Amitabh Chaturvedi, New Delhi V. ACIT, CIRCLE- 63(1), New Delhi

ITA 4001/DEL/2017

• Counselvise Citation: [2021] 107 COUNSELVISE.COM (IT) 5380 (ITAT-DELHI)
• Duration Of Justice: 4 year(s) 3 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-09-2021
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: A
• Assessment Year: 2013-2014
• Appeal Filed On: 19-06-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Keywords: Business income; Double taxation relief; Opportunity of being heard; Deemed to accrue or arise in india; Permanent establishment; Non-deduction of tax; Corroborative evidences; TDS
• Section: 143(3); 40(a)(ia); 37(1); 201(1); 195; 9(1); 9(1); 9(1); 13

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, DELHI BENCH: A NEW DELHI BEFORE SHRI O.P. KANT, ACCOUNTANT MEMBER AND SHRI KULDIP SINGH, JUDICIAL MEMBER [THROUGH VIDEO CONFERENCING] ITA NO.4001/DEL/2017 ASSESSMENT YEAR: 2013-14 SH. AMITABH CHATURVEDI, C-346, LGF, DEFENCE COLONY, NEW DELHI VS. ACIT, CIRCLE-63(1), NEW DELHI PAN :AAPPC4891E (APPELLANT) (RESPONDENT) ORDER PER O.P. KANT, AM: THIS APPEAL BY THE ASSESSEE IS DIRECTED AGAINST O RDER DATED 03/04/2017 PASSED BY THE LEARNED COMMISSIONER OF IN COME-TAX (APPEALS)-20, NEW DELHI [IN SHORT THE LD. CIT(A)] FOR ASSESSMENT YEAR 2013-14 RAISING FOLLOWING GROUNDS: ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE A ND IN LAW THE LD. CIT(A) ERRED IN SUSTAINING THE FOLLOWING ADDITIONS MADE BY THE ASSESSING OFFICER TO THE RETURNED INCOME:- (I) RS.26,303/- ON ACCOUNT OF ELECTRICITY AND WAT ER EXPENSES ON ESTIMATE BASIS IN SPITE OF SCRUTINY, TREATING THE S AME AS PERSONAL EXPENDITURE; APPELLANT BY SH. K. SAMPATH, ADV. SH. U. RAJA KUMAR, ADV. RESPONDENT BY SH. BHOPAL SINGH, SR.DR DATE OF HEARING 05.08.2021 DATE OF PRONOUNCEMENT 21.09.2021 2 ITA NO.4001/DEL/2017 (II) RS.69,000/- ON ACCOUNT OF FOREIGN TRAVELLING EXPENSES; (III) RS.10,01,698/- ON ACCOUNT OF PAYMENTS TO THE INTERNATIONAL BAR ASSOCIATION BY WRONGLY INVOKING PROVISIONS OF S ECTION 40(A)(1A) OF THE ACT. THE ORDER BEING ARBITRARY, MISCONCEIVED, FALLACIOUS AND UNJUST MUST BE QUASHED WITH DIRECTION FOR RELIEF. 2. BRIEFLY STATED FACTS OF THE CASE ARE THAT THE ASSE SSEE IS AN ADVOCATE BY PROFESSION. THE ASSESSEE FILED RETURN O F INCOME FOR THE YEAR UNDER CONSIDERATION ON 29/09/2013, DECLARI NG TOTAL INCOME OF 1,28,82,248/-, WHICH INCLUDED INCOME UNDER THE HEAD PROFIT AND GAINS FROM BUSINESS OR PROFESSION , INCOME FROM HOUSE PROPERTY, INCOME FROM CAPITAL GAIN, AND I NCOME FROM OTHER SOURCES. THE RETURN OF INCOME FILED BY THE A SSESSEE WAS SELECTED FOR SCRUTINY ASSESSMENT. THE ASSESSING OFF ICER COMPLETED SCRUTINY ASSESSMENT UNDER SECTION 143(3) OF THE INC OME-TAX ACT, 1961 (IN SHORT THE ACT) ON 13/12/2015, AFTER MAKI NG CERTAIN ADDITIONS/DISALLOWANCES. ON FURTHER APPEAL, THE LEA RNED CIT(A) ALLOWED PART RELIEF TO THE ASSESSEE. AGGRIEVED, THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNAL RAISING THE GROUNDS AS R EPRODUCED ABOVE. 3. BEFORE US, THE PARTIES APPEARED THROUGH VIDEO CONFE RENCING FACILITY AND FILED PAPER-BOOK AND OTHER DOCUMENTS T HROUGH EMAIL. 4. THE GROUND NO. (I) OF THE APPEAL RELATES TO DISALL OWANCE OF ELECTRICITY AND WATER EXPENSES, AMOUNTING TO RS.26, 303/-. THE ASSESSEE CLAIMED ENTIRE ELECTRICITY EXPENSES OF RES IDENCE LOCATED AT B-252 GREATER KAILASH, DELHI AS EXPENSES INCURRE D WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF PROFESSION, HOWEVER, THE ASSESSING OFFICER HELD THAT AT MAXIMUM A ROOM IN THE RESIDENC E COULD HAVE BEEN CLAIMED TO BE USED FOR THE PURPOSE OF THE PROF ESSIONAL WORK AND, ACCORDINGLY, HE ALLOWED 10% OF THE ELECTRICITY EXPENSES OF THE 3 ITA NO.4001/DEL/2017 RESIDENCE TOWARDS PROFESSIONAL EXPENSES AND BALANCE 90% WAS DISALLOWED. THE LD. CIT(A) FOLLOWING THE DECISION O F THE TRIBUNAL IN THE CASE OF THE ASSESSEE IN EARLIER YEAR SUSTAIN ED 50% OF THE DISALLOWANCE AND ALLOWED RELIEF FOR THE BALANCE AMO UNT. THE FINDING OF THE LD. CIT(A) IS REPRODUCED AS UNDER: 5.3 AS PER THE SUBMISSION OF THE APPELLANT THIS IS SUE IS COVERED BY THE ORDER OF HONBLE ITAT IN APPELLANTS OWN CASE I N ITA NO. 4951/DEL/2013 ORDER DATED 08.12.2014 IN WHICH THE H ONBLE ITAT HAS RESTRICTED THE IDENTICAL DISALLOWANCES MADE BY THE AO TO 50% OF THE EXPENDITURE INCURRED. RESPECTFULLY, FOLLOWING T HE ORDER OF HONBLE ITAT THE DISALLOWANCE MADE BY AO UNDER ELECTRICITY AND WATER EXPENSES IS RESTRICTED TO 50% OF THE EXPENSES CLAIM ED OF RS.293860/- AND 52607/- ON ACCOUNT OF ELECTRICITY A ND WATER EXPENSES RESPECTIVELY WHICH COMES TO RS.1,73,233/- AND THE APPELLANT WILL GET RELIEF ACCORDINGLY. 4.1 BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE REL IED ON THE SUBMISSION MADE BEFORE THE LEARNED CIT(A). HE ALSO SUBMITTED THAT SUCH AD-HOC DISALLOWANCES ARE NOT PERMITTED IN LAW. ON THE CONTRARY, THE LEARNED DR RELIED ON THE ORDER OF THE LOWER AUTHORITIES. 4.2 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON T HE ISSUE IN DISPUTE AND PERUSED THE RELEVANT MATERIAL ON REC ORD. IN OUR OPINION, LD. CIT(A) HAS FOLLOWED BINDING PRECEDENT IN THE CASE OF THE ASSESSEE ITSELF AND, THEREFORE, WE DO NOT FIND ANY ERROR IN THE ORDER OF THE LD. CIT(A) ON THE ISSUE IN DISPUTE. FU RTHER, WE FIND THAT ASSESSEE HAS FAILED TO JUSTIFY THAT ENTIRE ELE CTRICITY EXPENSES OF THE RESIDENCE WERE RELATED TO THE PROFESSION WOR K . IN THE FACTS AND CIRCUMSTANCES OF THE CASE, WE UPHOLD THE FINDIN G OF THE LEARNED CIT(A) ON THE ISSUE IN DISPUTE. THE GROUND NO. (I) OF THE APPEAL OF THE ASSESSEE IS ACCORDINGLY DISMISSED. 4 ITA NO.4001/DEL/2017 5. THE GROUND NO. (II) OF THE APPEAL RELATES TO DISA LLOWANCE OUT OF FOREIGN TRAVELLING EXPENSES. THE ASSESSEE CLAIME D TOTAL EXPENSES OF 2,37,711/- ON ACCOUNT OF FOREIGN TRAVELLING EXPENSES, HOWEVER, SUBMITTED VOUCHERS ONLY OF 170,000/-AND, THEREFORE, ASSESSING OFFICER MADE DISALLOWANCE FOR THE REMAINING AMOUNT OF RS. 67,000/- IN VIEW OF LACK OF VOUCHERS FOR THOSE EXPENSES. THE LD. CIT(A) ALSO UPHELD THE DISALLOWAN CE, OBSERVING AS UNDER: 6.3 THE AO HAS MADE THE DISALLOWANCE OF RS. 67,000/- UN DER THIS HEAD SINCE THE APPELLANT COULD NOT PRODUCE THE VOUC HER OF SUCH EXPENSES. THE APPELLANT HAS SUBMITTED THAT ALL THES E PAYMENTS WERE MADE THROUGH CREDIT CARD AND ONLY SOME OF THE FADED SUPPORTING BILLS WERE GIVEN WHICH WERE NOT CONSIDER ED BY THE AO. THE BILLS AND VOUCHERS WERE ALSO SUBMITTED BEFORE M E AND IT IS FOUND THAT THE SUPPORTING BILLS OF RS.67,000/- ARE NOT LEGIBLE. AS PER THE SUBMISSION OF THE APPELLANT THE EXPENSES ARE IN CURRED OVER A PERIOD OF 21 DAYS WHEREAS IBA ANNUAL CONFERENCE & E XHIBITION WAS HELD FROM 30 TH SEPTEMBER TO 5TH OCTOBERT2UL2 ONLY. HENCE, THE PERIOD OF STAY OF 21 DAYS FOREIGN VISIT CANNOT BE H ELD 'WHOLLY AND EXCLUSIVELY FOR THE PURPOSE OF BUSINESS. IN THIS LI GHT, AS THE APPELLANT HAS FAILED TO GIVE LEGIBLE SUPPORTING EVIDENCE, THE JUSTIFICATION OF EXPENSES CANNOT BE ASCERTAINED AND DISALLOWANCE OF RS.67,000/- MADE BY THE ASSESSING OFFICER IS CONFIRMED. 5.1 BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE REL IED ON THE SUBMISSIONS MADE BEFORE THE LEARNED CIT(A), WHEREAS THE LEARNED DR RELIED ON THE FINDING OF THE LOWER AUTHO RITIES. 5.2 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON T HE ISSUE IN DISPUTE AND PERUSED THE RELEVANT MATERIAL ON REC ORD. WE FIND THAT LEARNED CIT(A) HAS JUSTIFIED THE DISALLOWANCE MAINLY ON TWO GROUNDS. FIRST, THE ASSESSEE FAILED TO SUBMIT LEGIB LE COPIES OF BILLS/VOUCHERS FOR AMOUNT OF EXPENSES DISALLOWED BY THE ASSESSING OFFICER. SECONDLY, ACCORDING TO HER, PERI OD OF STAY OF 21 DAYS IN FOREIGN COUNTRY WAS NOT JUSTIFIED FOR THE P URPOSE OF PROFESSION AS THE IBA ANNUAL CONFERENCE AND EXHIBIT ION WAS 5 ITA NO.4001/DEL/2017 ONLY FROM 30 TH SEPTEMBER TO 5 TH OCTOBER, 2012 (ONLY FOR 6 DAYS). THE LEARNED COUNSEL OF THE ASSESSEE COULD NOT JUSTI FY BEFORE US ALSO THE PERIOD OF 21 DAYS IN FOREIGN COUNTRY FOR T HE PURPOSE OF PROFESSIONAL WORK. IN OUR OPINION, THE FINDING OF T HE LEARNED CIT(A) ON THE ISSUE IN DISPUTE IS WELL REASONED AND WE DO NOT FIND ANY ERROR IN THE SAME. ACCORDINGLY, WE UPHOLD THE S AME AND DISMISS THE GROUND NO. (II) OF THE APPEAL OF THE AS SESSEE. 6. GROUNDS NO. (III) OF THE APPEAL OF THE ASSESSEE RE LATES TO DISALLOWANCE OF 10,01,698/- UNDER SECTION 40(A)(IA) OF THE ACT FOR NON-DEDUCTION OF THE TAX AT SOURCE ON PAYMENT M ADE TO INTERNATIONAL BAR ASSOCIATION (IBA). 6.1 THE FACTS IN BRIEF RELATED TO DISPUTE ARE THAT ASS ESSING OFFICER OBSERVED BUSINESS PROMOTION EXPENSES OF THE ASSESSEE INCLUDED AMOUNT OF 10,01,698/- MADE TO INTERNATIONAL BAR ASSOCIATION. ACCORDING TO THE ASSESSING OFFICER, IN TERNATIONAL BAR ASSOCIATION OPERATES THROUGH OTHER ORGANIZATIONS AC ROSS THE WORLD AND THE BAR ASSOCIATION OF INDIA BEING MEMBER ORGAN IZATION OF IBA, IT CAN BE TREATED AS PERMANENT ESTABLISHMENT ( PE) IN INDIA AND, THEREFORE, INCOME WOULD BE DEEMED TO ACCRUE OR ARISE IN INDIA IN THE HANDS OF IBA. HE FURTHER OBSERVED THAT AS PER SECTION 9(1)(I) OF THE ACT INCOME IS DEEMED TO ACCRUE OR AR ISE IN INDIA, IF INCOME IS EARNED THROUGH OR FROM ANY BUSINESS CONNE CTION IN INDIA, AND THEREFORE, INCOME IN THE HANDS OF THE IB A IS TAXABLE IN INDIA. THE ASSESSING OFFICER OBSERVED THAT NO TDS W AS DEDUCTED ON SUCH PAYMENT AND, THEREFORE, ACCORDING TO HIM, S AID EXPENDITURE IS DISALLOWABLE U/S 40(A)(IA) OF THE AC T. THE LEARNED CIT(A) ALSO UPHELD THE DISALLOWANCE JUSTIFYING THE REASON CITED BY 6 ITA NO.4001/DEL/2017 THE ASSESSING OFFICER. THE RELEVANT FINDING OF THE LEARNED CIT(A) IS REPRODUCED AS UNDER: 8.3 THE AO HAS MADE THE ADDITION OF RS. 10,01,698/ - ON ACCOUNT OF BUSINESS PROMOTION EXPENSES OUT OF WHICH RS.10,0 1,698/- WAS MADE FOR OVERSEAS TRANSACTION. THE AO HAS CLAIMED T HAT NO TDS WAS DEDUCTED ON THIS AMOUNT WHICH WAS PAID TO INTER NATIONAL BAR ASSOCIATION. THE SUBMISSION OF THE APPELLANT THAT I NTERNATIONAL BAR ASSOCIATION DOES NOT HAVE ANY BUSINESS CONNECTION I N INDIA AND THE SAME PAYMENT IS NOT TAXABLE IN INDIA AS PER DTAA BE TWEEN' INDIA AND UNITED KINGDOM WAS NOT ACCEPTED BY AO, AS PER T HE DETAILED DISCUSSION MADE IN PARA 8.1 SUPRA. THE AO HAS TREAT ED THAT INTERNATIONAL BAR ASSOCIATION HAS PERMANENT ESTABLI SHMENT (PE) IN INDIA THROUGH BAR ASSOCIATION OF INDIA AND THE INCO ME WOULD BE DEEMED TO ACCRUE OR ARISE IN INDIA U/S 9 OF THE ACT FINALLY, THE AO HAS TREATED THAT THE PAYMENT MADE TO IBA IS RELATED TO THE BUSINESS CONNECTION IN INDIA AND AS APPELLANT HAS FAILED TO DEDUCT TDS ON THIS PAYMENT THE SAME IS DISALLOWED. DURING THE COU RSE OF APPELLANT PROCEEDINGS, THE APPELLANT HAS FILED A WR ITTEN SUBMISSION AND CLAIMED THAT IBA HAS NEITHER PE IN INDIA NOR AN Y BUSINESS CONNECTION IN INDIA. THE APPELLANT HAS FURTHER CLAI MED THAT IN TERMS OF ARTICLE 7 OF DTAA BETWEEN INDIA AND UK THIS PAYM ENT IS EXCLUDED FROM TAXABILITY IN INDIA. DURING THE APPELLATE PROC EEDINGS, THE APPELLANT WAS ASKED TO CLARIFY THE NATURE OF PAYMEN T OF RS.10,01,698/- MADE TO INTERNATIONAL BAR ASSOCIATIO N, LONDON, UK. IN RESPONSE, THE APPELLANT HAS EXPLAINED THAT IT WA S FOR SPONSORING THE WELCOME RECEPTION AT THE ROYAL DUBLIN SOCIETY ( DUBLIN, IRELAND), IBA ANNUAL CONFERENCE & EXHIBITION, FROM 30.09.2012 TO 05.10.2012. IN SUPPORT OF THE CLAIM THE APPELLANT H AS SUBMITTED THE INVOICE DETAILS, CREDIT CARD PAYMENT SPONSORSHIP FO RM FILLED UP BY THE APPELLANT, BROCHURE OF SPONSORSHIP AND CERTIFIC ATE OF FISCAL RESIDENTS TO PAY CORPORATION TAX UNDER UNITED KINGD OM. ALL THE ABOVE EVIDENCES WERE ANALYZED AND THE CLAIM OF THE APPELLANT HAS BEEN CONSIDERED WHETHER IT IS ALLOWABLE UNDER SECTI ON 37(1) OF THE ACT AND WHETHER IT SHOULD BE CONSIDERED AS 'WHOLLY AND EXCLUSIVELY' INCURRED FOR THE PURPOSE OF EARNING PROFESSION. THI S ADDITION HAS TWO LIMBS, FIRSTLY, WHETHER THIS EXPENDITURE HAS BE EN INCURRED IN CONNECTION WITH PROFESSION OF THE APPELLANT WHOLLY AND EXCLUSIVELY' AND IF YES SECONDLY WHETHER THE APPELLANT HAS MADE DEFAULT IN DEDUCTING TAX AS PER SECTION 195 OF THE ACT IT APPE ARS THE AO HAS NOT DOUBTED THE NATURE OF PAYMENT AND ACCEPTED THIS FACT THAT SUCH EXPENDITURE IS INCURRED IN RELATION TO THE PROFESSI ONAL INCOME OF THE APPELLANT IN THIS LIGHT IF IT IS ACCEPTED THAT THE SAID EXPENDITURE IS IN RELATION TO THE BUSINESS/PROFESSION OF THE APPELLAN T THE CLAIM OF THE APPELLANT THAT IT HAS NO PERMANENT ESTABLISHMENT IN INDIA AND | NO BUSINESS CONNECTION IN INDIA DOES NOT HOLD GOOD. SU CH ORGANIZATION LIKE INTERNATIONAL BAR ASSOCIATION ALWAYS WORKS THR OUGH BAR ASSOCIATION ALWAYS WORKS THROUGH BAR ASSOCIATION AT 7 ITA NO.4001/DEL/2017 NATIONAL/REGIONAL LEVEL OF ANY COUNTRY. IT IS NOT T HE FACT THAT ANY OUTSIDER WHO IS NOT AN ADVOCATE OR NOT A MEMBER OF BAR ASSOCIATION OF INDIA CAN MAKE PAYMENT TO INTERNATIONAL BAR ASSO CIATION AND SPONSOR THE DINNER OF THE DELEGATES. THE STAND OF T HE APPELLANT IS CONTRADICTORY IN NATURE. ON THE ONE HAND THE EXPEND ITURE OF RS.10,01,698/- HAS BEEN INCURRED ON THE DINNER OF T HE DELEGATES, AND CLAIMED THAT THIS IS RELATED TO HIS PROFESSIONA L INCOME AND ON THE OTHER HAND THE APPELLANT HAS FAILED TO DEDUCT T PS UNDER 195 R/W SECTOR 9 OF THE ACT AND CLAIMED THAT THERE IS N O PERMANENT ESTABLISHMENT OR BUSINESS CONNECTION OF IBA IN INDI A. IF THERE IS NO PERMANENT ESTABLISHMENT OR BUSINESS CONNECTION IN I NDIA, THE APPELLANT HAS ALSO FAILED HOW HOSTING OF DINNER AND PAYMENT OF RS.10,01,698/- IS 'WHOLLY AND EXCLUSIVELY* RELATED WITH THE PROFESSIONAL INCOME OF THE APPELLANT IN THIS LIGHT, THE SUBMISSION OF THE APPELLANT THAT THE ADDITION OF RI.10,01,698 SHO ULD BE DELETED DOES NOT DESERVE MERIT AS THE AO HAS RIGHTLY HELD T HAT IBA OPERATE THROUGH ORGANIZATIONS ACROSS THE WORLD AND BAR ASSO CIATION OF INDIA CAN BE TREATED AS PE IN INDIA. ALTERNATIVELY, I ALSO HOLD THAT IF IT HAS NO PE , IN INDIA, SUCH EXPENDITURE CANNOT BE ALLOWED UNDER SECTION 37(1) OF THE ACT AND CANNOT BE HELD 'WHOLLY AND EXCLUSIVELY* FOR THE PURPOSE OF EARNING THE PROFESSIONAL INCOME OF THE APPELLANT, IN THIS LIGHT, THE ADDITION OF RS.10,01,698/- IS CO NFIRMED. 6.2 BEFORE US, THE LEARNED COUNSEL OF THE ASSESSEE OPP OSED EXISTENCE OF PERMANENT ESTABLISHMENT OF IBA IN INDI A HELD BY THE ASSESSING OFFICER AND LD. CIT(A). ACCORDING TO HIM, THE NON- RESIDENT ENTITY, I.E., INTERNATIONAL TAX BAR ASSOCI ATION IS NEITHER HAVING ANY BUSINESS CONNECTION IN INDIA, NOR HAVING ANY KIND OF PERMANENT ESTABLISHMENT IN INDIA. HE SUBMITTED THAT LOWER AUTHORITIES HAVE NOT DEMONSTRATED HOW INDIAN BAR AS SOCIATION WAS PERMANENT ESTABLISHMENT FOR THE PURPOSE OF INTE RNATIONAL TAX BAR ASSOCIATION. 6.3 ON THE CONTRARY, THE LEARNED DR RELIED ON THE ORDE R OF THE LOWER AUTHORITIES. HE FURTHER SUBMITTED THAT AS PER SECTION 195(2) OF THE ACT, IF THE ASSESSEE WAS OF THE VIEW THAT SU CH SUM WAS NOT CHARGEABLE IN THE HANDS OF THE RECIPIENT (I.E. IBA) , THEN THE ASSESSEE SHOULD HAVE MADE AN APPLICATION FOR NON-DE DUCTION OF 8 ITA NO.4001/DEL/2017 TAX AT SOURCE ALONGWITH EVIDENCES TO SHOW THAT SAID SUM WOULD NOT BE CHARGEABLE IN THE HANDS OF RECIPIENT. HE SUB MITTED THAT ONUS WAS ON THE ASSESSEE TO DEMONSTRATE THAT IBA WA S NOT HAVING PERMANENT ESTABLISHMENT IN INDIA AND SUCH OBLIGATIO N HAS NOT BEEN DISCHARGED BY THE ASSESSEE. HE SUBMITTED THAT IN SUCH CIRCUMSTANCES, THE ASSESSING OFFICER IS JUSTIFIED I N HOLDING EXISTENCE OF PE AND SUM BEING BUSINESS INCOME IN TH E HANDS OF IBA RESULTING IN LIABILITIES OF THE ASSESSEE TO DED UCT TAX AT SOURCE ON SUCH PAYMENT IN TERMS OF 195 OF THE ACT. 6.4 WE HAVE HEARD RIVAL SUBMISSION OF THE PARTIES ON T HE ISSUE IN DISPUTE AND PERUSED THE RELEVANT MATERIAL ON REC ORD. THE ASSESSEE HAS SPONSORED WELCOME RECEPTION AT ROYAL DUBLIN SOCIETY (DUBLIN-IRELAND), INTERNATIONAL BAR ASSOCI ATION CONFERENCE AND EXHIBITION HELD FROM 30/09/2012 TO 05/10/2012. THE ASSESSEE ALSO SUBMITTED BEFORE THE LOWER AUTHORITIE S INVOICE DETAILS, CREDIT CARD AND PAYMENT, SPONSORSHIP FORM, BROCHURE OF SPONSORSHIP AND CERTIFICATE OF FISCAL RESIDENT TO P AY CORPORATION TAX IN THE UNITED KINGDOM BY THE NON-RESIDENT ENTIT Y. SHE HAS CONFIRMED THE DISALLOWANCE MAINLY ON THE GROUND THA T THERE WAS NO PERMANENT ESTABLISHMENT IN INDIA AND BUSINESS CO NNECTION INDIA. 6.5 THE SECTION 195(1) HAS GIVEN RESPONSIBILITY OF DEDU CTING TAX AT SOURCE ON THE PERSON MAKING PAYMENT TO NON-RESID ENT, IF SUCH SUM IS CHARGEABLE UNDER THE PROVISIONS OF THE ACT. FOR READY REFERENCE, SAID PROVISION IS REPRODUCED AS UNDER: OTHER SUMS. 9 ITA NO.4001/DEL/2017 195. (1) ANY PERSON RESPONSIBLE FOR PAYING TO A NON-RES IDENT, NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY INTER EST (NOT BEING INTEREST REFERRED TO IN SECTION 194LB OR SECTION 194LC ) OR SECTION 194LD OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS O F THIS ACT (NOT BEING INCOME CHARGEABLE UNDER THE HEAD 'SALARI ES') SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME-TAX THEREON AT THE RATES IN FORCE: 6.6 FURTHER, SECTION 195(2) HAS PROVIDED THAT, IF PAYER CONSIDERS THAT SUCH SUM IS NOT CHARGEABLE IN INDIA IN THE HAN DS OF RECIPIENT (I.E. NON-RESIDENT ENTITY) THEN, THE PAYER MAY MAKE AN APPLICATION FOR NON-DEDUCTION OF TAX AS AT SOURCE AND THEN IT W ILL BE DECIDED WHETHER HOW MUCH OF SUM IS CHARGEABLE IN INDIA. FOR READY REFERENCE, SAID PROVISION IS REPRODUCED AS UNDER: 195 (2) WHERE THE PERSON RESPONSIBLE FOR PAYING AN Y SUCH SUM CHARGEABLE UNDER THIS ACT (OTHER THAN SALARY) TO A NON-RESIDENT CONSIDERS THAT THE WHOLE OF SUCH SUM WOULD NOT BE I NCOME CHARGEABLE IN THE CASE OF THE RECIPIENT, HE MAY MAK E AN APPLICATION [IN SUCH FORM AND MANNER TO THE ASSESSI NG OFFICER, TO DETERMINE IN SUCH MANNER, AS MAY BE PRESCRIBED, THE APPROPRIATE PROPORTION OF SUCH SUM SO CHARGEABLE, AND UPON SUCH DETERMINATION, TAX SHALL BE DEDUCTED UNDER SUB-SECTION (1) ONLY ON THAT PROPORTION OF THE SUM WHICH IS SO CHARGEABLE. 6.7 THUS, IT IS EVIDENT THAT IF IN VIEW OF THE ASSESSEE THIS SUM WOULD NOT HAVE BEEN CHARGEABLE IN INDIA IN THE HAND S OF IBA, THE ASSESSEE SHOULD HAVE FOLLOWED THE PROCEDURE LAID DO WN IN SECTION 195(2) AND FILED EVIDENCE IN SUPPORT OF THE CLAIM. THE ASSESSING OFFICER OF THE ASSESSEE WAS NOT HAVING ANY JURISDIC TION OVER THE RECIPIENT AND NOT IN POSITION TO DETERMINE CHARGEAB ILITY OF SUM IN THE HANDS OF RECIPIENT. IN THE CASE OF NON-RESIDENT RECIPIENT, EVEN IF THE SUM IS CHARGEABLE UNDER SECTION 9(1) AS DEEM ED INCOME, THE 10 ITA NO.4001/DEL/2017 SUM WOULD NOT BE CHARGEABLE, IF NOT COVERED BY THE DOUBLE TAX AVOIDANCE AGREEMENT BETWEEN INDIA AND COUNTRY OF NO N-RESIDENT. THE NON-RESIDENT CAN AVAIL THE DTAA PROVISIONS IF S AME ARE BENEFICIAL TO HIM. IN SUCH CIRCUMSTANCES, ONUS WAS ON THE ASSESSEE TO DEMONSTRATE BEFORE THE AO UNDER SECTION 195(2) OF THE ACT, WHETHER IBA WAS HAVING PERMANENT ESTABLISH MENT IN INDIA, BECAUSE THEN ONLY THE BUSINESS INCOME OF IBA COULD BE CHARGEABLE IN INDIA UNDER UK INDIA DTAA. 6.8 IT IS EVIDENT THAT THE ASSESSEE HAS FAILED TO INVOK E SECTION 195(2) OF THE ACT. BUT THE REVENUE HAS NEITHER EXPL AINED BEFORE US WHETHER THE ASSESSEE HAS BEEN HELD AS ASSESSEE-I N-DEFAULT FOR NOT DEDUCTING TAX SOURCE U/S 201(1) AND 201(1A) OF THE ACT, NOR WHETHER THE NON-RESIDENT ENTITY IS BROUGHT TO TAX I N INDIA. THE ASSESSEE HAS FILED DOCUMENTS FOR THE FIRST TIME IN ASSESSMENT PROCEEDINGS IN SUPPORT OF ITS CLAIM THAT NO PE OF N ON-RESIDENT ENTITY EXIST IN INDIA. AFTER VERIFICATION OF DOCUME NTS, THE AO HAS HELD THAT INCOME WAS LIABLE TO BE TAXED IN THE HAND S OF NON- RESIDENT UNDER THE INCOME TAX ACT IN VIEW OF BUSINE SS CONNECTION OF NON-RESIDENT IN INDIA AS WELL AS PE OF NON-RESID ENT IN INDIA UNDER DTAA BETWEEN UK AND INDIA. 6.9 IN OUR OPINION, UNDER ARTICLE 5 OF INDIA UK DTAA, P E CAN BE EITHER A FIXED PLACE OR AGENCY PE OR SERVICE PE. TH E RELEVANT ARTICLE OF DTAA IS REPRODUCED AS UNDER: ARTICLE 5 PERMANENT ESTABLISHMENT 1. FOR THE PURPOSES OF THIS CONVENTION, THE TERM 'P ERMANENT ESTABLISHMENT' MEANS A FIXED PLACE OF BUSINESS THROUGH WHICH THE B USINESS OF AN ENTERPRISE IS WHOLLY OR PARTLY CARRIED ON. 11 ITA NO.4001/DEL/2017 2. THE TERM 'PERMANENT ESTABLISHMENT' SHALL INCLUDE ESPECIALLY : (A) A PLACE OF MANAGEMENT; (B) A BRANCH; (C) AN OFFICE; (D) A FACTORY; (E) A WORKSHOP; (F) PREMISES USED AS A SALES OUTLET OR FOR RECEIVING OR SOLICITING ORDERS; (G) A WAREHOUSE IN RELATION TO A PERSON PROVIDING STORE FACILITIES FOR OTHERS; (H) A MINE, AN OIL OR GAS WELL, QUARRY ON OTHER PLACE O F EXTRACTION OF NATURAL RESOURCES; (I) AN INSTALLATION OR STRUCTURE USED FOR THE EXPLORATION OR EXPLOITATION OF NATURAL RESOURCES; (J) A BUILDING SITE OR CONSTRUCTION, INSTALLATION OR AS SEMBLY PROJECT OR SUPERVISORY ACTIVITIES IN CONNECTION THEREWITH, WHE RE SUCH SITE, PROJECT OR SUPERVISORY ACT IVITY CONTINUES FOR A PERIOD OF MORE THAN SIX MONTH S, OR WHERE SUCH PROJECT OR SUPERVISORY ACTIVITY, BEIN G INCIDENTAL TO THE SALE OR MACHINERY OR EQUIPMENT, CONTINUES FOR A PER IOD NOT EXCEEDING SIX MONTHS AND THE CHARGES PAYABLE FOR THE PROJECT OR SUPERVIS ORY ACTIVITY EXCEED 10 PER CENT OF THE SALE PRICE OF TH E MACHINERY AND EQUIPMENT; (K) THE FURNISHING OF SERVICES INCLUDING MANAGERIAL SER VICES, OTHER THAN THOSE TAXABLE UNDER ARTICLE 13 (ROYALTIES AND FEES FOR TECHNICAL SERVICES), WITHIN A CONTRACTING S TATE BY AN ENTERPRISE THROUGH EMPLOYEES OR OTHER PERSONNEL, BUT ONLY IF: (I) ACTIVITIES OF THAT NATURE CONTINUE WITHIN THAT STAT E FOR A PERIOD OR PERIODS AGGREGATING MORE THAN 90 DAYS WITHIN ANY TWELVE- MONTH PERIOD; OR (II) SERVICES ARE PERFORMED WITHIN THAT STATE FOR AN ENTERPRISE WITHIN THE MEANING OF PARAGRAPH 1 OF ARTICLE 10 (AS SOCIATED ENTERPRISES) AND CONTINUE FOR A PERIOD OR PERIODS A GGREGATING MORE THAN 30 DAYS WITHIN ANY TWELVE-MONTH PERIOD: PROVIDED THAT FOR THE PURPOSES OF THIS PARAG RAPH AN ENTERPRISE SHALL BE DEEMED TO HAVE A PERMANENT ESTABLISHMENT I N A CONTRACTING STATE AND TO CARRY ON BUSINESS THROUGH THAT PERMANENT ESTABLISHMENT IF IT PROVIDES SERVICES OR FACILITIES IN CONNECTION WITH, OR SUPPLIES PLANT AND MACHINERY ON HIRE USED OR TO BE USED IN, THE PROSPECTING FOR, OR EXTRACTIO N OR PRODUCTION OF, MINERAL OILS IN THAT STATE. 3. THE TERM 'PERMANENT ESTABLISHMENT' SHALL NOT BE DEEMED TO INCLUDE: (A) THE USE OF FACILITIES SOLELY FOR THE PURPOSE OF STO RAGE OR DISPLAY OF GOODS OR MERCHANDISE BELONGING TO THE ENTERPRISE; (B) THE MAINTENANCE OF A STOCK OF GOODS OR MERCHANDISE BELONGING TO THE 12 ITA NO.4001/DEL/2017 ENTERPRISE SOLELY FOR THE PURPOSE OF STORAGE OR DIS PLAY; (C) THE MAINTENANCE OF A STOCK OF GOODS OR MERCHANDISE BELONGING TO THE ENTERPRISE SOLELY FOR THE PURPOSE OF PROCESSING BY ANOTHER ENTERPRISE; (D) THE MAINTENANCE OF A FIXED PLACE OF BUSINESS SOLELY FOR THE PURPOSE OF PURCHASING GOODS OR MERCHANDISE, OR FOR COLLECTING INFORMATION, FOR THE ENTERPRISE; (E) THE MAINTENANCE OF A FIXED PLACE OF BUSINESS SOLELY FOR THE PURPOSE OF ADVERTISING, FOR THE SUPPLY OF INFORMATION OR FOR S CIENTIFIC RESEARCH, BEING ACTIVITIES SOLELY OF A PREPARATORY OR AUXILIA RY CHARACTER IN THE TRADE OF BUSINESS OF THE ENTERPRISE. HOWEVER, THIS PROVISIO N SHALL NOT BE APPLICABLE WHERE THE ENTERPRISE MAINTAINS ANY OT HER FIXED PLACE OF BUSINESS IN THE OTHER CONTRACTING STATE FOR ANY PUR POSE OR PURPOSES OTHER THAN THE PURPOSES SPECIFIED IN THIS PARAGRAPH ; (F) THE MAINTENANCE OF A FIXED PLACE OF BUSINESSES SOLELY FOR ANY COMBINATION OF ACTIVITIES MENTIONED IN SUB- PARAGRAPHS (A) TO (E) OF THE PARAGRAPH, PROVIDED THAT THE OVERALL ACTIVITY OF TH E FIXED PLACE OF BUSINESS RESULTING FROM THIS COMBINATION IS OF A PR EPARATORY OR AUXILIARY CHARACTER. 4. A PERSON ACTING IN A CONTRACTING STATE FOR OR ON BEHALF OF AN ENTERPRISE OF THE OTHER CONTRACTING STATE - OTHER THAN AN AGENT O F AN INDEPENDENT STATUS TO WHOM PARAGRAPH (5) OF THIS ARTICLE APPLIES, SHALL B E DEEMED TO BE A PERMANENT ESTABLISHMENT OF THAT ENTERPRISE IN THE F IRST MENTIONED STATE IF: (A) HE HAS, AND HABITUALLY EXERCISES IN THAT STATE, AN AUTHORITY TO NEGOTIATE AND ENTER INTO CONTRACTS FOR OR ON BEHALF OF THE ENTERPRISE, UNLESS HIS ACTIVITIES ARE LIMITED TO THE PURCHASE O F GOODS OR MERCHANDISE FOR THE ENTERPRISE; OR (B) HE HABITUALLY MAINTAINS IN THE FIRST - MENTIONED CONTRACTING STATE A STOCK OF GOODS OR MERCHANDISE FROM WHICH HE REGULAR LY DELIVERS GOODS OR MERCHANDISE FOR OR ON BEHALF OF THE ENTERPRISE; OR (C) HE HABITUALLY SECURES ORDERS IN THE F IRST - MENTIONED STATE, WHOLLY OR ALMOST WHOLLY FOR THE ENTERPRISE ITSELF OR FOR THE ENTERPRISE AND THE ENTERPRISES CONTROLLING, CONTROLLED BY, OR SUBJECT TO THE SAME COMMON CONTROL, AS THAT ENTERPRISE. 5. AN ENTERPRISE OF A CONTRACTING STATE SHALL NOT B E DEEMED TO HAVE A PERMANENT ESTABLISHMENT IN THE OTHER CONTRACTING ST ATE MERELY BECAUSE IT CARRIES ON BUSINESS IN THAT OTHER STATE THROUGH A B ROKER, GENERAL COMMISSION AGENT OR ANY OTHER AGENT OF AN INDEPENDENT STATUS, WHERE SUCH PERSONS ARE ACTING IN THE ORDINARY COURSE OF THEIR BUSINESS. HO WEVER, IF THE ACTIVITIES OF SUCH AN AGENT ARE CARRIED OUT WHOLLY OR ALMOST WHOL LY FOR THE ENTERPRISE (OR FOR THE ENTERPRISE AND OTHER ENTERPRISES WHICH ARE CONTROLLED BY IT OR HAVE A CONTROLLING INTEREST IN IT OR ARE SUBJECT TO SAME C OMMON CONTROL) HE SHALL NOT BE CONSIDERED TO BE AN AGENT OF AN INDEPENDENT STATUS FOR THE PURPOSES OF THIS PARAGRAPH. 13 ITA NO.4001/DEL/2017 6. THE FACT THAT A COMPANY WHICH IS A RESIDENT OF A CONTRACTING STATE CONTROLS OR IS CONTROLLED BY A COMPANY WHICH IS A RESIDENT O F THE OTHER CONTRACTING STATE, OR WHICH CARRIES ON BUSINESS IN THAT OTHER S TATE (WHETHER THROUGH A PERMANENT ESTABLISHMENT OR OTHERWISE), SHALL NOT OF ITSELF CONSTITUTE EITHER COMPANY A PERMANENT ESTABLISHMENT OF THE OTHER. 7. FOR THE PURPOSES OF THIS ARTICLE THE TERM 'CONTR OL', IN RELATION TO A COMPANY, MEANS THE ABILITY TO EXERCISE CONTROL OVER THE COMP ANY'S AFFAIRS BY MEANS OF THE DIRECT OR INDIRECT HOLDING OF THE GREATER PART OF THE ISSUED SHARE CAPITAL OR VOTING POWER IN THE COMPANY. 6.10 NEITHER THE ASSESSING OFFICER, NOR THE LD. CIT(A) HAS SPECIFIED WHICH KIND OF PE EXIST IN THE CASE OF NON -RESIDENT ENTITY OR HOW THE BUSINESS CONNECTION OF NON-RESIDENT IS E STABLISHED. EVEN IF, WE ASSUME THAT LOWER AUTHORITIES HAVE THOU GHT OF FIXED PLACE PE, THEN THE AUTHORITIES ARE REQUIRED TO ESTA BLISH THAT PLACE OF INDIAN BAR ASSOCIATION WAS UNDER CONTROL AND A T THE DISPOSAL OF INTERNATIONAL TAX BAR ASSOCIATION AND CORE ACTI VITY OF INTERNATIONAL TAX BAR ASSOCIATION HAS BEEN CARRIED OUT FROM SAID PLACE. NO SUCH FINDING OF FACT HAS BEEN RECORDED BY THE LOWER AUTHORITIES. FURTHER, NO EVIDENCE OF ANY AGENCY PE OR SERVICE PE HAS BEEN BROUGHT ON RECORD BY THE LOWER AUTHORITIES . ALTERNATIVELY, THE LEARNED CIT(A) HAS ALSO CONFIRME D THE DISALLOWANCE IN TERMS OF SECTION 37(1) OF THE ACT O N THE GROUND THAT EXPENSES WERE NOT INCURRED WHOLLY AND EXCLUSIV ELY FOR THE PURPOSE OF THE PROFESSION OF THE ASSESSEE. THE ASS ESSEE HAS ALSO NOT SUBMITTED ANY CREDIBLE EVIDENCE BEFORE US TO DE MONSTRATE THAT THOSE EXPENSES WERE INCURRED WHOLLY AND EXCLUS IVELY FOR THE PURPOSE OF PROFESSION. 6.11 IN THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN T HE INTEREST OF SUBSTANTIAL JUSTICE, WE FEEL IT APPROPR IATE TO RESTORE THIS 14 ITA NO.4001/DEL/2017 ISSUE BACK TO THE FILE OF THE ASSESSING OFFICER FOR DECIDING AFRESH AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. THE GROUND NO. (III) IS ALLOWED FOR STATI STICAL PURPOSES. 7. IN THE RESULT, THE APPEAL OF THE ASSESSEE IS PARTL Y ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON 21 ST SEPTEMBER, 2021 SD/- SD/- (KULDIP SINGH) (O.P. KANT) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 21 ST SEPTEMBER, 2021. RK/- (DTDC) COPY FORWARDED TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ASST. REGISTRAR, ITAT, NEW DELHI