GE Capital Services India, New Delhi V. DCIT, New Delhi

ITA 480/DEL/2011

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 3443 (ITAT-DELHI)
• Duration Of Justice: 7 year(s) 25 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 22-02-2018
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: C
• Next Hearing Date: 19-09-2016
• Assessment Year: 2007-2008
• Appeal Filed On: 28-01-2011
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: SURINDER PAL
• Assessee Lawyers: S K AGARWAL
• Keywords: Double taxation relief; Permanent establishment
• Section: 143(3)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH G, NEW DELHI BEFORE SH. G.D.AGARWAL, PRESIDEN T AND SH. KUL BHARAT, JUDICIAL M EMBER ITA NO. 480, 481/C HD/2011 ASSTT. YEAR : 2000-01 ASSTT. YEAR : 2001-02 DY. DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) CHANDIGARH VS M/S. SNC-LAVALIN/ACRES INC. C/O. JAI PRAKASH INDUSTRIES LTD. 64/4 SITE-IV INDUSTRIAL AREA, SAHIBABAD GAZIABAD PAN : AAFCS2553J (APPELLANT) (RESPONDENT) ASSESSEE BY : SH. S.K .AGARWAL, CA RESPONDENT BY : SH. SURINDER PAL, C IT DR DATE OF HEARING : 21.02.2018 DATE OF PRONOUNCEMENT : 22.02.2018 ORDER PER BENCH : THESE TWO APPEALS FILED BY THE ASSESSEE PERTAIN ING TO THE ASSESSMENT YEAR 2000-01 , 2001-02 DIRECTED AGAINST THE SEPARA TE ORDERS OF THE COMMISSIONER OF INCOME TAX (APPEALS) XXII, NEW D ELHI DATED 12.12.2010, 12.12.2010. FIRST WE TAKE UP ITA NO. 480/CHD/2011 TO ASSESSMENT YEAR 2000-01. 2. THE REVENUE HAS RAISED FOLLOWING GROUNDS OF APP EAL :_ ITA NO.480,481/CHINDI/2011 2 ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSEE WAS NOT LIABLE T O DEDUCT TDS U/S 195, WITHOUT APPRECIATING THAT THE TDS PROVISIONS A RE APPLICABLE NOT ONLY TO THE EXPENSES INCURRED BY THE PE IN INDIA BU T ALSO BY THE HEAD OFFICE OR ANY OTHER BRANCH OF THE ASSESSEE IN ANY C OUNTRY, IF SUCH EXPENSES ARE DEBITED TO THE P&L ACCOUNTS OF THE PE IN INDIA. 3. BRIEFLY STATED THE FACTS ARE THAT THE ASSESSING OFFICER PASSED AN ORDER U/S 201 OF THE INCOME TAX ACT, 1961 (HEREINAFTER REFERR ED TO AS THE ACT) THEREBY THE ASSESSING OFFICER OBSERVED THAT THE ASSESSEE WA S OBLIGED UNDER THE ACT TO DEDUCT TAX AT THE SOURCE ON CERTAIN PAYMENTS MADE T O THE NON-RESIDENT PERSONS. IT IS NOTED BY THE ASSESSING OFFICER THAT THE ASSES SEE IS A FOREIGN COMPANY DERIVING INCOME FROM CONSULTANCY SERVICES FOR THE H YDEL PROJECT WITH NHPC FOR DESIGN, SUPERVISION OF INSTALLATION AND COMMISS IONING OF ELECTRO- MECHANICAL EQUIPMENTS ETC. FOR CHAMERA HYDRO-ELECTR IC POWER PROJECT. HE FURTHER OBSERVE THAT AS PER THE P & L ACCOUNT FOR THE ASSESSMENT YEAR 2001-02, AN AMOUNT OF RS. 1,84,30,838/- HAS BEEN DEBITED BY THE ASSESSEE AS WORK IN PROCESS ON THE BASIS OF A DEBIT NOTE ISSUED BY HEAD OFFICE FOR THE PROJECT WORK DONE DURING FINANCIAL YEAR 1999-2000. THE ASSESSING OFFICER THEREFORE, HELD THAT THE ASSESSEE WAS REQUIRED TO DEDUCT TAX. THEREFORE, BY INVOKING THE PROVISION OF SECTION 201 TREATED THE ASSESSEE AS ASSESSEE IN DEFAULT. AGAINST THIS, THE ASSESSEE PREFERRED IN APPEAL BEFORE THE LD. CIT(A) WHO AFTER CONSIDERING THE SUBMISSIONS, ALLOWED THE APPEAL. AGAINST THIS THE REVENUE IS IN APPEAL. 4. ONLY EFFECTIVE GROUND IS AGAINST THE DECISION OF THE LD. CIT(A) HOLDING THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT S OURCE. 5. LD. DEPARTMENTAL REPRESENTATIVE VEHEMENTLY ARGUE D THAT THE LD. CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX. LD. ITA NO.480,481/CHINDI/2011 3 DR SUPPORTED THE ORDER OF THE ASSESSING OFFICER. HE FURTHER RELIED UPON THE PROVISIONS OF SECTION 195 OF THE INCOME TAX ACT, 19 61. 6. ON THE CONTRARY, LD. AUTHORISED REPRESENTATIVE O PPOSED THE SUBMISSIONS, HE SUBMITTED THAT THE APPLICATION OF SECTION 195 BY THE ASSESSING OFFICER IS MIS- CONCEIVED. HE FURTHER CONTENDED THAT DURING THE FIN ANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2000-01. THE PE HAD NOT COMMENT TO EXISTENCE. HE SUBMITTED THAT UNDER THESE FACTS LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX. 7. WE HAVE HEARD THE RIVAL CONTENTION, PERUSED THE MATERIAL AVAILABLE ON RECORD, LD. CIT(A) HAS GIVEN FINDING ON FACT BY OBS ERVING AS UNDER :- 4. I HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSIO NS. FIRSTLY, IT IS SEEN THAT THE ASSESSING OFFICER HAS HELD THAT THE A PPELLANT WAS LIABLE TO DEDUCT TAX AT SOURCE ON REIMBURSEMENT OF EXPENSES BY THE PERMANENT ESTABLISHMENT (P.E) IN INDIA TO THE HEAD OFFICE IN CANADA. THE APPELLANT HAS SHOWN THAT IT HAD NO P.E. IN INDIA UNTIL THE SETTING UP OF A PROJECT OFFICE ON AUGUST 16, 20 00, AFTER OBTAINING APPROVAL OF THE RESERVE BANK OF INDIA. HENCE, IN TH E F.Y. 1999-2000, THERE COULD NOT HAVE BEEN A PAYMENT OR REIMBURSE MENT BY A NON- EXISTENT P.E. THE TREATMENT OF THE EXPENDITURE INCU RRED BY THE HEAD OFFICE AS BROUGHT FORWARD WORK IN PROGRESS IN THE P ROFIT AND LOSS ACCOUNT OF THE F.Y. 2000-01, WAS MERELY A NOTIONAL ENTRY TO COMPUTE THE CORRECT PROFIT OF THE CONTRACT WITH NEIPC. MOREOVER, THE EN TIRE PAYMENT FOR EXECUTION OF THE CONTRACT - RELATING TO THE WORK DO NE BY THE HEAD OFFICE OF THE APPELLANT IN THE F.Y. 1999-2000 WAS MADE BY NHPC DIRECTLY TO THE HEAD OFFICE, AFTER DEDUCTION OF TAX AT SOURCE. IN THE ABSENCE OF A P.E. IN THIS YEAR, IT CANNOT BE DEEMED THAT THE EXPENDIT URES WERE INCURRED BY OR FOR THE P.E. OR THAT THE HEAD OFFICE WAS RENDERI NG ANY SERVICES TO THE P.E. NHPC HAD ALREADY WITHHELD THE TAXES ON THE CON TRACT CONSIDERATION, HOWEVER THERE WAS NO REIMBURSEMENT OF EXPENSES BY NHPC, AS SUCH EXPENSES WERE INCURRED FOR EARNING CO NTRACT PROCEEDS. IT IS ALSO EVIDENT THAT THE HEAD OFFICE HAS RENDERE D SERVICES ONLY TO NHPC, AND NOT TO A P.E. THEREFORE, THE SAID AMOUNTS , I.E., THE ITA NO.480,481/CHINDI/2011 4 EXPENDITURE COVERED BY WORK-IN-PROGRESS OF RS. 1,84 ,30,838/- CANNOT BE HELD TO BE IN THE NATURE OF FEES FOR TECHNICAL S ERVICES PAID BY THE P.E. TO THE HEAD OFFICE. THE APPELLANT HAS ALSO CORRECTL Y ARGUED THAT EVEN IF PAYMENTS HAD BEEN MADE BY A P.E. TO A HEAD OFFICE, THESE WOULD HAVE AMOUNTED TO PAYMENT TO SELF, WHICH CANNOT BE SUBJEC TED TO TDS. THE SPECIAL BENCH OF THE ITAT, KOLKATA, HELD IN THE CAS E OF ABN AMRO BANK AT 280 ITR 117 THAT THE BRANCH/PE IS NOT A SEPARATE LEGAL ENTITY, AND THE APPELLANT HAS RELIED ON THE SAME TO ARGUE THAT THE PROVISIONS OF WITHHOLDING TAXES WOULD NOT APPLY TO PAYMENTS FROM A P.E. IN INDIA TO THE HEAD OFFICE, BEING PAYMENT TO ITSELF. THE APPEL LANT HAS ALSO RELIED ON THE JUDGMENT OF THE HONBLE DELHI TRIBUNAL IN THE C ASE OF SMS DEMAG PVT. LTD. V. DCIT (2010) 132 TTJ 498, TO ARGUE THAT AS THE AMOUNTS IN DISPUTE WERE NOT CLAIMED BY THE P.E, AGAINST THE RECEIPTS OF THE PROJECT IN INDIA IN A.Y. 2000-01, THE QUESTION OF INVOKING SECTION 195 WOULD NOT ARISE. DEDUCTION FOR THE EXPENDITURE WAS NOT CL AIMED AGAINST ITS RECEIPTS FOR THE PURPOSE OF DETERMINING ITS TAXABLE PROFIT IN INDIA FOR THE RELEVANT ASSTT. YEAR, AS THERE WAS NO P.E. IN EXIST ENCE, AND HENCE SECTION 195 CANNOT BE INVOKED 8. THE ABOVE FINDING ON FACT IS NOT CONTROVERTED BY THE REVENUE. IN FACT, LD. DR, DURING THE COURSE OF HEARING CONCEDED THIS FAC T THAT NO PE WAS ESTABLISHED DURING THE FINANCIAL YEAR RELEVANT TO THE ASSESSMEN T YEAR 2000-01. WE, THEREFORE, DO NOT FIND ANY INFIRMITY INTO THE FINDI NG OF THE LD. CIT(A), SAME IS HEREBY AFFIRMED GROUND RAISED IN THIS APPEAL IS REJ ECTED. NOW WE GROUND TAKE UP REVENUES APPEAL IN ITA NO. 4 81/CHINDI/2011 THE FOLLOWING EFFECTIVE GROUND HAS BEEN RAISED BY T HE REVENUE :- ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE, LD. CIT(A) HAS ERRED IN HOLDING THAT THE ASSESSEE WAS NOT LIABLE T O DEDUCT TDS U/S 195, WITHOUT APPRECIATING THAT THE TDS PROVISIONS A RE APPLICABLE NOT ONLY TO THE EXPENSES INCURRED BY THE PE IN INDIA BU T ALSO BY THE HEAD ITA NO.480,481/CHINDI/2011 5 OFFICE OR ANY OTHER BRANCH OF THE ASSESSEE IN ANY C OUNTRY, IF SUCH EXPENSES ARE DEBITED TO THE P&L ACCOUNTS OF THE PE IN INDIA. 9. ONLY EFFECTIVE GROUNDS REVENUES APPEAL IS AGAINST THE D ECISION OF THE LD. CIT(A) HOLDING THE ASSESSEE TO BE NOT IN DEFAULT AS THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE OUT OF EXPENSES INCURRED BY TH E HEAD OFFICE AS NO PAYMENT WERE MADE BY THE PE, NOR WAS ANY LIABILITY INCURRED BY IT. 9. APROPOS GROUND NO. 1 LD. DEPARTMENTAL REPRESEN TATIVE SUPPORTED THE ORDER OF THE ASSESSING OFFICER AND SUBMITTED THAT L D. CIT(A) WAS NOT JUSTIFIED IN HOLDING THAT THE ASSESSEE WAS NO LIABLE TO DEDUCT T AX AT SOURCE OUT OF THE EXPENSES INCURRED BY THE HEAD OFFICER AS NO PAYMEN TS WERE MADE BY THE PE, NOR WAS ANY LIABILITY INCURRED BY IT. LD. DEPARTMEN TAL REPRESENTATIVE RELIED ON THE PROVISIONS OF SECTION 195 OF THE ACT. ON THE CO NTRARY, LD. COUNSEL FOR THE ASSESSEE REITERATED THE SUBMISSIONS AS MADE BEFORE THE LD. CIT(A). LD. COUNSEL FOR THE ASSESSEE TOOK US THROUGH THE DOUBLE TAXATIO N AVOIDANCE AGREEMENT BETWEEN INDIA AND CANADA TO BUTTRESS THE ARGUMENT T HAT THE ASSESSEE WAS NOT LIABLE TO DEDUCT TAX. HE FURTHER PLACED RELIANCE ON DECISION RENDERED IN THE CASE OF ABN AMRO BANK VS. ADIT 280 ITR 117, MASHREQ BAN K PSC VS. DDIT 108 TTJ 554. LD. COUNSEL FOR THE ASSESSEE SUBMITTED IN THE QUANTUM PROCEEDINGS AGAINST THE FINDING OF THE TRIBUNAL, THE ASSESSEE H AS PREFERRED THE APPEAL BEFORE THE HONBLE HIGH COURT OF DELHI WHICH IS PENDING AD JUDICATION. 10. WE HAVE HEARD THE RIVAL CONTENTION PERUSED THE MATERIAL ON RECORD, THE LD. CIT(A) HAS DECIDED THE ISSUE WHICH READS AS UNDER : - 4. I HAVE CAREFULLY CONSIDERED THE ABOVE SUBMISSIO NS. FIRSTLY, IT IS SEEN THAT THE ASSESSING OFFICER HAS HELD THAT THE APPELL ANT WAS LIABLE TO DEDUCT TAX AT SOURCE ON REIMBURSEMENT OF EXPENSES B Y THE PERMANENT ESTABLISHMENT (P.E.) IN INDIA TO THE HEAD OFFICE IN CANADA. IT IS EVIDENT THAT THE P.E. HAS NEITHER INCURRED THE SAID EXPENSE S NOR MADE ANY PAYMENT TO THE HEAD OFFICE. THE ACCOUNTS OF THE HEA D OFFICE AND THE ITA NO.480,481/CHINDI/2011 6 PROJECT OFFICE WERE CONSOLIDATED TO DETERMINE THE O VERALL PROFIT. APPORTIONMENT OF THE EXPENDITURE INCURRED BY THE HE AD OFFICE TO THE PROJECT IN INDIA, DID NOT ENTAIL ANY PAYMENT OR LIA BILITY OF THE P.E. THE TREATMENT OF THE EXPENDITURE INCURRED BY THE HEAD O FFICE IN THE PROFIT AND LOSS ACCOUNT OF THE P.E. WAS MERELY A NOTIONAL ENTRY TO COMPUTE THE CORRECT PROFIT OF THE CONTRACT WITH NHPC. MOREO VER, THE ENTIRE PAYMENT FOR EXECUTION OF THE CONTRACT - RELATING TO THE WORK DONE BY THE HEAD OFFICE OF THE APPELLANT IN THE F.Y. 1999-2 000 WAS MADE BY NHPC DIRECTLY TO THE HEAD OFFICE, AFTER DEDUCTION O F TAX AT SOURCE. IT CANNOT BE DEEMED THAT THE EXPENDITURES WERE INCURRE D BY OR FOR THE P.E. OR THAT THE HEAD OFFICE WAS RENDERING ANY SERV ICES TO THE P.E. IN THE ORDER OF THE HONBLE ITAT DTD. 30-03-2007, IN A PPEAL AGAINST THE ORDER U/S 143(3) FOR THIS A.Y., I.E. A.Y. 2001-02, THE ITAT HELD THAT THE ENTIRE AMOUNT RECEIVED BY THE HEAD OFFICE FROM NHPC SHALL BE TAXABLE UNDER SEC. 115A ON GROSS BASIS. NHPC HAD ALREADY WI THHELD THE TAXES ON THE ENTIRE CONTRACT CONSIDERATION. 5. IT IS ALSO EVIDENT THAT THE HEAD OFFICE HAS RENDERE D SERVICES ONLY TO NHPC, AND NOT TO A P.E. THEREFORE, THE SAID AMOU NTS, I.E., THE EXPENDITURE OF RS. 3,37,80,655/- CANNOT BE HELD TO BE IN THE NATURE OF FEES FOR TECHNICAL SERVICES/ROYALTY PAID BY THE P.E . TO THE HEAD OFFICE. THE APPELLANT HAS ALSO CORRECTLY ARGUED THAT EVEN I F PAYMENTS HAD BEEN MADE BY A P.E. TO A HEAD OFFICE, THESE WOULD H AVE AMOUNTED TO PAYMENT TO SELF, WHICH CANNOT BE SUBJECTED TO TDS. THE SPECIAL BENCH OF THE ITAT, KOLKATA, HELD IN THE CASE OF ABN AMRO BANK AT 280 ITR 117 THAT THE BRANCH/PE IS NOT A SEPARATE LEGAL ENTI TY, AND THE APPELLANT HAS RELIED ON THE SAME TO ARGUE THAT THE PROVISIONS OF WITHHOLDING TAXES WOULD NOT APPLY TO PAYMENTS FROM A P.E. IN INDIA TO THE HEAD OFFICE, BEING PAYMENT TO ITSELF. THE APPEL LANT HAS ALSO RELIED ON THE JUDGMENT OF THE HONBLE DELHI TRIBUNAL IN TH E CASE OF SMS DEMAG PVT. LTD. V. DCIT (2010) 132 TTJ 498, TO ARGU E THAT AS THE AMOUNTS IN DISPUTE WERE NOT CLAIMED BY THE P.E. A GAINST THE RECEIPTS OF THE PROJECT IN INDIA IN A.Y. 2001-02, THE QUESTI ON OF INVOKING SECTION 195 WOULD NOT ARISE. ONLY SO MUCH OF THE PR OFITS OF THE APPELLANT COULD BE TAXED IN INDIA AS WAS ATTRIBUTAB LE TO THE ACTIVITIES OF THE P.E., AND THE P.E. HAD NOT DEBITED THESE EXP ENSES TO ITS P&L ITA NO.480,481/CHINDI/2011 7 ACCOUNT. THE REQUIREMENT OF WITHHOLDING TAXES IS NO T APPLICABLE IN CASE OF EXPENDITURES WHICH HAVE NOT BEEN CLAIMED BY THE APPELLANT AGAINST ITS TAXABLE INCOME IN INDIA. AS PER SECTION 195, THE TAX SHOULD HAVE BEEN DEDUCTED AT SOURCE FROM PAYMENT TO A NON- RESIDENT ONLY IF THE AMOUNT PAYABLE IS CHARGEABLE TO TAX IN INDIA. E VEN IF THERE HAD BEEN PAYMENT BY THE P.E. TO THE HEAD OFFICE, OF SAL ARIES, TRAVELLING EXPENSES, AND COMPUTER REPAIR AND MAINTENANCE, THES E PAYMENTS ARE NOT IN THE NATURE OF FEES FOR TECHNICAL SERVICES AS TECHNICAL KNOWLEDGE, SKILL OR KNOWHOW HAS NOT BEEN MADE AVAILABLE TO T HE P.E. THE APPELLANT HAS PLACED RELIANCE ON ARTICLE 12(4) OF T HE DTAA WITH CANADA, THE DEFINITION OF MADE AVAILABLE AS PER T HE MEMORANDUM TO THE INDIA-USA TREATY, AND THE JUDGMENT OF THE MU MBAI TRIBUNAL IN THE CASE OF RAYMOND LTD. (80 TTJ 120). THE SETTLED LAW IN THIS RESPECT IS THAT THE RECIPIENT OF THE SERVICES MUST BE ENABL ED TO APPLY THE TECHNOLOGY ON HIS OWN. SINCE IN THIS CASE THE P.E. HAS NOT GOT EQUIPPED BY THE HEAD OFFICE TO APPLY ANY TECHNOLOGY , THE EXPENDITURE IS CLEARLY NOT OF THE NATURE OF FEES FOR TECHNICAL SERVICES OR INCLUDED SERVICES. 6. THE APPELLANT HAS FURTHER ARGUED THAT TREATING REIM BURSEMENT OF EXPENSES AS INCOME WOULD LEAD TO DOUBLE TAXATION. T HE APPELLANT HAS CHARGED NHPC THE CONTRACT CONSIDERATION FOR THE SER VICES PERFORMED BY IT AND NHPC HAS WITHHELD INCOME TAX WHILE MAKING THE PAYMENTS. SUBJECTING THE EXPENSES, WHICH ARE TREATED BY THE A SSESSING OFFICER AS FEES FOR TECHNICAL SERVICES AND ROYALTY, TO TAX, WO ULD RESULT IN TAXATION BOTH OF THE CONTRACT RECEIPTS AND OF THE EXPENSES I NCURRED TO EARN THE CONTRACT RECEIPTS. THE ASSERTION OF THE ASSESSING O FFICER MIGHT HAVE BEEN ACCEPTABLE IF THE APPELLANT HAD RECOVERED THES E EXPENSES FROM THE CLIENT ALONG WITH THE FEES FOR THE SERVICES PER FORMED, WHICH IS NOT THE FACT IN THIS CASE. 7. I AM ALSO IN AGREEMENT WITH THE APPELLANT THAT AS P ER THE NON- DISCRIMINATION PROVISIONS OF THE DOUBLE TAXATION A VOIDANCE AGREEMENT WITH CANADA, THE APPELLANT CANNOT BE SUBJ ECTED TO ANY TAXATION REQUIREMENT WHICH IS MORE BURDENSOME THAN THAT APPLICABLE TO AN INDIAN NATIONAL. FOR THE YEAR UNDER CONSIDERA TION, I.E. A.Y. 2001-02, THERE WAS NO PROVISION FOR DISALLOWANCE OF EXPENSES IN THE ITA NO.480,481/CHINDI/2011 8 HANDS OF AN INDIAN RESIDENT, IF THE PAYMENTS WERE M ADE TO INDIAN RESIDENTS WITHOUT WITHHOLDING OF INCOME TAX. HOWEVE R SECTION 40(A)(I) OF THE ACT SPECIFICALLY DISALLOWED EXPENSES IN RESP ECT OF PAYMENT MADE BY INDIAN RESIDENTS TO NON-RESIDENTS WITHOUT WITHHO LDING OF TAX. THE HONBLE ITAT, DELHI BENCH, IN THE RECENT DECISION O F SMS DEMAG PVT. LTD. V. DCIT (2010) 132 TTJ 498, HAS HELD THAT PROV ISIONS OF SECTION 40(A)(I) WILL NOT BE APPLICABLE IN CASE OF PAYMENTS TO A NON-RESIDENT BY A RESIDENT ASSESSEE FOR THE PERIOD PRIOR TO 01-0 4-2004, AS IT WOULD LEAD TO DISCRIMINATION. UNTIL SUBSTITUTION BY THE F INANCE ACT, 2004, SECTION 40(A)(I) COVERED ONLY THE PAYMENTS MADE TO NON-RESIDENTS BY RESIDENTS, AND PAYMENTS MADE TO RESIDENTS WITHOUT D EDUCTION OF TAX WERE NOT COVERED. THE PRINCIPLE ENUNCIATED IN THE A BOVE CITED JUDGMENT IS THAT THE FORM AND FORMALITIES OF TAXATI ON MUST NOT BE MORE ONEROUS FOR NON-RESIDENTS THAN FOR RESIDENTS. APPLY ING THIS LOGIC TO THE FACTS OF THIS PRESENT CASE, THE APPELLANT (I.E., IT S P.E.) IS NOT LIABLE TO WITHHOLD TAX WHILE MAKING PAYMENTS TO ANOTHER NON-R ESIDENT (HEAD OFFICE) AS IT WOULD LEAD TO DISCRIMINATION UNDER AR TICLE 24 OF THE DTAA. 8. FURTHER, THE ASSESSING OFFICER HAS TREATED THE PAY MENT FOR COMPUTER APPLICATION SOFTWARE AND COMPUTER HIRE CHA RGES AS ROYALTY. ARTICLE 12 OF THE INDIA- CANADA DTAA DEF INES ROYALTY AS PAYMENT FOR THE USE OF, OR THE RIGHT TO USE ANY C OPYRIGHT, PATENT, TRADEMARK, DESIGN, ETC. THE SPECIAL BENCH OF THE DE LHI TRIBUNAL IN THE CASES REPORTED AT 95 ITD 269 (2005), HELD THAT PAYM ENT FOR A COPYRIGHT IS ROYALTY, BUT PAYMENT FOR A COPYRIGHTED ARTICLE IS ONLY THE PURCHASE PRICE OF THE ARTICLE, AND NOT ROYALTY UNDE R THE ACT, OR UNDER THE DTAA. AS IN THIS CASE, THE EXPENDITURE RELATES TO PURCHASE OF OFF- THE-SHELF COMPUTER SOFTWARE, AND COMPUTER HIRE CHAR GES, THERE IS EVIDENTLY NO CASE FOR TREATING THE PAYMENTS AS ROYA LTY. 9. IT IS ALSO OBSERVED THAT IN SUBSEQUENT YEARS I.E. THE F.Y. 2001- 02 CORRESPONDING TO A.Y. 2002-03 ONWARDS, THE ASSES SING OFFICER HAS NOT INVOKED THE PROVISIONS OF SECTION 195 TO HOLD T HAT THE APPELLANT SHOULD HAVE DEDUCTED TAX FROM REIMBURSEMENT OF EXPE NSES INCURRED BY THE HEAD OFFICE, THOUGH THE APPELLANT HAD A P.E. IN INDIA FROM AUGUST 2000 UNTIL THE COMPLETION OF THE PROJECT. ITA NO.480,481/CHINDI/2011 9 10. THE APPELLANT HAS ALSO POINTED OUT THAT THE ASSESS ING OFFICER HAS LEVIED THE WITHHOLDING TAX RATE OF 100% ON THE EXPENSES ON COMPUTER REPAIRS AND MAINTENANCE, WHEREAS THE MAXIM UM RATE THAT COULD HAVE BEEN APPLIED IS 20% UNDER THE DTAA. THE ASSESSING OFFICER HAS GIVEN NO EXPLANATION FOR APPLYING THE R ATE OF 100% TO THE SAID EXPENSES, AND IT IS CERTAINLY NOT IN ACCORDANC E WITH THE PROVISIONS OF THE ACT, OR OF THE DTAA. IN ANY EVENT, THERE WAS NO LIABILITY ON THE P.E. TO DEDUCT TAX ON COMPUTER HIRE CHARGES PAID BY THE HEAD OFFICE TO A THIRD PARTY IN CANADA. 11. TO CONCLUDE, IT IS HELD THAT THE APPELLANT WAS NOT LIABLE TO DEDUCT TAX AT SOURCE OUT OF THE EXPENSES INCURRED B Y THE HEAD OFFICE, AS NO PAYMENTS WERE MADE BY THE P.E., NOR WAS ANY LIAB ILITY INCURRED BY IT. THE ACTION OF THE ASSESSING OFFICER IN HOLDING THE ASSESSEE TO BE AN ASSESSEE IN DEFAULT U/S 201 IS MISPLACED. 11. WE DO NOT FIND ANY INFIRMITY WITH THE ORDER OF THE CIT(A) AS IT HAS BEEN CATEGORICALLY OBSERVED BY LD. CIT(A) IN PARA 9 THAT THE ASSESSING OFFICER HAD NOT INVOKED THE PROVISIONS OF SECTION 195 IN RESPEC T OF 2002-03 THIS FACT IS NOT REBUTTED BY THE REVENUE. HENCE, GROUNDS RAISED IN THIS APPEAL ARE REJECTED. 12. IN THE RESULT BOTH THE APPEALS OF THE REVENUE I .E. ITA NO. 480,481/CHD/ 2011 ARE DISMISSED. (ORDER PRONOUNCED IN THE OPEN COURT ON 22 /02/2018). SD/- SD/- (G.D.AGARWAL) (KUL BHARAT) PRESIDENT JUDI CIAL MEMBER DATED: 22/ 02/2018 *BINITA* COPY FORWARDED TO: 1.APPELLANT 2.RESPONDENT 3.CIT 4.CIT(APPEALS) 5.DR: ITAT ASSISTANT REGI STRAR ITA NO.480,481/CHINDI/2011 10 DATE INITIAL 1. DRAFT DICTATED ON 22.02.2018 2. DRAFT PLACED BEFORE AUTHOR 22.02.2018 3. DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER 4. DRAFT DISCUSSED/APPROVED BY SECOND MEMBER. 5. APPROVED DRAFT COMES TO THE SR.PS/PS 6. KEPT FOR PRONOUNCEMENT ON 7. FILE SENT TO THE BENCH CLERK 8. DATE ON WHICH FILE GOES TO THE AR 9. DATE ON WHICH FILE GOES TO THE HEAD CLERK. 10. DATE OF DISPATCH OF ORDER.