BOOR ALLEN & HAMILTON I LTD& CO KG GERMANY, V. ADIT IT 1(1),

ITA 4502/MUM/2003

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9056 (ITAT-MUMBAI)
• Duration Of Justice: 9 year(s) 6 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2012
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 29-11-2012
• Assessment Year: 1998-1999
• Appeal Filed On: 06-06-2003
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KUMAR
• Assessee Lawyers: SUNIL LALA; PRIYANKA GADA
• Keywords: Double taxation relief; Retrospective amendment; Validity of assessment
• Section: 143(3); 148

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L, MUMBAI BEFORE SHRI P.M.JAGTAP, ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA, JUDICIAL MEMBER. S.NO. I.T.A.NO. ASSTT.YEAR. 1. 4502/MUM/2003 1998-99. 2. 4503/MUM/2003 1998-9 9 3. 4504/MUM/2003 1998-9 9 4. 4506/MUM/2003 1998-9 9 5. 4507/MUM/2003 1998-9 9 6. 4508/MUM/2003 1998-9 9 BOOZ. ALLEN & HAMILTON ASSTT. DIRECTOR OF (INDIA) LTD. & CO. KG., VS. INCOME-TAX, AS AN AGENT OF BOOZ. ALLEN (INTERNATIONAL TAXATION)-1(1), & HAMILTON, MUMBAI. GERMANY, INDONESIA, S.E. ASIA, SINGAPORE, HONG KONG, U.K. PAN AAAFB 4590Q. APPELLANT. RESPONDENT . APPELLANT BY : SHRI SUNIL LALA & MS. PRIY ANKA GADA. RESPOND ENT BY :SHRI NARENDRA KUMAR. DATE OF HEARING : 29-11-2012 DATE OF PRONOUNCEMENT : 21-12-2012. O R D E R PER BENCH. THESE SIX APPEALS ARE FILED BY M/S BOOZ. ALLEN & H AMILTON (INDIA) LTD. & CO. KG. (BAH INDIA IN SHORT) AS AGENT OF SIX ENTITI ES AGAINST SIX SEPARATE ORDERS PASSED BY THE LEARNED CIT(APPEALS)-XXXI, MUMBAI DAT ED 28 TH FEBRUARY, 2003. 2 ITA NOS.4503,4504,4506,4507&4508/MUM/2003. 2. BAH INDIA IS A FOREIGN PARTNERSHIP FIRM ESTABLIS HED IN GERMANY. IT HAS A BRANCH OFFICE IN INDIA THROUGH WHICH IT RENDERS MAN AGEMENT AND TECHNICAL CONSULTANCY SERVICES. DURING THE YEAR UNDER CONSIDE RATION, SUCH SERVICES WERE RENDERED BY BAH INDIA IN CONNECTION WITH SIX PROJEC TS TWO RELATED TO TISCO AND ONE EACH OF ASIAN PAINTS, SIEMENS, PHILIPS INDIA AN D DEUTSCHE TELECOM. IN THIS CONNECTION, BAH INDIA HAD AVAILED THE SERVICES FROM VARIOUS BOOZ ALLEN GROUP ENTITIES FOR WHICH PAYMENTS WERE MADE AS UNDER : NAME OF ENTITY AMOUNT PAID. BOOZ ALLEN & HAMILTON (INDIA) LTD.& CO. KG.,GERMANY 11,97,950/- BOOZ ALLEN & HAMILTON (INDIA) LTD.& CO. KG. IND ONESIA. 37,23,586/- BOOZ ALLEN & HAMILTON (INDIA) LTD.& CO. KG. SOUTH E AST ASIA 81,24,382/- BOOZ ALLEN & HAMILTON (INDIA) LTD.& CO. KG., SING APORE. 4,37,589/- BOOZ ALLEN & HAMILTON (INDIA) LTD.& CO. KG., HONG KONG 3,91,117 BOOZ ALLEN & HAMILTON (INDIA) LTD.& CO. KG., U.K. 7,72,966/- ACCORDING TO THE AO, THE ABOVE PAYMENTS MADE BY BAH INDIA TO THE OTHER GROUP ENTITIES ABROAD WERE CHARGEABLE TO TAX IN INDIA IN THEIR HANDS AS FEES FOR TECHNICAL SERVICES AND BAH INDIA WAS LIABLE TO TREAT AS AN A GENT OF THE SAID ENTITIES FOR THIS PURPOSE. HE, THEREFORE, ISSUED A NOTICE TO BAH INDI A REQUIRING IT TO SHOW CAUSE WHY IT SHOULD NOT BE TREATED AS AN AGENT. ALTHOUGH THE ASSESSEE RAISED OBJECTION IN THIS REGARD, THE AO OVERRULED THE SAME AND PASSED O RDERS U/S 163 TREATING BAH INDIA AS AN AGENT OF THE SIX FOREIGN ENTITIES WHICH WERE UPHELD BY THE LEARNED CIT(APPEALS). THE AO, THEREFORE, ISSUED NOTICES U/S 148 TO BAH INDIA AS AN AGENT OF THE SIX FOREIGN GROUP ENTITIES IN RESPONSE TO WH ICH RETURNS OF INCOME WERE FILED BY THE ASSESSEE DECLARING TOTAL INCOME OF THE SAID ENTITIES CHARGEABLE TO TAX IN INDIA FOR THE YEARS UNDER CONSIDERATION AT NIL. IN THE AS SESSMENTS COMPLETED U/S 143(3) READ WITH SECTION 148 OF THE ACT ON BAH INDIA AS AG ENT OF THE SIX GROUP ENTITIES, THE AMOUNTS PAID BY BAH INDIA TO THE SAID ENTITIES WERE BROUGHT TO TAX IN INDIA BY THE AO AS FEES FOR TECHNICAL SERVICES. 3 ITA NOS.4503,4504,4506,4507&4508/MUM/2003. 3. AGAINST THE ORDERS PASSED BY THE AO U/S 143(3) R EAD WITH SECTION 148 OF THE ACT, APPEALS WERE FILED BY BAH INDIA BEFORE THE LEA RNED CIT(APPEALS) CHALLENGING THE VALIDITY OF THE SAID ASSESSMENTS AS WELL AS DIS PUTING THE ADDITIONS MADE THEREIN ON MERIT. DURING THE COURSE OF APPELLATE PROCEEDING S BEFORE THE LEARNED CIT(APPEALS), VARIOUS CONTENTIONS WERE RAISED ON BE HALF OF BAH INDIA CHALLENGING THE VALIDITY OF ASSESSMENTS MADE BY THE AO U/S 143( 3) READ WITH SECTION 148 ON VARIOUS GROUNDS. THE LEARNED CIT(APPEALS), HOWEVER, DID NOT FIND MERIT IN THE SAID CONTENTIONS AND REJECTING THE SAME, HE UPHELD THE V ALIDITY OF ASSESSMENTS MADE BY THE AO. AS REGARDS THE ADDITIONS MADE BY THE AO IN THE SAID ASSESSMENTS, IT WAS CONTENDED ON BEHALF OF BAH INDIA ON MERIT THAT THE AMOUNT PAYABLE BY IT TO THE SIX FOREIGN ENTITIES DID NOT PARTAKE CHARACTER OF INCOM E TILL NECESSARY APPROVAL WAS RECEIVED UNDER THE EXCCHANGE CONTROL REGULATION ACT . IT WAS CONTENDED THAT THERE BEING NO SUCH APPROVAL RECEIVED FROM RBI DURING THE YEAR UNDER CONSIDERATION, THE AMOUNTS PAYABLE BY BAH INDIA TO SIX FOREIGN GROUP E NTITIES DID NOT CONSTITUTE INCOME WHICH COULD BE BROUGHT TO TAX IN INDIA. IN S UPPORT OF THIS CONTENTION, RELIANCE WAS PLACED ON BEHALF OF BAH INDIA ON THE D ECISIONS OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KIRLOSKAR TRACTOR LTD. 231 ITR 849 AND IN THE CASE OF CIT VS. JOHN FOWLER (INDIA) LTD. (BOM) 23 9 ITR 312. THE LEARNED CIT(APPEALS), HOWEVER, DID NOT ACCEPT THIS CONTENTI ON RAISED ON BEHALF OF BAH INDIA. HE HELD THAT ALL THE SIX FOREIGN GROUP ENTIT IES HAVING RAISED THE INVOICES ON BAH INDIA AFTER RENDERING THE SERVICES AND EVEN BAH INDIA HAVING ALREADY ACCOUNTED FOR THE SAID INVOICES IN ITS BOOKS OF ACC OUNT CLAIMING THE SAID AS EXPENDITURE, IT COULD NOT BE CLAIMED THAT THE AMOUN TS PAYABLE BY BAH INDIA TO THE SAID ENTITIES DID NOT ACCRUE AS INCOME MERELY FOR W ANT OF PERMISSION FROM RBI. IN THIS REGARD, HE RELIED ON THE DECISION OF HONBLE S UPREME COURT IN THE CASE OF LIC OF INDIA VS. ESCORTS LTD. (1986) 59 COMP.CAS 548, A IR 1986 SC 1370 WHEREIN IT WAS HELD THAT PERMISSION OBTAINED FROM RESERVE BANK OF INDIA FOR ESTABLISHING 4 ITA NOS.4503,4504,4506,4507&4508/MUM/2003. BUSINESS IN INDIA SHOULD BE CONSTRUED AS PERMISSION GRANTED PREVIOUSLY OR OBTAINED SUBSEQUENTLY AS LONG AS THE RELEVANT STATUTORY PROV ISIONS DID NOT STIPULATE THAT SUCH PERMISSION SHOULD HAVE BEEN OBTAINED PREVIOUSLY. TH E LEARNED CIT(APPEALS) THUS HELD THAT THERE WAS A LIABILITY ARISING AS A RESULT OF THE ENTRIES MADE IN THE BOOKS OF ACCOUNT OF BAH INDIA AND THE EFFECT OF LIABILITY HA VING BEEN ACKNOWLEDGED BY BAH INDIA BY CLAIMING DEDUCTION IN ITS PROFIT & LOS S ACCOUNT , INCOME HAD ACCRUED DURING THE YEAR UNDER CONSIDERATION. 4. IT WAS ALSO CONTENDED ON BEHALF OF BAH INDIA THA T AS PER THE SPECIFIC LANGUAGE USED IN THE RELEVANT TAX TREATIES, FEES FOR TECHNICAL SERVICES COULD BE TAXED ONLY WHEN IT WAS PAID TO THE RESIDENT OF THE OTHER CONTRACTING STATES. IT WAS CONTENDED THAT SINCE THE AMOUNTS OF FEES FOR TECHNI CAL SERVICES HAD NOT BEEN PAID BY BAH INDIA TO THE SIX FOREIGN ENTITIES IN THE YEA R UNDER CONSIDERATION, THE SAME COULD NOT BE TAXED IN THAT YEAR. THE LEARNED CIT(AP PEALS) DID NOT FIND MERIT IN THIS CONTENTION ALSO RAISED BEFORE HIM. ACCORDING TO HIM , THE WORD PAID USED IN THE RELEVANT ARTICLE OF THE TREATIES DEALING WITH FEES FOR TECHNICAL SERVICES WAS NOT USED TO DENOTE ACTUAL PAYMENT OF THE SAME BUT THE S AME WAS USED IN THE SENSE OF INCURRING A LIABILITY. HE, THEREFORE, HELD THAT THE AMOUNTS PAYABLE BY BAH INDIA TO THE SIX OVERSEAS GROUP ENTITIES WERE CHARGEABLE TO TAX IN INDIA AS FEES FOR TECHNICAL SERVICES IN THE YEAR UNDER CONSIDERATION ALTHOUGH THE SAME WERE NOT ACTUALLY PAID IN THAT YEAR. ACCORDINGLY, THE ADDITIONS MADE BY TH E AO ON ACCOUNT OF FEES FOR TECHNICAL SERVICES IN THE ASSESSMENTS COMPLETED U/S 143(3) READ WITH SECTION 148 OF THE ACT WERE CONFIRMED BY THE LEARNED CIT(APPEALS). AGGRIEVED BY THE ORDERS OF THE LEARNED CIT(APPEALS), THE PRESENT APPEALS ARE P REFERRED BEFORE THE TRIBUNAL. 5. IN GROUND NO. 1 TO 4, WHICH ARE IDENTICAL IN ALL THE SIX APPEALS, THE PRELIMINARY ISSUE CHALLENGING VALIDITY OF ASSESSMEN TS MADE BY THE AO U/S 143(3) READ WITH SECTION 148 IS RAISED. HOWEVER, THE SAME HAS NOT BEEN PRESSED BY THE 5 ITA NOS.4503,4504,4506,4507&4508/MUM/2003. LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEA RING BEFORE US. GROUND NO. 1 TO 4 OF ALL THESE APPEALS ARE ACCORDINGLY DISMISSED AS N OT PRESSED. 6. IN GROUND NO.5, WHICH IS AGAIN IDENTICAL IN ALL THESE SIX APPEALS, THE ADDITION MADE ON ACCOUNT OF FEES FOR TECHNICAL SERVICES ARE CHALLENGED ON THE BASIS THAT THERE BEING NO APPROVAL RECEIVED FROM RBI UNDER THE EXCISE CONTROL REGULATION ACT TO PAY THE IMPUGNED AMOUNT BY BAH INDIA TO THE OVERSEAS GROUP ENTITIES, THE SAID AMOUNTS DID NOT PARTAKE THE CHARACTER OF INCOM E AND THERE WAS THUS NO ACCRUAL OF INCOME IN THE YEAR UNDER CONSIDERATION. 7. AT THE TIME OF HEARING BEFORE US, THE LEARNED CO UNSEL FOR THE ASSESSEE HAS NOT PRESSED GROUND NO. 5 RAISED IN ITA NO. 4506/MUM/200 3,(SINGAPORE), 4507/MUM/2003(HONG KONG), ITA NO. 4508/MUM/2003(UK) . GROUND NO. 5 RAISED IN THESE THREE APPEALS IS, THEREFORE, DISMIS SED AS NOT PRESSED. 8. AS REGARDS THIS ISSUE RAISED IN GROUND NO. 5 OF THE REMAINING THREE APPEALS, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED ON M ERIT THAT AS PER THE PROVISIONS OF FERA, BAH INDIA WAS REQUIRED TO OBTAIN THE APPROVAL OF THE RBI BEFORE MAKING PAYMENTS TO THE OVERSEAS GROUP ENTITIES. HE CONTEND ED THAT NO SUCH APPROVAL, HOWEVER, WAS OBTAINED AND IN THE ABSENCE OF THE SAM E, NO INCOME COULD BE SAID TO HAVE ACCRUED TO THE OVERSEAS GROUP ENTITIES IN RESP ECT OF THE AMOUNTS IN QUESTION. HE CONTENDED THAT SUCH INCOME COULD ACCRUE ONLY IN THE YEAR WHEN RBI PERMISSION WOULD BE OBTAINED FOR THE REMITTANCE OF THE SAID AMOUNT. IN SUPPORT OF THIS CONTENTION, HE RELIED ON THE DECISION OF HONB LE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KIRLOSKAR TRACTORS LTD. (SUPRA) WHE REIN IT WAS HELD THAT THE LIABILITY TO PAY THE AMOUNT PERTAINING TO THE EARLIER ASSESSM ENT YEARS COULD BE SAID TO HAVE ACCRUED OR ARISEN ONLY IN THE YEARS WHEN THE REQUIR ED APPROVAL U/S 9 OF THE FOREIGN EXCHANGE REGULATION ACT, 1963 WAS GRANTED BY THE RE SERVE BANK OF INDIA. HE ALSO 6 ITA NOS.4503,4504,4506,4507&4508/MUM/2003. RELIED ON THE ANOTHER DECISION OF HONBLE BOMBAY HI GH COURT IN THE CASE OF CIT VS. JOHN FOWLER (INDIA) LTD. (SUPRA) WHEREIN IT WAS HELD THAT THE LIABILITY TO PAY ROYALTY DID NOT ACCRUE OR ARISE DURING THE PREVIOUS YEAR ENDING ON 31 ST DECEMBER, 1979 AND THE SAME ACCRUED ONLY ON 30 TH DECEMBER, 1980 WHEN THE GOVERNMENT OF INDIA GRANTED ITS APPROVAL TO THE AGREEMENT. HE CON TENDED THAT BOTH THESE DECISIONS OF THE HONBLE BOMBAY HIGH COURT WHICH ARE DIRECTLY ON THE ISSUE WERE BRUSHED ASIDE BY THE LEARNED CIT(APPEALS) RELYING ON THE DE CISION OF HONBLE SUPREME COURT IN THE CASE OF LIC OF INDIA VS. ESCORTS LTD. (SUPRA) WHICH WAS NOT RENDERED IN CONNECTION WITH THE INCOME-TAX PROCEEDINGS. HE C ONTENDED THAT THE SAID DECISION WAS RENDERED BY THE HONBLE SUPREME COURT TAKING INTO CONSIDERATION THE PROVISIONS OF SECTION 29 OF FERA WHICH ARE VERY SPE CIFIC IN THIS REGARD. HE CONTENDED THAT THE ISSUE BEFORE THE HONBLE SUPREME COURT IN ANY CASE WAS NOT RELATED TO ACCRUAL OF INCOME AND THE DECISION RENDE RED BY THE HONBLE SUPREME COURT IN ALTOGETHER DIFFERENT CONTEXT WAS WRONGLY R ELIED UPON BY THE LEARNED CIT(APPEALS). 9. THE LEARNED DR, ON THE OTHER HAND, SUBMITTED THA T IN THE CASE OF ASSESSEE FOLLOWING MERCANTILE SYSTEM OF ACCOUNTING, ONCE INC OME IS ACCRUED, THE SAME IS TAXABLE. HE CONTENDED THAT THE AMOUNTS IN QUESTION PAYABLE TO OVERSEAS GROUP ENTITIES WERE CLAIMED BY BAH INDIA AS DEDUCTION BY PASSING NECESSARY ENTRIES IN THE BOOKS OF ACCOUNT WHICH ITSELF SHOWS THAT THERE WAS ACCRUAL OF INCOME TO THE SAID ENTITIES. HE SUBMITTED THAT IN THE CASE LAWS R ELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE ASSESSEE HAD ACTUALLY SOUGHT PERMISSION FROM THE RBI WHEREAS IN THE PRESENT CASE, NO SUCH PERMISSION HAS EVEN BE EN APPLIED TO THE RBI. HE CONTENDED THAT BY NOT APPLYING FOR THE PERMISSION F ROM RBI, THE PAYMENT OF TAX IN CASES OF OVERSEAS GROUP ENTITIES IS BEING AVOIDED. 7 ITA NOS.4503,4504,4506,4507&4508/MUM/2003. 10. IN THE REJOINDER, THE LEARNED COUNSEL FOR THE A SSESSEE CLARIFIED THAT DUE TO SUBSTANTIAL LOSSES SUFFERED BY BAH INDIA, NO PAYMEN T HAS BEEN MADE TILL DATE OF THE IMPUGNED AMOUNTS TO THE OVERSEAS GROUP ENTITIES AND THAT IS WHY NO APPLICATION HAS BEEN MADE TO RBI FOR GETTING THE PERMISSION TO MAKE SUCH PAYMENTS. HE CONTENDED THAT THERE IS NO ATTEMPT BEING MADE TO AV OID THE TAX BY DELAYING SUCH APPLICATION AS ALLEGED BY THE LEARNED DR. 11. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT ALTHOUGH TH E AMOUNTS PAYABLE BY BAH INDIA TO THE OVERSEAS GROUP ENTITIES IN GERMANY, INDONESI A AND PANAMA (SE ASIA) WERE DEBITED BY BAH INDIA TO THE PROFIT & LOSS ACCOUNT A ND WERE ALSO CLAIMED AS EXPENSES, NO RBI APPROVAL WAS OBTAINED FOR REMITTIN G THE SAID AMOUNTS IN FOREIGN EXCHANGE AS REQUIRED BY RELEVANT PROVISIONS OF FORE IGN EXCHANGE REGULATION ACT DURING THE YEAR UNDER CONSIDERATION. AS CLAIMED BEF ORE THE AUTHORITIES BELOW AS WELL AS BEFORE US, THE SAID AMOUNTS DID NOT CONSTIT UTE INCOME OF THE YEAR UNDER CONSIDERATION FOR WANT OF THE RBI APPROVAL AS NO IN COME CHARGEABLE TO TAX IN INDIA COULD BE SAID TO HAVE ACCRUED IN THE ABSENCE OF THE REQUIRED APPROVAL FROM RBI. IN SUPPORT OF THIS CONTENTION, RELIANCE HAS BEEN PLAC ED, INTER ALIA, ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF KIRLOSKAR TRACTORS LTD. (SUPRA) WHEREIN IT WAS HELD THAT THE APPROVAL OF RBI HAVING BEEN RE CEIVED IN THE SUBSEQUENT YEARS AND THE RELEVANT AMOUNTS ALSO HAVING REMITTED DURIN G THOSE YEARS, LIABILITY COULD BE SAID TO ACCRUE OR ARISE IN SUCH SUBSEQUENT YEARS TH OUGH THE SAME PERTAINED TO THE EARLIER YEARS. RELIANCE HAS ALSO BEEN PLACED ON ANO THER DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF DORR-OLIVER (INDIA ) LTD. VS. CIT 234 ITR 723 WHEREIN IT WAS HELD THAT COLLABORATION AGREEMENT BE ING SUBJECT TO GOVERNMENT APPROVAL, DEDUCTION OF SUM PAID AS COMPENSATION AND FEES UNDER COLLABORATION AGREEMENT WAS ALLOWABLE ONLY UPTO THE DATE TILL THE AGREEMENT ENJOYED APPROVAL BY 8 ITA NOS.4503,4504,4506,4507&4508/MUM/2003. GOVERNMENT OF INDIA AND NOT FOR ANY SUBSEQUENT YEAR . FOLLOWING THESE TWO DECISIONS OF HONBLE BOMBAY HIGH COURT, THE COORDIN ATE BENCH OF THIS TRIBUNAL IN THE CASE OF UBS SECURITIES INDIA P. LTD. VS. DCIT ( ITA NO. 4622/MUM/2007 DATED 26 TH FEBRUARY, 2009) HAS HELD THAT THE LIABILITY ON ACC OUNT OF FEES PAYABLE TO FOREIGN LAWYERS, PAYMENT OF WHICH WAS SUBJECT TO APPROVAL F ROM THE RBI, COULD BE SAID TO HAVE ACCRUED ONLY ON RECEIPT OF SUCH APPROVAL AND T HE ASSESSEE WAS ENTITLED TO CLAIM DEDUCTION FOR THE SAID AMOUNT ONLY IN THE YEA R WHEN SUCH APPROVAL WAS GRANTED BY THE RBI. 12. IN OUR OPINION, THE JUDICIAL PRONOUNCEMENTS DIS CUSSED ABOVE CLEARLY SUPPORT THE STAND OF THE ASSESSEE THAT INCOME ON ACCOUNT OF THE AMOUNTS PAYABLE BY BAH INDIA TO THE OVERSEAS GROUP ENTITIES COULD BE SAID TO HAVE ACCRUED TO THE SAID ENTITIES ONLY ON RECEIPT OF THE REQUIRED APPROVAL F ROM RBI AND THERE BEING NO SUCH APPROVAL RECEIVED DURING THE YEAR UNDER CONSIDERATI ON, THE SAME COULD NOT BE TAXED AS INCOME IN THAT YEAR. IT IS OBSERVED THAT THE LEA RNED CIT(APPEALS), HOWEVER, HAS NOT ACCEPTED THIS STAND RELYING ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LIC OF INDIA VS. ESCORTS LTD. (SUPRA) WHERE IN IT WAS HELD THAT PERMISSION GRANTED BY THE RBI IS TO BE CONSTRUED TO MEAN BOTH PERMISSION GRANTED PREVIOUSLY OR OBTAINED SUBSEQUENTLY. AS RIGHTLY CONTENDED BY T HE LEARNED COUNSEL FOR THE ASSESSEE, THE SAID DECISION, HOWEVER, WAS NOT RENDE RED BY THE HONBLE SUPREME COURT IN RELATION TO INCOME-TAX PROCEEDINGS AND THE RE WAS NO ISSUE OF ACCRUAL OF INCOME INVOLVED IN THAT CASE. MOREOVER, THE SAID DE CISION WAS RENDERED IN THE CONTEXT OF SECTION 29 OF FOREIGN EXCHANGE REGULATIO N ACT UNDER WHICH PERMISSION OF RESERVE BANK OF INDIA IN REGARD TO TH E ESTABLISHMENT OF BUSINESS IN INDIA WAS REQUIRED TO BE OBTAINED SUBSEQUENTLY WITH IN A PERIOD OF SIX MONTHS FROM THE DATE OF ESTABLISHMENT OF BUSINESS IN INDIA AND IN THESE FACTS AND CIRCUMSTANCES, IT WAS HELD BY THE HONBLE SUPREME COURT THAT THE P ERMISSION OBTAINED 9 ITA NOS.4503,4504,4506,4507&4508/MUM/2003. SUBSEQUENTLY FROM THE RESERVE BANK OF INDIA SHOULD BE TREATED AS HAVING RETROSPECTIVE EFFECT. THE DECISION OF THE HONBLE S UPREME COURT IN THE CASE OF LIC VS. ESCORTS LTD. (SUPRA) THUS WAS RENDERED IN A DIF FERENT CONTEXT AND IN A DIFFERENT SET OF FACTS AND THE SAME IN OUR OPINION, CANNOT SU PPORT THE STAND OF THE REVENUE IN THE PRESENT CASE. 13. BEFORE US, THE LEARNED DR HAS MADE AN ATTEMPT T O DISTINGUISH THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KI RLOSKAR TRACTORS LTD. (SUPRA) AND IN THE CASE OF CIT VS. JOHN FOWLER (INDIA) LTD. (SUPRA) STATING THAT PERMISSION IN THE SAID CASES WAS APPLIED BY THE ASSESSEE FROM THE RBI WHEREAS NO SUCH PERMISSION HAS BEEN SOUGHT BY THE ASSESSEE IN THE P RESENT CASE. HOWEVER, AS EXPLAINED BY THE LEARNED COUNSEL FOR THE ASSESSEE, PERMISSION HAS NOT BEEN SOUGHT FROM RBI SINCE BAH INDIA HAVING SUBSTANTIAL LOSSES IS NOT IN A POSITION TO REMIT THE AMOUNTS IN QUESTION TO THE OVERSEAS GROUP ENTIT IES. IN ANY CASE, THIS ASPECT, IN OUR OPINION, IS NOT RELEVANT FOR DECIDING THE ISSUE OF ACCRUAL OF INCOME WHICH AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE O F KIRLOSKAR TRACTORS LTD. (SUPRA) AND IN THE CASE OF DORR-OLIVER (INDIA) LTD. TAKES PLACE ONLY ON THE OBTAINING OF THE NECESSARY APPROVAL REQUIRED FROM R BI. KEEPING IN VIEW THE SAID DECISION OF HONBLE BOMBAY HIGH COURT, WE ACCEPT TH E CONTENTION RAISED ON BEHALF OF THE ASSESSEE THAT THE AMOUNTS PAYABLE BY BAH IND IA TO THREE GROUP ENTITIES IN GERMANY, INDIA AND PANAMA (SE ASIA) DID NOT CONSTIT UTE THEIR INCOME CHARGEABLE TO TAX IN THE YEAR UNDER CONSIDERATION AS THERE WAS NO ACCRUAL OF INCOME IN THE ABSENCE OF PERMISSION OBTAINED FROM RBI AS REQUIRED BY FERA. WE, THEREFORE, DELETE THE ADDITIONS MADE ON THIS COUNT BY THE AO A ND CONFIRMED BY THE LEARNED CIT(APPEALS) IN THE CASE OF THE SAID THREE ENTITIES AND ALLOW GROUND NO. 5 OF ITA NOS. 4502, 4503& 4504/MUM/2003. 10 ITA NOS.4503,4504,4506,4507&4508/MUM/2003. 14. GROUND NO. 6, WHICH IS IDENTICAL IN ALL THE SIX APPEALS, RELATING TO THE COMMON ISSUE OF ASSESSEES CLAIM REGARDING NON-ACCR UAL OF INCOME ON THE BASIS OF CASH SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEES HAS NOT BEEN PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HE ARING BEFORE US. THE SAME IS ACCORDINGLY DISMISSED AS NOT PRESSED. 15. IN GROUND NO.7 RAISED IN ITA NO. 4502, 4506 AND 4508, THE ASSESSE HAS DISPUTED THE ADDITIONS MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS) ON ACCOUNT OF THE AMOUNTS PAYABLE BY BAH INDIA ON THE GROUND THAT THE SAME ARE NOT LIABLE TO TAX IN INDIA UNDER THE RELEVANT TAX T REATIES WHICH COVER ONLY THE AMOUNTS PAID. 16. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AMOUNTS IN QUESTION PAYABLE BY BAH INDIA TO THE THREE OVERSEAS ENTITIES IN GERMANY, SINGAPORE AND U.K. WERE NOT ACTUALLY PAID DURING THE YEAR UNDER C ONSIDERATION. IN THIS REGARD, HE REFERRED TO THE RELEVANT PROVISION OF ARTICLE 12 OF THE TREATIES TO POINT OUT THAT THE TERM ROYALTIES AS USED IN ARTICLE 12 IS DEFINED T O MEAN PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR -- - - - - - - - AND THE TERM FEES FOR TECHNICAL SERVICES IS DEFINED TO MEAN PAYMENTS OF ANY AMOUN T IN CONSIDERATION FOR - - - - - - - - . HE CONTENDED THAT ROYALTIES AND FEES FOR T ECHNICAL SERVICES THUS ARE LIABLE TO TAX AS PER ARTICLE 12 OF THE RELEVANT TREATIES ONLY ON PAYMENT BASIS AND THERE BEING NO PAYMENTS MADE BY BAH INDIA OF THE IMPUGNED AMOUN TS TO THE THREE OVERSEAS GROUP ENTITIES, THE SAID AMOUNTS WERE NOT LIABLE TO TAX AS ROYALTIES OR FEES FOR TECHNICAL SERVICES IN INDIA DURING THE YEAR UNDER C ONSIDERATION AS PER ARTICLE 12 OF THE RELEVANT TREATIES. IN SUPPORT OF THIS CONTENTIO N, HE RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF DIT (INTER NATIONAL TAXATION) VS. SIEMENS AKTIENGESELLSCHAFT (I.T. APPEAL NO. 124 OF 2010 DATED 22 ND OCT., 2012) AND VARIOUS DECISIONS OF THE TRIBUNAL INCLUDING THE DECISION OF MUMBAI BENCH IN 11 ITA NOS.4503,4504,4506,4507&4508/MUM/2003. THE CASE OF DCIT VS. UDHE GMBH 54 TTJ 355 AND THE D ECISION OF DELHI BENCH OF ITAT IN THE CASE OF CSC TECHNOLOGY, SINGAPORE PTE. LTD. VS. ADIT 50 SOT 399. 17. THE LEARNED DR, ON THE OTHER HAND, RELIED ON TH E ORDERS OF THE AUTHORITIES BELOW IN SUPPORT OF THE REVENUES CASE ON THIS ISSU E. 18. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE AMOUNTS IN QUESTION PAYABLE BY BAH INDIA TO THE THREE OVERSEAS GROUP ENTITIES IN GERMA NY, SINGAPORE AND U.K. WERE NOT PAID DURING THE YEAR UNDER CONSIDERATION AND THERE IS NO DISPUTE ABOUT THE SAME. THE SAID AMOUNTS PAYABLE TO THE CONCERNED OVERSEAS GROUP ENTITIES HAVE BEEN BROUGHT TO TAX IN INDIA IN THEIR HANDS BY THE REVEN UE AUTHORITIES AS FEES FOR TECHNICAL SERVICES. AS PER THE RELEVANT PROVISIONS OF THE DOUBLE TAXATION AVOIDANCE TREATY BETWEEN INDIA AND THE THREE CONCER NED STATES, THE TERM FEES FOR TECHNICAL SERVICES AS USED IN THE RELEVANT TREATIE S IS DEFINED TO MEAN PAYMENTS OF ANY AMOUNT IN CONSIDERATION FOR THE SERVICES OF MAN AGERIAL, TECHNICAL OR CONSULTANCY NATURE INCLUDING THE PROVISION OF SERVI CES OF TECHNICAL OR OTHER PERSONNEL. IN THE CASE OF SEAMENS AKTIENGESELLSCHA FT (SUPRA), A SIMILAR LANGUAGE WAS EMPLOYED IN THE RELEVANT PROVISIONS OF DTAA BET WEEN INDIA AND GERMANY AND KEEPING IN VIEW THE LANGUAGE SO EMPLOYED, THE T RIBUNAL HELD THAT ROYALTY AND FEES FOR TECHNICAL SERVICES SHOULD BE RECKONED FOR TAXATION ONLY WHEN IT IS ACTUALLY RECEIVED BY THE ASSESSEE AND NOT OTHERWISE AND THIS DECISION OF THE TRIBUNAL WAS UPHELD BY THE HONBLE BOMBAY HIGH COURT OBSERVING T HAT THE ASSESSMENT OF ROYALTY OR ANY FEES FOR TECHNICAL SERVICES SHOULD B E MADE IN THE YEAR IN WHICH THE AMOUNTS ARE RECEIVED AS PER THE RELEVANT PROVISIONS OF THE DTAA AND NOT OTHERWISE. THE COORDINATE BENCH OF THIS TRIBUNAL AT DELHI IN THE CASE OF CSC TECHNOLOGY SINGAPORE PTE. LTD. (SUPRA) HAS ALSO TAK EN A SIMILAR VIEW HOLDING THAT ROYALTY/FTS WHICH HAD ACCRUED AS INCOME TO A FOREIG N COMPANY, COULD NOT BE 12 ITA NOS.4503,4504,4506,4507&4508/MUM/2003. TAXED IN THE SOURCE COUNTRY (BEING INDIA) UNLESS TH IS AMOUNT HAD BEEN RECEIVED BY THE FOREIGN COMPANY. IN OUR OPINION, THE ISSUE THUS IS SQUARELY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE DIT (INTERNATIONAL TAXATION) VS. SIEMENS AKTIENGESELLS CHAFT (SUPRA) AS WELL AS THE DECISIONS OF THE TRIBUNAL IN THE CASE OF DCIT VS. UDHE GMBH (SUPRA) AND IN THE CASE OF CSC TECHNOLOGY, SINGAPORE PTE. LTD. VS. ADI T (SUPRA) AND RESPECTFULLY FOLLOWING THE SAID JUDICIAL PRONOUNCEMENTS, WE HOLD THAT THE AMOUNTS PAYABLE BY BAH INDIA TO THE THREE OVERSEAS GROUP ENTITIES IN G ERMANY, SINGAPORE AND U.K. COULD NOT BE BROUGHT TO TAX IN INDIA DURING THE YEA R UNDER CONSIDERATION AS FEES FOR TECHNICAL SERVICES AS PER THE RELEVANT PROVISIONS O F THE DTAAS SINCE THE SAME HAD NOT BEEN PAID TO THE SAID ENTITIES. GROUND NO. 7 OF ITA NO. 4502, 4506 AND 4508/MUM/2003 IS ACCORDINGLY ALLOWED. 19. GROUND NOS.7, 8 AND 9 RAISED IN ITA NO. 4503/MU M/2011 ARE NOT PRESSED BY THE LEARNED COUNSEL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE US. THE SAME ARE ACCORDINGLY DISMISSED AS NOT PRESSED. 20. IN THE RESULT, ASSESSEES APPEALS BEING ITA NOS . 4502, 4503, 4504, 4506 AND 4508/MUM/2003 ARE PARTLY ALLOWED AND ITA NO. 4507/M UM/2003 IS DISMISSED. ORDER PRONOUNCED ON THIS 21 ST DAY OF DEC., 2012. SD/- SD/- (AMIT SHUKLA) (P.M. JAGTAP) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI, DATED : 21 ST DEC., 2012. WAKODE 13 ITA NOS.4503,4504,4506,4507&4508/MUM/2003. COPY TO : 1. BOOZ.ALLEN & HAMILTON(INDIA) LTD.& CO. KG. C/O K.S. AIYAR & CO., C.A., F.7, LAXMI MILLS COMPOU ND, SHAKTI MILLS LANE, GATE NO. 5, OFF. DR. E. MOSES RO AD, MAHALAXMI (W), MUMBAI 400011. 2. RESPONDENT 3. C.I.T. 4. CIT(A) 5. D.R., L-BENCH. (TRUE COPY) BY ORDER ASSISTANT REGISTRAR, ITAT, MUMBAI.