M/s Honeywell Technology Solutions Lab Private Limited , Bangalore V. Joint Commissioner of Income Tax Special Range-3 , Bangalore

ITA 2891/BANG/2018

• Counselvise Citation: [2022] 103 COUNSELVISE.COM (IT) 9491 (ITAT-BANGALORE)
• Duration Of Justice: 4 year(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-10-2022
• Appeal Filed By: Assessee
• Order Result: PartlyAllowed
• Bench Allotted: A
• Next Hearing Date: 18-08-2022
• Assessment Year: 2013-2014
• Appeal Filed On: 21-10-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: DILIP JR. STANDING COUNSEL DEPT
• Keywords: Capital asset; Business income; Depreciation; Double taxation relief; Deemed to accrue or arise in india; Permanent establishment; Question of law; Non-deduction of tax; Revenue expenditure; Capital expenditure; TDS; Set aside
• Section: 40(a)(ia); 201(1); 195; 192; 194J; 13; 22

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL “A’’ BENCH: BANGALORE BEFORE SHRI BEENA PILLAI, JUDICIAL MEMBER AND SHRI LAXMI PRASAD SAHU, ACCOUNTANT MEMBER ITA No.2891/Bang/2018 Assessment Year : 2013-14 M/s Honeywell Technology Solutions Lab Pvt. Ltd., Survey No.96 & 97, Boganahalli Village and Survey No.72/2 & 72/5, Doddakanahalli Village, Varthur Hobli, Bengaluru East Taluk, Bengaluru-560 103. PAN – AAACH 4151 J Vs. The Jt. Commissioner of Income-tax, Spl. Range – 3, Bengaluru. APPELLANT RESPONDENT Appellant by : Smt. Shreya Loyalaka, Advocate Respondent by : Shri Dilip Jr. Standing Counsel for Dept. (DR) Date of Hearing : 19.08.2022 Date of Pronouncement : 31.10.2022 O R D E R PER LAXMI PRASAD SAHU, ACCOUNTANT MEMBER: This appeal filed by the assessee is against the order of CIT(A)-3, Bangalore dated 19.07.2018 for the assessment year 2013-14 with the following grounds of appeal:- “The aforementioned order of the learned CIT(A) with respect to disallowance of deduction claimed under section 80JJAA of the Act, disallowance of software expenditure, disallowance of reimbursement of salary, and disallowance of legal and professional expenditure is based on incorrect interpretation of law and therefore, is bad in law, and hence, liable to be modified. Deduction under section 80JJAA of the Act ITA No.2891/Bang/2018 Page 2 of 30 2. The learned CIT(A) has erred, in law and in facts, in disallowing the claim made by the Appellant section 80JJAA of the Act amounting to Rs 16,95,71,477. 3. The learned CIT(A) has erred, in law and in facts, in concluding that the Appellant does not satisfy the conditions for claiming deduction under section 80JJAA of the Act. 4. The learned CIT(A) has erred, in law and in facts, in concluding that the Appellant is not eligible for claim of 2nd installment for AY 2012-13 and 3 r installment for AY 2011-12 in terms of section 80JJAA of the Act. The same is consequential to earlier years. 5. Notwithstanding and without prejudice to Ground No. 4, the learned CIT(A) has erred, in law and in facts, in concluding that the employees who have not completed 300 days in this particular previous year should not be considered as a regular workman in the subsequent year as well. The learned CIT(A) ought to have appreciated that the benefit of hiring new workmen should be available in subsequent year for claim of deduction under section 80JJAA of the Act on the basis that such workmen are employed for 300 days. 6. Notwithstanding and without prejudice to Ground No. 4 and 5, the learned CIT(A) has erred in not appreciating that employees employed in the relevant assessment year who had not completed 300 days in that year should be considered for computing deduction under section 80JJAA in the subsequent year when he completes 300 days. 7. The learned CIT(A) has erred in facts, by contending that the appointment letters and details regarding number of days of employment by each employee have not been submitted, without appreciating the fact that the same were duly submitted. Reimbursements of salary paid to overseas Group affiliates i. The learned CIT(A) has erred, in law and in facts, on disallowing the reimbursement of salary amounting to Rs 36,87,29,475 under section 40(a)(i) of the Act paid by the Appellant to the overseas Group affiliates on secondment of employees. 9. The learned CIT(A) has erred, in law and facts, by erroneously holding that the payment to overseas group entities, towards reimbursement of salary, amounting to Rs 36,87,29,475 are in the nature of fees for technical services' as defined in section 9(1)(vii) of the Act and the applicable Double Taxation Avoidance Agreement ['Tax Treaty"]. 10. The learned CIT(A) has erred, in law and facts, in not considering that the employees have not made available their service to the Appellant and accordingly the payment is not in the nature of 'fees for technical service' under Article 12 of the applicable tax treaty. 11. The learned CIT(A) has erred, in law and in facts, in not appreciating that Appellant is only engaged in the business of software development and not involved in rendering any technical services outside India. 12. The learned CIT(A) has erred in not appreciating the employer- employee relationship between the Appellant and the seconded employees. The learned CIT(A) ought to have appreciated that for the ITA No.2891/Bang/2018 Page 3 of 30 period of the secondment, the seconded employees become the employees of the Appellant. 13. The learned CIT(A) has erred, in law and in facts, in deeming that the Appellant has deducted taxes under section 192 of the Act for payment of salary to seconded employees on behalf of the overseas group entities. The learned CIT(A) ought to have appreciated that the Appellant had deducted taxes on salary of employees on its own account being the economic employer. 14. The learned CIT(A) has erred, in law and in facts, by erroneously holding that the was under an obligation to deduct tax at source under section 195 of the Act, on the reimbursement to overseas Group affiliates for secondment of employees. The learned CIT(A) ought to have appreciated that mere reimbursement of expenditure is not chargeable to tax under the Act. Disallowance! capitalization of software expenditure 15. The learned CIT(A) has erred, in law and in facts, in disallowing Annual Maintenance Contract ("AMC") expenses and software expenses amounting to Rs. 4,93,42,889 under section 40(a)(i)I 40(a)(ia) of the Act on account of non-deduction of tax at source. 16. The learned CIT(A) has erred, in law and in facts, in not granting the benefit of second proviso to section 40(a)(ia) read with first proviso to section 201(1) of the Act with respect to Rs. 50,10,298 in relation to AMC and software expenses where the vendors have filed their tax returns in India. 17. The learned CIT(A) has erred, in law and in facts, in concluding that software purchases to the extent of Rs. 6,30,24,906 whose shelf life is more than 2 years should be treated as capital in nature. The learned CIT(A) ought to have appreciated that such software are not perpetual in nature, software do not result in any enduring benefit and are not part of any "profit making apparatus" and hence, such software expenses are revenue in nature. 18. The learned CIT(A) has erred, in law and in facts, in mentioning that the software expenses on which taxes have not been withheld needs to be disallowed under section 40(a)(i) of the Act. The learned CIT(A) ought to have appreciated that that the payments made by the Appellant towards purchase of software is not covered within the meaning of 'royalty'! 'royalties' under the applicable Double Taxation Avoidance Agreement ("DTAA") and hence, the Appellant was not under the obligation to withhold taxes. 19. The learned CIT(A) has erred, in law and in facts, in mentioning that AMC expenses on which taxes have not been withheld needs to be disallowed under section 40(a)(i) of the Act. The learned CIT(A) ought to have appreciated that the payments made by the Appellant towards AMC expenses is not taxable under the applicable DTAA and hence, the Appellant was not under the obligation to withhold taxes. 20. The learned CIT(A) has erred in law in mentioning that software expenditure needs to be disallowed as prior period expenditure if the invoice relates to earlier year without appreciating that the expenditure ITA No.2891/Bang/2018 Page 4 of 30 has to be accounted on accrual basis irrespective of the year in which invoice has been raised. Disallowance of legal and professional fee 21. The learned CIT(A) has erred in law and in facts, in upholding the disallowance of Rs. 4,01,042 made by the AD under section 40(a)(i) of the Act on account of non-withholding of taxes under section 195 of the Act. 22. The learned CIT(A) has erred in facts, in contending that no documentary evidences were produced in relation to the services provided by non-resident partnership firms, without appreciating the fact that sample invoices were duly submitted. 23. The learned CIT(A) erred in not appreciating that the payment for legal and professional fee is not taxable in terms of the Act as well as India USA DTAA, and thereby does not warrant any withholding tax under section 195 of the Act. Each of the above grounds is independent and without prejudice to the other grounds of appeal preferred by the Appellant. The Appellant craves leave to add/ alter/ amend/ delete any of the above grounds at or before the hearing of the appeal, so as to enable the Hon'ble Income Tax Appellate Tribunal to decide the appeal according to law.” 2. The brief facts of the case are that the assessee filed return of income 29/11/2013 declaring an income of Rs.4,53,65,82,430/- . The case was selected for scrutiny. During the course of assessment proceedings, the AO observed that the assessee has taken international transactions and accordingly with the prior approval from CIT, the case was referred to TPO. 3. Feeling aggrieved from the order of AO, the assessee filed appeal before the CIT(A) and CIT(A) partly allowed the appeal of the assessee. 4. Aggrieved from the order of the CIT(A), the assessee filed appeal before Income Tax Appellate Tribunal. Deduction under section 80JJAA of the Act 5. The ld.AR submitted that the disallowance of deduction claimed u/s 80JJA which relates ground No.2 to 7, the identical issue has been decided by the coordinate bench of the Tribunal in assesasee’s own case ITA No.2891/Bang/2018 Page 5 of 30 for the assessment year 2011-12 in ITA No.2890/Bang/2018 vide order dated 30/05/2022 and the matter has been remitted back to the AO for examining the issue afresh. Accordingly, she requested that the issue for the impugned assessment year may also be send back to the AO for fresh consideration. 6. On the other hand the ld.DR relied on the order of the lower authorities and submitted that the assessee has not provided details as required by the lower authorities, and the CIT(A) has examined the issue in detail in spite of the assessee could not be able to produce the required details and he submitted that order of CIT(A) should be restored. 7. Considering rival submissions and facts noted by the lower authorities we observe that the similar issue has been decided by the coordinate bench of the Tribunal in assessee’s own case for the assessment year 2011-12 and the matter has been sent back to the AO for fresh consideration. On perusal of the facts for the impugned assessment year the issue before us is similar as for as the previous assessment year. The relevant paras of the order is as under:- “4. The first issue relates to the disallowance of deduction claimed u/s 80JJAA of the Act. The facts are that the assessee claimed a deduction of Rs.26.87 crores u/s 80JJAA of the Act, under which additional deduction of 30% of the additional wages paid to ‘new regular workmen’ employed by the assessee in a previous year is allowed for three assessment years. The AO disallowed the claim holding that:- (a) the business of software development will not fall under the category of industrial undertaking. (b) assessee is not engaged in the business of manufacturing or production of articles or things. (c) the employees, being software engineers, would not fall under the definition of “workmen” as defined u/s 80JJAA of the Act. 4.1 In the appeal filed before Ld CIT(A), the first appellate authority did not agree with the above said views taken by the AO and accordingly set aside them. However, the Ld CIT(A) confirmed the disallowance on various other grounds. 4.2 We notice that the various contentious issues with regard to the deduction allowable u/s 80JJAA of the Act has been resolved by Hon’ble jurisdictional Karnataka High Court in the case of CIT vs. ITA No.2891/Bang/2018 Page 6 of 30 Texas Instruments India P Ltd (ITA No.141/2020 dated 21.4.2021). Both the parties agreed that this issue may be restored to the file of the assessing officer for examining it afresh in the light of decision rendered by Hon’ble jurisdictional High Court, referred above. For the sake of convenience, we extract below the decision rendered by the Hon’ble High Court in the above said case:- “16. Answer to Substantial Question No.1: Whether, on the facts and in the circumstances of the case, the Tribunal is right in law in setting aside the disallowance of Rs.7,57,22,069 made under section 80JJAA of the Act by holding that the employees in software industry are covered by definition of 'Workman' in Explanation 3 (iii) to section 80JJAA of the Act read with section 2(s) of the Industrial Dispute Act and employees who have worked for 300 days in a previous are eligible for the purpose of deduction under section 80JJAA in the succeeding year if he completes 300 days in such succeeding year without appreciating that person working in software industry cannot be said to be 'Workman' for the purpose of section 80JJAA of the Act and conditions prescribed for claiming said deduction are not satisfied by Assessee? 16.1. The Assessee had claimed deduction under Section 80JJ-AA of the Act on account of the payments made to the employees hired by the Assessee in the previous year even though they had not completed 300 days of service in that year since they continued on the rolls of the Assessee in the next year totalling up to more than 300 days as required under section 80JJ-AA of the Act. The issue raised by the Revenue is that the employees of the Assessee would not come within the purview of the definition of workman under Section 2(2) of the Industrial Disputes Act, 1947 (for short 'ID Act') and that since the employee has not completed 300 days of employment in the previous year, no deduction could be claimed by the Assessee. 16.2. As regards the first contention of the Revenue, the same does not require much examination by this Court inasmuch as at the first instance; the Assessing Officer had held that the Assessee's employees would not come within the purview of workman under Section 2(s) of the I.D. Act and disallowed the claim, on an appeal filed by the Assessee, the Commissioner, Income-tax (Appeals) CIT(A) accepted the Assessee's contention and held that the Assessee's employee would come within the purview of Section 2(s) of the ID Act. This aspect was not challenged by the Revenue, although the Revenue had filed an appeal against the order of the CIT(A). Having accepted the said finding of the CIT(A) and not having filed any appeal, the Revenue cannot now seek to challenge the said finding in the present appeal. 16.3. Section 2(s) of the ID Act is reproduced hereunder for easy reference: "workman" means any person (including an apprentice) employed in any industry to do any manual, unskilled, skilled, technical, operational, clerical or supervisory work for hire or ITA No.2891/Bang/2018 Page 7 of 30 reward, whether the terms of employment be express or implied, and for the purposes of any proceeding under this Act in relation to an industrial dispute, includes any such person who has been dismissed, discharged or retrenched in connection with, or as a consequence of, that dispute, or whose dismissal, discharge or retrenchment has led to that dispute, but does not include any such person-. 4 (i) who is subject to the Air Force Act, 1950 (45 of 1950), or the Army Act, 1950 (46 of 1950), or the Navy Act, 1957 (62 of 1957); or (ii) who is employed in the police service or as an officer or other employee of a prison, or (iii) who is employed mainly in a managerial or administrative capacity; or (iv) who, being employed in a supervisory capacity, draws wages exceeding one thousand six hundred rupees per mensem or exercises, either by the nature of the duties attached to the office or by reason of the powers vested in him, functions mainly of a managerial nature. 16.4. In terms of section 2(s) of the ID Act, the definition of a workman is very wide inasmuch as the said definition would cover any person who has the technical knowledge, self skilled in an industry. It cannot be disputed that the Assessee's business is an industry. It also cannot be disputed that the employees of the Assessee are technical persons skilled in software development and, as such, engaged by the Assessee to render services in the industry being run by the Assessee. Thus the software engineer would also come within the purview and ambit of workman under Section 2(s) of the ID Act so long as such a person does not take a supervisory role. The software engineer per se would be a workman; a software engineer rendering supervisory work would not be a workman. In the present case, it is not the case of the Revenue that the persons employed by the Assessee are rendering any supervisory work or assistance. Admittedly, the said persons have been engaged for the purpose of software development, and as such, they are to be regarded as a workman in terms of Section2 (s) of the ID Act. 16.5. The Apex Court has in the case of Devinder Singh's (supra) categorically held that when a person is employed in an industry for hire or reward for doing manual, unskilled, skilled, operational, technical or clerical work, such a person would satisfy the requirement and would fall within the definition of the 'workman'. In the present case, a software engineer is a skilled person, a technical person who is engaged by the employer for hire or reward. Therefore, all the said persons would satisfy the requirement of being a workman in terms of Section 2(s) of the I.D. Act. In our considered view, the concept of the workman has undergone a drastic change and is no longer restricted to a blue collared person but even extends to whitecollared person. A couple of decades ago, an industry would have meant only a factory, but today industry includes software and hardware industry, popularly known as the Information technology industry. Thus the undertaking of the Assessee being an industrial undertaking, the persons employed by the Assessee on this count also ITA No.2891/Bang/2018 Page 8 of 30 would satisfy the requirement of a workman under Section 2(s) of the ID Act. 16.7. Sri. Aravind, learned Senior Panel counsel of the Revenue, has strenuously argued that the period of 300 days in a year I.T.A. NO.141 OF 2020 c/w I.T.A. NO.151 OF 2020 would mean 300 days in the financial year alone, not in the calendar year or otherwise. He has submitted that if the period of 300 days is not satisfied, no such deduction could be allowed. 16.8. Admittedly, the provisions concerned, i.e. Section 80JJ-AA, comes under Chapter-VI-A of the IT Act, which deals with deductions in certain income; this deduction is issued and or permitted as an incentive to the Assessee on fulfilling certain criteria as required under the various provisions under Chapter-VI-A. The incentive of the deduction provided under Section 80JJ-AA is with an intention to encourage the Assessee to employ more and more people, provide employment and, in lieu thereof, permit the employer/assessee to deduct certain amounts from the income when the returns are filed. It is with this object, purport and intent of section 80JJ-AA of the Act that the present facts and circumstances would have to be considered. It is also required for the Assessing Officer, CITA, Income- tax Appellate Tribunal, as also any other officer to always interpret and or apply the provisions of the Act, taking into consideration the intent and purport of the said provision. 16.9. The meaning or interpretation now sought to be given by Sri. Aravind, learned Senior Panel counsel is that only if the employee were employed for a period of 300 days in a particular financial year, only then deductions could be claimed, if not the deductions could not be claimed even though such employee has been employed for 300 continuous days or more. 16.10. We would disagree with the said contention. What is required is for a person to be employed for a period of 300 days continuously. There is no such criteria made out for a person to be employed in any particular year or otherwise. If such a restrictive interpretation is given, then any person employed post 5th June of a particular year would not entitle the Assessee to claim any deduction. Thus in order to claim the benefit under Section 80JJ-AA, an employer would have to hire the workmen before 5th June of that year. As a corollary, since the Assessee would not get any benefit if the workmen were engaged post 5th June, the employer/Assessee may not even employ anyone post 5th June, which would militate against the purpose and intent of Section ITA No. 2890/Bang/2018 M/s Honeywell Technology Solutions Pvt. Ltd. 6 80JJ-AA, which is the encourage creation of new employment opportunities. 16.11. The Income-tax Appellate Tribunal, while considering a similar situation as in Bosch Limited (supra) held that so long as the workman employed for 300 days, even if the said period is split into two blocks, i.e. the assessment year or financial year, the Assessee would be entitled to the benefit of Section 80JJ-AA in the next ITA No.2891/Bang/2018 Page 9 of 30 assessment year and so on so forthwith for a period of three years. The Income-tax Appellate Tribunal, having held to that effect, in our considered opinion, it would not be open for the Revenue to now contend otherwise, more so since the said order has attained finality on account of the Revenue not having filed an appeal. 16.12. It is sought to be contended by Sri. K V Aravind, learned Senior Panel counsel that the fact that such an interpretation could not be given is established by the curative amendment carried out in the year 2018 wherein it is clarified that an assesses whose employee completes 300 days in a second year would also be entitled to a deduction for three years therefrom. Thus he submits that the amendment having been brought into force in the year 2018 the present matter relating to the year 2007-2008, the said curative or clarificatory amendment would not come to the rescue of the Assessee and as such, the finding of the Tribunal in this regard is required to be set aside. 16.13. We are unable to agree with such a submission- the amendment of the year 2018 though claimed curative by Sri. Aravind, we are of the considered opinion that the same is more an explanatory amendment or a clarificatory amendment which clarifies the methodology of applying Section 80JJ-AA of the Act. If the submission of Sri. K.V.Aravind is accepted, then no employer/assessee would be able to fulfil the requirement of employing its labour/assessee prior to 5th June of that assessment year so as to claim the benefit of Section 80JJ-AA. Such a narrow and pedantic approach is impermissible. It also being on account of the fact that Section 80JJ-AA relating to deductions under Chapter is an incentive and, therefore, has to be read liberally. In this aspect, we are also supported by the decision of the Apex Court in Mavilayi Service co- operative Bank Ltd's case (supra), wherein the Apex Court has held that a benevolent provision has to be read liberally and reasonably and if there is an ambiguity in favour of the Assessee. 16.14. The Apex Court in the case Vatika Township (P.) Ltd. (supra) has also held similarly, in that if there is a benefit conferred by legislation, the said benefit being legislative's object, there would be a presumption that such a legislation would operate with retrospective effect by giving a purposive construction. Thus the clarificatory amendment of the year 2018 can also be said to apply retrospectively for the benefit of the Assessee even though the Revenue contends that there was no provision in the year 2007 permitting the Assessee to avail the benefit of deduction when the employee works for a period of 300 days in consecutive years. 16.15. In view thereof, the substantial question No.1 is answered by holding that the software professional/engineer is a workman within the meaning of Section 2(s) of ID Act, so long as such a software professional does not discharge supervisory functions, the benefit of Section 80JJ-AA can be claimed by an employer/assessee even if the employee were not to complete 300 days in a particular assessment ITA No.2891/Bang/2018 Page 10 of 30 year but in the subsequent year so long as there is continuity of employment, the Assessee could continue to claim further benefit in the next two years as provided in under Section 80JJ-AA of the Act. 16.16. Accordingly, we answer Question No.1 by holding that a software engineer in a software industry is a workman within the meaning of Section 2(s) of the Industrial Disputes Act so long as the Software engineer does not discharge any supervisory role. 16.17. The period of 300 days as mentioned under Section 80JJAA of the Act could be taken into consideration both in the previous year and the succeeding year for the purpose of availing benefit under Section 80JJAA. It is not required that the workman works for entire 300 days in the previous year. 16.18. Hence, in the facts and circumstances of the case, the software engineer being workman having satisfied the period of 300 days, the assessee is entitled to claim deduction under Section 80JJAA.” Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of the AO for examining this issue afresh. The assessee is free to raise all contentions and accordingly all contentions on this issue is left open. 8. Considering to the above decisions in the assessee’s own case, the issue for the impugned assessment year is also sent back to the file of AO for denovo assessment as per law. The assessee is free to raise all contentions and accordingly all contentions of this issue are left open. 9. In the result, ground No.2 to 7 are allowed for statistical purposes. Reimbursements of salary paid to overseas Group affiliates 10. The ld.AR has not pressed ground nos. 8 to 14, hence no adjudication is required accordingly these grounds are dismissed as not pressed. 11. Accordingly ground Nos. 8 to 14 are dismissed. Disallowance/capitalization of software expenditure ITA No.2891/Bang/2018 Page 11 of 30 12. During the course of assessment proceedings the Assessing Officer(AO) observed that the assessee company has debited software expenditure of Rs. 49.88/- Crores in his Profit & Loss Account . Th assessee was asked to explain why the same has been treated as revenue expenditure against which the assessee submitted reply vide letter dated 20.12.2016 which was considered by the AO. He noted that the aseessee has not provided any separate block of software and the assessee has given one block of computers which is supposed to include software also. The break –up of software given by the assessee is as under 1. Rs. 27,75,50,408/- for AMC FOR Computer License. 2. Rs. 20,18,64,979/- for purchase of computer software ( including Hardware) 13. The AO noted that the TDS should be made on the entire payments of AMC but assessee did not deduct TDS on payment of Rs. 97,78,902/- as per section 40(a)(i)/40(a)(ia). Further he noted that on payment for software purchase the assessee has not deducted TDS as per section 195 of the I. T. Act. on Rs. 3,45,53,689/- which were paid to various non-resident vendors because of it was a in the nature of payment for Royalty, therefore he disallowed as per section 40(a)(i) of the I. T. Act.. Similarly, an amount of Rs. 50,10,298/- were made to resident vendors for purchase of software on which no TDS was made, therefore, it was also disallowed as per section 40(a)(ia) 14. On appeal the CIT(A) after discussing in detail on many judgments did not accept the plea of the assessee and in case of ITA No.2891/Bang/2018 Page 12 of 30 AMC expenses he observed that the first proviso of section 201(1) is not automatic , the onus is on the assessee to furnish a certificate in prescribed form to this effect from an accountant for necessary compliance but assessee did not do so, accordingly he dismissed the appeal of the assessee. 15. During the course of hearing before us, the AR of assessee submitted that the issue is squarely covered in favour of the assessee in his own case for the assessment year 2011-12 in ITA No. 289/Bang/2018 order dated 30.05.2022. He has also filed written synopsis in which he has also relied on the following three judgments, the relevant portion is as under:-. “Ground No 15, 16,18 and 19 relates to disallowance under section 40(a) in relation to software expenses The Assessee had claimed software and AMC expenditure which were disallowed by the AO partly under sec 40(a) and partly treating as capital expenditure. However, post the order of the Ld Commissioner of Income Tax (Appeals) ('CIT(A)"), the AO passed the order giving effect dated 27 December 2019 and the final disallowance u/s 40(a) is as follows: - AMC u/s 40(a)(i)140(a)(ia) - INR 97,78,902 - Software u/s 40(a)(i) (purchase from non residents vendors) - INR 3,45,53,689 - Software u/s 40(a)(ia) (purchase from resident vendors) - INR 50,10,298 amount totalling to INR 4,93,42,889. It may also be noted that Apex Court in the case of Engineering Analysis Centre of Excellence Private Limited v. CIT [2021] 125 taxmann.com 42 (SC) vide order dated 2 March 2021 dealt with the issue of whether payments made by end users or distributors (resident as well as non- resident) of software and payments made in respect of software embedded in the hardware, qualify as "royalty" under the Act, as well as various Double Taxation Avoidance Agreements ('DTAA'). The Hon'ble Apex Court noted that where the end-users were granted only a limited right to use the software without any right to sub-license, transfer, reverse engineer, modify or reproduce the software and therefore, held that since the payers only get a right to use computer software and not any of the rights conferred on the owner of a copyright under the Indian Copyright ITA No.2891/Bang/2018 Page 13 of 30 Act, 1957, the payments made towards grant of license for use of software is not taxable as royalty" under the provisions of the tax treaties. In view of the same, the payments made by the assessee are not liable for deduction of tax at source. Given the above, we wish to submit that the Appellant has not been granted any rights to sub license/ modify/ reproduce the software nor to reverse translate the same. The Appellant has only been granted limited rights to use such standard software/ off the shelf software/ shrink wrapped software/ software license and no copyright in the same has been granted. Such software purchases which are debited to P&L A/ c are in the nature of shrink wrapped/ off the-shelf application software capable of being procured on tangible media or electronically downloaded by the customer end-user directly. In other words, the above software products are standardized products and have not been specifically customized for the Appellant's use. In this regard, we wish to place reliance on the following decisions of Hon'ble ITAT Bangalore, pronounced post the decision of Apex court in the case of Engineering Analysis Centre of Excellence Private Limited (supra): Altisource Business Solutions (P.) Ltd (127 taxmann.com 800) Copy enclosed as Item 2 of Legal paperbook - In the present case, it was held that "amounts paid by the assessee to the nonresident computer software manufacturers/suppliers as consideration for the resale/use of computer software, is not payment of royalty for use of copyright in the computer software. Hence, the consideration paid to non-resident software manufactures/suppliers does not give rise to income taxable in India and was not liable for deduction of tax at source u/s 195 of the I. T. Act. It is ordered accordingly." QlikTech International AB (TS-537-ITAT-2021) Copy enclosed as Item 3 of Legal paperbook - In the present case, it was held that "consideration received by the assessee for sale of software cannot be treated as royalty under the provision of section 9(1)(vi) of the Act as well as Article 12 of the India-Sweden DTAA and that the sale of software products by the assessee to its Indian distributors for further sale to end users is not in the nature of transfer of "copyright" and therefore not taxable in the hands of the assessee as "royalty" under the provision of section 9 (1)(vi) of the Act as well as Article 12 of the India-Sweden DTAA" IBM Singapore Pte Ltd (3229/Bang/2018) Copy enclosed as Item 4 of Legal paperbook - In the present case, it was held that "Accordingly, as per the decision rendered by Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. (supra), sale proceeds received by the assessee on sale of software licenses cannot be categorized as "Royalty" within the meaning of provisions of DTAA. Accordingly, we ITA No.2891/Bang/2018 Page 14 of 30 set aside the order passed by Ld. CIT(A) on this issue and direct the A. 0. to delete the addition made as "royalty" income." Without prejudice to the above, we refer to our submissions dated 12 September 2017 filed before the Commissioner of Income-tax (Appeals) with regard to the claim of depreciation in case the expenditure is considered as capital in nature. Without prejudice to the above, we wish to mention that the Appellant has filed a declaration under the Vivad se Vishwas Scheme in relation to 201(1) proceedings initiated by DCII (International Taxation) including the issue in relation to deduction of tax on software expenses, and accordingly software expenses to non-resident amounting to INR 22,96,475 would stand deleted. Thus, as per FAQ No. 31 of CBDT Circular No. 9 of 2020 dated 22 April 2020, the said disallowance under sec 40(a) shall stand deleted. The copy of Form 5 issued by the Designated Authority has been enclosed as Annexure 2.” 16. The ld. DR relied on the order of the lower authorities and submitted that the issue is not covered by any of the judgments . During the course of hearing the assessee has not provided details before the authorities below which was the responsibility of the assessee . He also submitted that the finance Act 2012 an explanation 4 has been inserted in section 9(1)(vi) w.r.e.f. 01.04.1976.. which reads as under:- [Explanation 4.—For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred. 17. As per the above explanation, use of computer software is to be treated as royalty, accordingly the TDS provision is clearly applicable but the assessee has failed to do so. 18. After hearing both the sides and going by the decisions cited by both the parties we observe that the assessee did not produce ITA No.2891/Bang/2018 Page 15 of 30 the necessary certificates/documents in support of his case for disallowance as per section 40(a)(i)/40(a)(ia), we also observe that AR of the assessee ha referred three case laws cited supra in which the DTA provisions has also been considered. Considering the totality of the facts and circumstances of the case and Explanation IV inserted by the Finance Act 2012 which is retrospective effect from 01/04/1976 therefore, we think it fit to sending back to the file of AO for denovo consideration in the light of the above amendments and case law cited by the assessee. The assessee is directed to produce necessary documents in support of the case and the AO is directed to decide the issue as per law. The ground no. 15,16,18 and 19 are allowed for statistical purpose. 19. In respect of round No. 17 the ld. AR relied on the decision for the assessment year 2011-12 in his own in ITA No. 2890/Bang/2018 and submitted that the issue may be remitted back to AO for reconsideration. 20. The Ld. DR. relied on the order of the lower authorities and submitted that the software license purchased by the assessee which useful life is more than two years should be treated as capital expenditure, the CIT (A) has rightly dealt this issue. Before the AO the assessee has made an argument that depreciation on the rate of 60% may be provided on the software expenses. In the remand proceedings the assessee did not produce necessary documents . Alternatively, he also submitted that the if it considered as revenue expenditure then the period for expenditure of the impugned year is to be treated as revenue ITA No.2891/Bang/2018 Page 16 of 30 expenditure. On observation of the paper book page no, 101 to 127 the assessee has incurred expenditure on many occasions for previous years or for coming years, the relevant year’s expenditure should be considered. 21. After considering the rival submission we observed that the CIT (A) has directed to capitalize to the software purchase to the extent of Rs. 6,30,24,906/- whose life is more than two years out of the total expenditure of Rs. 16,23,00,992/- and directed to AO for grant of depreciation depending upon the period of uses in impugned year of these softwares. The assessee also admitted that the life of these softwares are more than two years. We also noticed in many cases from the details submitted before the authorities below, that the period for expenditure is related for previous assessment years as well as subsequent assessment years. A similar issue has been decided by the Tribunal in assesse’s own case in ITA NO. 2890/Bang/2018 order dated 30.05.2022 at para No. 5.6. which are as under:- 5.6 With regard to the capitalisation of software expenses, we notice that the Hon’ble Karnataka High Court has rendered following two decisions:- (a) CIT vs. Toyota Kirloskar Motors (P) Ltd (ITA No.176 of 2009), wherein the Hon’ble High Court had held that the software licence fee paid for use of software for a limited duration upto two years is allowable as revenue expenditure. (b) CIT vs. IBM India Ltd (357 ITR 88), wherein the Hon’ble Karnataka High Court has held that the purchase of application software is revenue expenditure. The relevant observations are extracted below:- “9. The second substantial question of law relates to application of the amount utilized for projects of Software in a sum of Rs.33,14,298/-. ITA No.2891/Bang/2018 Page 17 of 30 The Tribunal on consideration of the material on record and the rival contentions held, when the expenditure is made not only once and for all but also with a view to bringing into existence an asset or an advantage for the enduring benefit, the same can be properly classified as capital expenditure. At the same time, even though the expenses are once and for all and may give an advantage for enduring benefit but is not with a view to bringing into existence any asset, the same cannot be always classified as capital expenditure. The test to be applied is, is it a part of company's working expenses or is it expenditure laid out as a part of process of profit earning. Is it on the capital layout or is it an expenditure necessary for acquisition of property or of rights of a permanent character, possession of which is condition on carrying on trade at all. The assessee in the course of its business acquired certain application software. The amount is paid for application of software and not system software. The application software enables the assessee to carry out his business operation efficiently and smoothly. However, such software itself does not work on stand alone basis. The same has to be fitted to a computer system to work. Such software enhances the efficiency of the operation. It is an aid in manufacturing process rather than the tool itself. Thus, for payment of such application software, though there is an enduring benefit, it does not result into acquisition of any capital asset. The same merely enhances the productivity or efficiency and hence to be treated as revenue expenditure. Infact, this Court had an occasion to consider whether the software expenses is allowable as revenue expenses or not and held, when the life of a computer or software is ITA No. 2890/Bang/2018 M/s Honeywell Technolgoy Solutions Pvt. Ltd. 12 less than two years and as such, the right to use it for a limited period, the fee paid for acquisition of the said right is allowable as revenue expenditure and these softwares if they are licensed for a particular period, for utilizing the same for the subsequent years fresh licence fee is to be paid. Therefore, when the software is fitted to a computer system to work, it enhances the efficiency of the operation. It is an aid in manufacturing process rather than the tool itself. Though certain application is an enduring benefit, it does not result into acquisition of any capital asset. It merely enhances the productivity or efficiency and therefore, it has to be treated as revenue expenditure. In that view of the matter, the finding recorded by the Tribunal is in accordance with law and do not call for any interference. Accordingly, the second substantial question of law is answered in favour of the assessee and against the Revenue.” Accordingly, we are of the view that this issue also requires fresh examination at the end of the AO. Accordingly, we set aside the order passed by Ld CIT(A) on this issue and restore the same to the file of AO with the direction to examine this issue, follow the above cited binding decisions of the jurisdictional High Court and take appropriate decision. The assessee is also directed to furnish all the relevant information to the assessing officer. ITA No.2891/Bang/2018 Page 18 of 30 22. Respectfully following the above judgment in assessee’s own case we are remitting back this issue also to the file of the AO in the terms mentioned above. Accordingly ground No. 17 is allowed for statistical purpose. 23. As per written synopsis the ground no. 20 is not pressed by the assessee, accordingly this ground is dismissed as not press. Disallowance of legal and professional fee 24. During the year under consideration the assessee had paid a sum of Rs. 17,62,69,512/- towards legal & professional charges to various firms within India & out side of India , out of which Rs. 4,01,042/- was paid to Schiff Hardian LLP on which no TDS was made by the assessee because the services were rendered and paid outside India therefore Article 15 of Indo-US treaty no TDS is required as per section 195 of the I.T. Act. 1961.Before the AO the assessee could not furnish any agreement or any type of proof to substantiate that the payment were made to the firms of individuals as per the requirement of Article 15 of Indo US Treaty accordingly the AO disallowed and added into the total income of the aseessee. The matter was carried before the CIT (A) , the CIT (A) after considering in detail he uphold that the payment made is for Fee for Technical services within the ambit of section 9(1)(vii) and the TDS provision is applicable on the payments made by the assessee and he dismissed the appeal of the assessee. 25. Aggrieved from the order of the CIT(A) the assessee filed appeal before the Income Tax Appellate Tribunal and submitted that the similar issue has been decided by the Hon’ble co-ordinate bench of Tribunal in assessee’s own case for the AY 2011-12 in ITA No. 2890/Bang/2018 at para No. 7 to 7.13 in assessee’s favour and requested that the same may be followed. ITA No.2891/Bang/2018 Page 19 of 30 On the other hand the ld. DR. relied on the order of the lower authorities and submitted that the details viz. agreement, status of the recipient etc. were not filed by the assessee before the lower authorities for determination of the nature of services rendered. 26. After going through issue involved we noted that the similar issue has been decided by the co-ordinate bench of Tribunal in assessee’s own case as for the AY 2011-12 cited supra by the ld. AR of the assessee. The relevant para are as under:- 7. The next issue relates to the disallowance of Legal and Professional fees u/s 40(a)(i) of the Act. The AO noticed that the assessee has paid legal and professional fees to the tune of Rs.4,73,18,208/- to certain foreign legal firms as detailed below:- 1. Deloitee Tax LLP - 3,35,77,224 2. Fragomen, Del Rey, Bernsen & Loewy 36,910 3. Schiff Hardin LLP 61,67,154 4. Schwegaman Lundberg Woessner Kluth 75,36,920 ---------------- 4,73,18,208 ========== The AO noticed that the assessee has not deducted tax at source from the above said payments. The assessee submitted that the above said payments were made to foreign legal firms, which are firm of individuals in connection with services rendered by them in USA in connection with preparation of tax return, tax reconciliation calculation, application for tax identification numbers, submission of documents etc. It was submitted that the services were provided outside India and they have been consumed outside India. Hence the services rendered by them do not have any nexus in India. Accordingly, it was submitted that the payments are not taxable in the hands of recipients in terms of Article 15 of the IndiaUSA DTAA. Accordingly it was submitted that the assessee is not liable to deduct tax at source from these payments. The AO did not accept the explanations given by the assessee. He also observed that the assessee company could not furnish any agreement or any type of proof in support of its claim. He also took the view that the assessee is taking contradictory stands, i.e., initially, the assessee claimed that the payments were given for providing independent personal services and later it changed its stand and submitted that the services were rendered outside India. 7.1 Before Ld CIT(A), the assessee reiterated that the services were provided outside India and the said services were consumed outside ITA No.2891/Bang/2018 Page 20 of 30 India. It was also contended that the said services cannot be considered as “Fee for Technical Services” or “Fee for included Services”. It also relied upon Article 15 of India – USA DTAA and contended that the services provided by individual or firm of individuals would not attract TDS. 7.2 However, the Ld CIT(A) took the view that the assessee had not disputed that the nature of payments was FTS/FIS and it is making contrary contention only before him on the ground ‘make available’ test fails in availing these services. With regard to the submission of the assessee that the services were availed to help its employees working in abroad on projects/assignments in connection with tax compliances in USA, the Ld CIT(A) took the view that it is an afterthought. He also expressed the view that the assessee has not provided exact nature of services provided by each of the service providers. The assessee had submitted a proof in respect of only one concern M/s Deloitte Tax LLP to show that it is a firm of individuals and did not furnish any document in respect of other three concerns. The certificate furnished was rejected by Ld CIT(A) holding that the self-certificate cannot be accepted. Accordingly, the Ld CIT(A) rejected these contentions. 7.3 The assessee also contended the income has not accrued in India in the hands of these recipients. Further, these non-resident concerns do not have permanent establishment (PE) in India as such provisions of Section 9 of the Act were not attracted. However, the Ld CIT(A) held that the fees for technical services payable to a resident in India would be income deemed to arise in India except where FTS is payable in respect of any right, property or information used or services is utilised for the purpose of a business or profession carried on by such person outside India or making or earning any income from any source outside India. He also referred to the Explanation given under sec. 9(2) and observed that the said Explanation was inserted to undo the ratios laid down by the Hon’ble Supreme court in the case of Ishikawajima Harima Heavy Industries Ltd (288 ITR 408) and Jindal Thermal Power Company Ltd (321 ITR 31)(Kar). Accordingly, the Ld CIT(A) held that (a) the non-residents have provided technical services to the assessee company and therefore, the payments are “fee for technical services” liable for deduction of tax at source. (b) With regard to Article 15 of India-USA DTAA, the Ld CIT(A) held that the assessee has not brought anything on record to show that the payments were made to individual or firm of individuals except for one document related to M/s Deloitte. However, it was self- certified document and hence cannot be considered as sufficient. (c) the Article 15 covers payments for performance of services in “Other contracting state” (here India). However, in the instant case, the assessee himself has admitted that the services were performed in USA. Hence Article 15 is not applicable here. ITA No.2891/Bang/2018 Page 21 of 30 Accordingly, the Ld CIT(A) confirmed the disallowance made by the AO. 7.4 We heard rival contentions on this issue and perused the record. The facts relating to this issue, as submitted by the assessee, are that the employees of the assessee have been sent to USA for undertaking projects online. The assessee is required to comply with the requirements of tax laws of USA in respect of these employees. Hence it has availed the services of the above said professional firms for complying with those requirements and the payments were made to the above said professional firms towards legal and professional fees. As submitted by the assessee before the tax authorities, the assessee has availed these services outside India and further these services have been used outside India. The assessee did not deduct tax at source from these payments. The assessee has raised many contentions with regard to its liability to deduct tax at source from these payments. 7.5 The assessee has contended that, as per Article 15 of India -USA DTAA, these are independent personal services and hence not taxable in India. Since it is not taxable in India in the hands of recipients, there is no liability to deduct tax at source u/s 195 of the Act. Article 15 of DTAA read as under:- INDEPENDENT PERSONAL SERVICES “1. Income derived by a person who is individual or firm of individuals (other than a company) who is resident of a Contracting State from the performance in other Contracting Stateof professional services or other independent activities of a similar character shall be taxable only in the first mentioned State except in the following circumstances......... ” We noticed that the Ld CIT(A) has expressed the view that the Article 15 shall be applicable only if the services are rendered in other contracting State by the professional, i.e., a professional resident of USA should have performed in other Contracting State, i.e., the professionals of USA should have performed services in India. However, in the instant case, the professionals of USA have performed services in USA only. Accordingly, the Ld CIT(A) has held that Article 15 is not applicable to the facts of the present case. 7.6 The Ld CIT(A) has, however, taken the view that the services rendered by these professionals fall under the category of “Fee for Technical services” u/s 9(1)(vii) of the Act. In view of Explanation given u/s 9(2), the Ld CIT(A) took the view that the payment is taxable in the hands of the recipients, even if they do not have residence of place of business in India. 7.7 We heard the parties on this issue and perused the record. Since the Ld CIT(A) has held that the impugned payment would be hit by sec. 9(1)(vii) of the Act, it is required to be examined as to whether the impugned payments would fall under the category of “Fee for technical services” in terms of sec. 9(1)(vii) of the Act or not. Section 9 of the Act lists out income which are “deemed to accrue or rise in India”. Section 9(1)(vii) of the Act reads as under:- ITA No.2891/Bang/2018 Page 22 of 30 “9(1)(vii) income by way of fees for technical services payable by— (a) the Government ; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government. Explanation 1.—For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date. Explanation 2.—For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries". (2) Notwithstanding anything contained in sub-section (1), any pension payable outside India to a person residing permanently outside India shall not be deemed to accrue or arise in India, if the pension is payable to a person referred to in article 314 of the Constitution or to a person who, having been appointed before the 15th day of August, 1947, to be a Judge of the Federal Court or of a High Court within the meaning of the Government of India Act, 1935, continues to serve on or after the commencement of the Constitution as a Judge in India. Explanation.—For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the nonresident, whether or not,— (i) the non-resident has a residence or place of business or business connection in India; or (ii) the non-resident has rendered services in India.” The Ld CIT(A) has expressed the following view:- “10.5 A perusal of the above provisions shows that where fees for technical services (FTS) is payable by a person who is resident of India, it would be a deemed income arising in India, within the ITA No.2891/Bang/2018 Page 23 of 30 meaning of section 9(1), irrespective of whether the recipient of such income is a resident or non-resident of India except where FTS is payable in respect of any right, property or information used or services utilized for the purpose of a business or profession carried on by such person outside India or making or earning any income from any source outside India....” 10.6 In the case under consideration the non-residents have provided technical services to the appellant company. Therefore, the payment made towards these technical services is undisputedly fee for technical services as stipulated in Section 9(1)(vii) of the Income tax Act, liable for deduction of tax at source.” 7.8 The contention of the Ld A.R is that the assessee has availed only “legal and professional services” from some professional firms and it will not fall under the category of “Fee for technical services” defined in sec. 9(1)(vii) of the Act, since the professional service will not fall under the category of “managerial or technical or consultancy service” mentioned in the definition of the expression “Fee for Technical services” given in Explanation 2 to sec. 9(1)(vii). In this regard, the Ld A.R placed her reliance on the decision rendered by Delhi bench of Tribunal in the case of Sh. Chander Mohal Lall vs. ACIT (ITA No.1869/Del/2019 dated 09-12- 2021). 7.9 We heard Ld D.R on this issue and perused the record. The Delhi bench of Tribunal in the case of Sh. Chander Mohan Lall (supra) has that the professional fee paid to non-resident attorneys for rendering various professional services in their respective foreign jurisdiction will not fall under the category of “Fee for technical services”. The relevant discussions made by the Delhi bench are extracted below:- “11. The learned counsel for the assessee submitted, out of the total disallowance of Rs.65,94,145/-, the payment made towards reimbursement of amount recovered on behalf of the client in litigation, payment of official fee, payment for publication and trade fair services has to be deleted at the threshold itself as such payments do not attract the provisions of section 195 of the Act. Proceeding further, he submitted, the payments are not in the nature of Fees for Technical Services (FTS), hence, cannot be considered to be income chargeable to tax in India. Drawing our attention to section 9(1)(vii) of the Act, he submitted, the provision is applicable only to the payment made towards FTS. He submitted, payment made by the assessee to foreign attorneys/lawyers are not in the nature of FTS but are fees for professional services. He submitted, technical service is distinct from professional service. To emphasize further, he submitted, as per Explanation 2 to section 9(1)(vii) of the Act, FTS has been defined to mean consideration paid for rendering of any managerial, technical or consultancy services. He submitted, section 44AA of the Act, clearly distinguishes profession from business and as per the said provision, legal and technical consultancy are distinct from each other. Further, drawing our attention to section 194J of the Act, he submitted, professional and technical services have been treated as ITA No.2891/Bang/2018 Page 24 of 30 two separate categories. In this context, he drew our attention to clauses (a) and (b) of Explanation to section 194J of the Act. He submitted, even section 194J has prescribed two different rates for TDS for professional services and technical services. Thus, he submitted, the payment made by the assessee not being in the nature of FTS, there is no liability to deduct tax at source. 12. Without prejudice, he submitted, even assuming that the payment made to foreign attorneys are in the nature of FTS, then also such payment are not chargeable to tax under clause (b) of section 9(1)(vii) of the Act, as, the payments were made to foreign attorneys for utilizing their services outside India and for the purpose of earning income from a source outside India. Therefore, such income cannot be deemed to accrue or arise in India. 13. Without prejudice, he submitted, in terms of DTAAs entered with certain countries, payments received by the nonresidents are in the nature of business income, hence, not liable to tax in India under the respective DTAAs in absence of a fixed place of business or PE in India. Thus, he submitted, there being no obligation on the assessee to deduct tax at source under section 195 of the Act, no disallowance under section 40(a)(i) can be made. Further, he submitted, only because the assessee was unable to furnish the TRC in respect of some of the payees, the Assessing Officer has disallowed part of expenditure. He submitted, non-furnishing of TRCs cannot be the sole reason for disallowing assessee’s claim when the genuineness of the expenditure is not doubted. He submitted, since, the assessee has no control over issuance of TRC by foreign jurisdiction, the disallowance should not have been made, when all other evidences including Outward Telegraphic Transfer Application Form, invoices, etc. were furnished. He submitted, at no stage, the departmental authorities have examined the applicability of respective DTAAs qua the payments made. He submitted, since the beneficial provisions of DTAA would override the domestic laws in terms of section 90(2) of the Act, there is no obligation on the assessee to deduct tax at source on the payments made. In support, learned counsel relied upon the following decisions:- i. CIT vs. Dunlop Rubber Co. Ltd.: (1983) 142 ITR 493 (Cal) ii. ...................... ................... 14. Strongly relying upon the observations of the Assessing Officer and learned Commissioner (Appeals), the learned Departmental Representative submitted, undisputedly, the payer is located in India and carries on his ITA No. 2890/Bang/2018 M/s Honeywell Technolgoy Solutions Pvt. Ltd. 22 profession in India. He submitted, while carrying out his profession, the assessee has utilized the services of foreign attorneys to whom, payments have been made. Therefore, the payment made to the non-residents is income deemed to accrue and arise in India. He submitted, in many cases, the non- residents, to whom payments have been made, are residents of countries which do not have DTAA with India. Therefore, in absence of any DTAA, the income is chargeable to tax in India, as per the Act. He ITA No.2891/Bang/2018 Page 25 of 30 submitted, even in respect of payees situated in countries with whom India has entered into DTAA, the assessee failed to furnish TRCs. Therefore, the disallowance made is justified. 15. We have considered rival submissions in the light of the decisions relied upon and perused the material available on record. Facts on record reveal that out of the total payments of Rs.1,89,44,688/- to certain non-resident persons/entities towards legal/professional fees, the Assessing Officer has allowed an amount of Rs.1,23,50,544/-. In other words, he has disallowed Rs.65,94,144/- under section 40(a)(i) of the Act for failure to deduct tax at source under section 195 of the Act. Further, it is evident, the aforesaid disallowance was made solely for the reason that assessee failed to furnish TRCs of the nonresidents to whom such payments were made. In the synopsis filed before us, learned counsel for the assessee has furnished the details of payments made, as under:- ..................... 17. In so far as the balance amount of Rs.48,52,693/- is concerned, undisputedly, they represent professional fee paid to non- resident attorneys for various professional services rendered by them in the respective foreign jurisdictions. Therefore, the foremost crucial issue requiring examination is, whether the payment made to the non- residents is “chargeable under the provisions of the Act” so as to attract the provisions of section 195 of the Act. On a reading of section 5 of the Act, which defines the scope of total income, it would be very much clear that the following categories of income shall be included in the total income:- (i) income received in India; (ii) income deemed to be received in India; (iii) income which accrues or arises in India; or (iv) income which is deemed to accrue or arise in India. 18. In the facts of the present appeal, undisputedly, the non-resident attorneys have rendered their professional services outside India in relation to following: (i) Filing of application for grant/registration of IPR; (ii) Filing of Form/responses/petitions in relation to activity leading to or in the process of grant/registration; (iii) Maintenance of such grant/registration or services in relation thereto, as required under law, such as, towards annuity payment, renewal fee, restoration of patent, etc. (iv) Undertaking compliances for effecting charge in the ownership/address etc. of such intellectual property. Thus, the nature of services rendered by the non-resident attorneys in their countries of residence make it clear that the payments received by them cannot be treated as income received in India, or deemed to be received in India, or income which accrues or arises in India. Therefore, the only category, if at all, under which the payments can be chargeable to tax is, income deemed to accrue or arise in India. For this purpose, we have to look at the provisions contained under ITA No.2891/Bang/2018 Page 26 of 30 section 9 of the Act. A reading of section 9, as a whole, including, the Explanation under sub-section (2) to section 9 would make it clear that income by way of interest, royalty and FTS shall be deemed to accrue or arise in India, irrespective of the fact, whether the non- resident has a residence or place of business or business connection in India or it has rendered services in India. 19. Factually, the payments made to non-resident attorneys are neither in the nature of interest, nor in the nature of royalty. This is not even the case of the Revenue as well. Therefore, it has to be seen, whether the payment made comes within the ambit of FTS. Explanation 2 to Section 9(1)(vii) defines FTS to mean any consideration received for any managerial, technical or consultancy services, including provision of services by technical or other personnel. In the facts of the present case, undisputedly, the payments to non-resident attorneys are purely for providing legal/professional services. On careful examination of various provisions of the Act brought to our notice by learned counsel for the assessee, we are convinced that the domestic law provisions recognize legal/professional services and FTS as two distinct and separate categories. 20. Therefore, payments made to non-resident attorneys cannot be regarded as FTS under section 9(1)(vii) of the Act. Further, a conjoint reading of section 40(a)(i) and 40(a)(ia) brings out a clear distinction between FTS and fees for professional services. Though, section 40(a)(ia) encompasses, both, FTS and fees for professional services, however, section 40(a)(i) is applicable only in case of failure to deduct tax on payments made for FTS. As rightly submitted by learned counsel for the assessee, this could be for the reason that payment of legal/professional fee to a non-resident does not accrue or arise in India or is not deemed to accrue or arise in India as per section 5 and section 9 of the Act. It is relevant to observe, in the case of NQA Quality Systems Registrar Ltd. Vs. DCIT (supra), the coordinate Bench has held that professional services are a category distinct from technical services. Similar view has been expressed in the following decisions as well: (i) ONGC Vs. DCIT (supra) (ii) Deloitte Haskins & Sells Vs. ACIT (supra) No contrary decision has been brought to our notice by learned Departmental Representative. In view of the aforesaid, we hold that the payments made to non-resident attorneys being not in the nature of FTS, there was no obligation on the assessee to deduct tax at source. 21. At this stage, we must observe, learned Departmental Representative has submitted before us that the payments made by the assessee being in the nature of FTS are taxable by applying the source rule. In our view, even assuming that payments made by the assessee come within the ambit of section 9(1)(vii) of the Act, nonetheless, the exception provided under clause (b) to Section 9(1)(vii) would apply. We have already examined the nature of ITA No.2891/Bang/2018 Page 27 of 30 services provided by the foreign attorneys. It is a fact that Indian/overseas clients engage the assessee for availing certain services. In turn, assessee engages the foreign attorneys to perform certain services which are required to be performed in foreign jurisdictions. There is no privity of contract between the assessee’s clients and foreign attorneys. In fact, the clients are no way concerned, whether the assessee does the work himself or engages others. Thus, the source of income of the assessee through services rendered by non- resident attorneys in foreign jurisdictions is located outside India. That being the case, exception provided in clause (b) of section 9(1)(vii) would apply. Hence, the payments are not taxable as FTS. 22. In any case of the matter, the departmental authorities have disallowed a part of the expenditure for the only reason that assessee failed to furnish the TRC of the payees. The departmental authorities have not at all examined the taxability of payments under the applicable DTAAs. 23. Be that as it may, on overall analysis of facts and applicable statutory provisions as well as keeping in view the ratio laid down in the decisions cited before us, we hold that the payments made to foreign attorneys are not chargeable to tax under the provisions of the Act, in terms of section 195 of the Act. Therefore, the assessee was not required to withhold tax on the payments made. Accordingly, we delete the disallowance made under section 40(a)(i) of the Act. 24. In the result, the appeal of the assessee is allowed, as indicated above. 7.10 In the instant case, the assessee has availed legal and professional services in USA. In the above said case, it has been held that the “professional services would not fall under the category of “Fee for technical services” within the meaning of sec. 9(1)(vii) of the Act. Following the same, we hold that the view taken by Ld CIT(A) cannot be sustained. 7.11 We noticed earlier that the services were rendered in USA by these non-residents and the payments have been received by them outside India. Further, their services have been used outside India. Hence these payments does not constitute income under the Indian Income tax Act, 1961 u/s 5 of the Act and we have held that it is not deemed to accrue in India u/s 9(1)(vii) of the Act. Hence this income is not taxable in India in the hands of non-residents and hence the question of deducting tax at source u/s 195 of the Act does not arise here. Accordingly, the disallowance made u/s 40(a)(i) is liable to be deleted. Under Sec. 90(2) of the Act, the provisions of the Income tax Act are required to be applied only if they are more beneficial to the assessee. We noticed that under the Income tax Act, this receipt is not taxable in India in the hands of non-residents. Hence, the provisions of Income tax Act are more beneficial to the non-residents. In this view of the matter, there is no necessity to refer to the provisions of India-USA DTAA. In any case, we notice that, in order to bring the impugned payments within the Article 12 of India- USA DTAA, the services should ITA No.2891/Bang/2018 Page 28 of 30 have been “made available” technical knowledge etc to the assessee herein. In the instant case, the assessee has only availed professional services of non-residents in connection with tax compliances and the technical knowledge has not been “made available”. Since the make available clause fails, the impugned payments cannot be taxed as Fee for Included services under Article 12 of the India-USA DTAA. In this view of the matter, there is no necessity to refer to Article 15 also. 7.13 Accordingly, we set aside the order passed by Ld CIT(A) on this issue and direct the AO to delete the disallowance of legal and professional fees made u/s 40(a)(i) of the Act. 8. The assessee has raised an additional ground, wherein it has claimed” 27. Considering the rival submissions the issue involved is similar to the issue decided by the coordinate bench of the Tribunal in assessee’s own case for previous assessment year i.e 2011-12 Therefore respectfully following the above decisions cited supra we also set aside the order of CIT(A) and direct the AO to delete the disallowance of legal and professional charges. 28. Accordingly, the ground Nos.21 to 23 are allowed. 29. In the combined result, the appeal of the assessee is partly allowed for statistical purposes. Order pronounced in the open court on 31 st October, 2022. Sd/- (Beena Pillai) Judicial Member Sd/- (Laxmi Prasad Sahu) Accountant Member Bangalore, Dated 31st October, 2022. Vms ITA No.2891/Bang/2018 Page 29 of 30 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. ITA No.2891/Bang/2018 Page 30 of 30 1. Date of Dictation ........................................................................................................ 2. Date on which the typed draft is placed before the dictating Member ...................................................... 3. Date on which the approved draft comes to Sr. P. S ............................................... 4. Date on which the fair order is placed before the dictating Member ...................................................... 5. Date on which the fair order comes back to the Sr. P.S. ....................... 6. Date of uploading the order on website................................... 7. If not uploaded, furnish the reason for doing so ........................... 8. Date on which the file goes to the Bench Clerk ....................... 9. Date on which order goes for Xerox & endorsement.......................................... 10. Date on which the file goes to the Head Clerk ......................... 11. The date on which the file goes to the Assistant Registrar for signature on the order ..................................... 12. The date on which the file goes to dispatch section for dispatch of the Tribunal Order ............................... 13. Date of Despatch of Order. ..................................................... 14. Dictation note enclosed..........................................