ACIT, New Delhi V. M/s. Minda Corporation Ltd., Delhi

ITA 5053/DEL/2013

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8537 (ITAT-DELHI)
• Duration Of Justice: 5 year(s) 10 month(s) 9 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-07-2019
• Appeal Filed By: Department
• Order Result: Dismissed
• Bench Allotted: E
• Next Hearing Date: 24-05-2017
• Assessment Year: 2009-2010
• Appeal Filed On: 02-09-2013
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Depreciation; Double taxation relief; Earning of tax free income; Services rendered outside India; Deemed to accrue or arise in india; Permanent establishment; TDS
• Section: 14A; 40(a)(ia); 195

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHES E , NEW DELHI BEFORE SH. BHAVNESH SAINI , JUDICIAL MEMBER DR. B. R. R. KUMAR , ACCOUNTANT MEMBER ITA NO. 5053/DEL/2013 : ASSTT. YEAR : 2009 - 1 0 DEPU TY COMMISSIONER OF INCOME TAX, CENTRAL CIRCLE - 03, NEW DELHI - 110055 VS M/S MINDA CORPORATION LTD., 36A, RAJASTHAN UDOG NAGAR, DELHI - 110033 (APPELLANT) (RESPONDENT) PAN NO. AA ACM0344C ASSESSEE BY : SH. SOMIL AGGARWAL , ADV. REVENUE BY : MS. RINKU SINGH , SR. DR DATE OF HEAR ING: 10 . 07 .201 9 DATE OF PRONOUNCEMENT: 11 .07 .201 9 ORDER PER DR. B. R. R. KUMAR , A CCOUNTANT M EMBER : THE PRESENT APPEAL HAS BEEN FILED BY THE REVENUE AGAINST THE ORDER OF THE LD. CIT(A) - IX , NEW DELHI DATED 10.06.2013 . 2. THE ASSESSEE H AS RAISED THE FOLLOWING GROUNDS : 1. THAT THE COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN LAW AND ON FACTS OF THE CASE IN DELETING THE ADDITION OF RS.39,42,659/ - MADE BY THE ASSESSING OFFI CER ON ACCOUNT OF DISALLOWANCE OF COMMISSION PAID TO MINDA EUROPE B.V. NETHERLANDS. 2. THAT THE COMMISSIONER OF INCOME TAX (APPEAL) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS. 18,29,678/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWA NCE OF WARRANTY PROVISION. 3. THAT THE COMMISSIONER OF INCOME TAX(APPEALS) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.8,50,720/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE U/S 14A. 4. THAT THE COMMISSIONER OF INCOME TAX (APPEA LS) ERRED IN LAW AND ON FACTS IN DELETING THE ADDITION OF RS.54,212/ - MADE BY THE ASSESSING OFFICER ON ACCOUNT OF DISALLOWANCE OF DEPRECIATION ON PRINTER. ITA NO . 5053 /DEL /2013 MINDA CORPORATION LTD. 2 3. GROUND NO. 1 PERTAINS TO COMMISSION PAID OF RS.39,42,659/ - TO MINDA EUROPE B.V. NETHERLANDS FOR PROCURING SALES ABROAD @ 3%. ON PERUSAL OF THE AGREEMENT WHICH REVEALS THAT A) MINDA EUROPE B. V. NETHERLANDS IS A SUBSIDIARY COMPANY TO MINDA CORPORATION LIMITED. B) IT IS ENGAGED IN THE BUSINESS OF RELATIONSHIP MANAGEMENT PARTICULARLY NEW CUSTOMER DEVE LOPMENT, NEW BUSINESS WITH THE EXISTING CUSTOMER, GET TING REQUEST FOR QUERIES (RFQ), P RICE NEGOTIATION, GETTING APPROVAL FROM CUSTOMERS AND SETTLING ISSUES WITH CUSTOMERS IN EUROPEAN MARKET EXCLUSIVELY. IT TAKES CARE OF EUROPEAN MARKET PLANS, MARKETING PRO GRAMS, QUALITY AND CUSTOMER SATISFACTION SURVEYS, GUIDELINES OF EUROPEAN MARKETING AND BRANDING POLICIES ETC. C) THE ASSESSEE HAS CITED CERTAIN CASE LAWS AND CBDT CIRCULAR STATING THAT - 'AS MINDA EUROPE B.V. NETHERLANDS IS WORKING AS AN AGENT OF THE ASSES SEE COMPANY IN THE EUROPEAN MARKET, HENCE TDS IS NOT APPLICABLE AND THE CLAIM OF THE ASSESSEE IS JUSTIFIED.' THE ASSESSING OFFICER HAS DRAWN INFERENCES DETAILED BELOW WHILE MAKING THE ADDITION. 4. BASED ON THE AGREEMENT, THE AO HAS MADE ADDITION TAKING CU E ON THE FOLLOWING: 1. A PERUSAL OF THE SERVICES LISTED ABOVE, BEING PROVIDED BY MINDA EUROPE B. V. NETHERLANDS CLEARLY SHOWS THAT THESE ARE IN THE NATURE OF TECHNICAL, MANAGERIAL & CONSULTANCY SERVICES AS PER THE PROVISIONS OF SECTION 9(1)(VII)(B) EXPLA NATION - 2 OF THE I.T. ACT.. THE SERVICES RENDERED BY THE COMPANY ARE NOT MERELY PROCURING SALES FOR THE ASSESSEE RATHER THEY ARE IN NATURE OF TECHNICAL, MANAGERIAL AND CONSULTANCY SERVICES. 2. THE EXPENDITURE IS LIABLE TO BE DISALLOWED AS PER THE PROVISION S OF SECTION 40(A)(I) OF THE I.T. ACT, 1961, AS THIS AMOUNT IS COVERED UNDER THE PROVISIONS OF SECTION 195(1) R.W.S. 9(1)(VII)(B) EXPLANATION - 2 OF THE I.T. ACT. AS NO TDS HAS BEEN DEDUCTED ON THIS AMOUNT, IT IS NOT TO BE DEDUCTED IN COMPUTING/THE INCOME C HARGEABLE UNDER THE HEAD 'PROFIT AND GAINS OF THE BUSINESS AND PROFESSION'. [SECTION 40(A)(I)] ITA NO . 5053 /DEL /2013 MINDA CORPORATION LTD. 3 3. RELIANCE IS ALSO PLACED ON THE FOLLOWING CASE LAWS: 3.1 IN THE DECISION OF CONTINENTAL CONSTRUCTION LTD VS. CIT 1992 195 ITR 81 (SC), IT HAS BEEN BROUGHT OU T THAT - THE EXPRESSION 'TECHNICAL SERVICES' HAS A VERY BROAD CONNOTATION AND IT HAS BEEN USED ELSEWHERE IN THE STATUE ALSO SO WIDELY AS TO COMPREHEND 'PROFESSIONAL SERVICES . 3.2 FROM THE COMBINED READING OF CLAUSE (VII)(B) OF THE SECTION 9(1) AND EXPLANA TION 2 IT BECOMES CLEAR THAT ANY CONSIDERATION, WHETHER LUMP SUM OR OTHERWISE, PAID BY A PERSON, WHO IS A RESIDENT IN INDIA, TO A NON RESIDENT FOR RUNNING ANY MANAGERIAL OR TECHNICAL OR CONSULTANCY SERVICE, WOULD BE INCOME BY WAY OF FEES FOR TECHNICAL SERV ICES AND WOULD THEREFORE, BE WITHIN IN THE AMBIT OF 'INCOME DEEMED TO ACCRUE OR ARISE IN INDIA' - G.V.K. INDUSTRIES LTD V ITO [1997] 228 ITR 564 (AP). 5 . AGGRIEVED THE ASSESSEE WENT BEFORE THE LD. COMMISSIONER OF INCOME TAX (APPEALS) WHO HAS DELETED THE ADDITION ON THE GROUNDS THAT THE ASSESSING OFFICER HAS NOT DETERMINED WHETHER SUCH PAYMENT IS SUBJECTED TO TAX AND SUBSEQUENTLY WHETHER THE TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVIIB. THE LD. CIT(A) HELD THAT IN VIEW OF THE BOARD CIRCULAR, THE ASSESSE E WAS UNDER NO COMPULSION TO DEDUCT TAX AS THE COMMISSION EARNED BY THE NON - RESIDENT FOR ACTING AS THE SELLING AGENT FOR THE INDIAN EXPORTER, AND THE NON - RESIDENT WAS RENDERING SERVICES FROM OUTSIDE INDIA AND DOES NOT ACCRUE IN INDIA. IT WAS HELD THAT SINC E THE ASSESSEE IS NOT TAXABLE IN INDIA, THE PROVISIONS RELATING TO TDS ARE NOT APPLICABLE. 6. BEFORE US, THE LD. AUTHORIZED REPRESENTATIVE RELIED ON THE ASSESSMENT ORDER WHEREAS THE LD. DEPARTMENTAL REPRESENTATIVE ON THE ORDER OF THE LD. CIT(A). 7. WE FI ND THAT THIS MATTER HAS ALREADY BEEN ADJUDICATED BY THE CO - ORDINATE BENCH OF ITAT DELHI IN FAVOUR OF THE ASSESSEE FOR THE ASSESSMENT YEARS 2007 - 08 AND 2008 - 09. FOR THE SAKE OF READY REFERENCE, THE RELEVANT PART OF THE ITAT ORDER IS REPRODUCED AS UNDER: ITA NO . 5053 /DEL /2013 MINDA CORPORATION LTD. 4 3. INASMUCH AS THE LD. CIT(A) CONFIRMED THESE TWO ADDITIONS IN APPEAL, ASSESSEE IS BEFORE US IN THIS SECOND APPEAL CHALLENGING THE CONFIRMATION ON THE GROUND THAT THE LD. CIT(A) ERRED IN UPHOLDING THE DISALLOWANCE OF COMMISSION BY INVOKING THE PROVISIONS UN DER SECTION 40(A)(I) OF THE ACT AND ACCORDING TO THE ASSESSEE THE COMMISSION PAID BY THE ASSESSEE WAS NOT IN THE NATURE OF FEE FOR TECHNICAL SERVICES (FTS) LIABLE TO TAX IN INDIA UNDER SECTION 9(1)(VII)(B) OF THE ACT FOR NON - SATISFACTION OF THE MAKE AVA ILABLE CLAUSE. IT IS FURTHER CONTENDED THAT THE AUTHORITIES BELOW FAILED TO APPRECIATE THE FACT THAT THIS AMOUNT OF RS.78, 207/ - WAS AN ALLOWABLE DEDUCTION UNDER SECTION 36(1)(VII) OF THE ACT READ WITH SECTION 36 (2) OF THE ACT. 4. LD. AR, HOWEVER, AT THE TIME OF ARGUMENTS NOT PRESSED GROUND NO. 2 AND PROCEEDED TO ARGUE GROUND NO. 1 ON THE ABOVE LINES. WHAT, THEREFORE, EFFECTIVELY FALLS FOR OUR CONSIDERATION IN THIS APPEAL IS THE ISSUE RELATING TO THE DISALLOWANCE OF COMMISSION PAID BY THE ASSESSEE TO MIND A EUROPE BV LD. AR SUBMITTED THAT AS PER THE TERMS OF THE AGREEMENT BETWEEN THE ASSESSEE AND THE MINDA EUROPE BV, NETHERLANDS, THE MINDA EUROPE BV WAS RESPONSIBLE FOR CARRYING OUT PRESALE ACTIVITIES AND POST SALE ACTIVITIES ON BEHALF OF THE ASSESSEE AND AP POINTED AS AN AGENT FOR ASSISTING THE ASSESSEE IN IDENTIFYING THE PROSPECTIVE CUSTOMERS AND AFFECTING SALES OUTSIDE INDIA IN THE EUROPEAN MARKET EXCLUSIVELY FOR WHICH THEY ARE ENTITLED TO RECEIVE THE COMMISSION AT 3% ON EXPORT SALES. HE, THEREFORE, SUBMIT S THAT UNDER SECTION 195 OF THE ACT, AN OBLIGATION IS CAST ON A PERSON MAKING PAYMENT TO A NON - RESIDENT OF ANY SUM, WHICH IS CHARGEABLE UNDER THE PROVISIONS OF THE ACT, TO DEDUCT TAX AT THE RATES IN FORCE, AT THE TIME OF PAYMENT OF SUCH SUM OR AT THE TIME OF CREDIT THEREOF TO THE ACCOUNT OF THE PAYEE, WHICHEVER IS EARLIER AND IN VIEW OF THE DECISION OF THE HON BLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE (P) LTD VS. LD. CIT(A) 327 ITR 456 ONLY IF THE INCOME IS CHARGEABLE TO TAX IN INDIA IN T HE HANDS OF THE NON - RESIDENT RECIPIENTS, THEN ONLY THE TAX WOULD BE REQUIRED TO BE DEDUCTED AT SOURCE FOR SUCH PAYMENTS. PLACING RELIANCE ON THE DECISION OF THE HON BLE APEX COURT IN THE CASE OF LD. CIT(A) VS. TOSHOKU LTD., 125 ITR 525 AND OF THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASES OF LD. CIT(A) VS. EON TECHNOLOGY PRIVATE LIMITED 343 ITR 366 (DEL), DIT VS. PANALFA AUTOLECTRIK LTD 227 TAXMAN 371 (DEL) AND CIT VS. ANGELIQUE INTERNATIONAL LTD., 359 ITR 9 (DEL) AND ARTICLE 12(5)(B) OF THE DTAA BE TWEEN INDIA AND NETHERLANDS, HE SUBMITTED THAT THE COMMISSION PAID TO THE FOREIGN ENTITY DOES NOT CONSTITUTE THE FEE FOR TECHNICAL SERVICES (FTS) AND IS NOT LIABLE TO BE BROUGHT TO TAX IN INDIA. 6. WE HAVE GONE THROUGH THE RECORD. IT COULD BE SEEN FROM THE ASSESSMENT ORDER THAT ON A PERUSAL OF THE AGREEMENT AND DETAILS SUBMITTED BY THE ASSESSEE, LEARNED ASSESSING OFFICER FOUND THAT THE MINDA EUROPE BV IS A SUBSIDIARY COMPANY OF THE ASSESSEE AND HAS BEEN ENGAGED IN THE BUSINESS OF RELATIONSHIP MANAGEMENT PARTICULARLY TO CUSTOMER DEVELOPMENT, NEW BUSINESS WITH THEIR EXISTING CUSTOMER, GETTING REQUEST FOR QUERIES (RFQ), PRICE NEGOTIATION, GETTING APPROVAL FROM CUSTOMERS AND SETTLING ISSUES WITH CUSTOMERS IN EUROPEAN MARKET EXCLUSIVELY; AND THAT IT TAKES CAR E OF EUROPEAN MARKET PLANS, MARKETING PROGRAMS, QUALITY AND CUSTOMER SATISFACTION SURVEYS, GUIDELINES OF EUROPEAN MARKETING AND BRANDING POLICIES ETC. 7. ACCORDING TO THE ASSESSEE MINDA EUROPE BV IS WORKING AS AN AGENT OF THE ASSESSEE COMPANY IN THE EUROP EAN MARKET, AND THEREFORE TDS IS NOT APPLICABLE AND THE CLAIM OF THE ASSESSEE IS JUSTIFIED. LEARNED AO RECORDED THAT THE ABOVE SERVICES ARE IN THE NATURE OF TECHNICAL, MANAGERIAL AND CONSULTANCY SERVICES AS PER THE PROVISIONS OF SECTION 9(1)(VII) (B) OF TH E ACT EXPLANATION - 2 OF THE ACT AND ARE NOT MERELY PROCURING SALES FOR THE ASSESSEE, RATHER THEY ARE IN THE NATURE OF TECHNICAL, MANAGERIAL AND CONSULTANCY SERVICES. ON THIS PREMISE LEARNED ITA NO . 5053 /DEL /2013 MINDA CORPORATION LTD. 5 AO HELD THAT THE EXPENDITURE HAS TO BE DISALLOWED AS PER THE PROVIS IONS OF SECTION 40(A)(I) OF THE ACT AS THIS AMOUNT IS COVERED UNDER THE PROVISIONS OF SECTION 195 (1) READ WITH SECTION 9(1)(VII)(B) OF THE ACT EXPLANATION 2. 8. LEARNED COUNCIL PLACED RELIANCE ON THE DECISION OF THE HON BLE APEX COURT IN THE CASE OF CIT VS. TOSHOKU LTD 125 ITR 525 IN SUPPORT OF THEIR CONTENTION THAT THE COMMISSION EARNED BY A NON - RESIDENT AGENT OUTSIDE INDIA CANNOT BE SAID TO BE THE INCOME ACCRUING OR ARISING OR DEEMED TO ACCRUE OR ARISE IN INDIA IN TERMS OF SECTION 9 (1) (I) OF THE ACT. IN THAT CASE, THE ASSESSEE WAS A NON - RESIDENT COMPANY. IT WAS APPOINTED AS AN EXCLUSIVE SALES AGENT IN JAPAN FOR SELLING TOBACCO EXPORTED BY A DEALER IN INDIA FOR WHICH THE NON - RESIDENT COMPANY WAS TO GET A COMMISSION OF 3% ON THE INVOICE AMOUNT. ENTIRE SA LE CONSIDERATION WAS RECEIVED IN INDIA AND SUBSEQUENTLY BY MAKING CREDIT ENTRIES IN THE BOOKS OF ACCOUNT IN INDIA IN RESPECT OF THE COMMISSION PAYABLE TO THE NON - RESIDENT AGENT, THE COMMISSION WAS REMITTED TO THE NON - RESIDENT. THE ISSUE THAT HAD ARISEN FOR CONSIDERATION WAS WHETHER THE COMMISSION RECEIVED BY THE NON - RESIDENT WAS CHARGEABLE TO TAX IN INDIA. HON BLE APEX COURT HELD THAT THE COMMISSION AMOUNTS WERE REMITTED TO THE NON - RESIDENT OUTSIDE INDIA AND MERELY BECAUSE A CREDIT ENTRY WAS MADE TO THEIR A CCOUNT IN THE BOOKS OF THE DEALER IN INDIA, THE SAME COULD NOT BE SAID TO BE RECEIVED OR DEEMED TO BE RECEIVED IN INDIA IN TERMS OF SECTION 5 (2) (A) OF THE ACT, SINCE SERVICES WERE RENDERED BY THE NON - RESIDENT AGENT OUTSIDE INDIA, THE COMMISSION EARNED TH ERE COULD NOT BE SAID TO BE INCOME ACCRUING OR ARISING OR DEEMED TO ACCRUE OR ARISE IN INDIA IN TERMS OF SECTION 9(1)(I) OF THE ACT. 9. THIS DECISION OF THE HON BLE APEX COURT IN THE CASE OF TOSHOKU (SUPRA) WAS FOLLOWED BY THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. EON TECHNOLOGY PRIVATE LIMITED, 343 ITR 366 (DELHI) IN WHICH ALSO SIMILAR FACTS WERE INVOLVED. THE HON BLE JURISDICTIONAL HIGH COURT WHILE REFERRING TO THE CBDT CIRCULAR NOS. 23 AND 786 DATED 23/7/1969 AND 7/2/2000 RESPECTIVEL Y, UPHELD THE ORDERS OF THE LD. CIT(A) AND THE TRIBUNAL DELETED THE EXPENDITURE UNDER SECTION 40(A)(IA) OF THE ACT. 10. IN THE CASE OF DIT V. PANALF AUTOLECTRIK LTD 227 TAXMAN 371 (DEL) ALSO THE HON BLE JURISDICTIONAL HIGH COURT HELD THAT THE COMMISSION P AID FOR ARRANGING EXPORT SALES AND REALISING PAYMENTS TO A NON - RESIDENT COMPANY NOT CONSTITUTE THE PAYMENTS FOR RENDERING MANAGERIAL, CONSULTANCY OR TECHNICAL SERVICES IN TERMS OF SECTION 9(1)(VII) (B) OF THE ACT. THE VERY SAME PROPOSITION HAS BEEN RENDERE D BY THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT VS. ANGELIQUE INTERNATIONAL LTD 379 ITR 9 (DEL). 11. IT IS, THEREFORE, CLEAR FROM THE ABOVE LINE OF JUDICIAL PRONOUNCEMENTS THAT ANY COMMISSION PAID TO THE AGENT OUTSIDE INDIA FOR THE SERVICES RENDERED OUTSIDE INDIA DO NOT CONSTITUTE THE FEE FOR TECHNICAL SERVICES (FTS) WITHIN THE MEANING OF SECTION 9(1)(VII) OF THE ACT. 12. NOW TURNING TO THE MAKE AVAILABLE CLAUSE, THE ISSUE IN THIS MATTER IS COVERED BY THE DTAA BETWEEN INDIA AND NETHERLA NDS. WE HAVE GONE THROUGH THE PROVISIONS OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT OF INDIA WITH NETHERLANDS. ARTICLE 7 (6) THEREOF READS THAT WHERE PROFITS INCLUDE ITEMS OF INCOME WHICH ARE DEALT WITH SEPARATELY IN ARTICLES OF THIS CONVENTION, THEN THE P ROVISIONS OF THOSE ARTICLES SHALL NOT BE AFFECTED BY THE PROVISIONS OF THIS ARTICLE; AND THAT ARTICLE 5 (7) READ THAT THE FACT THAT A COMPANY WHICH IS A RESIDENT OF ONE OF THE STATES CONTROLS OR IS CONTROLLED BY A COMPANY WHICH IS A RESIDENT OF OTHER STATE , OR WHICH CARRIES ON BUSINESS IN THAT OTHER STATE (WHETHER THROUGH A PERMANENT ESTABLISHMENT OR OTHERWISE), SHALL NOT OF ITSELF CONSTITUTE ITA NO . 5053 /DEL /2013 MINDA CORPORATION LTD. 6 EITHER COMPANY A PERMANENT ESTABLISHMENT OR THE OTHER. ARTICLE 12 THEREOF DEALS WITH ROYALTIES AND FEES FOR TECHNICA L SERVICES. ARTICLE 12 (1) SAYS THAT ROYALTIES AND FEES FOR TECHNICAL SERVICES ARISING IN CONTRACTING STATE AND PAID TO A RESIDENT OF THE OTHER CONTRACTING STATE MAY BE TAXED IN THAT OTHER STATE, WHEREAS SUB ARTICLE (5) SAYS THAT FOR THE PURPOSE OF THIS AR TICLE FEE FOR TECHNICAL SERVICES MEANS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THROUGH THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) IF SUCH SERVICES: (A) ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION FOR ENJOYMENT OF THE RIGHTS, PROPERTY, OR INFORMATION FOR WHICH A PAYMENT DESCRIBED IN PARAGRAPH 4 OF THIS ARTICLE IS RECEIVED; OR (B) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL KNOW - HOW OR PROCESSE S, AND CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR A TECHNICAL DESIGN. 13. THE QUESTION OF APPLICABILITY OF ARTICLE 12(5)(B) OF THE DTAA TO A SITUATION LIKE THIS, WHERE MAKE AVAILABLE CLAUSE IS THERE AND HAS BEEN CONSIDERED BY THE HON BLE JURISDICTIONAL HIGH COURT IN THE CASE OF DIT VS. GUY CARPENTER AND COMPANY LIMITED 346 ITR 504 (DELHI) IN THE LIGHT OF ARTICLE 13 (4) (C) OF THE DTAA BETWEEN INDIA AND UNITED KINGDOM WHICH IS IN PARIMATERIA WITH THE ARTICLE 12(5)(B) OF THE DTAA BETWEE N INDIA AND NETHERLANDS, AND THE HON BLE JURISDICTIONAL HIGH COURT HELD THAT, - A PLAIN READING OF ARTICLE 13(4)(C) OF THE DTAA INDICATES THAT 'FEES FOR TECHNICAL SERVICES' WOULD MEAN PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES WHICH, INTER ALIA, 'MAKES AVAILABLE' TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW - HOW OR PROCESSES, OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. ACCORDING TO THE TRIBUNAL THIS 'M AKE AVAILABLE' CONDITION HAS NOT BEEN SATISFIED INASMUCH AS NO TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW - HOW, PROCESSES, HAVE BEEN MADE AVAILABLE BY THE ASSESSEE TO THE INSURANCE COMPANIES OPERATING IN INDIA. IT ALSO DOES NOT CONSIST OF THE DEVELOPMENT AND TRANSFER OF ANY TECHNICAL PLAN OR TECHNICAL DESIGN. 14. MAKE AVAILABLE CLAUSE IN ARTICLE 12(5)(B) OF THE DTAA BETWEEN INDIA AND NETHERLANDS WAS CONSIDERED BY THE HON BLE KARNATAKA HIGH COURT IN THE CASE OF C.I.T. VS. DE BEERS INDIA MINERALS PRIVATE LIMITED 346 ITR 467 (KARNATAKA) AND HON BLE COURT HELD THAT ARTICLE 12(5) OF THE DTAA DEFINES FEES FOR TECHNICAL SERVICES TO MEAN PAYMENTS IN CONSIDERATION FOR THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES WHICH MAKE AVAILABLE TECHNICAL KNOWLE DGE, EXPERIENCE, ETC OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PIAN OR TECHNICAL DESIGN. TO BE SAID TO MAKE AVAILABLE , THE SERVICE SHOULD BE AIMED AT AND RESULT IN TRANSMITTING TECHNICAL KNOWLEDGE ETC SO THAT THE PAYER OF THE SERVICE COUL D DERIVE AN ENDURING BENEFIT AND UTILIZE THE KNOWLEDGE OR KNOW - HOW ON HIS OWN IN FUTURE WITHOUT THE AID OF THE SERVICE PROVIDER. IN OTHER WORDS, TO FIT INTO TERMINOLOGY MAKING AVAILABLE , THE TECHNICAL KNOWLEDGE, SKILLS ETC MUST REMAIN WITH THE PERSON RE CEIVING THE SERVICE EVEN AFTER THE PARTICULAR CONTRACT COMES TO AN END. IT IS NOT ENOUGH THAT THE SERVICES OFFERED ARE THE PRODUCT OF INTENSE TECHNOLOGICAL EFFORT AND A LOT OF TECHNICAL KNOWLEDGE AND EXPERIENCE OF THE SERVICE PROVIDER HAS GONE INTO IT. THE TECHNICAL KNOWLEDGE OR SKILLS OF THE PROVIDER SHOULD BE IMPARTED TO AND ABSORBED BY THE RECEIVER SO THAT THE RECEIVER CAN DEPLOY SIMILAR TECHNOLOGY OR TECHNIQUES IN THE FUTURE WITHOUT DEPENDING UPON THE PROVIDER. ON FACTS, WHILE THE DUTCH COMPANY PERFORME D THE SURVEYS USING SUBSTANTIAL TECHNICAL SKILLS, IT HAS NOT MADE AVAILABLE THE TECHNICAL EXPERTISE IN RESPECT OF SUCH COLLECTION OR PROCESSING OF DATA TO THE ASSESSEES, WHICH THE ASSESSEE CAN APPLY INDEPENDENTLY AND WITHOUT ASSISTANCE AND UNDERTAKE SUCH S URVEY ITA NO . 5053 /DEL /2013 MINDA CORPORATION LTD. 7 INDEPENDENTLY. CONSEQUENTLY, THE CONSIDERATION IS NOT ASSESSABLE AS FEES FOR TECHNICAL SERVICES . 15. WHEN WE APPRECIATE THE FACTS INVOLVED IN THE CASE ON HAND, IT IS CLEAR THAT THE SERVICES RENDERED BY THE FOREIGN AGENT IN THIS MATTER ARE IN THE N ATURE OF PERFORMING THEIR JOB ABROAD. THEY ARE MORE AKIN TO THE SERVICES OF AN AGENT RECEIVING COMMISSION, BUT THERE DOES NOT ARISE ANY QUESTION OF IMPARTING ANY TECHNICAL KNOW - HOW OR KNOWLEDGE OR SKILLS TO THE INDIAN ENTITY. WITH THIS VIEW OF THE MATTER, WE CONCLUDE THAT THE IMPUGNED PAYMENT DOES NOT SATISFY THE TESTS OF, FIRSTLY, FOR THE SERVICES WHICH ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION FOR ENJOYMENT OF ANY RIGHT, PROPERTY OR INFORMATION UNDER ARTICLE 12(5)(A) OF THE DTAA, AND SECONDLY, THE MAKE AVAILABLE CLAUSE WITHIN THE MEANING OF ARTICLE 12(5)(B) OF THE DTAA BETWEEN INDIA AND NETHERLANDS. WE ACCORDINGLY HOLD THAT THE PAYMENT IN QUESTION DOES NOT FALL WITHIN THE SCOPE AND AMBIT OF ARTICLE 12 OF THE DTAA BETWEEN INDIA AND NETHERLANDS. IT FOLLOWS THAT INASMUCH AS THERE IS NO PERMANENT ESTABLISHMENT FOR THE SERVICES RENDERED IN INDIA, THE RECEIPTS ARE NOT TAXABLE UNDER ARTICLE 7 ALSO. ISSUE IS ANSWERED ACCORDINGLY IN FAVOUR THE ASSESSEE AND THE LEARNED ASSESSING OFFICER IS DIRECTED TO DELETE THE ADDITION OF RS.27, 28, 045/ - MADE ON ACCOUNT OF THE DISALLOWANCE OF COMMISSION PAID BY THE ASSESSEE TO MINDA EUROPE BV. 8. SINCE, THE MATTER STANDS ADJUDICATED FOR EARLIER YEARS AND IN THE ABSENCE OF ANY MATERIAL CHANGE S IN THE FACTS OF THE CASE, WE HEREBY DECLINE TO INTERFERE WITH THE ORDER OF THE LD. CIT(A). 9. THE SECOND ADDITION PERTAINS TO WARRANTY CHARGES OF RS.18,29,678/ - WHICH WAS ADJUDICATED BY THE CO - ORDINATE BENCH OF ITAT IN ASSESSEE S O WN CASE FOR THE ASSESSMENT YEAR 2001 - 02 IN ITA NO. 35 60/DEL/2004 DATED 28.07.2006 . SIMILARLY, FOR THE ASSESSMENT YEAR 2005 - 06 IN ASSESSEE S OWN CASE IN ITA NO. 4705/DEL/2009, THE ADDITION MADE BY THE ASSESSEE IS DELETED. 10. WE FIND THAT THE HON BLE SUPREME COURT HAS SETTLED THE CONTROVERSY OF THE CLAIM OF WARRANT EXPENSES WHILE DELIVERING JUDGMENT IN THE CASE OF ROTORK CONTROL INDIA PVT. LTD. VS CIT (2009) 314 ITR 62 (SC). THE HON BLE COURT HAS HELD AS UNDER: FOR DETERMINING AN APPROPRIATE HISTORICAL TREND, IT IS IMPORTANT THAT THE COMPANY HAS A PROPER ACC OUNTING SYSTEM FOR CAPTURING RELATIONSHIP BETWEEN THE NATURE OF THE SALES, THE WARRANTY PROVISIONS MADE AND THE ACTUAL EXPENSES INCURRED AGAINST IT SUBSEQUENTLY. THUS, THE DECISION ON THE WARRANTY PROVISION SHOULD BE BASED ON PAST EXPERIENCE OF THE COMPANY . A DETAILED ASSESSMENT OF THE WARRANTY PROVISIONING POLICY IS REQUIRED, PARTICULARLY IF THE EXPERIENCE SUGGESTS THAT WARRANTY PROVISIONS ARE GENERALLY REVERSED IF THEY REMAIN UNUTILIZED AT THE END OF THE PERIOD PRESCRIBED IN THE WARRANTY. THEREFORE, THE C OMPANY SHOULD ITA NO . 5053 /DEL /2013 MINDA CORPORATION LTD. 8 SCRUTINIZE THE HISTORICAL TREND OF WARRANTY PROVISIONS MADE AND THE ACTUAL EXPENSES INCURRED AGAINST IT. ON THIS BASIS, A SENSIBLE ESTIMATE SHOULD BE MADE. THE WARRANTY PROVISION FOR THE PRODUCTS SHOULD BE BASED ON THE ESTIMATE AT THE YEAREND OF FUTURE WARRANTY EXPENSES. SUCH ESTIMATES NEED REASSESSMENT EVERY YEAR. AS ONE REACHES CLOSE TO THE END OF THE WARRANTY PERIOD, THE PROBABILITY THAT THE WARRANTY EXPENSES WILL BE INCURRED IS CONSIDERABLY REDUCED AND THAT SHOULD BE REFLECTED IN THE ESTIM ATION MADE. WHETHER THIS SHOULD BE DONE THROUGH A PRO RATA REVERSAL OR OTHERWISE WOULD REQUIRE ASSESSMENT OF HISTORICAL TREND. IF WARRANTY PROVISIONS ARE BASED ON EXPERIENCE AND HISTORICAL TREND(S) AND IF THE WORKING IS ROBUST, THEN THE QUESTION OF REVERSA L IN THE SUBSEQUENT TWO YEARS, IN THE ABOVE EXAMPLE, MAY NOT ARISE IN A SIGNIFICANT WAY. HENCE, ON THE FACTS AND CIRCUMSTANCES OF THE INSTANT CASE, PROVISION FOR WARRANTY WAS RIGHTLY MADE BY THE ASSESSEE BECAUSE IT HAD INCURRED A PRESENT OBLIGATION AS A RE SULT OF PAST EVENTS. THERE WAS ALSO AN OUTFLOW OF RESOURCES. A RELIABLE ESTIMATE OF THE OBLIGATION WAS ALSO POSSIBLE. THEREFORE, THE ASSESSEE HAD INCURRED A LIABILITY DURING THE RELEVANT ASSESSMENT YEARS AND IT WAS ENTITLED TO DEDUCTION UNDER SECTION 37. T HEREFORE, ALL THE THREE CONDITIONS FOR RECOGNIZING A LIABILITY FOR THE PURPOSE OF PROVISIONING STOOD SATISFIED IN THE INSTANT CASE. THERE ARE FOUR IMPORTANT ASPECTS OF PROVISIONING, VIZ., PROVISIONING WHICH RELATES TO PRESENT OBLIGATION; IT ARISES OUT OF O BLIGATING EVENTS; IT INVOLVES OUTFLOW OF RESOURCES; AND LASTLY, IT INVOLVES RELIABLE ESTIMATION OF AN OBLIGATION. KEEPING IN MIND ALL THE FOUR ASPECTS, THE HIGH COURT SHOULD NOT TO HAVE INTERFERED WITH THE DECISION OF THE TRIBUNAL IN THE INSTANT CASE. F ROM ANALYSIS OF THE VARIOUS DECISION OF THE SUPREME COURT, IN WHICH A SIMILAR ISSUE WAS DECIDED, THE PRINCIPLE WHICH EMERGES IS THAT IF THE HISTORICAL TREND INDICATES THAT A LARGE NUMBER OF SOPHISTICATED GOODS WERE BEING MANUFACTURED IN THE PAST AND IF THE FACTS ESTABLISHED SHOW THAT DEFECTS EXISTED IN SOME OF THE ITEMS MANUFACTURED AND SOLD, THEN THE PROVISION MADE FOR WARRANTY IN RESPECT SOPHISTICATED GOODS WOULD BE ENTITLED TO DEDUCTION FROM THE GROSS RECEIPTS UNDER SECTION 37. IT WOULD ALL DEPEND ON THE DATA SYSTEMATICALLY MAINTAINED BY THE ASSESSEE. 11. SINCE, THE JUDGMENT OF THE HON BLE SUPREME COURT IS SQUARELY APPLICABLE TO THE ASSESSEE COMPANY AND KEEPING IN VIEW THE FACT THAT THE LD. CIT(A) HAS GIVEN RELIEF BASED ON THE HON BLE SUPREME COURT JUDG MENT. WE HEREBY DECLINE TO INTERFERE WITH THE ORDER OF THE LD. CIT(A) ON THIS GROUND DECLINE TO INTERFERE IN THE ORDER OF THE LD. CIT(A). 12. GROUND NO. 3 PERTAINS TO DISALLOWANCE U/S 14A OF THE ACT OF RS.8,50,720/ - . 13. WE FIND FROM THE RECORD THAT THE ASSESSEE HAS NOT CLAIMED ANY EXEMPT INCOME. HENCE, IN THE ABSENCE OF ANY EXEMPT ITA NO . 5053 /DEL /2013 MINDA CORPORATION LTD. 9 INCOME, NO DISALLOWANCE OF AMOUNT U/S 14A OF THE ACT IS CALLED FOR. HENCE, WE DIRECT THE DISALLOWANCE MADE BE DELETED. 14. GROUND NO. 4 PERTAINS TO DISALLOWANCE ON ACCOUNT OF DEPRECIATION ON PRINTER. 15. THE ASSESSING OFFICER TREATED THE PRINTERS AS GENERAL PLANT & MACHINERY AND ALLOWED THE DEPRECIATION AT THE RATE OF APPLICABLE TO PLANT & MACHINERY WHICH IS 15% WHEREAS THE PRINTERS ARE CONSIDERED AS PART OF THE COMPUTER EQUIP MENTS BY THE HON BLE HIGH COURT OF DELHI IN THE CASE OF BSES RAJDHANI POWER LTD. WHEREIN DEPRECIATION OF 60% IS ALLOWED. HENCE, KEEPING IN VIEW, THE FACTUAL CONTENTS AND THE ORDERS OF THE HON BLE HIGH COURT, WE HEREBY HOLD THAT THE DEPRECIATION @ 60% BE AL LOWED TO THE PRINTERS WHICH IS A PART OF COMPOSITE UNIT OF COMPUTER. 16 . IN THE RESULT , THE APPEAL IS DISMISSED . ( ORDER PRONOUNCED IN THE OPEN COURT ON 11 .07.2019) SD/ - SD/ - ( BHAVNESH SAINI ) ( DR. B. R. R. KUMAR ) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 11 /07 /2019 *SUBODH* COPY FORWARDED TO: 1 . APPELLANT 2 . RESPONDENT 3 . CIT 4 . CIT(APPEALS) 5 . DR: ITAT ASSISTANT REGISTRAR