M/s. Hitachi Metglas (India) Pvt. Ltd., New Delhi V. DCIT, New Delhi

ITA 3694/DEL/2016

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 3508 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 3 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 13-10-2021
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: C
• Assessment Year: 2011-2012
• Appeal Filed On: 21-06-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: FARHAT KHAN
• Keywords: Transfer pricing; TDS
• Section: 271(1)(c); 195; 251; 64; 48; 9(1); 9(1); 9(1); 194J; 13; 153; 92CA; 6

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH D, NEW DELHI BEFORE SH. KUL BHARAT, JUDICIAL MEMBER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER (THROUGH VIDEO CONFERENCING) ITA NO. 3694/DEL/2016 : ASSTT. YEAR : 2011-12 M/S HITACHI METGLAS (INDIA) PVT. LTD., (NOW MERGED WITH HITACHI METALS INDIA PVT. LTD.), 1C, VANDANA BUILDING, 11, TOLSTOY MARG, CONNAUGHT PLACE, NEW DELHI-110001 VS DCIT, CIRCLE-11(2), NEW DELHI-110002 (APPELLANT) (RESPONDENT) PAN NO. AA BCH9302G ASSESSEE BY : SH. HIMANSHU SINHA, ADV. REVENUE BY : SH. FARHAT KHAN, SR. DR DATE OF HEAR ING: 29 . 07 .20 2 1 DATE OF PRONOUNCEMENT: 13 .10 .20 2 1 ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: THE PRESENT APPEAL HAS BEEN FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. CIT(A)-16, NEW DELHI DATED 15. 03.2016. 2. FOLLOWING GROUNDS HAVE BEEN RAISED BY THE ASSESS EE: 1. LD. CIT(A) / AO HAVE ERRED IN CONFIRMING DISALLOWANCE OF INR 35,60,212 UNDER SECTION 40(A)(I ) OF THE ACT. 2. LD. CIT(A) / AO HAVE ERRED IN LAW AND ON FACTS OF THE CASE IN HOLDING THAT THE NETWORK AND ADMINISTRATIVE SUPPORT SERVICES RENDERED TO THE APPELLANT BY ITS NON-RESIDENT GROUP COMPANIES & OTHERS ARE TECHNICAL IN NATURE AND PARTAKES THE ITA NO. 3694/DEL/2016 HITACHI METGLAS ((INDIA) PVT. LTD. 2 CHARACTER OF FEE FOR TECHNICAL SERVICES (FTS) UND ER SECTION 9(1)(VII) OF THE ACT. 3. LD. CIT(A) / AO HAVE ERRED IN LAW AND ON FACTS OF THE CASE IN PRESUMING THAT THERE IS AN ELEMENT O F MANAGERIAL, TECHNICAL OR CONSULTANCY IN THE SERVICE S RENDERED TO APPELLANT BY ITS NON-RESIDENT GROUP COMPANIES, BY COMPLETELY DISREGARDING FACTS INCLUDING THAT THE PROVISIONING OF SUCH SERVICES DI D NOT INVOLVE ANY HUMAN INTERVENTION. 4. LD. CIT(A) / AO HAVE ERRED IN LAW AND ON FACTS OF THE PRESENT CASE BY HOLDING THAT PAYMENTS MADE FOR NETWORK AND ADMINISTRATIVE SUPPORT CHARGES ARE CHARACTERIZED AS FTS UNDER SECTION 9(1)(VII) OF THE ACT AND THEREFORE THE APPELLANT IS LIABLE TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE ACT. 5. LD. CIT(A) / AO HAVE ERRED IN LAW AND ON FACTS OF THE CASE BY NOT CONSIDERING ALL MATERIALS / SUBMISSIONS FILED DURING THE COURSE OF ASSESSMENT / APPELLATE PROCEEDINGS. 6. LD. AO HAS ERRED BY ALLEGING THAT THE ASSESSEE HAS FURNISHED INACCURATE PARTICULARS OF INCOME, THEREBY PROPOSING TO INITIATE PENALTY PROCEEDINGS UNDER SECTION 271(1)(C) OF THE ACT. 3. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF DESIGNING AND MANUFACTURING OF CORES AND OTHER AMOR PHOUS METAL OR NANOCRYSTALINE SOFT MAGNETIC METAL USED IN TRANSMISSION AND DISTRIBUTION EQUIPMENT AND IN ELEC TRONIC AND COMPUTER PRODUCTS AND OTHER RELATED PRODUCTS. 4. THE ASSESSEE FILED RETURN OF INCOME ON 29.11.201 1 DECLARING INCOME OF RS.17,48,94,464/-. DURING THE Y EAR UNDER CONSIDERATION, THE ASSESSEE HAS UNDERTAKEN INTERNAT IONAL TRANSACTION WITH ITS ASSOCIATED ENTERPRISES (AE) AN D THE MATTER WAS REFERRED TO THE TPO IN ACCORDANCE WITH THE SECT ION 92CA OF ITA NO. 3694/DEL/2016 HITACHI METGLAS ((INDIA) PVT. LTD. 3 THE INCOME TAX ACT, 1961. THE TPO PASSED AN ORDER U /S 92CA(3) OF THE ACT DATED 25.08.2014 IN WHICH NO ADJ USTMENTS HAVE BEEN MADE WITH REGARD TO THE INTERNATIONAL TRA NSACTION. 5. DURING THE YEAR, THE ASSESSEE COMPANY PAID FOR S UPPORT & ANALYSIS SYSTEM PROVIDED BY THREE A.E.S NAMELY M/S METGLASS INC USA, HITACHI ASIA LTD. SINGAPORE AND HITACHI LT D. JAPAN. WITH THIS SUPPORT SYSTEM & ANALYSIS, THE ASSESSEE C OMPANY IS PRODUCING CERTAIN ARTICLES OR THINGS IN INDIA & THE REFORE THE ASSESSING OFFICER HELD THAT THE INCOME IS CLEARLY A RISING OR ACCRUING & ALSO DEEMED TO BE ACCRUING IN INDIA U/S 9(1) OF THE I.T. ACT. 6. THE AO HELD WITH REGARD TO THE FEE FOR TECHNICAL SERVICES USED IN INDIA, IT CAN BE SAID THAT THE SERVICES REN DERED ARE SUCH WHICH REQUIRE EXPERTISE AND KNOWLEDGE IN THE SPECIF IC AREA OF WORK AND SUCH EXPERTISE CANNOT BE DEVELOPED OVERNIG HT BUT IS THE RESULT OF LONG PERIOD OF WORK IN THIS LINE OF A CTIVITIES COUPLED WITH ACCUMULATED EXPERIENCE OF OPERATIONS. HENCE, T HE PAYMENTS MADE BY THE TAXPAYER TO THE AES NAMELY, ME TGLASS INC USA, HITACHI ASIA LTD. SINGAPORE AND HITACHI LT D. JAPAN PARTAKES THE CHARACTER OF FTS UNDER THE DOMESTIC LA W. 7. IN VIEW OF THE ABOVE, THE ASSESSING OFFICER HELD THAT ASSESSEE WAS LIABLE TO DEDUCT TDS ON ADMIN AND NETW ORK SUPPORT SERVICE CHARGES OF RS.35,60,212/- PAID BY H ITACHI METGLASS INDIA PVT. LTD. TO METGLASS INC USA, HITAC HI ASIA LTD. SINGAPORE AND HITACHI LTD. JAPAN. SINCE THE ASSESS EE DID NOT DEDUCT TDS AS PER PROVISIONS OF THE SECTION 195 OF THE ACT; THEREFORE TOTAL DEDUCTION OF EXPENDITURE OF RS.53,7 6,510/- ON ADMIN AND NETWORK SUPPORT SERVICE CHARGES AS CLAIME D BY THE ITA NO. 3694/DEL/2016 HITACHI METGLAS ((INDIA) PVT. LTD. 4 ASSESSEE WAS DISALLOWED AND ADDED BACK TO THE TOTAL INCOME THE ASSESSEE. 8. THE LD. CIT(A) CONFIRMED THE ACTION OF THE AO RE FERRING TO THE SECTION 4, SECTION 5 AND SECTION 8 OF THE AGREE MENT BETWEEN THE ASSESSEE AND THE HITACHI ASIA LTD. AND HITACHI LTD. AND HOLDING THAT HUMAN INTERVENTION IS IN FACT AN INTEGRAL PART OF THE SERVICE AGREEMENT. 9. BEFORE US, THE LD. AR ARGUED THAT THE SERVICES C ANNOT BE TREATED AS FEE FOR TECHNICAL SERVICES AS THE AMOU NTS HAVE BEEN PAID FOR LINK CHARGES FOR MAIL AND INTERNET SE RVICES WHICH DO NOT NEED IN HUMAN INTERVENTION. HE ARGUED THAT THE SERVICES ARE SEAMLESS AND THE TRANSMISSION IS AUTOM ATIC IN NATURE. 10. ON THE OTHER HAND, THE LD. DR ARGUED THAT HUMA N INTERVENTION IS A PART OF SERVICE AGREEMENT AND TH E AE ALSO PROVIDES FOR CERTAIN SERVICE PERSONNEL. HENCE, THE SERVICES AVAILED SHOULD BE TREATED AS FEE FOR TECHNICAL SER VICES U/S 9(1)(VII). 11. HEARD THE ARGUMENTS OF BOTH THE PARTIES AND PER USED THE MATERIAL AVAILABLE ON RECORD. 12. THE SECTIONS REFERRED BY THE LD. CIT(A) PERTAIN ING TO THE MASTER SERVICE AGREEMENT BETWEEN THE ASSESSEE AND H ITACHI LTD. ARE AS UNDER: ITA NO. 3694/DEL/2016 HITACHI METGLAS ((INDIA) PVT. LTD. 5 'SECTION 4 INFORMATION AND ACCESS EACH OF HAS AND SERVICE RECIPIENT MAY HAVE IN ITS P OSSESSION OR UNDER ITS CONTROL (OR THE CONTROL OF PERSONS OR FIR MS WHICH HAVE RENDERED SERVICES TO OR OTHERWISE DONE BUSINESS WIT H IT) BOOKS, RECORDS, CONTRACTS, INSTRUMENTS, DATA AND OTHER INF ORMATION (COLLECTIVELY, 'INFORMATION') WHICH MAY BE NECESSAR Y OR DESIRABLE TO THE OTHER IN CONNECTION WITH THE PERFO RMANCE OF THIS AGREEMENT. WORN- LOTION SHALL INCLUDE, WITHOUT LIMITATION, INFORMATION REQUIRED FOR PURPOSES OF AUDIT, ACCOUNT ING, CLAIMS LITIGATION AND TAX AS WELL AS FOR PURPOSES OF FULFI LLING DISCLOSURE AND REPORTING OBLIGATIONS UNDER ANY APPLICABLE LAWS . ACCORDINGLY: (I) HAS AGREES AN PROVIDE TO SERVICE RECIPIENT AND SERVICE RECIPIENT AGREES TO PROVIDE TO HAS UPON THE OTHERS WRITTEN REQUEST AT ALL REASONABLE TIMES FULL AND COMPLETE A CCESS TO (INCLUDING, ACCESS TO PERSONS OR FIRMS POSSESSING I NFORMATION) AND DUPLICATION RIGHTS WITH RESPECT TO ANY AND ALL SUCH INFORMATION AS THE OTHER MAY REASONABLY REQUEST AND REQUIRE IN CONNECTION WITH THE PERFORMANCE OF THIS AGREEMEN T: AND (II) EACH OF HAS AND SERVICE RECIPIENT AGREES TO U SE ITS REASONABLE EFFORTS TO MAKE AVAILABLE TO EACH OTHER UPON THE OTHER PARTY'S WRITTEN REQUEST THEIR RESPECTIVE OFFI CERS, DIRECTORS, EMPLOYEES AND AGENTS AS WITNESSES TO THE EXTENTS THAT SUCH PERSONS MAY REASONABLY BE REQUIRED CONNEC TION WITH ANY LEGAL, ADMINISTRATIVE OR OTHER PROCEEDINGS IN W HICH HAS OR SERVICE RECIPIENT AS THE CASE MAY BE FROM TIME T O TIME BE INVOLVED. ITA NO. 3694/DEL/2016 HITACHI METGLAS ((INDIA) PVT. LTD. 6 SECTION 5 MAIL, ETC. EACH OF HAS AND SERVICE RECIPIENT MAY RECEIVE MAIL, PACKAGES AND OTHER COMMUNICATIONS PROPERLY BELONGING TO THE OTHER PURSUANT TO HAS PROVIDING THE SERVICES. ACCORDINGLY , END; OF HAS AND SERVICE RECIPIENT AUTHORIZES THE OTHER TO RECEIVE AND OPEN AIL MAIL, PACKAGES AND OTHER COMMUNICATIONS RE CEIVED BY IT AND NOT EXPRESSLY RESTRICTED AS IN CONFIDENTIAL HANDLING, AND TO RETAIN THE SAME TO THE EXTENT THAT THEY RELATE T O THE BUSINESS OF THE RECEIVING PARTY OR TO THE EXTENT THAT THEY D O NOT RELATE TO THE BUSINESS OF THE RECEIVING PARTY AND DO RELATE T O THE BUSINESS OF THE OTHER PARTY, OR IN THE EXTENT THAT THEY RELA TE TO BOTH BUSINESSES, THE RECEIVING PARTY SHALL PROMPTLY CONT ACT THE OTHER PARTY BY TELEPHONE FOR DELIVERY INSTRUCTIONS AND SU CH MAIL, PACKAGES OR OTHER COMMUNICATIONS (OR IN CASE THE SA ME RELATE TO BOTH BUSINESSES, COPIES THEREOF) SHALL PROMPTLY BE FORWARDED TO THE OTHER PARTY IN ACCORDANCE WITH ITS DELIVERY INSTRUCTIONS. THE FOREGOING PROVISIONS OF THIS SECTION 5 SHALL CO NSTITUTE FULL AUTHORIZATION TO THE POSTAL AUTHORITIES ALL TELEGRA PH AND EXPRESS COMPANIES AND ALL OTHER PERSONS TO MAKE DELIVERIES TO HAS OR SERVICE RECIPIENT, AS THE CASE MAY BE ADDRESSED TO EITHER OF THEM OR TO ANY OF THEIR OFFICERS AND/OR DIRECTORS I N THEIR CAPACITIES AS SUCH. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS AGREEMENT THE PROVISIONS OF THIS SECTION 5 ARE NOT INTENDED TO AND SHALL NOT BE DEEMED TO CONSTITUTE AN AUTHORI ZATION BY EITHER HAS OR SERVICE RECIPIENT TO PERMIT THE OTHER TO ACCEPT SERVICE OF PROCESS ON ITS BEHALF AND NEITHER PARTY IS OR SHALL BE DEEMED TO BE THE AGENT OF THE OTHER FOR SERVICE OF PROCESS PURPOSES. ITA NO. 3694/DEL/2016 HITACHI METGLAS ((INDIA) PVT. LTD. 7 SECTION 8 CONFIDENTIALITY EXCEPT AS OTHERWISE REQUIRED UNDER APPLICABLE LAW O R LEGAL PROCESS, HAS AND SERVICE RECIPIENT AGREE TO MAINTAI N AS CONFIDENTIAL AND NOT TO DISCLOSE TO ANY THIRD PARTY ANY AND ALL CONFIDENTIAL INFORMATION PROVIDED BY ONE PARTY TO T HE OTHER OR OTHERWISE OBTAINED BY ONE PARTY FROM THE OTHER PART Y IN THE PERFORMANCE OF THIS AGREEMENT. 'CONFIDENTIAL INFORM ATION' SHALL MEAN THE NON-PUBLIC INFORMATION OF EACH PARTY, BUT SHALL NOT INCLUDE INFORMATION THAT: (A) AT THE TIME OF DISCLO SURE IS PUBLISHED OR IS OTHERWISE IN THE PUBLIC DOMAIN; (B) AFTER DISCLOSURE BECOMES PART OF THE PUBLIC DOMAIN OTHER THAN THROUGH A BREACH OF THIS CLAUSE BY THE RECEIVING PA RTY; (C) WAS KNOWN TO THE RECEIVING PARTY PRIOR TO RECEIPT FROM THE DISCLOSING PARTY PROVIDED SUCH PRIOR KNOWLEDGE CAN BE ADEQUATE LY SUSTAINED BY DOCUMENTARY EVIDENCE DATED PRIOR TO TH E DISCLOSED (D) IS DISCLOSED BY A THIRD PARTY WHO, IN MAKING SU CH INFORMATION AVAILABLE TO THE RECEIVING PARTY IS NOT IN VIOLATION OF ANY OBLIGATION OF CONFIDENTIALITY TO THE OTHER PART Y HERETO; OR (E) HAS BEEN DISCLOSED BY THE DISCLOSING PARTY TO A NON- PARTY ON AN UNRESTRICTED BASIS.' 13. FURTHER, WE HAVE GONE THROUGH THE SECTION 1 PER TAINING TO SCOPE OF WORK (SOW) AS MENTIONED IN PARA 1.1 OF THE SAID AGREEMENT. THE SOW DEALS WITH PROVIDING GLOBAL WAN WHICH IS A BROADBAND NETWORK THAT SPANS THE ENTIRE HITACHI GRO UP AND A CORPORATE PLATFORM THAT ENCOMPASSES WAN NETWORKS VA RYING IN THEIR MODES OF IMPLEMENTATION. THE GLOBAL WAN IS AB LE TO PROVIDE HITACHI GROUP COMPANIES WITH THE SERVICES L IKE TWO-WAY CONNECTIVITY BETWEEN LOCATIONS/GROUPED FIRMS- BUILD S SECURE ITA NO. 3694/DEL/2016 HITACHI METGLAS ((INDIA) PVT. LTD. 8 TWO-WAY CONNECTIVITY AMONG HITACHI GROUP COMPANIES NETWORKS VARYING IN SECURITY LEVEL. THE SERVICES PROVIDED BY HITACHI LIMITED (JAPAN) INCLUDED MANAGED DATA NETWORK FOR T HE APPELLANTS OFFICE SITUATED IN GURGAON. A BRIEF OVE RVIEW OF THE GWAN SERVICES AND THE PROCESS INVOLVED IN PROVISION OF SUCH SERVICES WAS PROVIDED AT PAGES 11 TO 16 OF THE PAPE R BOOK. THE INVOICES RAISED BY THE SERVICE PROVIDING ENTITIES ( HITACHI LTD, JAPAN AND HITACHI ASIA LTD, SINGAPORE) MENTIONS THA T THE SERVICES PROVIDED WERE FOR LINK CHARGES AND INTERN ET. PAYMENT MADE TO A GROUP COMPANY FOR INTRA-GROUP INTRANET AN D SERVER MAINTENANCE. 14. WE FIND THAT THE SERVICES PROVIDED BY THE NON-R ESIDENT AES TO THE ASSESSEE ARE STANDARD AUTOMATED SERVICES. TH ESE SERVICES, AS SPECIFIED ABOVE, ARE PROVIDED TO ENABL E THE ASSESSEE TO SEND AND RECEIVE DATA THROUGH THE BROAD BAND NETWORK OVER THE INTRANET AND INTERNET. ALL COMPANI ES OF THE HITACHI GROUP ARE PROVIDED WITH NETWORK SERVICES TO EXCHANGE INFORMATION THROUGH INTRANET AND REGULATE USE OF IN TERNET THROUGH ITS PROXY SERVERS OR PROVIDE REMOTE ACCESS TO LOG ON TO THE COMPANYS NETWORK. IT IS A SETTLED LAW THAT STA NDARD/ COMMON SERVICES CANNOT PARTAKE THE CHARACTER OF FTS UNDER THE IT ACT. 15. THE HONBLE MADRAS HIGH COURT IN THE CASE OF SK YCELL COMMUNICATIONS LTD. V. DY. CIT 251 ITR 53 HELD THAT CALL CHARGES RECEIVED FROM TELECOM OPERATORS FROM FIRMS AND COMPANIES SUBSCRIBING TO CELLULAR MOBILE SERVICES P ROVIDED BY THEM DO NOT COME WITHIN THE DEFINITION OF TECHNICAL SERVICES UNDER SECTION 194J READ WITH SECTION 9(1)(VII) EXPL ANATION 2 AS ITA NO. 3694/DEL/2016 HITACHI METGLAS ((INDIA) PVT. LTD. 9 IT A MERE COLLECTION OF FEE FOR USE OF STANDARD FAC ILITY PROVIDED TO ALL THOSE WILLING TO PAY FOR IT. 16. RELIANCE IN THIS REGARD IS PLACED ON THE RULING OF THE HONBLE SUPREME COURT IN THE CASE OF CIT VS. KOTAK SECURITIES LTD. [2016] 383 ITR 1 (SC) WHEREIN IT WAS HELD THAT COMMON OR STANDARD SERVICES PROVIDED TO EVERY MEMBER WHO WANT S TO TRADE ON THE STOCK EXCHANGE CANNOT BE TERMED AS FEE FOR T ECHNICAL SERVICE UNDER EXPLANATION 2 TO SECTION 9(1)(VII) OF THE IT ACT(PARA 9). 17. IN THE RULING OF CIT VS. MEDIA WORLD WIDE (P.) LTD. 120 TAXMANN.COM 423, THE HONBLE CALCUTTA HIGH COURT OB SERVED THAT MERE COLLECTION OF A 'FEE' FOR USE OF A STANDA RD FACILITY WHICH IS AVAILABLE TO EVERYBODY AGAINST PAYMENT OF A FEE, DOES NOT AMOUNT TO THE PROVIDER OF THE FACILITY RECEIVIN G FEE FOR TECHNICAL SERVICES. 18. IN THE RULING OF CIT VS. ESTEL COMMUNICATION (P .) LTD. 318 ITR 185, HONBLE DELHI HIGH COURT HELD THAT THE TAX PAYER IN THAT CASE WAS MERELY PAYING FOR AN INTERNET BANDWIDTH TO THE DEDUCTEE AND THEN SELLING IT TO ITS CUSTOMERS. IT O BSERVED THAT THE USE OF INTERNET FACILITY MAY REQUIRE SOPHISTICA TED EQUIPMENT BUT THAT DOES NOT MEAN THAT TECHNICAL SERVICES WERE BEING RENDERED BY THE DEDUCTEE TO THE TAXPAYER IN THAT CA SE. IT WAS A SIMPLE CASE OF PURCHASE OF INTERNET BANDWIDTH BY TH E TAXPAYER FROM THE DEDUCTEE. THE HIGH COURT HELD THAT THE PRO VISIONS OF SECTION 9(1)(VII) OF THE IT ACT DID NOT APPLY. 19. THE INVOICES RAISED BY HITACHI LIMITED, JAPAN A ND HITACHI ASIA LIMITED, SINGAPORE TO THE ASSESSEE IN LIEU OF THE SERVICES ITA NO. 3694/DEL/2016 HITACHI METGLAS ((INDIA) PVT. LTD. 10 RECEIVED BY THE LATTER MAKE IT CLEAR THAT SERVICES PROVIDED BY FOREIGN AES WERE NOT TECHNICAL IN NATURE BUT WERE S TANDARD INTRANET, BROADBAND AND LINK SERVICES. PAYMENT OF N ETWORK CHARGES DOES NOT TAKE THE CHARACTER OF FTS DUE TO A BSENCE OF HUMAN INTERVENTION: 20. HENCE, THE SERVICES RECEIVED BY THE ASSESSEE CA N BE SAID TO BE NOT IN THE NATURE OF FTS AS DEFINED UNDER EXP LANATION 2 TO SECTION 9(1)(VII) OF THE IT ACT. TO TREAT ANY CONSI DERATION AS FTS, SUCH CONSIDERATION MUST BE PAID FOR RENDERING OF MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES. 21. THE REVENUE FAILED TO CONSIDER THE FACT THAT TH E IT SUPPORT SERVICES AVAILED BY THE ASSESSEE DID NOT INVOLVE AN Y HUMAN INTERVENTION. THE LD. CIT (A) REPRODUCED EXTRACTS O F THE MASTER SERVICE AGREEMENT BETWEEN THE ASSESSEE AND HITACHI ASIA LIMITED, SINGAPORE AND OBSERVED THAT HUMAN INTERVEN TION IS AN INTEGRAL PART OF THE MASTER SERVICE AGREEMENT WHICH IS COMPLETELY MISCONCEIVED. IN FACT, NO REASONS WERE P ROVIDED BY THE LD. CIT (A) AS TO HOW HUMAN INTERVENTION WAS AN INTEGRAL PART OF THE MASTER SERVICE AGREEMENT. 22. THE EXTRACTS OF THE AGREEMENT RELIED UPON BY TH E LD. CIT(A) DO NOT INDICATE THAT THE IT SUPPORT SERVICES WERE PROVIDED THROUGH HUMAN INTERVENTION. BY THEIR VERY NATURE AND INHERENT CHARACTERISTICS, NETWORKING SERVICES OVER INTERNET AND INTRANET INCLUDING MAIL SERVICES CANNOT BE PROVIDED BY HUMAN ACTIVITIES AND INTERVENTION. SECTIONS 4 8 OF THE SERVICES AGREEMENT EXTRACTED BY THE LD. CIT(A) IN HIS ORDER DOES NOT DEMONSTRATE OR SHOW IN ANY MANNER THAT HUMAN INTERV ENTION WAS REQUIRED FOR RENDERING THE IT SUPPORT SERVICES. THE ITA NO. 3694/DEL/2016 HITACHI METGLAS ((INDIA) PVT. LTD. 11 OBLIGATION TO SHARE INFORMATION, CONFIDENTIALITY AN D OTHER OBLIGATIONS ARE STANDARD OBLIGATIONS THAT ARE PROVI DED IN ANY SERVICES AGREEMENT AND DO NOT DEAL WITH THE MANNER OF PROVISIONING OF SERVICES BUT WITH ANCILLARY OBLIGAT IONS OF THE PARTIES. THERE IS NO HUMAN INTERVENTION IN THE SUPP LY OF SERVICES. 23. THE HONBLE DELHI HIGH COURT IN CIT VS. BHARTI CELLULAR LTD. 319 ITR 139 HAS HELD THAT THE WORD 'TECHNICAL' AS A PPEARING IN EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT IS PR ECEDED BY THE WORD 'MANAGERIAL' AND SUCCEEDED BY THE WORD 'CONSUL TANCY' AND THE SAME TAKES COLOUR FROM THE WORD 'MANAGERIAL AND CONSULTANCY'. THE COURT HELD THAT IN SUCH A CASE PR INCIPLE OF NOSCITUR A SOCIIS GETS ATTRACTED, WHICH MEANS THAT THE MEANING OF THE WORD OR EXPRESSION IS TO BE GATHERED FROM TH E SURROUNDING WORD I.E. FROM THE CONTEXT. COUPLING OF THE WORDS TOGETHER SHOWS THAT THEY ARE TO BE UNDERSTOOD IN TH E SAME SENSE. THE WORD 'MANAGERIAL AND CONSULTANCY' IS A D EFINITE INDICATIVE OF THE INVOLVEMENT OF A HUMAN ELEMENT. M ANAGERIAL SERVICES AND CONSULTANCY SERVICES MUST BE GIVEN BY HUMAN ONLY AND NOT BY ANY MEANS OR EQUIPMENT. THEREFORE, THE W ORD 'TECHNICAL' MUST BE CONSTRUED IN THE SAME SENSE INV OLVING DIRECT HUMAN INVOLVEMENT, AND WITHOUT THAT, THE SER VICES PROVIDED CANNOT BE HELD TO BE TECHNICAL SERVICES UN DER EXPLANATION 2 TO SECTION 9 (1) (VII) OF THE IT ACT. FOLLOWING THE RATIO LAID DOWN IN BHARTI CELLULAR (SUPRA), VARIOUS CO-ORDINATE BENCHES OF THE TRIBUNAL HAVE HELD THAT TO TREAT ANY PAYMENT AS FTS, ELEMENT OF HUMAN INVOLVEMENT IS MANDATORY: ITA NO. 3694/DEL/2016 HITACHI METGLAS ((INDIA) PVT. LTD. 12 CIT V. VODAFONE SOUTH LTD. [2016] 290 CTR 436 (KARNATAKA) DCIT V. VODAFONE ESSAR DIGILINK LTD. [2018] 64 ITR( T) 392 (DELHI - TRIB.) ITO V. PRIMENET GLOBAL LTD. [2016] 48 ITR(T) 451 (D ELHI - TRIB.) DCIT V. VELTI INDIA (P.) LTD. [2015] 153 ITD 244 (C HENNAI - TRIB.) (PARA 8); BHARTI HEXACOM LTD. V. ITO [2015] 42 ITR(T) 686 (JA IPUR - TRIB.) ELSEVIER INFORMATION SYSTEMS GMBH V. DCIT [2019] 10 6 TAXMANN.COM 401 (MUMBAI - TRIB.) 24. WE HAVE ALSO GONE THROUGH THE RATIO LAID DOWN B Y THE HONBLE APEX COURT IN THE ISSUE IN THE FOLLOWING CA SES. ENGINEERING ANALYSIS CENTRE OF EXCELLENCE (P.) LTD. VS. CIT 125 TAXMANN.COM 42 (SC) CIT-4, MUMBAI VS. KOTAK SECURITIES LTD. 67 TAXMANN.COM 356 (SC) CIT VS. BHARTI CELLULAR LTD. 330 ITR 239 (SC) 25. THUS WE CONCLUDE THAT THE FOREIGN AE (SERVICE P ROVIDER) HAS NEITHER EMPLOYED ANY TECHNICAL OR SKILLED PERSO N TO PROVIDE MANAGERIAL OR TECHNICAL SERVICE NOR THERE WAS DIREC T INTERACTION BETWEEN THE ASSESSEE AND THE FOREIGN AE. THUS, WHER E THE ENTIRE PROCESS RESULTING IN PROVISIONING OF SERVICE IS FULLY AUTOMATED PROCESS WITH NO HUMAN INTERVENTION, CHARG ES PAID FOR PROVISION OF SUCH SERVICES CANNOT BE CLASSIFIED AS FTS FOR THE PURPOSE OF THE IT ACT. ITA NO. 3694/DEL/2016 HITACHI METGLAS ((INDIA) PVT. LTD. 13 26. DISALLOWANCE OF RS.35,60,212/- INCLUDES AMOUNTS ACCRUED TOWARDS LINK CHARGES PAYABLE TO AIRTEL AND BSNL (RS . 74,879/-) AND MISC. PROVISION OF RS. 1,76,932/-. 27. IN VIEW OF THE FOREGOING SUBMISSIONS, IT IS HEL D THAT THE IT SUPPORT SERVICES AVAILED BY THE ASSESSEE FROM HITAC HI LTD., JAPAN, AND HITACHI ASIA LTD., SINGAPORE ARE STANDAR D CONNECTIVITY AND NETWORKING SERVICES CANNOT BE TERM ED AS TECHNICAL SERVICES WITHIN THE MEANING OF SECTION 9( 1)(VII) OF THE ACT. HENCE, WE HOLD THAT THE ASSESSEE WAS NOT LIABL E TO DEDUCT TDS ON SUCH EXPENDITURES. ACCORDINGLY, THE DISALLOW ANCE MADE BY THE AO AND CONFIRMED BY THE LD. CIT (A) IN THE P RESENT CASE IS LIABLE TO BE DELETED. 28. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS AL LOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 13/10/2021. SD/- SD/- (KUL BHARAT) ( DR. B. R. R. KUMAR) JUDICIAL MEMBER ACC OUNTANT MEMBER DATED: 13/10/2021 *SUBODH KUMAR, SR. PS* COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(APPEALS) 5. DR: ITAT ASSISTANT REGISTRAR