M/s. Poddar Pigments Ltd., New Delhi V. DCIT, New Delhi

ITA 5086/DEL/2014

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 3368 (ITAT-DELHI)
• Duration Of Justice: 3 year(s) 11 month(s) 7 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 23-08-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: F
• Assessment Year: 2011-2012
• Appeal Filed On: 15-09-2014
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Keywords: Double taxation relief; Earning of tax free income; Deemed to accrue or arise in india; Permanent establishment; Advance ruling; Non-deduction of tax
• Section: 143(3); 5(2); 14A

Judgement Text

PAGE | 1 INCOME TAX APPELLATE TRIBUNAL DELHI BENCH F : NEW DELHI BEFORE SHRI SUDHANSHU SRIVASTAVA , JUDICIAL MEMBER AND SHRI PRASHANT MAHARISHI, ACCOUNTANT MEMBER ITA NO. 5083/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 ) M/S. PODDAR PIGMENTS LTD, A - 283, GROUND FLOOR, OKHLA INDUSTRIAL AREA, PHASE - I, NEW DELHI PAN: AAACP1125E VS. ACIT, CIRCLE - 14(1), NEW DELHI (APPELLANT) (RESPONDENT) ITA NO. 5084 , 5085, AND 5086 /DEL/2014 (ASSESSMENT YEAR: 2009 - 10 , 2010 - 11 AND 2011 - 12 ) M/S. PODDAR PIGMENTS LTD, A - 283, GROUND FLOOR, OKHLA INDUSTRIAL AREA, PHASE - I, NEW DELHI PAN: AAACP1125E VS. DCIT, CIRCLE - 14(1), NEW DELHI (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI P.C. PARWAL, FCA REVENUE BY: SHRI ATIQ AHMED, SR. DR DATE OF HEARING 04/06 / 2018 DATE OF PRONOUNCEMENT 2 3 / 08 / 2018 O R D E R PER PRASHANT MAHARISHI, A. M. 1 . THESE ARE THE FOUR APPEALS FILED BY THE ASSESSEE INVOLVING SOME COMMONS ISSUES FOR FOUR YEARS I.E. 2008 - 0 9 TO 2011 - 12 AND THEREFORE, THEY ARE HEARD TOGETHER AND DISPOSED OF BY THIS COMMON ORDER . 2 . FIRSTLY, WE STATE THE FACTS FOR ASSESSMENT YEAR 2008 - 09 AND DECIDE THE ISSUE AND OUR DECISION WOULD BE APPLIED TO OTHER SUBSEQUENT YEARS IN APPEALS FOR SUBSEQUENT THR EE YEARS ON THOSE GROUNDS , WHENEVER FACTS ARE SIMILAR 3 . FOR ASSESSMENT YEAR 2008 - 09 , ASSESSEE HAS PREFERRED APPEAL AGAINST THE ORDER OF THE LD CIT ( A) - XVII, NEW DELHI [THE LD CIT (A) ] DATED M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 2 26.06.20147 . THE LD CIT (A) HAS DISMISSED APPEAL FILED AGAINST TH E ASSESSMENT ORDER PASSED BY THE LD ASSISTANT COMMISSIONER OF INCOME TAX , CIRCLE - 14(1), NEW DELHI [ THE LD AO] U/S 143(3) OF THE INCOME TAX ACT [ THE ACT ] DATED 30.12.2010 . IN THIS APPEAL ASSESSEE HAS RAISED A SOLITARY GROUND AGAINST THE CONFIRMATION OF DISALLOWANCE OF RS. 336150/ - U/S 40(A)(I) BY HOLDING THAT PAYMENT MADE TO A DR. U . THIELE IS FEES FOR TECHNICAL SERVICES COVERED UNDER ARTICLE 12 OF THE DOUBLE TAXATION A VOIDANCE AGREEMENT [ THE DTAA ] BETWEEN INDIA AND GERMANY AND T HEREFORE, ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE U/S 195 OF THE ACT WHICH THE ASSESSEE FAILED , HENCE, DISALLOWANCE WAS MADE . 4 . BRIEF FACTS OF THE CASE ARE THAT THE ASSESSEE IS A COMPANY ENGAGED IN THE BUSINESS OF MANUFACTURING OF MASTER BATCHES AND ENGINEERING PLASTIC COMPOUNDS. IT FILED ITS RETURN OF INCOME ON 29.09.2008 DECLARING INCOME OF RS. 54438260/ - . THE LD AO NOTED THAT ASSESSEE HAS PAID A TECHNICAL FEES OF RS. 336150/ - TO ONE DR. THIELE A GERMAN INDIVIDUAL RESIDENT, WHICH FALLS UNDER TH E PROVISION OF SECTION 40(A)(I) OF THE ACT AS ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE. THE ASSESSEE SUBMITTED THAT THE PAYMENT IS MADE TO AN INDIVIDUAL RESIDENT OF GERMANY TOWARDS CONSULTAN CY CHARGES , WHO IS A SCIENTISTS ENGAGED IN DEVELOPING NEW PRODUCTS BY APPLYING DIFFERENT CHEMISTRY OF RAW MATERIAL USE D BY THE ASSESSEE FOR PRODUCTION OF MASTER BATCHES AND CARRIED OUT CHEMICAL TEST FOR NEW PRODUCTS. IT WAS STATED THAT THE RECIPIENT IS A WELL - KNOWN INTERNATIONAL EXPERT ON THE SUBJECT OF POLYESTER HAVING M ORE THAN 30 YEARS OF EXPERIENCE. THE ASSESSEE SUBMITTED VARIOUS BILLS BACKED BY AN AGREEMENT . FURTHER, IT WAS SUBMITTED THAT THE ASSESSEE HAS MADE PAYMENT FOR PROFESSIONAL SERVICES TO AN INDIVIDUAL FOR INDEPENDENT SCIENTIFIC ACTIVITIES . ACCORDING TO THE ASSESSEE , THIS PAYMENT FALLS UNDER ARTICLE 14 OF DTAA BETWEEN INDIAN AND GERMANY. IT WAS FURTHER STATED THAT DR. THIELE DOES NOT HAVE ANY FI XED BASE IN INDIA AND HAS NOT STAYED FOR MORE THAN 120 DAYS IN INDIA, THEREFORE , IT IS NOT CHARGEABLE TO TAX IN INDIA AND NO TAX IS REQUIRED TO BE DEDUCTED ON THE ABOVE SUM. THE LD AO M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 3 REJECTED THE CONTENTION OF THE ASSESSEE STATING THAT PAYMENT HAS BEEN MADE FOR PRODUCTION PROCESS TRAINING FOR TECHNICAL RESEARCH AGREEMENT FOR DEVELOPM ENT AND PRODUCTION OF NEW PRODUCTS AND FOR SUPERVISION OF ERECTION AND COMMISSIONING OF HENSHEL HIGH INTENSITY MIXER MACHINE. THEREFORE, HE HELD THAT SUCH PAYMENT FALLS UNDER THE CATEGORY OF FEES FOR TECHNICAL SERVICES U/S 9(1) (VII) OF THE ACT AS WE LL AS ARTICLE 12 OF THE DTAA. HE FURTHER STATED THAT IN THE BOOKS OF ACCOUNT THE ASSESSEE ITSELF HAS TREATED IT AS TECHNICAL CONSULTANCY. ACCORDING TO HIM, THE ARTICLE 12 OF THE DTAA APPLIES. HE REJECTED THAT ARTICLE 14 OF DTAA COVER THE ABOVE ACTIVITIES A S THE SERVICES DO NOT FALL UNDER THE INDEPENDENT SCIENTIFIC, LITERARY, ARTISTIC, EDUCATIONAL OR TEACHING ACTIVITIES. HE THEREFORE, HELD THAT THE ASSESSEE SHOULD HAVE DEDUCTED TAX @ 10 % OF THE ABOVE SUM AND THEREFORE, DISALLOWANCE U/S 40(A ) ( I) READ WITH SECTION 195 OF THE ACT WAS MADE. THE LD AO FURTHER RELIED UPON THE DECISION OF GUJARAT NARMADA VALLEY FERTILISER COMPANY LTD VS. ITO 2 ITD 515. HE FURTHER HELD THAT SIMILAR PAYMENT WAS ALSO DISALLOWED FOR ASSESSMENT YEAR 2007 - 08. HE FURTHER HE LD THAT THIS YEAR THE ASSESSEE HAS TAKEN A DIFFERENT ARGUMENT THAT DR . THIELE IS A SCIENTIST AND ENGAGED IN DEVELOPING THE NEW PRODUCTS. THE LD AO REJECTED THIS ARGUMENT ALSO . CONSEQUENTLY, THE ASSESSMENT U/S 143(3) OF THE ACT WAS PASSED AT RS. 54774410/ - AGAINST THE RETURN INCOME OF THE ASSESSEE OF RS. 54438260/ - ON 30.12.2010. 5 . THE ASSESSEE PREFERRED AN APPEAL BEFORE THE LD CIT(A) WHO DEALT WITH THE ABOVE ISSUE VIDE PARA NO. 5 AT PAGE NO. 10 TO 15 OF HIS ORDER DATED 26.06.2014 CONFIRMING THE ABOVE DISALLOWANCE AS UNDER: - 5. THE ONLY ISSUE IN THE GROUNDS OF APPEAL IS IN RESPECT OF DISALLOWANCE OF RS.3,36,150/ - U/S 40(A)(I). THE AMOUNT OF RS.3,36,150/ - WAS PERTAINING TO PAYMENT MADE TO DR. THIELE FOR TECHNICAL RENDERED. 5.1. THE APPELLANT IS IN THE BUSINESS OF MANUFACTURING MASTER BATCHES AND ENGINEERING PLASTIC COMPOUNDS. DURING THE YEAR, THE AO NOTED THAT THE APPELLANT HAD PAID RS.10,20,167/ - TO NON RESIDENTS OUT OF WHICH ONE AMOUNT OF RS.3,36,150/ - WAS PAID TO DR. THIELE. M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 4 5.2. THE APPELLANT CONT ENDED THAT DR. THIELE WAS A SCIENTIST AND ENGAGED IN DEVELOPING NEW PRODUCTS BY APPLYING DIFFERENT CHEMISTRY TO RAW MATERIALS. DR. THIELE WAS ENGAGED IN INVENTING DIFFERENT PROCESSES OF PET/POLYMERS. THE PAYMENT WAS MADE TO DR. THIELE FOR AN INDEPENDENT SC IENTIFIC ACTIVITY AND FELL UNDER ARTICLE 14 OF THE DTAA BETWEEN INDIA AND GERMANY AND THEREFORE THE APPELLANT STATED SECTION 9(L)(VII) WAS NOT APPLICABLE AS ARTICLE 14 PREVAILED OVER THE ACT. 5.3. THE AO ON THE OTHER HAND STATED THAT ARTICLE 14 WAS NOT APP LICABLE. FURTHER, THE PAYMENT MADE TO DR. THIELE WAS 'FEES FOR TECHNICAL SERVICES'. THE AO FURTHER STATED THAT THE PAYMENTS WERE COVERED BY ARTICLE 12 OF THE DTAA. THE AO FURTHER REFERRED TO THE PREVIOUS YEAR I.E. A. Y. 2007 - 08 WHEREIN THE PAYMENT TO DR. T HIELE WAS DISALLOWED BY THE AO ON THE SAME GROUNDS AND THE AO'S ORDER WAS CONFIRMED BY THE LD. CIT(A) AND IN FURTHER APPEAL THE HON'BLE ITAT GAVE ITS FINDINGS AS UNDER: '6.6. WE HAVE HEARD RIVAL CONTENTIONS. PERUSING THE MATERIAL AVAILABLE ON RECORD WE SEE NO INFIRMITY IN THE ORDERS OF LOWER AUTHORITIES. TERMS AND CONDITIONS OF THE AGREEMENT DEARLY REVEAL THAT THE SERVICES WERE IN THE NATURE OF TECHNICAL AND CONSULTANCY SERVICES FALLING WITHIN THE PURVIEW OF SEC.9(L)(VII) EXPLANATION 2. THIS BEING SO, ARTIC LE OF D TAA WILL NOT BE APPLICABLE. THE ASSESSEE HAS FAILED TO DEMONSTRATE THAT THE SERVICES RENDERED BY DR. U. THIELE ARE INDEPENDENT SCIENTIFIC SERVICE. WE FIND MERIT IN THE ARGUMENT OF ID. DR THAT PAYMENT MADE TO DR. U. THIELE WAS FOR RENDERING TECHNICA L SERVICES NOT FALLING UNDER ARTICLE OF DTAA. THE CASE CITED BY ID. COUNSEL FOR THE ASSESSEE IN THE CASE OF SMS DEMAG (P) LTD. VS. DCIT(SUPRA) IS NOT APPLICABLE. IN VIEW THEREOF WE UPHOLD THE ORDERS OF LOWER AUTHORITIES. THIS GROUND OF THE ASSESSEE IS DISM ISSED.' 5.4.I SHALL NOW DISCUSS SECTION 5 OF THE I. T. ACT WHICH TALKS OF WHAT THE TOTAL INCOME OF A PERSON WHO IS A RESIDENT AND NON - RESIDENT IS: - '(1) SUBJECT TO THE PROVISIONS OF THIS ACT, THE TOTAL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A RESID ENT INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH (A) IS RECEIVED OR IS DEEMED TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON; OR (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE TO HIM IN INC I ACCRUES OR ARISES TO HI M OUTSIDE INDIA DURING SUCH YEAR: PROVIDED THAT, IN THE CASE OF A PERSON NOT ORDINARILY RESIDENT IN INDIA WITHIN THE MEANING OF SUB - S. (6) OF S. 6, THE INCOME M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 5 WHICH ACCRUES OR ARISES TO HIM OUTSIDE INDIA SHALL NOT BE SO INCLUDED UNLESS IT IS DERIVED FROM A BUSINESS CONTROLLED IN OR A PROFESSION SET UP IN INDIA. (2) SUBJECT TO THE PROVISIONS OF THIS ACT, THE TOTAL INCOME OF ANY PREVIOUS YEAR OF A PERSON WHO IS A NON - RESIDENT INCLUDES ALL INCOME FROM WHATEVER SOURCE DERIVED WHICH (A) IS RECEIVED OR IS DEE MED TO BE RECEIVED IN INDIA IN SUCH YEAR BY OR ON BEHALF OF SUCH PERSON; OR (B) ACCRUES OR ARISES OR IS DEEMED TO ACCRUE OR ARISE TO HIM IN INDIA DURING SUCH YEAR. EXPLANATION 1: - INCOME ACCRUING OR ARISING OUTSIDE INDIA SHALL NOT BE DEEMED TO BE RECEIVED IN INDIA WITHIN THE MEANING OF THIS SECTION BY REASON ONLY OF THE FACT THAT IT IS TAKEN INTO ACCOUNT IN A BALANCE SHEET PREPARED IN INDIA. EXPLANATION 2: - FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT INCOME WHICH HAS BEEN INCLUDED IN THE TOTAL INCOME OF A PERSON ON THE BASIS THAT IT HAS ACCRUED OR ARISEN OR IS DEEMED TO HAVE ACCRUED OR ARISEN TO HIM SHALL NOT AGAIN BE SO INCLUDED ON THE BASIS THAT IT IS RECEIVED OR DEEMED TO BE RECEIVED BY HIM IN INDIA. IN VIEW OF THIS SECTION THEREFORE T HE PAYMENT MADE BY THE APPELLANT TO THE NON RESIDENT WAS INCOME AS IT WAS RECEIVED AND DEEMED TO ACCRUE IN INDIA. 5.5. SECTION 9(L)(VII) STATES: - 9. INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. (1) THE FOLLOWING INCOMES SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA (VII) INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYABLE BY (A) THE GOVERNMENT; OR (B) A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE FEES ARE PAYABLE IN RESPECT OF SERVICES UTILISED IN A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA; OR (C) A PERSON WHO IS A NON - RESIDENT, WHERE THE FEES ARE PAYABLE IN RESPECT OF SERVICES UTILISED IN A BUSINESS OR PROFESSION CARRIED ON BY SUCH P ERSON IN INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE IN INDIA: M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 6 PROVIDED THAT NOTHING CONTAINED IN THIS CLAUSE SHALL APPLY IN RELATION TO ANY INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYABLE IN PURSUANCE OF AN AGREEMENT MAD E BEFORE THE 1ST DAY APRIL, 1976, AND APPROVED BY THE CENTRAL GOVERNMENT. EXPLANATION L. FOR THE PURPOSES OF THE FOREGOING PROVISO, AN AGREEMENT MADE ON OR AFTER THE 1ST DAY OF APRIL, 1976, SHALL BE DEEMED TO HAVE BEEN MADE BEFORE THAT DATE IF THE AGREEMEN T IS MADE IN ACCORDANCE WITH PROPOSALS APPROVED BY THE CENJ;CAJ -- GOVERNMENT BEFORE THAT DATE. EXPLANATION 2. FOR THE PURPOSES OF THIS CLAUSE, 'FEES FOR TECHNICAL SERVICES MEANS - ANY CONSIDERATION (INCLUDING ANY LUMP SUM CONSIDERATION) FOR THE RENDERING O F ANY MANAGERIAL TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TECHNICAL! OR OTHER, PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD 'SALARIES'. (2) NOTWITHSTANDING ANYTHING CONTAINED IN SUB - SECTION (1), ANY PENSION PAYABLE OUTSIDE INDIA TO A PERSON RESIDING PERMANENTLY OUTSIDE INDIA SHALL NOT BE DEEMED TO ACCRUE OR ARISE IN INDIA, IF THE PENSION IS PAYABLE TO A PERSON REFERRED TO IN ARTICLE 314 OF THE CONSTITUTION OR TO A PERSON WHO, HAVING BEEN APPOINTED BEFORE THE 15TH DAY OF AUGUST, 1947, TO BE A JUDGE OF THE FEDERAL COURT OR OF A HIGH COURT WITHIN THE MEANING OF THE G OVERNMENT OF INDIA ACT, 1935, CONTINUES TO SERVE ON OR AFTER THE COMMENCEMENT OF THE CONSTITUTION AS A JUDGE IN INDIA. ***EXPLANATION. - FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT FOR THE PURPOSES OF THIS SECTION, INCOME OF A NON - RESIDENT SHALL B E DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CLAUSE (V) OR CLAUSE (VI) OR CLAUSE (VII) OF SUB - SECTION (1) AND SHALL BE INCLUDED IN THE TOTAL INCOME OF THE NON - RESIDENT, WHETHER OR NOT, - (I) THE NON - RESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BUSINESS CON NECTION IN INDIA ; OR(II) THE NON - RESIDENT HAS RENDERED SERVICES IN INDIA. 5.6. I DON'T FIND ANY CLAUSE IN SECTION 9 WHICH TALKS OF THE DIFFERENCE BETWEEN TECHNICAL SERVICES AND SCIENTIFIC M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 7 SERVICES. SECTION 9(L)(VII) EXPLANATION IS CLEAR ABOUT WHAT W OULD BE COVERED AND WHAT WOULD NOT BE. 5.7. EXPLANATION OF SECTION 9(L)(VII) TALKS OF FEES FOR TECHNICAL SERVICES. NO DISTINCTION HAS BEEN MADE IN RESPECT OF FEES FOR SCIENTIFIC SERVICES RENDERED. FURTHER EXPLANATION (2) DEFINES FEES FOR TECHNICAL SERVICE S WHICH INCLUDES CONSULTANCY SERVICES. IN MY VIEW THE CONSULTANCY/SCIENTIFIC SERVICES RENDERED BY THE NON RESIDENT WOULD FALL UNDER THIS CATEGORY. 5.8. I SHALL NO W QUOTE SECTION 195: '195. OTHER SUMS. - (L) ANY PERSON RESPONSIBLE FOR PAYING TO A NON - RESIDEN T, NOT BEING A COMPANY, OR TO A FOREIGN COMPANY, ANY INTEREST OR ANY OTHER SUM CHARGEABLE UNDER THE PROVISIONS OF THIS ACT (NOT BEING INCOME CHARGEABLE UNDER THE HEAD 'SALARIES') SHALL, AT THE TIME OF CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE OR AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE, WHICHEVER IS EARLIER, DEDUCT INCOME - TAX THEREON AT THE RATES IN FORCE. PROVIDED THAT IN THE CASE OF INTEREST PAYABLE BY THE GOVERNMENT OR A PUBLIC SECTOR BANK W ITHIN THE MEANING OF CLAUSE (23D) OF SECTION 10 OR A PUBLIC FINANCIAL INSTITUTION WITHIN THE MEANING OF THAT CLAUSE, DEDUCTION OF TAX SHALL BE MADE ONLY AT THE TIME OF PAYMENT THEREOF IN CASH OR BY THE ISSUE OF A CHEQUE OR DRAFT OR BY ANY OTHER MODE. *PROV IDED FURTHER THAT NO SUCH DEDUCTION SHALL BE MADE IN RESPECT OF ANY DIVIDENDS REFERRED TO IN SECTION 115 - 0. (2) WHERE THE PERSON RESPONSIBLE FOR PAYING ANY SUCH SUM CHARGE, THAN SALARY) TO A NON - RESIDENT CONSIDERS THAT THE WHOLE OF SUE R EXPLANATION. FOR THE PURPOSES OF THIS SECTION, WHERE ANY INTEREST OR OTHER SUM AS AFORESAID IS CREDITED TO ANY ACCOUNT, WHETHER CALLED 'INTEREST PAYABLE ACCOUNT' OR 'SUSPENSE ACCOUNT' OR BY ANY OTHER NAME, IN THE BOOKS OF ACCOUNT OF THE PERSON LIABLE TO PAY SUCH INCOME, SU CH CREDITING SHALL BE DEEMED TO BE CREDIT OF SUCH INCOME TO THE ACCOUNT OF THE PAYEE AND THE PROVISIONS OF THIS SECTION SHALL APPLY ACCORDINGLY. (2) WHERE THE PERSON RESPONSIBLE FOR PAYING ANY SUCH SUM CHARGEABLE UNDER THIS ACT (OTHER THAN SALARY) TO AN N ON - RESIDENT CONSIDERS THAT THE WHOLE OF SUCH SUM WOULD NOT BE INCOME CHARGEABLE IN THE CASE OF THE RECIPIENT, HE MAY MAKE AN APPLICATION TO THE ASSESSING OFFICER TO DETERMINE, BY M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 8 GENERA! OR SPECIAL ORDER, THE APPROPRIATE PROPORTION OF SUCH SUM SO CHARGEABL E, AND UPON SUCH DETERMINATION, TAX SHALL BE DEDUCTED UNDER SUB - SECTION (1) ONLY ON THAT PROPORTION OF THE SUM WHICH IS SO CHARGEABLE. (3) SUBJECT TO RULES MADE UNDER SUB - SECTION (5) ANY PERSON ENTITLED TO RECEIVE ANY INTEREST OR OTHER SUM ON WHICH INCOME - TAX HAS TO BE DEDUCTED UNDER SUB - SECTION (1) MAY MAKE AN APPLICATION IN THE PRESCRIBED FORM TO THE ASSESSING OFFICER FOR THE GRANT OF A CERTIFICATE AUTHORISING HIM TO RECEIVE SUCH INTEREST OR OTHER SUM WITHOUT DEDUCTION OF TAX UNDER THAT SUB - SECTION, AND WHERE ANY SUCH CERTIFICATE IS GRANTED, EVERY PERSON RESPONSIBLE FOR PAYING SUCH INTEREST OR OTHER SUM TO THE PERSON TO WHOM SUCH CERTIFICATE IS GRANTED SHALL, SO LONG AS THE CERTIFICATE IS IN FORCE, MAKE PAYMENT OF SUCH INTEREST OR OTHER SUM WITHOUT DEDUCT ING TAX THEREON UNDER SUBSECTION (1). (4) A CERTIFICATE GRANTED UNDER SUB - SECTION (3) SHALL REMAIN IN FORCE TILL THE EXPIRY OF THE PERIOD SPECIFIED THEREIN OR, IF IT IS CANCELLED BY THE ASSESSING OFFICER BEFORE THE EXPIRY OF SUCH PERIOD, TILL SUCH CANCEL LATION. (5) THE BOARD MAY, HAVING REGARD TO THE CONVENIENCE OF ASSESSEES AND THE INTERESTS OF REVENUE, BY NOTIFICATION IN THE OFFICIAL GAZETTE, MAKE RULES SPECIFYING THE CASES IN WHICH, AND THE CIRCUMSTANCES UNDER WHICH, AN APPLICATION MAY BE MADE FOR THE GRANT OF A CERTIFICATE UNDER SUBSECTION (3) AND THE CONDITIONS SUBJECT TO WHICH SUCH CERTIFICATE MAY BE GRANTED AND PROVIDING FOR ALL OTHER MATTERS CONNECTED THEREWITH.' 5.9. THE MAIN COMPONENTS OF THE SECTION ARE THAT 1. ANY PERSON 2. MAKING PAYMENT OF INTEREST OR ANY OTHER SUM (NOT BEING SALARY). 3. TO A NON RESIDENT OR TO A FOREIGN COMPANY. 4. SHALL AT THE TIME OF PAYMENT. 5. BY ANY MODE 6. DEDUCT INCOME TAX. 5.10. THE SECTION APPLIES TO ALL PERSON'S RESIDENT OR NON RESIDENT AND THE PERSONS MAY OR MAY NOT HAVE RESIDENCE OR PLACE OF BUSINESS IN INDIA OR ANY OTHER PRESENCE IN ANY MANNER IN INDIA. M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 9 5.11. IT IS CLEAR FROM THE ABOVE THAT THE APPELLANT HAS MADE PAYMENT OF FEES TO A NON RESIDENT AND IS THEREFORE LIABLE TO DEDUCT INC OME TAX AS PER SECTION 195 OF THE ACT. SINCE NO INCOME TAX WAS DEDUCTED U/S 195 THE AMOUNT OF RS.3,36,150/ - WAS RIGHTLY DISALLOWED BY THE AO U/S 40(A)(I). 5.12. FURTHER, THE DECISION OF THE HON'BLE ITAT IN A. Y. 2007 - 08 IS CLEAR THE HON'BLE ITAT HAS CLEAR LY STATED THAT THE SERVICES WERE IN THE NATURE OF TECHNICAL AND CONSULTANCY SERVICES FALLING WITHIN THE PURVIEW OF SECTION 9(L)(VII) EXPLANATION 2. THE GROUNDS OF APPEAL ARE THUS RULES AGAINST THE APPELLANT AS THE ADDITION OF RS. 336150/ - IS CONFIRMED. 6 . TH EREFORE, THE ASSESSEE AGGRIEVED HAS PREFERRED THIS APPEAL. 7 . THE LD AR SUBMITTED: A . THE IMPUGNED PAYMENT FALLS UNDER ARTICLE 14 OF THE DTAA AS IT HAS BEEN MADE AS PAYMENT FOR INDEPENDENT PERSONAL SERVICES TO AN INDIVIDUAL RESIDENT OF GERMANY. IT IS FURTHER STATED THAT AS ARTICLE 14 OF DTAA COVERS THE ABOVE PAYMENT, ARTICLE 12 DOES NOT HAVE ANY ROLE TO PLAY. HE SUBMITTED THAT ACCORDING TO ARTICLE 14 SUCH INCOME IS CHARGEABLE TO TAX IN GERMANY ONLY. SO NO TAX IS REQUIRED TO BE DEDUCTED AT SOURCES. B . HE FURTH ER SUBMITTED THAT DR. THIELE DOES NOT HAVE ANY FIXED BASE IN INDIA AND HE HAS NOT STAYED FOR 120 DAYS OR MORE IN INDIA AS PROVIDED UNDER ARTICLE 14 OF DTAA, THEREFORE, PAYMENT MADE TO HIM IS NOT SUBJ ECT TO TAX DEDUCTION AT SOURCE AS IT IS NOT CHARGEABL E TO TAX IN INDIA. C . IT WAS FURTHER SUBMITTED THAT RECIPIENT WAS PROVIDING AN INDEPENDENT SCIENTIFIC SERVICES FOR DEVELOPMENT OF THE NEW PRODUCTS. MERELY BECAUSE THE PAYMENT IS MADE IN PURSUANCE OF A TECHNICAL AGREEMENT, IT WOULD NOT MAKE ANY DIFFERENCE WITH RESPECT TO THE NATURE OF SERVICES. HE FURTHER REFERRED TO THE AGREEMENT ENTERED INTO BY THE ASSESSEE AND SUBMITTED THAT DR. THEILE WOULD ASSIST IN ENHANCING THE EXTRA PROPERTIES AND BETTER WORKING OF THE PRODUCTS OF THE COMPANY. HENCE, IT IS AN INDEPE NDENT SCIENTIFIC SERVICE. M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 10 D . HE FURTHER SUBMITTED THAT IN ASSESSMENT YEAR 2007 - 08 THE COORDINATE BENCH REJECTED THE CONTENTION OF THE ASSESSEE ON THE GROUND THAT THE ASSESSEE FAILED TO DEMONSTRATE THAT SERVICES RENDERED BY THE RECIPIENT ARE INDEPENDENT SCIE NTIFIC SERVICES, HOWEVER HE SUBMITTED THAT FOR THE CURRENT YEAR THE ASSESSEE HAS PRODUCED NUMBER OF EVIDENCE IN THE FORM OF EMAILS AND VARIOUS CORRESPONDENCE ALONG WITH BILLS AND AGREEMENT WHICH AMPLY PROVES THAT THE ASSESSEE HAS BEEN PROVIDED INDEPENDE NT SCIENTIFIC SERVICES . E . HE FURTHER RELIED ON THE DECISION OF COORDINATE BENCH IN GRAPHITE INDIA LTD VS. DCI T [ 86 ITD 384 ] AND ITO VS. SUSANTO PURNAMO [ 73 TAXMANN.COM 108 ( AHMADABAD ) ] . H E FURTHER REFERRED TO THE COPY OF THE REMAND REPORT BEFORE THE LD CIT(A) DATED 19.12.2013, WHEREIN, THE LD AO HAS NOTED THAT VARIOUS BILLS AND DOCUMENTS IN THE FORM OF INVOICES HAVE BEEN FILED BY THE ASSESSEE . THEREFORE IT SHOWS THAT SERVICES HAVE BEEN PROVIDED AS INDEPENDENT SCIENTIFIC SERVICES BY DR AND ALL EV IDENCES FOR CONSULTING FEES HAS BEEN PROVIDED . HE FURTHER REFERRED TO THE TECHNICAL AND RESEARCH AGREEMENT DATED 16 TH AUGUST 2006 BETWEEN THE ASSESSEE AND DR. THIELE TO SHOW THE KIND OF S ERVICES PROVIDED BY DR THEILE. HE SUBMITTED THAT SERVICES ARE PROV IDED BY AN INDIVIDUAL, GERMAN RESIDENT, IN NATURE OF SCIENTIFIC SERVICES, NO FIXED BASE IS AVAILABLE TO HIM, AND HE DOES NOT STAY IN INDIA FOR 120 DAYS OR MORE. F . HE FURTHER SUBMITTED THAT AS THE INCOME IS FALLING UNDER THE SPECIFIC ARTICLE 14 THE ARTICLE 12 IS MORE GENERAL , HENCE, ARTICLE 14 SHOULD BE APPLIED WHICH IS MORE SPECIFIC TO THE FACTS OF THE CASE. G . HE FURTHER SUBMITTED THAT ASSUMING WHILE DENYING , THAT SUCH INCOME FALLS UNDER ARTICLE 12, THE ASSESSEE BEING A GERMAN NATIONAL SHOULD GET THE BENE FIT OF MFN CLAUSE AS THESE SERVICES WERE NOT MAKE AVAILABLE TO THE ASSESSEE. 8 . THE LD DR VEHEMENTLY RELIED UPON THE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT THE IMPUGNED ISSUE IS SQUARELY COVERED AGAINST THE M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 11 ASSESSEE BY THE DECISION OF THE COORDINATE BENCH IN ASSESSEES OWN CASE FOR AY 2007 - 08 , COPY OF DECISION IS PLACED AT PAGE NO. 109 TO 115 OF THE PAPER BOOK OF THE ASSESSEE. HE REFERRED TO PARA NO 6.6 OF THE ORDER WHEREIN, IT HAS BEEN HELD THAT THE SERVICES PROVIDED BY THE ASSESSEE ARE IN THE NATURE OF TECHNICAL AND CONSULTANCY SERVICES AND ARE CHARGEABLE TO TAX AS PER INCOME TAX ACT ACCORDING TO EXPLANATION 2 OF SECTION 9(1)(VII) OF THE ACT. THE COORDINATE BENCH HAS SUBSEQUENTLY HE LD THAT ARTICLE 14 OF DTAA WILL NOT APPLY AS THE ASSESSEE HAS FAILED TO DEMONSTRATE THAT SERVICES RENDERED BY DR. THIELE ARE INDEPENDENT SCIENTIFIC SERVICES. IN VIEW OF THIS, HE SUBMITTED THAT THERE IS NO INFIRMITY IN THE ORDER PASSED BY THE LOWER AUTHORIT IES. 9 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. UNDISPUTEDLY, THE ASSESSEE IS ENGAGED IN THE BUSINESS OF MANUFACTURING OF MASTER BATCHES AND ENGINEERING PLASTIC COMPOUNDS. IT PAID RS. 336150 / - TO DR . THIELE AN IN DIVIDUAL RESIDENT OF GERMANY TOWARDS VARIOUS SERVICES. THE NATURE OF THE SERVICES PROVIDED IS MENTIONED IN AGREEMENT BETWEEN THE ASSESSEE AND THE SERVICE PROVIDER. THE SCOPE OF WORK ENLISTED IN ARTICLE 2 OF THE ABOVE AGREEMENT IS AS UNDER: - 2. SCOPE OF WORK. 2.1 THE MONO CONCENTRATES / TAILOR MADE MASTER BATCHES , TO BE DEVELOPED AND COMMERCIALIZED, WILL BE SUCH PRODUCTS WHICH WILL ENHANCE THE EXTRA PROPERTIES, BETTER WORKABILITY OF PES, PA AND THEIR COMPATIBILITY WITH OTHER FIBERS AND WILL A LSO INCLUDE SPECIFICALLY, THE FOLLOWING PRODUCTS (HEREINAFTER REFERRED TO AS NEW PRODUCTS) ARE COLLECTED BY PPL AS DESIRABLE DEVELOPMENT TARGETS: 2.1.1 CD MASTERBATCH 2.1.2 FR MASTERBATCH 2.1.3 METALLIC EFFECT MASTERBATCH 2.1.4 FRAGRANT MASTERBAT CH ' 2.1.5 HIGH PERFORMANCE PA - 6 SPINNING 2.1.6 DEEP DYEING 2.1.7 HIGH TENACITY MASTERBATCH Y. M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 12 2.1.8 LOW SHRINKAGE MASTERBATCH 2:1.9 MB FOR PTT YAM 2.1.10 MB FOR PLA YARN 2.1.11 MB FOR TEXTILE YAM FOR U.V PROTECTION. 2.1.12 REACTIVE CHAIN EXTENDER MB FOR PET YAM. 2.1.13 EASY DYEABLE MB 2.1.14 OTHERS, TO BE SPECIFIED IN CONSULTATION WITH BOTH THE PARTIES 10 . TO DETERMINE WHETHER THE TAX IS REQUIRED TO BE DEDUCTED ON THE ABOVE SUM OR NOT, FIRST WE NEED TO EXAMINE THE PROVISION OF THE INCOME TAX ACT TO ASCERTAIN WHETHER THE SUM IS CHARGEABLE TO TAX IN INDIA OR NOT. ACCORDING TO SECTION 5(2 ) OF THE ACT, ANY INCOME WHICH ACCRUES OR ARISE OR IS DEEMED TO ACCRUE OR ARISE TO A NON RESIDENT IN INDIA DURING THE P REVIOUS YEAR FORMS PARTS OF HIS TOTAL INCOME. ACCORDING TO SECTION 9(1)(VII) OF THE ACT, THE ABOVE INCOME IS INCOME BY WAY OF FEES FOR TECHNIC AL SERVICES AS SAME IS CONSIDERATION FOR TECHNICAL OR CONSULTANCY SERVICES. THEREFORE, ACCORDING TO SECTION 5(2) READ WITH SECTION 9(1)(VII) OF THE ACT, THE ABOVE SERVICES ARE CHARGEABLE TO TAX UNDER THE INDIAN INCOME TAX ACT, 1961. THIS HAS ALSO BEEN CONFIRMED IN THE CASE OF THE ASSESSEE FOR AY 2007 - 08 BY THE COORDINATE BENCH THAT SUCH SUM IS CHARGEABLE TO TAX U/S 9(1) (VII) OF THE ACT. IT IS ALSO NOT THE CLAIM OF THE ASSESSEE THAT IT IS NOT CHARGEABLE TO TAX AS PER PROVISIONS OF THE INCOME TAX ACT. HENCE THERE IS NO DOUBT ABOUT CHARGEABILITY OF SUCH SUM UNDER INCOME TAX ACT , 1961. 11 . FURTHER, AS THE RECIPIENT OF THE INCOME IS A RESIDENT OF GERMANY, THEREFORE, THE PROVISION OF DTAA BETWEEN INDIA AND GERMANY APPLIE S TO HIM AND HENCE, HE IS ENTITLED TO THE BENEFICIAL TREATMENT , IF AVAILABLE , UNDER DTAA . THEREFORE, IT IS NECESSARY TO EXAMINE THE PROVISIONS OF ARTICLE S OF DTAA ENTERED INTO BY INDIA AND GERMANY AND HOW THE IMPUGNED INCOME IS TREATED THEREIN . CLAIM OF THE ASSESSEE IS THAT SUCH INCOME FALLS UNDER ARTICLE 14 OF THE DTAA. ACCORDING TO PROVISION OF ARTICLE 14 OF DTAA INDEPENDENT PERSONAL SERVICES ARE DEALT WITH AS BELOW : - M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 13 ARTICLE 14 INDEPENDENT PERSONAL SERVICES 1. INCOME DERIVED BY AN INDIVIDUAL WHO IS A RESIDENT OF A CONTRACTING STATE FROM THE PERFORMANCE OF PROFESSIONAL SERVICES OR OTHER INDEPENDENT ACTIVITIES OF A SIMILAR CHARACTER SHALL BE TAXABLE ONLY IN THAT STATE EXCEPT IN THE FOLLOWING CIRCUMSTANCES WHEN SUCH INCOME MAY ALSO BE TAXED IN THE OTHER CONTRACTING STATE : ( A ) IF HE HAS A FIXED BASE REGULARLY AVAILABLE TO HIM IN THE OTHER CONTRACTING STATE FOR THE PURPOSE OF PERFORMING HIS ACTIVITIES, IN THAT CASE, ONLY SO MUCH OF THE INCOME AS IS ATTRIBUTABLE TO THAT FIXED BASE MAY BE TAXED IN THAT OTHER STATE ; OR ( B ) IF HIS STAY IN THE OTHER CONTRACTING STATE IS FOR A PERIOD OR PERIODS AMOUNTING TO OR EXCEEDING IN THE AGGREGATE 120 DAYS IN THE RELEVANT FISCAL YEAR; IN THAT CASE, ONLY SO MUCH OF THE INCOME AS IS DERIVED FROM HIS ACTIVITIES PERFORMED IN THAT OTHER STATE MAY BE TAXED IN THAT OTHER STATE. 2. THE TERM 'PROFESSIONAL SERVICES' INCLUDES INDEPENDENT SCIENTIFIC, LITERARY, ARTISTIC, EDUCATIONAL OR TEACHING ACTIVITIES, AS WELL AS THE INDEPENDENT ACTIVITIES OF PHYSICIANS, SURGEONS, LAWYERS, ENGINEERS, ARCHITECTS, DENTISTS AND ACCOUNTANTS. 12 . THE FACTS S HOWS THAT RECIPIENT OF INCOME DR. THEILE IS AN INDIVIDUAL RESIDENT OF GERMANY. HE HAS PROVIDED THE PROFESSIONAL SERVICES, WHICH ARE IN THE NATURE OF SCIENTIFIC SERVICES. HE DOES NOT HAVE ANY FIXED BASE IN INDIA OR HE HAS NOT STAYED FOR 120 DAYS OR MORE IN INDIA. FURTHER THERE IS NO DISPUTE THAT THE AGREEMENT IS BETWEEN DR THELEL , AN INDIVIDUAL RESIDING IN STATE OF GERMANY. ARTICLE 14 OF THE DTAA PROVIDES THAT INCOME DERIVED BY AN INDIVIDUAL BEING RESIDENT OF GERMANY , FROM THE PERFORMANCE OF PROFESSIONAL SE RVICES OR OTHER INDEPENDENT ACTIVITIES SHALL BE CHARGEABLE TO TAX ONLY IN GERMANY, IF HE DOES NOT HAVE ANY FIX BASE REGULARLY AVAILABLE TO HIM IN INDIA FOR PERFORMING HIS ACTIVITIES AND HE HAS NOT STAYED IN INDIA FOR A PERIOD OR PERIOD EXCEEDING 120 DAYS IN THE RELEVANT PREVIOUS YEAR. IT IS NOT THE CASE OF THE REVENUE THAT DR. THIELE HAS ANY FIX BASE IN INDIA OR HE STAYED FOR 120 DAYS OR MORE IN INDIA. PROFESSIONAL SERVICES UNDER ARTICLE 14(2) INCLUDES INDEPENDENT SCIENTIFIC M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 14 SERVICES ACTIVITIES. THE ASSE SSEE HAS SUBMITTED THE COPY OF THE VARIOUS TRIALS CONDUCTED BY DR. THIELE, WHICH ARE PLACED AT PAPER BOOK PAGE NO. 38 TO 61. THE ASSESSEE FURTHER PLACED VARIOUS EXCHANGE OF EMAILS BETWEEN THE ASSESSEE AND DR. THIELE AT PAGE NO. 67 TO 108 OF THE PAPER BOOK. ON PERUSAL OF THESE DOCUMENTS, IT IS APPARENT THAT SAME ARE FOR THE TRIALS CONDUCTED FOR THE PRODUCTION OF CATIONIC DYABLE PET MBS. PAGE NO. 81 OF THE PAPER BOOK ALSO SHOWS THE WORKING PROTOCOL BETWEEN THE ASSESSEE AND DR. THIELE. ON LOOKING AT THOSE EMAI LS, IT IS APPARENT THAT DR. THIELE IS PROVIDING INDEPENDENT SCIENTIFIC SERVICES TO THE ASSESSEE. IN VIEW OF THIS THE SERVICES RENDERED BY DR. THIELE ARE INDEPENDENT PERSONAL SERVICES COVERED BY ARTICLE 14 OF THE INDO - GERMANY DTAA. THEREFORE IT IS CLEAR THAT SAME IS GOVERNED BY ARTICLE 14 OF DTAA . IN THE IMMEDIATELY PRECEDING YEAR CLAIM OF ARTICLE 14 WAS REJECTED BY THE COORDINATE BENCH FOR THE ONLY REASON THAT ASSESSEE COULD NOT PROVE WITH EVIDENCE THAT THE PAYMENTS FALL UNDER THE CATEGORY OF INDEPENDENT PERSONAL SERVICES AS PER ARTICLE 14 OF THE DTAA. SUCH IS NOT THE CASE FOR THIS YEAR AS ALREADY MENTIONED. ASSESSEE HAS POINTED OUT EXHAUSTIVE DETAILS TO SHOW THAT SERVICES PROVIDED BY RECIPIENT OF CONSIDERATION FALLS IN THE CATEGORY OF IND EPENDENT SCI ENTIFIC SERVICES . IN VIEW OF THE FACTS ASSESSEE HAS ESTABLISHED IN THIS YEAR WITH CONCLUSIVE EVIDENCES WHICH ARE NOT CONTROVERTED BY REVENUE, IT IS ESTABLISHED THAT DR . THEILE, A GERMAN INDIVIDUAL HAS PROVIDE D PROFESSIONAL SERVICES IN THE NA TURE OF INDEPENDENT SCIENTIFIC SERVICES COVERED UNDER ARTICLE 14 OF THE DTAA. 13 . THE REVENUE IS H OLDING THAT SERVICES OF THE DR. THEILE ARE COVERED UNDER ARTICLE 12 OF DTAA PERTAINING TO ROYALTY AND FEES FOR TECHNICAL SERVICES WHICH IS AS UNDER : - ARTICLE 12 ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. ROYALTIES AND FEES FOR TECHNICAL SERVICES ARISING IN A CONTRACTING STATE AND PAID TO A RESIDENT OF THE OTHER CONTRACTING STATE MAY BE TAXED IN THAT OTHER STATE. M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 15 2. HOWEVER, SUCH ROYALTIES AND FEE S FOR TECHNICAL SERVICES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THEY ARISE AND ACCORDING TO THE LAWS OF THAT STATE, BUT IF THE RECIPIENT IS THE BENEFICIAL OWNER OF THE ROYALTIES, OR FEES FOR TECHNICAL SERVICES, THE TAX SO CHARGED SHALL NOT EXC EED 10 PER CENT OF THE GROSS AMOUNT OF THE ROYALTIES OR THE FEES FOR TECHNICAL SERVICES. 3. THE TERM 'ROYALTIES' AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK, INCLUDING CINEMATOGRAPH FILMS OR FILMS OR TAPES USED FOR RADIO OR TELEVISION BROADCASTING, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR THE USE OF, OR THE RIGHT TO USE, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. 4. THE TERM 'FEES FOR TECHNICAL SERVICES' AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY AMOUNT IN CONSIDERATION FOR THE SERVICES OF MANAGERIAL, TECHNIC AL OR CONSULTANCY NATURE, INCLUDING THE PROVISION OF SERVICES BY TECHNICAL OR OTHER PERSONNEL, BUT DOES NOT INCLUDE PAYMENTS FOR SERVICES MENTIONED IN ARTICLE 15 OF THIS AGREEMENT. 5. THE PROVISIONS OF PARAGRAPHS 1 AND 2 SHALL NOT APPLY IF THE BENEFICIAL O WNER OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES, BEING A RESIDENT OF A CONTRACTING STATE, CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE IN WHICH THE ROYALTIES OR FEES FOR TECHNICAL SERVICES ARISE, THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREI N, OR PERFORMS IN THAT OTHER STATE INDEPENDENT PERSONAL SERVICES FROM A FIXED BASE SITUATED THEREIN, AND THE RIGHT, PROPERTY OR CONTRACT IN RESPECT OF WHICH THE ROYALTIES OR FEES FOR TECHNICAL SERVICES ARE PAID IS EFFECTIVELY CONNECTED WITH SUCH PERMANENT ESTABLISHMENT OR FIXED BASE. IN SUCH CASE, THE PROVISIONS OF ARTICLE 7 OR ARTICLE 14, AS THE CASE MAY BE, SHALL APPLY. 6. ROYALTIES AND FEES FOR TECHNICAL SERVICES SHALL BE DEEMED TO ARISE IN A CONTRACTING STATE WHEN THE PAYER IS THAT STATE ITSELF, A LAND OR A POLITICAL SUB - DIVISION, A LOCAL AUTHORITY OR A RESIDENT OF THAT STATE. WHERE, HOWEVER, THE PERSON PAYING THE ROYALTIES OR FEES FOR TECHNICAL SERVICES, WHETHER HE IS A RESIDENT OF A CONTRACTING STATE OR NOT, HAS IN A CONTRACTING STATE A PERMANENT ESTAB LISHMENT OR A FIXED BASE IN CONNECTION WITH WHICH THE LIABILITY TO PAY THE ROYALTIES OR FEES FOR TECHNICAL SERVICES WAS INCURRED, AND SUCH ROYALTIES OR FEES FOR TECHNICAL SERVICES ARE BORNE BY SUCH PERMANENT ESTABLISHMENT OR FIXED BASE, THEN SUCH ROYALTIES OR FEES FOR TECHNICAL M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 16 SERVICES SHALL BE DEEMED TO ARISE IN THE STATE IN WHICH THE PERMANENT ESTABLISHMENT OR FIXED BASE IS SITUATED. 7. WHERE, BY REASON OF SPECIAL RELATIONSHIP BETWEEN THE PAYER AND THE BENEFICIAL OWNER OR BETWEEN BOTH OF THEM AND SOME OT HER PERSON, THE AMOUNT OF ROYALTIES OR FEES FOR TECHNICAL SERVICES PAID EXCEEDS THE AMOUNT WHICH WOULD HAVE BEEN PAID IN THE ABSENCE OF SUCH RELATIONSHIP, THE PROVISIONS OF THIS ARTICLE SHALL APPLY ONLY TO THE LAST - MENTIONED AMOUNT. IN SUCH CASE, THE EXCES S PART OF THE PAYMENTS SHALL REMAIN TAXABLE ACCORDING TO THE LAWS OF EACH CONTRACTING STATE, DUE REGARD BEING HAD TO THE OTHER PROVISIONS OF THIS AGREEMENT. 14 . ACCORD ING TO ARTICLE 12 OF THE DTAA, IF THE FEES FOR TECHNICAL SERVICES IS ARISING IN INDIA BUT PAID TO RESIDENT OF GERMANY THAN SUCH INCOME MAY BE TAXED IN GERMANY. HOWEVER , IF HE IS BENEFICIAL OWNER OF FTS , THEN SUCH INCOME MAY ALSO BE TAXED IN INDIA AND ACCORDING TO THE LAWS OF INDIA BUT NOT MORE THAN 10 % OF THE GROSS AMOUNT . IN THE PRE SENT CASE, THE CHARACTERIZATI ON OF INCOME OF DR. THIELE IS CORRECTLY MADE AS FEES FOR TECHNICAL SERVICES AND HE IS THE BENEFICIAL OWNER OF SUCH CONSIDERATION. THEREFORE, IF THE INCOME FALLS UNDER ARTICLE 12, THEN IT IS CHARGEABLE TO TAX @ 10 % IN INDIA. FURTHER , IF THE INCOME AS PER ARTICLE 14 IS ARISING OUT OF THE FIX BASE IN INDIA AND IF THE SERVICES PROVIDER STAYS FOR 120 DAYS OR MORE IN INDIA , THEN SUCH INCOME SHALL BE CHARGEABLE AS PER ATTRIBUTION RULES PERTAINING TO THE ACTIVITIES OR BASE I N INDIA. AS DR . THEILE DOES NOT HAVE ANY FIXED BASE AND DOES NOT SATISFY THE CONDITION OF THE MINIMUM STAY IN INDIA, HIS INCOME CANNOT BE TAXED IN INDIA BUT IN GERMANY ONLY AS PER ARTICLE 14 OF THE DTAA. FROM THE ABOVE GENERAL ANALYSIS , IT IS CLEAR ON PLA IN READING THAT THE INCOME IS CHARGEABLE TO TAX UNDER ARTICLE 14 AS WELL AS ARTICLE 12 OF THE DTAA . IT IS ALSO AN ESTABLISHED RULE OF THE INTERPRETATION OF TREATIES THAT SPECIFIC OR SPECIAL PROVISION IN TREATY SHALL PREVAIL OVER AND TAKE PRECEDENCE O VER THE GENERAL ONES . IN THE PRESENT CASE, THE PROVISION OF ARTICLE 14 OF THE DTAA IS MORE SPECIFIC AS IT APPLIES SPECIFICALLY TO PROFESSIONAL SERVICES PROVIDED BY THE INDIVIDUAL RESIDENT , HOWEVER, ARTICLE 12 PROVIDES FOR RESIDENTS OF FOREIGN COUNTRIES , THEREFORE, M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 17 ARTICLE 12 IS BROADER IN SCOPE AND GENERAL IN NATURE COMPARED TO ARTICLE 14 OF DTAA . FURTHER THE MEANING OF THE TERM FEES FOR TECHNICAL SERVICES IN ARTICLE 12 (4) OF THE DTAA EXCLUDE S ONLY INCOME COVERED UNDER ARTICLE 15 I.E. DEPENDENT PERSONAL SERVICES AND NOT INCOME COVERED UNDER ARTICLE 14 OF THE DTAA. THEREFORE , IF THERE CAN BE MANY INSTANCES OF SUCH INCOMES DERIVED BY THE INDIVIDUALS WHICH CAN BE CHARACTERIZED AS FEE FOR TECHNICAL SERVICES MAY ALSO BE COVERED UNDER ARTICLE 12 AS WELL AS ARTICLE 14 OF THE DTAA . ONLY DISTINGUISHING FEATURE IS THAT ARTICLE 12 IS AN OMNIBUS PROVISIONS FOR SUCH INCOME WHERE AS ARTICLE 14 IS A SPECIFIC PROVISIONS RELATED TO INDIVIDUALS. FURTHER ARTICLE 14 IS PARA MATERIAL SIMILAR TO ARTICLE 7 OF THE DTAA , THE ONLY DIFFERENCE BEING THAT ARTICLE 7 APPLIES TO ALL THE ENTERPRISES OF THE STATES WHEREAS THE ARTICLE 14 APPLIES TO INDIVIDUAL ONLY WHO EARN SUCH INCOME FROM SOURCES STATE. THEREFORE , WE HOLD THAT ARTICLE 14 IS A MORE SPECIFIC ARTICLE APPLICABLE TO THE IMPUGNED INCOME OF THE NONRESIDENT , SAME SHALL BE APPLIED AND NOT THE G ENERAL PROVISION OF ARTICLE 12 OF THE DTAA. IN TAKING SUCH A VIEW WE FIND SUPPORT FROM THE DECISION OF HONORABLE HIGH COURTS IN CIT V. COPES VULCAN INC. [1987] 167 ITR 884 ; [1987] 30 TAXMANN 549, [2004] 267 ITR 209 (KAR) IN AEG AKTIENGESLLSCHAFT V. COMMISSIONER OF INCOME - TAX . FURTHERMORE , WE ALSO DRAW SUPPORT FROM THE ADVANCE RULING IN CASE OF DIETER EBERHAND GUSTAV VAN DER MARK V CIT 235 ITR 698 (AAR) WHERE IT RULED THAT , IF THE APPLICANTS CASE FALLS UNDER A MORE BENEFICIAL PROVISION, IT WOULD BE FUTILE TO STRETCH THE INTERPRETATIO N TO BRING IT UNDER SOME OTHER PROVISION OF THE TREATY OR THE INCOME - TAX ACT. THIS POSITION IS TOO WELL ESTABLISHED TO REQUIRE ANY FURTHER ELABORATION. IN THIS CASE AAR WAS RENDERING ADVANCE RULING IN IDENTICAL CASE WHERE THE ISSUE OF INTERPRETATION OF TRE ATY BETWEEN INDIA AND GERMANY WAS INVOLVED WHERE IN ARTICLE 12 DOES NOT SPECIFICALLY EXCLUDE INCOME COVERED ARTICLE 14 OF THE DTAA. FURTHER LD AR HAS RELIED UP ON THE DECISION OF THE COORDINATE BENCHES IN CASE OF 86 ITD 384 IN CASE OF GRAPHITE IN DIA AND ANOTHER DECISION IN CASE OF 73 TAXMANN.COM 108 WHERE THE ISSUE INVOLVED WAS INDO US TAX TREATY , WHERE THE ARTICLE M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 18 12(5) ( E) SPECIFICALLY EXCLUDED INCOME COVERED UNDER INDEPENDENT PERSONAL SERVICES , THEREFORE , THEY DO NOT APPLY TO THE FACTS BEFORE US AS THERE IS NO SUCH SPECIFIC EXCLUSION IN ARTICLE 12 OF INDO GERMAN TAX TREATY. 15 . WITH RESPECT TO THE CLAIM OF THE LD AR THAT THE NON RESIDENT GERMAN INDIVIDUAL HAS NOT MADE AVAILABLE THE FEES FOR TECHNI CAL SERVICES TO THE ASSESSEE, HENCE SAME SHALL NOT BE TAXED UNDER ARTICLE 12 AT ALL. WE HAVE CAREFULLY READ THE ARTICLE 12 WHICH DOES NOT HAVE MAKE AVAILABLE CLAUSE FOR FEES FOR TECHNICAL SERVICES . FURTHER , AS CLAIMED BY THE ASSESSEE , ON PERUSAL OF PR OTOCOL TO DTAA OF INDIA AND FEDERAL REPUBLIC OF GERMANY , WE DO NOT FIND THAT IT CONTAINS ANY MOST FAVOURED NATION CLAUSE. HENCE . THIS ARGUMENT OF THE LD AR IS REJECTED. 16 . CLAIM OF THE REVENUE RESTS SOLELY ON THE DECISION OF THE COORDINATE BENCH IN 2 ITD 515 WHERE IN CASE OF GERMAN RESIDENT THE ISSUES IS DECIDED AND IT IS HELD THAT TAX IS REQUIRED TO BE WITHHELD. THE FACTS BEFORE THE COORDINATE BENCH WERE THAT THE ASSESSEE - COMPANY ENTERED INTO A CONSORTIUM AGREEMENT WITH A WEST GERMAN NON - RESIDENT FIRM U NDER WHICH THE LATTER WAS REQUIRED TO RENDER TECHNICAL CO - OPERATION, AND FEES AT SPECIFIED RATE WOULD BE PAID THEREFORE TO THE NON - RESIDENT. THE ASSESSEE CLAIMED THAT THE NON - RESIDENT WAS NOT ASSESSABLE TO TAX IN INDIA BY VIRTUE OF ARTICLE III OF THE DIREC T TAXES AVOIDANCE AGREEMENT BETWEEN INDIA AND THE FEDERAL REPUBLIC OF GER - MANY UNDER WHICH INDUSTRIAL OR COMMERCIAL PROFITS EARNED BY THE NON - RESIDENT WERE NOT LIABLE TO TAX. THE ASSESSEE, THEREFORE, REQUESTED THE ITO FOR A CERTIFICATE UNDER SECTION 195(2) SO THAT NO TAX NEED BE DEDUCTED AT SOURCE BEFORE MAKING REMITTANCE TO THE NON - RESIDENT. HOWEVER, THE ITO REJECTED THE ASSESSEES CLAIM AND THE COMMISSIONER (APPEALS) ALSO UPHELD THE ITOS DECISION. ACCORDING TO THE COMMISSIONER (APPEALS), THE AMOUNTS PAYA BLE WERE IN THE NATURE OF FEES FOR SERVICES RENDERED AND THE ASSESSEE, NOT BEING AN AGENT OF THE NON - RESIDENT, HAD NO RIGHT TO ARGUE ABOUT THE NATURE OF INCOME, ITS ASSESSABILITY OR OTHERWISE UNDER THE AGREEMENT, ETC., SINCE ALL THESE MATTERS WOULD BE DECI DED BY THE ITO ONLY AT THE TIME OF ASSESSING M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 19 THE NON - RESIDENT AND WOULD NOT BE RELEVANT TO DECIDE THE QUESTION OF DEDUCTION OF TAX AT SOURCE. ON THESE FACTS THE BENCH HELD THAT UNDER THE AVOIDANCE AGREEMENT, TAX IS NOT LEVIABLE ONLY ON INDUSTRIAL OR COMMER CIAL PROFITS. THIS TERM CANNOT INCLUDE INCOME IN THE FORM OF RENT, ROYALTIES, INTEREST, DIVIDEND, MANAGEMENT CHARGES, REMUNERATION FOR LABOUR OR PERSONAL SERVICES, OR INCOME FROM THE OPERATION OF SHIPS OR AIRCRAFTS. IN THE INSTANT CASE, THE ASSESSEE CARRIE D ON AN INDUSTRIAL PROJECT, BUT WHAT THE NON - RESIDENT DID, EVEN ON HIS OWN ADMISSION, WAS RENDERING CONSULTANCY SERVICES IN CONNECTION WITH THE INDUSTRIAL PROJECT OF THE ASSESSEE. SUCH CONSULTANCY SERVICES COULD NOT CONSTITUTE AN INDUSTRIAL ACTIVITY, SIN CE SUCH AN ACTIVITY ANTICIPATES MANUFACTURE OR AT LEAST A DISTINCT CONNECTION WITH THE SAME ON ONES OWN . ANY ANCILLARY ACTIVITY, MUCH LESS OF AN ADVISORY OR ASSISTANCE NATURE, CANNOT CONSTITUTE INDUSTRIAL ACTIVITY. SIMILARLY, COMMERCE ENVISAGES TRADING AC TIVITY IN THE FORM OF THE PURCHASE AND SALE OF A COMMODITY. ADMITTEDLY, THE NON - RESIDENT HAD NOT ENTERED INTO ANY BUSINESS ACTIVITY WITH THE ASSESSEE, OR WITH ANYONE ELSE. THE ABSENCE OF ALL THESE INGREDIENTS WILL THUS LEAD TO THE CONCLUSION , THAT THE RECE IPTS OF THE NON - RESIDENT THROUGH THE ASSESSEE WERE NOT INDUSTRIAL OR COMMERCIAL PROFITS. THUS, THE RECEIPTS OF THE NON - RESIDENT WERE CLEARLY CHARGEABLE TO TAX AND, CONSEQUENTLY, THE ASSESSEE WAS BOUND TO DEDUCT TAX AT SOURCE ON THE PAYMENTS MADE. THE COORD INATE BENCH FURTHER NOTED IN PARA NO 10 THAT IT IS POINTED OUT THAT WHAT LINDE DOES IS NOT PERSONAL SERVICES OF ANY TYPE BUT COMMERCIAL AND INDUSTRIAL ACTIVITIES, DIRECTED TOWARDS THE ORGANISATION AND WORKING OF A HUGE FERTILIZER FACTORY INVOLVING AN INVESTMENT OF MORE THAN RS. 400 CRORES. THIS IS CLEAR FROM THE TERMS OF THE AGREEMENT DETAILING THE RESPONSIBILITIES OF THE CONSORTIUM LEADER, THE NON - RESIDENT, AND THE PARTNERS, VIZ., THE ASSESSEE AND S.P. THE ANNEXURE TO THE AGREEMENT WHICH DETAILS THE ACTIVITIES TO BE PERFORMED BY THE ASSESSEE ALSO INDICATE THAT WHAT HE DOES IS AN INTEGRATED BUSINESS ACTIVITY CONSISTING OF SEVERAL FACETS RESULTING IN AN ULTIMATE PROFIT OR LOSS. THEREFORE, THE FACTS O F THE CASE SHOWS THAT FOREIGN RESIDENT WAS CONSULTING SERVICES SO COULD NOT BE HELD TO BE INDUSTRIAL OR COMMERCIAL M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 20 PROFITS. THE FACTS OF THE CASE BEFORE US IS QUITE DIFFERENT WHEREIN, THE SERVICES PROVIDED BY THE ASSESSEE FALLS UNDER ARTICLE 14 OF DTAA. TH EREFORE, RELIANCE PLACED ON THE ABOVE DECISION BY THE REVENUE IS NOT CORRECT. 17 . FURTHER ON IDENTICAL ISSUE IT HAS BEEN DECIDED IN CASE OF THE ASSESSEE FOR ASSESSMENT YEAR 2007 - 08 WHEREIN, IN PARA 6.6 IT HAS BEEN HELD THAT INCOME OF THE NON - RESIDENT IS CHARGEABLE TO TAX AS PER INCOME TAX ACT WITHIN THE PROVISION OF SECTION 9(1)(V II) OF THE ACT. WE HAVE CONCURRED WITH THE FINDING OF THE COORDINATE BENCH TO THAT EXTENT AND FOLLOWED IT FOR THE SAME REASONS. FURTHER, WITH RESPECT TO APPLICABILITY OF ARTICL E 14 THE COORDINATE BENCH HAS SPECIFICALLY HELD THAT THE ASSESSEE HAS FAILED TO DEMONSTRATE THAT THE SERVICES RENDERED BY DR. THIELE ARE INDEPENDENT SCIENTIFIC SERVICES AND THEREFORE, IT WAS HELD TO BE COVERED BY ARTICLE 12 OF THE DTAA BEFORE US. THE ASSES SEE HAS PRODUCED ENOUGH EVIDENCES PLACED AT PAGE NO. 29 TO 108 OF THE PAPER BOOK IN THE FORM OF LITERATURE THIELE, VARIOUS REPORTS OF DIFFERENT STATES OF VARIOUS DEVELOPMENT ACTIVITIES AND EXCHANGE OF SEVERAL EMAILS SHOWS THAT THE SERVICES PROVIDED BY THE GERMAN NATIONAL IS AN INDEPENDENT PROVIDING SCIENTIFIC SERVICES. THEREFORE, THE FACTS OF THE CASE IN VIEW OF THE SEVERAL EVIDENCES PRODUCED BEFORE US FOR THE CURRENT YEAR ARE DISTINGUISHED. HOWEVER, THE LD CIT(A) WHILE DECIDING APPEAL OF THE ASSESSEE HAS S IMPLY FOLLOWED THE DECISION OF THE COORDINATE BENCH FOR ASSESSMENT YEAR 2007 - 08 , WITHOUT LOOKING INTO THE VARIOUS EVIDENCE SUBMITTED BY THE ASSESSEE. IN VIEW OF THIS , WE HOLD THAT THE PAYMENT MADE BY THE ASSESSEE TO DR. THIELE WAS CHARGEABLE TO TAX U/S 9(1)(VII) OF THE ACT BUT BY VIRTUE OF ARTICLE 14 OF THE DTAA INCOME IS CHARGEABLE TO TAX ONLY IN GERMANY. THEREFORE, ASSESSEE IS NOT REQUIRE D TO WITH HOLD ANY TAX UNDER SECTION 195 OF THE ACT AND THEREFORE, NO DISALLOWANCE U/S 40(A)(I) CAN BE MADE. THEREFO RE WE REVERSE THE ORDERS OF THE LOWER AUTHORITIES HOLDING THAT IMPUGNED INCOME OF NON RESIDENT INDIVIDUAL IS COVERED UNDER ARTICLE 12 OF THE DTAA. ACCORDINGLY, GROUND NO. 1 OF THE APPEAL OF THE ASSESSEE IS ALLOWED. M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 21 18 . NOW FOR ASSESSMENT YEAR 2009 - 10 TH E ASSESSEE HAS RAISED THREE GROUNDS OF APPEALS AGAINST THE ORDER OF THE LD CIT(A) - XVII, NEW DELHI DATED 26.06.2014 , HOWEVER BEFORE US ONLY TWO GROUNDS, I.E. GROUND NO 1 AND 3 ARE PRESSED BEFORE US. GROUND NO 1 RELATED TO THE CONFIRMATION OF DISALLOWANCE U/S 40 (A) (I) ON FAILURE TO DEDUCT TAX AT SOURCES ON PROFESSIONAL SERVICE PAID TO INDIVIDUAL NON RESIDENTS , GROUND NO 3 RELATED TO DISALLOWANCE U/S 14 A OF THE ACT. 19 . THE GROUNDS OF APPEAL ARE AS UNDER: - 1. THE LD COMMISSIONER OF INCOME TAX (APPE ALS) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE AO IN MAKING DISALLOWANCE OF RS. 268980/ - AND RS. 1082175/ - U/S 40(A)(I) BY HOLDING THAT PAYMENT MADE TO DOCTOR U. THIELE AND DR. WERNER STIBAL RESPECTIVELY IS A PAYMENT TOWARDS FEES FOR T ECHNICAL SERVICES UNDER ARTICLE 12 OF DTAA WITH GERMANY AND SWISS CONFEDERATION RESPECTIVELY AND THUS LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S 195. HE HAS FURTHER ERRED IN NOT ACCEPTING THE CONTENTION OF THE ASSESSEE THAT PAYMENT IS FOR INDEPENDENT PERS ONAL SERVICES UNDER ARTICLE 14 OF THE SAID DTAAS AND THUS NOT LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S 195. 2. THE LD COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN CONFIRMING THE ACTION OF THE LD AO IN MAKING DISALLOWANCE OF RS. 2 34066/ - U/S 40(A)(I) BY HOLDING THAT PAYMENT MADE TO MR. ONDREJ BREJKA IS A PAYMENT TOWARDS FEES FOR TECHNICAL SERVICES LIABLE FOR DEDUCTION OF TAX AT SOURCE U/S 195. 3. THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) HAS ERRED ON FACTS AND IN LAW IN C ONFIRMING THE ACTION OF THE AO IN MAKING DISALLOWANCE OF RS. 329767/ - U/S 14A OF THE IT ACT R.W.R 8D OF IT RULES. 20 . GROUND NO. 1 INVOLVE S TWO PAYMENTS, FIRST PAYMENT OF RS. 268980/ - WHICH WAS DISALLOWANCE U/S 40(A)(I) WHERE PAYMENT IS MADE TO DR. U THIELE WHO IS A GERMAN INDIVIDUAL RESIDENT PROVIDED PROFESSIONAL SERVICES TO THE ASSESSEE. THE IDENTICAL FACTS AS HAS BEEN DECIDED BY US IN APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2008 - 09 WHEREIN, THE DISALLOWANCE U/S 40(A)(I) OF THE ACT WAS MADE. BOTH THE PA RTIES AGREED BEFORE US THAT THERE IS NO CHANGE IN THE FACTS AND CIRCUMSTANCES OF THE CASE OF THE APPELLANT AS WELL AS NATURE OF THE SERVICES AND APPLICABILITY OF RELEVANT ARTICLES OF DTAA BETWEEN INDIA AND GERMANY. IT WAS FURTHER SUBMITTED BY M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 22 PARTIES THAT THESE PAYMENT ARE ALSO MADE TO THE INDIVIDUAL FOR SIMILAR SERVICES. 21 . WE HAVE CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. THE IDENTICAL ISSUE HAS BEEN DECIDED BY US IN THE APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2008 - 09 WHEREIN, WE HAVE HELD THAT SUCH SERVICES ARE COVERED BY THE PROVISION OF SECTION 9(1)(VII) OF THE ACT AND ALSO BY VIRTUE OF ARTICLE 14 OF THE DTAA SUCH SUM ARE CHARGEABLE TO TAX IN GERMANY AND HENCE, NO TAX IS REQUIRED TO BE WITHHELD UNDER SECTION 19 5 OF THE ACT . F OR THE SIMILAR REASONS, WE DIRECT THE LD ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF RS. 2 68980/ - U/S 40(A)(I) WITH RESPECT TO PAYMENT MADE TO DR. U THIELE. 22 . THE SECOND ISSUE INVOLVED IN THE SAME GROUND IS WITH RESPECT TO DISALLOWANCE U/S 40(A)(I) OF RS. 1082175/ - MADE TO DR. WERNER STIBAL WHO IS RESIDENT OF SWISS CONFEDERATION WHO PROVIDED PROFESSIONAL SERVICES TO THE ASSESSEE. THE LD ASSESSING OFFICER NOTED THAT SIMILAR SERVICES WERE PROVIDED BY THE SWISS NATIONAL AND WHERE THERE IS SPECIFIC ARTICLE 12 FOR FEES FOR TECHNICAL SERVICES IT HAS TO BE CONSIDERED IN THAT ARTICLE ONLY. THEREFORE, HE REJECTED THE CLAIM OF THE ASSESSEE THAT THE INCOME OF THE FOREIGN NATIONAL FALLS UNDER THE ARTICLE 14 OF DTAA AND NO TAX IS REQUIRED TO BE DEDUC TED. THE LD CIT(A) ORIGINALLY MISSED THE ISSUE AND FAILED TO DECIDE ON MERIT AND SUBSEQUENTLY HE RECTIFIED HIS ORDER ON 08.08.2014 CONFIRMING THE VIEW OF THE LD ASSESSING OFFICER. 23 . THE LD AR REPEATED THE SAME ARGUMENT WHICH WERE ADVANCED BEFORE THE LD LO WER AUTHORITIES AND THE LD DR SUPPORTED THE ORDER OF THE LD LOWER AUTHORITIES. 24 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. IT IS UNDISPUTED FACTS THAT SERVICES HAVE BEEN PROVIDED BY AN INDIVIDUAL WH ICH ARE IN THE NATURE OF INDEPENDENT SCIENTIFIC SERVICES . ACCORDING TO THE ASSESSEE IT FALLS UNDER ARTICLE 14 OF THE DTAA WHEREAS REVENUE IS OF THE VIEW THAT IT FALLS UNDER ARTICLE 12 OF THE DTAA. 25 . ARTICLE 14 OF THE INDIA SWISS DTAA IS AS UNDER : - M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 23 ARTIC LE 14 INDEPENDENT PERSONAL SERVICES 1. - INCOME DERIVED BY A RESIDENT OF A CONTRACTING STATE IN RESPECT OF PROFESSIONAL SERVICES OR OTHER ACTIVITIES OF AN INDEPENDENT CHARACTER SHALL BE TAXABLE ONLY IN THAT STATE EXCEPT IN THE FOLLOWING CIRCUMSTANCES, WHEN SUCH INCOME MAY ALSO BE TAXED IN THE OTHER CONTRACTING STATE : ( A ) IF HE HAS A FIXED BASE REGULARLY AVAILABLE TO HIM IN THE OTHER CONTRACTING STATE FOR THE PURPOSE OF PERFORMING HIS ACTIVITIES; IN THAT CASE, ONLY SO MUCH OF THE INCOME AS IS ATTRIBUTABLE TO THAT FIXED BASE MAY BE TAXED IN TH AT OTHER STATE; OR ( B ) IF HIS STAY IN THE OTHER STATE IS FOR A PERIOD OR PERIODS AGGREGATING 183 DAYS OR MORE IN ANY 12 MONTH PERIOD COMMENCING OR ENDING IN THE FISCAL YEAR CONCERNED; IN THAT CASE, ONLY SO MUCH OF THE INCOME AS IS DERIVED FROM HIS ACTIV ITIES PERFORMED IN THAT OTHER STATE MAY BE TAXED IN THAT OTHER STATE. 2. THE TERM 'PROFESSIONAL SERVICES' INCLUDES ESPECIALLY INDEPENDENT SCIENTIFIC, LITERARY, ARTISTIC, EDUCATIONAL OR TEACHING ACTIVITIES AS WELL AS THE INDEPENDENT ACTIVITIES OF PHYSICIANS, LAWYERS, ENGINEERS, ARCHITECTS, SURGEONS, DENTISTS AND ACCOUNTANTS.] 26 . ARTICLE 12 OF THE INDO SWISS DTAA IS AS UNDER : - [ARTICLE 12 ] ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. - ROYALTIES AND FEES FOR TECHNICAL SERVICES ARISING IN A CONTRACTING STATE AND PAID TO A RESIDENT OF THE OTHER CONTRACTING STATE MAY BE TAXED IN THAT OTHER STATE. 2. HOWEVER, SUCH ROYALTIES AND FEES FOR TECHNICAL SERVICES MAY ALSO BE TAXED IN THE CONTRACT ING STATE IN WHICH THEY ARISE AND ACCORDING TO THE LAWS OF THAT STATE; BUT IF THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES IS A RESIDENT OF THE OTHER CONTRACTING STATE, THE TAX SO CHARGED SHALL NOT EXCEED 10 PER CENT OF THE GROSS AM OUNT OF THE ROYALTIES OR THE FEES FOR TECHNICAL SERVICES. 3. THE TERM 'ROYALTIES' AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF A LITERARY, M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 24 ARTISTIC, OR SCIENTIFIC WORK, INCLUDING CINEMATOGRAPH FILMS OR WORK ON FILM, TAPE OR OTHER MEANS OF REPRODUCTION FOR USE IN CONNECTION WITH RADIO OR TELEVISION BROADCASTING, ANY PATENT TRADEMARK, DESIGN OR MODEL, PLAN, SECRET FORMULA OR PROCESS, OR FOR THE USE OF, OR THE RIGHT TO USE, ANY INDUSTRIAL, COMMERCIAL, OR SCIENTIFIC EQUIPMENT, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. 4. FOR PURPOSES OF THIS ARTICLE THE TERM 'FEES FOR TECHNICAL SERVICES' MEANS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDER ATION FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES, INCLUDING THE PROVISION OF SERVICES BY TECHNICAL OR OTHER PERSONNEL. 5. NOTWITHSTANDING PARAGRAPH 4, 'FEES FOR TECHNICAL SERVICES' DOES NOT INCLUDE AMOUNTS PAID: ( A ) FOR TEACHING IN OR BY EDUCATIONAL INSTITUTIONS; ( B ) FOR SERVICES COVERED BY ARTICLE 14 OR ARTICLE 15, AS THE CASE MAY BE. 6. THE PROVISIONS OF PARAGRAPHS 1 AND 2 SHALL NOT APPLY IF THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES, BEING A RESIDEN T OF A CONTRACTING STATE, CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE IN WHICH THE ROYALTIES OR FEES FOR TECHNICAL SERVICES ARISE, THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN, OR PERFORMS IN THAT OTHER STATE INDEPENDENT PERSONAL SERVICES FROM A FIXED BASE SITUATED THEREIN, AND THE CONTRACT IN RESPECT OF WHICH THE ROYALTIES OR FEES FOR TECHNICAL SERVICES ARE PAID IS EFFECTIVELY CONNECTED WITH SUCH PERMANENT ESTABLISHMENT OR FIXED BASE. IN SUCH CASE, THE PROVISIONS OF ARTICLE 7 OR ARTICLE 14, AS THE CASE MAY BE, SHALL APPLY. 7. ROYALTIES AND FEES FOR TECHNICAL SERVICES SHALL BE DEEMED TO ARISE IN A CONTRACTING STATE WHEN THE PAYER IS THAT STATE ITSELF, A POLITICAL SUB - DIVISION, A LOCAL AUTHORITY OR A RESIDENT OF THAT STATE. WHERE, HOWEVER, THE PE RSON PAYING THE ROYALTIES OR FEES FOR TECHNICAL SERVICES, WHETHER HE IS A RESIDENT OF A CONTRACTING STATE OR NOT, HAS IN A CONTRACTING STATE A PERMANENT ESTABLISHMENT OR A FIXED BASE IN CONNECTION WITH WHICH THE LIABILITY TO PAY THE ROYALTIES OR FEES FOR T ECHNICAL SERVICES WAS INCURRED, AND SUCH ROYALTIES OR FEES FOR TECHNICAL SERVICES ARE BORNE BY SUCH PERMANENT ESTABLISHMENT OR FIXED BASE, THEN SUCH ROYALTIES OR FEES FOR TECHNICAL SERVICES SHALL BE DEEMED TO M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 25 ARISE IN THE STATE IN WHICH THE PERMANENT ESTAB LISHMENT OR FIXED BASE IS SITUATED.] 8. WHERE, BY REASON OF A SPECIAL RELATIONSHIP BETWEEN THE PAYER AND THE BENEFICIAL OWNER OR BETWEEN BOTH OF THEM AND SOME OTHER PERSON, THE AMOUNT OF THE ROYALTIES OR FEES FOR 1 [TECHNIC AL] SERVICES PAID EXCEEDS THE AMOUNT WHICH WOULD HAVE BEEN PAID IN THE ABSENCE OF SUCH RELATIONSHIP, THE PROVISIONS OF THIS ARTICLE SHALL APPLY ON THE LAST - MENTIONED AMOUNT. IN SUCH CASE, THE EXCESS PART OF THE PAYMENTS SHALL REMAIN TAXABLE ACCORDING TO TH E LAWS OF SUCH CONTRACTING STATE, DUE REGARD BEING HAD TO THE OTHER PROVISIONS OF THIS AGREEMENT. 27 . ACCORDING TO ARTICLE 12 (5) (B) MEANING OF THE TERM FEES FOR TECHNICAL SERVICES SPECIFICALLY EXCLUDES INCOME COVERED UNDER ARTICLE 14 AND 15 OF THE DTAA . THEREFORE , ISSUE IN THIS YEAR IS SPECIFICALLY COVERED IN FAVOUR OF THE ASSESSEE BY THE DECISION OF THE COORDINATE BENCH IN CASE OF GRAPHITE INDIA [2003] 127 TAXMAN 90 (KOLKATA)(MAG)/[2003] 86 ITD 384 (KOLKATA)/[2003] 78 TTJ 418 (KOLKATA) WHEREIN IDENTICAL ISSUE WITH RESPECT TO INDO US DTAA WAS IN QUESTION. THE COORDINATE BENCH HELD AS UNDER : - 7. THE PRIMARY THRUST OF RIVAL CONTENTIONS BEFORE US HAS BEEN IN SUPPORT OF THE ASSESSEES CONTENTION THAT THE IMPUGNED PAYMENT FOR CONSULTANCY FEES IS COVERED BY THE SCOPE OF EXPRESSION INDEPENDENT PERSONAL SERVICES WITHIN MEANINGS OF ARTICLE 15 OF THE INDO US DTAA, AND, OF COURSE, IN SUPPORT OF REVENUES CONTENTION, THAT THE IMPUGNED PAYMENT IS COVERED BY THE SCOPE OF FEES FOR TECHNICAL SERVICES TERMED AS FEES FOR INCLUDED SERVICES WITHIN MEANINGS OF ARTICLE 12(4) OF THE SAME. ON A CAREFUL ANALYS IS OF THE PROVISIONS OF THE ARTICLE 12, HOWEVER, EVEN THIS PROPOSITION SEEMS TO BE SOMEWHAT FALLACIOUS INASMUCH AS IN CASE THE IMPUGNED PAYMENT FALLS WITHIN THE SCOPE OF EXPRESSION INDEPENDENT PERSONAL SERVICES WITHIN MEANINGS OF ARTICLE 15, THE SAME SHA LL AUTOMATICALLY BE OUT OF AMBIT OF ARTICLE 12(4) SINCE, IN VIEW OF THE SPECIFIC PROVISIONS OF ARTICLE 12(5), NOTWITHSTANDING THE PROVISIONS OF ARTICLE 12(4), 'FEES FOR INCLUDED SERVICES' DOES NOT, INTER ALIA, INCLUDE AMOUNTS PAID TO ANY INDIVIDUAL FOR INDEPENDENT PERSONAL SERVICES AS DEFINED IN ARTICLE 15. IN OTHER WORDS, WHEN AN AMOUNT PAID TO AN INDIVIDUAL, OR FOR THAT PURPOSE A FIRM OF INDIVIDUALS, RESIDENT IN THE UNITED STATES OF AMERICA, IS FOUND TO BE CO VERED BY THE SCOPE OF EXPRESSION INDEPENDENT PERSONAL SERVICES WITHIN MEANINGS ASSIGNED IN ARTICLE 15 OF THE M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 26 INDO US DTAA, IT IS IMMATERIAL WHETHER OR NOT THE SAME IS COVERED BY THE SCOPE OF FEES FOR INCLUDED SERVICES, WHICH IN COMMON PARLANCE IS KNOWN AS FEES FOR TECHNICAL SERVICES, UNDER ARTICLE 12(4) OF THE INDO US DTAA. IN THAT EVENTUALITY, IN VIEW OF THE PROVISIONS OF ARTICLE 12(5), IF AT ALL THAT AMOUNT IS EXIGIBLE TO TAX IN INDIA, IT CAN ONLY BE TAXABLE UNDER ARTICLE 15 OF THE INDO US DTAA. TO THAT EXTENT, PROVISIONS OF ARTICLE 12(4) AND ARTICLE 15 ARE NON - COMPETING AND MUTUALLY EXCLUSIVE. 28 . THERE ARE ALSO SIMILAR CONDITION IN INDO SWISS DTAA IN ARTICLE 12 (5) (B) EXCLUDING PROFESSIONAL SERVICES UNDER ARTICLE 14 AND 15 OF THAT DTAA. THEREFORE, I T IS APPARENT THAT THE SERVICES ARE COVERED UNDER ARTICLE 14 OF THE DTAA AND NOT UNDER ARTICLE 12 OF DTAA. FURTHER IT IS NOT THE CASE OF THE REVENUE THAT THE SERVICES PROVIDED BY THE SWISS RESIDENT IS NOT PROFESSIONAL SERVICES AS DEFINED UNDER ARTICLE 14(2 ) OF DTAA. FURTHER, IT IS NOT THE CASE OF THE REVENUE THAT SUCH SERVICES ARE PROVIDED BY HIM FROM ITS FIXED BASE IN INDIA OR HE HAS STAYED FOR MORE THAN 183 DAYS IN INDIA. THEREFORE, WE HOLD THAT NO TAX IS REQUIRED TO BE DEDUCTED ON PAYMENT MADE TO DR. WER NER STIBAL WHO IS A RESIDENT OF SWISS CONFEDERATION AND RENDERED THE PROFESSIONAL SERVICES WITH RESPECT TO THE SIMILAR SERVICES AS PROVIDED BY DR. U THIELE, THEREFORE, THOSE SERVICES ARE INDEPENDENT, PERSONAL SERVICES IN THE NATURE OF INDEPENDENT SCIENTIFI C SERVICES WHICH SHALL BE TAXABLE ONLY IN SWISS CONFEDERATION. HENCE, NO TAX IS REQUIRED TO BE DEDUCTED ON SUM PAID BY THE ASSESSEE TO DR. WERNER STIBAL U/S 195 OF THE ACT. IN VIEW OF THIS GROUND NO. 1 OF THE APPEAL OF THE ASSESSEE IS ALLOWED . 29 . GROUND NO. 2 OF THE APPEAL IS NOT PRESSED THEREFORE, IT IS DISMISSED. 30 . GROUND NO. 3 OF THE APPEAL IS WITH RESPECT TO THE DISALLOWANCE OF RS. 329767/ - U/S 14A OF THE ACT. 31 . THE BRIEF FACTS OF THE ISSUE SHOW THAT DURING THE YEAR THE ASSESSEE HAS EARNED EXEMPT INCOME OF R S. 686257/ - AS DIVIDEND. ASSESSEE WAS ASKED TO SHOW THE APPLICABILITY OF PROVISIONS OF SECTION 14A . THE ASSESSEE SUBMITTED THAT IT HAS RECEIVED DIVIDEND FROM DALMIA CEMENT BHARAT LTD. THE SHARES WERE PURCHASED DURING THE YEAR AND AMOUNT WAS INVESTED FROM COMPANYS INTERNAL ACCRUAL . IT WAS FURTHER STATED THAT NO M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 27 EXPENDITURE WERE INCURRED BY THE ASSESSEE. THE LD AO REJECTED THE EXPLANATION OF THE ASSESSEE STATING THAT THE ASSESSEE IS KEEPING CONSOLIDATED ACCOUNTS OF ITS INCOME AND FURTHER THE ASSESSEE IS ALS O USING ADMINISTRATIVE, MANAGERIAL AND INFRASTRUCTURE SET UP FOR EARNING SUCH INCOME. HE FURTHER HELD THAT ASSETS OF THE COMPANY ARE ALSO USED BY THE ASSESSEE. THEREFORE, HE HELD THAT COMPONENT OF INTEREST OF RS. 234769/ - AND EXPENDITURE COMPONENT OF RS. 9 4998/ - TOTALING TO RS. 329767/ - IS DISALLOWABLE U/S 14A OF THE ACT. HOWEVER, HE WRONGLY DISALLOWED RS. 249178/ - U/S 14A OF THE ACT. THE ASSESSEE CONTESTED THE SAME BEFORE THE LD CIT(A) STATING THAT DISALLOWANCE MADE BY THE LD AO IS WRONGLY MENTIONED AT RS. 249178/ - BUT ACTUALLY DISALLOWANCE IS RS. 329767/ - . IT FURTHER STATED THAT THERE CANNOT BE ANY DISALLOWANCE BECAUSE OF INTEREST HOLDING THAT WORKING CAPITAL BORROWING CASH CREDIT LIMITED AND THE ASSESSEE IS HAVING CURRENT ASSET OF RS. 43.52 CRORES AGAINS T THE CASH CREDIT UTILISED OF ONLY RS. 4 CRORES , HENCE FULL CASH CREDIT ACCOUNT BORROWINGS ARE USED AND TIED UP IN CURRENT ASSETS AND NOT IN EXEMPT INCOME EARNING INVESTMENTS. WITH RESPECT TO EXPENDITURE, IT WAS STATED THAT THERE ARE NO ADMINISTRATIVE EX PENDITURE INCURRED BY THE ASSESSEE. THE LD CIT(A) REJECTED THE CONTENTION OF THE ASSESSEE AND CONFIRMED THE DISALLOWANCE. 32 . THE LD AR SUBMITTED THAT THERE IS NO SATISFACTION RECORDED BY THE LD AO. IT WAS FURTHER SUBMITTED THAT EVEN OTHERWISE THE SHARE CAPIT AL AND RESERVE S SURPLUS OF THE ASSESSEE IS RS. 38.19 CRORES, WHEREAS THE INVESTMENT IN EXEMPT INCOME GENERATING ASSETS IS ONLY RS. 3.79 CRORES THEREFORE, NO INTEREST DISALLOWANCE CAN BE MADE. WITH RESPECT TO THE EXPENDITURE IT WAS SUBMITTED THAT MERELY DIV IDEND IS RECEIVED WHICH IS DIRECT LY CREDIT INTO THE ACCOUNT OF THE ASSESSEE AND NO EXPENDITURE HAS BEEN INCURRED BY THE ASSESSEE. THEREFORE, HE STATED THAT DISALLOWANCE U/S 14A COULD NOT BE MADE. 33 . THE LD DR SUPPORTED THE ORDERS OF THE LOWER AUTHORITIES AND SUBMITTED THAT PROPER SATISFACTION HAS BEEN RECORDED BY THE LD AO. HE FURTHER STATED THAT WHEN THE SATISFACTION IS PROPERLY RECORDED ONLY ALTERNATIVE IS M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 28 APPLICABILITY OF RULE 8D WHICH HAS BEEN WORKED OUT BY THE LD AO FOR DISALLOWANCE. 34 . WE HAVE CAREFULL Y CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. THE LD AO HAS RAISED THE SPECIFIC QUERY ABOUT THE DISALLOWANCE U/S 14A OF THE ACT AND AFTER CONSIDERING THE REPLY OF THE ASSESSEE HE NOTED THAT INVESTMENT HAS BEEN MADE OUT OF CASH CREDIT ACCOUNT OF THE ASSESSEE AND FURTHER CASH CREDIT LOANS OF THE COMPANY HAVE BEEN USED FOR THE PURPOSES OF MAKING INVESTMENT. HE FURTHER STATED THAT RESOURCES OF THE COMPANY HAVE BEEN USED FOR MAKING INVESTMENTS AND EARNING DIVIDEND. THEREFORE , ACCORDING TO US PROPER SATISFACTION HAS BEEN RECORDED BY AO . FURTHER WHEN THE ASSESSEE HAS MADE A HUGE INVESTMENT OF RS. 3.80 CRORES IN A COMPANY IT CANNOT BE SAID THAT THERE NO EFFORTS OF THE BOARD AND OTHER COMMITTEE MEMBERS WERE USED. HOWEVER, WITH RE SPECT TO DISALLOWANCE OF INTEREST EXPENDITURE OF RS. 234769/ - , WE HOLD THAT ASSESSEE HAS OWN FUND AND NON INTEREST BEARING FUNDS AMOUNTING TO RS. 38 CRORES WHICH IS MORE THAN THE INVESTMENT OF RS. 3.8 CRORES IT COULD HAVE BEEN PRESUMED THAT THE INVESTMEN T IS MADE OUT OF INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. THEREFORE, RESPECTFULLY FOLLOWING THE DECISIONS OF THE HONBLE BOMBAY HIGH COURT IN CASE OF CIT VS. HDFC BANK LTD 366 ITR 505, WE DIRE CT THE LD AO TO DELETE THE DISALLOWANCE OF RS. 234769/ - ON ACCOUNT OF INTEREST. WITH RESPECT TO THE EXPENDITURE DISALLOWANCE OF RS. 94998/ - WE FIND NO FORCE IN THE ARGUMENT O F LD AR AND HENCE SAME IS CONFIRMED. ACCORDINGLY, OUT OF TOTAL DISALLOWANCE OF RS. 329767/ - U/ S 14A WE UPHOLD THE DISALLOWANCE OF OTHER EXPENSES OF RS. 94998/ - UNDER RULE 8D (2) (III) AND DELETE THE DISALLOWANCE ON ACCOUNT OF INDIRECT INTEREST EXPENSE OF RS. 234769/ - UNDER RULE 8D (2) (II) READ WITH SECTION 14A OF THE ACT. ACCORDINGLY, GROUND NO. 3 OF THE APPEAL IS PARTLY ALLOWED. 35 . ACCORDINGLY, APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2009 - 10 IS PARTLY ALLOWED. 36 . FOR ASSESSMENT YEAR 2010 - 11 THE ASSESSEE HAS FILED APPEAL AGAINST THE ORDER OF THE LD CIT(A) - XVII, NEW DELHI DATED 26.06.2014 WHEREIN, THE M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 29 DISALLOWANCE U/S 40(A)(I) OF THE ACT OF RS. 1211667/ - HAS BEEN CONFIRMED HOLDING IT TO BE PAYMENT MADE TO SWISS NATIONAL HOLDING IT TO B E COVERED UNDER ARTICLE 12 OF DTAA , WHEREAS, CLAIM OF THE ASSESSEE IS THAT SAME IS COVERED UNDER ARTICLE 14 OF THE DTAA. BOTH PARTIES CONFIRMED THAT THE FACTS AND CIRCUMSTANCES OF THE ISSUE ARE IDENTICAL TO THE FACTS OF ISSUE DECIDED BY US IN APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2009 - 10 . 37 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES . IT IS UNDISPUTED FACTS THAT SERVICES HAVE BEEN PROVIDED BY THE GERMAN NATIONAL DR. WERNER STIBAL, AN INDIVIDUAL , SWISS RESIDENT WHICH ARE I N THE NATURE OF INDEPENDENT SCIENTIFIC SERVICES. ACCORDING TO THE ASSES SEE IT FALLS UNDER ARTICLE 14 OF THE DTAA WHERE AS REVENUE IS OF THE VIEW THAT IT FALLS UNDER ARTICLE 12 OF THE DTAA. IDENTICAL ISSUE HAS BEEN DECIDED BY US IN APPEAL OF THE ASSESSEE FOR AY 2009 - 10 WHEREIN, PAYMENT TO THE SAME INDIVIDUAL DR. WERNER STIBA L WAS IN ISSUE. WE HAVE HELD THAT NO TAX IS REQUIRED TO BE DEDUCTED ON PAYMENT MADE TO SUCH PERSON AS SAME FALLS UNDER ARTICLE 14 OF THE DTAA. ACCORDING TO THAT SAME IS NOT CHARGEABLE TO TAX IN INDIA. FOR SIMILAR REASONS GIVEN THEREUNDER WE DELETE THE DISA LLOWANCE OF RS. 1211667/ - MADE BY THE LD AO U/S 40(A)(I) OF THE ACT. ACCORDINGLY, THE SOLITARY GROUND OF THE APPEAL FOR ASSESSMENT YEAR 2010 - 11 IS ALLOWED. 38 . THE APPEAL FOR THE AY 2011 - 12 FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD CIT(A) - XVII DATED 1 8.07.2014 WHEREIN, THE DISALLOWANCE MADE BY THE LD ASSESSING OFFICER U/S 40(A)(I) OF THE ACT IS CONFIRMED BY HOLDING THAT PAYMENT MADE TO DR. WENER STIBAL IS A PAYMENT TOWARDS FEES FOR TECHNICAL SERVICES UNDER ARTICLE 12 OF INDO - SWISS DTAA AND THUS TAX IS REQUIRED TO BE DEDUCTED U/S 195 OF THE ACT. THE CLAIM OF THE ASSESSEE IS THAT PAYMENT IS FOR INDEPENDENT PERSONAL SERVICES WHICH ARE COVERED UNDER ARTICLE 14 OF DTAA WHICH IS CHARGEABLE TO TAX ONLY IN THE COUNTRY OF THE RESIDENCE. BOTH THE PARTIES CONFIRME D THAT FACTS ARE IDENTICAL TO THE FACTS IN GROUND NO. 1 OF APPEAL OF THE ASSESSEE FOR ASSESSMENT YEAR 2009 - 10. M/S. PODDAR PIGMENTS LTD VS. ACIT, ITA NO. 5083, 5084, 5085 & 5086/DEL/2014 (ASSESSMENT YEAR: 2008 - 09 TO 2011 - 12) PAGE | 30 39 . WE HAVE CAREFULLY CONSIDERED THE RIVAL CONTENTIONS AND PERUSED THE ORDERS OF THE LOWER AUTHORITIES. IT IS UNDISPUTED FACTS THAT SERVICES HAVE BE EN PROVIDED BY THE GERMAN NATIONAL DR. WERNER STIBAL, AN INDIVIDUAL, SWISS RESIDENT WHICH ARE IN THE NATURE OF INDEPENDENT SCIENTIFIC SERVICES. ACCORDING TO THE ASSESSEE IT FALLS UNDER ARTICLE 14 OF THE DTAA WHERE AS REVENUE IS OF THE VIEW THAT IT FALLS UNDER ARTICLE 12 OF THE DTAA. IDENTICAL ISSUE HAS BEEN DECIDED BY US IN APPEAL OF THE ASSESSEE FOR AY 2009 - 10 WHEREIN, PAYMENT TO THE SAME INDIVIDUAL DR. WERNER STIBAL WAS IN ISSUE. WE HAVE HELD THAT NO TAX IS REQUIRED TO BE DEDUCTED ON PAYMENT MADE TO SUC H PERSON AS SAME FALLS UNDER ARTICLE 14 OF THE DTAA. ACCORDING TO THAT SAME IS NOT CHARGEABLE TO TAX IN INDIA. FOR SIMILAR REASONS GIVEN THERE UNDER WE DELETE THE DISALLOWANCE OF RS. 946207/ - MADE BY THE LD AO U/S 40(A)(I) OF THE ACT. ACCORDINGLY, THE SOLI TARY GROUND OF THE APPEAL FOR ASSESSMENT YEAR 2011 - 12 IS ALLOWED. 40 . ACCORDINGLY, ALL THE FOUR APPEALS FILED BY THE ASSESSEE ARE DISPOSED OFF. ORDER PRONOUNCED IN THE OPEN COURT ON 2 3 / 08 / 2018 . - S D / - - S D / - ( SUDHANSHU SRIVASTAVA ) (PRASHANT MAHARISHI) JUDICIAL MEMBER ACCOUNTANT MEMBER DATED: 2 3 / 08 / 2018 A K KEOT COPY FORWARDED TO 1 . APPLICANT 2 . RESPONDENT 3 . CIT 4 . CIT (A) 5 . DR:ITAT ASSISTANT REGISTRAR ITAT, NEW DELHI