DCIT, CHENNAI V. Inzi Control India Limited, Sriperambudur

ITA 1820/CHNY/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 4211 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 6 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-08-2018
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 10-08-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: SRINIVASA RAO VANA
• Assessee Lawyers: S RAGHUNATHAN; SANKARA NARAYANAN
• Keywords: Double taxation relief; Permanent establishment

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL, B BENCH : CHENNAI . , !' # $! # % . &' , ) + , [BEFORE SHRI ABRAHAM P. GEORGE, ACCOUNTANT MEMBE R AND SHRI DUVVURU RL REDDY , JUDICIAL MEMBER ] ./I.T.A. NO.1820/CHNY/2015. / ASSESSMENT YEAR : 2010-2011. THE DEPUTY COMMISSIONER OF INCOME TAX, CORPORATE CIRCLE 2(2) CHENNAI 600 034. VS. M/S. INZI CONTROL INDIA LIMITED, NO.72, BANGALORE HIGHWAY, IRRUNGATTUKOTTAI VILLAGE, SRIPERUMBUDUR TALUK, TAMIL NADU 602 105. [PAN AAACP 5832C] ( -. / APPELLANT) ( /0-. /RESPONDENT) / APPELLANT BY : SHRI. SRINIVASA RAO VANA, JCIT. /RESPONDENT BY : SHRI. S. RAGHUNATHAN, AND SANKARA NARAYANAN, ADVOCATES. /DATE OF HEARING : 07-08-2018 ! /DATE OF PRONOUNCEMENT : 16-08-2018 1 / O R D E R PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER:- IN THIS APPEAL FILED BY THE REVENUE, WHICH IS DI RECTED AGAINST AN ORDER DATED 23.02.2015 OF LD. COMMISSION ER OF INCOME TAX (APPEALS)-6, CHENNAI, IT IS AGGRIEVED ON DELETION O F DISALLOWANCE MADE BY THE LD. ASSESSING OFFICER ON DEVELOPMENT FEES AN D ROYALTY PAID BY ITA NO.1820/CHNY /2015 :- 2 -: THE ASSESSEE TO A NON RESIDENT ENTITY FOR WANT O F DEDUCTION OF TAX AT SOURCE. 2. GROUND NO.2 OF THE REVENUE SUMMARIZES ITS GRIEVANC E AND THIS IS REPRODUCED HEREUNDER:- 2.1. THE ID. CIT(A) OUGHT NOT TO HAVE ALLOWED THE DEVELOPMENT FEES AND ROYALTY PAYMENTS TO NON- RESIDENTS CLAIMED BY THE ASSESSEE WHEN IT ATTRACTED THE PROVISIONS OF SECTION 40(A)(I) R.W.S. 195 OF TH E ACT. 2.2. THE ID. CIT(A) OUGHT TO HAVE APPRECIATED THAT WHEN THE .ASSESSEE COMPANY IS AN INDIAN COMPANY, IT OUGHT TO HAVE ABIDED BY THE PROVISIONS OF SEC.19 5 OF THE IT ACT , 1961. 2.3. THE ID. CIT(A) OUGHT TO HAVE APPRECIATED THAT CLAUSE 6 .OF ARTICLE 13 OF DTAA WITH KOREA SPECIFIE S 'ROYALTIES AND FEES FOR TECHNICAL SERVICES SHALL BE DEEMED TO ARISE IN A CONTRACTING STATE WHEN THE PAYER IS THAT STATE ITSELF, A POLITICAL SUB-DIVISION, A LOCAL AUTHORITY OR A RESIDENT OF THAT STATE'. 2.4. THE DECISION OF THE HON'BLE ITAT IN THE CASE OF PHA INDIA LIMITED HAS NOT BEEN ACCEPTED BY THE DEPARTMENT AND FURTHER APPEAL HAS BEEN PREFERRED BEFORE THE HON'BLE HIGH COURT OF MADRAS AND HAS NOT REACHED FINALITY. 3. FACTS APROPOS ARE THAT ASSESSEE AN INDIAN COMPANY ENGAGED IN MANUFACTURE OF AUTOMOBILE PARTS AND ACC ESSORIES HAD FILED ITS RETURN OF INCOME FOR THE IMPUGNED ASSESSMENT YE AR DISCLOSING INCOME OF C3,17,67,041/-. DURING THE COURSE OF AS SESSMENT PROCEEDINGS, IT WAS NOTED BY THE LD. ASSESSING OF FICER THAT ASSESSEE HAD CLAIMED EXPENSES IN THE NATURE OF INCURRED DEV ELOPMENT FEES AND ROYALTY, AGGREGATING TO C3,12,69,759/-. AS PER THE LD. ASSESSING ITA NO.1820/CHNY /2015 :- 3 -: OFFICER, THOUGH ASSESSEE HAD DEDUCTED TDS ON SUCH A MOUNT, IT DID NOT REMIT SUCH TAX TO THE EXCHEQUER BEFORE THE DATE OF FILING OF RETURN OF INCOME. LD. ASSESSING OFFICER APPLIED SECTION 40(A )(I) OF THE INCOME TAX ACT, 1961 (IN SHORT THE ACT) AND MADE A DISA LLOWANCE OF C3,12,69,759/-. 4. AGGRIEVED, ASSESSEE MOVED IN APPEAL BEFORE LD. CIT( A). ARGUMENT OF THE ASSESSEE WAS THAT THERE WERE NO PAY MENT OF ANY DEVELOPMENT FEES OR ROYALTY DURING THE RELEVANT PRE VIOUS YEAR. ACCORDING TO THE ASSESSEE, SUCH AMOUNTS WERE CREDIT ED TO THE ACCOUNTS OF THE NON-RESIDENT COMPANIES TO WHOM PAYM ENTS WERE DUE. CONTENTION OF THE ASSESSEE WAS THAT THE AMOUNTS REM AINED OUTSTANDING AS ON 31.03.2010 AND BY VIRTUE OF ARTIC LE 13 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) BETWEEN INDIA A ND KOREA, TAX LIABILITY ON A NON RESIDENT ON ROYALTY AND TECHNIC AL FEES, AROSE ONLY WHEN THE AMOUNTS WERE PAID TO SUCH NON-RESIDENTS. RELIANCE WAS PLACED BY THE ASSESSEE ON THE FOLLOWING DECISIONS O F DIFFERENT BENCHES OF THIS TRIBUNAL. 1 DCIT VS. PHA INDIA PVT. LTD, - ITA NO.167/168/168/MDS/2013 - ORDER DATED 11.03.2014. 2 PIZZ A HU T INTERNATIONAL LLC C/O. DINESH MAHTA & CO VS. DDIT (INTERNATIONAL TAXATION ) (2012) 54 SOT 425, DELHI. 3 CSC TE CHNOLOGY SINGAPORE PTE LTD. VS. ADIT (2012) 50 SOT ITA NO.1820/CHNY /2015 :- 4 -: 399 (DELHI). 4 DCIT VS. UHDE GMBH (1996) 54 TTJ 355 (BOM) 5 NATIONAL ORGANIC CHEMICAL INDUSTRIES LTD VS. DCIT, (2006) 5 SOT 317 (MUM) 5. LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS APPREC IATIVE OF THE ABOVE CONTENTIONS. ACCORDING TO HIM, TAX LI ABILITY ON THE NON- RESIDENT, IN RELATION TO ROYALTIES AND FEES FOR TEC HNICAL SERVICES, WOULD ARISE ONLY AT THE TIME WHEN SUCH AMOUNTS WERE PAID TO NON-RESIDENTS. AS PER THE LD. COMMISSIONER OF INCOME TAX (APPEALS) , ASSESSEE HAD NOT PAID THE AMOUNTS BEFORE THE END OF THE RELEVANT PREVIOUS YEAR. LD. COMMISSIONER OF INCOME TAX (APPEALS) ALSO NOTED THAT ASSESSEE, WHEN IT EFFECTED THE PAYMENTS IN THE SUBSEQUENT YE AR, HAD REMITTED THE DEDUCTED TAXES TO THE EXCHEQUER AS UNDER:- PARTY NAME NATURE OF EXPENDITURE AMOUNT IN INR TDS AMOUNT DATE OF TDS REMITTANCE INZI CONTROLS CO. LTD ROYALTY 82,36,890 10,85,598 20.11.2011 & 18.03.2011 INZI CONTROLS CO. LTD DEVELOPMENT FEE 2,30,32,869 24,31,698 18.01.2011 RELYING ON THE DECISIONS OF THE DIFFERENT BENCHES O F THE TRIBUNAL CITED BY US AT PARA 4 ABOVE, LD. COMMISSIONER OF INCOME TAX (APPEALS) HELD THAT SECTION 40(A)(I) OF THE ACT HAD NO APPLICATIO N, SINCE ASSESSEE WAS YET TO PAY THE DEVELOPMENT FEES AND ROYALTY, THOUG H SUCH EXPENSES WERE BOOKED IN ITS ACCOUNTS. HE DELETED THE DISALL OWANCE MADE BY THE LD. ASSESSING OFFICER. ITA NO.1820/CHNY /2015 :- 5 -: 6. NOW BEFORE US, LD. DEPARTMENTAL REPRESENTATIVE STR ONGLY ASSAILING THE ORDER OF THE LD. COMMISSIONER OF INCO ME TAX (APPEALS) SUBMITTED THAT ROYALTY AND FEES FOR TECHNICAL SERVI CES COULD BE TAXED IN A CONTRACTING STATE, BY VIRTUE OF CLAUSE (2) TO ARTICLE 13 OF THE DTAA. FURTHER, ACCORDING TO HIM, HONBLE APEX COU RT IN THE CASE OF PALAM GAS SERVICE VS. CIT, (2017) 394 ITR 300, HAD HELD THAT THE WORD PAYABLE AS APPEARING SECTION 40(A)(IA) OF THE ACT HAD TO BE CONSTRUED AS INCLUSIVE OF PAID AMOUNTS. THUS, ACC ORDING TO HIM, ASSESSEE WAS OBLIGED TO DEDUCT TAX AT SOURCE ON THE SUM OF C3,12,69,759/-. SINCE, ASSESSEE HAD NOT DONE SO, AS PER THE LD. DEPARTMENTAL REPRESENTATIVE, THE LD. ASSESSING OFFI CER WAS JUSTIFIED IN MAKING A DISALLOWANCE UNDER SECTION 40(A)(I) AND LD . COMMISSIONER OF INCOME TAX (APPEALS) FELL IN ERROR IN DELETING SUCH DISALLOWANCE. LD. DEPARTMENTAL REPRESENTATIVE SUBMITTED THAT DECISIO NS OF THIS TRIBUNAL RELIED ON THE LD. COMMISSIONER OF INCOME TAX (APPEA LS), WERE ALL RENDERED PRIOR TO JUDGMENT OF HONBLE APEX COURT I N THE CASE OF PALAM GAS SERVICE (SUPRA) AND THEREFORE COULD NOT BE CONSIDERED AS BINDING PRECEDENTS. 7. PER CONTRA, LD. AUTHORISED REPRESENTATIVE STRONGLY SUPPORTING THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (AP PEALS) SUBMITTED THAT MUMBAI BENCH OF THE TRIBUNAL IN THE CASE OF NATIONAL ORGANIC CHEMICAL INDUSTRIES LTD. (SUPRA) HAD, WITH REFERENCE TO ARTICLE 12(1) ITA NO.1820/CHNY /2015 :- 6 -: AND ARTICLE 12(2) OF INDO-USA TAX TREATY, WHICH WAS PARI MATERIA WITH ARTICLE 13(1) AND ARTICLE 13(2) OF INDO-KOREA DTAA, HELD THAT FOR TAXING ROYALTIES AND FEES FOR TECHNICAL SERVICES, T WIN CONDITIONS OF ACCRUAL AS ALSO THE PAYMENT WERE TO BE SATI SFIED. RELIANCE WAS ALSO PLACED ON THE DECISION OF AHMEDABAD BENCH OF T HE TRIBUNAL IN THE CASE OF SAIRA ASIA INTERIORS PVT. LTD VS. ITO, (2017) 164 I TD 687 . ACCORDING TO HIM, LD. COMMISSIONER OF INCOME TAX (A PPEALS) WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE U/S. 40 (A)(I) OF THE ACT. 8. WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSE D THE ORDERS OF THE AUTHORITIES BELOW. THERE IS NO DISP UTE THAT DEVELOPMENT FEES AND ROYALTY OF C3,12,69,759/- WAS CHARGED BY THE ASSESSEE IN ITS ACCOUNTS AS EXPENDITURE, BUT NOT PAID TO NON-RESIDE NTS, BEFORE THE END OF THE RELEVANT PREVIOUS YEAR. IN OTHER WORDS, THE AMOUNTS WERE SHOWN AS OUTSTANDING DUES BY THE ASSESSEE ON 31.03. 2010. THE QUESTION BEFORE US IS WHETHER TAX HAS TO BE DEDUCTE D AND REMITTED WITH REFERENCE TO THE DATE OF THE CHARGE OF THE EXP ENDITURE IN THE ACCOUNTS OR DATE OF ACTUAL PAYMENT. LD. COMMISSION ER OF INCOME TAX (APPEALS) HELD THAT ASSESSEE HAVING PAID DEVELOPMEN T FEES AND ROYALTY IN THE SUBSEQUENT YEAR, ITS LIABILITY TO DEDUCT AND PAY THE TAX, AROSE ONLY AT THE POINT OF TIME WHEN SUCH PAYMENTS WERE M ADE. AS AGAINST THIS, REVENUES ARGUMENT IS THAT ASSESSEE HAVING SH OWN THE SUM OF C3,12,69,759/- AS OUTSTANDING DUES AGAINST DEVELOP MENT FEES AND ITA NO.1820/CHNY /2015 :- 7 -: ROYALTY, IT SHOULD HAVE DEDUCTED TAX THEREON AND R EMITTED IT TO THE GOVERNMENT. AS PER THE REVENUE, ASSESSEE HAVING FA ILED TO DO SO, SECTION 40(A)(I) OF THE ACT STOOD ATTRACTED. 9. THERE IS NO DISPUTE THAT THE AMOUNTS WERE DUE TO A KOREAN CONCERN AND THE DTAA BETWEEN INDIA AND KOREA APPL IED FOR DECIDING ON THE TAXABILITY OF SUCH AMOUNTS IN THE HANDS OF T HE KOREAN CONCERNS. ARTICLE 13 OF THE SAID DTAA WHICH IS APPOSITE IS R EPRODUCED HEREUNDER:- 1. ROYALTIES AND FEES FOR TECHNICAL SERVICES ARISING I N A CONTRACTING STATE AND PAID TO A RESIDENT OF THE OTH ER CONTRACTING STATE MAY BE TAXED IN THAT OTHER STATE. 2. HOWEVER, SUCH ROYALTIES AND FEES FOR TECHNICAL SERV ICES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THEY ARISE AND ACCORDING TO THE LAWS OF THAT STATE, BUT IF THE RECIPIENT IS THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES, THE TAX SO CHARGED SHALL NOT EX CEED 15 PER CENT OF THE GROSS AMOUNT OF THE ROYALTIES OR FE ES FOR TECHNICAL SERVICES. 3. THE TERM ' ROYALTIES ' AS USED IN THIS ARTICLE MEAN S PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FO R THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITER ARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPH FILM, OR FI LMS OR TAPES USED FOR RADIO OR TELEVISION BROADCASTING, AN Y PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA O R PROCESS, OR FOR THE USE OF, OR THE RIGHT TO USE, IN DUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT, OR FOR INFORMAT ION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXP ERIENCE. 4. THE TERM ' FEES FOR TECHNICAL SERVICES ' AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND TO ANY PERSON, O THER THAN PAYMENTS TO AN EMPLOYEE OF THE PERSON MAKING T HE PAYMENTS AND TO ANY INDIVIDUAL FOR INDEPENDENT PERS ONAL SERVICES MENTIONED IN ARTICLE 15, IN CONSIDERATION FOR SERVICES OF MANAGERIAL, TECHNICAL OR CONSULTATIVE N ATURE, INCLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL. 5. THE PROVISIONS OF PARAGRAPHS 1 AND 2 OF THIS ARTICL E SHALL NOT APPLY IF THE BENEFICIAL OWNER OF THE ROYA LTIES OR FEES ITA NO.1820/CHNY /2015 :- 8 -: FOR TECHNICAL SERVICES, BEING A RESIDENT OF A CONTR ACTING STATE, CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE IN WHICH THE ROYALTIES OR FEES FOR TECHNICAL SERVICES ARISE THROUGH A PERMANENT ESTABLISHMENT SITUATED THERE OR PERFORM IN THAT OTHER STATE INDEPENDENT PERSONAL SE RVICES FROM A FIXED BASE SITUATED THEREIN, AND THE RIGHT, PROPERTY OR CONTRACT IN RESPECT OF WHICH THE ROYALTIES OR FEES FOR TECHNICAL SERVICES AND PAID IS EFFECTIVELY CONNECTE D WITH SUCH PERMANENT ESTABLISHMENT OR FIXED BASE. IN SUCH CASES THE PROVISIONS OF ARTICLE 7 OR ARTICLE 15, AS THE C ASE MAY BE, SHALL APPLY. 6. ROYALTIES AND FEES FOR TECHNICAL SERVICES SHALL BE DEEMED TO ARISE IN A CONTRACTING STATE WHEN THE PAY ER IS THAT STATE ITSELF, A POLITICAL SUB-DIVISION, A LOCA L AUTHORITY OR A RESIDENT OF THAT STATE. WHERE, HOWEVER, THE PERSON PAYING THE ROYALTIES OR FEES FOR TECHNICAL SERVICES, WHETH ER HE IS A RESIDENT OF A CONTRACTING STATE OR NOT HAS IN A CON TRACTING STATE A PERMANENT ESTABLISHMENT OR A FIXED BASE IN CONNECTION WITH WHICH THE OBLIGATION TO MAKE THE PA YMENTS WAS INCURRED AND THE PAYMENTS ARE BORNE BY THE PERM ANENT ESTABLISHMENT OR FIXED BASE, THEN THE ROYALTIES OR FEES FOR TECHNICAL SERVICES SHALL BE DEEMED TO ARISE IN THE CONTRACTING STATE IN WHICH THE PERMANENT ESTABLISHM ENT OR FIXED BASE IS SITUATED. 7. WHERE, OWING TO A SPECIAL RELATIONSHIP BETWEEN THE PAYER AND THE BENEFICIAL OWNER OR BETWEEN BOTH OF T HEM AND SOME OTHER PERSON, THE AMOUNT OF THE ROYALTIES OR F EES FOR TECHNICAL SERVICES PAID, HAVING REGARD TO THE USE, RIGHT OR INFORMATION FOR WHICH THEY ARE PAID, EXCEEDS THE AM OUNT WHICH WOULD HAVE BEEN AGREED UPON BY THE PAYER AND THE RECIPIENT IN THE ABSENCE OF SUCH RELATIONSHIP, THE PROVISIONS OF THIS ARTICLE SHALL APPLY ONLY TO THE LAST-MENTIO NED AMOUNT. IN SUCH CASES, THE EXCESS PART OF THE PAYMENTS SHAL L REMAIN TAXABLE ACCORDING TO THE LAW OF EACH CONTRACTING ST ATE DUE REGARD BEING HAD TO THE OTHER PROVISIONS OF THIS CONVENTION. FIRST CONTENTION OF THE LD. DEPARTMENTAL REPRESENTA TIVE IS THAT TERM PAID USED IN CLAUSE (1) WILL INCLUDE PAYABLE AMOUNT ALSO. TO BUTTRESS THIS ARGUMENT, RELIANCE HAS BEEN PLACED ON THE JUDGMENT OF HONBLE APEX COURT IN THE CASE OF PALAM GAS SERVICE (SUPRA ). SAID CASE CONCERNED INTERPRETATION OF SECTION 40(A)(IA) OF T HE ACT WHERE THE ITA NO.1820/CHNY /2015 :- 9 -: WORD PAYABLE OCCURRED AND THE WORD PAID WAS NOT MENTIONED. THEIR LORDSHIPS HELD THAT WORD PAYABLE APPEARIN G IN SECTION 40(A)(IA) OF THE ACT WOULD INCLUDE PAID AMOUNT ALSO. IN OUR OPINION, THIS JUDGMENT WOULD NOT AID THE REVENUE IN INTERPRETING, THE WORD PAID AS APPEARING CLAUSE (1) OF ARTICLE 13 OF THE DTAA. TERMS USED IN TREATIES ARE NOT TO INTERPRETED IN THE MANNER WHICH TERMS ARE USED IN A LEGISLATIVE EDICT IN THE FORM OF A STATUTE OR LAW. HONBLE APEX COURT HAD NOTED AS UNDER IN ITS JUDGMENT IN THE CASE OF UOI VS. AZADI BACHAO ANDOLAN (2006) 263 ITR 706, WHICH THROWS LIGHT ON THE MANNER WHICH A TREATY IS TO BE INTERPRETED. INTERPRETATION OF TREATIES, THE PRINCIPLES ADOPTE D IN INTERPRETATION OF TREATIES ARE NOT THE SAME AS THOS E IN INTERPRETATION OF STATUTORY LEGISLATION. WHILE COMMENTING ON THE INTERPRETATION OF A TREATY IMPORT ED INTO A MUNICIPAL LAW, FRANCIS BENNION OBSERVES : WITH INDIRECT ENACTMENT, INSTEAD OF THE SUBSTANTIV E LEGISLATION TAKING THE WELL-KNOWN FORM OF AN ACT OF PARLIAMENT, IT HAS THE FORM OF A TREATY. IN OTHER W ORDS THE FORM AND LANGUAGE FOUND SUITABLE FOR EMBODYING AN INTERNATIONAL AGREEMENT BECOME, AT THE STROKE OF A PEN, ALSO THE FORM AND LANGUAGE OF A MUNICIPAL LEGISLATIVE INSTRUMENT. IT IS RATHER LIKE SAYING TH AT, BY ACT OF PARLIAMENT, A WOMAN SHALL BE A MAN. INCONVENIENCES MAY ENSUE. ONE INCONVENIENCE IS THAT THE INTERPRETER IS LIKELY TO BE REQUIRED TO COPE WI TH DISORGANISED COMPOSITION INSTEAD OF PRECISION DRAFT ING. THE DRAFTING OF TREATIES IS NOTORIOUSLY SLOPPY USUA LLY FOR VERY GOOD REASON. TO GET AGREEMENT, POLITIC UNCERTA INTY IS CALLED FOR. . . . THE INTERPRETATION OF A TREATY IMPORTED INTO MUNICIPAL LAW BY INDIRECT ENACTMENT WAS DESCRIBED B Y LORD WILBERFORCE AS BEING UNCONSTRAINED BY TECHNIC AL RULES OF ENGLISH LAW, OR BY ENGLISH LEGAL PRECEDENT , BUT ITA NO.1820/CHNY /2015 :- 10 -: CONDUCTED ON BROAD PRINCIPLES OF GENERAL ACCEPTATIO N. THIS ECHOES THE OPTIMISTIC DICTUM OF LORD WIDGERY C . J. THAT THE WORDS ARE TO BE GIVEN THEIR GENERAL MEANI NG, GENERAL TO LAWYER AND LAYMAN ALIKE. . . THE MEANING OF THE DIPLOMAT RATHER THAN THE LAWYER. IN THE LIGHT OF OBSERVATION OF HONBLE APEX COURT R EPRODUCED ABOVE, WE FEEL THAT THE WORD PAID CANNOT BE CONSTRUED IN A MANNER TO INCLUDE IN IT PAYABLE AMOUNTS ALSO. PAID INDICATES A PAST EVENT AND NOT ONE WHICH IS TO HAPPEN IN FUTURE. HENCE, WE CA NNOT SAY THAT THE KOREAN ENTITY WAS LIABLE TO TAX ON THESE AMOUNTS UN DER CLAUSE (1) OF ARTICLE 13 OF THE DTAA. 10. NOW THE QUESTION, IS WHETHER CLAUSE (2) OF ARTICLE 13 WOULD APPLY. SAID CLAUSE SAYS THAT ROYALTIES AND FEES FOR TECHNICAL SERVICES MIGHT ALSO BE TAXED IN THAT CONTRACTING STATE IN W HICH THEY AROSE. WE FIND THAT THE DECISION OF AHMEDABAD BENCH OF THE TR IBUNAL IN THE CASE OF SAIRA ASIA INTERIORS PVT. LTD (SUPRA ) ELUCIDATES THE MANNER IN WHICH THIS CLAUSE HAS TO BE INTERPRETED. AHMEDABAD BENCH WAS CONSIDERING APPLICATION OF ARTICLE 13 OF DTTA BETWEEN INDIA AND ITALY, IN A MORE OR LESS SIMILAR FACT CIRCUMSTANCES. SAID ARTICLE WAS PARI MATERIA TO ARTICLE 13 OF THE INDIA AND KOREA, DTAA. OBSERVATIONS OF TH E TRIBUNAL AT PARA 7 & 8 OF ITS ORDER DATED 20.03.2017 IS REPRODUCED H EREUNDER:- 7. CLEARLY, THEREFORE, SO FAR AS TAX DEDUCTION AT SOURCE ITA NO.1820/CHNY /2015 :- 11 -: LIABILITY UNDER SECTION 195 IS CONCERNED, ALL THAT IS REQUIRED TO BE SEEN IS THE TAXABILITY OF INCOME EMBEDDED IN A P AYMENT, IN THE HANDS OF THE NON-RESIDENT, AS EXISTING IN LA W IF THERE IS NO TAX LIABILITY IN THE HANDS OF THE RECIPIENT AT T HE POINT OF TIME WHEN EVENT TRIGGERING TAX DEDUCTION LIABILITY TAKES PLACE- I.E. AT THE POINT OF TIME WHEN CREDIT IS AFFORDED AND WH EN THE PAYMENT IS MADE. IF THE RECIPIENT DOES NOT TAX ANY TAX LIABILITY, IN RESPECT OF THE SAID AMOUNT AT THAT P OINT OF TIME, THERE IS NO QUESTION OF TAX DEDUCTION AT SOURCE, AN D, AS A COROLLARY TO THIS PROPOSITION, IF THERE IS A TAX LI ABILITY IN RESPECT OF THAT AMOUNT AT THAT POINT OF TIME, THE SAID TAX LIABILITY IS TO BE WITHHELD BY THE PERSON CREDITING OR PAYING THE M ONEY. OF COURSE, IF THERE IS SAME TAX LIABILITY IN EITHER OF THE SITUATION, THE TAX IS TO BE WITHHELD AT THE POINT OF TIME WHEN EITHER OF THESE EVENTS, WHICHEVER IS EARLIER, TAKES PLACE. WE MAY ALSO, WHILE ON THE SUBJECT, REPRODUCE ARTICLE 13 OF INDIA ITALY DT AA, WHICH DEALS WITH TAXATION OF ROYALTY, AS BELOW : ARTICLE 13 ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. ROYALTIES AND FEES FOR TECHNICAL SERVICES ARISING I N A CONTRACTING STATE AND PAID TO A RESIDENT OF THE O THER CONTRACTING STATE MAY BE TAXED IN THAT OTHER STATE. 2. HOWEVER, SUCH ROYALTIES AND FEES FOR TECHNICAL SERVICES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THEY ARISE AND ACCORDING TO THE LAWS OF THAT STATE, BUT IF THE RECIPIENT IS THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES, THE TAX SO CHARGED SHALL NOT EXCEED 15 PER CENT OF THE GROSS AMOUNT OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES. 3. THE TERM ' ROYALTIES ' AS USED IN THIS ARTICLE MEAN S PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FO R THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF L ITERARY, ARTISTIC OR SCIENTIFIC WORK INCLUDING CINEMATOGRAPH FILM, OR FILMS OR TAPES USED FOR RADIO OR TELEVISION BROADCASTING, ANY PATENT, TRADE MARK, DESIGN OR MOD EL, PLAN, SECRET FORMULA OR PROCESS, OR FOR THE USE OF, OR THE RIGHT TO USE, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT, OR FOR INFORMATION CONCERNING INDUSTRIAL , COMMERCIAL OR SCIENTIFIC EXPERIENCE. 4. THE TERM ' FEES FOR TECHNICAL SERVICES ' AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND TO ANY PERS ON, OTHER THAN PAYMENTS TO AN EMPLOYEE OF THE PERSON MAKING THE PAYMENTS AND TO ANY INDIVIDUAL FOR ITA NO.1820/CHNY /2015 :- 12 -: INDEPENDENT PERSONAL SERVICES MENTIONED IN ARTICLE 15, IN CONSIDERATION FOR SERVICES OF MANAGERIAL, TECHNI CAL OR CONSULTATIVE NATURE, INCLUDING THE PROVISION OF SER VICES OF TECHNICAL OR OTHER PERSONNEL. 5. THE PROVISIONS OF PARAGRAPHS 1 AND 2 OF THIS ARTICL E SHALL NOT APPLY IF THE BENEFICIAL OWNER OF THE ROYA LTIES OR FEES FOR TECHNICAL SERVICES, BEING A RESIDENT OF A CONTRACTING STATE, CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE IN WHICH THE ROYALTIES OR FEES FO R TECHNICAL SERVICES ARISE THROUGH A PERMANENT ESTABLISHMENT SITUATED THERE OR PERFORM IN THAT OTH ER STATE INDEPENDENT PERSONAL SERVICES FROM A FIXED BA SE SITUATED THEREIN, AND THE RIGHT, PROPERTY OR CONTRA CT IN RESPECT OF WHICH THE ROYALTIES OR FEES FOR TECHNICA L SERVICES AND PAID IS EFFECTIVELY CONNECTED WITH SUC H PERMANENT ESTABLISHMENT OR FIXED BASE. IN SUCH CASE S THE PROVISIONS OF ARTICLE 7 OR ARTICLE 15, AS THE C ASE MAY BE, SHALL APPLY. 6. ROYALTIES AND FEES FOR TECHNICAL SERVICES SHALL BE DEEMED TO ARISE IN A CONTRACTING STATE WHEN THE PAY ER IS THAT STATE ITSELF, A POLITICAL SUB-DIVISION, A L OCAL AUTHORITY OR A RESIDENT OF THAT STATE. WHERE, HOWEV ER, THE PERSON PAYING THE ROYALTIES OR FEES FOR TECHNIC AL SERVICES, WHETHER HE IS A RESIDENT OF A CONTRACTING STATE OR NOT HAS IN A CONTRACTING STATE A PERMANENT ESTABLISHMENT OR A FIXED BASE IN CONNECTION WITH WH ICH THE OBLIGATION TO MAKE THE PAYMENTS WAS INCURRED AN D THE PAYMENTS ARE BORNE BY THE PERMANENT ESTABLISHMENT OR FIXED BASE, THEN THE ROYALTIES OR FEES FOR TECHNICAL SERVICES SHALL BE DEEMED TO ARISE IN THE CONTRACTING STATE IN WHICH THE PERMANENT ESTABLISHM ENT OR FIXED BASE IS SITUATED. 7. WHERE, OWING TO A SPECIAL RELATIONSHIP BETWEEN THE PAYER AND THE BENEFICIAL OWNER OR BETWEEN BOTH OF T HEM AND SOME OTHER PERSON, THE AMOUNT OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES PAID, HAVING REGARD TO THE USE, RIGHT OR INFORMATION FOR WHICH THEY ARE PAID, EXCEEDS THE AMOUNT WHICH WOULD HAVE BEEN AGREED UPON BY THE PAYER AND THE RECIPIENT IN THE ABSENCE OF SUCH RELATIONSHIP, THE PROVISIONS OF THIS ARTICLE S HALL APPLY ONLY TO THE LAST-MENTIONED AMOUNT. IN SUCH CA SES, THE EXCESS PART OF THE PAYMENTS SHALL REMAIN TAXABL E ACCORDING TO THE LAW OF EACH CONTRACTING STATE DUE REGARD BEING HAD TO THE OTHER PROVISIONS OF THIS CONVENTION. (EMPHASIS BY UNDERLINING, SUPPLIED BY US) ITA NO.1820/CHNY /2015 :- 13 -: 8. A OR THE POINT OF TIME OF CREDITING THE AMOUNT P AYABLE TO NON RESIDENT, I.E. 'AT THE TIME OF CREDIT OF SUCH I NCOME TO THE ACCOUNT OF PAYEE', THE ROYALTY SO PAID BY THE ASSESSEE WAS NOT TAXABLE IN THE HANDS OF THE RESIDENT, FOR THE S IMPLE REASON THAT, IN TERMS OF ARTICLE 13 OF INDO ITALIAN DTAA- WHICH IS REPRODUCED ABOVE FOR THE READY REFERENCE, TAXABILIT Y OF ROYALTY IS DEPENDENT ON THE PAYMENT BY THE RESIDENT OF A CONTRACTING STATE AND RECEIPT OF THE SAME BY THE RE SIDENT OF THE OTHER CONTRACTING STATE. UNLESS, THEREFORE, THE ACTUAL PAYMENT TAKES PLACE, THE TAXABILITY UNDER ARTICLE 1 3 OF INDO ITALIAN DTAA DOES NOT ARISE. IN OTHER WORDS, THE ME RE FACT THAT AN INDIAN RESIDENT CREDITS THE AMOUNT OF ROYAL TY PAYABLE TO AN ITALIAN RESIDENT DOES NOT TRIGGER TAXABILITY UNDER ARTICLE 13 OF THE INDO ITALIAN DTAA. SUCH IS ALSO THE VIEW TAKEN BY A SERIES OF DECISIONS BY THE COORDINATE BENCHES, INCL UDING THE DECISION IN THE CASE NATIONAL ORGANIC CHEMICAL INDU STRIES LTD [(2005) 96 TT J 765 (MUM)], WITH WHICH WE ARE IN RESPECTFUL AGREEMENT. WHEN THE ROYALTY SO CREDITED BY THE ASSESSEE IS NOT TAXABLE AT THE TIME OF CREDIT OF SU CH AMOUNT TO THE ACCOUNT OF PAYEE, IN THE LIGHT OF LAW LAID D OWN BY HON'BLE SUPREME COURT IN THE CASE OF GE INFORMATION TECHNOLOGY (SUPRA), IT DOES NOT GIVE RISE TO ANY TA X WITHHOLDING OBLIGATIONS UNDER SECTION 195 (1) EITHE R. IT WAS HELD BY THE CO-ORDINATE BENCH THAT FOR TRIGG ERING THE TAXABILITY UNDER ARTICLE 13 OF THE INDO-ITALIAN DTAA, MERE CRE DIT OF AMOUNT OF THE ROYALTY PAYABLE TO THE NON-RESIDENT CONCERNS A CCOUNT WOULD NOT BE SUFFICIENT. ACCORDING TO THEM, IT WAS IMPERATI VE THAT ACTUAL PAYMENTS WERE EFFECTED. OR IN OTHER WORDS, BOTH CO NDITIONS HAD TO BE SATISFIED. JUDICIAL DISCIPLINE REQUIRES US TO FOLL OW THE DECISIONS OF A CO- ORDINATE BENCH, UNLESS IT IS PER-INCURIAM, SO A S TO AVOID MULTIPLICITY OF LITIGATION AND THE DISCONCERTING EFFECT OF DIFFE RING OPINIONS BY DIFFERENT BENCHES ON SIMILAR ISSUE. HENCE WE ARE C HOOSING TO FOLLOW THE CO-ORDINATE BENCH VIEW. LD. COMMISSIONER OF INCOME TAX ITA NO.1820/CHNY /2015 :- 14 -: (APPEALS) HAS AT PARA 4.1.3 CLEARLY OBSERVED THAT A MOUNTS STOOD OUTSTANDING ON 31.03.2010. LD. COMMISSIONER OF INC OME TAX (APPEALS) ALSO OBSERVED THAT WHEN PAYMENTS WERE EFF ECTED, ASSESSEE HAD REMITTED THE TAX TO THE EXCHEQUER. IN SUCH C IRCUMSTANCES, WE ARE OF THE OPINION THAT LD. COMMISSIONER OF INCOME TAX (APPEALS) WAS JUSTIFIED IN DELETING THE DISALLOWANCE MADE U/S.40( A)(I) OF THE ACT. WE DO NOT FIND ANY REASON TO INTERFERE WITH THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS). 11. IN THE RESULT, THE APPEAL OF THE REVENUE STANDS DI SMISSED. ORDER PRONOUNCED ON THURSDAY, THE 16TH DAY OF AUG UST, 2018, AT CHENNAI. SD/- SD/- ( # $! # % . &' ) ( DUVVURU RL REDDY ) ) / JUDICIAL MEMBER ( . ) (ABRAHAM P. GEORGE) / ACCOUNTANT MEMBER '# / CHENNAI $% / DATED:16TH AUGUST, 2018. KV %& '()( / COPY TO: 1 . / APPELLANT 3. *+, / CIT(A) 5. (-. / / DR 2. / RESPONDENT 4. * / CIT 6. .01 / GF ITA NO.1820/CHNY /2015 :- 15 -: