ACIT, CHENNAI V. Mahindra Holiday and Resorts India Limited, CHENNAI

ITA 2373/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 96161 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 3 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-09-2015
• Appeal Filed By: Department
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 25-08-2015
• Assessment Year: 2010-2011
• Appeal Filed On: 19-09-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: S BHARATH
• Keywords: Retrospective amendment; Permanent establishment; Non-deduction of tax
• Section: 194C

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL , C B ENCH, CHENNAI . , ! # $ , % & BEFORE SHRI A.MOHAN ALANKAMONY ACCOUNTANT MEMBER AND SHRI CHALLA NAGENDRA PRASAD, JUDICIAL MEMBER ./I.T.A.NO .2373/MDS/2014 ( / ASSESSMENT YEAR: 2010-11) ASSISTANT COMMISSIONER OF INCOME TAX, LARGE TAXPAYER UNIT-I CHENNAI-101. VS M/S. MAHINDRA HOLIDAY AND RESORTS INDIA LTD., MAHINDRA TOWERS 2 ND FLOOR, 17/18, PATULLOS ROAD, CHENNAI-600 002. PAN:AAACM6469L ( /APPELLANT) ( /RESPONDENT) / APPELLANT BY : MR. S.BHARATH, CIT /RESPONDENT BY : MR.SAROJ KUMAR PARIDA, ADVOCATE /DATE OF HEARING : 25 TH AUGUST, 2015 /DATE OF PRONOUNCEMENT : 23 RD SEPTEMBER, 2015 / O R D E R PER CHALLA NAGENDRA PRASAD, JM: THIS APPEAL IS FILED BY THE REVENUE AGAINST THE OR DER OF THE COMMISSIONER OF INCOME TAX (APPEALS), LTU CHENN AI DATED 26.06.2014 FOR THE ASSESSMENT YEAR 2010-11. 2. THE FIRST ISSUE IN THE APPEAL OF THE REVENUE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING THE ADDITION MADE TOWARDS ADVANCE MEMBERSHIP FEES. 3. COUNSEL FOR THE ASSESSEE SUBMITS THAT THE ISSUE IN APPEAL HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE B Y THE 2 ITA NO.2373/MDS/2014 SPECIAL BENCH OF THE TRIBUNAL IN ASSESSEES OWN CA SE FOR THE EARLIER ASSESSMENT YEAR 1998-99 TO 2003-04 REPORTED IN 131 TTJ 1. COUNSEL FOR THE ASSESSEE SUBMITS THAT FOLLO WING THE SPECIAL BENCH DECISION, THE CO-ORDINATE BENCH DECID ED THE ISSUE FOR THE ASSESSMENT YEAR 2009-10 IN ITA NO.1339/MDS/2013 DATED 26.09.2013, COPY OF WHICH IS PLACED ON RECORD. 4. DEPARTMENTAL REPRESENTATIVE PLACES RELIANCE ON T HE ORDER OF THE ASSESSING OFFICER. 5. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHOR ITIES AND THE DECISIONS RELIED ON. THE CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 IN ITA NO.1339/MDS/2013 DATED 26.09.2013 FOLLOWING THE SPE CIAL BENCH DECISION IN ASSESSEES OWN CASE (SUPRA) AFFI RMED THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) OBSERVING AS UNDER:- 39. WE FIND THAT ON THE ISSUE OF ADVANCE MEMBERSHIP FEE, LD. CIT(APPEALS) HAD FOLLOWED THE DECISION OF SPECIAL BENCH OF THIS TRIBUNAL IN ASSESSEE'S OWN CASE FOR ASSESSMENT YEARS 1998-99 TO 2003-04 IN ACIT V. MAHI NDRA HOLIDAYS & RESORTS (INDIA) LTD. (2010) 131 TTJ 1. IN THE SAID DECISION, SPECIAL BENCH HELD THAT THE ENTIRE MEMBERSHIP COULD NOT BE TAKEN AS AN INCOME. AS PER SPECIAL BENCH, IT WAS NECESSARY TO SPREAD OVER A PA RT OF THE INCOME. THIS TRIBUNAL IN REVENUES APPEAL IN 3 ITA NO.2373/MDS/2014 ASSESSEE'S OWN CASE FOR ASSESSMENT YEAR 2006-07 AND 2007-08 IN I.T.A. NO. 1762 & 1763/MDS/2011 DATED 17 TH OCTOBER, 2012, HAD HELD AT PARAS 3.16 TO 4 OF ITS O RDER, AS UNDER:- 3.16. ONE OF THE BASIC POSTULATES OF ACCOUNTANCY IS THE GOING CONCERN CONCEPT. THE INCOME AND EXPENDITURE OF AN ASSESSEE IS ASCERTAINED ON THE PRESUMPTION THAT THE ASSESSEE WILL CARRY ON THE BUSINESS FOR A LONG TIME. IF THIS GOING CONCERN CONCEPT IS APPLIED IN ASSESSEES CASE, IT IS EASY T O FIND THAT THE NOMINAL EXPENDITURE THAT MAY BE REQUIRED F OR THE ASSESSEE TO MEET THE EXPENDITURE ON MEMBERS FO R THE SUBSEQUENT YEARS OF ADMISSION IS WELL COMPENSATED BY THE COLLECTION MADE IN THOSE SUBSEQUENT YEARS OF ADMISSION. IN THAT MANNER, TH E EXPENSES APPREHENDED BY THE ASSESSEE TO BE INCURRED IN FUTURE FOR THE EXISTING MEMBERS ARE COMPENSATED BY THE CONTRIBUTIONS MADE BY THE INCOMING MEMBERS YEAR AFTER YEAR. THEREFORE, IT IS COMPENSATING AND , PRACTICALLY SPEAKING, THERE IS NO NEED TO PRESERVE ANY PORTION OF THE MEMBERSHIP FEES TO MEET FUTURE LIABILITIES. 3.17. THIS IS MAINLY FOR THE REASON THAT, AS ALREAD Y STATED ABOVE, THE LIABILITY OF THE ASSESSEE IS TO MAINTAIN THE ASSETS AND PROPERTIES AS A WHOLE FOR CARRYING ON ITS BUSINESS AND NOT FOR A PARTICULAR MEMBER. THE ASSESSEE IS APPORTIONING THE MEMBERSHI P FEES BETWEEN 60% AND 40% ON THE PRINCIPLE OF INDIVIDUAL LIABILITY EXISTING BETWEEN THE ASSESSEE AND ITS MEMBERS. THE CONCEPT OF INDIVIDUAL LIABILITY I S HYPERTECHNICAL. 3.18. THEREFORE, IT IS VERY DIFFICULT TO AGREE WITH THE CONTENTION OF THE ASSESSEE COMPANY THAT THE REVENUE MODEL OF APPORTIONING THE MEMBERSHIP COLLECTION BETWEEN 60% AND 40% IS JUSTIFIED. WE FIND THAT THE REVENUE MODEL ADOPTED BY THE ASSESSEE IS BASED ON HYPOTHESIS AND NOT ON FACTS. ON THE OTHER HAND, TH E REVENUE MODEL OF TREATING THE ENTIRE MEMBERSHIP FEE COLLECTION AS INCOME OF THE YEAR OF COLLECTION PROP OSED BY THE ASSESSING OFFICER IS MORE JUSTIFIED. 4 ITA NO.2373/MDS/2014 3.19. IT MAY BE IN THE ABOVE CONTEXT THAT ANOTHER BENCH OF THE INCOME-TAX APPELLATE TRIBUNAL, CHENNAI HAS HELD IN THE CASE OF STERLING HOLIDAY RESORTS (INDIA) LTD. VS. ACIT, 295 ITR (AT) 162 THAT THE CONCEPT OF DEFERRED INCOME IS ALIEN TO THE INCOME-T AX ACT. INCOME ON ITS COMING INTO EXISTENCE ATTRACTS TAX. THE OBLIGATION TO USE THE INCOME IN A PARTICULAR MA NNER DOES NOT REMOVE IT FROM THE CATEGORY OF INCOME EVEN IF THE OBLIGATION IS PART OF THE ORIGINAL CONTRACT GIVING RISE TO THE INCOME. THE INCOME THAT IS RECEIVED OR DEEMED TO BE RECEIVED IN THE PREVIOUS YEAR IS EXIGI BLE TO TAX. 4. BUT, INSPITE OF THE VIEWS EXPRESSED ABOVE, WE FI ND THAT WE ARE BOUND TO FOLLOW THE JUDGMENT OF THE INCOME-T AX APPELLATE TRIBUNAL, CHENNAI B SPECIAL BENCH RENDE RED IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEARS 1998-9 9 TO 2002-03. IN THE SAID DECISION RENDERED IN THE CASE OF ACIT VS. MAHINDRA HOLIDAYS & RESORTS (INDIA) LTD., 131 T TJ (CHENNAI) (SB) 1, THE SPECIAL BENCH HAS HELD THAT 4 0% OF DEFERMENT OF MEMBERSHIP FEE RESORTED TO BY THE ASSE SSEE IS JUSTIFIED. THE SAID DECISION OF THE SPECIAL BENCH IS RENDERED IN ASSESSEES OWN CASE IN EXACTLY SIMILAR CIRCUMSTA NCES. THEREFORE, THE RULE OF PRECEDENCE DEMANDS THAT THE DECISION OF THE SPECIAL BENCH MUST PREVAIL. LD. CIT(APPEALS) HAVING FOLLOWED THE SPECIAL BENCH ORDER IN ASSESSEE'S OWN CASE, WHICH WAS IN TURN RELIED ON BY THIS TRIBUNAL ON REVENUES APPEAL FOR ASSESSMENT YEAR 20 06-07 AND 2007-08, WE DO NOT FIND ANY REASON TO INTERFERE . 6. RESPECTFULLY FOLLOWING THE SAID DECISION, WE UPH OLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) O N THIS ISSUE AND REJECT THE GROUND RAISED BY THE REVENUE. 7. THE NEXT GROUND RAISED IN THE GROUNDS OF APPEAL OF THE REVENUE IS THAT COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN DIRECTING THE ASSESSING OFFICER TO VERIFY EXPENDITURE 5 ITA NO.2373/MDS/2014 OF ` 20,00,000/- INCURRED ON WEBSITE DEVELOPMENT EXPENDI TURE FOLLOWING THE DECISION OF TRIBUNAL IN ASSESSEES OW N CASE FOR THE ASSESSMENT YEAR 2009-10. 8. COUNSEL FOR THE ASSESSEE SUBMITS THAT FOR THE ASSESSMENT YEAR 2009-10 SIMILAR ISSUE HAD COME UP B EFORE THE TRIBUNAL, WHEREIN THE TRIBUNAL REMITTED THE ISS UE BACK TO THE FILE OF ASSESSING OFFICER FOR FRESH CONSIDERATI ON IN ACCORDANCE WITH LAW. COUNSEL FOR THE ASSESSEE SUBMI TS THAT COMMISSIONER OF INCOME TAX (APPEALS) FOLLOWING THE ORDER OF CO-ORDINATE BENCH IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-10 DIRECTED THE ASSESSING OFFI CER TO VERIFY THE FACTS FOR THE ASSESSMENT YEAR 2010-11 AL SO AND TAKE A DECISION IN LINE WITH THE DIRECTION GIVEN BY THIS TRIBUNAL FOR THE ASSESSMENT YEAR 2009-10. 9. ON A QUERY FROM THE BENCH, AS TO WHY SIMILAR DIR ECTION SHOULD NOT BE GIVEN FOR THE ASSESSMENT YEAR 2010-11 ALSO, THE DEPARTMENTAL REPRESENTATIVE HAS NO SERIOUS OBJE CTION. THUS, WE UPHOLD THE ORDER OF COMMISSIONER OF INCOME TAX (APPEALS) THAT ASSESSING OFFICER SHOULD VERIFY THE CLAIM OF THE ASSESSEE IN RESPECT OF EXPENDITURE OF ` 20,00,000/- INCURRED 6 ITA NO.2373/MDS/2014 ON WEBSITE DEVELOPMENT FOLLOWING THE CO-ORDINATE B ENCH OBSERVATIONS IN ASSESSEES OWN CASE FOR THE ASSESS MENT YEAR 2009-10. THUS, WE UPHOLD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) AND REJECT THE GROUND OF APPEAL ON THIS ISSUE. 10. THE NEXT GROUND IN THE GROUNDS OF APPEAL OF THE REVENUE IS THAT COMMISSIONER OF INCOME TAX (APPEALS ) ERRED IN DELETING THE DISALLOWANCE OF OVERSEAS COMM ISSION PAYMENTS MADE UNDER SECTION 40(A)(I) OF THE ACT. 11. COUNSEL FOR THE ASSESSEE SUBMITS THAT THIS ISSU E HAS BEEN CONSIDERED BY THE TRIBUNAL IN FAVOUR OF THE AS SESSEE IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2009-1 0 IN ITA NO.1227/MDS/2013 FOR THE ASSESSMENT YEAR 2009-1 0. COUNSEL SUBMITS THAT THE FACTS AND CIRCUMSTANCES BE ING IDENTICAL, SAME MAY BE FOLLOWED FOR THIS ASSESSMENT YEAR ALSO. 12. DEPARTMENTAL REPRESENTATIVE SUPPORTS THE ORDER OF THE ASSESSING OFFICER. 7 ITA NO.2373/MDS/2014 13. ON GOING THROUGH THE ORDER OF THE CO-ORDINATE B ENCH, WE FIND THAT THE ISSUE IN RESPECT OF OVERSEAS COMMI SSION PAYMENT HAS BEEN DEALT WITH BY THE TRIBUNAL AT PARA S 49 TO 55 AND HELD THAT ASSESSEE IS NOT OBLIGED TO DEDUC T TAX ON COMMISSION PAYMENT OBSERVING AS UNDER:- 49. VIDE ITS GROUND NO.4, GRIEVANCE RAISED BY THE REVENUE IS THAT OVERSEAS COMMISSION PAYMENT OF ` 57,12,534/- WAS ALLOWED BY THE CIT(APPEALS). 50. FACTS APROPOS ARE THAT ASSESSING OFFICER, DURIN G THE COURSE OF ASSESSMENT PROCEEDINGS, NOTED THAT TH E AMOUNTS DECLARED BY THE ASSESSEE IN ITS TDS RETURNS DID NOT TALLY WITH THE AMOUNTS CHARGED UNDER VARIOUS HE ADS IN THE PROFIT & LOSS ACCOUNT ON WHICH TAX WAS DEDUCTIB LE AT SOURCE. THE AMOUNT OF COMMISSION PAYMENT CLAIMED B Y THE ASSESSEE IN ITS LEDGER WAS ` 32,14,36,612/-. BUT, THE AMOUNT ON WHICH TAX WAS DEDUCTED AT SOURCE WAS ONLY ` 17,83,65,796/-. ASSESSEE PRODUCED A RECONCILIATION , WHICH READ AS UNDER:- (1) INCENTIVES TO CONTRACT PERSONNEL (DEDUCTED U/S 194C ) ` 5,51,38,708 (2) DUBAI BRANCH COMMISSION (FRANCHISEE AT DUBAI) ` 57,12,534 (3) PROVISION FOR COMMISSION ` 8,22,19,575 ` 14,30,70,816/ - NO TAX WAS DEDUCTED AT SOURCE ON THE PAYMENT MADE T O THE FRANCHISEE AT DUBAI. ON ` 5,51,38,708/- PAID TO CONTRACT PERSONNEL FOR SERVICES PROVIDED, ASSESSEE HAD DEDUCTED TAX AS REQUIRED UNDER SECTION 194C OF THE ACT. FOR THE PROVISION OF ` 8,22,19,575/- SUBMISSION OF THE ASSESSEE WAS THAT IT WAS A CRYSTALLIZED LIABILITY P AYABLE TO FRANCHISEE ABROAD AND NOT LIABLE FOR DEDUCTION OF T AX AT SOURCE. ASSESSING OFFICER HOWEVER WAS OF THE OPINI ON THAT ASSESSEE HAD FAILED TO DEDUCT TAX AT SOURCE ON THESE AMOUNTS AND MADE A DISALLOWANCE OF THE CLAIM UNDER SECTION 40(A)(I) ACCORDINGLY. 51. IN ITS APPEAL BEFORE CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT THE SUM OF ` 57,12,534/- PAID TO DUBAI FRANCHISEE AS COMMISSION, WAS NOT LIABLE FOR DEDUCT ION OF 8 ITA NO.2373/MDS/2014 TAX. ACCORDING TO ASSESSEE, ENTIRE PAYMENT WAS MAD E TO NON-RESIDENT AGENTS FOR SERVICES RENDERED BY THEM ABROAD. INSOFAR AS DISALLOWANCE OF COMMISSION OF ` 5,51,38,708/- TO SERVICE PROVIDERS WAS CONCERNED, ARGUMENT OF THE ASSESSEE WAS THAT TAX WAS INDEED DEDUCTED AT SOURCE UNDER SECTION 194C OF THE ACT, B UT, STILL A DISALLOWANCE WAS MADE. AS FOR THE PROVISIO N FOR ` 8,22,19,575/- MADE, ARGUMENT OF THE ASSESSEE WAS TH AT THIS WAS A CRYSTALLIZED LIABILITY WORKED OUT ON THE BASIS OF SERVICE RENDERED BY THE FRANCHISEESABROAD FOR INDUC TING NEW MEMBERS. ACCORDING TO THE ASSESSEE, THE PROVIS ION WAS MADE BASED ON THE AVERAGE RATE OF COMMISSION PA ID TO THE FRANCHISEES. FURTHER, AS PER THE ASSESSEE, THESE WERE PAYMENTS IN THE NATURE OF COMMISSION TO NON- RESIDENT AGENTS, FOR SERVICES RENDERED BY THEM OUTS IDE INDIA. 52. LD. CIT(APPEALS), AFTER CONSIDERING THE SUBMISSIONS OF THE ASSESSEE, HELD THAT INSOFAR AS PAYMENT OF ` 57,12,534/- TO DUBAI FRANCHISEE WAS CONCERNED, ASSESSEES CASE WAS COVERED BY THE DECIS ION OF CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE O F PRAKASH IMPEX V. ACIT IN I.T.A. NO. 08/MDS/2012 DAT ED 30.3.2012. INSOFAR AS PAYMENT OF ` 5,51,38,708/- PAID TO CONTRACTORS, WAS CONCERNED, CIT(APPEALS) WAS OF THE OPINION THAT ASSESSEE HAD DEDUCTED TAX AT SOURCE UN DER SECTION 194C OF THE ACT AND THEREFORE, NO DISALLOWA NCE UNDER SECTION 40(A)(I) COULD BE MADE. INSOFAR AS DISALLOWANCE OF PROVISION OF ` 8,22,19,575/- FOR COMMISSION WAS CONCERNED, CIT(APPEALS) REMITTED THE ISSUE BACK TO THE FILE OF THE A.O. FOR CONSIDERATIO N WHETHER ASSESSEE HAD ACTUALLY DEDUCTED TAX AT SOURCE AND REMITTED SUCH TAX WITHIN THE DUE DATE OF FILING OF RETURN, ON SUCH AMOUNT. 53. NOW BEFORE US, LEARNED D.R. SUBMITTED THAT THE PAYMENT OF COMMISSION TO FRANCHISEE AT DUBAI FELL W ITHIN THE DEFINITION OF TECHNICAL SERVICES GIVEN IN EXP LANATION 2 TO SECTION 9(1)(VII) OF THE ACT. ACCORDING TO HIM, TECHNICAL SERVICES INCLUDED RENDERING OF ANY MANAGERIAL, TEC HNICAL OR CONSULTANCY SERVICES. THE FRANCHISEE AT DUBAI A ND OTHER PLACES ABROAD WERE RENDERING CONSULTANCY AND MANAGERIAL SERVICES TO THE ASSESSEE, WHEN THEY WERE CANVASSING CLIENTS FOR THE TIME SHARES MARKETED BY THE ASSESSEE. AS PER LEARNED D.R., SUCH SERVICES FELL WITHIN THE DEFINITION OF TECHNICAL SERVICES. IN VIEW OF EXPLANATION TO SECTION 9(2) OF THE ACT, ADDED WITH RETROSPECTIVE EFFECT FROM 1.6.1976 BY FINANCE ACT, 2010, IT WAS NOT NECESSARY FOR THE NON-RESIDENT TO HAVE A RESIDENCE OR A PLACE OF BUSINESS OR A BUSINESS CONN ECTION 9 ITA NO.2373/MDS/2014 IN INDIA. IT WAS ALSO NOT NECESSARY FOR A NON-RESI DENT TO HAVE RENDERED SERVICE IN INDIA. FURTHER, AS PER LE ARNED D.R., DECISION OF CO-ORDINATE BENCH OF THIS TRIBUNA L IN THE CASE OF PRAKASH IMPEX (SUPRA) WAS NOT ACCEPTED BY T HE DEPARTMENT AND THE DEPARTMENT HAD MOVED IN APPEAL BEFORE HON'BLE JURISDICTIONAL HIGH COURT. 54. PER CONTRA, LEARNED A.R., STRONGLY SUPPORTING T HE ORDER OF CIT(APPEALS), SUBMITTED THAT THE PAYMENT O F COMMISSION FELL WITHIN THE SCOPE OF CIRCULAR NO. 78 6, DATED FEBRUARY 7, 2000 . THEREFORE, ASSESSEE WAS NOT OBLIGED TO DEDUCT TAX ON SUCH PAYMENT. AS PER LEAR NED A.R., SUCH CIRCULAR WAS WITHDRAWN ONLY ON 22 ND OCTOBER, 2009LATER DATE AND THEREFORE, ASSESSEE COULD TAKE R EFUGE UNDER THE EARLIER CIRCULAR. ASSESSEE COULD NOT BE SADDLED WITH A DEFAULT FOR NON-DEDUCTION OF TAX, WHEN IT WA S NOT OBLIGED TO DEDUCT TAX AT SOURCE. 55. WE HAVE PERUSED THE ORDERS AND HEARD THE RIVAL SUBMISSIONS. THERE HAVE BEEN TWO DISALLOWANCES MAD E BY THE ASSESSING OFFICER WHICH, ON APPEAL OF THE ASSESSEE, WERE ALLOWED BY THE CIT(APPEALS), ON WHIC H REVENUE IS AGGRIEVED. ONE IS ` 57,12,534/- AND THE OTHER IS ` 8,22,19,575/-. THE FORMER STOOD ALREADY PAID, WHEREAS, THE LATTER WAS ONLY A PROVISION. BOTH WER E ADMITTEDLY COMMISSION TO FRANCHISEE AGENTS OF THE ASSESSEE ABROAD. THERE IS NO DISPUTE THAT SUCH FRANCHISEE AGENCIES WERE CANVASSING CLIENTS FOR ASS ESSEE FOR ITS TIME SHARE UNITS. THERE IS ALSO NO DISPUTE THAT THE AGENTS WERE NON-RESIDENTS ABROAD. AS PER ASSESSEE, THESE WERE NOTHING BUT SALES COMMISSION PAID TO THE FRANCHISEE AND SQUARELY FELL WITHIN THE SCOPE OF CI RCULAR NO.786 DATED 7 TH FEBRUARY, 2000 OF CBDT. AS AGAINST THIS, CLAIM OF THE REVENUE IS THAT THIS WAS NOTHING BUT TECHNICAL SERVICES ON WHICH ASSESSEE WAS OBLIGED TO DEDUCT TAX AT SOURCE. FURTHER, AS PER THE REVENUE, CIRCULAR NO.786 STOOD WITHDRAWN BY CIRCULAR NO.7 OF 2009 DATED 22 ND OCTOBER, 2009. THERE CAN BE NO DOUBT THAT IF THE PAYMENT WAS A FEE FOR TECHNICAL SERVICES, THEN NO MATTER WHETHER THE NON-RESIDENT WAS HAVING A RESIDE NCE OR A PLACE OF BUSINESS OR BUSINESS CONNECTION IN IN DIA, IT WOULD BE CHARGEABLE TO TAX IN INDIA BY VIRTUE OF SE CTION 9(1)(VII) READ ALONG WITH EXPLANATION 2 TO SECTION 9(2) OF THE ACT. HOWEVER, AS PER ASSESSEE, CANVASSING OF T IME SHARES DONE BY THE FRANCHISEE WERE NOT IN THE NATUR E OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES, AND HENCE WOULD NOT FALL WITHIN THE DEFINITION OF FEE FOR TECHNICAL SERVICES GIVEN IN EXPLANATION 2 TO SECTI ON 9(1)(VII) OF THE ACT. EVEN IF WE CONSIDER THAT SER VICES 10 ITA NO.2373/MDS/2014 RENDERED BY THE FRANCHISEE DID FALL WITHIN THE DEFI NITION OF FEE FOR TECHNICAL SERVICES, WE ARE STILL OF THE O PINION THAT CLAUSE (B) OF SECTION 9(1)(VII) WILL SAVE THE ASSES SEE. SECTION 9(1)(VII) IS REPRODUCED HEREUNDER:- (VII) INCOME BY WAY OF TECHNICAL SERVICES PAYABLE B Y (A)THE GOVERNMENT ; OR (B)A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE FE ES ARE PAYABLE IN RESPECT OF SERVICES UTILISED IN A BUSINE SS OR PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM A NY SOURCE OUTSIDE INDIA ; OR (C)A PERSON WHO IS A NON-RESIDENT, WHERE THE FEES ARE PAYABLE IN RESPECT OF SERVICES UTILISED IN A BUSINE SS OR PROFESSION CARRIED ON BY SUCH PERSON IN INDIA OR FO R THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY S OURCE IN INDIA : INCOME BY WAY OF FEES FOR TECHNICAL SERVICES WOULD NOT BE CONSIDERED SO, IF SUCH FEES WERE PAYABLE IN RESPECT OF SERVICES UTILIZED IN A BUSINESS OR PROFESSION CARRI ED ON BY SUCH PERSONS OUTSIDE INDIA, OR FOR THE PURPOSE OF E ARNING INCOME FROM ANY SOURCE OUTSIDE INDIA. WHEN ASSESSE E IS MARKETING ITS TIME SHARE UNIT ABROAD, WITHOUT DOUBT , THE BUSINESS IS BEING CARRIED ON OUTSIDE INDIA IN RESPE CT OF SUCH TIME SHARE UNITS AND THE INCOME EARNED IS ALSO FROM A SOURCE OUTSIDE INDIA. FRANCHISEES ARE ALSO EARNI NG THEIR INCOME BY VIRTUE OF MARKETING THE TIME SHARE UNITS OF THE ASSESSEE ABROAD. THE FRANCHISEES WERE ALSO THEREFO RE, EARNING INCOME IN THE COURSE OF THEIR BUSINESS OR PROFESSION CARRIED ABROAD. THUS, WHETHER WE CONSID ER SUCH PERSONS TO BE THE NON-RESIDENT ENTITY OR TO BE THE ASSESSEE IN INDIA, IT MEANS THAT AS LONG AS THE FEE S WERE FOR SERVICE UTILIZED IN A BUSINESS OR PROFESSION, C ARRIED OUTSIDE INDIA, IT COULD NOT BE TREATED AS INCOME CHARGEABLE TO TAX. WE ARE THEREFORE OF THE VIEW THA T THE CIT(APPEALS) WAS JUSTIFIED IN CONSIDERING THE AMOUN TS TO BE NOT TAXABLE IN INDIA. REVENUE HAS NOT TAKEN ANY GROUND ASSAILING THE CORRECTNESS OF THE WORK OUT OF PROVISION OF ` 8,22,19,575/-. IT IS ONLY AGGRIEVED THAT CIT(A) ALLOWED SUCH CLAIM DESPITE NON-DEDUCTION OF TAX AT SOURCE. WE HAVE ALREADY HELD THAT ASSESSEE IS NOT OBLIGED TO DEDUCT TAX ON COMMISSION PAYMENT. WE THEREFORE HAVE NO REASON TO INTERFERE WITH THE ORDE R OF CIT(APPEALS). 11 ITA NO.2373/MDS/2014 14. THEREFORE, WE DIRECT THE ASSESSING OFFICER TO VERIFY WHETHER THE FACTS AND CIRCUMSTANCES ARE SIMILAR TO THOSE OF FACTS MENTIONED IN THE ORDER OF THE TRIBUNAL FOR TH E ASSESSMENT YEAR 2009-10 AND IF IT IS IN AFFIRMATIVE , THE DECISION OF THE CO-ORDINATE BENCH FOR THE ASSESSMEN T YEAR 2009-10 BE FOLLOWED AND DECIDE THE ISSUE ACCORDINGL Y. 15. THE NEXT ISSUE IN THE APPEAL OF THE REVENUE IS THAT COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN DELET ING PROFESSIONAL CHARGES UNDER SECTION 40(A)(I) OF THE ACT TO THE TUNE OF ` 92,05,000/- FOR NON-DEDUCTION OF TAX . COUNSEL SUBMITS THAT THIS ISSUE IS ALSO DECIDED BY THE CO-O RDINATE BENCH FOR THE ASSESSMENT YEAR 2009-10 IN PARAS 57 T O 63 OF THE ORDER WHEREIN THE TRIBUNAL FOLLOWED ITS EARLIER ORDER IN ASSESSEES OWN CASE FOR THE ASSESSMENT YEAR 2008-09 AND DELETED THE DISALLOWANCE. 16. DEPARTMENTAL REPRESENTATIVE PLACES RELIANCE ON THE ORDER OF THE ASSESSING OFFICER. 12 ITA NO.2373/MDS/2014 17. HEARD BOTH SIDES. PERUSED ORDERS OF LOWER AUTHO RITIES. THIS ISSUE HAS BEEN ELABORATELY CONSIDERED BY THE C O- ORDINATE BENCH IN PARAS 57 TO 63 IN ITA NO.1227/MDS /2013 DATED 26.09.2013 OBSERVING AS UNDER:- 57. VIDE ITS GROUND NO.5, GRIEVANCE OF THE REVENUE IS THAT PROFESSIONAL CHARGES OF ` 92.58 LAKHS DISALLOWED BY THE A.O. RELYING ON SECTION 40(A)(I) OF THE ACT, WA S ALLOWED BY THE CIT(APPEALS). 58. FACTS APROPOS ARE THAT ASSESSEE HAD PAID A SUM OF ` 92,58,638/- TO A DUBAI ENTITY FOR CERTAIN PROFESSI ONAL SERVICES. ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE ON SUCH PAYMENTS. A.O. WAS OF THE OPINION THAT ASSESS EE, IF IT WAS NOT SURE ABOUT THE NECESSITY TO WITHHOLDTAX, OUGHT HAVE OBTAINED CERTIFICATE UNDER SECTION 195(2) OF T HE ACT. THEREFORE, ACCORDING TO HIM, ASSESSEE FAILED TO DED UCT TAX AT SOURCE AS REQUIRED UNDER THE ACT. A DISALLOWANC E OF ` 92,58,638/- WAS MADE. 59. IN ITS APPEAL BEFORE CIT(APPEALS), ARGUMENT OF THE ASSESSEE WAS THAT THE PAYMENTS WERE MADE TO DUBAI ENTITY FOR SERVICES RENDERED BY THEM OUTSIDE INDIA. RELIANCE WAS ONCE AGAIN PLACED ON CIRCULAR NO.786 D ATED 7 TH FEBRUARY, 2000 OF CBDT AND ALSO ON THE DECISION OF A CO-ORDINATE BENCH OF THIS TRIBUNAL IN THE CASE OF D CIT V. VENKAT SHOES PVT. LTD. 60. CIT(APPEALS) WAS APPRECIATIVE OF THE CONTENTION OF THE ASSESSEE. ACCORDING TO HER, THE RECIPIENT DID NOT MAKE AVAILABLE ANY TECHNICAL KNOWLEDGE WHICH COULD BE INDEPENDENTLY APPLIED BY THE ASSESSEE. ENTIRE SERV ICES WERE RENDERED OUTSIDE INDIA. AS PER LD. CIT(APPEAL S), THE RECIPIENT WAS NOT HAVING PERMANENT ESTABLISHMENT IN INDIA. ASSESSEE WAS, THEREFORE, NOT LIABLE TO DEDU CT TAX ON THE PAYMENTS EFFECTED TO SUCH NON-RESIDENT. SHE HELD THAT THE DISALLOWANCE TO BE NOT WARRANTED AND DELET ED IT. 61. NOW BEFORE US, LEARNED D.R., STRONGLY ASSAILING THE ORDER OF CIT(APPEALS), SUBMITTED THAT NO VERIFICATI ON WAS DONE BY THE LD. CIT(APPEALS) AS TO THE NATURE OF SE RVICE RENDERED. AS PER LEARNED D.R., CIT(APPEALS) CAME T O A CONCLUSION THAT THERE WAS NO TECHNOLOGY OR SKILL MA DE AVAILABLE TO THE ASSESSEE. FURTHER, AS PER LEARNED D.R., 13 ITA NO.2373/MDS/2014 THE CIT(APPEALS) HAD ALSO NOT VERIFIED WITH DOUBLE TAXATION AGREEMENT BETWEEN INDIA AND DUBAI BEFORE COMING TO A CONCLUSION THAT IT WAS NOT NECESSARY TO DEDUCT TAX AT SOURCE. FURTHER, AS PER LEARNED D.R., IN VI EW OF THE EXPLANATION TO SECTION 9(2) OF THE ACT, IT WAS NOT NECESSARY FOR A NON-RESIDENT TO HAVE A PERMANENT ESTABLISHMENT OR PLACE OF BUSINESS OR BUSINESS CONN ECTION IN INDIA. 62. PER CONTRA, LEARNED A.R. SUBMITTED THAT SIMILAR ISSUE HAD COME UP BEFORE THIS TRIBUNAL IN ASSESSEE S APPEAL FOR ASSESSMENT YEAR 2008-09. LEARNED A.R. SUBMITTED THAT THIS TRIBUNAL HAD HELD AT PARA 14 OF ITS ORDER DATED 17 TH OCTOBER, 2012, AS UNDER:- 14. THE NEXT GROUND RAISED BY THE REVENUE IS THAT THE COMMISSIONER OF INCOME TAX (APPEALS) HAS E RRED IN DELETING THE DISALLOWANCE UNDER SECTION 40(A)(I) IN RESPECT OF CONSULTANCY CHARGES PAID TO VARIOUS PERS ONS OUTSIDE INDIA. THE COMMISSIONER OF INCOME TAX (APP EALS) HAS RIGHTLY OBSERVED THAT THE DISALLOWANCE UNDER SE CTION 40(A)(I) CAN BE MADE ONLY IF TAXES ARE NOT WITHHELD ON INCOME CHARGEABLE TO TAX IN INDIA. IN THE PRESENT CASE THERE IS NO ACQUISITION OF TECHNICAL KNOWLEDGE WHIC H COULD BE INDEPENDENTLY APPLIED BY THE ASSESSEE. THEREFOR E, THE PAYMENT COULD NOT BE CONSTRUED AS IF FOR TECHNICAL SERVICES. THE ENTIRE SERVICES WERE RENDERED OUTSIDE INDIA. T HERE IS NO PERMANENT ESTABLISHMENT FOR THE NON RESIDENT IN INDIA. IN THESE CIRCUMSTANCES THE COMMISSIONER OF INCOME T AX (APPEALS) HAS RIGHTLY DELETED THE DISALLOWANCE OF RS 18,99,269/-. THIS GROUND OF THE REVENUE IS DISMISS ED. 63. WE FIND THAT THE TRIBUNAL HAD GIVEN THE ABOVE FINDING ON SIMILAR PAYMENT EFFECTED BY THE ASSESSEE FOR ASSESSMENT YEAR 2008-09. SAID DECISION WAS GIVEN B Y THE TRIBUNAL WHEN EXPLANATION TO SECTION 9(2) WAS A LREADY THERE IN THE STATUTE. IT IS, THEREFORE, NOT POSSIB LE FOR US TO COME TO A CONCLUSION THAT THE SAID EXPLANATION WAS NOT CONSIDERED BY THE TRIBUNAL. SIMILARLY, WE CANNOT A LSO SAY THAT THE TRIBUNAL WAS NOT AWARE ABOUT THE EXISTENCE OF ANY DOUBLE TAXATION AGREEMENT BETWEEN INDIA AND DUBAI. WE ARE THEREFORE INCLINED TO FOLLOW THE ORD ER OF THE TRIBUNAL MENTIONED ABOVE. 14 ITA NO.2373/MDS/2014 18. RESPECTFULLY FOLLOWING THE SAID ORDER, WE UPHO LD THE ORDER OF THE COMMISSIONER OF INCOME TAX (APPEALS) O N THIS ISSUE AND REJECT THE GROUNDS RAISED BY THE REVENUE. 19. IN THE RESULT, APPEAL OF THE REVENUE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 23 RD SEPTEMBER, 2015. SD/- SD/- ( . ) ( ( *+ ) ( A.MOHAN ALANKAMONY ) ( CHALLA NAGENDRA PRASAD ) - / ACCOUNTANT MEMBER * - / JUDICIAL MEMBER * /CHENNAI, / /DATED 23 RD SEPTEMBER, 2015 SOMU 12 32 /COPY TO: 1. APPELLANT 2. RESPONDENT 3. 4 () /CIT(A) 4. 4 /CIT 5. 2 7 /DR 6. /GF .