THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE WHILE MAKING PAYMENT OF SALARY OF RS. 42 LACS TO TH ESE DIRECTORS. THE A.O. AFTER CONSIDERING THE REPLY OF THE ASSESSE E REJECTED THE SAME FOR THE FOLLOWING REASONS:- 3. THE REPLY FILED BY THE ASSESSEE IS CAREFULLY CO NSIDERED, BUT THE SAME IS NOT ACCEPTABLE. IN THIS CASE, IN THE ASSESS MENT ORDER DATED 14.12.2011, THE ASSESSING OFFICER DISALLOWED AMOUNT OF RS.42 LAKH U/S 40A(III) OF THE IT. ACT. THE RELEVAN T PARA OF THE ORDER IS REPRODUCED AS UNDER:- '3.1 ON PERUSAL OF SCHEDULE 18 OF THE TAX AUDIT REP ORT U/S 44AB OF THE ACT, IT IS SEEN THAT UNDER THE SAID CLAUSE VIZ; PARTICULARS OF PAYMENT MADE TO PERSONS SPECIFI ED U/S 40A(2)(B) IT WAS SHOWN THAT SALARY AND PERFORMANCE BONUS WAS PAID TO FOREIGN DIRECTORS AT RS.42,00,000/-. IN VIEW OF THIS INFORMATION, THE ASSESSEE WAS ASKED VIDE LETTE R DATED 30-05-2011 TO FURNISH THE FULL DETAILS OF THIS PAYM ENT AND ALSO ASKED TO FILE THE DETAILS OF TDS DEDUCTED WHIL E MAKING PAYMENT TO NON RESIDENT DIRECTORS AS PER THE PROVIS IONS OF CH.XVII-B OF THE ACT. IN RESPONSE TO THIS LETTER TH E ASSESSEE HAS SUBMITTED THE REPLY VIDE ITS LETTER DATED 02.07 .2011. AS PER THE DETAILS THE FOLLOWING AMOUNTS HAVE BEEN PAI D AS REMUNERATION TO NON RESIDENT DIRECTORS ; A) MR. ANATOLY NEGREEV RS. 24,00,000/- B) MR. GRELYSHE ALEXANDER RS. 18,00,000/- TOTAL RS. 42,00,000/- 3.2 THE ASSESSEE HAS DURING THE ASSESSMENT PROCEEDI NGS STATED THAT THE TDS HAS NOT BEEN DEDUCTED ON REMITT ANCES PAID TO FOREIGN DIRECTORS SINCE INDO-RUSSIAN DTAA IS APP LICABLE. HOWEVER, IT IS NOTICED THAT THE ASSESSEE COMPANY HA S NOT DEDUCTED ANY TAX WHILE REMITTING THE PAYMENT AS PRO VIDED WITH ITA 154/MUM/2015 4 THE PROVISION OF CHAPTER XVII-B REGARDING DEDUCTION OF TAX AT SOURCE. AS PER CLAUSE (III) SUB SECTION (A) OF SECT ION 40 THE AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCO ME CHARGEABLE UNDER THE HEAD 'PROFIT AND GAINS OF BUSI NESS OR PROFESSION IN THE CASE OF ANY ASSESSEE, ANY PAYMENT WHICH IS CHARGEABLE UNDER THE HEAD SALARIES, IF IT IS PAYA BLE. IN THE INSTANT CASE SALARY HAS BEEN PAID OUTSIDE IN DIA TO FOREIGN DIRECTORS WHO ARE NON RESIDENTS. FROM THE ABOVE, IT IS CLEAR THAT THE ASSESSEE VIOLATED THE PROVISIONS AS CONTAINED I N SEC.40(A)(III) AND OUGHT TO HAVE DEDUCTED TDS AS PER SEC.40(A}(III ). SINCE THE WITHHOLDING TAX HAS NOT BEEN DEDUCTED, THEREFORE TH E AMOUNT OF RS. 42 LAKH IS DISALLOWED AND ADDED BACK TO THE TOT AL INCOME OF THE ASSESSEE U/S 40(A)(IIII) OF THE ACT. THE AO ALSO OBSERVED THAT ON APPEAL, THE LD. CIT(A) -22 VIDE HIS ORDER DATED 7 TH MARCH, 2012 HAS CONFIRMED THE DISALLOWANCE IN QUAN TUM PROCEEDINGS BY HOLDING AS UNDER:- I HAVE GONE THROUGH THE ASSESSMENT, ORDER, PERUSED THE SUBMISSIONS MADE BY THE APPELLANT AND ALSO DISCUSSE D THE CASE WITH THE A.R. OF THE APPELLANT. AO NOTED FROM THE T AX AUDIT REPORT THAT ASSESSEE HAD MADE PAYMENT TO THE FOREIG N DIRECTORS AT RS. 42 LAKHS BEING RS. 24 LAKH TO MR. ANATOLY NE GREEV AND RS. 18 LAKH TO MR. GORELYSHEV ALEXANDER. THE AO ALSO NO TED THAT IN THIS CASE SALARY ARE CREDITED TO FOREIGN DIRECTORS TO WHICH PROVISIONS OF SEC.40(A)(III) ARE APPLICABLE AND SIN CE THE TAX HAVE NOT BEEN DEDUCTED. HE DISALLOWED THE FULLY SALARY O F RS.42 LAKH. BEFORE ME, IT WAS SUBMITTED THAT SEC.40(A){III) APP LIES ONLY WHEN THE SALARY IS CHARGEABLE UNDER THE HEAD 'SALARIES' AND SINCE AS PER PROVISIONS OF SEC. 9(1)(III) SERVICES ARE NOT R ENDERED IN INDIA, THE SALARIES PAID TO FOREIGN DIRECTORS ARE NOT EARN ED IN INDIA AND HENCE IT CANNOT BE DEEMED TO BE ACCRUED IN INDIA AN D HENCE NO TDS WAS DEDUCTIBLE. I HAVE CONSIDERED THE CASE OF T HE APPELLANT AND ALSO PERUSED COPY OF THE AGREEMENT FURNISHED FO R PAYMENT OF SO CALLED SALARIES TO THESE PERSONS. AS PER AGREEME NT DATED 30.3.2007 THE AMOUNT IS STATED TO BE PAYABLE TO THE SE PERSONS FOR PERFORMING FOLLOWING DUTIES: 'DUTIES AND POWER.' THE COMPANY HEREBY RETAINS EMPL OYEE AND EMPLOYEE HEREBY ACCEPTS EMPLOYMENT AS THE COMPA NYS ITA 154/MUM/2015 5 DIRECTOR (BUSINESS DEVELOPMENT). AS DIRECTOR (BUSIN ESS DEVELOPMENT), EMPLOYEE SHALL BE RESPONSIBLE FOR PRO MOTING THE BUSINESS OF THE COMPANY, MANAGING THE DAY-TO-DAY OP ERATIONS OF COMPANY IN RUSSIA AND ITS OFFICE IN MOSCOW AND SUBJ ECT TO THE RIGHTS AND POWERS OF COMPANYS BOARD OF DIRECTORS A ND STOCKHOLDERS, SHALL HAVE SUCH FUNCTIONAL AUTONOMY A S IS CONSISTENT WITH HIS OFFICE.' FROM THE ABOVE, IT MAY BE NOTED THAT THE PAYMENT HA S BEEN MADE BY THE APPELLANT COMPANY TO MR. ANATOLY NEGREE V AND MR. GORELYSHEV ALEXANDER FOR MANAGING DAY TO DAY OPERAT IONS OF THE COMPANY IN RUSSIA AND ITS OFFICE IN MOSCOW AND HENC E THE CASE FALLS UNDER THE PROVISION OF SEC. 194J I.E. FEES FO R PROFESSIONAL OR TECHNICAL SERVICES ON WHICH TDS IS REQUIRED TO BE M ADE. EXPLANATION (2) TO SEC. 9(1)(VII) DEFINES THE TERM 'FEES FOR TECHNICAL SERVICES' AS UNDER :- 'EXPLANATION (2) - FOR THE PURPOSE OF THIS CLAUSE, 'FEES FOR TECHNICAL SERVICES' MEANS ANY CONSIDERATION (INCLUD ING ANY LUMP SUM CONSIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCL UDING THE PROVISION OF' SERVICES OF TECHNICAL OR OTHER PE RSONNEL) BUT DOES NOT INCLUDE CONSIDERATION OF ANY CONSTRUCT ION, ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD 'SALARIES'. FROM THE RELEVANT CLAUSE IN THE AGREEMENT IT IS CLE AR THAT THE PAYMENT IS MADE TO MANAGE DAY TO DAY OPERATIONS OF THE COMPANY IN RUSSIA AND SINCE RENDERING OF MANAGERIAL SERVICES IS INCLUDED IN THE PAYMENT OF FEES' FOR TECHNICAL SERV ICES, THE PROVISIONS OF SEC.194J ARE APPLICABLE.' COMING TO T HE ISSUE OF BEING NON-RESIDENT, EXPLANATION TO SEC. 9(2) IS REL EVANT WHICH IS REPRODUCED AS UNDER:- 'EXPLANATION - FOR THE REMOVAL OF DOUBTS, IT IS HER EBY DECLARED THAT FOR THE PURPOSES OF THIS SECTION, INC OME OF A NON RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CLAUSE (V) OR CLAUSE (VI) OR CLAUSE (VII) OF SUB SECTION (1) AND SHALL BE INCLUDED IN THE TOTAL INCOME OF TH E NON RESIDENT, WHETHER OR NOT ITA 154/MUM/2015 6 (I) THE NON RESIDENT HAS A RESIDENCE OR PLACE OF BUSINE SS OR BUSINESS CONNECTION IN INDIA; OR (II) THE NON RESIDENT HAS RENDERED SERVICES IN INDIA FROM THE ABOVE EXPLANATION IT MAY BE NOTED THAT SAM E HAS BEEN MADE APPLICABLE W.E.F. 01,06.1976 AND APPLIES TO TH E YEAR UNDER CONSIDERATION. THUS, EVEN WHERE NON RESIDENT HAS NO T RENDERED ANY SERVICES IN INDIA AS INCOME SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA BEING FEES FROM TECHNICAL SERVICES. THE ASSESSEE CLAIMS THAT THE PAYMENT IS ON ACCOUNT OF SALARY, BU T DURING THE COURSE OF HEARING THE AR OF THE APPELLANT CONFIRMED THAT NO OTHER PAYMENT (EG. PERQUISITE, ETC.) THAN THIS AMOUNT HAS BEEN MADE TO THOSE PERSONS IN RUSSIA. THUS, MERELY BY MENTIONING THE NATURE OF PAYMENT AS SALARY TO THE EMPLOYEE THE SAME DOES NOT AMOUNT TO SALARY. AS PER COPY OF PASSPORT OF MR. ANATOLY N EGREEV, HE NEVER VISITED INDIA DURING THIS FINANCIAL YEAR AND HENCE NOT PARTICIPATED IN PROCEEDINGS OF THE COMPANY. THE MAN AGERIAL FEES OF THESE PERSONS PAID IN RUSSIA ON BEHALF OF THE AP PELLANT IS CERTAINLY FEES FOR THE TECHNICAL SERVICES. HENCE I AM OF THE CONSIDERED OPINION THAT FOR NON DEDUCTION OF THE TA X, THE PAYMENTS WERE DISALLOWABLE U/S.40(A)(IA). ACCORDING LY, THE DISALLOWANCE MADE BY THE AO IS UPHELD. BASED UPON THE ABOVE QUANTUM PROCEEDINGS IN FIRST R OUND OF LITIGATION, THE A.O. HELD THAT THE ASSESSEE WAS LIABLE TO DEDUCT TA X AT SOURCE ON PAYMENT OF RS. 42 LAKHS TO THESE FOREIGN DIRECTORS AND THE TDS RATE ON PROFESSIONAL/TECHNICAL FEES IS 10%, HENCE, ASSESSEE IS HELD TO BE AN ASSESSEE- IN- DEFAULT U/S 201/201(A) OF THE ACT WHEREBY HE PA SSED THE ORDER DATED 17.1.2014 AND THE DEMAND WAS RAISED AS UNDER:- INTEREST FOR THE PERIOD FROM 1.4.2009 TO 17.1.2014 58 MONTHS @ 1% P.M. =RS. 4,87,200 TDS DEFAULT U/S 201(1) =RS. 8,40,000/- INTEREST U/S 201(1A) =RS.4,87,200/- TOTAL =RS.13,27,200/- 4. AGGRIEVED BY THE ORDER DATED 17-01-2014 PASSED T HE A.O. U/S 201(1) AND 201(1A) OF THE ACT, THE ASSESSEE FILED FIRST APPEA L BEFORE THE LD. CIT(A) WHO ITA 154/MUM/2015 7 CONFIRMED THE ORDER OF THE A.O. VIDE APPELLATE ORDE R DATED 01-10-2014 PASSED BY LEARNED CIT(A). 5. HENCE BEING AGGRIEVED , THE ASSESSEE IS IN FURT HER APPEAL BEFORE THE TRIBUNAL AGAINST THE APPELLATE ORDER DATED 01-10-20 14 PASSED BY LEARNED CIT(A). 6. THE LD. COUNSEL FOR THE ASSESSEE, AT THE OUTSET, SUBMITTED THAT THE SCRUTINY ASSESSMENT WAS FRAMED U/S 143(3) OF THE AC T WHEREIN IT WAS HELD BY THE A.O. IN FIRST ROUND OF LITIGATION THAT THE ASSE SSEE HAS PAID SALARY TO THE NON-RESIDENT DIRECTORS AND THE AMOUNT WAS DISALLOWE D U/S 40(A)(III) OF THE ACT AS TAX WAS NOT DEDUCTED AT SOURCE ON THE SALARIES P AID TO FOREIGN DIRECTORS WHO WERE NON-RESIDENTS. THE LD. CIT(A) IN THE FIRST APPEAL AGAINST QUANTUM ASSESSMENT IN THE FIRST ROUND OF LITIGATION HELD T HAT THE PAYMENT MADE BY THE ASSESSEEE TO THESE FOREIGN DIRECTORS ARE FEE FOR TE CHNICAL SERVICES. THE MATTER WENT UP TO THE TRIBUNAL IN THE FIRST ROUND OF LITIG ATION AND THE TRIBUNAL IN APPEAL IN THE QUANTUM PROCEEDINGS IN ITA NO. 2039/M /2012 FOR ASSESSMENT YEAR 2009-10 VIDE ORDERS DATED 11 TH MARCH, 2015 REMITTED THE MATTER BACK TO THE FILE OF THE A.O. WITH THE FOLLOWING DIRECTIONS: - AFTER HEARING BOTH THE PARTIES AND PERUSAL OF THE ORDERS OF THE REVENUE AUTHORITIES AS WELL AS THE RELEVANT MATERIA L FILED BEFORE US, WE FIND THE ADMITTING OF THE ADDITIONAL EVIDENC E IS IN THE INTEREST OF JUSTICE. ON PERUSAL OF THE SAID ADDITI ONAL EVIDENCES/DOCUMENTS PLACED BEFORE US, CONSIDERING T HE IMPORTANCE OF THE SAID DOCUMENTS, WE FIND IT RELEVANT TO ADMIT THE SAME. ACCORDINGLY, WE ADMIT THE ADDITIONAL EVIDENCES/DOCU MENTS FILED BY THE ASSESSEE AND REMAND THEM TO THE FILE OF THE ASSESSING OFFICER. ASSESSING OFFICER SHALL CONSIDER THE SAME AND DECIDE THE ISSUE AFRESH AFTER AFFORDING A REASONABLE OPPORTUNI TY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUNDS RAISED BY THE ASSESSEE ARE ALLOWED FOR STATISTICAL PURPOSES. ITA 154/MUM/2015 8 IT IS SUBMITTED THAT THE A.O. HAS NOW FRAMED THE QU ANTUM ASSESSMENT ORDER IN SECOND ROUND OF LITIGATION IN COMPLIANCE WITH TH E DIRECTION GIVEN BY THE TRIBUNAL IN ITA NO. 2039/M/2012 VIDE ORDERS DATED 1 1-3-2015 , WHEREIN THE ASSESSMENT IS NOW FRAMED BY THE AO U/S 143(3) R.W.S . 254 OF THE ACT VIDE ORDERS DATED 18 TH OCTOBER, 2016 WHEREIN THE A.O. HAS HELD THAT THESE PAYMENTS WHICH ARE MADE BY THE ASSESSEE TO ITS NON- RESIDENT DIRECTORS ARE SALARIES ON WHICH TAX HAS NOT BEEN DEDUCTED AT SOUR CE AND HENCE THE ADDITIONS WERE MADE BY THE AO BY DISALLOWING SAID S ALARY OF RS. 42 LACS U/S 40(A)(III) OF THE ACT . THE RELEVANT PART OF THE A SSESSMENT ORDER DATED 18-10- 2016 PASSED BY THE A.O. U/S 143(3) R.W.S. 254 OF TH E ACT IS REPRODUCED BELOW:- THE SUBMISSIONS MADE ON BEHALF OF THE ASSESSEE COM PANY HAVE BEEN CAREFULLY CONSIDERED. IN ITS SUBMISSION THE AS SESSEE HAS EXPLAINED THAT THERE DOES NOT EXIST ANY TAX EXIGENC Y IN RESPECT OF THE PAYMENT MADE BY IT TO ITS DIRECTORS. THE ASSESS EE COMPANY STATED THAT THE TDS HAS NOT BEEN DEDUCTED ON REMITT ANCES PAID TO FOREIGN DIRECTORS SINCE INDO-RUSSIAN DTAA IS APP LICABLE. HOWEVER, IT IS NOTICED THAT THE ASSESSEE COMPANY HA S NOT DEDUCTED NOT TAX WHILE REMITTING THE PAYMENT AS PRO VIDED WITH THE PROVISION OF CHAPTER XVII-B REGARDING DEDUCTION OF TAX AT SOURCE. A PLAIN READING OF SECTION 40(A)(III) INDICATE THAT NO DEDUCTION WOULD BE ALLOWABLE IN RESPECT OF ANY PAYM ENTS CHARGEABLE UNDER THE HEAD 'SALARIES' IF (A) THE SAM E ARE PAYABLE OUTSIDE INDIA AND (B) IF TAX HAS NOT BEEN PAID OR D EDUCTED THEREON UNDER CHAPTER XVII B OF THE ACT. THE SAID CLAUSE (I II) WAS SUBSTITUTED BY VIRTUE OF THE FINANCE ACT, 2003 WITH EFFECT FROM 1- 4-2004. BY VIRTUE OF THE AFORESAID AMENDMENT, THE R IGOR OF SUB CLAUSE (III) OF CLAUSE (C) OF SECTION 40 NOW ALSO E XTENDS TO ANY AMOUNT PAYABLE AS SALARIES IN INDIA. PLAINLY, THE P RINCIPAL OBJECT OF THE AFORESAID SUB CLAUSE (III) IS TO PROVIDE A F URTHER DISINCENTIVE FOR NON-COMPLIANCE OF PROVISIONS OF SECTION 192. [P ARA 11). FURTHER THE PROVISIONS OF SECTION 9(1)(II) SPEAKS A BOUT THE SALARY EARNED IN INDIA AND NOT ABOUT SALARY PAID TO NON RESIDENT. FOREIGN DIRECTORS. AS THE ASSESSEE COMPANY HAS NOT DEDUCTED TAX ITA 154/MUM/2015 9 ON THE SALARY PAID TO NON RESIDENT DIRECTOR'S, THER EFORE NO RELIEF IS ALLOWED TO ASSESSEE COMPANY UNDER THIS HEAD AND ADD ITIONS OF RS. 42 LACS MADE U/S 40(A)(III) OF I.T. ACT IS SUST AINED. . THUS, IT IS SUBMITTED THAT WHILE FRAMING ORDER DATE D 17.1.2014 U/S 201(1)/201(1A) OF THE ACT BY THE AO WHICH WAS LATER UPHELD BY LEARNED CIT(A) VIDE APPELLATE ORDER DATED 01-10-2014, THE A.O. AND THE LD. CIT(A) HAS FRAMED ORDERS ON THE WRONG PREMISE THAT THE PAYMENTS MADE BY THE ASSESSEE WERE PROFESSIONAL/TECHNICAL FEES , WHICH HAS NOW BEEN AD JUDICATED BY THE AO IN QUANTUM PROCEEDINGS IN SECOND ROUND OF LITIGATION I N COMPLIANCE OF ORDER OF TRIBUNAL DATED 11.03.2015 IN ITA NO. 2039/MUM/2012 FOR ASSESSMENT YEAR 2009-10, WHEREIN THE AO HAS HELD THAT THE ASSESSEE MADE PAYMENT OF SALARY OF RS. 42 LACS TO ITS NON-RESIDENT DIRECTORS INSTEA D OF PAYMENT BEING IN THE NATURE OF PROFESSIONAL/TECHNICAL FEE. THUS, IT W AS PRAYED BY LEARNED COUNSEL FOR THE ASSESSE BEFORE THE TRIBUNAL THAT THE MATTER MAY BE SET ASIDE AND RESTORED TO THE FILE OF THE A.O. FOR DE-NOVO DETERM INATION OF THE ISSUE ON MERITS IN PROCEEDINGS U/S 201(1)/201(1A) OF THE ACT AS THE WHOLE PREMISE OF THE ORDER U/S 201(1) AND 201(1A) WHICH WAS CONFIRMED BY LEARNED CIT(A) IS WRONG AS IT TREATED THE SAID PAYMENT OF RS. 42 LACS TO IT S DIRECTORS AS PROFESSIONAL/TECHNICAL FEE. 7. THE LD. D.R. SUBMITTED THAT THE PAYMENTS HAVE BE EN MADE TO THE FOREIGN NATIONALS WHO ARE NON-RESIDENTS TO THE TUNE OF RS. 42 LACS ON WHICH TAX WAS NOT DEDUCTED AT SOURCE AND HENCE THE ASSESS EE IS AN ASSESSEE IN DEFAULT AS CONTEMPLATED U/S 201(1) AND 201(1A) OF T HE ACT. IT WAS SUBMITTED THAT SINCE IN PURSUANCE OF THE ORDER OF TRIBUNAL IN QUANTUM PROCEEDINGS IN FIRST ROUND OF LITIGATION, THE AO HAS HELD THE NATU RE OF PAYMENT TO BE SALARY IN SECOND ROUND OF LITIGATION, THE MATTER MAY BE SET A SIDE TO THE FILE OF THE AO FOR DE-NOVO DETERMINATION OF ISSUE ON MERITS IN ACCORDA NCE WITH LAW. ITA 154/MUM/2015 10 8. WE HAVE CONSIDERED RIVAL CONTENTIONS AND ALSO PE RUSED THE MATERIAL AVAILABLE ON RECORD. WE HAVE OBSERVED THAT AN AMOU NT OF RS. 42 LACS WAS PAID BY THE ASSESSEE TO THE FOREIGN NON-RESIDENT DI RECTORS WHEREBY THE A.O. HAS NOW HELD IN SECOND ROUND OF LITIGATION IN SET-A SIDE QUANTUM ASSESSMENT PROCEEDINGS VIDE HIS ORDER DATED 18-10-2016 PASSED U/S 143(3) R.W.S. 254 OF THE ACT AS PAYMENT OF SALARIES ON WHICH NO TAX WAS DEDUCTED AT SOURCE BY THE ASSESSEE WHEREIN THE A.O. MADE AN ADDITION OF RS. 42 LACS AS INCOME OF THE ASSESSEE AFTER HOLDING THAT THE ASSESSEE DID NOT CO MPLY WITH THE PROVISIONS OF SECTION 40(A)(III) OF THE ACT . ORDER U/S 201(1)/ 201(1A) OF THE ACT FRAMED BY THE REVENUE WHICH IS CONFIRMED BY THE LD. CIT(A) WA S BASED ON THE PREMISE THAT THESE PAYMENTS WERE MADE TO FOREIGN NON-RESIDE NT DIRECTORS TOWARDS PROFESSIONAL/TECHNICAL FEES , WHICH VIEW WAS TAKEN BASED ON THE VIEW TAKEN BY THE LEARNED CIT(A) IN FIRST APPEAL IN QUANTUM AS SESSMENT PROCEEDINGS IN THE FIRST ROUND OF LITIGATION. HENCE, IN OUR CON SIDERED VIEW, THE ORDER U/S 201(1)/201(1A) OF THE ACT WHICH IS CONFIRMED BY THE LD. CIT(A) CANNOT BE SUSTAINED NOW KEEPING IN VIEW DETAILED DISCUSSIONS IN THE PRECEDING PARAS WHICH ARE NOT REPEATED HERE FOR SAKE OF BREVITY , A ND NEEDS TO BE SET ASIDE AND RESTORED TO THE FILE OF THE AO FOR DE-NOVO DETERMIN ATION OF THE MATTER ON MERITS IN ACCORDANCE WITH LAW IN THE LIGHT OF FRESH ASSESSMENT ORDER DATED 18- 10-2016 PASSED BY THE AO U/S 143(3) R.W.S. 254 OF T HE ACT IN QUANTUM ASSESSMENT PROCEEDINGS IN SECOND ROUND OF LITIGATIO N FRAMED BY THE A.O IN COMPLIANCE WITH THE DIRECTIONS OF THE TRIBUNAL VIDE ORDERS DATED 11-3-2015 (SUPRA) WHEREIN THE TRIBUNAL REMANDED THE MATTER TO THE FILE OF THE AO, WHEREIN SAID PAYMENT OF RS. 42 LACS MADE BY THE ASS ESSEE TO ITS FOREIGN DIRECTORS WHO ARE NON-RESIDENT WAS HELD TO BE SALAR Y PAYMENT BY THE AO IN QUANTUM PROCEEDINGS IN SECOND ROUND OF LITIGATION. THE ASSESSEE SHALL BE ALLOWED BY THE AO TO SUBMIT RELEVANT AND NECESSARY EVIDENCES AND EXPLANATIONS IN ITS DEFENSE IN SET ASIDE REMAND PRO CEEDINGS BEFORE THE AO IN ACCORDANCE WITH LAW. NEEDLESS TO SAY PROPER AND REA SONABLE OPPORTUNITY OF ITA 154/MUM/2015 11 BEING HEARD SHALL BE ALLOWED BY THE AO TO THE ASSES SEE IN ACCORDANCE WITH PRINCIPLES OF NATURAL JUSTICE IN ACCORDANCE WITH LA W. WE ORDER ACCORDINGLY. 9. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IN I TA NO. 154/MUM/2015 FOR ASSESSMENT YEAR 2009-10 IS ALLOWED FOR STATISTI CAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 27 TH FEBRUARY, 2017. # $% &' 27-02-2017 ( ) SD/- SD/- (C.N. PRASAD) (RAMIT KOCHAR) JUDICIAL MEMBER ACCOUNTANT MEMBER $ MUMBAI ; & DATED 27-02-2017 .9../ R.K. R.K. R.K. R.K. , EX. SR. PS !'#$%&%# / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT. 3. : ( ) / THE CIT(A)- CONCERNED, MUMBAI 4. : / CIT- CONCERNED, MUMBAI 5. =>( 99?@ , ?@ , $ / DR, ITAT, MUMBAI I BENCH 6. (BC D / GUARD FILE. / BY ORDER, = 9 //TRUE COPY// / ( DY./ASSTT. REGISTRAR) , $ / ITAT, MUMBAI