DCIT, CHENNAI V. M/s. AVT MC Cormick Ingredients Ltd., CHENNAI

ITA 2169/CHNY/2013

• Counselvise Citation: [2016] 133 COUNSELVISE.COM (IT) 7961 (ITAT-CHENNAI)
• Duration Of Justice: 2 year(s) 2 month(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 19-02-2016
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: D
• Next Hearing Date: 23-11-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 16-12-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH IRS
• Assessee Lawyers: T BANUSEKAR
• Keywords: Business income; Transfer pricing; Double taxation relief; Principle of natural justice; International transaction; Permanent establishment

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH, CHENNAI , . ! ' , #'$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SHRI G. PAVAN KUMAR, JUDICIAL MEMBER ./ I.T.A. NOS.2167, 2168 & 2169/MDS/2013 # % &% / ASSESSMENT YEARS : 2004-05, 2005-06 & 2008-09 THE DEPUTY COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(1) CHENNAI 600 034 VS. M/S. AVT MC CORMICK INGREDIENTS LTD, NO. 64,RUKMANI LAKSHMIPATHY SALAI, EGMORE, CHENNAI 600 008. [PAN AAACA 3217E ] ( / APPELLANT) ( /RESPONDENT) ./ I.T.A. NO.58/MDS/2015 # % &% / ASSESSMENT YEAR : 2010-2011 M/S. AVT MC CORMICK INGREDIENTS LTD, NO. 64,RUKMANI LAKSHMIPATHY SALAI, EGMORE, CHENNAI 600 008. VS THE ADDITIONAL COMMISSIONER OF INCOME TAX, COMPANY RANGE -I CHENNAI 600 034 [PAN AAACA 3217E ] ( / APPELLANT) ( /RESPONDENT) DEPARTMENT BY : SHRI. A.V.SREEKANTH, IRS, JCIT. ASSESSEE BY : SHRI. T. BANUSEKAR, C.A ! ' ( / DATE OF HEARING : 23.11.2015 )*& ' ( / DATE OF PRONOUNCEMENT : 19.02.2016 ITA NOS.2167 TO 2169/2013 & 58/2015. :- 2 -: / O R D E R PER G. PAVAN KUMAR, JUDICIAL MEMBER : THE REVENUE FILED THREE APPEALS AGAINST THE COM MON ORDER OF COMMISSIONER OF INCOME TAX (APPEALS)-I, CHENNAI IN ITA TR NOS.17 & 18/09-10/A-I AND ITA NO.713/11-12/A-I DATE D 24.09.2013 FOR THE ASSESSMENT YEARS 2004-05, 2005-06 AND 2008- 2009 PASSED U/S.143(3) R.W.S 144C AND 250 OF THE INCOME TAX ACT AND THE ASSESSEE FILED APPEAL AGAINST THE ORDER OF COMMISS IONER OF INCOME TAX (APPEALS)-I, CHENNAI IN ITA NO.52/2014-15/A-I, DATED 24.09.2014 FOR THE ASSESSMENT YEAR 2010-11 PASSED U/S.143(3) R .W.S. 92CA(3) AND 250 OF THE ACT. SINCE THE ISSUES IN DEPARTMENT APPE ALS ARE COMMON IN NATURE, HENCE THESE APPEALS ARE COMBINED, HEARD TOG ETHER, AND DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF C ONVENIENCE. 2. THE REVENUE HAS RAISED TWO SUBSTANTIVE GROUNDS ON THE ISSUES PERTAINING TO TRANSFER PRICING FOR THE ASSES SMENT YEARS 2004-05 AND 2005-06 AND THREE GROUNDS FOR ASSESSMENT YEAR 2 008-09. 2.1 THE CIT(A) ERRED IN DIRECTING THE ASSESSING O FFICER TO TREAT THE PAYMENT OF ROYALTY AT ARM'S LENGTH (0.75% ), REJECTING THE DETERMINATION OF ARM'S LENGTH AT NIL. 2.2. THE CIT(A) FAILED TO APPRECIATE THAT RESERVE B ANK OF INDIA APPROVAL HAS NOTHING TO DO WITH INCOME-TAX PR OVISIONS, WITH REGARD TO DETERMINATION OF ARMS LENGTH PRICE ( ALP). 2.3. HAVING REGARD TO THE FOLLOWING DECISIONS, THE LEARNED CIT(A) OUGHT TO HAVE UPHELD THE ACTION OF THE ASSES SING OFFICER. ITA NOS.2167 TO 2169/2013 & 58/2015. :- 3 -: (A) SKOL BREWERIES LTD. V. ACIT (ITA NO.6175/MUM /2011 DT.18.01.2013(MUM) (B) CIT V. I\LESTLE INDIA LTD. (337 ITR 103)(DEL.) 3.1. THE LEARNED CIT(A) ERRED IN DISAPPROVING THE A DJUSTMENT TO ARMS LENGTH PRICE (ALP), IN RESPECT OF ROYALTY, MADE BY THE A.O. ON THE BASIS OF NEQATIVE VARIATION. 3.2. THE LEARNED CIT(A) OUGHT TO H AVE NOTED THAT THE INSTANT CASE DEALS WITH DETERMINATION OF ALP ON SPICE TRANS ACTIONS. 3.3. THE LEARNED CIT(A) FAILED TO NOTE THAT THE INT ERNATIONAL SPICE MARKET IS A HIGHLY VOLATILE ONE AND HENCE, EV EN A SMALL VARIATION (POSITIVE OR NEGATIVE) IN SPICE PRICES WI LL HAVE A SIGNIFICANT BEARING IN DETERMINATION OF ALP . 3.4. THE LEARNED CIT(A) OUGHT TO HAVE SEEN THAT OWI NG TO THE SPICE TRADE, INVOLVED HEREIN, THE CASE LAWS RELIED UPON BY THE CIT(A), WILL NOT APPLY TO THE FACTS OF THE INSTANT CASE. 3. WE TAKE UP DEPARTMENTAL APPEAL ITA NO.2167/MDS/201 3, ASSESSMENT YEAR 2004-05 FOR ADJUDICATION:- THE BRI EF FACTS OF THE CASE THAT THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MAN UFACTURE AND SALE OF WHOLE AND GROUND SPICES AND FILED RETURN OF INCO ME ON 29.10.2004 WITH TOTAL INCOME OF =4,50,28,570/- AND WAS REDUCED TO NIL AFTER SET OFF OF BROUGHT FORWARD UNABSORBED DEPRECATION BUT PAID MINIMUM ALTERNATIVE TAX (MAT) AS PER THE PROVISIONS OF U/ S.115JB OF THE ACT ON A BOOK PROFITS OF =2,15,01,033/- AND THE RETURN OF INCOME WAS PROCESSED U/S.143(1) AND SUBSEQUENTLY, NOTICE U/S.1 43(2) WAS ISSUED. IN RESPONSE TO NOTICE, THE LD. AUTHORISED REPRESENT ATIVE APPEARED AND FURNISHED DETAILS IN ASSESSMENT PROCEEDINGS. THE A SSESSING OFFICER ALONGWITH OTHER DISALLOWANCES MADE ADDITION IN RESP ECT OF INTERNATIONAL ITA NOS.2167 TO 2169/2013 & 58/2015. :- 4 -: TRANSACTIONS. DURING THE YEAR, THE ASSESSEE COMPAN Y ENTERED INTO INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRI SE M/S. MCCORMICK & COMPANY INC., USA WERE THE TRANSACTIONS EXCEEDED =5 CRORES AND REFERRED TO THE TRANSFER PRICING OFFICER (TPO) TO C ONSIDER THE ARMS LENGTH PRICE. THE LD. TPO VIDE ORDER NO. C.NO.42/P O I/A.Y.2004-05, DATED 7.12.2006 MADE AN ADJUSTMENT OF =19,31,513/- ON ACCOUNT OF ARMS LENGTH PRICE OF TRANSACTION BETWEEN COMPANY FO R PAYMENT OF ROYALTY OF =7,78,019/- AS PRICE VARIATION IN EXPOR T SALES. ON RECEIPT OF ORDER U/S.92CA(3) OF THE ACT, THE ASSESSING OFFICER PROVIDED OPPORTUNITY FOR SUBMITTING REPLY TO THE ASSESSEE A ND LD. AUTHORISED REPRESENTATIVE MADE SUBMISSIONS ON 15.12.2006 REFE RRED AT PAGE NO.4. AS UNDER:- '1. UPWARD ADJUSTMENT TO THE TOTAL INCOME ON ACCOUNT AT' DETERMINATION OR ARM'S LENGTH PRICE RE.LATLL1G TO PAYMENT OF ROYALTY AMOUNTING TO =19,31,513/- AS ALREADY SUBMITTED TO THE TRANSFER PRICING OFFICE R, THE PAYMENT OF ROYALTY HAS BEEN APPROVED BY' THE GOVERN MENT OF INDIA, MINISTRY OF FINANCE IN AS EARLY AS 1994 MUCH BEFORE THE TRANSFER PRICINGRULES CAME INTO FORCE, MOREOVER, AS PER THE RECENT GUIDELINES, THE PAYMENT OF ROYALTY IF IT IS WITHIN THE LIMITS QUALIFYING FOR AUTOMATIC ROUTE, GOVERNMENT APPROVAL 1$ NOT REQUIRED EITHER FOR EXTENDING TILE DURATION OF THE QUANTUM OR CHANGE IN ROYALTY RATES IT THE RATES ALE WITHIN THE RATES PERMITTED WHICH IS AT PRESENT 8% ON THE FOB VALUE O F EXPORTS. THE QUANTUM OF ROYALTY AND THE RATE OF ROYALTY ON T HE TURNOVER WAS FIXED IN THE YEAR 1894 AND IT HAS NOT BEEN CHAN GED UPWARDS AND THE ASSESSEE COMPANY IS PAYING ONLY 0.7 5 % ON THE GOB VALUE OR EXPORTS WHICH IS MUCH BELOW THE RATE PERMITTED BY THE GOVERNMENT OF INDIA FOR AUTOMATIC ROUTE. THE TRANSFER PRICINQ OFFICER HAS DISALLOWED THE ROYALTY PAYMENT AS ACCORDING TO HIM, THERE IS FAILURE E ON THE PART OF THE ASSESSEE TO FURNISH COST OF DEVELOPMENT OF TECHNOLO GY AND IT IS IMPOSSIBLE TOR HIM TO FIND OUT THE CORRECTNESS OF F IGURES AS PER A.LP REGULATIONS. SINCE BECAUSE THERE IS NO COMPARABLE CASES ITA NOS.2167 TO 2169/2013 & 58/2015. :- 5 -: AND THE COST CANNOT BE ASCERTAINED, THERE IS NO JUSTIFICATION FOR DISALLOWING ROYALTY PAYMENTS IN FULL. THE ASSESSEE FURTHER SUBMITTED THAT WITHOUT PREJUDI CE TO THE ABOVE STAND, THE SAID AMOUNT AT =19,31,513/- HAS ALREADY BEEN DISALLOWED BY ITSELF U/S.40(A) BECAUSE THE TDS HAS BEEN REMITTED ON 06.10.2004 AND THE ASSESSEE INTENDS TO CLAIM THE DEDUCTION IN THE ASSESSMENT YEAR 2005-06. HENCE, NO ADJUSTMENT IS CALLED FOR WHILE DETERMINING THE ARM'S LENGTH PRICE ON THIS ACCOUNT . 2. AS FAR AS ADJUSTMENT ON ACCOUNT OR PRICE VARIATION AMOUNTING TO RS,7,78,019/- IN EXPORT SALES, WE WOULD LIKE TO SUBMIT THAT THE ASSESSEE COMPANY SUPPLIED RS.33.41 CRORES WORTH MATERIALS TO ASSOCIATED ENTERPRISES DURING THE RELE VANT PREVIOUS YEAR. BASED ON THE GEOGRAPHICAL LOCATION W ISE DETERMINATION OF ARM'S LENGTH PRICE, THERE ARE ONL Y TWO PRODUCTS WHERE THE NEGATIVE VARIANCE IS MORE THAN 5%. IN ONE PRODUCT, THE QUANTITY SOLD TO ASSOCIATED ENTERPRISES IS JUST 500 KGS, RESULTING IN A VARIATION OF =5,00,462/- THE TRANSFER PRICING OFFICER HAS ALSO NOT CONSIDERED THE FACT TH AT OVERALL, THERE IS A POSITIVE VARIATION TO THE EXTENT OF RS . 1.80 CRORES. BEING A SMALL LOT, NATURALLY THE PRICING OF 500 KG S WAS HIGHER. TO COMPUTE ARMS LENGTH PRICE ADOPTING THE RATE FO R 500KGS FOR =4,31,150 KGS IS HIGHLY ILLOGICAL AND AGAINST T HE PRINCIPAL OF NATURAL JUSTICE. THE LD. ASSESSING OFFICER CONSIDERED THE SUBMISSION S OF THE ASSESSEE ON RECORD AND ALSO FINDINGS OF THE TPO ON DETERMINA TION OF ARMS LENGTH PRICE. SINCE ROYALTY OF =19,31,513/- WAS DIS ALLOWED BY THE ASSESSEE U/S.40(A)(IA) OF THE ACT FOR NON DEDUCTION OF TDS AND NO FURTHER ADJUSTMENT WAS MADE AND COMPLETED ASSESSMEN T WITH ONLY ADJUSTMENT ON ACCOUNT OF PRICE VARIATION =7,78,01 9/- AND PASSED ORDER U/S.143(3) DATED 20.12.2006. AGGRIEVED BY THE ORDER OF THE ASSESSING OFFICER, THE ASSESSEE FILED AN APPEAL BEF ORE THE COMMISSIONER OF INCOME TAX (APPEALS). ITA NOS.2167 TO 2169/2013 & 58/2015. :- 6 -: 4. IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT THE ASSESSING OFFICER CONSIDERED THE TPO ORDER IGNORING VARIOUS RELEVANT AND IMPORTANT F ACTS AND THE PRICE VARIATION IN TRANSACTION WITH ASSOCIATED ENTERPRI SE. THE GOVERNMENT OF INDIA APPROVED THE PAYMENT OF ROYALTY AT 0.75% O N FOB AND ACCEPTED BY THE REVENUE IN ASSESSEES OWN CASE AS R EASONABLE PAYMENT FROM ASSESSMENT YEAR 1993-94 TILL LATEST. FURTHER, THE ASSESSING OFFICER WITHOUT CONSIDERING ARMS LENGTH P RICE MADE AN ADJUSTMENT IN EXPORT SALES OVERLOOKING THE VOLUME O F ASSOCIATED ENTERPRISE. THE LD. COMMISSIONER OF INCOME TAX (APP EALS) FOUND THAT THE ASSESSEE COMPANY IS IN THE BUSINESS OF SPICES A ND EXPORT TO VARIOUS COUNTRIES AND ENTERED INTO JOINT VENTURE WI TH M/S. A.V. THOMAS GROUP COMPANIES AND MCCORMICK & COMPANY INC. USA. THE ASSESSEE COMPANY EXPORTS SPICES TO ASSOCIATED ENTERPRISE AND NON ASSOCIATED ENTERPRISE IN DIFFERENT PARTS OF THE WORLD. THE LD . AUTHORISED REPRESENTATIVE SUBMITTED THAT MCCORMICK & COMPANY I NC. USA HAS SETUP A JOINT VENTURE WITH M/S. A.V. THOMAS GROUP C OMPANIES AND HAS GIVEN THEIR SUPPORT AND TECHNOLOGY FOR SETTING UP A STATE OF THE ART STEAM STERILIZATION FACILITIES TO CATER THE SPICES MARKET OF THE WORLD AND MCCORMICK & COMPANY INC. USA DOES NOT HAVE A SIMILA R JOINT VENTURE IN ANY PART OF THE WORLD EXCEPT INDIA. THE AGREEME NT FOR PAYMENT OF ROYALTY ENTERED IN THE YEAR 1994 VERY MUCH BEFORE APPLICABILITY OF ITA NOS.2167 TO 2169/2013 & 58/2015. :- 7 -: TRANSFER PRICING PROVISIONS. AS PER NOTIFICATION D ATED 24.06.2003, APPLICABLE TO THE ASSESSEE, THE ROYALTY WAS PAID AT 0.75% ON FOB VALUE OF EXPORTS WHICH IS BELOW 8% PRESCRIBED RATE UNDER THE AUTOMATIC ROUTE AND SUPPORTED THE CASE WITH THE DE CISION OF ACIT VS. DUFON LABORATOIES (2010) 39 SOT 59 (MUM) AND EKL AP PLIANCES (24 TAXMANN 199 ). THE COMMISSIONER OF INCOME TAX (APPEALS) OBSER VED AT PARA NO.4.3 AT PAGE NO. 4 AND DIRECTED THE ASSES SING OFFICER TO CONSIDER ROYALTY AT ARMS LENGTH PRICE. COMING TO THE DETERMINATION OF THE ALP OF THE PAY MENT OF ROYALTY AT NIL, THE ID. AR HAS SUBMITTED THAT THE R OYALTY PAID BY THE APPELLANT COMPANY TO MCCORMICK IS 0.75% OF FOB VALUE OF EXPORTS AND THIS HAS BEEN APPROVED BY THE RBI AND G OVERNMENT OF INDIA IN' 1994 ITSELF. FURTHER, THE ID. AR SUBMI TTED THAT THE CASE OF MUMBAI TRIBUNAL THYSSENKRUPP VS. ADD!. CIT -, ITA NO.6460/ MUM/2012 HAS OBSERVED AS UNDER:- 'WHEN A PAYMENT IS MADE AFTER OBTAINING DUE APPROVAL FROM THE RBI, HOW ITS ALP CAN BE COMPUTED AT 'NIL', IS ANYBODY'S GUESS. THE FACTS OF APPROVAL OF THE PAYMENT BY THE RAL HAS BEEN SUCCINCTLY RECORDED BY THE TPO IN HIS ORDER AS WELL. HE STILL CHOSE TO PROPOSE ADJUSTMENT IN RESPECT OF FULL PAYMENTS. IN OUR CONSIDERED OPINION, WHEN THE RATE OF ROYALTY PAYMEN T AND FEE FOR DRAWINGS ETC, HAS BEEN APPROVED OR DEEMED TO HAVE APPROVED BY THE RBI, THEN SUCH PAYMENT HAS TO BE CONSIDERED AT ALP. THUS, ON THE FACTS AND ON MERITS, THE DETERMINATION OF ARMS LENGTH PRICE OF THE PAYMENT OF ROYALTY AT NIL FOR A .Y. 2004-05, 05- 06 AND 08-09 IS SET ASIDE AND THE ASSESSING OFFICER IS DIRECTED TO TREAT THE PAYMENT OF ROYALTY AT ARMS LENGTH FOR RE SPECTIVE ASSESSMENT YEARS. ITA NOS.2167 TO 2169/2013 & 58/2015. :- 8 -: ON THE NEXT GROUND OF PRICE VARIANCE THE LD. COMMIS SIONER OF INCOME TAX (APPEALS) CONSIDERED THE GROUNDS OF APPEAL, SUB MISSIONS, ARGUMENTS AND THE MATERIAL EVIDENCE FILED IN APPELL ATE PROCEEDINGS AND FINDINGS OF PRICE VARIANCE AND PERUSED THE EXP ORT PRICE OF ASSOCIATED ENTERPRISE AND NON ASSOCIATED ENTERPRISE FOR ALL THE PRODUCTS IN THE RELEVANT ASSESSMENT YEAR. ON COMPA RISON OF VARIANCE BASED ON THE COMPARATIVE TABLES, THE LD. COMMISSION ER OF INCOME TAX (APPEALS) FOUND NEGATIVE VARIANCE IS NEGLIGIBLE CO MPARED TO THE POSITIVE VARIANCE IN RESPECT OF THE EXPORTS MADE TO ASSOCIATED ENTERPRISE AND HELD AT PAGE NO.3, PAGE NO.4.2 OF CI T ORDER AS UNDER:- IT IS ALSO TO BE NOTED THAT THE ASSOCIATED ENTERP RISE AND NON ASSOCIATED ENTERPRISE OPERATE IN DIFFERENT MARKET. IN VIEW OF THE NEGATIVE VARIATION BEING NEGLIGIBLE COMPARED TO SUB STANTIAL OVERALL POSITIVE VARIATION AND ALSO AS PER THE RATI O OF DECISION OF THE TRIBUNAL IN THE CASE OF DUFON LABORATORIES, THI S ADDITION ON ACCOUNT OF NEGATIVE VARIATION AMOUNTING TO =7,78,01 9/- =10,17,289/- AND =40,44,422/- FOR A.Y 2004-05, 05-0 6 AND 08- 09 IS DIRECTED TO BE DELETED. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) PARTLY ALLOWED THE APPEAL. AGGRIEVED BY THE ORDER, THE REVENUE HAS FIL ED AN APPEAL BEFORE TRIBUNAL ON TWO SUBSTANTIVE GROUNDS. 5. BEFORE THE TRIBUNAL, THE LD. DEPARTMENTAL REPRESENT ATIVE REITERATED HIS SUBMISSIONS ON THE GROUNDS THAT THE ROYALTY PAYMENT 0.75% CANNOT BE ACCEPTED AND THE PRICE VARIATION ON SPICES MARKET IS HIGHLY VOLATILE AND THE AGREEMENT WAS ENTERED IN TH E YEAR 1994. THE ITA NOS.2167 TO 2169/2013 & 58/2015. :- 9 -: LD. COMMISSIONER OF INCOME TAX (APPEALS) HAS CONSID ERED PERCENTAGE IGNORING ROYALTY PAID TO THE US BASED COMPANY MCCOR MICK & COMPANY INC. BEING 0.75% OF FOB VALUE OF EXPORTS WAS APPROV ED IN THE YEAR 1994 BY RESERVE BANK OF INDIA AND THE DECISION RELI ED BY THE ASSESSEE OF MUMBAI TRIBUNAL THYSSENKRUPP VS. ADDL. CIT IN ITA 6460/MUM/201 2 IS DISTINGUISHED AND PRAYED FOR SET ASIDE OF THE COMMISSIONER OF INCOME TAX (APPEALS) ORDER AND ALS O SUPPORTED THE ARGUMENTS WITH THE JUDICIAL DECISIONS. 6. THE LD. AUTHORISED REPRESENTATIVE IN REPLY TO THE SUBMISSIONS CLARIFIED THAT THE COMPANY HAS ENTERED INTO JOINT VENTURE BETWEEN M/S. A.V. THOMAS GROUP COMPANIES AND MCCORM ICK COMPANIES INC. USA AND EXPORT SPICES TO ASSOCIATED ENTERPRISE. DURING THE YEAR THE ASSESSEE COMPANY EXPORTED =12,2 8,18,436/- TO THE ASSOCIATED ENTERPRISE AND AS PER AGREEMENT ENTE RED IN THE YEAR 1994 MUCH BEFORE APPLICABILITY OF TPO PROVISIONS WERE ROYALTY IS PAID AT 0.75% OF FOB VALUE OF EXPORTS AND SUCH RATE IS A PPROVED BY GOVERNMENT OF INDIA AND RBI AND A ON COMPARISON TO AUTOMATIC ROUTE UNDER EXPORTS 0.75% OF FOB PRICE IS VERY MUCH BELOW 8%. THE LD. AUTHORISED REPRESENTATIVE REFERRED TO PAGE NO. 87 A ND 88 OF PAPER BOOK CONTAINING THE AGREEMENT WITH MCCORMICK TECHNO LOGY LICENCE AND TECHNICAL ASSISTANCE AGREEMENT EFFECTIVE FROM 3 .3.2004 AS PER THE ITA NOS.2167 TO 2169/2013 & 58/2015. :- 10 -: CLAUSE (2) OF AGREEMENT THE ASSESSEE COMPANY SHALL PAY ROYALTY AS PER THE TERMS OBSERVED AT PARA 2 AS UNDER:- 2. DURING THE PERIOD OF TEN (10) YEARS COMMENCING ON MARCH 3, 2004 AVT MCC SHALL PAY MCCORMICK ROYALTIES FOR THE LICENSES AS MENTIONED IN SECTION 7 OF THE SAID MCCORMICK TECHNOLOGY LICENSE AGREEMENT DATED MARCH 3, 1994 AND AS AMENDED BY THE AGREEMENT DATED MARCH 4, 1994, SUBJECT HOWEVER THAT THE TOTAL ROYALTY INCLUD ING ROYALTY ALREADY PAID SHALL NOT EXCEED US $400,000 . AND FURTHER ON APPROVAL OF RBI, THE LD. AUTHORISED REPRESENTATIVE REFERRED TO THE LETTER DATED 18.0.8.2004 AT PAGE NO.110 OF PAPER BOOK. GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY, (DEPT. OF INDUSTRIAL POLICY AND PROMOTION ) UDYOG BHAWAN, NEW DELHI 110 001. DATED 18.08.2004 M/S. AVT MCCORMICK INGRDIENTS PVT. LTD PLOT NO.225/1. A5-7, KAIPOORIKKARA, VAZHAKULAM MARAMPILLY P.O. ALUVA 683 107, DIST ERNAKULAM, KERALA. SUBJECT: APPLICATION FOR EXTENSION /RENEWAL OF FORE IGN TECHNOLOGY & TRADEMARK LICENCE AGREEMENTS. SIR, I AM DIRECTED TO REFER TO YOUR LETTER DATED 3 RD AUGUST, 2004 ON THE SUBJECT MENTIONED ABOVE AND TO SAY THAT RENEWAL OF FOREIGN TECHNOLOGY & TRADE MARK LICENSE AGREEMENTS IS ESSENTIAL FOR CONTINUED PAYMENT OF ROYALTY UNDER THE AUTOMATIC ROUTE. HOWEVER NO GOVERNMENT APPROVAL IS REQUIRED FOR EXTENDING THESE AGREEMENTS. ITA NOS.2167 TO 2169/2013 & 58/2015. :- 11 -: PAYMENT OF ROYALTY CAN CONTINUE UNDER A RENEWED AGREEMENT P ROVIDED THE RATE OF ROYALTY IS WITHIN THE LIMITS QUALIFYING FOR AUTOMATIC ROUTE GOVERNMENT'S APPROVAL IS NOT REQUIRED FOR EXTENDING THE DURATION OF THE AGREEMENT PROVIDED THERE IS NO CHANGE IN THE ROYALTY RATES & THEY QUALIFY FOR AUTOMATIC APPROVAL ROUTE YOURS FAITHFULLY, SD/- (PRAMILA RAGHAVENDRAN) UNDER SECRETARY TO THE GOVT. OF INDIA FAX NO.23017227. SUBSEQUENTLY ON PERUSAL OF LETTER OF DATED 02.07.2 004 ON EXTENSION BY GOVERNMENT OF INDIA AT PAGE NO.111 AND 112 AS UNDER :- GOVERNMENT OF INDIA, MINISTRY OF COMMERCE AND INDUSTRY, (DEPT. OF INDUSTRIAL POLICY AND PROMOTION ) UDYOG BHAWAN, NEW DELHI 110 001. DATED 02.07.2004 TO M/S. AVT MCCORMICK INGRDIENTS PVT. LTD 64, RUKMINI LAKSHMIPATHY SALAI, EGMORE, CHENNAI 600 008 . SUBJECT: APPLICATION FOR EXTENSION /RENEWAL OF FOR EIGN TECHNOLOGY & TRADEMARK LICENSE AGREEMENTS. SIR, I AM DIRECTED TO REFER TO YOUR LETTER DATED 17 TH JUNE, 2004 ON THE SUBJECT MENTIONED ABOVE AND TO SA Y THAT AS PER THE PROVISIONS OF PRESS NOTE 2 OF 2003( COPY ENCLOSED) THE RESTRICTION ON THE DURATION OF THE RO YALTY PAYMENTS FOR THE FOREIGN TECHNOLOGY AGREEMENTS HAS ITA NOS.2167 TO 2169/2013 & 58/2015. :- 12 -: BEEN REMOVED. ACCORDINGLY, NO GOVERNMENT APPROVAL IS REQUIRED FOR YOUR PRESENT REQUEST. YOURS FAITHFULLY, SD/- (PRAMILA RAGHAVENDRAN) UNDER SECRETARY TO THE GOVT. OF INDIA FAX NO.23017227. CONSIDERING THE SUBMISSIONS, THE PAYMENT OF ROYALTY IS IN ORDER AND TPO HAS ERRED IN CONSIDERING THE ADJUSTMENT TO ARMS LENGTH PRICE. THE LD. AUTHORISED REPRESENTATIVE DREW ATTENTION TO THE FINANCIAL STATEMENTS AND ALSO MADE SUBMISSIONS ON PRODUCT WIS E VARIATION FILED REFERRED AT PAGE NO.75 TO 83 AND THE FACTS WERE BRO UGHT ON RECORD IN ASSESSMENT PROCEEDINGS. THE LD. AUTHORISED REPRESE NTATIVE SUBSTANTIATED HIS ARGUMENTS WITH THE DECISION OF SGS INDIA PVT. LTD. ADDL. CIT IN ITAT MUMBAI BENCH DECISION IN ITA NOS. 963 & 3107/MUM2011, DATED 22 ND MAY, 2013 WHERE IT WAS HELD THAT THE ARMS LENGTH PRICE AND THE LICENCE FEES FOR USE OF I NTELLECTUAL PROPERTY, THE PAYMENT OF 3% OF TURNOVER AS LICENCE FEE TO THE ASSOCIATED ENTERPRISE IS ACCEPTED AS ARMS LENGTH PRICE BY TRI BUNAL. SIMILARLY DELHI BENCH OF THE TRIBUNAL IN THE CASE OF SONA OKEGAWA PRECISION FORGINGS LTD VS. ADDL. CIT IN ITA NO.4781/DEL/2010, DATED 16 TH DEC. 2011 HELD THAT ASSESSEE HAS SOLD ONLY A PART OF GOODS M ANUFACTURED TO ITS ASSOCIATED ENTERPRISE AND BULK OF SALES WERE MA DE TO UNCONTROLLED ITA NOS.2167 TO 2169/2013 & 58/2015. :- 13 -: PARTIES, AND THE ASSESSING OFFICER HAS FAILED TO BR ING ANY MATERIAL ON RECORD TO SHOW THAT PAYMENT OF ROYALTY @ 3 PER CENT WAS NOT AT ARMS LENGTH WHICH WAS ALSO APPROVED BY RBI, HENCE DISALL OWANCE OF ROYALTY IS NOT JUSTIFIED AND ASSESSEE ALSO RELIED ON VAR IOUS JUDICIAL DECISIONS TO SUPPORT HIS CASE AND AS PER THE DIRECTIONS OF GO VERNMENT OF INDIA THE APPROVAL OF RBI IS VERY MUCH NECESSARY FOR DETE RMINATION OF ARMS LENGTH PRICE AND CONSIDERED BY THE HYDERABAD BENCH OF TRIBUNAL IN THE CASE OF DCIT VS. OWENS CORINING INDUSTRIES (INDIA) PVT LTD (2014) 41 CCH 0152 (HYD TRIB ) WHERE THE DECISION WAS BASED ON THE ALP RATE AND IT HELD AS UNDER;- T RANSFER PRICING-ARMS' LENGTH PRICE-PAYMENT OF ROYALTY TO AE-ASSESSEE ENGAGED IN BUSINESS OF MANUFACTURING AND TRADING OF GLASS FIBRE PRODUCTS AND ARTICLES THEREOF WAS PROVIDED TECHNICAL ASSISTANCE BY NETHERLANDS AND CLAIMED THAT QUANTUM OF ROYALTY PAYMENT WAS AT 5% AND 4% OF NET OF ITS SALES- TPO RESTRICTED PAYMENT OF ROYALTY TO 2% OF NET SALES MADE BY ASSESSEE BY BENCH- MARKING ASSESSEE'S PERFORM COMPARABILITY ANALYSIS WITH PAYMENT OF ROYALTY BY A COMPARABLE COMPANY AND THAT THERE WAS NO COMPARABLE INCREASES IN TURNOVER OR PROFITS AND HENCE VALUE ADDITION OF ROYALTY WAS NOT APPARENT-TPO ACCORDINGLY MADE ADDITION TO INCOME OF ASSESSEE-DRP AFFIRMED FINDINGS OF TPO-HELD, ASSESSEE WAS BEING RENDERED TECHNICAL ASSISTANCE THROUGH ROYALTY AGREEMENT ENTERED INTO WITH NETHERLANDS AND ROYALTY AGREEMENT HAD BEEN IN APPLICATION FROM 1.7.2008-TPO WAS INCORRECT IN GOING INTO BUSINESS EXPEDIENCY OF PAYMENT OF ROYALTY AND ARRIVING AT QUANTUM OF ROYALTY-FURTHER ONCE RBI APPROVAL OF ROYALTY RATE WAS OBTAINED AND ITA NOS.2167 TO 2169/2013 & 58/2015. :- 14 -: PAYMENT WAS CONSIDERED TO BE HELD AT ARM'S- LENGTH, NO FURTHER ADJUSTMENT WERE WARRANTED- TPO ERRED IN HOLDING THAT NO TANGIBLE BENEFITS WERE DERIVED BY ASSESSEE OUT OF ROYALTY PAYMENTS MADE BY IT AND RESTRICTING PAYMENT TO 2% OF NET SALES-ASSESSEE'S APPEAL ALLOWE D . AND FINALLY THE RBI APPROVAL FOR ROYALTY RATE PAID BY THE ASSESSEE ITSELF IMPLIED THAT PAYMENTS ARE AT ARMS LENGTH PRICE AND THE LD. AUTHORISED REPRESENTATIVE PRAYED FOR DISMISSAL OF REVENUE APPE AL. 7. WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE M ATERIAL ON RECORD, JUDICIAL DECISIONS AND CIRCULARS. THE LD. DEPARTMENTAL REPRESENTATIVE CONTESTING THE RATE APPROVED BY THE RBI PRIOR TO 1994 AND CANNOT BE CONSIDERED FOR THE PURPOSE OF ARMS LE NGTH PRICE. FACT THAT ROYALTY AGREEMENT BETWEEN THE ASSESSEE COMPANY AND USA COMPANY REFERRED IN THE PAPER BOOK WAS ENTERED MUCH PRIOR TO THE APPLICABILITY OF TPO PROVISIONS AND AS PER THE NOTI FICATION APPLICABLE TO ASSESSMENT YEAR THE ROYALTY PAID AT 0.75% ON THE FO B VALUE OF EXPORTS IS BELOW THE 8% RATE PRESCRIBED UNDER AUTOM ATIC ROUTE FOR THE YEAR 2004. THE LD. COMMISSIONER OF INCOME TAX (APP EALS) HAS DIRECTED THE ASSESSING OFFICER TO CALCULATE ROYALTY AT ARMS LENGTH PRICE @0.75% REJECTING THE DETERMINATION BY TPO. THE LD. AUTHORISED REPRESENTATIVE EXPLAINED THE PROVISIONS AND CONDITI ONS OF AGREEMENTS AND APPROVAL OF THE RBI AT PAGE NO.87 OF PAPER BOO K. WE ON PERUSAL ITA NOS.2167 TO 2169/2013 & 58/2015. :- 15 -: OF THE DOCUMENTARY EVIDENCE FILED BY THE AUTHORISED REPRESENTATIVE AND ALSO JUDICIAL DECISIONS APPROVING THE ROYALTY P AYMENTS WHICH THE RBI PRESCRIBED, FOUND THE APPROVAL OF GOVERNMENT OF INDIA AND RBI WAS IN 1994 AND AS PER THE TERMS ROYALTY RATE IS C ALCULATED. THE ASSESSEE COMPANY SUBSTANTIATED THEIR GROUNDS WITH FINANCIAL STATEMENTS AND COMPARABLE STATEMENTS. WE PERUSED T HE RBI LETTER AND FOLLOW THE DECISION OF HYDERABAD BENCH OF TRIBU NAL IN THE CASE OF OWENS CORINING INDUSTRIES (INDIA) LTD (SUPRA ) WHERE IT HAS BEEN HELD THAT RBI APPROVAL OF THE ROYALTY RATES PAID BY ASSE SSEE ITSELF IMPLIES THAT THE PAYMENTS WERE AT ARMS LENGTH. SO CONSIDER ING THE APPARENT FACTS AND CIRCUMSTANCES THE LD. COMMISSIONER OF INC OME TAX (APPEALS) HAS EXAMINED THE ISSUE AND VERIFIED THE STATEMENTS AND MATERIAL FILED AND VIZ A VIZ EXPLANATIONS OF THE ASSESSEE. WE, TH EREFORE ARE NOT INCLINED TO INTERFERE WITH THE ORDER OF THE CIT(A) ON THIS GROUND. ACCORDINGLY, THIS GROUND OF THE REVENUE IS DISMISSE D. 7.1 BEFORE TRIBUNAL ON SECOND GROUND, THE LD. DEPAR TMENTAL REPRESENTATIVE SUBMITTED THAT THE PRICE VARIATION OF ARMS LENGTH PRICE TRANSACTION IS AT HIGHER AND VOLATILE. THE VARIATI ON OF POSITIVE AND NEGATIVE IMPACT CONSIDERING THE SPICES RATES ON TH E DETERMINATION OF ARMS LENGTH PRICE AND PRICE VARIATION HAS ARISED W ITH THE TRANSACTIONS OF ASSOCIATED ENTERPRISE. THE LD. COMMISSIONER OF INCOME TAX ITA NOS.2167 TO 2169/2013 & 58/2015. :- 16 -: (APPEALS) HAS ERRED IN DELETING THE ADDITION ON ACC OUNT OF NEGATIVE VARIATION BEING NEGLIGIBLE IN COMPARISON TO THE EXP ORTS MADE TO ASSOCIATED ENTERPRISE. 7.2 ON THE OTHER HAND, THE LD. AUTHORISED REPRESEN TATIVE SUBMITTED THE REASONS FOR VARIATIONS AND IMPACT ON DETERMINATION OF ARMS LENGTH PRICE IN SPICE TRANSACTIONS WITH ASSOCI ATED ENTERPRISE AND NON ASSOCIATED ENTERPRISE AND DREW ATTENTION TO THE PAGE NO.75 OF PAPER BOOK SHOWING PRODUCTS WISE VARIATIONS AND DET ERMINATION OF ARMS LENGTH PRICE UNDER CUP METHOD. THE LD. AUTHOR ISED REPRESENTATIVE DEMONSTRATED THE VARIANCE AND IMPACT IN VALUE AND SUCH VARIATION ON THE TRANSACTIONS BELOW OR EQUAL TO 5%. THE ASSESSING OFFICER SHOULD CONSIDER SUCH VARIANCE AN D THE TURNOVER AND SUPPORTED HIS ARGUMENTS WITH THE JUDICIAL DECISIONS . 7.3 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND JUDICIAL DECISIONS CITED. THE CONTENTI ON OF THE LD. DEPARTMENTAL REPRESENTATIVE THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED IN NOT CONSIDERING THE ADJUSTME NT OF ARMS LENGTH PRICE IN RESPECT OF SPICES WERE THE MARKET IS HIGHL Y VOLATILE AND VARIATION WILL HAVE BEARING ON DETERMINATION OF ARM S LENGTH PRICE. THE LD. DEPARTMENTAL REPRESENTATIVE FURTHER RELIED ON THE ORDER OF ITA NOS.2167 TO 2169/2013 & 58/2015. :- 17 -: TPO WERE THE ADJUSTMENT WERE CONSIDERED. THE LD. A UTHORISED REPRESENTATIVE SUBSTANTIATED HIS ARGUMENTS THAT THE ADJUSTMENT IS NEGLIGIBLE COMPARED TO THE TURNOVER AND GLOBAL PRES ENCE OF THE COMPANY AND THE COMMISSIONER OF INCOME TAX (APPEAL S) ON COMPARISON WITH OVER ALL POSITIVE VARIATIONS HAD DE LETED THE ADDITION. BEFORE US, THE REVENUE HAS NOT BROUGHT ANY EVIDENCE TO SHOW THAT PRICE VARIATION IS ON HIGHER SIDE AND IMPACT ON THE ARMS LENGTH PRICE. THOUGH LD. AUTHORISED REPRESENTATIVE JUSTIFIED HIS ARGUMENTS WITH THE SUBMISSIONS AND JUDICIAL DECISIONS. CONSIDERING THE SUMMARY OF MODULE AND AGREEMENTS ENTERED BY THE ASSESSEE COMPA NY WITH ASSOCIATED ENTERPRISE, WE FIND THE ORDER OF COMMISS IONER OF INCOME TAX (APPEALS) IS IN ORDER AND WE DO NOT INTERFERE W ITH THE FINDINGS AND UPHOLD THE FINDINGS OF THE COMMISSIONER OF INCOME T AX (APPEALS) AND DIRECT THE ASSESSING OFFICER TO DELETE THE ADDITION . THIS GROUND OF THE REVENUE IS DISMISSED. 8. IN ADDITION TO TWO COMMON GROUNDS AS IN ASSES SMENT YEAR 2004-05 AND 2005-06, THE DEPARTMENT HAS RAISED GRO UND IN APPEAL FOR THE ASSESSMENT YEAR 2008-09. 8.1 THE ASSESSING OFFICER DISALLOWED =94,83,978/- ON ACCOUNT OF FOREIGN SALES COMMISSION AS ASSESSEE FAILED TO D EDUCT TDS. THE EXPLANATION OF THE ASSESSEE THAT PAYMENTS WERE TO P ROCURE ORDERS ITA NOS.2167 TO 2169/2013 & 58/2015. :- 18 -: OUTSIDE INDIA AND NO PARTY HAS PERMANENT ESTABLISHM ENT IN INDIA AND PROVISIONS OF SEC. 195 DOES NOT APPLY. BUT THE LD. ASSESSING OFFICER BASED ON THE FINANCE ACT 2010 AND CBDT CIRCULAR DIS TINGUISHED THE DECISION RELIED BY THE ASSESSEE AND MADE ADDITION. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONE R OF INCOME TAX (APPEALS). 8.2 BEFORE COMMISSIONER OF INCOME TAX (APPEALS) THE ASSESSEE HAS REITERATED HIS SUBMISSIONS IN RESPECT OF AGENC Y COMMISSION PAID TO FOREIGN SALES AGENT. THE ASSESSEE HAS GIVEN BIFU RCATION OF FOREIGN AGENCIES COMMISSION AND RELIED ON THE AMENDMENT OF FINANCE ACT, 2010 AND CBDT CIRCULARS AND CRITERIA OF DEDUCTION O F TDS AS THERE IS NO PERMANENT ESTABLISHMENT IN INDIA AND ALSO RELIED ON THE DECISION OF CO-ORDINATE BENCH AND ARGUED THAT THE COMMISSION EARNED OUTSIDE THE COUNTRY IS TAXABLE IN RESPECTIVE RECIPIENT COUN TRIES. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) CONSIDERED THE SUBMISSIONS AND DISTINGUISHED THE DECISIONS AND MADE A FINDING THAT PAYMENTS ARE NEITHER FEES FOR TECHNICAL SERVICES NOR ROYALTY NO R INTEREST AND ALSO THESE PAYMENTS ARE COMMISSION PAYMENTS TO FOREIGN A GENTS AND RELIED ON DECISION OF GE TECHNOLOGY PRIVATE LT (SUPRA) AND ALSO THE JURISDICTIONAL TRIBUNAL DECISIONS IN THE CASE OF T VS MOTOR COMPANY VS. ACIT (ITA NO.697 & 757/MDS2009,) FARIDA SHOES VS. A CIT (ITA ITA NOS.2167 TO 2169/2013 & 58/2015. :- 19 -: NO.359/MDS/2013) FAIZAN SHOES VS. ACIT (ITA NO.2095 /MDS/2012) AND TAMIL NADU NEWS PRINTS & PAPERS LTD VS. ACIT ( ITA NO.555/MDS/2011 ) AND ALLOWED THE APPEAL OF THE ASSESSEE. AGGRIEVED , THE REVENUE HAS FILED AN APPEAL BEFORE THE TRIBUNAL . 8.3 THE LD. DEPARTMENTAL REPRESENTATIVE ARGUED THA T COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DIREC TING THE ASSESSING OFFICER TO DELETE THE ADDITION ON ACCOUNT OF NON DEDUCTION OF TAX BY ASSESSEE ON PAYMENTS TO OVERSEAS COMMISSION AGENTS AND HAS OVERLOOKED THE BUSINESS CONNECTION WHICH DEVELO PED WITH THE ASSESSEE COMPANY AND THE EXPLANATIONS 4 TO SEC. 9 (1)(I) AND EXPLANATION 2 TO SEC. 195(1) SUCH COMMISSION IS LIA BLE TO TAX AND SUBJECT TO TDS AND PRAYED FOR SET ASIDE OF THE COM MISSIONER OF INCOME TAX (APPEALS) ORDER. 8.4 CONTRA, THE LD. AUTHORISED REPRESENTATIVE RELIE D ON THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS ) AND SUPPORTED ARGUMENTS WITH TECHNICALITIES, JUDICIAL DECISIONS A ND CIRCULARS. THE FOREIGN AGENCY COMMISSION WAS PAID TO NON-RESIDENTS AND THE PROVISIONS OF SEC. 195 SHALL NOT APPLY AND RELIED ON THE DECISION OF CIT VS KIKANI EXPORTS PVT. LTD 369 ITR 0096 (MAD) WERE IT WAS HELD THAT SERVICES RENDERED BY A NON-RESIDENT AGENT CAN AT B EST BE CALLED AS A ITA NOS.2167 TO 2169/2013 & 58/2015. :- 20 -: SERVICE FOR COMPLETION OF THE EXPORT COMMITMENT, SA ME WOULD NOT FALL WITHIN THE DEFINITION OF FEES FOR TECHNICAL SERVI CES AND CONSEQUENTLY, PROVISION OF SECTION 9 OF THE ACT WILL NOT APPLICA BLE IN SUCH A CASE AND HENCE, SECTION 195 OF THE ACT SHALL BE APPLICABLE AND ALSO SECTION 195 OF THE ACT. FURTHER IN THE LIGHT OF DECISION OF CIT VS. FAIZAN SHOES PVT. LTD 89 CCH 0213 WHICH FITS TO ASSESSEES SUBMISSIONS DIRECTLY AS PAYMENTS WERE MADE TO NON RESIDENTS FOR PROCURING E XPORT ORDERS AND HELD THAT THE ASSESSEE PAID COMMISSION TO NONRESI DENT AGENT OUTSIDE INDIA FOR PROCURING EXPORT ORDERS FROM OVERSEAS BUY ERS AND THE NONRESIDENT AGENT DID NOT PROVIDE ANY TECHNICAL SER VICES FOR PURPOSES OF RUNNING BUSINESS OF ASSESSEE IN INDIA, THEREFORE ASSESSEE IS NOT LIABLE TO DEDUCT TAX ON SOURCE ON SUCH COMMISSION P AYMENT. 8.5 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD AND JUDICIAL DECISIONS AND DOUBLE TAXATIO N AVOIDANCE AGREEMENTS. THE ASSESSEE HAS PAID FOREIGN COMMISSI ON TO OUTSIDE FOREIGN AGENCIES WHO DO NOT HAVE BUSINESS ESTABLISH MENT IN INDIA AND LIABLE FOR TAXATION IN THEIR RESPECTIVE COUNTRIES. WE RELY ON THE CO- ORDINATE BENCH DECISION IN THE CASE OF ACIT VS. EURO LEDER FASHIONS LTD (2015) 44 ITR (TRIB) 571 (CHENNAI) IT WAS OBSERVED AT PARA 10 & 11 AS UNDER:- ITA NOS.2167 TO 2169/2013 & 58/2015. :- 21 -: THE AFORESAID CLAUSE MAKES IT CLEAR THAT THE DISALLOWANCE SHALL BE MADE IN CASE OF ANY PAYMENT MADE WHICH IS CHARGEABLE UNDER THIS ACT AND IS PAYA BLE OUTSIDE INDIA OR IN INDIA TO A NONRESIDENT NOT BEIN G A COMPANY OR TO A FOREIGN COMPANY ON WHICH TAX IS DEDUCTIBLE AT SOURCE. THEREFORE, THE FIRST CONDITIO N REQUIRED TO BE FULFILLED IS THE PAYMENT MUST BE CHARGEABLE UNDER THE ACT, THEREAFTER THE QUESTION O F DEDUCTION OF TAX WILL ARISE. SECTION 195 (1) OF THE ACT ALSO PRESCRIBES THAT TAX HAS TO BE DEDUCTED WHILE MAKING PAYMENT TO NON-RESIDENT WHICH IS CHARGEABLE UNDER THE PROVISIONS OF THE ACT. THEREFORE, THE CON DITION PRECEDENT FOR DEDUCTION OF TAX IS THE INCOME MUST B E CHARGEABLE UNDER THE PROVISIONS OF THE ACT. IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE HAS NOT PRODUCED THE AGREEMENT ENTERED INTO BY THE ASSESSEE WITH FOREIGN AGENTS TO SHOW THAT THEY WERE APPOINTED TO ACT AS COMMISSION AGENTS OUTSIDE INDIA IN THEIR RESPECTIVE COUNTRIES. THE AO HAS DISALLOWED COMMISSION PAYMENT U/S 40(A)(I) OF THE ACT, SINCE, THERE WAS NO AGREEM ENT TO SUGGEST THE PAYMENT OF SALES COMMISSION. AS SEEN FROM THE ORDER S OF THE LOWER AUTHORITIES, THE ASSESSEE HAS NOT DISCHARGED THE BURDEN CAST UPON IT TO SHOW THE NATURE OF SERVICES RENDERED BY NON-RESIDEN T AGENT. IF THERE ARE SERVICES RENDERED BY NON-RESIDE NTS, WHO HAVE NO PERMANENT ESTABLISHMENT IN INDIA OR HAV E ANY BUSINESS CONNECTION IN INDIA, BY VIRTUE OF WHIC H THE PAYMENT OF COMMISSION ACCRUED OR AROSE IN INDIA THE N, IT IS EXEMPTED, IF THE ASSESSEE IS ABLE TO PROVE TH AT THE SERVICES WERE RENDERED BY THOSE NON-RESIDENTS AT ABROAD. IN THE PRESENT CASE, THE ASSESSEE HAS NOT ESTABLISHED THE FACTS ON RECORD THAT THE NON-RESIDE NT HAS RENDERED SERVICES AT ABROAD AND THERE IS NO BUSINES S CONNECTION IN INDIA BY PRODUCING RELEVANT RECORDS, VIZ., EITHER AGREEMENT ENTERED INTO BY THE ASSESSEE WITH THEM OR CORRESPONDENCE TOOK BETWEEN THE PARTIES. WITHOUT EXAMINING THESE DETAILS, WE ARE NOT IN A POSITION TO DECIDE THE NATURE OF SERVICES RENDERED BY THE NON-RESIDENT AGENT. THEREFORE, IT IS APPROPRIATE TO REMIT THE ENTIRE ISSUE BACK TO THE FILE OF THE AO WITH DI RECTION TO THE ASSESSEE TO PROVE THAT IT WAS SALES COMMISSI ON ITA NOS.2167 TO 2169/2013 & 58/2015. :- 22 -: TOWARDS PROCUREMENT OF ORDERS FROM ABROAD. ACCORDINGLY, THE ENTIRE ISSUE IS REMITTED BACK TO T HE FILE OF THE AO FOR FRESH CONSIDERATION AND THE AO IS DIR ECTED TO MAKE NECESSARY ENQUIRY REGARDING THE NATURE OF SERVICES RENDERED BY THE NON-RESIDENT AGENT AND THE PAYMENTS MADE THEREOF. WITH THESE OBSERVATIONS, THE APPEAL IS ALLOWED FOR STATISTICAL PURPOSES. RESPECTFULLY, FOLLOWING THE DECISION OF CO-ORDINATE BENCH, WE REMIT THE ISSUE TO THE FILE OF ASSESSING OFFICER FOR VERIFICA TION AND EXAMINATION AND THE APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 9. IN THE RESULT, THE APPEALS OF THE REVENUE IN ITA NOS. 2167 & 2168/MDS/2013 ARE DISMISSED AND ITA NO.2169/MDS/2 013 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 10. WE TAKE UP ASSESSEE APPEAL IN ITA NO.58/MDS/2 015, ASSESSMENT YEAR 2010-2011 FOR ADJUDICATION :- THE ASSESSEE COMPANY FILED RETURN OF INCOME ON 17.09.2010 WITH TOTAL INC OME OF =12,91,49,070/- AND THE CASE WAS SELECTED FOR SCRUT INY UNDER CASS AND NOTICE U/S.143(2) OF THE ACT WAS ISSUED BY THE ASSESSING OFFICER AND SERVED ON 06.09.2011 ON THE ASSESSEE. DUE TO CH ANGE IN JURISDICTION, LETTER DATED 11.11.2013 ALONGWITH NOT ICE U/S.142(1) WAS ISSUED. IN REPLY TO THE NOTICE, THE LD. AUTHORISED REPRESENTATIVE APPEARED ON VARIOUS DATES OF HEARING AND FILED DETA ILS CALLED FOR. THE ITA NOS.2167 TO 2169/2013 & 58/2015. :- 23 -: ASSESSING OFFICER UPON VERIFICATION OF DETAILS AND SUBMISSIONS AND DISCUSSIONS COMPLETED ASSESSMENT U/S.143(3) OF THE ACT. SINCE THE ASSESSEE HAD INTERNATIONAL TRANSACTIONS THE ASSESS ING OFFICER REFERRED THE MATTER TO TRANSFER PRICING OFFICER AND TPO-I, C HENNAI IN ORDER DATED 09.01.2014 IN F.NO.104/TPO-I/A.Y.2010-11 HELD THAT INTERNATIONAL TRANSACTIONS OF THE ASSESSEE COMPANY ARE WITHIN ARMS LENGTH PRICE AND HENCE NO ADJUSTMENT IS CONSIDERED NECESSARY FOR THE ASSESSMENT YEAR 2010-2011 AND THE ASSESSMENT ORDER WAS PASSED U/S.143(3)R.W.S. 92CA(3) OF THE ACT DATED 17.03.201 4. THE SOLE DISPUTE BEFORE THE TRIBUNAL BEING THE DISALLOWANCE OF LAB ANALYSIS FEES OF =8,92,635/- ON ACCOUNT OF NON DEDUCTION OF TDS U /S.40(A)(I) OF THE ACT. IN THE ASSESSMENT PROCEEDINGS, THE LD. AR SUB MITTED DETAILS OF LAB ANALYSIS FEES PAID TO THE VARIOUS ORGANIZATIONS IN USA, EUROPE AND GERMANY AND COPIES OF LAB REPORT OF ORGANIZATIONS W ERE PRODUCED. ON THE SAMPLE BASIS, THE LAB ANALYSIS REPORT OF AUDITO R MARTIN CLARE WAS CONSIDERED IN THE ASSESSMENT ORDER. THE LD. ASSESS ING OFFICER MADE IN DEPTH STUDY INTO AUDIT SUMMARY REPORT OF THE ASS ESSEE COMPANY ON THE DRIED SPICES FOR CERTAIN PERIOD AND THE AUDIT TYPE BEING DRIED SPICE COMBINED HYGIENE AND PPC AUDIT, THE AUDIT SUMMARY C ONSIDERED THE EXTENT OF RAW MATERIALS AND FINISHED GOODS. THE LD. ASSESSING OFFICER FOUND THAT PARAMETERS OF THE ASSESSEE COMPANY WERE AUDITED AND LIST OF CONFORMANCES AND NON-CONFORMANCES WAS FILED AN D ALSO INVOLVES ITA NOS.2167 TO 2169/2013 & 58/2015. :- 24 -: TECHNICAL KNOWLEDGE ABOUT THE SPICE AND SPICE BLEND S MANUFACTURE AND EVALUATION OF THE FACILITIES AVAILABLE AT THE PREMI SES OF THE ASSESSEE. THE ASSESSEE COMPANY IN ORDER TO CONFIRM THE STANDA RDS OF THE US & EUROPEAN MARKETS GET LAB ANALYSIS AND TECHNICAL, CO NSULTANCY AND MANAGERIAL SERVICE TO THE ASSESSEE COMPANY. EVEN A S PER THE DOUBLE TAXATION AVOIDANCE AGREEMENT WITH US & UK, THE SE RVICES ARE AVAILABLE IN INDIA AS OBSERVED AT PAGE NO.12 OF ASS ESSING OFFICER ORDER AS UNDER:- 5.5 IT CLEARLY SHOWS THAT, EVEN AS PER DT AA WITH US & UK, THE SERVICES ARE MADE AVAILABLE IN INDIA BECAUSE, T HE TRAINING FOR AUDIT IS ALSO A PART OF THE LAB ANALYSIS AND TH E AUDIT REPORT CLEARLY MENTIONS THAT, THEY HAVE VERIFIED TH E INDUCTION TRAINING PROGRAMME OF THE ASSESSEE COMPANY 5.6 ALSO, FROM THE ABOVE, IT IS CLEAR THAT, SITE VE RIFICATION HAS BEEN DONE, WHICH SHOWS THAT THE SERVICES HAVE BEEN RENDERED IN INDIA. THEREFORE, THE PAYMENT MADE SHOULD BE TRE ATED AS PAYMENT FOR 'TECHNICAL SERVICES' WHICH ARE TAXABLE IN INDIA. 5.7 IN VIEW OF THE ABOVE DISCUSSION, THE ASSESSE'S ARGUMENT THAT, NONE OF THE ENTITIES TO WHOM PAYMENT HAS BEEN MADE BY THE ASSESSEE HAVE A PERMANENT ESTABLISHMENT (PE) IN INDIA AND AS PER THE RELEVANT ARTICLES OF THE DT AA ENTER ED INTO BY INDIA WITH THE RESPECTIVE COUNTRIES, THE INCOME EAR NED IS TAXABLE ONLY IN THOSE COUNTRIES AND NO PART OF THE SAID AMOUNT IS TAXABLE IN INDIA IS NOT ACCEPTABLE AND THE PAYMENT MADE TOWARDS LAB ANALYSIS FEE AMOUNTING TO RS.8,92,635/-WITHOUT WITHHOLDING TAX IS DISALLOWED FROM THE EXPENDITURE CLAIMED BY THE ASSESSEE AS PER PROVISIO NS OF SEC.40(A)(I) OF THE INCOME-TAX ACT, 1961. AND LD. ASSESSING OFFICER MADE AN ADDITION. AGGR IEVED, THE ASSESSEE ASSAILED AN APPEAL BEFORE THE COMMISSIONER OF INCOM E TAX (APPEALS). ITA NOS.2167 TO 2169/2013 & 58/2015. :- 25 -: 10.1 IN THE APPELLATE PROCEEDINGS, THE LD. AUTHORIS ED REPRESENTATIVE ALLEGED THAT ASSESSING OFFICER HAS D ISALLOWED LAB ANALYSIS FEE PAID TO VARIOUS FOREIGN PARTIES =8,92 ,635/- UNDER THE PROVISIONS OF U/S.40(A) (I) OF THE ACT ON THE PRES UMPTION THAT TECHNOLOGY IS AVAILABLE TO THE ASSESSEE AND REPORT HAS BEEN FURNISHED AND SUBJECT TO TAX IN INDIA. THE LD. AUTHORISED RE PRESENTATIVE FURTHER SUBMITTED THAT ONLY AUDIT REPORT WAS GIVEN TO THE A SSESSEE AND NO TECHNOLOGY WAS AVAILABLE AND ALSO NO SCOPE TO CONSI DER TAXING OF SUCH PAYMENTS IN FOREIGN CURRENCIES. FURTHER, ASSESSING OFFICER SHOULD KNOW THAT EVEN ASSUMING SUCH PAYMENTS BROUGHT INT O SCOPE OF TECHNICAL SERVICES AS PER EXPLANATION 2 TO SEC. 9(1 )(VII) OF THE ACT AND SUCH RECEIPT CONSTITUTE BUSINESS RECEIPTS IN THE HA NDS OF THE RECIPIENTS. FURTHER DOUBLE TAXATION AVOIDANCE AGREEMENT SHALL C OME INTO EFFECT THE PAYMENT DOES NOT CONSTITUTE INCOME CHARGEABLE T O TAXATION IN INDIA AND NONE OF THE RECIPIENTS HAVE PERMANENT ES TABLISHMENT AND SUCH PAYMENTS ARE NOT ROUTED THROUGH PERMANENT EST ABLISHMENT OF RECIPIENTS OF FOREIGN COUNTRIES. ON THE ISSUE OF F EES FOR TECHNICAL SERVICES, INTEREST AND ROYALTY TO NON RESIDENTS TH E ISSUE IN DISPUTE IS PURE AGENCY COMMISSION FOR CANVASSING EXPORT ORDERS OUTSIDE INDIA AND THE AMENDMENT PROVISIONS OF SEC. 9 SHALL NOT AP PLY AND ASSESSEE SUBMITTED WRITTEN SUBMISSIONS. THE LD. COMMISSION ER OF INCOME TAX (APPEALS) HAS EXAMINED THE MATERIAL, EVIDENCE AND A LSO JUDICIAL ITA NOS.2167 TO 2169/2013 & 58/2015. :- 26 -: DECISIONS RELIED BY THE ASSESSEE AND ALSO PROVISION S APPLICABLE IN RESPECT OF NON RESIDENT AND PERMANENT ESTABLISHMENT IN INDIA AND FURTHER RELIED ON THE FINDINGS OF THE ASSESSING OFF ICER THAT LAB ANALYSIS REPORT WAS SUBMITTED BY THE FOREIGN AGENCIES AND T HE AUDITOR MARTIN CLARE HAS GIVEN HIS OPINION AND COMMENTED ON NON-CO NFORMANCES IN THREE CATEGORIES SUCH AS CRITICAL NONCONFORMANCES , MAJOR NON- CONFORMANCES AND MINOR NON-CONFORMANCES IN THE AREA S OF VARIOUS CRITERIA OF PRODUCTS, SAFETY, QUALITY MANAGEMENT, F ACTORY ENVIRONMENT AND STANDARDS. THE LD. COMMISSIONER OF INCOME TAX (APPEALS) IS OF THE OPINION THAT THE AUDIT REPORT INVOLVES TECHNICA L KNOWLEDGE OF SPICE AND SPICE BLENDS MANUFACTURE AND MARKET AND EVOLUTI ON OF THE FACILITIES AVAILABLE AT THE PREMISES OF THE ASSESSE E COMPANY TO CONFIRM TO THE STANDARDS OF THE USA AND EUROPEAN MARKETS. THE AUDIT TEAM HAS DONE SITE VERIFICATION IN INDIA AND COMES INTO THE PURVIEW OF SERVICES RENDERED IN INDIA AS TECHNICAL SERVICES WE RE AVAILED BY THE ASSESSEE COMPANY. BASED ON THIS ANALOGY, IT WAS PRE SUMED THAT LAB ANALYSIS FEES PAID IN FOREIGN CURRENCY IS FOR TECH NICAL SERVICES. HENCE PROVISIONS U/S.40(A)(IA) ARE APPLICABLE. THE LD. C OMMISSIONER OF INCOME TAX (APPEALS) FURTHER OBSERVED AT PARA 4.3.7 AND CONFIRMED THE FINDINGS OF THE ASSESSING OFFICER AS UNDER:- I HAVE GONE THROUGH THE FACTS OF THE CASE, THE AO HAS MADE EFFORTS TO STUDY THE FEE PAID TOWARDS LAB ANAL YSIS AND HAS COME TO THE CONCLUSION THAT THE FEE PAID IS TOWARDS TECHNICAL SERVICES SINCE THE OUTCOME OF LAB ITA NOS.2167 TO 2169/2013 & 58/2015. :- 27 -: REPORTS WILL HAVE A DIRECT IMPACT ON THE COMPOSITIO N AND QUALITY OF THE PRODUCT WHICH THE APPELLANT EXPORTS. I AM ALSO OF THE OPINION. THAT. THE APPELLANT WILL, MODI FY THE QUALITY AND CONTENT OF THE, PRODUCT . EXPORTED BASED ON THE LAB ANALYSIS. IF THE PRODUC T IS 'APPROVED WITHOUT ANY REMARKS, THE APPELLANT COMPAN Y WILL CONTINUE TO EXPORT THE SAME PRODUCT WITHOUT MA KING ANY ALTERATIONS. IT MEANS TO SAY THAT THE TECHNICAL KNOW- HOW IS MADE AVAILABLE TO APPELLANT IN INDIA INDIREC TLY. IF ON THE OTHER HAND, ANY DEFECTS WERE NOTICED OR MODIFICATIONS WERE SUGGESTED BY THESE LAB REPORTS A ND THE APPELLANT MODIFIES AND EXPORTS ITS PRODUCT ACCORDINGLY, IT MEANS THE TECHN ICAL KNOWLEDGE IS MADE AVAILABLE TO THE APPELLANT IN IND IA. THE ARGUMENT OF THE APPELLANT THAT THE PAYMENTS WER E MADE OUTSIDE INDIA AND THERE IS NO PE IN INDIA, THE REFORE TDS PROVISIONS WILL NOT ATTRACT FOR SUCH REMITTANCE S, IS REJECTED. IN VIEW OF THE ABOVE DISCUSSION, I CONFIR M THE DISALLOWANCE MADE BY THE AO U/S 40(A)(I) IN THIS RE GARD. AGGRIEVED, THE ASSESSEE ASSAILED AN APPEAL BEFORE T HE TRIBUNAL. 10.2 BEFORE THE TRIBUNAL, THE LD. AUTHORISED REPRES ENTATIVE RAISED SOLE SUBSTANTIVE GROUND THAT THE COMMISSIONER OF IN COME TAX (APPEALS) ERRED IN CONFIRMING THE ORDER OF THE ASSE SSING OFFICER AND ALSO DISALLOWANCE U/S.40(A)(I) R.W.S.195 OF THE ACT IN RESPECT OF LAB ANALYSIS FEES PAID AND THE INCOME OF SUCH FOREIGN A GENCIES ARE NOT LIABLE TO BE TAXED IN INDIA. THE PAYMENT OF LAB A NALYSIS FEES ARE NOT COVERED UNDER THE MEANING OF TECHNICAL SERVICES U/S .9(1)(VII) OF THE ACT OR UNDER DOUBLE TAXATION AVOIDANCE AGREEMENTS ( DTAA) WITH THE FOREIGN COUNTRIES. FURTHER THE ASSESSEE COMPANY DO ES NOT HAVE TECHNICAL KNOW HOW WHICH HAS BEEN CONSIDERED AS AVA ILABLE AND FOREIGN AGENCIES DOES NOT HAVE PERMANENT ESTABLISHM ENT IN INDIA. ITA NOS.2167 TO 2169/2013 & 58/2015. :- 28 -: THE PROVISIONS OF SEC. 40(A)(I) OF THE ACT SHALL NO T APPLY ON LAB ANALYSIS FEES WERE ASSESSEE HAS MADE FOLLOWING PAYM ENTS:- NAME OF THE PARTY COUNTRY AMOUNT IN = ASTA USA 37,150 CAMPDEN TECHNOLOGY LTD UK 3,98,246 CVRS UK 22,134 CHAMPAGNE FOODS UK 3,15,843 EUROFINS GERMANY 27,233 LAB M LTD UK 92,039 TOTAL 8,92,635 THE LD.AR REITERATED SUBMISSIONS MADE BEFORE THE ASSESSING OFFICER AND COMMISSIONER OF INCOME TAX (APPEALS) AND ALSO P ROVISIONS APPLICABLE FOR CONSIDERING IT AS TECHNICAL SERVICE SINCE THE ASSESSEE IS IN THE BUSINESS OF EXPORT OF SPICES TO US, UK AND GERM ANY AND THE PRODUCTS ARE TO BE TESTED IN ACCREDITED LABS IN TH ESE COUNTRIES AND A CERTIFICATE HAS TO BE OBTAINED THAT THE PRODUCTS AR E FIT FOR SALE IN THE INTERNATIONAL MARKET AND ALSO TO COMPLY WITH FOOD SAFETY AND STANDARDS AUTHORITY OF INDIA RULES. THE TESTING LAB WILL PROVIDE THE REPORT OF THE PRODUCT ALONGWITH LIST OF CONFORMANC ES AND NON CONFORMANCES WITH THE PRESCRIBED STANDARDS AND IF T HE PRODUCT GETS FAVOURABLE REPORT PROCEED WITH EXPORT SALE. UNDER THE PROVISIONS OF SEC.195 OF THE ACT TAX IS TO BE DEDUCTED ON PAYMENT TO NON RESIDENTS DUE IN NATURE OF INCOME CHARGEABLE TO TAX IN INDIA, WERE AS NATURE OF LAB ANALYSIS FEES FALLS IN THE CATEGORY OF SERVICE RENDERED OUTSIDE INDIA IN THE FOREIGN COUNTRY AND SIMILAR TO DIAGNOSTIC C ENTRE WHICH SHALL ITA NOS.2167 TO 2169/2013 & 58/2015. :- 29 -: GIVE REPORT WITHOUT GOING INTO ADVISORY OR CONSULT ANCY. THE LD. AUTHORISED REPRESENTATIVE RELIED ON THE DECISION OF JURISDICTIONAL HIGH COURT IN CASE OF SKYCELL COMMUNICATIONS LTD. VS. DCIT (2001) 251 ITR 0053(MAD) WERE THE TECHNICAL FEES SERVICE HAS BEEN DEFINED. TECHNICAL SERVICE REFERRED IN SECTION 9(1)(VII) CONTEMPLATES RENDERING OF A SERVICE TO THE PAYE R OF THE FEE. MERE COLLECTION OF A FEE FOR USE OF A STAND ARD FACILITY PROVIDED TO ALL THOSE WILLING TO PAY FOR IT DOES NO T AMOUNT TO THE FEE HAVING BEEN RECEIVED FOR TECHNICAL SERVI CES. ON APPLYING THE FINDINGS OF THE JURISDICTIONAL HIG H COURT, THE LAB ANALYSIS FEES WILL NOT FALL INTO CATEGORY OF TECHNI CAL SERVICE. THE LOWER AUTHORITIES PRESUMED THAT THE AUDIT REPORT KNOW HO W IS AVAILABLE TO THE ASSESSEE AND SITE INSPECTION WAS CARRIED OUT HE NCE INCOME HAS ACCRUED IN INDIA. THE LD. AUTHORISED REPRESENTATI VE ALSO RELIED ON THE OPERATIVE PARTS OF DOUBLE TAXATION AVOIDANCE AGREEM ENTS WITH THE USA, UK AND GERMANY AND MADE A ELABORATE SUBMISSION S REGARDING PERMANENT ESTABLISHMENT AND TECHNICAL FEES AND CONC LUDED THAT THE LAB FEES TO NON RESIDENT DOES NOT COME INTO PURVIEW OF SEC.9(1)(VII) OF THE ACT AND DOES NOT CONSTITUTE MANAGERIAL CONSULTA NCY OR TECHNICAL SERVICE AND AS PER THE DOUBLE TAXATION AVOIDANCE AG REEMENTS WITH THREE COUNTRIES USA, UK AND GERMANY, SUCH PAYMENTS ARE NOT CHARGEABLE AND RELIED ON THE DECISIONS OF CIT VS. DE BEERS INDIA MINERALS (P) LTD (2012) 346 ITR 0467 (KAR) WERE IT WAS HELD THAT TECHNICAL SERVICES AS DEFINED U/S 9(1)(VII) OF THE ACT AND EXPLANATION 2 ITA NOS.2167 TO 2169/2013 & 58/2015. :- 30 -: SUCH PAYMENTS DOES NOT SATISFY THE REQUIREMENT OF T ECHNICAL SERVICES CONSIDERED IN INDIA AND SUPPORTED THE ARGUMENTS ON TECHNICAL FEES WITH DECISION OF TUV BAYREN (INDIA) LTD VS. DCIT (2012) 33 CCH 0212 (MUM TRIB) WERE IT WAS HELD THAT INCOME FROM ISO 9000 CERTIFIC ATION ACTIVITIES CARRIED OUT BY THE ASSESSEE COMES WITHIN THE REALM OF PROFESSIONAL SERVICES AND NOT WITHIN THE MEANING OF FTS AS PROVIDED IN THE ARTICLE 12(4) AND SECTION 9(1)(VII) OF THE ACT AND THE LD. AUTHORISED REPRESENTATIVE VEHEMENTLY ARGUED CONSIDERING THE FA CTUAL ASPECTS, PROVISIONS OF NON RESIDENTS, DOUBLE TAXATION AVOIDA NCE AGREEMENT AND THE ACTIVITIES OF THE ASSESSEE COMPANY PAYMENT MADE TOWARDS LAB ANALYSIS ARE OUTSIDE THE PURVIEW OF SEC.40(A)(IA) O F THE ACT AND SAME BE ALLOWED. 10.3 ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRES ENTATIVE RELIED ON THE ORDERS OF THE LOWER AUTHORITIES AND O BJECTED TO THE SUBMISSIONS OF THE ASSESSEE. 10.4 WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED T HE MATERIAL ON RECORD AND JUDICIAL DECISION CITED AND THE AGREE MENTS. THE LD. AUTHORISED REPRESENTATIVE HAS GIVEN AN AUTHENTIC VI EW OF LAB ANALYSIS FEES PAID TO NON RESIDENTS OF US, UK AND GERMANY AN D THE REPORT WAS PREPARED OUTSIDE THE COUNTRY BASED ON THE DETAILS OF THE ASSESSEE ITA NOS.2167 TO 2169/2013 & 58/2015. :- 31 -: UNIT. THE NON RESIDENTS SERVICE ARE AVAILED ONLY FO R THE OPINION OF CERTIFYING THE PROCESS. SINCE THE SERVICES RENDERE D OUTSIDE INDIA AND PAYMENTS MADE OUTSIDE COUNTRY AND DOES NOT ATTRACT TDS PROVISIONS. ALTERNATIVELY U/SEC.9(1)(VII) FEES FOR TECHNICAL SE RVICES, THE LAB ANALYSIS FEES WILL NOT FALL INTO CATEGORY OF TECHNICAL FEES AND ALSO THERE IS NO PERMANENT ESTABLISHMENT IN INDIA TO CHARGE SUCH INC OME TO TAX. THE LD. AUTHORISED REPRESENTATIVE DEMONSTRATED THE DTAA CLAUSES WITH USA, UK AND GERMANY AND SUCH PAYMENTS ARE OUTSIDE T HE PURVIEW AND NOT CHARGEABLE AS PER PROVISIONS OF DTAA. ON T HE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTATIVE RELIED ON THE FINDINGS OF THE COMMISSIONER OF INCOME TAX (APPEALS) THAT THE KNOW HOW WAS AVAILABLE AND THERE WAS SITE INSPECTION AND REFEREN CE WAS MADE IN AUDIT REPORT ON VERIFICATION OF TRAINING PROGRAMME. WE AFTER CONSIDERING THE MATRIX OF FACTS, JUDICIAL DECISION S AND AUDIT REPORT OBSERVED IN ASSESSMENT ORDER WHICH INDICATES THE SERVICES ARE RENDERED IN INDIA AND REPORT WAS OBTAINED IN INDIA. THEREFORE, WE REMIT THE ISSUE TO THE ASSESSING OFFICER FOR LIMITE D PURPOSE TO VERIFY THE WORKING SYSTEM OF AUDITED AND CONSULTANCY WORK OR INSPECTION WAS CARRIED BY THE AUDITORS ON LAB ANALYSIS AND WE SE T ASIDE THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND DIRECT THE ASSESSING OFFICER TO CONSIDER THE ISSUE AND PASS THE ORDER AF TER PROVIDING ADEQUATE OPPORTUNITY OF HEARING BEFORE PASSING THE ORDER ON MERITS. IN ITA NOS.2167 TO 2169/2013 & 58/2015. :- 32 -: THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTLY AL LOWED FOR STATISTICAL PURPOSE. 11. IN THE RESULT, THE APPEALS OF THE REVENUE IN ITA NO.2167 & 2168/MDS/2013 ARE DISMISSED AND ITA NO.2169/MDS/201 3 IS PARTLY ALLOWED FOR STATISTICAL PURPOSE AND APPEAL OF THE A SSESSEE IN ITA NO.58/MDS/2015 IS PARTLY ALLOWED FOR STATISTICAL PU RPOSE. ORDER PRONOUNCED ON FRIDAY, THE 19TH DAY OF FEBRUA RY, 2016, AT CHENNAI. SD/- SD/- ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER ( . ! ' ) (G. PAVAN KUMAR) /JUDICIAL MEMBER / CHENNAI + / DATED:19.02.2016 KV , ' -#(./ 0/&( / COPY TO: 1 . 12 / APPELLANT 3. ! 3( () / CIT(A) 5. / 67 -#(# / DR 2. -812 / RESPONDENT 4. ! 3( / CIT 6. 7% 9 / GF