IIantus Technologies Pvt Ltd , Bangalore V. Deputy Commissioner of Income tax Circle-3(1)(1), Bangalore

ITA 2358/BANG/2018

• Counselvise Citation: [2020] 110 COUNSELVISE.COM (IT) 2189 (ITAT-BANGALORE)
• Duration Of Justice: 2 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-12-2020
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Next Hearing Date: 02-12-2020
• Assessment Year: 2015-2016
• Appeal Filed On: 10-08-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: R. PREMI
• Keywords: Opportunity of being heard; Principle of natural justice; Source of fund; Services rendered outside India; Deemed to accrue or arise in india; Non-deduction of tax; TDS
• Section: 40(a)(ia); 195; 13

Judgement Text

ITA NO.2358/BANG/2018 ILANTUS TECHNOLOGIES PVT. LTD., BANGALORE IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH: BANGALORE BEFORE SHRI N.V. VASUDEVAN, VICE PRESIDENT AND SHRI B.R. BASKARAN, ACCOUNTANT MEMBER ITA NO.2358/BANG/2018 ASSESSMENT YEAR: 2015-16 M/S. ILANTUS TECHNOLOGIES PVT. LTD. 1 ST FLOOR, NO.57, NOVEL BUSINESS PARK 13 TH CROSS, BALDWINS COLLEGE ROAD GAJENDRA NAGAR BANGALORE-560 030 PAN NO : AAACI7139K VS. DEPUTY COMMISSIONER OF INCOME-TAX CIRCLE-3(1)(1) BANGALORE APPELLANT RESPONDENT APPELLANT BY : SHRI S. RAMASUBRAMANYAM, A.R. RESPONDENT BY : SMT. R. PREMI, D.R. DATE OF HEARING : 02.12.2020 DATE OF PRONOUNCEMENT : 02.12.2020 O R D E R PER B.R. BASKARAN, ACCOUNTANT MEMBER: THE APPEAL FILED BY THE ASSESSEE IS DIRECTED AGAINS T THE ORDER DATED 12.6.2018 PASSED BY LD. CIT(A)-3, BENGALURU A ND IT RELATES TO THE ASSESSMENT YEAR 2015-16. THE ASSESSEE IS AGGRI EVED BY THE DECISION OF LD. CIT(A) IN CONFIRMING THE DISALLOWAN CE OF RS.68,05,703/- MADE U/S 40(A)(I) OF THE INCOME-TAX ACT,1961 ['THE ACT' FOR SHORT] FOR NON-DEDUCTION OF TAX AT SOURCE. 2. THE FACTS RELATING TO THE ABOVE SAID ISSUE ARE S TATED IN BRIEF. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF GLOBAL TECHNICAL, IMPLEMENTATION AND SERVICE OPPORTUNITIES IN IDENTITY AND ITA NO.2358/BANG/2018 ILANTUS TECHNOLOGIES PVT. LTD., BANGALORE PAGE 2 OF 14 ACCESS MANAGEMENT SOLUTIONS. THE A.O. NOTICED THAT THE ASSESSEE HAS CLAIMED BUSINESS PROMOTION EXPENSES OF RS.94,37 ,335/- IN THE PROFIT & LOSS ACCOUNT. IT WAS NOTICED THAT THE ABO VE SAID EXPENSES WERE INCURRED TOWARDS MEMBERSHIP AND SUBSCRIPTION C HARGES PAID TO LEADING MARKETING ANALYSTS LIKE GARTNER, D&B ETC. THE A.O. TOOK THE VIEW THE ABOVE SAID PAYMENT IS IN THE NATURE OF ROY ALTY. THE A.O. NOTICED THAT THE ASSESSEE DID NOT DEDUCT TAX AT SOU RCE FROM THE ABOVE SAID PAYMENTS. ACCORDINGLY, THE A.O. DISALLOWED THE CLAIM OF THE ASSESSEE U/S 40(A)(I) OF THE ACT FOR NON-DEDUCTION OF TAX AT SOURCE. 3. BEFORE LD. CIT(A) THE ASSESSEE SUBMITTED THAT TH E BUSINESS PROMOTION EXPENSES CLAIMED BY IT CONSISTED OF EXPEN SES INCURRED IN ITS USA BRANCH TO THE TUNE OF RS.68,05,703/- AND IN INDIA TO THE TUNE OF RS.26,31,632/-. IT WAS SUBMITTED THAT THE PAYME NTS MADE IN INDIA WERE SUBJECTED TO TDS. ACCORDINGLY, THE LD. CIT(A) DIRECTED THE A.O. TO VERIFY THE COMPLIANCE OF TDS PROVISIONS IN RESPE CT OF PAYMENT OF RS.26,31,632/- MADE IN INDIA. IN RESPECT OF THE PA YMENTS MADE OUTSIDE INDIA, IT WAS CONTENDED THAT THE PAYMENTS T O THE EXTENT OF RS.52,26,325/- ONLY ARE IN THE NATURE OF SUBSCRIPTI ONS, WHICH ARE IN THE NATURE OF ROYALTY. IT WAS CONTENDED THAT THE A BOVE SAID PAYMENTS WERE MADE IN RESPECT OF BUSINESS CARRIED ON BY THE ASSESSEE OUTSIDE INDIA AND HENCE THE SAME IS COVERED BY EXCEPTION PR OVIDED U/S 9(1)(VI)(B) OF THE ACT, IN WHICH CASE ABOVE SAID PA YMENT IS NOT LIABLE FOR TAXATION IN THE HANDS OF THE RECIPIENT. IN THA T VIEW OF THE MATTER, THE SAID PAYMENT IS NOT LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S 195 OF THE ACT. ACCORDINGLY, IT WAS CONTENDED THAT NO DISALLOWANCE IS CALLED FOR U/S 40(A)(I) OF THE ACT. 4. THE LD. CIT(A) OBSERVED THAT THE ASSESSEE HAS NO T BROUGHT ANYTHING ON RECORD TO SHOW THAT THE EXPENDITURE WAS RESTRICTED TO EARNING INCOME OUTSIDE INDIA AND IT WAS ALSO NOT SH OWN THAT THE BUSINESS CARRIED ON BY THE ASSESSEE IN INDIA DID NO T BENEFIT FROM THE ITA NO.2358/BANG/2018 ILANTUS TECHNOLOGIES PVT. LTD., BANGALORE PAGE 3 OF 14 SAME. ACCORDINGLY, HE TOOK THE VIEW THAT THERE IS NOTHING ON RECORD TO SUGGEST THAT THE ENTIRE EXPENDITURE WAS FOR EARN ING INCOME OUTSIDE INDIA. THE LD. CIT(A) ALSO REFERRED TO AN INVOICE ISSUED BY M/S. DISCOVER ORG AND OBSERVED THAT THE SALE IS MADE TO THE ASSESSEE IN INDIA AND NOT TO THE BRANCH IN USA. THE LD. CIT(A) ALSO EXTRACTED THE COPY OF INVOICE ISSUED BY M/S. DISCOVER ORG AT PAGE 13 OF HIS ORDER. THE LD. CIT(A) ALSO OBSERVED AS UNDER IN RE SPECT OF A PAYMENT OF RS.30,61,575/- MADE TO M/S. GARTNER. 5.7 IN ADDITION, A PAYMENT OF $49,500/- (RS.30,61, 575) TO M/S. GARTNER RELATES TO PURCHASE OF SOFTWARE ADVISOR F OR HAVING ACCESS TO DATABASE MAINTAINED BY THE SAID MARKETING ANALYST. THE SOFTWARE IS PASSWORD BASED AND THERE IS NOTHING TO SUGGEST THAT THE SAME WAS USED BY THE APPELLANT ONLY IN RELATION TO ITS OVERSEAS B USINESS. SOME OTHER INVOICES RELATING TO M/S. GARTNER, TOTALING TO $275 00 (RS.17,00,875/-) ARE IN NAME OF THE DIRECTOR MS PADMA PRIYA, WHO IS OPERATING FROM INDIA. ACCORDINGLY, THE LD. CIT(A) CONFIRMED THE ADDITION OF RS.68,05,703/- AGGRIEVED THE ASSESSEE HAS FILED THIS APPEAL BEFORE US. 5. THE ASSESSEE HAS FILED AN ADDITIONAL GROUND BEFO RE US, WHEREIN IT IS STATED THAT OUT OF THE AMOUNT OF RS.68,05,703 /- DISALLOWED U/S 40(A)(I) OF THE ACT, THE ASSESSEE HAS REVERSED A SU M OF RS.32,93,513/- DURING THE CURRENT YEAR ITSELF. THE ABOVE SAID AMO UNT WAS ERRONEOUSLY SHOWN UNDER MISCELLANEOUS INCOME. AC CORDINGLY, HE SUBMITTED THAT THE ASSESSEE HAS CLAIMED NET AMOUNT OF RS.35,12,190/- ONLY IN THE PROFIT & LOSS ACCOUNT IN RESPECT OF PAYMENTS MADE TO PARTIES OUTSIDE INDIA. ACCORDINGL Y, THE LD. A.R. SUBMITTED THAT THE DISALLOWANCE TO THE EXTENT OF RS .32,93,513/- REQUIRES TO BE REDUCED. 6. THE LD. D.R. SUBMITTED THAT THE ASSESSEE IS MAKI NG A NEW CLAIM BEFORE THE TRIBUNAL. SHE FURTHER SUBMITTED T HAT IT IS NOT KNOWN AS TO WHETHER THE REVERSAL OF EXPENDITURE CLAIMED T O HAVE BEEN MADE ITA NO.2358/BANG/2018 ILANTUS TECHNOLOGIES PVT. LTD., BANGALORE PAGE 4 OF 14 BY THE ASSESSEE RELATE TO/INCLUDED IN THE AMOUNT OF RS.68,05,703/- DISALLOWED BY THE A.O. 7. WE HEARD THE PARTIES ON THIS ISSUE AND PERUSED T HE RECORD. WE FIND MERIT IN THE SUBMISSIONS MADE BY LD. D.R. WE N OTICE THAT THE ASSESSEE HAS ALL ALONG BEEN CLAIMING PAYMENT OF RS. 68,05,703/- AS PAYMENT MADE TOWARDS SUBSCRIPTION CHARGES. IT IS F OR THE FIRST TIME THE ASSESSEE IS CLAIMING BEFORE US THAT A SUM OF RS .32,93,513/- HAS BEEN REVERSED DURING THE YEAR UNDER CONSIDERATION. THE LD A.R SUBMITTED THAT THE ABOVE SAID AMOUNT HAS BEEN SHOWN UNDER THE HEAD MISCELLANEOUS INCOME IN THE PROFIT AND LOSS ACCOUNT, INSTEAD OF REDUCING THE SAME FROM THE RELEVANT EXPENDITURE. ACCORDINGLY, HE SUBMITTED THAT THE NET AMOUNT OF PAYMENT ALONE IS R EQUIRED TO BE CONSIDERED FOR THE PURPOSE OF DISALLOWANCE U/S 40(A )(I) OF THE ACT. THE LD A.R INVITED OUR ATTENTION TO PAGE NO.51 OF T HE PAPER BOOK, WHICH CONTAINS BREAK-UP DETAILS OF MISCELLANEOUS IN COME. 8. WE NOTICE FROM THE DETAILS OF MISCELLANEOUS I NCOME THAT A SUM OF RS.32,93,513/- HAS BEEN SHOWN AS REVERSAL OF THE AMOUNT PAYABLE TO M/S GARTNER. IF THE SAID REVERSAL WAS MADE OUT OF THE EXPENDITURE OF RS.68,05,703/- ORIGINALLY BOOKED BY THE ASSESSEE DURING THE YEAR UNDER CONSIDERATION, THEN THERE IS MERIT IN THE CLA IM OF THE ASSESSEE, I.E., WHAT IS PAYABLE TO M/S GARTNER FOR THE YEAR U NDER CONSIDERATION WOULD BE THE NET AMOUNT. HOWEVER, AS SUBMITTED BY LD D.R, IT IS NOT CLEAR AS TO WHETHER THE ABOVE SAID REVERSAL WAS REL ATED TO THE EXPENDITURE ORIGINALLY BOOKED OR IT RELATED TO ANY OTHER LIABILITY. ACCORDINGLY, WE ARE OF THE VIEW THE ABOVE SAID CLAI M OF ASSESSEE REQUIRES EXAMINATION WITH REFERENCE TO THE BOOKS OF ACCOUNTS AND PROFIT & LOSS ACCOUNT OF THE ASSESSEE. IF THE REVE RSAL PERTAINS AN EXPENDITURE BOOKED/INCLUDED IN RS.68,05,703/-, THE DISALLOWANCE REQUIRES TO BE RESTRICTED TO THE NET AMOUNT OF EXPE NDITURE CLAIMED BY ITA NO.2358/BANG/2018 ILANTUS TECHNOLOGIES PVT. LTD., BANGALORE PAGE 5 OF 14 THE ASSESSEE. ACCORDINGLY, WE RESTORE THIS CLAIM OF THE ASSESSEE TO THE FILE OF AO FOR EXAMINING IT PROPERLY. 9. THE LD. A.R. SUBMITTED THAT THE REMAINING AMOUNT OF RS.35,12,190/- WAS MADE TOWARDS SUBSCRIPTION CHARGE S IN RESPECT OF BUSINESS CARRIED ON BY THE ASSESSEE IN USA. ACCORD INGLY, HE SUBMITTED THAT THE ABOVE SAID PAYMENT IS NOT LIABLE FOR DEDUCTION OF TAX AT SOURCE IN VIEW OF SECTION 9(1)(VI)(B) OF THE ACT. 10. THE LD.D.R, ON THE CONTRARY, SUBMITTED THAT THE ASSESSEE IS CARRYING ON BUSINESS FROM INDIA AND ACTIVITIES CARR IED ON BY ITS USA BRANCH IS NOT KNOWN. ACCORDINGLY, THE LD. D.R. SUB MITTED THAT THE ASSESSEE HAS NOT PROVED THAT IT IS CARRYING ON SEPA RATE BUSINESS FROM USA. THE LD. D.R. SUBMITTED THAT THE LD. CIT(A) HA S ALSO EXPRESSED THE VIEW THAT THE ASSESSEE HAS FAILED TO SHOW THAT THE DATA BASE WAS USED ONLY BY USA BRANCH AND NOT BY THE ASSESSEE. S HE SUBMITTED THAT THE LD CIT(A) HAS ALSO NOTICED THAT ONE OF THE COMPANIES HAVE MADE SALE IN INDIA. SHE SUBMITTED THAT THE LD CIT( A) HAS PROPERLY ADDRESSED ALL THE CONTENTIONS OF THE ASSESSEE AND R EJECTED THE SAME. 11. WE HEARD THE PARTIES ON THIS ISSUE AND PERUS ED THE RECORD. WE NOTICE THAT THE EXCEPTION PROVIDED UNDER SEC.9(1)(V I)(B) WOULD APPLY ONLY IF THE ROYALTY IS PAID BY A RESIDENT ASSESSEE FOR THE PURPOSES OF BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON OU TSIDE INDIA. WE NOTICE THAT THE ASSESSEE HAS, FOR THE FIRST TIME, M ADE THE CLAIM BEFORE LD CIT(A) THAT ITS USA BRANCH IS CARRYING ON BUSINE SS SEPARATELY AND SUBSCRIPTION SERVICES ARE EXCLUSIVELY USED BY IT. WE HAVE NOTICED EARLIER THAT THE LD CIT(A) HAS REJECTED THE SAID CL AIM FOR THE REASON THAT THE ASSESSEE HAS FAILED TO SUBSTANTIATE ITS CL AIM; THAT THE ASSESSEE HAS FAILED TO SHOW THAT THE IMPUGNED SERVI CES WERE USED BY ITS FOREIGN BRANCH ONLY AND THAT CERTAIN BILLS HAVE BEEN FOUND AT THE INDIAN ADDRESS OF THE ASSESSEE. ITA NO.2358/BANG/2018 ILANTUS TECHNOLOGIES PVT. LTD., BANGALORE PAGE 6 OF 14 12. BEFORE US, THE LD A.R PRAYED THAT THE ASSES SEE MAY BE PROVIDED WITH ONE MORE OPPORTUNITY TO PROVE ALL ITS CLAIMS. HENCE, IN THE INTEREST OF NATURAL JUSTICE, WE ARE OF THE VIEW THA T THE ASSESSEE MAY BE PROVIDED WITH AN OPPORTUNITY TO SUBSTANTIATE ITS CLAIM. WE HAVE NOTICED THAT THE LD CIT(A) HAS RAISED VERY VALID PO INTS ON THE CLAIM OF THE ASSESSEE, WHICH IS ALSO REQUIRED TO BE ADDRE SSED BY THE ASSESSEE. 13. WE NOTICE THAT AN IDENTICAL ISSUE RELATING TO THE D ISALLOWANCE OF PAYMENTS MADE TO M/S GARTNER GROUP U/S 40(A)(IA) OF THE ACT WAS EXAMINED BY THE CO-ORDINATE BENCH IN THE CASE OF M/ S WIPRO LTD (IT(TP)A NO.99/BANG/2014 & OTHERS DATED 05-10-2020) . THE ISSUE AS TO SOURCE OF INCOME WAS ALSO EXAMINED IN THE A BOVE SAID CASE. FOR THE SAKE OF CONVENIENCE, WE EXTRACT BELOW THE R ELEVANT OBSERVATIONS MADE BY THE CO-ORDINATE BENCH IN THE A BOVE SAID CASE:- 32. ISSUE NO.30 RELATES TO DISALLOWANCE OF PAYMENT MADE TO M/S. GARTNER GROUP U/S 40(A)(IA) OF THE ACT FOR NON-DEDU CTION OF TAX AT SOURCE. THIS ISSUE ARISES IN ASSESSMENT YEARS 2010-11 TO 2014-15 IN THE APPEAL FILED BY THE ASSESSEE. 32.1 THE FACTS RELATING TO THIS ISSUE ARE THAT M/S. GARTNER GROUP MAINTAINS A DATA BASE AND THE SAME IS ALLOWED TO BE USED BY OTHERS ON PAYMENT OF LICENSE FEE. THE ASSESSEE HAS OBTAINED LICENSE FROM M/S. GARTNER GROUP FOR USING THE DATA BASE. THE ASSESS EE DID NOT DEDUCT TAX AT SOURCE FROM THE LICENCE FEE PAID TO THE ABOVE SA ID GROUP. THE AO, HOWEVER, TOOK THE VIEW THAT THE PAYMENT SO MADE IS IN THE NATURE OF ROYALTY AND HENCE THE PROVISIONS OF SEC.9(1)(VI) AR E ATTRACTED. HENCE THE AO TOOK THE VIEW THAT THE ASSESSEE SHOULD HAVE DEDU CTED TAX AT SOURCE ITA NO.2358/BANG/2018 ILANTUS TECHNOLOGIES PVT. LTD., BANGALORE PAGE 7 OF 14 FROM THE ABOVE SAID PAYMENT AND ACCORDINGLY PROPOSE D TO DISALLOW THE PAYMENT BY INVOKING PROVISIONS OF SEC.40(A)(I) OF T HE ACT. BEFORE THE A.O., THE ASSESSEE SUBMITTED THAT THE LICENSE WAS U SED FOR THE BUSINESS CARRIED ON BY THE ASSESSEE OUTSIDE INDIA OR FOR THE PURPOSE OF EARNING INCOME FROM ANY SOURCE OUTSIDE INDIA. ACCORDINGLY, IT WAS CONTENDED THAT THE PAYMENT MADE FOR THE USE OF LICENCE WOULD BE COVERED BY THE EXCEPTION GIVEN U/S 9(1)(VI) OF THE ACT. HOWEVER, THE A.O. NOTICED THAT AN IDENTICAL ISSUE HAS BEEN EXAMINED BY THE JURISDI CTIONAL KARNATAKA HIGH COURT IN THE ASSESSEES OWN CASE REPORTED IN 3 55 ITR 284 AND THE ISSUE HAS BEEN DECIDED AGAINST THE ASSESSEE. ACCORD INGLY, THE A.O. HELD THAT THE PAYMENT MADE TO M/S. GARTNER GROUP IS IN T HE NATURE OF ROYALTY AND ASSESSEE IS LIABLE TO DEDUCT TDS FROM THE SAID PAYMENT U/S 195 OF THE ACT. SINCE THE ASSESSEE DID NOT DEDUCT TDS, THE A.O. DISALLOWED THE PAYMENTS MADE TO GARTNER GROUP IN THE YEARS RELEVAN T TO THE ASSESSMENT YEARS 2010-11 TO 2014-15 BY INVOKING PROVISIONS OF SECTION 40(A)(I) OF THE ACT. 32.2 THE LD. A.R. ADMITTED THAT AN IDENTICAL IS SUE HAS BEEN DECIDED AGAINST THE ASSESSEE BY HONBLE KARNATAKA HIGH COUR T IN ITS OWN CASE REFERRED ABOVE. HE SUBMITTED THAT THE HONBLE KARNA TAKA HIGH COURT, HOWEVER, DID NOT HAVE OCCASION TO EXAMINE THE APPLI CABILITY OF EXCEPTIONS PROVIDED U/S 9(1)(VI)(B) OF THE ACT TO T HE FACTS OF THE ASSESSEES CASE. HE SUBMITTED THAT THE PROVISIONS O F SEC.9(1)(VI)(B) STATES THAT IF ANY ROYALTY IS PAID FOR THE PURPOSES OF BUS INESS CARRIED ON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA, THEN THE ROYALTY INCOME SHALL NOT BE DEEMED TO ACCRUE OR ARISE IN INDIA. HE SUBMITTED THAT THE SEZ /STPI UNITS HAVE AN OBLIGATION TO MAKE EXPORTS AND ACCORDINGLY EARNED I NCOME OUTSIDE ITA NO.2358/BANG/2018 ILANTUS TECHNOLOGIES PVT. LTD., BANGALORE PAGE 8 OF 14 INDIA. HENCE, THE EXPORT PROFITS RECEIVED BY THE AS SESSEE FROM OUTSIDE INDIA CONSTITUTE A SOURCE OUTSIDE INDIA AND ACCOR DINGLY, THE EXCEPTION PROVIDED U/S 9(1)(VI) OF THE ACT IS APPLICABLE TO T HE ASSESSEE. ACCORDINGLY, THE LD A.R SUBMITTED THAT THE ROYALTY GIVEN TO M/S. GARTNER GROUP SHALL NOT BE DEEMED TO ACCRUE OR ARISE IN IND IA IN THE HANDS OF M/S GARTNER GROUP. IN THE ABSENCE OF ANY INCOME IN THE HANDS OF ABOVE SAID PERSON, THERE IS NO OBLIGATION IS PLACED ON TH E SHOULDERS OF THE ASSESSEE TO DEDUCT TAX AT SOURCE U/S 195 OF THE ACT FROM THE PAYMENT SO MADE. IN SUPPORT OF HIS CONTENTIONS, THE ASSESSEE R ELIED ON THE DECISION RENDERED BY HONBLE MADRAS HIGH COURT IN THE CASE O F AKTIENGESELLSCHAFTKUHNLE KOOP AND KAUSCH (262 ITR 5 13). IN THE ABOVE SAID CASE, THE ASSESSEE BEFORE THE MADRAS HIGH COUR T PAID ROYALTY OUTSIDE INDIA OUT OF ITS EXPORT SALES. THE HONBLE HIGH COURT HELD THAT THE SOURCE FOR ROYALTY IS FROM THE SOURCE GENERATED OUTSIDE INDIA AND HENCE THE SAME IS NOT TAXABLE WITHIN THE MEANING OF SECTION 9(1)(VI) OF THE ACT. 32.3 THE LD. A.R., HOWEVER, FAIRLY CONCEDED THAT THE HONBLE DELHI HIGH COURT HAS EXAMINED THE ISSUE OF SOURCE OF INC OME IN THE CASE OF CIT VS. HAVELLS INDIA LTD. (ITA NO.55/2012 & IT A NO.57/2012 DATED 21.5.2012) AND THE DECISION RENDERED BY HONB LE MADRAS HIGH COURT IN THE CASE OF AKTIENGESELLSCHAFTKUHNLE KOOP AND KAUSCH (SUPRA) WAS ALSO CITED BEFORE HONBLE DELHI HIGH COURT. HOW EVER THE HONBLE DELHI HIGH COURT NOTICED THAT THE HONBLE MADRAS HI GH COURT, IN THE ABOVE SAID CASE, DID NOT CONSIDER ANOTHER DECISION RENDERED BY IT EARLIER IN THE CASE OF ANGLO-FRENCH TEXTILE LTD. 199 ITR 78 5, WHEREIN IT WAS HELD THAT THE SOURCE OF INCOME IS THE PLACE WHERE T HE RIGHT TO RECEIVE THE INCOME BY THE ASSESSEE AROSE. ACCORDINGLY, THE DELH I HIGH COURT HELD ITA NO.2358/BANG/2018 ILANTUS TECHNOLOGIES PVT. LTD., BANGALORE PAGE 9 OF 14 THAT IF THE EXPORT CONTRACTS ARE CONCLUDED IN INDIA AND THE ASSESSEES PRODUCTS ARE EXPORTED OUTSIDE INDIA UNDER SUCH CONT RACTS, THEN THE SOURCE OF INCOME WOULD ARISE IN INDIA. THE LD. A.R. , HOWEVER, SUBMITTED THAT THERE IS CONFLICT OF VIEW BETWEEN MADRAS HIGH COURT AND DELHI HIGH COURT AND HENCE THE VIEW IN FAVOUR OF THE ASSESSEE SHOULD BE ADOPTED. 32.4 WE HEARD LD. D.R. ON THIS ISSUE AND PERUSED THE RECORD. THERE IS NO DISPUTE WITH REGARD TO THE FACT THAT IDENTICAL P AYMENTS MADE TO M/S GARTNER GROUP HAS BEEN HELD TO BE ROYALTY IN THE YE ARS RELEVANT TO ASSESSMENT YEARS 2001-02 TO 2003-04 WITHIN THE MEAN ING OF SECTION 9(1)(VI) OF THE ACT BY HONBLE JURISDICTIONAL KARNA TAKA HIGH COURT IN THE ASSESSEES OWN CASE REPORTED IN 355 ITR 284. IT IS THE CASE OF THE LD A.R THAT THE HONBLE KARNATAKA HIGH COURT DID NOT H AVE OCCASION TO EXAMINE THE APPLICABILITY OF EXCEPTIONS PROVIDED IN SEC.9(1)(VI) OF THE ACT. HENCE, THE LD. A.R. HAS TAKEN AN ALTERNATIVE CONTENTION THAT THE ROYALTY WAS PAID FOR THE PURPOSE OF EARNING INCOME FROM A SOURCE OUTSIDE INDIA. ACCORDINGLY, IT WAS CONTENDED THAT T HE SAID PAYMENT WOULD BE COVERED BY EXCEPTION PROVIDED IN SEC.9(1)( VI). ACCORDINGLY, IT WAS CONTENDED THAT THE AMOUNT SO PAID TO GARTNER GR OUP, SHALL NOT BE DEEMED TO ACCRUE OR ARISE IN INDIA WITHIN THE MEANI NG OF SECTION 9(1)(VI) OF THE ACT. ACCORDINGLY, IT WAS CONTENDED THAT THE RE IS NO LIABILITY FOR THE ASSESSEE TO DEDUCT TAX FROM THE SAID PAYMENT AN D HENCE THE A.O. WAS NOT JUSTIFIED IN DISALLOWING THE PAYMENT BY INVOKIN G THE SECTION 40(A)(IA) OF THE ACT. 32.5 IN EFFECT, THE ALTERNATIVE CONTENTION OF TH E ASSESSEE IS THAT THE EXPORT PROCEEDS RECEIVED BY IT SHOULD BE CONSIDERED AS AN INCOME EARNED FROM A SOURCE LOCATED OUTSIDE INDIA. THERE I S NO DISPUTE WITH ITA NO.2358/BANG/2018 ILANTUS TECHNOLOGIES PVT. LTD., BANGALORE PAGE 10 OF 14 REGARD TO THE FACT THE EXPORT OF SERVICES/PRODUCTS HAVE BEEN DONE FROM THE SEZ/STPI UNITS LOCATED IN INDIA. THE QUESTION A S TO WHETHER THE EXPORT PROCEEDS CAN BE TREATED AS A SOURCE LOCATED OUTSIDE INDIA WAS EXAMINED BY HONBLE DELHI HIGH COURT IN THE CASE OF HAVELLS INDIA LTD. (SUPRA) AND THE SAME WAS DECIDED AGAINST THE ASSESS EE WITH THE FOLLOWING OBSERVATIONS:- 13. SECTION 9(I)(VII)(B) CONTEMPLATES A SOURCE LOCATED OUTSIDE INDIA. IT IS DIFFICULT TO CONCEPTUALISE THE PLACE/ SITUS OF THE PERSON WHO MAKE PAYMENT FOR THE EXPORT SALES AS THE SOURCE LOCATED OUTSIDE INDIA FROM WHICH ASSESSEE EARNED PROFITS. T HE EXPORT CONTRACTS OBVIOUSLY ARE CONCLUDED IN INDIA AND THE ASSESSEES PRODUCTS ARE SENT OUTSIDE INDIA UNDER SUCH CONTRACT S. THE MANUFACTURING ACTIVITY IS LOCATED IN INDIA. THE SOU RCE OF INCOME IS CREATED AT THE MOMENT WHEN THE EXPORT CONTRACTS ARE CONCLUDED IN INDIA. THEREAFTER THE GOODS ARE EXPORT ED IN PURSUANCE OF THE CONTRACT AND THE EXPORT PROCEEDS A RE SENT BY THE IMPORTER AND ARE RECEIVED IN INDIA. THE IMPORTE R OF THE ASSESSEE S PRODUCTS IS NO DOUBT SITUATED OUTSIDE INDIA, BUT HE CANNOT BE REGARDED AS A SOURCE OF INCOME. THE RECEI PT OF THE SALE PROCEEDS EMANATE FROM HIM FROM OUTSIDE INDIA. HE IS , THEREFORE, ONLY THE SOURCE OF THE MONIES RECEIVED. THE INCOME COMPONENT OF THE MONIES OR THE EXPORT RECEIPTS IS LOCATED OR SIT UATED ONLY IN INDIA. WE ARE MAKING A DISTINCTION BETWEEN THE SOUR CE OF THE INCOME AND THE SOURCE OF THE RECEIPT OF THE MONIES. IN ORDER TO FALL WITHIN THE SECOND EXCEPTION PROVIDED IN SECTION 9(1)(VII)(B) OF THE ACT, THE SOURCE OF THE INCOME, AND NOT THE RECE IPT, SHOULD BE SITUATED OUTSIDE INDIA. THAT CONDITION IS NOT SATIS FIED IN THE PRESENT CASE. THE TRIBUNAL, WITH RESPECT, DOES NOT APPEAR TO HAVE EXAMINED THE CASE FROM THIS ASPECT. ITS CONCLU SION THAT THE TECHNICAL SERVICES WERE NOT UTILISED FOR THE ASSESS EE S BUSINESS ITA NO.2358/BANG/2018 ILANTUS TECHNOLOGIES PVT. LTD., BANGALORE PAGE 11 OF 14 ACTIVITY OF PRODUCTION IN INDIA DOES NOT BRING THE ASSESSEE S CASE WITHIN THE SECOND EXCEPTION IN SECTION 9(1)(VII)(B) OF THE ACT. IT DOES NOT BRING THE CASE UNDER THE FIRST EXCEPTION E ITHER, BECAUSE IN ORDER TO GET THE BENEFIT OF THE FIRST EXCEPTION IT IS NOT SUFFICIENT FOR THE ASSESSEE TO PROVE THAT THE TECHNICAL SERVIC ES WERE NOT UTILISED FOR ITS BUSINESS ACTIVITIES OF PRODUCTION IN INDIA, BUT IT IS FURTHER NECESSARY FOR THE ASSESSEE TO SHOW THAT THE TECHNICAL SERVICES WERE UTILISED IN A BUSINESS CARRIED ON OUT SIDE INDIA. THEREFORE, WE CANNOT ALSO APPROVE OF THE TRIBUNAL S CONCLUSION IN PARA 29 OF ITS ORDER TO THE EXTENT IT SEEMS TO S UGGEST THAT THE ASSESSEE SATISFIES THE CONDITION NECESSARY FOR BRIN GING ITS CASE UNDER THE FIRST EXCEPTION. BE THAT AS IT MAY, AS WE HAVE ALREADY POINTED OUT, SINCE THE SOURCE OF INCOME FROM THE EX PORT SALES CANNOT BE SAID TO BE LOCATED OR SITUATED OUTSIDE IN DIA, THE CASE OF THE ASSESSEE CANNOT BE BROUGHT UNDER THE SECOND EXCEPTION PROVIDED IN THE SECTION. 32.6 IT CAN BE NOTICED THAT THE HONBLE DELHI HIGH COURT HAS MADE DISTINCTION BETWEEN SOURCE OF INCOME AND SOURCE OF RECEIPT OF MONIES. SO LONG AS THE EXPORT CONTRACTS ARE CONCLU DED IN INDIA, THE SOURCE OF INCOME IS TREATED AS LOCATED OR SITUATED ONLY IN INDIA. THE LD. A.R. PLACED HIS RELIANCE ON THE DECISION RENDERED B Y HONBLE MADRAS HIGH COURT IN THE CASE OF AKTIENGESELLSCHAFTKUHNLE KOOP AND KAUSCH(SUPRA). HOWEVER, THE HONBLE DELHI HIGH COUR T HAS OBSERVED THAT THE DECISION RENDERED BY HONBLE MADRAS HIGH C OURT IN THE CASE OF ANGLO FRENCH TEXTILES LTD. (SUPRA) EARLIER TO THE A BOVE SAID DECISION WAS NOT BROUGHT TO THE NOTICE OF HONBLE MADRAS HIG H COURT. ACCORDINGLY, THE DELHI HIGH COURT REFUSED TO FOLLOW THE DECISION RENDERED IN THE CASE OF AKTIENGESELLSCHAFTKUHNLE KO OP AND ITA NO.2358/BANG/2018 ILANTUS TECHNOLOGIES PVT. LTD., BANGALORE PAGE 12 OF 14 KAUSCH(SUPRA) BY HONBLE MADRAS HIGH COURT. WE ALSO NOTICE THAT THE HONBLE DELHI HIGH COURT HAS ALSO REFERRED TO VARIO US DECISIONS TO UNDERSTAND THE MEANING OF THE WORD SOURCE. FOR TH E SAKE OF CONVENIENCE, WE EXTRACT BELOW THE OBSERVATIONS MADE BY HONBLE DELHI HIGH COURT IN THIS REGARD. 12. THE QUESTION AS TO WHAT IS A SOURCE OF INCOME HAS BEEN DEALT WITH IN SOME AUTHORITATIVE PRONOUNCEMENTS. TH E JUDICIAL COMMITTEE IN RHODESIA METALS LTD. V. COMMISSIONER OF INCOME TAX , (1941) 9 ITR (SUPPL.) 45 OBSERVED THAT A 'SOURCE' MEANS NOT A LEGAL CONCEPT BUT ONE WHICH A PRACTICAL MAN WOULD REGARD AS A REAL SOURCE OF INCOME. THIS OBSERVATION WAS ADOPT ED BY MALIK, J. IN HIS SEPARATE BUT CONCURRING JUDGMENT IN THE C ASE OF RANI AMRIT KAUR V. CIT , (1946) 14 ITR 561, A DECISION OF THE FULL BENCH OF THE ALLAHABAD HIGH COURT. A SOURCE OF INCO ME WAS DESCRIBED BY R. S. PATHAK, J. (AS HE THEN WAS) IN T HE FOLLOWING WORDS IN SETH SHIV PRASAD V. CIT , (1972) 84 ITR 15 (ALL.) AT PAGE 18: - 'A SOURCE OF INCOME, THEREFORE, MAY BE DESCRIBED AS THE SPRING OR FOUNT FROM WHICH A CLEARLY DEFINED CHANNE L OF INCOME FLOWS. IT IS THAT WHICH BY ITS NATURE AND INCIDENTS CONSTITUTES A DISTINCT AND SEPARATE ORIGI N OF INCOME, CAPABLE OF CONSIDERATION AS SUCH IN ISOLATI ON FROM OTHER SOURCES OF INCOME, AND WHICH BY THE MANNER OF DEALING ADOPTED BY THE ASSESSEE CAN BE TREATED SO.' THE OBSERVATIONS OF THE JUDICIAL COMMITTEE (SUPRA) AS TO WHAT IS A SOURCE OF INCOME HAVE BEEN APPROVED BY THE SUPREM E COURT IN CIT V. LADY KANCHANBAI , (1970) 77 ITR 123. THE LOCATION OR SITUS OF A SOURCE OF INCOME IS ANOTHER ASPECT. THE THIRD ASPECT IS THE ACCRUAL OF THE INCOME. THOUGH IT IS TRUE, AS HE LD BY KANIA, ITA NO.2358/BANG/2018 ILANTUS TECHNOLOGIES PVT. LTD., BANGALORE PAGE 13 OF 14 C.J., SPEAKING FOR A CONSTITUTION BENCH OF THE SUPR EME COURT IN CIT V. AHMEDBHAIUMARBHAI , (1950) 18 ITR 472 (SC) AT PAGE 479, THAT THE PLACE WHERE THE SOURCE OF INCOME IS L OCATED MAY NOT NECESSARILY BE THE PLACE WHERE THE INCOME ALSO ACCRUES, THAT QUESTION IS NOT MATERIAL IN THE PRESENT CASE BECAUS E HEREIN WE ARE CONCERNED ONLY WITH THE QUESTION AS TO THE LOCA TION OF THE SOURCE. THE REAL QUESTION IS WHETHER THE EXPORT SAL ES PROCEEDS RECEIVED FROM GOODS MANUFACTURED AND EXPORTED FROM INDIA CONSTITUTE A SOURCE INSIDE OR OUTSIDE INDIA. TO DEC IDE THE SAME WE HAVE TO TAKE A PRAGMATIC AND A PRACTICAL VIEW AN D NOT APPROACH THE QUESTION FROM A THEORETICAL PERSPECTIV E. ACCORDINGLY, FOLLOWING THE DECISION RENDERED BY JUR ISDICTIONAL HONBLE KARNATAKA HIGH COURT IN THE ASSESSEES OWN CASE REP ORTED IN 355 ITR 284 AND ALSO THE DECISION RENDERED BY HONBLE DELHI HIGH COURT IN THE CASE OF HAVELLS INDIA LTD. (SUPRA) WE HOLD THAT THE A.O. WAS JUSTIFIED IN HOLDING THAT THE PAYMENT MADE TO M/S. GARTNER GROUP IS IN THE NATURE OF ROYALTY WITHIN THE MEANING OF SECTION 9(1)(VI) O F THE ACT AND HENCE THE ASSESSEE IS LIABLE TO DEDUCT TAX AT SOURCE FROM THE SAID PAYMENT U/S 195 OF THE ACT. IN VIEW OF THE DEFAULT ON THE PART OF T HE ASSESSEE IN NOT DEDUCTING THE TAX AT SOURCE, THE A.O. WAS JUSTIFIED IN MAKING THE DISALLOWANCE OF PAYMENT MADE TO M/S. GARTNER GROUP BY INVOKING PROVISIONS OF SECTION 40(A)(I) OF THE ACT. 14. ACCORDINGLY, WE RESTORE THIS ISSUE ALSO TO TH E FILE OF THE AO FOR EXAMINING IT AFRESH IN THE LIGHT OF DISCUSSIONS MAD E SUPRA. AFTER AFFORDING ADEQUATE OPPORTUNITY OF BEING HEARD, THE AO MAY TAKE APPROPRIATE DECISION IN ACCORDANCE WITH LAW. ITA NO.2358/BANG/2018 ILANTUS TECHNOLOGIES PVT. LTD., BANGALORE PAGE 14 OF 14 15. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS TREATED AS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 2 ND DEC, 2020. SD/- (N.V. VASUDEVAN ) VICE PRESIDENT SD/- (B.R. BASKARAN) ACCOUNTANT MEMBER BANGALORE, DATED 2 ND DEC, 2020. VG/SPS COPY TO: 1. THE APPLICANT 2. THE RESPONDENT 3. THE CIT 4. THE CIT(A) 5. THE DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER ASST. REGISTRAR, ITAT, BANGALORE.