Cochin International Airport Ltd, Cochin V. The ITO, Cochin

ITA 312/COCH/2014

• Counselvise Citation: [2016] 140 COUNSELVISE.COM (IT) 101321 (ITAT-COCHIN)
• Duration Of Justice: 1 year(s) 6 month(s) 16 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-01-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: DB
• Next Hearing Date: 17-11-2015
• Assessment Year: 2006-2007
• Appeal Filed On: 26-06-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: K P GOPAKUMAR
• Assessee Lawyers: SATHYANARAYANAN
• Keywords: Capital asset; Business income; Double taxation relief; Opportunity of being heard; Services rendered outside India; Deemed to accrue or arise in india; Additional evidence; Permanent establishment; Advance ruling; Non-deduction of tax
• Section: 201(1)

Judgement Text

COCHIN INTERNATIONAL AIRPORT 1 IN THE INCOME TAX APPEL L A TE T R IBUNAL COCHIN BENCH , COCHIN BEFORE S/SH RI B P JAIN , A M & G EORGE GEORGE.K , J M ITA NO. 3 11 TO 315/COCH/2014 (ASST YEAR S 2005 - 06 2009 - 10 ) M/S COCHIN INTERNATIONAL AIRPORT LTD KOCHI VS THE INCOME TAX OFFICER(INTERNATIONAL TAXA TION - II) KOCHI ( APPELLANT) (RESPONDENT) ITA NO. 397/COCH/2014 (ASST YEAR S 2006 - 07 ) THE INCOME TAX OFFICER(INTERNATIONAL TAXATION - II) KOCHI VS M/S COCHIN INTERNATIONAL AIRPORT LTD KOCHI ( APPELLANT) (RESPONDENT) PAN NO. CHNCO0683E ASSESSEE BY SH SATHYANARAYANAN REVENUE BY SH K P GOPAKUMAR, SR DR DATE OF HEARING 17 NOV 2015 DATE OF PRONOUNCEMENT 12 TH J AN 2016 OR D ER PER BENCH : THESE ARE SIX APPEALS (FIVE AT THE INSTANCE OF THE ASSESSEE AND ONE AT THE INSTANCE OF THE REVENUE) ARISIN G OUT OF THE CONSOLIDATED ORDER OF THE CIT(A) DATED 31.3.2014. THE RELEVANT ASSESSMENT YEARS ARE 2005 - 06 TO 2009 - 10. 2 SINCE COMMON ISSUE IS INVOLVED IN THESE APPEALS AND PERTAINS TO THE SAME ASSESSEE, THEY WERE HEARD TOGETHER AND DIS POSE D OF F BY THIS CON SOLIDATED ORDER. WE SHALL TAKE FOR ADJUDICATION THE ASSESSEES APPEALS FIRST. COCHIN INTERNATIONAL AIRPORT 2 ITA NO.311 TO 315/COCH/2014 &(BY THE ASSESSEE) 3 THE ASSESSEE HAD FILED APPEALS FOR ALL THE FIVE ASSESSMENT YEARS, NAMELY AYS 2005 - 06 TO 2009 - 10. THE SOLITARY ISSUE THAT IS RAISED FOR ALL THE YEARS IN THE AFORESAID APPEALS FILED BY THE ASSESSEE IS WHETHER COMMISSION FEES PAID BY THE ASSESSEE TO TWO NON RESIDENTS VIZ., M/S ALPHA AIRPORT HOLDINGS (UK) LTD (ALPHA FOR SHORT HEREAFTER) AND KREOL TRADING EST, UAE (KREOL FOR SHORT HEREAFTER) WAS CHARGEABLE TO TAX IN INDIA UNDER THE (I) INCOME TAX ACT, 1961 (ACT FOR SHORT HEREAFTER) OR (II) UNDER THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA UK, INDIA UAE AND CONSEQUENTLY WHETHER THE ASSESSEE WAS LIABLE FOR DEDUCTION OF TAX AT SOURCE UNDER SECTION 195 IN RESPECT OF THE AFORESAID PAYMENTS. 4 BRIEFLY STATED THE FACTS O F THE CASE ARE AS FOLLOWS: ASSESSEE IS AN INDIAN COMPANY ENGAGED IN THE BUSINESS OF OPERATION AND MAINTENANCE OF COCHIN INTERNATIONAL AIRPORT. IT HAS ESTAB LISHED AND RUNNING DUTY FREE RETAIL OUTLET SHOP AT THE INTERNATIONAL TERMINALS OF THE AIRPORT. THE ASSESSEE ENGAGED THE SERVICES OF ALPHA AND KREOL IN RUNNING THE DUTY FREE RETAIL OUTLET SINCE THE ASSESSEE HAD NO EXPERIENCE IN RUNNING THE DUTY FREE RETAIL OUTLET SHOP. FOR THIS PURPOSE, THE ASSESSEE ENTERED INTO A TRIPARTITE AGREEMENT TITLED EXCLUSIVE PROCUREMENT AGREEMENT WITH ALPHA AND KREOL ON 10 TH NOVEMBER 2000. IN CONSIDERATION OF SERVICES RENDERED BY ALPHA AND KREOL, THE ASSESSEE AGREED TO COCHIN INTERNATIONAL AIRPORT 3 PAY COMMI SSION FEE AT 2% OF GROSS SALES FROM DUTY FREE RETAIL OUTLET AND OUT OF THIS 1% EACH WAS AGREED TO BE PAID TO ALPHA AND KREOL RESPECTIVELY. 4.1 THE DETAILS OF COMMISSION FEES PAID BY THE ASSESSEE FOR VARIOUS YEARS ARE AS UNDER. SL. NO ASSESSMENT YEAR ALP HA (RS) KREOL (RS.) 1 2005 - 06 14,39,653 14,39,653 2 2006 - 07 21,39,332 21,39,332 3 2007 - 08 30,23,970 30,23,970 4 2008 - 09 39,41,102 39,41,102 5 2009 - 10 63,25,244 63,25,244 4.2 T HE ASSESSEE DEDUCTED TAX AT SOURCE UNDER SECTION 195 ONLY IN RESPECT OF 1/ 3 RD OF PAYMENTS MADE TO ALPHA. NO TAX WAS DEDUCTED AT SOURCE UNDER SECTION 195 IN RESPECT OF PAYMENTS MADE TO KREOL. 4. 3 . A SURVEY WAS CONDUCTED AT THE ASSESSEES PREMISES ON 1.3.2010. DURING THE SURVEY, IT WAS NOTICED THAT THE ASSESSEE HAD NOT DEDUCTED TAX AT SOURCE UNDER SECTION 195 IN RESPECT OF ENTIRE COMMISSION FEES PAID TO ALPHA AND KREOL. COPIES OF ACCOUNTS AND THE AGREEMENT ENTERED INTO WITH ALPHA AND KREOL WERE CALLED FOR AND VERIFIED. A SHOW CAUSE NOTICE UNDER SECTION 201 OF THE ACT WAS ISSUE D ON 15.3.2010 ASKING THE ASSESSEE AS TO WHY IT SHOULD NOT BE TREATED AS AN ASSESSEE IN DEFAULT UNDER SECTION 201 FOR NOT DEDUCTING TAX AT SOURCE UNDER SECTION 195 IN RESPECT OF ENTIRE COMMISSION FEES PAID TO ALPHA AND KREOL. COCHIN INTERNATIONAL AIRPORT 4 4.4. THE ASSESSEE WAS ALSO AFF ORDED AN OPPORTUNITY OF PERSONAL HEARING IN THIS MATTER. HOWEVER , ACCORDING TO THE AO, THERE WAS NO RESPONSE FROM THE ASSESSEE AND NO REPLY WAS FILED. T HEREFORE , THE AO PASSED ORDERS UNDER SECTION 201 OF THE ACT AND TREATED THE ASSESSEE AS AN ASSESSEE IN DEFAULT UNDER SECTION 201. 4.5. IN THE ORDER PASSED UNDER SECTION 201 DATED 31 ST MARCH 2010 (FOR AY 2005 - 06 AND OTHER YEARS), THE ASSESSING OFFICER RELIED ON VARIOUS CLAUSES OF EXCLUSIVE PROCUREMENT AGREEMENT DATED 10 TH NOVEMBER 2000 AND CONCLUDED AS UNDER. ( I ) ALPHA AND KREOL HAD BEEN EXERCISING ABSOLUTE CONTROL OVER THE BUSINESS CARRIED ON AT THE DUTY FREE SHOP AT THE COCHIN INTERNATIONAL AIRPORT. [PARA 6 OF THE ORDER] ( II ) THE ROLE OF THE ASSESSEE WAS ONLY TO THE EXTENT OF PROVIDING INFRASTRUCTURE FOR THE BU SINESS. THE ASSESSEE HAS ALSO TAKEN INTEREST FREE DEPOSIT OF US $ 15 LACS FROM ALPHA AND KREOL FOR THE PURPOSE OF FINANCING THE CONSTRUCTION AND OPERATION OF THE DUTY FREE RETAIL OUTLETS. [PARA 6 OF THE ORDER] ( III ) THE WHOLE BUSINESS OF DUTY FREE RETAIL OUTLETS HAD BEEN MANAGED AND CONDUCTED BY ALPHA AND KREOL. [PARA 6 OF THE ORDER] ( IV ) RETAIL MANAGEMENT SERVICES ARE ALSO PROVIDED BY ALPHA KREOL INDIA PVT. LTD (AKIL FOR SHORT HEREAFTER), AN INDIAN COMPANY FLOATED BY ALPHA AIRPORT HOLDINGS BV, NETHERLAND AND KREOL TR ADING EST, UAE AND IN CONSIDERATION, RETAIL MANAGEMENT FEE AT THE RATE OF 1.8% OF GROSS SALES MADE AT DUTY FREE RETAIL OUTLET IS PAID TO AKIL. [PARA 6 OF THE ORDER] ( V ) THE GENERAL MANAGER AND THE ASSISTANT GENERAL MANAGER WHO CONTROL AND OVERSEE THE BUSINESS ACTIVITIES OF THE DUTY FREE SHOPS ARE DIRECTLY APPOINTED AND CONTROLLED BY AKIL. THUS, ALPHA AND KREOL HAVE AN INDIRECT CONTROL OVER THE BUSINESS CARRIED ON IN THE DUTY FREE RETAIL OUTLETS. [PARA 8 OF THE ORDER] ( VI ) OTHER ACTIVITIES OF THE BUSINESS SUCH AS PLA NNING AND ESTIMATE OF MONTHLY FORECAST OF MERCHANDISE, PROCUREMENT, FIXING THE PRICE AND INVOICING THE MERCHANDISE TO ASSESSEE, DELIVERY, WAREHOUSING, DISPLAY AND DETERMINING THE RETAIL PRICE, ARE ALL PERFORMED BY ALPHA AND KREOL. THE SERVICES RENDERED BY ALPHA AND KREOL COVER ALMOST WHOLE OF THE ACTIVITIES OF THE BUSINESS. THE PAYMENT OF COMMISSION FEE IS DIRECTLY LINKED TO THE SALES MADE AT THE DUTY FREE SHOPS. IN CASE THERE IS NO SALE, THERE IS NO LIABILITY TO PAY COMMISSION AND THE COMMISSION FEE ARISES ONLY ON COMPLETION OF SALE IN INDIA. [PARA 7 OF THE ORDER] COCHIN INTERNATIONAL AIRPORT 5 ( VII ) SINCE ALPHA IS PROCURING AND SELLING THE MERCHANDISE TO ASSESSEE FROM OUTSIDE INDIA, THE PROFIT HAD ALREADY BEEN BOOKED AT THE TIME OF SELLING THE MERCHANDISE AND HENCE THERE IS NO NEED TO PAY ANY COMMISSION FEE BASED ON SALES AT DUTY FREE RETAIL OUTLETS. [PARA 8 OF THE ORDER] ( VIII ) AS PER THE AGREEMENT, THE INVOICE PRICE SHALL BE PAID IN FULL BY MEANS OF A LETTER OF CREDIT AND THEREFORE IT IS ASSUMED THAT THE COMMISSION FEE IS ACTUALLY THE REMUNERATION MEANT FOR THE SERVICES TO BE RENDERED IN INDIA. [PARA 8 OF THE ORDER] ( IX ) IN THE CIRCUMSTANCES AND THE FACTS AS DISCUSSED, THE SERVICES RENDERED BY ALPHA AND KREOL AND IN THE NATURE OF BUSINESS SERVICES. [PARA 8 OF THE ORDER] 4.6. IN VIEW OF THE AFORESAID CO NCLUSIONS, IT WAS HELD THAT THE COMMISSION FEES IS TO BE CONSIDERED AS BUSINESS INCOME DEEMED TO ACCRUE OR ARISE IN INDIA THROUGH A BUSINESS CONNECTION IN INDIA UNDER SECTION 9(1)(I) OF THE ACT. IT WAS ALSO HELD THAT THE DUTY FREE SHOP CONSTITUTES THE PERM ANENT ESTABLISHMENT OF ALPHA AND KREOL. 4.7. TAX DEDUCTIBLE AT SOURCE IN RESPECT OF PAYMENTS MADE TO ALPHA, A FOREIGN COMPANY, WAS COMPUTED AT 40.8%. WHILE DETERMINING THE AMOUNT OF SHORT DEDUCTION OF TDS, IT APPEARS, THAT THE ASSESSING OFFICER DID NOT RE DUCE THE TDS ALREADY DEDUCTED BY THE ASSESSEE IN RESPECT OF 1/3 RD OF PAYMENTS MADE TO ALPHA (REFER PARA 6). TAX DEDUCTIBLE AT SOURCE IN RESPECT OF PAYMENTS MADE TO KREOL, A PROPRIETARY CONCERN, WAS DETERMINED AT 30.6%. INTEREST UNDER SECTION 201(1A) WAS AL SO LEVIED ON THE SHORT DEDUCTION OF TDS COMPUTED IN THE AFORESAID MANNER. 5. AGGRIEVED BY THE ORDERS PASSED UNDER SECTION 201 FOR VARIOUS YEARS, THE ASSESSEE FILED SEPARATE APPEALS FOR EACH ASSESSMENT YEAR BEFORE THE CIT(A). WRITTEN SUBMISSIONS WERE FILED BEFORE THE CIT(A) EXPLAINING AS TO WHY ALPHA AND KREOL HAD NO BUSINESS CONNECTION OR PERMANENT ESTABLISHMENT IN INDIA UNDER COCHIN INTERNATIONAL AIRPORT 6 SECTION 9(1)(I) OF THE ACT AND UNDER THE TREATY WITH UK/UAE RESPECTIVELY. THE TAX RESIDENCY CERTIFICATE AND DECLARATION FROM AL PHA AND KREOL STATING THAT THERE WAS NO PERMANENT ESTABLISHMENT IN INDIA WERE FILED BEFORE THE CIT(A) AS AN ADDITIONAL EVIDENCE UNDER RULE 46A OF THE INCOME TAX RULES. IT WAS SUBMITTED THAT THE PROCEEDINGS WERE INITIATED ON 15 TH MARCH 2010 AND CONCLUDE D ON 31 ST MARCH 2010 WITHOUT PROVIDING SUFFICIENT TIME / OPPORTUNITY OF HEARING TO SUBMIT RELEVANT DETAILS AND REPLY. IT WAS PLEADED THAT THE ASSESSEE WAS PREVENTED BY SUFFICIENT CAUSE FROM PRODUCING THE RELEVANT EVIDENCE BEFORE THE ASSESSING OFFICER. THE CIT(A) WAS THEREFORE REQUESTED TO ADMIT THE ADDITIONAL EVIDENCE UNDER RULE 46A OF THE INCOME TAX RULES. 5.1. IN THE WRITTEN SUBMISSIONS FILED BEFORE THE CIT(A), THE ASSESSEE EXPLAINED THAT EVEN THOUGH COMMISSION FEES PAID TO ALPHA WAS MANAGERIAL IN NATURE AND HENCE FEES FOR TECHNICAL SERVICES UNDER SECTION 9(1)(VII) OF THE ACT, THE SAID PAYMENTS DID NOT MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE ETC AS PER THE DEFINITION OF FEES FOR TECHNICAL SERVICES UNDER ARTICLE 13 OF INDIA UK DTAA AND CONSEQ UENTLY THESE PAYMENTS WERE NOT CHARGEABLE TO TAX IN INDIA UNDER THE AFORESAID TREATY. IN RESPECT OF PAYMENTS MADE TO KREOL, IT WAS SUBMITTED THAT KREOL HAS ONLY RENDERED PROCUREMENT SERVICES WHICH CANNOT BE REGARDED AS MANAGERIAL SERVICES AND HENCE THE S AID PAYMENTS DOES NOT CONSTITUTE FEES FOR TECHNICAL SERVICES UNDER SECTION 9(1)(VII). IT WAS ALSO SUBMITTED THAT IN THE ABSENCE OF PE / FIXED BASE OF KREOL IN INDIA, THESE PAYMENTS WILL ALSO NOT BE CHARGEABLE TO TAX UNDER THE INDIA UAE TREATY. COCHIN INTERNATIONAL AIRPORT 7 5.2. TH E WRITTEN SUBMISSIONS AND THE ADDITIONAL EVIDENCE WERE FORWARDED TO ASSESSING OFFICER FOR REMAND REPORT. THE ASSESSING OFFICER SUBMITTED THE REMAND REPORT BEFORE THE CIT(A) AND A COPY OF THE SAME WAS FURNISHED TO THE ASSESSEE. IN RESPECT OF ADDITIONAL EVI DENCE FILED BY THE ASSESSEE IT WAS SUBMITTED IN THE REMAND REPORT THAT THE ASSESSEE WAS GIVEN SHOW CAUSE NOTICE AND ALSO A PERSONAL HEARING BUT THE ASSESSEE NEITHER SOUGHT ANY ADJOURNED NOR FILED ANY REPLY. IT WAS STATED BY THE ASSESSING OFFICER THAT AN O RDER UNDER SECTION 201 WAS THEREFORE PASSED ON THE PRESUMPTION THAT THE ASSESSEE HAD NO REASON TO SHOW FOR ITS FAILURE TO DEDUCT TAX U/S 195. THE ASSESSING OFFICER ALSO FILED THE WRITTEN SUBMISSIONS IN THE REMAND REPORT TO REBUT THE ASSESSEES SUBMISSIONS. 5.3. THE LEARNED CIT(A) AFTER CONSIDERING THE ENTIRE MATERIAL ON RECORD CONCURRED WITH THE FINDINGS OF THE ASSESSING OFFICER THAT ALPHA AND KREOL HAD BUSINESS CONNECTION IN INDIA UNDER SECTION 9(1)(I) OF THE ACT. THE CIT(A) ALSO HELD THAT ALPHA AND KRE OL HAD PERMANENT ESTABLISHMENT IN INDIA AS PER THE INDIA UK AND INDIA UAE DTAA. THE ISSUE OF TDS ON PAYMENTS MADE TO ALPHA AND KREOL WAS ACCORDINGLY DECIDED AGAINST THE ASSESSEE. THE RELEVANT FINDINGS OF THE CIT(A) AT PARAS 7 TO 14 OF THE IMPUGNED O RDER READ AS FOLLOWS: (AT PAGES 19 - 23 ) 7. AFTER CONSIDERING THE AO'S REMAND REPORT AND SUBMISSIONS, I HAVE TO CONCLUDE AS FOLLOWS. THE ASSESSEE, COCHIN INTERNATIONAL AIRPORT LTD (CIAL) ENTERED INTO A EXCLUSIVE PROCUREMENT AGREEMENT ON 10.11.2000 WITH AL PHA AIRPORT HOLDING (UK) LTD (ALPHA), A SUBSIDIARY OF ALPHA AIRPORT GROUP PLC (AAG) , AND KREOL TRADING EST OF UAE (KREOL) , WHICH IS A PROPRIETORY CONCERN OF MR A.S . LAL . 7(A) AS PER THE AGREEMENT, ALPHA WOULD GET EXCLUSIVE RIGHT TO PROCURE COCHIN INTERNATIONAL AIRPORT 8 MERCHANDIZE FROM OUTSIDE INDIA FOR THE RETAIL OUTLET (DUTY FREE SHOP) AT COCHIN AIRPORT OWNED BY CIAL (CLAUSE 2.1 OF THE AGREEMENT). ALPHA IN THIS ENDEAVOUR WOULD BE SUPPORTED BY KREOL FOR PROCUREMENT IN THE MIDDLE EAST. THE AGREEMENT WAS FOR 10 YEARS (CLAUSE 3.1). 7(B) ALPHA WOULD ALSO 'ESTABLISH' THE MERCHANDIZE TO BE SOLD IN THE COCHIN DUTY FREE SHOP, PROCURE IT AND ALSO GENERATE ADVERTISEMENT REVENUE (AS PER DEFINITION OF SERVICES, PAGE - 3 OF THE AGREEMENT). 7(C) ALPHA WOULD DETERMINE THE RETAIL PRICES OF MERCHANDIZE AND BUSINESS PLAN IN THE RETAIL OUTLET IN 'CONSULTATION' WITH CIAL (CLAUSE 4.6) . 7(D) ALPHA WOULD ADVISE CIAL ON THE STORAGE AND TEMPERATURE CONDITIONS IN ITS WAREHOUSE FROM TIME TO TIME (CLAUSE 7.1). 7(E) CIAL WOULD PROVIDE INSPECTION OF ACCOUNTS AND BUSINESS RECORDS TO REPRESENTATIVES OF ALPHA (CLAUSE 11.L(B)). 7(F) ALPHA AND KREOL AGREED TO GIVE 1 . 5 MILLION USD TO CIAL FOR CONSTRUCTION AND OPERATION OF RETAIL OUTLET (CLAUSE 21.1). 7(G) FOR THE ABOVE SERVICES ALPHA AND KREOL EACH WOULD BE PAID 1% OF GROSS SALES AS COMMISSION FEES (CLAUSE 9.1). 8. CIAL ENTERED INTO ANOTHER AGREEMENT WITH ALPHA KREOL ( I NDIA) PVT LTD (AKIL) , A COMPANY REGISTERED IN INDIA AND ALPHA AIRPORT HOLDING BV (AAH), A DUTCH COMPANY WHICH IS ANOTHER SUBSIDIARY OF AAG . AKIL'S S HAREHOLDERS ARE AAH AND KREOL . THIS AGREEMENT IS ALSO VALID FOR 10 YEARS. 8(A) AS PER THE AGREEMENT AKIL WOULD PROVIDE SYSTEM SOFTWARE FOR THE DUTY FREE REAIL OUTLET AT COCHIN AIRPORT (PAGE - 2 OF AGREEMENT). IN OTHER WORDS, EVEN THE BASIC ACCOUNTING SYSTE M IS AKIL'S OUTLOOK . 8(B) AS PER THE AGREEMENT, CIAL HAD TO PROVIDE INSPECTION OF ACCOUNTS AND BUSINESS RECORDS TO AKIL (CLAUSE 2 . 4. 1 (B)) . THIS CLAUSE IS SIMILAR TO THE CLAUSE DISCUSSED IN PARA 7(E) ABOVE. THERE SEEMS TO BE AN OVERLAP ON THIS POINT BETW EEN THE ACTIVITY OF ALPHA AND AKIL VIS - A - VIS CIAL. SINCE AKIL IS CONNECTED TO ALPHA THROUGH AAH AND AAG, THE CONCLUSION THAT A COMMONALITY OF PURPOSE, OBJECTIVE AND EXECUTION IS THERE BETWE EN THE TWO ENTITIES AND THE TWO AGREEMENTS CANNOT BE AVOIDED. 8(C) CIAL HAD TO PROVIDE AREA FOR SHOPS, BONDED STORE , AND OFFICE SPACE (2000 SQFT) TO AKIL (CLAUSE 2.6(D)}. THE INFERENCE CANNOT BE AVOIDED THAT SUCH A LARGE SPACE HAS BEEN GIVEN TO AKIL IMPLIES A VERY DEEP, REGULAR AND HANDS ON BUSINESS ASSOCIATION BETWEEN A KIL AND CIAL . ALSO BECAUSE OF THE SHARE HOLDING PATTERN OF AKIL, THIS GEOGRAPHICAL SPACE BECAME THE LOCUS OF A DEEP BUSINESS ENGAGEMENT AND CONNECTION WITH AAG AND ALPHA. COCHIN INTERNATIONAL AIRPORT 9 8(D) AKIL WILL PROVIDE THE DESIGN, FIT AND SPECIFICATION FOR THE RETA I L OUTLETS (CL AUSE 2.8.1). 8(E) CIAL HAD TO INCUR COSTS FOR SHOP AS AGREED BY AKIL (CLAUSE 2.9.1). THE MONEY FOR THE SHOP WAS PROVIDED BY ALPHA AND KREOL (SEE PARA 7(F) ABOVE . 8(F) CIAL WAS COMPLETELY RELYING AKIL ' S EXPERTISE FOR PERFORMANCE OF THE BUSINESS (CALUSE 2 .10 . 1) . 8(G) AKIL WOULD BE RESPONSIBLE FOR SELECTION, PROCUREMENT AND MERCHANDIZING OF INDIAN PRODUCTS (CLAUSE 3.1 . 2(G)}. THIS COMPLEMENTS THE PROCUREMENT AGREEMENT FOR FOREIGN MERCHANDIZE WITH ALPHA AND KREOL , AND ALSO OVERLAPS WITH THE FUNCTION OF ESTAB LISHING MERCHANDIZE DISCUSSED IN PARA 7(B) ABOVE . 8(H) AKIL WOULD EMPLOY A GENERAL MANAGER AND ASSISTANT GENERAL MANAGER FOR THE RETAIL OUTLETS (CLAUSE 3.1 . 4) AND CIAL WOULD EMPLOY THE OTHER EMPLOYEES AS AGREED UPON BY AKIL (CLAUSE 3 . 1 . 6) . THIS POINT READ WITH OTHER CLAUSES SIGNIFIED TOTAL CONTROL OF THE BUSINESS OF RETAIL OUTLETS BY AKIL, ALPHA AND KREOL . 8(I) AKIL WOULD MANAGE THE MERCHANDIZING, MARKETING AND MAXIMISING OF REVENUE (CLAUSE 3 . 3 AND CLAUSE 3.9 . 1). MAXIMIZING REVENUE IS 'BUSINESS' SIMPLICIT ER AND THE NATURAL CONCLUSION IN NO UNCERTAIN TERMS WOULD BE THAT AKIL IS ENGAGED IN A BUSINESS. 8(J) AKIL WOULD PROV I DE THE BUSINESS PLAN (CLAUSE 3.6(A)}, ADVICE ON MERCHANDIZING AND STOCKING (CLAUSE 3 . 6(C) & (F}), AND WOULD HELP IN MARKETING (CLAUSE 3.6 (I) AND (K}). IT IS VERY DIFFICULT TO AVOID THE INFERENCE THAT WHILE ALPHA AND KREOL ARE GIVING 1.5 MILLION USD FOR THE CONSTRUCTION OF THE RETAIL OUTLET, AKIL IS PROVIDING THE PLAN , MANAGEMENT, PROCUREMENT, ACCOUNTING, PROMOTION AND EXECUTION . NOT ONLY A RE THE TWO AGREEMENTS COMPLIMENTING ONE ANOTHER, THERE IS AN OVERLAP AS F AR AS MERCHANDIZING, BUSINESS PLAN , PRICING AND ADVERTISING ARE CONCERNED (PLEASE SEE PARAS - 7(B) AND 7(C) ABOVE). 8(K) AKIL WOULD BE PAID 1.8% OF GROSS SALES AS MANAGEMENT FEES BY CIAL (CLAUSE 2.2). 8(1) THE STRANGLEHOLD OF AAG IS EVIDENT FROM CLAUSE 12.1 WHICH STATES THAT UNDER NO CIRCUMSTANCES THE SHAREHOLDING OF AAH SHALL GO BELOW 50% IN AKIL. 9 . A COMBINED READING OF THE TWO AGREEMENTS LEADS TO THE INEXORABLE CONCLUSION THA T THEY CONSTITUTE A COMPLETE BUSINESS FROM START TO FINISH. FROM THE PROVIDING OF FUNDS FOR SETTING UP SHOP, TO MANAGERS, ACCOUNTING SOFTWARES, SOURCING AND SALES INCLUDING MAXIMIZING PROFITS, NO ASPECT OF THE BUSINESS IS LEFT UNTOUCHED. ALTHOUGH NOMINALLY CIAL IS PAYING COMMISSION AND FEES TO THE ENTITIES CONTRO L LED BY AAG AND KREOL, IN EFFECT IF WE LOOK AT THE 'SUBSTANCE OF THE TRANSACTION' OR LIFT THE 'CORPORATE VEIL', CIAL IS JUST A RENTER WHILE THE ACTUAL BUSINESS IS IN THE HANDS OF THE NON - RESIDENTS. COCHIN INTERNATIONAL AIRPORT 10 10. THE ID COUNSELS FOR THE ASSESSEE HAVE ARGUED THAT ALPHA AND KREOL HAVE CONDUCTED THEIR AFFAIRS ON A 'PRINCIPAL TO PRINCIPAL' BASIS . I DO NOT AGREE WITH THIS BECAUSE CIAL IS A SUBORDINATE PARTNER IN THE RELATIONSHIP, BECAUSE IT IS VERY CLEAR THAT THE C ONTROL OF FUNDS, BUSINESS PLAN, SOURCING AND SALES ARE WITH ALPHA/ AAH/ AAG, KREOL AND THEIR REPRESENTATIVE ENTITY AKIL . IN FACT CIALHAS CEDED TOTAL CONTROL TO THE OTHERS. 11. IT HAS BEEN PLEADED BY THE ID COUNSELS THAT ALL SERVICES PROVIDED BY ALPHA AND KREOL ARE OUTSIDE THE TERRITORIES OF INDIA. THIS IS NOT CORRECT BECAUSE IT HAS BEEN ALREADY DISCUSSED IN PARA 7(B) , 7(C) , 7(D) AND 7(E) ABOVE THAT THE SERVICES LIKE MERCHANDIZING, WAREHOUSING, BUSINESS PLAN, ACCOUNTING WOULD NOT BE POSSIBLE WITHOUT PROXIMA TE AND REGULAR CONSULTANCY WITHIN THE TERRITORIES OF INDIA . MOREOVER, THESE SERVICES HAVE ALSO OVERLAPPED WITH THE SERVICES OF THEIR REPRESENTATIVE ENTITY AKIL IN INDIA, WHICH HAS BEEN DISCUSSED IN DETAIL IN PARA8 ABOVE. 12. IT HAS BEEN CLAIMED THAT ALPHA AND KREOL DO NOT HAVE A 'BUSINESS CONNECTION' IN INDIA. HON'BLE MUMBAI HIGH COURT IN DR JM MOKASHI(207 ITR 252) IN PARA 9 OF THEIR ORDER HAVE COMMENTED THAT 'BUSINESS' IS A WORD OF WIDE IMPORT COVERING ALL ESTABLISHMENTS AND ORGANIZATIONS WHETHER ENGAGED IN BUSINESS ACTIVITIES OR PROFESSIONAL ACTIVITIES. THE WORD 'BUSINESS CONNECTION' USED IN SECTION 9(1) OF THE ACT DOES NOT WARRANT 'A RESTRICTED MEANING TO IT EXCLUDING 'PROFESSIONAL CONNECTION' FROM ITS SCOPE.' AS DISCUSSED IN PARA 11 ABOVE THE BUSINESS CONNECTION OF ALPHA AND KREOL TO ACTIVITIES WITHIN THE GEOGRAPHICAL TERRITORY OF INDIA CANNOT BE PRECLUDED. THIS VIEW IS ALSO SUPPORTED BY THE APEX COURT IN MAZGAON DOCK LTD (341 ITR 368 ; PARA - 14) , WHICH IMPLIES THAT ANY DEALING BETWEEN A NON - RESIDENT AN D A RESIDENT WHICH FORM CONCERTED AND ORGANIZED ACTIVITIES OF A BUSINESS CHARACTER WILL CONSTITUTE 'BUSINESS'; AND THAT THE WORD 'BUSINESS CONNECTION' IS NOT UNRELATED TO THE WORD BUSINESS. WE HAVE SEEN THAT THE ACTIVITIES IN OUR CASE WERE ALSO CONCERTED A ND ORGANIZED IN NATURE. MOREOVER, IN TERMS OF EXPLANATION 2 TO SECTION 9 OF THE ACT, THE NON - RESIDENT ENTITIES IN OUR CASE WERE HABITUALLY EXERCISING THEIR AUTHORITY IN INDIA OR PROCURING ORDERS THROUGH THEIR OWN REPRESENTATIVE OR EMPLOYEES OF THEIR REPRE SENTATIVE ENTITY AKIL . 12.1 IN HIND COMMISSION AGENTS (48 ITR 615), HON . BOMBAY HIGH COURT CONCLUDED THAT COMMISSION INCOME EARNED BY ASSESSEE FROM ACTIVITIES CARRIED OUT BY ITS AGENTS CONSTITUTED BUSINESS INCOME. THEREFORE, IT CANNOT BE HELD IN OUR CASE THAT COMMISSION INCOME OF ALPHA AND KREOL CANNOT CONSTITUTE BUSINESS INCOME, WHICH IS ALSO SUBSTANTIALLY BASED ON THE ACTIVITY OF THEIR AGENT, VIZ., AKIL . 12.2 THE AO IS CORRECT IN SAYING THAT THERE WAS A 'BUSINESS CONNECTION' IN TERMS OF APEX COURT RULIN G IN RD AGARWAL& CO (56 ITR 20) IN TERMS OF CONTINUITY (BOTH THE AGREEMENTS ARE FOR A PERIOD OF 10 YEARS) AND THE SHARING OF RESOURCES BETWEEN CIAL , ALPHA AND KREOL AS A CONTINUOUS AND A REGULAR ACTIVITY RESULTING IN PROFITS FOR BOTH OF THEM, AND THEREFOR E CREATING A BUSINESS CONNECTION. COCHIN INTERNATIONAL AIRPORT 11 12.3 IN BHARAT HEAVY PLATES AND VESSELS PLATES AND VESSELS LTD (119 ITR 986 (AP) , PARAS 12 - 14) IT WAS HELD THAT WHEN NON - RESIDENT EMPLOYEES ARE DEPLOYED FOR PROVIDING SERVICES TO THE RESIDENT ENTITY AND TRAINING THE EMPLO YEES WITHIN THE TAXABLE TERRITORIES OF INDIA, IT DOES CONSTITUTE AN INTIMATE BUSINESS CONNECTION . IN OUR CASE, THE GM AND AGM WERE PAID BY AKIL, AN AGENT OF ALPHA AND KREOL, WHO WERE CONDUCTING THEIR VARIOUS ACTIVITIES INCLUDING TRAINING OF EMPLOYEES IN THE RETAIL OUTLETS FROM 2000 SQFT OF OFFICE SPACE PROVIDED BY CIAL WITHIN THE GEOGRAPHICAL AND TAXABLE TERR I TO R IES OFINDIA. 13. IN A SIMILAR SET OF FACTS, WHICH IS IN ALL FOURS WITH THE FACTS OF OUR CASE, IT WAS HELD THAT WHERE THERE WAS AN ' INTERLACING' OF CONTRACTS AND SERVICES ; WHERE THE SUBSIDIARY WAS AN 'ALTER - EGO' AND ' MASTER'S VOICE' OF THE NON - RESIDENT ENTITY; WHERE THE ASSESSEE AND SUBSIDIARY WERE OCCUPYING THE SAME SITE OFFICE OF 20000 SQMTS; WHERE THE COMBINED READING OF THE CONTRACTS SHOWED THA T THE NON - RESIDENT ENTITY WAS PROVIDING MORE SERVICES THAT IT WAS PAID FOR; THE CONCLUSION OF THE REVENUE THAT ALL THE CONTRACTS CONSTITUTED A COMPOSITE CONTRACT AND THAT THE SUBSIDIARY OF THE NON - RESIDENT WAS A MERE FACADE, WAS CORRECT AS PER HON ' BLE MAD RAS HIGH COURT IN THE CASE OF ANSALDO ENCEGIA SPA (310 ITR 237) . HON . MADRAS HIGH COURT ALSO HELD THAT THE SUBSIDIARY COMPANY IN INDIA (AKIL IN OUR CASE) WAS THE BUSINESS CONNECTION/P E OF THE NON - RESIDENT ENTITY IN INDIA AND THE CONTRACTS HAD BEEN SPLIT UP TO AVOID T AX. SIGNIFICANTLY, IN THIS CASE THE FACTS IN IHI 207 ITR 361 (SC) RELIED UPON BY THE ID. COUNSELS BEFORE ME HAVE BEEN COMPLETE L Y DISTINGUISHED . 13.1 AUTHORITY OF ADVANCES RULINGS IN ABC, IN RE (223 ITR 416) HELD THAT S I NCE THE SUBSIDIARY OF A S WISS COMPANY WAS HAVING CONTINUOUS SALE AND PURCHASE TRANSACTIONS IN INDIA, THE SUBSIDIARY WAS A PE OF THE SWISS COMPANY. IN OUR CASE THE SUBSIDIARY, VIZ, AKIL IS HAVING CONTINUOUS TRANSACTION AS FAR AS SALE AND PURCHASE OF MERCHANDIZE IS CONCERNED (CLAUS E 3.1.2 OF RETAIL MANAGEMENT AGREEMENT BESIDES MANY OTHER ACTIVITIES. THEREFORE IT IS NOTHING BUT A PE OF ALPHA/AAH/AAG AND KREOL. 13.2 BOTH THE INDIA - UK AND INDIA - UAE DTIAS DEFINE PE IN ARTICLE 5. AS PER THE DTAAS, PE INCLUDES A PLACE OF MANAGEMENT ; THE F URNISHING OF SERVICES INCLUDING MANAGERIAL SERVICES FOR CONTINUOUS PERIOD OF TIME; AND AN AGENT (AKIL) WHO HAS THE AUTHORITY TO NEGOTIATE, SECURE ORDERS ON A HABITUAL BASIS FOR AN ENTERPRISE WITH COMMON CONTROL . ALL THESE CRITERIA ARE SATISFIED IN OUR CASE FOR REASONS CITED EARLIER IN THIS ORDER . 13.3 THE ASSESSEE AS ABUNDANT CAUTION HAS DEDUCTED TAX ON 1/3 R D PAYMENT MADE TO ALPHA, THEREBY PERHAPS ADMITTING TO HAVING A FIXED BASE IN INDIA. 14. FOR ALL THE REASONS GIVEN IN THE ASSESSMENT ORDER, REMAND RE PORT AND THIS ORDER, I HOLD THAT ALL THE PAYMENTS MADE BY CIAL TO ALPHA AND KREOL CONSTITUTE BUSINESS INCOME AND, THEREFORE, LIABLE FOR TDS IN INDIA AS SUCH. COCHIN INTERNATIONAL AIRPORT 12 6. AGGRIEVED BY THE ORDER OF THE CIT(A), THE ASSESSEE IS I N APPEAL BEFORE US , BY RAISING THE FOLLO WING GROUNDS OF APPEAL: 1. WHETHER ON FACTS AND CIRCUMSTANCES, THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT ALPHA AIRPORT HOLDINGS (UK) LIMITED AND KREOL TRADING EST, UAE ARE DOING BUSINESS IN INDIA. THE COMMISSIONER OF INCOME TAX (APPE ALS) WENT WRONG IN OVEREMPHASIZING CERTAIN WORDS IN THE AGREEMENT ENTERED INTO WITH THEM FOR COMING TO THIS CONCLUSION. 2. WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT THE PAYMENTS MADE TO ALPHA AIRPORT HOLDINGS (UK) LIMITED AND KREOL TRADING EST, UAE TOWARDS COMMISSION FEE AS PER THE AGREEMENT FOR EXCLUSIVE PROCUREMENT AND SUPPLY OF MERCHANDISE ENTERED INTO WITH THEM CONSTITUTE BUSINESS INCOME AND THAT BOTH ALPHA AIRPORT HOLDINGS (U K) LIMITED AND KREOL TRADING EST, UAE HAVE BUSINESS CONNECTION IN INDIA. 3. WHETHER ON FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) ERRED IN HOLDING THAT THE ALPHA AIRPORT HOLDINGS (UK) LIMITED AND KREOL TRADING EST, UAE HAVE A PERMANENT ESTABLI SHMENT AS DEFINED IN THE DOUBLE TAXATION AVOIDANCE AGREEMENT WITH UK AND UAE. 4. WHETHER ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THAT THE APPELLANT IS LIABLE TO DEDUCT TDS ON THE PAYM ENTS MADE TO ALPHA AIRPORT HOLDINGS (UK) LIMITED AND KREOL TRADING EST, UAE TOWARDS COMMISSION FEE AS PER THE AGREEMENT FOR EXCLUSIVE PROCUREMENT AND SUPPLY OF MERCHANDISE ENTERED INTO WITH THEM. 6.1 THE LD AR, APART FROM REITERATING HIS SUBMISSIONS MAD E BEFORE THE INCOME TAX AUTHORITIES, HAS GIVEN AN ELABORATE WRITTEN SUBMISSIONS ASSAILING THE FINDINGS OF THE CIT(A). THE RELEVANT PORTION OF THE WRITTEN SUBMISSIONS ASSAILING THE FINDINGS OF THE CIT(A) READ AS UNDER: 8.1 THE LEARNED CLT (A) ERRED ON FACTS IN CONCLUDING THAT THE PAYEES HAVE BUSINESS CONNECTION IN INDIA. ALSO ON LAW, THE LEARNED CIT (A) WENT WRONG IN HOLDING THAT THE PAYMENT IS TAXABLE IN INDIA UNDER THE PROVISIONS OF INCOME TAX ACT. THE AO GROSSLY ERRED IN CONCLUDING THAT THE NON - RESIDENT PARTIES HAVE COCHIN INTERNATIONAL AIRPORT 13 PERMANENT ESTABLISHMENT IN INDIA. 8.2 . FACTS WILL SUBSTANTIATE THAT CIAL WAS CARRYING ON THE BUSINESS OF DUTY FREE SHOP. 8.2.1 THE TRANSACTIONS RELATING TO THE DUTY FREE SHOP ARE INCORPORATED IN THE FINANCIAL STATEMENTS OF CIAL . 8.2.2 TH ERE IS COMPLETE UNITY OF CONTROL AND MANAGEMENT WITH CIAL . 8 . 2 . 3 FUNDS OF THE DUTY FREE SHOP ARE INTERMINGLED AND INTERMIXED WITH THE FUNDS OF CIAL 8.2 . 4 PROFIT OR LOSS FROM OPERATION OF DUTY FREE SHOP GOES ENTIRELY TO CIAL . 8.2 . 5 ALL THE EMPLOYEES A T THE DUTY FREE SHOP (ABOUT 70) ARE THE EMPLOYEES OF CIAL 8.2.6 PERMISSION TO OPERATE THE DUTY FREE SHOP IS GIVEN BY CUSTOMS TO CIA 8.2.7 DUTY FREE SHOP IS FUNCTIONING IN THE BUILDING OF CIAL AND RENT IS NOT CHARGED TO THE DUTY FREE SH OP SINCE ITS OWN. 8.2.8 DECISION TO EXPAND, CLOSE DOWN, RELOCATE ETC. CAN BE TAKEN BY CLAL . 8.2.9 CIAL HAS THE RIGHT AND THE AUTHORITY TO TERMINATE THE CONTRACTS WITH ALPHA AND KREOL AND CAN CONTINUE THE BUSINESS OF DUTY FREE WITH ANY OTHER SERVICE PR OVIDER . 8.3 THE LEARNED CIT(A) WENT WRONG IN HOLDING THAT ALPHA EXERCISED SUBSTANTIAL CONTROL OVER THE BUSINESS CARRIED ON AT THE DUTY FREE SHOP OF CLAL . AS COULD BE SEEN FROM THE TERMS OF THE AGREEMENT, REPRODUCED IN THE ORDER OF CIT(A) , ALPHA AND KREOL WERE DOING CERTAIN ACTIVITIES FOR WHICH COMMISSION FEE AT THE SPECIFIED RATES WERE PAID. IN THIS HIGHLY DYNAMIC AND COMPLEX BUSINESS SCENARIO, IT IS QUITE COMMON TO OUTSOURCE TECHNICAL/MANAGERIAL FUNCTION, COMMONLY KNOWN AS KNOWLEDGE PROCESS OUTSOURC I NG (K PO). IN SUCH SITUATIONS, IT IS NOT CORRECT TO STATE THAT ALL SUCH CONCERNS DO I NG KPO ARE DOING BUSINESS IN INDIA. THEY PROVIDE ONLY MANAGERIAL SKILLS . 8.3.1 IT IS ALSO QUITE RELEVANT TO NOTE THAT ALPHA AND KREOL HAD VERY MINIMAL PHYSICAL PRESENCE IN IND IA. THIS SIGNIFICANT ASPECT HAS BEEN TOTAL L Y IGNORED BY THE ASSESSING OFFICER AND CIT (A). NO OFFICERS OF ALPHA AND KREOL HAVE BEEN POSTED IN INDIA DURING THE PREVIOUS YEAR RELEVANT TO THE AYS 2005 - 06 TO 2009 - 10. THEIR PHYSICAL PRESENCE IN INDIA IS NOT REQ UIRED FOR RUNNING THE DUTY FREE SHOP IN INDIA. COCHIN INTERNATIONAL AIRPORT 14 8.3.2 THE CIT (A) GROSSLY ERRED ON FACTS IN STATING THAT THE COMMISSION INCOME OF ALPHA AND KREOL CONSTITUTE BUSINESS INCOME, WHICH IS SUBSTANTIALLY BASED ON THEACTIVITY OF THEIR AGENT, AKIL . THE CIT(A) HAV E NOT APPRECIATED THE FACTS OF THE CASE CORRECTLY. AS COULD BE SEEN FROM THE TERMS OF THE AGREEMENT , AKIL HAD NO ROLE IN PROVIDING THE SERVICES ENVISAGED IN THE EXCLUSIVE PROCUREMENT SERVICES ENTERED WITH ALPHA AND KREOL . IN THIS REGARD ATTENTION IS INVIT ED TO CLAUSE 3.1 . 2 (G) OF THE AGREEMENT WITH AKIL, WHICH CLEARLY PROVES THAT AKIL HAD NO ROLE IN THE PROCUREMENT OF FOREIGN MERCHANDISE WHICH WOULD BE DONE EXCLUSIVELY BY ALPHA AND KREOL . THE LD CIT(A) OUGHT TO HAVE APPRECIATED THE FACT THAT BOTH THE EXCL USIVE PROCUREMENT SERVICES AND RETAIL MANAGEMENT SERVICES ARE SEPARATE AND INDEPENDENT SET OF SERVICES AND THERE IS NO COMMONALITY OF PURPOSE, OBJECTIVE AND EXECUTION AS ALLEGED BY THE CIT(A). THE LEARNED CIT (A) OUGHT TO HAVE APPRECIATED THAT AS PER THE TERMS OF AGREEMENTS, CIAL CAN TERMINATE THE AGREEMENT WITH ONE PARTY (AKIL) EVEN WHILE RETAINING THE SERVICES OF THE OTHER PARTY (ALPHA & KREOL) . THIS IMPORTANT ASPECT HAS BEEN IGNORED BY THE CIT (A) . THE SERVICES RENDERED BY ALPHA & KREOL AND AKIL ARE EN TIRELY DIFFERENT . COMMISS I ON FEE PAID TO ALPHA AND KREOL ARE FOR THE PROCUREMENT SERVICES RENDERED BY THEM AS PER THE EXCLUSIVE PROCUREMENT AGREEMENT WHEREAS THE SERVICES RENDERED BY AKIL IS RETAIL MANAGEMENT SERVICES FOR WHICH A MANAGEMENT FEE IS PAID TO THEM. THE DECISION RELIED UPON BY THE LEARNED CIT(A)(HIND COMMISSION AGENTS (48 ITR 615) HAS NO APPLICATION TO THE FACTS OF THE APPELLANT'S CASE. 8.3.3 THE LEARNED CIT(A) ERRED IN STATING THAT SINCE AKIL HAS POSTED THEIR EMPLOYEES AT THE DUTY FREE SHOP AT CIAL, THERE EXISTS AN INTIMATE BUSINESS CONNECTION. THE CIT(A) OUGHT TO HAVE APPRECIATED THAT AKIL IS A DOMEST I C COMPANY AND HAD POSTED THEIR EMPLOYEES AT DUTY FREE SHOP AS PER AN INDEPENDENT RETAIL MANAGEMENT SERVICES AGREEMENT AND AKIL HAD NO ROLE WHA TSOEVER IN THE RENDERING OF SERVICES AS PER EXCLUS I VE PROCUREMENT AG R EEMENT . THE CIT(A) GROSSLY WENT WRONG I N HOLDING THAT POSTING OF EMPLOYEES BY AKIL WOULD CONSTITUTE BUSINESS CONNECTION OF ALPHA AND KREOL, WITHOUT VERIFYING OR APPRECIATING THE FACT THAT BOTH ARE SEPARATE AND INDEPENDENT ARRANGEMENTS 8.3.4 THE LEARNED CIT(A) ERRED IN STATING THAT THE AGREEMENT WITH ALPHA AND KROEL AND CIAL ARE NOT ON PRINCIPAL TO PRINCIPAL BASIS . THE CIT(A) ALSO ERRED IN STATING THAT THE CIAL IS A SUBORDINATE PARTNER IN T HE RELATIONSHIP IT IS SUBMITTED THAT WHETHER THE AGREEMENT IS ON A PRINCIPAL TO PRINCIPAL BASIS SHOULD BE INFERRED FROM THE TERMS OF THE AGREEMENT. THE CIT(A) HAS COCHIN INTERNATIONAL AIRPORT 15 FAILED TO APPRECIATE THAT AS PER THE AGREEMENT, THE ALPHA & KREOL IS ONLY ASSISTING CIAL IN T HE PROCUREMENT OF MERCHANDISE FOR DUTY FREE SHOPS RETAIL OUTLETS FOR WHICH THEY ARE PAID A FEE. ALPHA IDENTIFIED SOURCES/SUPPLIERS WHO COULD PROVIDE GOODS TO CIAL AT MOST COMPETITIVE PRICES AND TERMS. SUCH GOODS WERE THEN PROCURED BY ALPHA AND THEN SO L D TO CIAL, WITHOUT ANY MARGIN . THE MERCHANDISE ARE THEN SOLD DIRECTLY BY CIAL AND REA L ISES A GOOD MARGIN WHICH D I RECTLY GOES IN TO THE ACCOUNTS OF CIAL 8.3.5 ATTENTION IS INVITED TO CLAUSE 14.4 OF THE AGREEMENT AS PER WHICH CIAL SHALL BE ENTITLED TO REJECT AN Y MERCHANDISE DELIVERED WHICH IN ITS REASONABLE OPINION IS NOT OF MERCHANTABLE QUALITY . FURTHER, AS PER CLAUSE 4.6 OF THE AGREEMENT THE ALPHA SHALL NOT INTRODUCE ANY MERCHANDISE HAVING AN EXPECTED GROSS MARGIN OF LESS THAN 15%. AS PER CLAUSE 9 . 2 IF ANY PAY MENT IS RECEIVED BY ALPHA OR KREOL OR ANY OF ITS ASSOCIATES, EMPLOYEES OR AGENTS, FROM THE SUPPLIERS OF THE MERCHANDISE AS COMMISSION, FEE OR OTHERWISE, WHICH ARISES SOLELY AND EXCLUSIVELY FROM THE BUSINESS FOR THE AIRPORT, THE SAME SHALL BE FULLY ACCOUNT ED BY ALPHA & KREOL TO THE CIAL, IT BEING CLEARLY UNDERSTOOD THAT ALL SUCH AMOUNTS SHALL ALWAYS BELONG TO CIAL . 8.3.6 THE LEARNED CIT(A) OUGHT TO HAVE APPRECIATED THAT THE ENTIRE MARGIN GENERATED FROM THE OPERATION OF THE DUTY FREE SHOP IS APPROPRIATED BY CIAL AND THE ) COMMISSION FEE PAID TO ALPHA & KREOL IS ONLY A MEAGRE SUM OF 2% OF THE GROSS SALES, WHICH SHOWS THAT THE AGREEMENT WITH ALPHA AND KREOL ARE ON A PRINCIPAL TO PRINCIPAL BASIS. THIS IMPORTANT FACT HAS BEEN IGNORED BY THE LEARNED CLT(A) . D ETAILS OF INCOME EARNED AND COMMISSION PAID BY CIAL DURING THE ABOVE PERIOD IS GIVEN BELOW : PARTICULARS 2005 - 06 2006 - 07 2007 - 08 2008 - 09 2009 - 10 SALES 15.20 22.83 32 . 50 41 . 49 63.66 COST OF 10 . 34 15.04 22 . 31 28.87 37 . 28 GOOD S SOLD / PROFIT 4.86 7.79 10.19 12.62 26.38 COMMISSION 0.29 0.43 0.60 0.79 1 . 27 FEE PAID TO ALPHA & KREOL FROM THE ABOVE, IT MAY BE NOTED THAT THE FINDING OF THE AD AND LEARNED CIT (A) THAT THE CIAL & ALPHA ARE NOT DOING BUSINESS ON A PRINCIPAL TO PRINCIPAL BASIS IS WITHOUT ANY BASIS AND IS ERRONEOUS ON FACTS. COCHIN INTERNATIONAL AIRPORT 16 8.4 . 1 THE LEARNED CIT(A) ERRED IN STATING THAT THE AD WAS CORRECT IN SAYING THAT THERE WAS A BUSINESS CONNECTION IN TERMS O F APEX COURT RULING IN RD AGARWAL & CO (56 ITR 20) IN TERMS OF CONTINUITY SINCE THE AGREEMENTS ARE FOR 10 YEARS. (PARA 12.2 OF THE ORDER) AS SUBMITTED EARLIER, THE FACTS OF THE CASE LAW RELIED ON BY THE AD HAS NO APPLICATION TO THE FACTS OF THE CASE OF A PPELLANT AND IS CLEARLY DISTINGUISHABLE . IN THE CASE OF APPELLANT THE FOREIGN ENTITIES WERE RENDERING THE SERVICES OUTSIDE INDIA INDEPENDENT OF CIAL ON PRINCIPAL TO PRINCIPAL BASIS. IN FACT, CIAL IS THE RECIPIENT OF SUCH SERVICES AND IS NOT AN AGENT OR ASS OCIATE OF ALPHA & KREOL. MERELY BECAUSE THEY ARE RENDERING SERVICES TO CIAL AS PER AN AGREEMENT, IT CANNOT BE SAID THAT THEY HAVE BUSINESS CONNECTION IN INDIA THROUGH CIAL 8.4.2 THE LEARNED CIT(A) ERRED IN STATING THAT WHEN NON RESIDENT EMPLOYEES ARE DE PLOYED FOR PROVIDING SERVICES TO RESIDENT ENTITY AND TRAINING THE EMPLOYEES WITHIN THE TAXABLE TERRITORIES OF INDIA, IT DOES CONSTITUTE AN INTIMATE BUSINESS CONNECTION. THE FINDING OF THE LEARNED CIT (A) IS WITHOUT ANY BASIS AND IS ERRONEOUS ON FACTS. NO EMPLOYEES ARE POSTED BY ALPHA AND KREOL AT THE DUTY FREE SHOP AND THAT THEY ARE NOT PROVIDING ANY SERVICES WITHIN THE TAXABLE TERRITORIES OF INDIA. THE LEARNED CIT(A) OUGHT TO HAVE NOTED THAT THE EMPLOYEES OF AKIL, WHICH IS A DOMESTIC COMPANY ARE NOT EMPLO YEES OF ALPHA AND KREOL . FURTHER, AS PER THE PROCUREMENT AGREEMENT, NO SUCH SERVICES ARE RENDERED BY ALPHA AND KREOL . 8.4.3. THE DECISION RELIED UPON BY THE LEARNED CIT(A) IN THE CASE OF ANSALDO ENCEGIS SPA( 310 ITR 237) IS COMPLETELY DISTINGUISHABLE ON F ACTS. 8.4.4THE LEARNED CIT(A) GROSSLY ERRED IN RELYING UPON DECISION OF THE AUTHORITY IN ADVANCE RULINGS IN THE CASE OF ABC IN RE (223 ITR 416) , WHICH HAS NO APPLICATION TO THE FACTS OF THE APPELLANT'S CASE. IN THIS CASE THERE IS NO TRANSACTION WITH THE SUBSIDIARY COMPANY AKIL . COCHIN INTERNATIONAL AIRPORT 17 6.2 THE DETAILED WRITTEN SUBMISSIONS GIVEN WITH REGARD TO THE CONTENTIONS THAT THE PAYMENT MADE BY THE ASSESSEE TO M/S ALPHA AIRPORT HOLDINGS (UK) LTD., IS NOT TAXABLE EITHER UNDER THE I T ACT OR AS PER DTAA ARE AS FOLLOWS: R ELATING TO PAYMENT MADE TO ALPHA: 9.4 IN ORDER TO ASCERTAIN WHETHER TAX IS TO BE DEDUCTED AT SOURCE OR NOT, IT IS NECESSARY TO ANALYSE THE NATURE OF SERVICES. AS SUBMITTED ABOVE AND AS COULD BE SEEN FROM THE AGREEMENT ENTERED INTO BY CIAL WITH ALPHA AND KR EOL, SERVICES RENDERED BY ALPHA FOR WHICH THE COMMISSION FEE IS PAID COULD BE CATEGORIZED INTO THE FOLLOWING: A ) PROCUREMENT SERVICES RENDERED OUTSIDE INDIA B ) MANAGERIAL SERVICES 9 . 5 IT IS NECESSARY TO TEST THE TAXABILITY UNDER THE PROVISIONS OF THE INCOME TAX ACT AND AS PER THE PROVISIONS OF DTAA BETWEEN INDIA AND UK. 9.6 AS PER THE INCOME TAX ACT, 1961 9.6.1 TAXABILITY OF THE COMMISSION FEE IN THE HANDS OF THE NON - RESIDENT(ALPHA) IS COVERED BY THE PROVISIONS OF SECTION 9(1) OF THE I . T ACT. 9.6.2 PROCURE MENT SERVICES RENDERED OUTSIDE INDIA IS NOT TAXABLE U/S 9(1)(I) SINCE ALPHA HAS NO BUSINESS CONNECTION WITH INDIA AS PER THE EXPLANATION 2 TO SECTION 9(1)(I) OR FOLLOWING THE WELL LAID DOWN PRINCIPLES BY THE HON'BLE SUPREME COURT IN THE CASE OF B.O AGGARWA L (56 ITR 20) AND IHI (288 ITR 408). CIAL AND ALPHA WERE DOING TRANSACTIONS/ACTIVITIES ON PRINCIPAL - TO - PRINCIPAL BASIS. ALPHA IDENTIFIED SOURCES/SUPPLIERS WHO COULD PROVIDE GOODS TO CIAL AT MOST COMPETITIVE PRICES AND TERMS. SUCH GOODS WERE THEN PROCURED B Y ALPHA AND THEN SOLD TO CIAL, WITHOUT ANY MARGIN(LN THE PROCESS OF PROCUREMENT SERVICES OF KREOL WERE ALSO USED BY ALPHA). THIS ACTIVITY CONSTITUTES MAJOR PORTION OF THE SERVICES RENDERED BY ALPHA. SINCE ALPHA HAS NO BUSINESS CONNECTION IN INDIA NO PORTIO N OF SUCH SERVICES IS TAXABLE IN INDIA. ASSESSEE ESTIMATED 2/3 RD OF THE AMOUNT OF COMMISSION PAID TO ALPHA AS RELATED TO SUCH BUSINESS AND SINCE NO TAX IS REQUIRED TO BE DEDUCTED, THE SAID SUM WAS PAID WITHOUT TDS. 9.6.3 AS A MATTER OF ABUNDANT CAUTION, HAVING RE GARD TO THE NATURE OF SERVICES RENDERED BY ALPHA, A PORTION OF SUCH SERVICES WAS TAKEN AS COCHIN INTERNATIONAL AIRPORT 18 MANAGERIAL SERVICES. ASSESSEE ESTIMATED 1/3 RD OF SUCH SERVICES TO BE IN THE NATURE OF MANAGERIAL SERVICES AND HENCE WAS TREATED AS FEES FOR TECHNICAL SERVIC ES U/S 9(1)(VII) OF THE I . T ACT. TAX WAS DEDUCTED AT 22.66% ON SUCH 1/3 RD OF THE COMMISSION AND THE BALANCE AMOUNT WAS REMITTED TO ALPHA. 9.7 AS PER DTAA WITH UK 9.7.1 THE COMMISSION FEE PAID TO ALPHA COULD BE COVERE D EITHER UNDER BUSINESS PROFIT OR UND ER FEE FOR TECHNICAL SERVICES. 9.7.2 AS PER ARTICLE 7 OF THE DTAA, BUSINESS PROFITS A RE TAXABLE ONLY IF ALPHA HAS A PERMANENT ESTABLISHMENT IN INDIA. CERTIFICATE ISSUED BY ALPHA THAT IT HAS NO PE ININDIA IS ENCLOSED (ANNEXURE - I). THERE IS NO CASE/BASIS TO REJECT THE CERTIF I CATE ISSUED BY ALPHA. 9.7.3 AS PER ARTICLE 13 OF THE DTAA, PAYMENT OF COMMISSION WILL BE TAKEN AS FEES FO R TECHNICAL SERVICES ONLY IF IT FALLS WITHIN THE DEFINITION O F FTS AS PER ARTICLE 13(4)(C ) OF THE DTAA . SINCE ALPHA HAS NOT MADE AV AILABLE TECHNICAL KNOWLEDGE, EXPERIENCE ETC, SUCH COMMISSION IS NOT TAXABLE AS FEES FOR TECHNICAL SERVICES AS PER DTAA. 9.7 . 4 AS PER SECTION 90(2) OF THE I , T ACT, WHERE THE CENTRAL GOVERNMENT HAS ENTERED INTO AGREEMENT WITH THE GOVERNMENT ANY COUN TRY OUTS IDE INDIA FOR GRANTING RELIEF OF TAX FOR AVOIDANCE OF DOUBLE TAXATION, THEN I N RELATION TO THE ASSESSEES TO WHOM SUCH AGREEMENT APPLIES, THE PROVISIONS OF THE I , T ACT SHALL APPLY TO THE EXTENT THEY ARE MORE BENEFICIAL TO THE ASSESSEE. 9.7 . 5 SINCE AS PER D TAA THERE IS NO REQUIREMENT TO DEDU CT TAX AT SOURCE, THE ASSESSEE IS NOT AT FAULT IN COMPLYING WITH THE PROVISIONS OF SECTION 195 OF THE I , T ACT . 9.7 . 6 IN FACT THE ASSESSEE HAS WRONGLY DEDUCTED TAX ON 1/3 OF THE COMMISSION INVOKING PROVISIONS OF THE I , T ACT WITHOUT APPLYING BENEFICIAL PROVISIONS UNDER THE DTAA. COCHIN INTERNATIONAL AIRPORT 19 10 RELATING TO PAYMENT MADE TO KREOL 10 . 4 . 1 KREOL HAS RENDERED ONLY PROCUREMENT SERVICES OUTSIDE INDIA. T HEY HAVE NOT RENDERED BY MANAGERIAL SERVICES. 10.5 AS PER INCOME TAX ACT 10 . 5.1 AS SUBMITTED IN PARA 5 . 3 ABOVE, COMMISSION PAID TO KREOL IS NOT TAXABLE IN IND I A SINCE KREOL IS NOT HAVING A BUSINESS CONNECTION IN INDIA . 10.5 . 2 SINCE KREOL HAS NOT RENDERED ANY MANAGERIAL SERVICES IN INDIA , NO PORTION OF THE COMMISSION PAID TO K REOL IS TAXABLE U/S 9(L)(VII) OF THE L . T ACT. 10.6 AS PER D AA WITH UAE 10.6.1 COMMISSION PAID TO KREOL COULD BE COVERED UNDER ARTICLE 7 AS BUSINESS PROFIT O R UNDER ARTICLE 14 AS INDEPENDENT PERSONAL SERVICES. SINCE KREOL HAS NO PERMANENT ESTABLISHMENT I N INDIA NO PORTION OF COMMISSION IS TAXABLE IN INDIA. CERTIFICATE FROM KREOL TO THIS EFFECT IS ENCLOSED (ANNEXURE - II) . 10.6.2 AS PER ARTICLE 14 OF THE DTAA SERVICES RENDERED BY KREOL (BEING AN INDIVIDUAL WHO IS RESIDENT IN UAE) COULD BE TAKEN AS INDEPENDEN T PERSONAL SERVICES. HOWEVER, SINCE HE HAS NO FIXED BASE IN INDIA OR WAS NOT IN INDIA FOR MORE THAN 183 DAYS DURING THE FINANCIAL YEARS 2004 - 05 TO 2008 - 09 NO PORTION OF SUCH COMM I SSION IS TAXABLE IN INDIA. 10 . 6.3 SINCE AS PER THE PROVRSIONS OF THE L . T ACT AND AS PER DTAA NO TAX IS TO BE DEDUCTED, PAYMENTS WERE EFFECTED WITHOUT DEDUCTION OF TAX. 11 IN VIEW OF THE FACTS SUBMITTED ABOVE AND HAV I NG REGARD TO THE PROV I SIONS OF THE IN COME TAX ACT AND ARTICLES OF DTAA, PAYMENT OF COMMISSION TO ALPHA AND KREO L ARE NOT LIABLE FOR DEDUCTION OF TAX IN INDIA. THE SUBMISSIONS OF THE APPELLANT IS SUPPORTED BY THE LEGAL DECISIONS RELIED ON ABOVE. HENCE, I T IS PRAYED THAT THE ASSESSING OFFICER MAY BE DIRECTED TO DELETE THE DEMAND RAISED U/S 201/201(LA) OF THE I . T ACT . COCHIN INTERNATIONAL AIRPORT 20 6.3 THE LD DR, ON THE OTHER HAND HAS ALSO GIVEN A BRIEF NOTE WHICH READ AS UNDER: 1. THE MAIN ISSUE IN ALL THESE SIX APPEALS (FIVE APPEALS BY THE ASSESSEE AND ONE APPEAL FOR 2005 - 06 BY THE REVENUE) ARE AS TO WHETHER CERTAIN PAYMENTS MADE TO NON RESIDE WNTS COME UNDER THE PURVIEW OF SECTION 195 OF THE INCOME TAX ACT. 2. THE ASSESSEE BEEN SUBJECTED TO A DEPARTMENTAL SURVEY B Y THE TDS WING ON 1.3.2010 3. DURING THE SURVEY, IT WAS DETECTED BY THE SURVEY TEA THAT THE ASSESSEE COMPANY AND NOT COMPLIED WITH THE PROVISIONS OF CHAPTER VV - B OF THE I T ACT IN RESPECT OF CERTAIN PAYMENTS MADE TO NON RESIDENTS, BROADLY AS UNDER: A) PAYMENTS IN RESPECT OF DUTY FREE SHOP B) PAYMENTS TOWARDS THE INSTALLATION CONTRACT OF BOARDING BRIDGES 4 THE AO PASSED DETAILED O RDERS U/S 201OF THE I T ACT FR ALL T HE FIVE YEARS. 5. T H E ASSESSEE COMPANY WENT IN APPEAL BEFORE HON APPELLATE COMMISSIONER WHO GAVE PARTIAL RELIEF IN RESPECT OF ISSUE NO. 3(B) ABOVE FOR AY 2005 - 06. REVENUE HAS FILED APPEAL BEFORE HON ITAT ON THIS ISSUE. THE ISSUE NO 3C ABOVE WAS DECIDED AGAINST THE ASSESSEE BY THE HON. APPELLATE COMMISSIONER AND THE ASSESSEE HAS FILED APPEALS BEFORE THE HON. TRIBUNAL FOR ALL THE FIVE YEARS. 6 REVENUE IS HUMBLY PLEADING BEFORE THE HON. TRIBUNAL THAT BOTH THE ISSUES POINT ED OUT IN PARA 3A AND 3B ABOVE MAY KINDLY BE ADJUDICATED IN THE FAVOUR OF REVENUE. 7 REGARDING THE ISSUE OF THE PAYMENTS MADE TO NON RESIDENTS BY THE ASSESSEE COMPANY, HON TRIBUNAL MAY KINDLY SEE THAT THE ASSESSEE HAD NOT, SUO MOTO, DEDUCTED TAX IN RES PECT OF THE SO CALLED KREOL TRADING EST. AS OF NOW, EVEN THE STATUS OF THIS PERSON IS NOT KNOWN. 8 THE ASSESSEE HAD MADE PART DEDUCTION OF TAX IN RESPECT OF THE SO CALLED ALPHA HOLDINGS (UK) LTD. AS AGAINST THE WITHHOLDING RATE OF 40.80%, THE A SSESSEE HAS WITHHELD ONLY LESS THAN 7.5% OF THE PAYMENTS MADE. 9 IN THE CASE OF A CHINESE CONCERN BY THE NAME M/S SHENZHEN CIMC TIANDA THE ASSESSEE HADNOT CONSIDERED THE CASE FOR TAX DEDUCTION AT ALL. 10 THE ASSESSEE HAD NEITHER GIVEN ANY REASON FOR THIS DEFAULT NOR HAD REPRESENTED THE MATTER BEFORE THE AO, DESPITE A SPECIFIC SHOW CAUSE NOTICE ISSUED ON 15.3.2010 11 THE ASSESSEE MADE VARIOUS SUBMISSIONS BEFORE THE FIRST APPELLATE AUTHORITY REGARDING THE NATURE OF CONTRACT ENTERED INTO BY THE ASSESSEE WIT H THE NONRESIDENT BUT HAS STILL NOT CLEARIFIED AS TO WHETHER THE RECIPIENTS ARE TAXPAYERS AND AST WHETHER THEY HAVE DECLARED THE INCOME EARNED IN INDIA IN THEIR TAX RETURNS. 12 THE AO HAS TAKEN AMPLE COGNIZANCE OF THIS ISSUE IN HIS DETAILED ORDER FOR AY 2005 - 06 (KINDLY SEE PARA 9 OF THE ASSESSMENT ORDER WHEREIN IT HAS BEEN OBSERVED THAT THE RECIPIENTS HAD NOT TAKEN PAN AND HAD NOT FILED THEIR RETURN OF INCOME) COCHIN INTERNATIONAL AIRPORT 21 13 THE ASSESSEE HAS NOT CLARIFIED THE STATUS OF A ENTITY CALLED AKIL AND HAS NOT PRODUCED ANY TAXATION DETAILS REGARDING 5HIS ENTITY. 14 NON DEDUCTION OF TAX OR NON WITH HOLDING OF TAX AT SOURCE DEPRIVES THE REVENUE DIVISIONS OF ALL NATIONS TO HAVE A PROPER MONITORING OF THE FINANCIAL TRANSACTIONS AND THERE Y SLACKENS THE FISCAL DISCIPLINE 15 I N THIS CASE, THE REVENUE IS RELYING ON THE FOLLOWING JUDICIAL VERDICTS WHERE HON COURTS HAVE ANALYZED AND ADJUDICATED THE APPLICABILITY OF SECTION 195 IN RESPECT OF PAYMENTS MADE TO NON RESIDENTS. 16 ESPECIALLY IN THE LATEST DECISION OF HON ITAT BANGALRO E (SL NO.4) ALMOST ALL EARLIER DECISIONS OF 36 COURTS HAVE BEEN REFERRED TO. SL.NO CASE CITATION ISSUE DECISION/REMARKS 1 TRANSMISSION CORPORATION OF APL LTD 239 ITR 587 ANY OTHER SUM WOULD INCLUDE CASES WHERE ANY SUM PAYABLE TO THE NON RESIDENT IS A TRADING RECEIPT WHICH MAY OR MAY NOT INCLUDE PURE INCOME. RIGHTS OF THE TAXPAYER ARE NOT ADVERSELY AFFECTED AS THEY ARE FULLY SAFEGUARDED U/S 195(2) , 1954(3)AND 197 2 GE TECHNOLOGY CEN (P) LTD VS CIT 327ITR 456 SECTION195(2)IS ATTRACTED IN CASES WHER E PAYMENT MADE IS COMPOSITE PARA 7 OF THE ORDER CLEARLY STATES THAT THE OBLIGATION TO DEDUCT TAX AT SOURCE IN RESPECT OF THE COMPOSITE PAYMENTS IS ON THE PAYER. 3 SKF BOILERS & DRIERS (P) LTD. 343 ITR 385 (AAR) IN THE CASE OF SALES COMMISSION ON FOREIGN SALES, RIGHT TO RECEIVE THE COMMISSION AROSE IN INDIA PARA 4 OF THE ORDER EXPLAINS AS TO HOW THE SITUS OF A PAYMENT IS IN INDIA. 4 VODOFONE SOUTH LTD V DDIT (INTERNATIONAL TAXATION) CIRCLE 1(1) BANGALORE 53 TAXMANN.COM 441 1 . U/S 195 ONUS IS ON THE TA XPAYER TO PROVE THAT PAYMENTS DID NOT INCLUDE ELEMENT OF INCOME. 2 . PROVISIONS OF DTAA DO NOT AUTOMATICALLY ATTRACT IN DEFENSE OF THE PAYER. THE HON TRIBUNAL HAS REFERRED TO 36 DIFFERENT JUDICIAL VERDICTS INCLUDING 12 DECISIONS OF HON SUPREME COURT. MOST IMPO RTANTLY, TE HON TRIBUNAL HAS REFERRED TO THE DECISIONS IN THE CAE OF 1 . TRANSMISSION CORPORATION OF AP LTD (239 ITR 587) 2 . G E INDIA TECHNOLOGY (327 ITR 456) 3 . SUN ENGINEERING WORKS P LTD 198 ITR 297 COCHIN INTERNATIONAL AIRPORT 22 7. WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATE RIAL ON RECORD. WE HAVE ALSO CONSIDERED THE WRITTEN SUBMISSIONS FILED BY THE PARTIES. THE LEARNED ASSESSING OFFICER AND THE CIT(A) HAVE RELIED ON VARIOUS CLAUSES OF THE EXCLUSIVE PROCUREMENT AGREEMENT DATED 10 TH NOVEMBER 2000 IN SUPPORT OF THEIR FINDINGS THAT THE ASSESSEE WAS LIABLE TO DEDUCT TAX AT SOURCE UNDER SECTION 195 IN RESPECT OF PAYMENTS MADE TO ALPHA AND KREOL. IT IS THEREFORE NECESSARY FOR US TO DISCUSS THE TERMS OF THE SAID AGREEMENT. 7.1 THE EXCLUSIVE PROCUREMENT AGREEMENT DATED 10 TH NOVEM BER 2000 IS A TRIPARTITE AGREEMENT BETWEEN ALPHA AIRPORT HOLDINGS (UK) LTD (ALPHA FOR SHORT), KREOL TRADING EST., A PROPRIETORY CONCERN DULY REGISTERED IN UAE (KREOL FOR SHORT) AND THE ASSESSEE. AS PER THE PREAMBLE TO THIS AGREEMENT THE ASSESSEE OPENED A N EW INTERNATIONAL AIRPORT NEAR COCHIN IN KERALA, IN JUNE 1999 AND IT INTENDED TO ESTABLISH DUTY FREE RETAIL OUTLETS AT THE INTERNATIONAL TERMINALS OF THE SAID AIRPORT. THE ASSESSEE AGREED TO ENGAGE ALPHA TO PROVIDE PROCUREMENT SERVICES OUTSIDE THE TERRITORY OF INDIA IN RESPECT OF THE DUTY FREE RETAIL OUTLETS AT THE INTERNATIONAL WINGS OF THE AIRPORT AND ALPHA WAS TO BE SUPPORTED IN SUCH PROCUREMENT SERVICES IN THE MIDDLE EAST BY KREOL ON THE TERMS AND CONDITIONS OF THE EXCLUSIVE PROCUREMENT AGREEMENT. THE TERM SERVICES WAS UNDERSTOOD AS THE SERVICES TO BE PROVIDED BY ALPHA OUTSIDE THE TERRITORY OF INDIA UNDER THE AGREEMENT, INCLUDING THE PROCUREMENT AND THE ESTABLISHMENT OF THE MERCHANDISE RANGE; THE SETTING OF RETAIL PRICES AND GENERATION OF ADVERTISING REVENUE. THE ASSESSEE GRANTED THE SOLE AND EXCLUSIVE RIGHT TO ALPHA TO COCHIN INTERNATIONAL AIRPORT 23 PROVIDE THE SERVICES AND ALPHA WAS BEING SUPPORTED IN SUCH PROCUREMENT SERVICES IN THE MIDDLE EAST BY KREOL SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT. [CLAUSE 2.1 OF THE AGR EEMENT] IT WAS ALSO AGREED IN THE SAME CLAUSE THAT DURING THE TERM OF THIS AGREEMENT, THE ASSESSEE SHALL NOT ITSELF SOURCE, NOR PROCURE FROM ANY PERSON, FIRM OR COMPANY OTHER THAN ALPHA ANY SERVICE FORMING PART OF (OR SUBSTANTIALLY SIMILAR OR EQUIVALENT TO ) THE EXCLUSIVE PROCUREMENT AGREEMENT NOR PURCHASE ANY MERCHANDISE FOR SALE OR USE IN ANY OF THE RETAIL OUTLETS FROM ANY PERSON OTHER THAN ALPHA IN ACCORDANCE WITH THIS AGREEMENT. DURING THE CONTINUANCE OF THIS AGREEMENT ALPHA SHALL PROCURE AND SUPPLY AND CIAL SHALL PURCHASE THE MERCHANDISE, SUBJECT TO THE TERMS AND CONDITIONS OF THIS AGREEMENT. [CLAUSE 4.1] ALPHA SHALL FURNISH PERIODIC PRO - FORMA QUOTATIONS ON THE BASIS OF THE REQUIREMENTS OF CIAL FOR THE MERCHANDISE TO BE STOCKED BY IT. CIAL SHALL SEND TO ALPHA ORDERS FOR THE PURCHASE OF MERCHANDISE ON THE BASIS OF SUCH PRO - FORMA QUOTATIONS AND ALPHA SHALL BE ENTITLED TO HAVE THIRTY ( 30 ) WORKING DAYS TIME FROM THE DATE OF RECEIPT OF SUCH AFTER TO ACCEPT THE SAME AND UP TO THAT PERIOD ALPHA WILL BE ENTITLE D TO VARY THE PARTICULARS FURNISHED SUCH AS AVAILABILITY OF GOODS, PRICES, ETC. IN THE PRO - FORMA QUOTATIONS. [CLAUSE 4.3] BY THE END OF EACH MONTH, CIAL SHALL AGREE TO THE ORDER FORM AND THE VALUE OF ORDER(S) FOR MERCHANDISE IN THE SUBSEQUENT MONTH BASED O N THE ACCEPTANCE ORDERS REFERRED TO IN CLAUSE 4.3 ABOVE, AND CIAL SHALL PLACE THOSE ORDERS RELEVANT MONTH. [CLAUSE 4.4] ALL ORDERS FOR THE MERCHANDISE SHALL BE PREPARED IN THE FORM OF AN ORDER FORM APPROVED AND SIGNED BY A DULY AUTHORIZED REPRESENTATIVE OF CIAL. AN ORDER FORM SHALL SPECIFY COCHIN INTERNATIONAL AIRPORT 24 THE FOLLOWING DETAILS FOR THE MERCHANDISE; QUANTITY (VOLUME AND TYPE, PREFERRED DELIVERY DATE ) . CIAL SHALL ENSURE THAT ITS PREFERRED DELIVERY DATE SHALL HAVE REGARD TO THE LEAD TIMES FOR SUPPLY AS ADVISEE BY ALPHA FROM TI ME TO TIME. [CLAUSE 4.5] ALPHA WILL IN CONSULTATION WITH CIAL DETERMINE RETAIL PRICES FOR THE MERCHANDISE TO BE OFFERED FOR SALE IN RETAIL OUTLETS PURSUANT TO THE ANNUAL BUDGET BUSINESS PLAN AND PRICING POLICY. CIAL SHALL ENSURE THAT THE MERCHANDISE IS OFF ERED FOR SALE IN THE RETAIL OUTLETS AT THOSE RETAIL PRICES. ALPHA SHALL NOT INTRODUCE AND MERCHANDISE WITH AND EXPECTED GROSS MARGIN OF LESS THAN FIFTEEN (15) PERCENT UNLESS AGREED IN WRITING BY CIAL. [CLAUSE 4.6] SUBJECT TO CLAUSE 4.7, NO ORDER ACCEPTED BY ALPHA MAY BE CANCELLED BY CIAL WITHOUT ALPHA'S WRITTEN AGREEMENT. [CLAUSE 4.8] CIAL SHALL ENSURE THAT (A) ALPHA IS ISSUED WITH THE LETTER(S) OF CREDIT WITHIN THIRTY (30) DAYS OF THE EFFECTIVE CONTRACT DATE; AND (B) UNDERTAKES THAT THE LETTER OF CREDIT SHALL BE FOR A MINIMUM AMOUNT EQUAL TO OR GREATER THAN THE PRICE (INCLUDING ANY APPLICABLE DELIVER CHARGES) OF TWO SUCCESSIVE MONTHS FORECASTED ORDER BY ALPHA FOR THE MERCHANDISE. [CLAUSE 5.1] CIAL SHALL ENSURE THAT THE LETTER OF CREDIT PROVIDES THAT UPON THE DISPATCH OF A CONSIGNMENT OF MERCHANDISE. ALPHA WILL UPON PRESENTATION OF THE APPLICABLE COMMERCIAL INVOICE(S) OF LADING, PACKING LIST(S) AND BILL(S) OF EXCHANGE TO THE RELEVANT CORRESPONDENT BANK BE ENTITLED TO PAYMENT OF SUCH SUMS EQUAL TO THE INVOI CED PRICE OF THE APPLICABLE CONSIGNMENT OF MERCHANDISE AND ALL SUCH DELIVERY CHARGES. [CLAUSE 5.2] CIAL SHALL BE SOLELY AND EXCLUSIVELY RESPONSIBLE FOR THE COST OF TRANSPORTING THE MERCHANDISE FROM THE DELIVERY POINT TO THE WAREHOUSE, FOR THE COST OF INSUR ING THE MERCHANDISE COCHIN INTERNATIONAL AIRPORT 25 AFTER DELIVERY AT THE DELIVERY POINT AND FOR OBTAINING FROM THE APPROPRIATES AUTHORITIES ALL NECESSARY AUTHORIZATIONS TO IMPORT, MARKET, DISPLAY AND SELL THE MERCHANDISE. ALPHA AGREES TO PROVIDE SUCH ASSISTANCE AS MAY BE REASONABLY REQU IRED BY CIAL IN ORDER TO HELP CIAL OBTAIN SUCH AUTHORIZATIONS. [CLAUSE 6.1] SHOULD ANY RELEVANT REGULATORY BODY IN INDIA REQUIRE MODIFICATION OF INFORMATION RELATING TO THE SELLING, DISPLAY, LABELING AND/OR MARKETING OF ANY OF THE MERCHANDISE, THE COST OF ALTERING THE EXISTING STOCK OF PACKAGING AND/OR LABELING AND/OR OTHER PROMOTIONAL LITERATURE OR OTHER MATERIALS SHALL BE BORNE BY CIAL. [CLAUSE 6.2] CIAL SHALL ENSURE THAT THE WAREHOUSE IS SUITABLE IN ALL RESPECTS FOR THE STORAGE OF THE MERCHANDISE, INCLUD ING STORAGE AT THE CORRECT AMBIENT TEMPERATURE FOR HEAT AFFECTED PRODUCTS AS ADVISED FROM TIME TO TIME BY ALPHA DAMAGE TO OR LOSS OF MERCHANDISE HOWEVER CAUSED AT THE 'WAREHOUSE, RETAIL OUTLETS, OFFICES OR ANY OTHER LOCATION AT THE AIRPORT AND/OR IN TRANSI T FROM THE DELIVERY POINT SHALL BE AT CIAL'S RISK. [CLAUSE 7.1] ALPHA SHALL NOT ACCEPT RETURNS OF NOR REIMBURSE CIAL FOR THE MERCHANDISE PURCHASED BY CIAL WHICH REMAINS UNSOLD FOR CIAL OR FOR WHICH THE EXPIRY DATES OF SUCH MERCHANDISE ARE EXCEEDED WHILE SU CH MERCHANDISE WAS UNDER THE CUSTODY OF CIAL. [CLAUSE 7.2] 7.2 IN CONSIDERATION OF THE PROCUREMENT SERVICES TO BE PROVIDED BY ALPHA AND THE SUPPORT SERVICES TO BE PROVIDED BY KREOL, CIAL SHALL PAY ALPHA AND KREOL A COMMISSION FEE, WHICH SHALL BE PAYABLE I N ARREARS (THE COMMISSION FEE) THE COMMISSION FEE SHALL BE PAID IN U. S. DOLLARS AND SHALL BE EQUAL TO 2 (TWO) PER CENT OF THE GROSS SALES FOR THE PREVIOUS MONTH OUT OF WHICH 1 (ONE) PER CENT SHALL BE PAID TO ALPHA AND 1 (ONE) PER CENT TO KREOL. [CLAUSE 9.1] IF COCHIN INTERNATIONAL AIRPORT 26 ANY PAYMENT IS RECEIVED BY ALPHA OR KREOL OR ANY OF ITS ASSOCIATES, EMPLOYEES OR AGENTS, FROM THE SUPPLIERS OF THE MERCHANDISE AS COMMISSION, FEE OR OTHERWISE, WHICH ARISES SOLELY AND EXCLUSIVELY FROM THE BUSINESS FOR THE AIRPORT, THE SAME SHALL BE FULLY ACCOUNTED BY ALPHA AND KREOL TO CIAL, IT BEING CLEARLY UNDERSTOOD THAT ALL SUCH AMOUNTS SHALL ALWAYS BELONG TO CIAL. [CLAUSE 9.2] CIAL SHALL ENSURE THAT ALL COMMISSION FEES TO BE PAID TO ALPHA AND KREOL UNDER CLAUSE 9.1 SHALL BE MADE TO ALPHA'S AND KREOL'S RESPECTIVE SPECIFIED BANK ACCOUNTS WITHIN 10 (TEN) WORKING DAYS ON SUBMISSION OF THE RELEVANT FAXED INVOICE WITH THE ORIGINAL SENT BY POST. [CLAUSE 9.3] THE COMMISSION FEE SO PAYABLE SHALL BE SUBJECT TO THE PROVISIONS OF THE INDIAN INCOME TAX ACT A ND THE RULES THEREUNDER AND SHALL BE SUBJECT TO THE APPROVAL OF THE RESERVE BANK OF INDIA FOR THE TERM OF THE AGREEMENT. CIAL SHALL PROVIDE ALPHA AND KREOL COPIES OF THE APPROVALS/ORDERS ISSUED BY THE RESERVE BANK OF INDIA AS AND WHEN REQUIRED, SUCH COPIES NOT TO BE UNREASONABLY WITHHELD. [CLAUSE 9.4] THE PRICE OF THE MERCHANDISE SHALL BE IN U. S. DOLLARS OR POUND STERLING (OR SUCH OTHER CURRENCIES AS MAY BE MUTUALLY AGREED) ON AN FOB BASIS, UNLESS OTHERWISE AGREED BY THE PARTIES HERETO. THE PRICES PAYABLE BY CIAL FOR MERCHANDISE SHALL BE NOTIFIED BY ALPHA TO CIAL FROM TIME TO TIME [CLAUSE 10.1] UPON PURCHASE OF THE SAID MERCHANDISE, ALPHA SHALL PREPARE AND ISSUE TO CIAL AN INVOICE. [CLAUSE 10.2] ALL TAXES, DUTIES, CHARGES AND OTHER SUMS PAYABLE IN INDIA, RE LATED TO THE MERCHANDISE PROCURED UNDER THIS AGREEMENT ARE TO CIAL'S ACCOUNT. [CLAUSE 10.3] CIAL (OR IF APPLICABLE CIAL'S SUBSIDIARY SHALL : (A) KEEP PROPER ACCOUNTS AND RECORDS OF THE BUSINESS PURSUANT TO THE REQUIREMENTS OF THE COCHIN INTERNATIONAL AIRPORT 27 COMPANIES ACT, 1956 INC LUDING A RECORD OF EACH RETAIL OUTLET SHOWING IN DETAIL THE GROSS SALES DAY TO DAY FROM EACH CATEGORY OF MERCHANDISE AND (B) ENSURE THAT THOSE ACCOUNTS AND RECORDS OF THE BUSINESS ARE AVAILABLE DURING BUSINESS HOURS FOR INSPECTION AND PHOTOCOPYING BY ANY PERSON DULY AUTHORIZED IN WRITING BY ALPHA ON GIVING ONE WEEK'S WRITTEN NOTICE IN THIS BEHALF. [CLAUSE 11.1] WITHIN SEVEN (7) DAYS AFTER THE END OF THE FIRST AND EACH SUBSEQUENT MONTH DURING THE TERM OF THIS AGREEMENT CIAL S HALL SUBMIT TO ALPHA AND KREOL STATEMENT OF ACCOUNT SHOWING: (A) THE GROSS SALES FOR THE IMMEDIATELY PRECEDING MONTH; (B) THE CUMULATIVE TOTAL OF THE' GROSS SALES IN THE FINANCIAL YEAR TO DATE; AND (C) A CALCULATION OF THE SUMS DUE TO ALPHA PURSUANT TO CLAUSE 9.1 HEREOF WHICH CALCULATIO N SHALL INCLUDE A SEPARATE BREAKDOWN FOR EACH OF THE CATEGORIES OF MERCHANDISE AND RETAIL OUTLETS. UPON RECEIPT OF THE DATA AND INFORMATION AS PROVIDED FOR ABOVE, ALPHA AND KREOL SHALL PREPARE AND ISSUE TO CIAL INVOICES SPECIFYING SUCH DUE DATE FOR PAYMEN T IN ACCORDANCE WITH CLAUSE 9.1 ABOVE. [CLAUSE 11.2] WITHIN THREE (3) MONTHS AFTER THE END OF EACH FINANCIAL YEAR, CIAL SHALL SUBMIT TO ALPHA AND KREOL A STATEMENT PREPARED AND CERTIFIED BY THE STATUTORY AUDITORS OF CIAL FOR THE PRECEDING FINANCIAL YEAR, S HOWING; (A) GROSS SALES; (B) A CALCULATION OF THE SUMS DUE TO ALPHA AND KREOL PURSUANT TO CLAUSE 9.1 WHICH CALCULATION SHALL INCLUDE A SEPARATE BREAKDOWN FOR EACH OF THE CATEGORIES OF MERCHANDISE AND RETAIL OUTLETS; AND (C) ANY DIFFERENCE (AS APPLICABLE) B ETWEEN: (I) THE TOTAL PAYMENTS DUE FOR THE RELEVANT FINANCIAL YEAR CALCULATED IN ACCORDANCE THEREWITH; (II) THE AMOUNT ACTUALLY PAID BY CIAL TO ALPHA AND KREOL UNDER THIS AGREEMENT IN RESPECT OF THE COCHIN INTERNATIONAL AIRPORT 28 RELEVANT FINANCIAL YEAR. [CLAUSE 11.3] IF THERE IS ANY DI FFERENCE BETWEEN THE AMOUNT DUE UNDER CLAUSE 11.3 (B) ABOVE AND THE AMOUNT ACTUALLY PAID BY CIAL TO ALPHA AND KREOL UNDER THIS AGREEMENT IN RESPECT OF THE RELEVANT FINANCIAL YEAR, THEN (AS APPROPRIATE) EITHER; (A) CIAL SHALL PAY THE SHORT FALL TO ALPHA AND KREOL WITHIN ONE MONTH OF THE RECEIPT OF THE STATEMENT REFERRED TO IN CLAUSE 11.3 ABOVE; OR (C) ALPHA AND KREOL SHALL PAY THE EXCESS AMOUNT RECEIVED TO CIAL WITHIN ONE MONTH OF THE RECEIPT OF THE STATEMENT REFERRED TO IN CLAUSE 11.3 ABOVE. [CLAUSE 11.4] W ITHIN THREE MONTHS AFTER THE EXPIRATION OR TERMINATION OF THIS AGREEMENT (WHATEVER THE REASON FOR TERMINATION) CIAL SHALL SUBMIT TO ALPHA AND KREOL A FINAL STATEMENT (HEREINAFTER REFERRED TO AS 'THE TERMINATION STATEMENT') PREPARED AND CERTIFIED BY THE STA TUTORY AUDITORS OF CIAL FOR THE PERIOD BETWEEN THE END OF THE PRECEDING FINANCIAL YEAR OF THE AGREEMENT AND THE DATE OF THE EXPIRATION OR DETERMINATION OF THIS AGREEMENT, SHOWING (A) THE GROSS SALES; AND (B) A CALCULATION OF THE SUMS DUE TO ALPHA AND KREOL UNDER THIS AGREEMENT IN RESPECT OF THAT PERIOD. ANY DIFFERENCE BETWEEN THE TOTAL PAYMENTS DUE FOR THE 'PERIOD AND THE TOTAL OF THE PAYMENTS MADE IN RESPECT OF THAT PERIOD, SHALL BE PAID BY THE CONCERNED PARTY WITHIN THREE (3) MONTHS OF THE SUBMISSION OF T HE TERMINATION STATEMENT. 7.3 CLAUSE 13 OF THE AGREEMENT DEALS WITH TRANSFER OF OWNERSHIP AND RISK. TITLE AND RISK TO THE MERCHANDISE SHALL TRANSFER TO CIAL AT THE TIME OF DISPATCH FROM THE DELIVERY POINT. [CLAUSE 13.1] THE TERM DELIVERY POINT IS DEFINE D AS SUCH SEA PORT(S) OR AIRPORT(S) OF DISPATCH (OUTSIDE INDIA), AS THE PARTIES FROM TIME TO TIME AGREE. CLAUSE 21 OF THE AGREEMENT DEALS WITH DEPOSIT. IN CONSIDERATION/OF THE COCHIN INTERNATIONAL AIRPORT 29 EXECUTION OF THE EXCLUSIVE PROCUREMENT AGREEMENT, ALPHA AND KREOL HEREBY AGREES TO MAKE AVAILABLE TO CIAL AN INTEREST - FREE DEPOSIT IN THE PRINCIPAL SUM OF US $ 1,500,000 (US DOLLARS ONE AND HALF MILLION), WHICH SHALL BE APPLIED BY CIAL FOR THE PURPOSE OF FINANCING THE CONSTRUCTION AND OPERATION OF THE AIRPORT DUTY - FREE RETAIL OUTLETS. (THE DEPOSIT'). US $ 400,000 SHALL BE PROVIDED BY KREOL AND THE BALANCE BY ALPHA. [CLAUSE 21.1] THE DEPOSIT SHALL BE REPAID IN FULL, AND NOT BE UNREASONABLY WITHHELD, IN US DOLLARS BY CIAL TO ALPHA AND KREOL TO A DESIGNATED BANK ACCOUNT ON THE JOINT WRIT TEN INSTRUCTION OF ALPHA AND KREOL ON TERMINATION OF THIS AGREEMENT FOR WHATEVER REASON WITHOUT SET OFF OR DEDUCTION SUBJECT TO THE APPROVAL OF THE RESERVE BANK OF INDIA REQUIRED IN THIS BEHALF. [CLAUSE 21.4] 7.4 AS PER CLAUSE 24.3 OF THE AGREEMENT IT WAS AGREED THAT NOTHING IN THIS AGREEMENT SHALL CONSTITUTE A PARTNERSHIP BETWEEN THE PARTIES HERETO OR CONSTITUTE EITHER PARTY AS AGENT FOR THE OTHER FOR ANY PURPOSE WHATSOEVER AND NEITHER PARTY SHALL HAVE THE AUTHORITY OR POWER TO BIND THE OTHER PARTY OR TO CONTRACT IN THE NAME OF OR CREATE A LIABILITY OF THE OTHER IN ANY WAY OR FOR ANY PURPOSE. 7.5 ON A CAREFUL CONSIDERATION OF ALL THE CLAUSES OF THE EXCLUSIVE PROCUREMENT AGREEMENT DATED 10 TH NOVEMBER 2000, IT IS EVIDENT THAT THE TERMS AND CONDITIONS OF T HE SAID AGREEMENT DOES NOT ENVISAGE ANY EXERCISE OF ABSOLUTE CONTROL OVER THE BUSINESS OF DUTY FREE SHOP BY ALPHA AND KREOL AS CONTENDED BY THE AO. THE AGREEMENT ONLY PROVIDES FOR SOLE AND EXCLUSIVE RIGHT COCHIN INTERNATIONAL AIRPORT 30 TO ALPHA TO PROVIDE SERVICES WITH KREOLS ASSISTANC E. ALPHA AND KREOL HAVE ONLY PROTECTED THEIR BUSINESS INTERESTS BY REQUIRING THE ASSESSEE TO PROCURE MERCHANDISE AND TO AVAIL SERVICES SOLELY FROM THEM DURING THE TERM OF THE AGREEMENT. AS PER CLAUSE 4.3, ALPHA SHALL FURNISH PERIODIC PROFORMA QUOTATIONS ON LY ON THE BASIS OF THE REQUIREMENTS OF THE ASSESSEE FOR THE MERCHANDISE TO BE STOCKED BY IT. THE ORDERS FOR THE MERCHANDISE TO BE PROCURED ARE PREPARED AND APPROVED BY THE ASSESSEE AND ALPHA HAS NO SAY IN IT. SIMILARLY, THE RETAIL PRICES AT WHICH THE MERCH ANDISE TO BE OFFERED FOR SALE IN THE RETAIL OUTLETS ARE DETERMINED BY ALPHA ONLY AFTER CONSULTING THE ASSESSEE IN THIS REGARD. IN OTHER WORDS, ALPHA DOES NOT DETERMINE AND HAS NO RIGHT TO DETERMINE THE RETAIL PRICES ON ITS OWN. IN FACT THE ASSESSEE HAS MAN DATED ALPHA NOT TO INTRODUCE ANY MERCHANDISE WITH AN EXPECTED GROSS MARGIN OF LESS THAN 15%. THE ISSUE OF LETTER OF CREDIT BY THE ASSESSEE TO ALPHA IS HOW THE COMMERCIAL CONTRACTS ARE ENTERED INTO IN THE REAL WORLD AND DOES NOT SUGGEST OF EXERCISE OF CONTR OL BY ALPHA. IT IS THE ASSESSEE WHO IS RESPONSIBLE TO ENSURE THAT THE WAREHOUSE IS SUITABLE IN ALL RESPECTS FOR THE STORAGE OF MERCHANDISE AS PER THE ADVISE GIVEN BY ALPHA FROM TIME TO TIME. BY NO STRETCH OF IMAGINATION, THIS CAN BE REGARDED AS EXERCISE OF CONTROL BY ALPHA. ALPHA HAS ALSO AGREED THAT IF ANY PAYMENT IS RECEIVED BY ALPHA OR KREOL FROM THE SUPPLIERS OF THE MERCHANDISE AS COMMISSION, FEE OR OTHERWISE, WHICH ARISES SOLELY AND EXCLUSIVELY FROM THE BUSINESS FOR THE AIRPORT, THE SAME SHALL BE FULLY ACCOUNTED TO THE ASSESSEE. THE PRICE PAYABLE BY THE ASSESSEE FOR MERCHANDISE SHALL ALSO BE NOTIFIED BY ALPHA AND THE ASSESSEE FROM TIME TO TIME. IT IS NOT A CASE WHERE THE PRICES ARE DETERMINED SOLELY BY ALPHA. COCHIN INTERNATIONAL AIRPORT 31 CLAUSE 11 OF THE AGREEMENT DEALING WITH MAIN TENANCE OF PROPER ACCOUNTS AND RECORDS AND CLAUSE 12 OF THE AGREEMENT DEALING WITH APPOINTMENT OF AN INDEPENDENT ACCOUNTANT ARE FOR THE PURPOSE OF DETERMINING THE QUANTUM AND ACCURACY OF COMMISSION FEE PAYABLE TO ALPHA. AS PER CLAUSE 14.4, THE ASSESSEE IS ENTITLED TO REJECT ANY MERCHANDISE DELIVERED WHICH IN ITS REASONABLE OPINION IS NOT OF MERCHANTABLE QUALITY. THE PARTIES TO THE AGREEMENT HAVE ALSO AGREED THAT THEY HAVE NO AUTHORITY OR POWER TO BIND THE OTHER PARTY OR TO CONTRACT IN THE NAME OR CREATE A L IABILITY OF THE OTHER IN ANY WAY OR FOR ANY PURPOSE. THE AFORESAID UNDISPUTED FACTS CLEARLY DEMONSTRATE THAT ALPHA DOES NOT EXERCISE ABSOLUTE CONTROL OVER THE BUSINESS OF DUTY FREE SHOPS AS CONTENDED BY THE LEARNED AO. THE FACT THAT ASSESSEE HAS TAKEN INT EREST FREE DEPOSIT FROM ALPHA AND KREOL FOR THE PURPOSE OF FINANCING THE CONSTRUCTION AND OPERATION OF DUTY FREE RETAIL OUTLETS DOES NOT MEAN THAT ALPHA AND KREOL ARE EXERCISING CONTROL OVER THE ASSESSEE. IT WAS A COMMERCIAL ARRANGEMENT BETWEEN THE PARTIES FOR THE PURPOSE OF RUNNING THE DUTY FREE OUTLETS AND NOTHING ELSE. THE FACT THAT THE BUSINESS OF DUTY FREE RETAIL OUTLETS ARE MANAGED AND CONDUCTED BY ALPHA AND KREOL AND THE FACT THAT RETAIL MANAGEMENT SERVICES ARE PROVIDED BY ALPHA KREOL INDIA PVT. LTD (AKIL FOR SHORT HEREAFTER), AN INDIAN COMPANY FLOATED BY ALPHA AIRPORT HOLDINGS BV, NETHERLAND AND KREOL TRADING EST, UAE DOES NOT IN ANY WAY DETERMINE THE EXISTENCE OF BUSINESS CONNECTION OF ALPHA AND KREOL IN INDIA. THE FACT THAT THE GENERAL MANAGER AN D THE ASSISTANT GENERAL MANAGER WHO CONTROL AND OVERSEE THE BUSINESS ACTIVITIES OF THE DUTY FREE SHOPS ARE DIRECTLY APPOINTED AND CONTROLLED BY AKIL ONLY INDICATES THE RESPONSIBILITY COCHIN INTERNATIONAL AIRPORT 32 AND THE OBLIGATIONS OF AKIL UNDER THE AGREEMENT AND THIS DOES NOT MEAN TH AT ALPHA AND KREOL HAVE AN INDIRECT CONTROL OVER THE BUSINESS CARRIED ON IN THE DUTY FREE RETAIL OUTLETS. SIMILARLY, THE FACT THAT SERVICES RENDERED BY ALPHA AND KREOL COVER ALMOST WHOLE OF THE ACTIVITIES OF THE BUSINESS OF DUTY FREE RETAIL OUTLETS REFLECT S THE RESPONSIBILITY AND THE OBLIGATIONS OF ALPHA AND KREOL FOR WHICH IT IS PAID COMMISSION FEE. MERELY BECAUSE, A FOREIGN ENTITY IS RENDERING SERVICES TO AN INDIAN ENTITY, IT CANNOT BE SAID THAT THERE EXISTS A BUSINESS CONNECTION IN INDIA. THE FACT THAT PAYMENT OF COMMISSION FEE IS DIRECTLY LINKED TO THE SALES MADE AT THE DUTY FREE SHOPS IS NOT AT ALL A RELEVANT FACTOR. THE CHARACTER OF A PAYMENT IS DETERMINED BY THE QUALITY OF THE PAYMENT AND NOT BY THE MEASURE OF PAYMENT. FOLLOWING OBSERVATIONS OF THE SUPREME COURT IN THE CASE OF SENAIRAM DOONGARMALL V. CIT [1961] 42 ITR 332 ARE RELEVANT IN THIS REGARD. THE COMPENSATION WHICH WAS PAID IN THE TWO YEARS WAS NO DOUBT PAID AS AN EQUIVALENT OF THE LIKELY PROFITS IN THOSE YEARS ; BUT, AS POINTED OUT BY LORD BUCKMASTER IN GLENBOIG UNION FIRECLAY CO. LTD. V. COMMISSIONERS OF INLAND REVENUE [1922] 12 T. C. 427 (H. L.) AND AFFIRMED BY LORD MACMILLAN IN VAN DEN BERGHS LTD. V. CLARK [1935] 3 I.T.R. (ENG. CAS.) 17 (H. L.). , ' THERE IS NO RELATION BETWEEN THE MEASUR E THAT IS USED FOR THE PURPOSE OF CALCULATING A PARTICULAR RESULT AND THE QUALITY OF THE FIGURE THAT IS ARRIVED AT BY MEANS OF THE APPLICATION OF THAT TEST. ' THIS PROPOSITION IS AS SOUND AS IT IS WELL - EXPRESSED, AND HAS BEEN FOLLOWED IN NUMEROUS CASES UND ER THE INDIAN INCOME - TAX ACT AND ALSO BY THIS COURT. IT IS THE QUALITY OF THE PAYMENT THAT IS DECISIVE OF THE CHARACTER OF THE PAYMENT AND NOT THE METHOD OF THE PAYMENT OR ITS MEASURE, AND MAKES IT FALL WITHIN CAPITAL OR REVENUE. ' AGAIN, AT PAGES 407 AND 408 OF THE REPORT [42 ITR 332 ] , THE LEARNED JUDGE OBSERVED : COCHIN INTERNATIONAL AIRPORT 33 ' NOW, WHEN THE PAYMENT WAS MADE TO COMPENSATE THE ASSESSEE, NO DOUBT THE MEASURE WAS THE OUT - TURN OF TEA WHICH WOULD HAVE BEEN MANUFACTURED ; BUT THAT HAS LITTLE RELEVANCE. THE ASSESSEE WAS NOT COMPENSATED FOR LOSS OR DESTRUCTION OF OR INJURY TO A CAPITAL ASSET. THE BUILDINGS WERE TAKEN FOR THE TIME BEING, BUT THE INJURY WAS NOT SO MUCH TO THE FIXED CAPITAL AS TO THE BUSINESS AS A WHOLE. ' 7.6 IN VIEW OF THE ABOVE, THE FACT THAT COMMISSION FEE I S DIRECTLY LINKED TO SALES MADE AT THE DUTY FREE SHOPS IS NOT A RELEVANT CRITERIA TO DETERMINE THE EXISTENCE OF BUSINESS CONNECTION OF ALPHA AND KREOL IN INDIA. THERE IS ALSO NO BASIS FOR THE AOS CONCLUSION THAT THE COMPLETION OF SALE HAPPENS IN INDIA. AS PER THE AGREEMENT, TITLE AND RISK TO THE MERCHANDISE SHALL TRANSFER TO ASSESSEE AT THE TIME OF DISPATCH FROM THE DELIVERY POINT. THE TERM DELIVERY POINT IS DEFINED TO MEAN SUCH SEA PORT(S) OR AIRPORT(S) OF DISPATCH (OUTSIDE INDIA) AS THE PARTIES FROM TIME TO TIME AGREE. THUS, ON THE BASIS OF THE AGREEMENT, IT CANNOT BE SAID THAT THE COMPLETION OF SALE HAPPENS IN INDIA. THERE IS NO MERIT IN THE CONTENTION OF THE AO THAT ALPHA HAS ALREADY BOOKED PROFITS AT THE TIME OF SELLING THE MERCHANDISE AND HENCE TH ERE IS NO NEED TO PAY ANY COMMISSION FEES. THE TRANSACTION OF SALE OF MERCHANDISE AND THE PROVISION OF OTHER PROCUREMENT SERVICES ARE DIFFERENT AND HENCE THE PAYMENT OF COMMISSION FEES IS JUSTIFIED. IN ANY CASE, PAYMENT OF COMMISSION FEES IS A BUSINESS DEC ISION AND THE REVENUE AUTHORITIES CANNOT PUT THEMSELVES INTO THE ARM CHAIR OF BUSINESSMAN AND DECIDE WHETHER A PARTICULAR EXPENDITURE WAS REALLY REQUIRED TO BE INCURRED. [SUPREME COURT IN S A BUILDERS CASE 288 ITR 1] THE CONCLUSION OF THE AO THAT IT IS AS SUMED THAT THE COMMISSION FEE IS ACTUALLY THE REMUNERATION MEANT FOR THE COCHIN INTERNATIONAL AIRPORT 34 SERVICES TO BE RENDERED IN INDIA IS BASED ON CONJECTURE AND SURMISES AND HENCE LIABLE TO BE REJECTED. ON AN OVERALL CONSIDERATION OF THE TERMS AND CONDITIONS OF THE EXCLUSIVE PROCURE MENT AGREEMENT DATED 10 TH NOVEMBER 2000, WE ARE OF THE VIEW THAT THERE IS NO MERIT IN THE CONCLUSION OF THE REVENUE AUTHORITIES THAT ALPHA AND KREOL HAD BUSINESS CONNECTION IN INDIA ON THE BASIS OF THE AFORESAID AGREEMENT. 7.7 HOWEVER, THE MATTER DOES NOT REST AT THIS STAGE. BOTH THE ASSESSING OFFICER AND THE CIT(A) HAVE NOT EXAMINED THE EXISTENCE OF BUSINESS CONNECTION AS PER THE STATUTORY DEFINITION OF THE TERM BUSINESS CONNECTION AS PER EXPLANATION 2 TO SECTION 9(1)(I). IN FACT THE ASSESSING OFFI CER HAS PROCEEDED ON THE PREMISE THAT THERE IS NO DEFINITION OF BUSINESS CONNECTION UNDER THE INCOME TAX ACT. THE INCLUSIVE DEFINITION OF THE TERM BUSINESS CONNECTION AS PER EXPLANATION 2 TO SECTION 9(1)(I) WAS INTRODUCED BY THE FINANCE ACT, 2003 W.E.F . 1.4.2004. THE SAID DEFINITION WAS INTRODUCED IN ORDER TO REMOVE DOUBTS REGARDING THE EXPRESSION BUSINESS CONNECTION AND TO ALIGN THE PROVISIONS OF THE ACT WITH THOSE OF THE DTAAS. [PARA 7.2 OF CBDT CIRCULAR NO. 7 OF 2003 DATED 5 TH SEPTEMBER 2003] THUS , WITH EFFECT FROM AY 2004 - 05, THE EXISTENCE OF BUSINESS CONNECTION IN INDIA, IF ANY, HAVE TO BE DETERMINED ON THE BASIS OF THE AFORESAID DEFINITION. THE REVENUE AUTHORITIES HAVE ALSO NOT CONSIDERED THE CBDT CIRCULAR NO. 23 DATED 23.7.1969 WHICH HAS PROV IDED SOME CLARIFICATIONS AS TO BUSINESS CONNECTION UNDER SECTION 9(1)(I). WE ARE AWARE THAT THE AFORESAID CIRCULAR WAS WITHDRAWN BY CIRCULAR NO. 7 OF 2009 W.E.F. 22.10.2009. HOWEVER, THE PRESENT APPEALS ARE PERTAINING TO AY 2005 - 06 TO AY 2009 - 10 DURING W HICH CIRCULAR NO. 23 WAS VERY COCHIN INTERNATIONAL AIRPORT 35 MUCH APPLICABLE. WE ARE FORTIFIED IN OUR CONCLUSION BY THE FOLLOWING DECISIONS WHICH HAVE HELD THAT WITHDRAWAL OF CIRCULAR NO. 23 DATED 23.7.1969 IS ONLY PROSPECTIVE AND NOT RETROSPECTIVE. CIT V ALLIED EXIMS ITA NO. 313 OF 201 3 13.11.2013 ALLAHABAD HIGH COURT [2014] 363 ITR 62 CIT V MODEL EXIMS [2014] 363 ITR 66 (ALLAHABAD HIGH COURT) CIT V ANGELIQUE INTERNATIONAL LTD ITA NOS. 280/2013 & 454/2013 23.9.2013 DELHI HIGH COURT 7.8 THE LEARNED CIT(A) HAS ALSO CONCLUDED TH AT ALPHA AND KREOL HAS PE IN INDIA AS PER THE DTAAS WITHOUT DEMONSTRATING AS TO HOW AND UNDER WHICH CLAUSE THE EXISTENCE OF PE IS SATISFIED. THE ORDER OF THE LEARNED CIT(A) IS NOT A ELABORATE ORDER IN THIS REGARD. THE REVENUE AUTHORITIES HAVE ALSO NOT C ONSIDERED THE DECISIONS IN METEOR SATELLITE LTD. V ITO [1980] 121 ITR 311 (GUJ) AND CIT V. COPES VULCAN INC. (1987) 167 ITR 884 (BOM) WHEREIN IT WAS HELD THAT AMONG SECTION 9(1 )(VII) AND 9(1)(I), SECTION 9(1)(VII) IS MORE SPECIFIC AND HENCE TAXABILITY OF FEES OF TECHNICAL SERVICES SHOULD BE DETERMINED BY APPLYING SECTION 9(1)(VII) AND NOT SECTION 9(1)(I). ARGUMENTS HAVE ALSO BEEN ADVANCED BEFORE THE BENCH AS TO HOW THE COMMISS ION FEES PAID TO ALPHA AND KREOL DOES NOT CONSTITUTE FEES FOR TECHNICAL SERVICES UNDER THE ACT/TREATY. HOWEVER, THE SAME WAS NOT SUBJECT MATTER OF SERIOUS CONSIDERATION EITHER BEFORE THE AO NOR THE CIT(A). IN VIEW OF THE ABOVE, WE ARE OF THE VIEW THAT T HE MATTER SHOULD BE CONSIDERED AFRESH BY THE LEARNED AO AS PER OUR AFORESAID OBSERVATIONS. CONSEQUENTLY, WE SET ASIDE THE MATTER TO THE FILE OF THE AO WITH DIRECTIONS TO THE AO TO APPLY THE STATUTORY DEFINITION OF BUSINESS CONNECTION UNDER SECTION 9(1)( I) AND TO EXAMINE THE APPLICABILITY OF PE DEFINITION AS PER THE RELEVANT COCHIN INTERNATIONAL AIRPORT 36 TREATIES. THE LEARNED AO IS ALSO DIRECTED TO CONSIDER CBDT INSTRUCTION NO. 2 OF 2014 DATED 26.2.2014 WHICH PROVIDES THAT THE AO SHALL DETERMINE THE APPROPRIATE PROPORTION OF THE SUM CHARGEABLE TO TAX AS PER SECTION 195(1) TO ASCERTAIN THE TAX LIABILITY ON WHICH THE DEDUCTOR SHALL BE DEEMED TO BE AN ASSESSEE IN DEFAULT UNDER SECTION 201. 8 IN THE RESULT, ASSESSEES APPEALS ARE ALLOWED FOR STATISTICAL PURPOSES AS PER OUR AFORESAID DIR ECTIONS. 9. WE SHALL NOW TAKE U P FOR ADJUDICATION THE REVENUES APPEAL. ITA NO. 397/COCH/2014 (BY THE REVENUE) 9 .1 THE SOLITARY ISSUE THAT IS RAISED IN THE REVENUES APPEAL IS WHETHER THE CIT(A) IS JUSTIFIED IN HOLDING THAT THE PAYMENT MADE BY THE ASSES SEE TO M/S SHENZHEN CIME - TIANDA AIRPORT SUPPORT LTD, FOR DESIGNING, DRAWING, SUPPLY AND INSTALLATION OF THREE PASSENGER BOARDING BRIDGES AT COCHIN INTERNATIONAL AIRPORT, IS NOT LIABLE FOR TAX DEDUCTION AT SOURCE. 9.2 THE RELEVANT PORTION OF THE AO WHIC H HAS CONSIDERED THE ISSUE READ AS UNDER: AT PAGE: 6 - 7 11. IT IS SEEN THAT VIDE WORK ORDER NO. WO/33/2004 - 05 DATED 17.9.2004, CIAL HAD ENTERED INTO A CONTRACT WITH M/S SHENZHEN CIMC - TIANDA AIRPORT SUPPORT LTD., SHENZHEN, GUANGDONG, CHINA FOR SUPPLY AND I NSTALLATION OF 3 PASSENGER BOARDING BRIDGES AT THE COCHIN INTERNATIONAL COCHIN INTERNATIONAL AIRPORT 37 AIRPORT. AS PER THE WORK ORDER THE TOTAL VALUE OF THE CONTRACT WAS US$ 759560/ - . THE C ON TRACT CONSISTED OF 3 PARTS. THEY ARE: I ) DESIGN & DRAWING US$ 180329.10 II ) COST OF EQUIPME NT US$ 420767.90 III ) ACCESSORIES & SPARES US$ 158463.00 TOTAL US$ 759560.00 OUT OF HE ABOVE, THE VALUE OF DESIGN & DRAWING IS TO BE TREATED AS ROYALTY U/S 9(1)(VI). AS SUCH, TAX IS REQUIRED TO BE DEDUCTED FROM ROYALTY PAID/PAYABLE. IT IS ALSO SEEN THAT THE TOTAL AMOUNT PAID TOWARDS THIS CONTRACT HAD BEEN US $ 769750/ - EQUAL TO RS. 3,37,24,761. THE MAJOR PART OF THE PAYMENT I.E. 75% OF THE TOTAL VALUE WAS PAID ON 1.4.2005. AS PER THE ARTICLE 13 OF THE DTA AGREEMENT WITH CHINA, TAX @ 10.20% OF THE VALUE OF DESIGN & DRAWING WAS REQUIRED TO BE DEDUCTED BUT NOT - DEDUCTED WHEN THE PAYMENT HAD BEEN MADE. THE VALUE OF DESIGN AND DRAWING IS ESTIMATED AT 23.74% OF THE TOTAL VALUE PAID WHICH COMES TO RS. 80 ,06,258/ - . 9. 3 ACCORDINGLY, THE AO WAS OF THE VIEW THAT THE TAX HAS TO BE DEDUCTED FOR A SUM OF RS. 8 ,16,638 / - (10.20% OF RS 80,06,258/ - ) AND HAVING FAILED TO DEDUCT THE TAX, THE ASSESSEE WAS TREATED AS AN ASSESSEE IN DEFAULT U/S 201(1) OF THE ACT AN D INTEREST ALSO WAS LEVIED U/S 201(1A) OF THE ACT. 9. 4 ON FURTHER APPEAL TO THE FIRST APPELLATE AUTHORITY, THE CIT(A) HELD THAT THE PAYMENTS WERE PRIMARILY TOWARDS PROCUREMENT OF EQUIPMENTS AND THE SAME WAS NOT LIABLE FOR TAX DEDUCTION AT SOURCE. THE R ELEVANT PORTION OF THE FINDINGS OF THE CIT(A) READ AS UNDER: ( AT PAGE 23 ) 15. AS FAR AS THE PAYMENTS OF PASSENGER BOARDING BRIDGES IN AY 2006 - 07 TO M/S SHENZHEN CIMC - TINANDA AIRPORT SUPPORT LTD, SHENZHEN, GUANGDONG, CHINA IS CONCERNED, IT IS EVIDENT THAT SUCH PAYMENTS ARE PRIMARILY TOWARDS PROCUREMENT OF EQUIPMENT, AND THE CHARGES FOR DESIGN AND DRAWING DO NOT CONSTITUTE ROYALTY PAYMENTS SINCE THEY ARE NO5 FOR ANY EXCLUSIVE AND LONG - TERM RIGHT TO USE ANY PATENT, INVENTION OR DESIGN. THE PAYMENTS WERE A C OMPOSITE PAYMENT FOR PROCUREMENT OF COCHIN INTERNATIONAL AIRPORT 38 EQUIPMENTS, AND CUSTOM DUTY WAS PAID EVEN ON THE IMPUGNED DESIGN AND DRAWING CHARGES, SERVICES WHICH WERE DELIVERED OUTSIDE INDIA. THEREFORE, IT IS HELD THAT THE AO WAS NOT CORRECT IN HOLDING THAT TDS WAS EXIGIBLE IN IND IA ON SUCH PAYMENTS. 9.5 THE REVENUE BEING AGGRIEVED IS IN APPEAL BEFORE US. 9.6 WE HAVE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD. THE CIT(A) DECIDED THE ISSUE IN FAVOUR OF THE ASSESSEE BY HOLDING THAT THE PAYMENTS TO M/S SHENZHEN CIME - TIANDA AIRPORT SUPPORT LTD,, ARE PRIMARILY FOR PROCUREMENT OF EQUIPMENTS AND THE CHARGES FOR DESIGNING & DRAWING DO NOT CONSTITUTE ROYALTY , SINCE , THEY ARE NOT FOR ANY EXCLUSIVE AND LONG TERM RIGHT TO USE ANY PATENT, INVENTION OR DESIGN. THE CIT( A) FURTHER HELD THAT IT IS A COMPOSITE PAYMENT FOR PROCUREMENT OF EQUIPMENTS AND CUSTOM DUTY HAS PAID FOR THE ENTIRE INVOICE. IN THE INSTANT CASE, IT IS AN ADMITTED FACT THAT THE CHARGES FOR DESIGN & DRAWING ARE INDEPENDENTLY IDENTIFIED. THE PAYMENTS UN DER THE HEAD DESIGN & DRAWING IS CONSIDERED FOR USE OF DESIGN, MODEL, PLAN AND ALSO INFORMATION CONCERNING INDUSTRIAL EXPERIENCE WHICH FALLS WITHIN THE DEFINITION OF ROYALTY IN ARTICLE 12(3) OF DTAA BETWEEN CHINA & INDIA. AS PER ARTICLE 12 OF DTAA BETWE EN INDIA AND CHINA, ROYALTY SHALL DEEM TO HAVE BEEN ARISEN IN INDIA WHEN PAYER IS RESIDENT IN INDIA AND HAS USED THE SERVICE IN ITS BUSINESS IN INDIA. THIS ASPECT HAS NOT BEEN CONSIDERED BY THE CIT(A) WHILE DECIDING THE ISSUE IN FAVOUR OF THE ASSESSEE. MO REOVER, WHETHER SUCH PAYMENT IS WITHIN THE TERM F EE FOR TECHNICAL SERVICES FALLING U/S 9(1)(VII) OF THE I T ACT ON WHICH TAX HAS TO BE DEDUCTED WAS ALSO NOT A SUBJECT MATTER OF EXAMINATION COCHIN INTERNATIONAL AIRPORT 39 BEFORE ANY OF THE AUTHORITIES. THEREFORE, FOR A DETAILED CONSIDE RATION OF THE ISSUE IN QUESTION, WE ARE OF THE OPINION THAT THE MATTER NEEDS TO BE CONSIDERED AFRESH BY THE AO. THE AO SHALL DECIDE THE ISSUE AS EXPEDITIOUSLY AS POSSIBLE AFTER AFFORDING REASONABLE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. IT IS ORDE RED ACCORDINGLY. 1 0 TO SUM - UP, THE APPEALS OF THE ASSESSEE AS WELL AS THE REVENUE ARE ALLOWED FOR STATISTICAL PURPOSE. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12TH DAY OF JAN 2016. SD/ - SD/ - ( B P JAIN) (GEORGE GEORGE K) ACCOUNTANT MEMBER JUDICIAL MEMBER COCHIN: DATED 12 TH JAN 2016 RAJ* COPY TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT(A) 4 . CIT, 5 . DR 6 . GUARD FILE BY ORDER ASSISTANT REGISTRAR ITAT, COCHIN COCHIN INTERNATIONAL AIRPORT 1