ELVE CORPORATION, MUMBAI V. ACIT 12(3), MUMBAI

ITA 4108/MUM/2012

• Counselvise Citation: [2015] 134 COUNSELVISE.COM (IT) 2380 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 5 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 20-11-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Next Hearing Date: 21-08-2015
• Assessment Year: 2008-2009
• Appeal Filed On: 11-06-2012
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M C NANIWADEKAR
• Assessee Lawyers: VIVEK ANAND PERAPURNA
• Keywords: Permanent establishment; Question of law
• Section: 6; 2; 11

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL E BENCH, MUMBAI , , BEFORE SHRI JOGINDER SINGH , JM AND SHRI SANJAY ARORA , AM ./ I. T.A. NO S . 4108/MUM/2012 & 6279/MUM/2012 ( / ASSESSMENT YEAR S : 2008 - 09 & 2009 - 10 ) ELVE CORPORATION ELVE CHAMBERS, GREEN STREET, FORT, MUMBAI - 400 001 / VS. A SST. CIT - 12(3), AAYAKAR BHAVAN, MUMBAI ./ ./ PAN/GIR N O. AAAFE 4847 R ( /ASSESSEE) : ( /REVENUE) & ./ I.T.A. NO. 6229/MUM/2012 ( / ASSESSMENT YEAR: 2009 - 10 ) ASST. CIT - 12(3), AAYAKAR BHAVAN, MUMBAI / VS. ELVE CORPORATION ELVE CHAMBERS, GREEN STREET, FORT, MUMBAI - 400 001 ./ ./ PAN/GIR NO. AAAFE 4847 R ( /REVENUE) : ( /ASSESSEE) / R EVENUE BY : SHRI M. C. NANIWADEKAR / A SSESSEE BY : SHRI VIVEK ANAND PERAPURNA / DATE OF HEARING : 21.08.2015 / DATE OF PRONOUNCEMENT : 20 .11.2015 / O R D E R PER SANJAY ARORA, A. M.: THESE ARE SET OF T HREE APPEALS FOR TWO CONSECUTIVE YEARS , BEING ASSESSMENT YEAR S (A.Y S .) 2008 - 09 AND 2009 - 10 , BY THE ASSESSEE AND THE REVENUE RESPECTIVELY , 2 ITA NO S . 4108 , 6279 & 6229/MUM/2012 (A.YS. 2008 - 09 & 09 - 10) ELVE CORPORATION ARISING OUT OF THE SEPARATE ORDERS BY THE COMMISSIONER OF INCOME TAX (APPEALS) - 23 , MUMBAI (CIT(A) FOR SHORT), U/S.250(6) OF THE INCOME TAX ACT, 1961 (THE ACT HEREINAFTER) , DISPOSING THE ASSESSEES APPEALS CONT ESTING ITS ASSESSMENT U/S.143(3) OF THE ACT FOR THE SAID YEARS. THE ISSUES ARISING BEING COMMON, THE APPEALS WERE T AKEN UP FOR HEARING TOGETHER , AND ARE BEING DISPOSED OF PER THE COMBINED ORDER. 2. THE ONLY ISSUE ARISING IN THESE APPEALS IS THE MAINTAINAB ILITY OR OTHERWISE IN LAW OF SECTION 40(A)(I) OF THE ACT ON THE FOLLOWING EXPENDITURE INCURRED/PAYMENTS ALLOWED BY THE ASSESSEE: SR. NO. NATURE OF PAYMENT A.Y. 200 8 - 09 A.Y. 20 09 - 10 A) FREIGHT RS.3,13,54,353 RS. 2, 40,09,150 / - B) COMMISSION RS.1,41,00,556 / - RS.1, 4 1,56,894 / - THERE WAS ADMITTEDLY NEITHER DEDUCTION OF TAX AT SOURCE BY THE ASSESSEE , NOR ANY CERTIFICATE TOWARD NON - DEDUCTION OF TAX U/S. 195(2) STOOD OBTAINED BY IT. THOUGH THE LD. CIT(A) APPROVED THE REVENUES CASE IN PRINCIPL E , I.E., QUA THE A PPLICABILITY OF SECTION 40(A)(I) OF THE ACT TO THE SAID PAYMENTS IN THE FACTS AND CIRCUMSTANCES OF THE CASE, HE ACCEPTED THE ASSESSEES ALTERNATE CONTENTION OF THE SAID PROVISION BEING APPLICABLE ONLY ON THAT PART OF THE EXPENDITURE INCURRED FOR THE YEAR T HAT REMAINED UNPAID AS AT THE YEAR - END. THIS ARGUMENT , THEN , CONSTITUTES THE ASSESSEES ALTERNATE PLEA (VIDE G ROUND 5) FOR A.Y. 2008 - 09, AND ALSO EXPLAINS THE REVENUES APPEAL FOR A.Y. 2009 - 10 , I.E., TO THE EXTENT OF DISALLOWANCE DELETED ON ACCOUNT OF PAYM ENT DURING THE YEAR . THE RESPECTIVE CASE S 3. THE ASSESSEES CASE QUA BOTH THE PAYMENTS IS ESSENTIALLY THE SAME. THE FREIGHT PAYMENT , WH ICH IS ON EXPORT S , IS TO THE NON - RESIDEN T SHIPPING COMPANIES , THROUGH THEIR A GENTS IN INDIA. NO SERVICES ARE RENDERED I N INDIA , NOR DO THE PAYEES HAVE ANY PERMANENT ESTABLISHMENT (PE) IN IN DIA. THE SHIP OWNERS (OR COMPANIES ) , IN ANY CASE , 3 ITA NO S . 4108 , 6279 & 6229/MUM/2012 (A.YS. 2008 - 09 & 09 - 10) ELVE CORPORATION PAY THE TAX ES DUE ON THEIR INCOME THAT ARISES OR ACCRUES IN INDIA. COMMISSION, AGAIN, IS ALLOWED TO NON - RESIDEN TS , WHO UNDERTAKE PR O M OTI ON OF THE ASSESSEE S A MANUFACTURER OF ENGINEERING G OODS, PRODUCTS ABROAD, WHEREAT THE AGENTS ARE LOCATED/ RESIDENT. NO SER VICE IS RENDERED IN INDIA FOR ANY PART OF THE INCOME TO ACCRUE OR ARISE IN INDIA , WHICH IS PAID DIRECTLY TO THE NON - RESIDENT AGENT/ S OUTSIDE INDIA. THIS , IN FACT , IS A PRE - REQUISITE F O R THE APPLICATION OF SECTION 195, AS CLARIFIED BY THE HONBLE APEX COURT IN G. E. INDIA TECHNOLOGY CENTRE (P.) LTD. VS. CIT [2010] 327 ITR 456 (SC) , WITH THE HONBLE COURT PER CIT VS. TOSHOKU LTD. [1980] 125 ITR 525 (SC) HAVING CLEARLY HELD IN THE CONTEXT OF COMMISSION THAT INCOME EARNED BY A NON - RESIDEN T FOR SERVICE S RENDERED OUTSIDE INDIA COULD NOT BE DEEMED TO ACCRUE OR ARISE IN INDIA. THE WITHDRAWAL OF ITS CIRCULARS NOS. 23 (DATED 23.7.1961) AND 786 ( DATED 7.2.2000) BY THE CBDT V IDE CIRCULAR NO. 9/2007 DATED 22.10.2009 I S NOT RET ROSPECTIVE, EVEN AS HELD IN CIT VS. MODERN INSULATORS LTD. [2014] 369 ITR 138 (RAJ) . AS SUCH, THESE CIRCULARS WERE IN FORCE WHEN THE PAYMENTS WERE MADE, AND THE CLARIFICATION P ER CIRCULAR 23 THAT NO INCOME SHALL BE CHARGEABLE TO TAX IN INDIA IN SUCH A CASE SHALL PREVAIL. T HE REVENUES CASE IS, AGAIN, TWO FOLD. ADMITTEDLY, THE PAYMENTS HAVE BEEN ALLOWED WITHOUT EITHER DEDUCTING TAX AT SOURCE OR OBTAINING A CERTIFICATE FROM THE A .O. AS TO NON - DEDUCTION ( OR DEDUCTION OF TAX AT A LOWER RATE ) , AS REQUIRED U/S. 195(2) OF THE ACT. AS REGARDS FREIGHT CHARGES, THE SAME IS SUBJECT TO TAX IN THE HANDS OF THE SHIPPING COMPANY U/S.172 OF THE ACT, EVEN AS CLARIFIED IN CIT VS. ORIENT ( GOA )(P.) LTD. [2010] 325 ITR 554 (BOM). THE HON'BLE JURISDICTIONAL HIGH COURT IN ORIENT (GOA) (P.) LTD. (SUPRA) HAS CLEARLY HELD THAT DEDUCTION QUA CHARGES PAID TO NON - RESIDENT (SHIPPING COMPANIES) WOULD BE GOVERNED BY SECTION 40(A) ( I) OF THE ACT WHERE NO TAX STAND S DEDUCTED THEREON, AND A DISALLOWANCE U/S. 40(A)(I) IS UNDER SUCH CIRCUMSTANCES LEGAL, PROPER AND IN ACCORDANCE WITH THE SCHEME OF THE ACT. THE SAME BEING , THOUGH , IN THE CONTEXT OF DEMURRAGE CHARGES WOULD BE INCONSEQUENTIAL IN - AS - MUCH AS PER SECTION 172( 8) SUCH CHARG ES ASSUME THE NATURE OF RECEIPT TOWARD FREIGHT, I.E., ARE TO BE ACCORDINGLY CONSIDERED AS PART OF THE FREIGHT CHARGES (INCOME) OF THE SHIPPING 4 ITA NO S . 4108 , 6279 & 6229/MUM/2012 (A.YS. 2008 - 09 & 09 - 10) ELVE CORPORATION COMPANY . THE HONBLE COURT CONSIDERED THE CIRCULAR NO. 723 DATED 19.9.1995 ISSUED BY CBDT. AS REGARD S THE COMMISSION INCOME, THE REVENUE PLACE S RELIANCE ON THE DECISION IN THE CASE OF ELK EM TECHNOLOGY VS. DY. CIT [2001] 250 ITR 164 (AP), WHEREIN IT STANDS CLARIFIED THAT THE INCOME TO ACCRUE OR ARISE IN INDIA, IT IS NOT NECESSARY THAT THE SERVICE SHOULD B E RENDERED IN INDIA , I.E., IN THE TERRITORIAL JURISDICTION OF INDIA, AND IT WOULD BE SUFFICIENT IF THE SER V I C ES ARE UTILIZED IN INDIA. IN FACT, THE NOMENCLATURE COMMISSION IS MISLEADING, AND THE SERVICES QUALIF Y AS FEES FOR TECHNICAL SERVICES , A S CLARIFI ED IN WALLACE PHARMACEUTICAL (P.) LTD., IN RE [2008] 195 CTR AAR 63. IN THAT CASE, IT WAS HELD THAT IRRESPECTIVE OF THE DESCRIPTION AS COMMISSION , CONSULTANCY FEES PAYABLE TO NON - RESIDENT FOR DEVELOPING BUSINESS WITH FOREIGN CUSTOMERS FALLS WITHIN THE ME ANING OF FEE FOR TECHNICAL SERVICES AS DEFINED UNDER EXPLANATION 2 TO S. 9(1)(VII). THE BOARD CIRCULARS WOULD NOT APPLY IN VIEW OF THE AMENDMENT BY WAY OF I NSERTION OF EXPLANATION BELOW SECTION 9 BY FINANCE ACT, 2009 W.R.E.F. 01.04.1976. THIS SUMS UP TH E CASES OF BOTH THE PARTIES, WHO HAVE ALSO RELIED ON CASE LAW IN SUPPORT OF THE IR RESPECTIVE CASES. IN ADDITION IS THE ASSESSEES ALTERNATE PLEA QUA BOTH THE PAYMENTS , I.E., OF SECTION 40(A)(I) AS BEING APPLICABLE ONLY ON AS MUCH OF THE EXPENDITURE FOR THE RELEVANT YEAR (A.Y. 2008 - 09) AS OUTSTANDS FOR PAYMENT, I.E., IS PAYABLE, AS AT THE END OF THE YEAR, AND TOWARD WHICH THE ASSESSEE PLACE S RELIANCE ON THE DECISION IN ARCADIA SHARE & STOCK BROKERS (P.) LTD. VS. DY. CIT (IN ITA NO. 1871/MUM/2013 DATED 22.1 2.2014) . 4. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. 4.1 WE SHALL TAKE UP BOTH THE SUMS (PAYMENTS) SEPARATELY. WITH REGARD TO FREIGHT ALLOWED TO SHIPPING COMPANIES, THE MATTER, IN OUR VIEW, IS SQUARELY COVER ED AGAINST THE ASSESSEE B Y THE DECISION IN THE CASE OF ORIENT ( GOA ) (P.) LTD. (SUPRA). THIS WAS IN FACT CONCEDED TO BY THE LD. AUTHORIZED REPRESENTATIVE (AR), THE ASSESSEES COUNSEL , BEFORE US. PER THE SAID DECISION, THE HON'BLE JURISDICTIONAL HIGH COURT HAS 5 ITA NO S . 4108 , 6279 & 6229/MUM/2012 (A.YS. 2008 - 09 & 09 - 10) ELVE CORPORATION UNEQUIVOCALLY HELD THA T PAYMENT OF DEMURRAGE CHARGES, WHICH ASSUME THE SAME NATURE AS OF FREIGHT CHARGES, TO A NON - RESIDENT WITHOUT DEDUCTION OF TAX AT SOURCE, WOULD ATTRACT SECTION 40(A)(I) OF THE ACT, I.E., UNLESS CERTIFIED FOR NON - DEDUCTION U/S. 195(2). THE CONTENTION WITH R EGARD TO THE APPLICATION OF G. E. INDIA TECHNOLOGY CENTRE (P.) LTD. (SUPRA) WOULD BE OF NO ASSIST ANCE IN - AS - MUCH AS IT IS NOBODYS CASE THAT NO PART OF THE FREIGHT CHARGES IS ASSESSABLE AS INCOME IN THE HANDS OF THE SHIPPING COMPANIES. RATHER, THE VERY PLE A OF TH E SAME BEING COVERED U/S. 172, AS FOUND FAVOUR WITH THE T RIBUNAL IN ORIENT (GOA) (P.) LTD. (SUPRA), ADMITS OF THE SAME BEING CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT. SECTION 172, FALLIN G UNDER CHAPTER XV - H, TITLED L IABILITY IN SPECIAL CAS ES, HAS BEEN FOUND BY THE HON'BLE JURISDICTIONAL HIGH COURT IN ORIENT (GOA) (P.) LTD. (SUPRA) TO OPERATE IN A FIELD DIFFERENT FROM CHAPTER XVII, I.E., C OLLECTION AND RECOVE RY OF TAX, UNDER WHICH CHAPTER SECTION 195 FALLS . THE ASSESSEE, ACCORDINGLY, FAI LS ON ITS G ROUNDS 1 & 2 FOR BOTH THE YEARS . 4.2 COMING, NEXT, TO THE EXPENDITURE ON THE SO CALLED COMMISSION. THE LAW IN THE MATTER CAN BE SAID TO BE SETTLED, AND A PAYMENT TO A NON - RESIDENT WOULD NOT BE SUBJECT TO TAX DEDUCTION AT SOURCE (TDS) AND, CORRE SPONDINGLY, DISALLOWANCE U/S.40(A)(I), UNLESS THE CORRESPONDING RECEIPT BEARS AN ELEMENT OF INCOME, TAXABLE IN INDIA, I.E., UNDER THE ACT. REFERENCE IN THIS CONTEXT MAY BE MADE TO THE DECISION IN G. E. INDIA TECHNOLOGY CENTRE (P.) LTD. (SUPRA). AS SUCH, TH E RECEIPT SHALL NOT BECOME TAXABLE IN INDIA MERELY BECAUSE THE ASSESSEE DID NOT APPLY FOR OR SEEK A SANCTION OF THE REVENUE TO REMIT THE PAYMENT TO A NON - RESIDENT WITHOUT DEDUCTION OF TAX AT SOURCE, AS ENVISAGED U/S. 195. TRUE, S. 195(2) OPERATES AS A SAFE GUARD, BUT WOULD NOT BY ITSELF LEAD TO THE SATISFACTION OF THE CONDITION OF CHARGEABLE UNDER THE PROVISIONS OF THE ACT SPECIFIED IN S. 195(1). IT IS ONLY ON THIS CONDITION BEING MET THAT THE PROVISION OF S. 195, FALLING UNDER CHAPTER XVII, SHALL COME INT O PLAY. THIS, THEN, PROVIDES THE LEGAL BASIS TO RESOLVE THE ISSUE BEFORE US. 6 ITA NO S . 4108 , 6279 & 6229/MUM/2012 (A.YS. 2008 - 09 & 09 - 10) ELVE CORPORATION THE NEXT QUESTION THAT CONFRONTS US IS IF ANY PART OF COMMISSION INCOME CAN BE SAID TO ACCRUE OR ARISE OR DEEMED TO ACCRUE OR ARISE IN INDIA. TOWARD THIS, THE ASSESSEES CON TENTION IS THAT NO SERVICES ARE RENDERED IN INDIA (THE TAXABLE TERRITORY). IT IS ON THIS BASIS, AS A READING OF ITS DECISION IN TOSHOKU LTD. (SUPRA) WOULD REVEAL , THAT THE HONBLE APEX COURT HELD THAT THE NON - RESIDEN T SELLING A GENTS HAVING ACTED OUTSIDE IN DIA, THEIR COMMISSION EARNED CANNOT BE DEEMED TO HAVE EITHER ACCRUED OR ARISEN IN INDIA. WHERE THE SERVICES ARE RENDERED IN INDIA (TAXABLE TERRITORY), THE INCOME THEREFROM, TO THAT EXTENT, WOULD SURELY ACCRUE OR ARISE IN INDIA, SO THAT ONE MAY NOT BE REQUI RED TO EVEN TRAVEL TO THE DEEMING PROVISION OF SECTION 9, WHICH IN A WAY SEEKS TO EXTEND AND TO DEFINITION THE SCOPE OF ACCRUAL BY AND THROUGH THE CONCEPT OF BUSINESS CONNECTION. AS EXPLAINED IN CIT VS. R. D. AGGARWAL & CO. [1965] 56 ITR 20 (SC), WHICH S TANDS REFERRED TO IN TOSHOKU LTD. (SUPRA) , AND CONTINUES TO GOVERN THE FIELD, BUSINESS CONNECTION INVOLVES THE RELATIONSHIP BETWEEN THE BUSINESS CARRIED ON BY A NON - RESIDENT (OUTSIDE TAXABLE TERRITORIES), WHICH YIELDS PROFITS OR GAINS, AND SOME ACTIVITY IN THE TAXABLE TERRITORIES WHICH CONTRIBUTES DIRECTLY OR INDIRECTLY TO THE EARNING OF THOSE PROFITS AND GAINS. IT PREDICATES AN ELEMENT OF CONTINUITY, AND POSTULATES A REAL AND INTIMATE RELATION BETWEEN THE TRADING ACTIVITY CARRIED ON OUTSIDE THE TAXABLE TER RITORIES AND THE TRADING ACTIVITY WITHIN THE TERRITORIES, THE RELATION BETWEEN THE TWO CONTRIBUTING TO THE EARNING OF INCOME BY THE NON - RESIDENT IN HIS TRADING ACTIVITY THE A GENTS IN THE PRESENT CASE. THE MATTER IS, THUS, PRINCIPALLY AND PRIMARILY FACTUA L . THIS IS ALSO WHAT THE BOARD CIRCULAR 23 (SUPRA) EXPLAINS, I.E., WHETHER THE NON - RESIDENT HAS A BUSINESS CONNECTION IN INDIA, FROM WHICH INCOME, PROFITS OR GAINS CAN BE SAID TO ARISE WITHIN THE MEANING OF SECTION 9 HAS TO BE DETERMINED IN THE FACTS OF EA CH CASE. THIS IS ALSO WHAT IT STATES IN SUBSTANCE, WHICH WILL NOT GET WHITTLED DOWN WHEN IN THE LATTER PART, BY WAY OF AN ILLUSTRATION, IT STATES THAT FOR A FOREIGN AGENT OPERATING IN HIS OWN COUNTRY, NO PART OF HIS INCOME CAN BE SAID TO ARISE IN INDIA A PROPOSITION ON WHICH THERE COULD BE NO DISPUTE IN PRINCIPLE, AND WHICH IS WHAT THE HONBLE APEX COURT HAS ENDORSED IN TOSHOKU LTD. (SUPRA) . THIS CANNOT, AND BY NO MEANS, IS MEANT TO 7 ITA NO S . 4108 , 6279 & 6229/MUM/2012 (A.YS. 2008 - 09 & 09 - 10) ELVE CORPORATION OR COULD SUBSTITUTE A FACTUAL DETERMINATION OF WHETHER THERE IS ANY BUSIN ESS CONNECTION WHICH WOULD ONLY BE UPON EXAMINING THE SCOPE AND ACTIVITIES IN THE TAXABLE TERRITORY (INDIA) AND THE RELATION WITH THAT CARRIED IN THE TERRITORY OUTSIDE INDIA FROM WHICH INCOME IS EARNED. A CIRCULAR CANNOT, AND IT WOULD BE PRESUMPTUOUS TO TH INK OTHERWISE, DECIDE WHETHER THERE IS IN THE FACTS AND CIRCUMSTANCES OF THE CASE, A BUSINESS CONNECTION, I.E., A RELATION BETWEEN THE TRADING ACTIVITY IN THE TAXABLE AND THE NON - TAXABLE TERRITORIES, AND ANY INCOME ARISES TO THE NON - RESIDENTS ON ACCOUNT OF THAT RELATIONSHIP, AS THE LAW IS, AND STANDS EXPLAINED. THAT IS, THE SAID CIRCULAR IS IN CONFORMITY WITH THE LAW. THE SAME CANNOT EVEN OTHERWISE OVERRULE THE LAW AS EXPLAINED BY THE HON'BLE JURISDICTIONAL HIGH COURT IN ORIENT (GOA) (P.) LTD. (SUPRA) WITH R EFERENCE TO THE DECISION IN CST VS. INDRA INDUSTRIES [2001] 248 ITR 338 (SC), AND WHICH IS EVEN OTHERWISE TRITE LAW (REFER: COMMISSIONER OF CENTRAL EXCISE VS. RATAN MELTING & WIRE INDUSTRIES (IN CIVIL APPEAL NO. 4022 OF 1999 DATED 14.10.2008 ). THE SUBSEQUE NT WITHDRAWAL OF THE SAID CIRCULAR IS THUS , UNDER THE CIRCUMSTANCES , O F LITTLE ASSISTANCE TO THE ASSESSEE. IN THE FACTS OF THE PRESENT CASE, THE ASSESSEE CLAIMS LIKEWISE, I.E., OF NO SERVICES HAVING BEEN RENDERED IN INDIA (TAXABLE TERRITORY) . T HERE HAS BEE N , HOWEVER, NO EXAMINATION OF THE ACTIVITIES CARRIED OUT BY THE NON - RESIDENT AGENTS, EVEN AS THE REVENUE CLAIMS THE SAME TO INVOLVE MANAGERIAL AND CONSULTANCY SERVICES, SO THAT IN NATURE AND BY DEFINITION THE SAME WOULD BE FEE FOR TECHNICAL SERVICES, COVER ED BY SECTION 9(1)( VII). T HE LD. AR , ON BEING QUESTIONED IN THE MATTER, I.E., AS TO THE NATURE AND SCOPE OF THE SERVICE S RENDERED BY SELLING OR , AS THE CASE MAY BE , CONSULTING AGENTS, CONCEDED TO THE SAME, I.E., A COMPLETE ABSENCE OF ANY EXAMINATION IN THE MATTER. WE CONSIDER BOTH THE ASSESSEE WHO ONLY STATES OF THERE BEING NO WRITTEN AGREEMENTS BETWEEN THE ASSESSEE AND THE AGENTS, AS WELL AS THE REVENUE , TO BE RESPONSIBLE FOR THIS. THE LAW COULD NOT BE APPLIED WITHOUT EXAMINING AND DETERMINING THE FA CTS. THE LAW PROVIDES THE GUIDELINES, THE FRAME WORK, APPLYING WHICH TO THE FACTS AS FOUND , THE ISSUES AS ARISING ARE TO BE DECIDED/ADJUDICATED. THAT IS, THE LAW COULD 8 ITA NO S . 4108 , 6279 & 6229/MUM/2012 (A.YS. 2008 - 09 & 09 - 10) ELVE CORPORATION ONLY BE APPLIED ON THE TERRA FIRMA OF THE FACTS, WHICH FORM THE BUILDING BLOCK OF ANY CA SE. NOT SO DOING WOULD ONLY AMOUNT TO MATCHING THE COLOUR OF ONE CASE WITH THAT OF ANOTHER, SOMETHING WHICH COULD NOT BE COUNTENANCED , AND DISAPPROVED BY THE APEX COURT FROM TIME AND AGAIN. WHY, EVEN IN THE CASE OF G. E. INDIA TECHNOLOGY CENTRE (P.) LTD. ( SUPRA), THE HONBLE APEX COURT, AFTER CLARIFYING THE LAW, REMITTED THE MATTER BACK TO THE HONBLE HIGH COURT TO CONSIDER ON MERITS THE QUESTION AS TO WHETHER IN THE FACTS AND CIRCUMSTANCES OF THE CASE THE TRIBUNAL WAS JUSTIFIED IN HOLDING THAT THE AMOUNTS PAID TO FOREIGN SUPPLIERS WAS NOT ROYALTY AND THAT IT DID NOT GIVE RISE TO INCOME TAXABLE IN INDIA, EXCLUDING THE LIABILITY TOWARD DEDUCTION OF TAX AT SOURCE. COMING TO THE FACTS AND CIRCUMSTANCES OF THE CASE, THE ASSESSEE, AS GIVEN TO UNDERSTAND, IS A MANUFACTURER OF AUTOMOBILE PARTS IN INDIA. THE VEHICLE S PLYING ON THE ROADS ABROAD ARE, AS IS THE COMMON KNOWLEDGE, VERY DIFFERENT IN DESIGN AND ENGINEERING FROM THAT IN INDIA. THE PROFILE OF THE AUTO PARTS WOULD HAVE TO MATCH AND FIT INTO THE ENGINEERING AND DESIGNING OF THE VEHICLE S . HOW IS THE ASSESSEES PRODUCT , THEN , SOLD AND MARKETED, WHICH WOULD REQUIRE PENETRATION AND ESTABLISHMENT IN NEW MARKET S . IT IS ONLY WHEN THE ENGINEERING DETAILS, IN THE FORM OF DRAWING S , ETC. OF THESE PARTS ARE MADE AVAILABL E TO THE ASSESSEE , THAT IT COULD MANUFACTURE THEM. THIS WOULD REQUIRE EXTENSIVE EXCHANGE OF TECHNICAL INFORMATION AND , PERHAPS , EVEN EXPERTISE. WHY, EVEN THE RAW M ATERIAL OR THE RAW MATERIAL MIX REQUIRED MAY BE DIFFERENT , INCLUDING QUA QUALITY/GRADE . IN FA CT, THE PRODUCTION, AS THE FINAL STEP, WOULD ONLY BE PRECEDED BY A SERIES OF S TAGES , BEGINNING WITH THE EXCHANGE OF THE TECHNICAL DETAILS, INCLUDING ON PRODUCT QUALITY, LEADING TO THE PRODUCTION OF THE PRODUCT PROTOTYPE AND APPROVAL THEREOF, TO T HE TRIAL P RODUCTION, BEFORE THE REGULAR PRODUCTION COMMENCE S AND SUPPLIES MADE. IN OTHER WORDS, THE ASSESSEES PRODUCT IS NOT A STANDARDIZED, BUT A CUSTOMIZED ONE, WITH, RATHER, CUSTOMIZATION ITSELF BEING A LONG DRAWN PROCESS. A LL THIS , AS INDICATED BEFORE , W OULD RE QUIRE INTERACTION OF HIGH CALIB R E BETWEEN THE CONCERNED PARTIES, WITH THE AGENTS PRESUMABLY CO - COORDINATING THE SAME THAT BEING THEIR FUNCTION . EVEN SUBSEQUENT TO THE STAGE OF THE REGULAR SUPPLIES, THERE MAY BE NOT SO 9 ITA NO S . 4108 , 6279 & 6229/MUM/2012 (A.YS. 2008 - 09 & 09 - 10) ELVE CORPORATION INFREQUENT CHANGES AUTOMOBILE S WIT NESSING CHANGES IN DESIGN AND MODELS ON A REGULAR BASIS, OR ON ACCOUNT OF CHANGES IN OTHER VARIABLES IMPACTING THE TERMS OF THE TRADE, VIZ. FLUCTUATIONS IN FOREIGN EXCHANGE MARKET; THE PRICE OF SOME IMPORTED OR INDIGENOUS MATERIAL, ETC. WHICH MAY REQUIRE R E - NEGOTIATION. THE EXCHANGE, THUS, WOULD BE ON A REGULAR BASIS, ACROSS DIFFERENT BUYERS, EACH WITH ITS OWN SET OF REQUIREMENTS AND IS SUES. THE ASSESSEES VIEW POINT ON EACH ASPECT OF THE MATTER, AND AT EACH STAGE , HAS TO BE PUT ACROSS TO THE BUYERS , AND VI CE - V ERSA , CONSTITUTING A N EFFECTIVE DIALOGUE BETWEEN THE TWO, WHICH IS THE PRIME FUNCTION OF THE AGENT AS AN INTERMEDIARY. WHY, IT MAY ALSO NECESSITAT E VISITS BY EITHER SIDE, TO ANOTHER, BESIDES BY THE AGENT/S TO INDIA , APART FROM THE REGULAR EXCHANGE AND FLOW OF INFORMATION THROUGH OTHER MODES OF COMMUNICATION. HOW ELSE , WE WONDER , THE BUSINESS TAKE FORM AND BE UNDERTAKEN ? THE LD. AR, ON BEING QUESTIONED IN THE MATTER, I.E., AS TO THE MANNER IN WHICH THE BUSINESS IS UNDERTAKEN , PUTTING ACROSS THIS SCENARIO , WOULD FAIRLY SUBMIT THAT THE SAME IS A DISTINCT POSSIBILITY, THOUGH HE WAS NOT IN A POSITION TO SO AFFIRM OR COMMIT IN THE MATTER. THIS IS PRECISELY WHY WE STATED BOTH THE ASSESSEE AND THE REVENUE TO BE RESPONSIBLE FOR A COMPLETE FACTUAL IN DETERMINATION OF THE MATTER. MERELY STATING THAT NO SERVICES ARE RENDERED IN INDIA IS UNDER THE CIRCUMSTANCES OF LITTLE CONSEQUENCE . IT IS, AGAIN, UPON EXAMINING AND ASCERTAINING THE NATURE OF THE SERVICE S THAT THE AAR IN WALLACE PHARMACEUTICAL (P.) LTD. (SUPRA) HELD TH AT THE SERVICES PROVIDED BY PENS E R GROUP, A TAX RESIDEN T OF USA, WERE NOT LIMITED TO USA AND, FURTHER, UTILIZED IN INDIA AND, ACCORDINGLY, PAYMENTS THERETO WARRANTED DEDUCTION OF TAX AT SOURCE . THE AAR HAS, IN OUR VIEW, SOUGHT TO CORRECTLY APPLY THE LAW IN THE MATTER THE ISSUE BEING PRINCIPALLY FACTUAL. IT IS AGAIN ON ACCOUNT OF THIS THAT THE HONBLE COURT IN ELKEM TECHNOLOGY (SUPRA) , UPON EXAMINING THE NATURE AND SCOPE OF THE ACTIVITIES , HELD THAT NO QUESTION OF LAW, MUCH LESS A SUBSTANTIAL QUESTION OF LAW, ARISES. IN THE CASE OF TOSHOKU LTD. (SUPRA) , THE PRODUCT WAS TOBACCO, ESSENTIALLY A COMMODITY (OR A GENERIC PRODUCT) , AND WHICH COULD BE SOLD AS SUCH, ADHERING TO THE SPECIFICATIONS AS MAY BE STIPULATED BY LAW. 10 ITA NO S . 4108 , 6279 & 6229/MUM/2012 (A.YS. 2008 - 09 & 09 - 10) ELVE CORPORATION UNDER THE CIRCUMSTANCES, IN VIEW OF T HE FOREGOING, WE ONLY CONSIDER IT FIT AND PROPER, EVEN AS OBSERVED DURING HEARING AND TO THE AGREEMENTS BY THE PARTIES, THAT THE MATTER, SETTING ASIDE THE IMPUGNED ORDER, IS RESTORED FOR PROPER FACTUAL AS WELL AS LEGAL DETERMINATION BACK TO THE FILE OF T HE ASSESSING OFFICER (A.O.), WHO SHALL DECIDE THE SAME AFTER ALLOWING THE ASSESSEE REASONABLE OPPORTUNITY TO PRESENT ITS CASE BEFORE HIM. THIS DECIDES GROUNDS 3 & 4 OF THE ASSESSEES APPEALS FOR BOTH THE YEARS . 5. WE, NEXT, CONSIDER THE REVENUES APPEAL, TOWARD WHICH THE ASSESSEE PLACES RELIANCE ON THE DECISION IN THE CASE OF ARCADIA SHARE & STOCK BROKERS (P.) LTD. (SUPRA); THE TRIBUNAL ITSELF IN THE ASSESSEES CASE FOR A.Y. 2007 - 08 (IN ITA NO. 4648/MUM/2011 DATED 25.4.2012) HAVING, LIKEWISE, DIRECTED THE MATTER TO BE DECIDED IN LIGHT OF THE DECISION BY THE SPECIAL BENCH IN MERILYN SHIPPING & TRANSPORTS V. ADDL. CIT [2012] 136 ITD 23 (VISH) (SB) . THIS THEN FORMS THE SUBJECT MATTER OF THE ASSESSEES ALTERNATE PLEA, RAISED PER ITS GROUND 5 (FOR A.Y. 2008 - 09), AND THE REVENUES APPEAL FOR A.Y. 2009 - 10, WHERE, AGAIN (AS IN A.Y. 2007 - 08), THIS CONTENTION OF THE ASSESSEE STANDS ACCEPTED. 6. WE HAVE HEARD THE PARTIES, AND PERUSED THE MATERIAL ON RECORD. IN VIEW OF OUR DECISION QUA COMMISSION, RESTORING THE M ATTER BACK TO THE FILE OF THE A.O., THE ASSESSEES ARGUMENT WOULD, FIRSTLY, APPLY ONLY IN RELATION TO THE APPLICATION OF SECTION 40(A)(I) ON FREIGHT CHARGES. TWO, ON MERITS, THE DECISION IN THE CASE OF MERILYN SHIPPING & TRANSPORTS (SUPRA) HOLDS THE FIELD NO LONGER IN VIEW OF THE DECISIONS BY THE HONBLE COURTS , AS IN THE CASE OF CIT VS. CRESCENT EXPORT SYNDICATE [2013] 216 TAXMANN 258 (CAL) AND CIT VS. SIKANDARKHAN N. TUNVAR [2013] 357 ITR 312 (GUJ), OVERRULING MERILYN SHIPPING & TRANSPORTS (SUPRA). T HE MATTER STANDS ALSO DISCUSSED AT LENGTH BY THE TRIBUNAL , AS IN THE CASE OF RAVIRAJ RELEMPAADU [2014] 29 ITR 387 (MUM.)(TRIB.) AND ITO VS. PRATIBHU TI VINIYOG LTD. (IN ITA NO. 1689/MUM/2011 DATED 22.08.2014), RELIED UPON BY THE REVENUE BEFORE US, 11 ITA NO S . 4108 , 6279 & 6229/MUM/2012 (A.YS. 2008 - 09 & 09 - 10) ELVE CORPORATION ALSO DISCUSSION AND DISTINGUISHING THE DECISION BY THE HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT VS. VECTOR SHIPPING SERVICES [2013] 85 CCH 201 (ALL) ; THE ISSUE OF PAID AND PAYABLE BEING NOT BEFORE THE HONBLE COURT. THE RELEVANCE ON THE DECISION IN THE CASE OF ARCADIA SHARE & STOCK BROKERS (P.) LTD. (SUPRA), WHICH F URTHER RELIES ON VECTOR SHIPPING SERVICES (SUPRA), WOULD THEREFORE BE OF NO MOMENT. T HE ASSESSEE FAILS ON ITS RELEVANT GROUND AND THE REVENUE SUCCEEDS. 7. IN THE RESULT, THE ASSESSEES APPEAL S ARE PARTLY ALLOWED FOR STATISTICAL PURPOSES, AND THE R EVENUE S APPEAL IS PARTLY ALLOWED . ORDER PRONOUNCED IN THE OPEN COURT ON NOVEMB ER 20 , 201 5 SD/ - SD/ - ( JOGINDER SINGH ) (S ANJAY ARORA) / J UDICIAL MEMBER / A CCOUNTANT MEMBER MUMBAI ; DATED : 20 . 11 .201 5 . . ./ ROSHANI , SR. PS / COPY OF THE ORDER FORWARDED TO : 1. / THE APPELLANT 2. / THE RESPONDENT 3. ( ) / THE CIT(A) 4. / CIT CONCERNED 5. , , / DR, ITAT, MUMBAI 6. / GUARD F ILE / BY ORDER, / (DY./ASSTT. REGISTRAR) , / ITAT, MUMBAI