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

ITA 4505/MUM/2003

• Counselvise Citation: [2012] 119 COUNSELVISE.COM (IT) 9057 (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: DEVANG SHAH
• 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. I.T.A.NO. 4505/MUM/2003 ASSESSMENT YEAR : 1998-99. BOOZ. ALLEN & HAMILTON ASSTT. DIRECTOR OF (INDIA) LTD. & CO. KG., VS. INCOME-TAX, AS AN AGENT OF BOOZ. ALLEN (INTERNATIONAL TAXATION)-1(1), & HAMILTON, USA MUMBAI. PAN AAAFB 4590Q. APPELLANT. RESPONDENT . APPELLANT BY : SHRI DEVANG SHAH. RESPONDENT BY : SHRI NARENDRA KUMAR. DATE OF HEARING : 29-11-2012 DATE OF PRONOUNCEMENT : 21-12-2012. O R D E R PER P.M. JAGTAP, A.M. THIS APPEAL IS FILED BY M/S BOOZ. ALLEN & HAMILTON (INDIA) LTD. & CO. KG. (BAH INDIA IN SHORT) AS AGENT OF BOOZ ALLEN & HAMIL TON, USA AGAINST THE ORDER PASSED BY THE LEARNED CIT(APPEALS)-XXXI, MUMBAI DAT ED 28 TH FEBRUARY, 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 2 ITA NO.4505/MUM/2003 ENTITIES INCLUDING BOOZ. ALLEN & HAMILTON USA. A SU M OF RS.89,35,777/- WAS PAYABLE BY THE ASSESSEE TO THE SAID ENTITY IN USA F OR SUCH SERVICES. ACCORDING TO THE AO, THE SAID AMOUNT PAYABLE BY BAH INDIA TO THE USA ENTITY WAS CHARGEABLE TO TAX IN INDIA IN ITS HANDS AS FEES FOR TECHNICAL SERVICES AND BAH INDIA WAS LIABLE TO TREAT AS AN AGENT OF THE SAID ENTITY FOR THIS PURPOSE. HE, THEREFORE, ISSUED A NOTICE TO BAH INDIA REQUIRING IT TO SHOW CAUSE WHY IT SHOULD NOT BE TREATED AS AN AGENT. ALTHOUGH THE ASSESSEE RAISED OBJECTION IN TH IS REGARD, THE AO OVERRULED THE SAME AND PASSED ORDER U/S 163 TREATING BAH INDIA A S AN AGENT OF THE USA ENTITY WHICH WAS UPHELD BY THE LEARNED CIT(APPEALS). THE A O, THEREFORE, ISSUED NOTICE U/S 148 TO BAH INDIA AS AN AGENT OF THE USA ENTITY IN RESPONSE TO WHICH RETURN OF INCOME WAS FILED BY THE ASSESSEE DECLARING TOTAL IN COME OF THE SAID ENTITY CHARGEABLE TO TAX IN INDIA FOR THE YEAR UNDER CONSI DERATION AT NIL. IN THE ASSESSMENT COMPLETED U/S 143(3) READ WITH SECTION 148 OF THE A CT ON BAH INDIA AS AGENT OF THE USA ENTITY, THE AMOUNTS PAYABLE BY BAH INDIA TO THE SAID ENTITY WAS BROUGHT TO TAX IN INDIA BY THE AO AS FEES FOR TECHNICAL SE RVICES. 3. AGAINST THE ORDER PASSED BY THE AO U/S 143(3) RE AD WITH SECTION 148 OF THE ACT, APPEAL WAS FILED BY BAH INDIA BEFORE THE LEARN ED CIT(APPEALS) CHALLENGING THE VALIDITY OF THE SAID ASSESSMENT AS WELL AS DISP UTING THE ADDITION 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 ASSESSMENT 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 ASSESSMENT MADE BY THE AO. AS REGARDS THE ADDITION MADE BY THE AO IN T HE SAID ASSESSMENT, IT WAS CONTENDED ON BEHALF OF BAH INDIA ON MERIT THAT THE AMOUNT PAYABLE BY IT TO THE USA ENTITY DID NOT PARTAKE CHARACTER OF INCOME TILL NECESSARY APPROVAL WAS 3 ITA NO.4505/MUM/2003 RECEIVED UNDER THE EXCHANGE CONTROL REGULATION ACT. IT WAS CONTENDED THAT THERE BEING NO SUCH APPROVAL RECEIVED FROM RBI DURING THE YEAR UNDER CONSIDERATION, THE AMOUNT PAYABLE BY BAH INDIA TO USA ENTITY ENTITIES DID NOT CONSTITUTE INCOME WHICH COULD BE BROUGHT TO TAX IN INDIA. IN SUPPORT OF THIS CONTENTION, RELIANCE WAS PLACED ON BEHALF OF BAH INDIA ON THE DECISIONS OF H ONBLE 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) 239 ITR 312. THE L EARNED CIT(APPEALS), HOWEVER, DID NOT ACCEPT THIS CONTENTION RAISED ON B EHALF OF BAH INDIA. HE HELD THAT THE USA ENTITY HAVING RAISED THE INVOICES ON B AH INDIA AFTER RENDERING THE SERVICES AND EVEN BAH INDIA HAVING ALREADY ACCOUNTE D FOR THE SAID INVOICES IN ITS BOOKS OF ACCOUNT CLAIMING THE SAID AS EXPENDITURE, IT COULD NOT BE CLAIMED THAT THE AMOUNT PAYABLE BY BAH INDIA TO THE SAID ENTITY DID NOT ACCRUE AS INCOME MERELY FOR WANT OF PERMISSION FROM RBI. IN THIS REGARD, HE RELIED ON THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF LIC OF INDIA V S. ESCORTS LTD. (1986) 59 COMP.CAS 548, AIR 1986 SC 1370 WHEREIN IT WAS HELD THAT PERMISSION OBTAINED FROM RESERVE BANK OF INDIA FOR ESTABLISHING BUSINES S IN INDIA SHOULD BE CONSTRUED AS PERMISSION GRANTED PREVIOUSLY OR OBTAINED SUBSEQ UENTLY AS LONG AS THE RELEVANT STATUTORY PROVISIONS DID NOT STIPULATE THAT SUCH PE RMISSION SHOULD HAVE BEEN OBTAINED PREVIOUSLY. THE LEARNED CIT(APPEALS) THUS HELD THAT THERE WAS A LIABILITY ARISING AS A RESULT OF THE ENTRIES MADE IN THE BOOK S OF ACCOUNT OF BAH INDIA AND THE EFFECT OF LIABILITY HAVING BEEN ACKNOWLEDGED BY BAH INDIA BY CLAIMING DEDUCTION IN ITS PROFIT & LOSS ACCOUNT , INCOME HAD ACCRUED D URING 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 4 ITA NO.4505/MUM/2003 CONTENDED THAT SINCE THE AMOUNTS OF FEES FOR TECHNI CAL SERVICES HAD NOT BEEN PAID BY BAH INDIA TO THE USA ENTITY IN THE YEAR UNDER CO NSIDERATION, THE SAME COULD NOT BE TAXED IN THAT YEAR. THE LEARNED CIT(APPEALS) DID NOT FIND MERIT IN THIS CONTENTION ALSO RAISED BEFORE HIM. ACCORDING TO HIM , THE WORD PAID USED IN THE RELEVANT ARTICLE OF THE TREATY DEALING WITH FEES F OR 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 AMOUNT PAYABLE BY BAH INDIA TO THE USA ENTITY WAS CHARGEABLE TO TAX IN INDIA AS F EES FOR TECHNICAL SERVICES IN THE YEAR UNDER CONSIDERATION ALTHOUGH THE SAME WAS NOT ACTUALLY PAID IN THAT YEAR. ACCORDINGLY, THE ADDITION MADE BY THE AO ON ACCOUNT OF FEES FOR TECHNICAL SERVICES IN THE ASSESSMENT COMPLETED U/S 143(3) READ WITH SE CTION 148 OF THE ACT WAS CONFIRMED BY THE LEARNED CIT(APPEALS). AGGRIEVED BY THE ORDER OF THE LEARNED CIT(APPEALS), THE PRESENT APPEAL IS PREFERRED BEFOR E THE TRIBUNAL. 5. IN GROUND NO. 1 TO 4, THE PRELIMINARY ISSUE CHAL LENGING VALIDITY OF ASSESSMENTS MADE BY THE AO U/S 143(3) READ WITH SEC TION 148 IS RAISED. HOWEVER, THE SAME HAVE NOT BEEN PRESSED BY THE LEARNED COUNS EL FOR THE ASSESSEE AT THE TIME OF HEARING BEFORE US. GROUND NOS. 1 TO 4 OF THE AP PEAL ARE ACCORDINGLY DISMISSED AS NOT PRESSED. 6. IN GROUND NO.5, THE ADDITION MADE ON ACCOUNT OF FEES FOR TECHNICAL SERVICES IS CHALLENGED ON THE BASIS THAT THERE BEING NO APPR OVAL RECEIVED FROM RBI UNDER THE EXCHANGE CONTROL REGULATION ACT TO PAY THE IMPU GNED AMOUNT BY BAH INDIA TO THE USA ENTITY, THE SAID AMOUNT DID NOT PARTAKE THE CHARACTER OF INCOME AND THERE WAS THUS NO ACCRUAL OF INCOME IN THE YEAR UND ER CONSIDERATION. 7. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED O N MERIT THAT AS PER THE PROVISIONS OF FERA, BAH INDIA WAS REQUIRED TO OBTAI N THE APPROVAL OF THE RBI 5 ITA NO.4505/MUM/2003 BEFORE MAKING PAYMENT TO THEUSA ENTITY. HE CONTENDE D 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 USA ENTITYIN RESPECT OF THE AMO UNT IN QUESTION. HE CONTENDED THAT SUCH INCOME COULD ACCRUE ONLY IN THE YEAR WHE N RBI PERMISSION WOULD BE OBTAINED FOR THE REMITTANCE OF THE SAID AMOUNT. IN SUPPORT OF THIS CONTENTION, HE RELIED ON THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CASE OF CIT VS. KIRLOSKAR TRACTORS LTD. (SUPRA) WHEREIN IT WAS HELD THAT THE LIABILITY TO PAY THE AMOUNT PERTAINING TO THE EARLIER ASSESSMENT YEARS C OULD BE SAID TO HAVE ACCRUED OR ARISEN ONLY IN THE YEARS WHEN THE REQUIRED APPROVAL U/S 9 OF THE FOREIGN EXCHANGE REGULATION ACT, 1963 WAS GRANTED BY THE RESERVE BAN K OF INDIA. HE ALSO RELIED ON THE ANOTHER DECISION OF HONBLE BOMBAY HIGH COURT I N THE CASE OF CIT VS. JOHN FOWLER (INDIA) LTD. (SUPRA) WHEREIN IT WAS HELD THA T 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 GRANT ED ITS APPROVAL TO THE AGREEMENT. HE CONTENDED THAT BO TH 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 DECISION 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 CONTENDED THAT THE SAID DECISION WAS RENDERED BY THE HONBLE SUPREME COURT TAKING INTO CONSIDERAT ION THE PROVISIONS OF SECTION 29 OF FERA WHICH ARE VERY SPECIFIC IN THIS REGARD. HE CONTENDED THAT THE ISSUE BEFORE THE HONBLE SUPREME COURT IN ANY CASE WAS NO T RELATED TO ACCRUAL OF INCOME AND THE DECISION RENDERED BY THE HONBLE SUPREME CO URT IN ALTOGETHER DIFFERENT CONTEXT WAS WRONGLY RELIED UPON BY THE LEARNED CIT( APPEALS). 8. 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 6 ITA NO.4505/MUM/2003 TAXABLE. HE CONTENDED THAT THE AMOUNT IN QUESTION P AYABLE TO USA ENTITY WAS CLAIMED BY BAH INDIA AS DEDUCTION BY PASSING NECESS ARY ENTRIES IN THE BOOKS OF ACCOUNT WHICH ITSELF SHOWS THAT THERE WAS ACCRUAL O F INCOME TO THE SAID ENTITY. HE SUBMITTED THAT IN THE CASE LAWS RELIED UPON BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE ASSESSEE HAD ACTUALLY SOUGHT PERMISSION FROM TH E RBI WHEREAS IN THE PRESENT CASE, NO SUCH PERMISSION HAS EVEN BEEN APPLIED TO T HE RBI. HE CONTENDED THAT BY NOT APPLYING FOR THE PERMISSION FROM RBI, THE PAYME NT OF TAX IN CASE OF USA ENTITY IS BEING AVOIDED. 9. IN THE REJOINDER, THE LEARNED COUNSEL FOR THE AS SESSEE CLARIFIED THAT DUE TO SUBSTANTIAL LOSSES SUFFERED BY BAH INDIA, NO PAYMEN T HAS BEEN MADE TILL DATE OF THE IMPUGNED AMOUNT TO THE USA ENTITY AND THAT IS WHY NO APPLICATION HAS BEEN MADE TO RBI FOR GETTING THE PERMISSION TO MAKE SUCH PAYMENT. HE CONTENDED THAT THERE IS NO ATTEMPT BEING MADE TO AVOID THE TAX BY DELAYING SUCH APPLICATION AS ALLEGED BY THE LEARNED DR. 10. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT ALTHOUGH TH E AMOUNT PAYABLE BY BAH INDIA TO THE USA ENTITY WAS DEBITED BY BAH INDIA TO THE P ROFIT & LOSS ACCOUNT AND WAS ALSO CLAIMED AS EXPENSES, NO RBI APPROVAL WAS OBTAI NED FOR REMITTING THE SAID AMOUNT IN FOREIGN EXCHANGE AS REQUIRED BY RELEVANT PROVISIONS OF FOREIGN EXCHANGE REGULATION ACT DURING THE YEAR UNDER CONSI DERATION. AS CLAIMED BEFORE THE AUTHORITIES BELOW AS WELL AS BEFORE US, THE SAI D AMOUNT DID NOT CONSTITUTE INCOME OF THE YEAR UNDER CONSIDERATION FOR WANT OF THE RBI APPROVAL AS NO INCOME CHARGEABLE TO TAX IN INDIA COULD BE SAID TO HAVE AC CRUED IN THE ABSENCE OF THE REQUIRED APPROVAL FROM RBI. IN SUPPORT OF THIS CON TENTION, RELIANCE HAS BEEN PLACED, INTER ALIA, ON THE DECISION OF HONBLE BOMB AY HIGH COURT IN THE CASE OF KIRLOSKAR TRACTORS LTD. (SUPRA) WHEREIN IT WAS HELD THAT THE APPROVAL OF RBI HAVING 7 ITA NO.4505/MUM/2003 BEEN RECEIVED IN THE SUBSEQUENT YEARS AND THE RELEV ANT AMOUNTS ALSO HAVING REMITTED DURING THOSE YEARS, LIABILITY COULD BE SAI D TO ACCRUE OR ARISE IN SUCH SUBSEQUENT YEARS THOUGH THE SAME PERTAINED TO THE E ARLIER YEARS. RELIANCE HAS ALSO BEEN PLACED ON ANOTHER DECISION OF HONBLE BOMBAY H IGH COURT IN THE CASE OF DORR-OLIVER (INDIA) LTD. VS. CIT 234 ITR 723 WHEREI N IT WAS HELD THAT COLLABORATION AGREEMENT BEING SUBJECT TO GOVERNMENT APPROVAL, DEDUCTION OF SUM PAID AS COMPENSATION AND FEES UNDER COLLABORATION A GREEMENT WAS ALLOWABLE ONLY UPTO THE DATE TILL THE AGREEMENT ENJOYED APPROVAL B Y GOVERNMENT OF INDIA AND NOT FOR ANY SUBSEQUENT YEAR. FOLLOWING THESE TWO DECISI ONS OF HONBLE BOMBAY HIGH COURT, THE COORDINATE 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 ACCOUNT OF FEES PAYABLE TO FOREIGN LAWYERS, PAYMENT OF WHICH WAS SUBJECT TO APPROVAL FROM THE RBI, COULD BE SAID TO HAVE ACCRUED ONLY ON RECEIPT OF SUCH APPROVAL AND THE ASSESSEE WAS ENTITLED TO CLAI M DEDUCTION FOR THE SAID AMOUNT ONLY IN THE YEAR WHEN SUCH APPROVAL WAS GRANTED BY THE RBI. 11. IN OUR OPINION, THE JUDICIAL PRONOUNCEMENTS DIS CUSSED ABOVE CLEARLY SUPPORT THE STAND OF THE ASSESSEE THAT INCOME ON ACCOUNT OF THE AMOUNT PAYABLE BY BAH INDIA TO THE USA ENTITY COULD BE SAID TO HAVE ACCRU ED TO THE SAID ENTITTY ONLY ON RECEIPT OF THE REQUIRED APPROVAL FROM RBI AND THERE BEING NO SUCH APPROVAL RECEIVED DURING THE YEAR UNDER CONSIDERATION, THE S AME COULD NOT BE TAXED AS INCOME IN THAT YEAR. IT IS OBSERVED THAT THE LEARNE D CIT(APPEALS), HOWEVER, HAS NOT ACCEPTED THIS STAND RELYING ON THE DECISION OF HON BLE SUPREME COURT IN THE CASE OF LIC OF INDIA VS. ESCORTS LTD. (SUPRA) WHEREIN IT WAS HELD THAT PERMISSION GRANTED BY THE RBI IS TO BE CONSTRUED TO MEAN BOTH PERMISSI ON GRANTED PREVIOUSLY OR OBTAINED SUBSEQUENTLY. AS RIGHTLY CONTENDED BY THE LEARNED COUNSEL FOR THE ASSESSEE, THE SAID DECISION, HOWEVER, WAS NOT RENDE RED BY THE HONBLE SUPREME 8 ITA NO.4505/MUM/2003 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 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. 12. 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 AMOUNT IN QUESTION TO THE USA ENTITY. IN ANY CA SE, THIS ASPECT, IN OUR OPINION, IS NOT RELEVANT FOR DECIDING THE ISSUE OF ACCRUAL O F INCOME WHICH AS HELD BY THE HONBLE BOMBAY HIGH COURT IN THE CASE OF KIRLOSKAR TRACTORS LTD. (SUPRA) AND IN THE CASE OF DORR-OLIVER (INDIA) LTD. TAKES PLACE O NLY ON THE OBTAINING OF THE NECESSARY APPROVAL REQUIRED FROM RBI. KEEPING IN VI EW THE SAID DECISION OF HONBLE BOMBAY HIGH COURT, WE ACCEPT THE CONTENTION RAISED ON BEHALF OF THE ASSESSEE THAT THE AMOUNT PAYABLE BY BAH INDIA TO TH E USA ENTITY DID NOT 9 ITA NO.4505/MUM/2003 CONSTITUTE ITS INCOME CHARGEABLE TO TAX IN THE YEA R UNDER CONSIDERATION AS THERE WAS NO ACCRUAL OF INCOME IN THE ABSENCE OF PERMISSION O BTAINED FROM RBI AS REQUIRED BY FERA. WE, THEREFORE, DELETE THE ADDITIONS MADE O N THIS COUNT BY THE AO AND CONFIRMED BY THE LEARNED CIT(APPEALS) AND ALLOW GRO UND NO. 5 OF THE ASSESSEES APPEAL. 13. GROUND NO. 6 RELATING TO THE ISSUE OF ASSESSEE S CLAIM REGARDING NON-ACCRUAL OF INCOME ON THE BASIS OF CASH SYSTEM OF ACCOUNTING FOLLOWED BY THE ASSESSEES HAS NOT BEEN PRESSED BY THE LEARNED COUNSEL FOR THE AS SESSEE AT THE TIME OF HEARING BEFORE US. THE SAME IS ACCORDINGLY DISMISSED AS NOT PRESSED. 14. IN GROUND NO.7 RAISED IN THIS APPEAL, THE ASSES SEE HAS DISPUTED THE ADDITION MADE BY THE AO AND CONFIRMED BY THE LEARNED CIT(APP EALS) ON ACCOUNT OF THE AMOUNT PAYABLE BY BAH INDIA ON THE GROUND THAT TH E SAME IS NOT LIABLE TO TAX IN INDIA UNDER THE RELEVANT TAX TREATY WHICH COVERS ON LY THE AMOUNT PAID. 15. THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE AMOUNT IN QUESTION PAYABLE BY BAH INDIA TO THE USA ENTITY WAS NOT ACTU ALLY PAID DURING THE YEAR UNDER CONSIDERATION. IN THIS REGARD, HE REFERRED TO THE RELEVANT PROVISION OF ARTICLE 12 OF THE TREATIES TO POINT OUT THAT THE TERM ROYA LTIES AS USED IN ARTICLE 12 IS DEFINED TO MEAN PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR -- - - - - - - - AND THE TERM FEES FOR TECHNICAL SERVICES IS DEF INED TO MEAN PAYMENTS OF ANY AMOUNT IN CONSIDERATION FOR - - - - - - - - . HE C ONTENDED THAT ROYALTIES AND FEES FOR TECHNICAL SERVICES THUS ARE LIABLE TO TAX AS PER AR TICLE 12 OF THE RELEVANT TREATIES ONLY ON PAYMENT BASIS AND THERE BEING NO PAYMENTS M ADE BY BAH INDIA OF THE IMPUGNED AMOUNT TO THE USA ENTITY, THE SAID AMOUNT WAS NOT LIABLE TO TAX AS ROYALTIES OR FEES FOR TECHNICAL SERVICES IN INDIA D URING THE YEAR UNDER CONSIDERATION AS PER ARTICLE 12 OF THE RELEVANT TREATIES. IN SUPP ORT OF THIS CONTENTION, HE RELIED ON 10 ITA NO.4505/MUM/2003 THE DECISION OF HONBLE BOMBAY HIGH COURT IN THE CA SE OF DIT (INTERNATIONAL TAXATION) VS. SIEMENS AKTIENGESELLSCHAFT (I.T. APP EAL NO. 124 OF 2010 DATED 22 ND OCT., 2012) AND VARIOUS DECISIONS OF THE TRIBUNAL I NCLUDING THE DECISION OF MUMBAI BENCH IN THE CASE OF DCIT VS. UDHE GMBH 54 T TJ 355 AND THE DECISION OF DELHI BENCH OF ITAT IN THE CASE OF CSC TECHNOLOG Y, SINGAPORE PTE. LTD. VS. ADIT 50 SOT 399. 16. 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. 17. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AND AL SO PERUSED THE RELEVANT MATERIAL ON RECORD. IT IS OBSERVED THAT THE AMOUNT IN QUESTION PAYABLE BY BAH INDIA TO THE USA ENTITY WAS NOT PAID DURING THE YE AR UNDER CONSIDERATION AND THERE IS NO DISPUTE ABOUT THE SAME. THE SAID AMOUNT PAYAB LE TO THE USA ENTITY HAS BEEN BROUGHT TO TAX IN INDIA IN ITS HANDS BY THE REVENUE AUTHORITIES AS FEES FOR TECHNICAL SERVICES. AS PER THE RELEVANT PROVISIONS OF THE DOU BLE TAXATION AVOIDANCE TREATY BETWEEN INDIA AND THEUSA, THE TERM FEES FOR TECHN ICAL SERVICES AS USED IN THE RELEVANT TREATIES IS DEFINED TO MEAN PAYMENTS OF A NY AMOUNT IN CONSIDERATION FOR THE SERVICES OF MANAGERIAL, TECHNICAL OR CONSULTANC Y NATURE INCLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL. IN TH E CASE OF SEAMENS AKTIENGESELLSCHAFT (SUPRA), A SIMILAR LANGUAGE WAS EMPLOYED IN THE RELEVANT PROVISIONS OF DTAA BETWEEN INDIA AND GERMANY AND KE EPING IN VIEW THE LANGUAGE SO EMPLOYED, THE TRIBUNAL HELD THAT ROYALT Y 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 THAT THE ASSESS MENT OF ROYALTY OR ANY FEES FOR TECHNICAL SERVICES SHOULD BE MADE IN THE YEAR I N WHICH THE AMOUNTS ARE RECEIVED AS PER THE RELEVANT PROVISIONS OF THE DTAA AND NOT OTHERWISE. THE 11 ITA NO.4505/MUM/2003 COORDINATE BENCH OF THIS TRIBUNAL AT DELHI IN THE C ASE OF CSC TECHNOLOGY SINGAPORE PTE. LTD. (SUPRA) HAS ALSO TAKEN A SIMILA R VIEW HOLDING THAT ROYALTY/FTS WHICH HAD ACCRUED AS INCOME TO A FOREIGN COMPANY, C OULD NOT BE TAXED IN THE SOURCE COUNTRY (BEING INDIA) UNLESS THIS 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 COU RT 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 AMOUNT PAYABLE BY BAH INDIA TO THE USA ENTITY COULD NOT BE BROUGHT TO TAX IN INDIA DURING THE YEAR UNDER CONSIDERATION AS FEES FOR TECHNICAL SERVICES AS PER THE RELEVANT PROVISIONS OF THE DTAAS SINCE THE SAME HAD NOT BEEN PAID TO THE S AID ENTITY. GROUND NO. 7 OF THE ASSESSEES APPEAL IS ACCORDINGLY ALLOWED. 18. IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS PARTLY ALLOWED. 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 12 ITA NO.4505/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.