M/s Timken Engineering and Research India Private Limited , Bangalore V. Deputy Commissioner of Income Tax Circle-7(1)(1), Bangalore

ITA 414/BANG/2018

• Counselvise Citation: [2018] 121 COUNSELVISE.COM (IT) 4626 (ITAT-BANGALORE)
• Duration Of Justice: 4 month(s) 2 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 15-06-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2012-2013
• Appeal Filed On: 12-02-2018
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: PADMA MEENAKSHI
• Assessee Lawyers: P K PRASAD; UMASHANKAR GAUTAM
• Keywords: Double taxation relief; Opportunity of being heard

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL B BENCH : BANGALORE BEFORE SHRI N.V. VASUDEVAN, JUDICIAL MEMBER AND SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER ITA NO. 4 14 / BANG/201 8 ASSESSMENT YEAR : 20 1 2 - 1 3 M/S. TIMKEN ENGINEERING AND RESEARCH INDIA PVT. LTD., # 39-42, PHASE II, ELECTRONIC CITY, BANGALORE 560 100. PAN: AABCT2265L VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE 7 (1) (1), BANGALORE. APPELLANT RESPONDENT APPELLANT BY : SHRI P.K. PRASAD, ADVOCATE & SHRI UMASHANKAR GAUTAM, ADVOCATE RESPONDENT BY : SMT. PADMA MEENAKSHI, JCIT (DR) DATE OF HEARING : 0 5 .0 6 .2018 DATE OF PRONOUNCEMENT : 15 .0 6 .2018 O R D E R PER SHRI A.K. GARODIA, ACCOUNTANT MEMBER THIS APPEAL IS FILED BY THE ASSESSEE AND THE SAME I S DIRECTED AGAINST THE ORDER OF LD. CIT(A)-7, BANGALORE DATED 01.12.2017 FOR ASS ESSMENT YEAR 2012-13. 2. THE GROUNDS RAISED BY THE ASSESSEE ARE AS UNDER. THE GROUNDS MENTIONED HEREIN ARE WITHOUT PREJUDICE TO ONE ANOTHER: 1. THAT THE ORDER PASSED BY THE LEARNED COMMISSIONE R OF INCOME-TAX (APPEALS) [`CIT(A)'] UNDER SECTION 250 OF THE INCOM E-TAX ACT, 1961 (`THE ACT'), TO THE EXTENT PREJUDICIAL TO THE APPEL LANT, IS BAD IN LAW AND LIABLE TO BE QUASHED. 2. THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF TH E CASE, THE LEARNED CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF INR 4 ,195,490, REPRESENTING TAXES DEDUCTED AT SOURCE ON THE SALARY OF THE EXPATRIATE EMPLOYEE. 3. (A) THAT ON THE FACTS AND IN THE CIRCUMSTANCES O F THE CASE, THE LEARNED CIT(A) ERRED IN UPHOLDING THEACTION OF THE LEARNED DEPUTY ITA NO.414/BANG/2018 PAGE 2 OF 9 COMMISSIONER OF INCOME-TAX, CIRCLE 7(1)(1) (LEARNED AO') IN DISALLOWING COMMUNICATION EXPENSES UNDER SECTION 40 (A)(IA) OF THE ACT AMOUNTING TO INR 3,542,380, WITHOUT APPRECIATIN G THE FACT THAT NO TAX WAS DEDUCTIBLE AT SOURCE UNDER THE ACT ON SUCH PAYMENTS AND IGNORING THE SUBMISSIONS MADE BY THE APPELLANT. (B) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(A) HAS ERRED IN NOT APPRECIATING THE FACT THAT SUCH PAYMENT IS FOR A STANDARD FACILITY, AND THEREBY NOT LIABLE FOR DED UCTION OF TAX AT SOURCE. (C) THAT, WITHOUT PREJUDICE TO THE ABOVE, THE LEARN ED CIT(A) HAS ERRED IN UPHOLDING THE ACTION OF THE LEARNED AO IN DISALL OWING AN AMOUNT OF INR 3,542,380 AS AGAINST AN AMOUNT OF INR 3,284,632 . 4 (A) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, THE LEARNED CIT(A) HAS ERRED IN CHARACTERIZINGTHE PAYME NTS FOR PURCHASE OF APPLICATION SOFTWARE, AMOUNTING TO RS. 1,630,413 , AS ROYALTY AS PER THE PROVISIONS OF SECTION 9(1)(VI) OF THE ACT AND T HEREBY LIABLE FOR TAX DEDUCTION AT SOURCE. (B) THAT ON THE FACTS AND IN THE CIRCUMSTANCES OF T HE CASE, THE LEARNED CIT(A) ERRED IN NOT APPRECIATING THAT THE AMENDMENT S TO SECTION 9(1)(VI) OF THE ACT, VIDE FINANCE ACT, 2012, SHOULD BE APPLIED PROSPECTIVELY AND CANNOT BE APPLIED FOR PAYMENTS MA DE EARLIER. (C) THAT, WITHOUT PREJUDICE TO THE ABOVE, ON THE FA CTS AND IN THE CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED C IT(A) HAS ERRED IN NOT APPLYING THE PROVISIONS OF THE RELEVANT DOUBLE TAXATION AVOIDANCE AGREEMENT WHILE DETERMINING THE TAXABILITY OF THE A BOVE PAYMENTS. 5. THAT THE APPELLANT CRAVES LEAVE TO ADD TO AND/OR TO ALTER, AMEND, RESCIND, MODIFY THE GROUNDS HEREIN ABOVE OR PRODUCE FURTHER DOCUMENTS BEFORE OR AT THE TIME OF HEARING OF THIS APPEAL. 3. IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT GROU ND NOS. 1 AND 5 ARE GENERAL FOR WHICH NO SEPARATE ADJUDICATION IS CALLED FOR. REGA RDING GROUND NO. 2, HE DRAWN OUR ATTENTION TO PAGE NO. 313 OF PAPER BOOK AND SUB MITTED THAT ON THIS PAGE IS THE COMPUTATION OF INCOME OF THE CONCERNED EMPLOYEE MR. BRIAN T STRUNCK AND FROM THE SAME, IT CAN BE SEEN THAT THE AMOUNT OF TA XES PAID BY THE ASSESSEE IN RESPECT OF THE INCOME OF THE SAID EMPLOYEE OF RS. 4 1,95,490/- WERE ALSO CONSIDERED AS INCOME OF THAT EMPLOYEE BUT ON THIS A SPECT, THE ISSUE WAS DECIDED BY LD. CIT(A) ON THIS BASIS THAT FROM THE D ETAILS, IT IS CLEAR THAT NO TDS HAS BEEN DONE ON THE AMOUNT OF RS. 41,95,490/- BY T HE ASSESSEE THOUGH THE SAME IS SHOWN AS TAXABLE ALLOWANCE AND DULY INCLUDE D IN THE TAXABLE INCOME OF ITA NO.414/BANG/2018 PAGE 3 OF 9 THE EXPATRIATE EMPLOYEE. AT THIS JUNCTURE, IT WAS POINTED OUT BY THE BENCH THAT AS PER THE PAPER BOOK CERTIFICATE, THE RELEVANT PAG E 313 OF PAPER BOOK WAS SUBMITTED BEFORE CIT(A) AND NOT BEFORE THE AO AND H ENCE, THE BENCH FEELS THAT THIS ISSUE SHOULD GO BACK TO THE FILE OF AO FOR FRE SH DECISION AFTER CONSIDERING THIS PAGE OF THE PAPER BOOK AND OTHER EVIDENCES WHI CH THE ASSESSEE MAY BRING ON RECORD TO SUBSTANTIATE THIS THAT TAX WAS DEDUCTE D ON THIS AMOUNT OF PAYMENT IN RESPECT OF TAX FOR THE CONCERNED EXPATRIATE EMPL OYEE. IN REPLY, LD. AR OF ASSESSEE AGREED TO THIS PROPOSITION PUT FORWARD BY THE BENCH. THE LD. DR OF REVENUE ALSO AGREED TO THE PROPOSITION PUT FORWARD BY THE BENCH. 4. WE HAVE CONSIDERED THE SUBMISSIONS OF LD. AR OF ASSESSEE AND HAVE GONE THROUGH THE ORDERS OF AUTHORITIES BELOW. WE FIND T HAT A CATEGORICAL FINDING HAS BEEN GIVEN BY CIT(A) IN PARA 4.3 OF HIS ORDER THAT FROM THE DETAILS, IT IS CLEAR THAT NO TDS HAS BEEN DONE ON THE AMOUNT OF RS. 41,9 5,490/- BY THE ASSESSEE THOUGH THE SAME IS SHOWN AS TAXABLE ALLOWANCE AND D ULY INCLUDED IN THE TAXABLE INCOME OF THE EXPATRIATE EMPLOYEE. BEFORE US ALSO, ONLY THAT DOCUMENT HAS BEEN SHOWN TO US THAT THIS AMOUNT IS INCLUDED I N THE INCOME OF THE EXPATRIATE EMPLOYEE FOR WORKING OUT THE TAX LIABILI TY OF THE SAID EMPLOYEE. BEFORE US ALSO, THIS IS NOT SHOWN AS TO WHETHER THE TAX WAS DEDUCTED FROM THIS PAYMENT OR NOT. IT WAS POINTED OUT THAT ON PAGE NO S. 15 AND 16 OF PAPER BOOK IS THE TDS CERTIFICATE ISSUED BY THE ASSESSEE COMPA NY TO THE SAID EMPLOYEE BUT IN THE SAID TDS CERTIFICATE ALSO, THIS IS NOT C OMING OUT AS TO WHETHER TAX WAS DEDUCTED FROM THIS PAYMENT OR NOT. HENCE WE RESTOR E THE MATTER BACK TO THE FILE OF AO FOR FRESH DECISION AFTER CONSIDERING THE COMPUTATION OF INCOME OF THE CONCERNED EMPLOYEE WHICH IS MADE AVAILABLE BEFORE C IT (A) AND BEFORE US AS PER PAGE NO. 313 OF PAPER BOOK WHICH WAS NOT MADE A VAILABLE BEFORE THE AO AND AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING H EARD TO THE ASSESSEE TO SUBSTANTIATE ITS CLAIM THAT TDS WAS PROPERLY DEDUCT ED. THE AO IS DIRECTED TO PASS NECESSARY ORDER AS PER ABOVE DISCUSSION AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE AND IF I T IS FOUND THAT TDS WAS DEDUCTED ON TAX PORTION ALSO, THEN NO DISALLOWANCE SHOULD BE MADE. ACCORDINGLY, GROUND NO. 2 IS ALLOWED FOR STATISTICA L PURPOSES. ITA NO.414/BANG/2018 PAGE 4 OF 9 5. REGARDING GROUND NO. 3, IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT PARTY WISE BREAKUP OF COMMUNICATION EXPENSES ALONG WITH TDS DE TAILS IS AVAILABLE ON PAGE NO. 97 OF PAPER BOOK AND THIS WAS MADE AVAILAB LE BEFORE LD. CIT(A) BUT THE ISSUE IN DISPUTE WAS DECIDED BY THE LD. CIT(A) WITHOUT CONSIDERING THESE EVIDENCES AND THEREFORE, THE DISALLOWANCE MADE BY T HE AO AND CONFIRMED BY CIT(A) IS NOT JUSTIFIED. THE LD. DR OF REVENUE SUP PORTED THE ORDERS OF AUTHORITIES BELOW. 6. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT THIS ISSUE WAS DECIDED BY LD. CIT(A) AS PER PARAS 5 AND 5.1 OF HIS ORDER A ND THEREFORE, THESE PARAS ARE REPRODUCED HEREINBELOW FOR THE SAKE OF READY REFERE NCE. 5. IN GROUND 3 THE APPELLANT HAS CONTENDED THAT THE LEARNED AO HAS ERRED IN DISALLOWING COMMUNICATION EXPENSES ON WHIC H TAX HAS NOT BEEN DEDUCTED AT SOURCE UNDER SECTION 40(A)(IA) OF THE ACT, AMOUNTING TO RS.35,42,380/-. IT WAS ALSO SUBMITTED THAT , WIT HOUT PREJUDICE TO THE ABOVE, THE LEARNED AO HAS ERRED IN DISALLOWING AN A MOUNT OF RS.35,42,380/- AS AGAINST AN AMOUNT OF RS.32,84,632 /-. IT HAS BEEN SUBMITTED THAT THESE EXPENSES INCLUDE TELEPHONE AND MOBILE EXPENSES AND CONFERENCE CALL CHARGES WHICH ARE STANDARD SERV ICES AND PAYMENT OF THESE CHARGES TO AIRTEL AND AIRCEL LTD DOES NOT CONSTITUTE ROYALTY U/S 9(I) (VI) OF THE ACT. IT WAS ALSO SUBMITTED THAT RE IMBURSEMENT OF TELEPHONE EXPENSES TO THE EMPLOYEES IS NOT A TAXABL E PERQUISITE IN THE HANDS OF THE EMPLOYEES AND HENCE NOT REQUIRED TO DE DUCT TAX. 5.1 SIMILAR ISSUE WAS UNDER CONSIDERATION OF CIT(A) FOR AY 2008-09 WHERE AFTER ELABORATE DISCUSSION IT WAS HELD VIDE O RDER DATED 10-01- 2013 AS UNDER: 'THE APPELLANT HAS MADE ELABORATE SUBMISSION ON THE AMBIT AND SCOPE OF TERMS SUCH AS ROYALTY AND FEES FOR TECHNIC AL SERVICES, BUT THERE IS NO REFERENCE BY THE AO TO THOSE TERMS OR S ECTION 194J. THE APPELLANT'S DISCUSSION ON THESE ASPECTS AND THE PRO VISIONS OF THE ACT AND THE CASE LAWS CITED IN THAT CONTEXT ARE THE REFORE SUPERFLUOUS. CONSIDERING THAT BROADBAND INTERNET SE RVICE IS NOT SPECIFICALLY EXCLUDED FROM THE DEFINITION OF WORK I N CLAUSE (IV) OF EXPLANATION TO 194C, I AM INCLINED TO HOLD THAT THE RE WAS A LIABILITY ON THE PART OF THE APPELLANT TO MAKE TDS ON THESE PAYMENTS AND CONSEQUENTLY, THE PROVISIONS OF SECTIO N 40(A)(IA) WERE ATTRACTED IN THIS CASE. 1 THEREFORE CONFIRM TH E DISALLOWANCE OF RS. 22,81,451 AND DISMISS THESE GROUNDS OF APPEAL.' IN VIEW OF ABOVE, FOLLOWING THE EARLIER ORDER OF CI T(A) FOR AY 2008-09 IN CASE OF THE APPELLANT, THE DISALLOWANCE OF RS RS .35,42,380/- BY THE AO U/S 40(A)(IA) IS CONFIRMED. THE GROUND OF APPEAL IS DISMISSED. 7. FROM THE ABOVE PARAS REPRODUCED FROM THE ORDER O F CIT(A), IT IS SEEN THAT LD. CIT(A) HAS DECIDED THE ISSUE ON THIS BASIS THAT IN ASSESSMENT YEAR 2008-09, ITA NO.414/BANG/2018 PAGE 5 OF 9 THIS ISSUE WAS DECIDED AGAINST THE ASSESSEE. BEFOR E US, IN REPLY TO A SPECIFIC QUERY, IT WAS SUBMITTED BY LD. AR OF ASSESSEE THAT APPEAL FOR ASSESSMENT YEAR 2008-09 IS ALSO PENDING BEFORE THE TRIBUNAL. BUT H E SUBMITTED THAT THE ISSUE MAY BE DECIDED IN THE PRESENT YEAR AND THE DECISION OF TRIBUNAL IN PRESENT YEAR MAY BE FOLLOWED IN ASSESSMENT YEAR 2008-09. THE LD . DR OF REVENUE SUPPORTED THE ORDERS OF AUTHORITIES BELOW. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. WE FI ND THAT THE DETAILS AVAILABLE ON PAGE NO. 97 OF PAPER BOOK WERE SUBMITTED BY ASSE SSEE FOR THE FIRST TIME BEFORE CIT(A) AND THE SAME WAS NOT MADE AVAILABLE B EFORE THE AO. WE ALSO FIND THAT IN THE ORDER OF CIT(A) AS REPRODUCED ABOV E, THE SAID DETAILS ARE NOT CONSIDERED AND HENCE, WE FEEL IT PROPER THAT IN THE INTEREST OF JUSTICE, THE MATTER SHOULD GO BACK TO THE FILE OF AO FOR FRESH DECISION AFTER CONSIDERING ALL THE DETAILS AND EVIDENCES WHICH THE ASSESSEE MAY BRING ON RECORD BEFORE THE AO AFTER PROVIDING ADEQUATE OPPORTUNITY OF BEING HEARD TO THE ASSESSEE. ACCORDINGLY GROUND NO. 3 IS ALSO ALLOWED FOR STATIS TICAL PURPOSES. 9. REGARDING GROUND NO. 4, THE BENCH POINTED OUT TH AT AS PER PARA 6.3 OF THE ORDER OF CIT(A), LD. CIT(A) HAS DIRECTED THE AO TO VERIFY AND DISALLOW SUCH PAYMENT IF TDS HAS NOT BEEN EFFECTED BY THE ASSESSEE DURING TH E PAYMENT / CREDIT OF THE SAME TO THE NR PAYEE. IN REPLY, IT WAS SUBMITTED B Y LD. AR OF ASSESSEE THAT IF THIS IS HELD THAT TDS IS REQUIRED TO BE DEDUCTED TH EN THE MATTER MAY BE RESTORED BACK TO THE FILE OF AO FOR FRESH DECISION AFTER EXAMINING THIS ASPECT AS TO WHETHER THE TDS IS DEDUCTED BY ASSESSEE OR NOT B UT THE ASSESSEES ARGUMENT IS THIS THAT TDS IS NOT REQUIRED TO BE DED UCTED AND IN SUPPORT OF HIS CONTENTION, HE PLACED RELIANCE ON A TRIBUNAL ORDER RENDERED IN THE CASE OF AE OF THE ASSESSEE I.E. ADIT(INTERNATIONAL TAXATION) VS. TIMKEN COMPANY AS REPORTED IN [2017] 88 TAXMANN.COM 21 (KOLKATA-TRIB) , COPY AVAILABLE ON PAGES 1002 TO 1025 OF PAPER BOOK. IN PARTICULAR, OUR ATT ENTION WAS DRAWN TO PARAS 22 TO 31 OF THIS TRIBUNAL ORDER AND IT WAS POINTED OUT THAT THIS WAS HELD BY TRIBUNAL IN THAT CASE THAT THE ASSESSEE MADE NO PROFIT ON SU CH REIMBURSEMENT BY THE INDIAN SUBSIDIARY AND THEREFORE, THE INCOME CANNOT BE TAXED IN THE HANDS OF THAT ASSESSEE. HE SUBMITTED THAT WHEN THE IMPUGNED PAYMENT CANNOT BE ITA NO.414/BANG/2018 PAGE 6 OF 9 TAXED IN THE HANDS AS INCOME OF THE PAYEE, THE PAYE R CANNOT BE ASKED TO DEDUCT TDS. IN REPLY THE, LD. DR OF REVENUE SUPPOR TED THE ORDERS OF AUTHORITIES BELOW. SHE ALSO PLACED RELIANCE ON TRIBUNAL ORDER RENDERED IN THE CASE OF RAMBUS CHIP TECHNOLOGIES (INDIA) PVT. LTD. VS. DCIT IN IT(TP)A NO. 61/BANG/2015 DATED 22.07.2015, COPY AVAILABLE ON PA GES 314 TO 351 OF PAPER BOOK AND IN PARTICULAR, OUR ATTENTION WAS DRAWN TO PAGE 346 OF PAPER BOOK AND IT WAS POINTED OUT THAT IN THAT CASE, THE ISSUE IN DISPUTE BEFORE THE TRIBUNAL WAS REGARDING DISALLOWANCE OF REIMBURSEMENT OF SOFTWARE EXPENSES BECAUSE NO TDS WAS DEDUCTED AND ISSUE WAS DECIDED AGAINST THE ASSESSEE AND IN FAVOUR OF THE REVENUE. IN THE PRESENT CASE ALSO, THE ISSU E SHOULD BE DECIDED AGAINST THE ASSESSEE REGARDING THE REQUIREMENT OF DEDUCTING TDS. IN RESPECT OF THIS CLAIM THAT TDS WAS IN FACT DEDUCTED AND HENCE, NO D ISALLOWANCE SHOULD BE MADE 40(A)(IA), THE ISSUE MAY BE REMANDED TO THE AO TO EXAMINE THE VERACITY OF THIS CLAIM THAT TDS WAS ACTUALLY DEDUCTED AND HE NCE, NO DISALLOWANCE U/S. 40(A)(IA) IS CALLED FOR. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. FIRS T OF ALL, WE REPRODUCE PARAS 20 TO 22 OF TRIBUNAL ORDER CITED BY LD. DR OF REVENUE AVAILABLE ON PAGES 346 AND 347 OF PAPER BOOK. THE SAME ARE AS UNDER. 20. AS REGARDS GROUNDNO.5 AGAINST THE DISALLOWANCE OF REIMBURSEMENT OF SOFTWARE EXPENSES, WE FIND THAT DU RING THE ASSESSMENT PROCEEDINGS, THE AO HAS OBSERVED THAT TH E ASSESSEE- COMPANY HAS CLAIMED AN AMOUNT OF RS.9,37,998/- TOWA RDS REIMBURSEMENT OF EXPENSES TO M/S.RAMBUS INCORPORATI ON ON ACCOUNT OF ORACLE LICENSE AND THE ASSESSEE DID NOT DEDUCT T DS EVEN THOUGH, IN THE OPINION OF THE AO, IT WAS IN THE NATURE OF 'FEE S FOR TECHNICAL SERVICES'. HE, THEREFORE, DISALLOWED THE SAME AND A DDED TO THE RETURNED INCOME OF THE ASSESSEE. 21. ON APPEAL, THE CIT(A) HELD IT TO BE A PAYMENT O F ROYALTY FOR USE OF THE SOFTWARE AND THEREFORE NOT ALLOWABLE AS EXPENDI TURE DUE TO NON DEDUCTION OF TDS IN VIEW OF THE JUDGMENT OF THE JUR ISDICTIONAL HIGH COURT IN THE CASE OF SAMSUNG ELECTRONICS CO. LTD. R EPORTED IN 345 ITR 494. 22. THE LEARNED COUNSEL FOR THE ASSESSEE, THOUGH FA IRLY AGREED THAT THE ISSUE IS COVERED AGAINST THE ASSESSEE BY THE DECISI ON OF THE JURISDICTIONAL HIGH COURT, PLACED RELIANCE UPON THE FOLLOWING JUDGMENTS IN FAVOUR OF THE ASSESSEE: (I) DIRECTOR OF INCOME-TAX VS. INFRASOFT LTD. (220 TAXMAN 273(HC)(DELHI)) (II)DIRECTOR OF INCOME-TAX VS. ERICSSON A.B. (16 TA XMAN.COM ITA NO.414/BANG/2018 PAGE 7 OF 9 371)(2011) 343 ITR 470(DEL) HOWEVER, SINCE THE ISSUE IS COVERED IN FAVOUR OF TH E REVENUE BY THE DECISION OF THE JURISDICTIONAL HIGH COURT, IN THE C ASE OF SAMSUNG ELECTRONICS CO. LTD. (CITED SUPRA) WE SEE NO REASON TO INTERFERE WITH THE ORDER OF THE CIT(A). 11. FROM THE ABOVE PARAS REPRODUCED, IT IS SEEN THA T IN THAT CASE ALSO, THE ISSUE IN DISPUTE WAS REGARDING DISALLOWANCE OF REIMBURSEMENT OF SOFTWARE EXPENSES BECAUSE NO TDS WAS DEDUCTED BY THE PAYER ASSESSEE A ND ISSUE WAS DECIDED BY TRIBUNAL AGAINST THE ASSESSEE BY FOLLOWING THE J UDGEMENT OF HON'BLE KARNATAKA HIGH COURT RENDERED IN THE CASE OF SAMSUN G ELECTRONICS CO. LTD. AS REPORTED IN 345 ITR 494. NO DIFFERENCE IN FACTS CO ULD BE POINTED OUT BY LD. AR OF ASSESSEE AND THEREFORE, AS PER THIS TRIBUNAL ORD ER, THIS ASPECT OF THE MATTER HAS TO BE DECIDED AGAINST THE ASSESSEE THAT WHETHER TDS IS DEDUCTIBLE OR NOT. RESPECTFULLY FOLLOWING THIS TRIBUNAL ORDER, WE HOLD THAT TDS IS DEDUCTIBLE IN THE PRESENT CASE. REGARDING THIS ASPECT OF THE MATTER AS TO WHETHER TDS WAS DEDUCTED BY ASSESSEE OR NOT, WE RESTORE THE MATTER BACK TO THE FILE OF AO FOR FRESH DECISION AFTER EXAMINING THE VERACITY OF THIS CLAIM OF THE ASSESSEE. 12. REGARDING THE RELIANCE PLACED BY LD. AR OF ASSE SSEE ON TRIBUNAL ORDER RENDERED IN THE CASE OF ADIT(INTERNATIONAL TAXATION ) VS. TIMKEN COMPANY (SUPRA), WE FIND THAT IN THAT CASE, THE ISSUE IN DI SPUTE WAS REGARDING TAXABILITY OF THE AMOUNT PAID BY THE INDIAN AE TO THAT ASSESSEE A ND AS PER PARA 52 OF THIS TRIBUNAL ORDER, IT IS NOTED BY TRIBUNAL THAT ASSESS EE IS NOT RECIPIENT OF THE SUMS IN QUESTION AND IT WAS ONLY A CONDUIT FOR PAYMENT B Y TIL TO A THIRD PARTY SERVICE PROVIDER AND IN SUCH CIRCUMSTANCES, THE TRIBUNAL HE LD THAT THIS CANNOT BE HELD TO CHARGE TAX IN THE HANDS OF THAT ASSESSEE. FINAL DECISION IN THAT CASE IS AS PER PARA 56 OF THAT TRIBUNAL ORDER WHICH IS REPRODU CED HEREINBELOW FOR THE SAKE OF READY REFERENCE FROM PAGE 1024 OF PAPER BOOK. 56. FROM THE ABOVE OBSERVATIONS OF THE CIT(A) IT IS CLEAR THAT THE ASSESSEE IS NOT THE RECIPIENT OF THE SUMS IN QUESTI ON AND IT WAS ONLY A CONDUIT FOR PAYMENT BY TIL TO A THIRD PARTY SERVICE PROVIDER. IN SUCH CIRCUMSTANCES, WE FAIL TO SEE HOW IT CAN BE CHARGED TO TAX IN THE HANDS OF THE ASSESSEE. IN THIS REGARD IN GROUND NO.2.1 OF THE GROUNDS OF APPEAL THE ASSESSEE HAS SPECIFICALLY CHALLENGED THE ACTION OF THE CIT(A) IN TAXING THE SUM IN QUESTION IN THE HANDS O F THE ASSESSEE AND THAT TAXABILITY OF THE SAID SUM SHOULD BE CONSIDERE D ONLY IN THE HANDS OF THE SERVICE PROVIDER. WE AGREE WITH THE SUBMISSI ON OF THE ASSESSEE ITA NO.414/BANG/2018 PAGE 8 OF 9 AND ARE OF THE VIEW THAT ON THIS SHORT GROUND THE A DDITION SUSTAINED BY THE CIT(A) SHOULD BE DELETED AND THE SAME IS HEREBY DELETED. IN VIEW OF THE AFORESAID CONCLUSION, WE ARE OF THE VIEW THA T THERE IS NO NEED TO LOOK INTO ITA NO.387&398/KOL/2010&CO.31&32/KOL/2010 THE TIMKEN COMPANY 33 THE DESCRIPTION OF THE SERVICE AN D FIND OUT WHETHER IT IS IN THE NATURE OF FTS OR NOT AND AS TO WHETHER IT WOULD BE TAXABLE UNDER DTAA OR NOT AND ALSO THE EFFECT OF TH E RULING OF THE AAR IN THE CASE OF TIMKEN INDIA LTD (SUPRA) WHICH WAS O VERRULED BY THE HON'BLE CALCUTTA HIGH COURT. THE ADDITION OF RS.1,2 3,90,51 AND ANOTHER SUM OF RS.5,14,705 MADE IN AY 2007-08 IS DI RECTED TO BE DELETED. 13. FROM THE ABOVE PARA, IT IS SEEN THAT IN THAT CA SE, THIS WAS THE ARGUMENT OF LD. AR OF ASSESSEE THAT ASSESSEE IS NOT THE RECIPIENT O F THE SUMS IN QUESTION AND ASSESSEE WAS ONLY A CONDUIT FOR PAYMENT BY TIL TO A THIRD PARTY SERVICE PROVIDER AND IT WAS SUBMITTED THAT IN SUCH CIRCUMST ANCES, IT CAN BE INCOME IN THE HANDS OF THE SERVICE PROVIDER BUT NOT IN THE HA NDS OF THE ASSESSEE WHOH IS A CONDUIT ONLY. WHETHER THE AMOUNT IS TAXABLE IN THE HANDS OF THE AE OF THE ASSESSEE IN THE PRESENT CASE OR THE SERVICE PROVIDE R, THERE IS NO DIFFERENCE BECAUSE IN BOTH CASES, TDS HAS TO BE DEDUCTED BECAU SE IF WE HOLD THAT NO TDS IS TO BE DEDUCTED IN SUCH CIRCUMSTANCES WHERE T HE FOREIGN AE OF THE INDIAN ASSESSEE AVAILS SERVICES FROM A NON RESIDENT THROUGH AE WORKING AS A CONDUIT FOR THE PAYMENT TO THE OVERSEAS SERVICE PRO VIDER THEN IT CAN BECOME A TOOL OF TAX AVOIDANCE AND OF INDIAN ASSESSEES WHO HAVE AE OVERSEAS CAN ROOT SIMILAR PAYMENTS TO THE ACTUAL PAYEE THROUGH OVERSE AS AE WITHOUT DEDUCTING TDS. HENCE IN OUR CONSIDERED OPINION, ON THIS ASPE CT OF THE MATTER THAT WHETHER TDS IS REQUIRED TO BE DEDUCTED OR NOT, WE F IND NO MERIT IN THE CLAIM OF THE ASSESSEE AND THIS TRIBUNAL ORDER ALSO IS NOT HE LPING THE ASSESSEE IN THE PRESENT CASE. FURTHER WE RESTORE THE MATTER BACK T O THE FILE OF AO FOR FRESH DECISION AFTER EXAMINING THIS CLAIM OF THE ASSESSEE THAT TDS WAS ACTUALLY DEDUCTED BY ASSESSEE. THE AO IS DIRECTED THAT IF TH E ASSESSEE IS ABLE TO ESTABLISH THAT TDS WAS DEDUCTED AND PAID AS REQUIRE D UNDER LAW THEN NO DISALLOWANCE IS CALLED FOR U/S. 40(A)(IA) BECAUSE T HE TDS IS DEDUCTED AND PAID TO THE CENTRAL GOVERNMENT AND THEN OBVIOUSLY NO DED UCTION CAN BE MADE U/S. 40(A)(IA). THE AO SHOULD PASS NECESSARY ORDER AS P ER LAW AS PER ABOVE DISCUSSION AFTER PROVIDING REASONABLE OPPORTUNITY O F BEING HEARD TO THE ASSESSEE. ACCORDINGLY, GROUND NO. 4 STANDS DISPOSE D OF IN THIS MANNER. ITA NO.414/BANG/2018 PAGE 9 OF 9 14. IN THE RESULT, THE APPEAL FILED BY THE ASSESSEE STANDS ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (N.V. VASUDEVAN) (ARUN KUMAR GARO DIA) JUDICIAL MEMBER ACCOUNTANT MEMBER BANGALORE, DATED, THE 15 TH JUNE, 2018. /MS/ COPY TO: 1. APPELLANT 4. CIT(A) 2. RESPONDENT 5. DR, ITAT, BANGALORE 3. CIT 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.