Conferencecall Services India Pvt Ltd., Bangalore V. ACIT, CHENNAI

ITA 484/CHNY/2014

• Counselvise Citation: [2015] 140 COUNSELVISE.COM (IT) 90687 (ITAT-CHENNAI)
• Duration Of Justice: 1 year(s) 4 month(s) 22 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 17-07-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: C
• Next Hearing Date: 09-06-2015
• Assessment Year: 2007-2008
• Appeal Filed On: 25-02-2014
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: A V SREEKANTH IRS
• Assessee Lawyers: T BANUSEKAR
• Keywords: Transfer pricing; Double taxation relief; Advance ruling
• Section: 90

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL C BENCH, CHENNAI , . ! , ' #$ BEFORE SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER & SHRI V. DURGA RAO, JUDICIAL MEMBER ./ I.T.A. NOS.484 & 1057/MDS/2014 ( / ASSESSMENT YEARS : 2007-08 & 2009-10) CONFERENCE CALL SERVICES INDIA PVT. LTD, NO.135, IST FLOOR, RMZ TITANIUM, OLD AIRPORT ROAD, BANGALORE 560 017. [PAN: AACCC 6574A] ( %& /APPELLANT) VS THE ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE I(3), CHENNAI. ( '(%& /RESPONDENT) / APPELLANT BY : SHRI. T. BANUSEKAR, C.A. / RESPONDENT BY : SHRI. A.V. SREEKANTH, IRS, JCIT. /DATE OF HEARING : 09.06.2015 ! /DATE OF PRONOUNCEMENT : 17.07.2015. ) / O R D E R PER CHANDRA POOJARI, ACCOUNTANT MEMBER THE APPEAL OF THE ASSESSEE FOR THE ASS ESSMENT YEAR 2007- 2008 IS DIRECTED AGAINST THE ORDER OF THE COMMISSIO NER OF INCOME TAX (APPEALS)-II, CHENNAI DATED 20.11.2013, WHEREAS THE APPEAL FOR THE I.T.A.NOS.484 & 1057/MDS/2014 :- 2 -: ASSESSMENT YEAR 2009-2010 IS DIRECTED AGAINST THE O RDER OF THE ASSESSING OFFICER DATED 17.12.2014 CONSEQUENT TO TH E DIRECTION OF THE DISPUTE RESOLUTION PANEL (DRP), CHENNAI. 2. FIRST WE TAKE UP ITA NO.484/MDS/2014. IN THIS APPE AL, THE FIRST GROUND IS WITH REGARD TO DISALLOWANCES OF D33,91,9 49/- U/S.40(A)(I) AND D1,46,48,969/- U/S.40(A)(IA) OF THE INCOME TAX ACT, 1961. 3. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE WAS ENGAGED IN THE BUSINESS OF PROVIDING AUDIO, VIDEO AND WEB CONFERENCING SERVICES TO VARIOUS CUSTOMERS ACROSS THE GLOBE. THE MOST ESSENTIAL TOOL IN ITS BUSINESS ACTIVITY WAS THE HYPER BANDWIDTH CO NNECTION SERVICE. DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HA D INCURRED OPERATION COST OF D2,21,63,895/- TOWARDS CONNECTIVI TY SERVICES. THE ASSESSING OFFICER DISALLOWED A SUM OF D33,91,949/- AND D1,46,48,969/- BY INVOKING PROVISIONS OF SECTION 40(A)(I) AND U/S. 40(A)(IA) OF THE ACT RESPECTIVELY. AGGRIEVED, THE ASSESSEE PREFERRED AN APPEAL BEFORE THE COMMISSIONER OF INCOME TAX (APPEALS). THE COMMISSI ONER OF INCOME TAX (APPEALS) CONFIRMED THE DISALLOWANCES. AGAINST THIS, THE ASSESSEE IS IN APPEAL BEFORE US. 4. THE LD. AUTHORISED REPRESENTATIVE FOR ASSESSEE SUBM ITTED THAT THE AMOUNT PAID TO FOREIGN SERVICE PROVIDERS WAS TO WARDS INTERNATIONAL I.T.A.NOS.484 & 1057/MDS/2014 :- 3 -: TOLL FREE SERVICES. ACCORDING TO THE LD. AUTHORISE D REPRESENTATIVE FOR ASSESSEE THESE DO NOT AMOUNT TO PAYMENT FOR TECHNIC AL SERVICES UNDER SECTION 9 AND THEREFORE TAX WAS NOT REQUIRED TO BE WITHHELD ON THESE PAYMENTS MADE BY THE ASSESSEE TO A NON-RESIDENT. T HE DEPARTMENT HAS TAKEN A STAND THAT THE PAYMENT SHOULD BE SUBJEC T TO TAX UNLESS AN APPLICATION HAS BEEN MADE U/S.195(2) OR 195(3) OF T HE ACT. THE KARNATAKA HIGH COURT IN THE CASE OF CIT VS. SAMSUNG ELECTRONICS COMPANY LTD 320 ITR 209, WHEREIN HELD THAT THAT IN THE ABSENCE OF AN APPLICATION U/S.195(2) OR 195(3) BY THE ASSESSE E, IT WAS LIABLE TO DEDUCT TAX U/S.195. THE ASSESSEE HAS FAILED TO APP LY AND GET EXEMPTION UNDER THESE SECTIONS AND HENCE HAS VIOLAT ED THE PROVISIONS OF SECTION 195. THE LD. AUTHORISED REPRESENTATIVE FOR ASSESSEE CONTENDS THAT THE OBJECTIVE OF SECTION 195 IS TO EN SURE THAT TAX LIABILITY ON THE INCOME ELEMENT OF THE AMOUNT PAID SHOULD BE SUBJECTED TO TAX. IT STATED THAT PAYMENTS IN RESPECT OF CARRIAGE COST , DATA VARIABLE COST ETC., DO NOT HAVE INCOME ELEMENT AND THEREFORE, THE WITHHOLDING TAX LIABILITY DOES NOT RISE. WITHOUT PREJUDICE TO THE INTEREST OF REVENUE, THE LD. AUTHORISED REPRESENTATIVE SUBMITTED THAT SH ORT DEDUCTION OF TDS CANNOT BE A REASON FOR DISALLOWANCE. HE RELIED ON THE FOLLOWING JUDGMENTS. I.T.A.NOS.484 & 1057/MDS/2014 :- 4 -: (I) CIT VS. VECTOR SHIPPING SERVICES (P) LTD. IN CC NO. 8068/2014 (SC) (SLP ) (II) CIT VS. VECTOR SHIPPING SERVICES (P) LTD (2013) 357 ITR 642 (ALL) (III) ACIT VS. ESKAY DESIGNS IN ITA NO.1951/MDS/2012, DT 9.12.2013. (IV) ITO VS. THEEKATHIR PRESS IN ITA NO.2076/MDS/2012,DT . 18.9.2013 5. ON THE OTHER HAND, THE LD. DEPARTMENTAL REPRESENTAT IVE SUBMITTED THAT UNLIKE STANDARDIZED SERVICES PROVIDE D BY A TELECOM COMPANY WHERE USER MAKES THE PAYMENT ON ACTUAL USE, IN THE INSTANT CASE, THERE IS A INSTANT CASE, THERE IS A IMPLIED C ONTRACT BETWEEN THE ASSESSEE AND THE SERVICE PROVIDER FOR OFFERING CERT AIN SPECIALIZED FACILITIES INCLUDING A TOLL FREE NUMBER. THE PAYME NT IS NOT RESTRICTED TO ACTUAL USAGE OF AIRTIME AND IS BUNDLED TO OTHER FAC ILITIES PROVIDED BY THE SERVICE PROVIDER. IN THE CASE OF DELL INTERNATIONAL SERVICES PVT. LTD 305 ITR 37 , WHEREIN HELD THAT AN ISSUE DECIDED ON THE BASIS O F DTA AGREEMENT, THE AUTHORITY FOR ADVANCE RULING HAD OBS ERVED THAT HAVING REGARD TO THE FACT THAT THE ENTIRE OPERATIONS ARE C ARRIED ON BY THE APPLICANT IN INDIA AND THE INCOME IS EARNED FROM SU CH OPERATIONS TAKING PLACE IN INDIA, IT WOULD BE FUTILE TO CONTEN D THAT THE SOURCE OF INCOME EARNING ACTIVITY IS OUTSIDE INDIA I.E. IN TH E COUNTRY OF THE CUSTOMER. SOURCE IS REFERABLE TO THE STARTING POIN T OR THE ORIGIN OR THE SPOT WHERE SOMETHING SPRINGS INTO EXISTENCE. THE COROLLARY OF THIS FINDING IS ALSO TRUE AND THEREFORE THE NON-RESIDENT CERTAINLY HAS INCOME I.T.A.NOS.484 & 1057/MDS/2014 :- 5 -: ARISEN IN INDIA AND IN THE CASE OF CARGO COMMUNITY NETWORK PVT. LTD . 289 ITR 355 , THE AUTHORITY FOR ADVANCE RULINGS HAD HELD THAT P AYMENT MADE BY AN INDIAN SUBSCRIBER TO THE CARGO COMMUNITY NETWORK PVT. LTD AT SINGAPORE, FOR PROVIDING A PASSWORD TO A ACC ESS AND USE THE PORTAL HOSTED AT SINGAPORE, IS TAXABLE IN INDIA AND IS SUBJECT TO DEDUCTION OF TAX AT SOURCE. THE ASSESSEE MAKES PAY MENTS TO THE INTERNATIONAL TOLL FREE SERVES PROVIDER TO TENABLE ITS CLIENTS OUTSIDE INDIA ACCESS ITS SERVICES. IT THEREFORE, FALLS SQUARELY UNDER THE AMBIT OF SECTION 195 AND THEREFORE, PAYMENTS MADE WITHOUT DE DUCTING WITHHOLDING TAX AND REMITTING THE SAME WOULD NOT QU ALIFY AS EXPENDITURE U/S.40(A)(I) OF THE ACT. 6. WE HAVE HEARD BOTH THE PARTIES AND PERUSED THE MATE RIAL ON RECORD. A SIMILAR ISSUE WAS CONSIDERED BY THE TRIBU NAL IN THE CASE OF FRONTIER OFFSHORE EXPLORATION (INDIA) LTD. VS. DCIT , 118 ITD 494 (CHENNAI) WHEREIN HELD THAT THE PROVISIONS OF SECTION 195 CLEARLY SHOW THAT ANY PERSON RESPONSIBLE FOR MAKING PAYMENT TO A NON-RESIDENT IN RESPECT OF ANY INTEREST OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT HAS TO DEDUCT TAX AT THE RATES IN FORCE. O BVIOUSLY 'ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT WOULD MEAN THAT PORTION OF THE SUM ON WHICH TAX IS PAYABLE BY SUCH A NON- RESIDENT; BUT AS TO HOW MUCH THAT PORTION IS A CTUALLY THERE NEEDS AN INVESTIGATION AND THERE MAY BE SITUATIONS WHERE 100 PER CENT OF SUCH SUM IS CHARGEABLE TO TAX AND THERE MAY BE SITUATIONS WHERE PRACTICALLY THE WHOLE OF SUCH SUM IS NOT CHARGE- ABLE TO TAX. THAT WOULD DEPEND ON THE FACTS AND THE CIRCUMSTANCES OF EACH CASE. WHENEVER AN ASSESSEE MA KING I.T.A.NOS.484 & 1057/MDS/2014 :- 6 -: PAYMENT TO A NON- RESIDENT FINDS THAT ONLY A PARTIC ULAR PORTION IS CHARGEABLE, THEN OBVIOUSLY HE HAS BEEN GIVEN A RIGH T IN TERMS OF SUB-SECTION (2), WHICH THE ASSESSEE HAS CALLED A BENEFICIAL SECTION. THERE WAS NO DISPUTE IN WHETHER THAT SECTI ON IS CALLED A BENEFICIAL SECTION OR A MACHINERY PROVISION BECAUSE FOR WORKING OUT THE AMOUNT OF TAX TO BE DEDUCTED ON A PARTICUL AR PORTION OF SUM CHARGEABLE, THAT PROVISION IS ABSOLUTELY NECESS ARY. AS PER SUB-SECTION (2), WHENEVER A PERSON RESPONSIBLE FOR PAYING ANY SUM CHARGEABLE TO TAX CONSIDERS THAT WHOLE OF SUCH SUM WOULD NOT BE INCOME CHARGEABLE IN THE CASE OF RECIPIENT, HE MAY MAKE AN APPLICATION TO THE ASSESSING OFFICER TO DETERMIN E THE APPROPRIATE PORTION OF SUCH SUM SO CHARGEABLE AND UPON SUCH DETERMINATION, TAX WOULD BE DEDUCTED UNDER SUB-SECT ION (1) ONLY ,ON THAT PROPORTION OF SUM WHICH IS SO CHARGEABLE, WHICH MEANS THAT THE PERSON RESPONSIBLE FOR MAKING PAYMENT, ETC CANNOT HIMSELF DECIDE WHAT IS THE APPROPRIATE PROPORTION W HICH IS CHARGEABLE TO TAX. THE EXPRESSION BY GENERAL OR SP ECIAL ORDER' AND THE 'APPROPRIATE PROPORTION' IN THIS SUB-SECTIO N ARE KEY WORDS TO UNDERSTAND THE MEANING IN THE SENSE THAT THERE M AY BE SITUATIONS WHERE ONLY ONE PARTICULAR PORTION OF SUC H SUM IS TAXABLE IN CASE OF A SIMILAR ASSESSEE AND THE INCOM E- TAX AUTHORITIES MAY MAKE A GENERAL 'ORDER THAT IN THE C ASE OF SUCH TYPE OF ASSESSEES A PARTICULAR PROPORTION OF THE S UM HAS TO BE CONSIDERED AS INCOME CHARGEABLE TO TAX AND TAX CAN BE DEDUCTED ACCORDINGLY. IT SEEMS THAT THE CENTRAL BOARD OF DIR ECT TAXES HAS ALREADY ISSUED A CIRCULAR IN RESPECT OF ADVERTISEME NT INCOME EARNED BY NON-RESIDENT TV CHANNELS, ETC., WHERE A PROPORTION OF INCOME HAS BEEN FIXED TO BE CONSIDERED AS INCOME. BUT THERE CAN BE SITUATIONS WHICH CAN BE GENERALIZED AND THE PROPORT ION OF THE SUM CAN BE DETERMINED ON A GENERAL BASIS. IN ALL OTHER SITUATIONS, WHERE 'APPROPRIATE PROPORTION IS REQUIRED TO BE DE TERMINED, THE ASSESSEE HAS TO GO BEFORE THE TAXING AUTHORITIES AND GET SUCH 'APPROPRIATE PROPORTION' OF THE SAME ON WHICH TAX I S TO BE DEDUCTED, DETERMINED AND ACCORDINGLY DEDUCT TAX. TH EREFORE, WHEREVER A GENERAL SITUATION EXISTS A GENERAL ORDER IS PASSED BY THE DEPARTMENT IN THE FORM OF CIRCULAR ETC. NO SUCH CIRCULAR HAS BEEN ISSUED BY THE CBDT, WHICH MEANS SUCH PARTIES M UST APPLY UNDER SECTION 195(2) FOR SPECIAL ORDER SO AS TO GET THE 'APPROPRIATE PROPORTION' DETERMINED. ALSO THE WORD 'APPROPRIATE PROPORTION' IS SIGNIFICANT. IF THE PAYER OF SUCH SU M WAS TO DECIDE THE PROPORTION OF AMOUNT WHICH WAS CHARGEABLE, THEN THERE WAS NO NEED TO USE THE WORDS 'APPROPRIATE PROPORTION'. THE USE OF THESE WORDS CLEARLY SUGGESTS THAT SOMEBODY NEEDS TO DETERMINE SUCH APPROPRIATE PROPORTION AFTER CONSIDERING ALL T HE FACTS AND CIRCUMSTANCES OF THE CASE. NATURALLY THIS SOMEBODY CANNOT BE THE ASSESSEE HIM-REQUIRED SELF. THEREFORE, ASSESSEE IS TO COME BEFORE THE INCOME- TAX AUTHORITIES IN THE FORM OF A PPLICATION UNDER I.T.A.NOS.484 & 1057/MDS/2014 :- 7 -: SECTION 195(2) AND MAKE A CLAIM THAT ONLY A PARTICU LAR PROPORTION IS CHARGEABLE AND THE APPROPRIATENESS OF THE SAME I S TO BE DECIDED BY THE ASSESSING OFFICER AND ONLY AFTER THA T, SUCH SUM IS TO BE DETERMINED. THIS CLEARLY SHOWS THE REQUIREMEN T OF APPLICATION OF MIND BY THE TAXING AUTHORITIES AND, THEREFORE, THIS SUM CANNOT BE DECIDED BY THE PAYER OF SUCH SUM, WHA TEVER MAY BE THE CIRCUMSTANCES. IF SUCH APPROPRIATE PROPORTIO N WAS TO BE DECIDED BY THE PAYER OR THE ASSESSEE, THEN SECTION 195(2) WILL BECOME REDUNDANT. IT HAS BEEN OBSERVED THAT THE PROVISION OF SECTION 195(1) IS FOR 'TENTATIVE DEDUCTION' WHICH MEANS, THE INITIAL ASSU MPTION SHOULD BE THAT THE TAX HAS TO BE DEDUCTED ON THE WHOLE OF THE AMOUNT BECAUSE SAME IS SUBJECT TO REGULAR ASSESSMENT AND I T WAS SPECIFICALLY POINTED OUT THAT THE RIGHTS OF THE PAR TIES WERE NOT IN ANY MANNER ADVERSELY AFFECTED, BECAUSE WHEREVER THE ASSESSEE HAD ANY DOUBT THAT TAX IS TO BE DEDUCTED ON THE LOW ER PROPORTION, THEN SUCH ASSESSEE HAD THE OPTION TO MAKE AN APPLIC ATION UNDER SECTION 195(2). EVEN THE RECIPIENT OF SUCH PAYMENT CAN MAKE AN APPLICATION TO THE ASSESSING OFFICER THAT HE MAY BE ALLOWED TO RECEIVE THE PAYMENT WITHOUT ANY DEDUCTION OF TAX. W E WOULD AGAIN REITERATE THAT THOUGH SUB-SECTION (2) OF SECT ION 195 IS OF BENEFICIAL NATURE DEFINITELY AND IS AN OPTIONAL ONE , BUT IT DOES NOT MEAN THAT IF THE ASSESSEE CHOOSES NOT TO TAKE THE B ENEFIT, THEN HE SHOULD BE ALLOWED TO GET AWAY WITHOUT DEDUCTION OF TAX AT SOURCE, BECAUSE THE ASSESSEE HAS SOME OTHER LOGIC. HOW INCOME HAS TO BE COMPUTED OR TAX IS TO BE DEDUCTED ETC., T HESE THINGS HAVE BEEN CLEARLY LAID DOWN IN CHAPTER IV AND CHAPT ER XVII-B AND IT IS THE PREROGATIVE OF THE TAX AUTHORITIES TO DETERMINE THESE THINGS AS PER THE PROVISIONS OF THE ACT AND NOT THE PREROGATIVE OF THE ASSESSEE, EXCEPT IN CASE OF TAX TO BE DEDUCTED UNDER SECTION 192 IN CASE OF SALARIES, WHERE THE AVERAGE RATE OF TAX HAS TO BE DEDUCTED DEPENDING UPON THE INCOME OF THE ASSESSEE, OTHERWISE TAX HAS TO BE DEDUCTED ON THE RATES SPECIFIED. WE H AVE ALREADY CLARIFIED IN THE INITIAL PORTION OF THE ORDER THAT THE PROVISIONS REGARDING COMPUTATION OF INCOME AND TAX CANNOT BE M IXED UP AND CONFUSED WITH THE PROVISIONS REGARDING DEDUCTION OF TAX AT SOURCE. WE FAIL TO UNDERSTAND, WHAT PREVENTED THE ASSESSEE FROM MAKING AN APPLICATION UNDER SECTION 195(2) AND CLAIM THE S O-CALLED BENEFITS UNDER SECTION 44BB. WE ARE AT A LOSS TO UN DERSTAND HOW THE ASSESSEE SITTING IN HIS OWN OFFICE CAN TAKE SUC H A DECISION THAT WHATEVER PAYMENTS IT WAS MAKING TO THE NON-RES IDENTS ULTIMATELY WOULD BE COVERED UNDER SECTION 44BB, EVE N WHEN SUCH NON-RESIDENT HAD NEVER FILED ANY RETURN. WE THINK, BY ADOPTING THIS COURSE OF ACTION, THE ASSESSEE TRIED TO DECIDE EVERYTHING ON HIS OWN IGNORING ALL STATUTORY PROVISIONS. I.T.A.NOS.484 & 1057/MDS/2014 :- 8 -: BEING SO, THIS ISSUE IS SQUARELY COVERED BY THE ABO VE ORDER. TAKING A CONSISTENT VIEW, WE ARE INCLINED TO HOLD THAT THE ASSESSEE IS LIABLE TO DEDUCT TDS FOR PAYMENT MADE TO FOREIGN SERVICE PROV IDER. HOWEVER, IF THERE IS SHORT DEDUCTION OF TDS THEN THE PAYMENT CA NNOT BE DISALLOWED AS SHORT DEDUCTION IS DIFFERENT FROM NO DEDUCTION O F TDS. ACCORDINGLY, THE ASSESSING OFFICER IS DIRECTED TO SEGREGATE THE SHORT DEDUCTION AND NO DEDUCTION OF TDS ON THE PAYMENTS MADE TO FOREIG N PROVIDER AND HE HAS DISALLOWED ONLY PAYMENT WHERE THERE IS NO DEDUCTION OF TDS. ACCORDINGLY, THIS GROUND IS PARTLY ALLOWED. 7. THE NEXT GROUND IS WITH REGARD TO DISALLOWANCE OF D.1,46,48,969/- MADE U/S.40(A)(IA) OF THE ACT. THI S ISSUE IS SQUARELY COVERED BY THE ORDER OF THE SPECIAL BENCH OF THE TR IBUNAL (VIZAG) IN THE CASE OF MERILYN SHIPPING AND TRANSPORTS VS. ACIT (2012) 136 ITD 23 (VISAKHAPATNAM) WHEREIN IT WAS HELD THAT THE PROVISIONS OF SECTION 40(A)(IA) ARE APPLICABLE ONLY TO THE EXPENSES THAT ARE PAYABLE AND OUTSTANDING AT THE END OF THE CLOSE OF THE FINANCI AL YEAR RELEVANT TO THE ASSESSMENT YEAR AND NOT TO THE AMOUNT ALREADY P AID. THE SAME VIEW WAS TAKEN BY THE HIGH COURT OF ALLAHABAD IN THE CASE OF CIT VS. M/S. VECTOR SHIPPING SERVICES (P) LTD IN ITA NO.122 OF 2013 DATED 09.7.2013 BY HOLDING THAT SEC 40(A)(IA) IS NOT APPLICABLE WHEN THERE IS I.T.A.NOS.484 & 1057/MDS/2014 :- 9 -: NO OUTSTANDING BALANCE AT THE END OF THE CLOSE OF T HE YEAR RELEVANT TO THE ASSESSMENT YEAR AND SLP FILED BY THE REVENUE IN SUPREME COURT OF INDIA IN CC NO.8068/2014 DATED 02.07.2014 IS ALSO DISMISSED. BEING SO, IN OUR OPINION AN AMOUNT OUTSTANDING AT THE END OF THE CLOSE OF THE ASSESSMENT YEAR IS NOT TO BE ALLOWED AS BUSINESS EX PENDITURE IN VIEW OF PROVISIONS OF SECTION 40(A)(IA) OF THE ACT . FURTHER, WE MAKE IT CLEAR THAT THE ASSESSING OFFICER SHOULD CONSIDER ONLY PAY MENT WHICH ARE NOT SUBJECT TO TDS FOR DISALLOWANCE AND NOT SHORT DEDUC TION OF TDS. IN VIEW OF THE ABOVE ORDER OF THE SPECIAL BENCH, WE A RE NOT INCLINED TO FOLLOW THE ORDER OF THE MUMBAI BENCH IN THE CASE OF M/S. PRATIBHUTI VINIYOG LTD IN ITA NO.1689/MUM/2011 DATED 23.08.201 4 RELIED BY DEPARTMENTAL REPRESENTATIVE. WITH THESE OBSERVATIO NS, THIS GROUND IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. THIS APPEA L IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 8. NOW, WE TAKE UP ITA NO.1057/MDS/2014 FOR THE ASSESS MENT YEAR 2009-2010. IN THIS APPEAL, THE FIRST GROUND IS WITH REGARD TO DISALLOWANCE U/S.40(A)(I) OF THE ACT. THE FACTS OF THE CASE ARE THAT DURING THE YEAR UNDER CONSIDERATION, THE ASSESSEE COMPANY HAD PAID MANAGEMENT FEES TO ITS GROUP COMPANIES INTERCALL INC, INTERCAL L SINGAPORE PVT. LTD. I.T.A.NOS.484 & 1057/MDS/2014 :- 10 -: AND INTERCALL AUSTRALIA PVT. LTD. THE ASSESSEE CLA IMS THAT SUCH SERVICES ERE NOT TAXABLE UNDER THE RELEVANT TAX TRE ATY AS THE SAME HAD NOT SATISFIED THE MAKE AVAILABLE TEST. AS PER TH E RELEVANT TAX TREATED, THE SERVICES AVAILED FROM SERVICE PROVIDER WOULD CO NSTITUTE FEES FOR TECHNICAL SERVICES ONLY IF SUCH SERVICES PASS THE MAKE AVAILABLE TEST. TECHNICAL KNOWLEDGE EXPERIENCE, SKILL ETC SHO ULD BE CONSIDERED TO HAVE BEEN MAKE AVAILABLE' WHEN THE PERSON ACQUIRING THE SERVICE IS ENABLED TO APPLY THE SAME KNOWLEDGE, TECHNOLOGY, ETC. INDEPENDENTLY. THE SERVICE RECIPIENT SHOULD BE ABLE T O MAKE USE OF THE KNOWLEDGE, BY ITSELF IN ITS BUSINESS FOR ITS BENEFIT AND WITHOUT THE RECOURSE TO THE SERVICE PROVIDER IN FUTUR E. IN OTHER WORD THE RECIPIENT OF THE SERVICES CAN INDEPENDENTLY PROVIDE IT TO OTHERS. THE ASSESSEE CLAIMS TO BE ONLY UTILISING THE SERVICES OF THE SERVICE PROVIDER AND NOT IN A POSITION TO PROVID E SIMILAR SERVICE TO THIRD PARTIES INDEPENDENTLY. THE ASSESSE E IS NOT LEARNING OR GAINING KNOWLEDGE, SKILL SET WHILE RECEI VING THE SAID SERVICES. THUS, THE 'MADE AVAILABLE' TEST OF THE TA X TREATY HAS NOT BEEN SATISFIED AS THE ASSESSEE IS NOT ENABLED TO IN DEPENDENTLY PERFORM SUCH SERVICES. THE ASSESSING OFFICER HAD GIV ING FOLLOWING REASONS FOR THE DISALLOWANCE. I.T.A.NOS.484 & 1057/MDS/2014 :- 11 -: 7.1 THE MANAGEMENT SERVICES ARE PROVIDED BY THE ASSOCIATED ENTERPRISES FOR THE BUSINESS ACTIVITY OF THE ASSESSEE. AS PER SECTION 9, WHICH IS A DEEMING PR OVISION, TO DETERMINE AN INCOME THAT HAS ACCRUED OR ARISEN I N INDIA. AS PER SECTION 9(1)(VII) WHICH BRINGS IN DEEMED INC OME BY WAY OF FEES FOR TECHNICAL SERVICES WHEREIN, THE SUM IS PAID BY A RESIDENT EXCEPT TO A PERSON OUTSIDE INDIA FOR THE PURPOSE OF MAKING OR EARNING ANY INCOME FROM ANY SO URCE OUTSIDE INDIA. IN THE PRESENT CASE, THE PAYMENT IS MADE BY A RESIDENT FOR THE PURPOSE OF SERVICES UTILIZED IN TH E BUSINESS OR PROFESSION CARRIED ON BY A PERSON IN INDIA AND F OR EARNING AN INCOME FROM SUCH SOURCE IN INDIA. FURTHER, AS P ER EXPLANATION(2) TO SECTION 9(1)(VII) FEE FOR TECHNIC AL SERVICES MEANS ANY CONSIDERATION FOR RENDERING OF ANY MANAGE RIAL, TECHNICAL OR CONSULTANCY SERVICES INCLUDING THE PRO VISION OF SERVICES OR TECHNICAL OF OTHER PERSONAL. THEREFORE , THE MANAGEMENT FEES PAID BY THE ASSESSEE TO THE NON RES IDENT FALLS WITHIN THE DEFINITION OF FEE FOR TECHNICAL SE RVICES AS PROVIDED IN EXPLANATION 2 TO SECTION 9(1)(VII). SI NCE THE AMOUNT RECEIVED BY THE NON RESIDENTS AS A DEEMED IN COME AS PER SECTION 9 R.WS. 5. SECTION 195 IS APPLICABLE IN THIS CASE. THEREFORE, THERE IS A FAILURE ON THE PART OF THE AS SESSEE TO DEDUCT TAX AND HENCE, EXPENDITURE CLAIMED BY THE AS SESSEE WARRANTS DISALLOWANCE U/S.40(A)(I) OF THE ACT. THE SUBMISSION OF THE ASSESSEE THAT THE RELEVANT TAX TR EATY BETWEEN THE COUNTRIES PROVIDES THAT FEE FOR TECHNIC AL SERVICES WOULD CONSTITUTE ONLY IF IT FAILS WITHIN T HE MAKE- AVAILABLE TEST IS NOT ACCEPTABLE. SECTION 90 PROVI DES FOR RELIEF TO AN ASSESSEE AS PER THE DTAA ENTERED INTO BY INDIA WITH OTHER COUNTRIES. AS PER THE PROVISIONS OF THE INCOME TAX ACT, IF AN INCOME IS TAXABLE IN INDIA AS WELL A S IN THE TAXES PAID IN OTHER COUNTRY, THEN TO THAT EXTENT TH E RELIEF IS, GIVEN TO THE ASSESSEE AND THE PAYMENT IS TAXED ACCO RDINGLY. IN THE PRESENT CASE, IT WAS CLEAR THAT THE MANAGEME NT FEE PAID BY THE ASSESSEE FALL WITHIN THE DEFINITION OF FEE FOR TECHNICAL SERVICES AS PROVIDED IN SECTION 9(1)(VII) . HENCE, THE INCOME ACCRUED TO A NON-RESIDENT ON MANAGEMENT FEE RECEIVED IS AN INCOME IN INDIA. THE MAKE AVAILABLE TEST NEED NOT BE APPLIED IN THIS CASE SINCE ANY MANAGERI AL SERVICES RENDERED BY THE NON-RESIDENT WILL FALL WIT HIN THE DEFINITION OF FEE FOR TECHNICAL SERVICES. THER EFORE, THE CLAIM OF THE ASSESSEE WAS NOT ACCEPTED . 9. THE DISPUTE RESOLUTION PANEL (DRP) OBSERVED THAT IT WAS APPARENT THAT THE SERVICES IN QUESTION ARE MANAGERI AL SERVICES. THE I.T.A.NOS.484 & 1057/MDS/2014 :- 12 -: MAKE AVAILABLE CLAUSE SHOULD APPLY DIFFERENTLY IN T HE CASE OF MANAGERIAL SERVICES THAN THE WAY IT WAS APPLIED TO PURELY TECHNICAL SERVICES. MANAGERIAL CONSULTANCY IS BASICALLY AIME D AT INCREASING THE PRODUCTIVITY OF THE BUSINESS BY IMPROVING SKILL SET OR EFFICIENCY OF THE EMPLOYEES OR BY IMPROVING THE SYSTEMS ETC., THUS, THE RECIPIENT OF THE SERVICES IS MADE AVAILABLE THE KNOWLEDGE AND SK ILLS OF THE MANAGERS. IT WAS OBSERVED BY DRP THAT NO MATERIAL W AS PLACED BEFORE DRP TO INTERFERE WITH THE ASSESSING OFFICERS FINDIN GS. IN THE LIMITED TIME ALLOWED TO THE DRP, THE PANEL CANNOT LAUNCH IT S OWN INVESTIGATION OF FACTS. HENCE, THE ASSESSING OFFICER IS DIRECTED TO EXAMINE THE ISSUE WITH REFERENCE TO THE RELEVANT DOUBLE TAXATION AVOI DANCE AGREEMENT (DTAA) AND THEN MAKE THE DISALLOWANCE IF REQUIRED A ND ACCORDINGLY THE DRP NOT GIVEN ANY FINDINGS FOR THE ASSESSMENT Y EAR 2009-10. THUS, THE ASSESSEE IS IN APPEAL BEFORE US. 10. IN OUR OPINION, THE DRP HAS NOT GIVEN ANY FINDINGS AND ONLY GIVEN DIRECTION TO THE ASSESSING OFFICER TO EXAMINE THE ENTIRE ISSUE AFRESH IN THE LIGHT OF DTAA AND TO DECIDE THEREUPON . BEING SO, AT THIS STAGE WE ARE NOT IN A POSITION TO EXPRESS ANY OPIN ION ON THE FINDINGS OF THE DRP. THIS ISSUE IS REQUIRED TO BE PROPERLY E XAMINED BY THE I.T.A.NOS.484 & 1057/MDS/2014 :- 13 -: ASSESSING OFFICER WITH REFERENCE TO THE RELEVANT DT AA. ACCORDINGLY THE FINDINGS OF THE DRP IS CONFIRMED. 11. THE ASSESSEE HAS ALSO RAISED ANOTHER GROUND WITH R EGARD TO LEVY OF INTEREST U/S.234B AND 234D OF THE ACT. SINC E, THE INTEREST IS CONSEQUENTIAL AND MANDATORY IN NATURE, THE SAME TO BE CONSIDERED BY ASSESSING OFFICER WHILE PASSING CONSEQUENTIAL OR DER. WITH THESE OBSERVATIONS, THE APPEAL OF THE ASSESSEE IS DISMISS ED. 12. IN THE RESULT, THE APPEALS OF THE ASSESSEE IN ITA NO.484/MDS/2014 IS PARTLY ALLOWED FOR STATISTICAL P URPOSES AND ITA NO.1057/MDS/2014 IS DISMISSED. ORDER PRONOUNCED ON FRIDAY, THE 17TH DAY OF JULY, 2015, AT CHENNAI. SD/- SD/- ( . ! ) V. DURGA RAO ' / JUDICIAL MEMBER ( ) (CHANDRA POOJARI) / ACCOUNTANT MEMBER '# /CHENNAI. $% /DATED:17.07.2015. KV %& '( )( /COPY TO: 1. * APPELLANT 2. / RESPONDENT 3. + ( )/CIT(A) 4. + /CIT 5. (,- . /DR 6. -/ 0 /GF. I.T.A.NOS.484 & 1057/MDS/2014 :- 14 -: