Burt Hill Design Pvt.Ltd., Ahmedabad V. The Dy.CIT.,Circle-1, Ahmedabad

ITA 2039/AHD/2012

• Counselvise Citation: [2017] 130 COUNSELVISE.COM (IT) 8994 (ITAT-AHMEDABAD)
• Duration Of Justice: 4 year(s) 6 month(s) 17 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 28-03-2017
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: I
• Next Hearing Date: 23-03-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 10-09-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: MAHESH SHAH
• Keywords: Double taxation relief; Opportunity of being heard; Principle of natural justice
• Section: 143(3); 37(1); 194C

Judgement Text

ITA NO2039/AHD/2012 ASSESSMENT YEAR: 2009-10 PAGE 1 OF 9 IN THE INCOME TAX APPELLATE TRIBUNAL AHMEDABAD I BENCH, AHMEDABAD [CORAM: PRAMOD KUMAR AM AND MAHAVIR PRASAD JM] ITA NO. 2039/AHD/2012 ASSESSMENT YEAR: 2009-10 BURT HILL DESIGN PVT LTD .............APPELLA NT (NOW KNOWN AS STANTEC CONSULTING PVT LTD) 71-72, TITANIUM CORPORATE STREET OPP PRAHLANDNAGAR GARDEN, SATELLITE, AHMEDABAD [PAN : AADCB0953H] VS. DEPUTY COMMISSIONER OF INCOME TAX CIRCLE 1, AHMEDABAD .................RESPONDENT APPEARANCES BY: TUSHAR HEMANI FOR THE APPELLANT MAHESH SHAH AND DILIP KUMAR FOR THE RESPONDENT DATE OF CONCLUDING THE HEARING : 24.03.2017 DATE OF PRONOUNCING THE ORDER : 28.03.2017 O R D E R PER PRAMOD KUMAR AM: 1. BY WAY OF THIS APPEAL, THE ASSESSEE APPELLANT HA S CHALLENGED CORRECTNESS OF LEARNED CIT(A)S ORDER DATED 10 TH JUL 2012, IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT, 1961 (HEREINA FTER REFERRED TO AS THE ACT) FOR THE ASSESSMENT YEAR 2009-10. 2. GRIEVANCES RAISED BY THE ASSESSEE, IN SUBSTANCE, ARE AGAINST LEARNED CIT(A)S UPHOLDING (I) THE DISALLOWANCE , UNDER SEC TION 40(A)(I), OF RS 4,54,28,424, IN RESPECT OF REIMBURSEMENT OF PAYROLL COSTS, AND OF R S 16,86,463, IN RESPECT OF REIMBURSEMENT OF RELATED PROFESSIONAL AND LEGAL FEE S, TO BURT HILL INC USA; (II) THE DISALLOWANCE OF RS 12,77,927 IN RESPECT OF MEDICAL INSURANCE PREMIUM PAID FOR THE EMPLOYEES, PLACED AT THE DISPOSAL OF THE ASSESSEE U NDER SECONDMENT AGREEMENT WITH BURT HILL INC USA; AND (III) THE DISALLOWANCE OF RS 1,50,000 BEING HOUSE RENT ITA NO2039/AHD/2012 ASSESSMENT YEAR: 2009-10 PAGE 2 OF 9 PAID TO MANAGING DIRECTOR OF THE ASSESSEE COMPANY. FOR THE RECORD, HOWEVER, THE DETAILED GROUNDS OF APPEAL RAISED BY THE ASSESSEE A RE SET OUT BELOW: 1. (A) THE LEARNED CIT (A) HAS GROSSLY ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE AO IN DISALLOW ING AN AMOUNT OF RS. 4,54,28,424/- BEING EXPENDITURE INCURRED ON PAY-ROLL ( MAN POWER) COSTS OF THE EMPLOYEES OF THE COMPANY WHO WE RE WORKING IN INDIA FOR THE APPELLANT COMPANY'S BUSINESS OPERA TIONS ON FULL TIME BASIS UNDER THE SECONDMENT AGREEMENT PAID BY W AY OF REIMBURSEMENT TO ITS PARENT FOREIGN COMPANY I.E. BU RT, HILL INC, USA. (B) THE LEARNED CIT (A) HAS GROSSLY ERRED IN LAW AN D ON FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE AO IN DISALLOW ING AN AMOUNT OF RS.16,86,463/- BEING EXPENDITURE ON LEGAL AND PR OFESSIONAL FEES PAID BY WAY OF REIMBURSEMENT TO ITS PARENT FOREIGN COMPANY I.E. BURT, HILL INC, USA. (C) THE LEARNED CIT (A) HAS GROSSLY ERRED IN LAW AN D ON FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE AO IN DISALLOW ING AN AMOUNT OF RS.4,71,14,887/- (RS. 4,54,28,424/- ON ACCOUNT O F REIMBURSEMENT OF EXPENDITURE ON PAY-ROLL COSTS + RS. 16,86,463/- ON ACCOUNT OF REIMBURSEMENT OF LEGAL AND PROFESSIONAL FEES) BY AR BITRARILY HOLDING THAT THE PAYMENTS ARE IN THE NATURE OF FEES FOR TECHNICAL SERVICES AND THEREFORE CHARGEABLE TO TAX IN THE HAN DS OF THE PAYEE IN INDIA U/S. 9(1)(VII) OF THE I.T. ACT. (D) THE LEARNED CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE AO IN MAKING T HE IMPUGNED ADDITION OF RS.4,71,14,887/- IGNORING THE RATIO OF THE VARIOUS JUDGMENTS OF THE ITAT, HIGH COURT AND SUPREME COURT WHICH WERE BROUGHT TO THE NOTICE OF THE AO AND CIT(A) IN THE C OURSE OF ASSESSMENT PROCEEDINGS/APPELLATE PROCEEDINGS. THE L EARNED CIT(A) HAS GROSSLY ERRED IN LAW AND ON FACTS OF THE CASE IN NOT APPLYING & FOLLOWING RATIO OF DECISION OF DELHI HIG H COURT IN THE CASE OF HCL INFOSYSTEMS LTD. IN THE ABSENCE OF ANY OTHER DECISION OF ANY OTHER HIGH COURT TAKING A CONTRARY VIEW ON I DENTICAL FACTS IGNORING PRINCIPLES OF BINDING NATURE OF DECISIONS AS LAID DOWN BY VARIOUS HIGH COURTS. (E) THE LEARNED CIT (A) HAS GROSSLY ERRED IN LAW AN D ON FACTS OF THE CASE IN NOT CONSIDERING PROVISIONS OF DOUBLE TAXATI ON AVOIDANCE ITA NO2039/AHD/2012 ASSESSMENT YEAR: 2009-10 PAGE 3 OF 9 TREATY BETWEEN INDIA & USA PURSUANT TO WHICH ALSO T HE SAID REIMBURSEMENTS OF PAY ROLL COSTS & LEGAL FEES DO NO T AMOUNT TO FEES FOR INCLUDED SERVICES AND THEREFORE NOT CHARGE ABLE TO TAX IN INDIA AND CONSEQUENTLY PROVISIONS OF SECTION 195 AR E NOT APPLICABLE AS HELD BY SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE PVT. LTD. (F) IT IS THEREFORE PRAYED THAT THE IMPUGNED ADDITI ON MADE ON ERRONEOUS PRESUMPTIONS IS WRONG ON FACTS AND CIRCUM STANCES OF THE CASE AND MAY PLEASE BE DELETED. 2 (A) THE LEARNED CIT (A) HAS GROSSLY ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE AO IN MAKING T HE IMPUGNED ADDITION OF RS.4,71,14,887/- WITHOUT ISSUING ANY SH OW CAUSE NOTICE TO THE APPELLANT ASSESSEE OF HIS INTENTION TO MAKE SUCH ADDITION/DISALLOWANCE. THE IMPUGNED ASSESSMENT ORDE R HAS BEEN PASSED IN VIOLATION OF THE PRINCIPLE OF NATURAL JUS TICE OF AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD AND THEREFORE SUCH ORDER IS LIABLE TO BE QUASHED. THE LEARNED CIT (A) FAILED TO ADJUDICATE THE GROUND NO. 6 TAKEN IN THE GROUNDS OF APPEAL BEFORE HIM. (B) IT IS THEREFORE PRAYED THAT IMPUGNED ADDITI ON OF RS. 4,71,14,887/- MAY PLEASE BE DELETED. 3.(A) THE LEARNED CIT (A) HAS GROSSLY E RRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE AO IN DISAVOWI NG AN AMOUNT OF RS, 12,77,927/- BEING MEDICAL INSURANCE PREMIUM IN RESPECT OF THE PERSONNEL PLACED IN THE DISPOSAL OF THE APPELLA NT COMPANY FOR ITS BUSINESS OPERATIONS BY THE PARENT COMPANY. (B) THE LEARNED CIT (A) HAS GROSSLY ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE AO IN MAKING T HE IMPUGNED DISALLOWANCE OF RS, 12,77,927/- WITHOUT ISSUING ANY SHOW CAUSE NOTICE TO THE APPELLANT ASSESSEE OF HIS INTENTION T O MAKE SUCH DISALLOWANCE. THE IMPUGNED ASSESSMENT ORDER HAS BEE N PASSED IN VIOLATION OF THE PRINCIPLE OF NATURAL JUSTICE OF AF FORDING REASONABLE OPPORTUNITY OF BEING HEARD AND THEREFORE SUCH ORDER IS LIABLE TO BE QUASHED. THE LEARNED CIT (A) DID NOT ADJUDICATE GRO UND 7 (B) OF THE GROUNDS OF APPEAL TAKEN BEFORE HIM. (C) IT IS THEREFORE PRAYED THAT IMPUGNED ADDITION / DISALLOWANCE OF RS.12,77,927/- MAY PLEASE BE DELETED. ITA NO2039/AHD/2012 ASSESSMENT YEAR: 2009-10 PAGE 4 OF 9 4 (A) THE LEARNED CIT (A) HAS GROSSLY E RRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE AO IN DISALLOW ING AN AMOUNT OF RS.1,50,000/- BEING EXPENDITURE ON RENT PAID BY WAY OF REIMBURSEMENT TO MR. JAYESH HARIYANI, MANAGING DIRE CTOR OF THE COMPANY, BY INVOKING THE PROVISIONS OF SECTION 40(A )(IA) OF THE I.T. ACT IGNORING THE FACT THAT THERE WAS NO LEGAL OBLIG ATION TO DEDUCT TAX AT SOURCE FROM SUCH REIMBURSEMENT OF EXPENDITUR E INCURRED BY THE MANAGING DIRECTOR OF THE COMPANY. (B) THE LEARNED CIT (A) HAS GROSSLY ERRED IN LAW AND ON FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE AO IN MAKING T HE IMPUGNED DISALLOWANCE OF RS.1,50,000/- BY ARBITRARILY CONSID ERING THE PAYMENT AS RENT IN UTTER DISREGARD TO THE FACT THAT THE PAYMENT IN QUESTION IS NOT IN THE NATURE OF RENT FALLING WITHI N THE MEANING AND SCOPE OF EXPLANATION-1 BELOW SECTION 1941 OF THE I. T. ACT AND THE PAYMENT IS NOTHING BUT REIMBURSEMENT OF EXPENDITURE INCURRED BY THE MANAGING DIRECTOR OF THE COMPANY. (C) IT IS THEREFORE PRAYED THAT IMPUGNED ADDITION/D ISALLOWANCE OF RS.1,50,000/- MAY PLEASE BE DELETED. 5. WITHOUT PREJUDICE TO ALL ABOVE, (A) THE LEARNED CIT (A) HAS GROSSLY ERRED IN LAW AN D ON FACTS AS WELL AS ON CIRCUMSTANCES OF THE CASE IN HOLDING THAT THE AP PELLANT CANNOT BE GRANTED DEDUCTION/EXEMPTION U/S. 10A OF THE I.T. ACT IN UTTER DISREGARD TO THE FACT THAT THE APPELLANT COMPANY IS A UNIT REGISTERED WITH SOFTWARE TECHNOLOGY PARK OF INDIA ( STPI), THAT THE COMPANY IS ENGAGED IN THE BUSINESS OF PROVIDING INF ORMATION TECHNOLOGY ENABLED SERVICES (ITES), THAT ABOUT 90% OF THE REVENUE OF THE COMPANY IS DERIVED FROM EXPORT OF IN FORMATION TECHNOLOGY ENABLED SERVICES AND THAT THE PROCEEDS T HEREOF HAS BEEN REALIZED IN CONVERTIBLE FOREIGN EXCHANGE BY 30 TH SEPTEMBER, 2009. ON FACTS AND CIRCUMSTANCES OF THE CASE, THE A PPELLANT COMPANY HAS COMPLIED WITH ALL THE CONDITIONS FOR EL IGIBILITY OF DEDUCTION U/S 10A AND IS THEREFORE ELIGIBLE FOR DED UCTION COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF SAID SECTION. (B) THE LEARNED CIT (A) HAS GROSSLY ERRED IN LAW AN D ON FACTS OF THE CASE IN CONFIRMING THE ACTION OF THE AO IN IGNORING THE APPELLANT'S CLAIM, VIDE PARAGRAPH 13 OF SUBMISSION DATED 13/12/ 2011 AS WELL AS ITA NO2039/AHD/2012 ASSESSMENT YEAR: 2009-10 PAGE 5 OF 9 PARA 6 OF SUBMISSION DATED 20TH DECEMBER, 2011; THA T THOUGH THE APPELLANT IS ENTITLED TO DEDUCTION U/S. 10A, IN THE RETURN OF INCOME FILED FOR THE YEAR UNDER APPEAL, NO SUCH CLAIM WAS MADE AS THERE WAS NO POSITIVE INCOME AND IN THE EVENT OF DETERMIN ATION OF POSITIVE INCOME AS PER THE ASSESSMENT ORDER, THE AP PELLANT MAY BE GRANTED DEDUCTION U/S. 10A OF THE I.T. ACT. THE APP ELLANT HAD FURNISHED BEFORE THE AO COMPLETE DETAILS AND JUSTIF ICATION WITH REGARD TO ITS CLAIM FOR DEDUCTION U/S. 10A IN THE E VENT OF DETERMINATION OF POSITIVE INCOME. (C) IT IS THEREFORE PRAYED THAT THE APPELLANT MAY PLEASE BE ALLOWED DEDUCTION U/S. 10A OF THE I.T. ACT. 6. THE APPELLANT CRAVES LIBERTY TO ADD OR ALTER A NY GROUND AT THE TIME OF HEARING. 3. SO FAR AS THE FIRST GRIEVANCE OF THE ASSESSEE IS CONCERNED, WE FIND THAT THE ISSUE IS NOW COVERED, BY OUR ORDER OF EVEN DATE IN ASSESSEES OWN CASE IN RESPECT OF TAX WITHHOLDING DEMANDS UNDER SECTION 195 R.W.S 201 , WHEREIN WE HAVE, INTER ALIA, OBSERVED AS FOLLOWS: 4. AS WE DEAL WITH THESE APPEALS, WE CONSIDER IT AP PROPRIATE TO REPRODUCE, FOR READY REFERENCE, THE RELATED STATUTORY PROVISION SE T OUT IN SECTION 195(1). THIS IS AS FOLLOWS: ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RESIDENT , NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY INTEREST (NOT BEING INTEREST ON SECURITIES) OR ANY OTHER SUM CHARGEABLE UNDER THE P ROVISIONS OF THIS ACT (NOT BEING INCOME CHARGEABLE UNDER THE HEAD SALARI ES) SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHE QUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME-TAX THEREON AT THE RATES IN FORCE [EMPHASIS, BY UNDERLINING, SUPPLIED BY US] 5. QUITE CLEARLY, THEREFORE, AS LONG AS A PAYMENT T O NON-RESIDENT ENTITY IS IN THE NATURE OF PAYMENT CONSISTING OF INCOME CHARGEABLE U NDER THE HEAD INCOME FROM SALARIES, THE ASSESSEE DOES NOT HAVE ANY TAX WITH HOLDING OBLIGATIONS UNDER SECTION 195. 6. THERE IS NO, AND THERE CANNOT BE ANY, DISPUTE AB OUT THE FACTUAL ASPECT THAT THE PAYMENT MADE TO BURT HILL CO INC USA CONSISTS O F INCOME WHICH IS CHARGEABLE, AND HAS BEEN CHARGED, TO TAX IN INDIA UNDER THE HEA D INCOME FROM SALARIES. THERE IS ALSO NO DISPUTE THAT THE PAYMENTS FOR ALL THE FOUR YEARS BEFORE US ARE OF THE SAME NATURE, UNDER THE SAME AGREEMENT AND OF THE SAME CH ARACTER. WHAT WAS HELD TO BE INCOME IN THE NATURE OF SALARIES FOR THE ASSESSMENT YEARS 2008-09, 2010-11 AND ITA NO2039/AHD/2012 ASSESSMENT YEAR: 2009-10 PAGE 6 OF 9 2011-12 CANNOT BE OF ANY DIFFERENT NATURE FOR THE A SSESSMENT YEAR 2009-10 JUST BECAUSE THE ASSESSEE, RATHER THAN DEDUCTING TAX AT SOURCE UNDER SECTION 192, PAID THE ADVANCE TAXES ON BEHALF OF THE SECONDED EMPLOYE ES IN THAT PARTICULAR ASSESSMENT YEAR. IT IS NOT THE FACT OF TAX DEDUCTI ON UNDER SECTION 192, BUT THE NATURE OF INCOME EMBEDDED IN RELATED PAYMENTS WHICH IS REL EVANT FOR DECIDING WHETHER OR NOT SECTION 195 WILL COME INTO PLAY. OF COURSE, THE RE ARE SEPARATE SET OF CONSEQUENCES FOR NOT DISCHARGING TAX WITHHOLDING OB LIGATIONS UNDER SECTION 192. HOWEVER, THE ASSESSEE HAS DISCHARGED THESE OBLIGATI ONS AND THERE ARE NO PENDING ISSUES ABOUT THE SAME. WHETHER THE SECONDED EMPLOYE ES CONTINUE TO BE IN EMPLOYMENT OF THE FOREIGN ENTITIES OR NOT IS WHOLLY IRRELEVANT FOR THIS PURPOSE. WHAT IS RELEVANT IS THAT THE INCOME EMBEDDED IN THE PAYMENT S IN QUESTION IS TAXABLE IN INDIA UNDER THE HEAD SALARIES, AND IF THAT BE SO, THERE ARE NO TAX WITHHOLDING OBLIGATIONS UNDER SECTION 195. THAT PRECISELY IS THE UNDISPUTED POSITION ON THE FACTS OF THIS CASE- AS DULY ACCEPTED BY THE INCOME TAX AUTHORITIES. THE INCOME EMBEDDED IN THE IMPUGNED PAYMENTS BEING IN THE NATURE OF INCOME CHA RGEABLE TO TAX UNDER THE HEAD INCOME FROM SALARIES, THE ASSESSEE CANNOT BE SAID TO HAVE ANY TAX WITHHOLDING OBLIGATIONS UNDER SECTION 195. FOR THIS SHORT REASO N ALONE, WE MUST HOLD THAT THE IMPUGNED TAX WITHHOLDING DEMANDS, UNDER SECTION 201 R.W.S 195, ARE WHOLLY DEVOID OF ANY LEGALLY SUSTAINABLE MERITS. 7. THAT IS NOT, HOWEVER, THE ONLY REASON WHY THE RE VENUE MUST FAIL IN ITS CASE. 8. A LOT OF EMPHASIS HAS BEEN PLACED ON THE FACT TH AT THERE WAS A SERVICE PE IN THE PRESENT CASE. NOTHING, HOWEVER, TURNS ON THE EX ISTENCE OF THE PE BECAUSE ADMITTEDLY WHATEVER HAS BEEN PAID TO BURT HILL INC USA IS, IN TURN, PAID BY BURT HILL INC UA TO ITS EMPLOYEES SECONDED TO THE ASSESSEE. T HERE CANNOT BE ANY PROFITS, THEREFORE, IN THE HANDS OF THE SERVICE PE, AND WHAT IS TAXABLE IN THE HANDS OF THE PE UNDER ARTICLE 7(1) IS NOT THE GROSS RECEIPT BUT THE PROFITS ATTRIBUTABLE TO THE PE. THE EXISTENCE OF SERVICE PE, IN THE PRESENT CASE, WILL BE WHOLLY ACADEMIC INASMUCH AS WHATEVER IS THE AGGREGATE OF RECEIPTS SAID TO BE AT TRIBUTABLE TO THE PE, IS EXACTLY THE SAME AS AGGREGATE OF EXPENDITURE ATTRIBUTABLE TO TH E PE. IT IS NOT THE REVENUES CASE THAT ANY OTHER RECEIPTS OF THE BURT HILL INC USA, O THER THAN THE RECEIPTS ON ACCOUNT OF REIMBURSEMENTS FOR SALARIES, OR ANY OTHER INCOME CO ULD BE ATTRIBUTED TO THE SO CALLED SERVICE PE. THE PAYMENTS IN QUESTION HAVE NOT RESUL TED IN ANY INCOME TAXABLE IN THE HANDS OF THE ASSESSEE. BE THAT AS IT MAY, IN ANY EVENT, WHEN UNDISPUTEDLY THE PAYMENTS ARE IN THE NATURE OF THE REIMBURSEMENTS, A ND, PARTICULARLY WHEN EVEN THE INCOME EMBEDDED IN THESE PAYMENTS HAS ALREADY BEEN BROUGHT TO TAX IN INDIA IN THE HANDS OF ULTIMATE BENEFICIARIES- I.E. THE SECONDED EMPLOYEES, THERE CANNOT BE ANY TAX WITHHOLDING OBLIGATIONS UNDER SECTION 195. IT I S ONLY ELEMENTARY THAT THE TAX DEDUCTION SOURCE LIABILITY UNDER SECTION 195 IS A V ICARIOUS LIABILITY IN THE SENSE THAT ITS SURVIVAL IN THE HANDS OF TAX-DEDUCTOR IS WHOLLY DEP ENDENT ON EXISTENCE OF TAX LIABILITY IN THE HANDS OF RECIPIENT OF INCOME. WHEN A PAYMEN T MADE BY, AN INDIAN RESIDENT, TO A NON-RESIDENT, DOES NOT TRIGGER THE TAXABILITY OF THAT INCOME IN THE HANDS OF RECIPIENT, THE TAX DEDUCTION LIABILITY DOES NOT COME INTO PLAY AT ALL. THIS SCHEME OF THE ACT IS IMPLICIT FROM THE WORDINGS OF SECTION 195 (1) WHICH REFER TO ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT (NOT BEING INCOME CHARGEABLE UNDER THE HEAD SALARIES) WHEN INCOME EMBEDDED IN A PAYMENT IS NOT TAXABLE UNDER THE INCOME TAX ACT, 1961, THE TAX WITHHOLDIN G LIABILITY DOES NOT GET TRIGGERED AT ITA NO2039/AHD/2012 ASSESSMENT YEAR: 2009-10 PAGE 7 OF 9 ALL. THIS IS WHAT HONBLE SUPREME COURT HAS ALSO H ELD IN THE CASE OF G E TECHNOLOGY CENTRE PVT LTD VS CIT [(2010) 327 ITR 4 56(SC)] . WHILE HOLDING SO, THEIR LORDSHIPS HAVE, INTER ALIA, OBSERVED AS FOLLO WS: .THE SAID EXPRESSION IN SECTION 195(1) SHOWS THA T THE REMITTANCE HAS GOT TO BE OF A TRADING RECEIPT, THE WHOLE OR PA RT OF WHICH IS LIABLE TO TAX IN INDIA. THE PAYER IS BOUND TO DEDUCT TAX AT S OURCE ONLY IF THE TAX IS ASSESSABLE IN INDIA. IF TAX IS NOT SO ASSESSABLE, T HERE IS NO QUESTION OF TAX AT SOURCE BEING DEDUCTED. [SEE: VIJAY SHIP BREA KING CORPORATION AND OTHERS VS. CIT 314 ITR 309]. 9. ONE MORE ASPECT NEEDS TO BE HIGHLIGHTED. SECTIO N 195 FALLS IN CHAPTER XVII WHICH DEALS WITH COLLECTION AND RECOV ERY. CHAPTER XVII-B DEALS WITH DEDUCTION AT SOURCE BY THE PAYER. ON ANA LYSIS OF VARIOUS PROVISIONS OF CHAPTER XVII ONE FINDS USE OF DIFFERE NT EXPRESSIONS, HOWEVER, THE EXPRESSION SUM CHARGEABLE UNDER THE P ROVISIONS OF THE ACT IS USED ONLY IN SECTION 195. FOR EXAMPLE, SECT ION 194C CASTS AN OBLIGATION TO DEDUCT TAX AT SOURCE IN RESPECT OF A NY SUM PAID TO ANY RESIDENT. SIMILARLY, SECTIONS 194EE AND 194F INTER ALIA PROVIDE FOR DEDUCTION OF TAX IN RESPECT OF ANY AMOUNT REFERRE D TO IN THE SPECIFIED PROVISIONS. IN NONE OF THE PROVISIONS WE FIND THE E XPRESSION SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT, WHICH AS STATED ABOVE, IS AN EXPRESSION USED ONLY IN SECTION 195(1). THEREFOR E, THIS COURT IS REQUIRED TO GIVE MEANING AND EFFECT TO THE SAID EXP RESSION. IT FOLLOWS, THEREFORE, THAT THE OBLIGATION TO DEDUCT TAX AT SOU RCE ARISES ONLY WHEN THERE IS A SUM CHARGEABLE UNDER THE ACT. 9. THE DECISION TO WITHHELD TAX FROM A CREDIT OR P AYMENT TO A NON-RESIDENT IS NOT TAKEN DE HORSE THE TAXABILITY OF INCOME EMBEDDED IN THE RELATED PAYMENT. IT IS TAKEN IN THE LIGHT OF THE TAX LIABILITY OF THE NON-RESIDE NT IN RESPECT OF THE AMOUNT IN QUESTION, AND, IF THERE WERE ANY DOUBTS ON THIS PROPOSITION, THESE DOUBTS HAVE NOW BEEN SET AT REST BY THEIR LORDSHIPS. AS FOR THE PAYMENTS MADE BY THE ASSESSEE BEING IN NATURE OF THE FEES FOR TECHNICAL SERVICES, THIS STAND OF T HE ASSESSING OFFICER IS EQUALLY FRIVOLOUS. THERE IS NOT EVEN AN EFFORT TO SHOW AS T O HOW ANY TECHNICAL KNOWLEDGE, SKILLS, KNOWHOW OR PROCESSES ETC ARE MADE AVAILABL E BY THESE SERVICES INASMUCH AS THESE SERVICES CAN BE PERFORMED BY THE ASSESSEE WITHOUT ANY RECOURSE TO THE SERVICE PROVIDER. UNLESS THIS CONDITION, UNDER MAKE AVAILABLE CLAUSE UNDER ARTICLE 12(4)(B), IS SATISFIED THE FEES FOR TECHNICAL SERVI CES CANNOT BE BROUGHT TO TAX IN INDIA IN THE HANDS OF ENTITIES FISCALLY DOMICILED IN UNIT ED STATES. IT IS EVEN MORE ELEMENTARY THAT ONCE THESE PAYMENTS CANNOT BE BROUGHT TO TAX U NDER THE PROVISIONS OF THE INDIA US DTAA, THERE CANNOT BE ANY OCCASION TO INVOKE SEC TION 9(1)(VII) OF THE ACT EITHER BECAUSE IT CANNOT BE MORE BENEFICIAL TO THE ASSESSE E- AS IS THE CONDITION PRECEDENT, UNDER SECTION 90(2), FOR INVOKING THE SAME. 10. FOR THE DETAILED REASONS SET OUT ABOVE, WE ARE OF THE CONSIDERED VIEW THAT THE DEMANDS RAISED ON THE ASSESSEE UNDER SECTION 20 1 R.W.S 195 ARE WHOLLY DEVOID OF ANY LEGALLY SUSTAINABLE MERITS. ITA NO2039/AHD/2012 ASSESSMENT YEAR: 2009-10 PAGE 8 OF 9 4. IN VIEW OF THE VIEWS SO EXPRESSED BY US, THE ASS ESSEE DID NOT HAVE ANY TAX WITHHOLDING OBLIGATIONS SO FAR AS THESE REIMBURSEME NTS ARE CONCERNED. AS THE ASSESSEE DID NOT HAVE ANY TAX WITHHOLDING OBLIGATIO NS, THE VERY FOUNDATION OF IMPUGNED DISALLOWANCE UNDER SECTION 40(A)(I), WHICH GET TRIGGERED BY THE LAPSES IN DISCHARGING SUCH OBLIGATIONS, CEASES TO HOLD GOOD I N LAW. WE, THEREFORE, UPHOLD THE GRIEVANCE OF THE ASSESSEE, AND DIRECT THE ASSESSING OFFICER TO DELETE THE IMPUGNED DISALLOWANCE. 5. GROUND NO.1 AND 2 ARE THUS ALLOWED. 6. AS REGARDS THE SECOND ISSUE, I.E. GROUND NO. 3, THERE IS NO DISPUTE THAT THE INSURANCE PREMIUM OF RS 12,77,927 HAS BEEN PAID FOR MEDICAL AND OTHER INSURANCE OF THE EMPLOYEES OF BURT HILL INC USA WHO WERE ON S ECONDMENT TO INDIA AND IN ACCORDANCE WITH STATUTORY OBLIGATIONS OF BURT HILL INC USA. THE ASSESSING OFFICER, HOWEVER, DISALLOWED THE EXPENSES ON THE GROUND THAT THESE PERSONS WERE EMPLOYEES OF BURT HILL INC USA, AND NOT THE ASSESSE E. THE ASSESSING OFFICER FURTHER NOTED THAT THERE IS NO EVIDENCE OF BUSINESS NEXUS B ETWEEN THESE EXPENSES AND THE BUSINESS OF THE ASSESSEE. THESE WERE ALSO HELD TO B E PERSONAL EXPENSES OF THE SECONDED EMPLOYEES. IT WAS IN THE BACKDROP OF THESE OBSERVATIONS BY THE ASSESSING OFFICER THAT THE IMPUGNED DISALLOWANCE OF RS 12,77, 927 WAS MADE. AGGRIEVED, ASSESSEE CARRIED THE MATTER IN APPEAL BEFORE THE CI T(A) BUT WITHOUT ANY SUCCESS. NOT SATISFIED, THE ASSESSEE IS IN SECOND APPEAL BEF ORE US. 7. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING PE RUSED THE MATERIAL ON RECORD, WE ARE INCLINED TO UPHOLD THE GRIEVANCE OF THE ASSE SSEE, FOR THE SIMPLE REASON THAT THE SECONDED EMPLOYEES, IN RESPECT OF WHICH THE IMP UGNED INSURANCE PREMIUM WAS PAID, WERE NOT ONLY DE FACTO EMPLOYEES OF THE ASSES SEE AT THE RELEVANT POINT OF TIME, THE ASSESSEE HAD THE OBLIGATION, UNDER SECONDMENT A GREEMENT, TO BEAR THESE COSTS. THE EXPENSES SO INCURRED ARE IN THE NATURE OF EMPLO YEE BENEFITS, THOUGH PAID UNDER SECONDMENT AGREEMENT, IN RESPECT OF PERSONS WORKING FOR THE ASSESSEE. IT WAS IN THE FURTHERANCE OF LEGITIMATE BUSINESS INTERESTS OF THE ASSESSEE THAT THESE PAYMENTS WERE MADE, AND, THEREFORE, THE DEDUCTION WAS INDEED ADMISSIBLE UNDER SECTION 37(1) OF THE ACT. WE UPHOLD THE GRIEVANCE OF THE ASSESSEE . THE ASSESSING OFFICER IS, THEREFORE, DIRECTED TO GRANT DEDUCTION OF THE IMPUG NED AMOUNT OF RS 12,77,927. 8. GROUND NO. 3 IS THUS ALLOWED. 9. COMING TO THE DISALLOWANCE OF RS 1,50,000 IN RES PECT OF EXPENSES INCURRED ON GUEST HOUSE, THE ASSESSEE DID NOT PRESS THE SAME FO R SMALLNESS OF AMOUNT. AS REGARDS THE OTHER ALTERNATE GROUND RAISED IN THE AP PEAL, GIVEN THE FACT THAT THE ASSESSEE HAS SUCCEEDED IN ITS SUBSTANTIVE GROUNDS O F APPEAL, THESE ARE RENDERED ACADEMIC AND NOT PRESSED AS SUCH. ITA NO2039/AHD/2012 ASSESSMENT YEAR: 2009-10 PAGE 9 OF 9 10. GROUND NO. 4 AND 5 ARE THUS DISMISSED AS NOT PR ESSED. 11. IN THE RESULT, THE APPEAL IS PARTLY ALLOWED IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON THE 28 TH DAY OF MARCH, 2017. SD/- SD/- MAHAVIR PRASAD PRAMOD KU MAR (JUDICIAL MEMBER) (ACCOUNTANT MEMBER) AHMEDABAD, THE 28 TH DAY OF MARCH, 2017 COPIES TO: (1) THE APPELLANT (2) THE RESPONDENT (3) COMMISSIONER (4) CIT(A) (5) DEPARTMENTAL REPRESENTATIVE (6) GUARD FILE BY ORDER TRUE COPY ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL AHMEDABAD BENCHES, AHMEDABAD 1. DATE OF DICTATION: .........DRAFTED BY HONBLE AM - 28.03.2017 ..................... 2. DATE ON WHICH THE TYPED DRAFT IS PLACED BEFORE T HE DICTATING MEMBER: ..... 28.03.2017 .......... 3. DATE ON WHICH THE APPROVED DRAFT COMES TO THE SR. P.S./P.S.: ........ 28.03.2017 ............. 4. DATE ON WHICH THE FAIR ORDER IS PLACED BEFORE TH E DICTATING MEMBER FOR PRONOUNCEMENT: ........ 28.03.2017 ................... 5. DATE ON WHICH THE FILE GOES TO THE BENCH CLERK : ..... 28.03.2017 .................... 6. DATE ON WHICH THE FILE GOES TO THE HEAD CLERK : . 7. THE DATE ON WHICH THE FILE GOES TO THE ASSISTANT REGISTRAR FOR SIGNATURE ON THE ORDER: .. 8. DATE OF DESPATCH OF THE ORDER: ......