DELOITTE HASKINS AND SELLS, MUMBAI V. ASST CIT 11(2), MUMBAI

ITA 5097/MUM/2011

• Counselvise Citation: [2016] 131 COUNSELVISE.COM (IT) 1642 (ITAT-MUMBAI)
• Duration Of Justice: 5 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-11-2016
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: L
• Next Hearing Date: 19-09-2016
• Assessment Year: 2004-2005
• Appeal Filed On: 30-06-2011
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: T R POOTE
• Keywords: Double taxation relief; Retrospective amendment; Permanent establishment; Advance ruling
• Section: 244A

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH L , MUMBAI , , BEFORE SHRI RAJENDRA , ACCOUNTANT MEMBER AND SHRI AMIT SHUKLA , JUDI CIAL MEMBER ITA NO. : 5096 /MUM/20 11 (ASSESSMENT YEAR: 2003 - 04 ) ITA NO. : 5097 /MUM/20 11 (ASSESSMENT YEAR: 2004 - 05 ) ITA NO. : 5094 /MUM/20 1 1 (ASSESSMENT YEAR: 200 5 - 0 6 ) DELOTTE HASKINS AND SELLS , 264 - 265 VASAWANI CHAMBERS, DR. A B ROAD, WORLI, MUMBAI - 400 030 PAN : AAC FD 4815 A VS ASST CI T 11 ( 2 ), AAYAKAR BHAVAN , M K ROAD, MUMBAI - 400 020 (APPELLANT) (RESPONDENT) APPELLANT BY : SHRI P J PARDIWALLA MISS VASANTI PATEL RESPONDE NT BY : SHRI T R POOTE /DATE OF HEARING : 19 - 09 - 201 6 / DATE OF PRONOUNCEMENT : 30 - 11 - 2016 ORDER , PER A MIT SHUKLA , J.M. : THE AFORESAID APPEALS HA VE BEEN FILED BY THE ASSESSEE AGAINST SEPARATE IMPUGNED ORDER S OF EVEN DATE , 2 2. 03 .201 1 FOR THE ASSESSMENT YEAR S 2003 - 04 AND 2004 - 05 AND ORDER 2 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 DATED 30.03.2011 FOR THE ASSESSMENT YEAR 2004 - 06, PASSED BY L D. CIT ( A PPEALS ) - 3, MUMBAI FOR THE QUANTUM OF ASSESSMENT PASSED UNDER SECTION 143(3). SINCE THE ISSUES INVOLVED IN ALL THE THREE APPEALS ARE COMMON ARISING OUT OF IDENTICAL SET OF FACTS, THEREFORE, SAME WERE HEARD TOGETHER AND ARE BEING DISPOSED OFF BY WAY OF THIS CONSOLIDATED ORDER. 2. AS A LEAD APPEAL , TO UNDERSTAND THE FACTS AND THE ISSUES INVOLVED, WE ARE TAKING UP THE APPEAL FOR ASSESSMENT YEAR 2003 - 04, WHEREIN, THE ASSESSEE HAS RAISED FOLLOWING GROUNDS: 1. PAYMENT OF SUBSCRIPTION FEES TO DELOITTE TOU CHE TOHMATSU 1. 1 THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONFIRMING DISALLOWANCE UNDER SECTION 4 0(A)(I) OF RS.24,05,014 IN RESPECT OF PAYMENTS OF SUBSCRIPTION FEES TO DELOITTE TOUCHE TOHMATSU, A SWISS VEREIN, ON THE GROUND THAT TAX OUGHT TO HAVE BEE N DEDUCTED; 1.2 THE LEARNED COMMISSIONER (APPEALS) OUGHT TO HAVE APPRECIATED THAT SUBSCRIPTION FEE PAID TO DELOITTE TOUCHE TOHMATSU WAS NOT CHARGEABLE TO TAX IN INDIA IN THE ABSENCE OF ACCRUAL/DEEMED ACCRUAL/RECEIPT OR DEEMED RECEIPT THEREOF AND THEREFOR E THE APPELLANT WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE FROM THE SUBSCRIPTION FEE PAID TO DELOITTE TOUCHE TOHMATSU; 1.3 THE LEARNED COMMISSIONER (APPEALS) OUGHT TO HAVE APPRECIATED THAT SUBSCRIPTION FEE PAID TO DELOITTE TOUCHE TOHMATSU WAS NOT CHARGEABLE TO TAX SINCE IT REPRESENTED REIMBU RSEMENT OF OPERATIONAL EXPENSES; 1.4 ALTERNATIVELY, THE LEARNED COMMISSIONER (APPEALS) OUGHT TO HAVE APPRECIATED THAT SUBSCRIPTION FEE WAS NOT CHARGEABLE TO TAX IN THE HANDS OF DELOITTE TOUCHE TOHMATSU IN VIE W OF THE PRI NCIPLE OF MUTUALITY; 1 .5 THE LEARNED COMMISSIONER (APPEALS) ERRED IN HOLDING THAT THE APPELLANT SHOULD HAVE APPROACHED THE ASSESSING OFFICER UNDER SECTION 195 FOR MAKING REMITTA NCE TO DELOITTE TOUCHE TOHMATSU; 3 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 1.6 WITHOUT PREJUDICE TO THE ABOVE, THE LEAR NED COMMISSIONER (APPEALS) OUGHT TO HAVE DIRECTED THE ASSISTANT COMMISSIONER TO RESTRICT THE DISALLOWANCE UNDER SECTION 40(A)(I) TO THE EXTENT OF NET AMOUNT DEBITED TO THE PROFIT AND LOSS ACCOUNT AFTER REDUCING R ECOVERY; 2. PAYMENTS FOR PROFESSIONAL SERVI CES 2.1 THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONFIRMING DISALLOWANCE OF RS.2,90,580 UNDER SECTION 40(A)(I) IN RESPECT OF PAYMENT OF PROFESSIONAL FEES TO DELOITTE TOUCHE TO H MATSU, CANADA ON THE GROUND THAT TAX OUGHT TO HAVE BEEN DEDUCTED ; 2.2 THE LE ARNED COMMISSIONER (APPEALS) OUGHT TO HAVE APPRECIATED THAT PROFESSIONAL FEE PAID TO DELOITTE TOUCHE TOHMATSU, CANADA WAS NOT CHARGEABLE TO TAX IN INDIA IN THE ABSENCE OF ACCRUAL OR DEEMED ACCRUAL/RE CEIPT OR DEEMED RECEIPT THEREOF; 2.3 ALTERNATIVELY, THE LEARNED COMMISSIONER (APPEALS) OUGHT TO HAVE APPRECIATED THAT PROFESSIONAL FEE PAID TO DELOITTE TOUCHE TOHMATSU, CANADA WAS NOT CHARGEABLE TO TAX IN VIEW OF ARTICLE 7 OF THE TAX TREATY BETWEEN INDIA AND CANADA; 2.4 THE LEARNED COMMISSIONER (APPEALS) ERRED IN CONFIRMING DISALLOWANCE OF RS.1,45,290 UNDER SECTION 40(A)(I) IN RESPECT OF PAYMENT OF PROFESSIONAL FEE TO DELOITTE TOUCHE TOHMATSU, NEW ZEALAND ON THE GROUND THAT TAX OUGHT TO HAVE BEEN DEDUCTED; 2.5 THE LEARNED COMMISSIONER (APPEALS) OUGHT TO HAVE A PPRECIATED THAT PROFESSIONAL FEES PAID TO DELOITTE TOUCHE TOHMATSU, NEW ZEALAND WAS NOT CHARGEABLE TO TAX IN INDIA IN THE ABSENCE OF ACCRUAL OR DEEMED ACCRUAL/RECEIPT OR DEEMED RECEIPT THEREOF. 3. INTEREST UNDER SECTION 244A THE LEARNED COMMISSIONER (APPE ALS) ERRED IN NOT DIRECTING THE ASSESSING OFFICER TO GRANT INTEREST UNDER SECTION 244A ( 1)(A) AT THE RATE OF RATE OF TWO - THIRD PER CENT FOR THE MONTH OF SEPTEMBER 2003. 3. THE BRIEF FACTS QUA THE ISSUE INVOLVED ARE THAT, THE ASSESSEE IS A FIRM OF CHARTER ED ACCOUNTANT S, WHICH HAD FILED ITS RETURN OF INCOME ON 27.11.2003 DECLARING TOTAL INCOME OF RS.42,46,760/ - . DURING THE COURSE OF THE ASSESSMENT 4 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 PROCEEDINGS, THE ASSESSING OFFICER NOTED THAT THE ASSESSEE HAS MADE PAYMENTS TOWARDS SUBSCRIPTION AND FEES AMOU NTING TO RS.27,32,335/ - WHICH WAS PAID TO SWISS VEREIN, DELOITTE TOUCHE TOHMATSU INTERNATIONAL (DTTL). THE ASSESSEE WAS REQUIRED TO FURNISH THE DETAILS OF TDS DEDUCTED ON SUCH PAYMENT AND ALSO SPECIFY THE NATURE OF PAYMENT. IN RESPONSE, THE ASSESSEE HAS GIVEN THE FOLLOWING BREAK - UP: - INVOICE NO. DATE NATURE OF PAYMENT TDS AMT (RS.) A SSESSEE S SHARE AMT. (RS.) DTT02 - SF187 1 FEBRUARY 2002 ALLOCATED SHARE OF DELOITTE TOUCHE TOHMATSUS OPERATION BUDGET FOR THE YEAR ENDING 31 MAY 2002 N IL 12,06,456 DTT03 - SF023 1 JUNE 2002 ALLOCATED SHARE OF DELOITTE TOUCHE TOHMATSUS OPERATION BUDGET FOR THE YEAR ENDING 31 MAY 2003 NIL 11,98,558 DTTSI02 - 36 17 JULY 2001 TECHNOLOGY SUBSCRIPTION CHARGES FOR THE PERIOD 1 JUNE 2001 TO 3 1 AUGUST, 2001 1,02,942 2,66,988 DTTSL02 118 16 OCTOBER 2001 TECHNOLOGY SUBSCRIPTION CHARGES FOR THE PERIOD 1 SEPTEMBER 2001 TO 30 NOVEMBER 2001 2,17,681 29,55,914 TOTAL 2,17,681 2 9,55,914 LESS: SHARE OF SUBSCRIPTION FEES RECEIVED FROM OTHER FIRM 2,23,579 DEDUCTION CLAIMED FOR SUBSCRIPTION FEES 27,32,335 REGARDING NON - DEDUCTION OF TDS FOR THE SUMS AGGREGATING TO RS.21,81,435/ - ( COMPRISING OF RS.12,06,456 + RS.1 1,98,558 RS.2,23,579) IT WAS SUBMITTED THAT ASSESSEE FIRM IS ASSOCIATED WITH DELOITTE TOUCHE TOHMATSU (DTT), WHICH IS A GLOBAL ORGANIZATION OF P ROFESSIONAL S ERVICE S F IRMS. APART FROM ASSESSEE FIRM THERE WERE OTHER INDIAN FIRMS ALSO WHICH WE RE ALSO ASSOCI ATED WITH DTT , WHICH IS A SWISS VEREIN ( I.E., ASSOCIATION ). THE MEMBERS OF THE VERIEN ARE PROFESSIONAL 5 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 SERVICE FIRMS IN SEVERAL COUNTRIES AROUND THE WORLD. THE OPERATIONAL EXPENDITURE OF DTT IS SHARED BY ITS MEMBER FIRMS. DTT RECOVERS THE AMOUNT OF THEIR O PERATING EXPENDITURE FROM ITS MEMBER FIRMS. THUS, IT WAS SUBMITTED THAT ASSESSEES SHARE OF DTT S OPERATIONAL EXPENDITURE WAS RS.21,81,435/ - ON WHICH ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE , BECAUSE, IT WAS IN THE NATURE OF REIMBURSEMENT OF EXPEN DITURE. IT WAS ALSO POINTED OUT THAT, THE SHARE OF OPERATIONAL EXPENDITURE WHICH WAS REMITTED TO DTT WITHOUT DEDUCTION OF TAX AT SOURCE WAS BASED ON THE CERTIFICATE OBTAINED FROM A CHARTERED ACCOUNTANT , WHO HAS CERTIFIED THAT NO TAX WAS REQUIRED TO BE DEDU CTED AT SOURCE OUT OF THE SAID REMITTANCE. 4. TH E LD. ASSESSING OFFICER FURTHER NOTED THAT, ASSESSEE HAS ALSO PAID PROFESSIONAL AND CONSULTANCY CHARGE S ON WHICH AGAIN FROM SOME OF THE PARTIES NO TAX AT SOURCE HAS BEEN DEDUCTED. THE DETAILS OF PROFESSIONAL CHARGES PAID AND NATURE OF SERVICES RENDERED WERE GIVEN IN THE FOLLOWING MANNER: NAME & ADDRESS OF THE PARTY AMOUNT PAID TDS AMT. & DATE SERVICES RENDERED 1 D & T CANADA, 98, MACDONELL STREET, SUIT 400, GEULPH, ONTARIO M1H4E1 RS.290,580 NIL PROFESSIONA L SERVICES 2 D & T CANADA, LONDON, HLL HOUSE, 1 LITTLE NEW STREET, LONDON EC4A3TR RS.383,250 NIL PROFESSIONAL SERVICES 3 D & T NEW ZEALAND, 61 MOLESWORTH STREET, PO BOX NO.1490, WELLINGTON, NEW ZEALAND RS.145,290 NIL PROFESSIONAL SERVICES 4 D & T, CA NADA, 98, MACDONELL STREET, SUIT 400, GEULPH, ONTARIO M1H431 RS.63,658 RS.23,249 29.08.2002 PROFESSIONAL SERVICES 5 D & T, NEW YORK, 1633 BROADWAY, 38 TH FLOOR, NEW YORK, NY 10019 RS.9,28,852 RS.1,93,847 5.7.2002 PROFESSIONAL SERVICES 6 D & T, NEW YORK 1633 BRO A DWAY, 38 TH FLOOR, NEW YORK, NY 10019 RS.2,52,512 RS.79,652 5.7.2002 PROFESSIONAL SERVICES 6 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 7 D & T, NEW ZEALAND, 61, MOLESWORTH STREET, PO BOX 1490, WELLINGTON, NEW ZEALAND RS.548021 RS.54374 17.03.2003 PROFESSIONAL SERVICES 8 D & T, NEW ZE ALAND, 61, MOLESWORTH STREET, PO BOX 1490, WELLINGTON, NEW ZEALAND RS.729535 RS.72383 17.03.2003 PROFESSIONAL SERVICES THE ASSESSING OFFICER REQUIRED THE ASSESSEE HAS TO WHY THE TDS HAS NOT BEEN DEDUCTED IN RESPECT OF PROFESSIONAL FEES PAID TO THE THREE PARTIES FOR SUMS AGGREGATING TO RS.8,20,320/ - (ILLUSTRATED AT SERIAL NO.1, 2 AND 3) . I N RESPONSE, THE ASSESSEE HIGHLIGHTED THE NATURE OF PAYMENT AND ALSO THE SERVICES RENDERED BY THEM AND IT WAS STATED THAT THESE SERVICES WERE RENDERED BY THE NON - RE SIDENT ENTITIES OUTSIDE INDIA AND SAME IS NOT TAXABLE IN INDIA EITHER IN TERMS OF SECTION 9(1)(I) OR SECTION 9(1)(VII). THE ASSESSEES SUBMISSIONS WITH REGARD TO AFORESAID THREE PARTIES BEFORE THE AO WERE AS UNDER: - PAYMENT TO DELOITTE TOUCHE TOHMATSU, NE W ZEALAND OF RS.1,45,290. WE WERE APPOINTED BY PUNJAB AGRO INDUSTRIAL CORPORATION LTD., A GOVERNMENT OF PUNJAB ENTERPRISE TO CARRY OUT A STUDY OF THE AQUA SECTOR AND ASSIST THE GOVERNMENT IN DEVELOPMENT OF ITS BUSINESS PLAN. IN THE PROCESS OF PROVIDING TH E ABOVE SERVICES, WE AVAILED SERVICES OF DELOITTE TOUCHE TOHMATSU, NEW ZEALAND. DELOITTE TOUCHE TOHMATSU, NEW ZEALAND IS A FIRM OF CERTIFIED PUBLIC ACCOUNTANTS. DELOITTE TOUCHE TOHMATSU, NEW ZEALAND RENDERED PROFESSIONAL SERVICES OF PROVIDING INFORMATION ON THE GLOBAL ENVIRONMENT IN THE AQUA SECTOR IN RESPECT OF THE MARKETS, COMPETITION, TECHNOLOGY AND REGULATIONS AND OTHER BEST PRACTICES FOLLOWED BY THE GLOBAL PLAYERS. THE ENTIRE SERVICES IN RELATION TO THIS JOB WERE PERFORMED OUTSIDE INDIA BY DELOITTE TO UCHE TOHMATSU, NEW ZEALAND. IN RESPECT OF THE AFORESAID SERVICES, DELOITTE TOUCHE TOHMATSU, NEW ZEALAND RAISED THE INVOICE DATED 9 OCTOBER 2002 FOR AN AMOUNT OF USD 3,000. A COPY OF THE INVOICE IS ENCLOSED AT PAGE 72 OF THE COMPILATION. WE HAVE MADE REMIT TANCE TO THE / 7 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 DELOITTE TOUCHE TOHMATSU, NEW ZEALAND WITHOUT DEDUCTION OF TAX AT SOURCE BASED ON THE CERTIFICATE OBTAINED FROM A CHARTERED ACCOUNTANT. IN THIS CONNECTION, WE ARE TO SUBMIT THAT DELOITTE TOUCHE TOHMATSU, NEW ZEALAND IS A NON - RESIDENT. FOR A N ON - RESIDENT, THE FOLLOWING INCOME IS LIABLE TO TAX IN INDIA: INCOME RECEIVED OR DEEMED TO BE RECEIVED IN INDIA INCOME ACCRUED OR ARISEN IN INDIA INCOME DEEMED TO ACCRUE OR ARISEN IN INDIA WE HAVE REMITTED FEES OF USD 3,000 (EQUIVALENT TO RS. 1,45,290) T O DELOITTE TOUCHE TOHMATSU, NEW ZEALAND OUTSIDE INDIA. THUS DELOITTE TOUCHE TOH M ATSU, NEW ZEALAND HAS RECEIVED FEES FOR PROFESSIONAL SERVICES OUTSIDE INDIA. THEREFORE, THE SAME CANNOT BE SAID TO BE RECEIVED IN INDIA OR DEEMED TO BE RECEIVED IN INDIA. SIMI LARLY, DELOITTE TOUCHE TOHMATSU, NEW ZEALAND HAS RENDERED THEIR PROFESSIONAL SERVICES OUTSIDE INDIA. THEREFORE, PAYMENT OF PROFESSIONAL FEES CANNOT BE SAID TO ACCRUE OR ARISE IN INDIA . PAY MENT TO DELOITTE & TOUCHE, LONDON RS.3,83,250 WE WERE APPOINTED BY C & M FARMING LTD IN CONNECTION WITH THEIR ARBITRATION PROCEEDINGS IN UK. IN THE PROCESS OR PROVIDING THE ABOVE SERVICES, WE AVAILED SERVICES OF DELOITTE & TOUCHE, LONDON. DELOITTE & TOUCHE, LONDON IS A PARTNERSHIP FIRM WHICH IS TAX RESIDENT OF UK DELOITTE & TOUCHE, L ON DON PROVIDED THE PROFESSIONAL SERVICES IN CONNECTION WITH THE ARBITRATION PROCEEDINGS IN UK . THE ENTIRE SERVICES IN RELATION TO THIS JOB WERE PERFORMED OUTSIDE INDIA BY DELOITTE & TOUCHE, LONDON IN RESPECT OF THE AFORESAID SERVICE S, DELOITTE & TOUCHE, LONDON RAISED THE INVOICE DATED 30 JULY 2002 FOR AN AMOUNT GB P 5,000. A COPY OF THE INVOICES IS ENCLOSED AT PAGE 73 OF THE COMPILATION. WE HAVE REMITTED GB P 5,000 TO DELOITTE & TOUCHE, LONDON WITHOUT DEDUCTION OF TAX AT SOURCE BASED O N THE CERTIFICATE OBTAINED FROM A CHARTERED ACCOUNTANT. IN THIS CONNECTION, WE ARE TO SUBMIT THAT DELOITTE & TOUCHE, LONDON IS A NON - RESIDENT. FOR NON RESIDENT, THE FOLLOWING INCOME IS LIABLE TO TAX IN INDIA: INCOME RECEIVED OR DEEMED TO BE RECEIVED IN IN DIA C L [ 8 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 INCOME ACCRUED OR ARISEN IN INDIA INCOME DEEMED TO ACCRUE OR ARISEN IN INDIA WE HAVE REMITTED FEES OF GB P 5,000 ('EQUIVALENT TO RS. 3,83,250) TO DELOITTE & TOUCHE, LONDON OUTSIDE INDIA. THUS DELOITTE & TOUCHE, LONDON HAS RECEIVED FEES FOR PROFESSIONA L SERVICES OUTSIDE INDIA. THEREFORE, THE SAME CANNOT HE SAID TO BE RECEIVED IN INDIA OR DEEMED TO BE RECEIVED IN INDIA. SIMILARLY, DELOITTE & TOUCHE, LONDON HAS RENDERED THEIR PROFESSIONAL SERVICES OUTSIDE INDIA. THEREFORE, PAYMENT OF PROFESSIONAL FEES CA NNOT BE SAID TO ACCRUE OR ARISE IN INDIA . PAYMENT TO DELOITTE TOUCHE TOHMATSU, CANADA OF RS.2,91, 780 / - WE WERE APPOINTED BY PUNJAB AGRO INDUSTRIAL CORPORATION LTD, A GOVERNMENT OF PUNJAB ENTERPRISE TO CARRY OUT A STUDY OF THE DAIRY SECTOR AND ASSIST THE GOVERNMENT IN DEVELOPMENT OF ITS BUSINESS PLAN. IN THE PROCESS OF PROVIDING THE ABOVE SERVICES, WE AVAILED SERVICES OF DELOITTE TOUCHE TOHMATSU, CANADA. DELOITTE TOUCHE TOHMATSU, CANADA RENDERED PROFESSIONAL SERVICES IN RESPECT OF PROVIDING INFORMATI ON OF THE GLOBAL ENVIRONMENT IN THE DAIRY SECTOR IN RESPECT OF THE MARKETS, COMPETITION, TECHNOLOGY AND REGULATIONS AND OTHER BEST PRACTICES FOLLOWED BY THE GLOBAL PLAYERS. THE ENTIRE SERVICES IN RELATION TO THIS JOB WERE PERFORMED OUTSIDE INDIA BY DELOIT TE TOUCHE TOHMATSU, CANADA. IN RESPECT OF THE AFORESAID SERVICES, DELOITTE TOUCHE TOHMATSU, CANADA RAISED THE INVOICE DATED 23 OCTOBER 2002 FOR AN AMOUNT OF USD 6,000. A COPY OF THE INVOICE IS ENCLOSED AT PAGE 74 OF THE COMPILATION. WE HAVE MADE REMITTANC E TO THE DELOITTE TOUCHE TOHMATSU, CANADA WITHOUT DEDUCTION OF TAX AT SOURCE BASED ON THE CERTIFICATE OBTAINED FROM A CHARTERED ACCOUNTANT. IN THIS CONNECTION, WE ARE TO SUBMIT THAT DELOITTE TOUCHE TOHMATSU, CANADA IS A NON - RESIDENT. FOR NON - RESIDENT, THE FOLLOWING INCOME IS LIABLE TO TAX IN INDIA: INCOME RECEIVED OR DEEMED TO BE RECEIVED IN INDIA INCOME ACCRUED OR ARISEN IN INDIA INCOME DEEMED TO ACCRUE OR ARISEN IN INDIA WE HAVE REMITTED FEES OF USD 6 ,000 (EQUIVALENT TO RS.2,91,780/ - TO DELOITTE TOUCHE TOHMATSU, CANADA OUTSIDE INDIA. THUS DELOITTE TOUCHE TOH M ATSU, CANADA HAS RECEIVED 9 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 FEES FOR PROFESSIONAL SERVICES OUTSIDE INDIA. THEREFORE, THE SAME CANNOT BE SAID TO BE RECEIVED IN INDIA OR DEEMED TO BE RECEIVED IN INDIA. SIMILARLY, DELOITTE TOUCHE TOHMA TSU, CANADA HAS RENDERED THEIR PROFESSIONAL SERVICES OUTSIDE INDIA. THEREFORE, PAYMENT OF PROFESSIONAL FEES CANNOT BE S AID TO ACCRUE OR ARISE IN INDIA. 5. A PART FROM THE ABOVE SUBMISSIONS , IT WAS SUBMITTED THAT, SINCE THE RELATIONSHIP AND DEALING WITH THE ASSESSEE AND THE SAID ENTITIES WAS ON PRINCIPAL TO PRINCIPAL BASIS , THEREFORE , THERE WAS NO BUSINESS CONNECTION OR ANY KIND OF CONTINUING RELATIONSHIP BETWEEN THE BUSINESS OF THE NON - RESIDENT AND THE IR ACTIVITY IN INDIA, THEREFORE, SUCH A TRANSACTIO N HAVE NOT RESULTED INTO BUSINESS CONNECTION IN INDIA IN TERMS OF SECTION 9(1)(I). IN SUPPORT, VARIOUS DECISIONS WERE RELIED UPON WHICH HAS BEEN NOTED BY THE AO ASSESSMENT ORDER . LASTLY, I T WAS ALSO SUBMITTED THAT THE SAID PAYMENT FOR PROFESSIONAL FEES WILL NOT FALL WITHIN THE AMBIT OF FEES FOR TECHNICAL SERVICES UNDER SECTION 9(1)(VII) , BECAUSE , PROFESSIONAL SERVICES CAN NOT BE RECKONED AS TECHNICAL SERVICES AND THE DEFINITION OF PROFESSIONAL SERVICES HAS BEEN SPECIFICALLY GIVEN IN SECTION 194J WHICH IS SEPARATE FROM DEFINITION OF FEE FOR TECHNICAL SERVICES . ANOTHER VERY IMPORTANT SUBMISSIONS WHICH WAS MADE BY THE ASSESSEE WITH REGARD TO PAYMENT MADE TO DTT SWITZERLAND WAS THAT , THE SAID ENTITY IS AN ORGANIZATION OF THE MEMBERS AND IT DOES NOT CARRY ON ANY INCOME EARNING ACTIVITY OF RENDERING PROFESSIONAL SERVICES AND IT OPERATES THROUGH CONTRIBUTIONS MADE BY THE MEMBERS, THEREFORE, PRINCIPLE OF MUTUALITY IS APPLICABLE AND HENCE , ON THIS SCORE ALSO THERE IS NO REQUIREMENT F OR DEDUCTING TDS. 10 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 6. TH E LD. ASSESSING OFFICER WITHOUT CONSIDERING THE ASSESSEES SUBMISSIONS WHICH HAS BEEN THOUGH INCORPORATED BY HIM IN THE ASSESSMENT ORDER, DREW HIS CONCLUSION BY PLACING HEAVY RELIANCE ON A DECIS IO N OF IT AT MUMBAI BENCH IN THE CASE OF ARTHUR ANDERSON AND CO . MUMBAI IN ITA NO. 9125/ MUM/ 1995 , ORDER DATED 29 TH JULY, 2003. HE, FIRST OF ALL, EXTRACTED THE RELEVANT PORTION OF THE DECISION OF THE TRIBUNAL AND OBSERVED AS UNDER: - 3.5 IT IS THEREFORE, EVIDENT THAT IN THIS CASE THE TRIBUNAL IS OF THE VIEW THAT W HEREVER THERE EXISTS A DOUBT AS TO THE CHARGEABILITY OF INCOME TO TAX, TAX MUST BE DEDUCTED EX - ABUNDANTI - CAUTEA (BY WAY OF ABUNDANT CAUTION). THE ASSESSEE SHOULD HAVE DEDUCTED THE TAX ON PAYMENTS MADE TO ITS SISTER ORGANIZATIONS (AS MENTIONED ABOVE) BASED OUTSIDE INDIA AND SHOULD HAVE FILED THE RETURN ON BEHALF OF ITS SISTER ORGANIZATIONS (AS REPRESENTATIVE ASSESSEE OR OTHERWISE) AND COULD HAVE CLAIMED REFUND IF IT WERE STILL OF THE VIEW THAT THE INCOME IS NOT CHARGEABLE TO TAX IN INDIA. THERE CERTAINLY EX ISTS A DOUBT ABOUT THE CHARGEABILITY OF INCOME TO TAX ON THE PRINCIPLE OF MUTUALITY SINCE THE ASSESSEE ITSELF HAS DEDUCTED TAX ON SOME OF THE PAYMENTS. THEREAFTER, HE REFERRED TO THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TRANSMISSION CORPORA TION OF ANDHRA PRADESH AND OTHERS VS . CIT, REPORTED IN 239 ITR 587 AND CAME TO THE CONCLUSION THAT, SINCE ASSESSEE HAS NOT MADE ANY APPLICATION UNDER SECTION 195 OR 197 T HEREFORE, THE PAYMENT MADE TO DT T , SWITZERLAND WITHOUT DEDUCTION OF TAX IS TO BE DISAL LOWED UNDER SECTION 40(A)(I) AND ACCORDINGLY, HE DISALLOWED SUM OF RS.24,05,014/ - . HE ALSO DISALLOWED THE PAYMENT OF LEGAL AND PROFESSIONAL CHARGES PAID TO THE 11 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 AFORESAID THREE PARTIES UNDER SECTION 40 (A) (I) FOR SUMS AGGREGATING TO RS.8,19,120/ - . 7 . BEFOR E THE LD. CIT(A) THE ASSESSEES SUBMISSIONS WITH REGARD TO PAYMENT MADE TO DTT SWITZERLAND, WAS THAT, FIRSTLY , IT WAS IN THE NATURE OF REIMBURSEMENT OF EXPENSES, THEREFORE, SAME CANNOT BE HELD TO BE PAY MENT CHARGEABLE TO TAX IN INDIA; AND SECONDLY , THE ASS ESSEE BEING A MEMBER OF DTT SWITZERLAND WHICH IS AN ASSOCIATION OF PROFESSIONAL ACCOUNTING FIRMS WORLDWIDE , CONTRIBUTE TO THE ASSOCIATION FOR WHICH THE LIKE OTHER MEMBERS IT IS ENTITLED TO RECEIVE CERTAIN , FACILITIES AND SERVICES FROM THE SAID ASSOCIATION AND, THEREFORE, THE PAYMENT TOWARDS ITS ALLOCATION OF SHARE OF COST S, FALLS WITHIN THE PRINCIPLE OF MUTUALITY AND HENCE ANY PAYMENT TO DTT WOULD BE EXEMPT FROM TAX. THE ASSESSEES DETAILED SUBMISSIONS HAVE BEEN DEALT AND INCORPORATED BY THE LD. CIT ( A) F ROM PAGES 3 TO 7 OF THE APPELLATE ORDER. 8. THE LD. CIT ( A ) HOWEVER CONFIR MED THE ORDER OF THE ASSESSING OFFICER ON THE GROUND THE SAME IS BASED ON THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF ARTHUR AND ANDERSON AND CO. AND HONBLE SUPREME COURT DECISION IN THE CASE OF TRANSMISSION CORPORATION OF ANDHRA PRADESH LTD . ( SUPRA ). REGARDING PRINCIPLE OF MUTUALITY, THE OBSERVATION OF THE LD. CIT ( A) READS AS UNDER: - 2.1.9 IT IS SEEN THAT THE PRIMARY CLAIM OF APPELLANT FOR NOT DEDUCTING TAX UNDER SECTION 195 IS ON THE PRINCIPLE OF MUTUALITY. AS PER THE PROVISIONS OF INCOME TAX ACT, IT IS A DEDUCTION UNDER SECTION 80P FOR MUTUALITY THAT CAN BE CLAIMED AGAINST THE TOTAL INCOME. THERE IS NO EXEMPTION FROM FILING RETURN OF INCOME EVEN THOUGH AN ASSESSEE'S TAX ABLE INCOME MAYBE NIL A FTER THE SAID CLAIM UNDER SECTION 80 P. ALL INCOME ARISING ON ACCOUNT OF BUSINESS AND 12 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 PROFESSION IS SUBJECT TO FILING OF RETURN AND AN ASSESSMENT BY T HE ASSESSING AUTHORITY. TO REITERATE, WHILE FILING RETURN OF INCOME AN APPELLANT CA N CLAIM THE DEDUCTION UNDER SECTION 80 P AND THEREBY FILE A NIL RETURN OF INCOME IF SUCH WAS WARRANTED ON THE FACTS OF ITS CASE BUT THAT SUCH AN INCOME WAS TAXABLE. IT IS SEEN THAT DTT HAS NEVER FILED A RETURN OF INCOME NOR CLAIMED DEDUCTION UNDER SECTION 80 P IN ANY OF THE EARLIER ASSESSMENT YEARS. APPELLANT WOULD HAVE BEEN AWARE OF THIS FACT, WHEN PROVIDING DETAILS TO THE CHARTERED ACCOUNTANT FOR OBTAINING THE CERTIFICATE AS REQUIRED UNDER SECTION 195. CONSEQUENTLY IT WAS NOT ESTABLISHED THAT DTT WAS AN E NTITY BASED ON AND OPERATING UNDER THE PRINCIPLES OF MUTUALITY UNDER THE INDIAN INCOME TAX ACT. THEREFORE, THERE WAS NO ASCERTAINABLE BASIS ON WHICH THE CHARTERED ACCOUNTANT AND/OR APPELLANT WHICH IS A FIRM OF CHARTERED ACCOUNTANTS, COULD HAVE FORMED AN OP INION THAT TAX WAS NOT DEDUCTIBLE AT SOURCE ON ACCOUNT OF THE PRINCIPLE OF MUTUALITY. MOREOVER, IN VIEW OF THE PROVISIONS OF THE INCOME TAX ACT, IT CANNOT BE CONSIDERED THAT DECISION IN RESPECT OF SUCH A CLAIM WOULD LIE WITH AN AUTHORITY OTHER THAN THE ASS ESSING OFFICER, WHO IS IN THE UNIQUE POSITION OF DETERMINING WHETHER ANY RECEIPTS TO DTT ON ACCOUNT OF PAYMENTS MADE BY ITS MEMBER ASSOCIATES I.E., APPELLANT WAS EXEMPT FROM DEDUCTION OF TAX AT SOURCE ON GROUNDS OF MUTUALITY. APPELLANT IN THE SUBMISSIONS H AS ALSO REFERRED TO A RECENT DECISION OF CHENNAI SPECIAL BENCH IN ITO VERSUS M/S PRASAD PRODUCTION LTD IN ITA NO. 663/MDS/2003. IT IS SEEN THAT HONORABLE ITAT CHENNAI HAS OBSERVED THAT PAYEE NEED NOT UNDERGO THE PROCEDURE OF SECTION 195 AT ALL IF HE IS OF THE BONA FIDE BELIEF THAT NO PART OF PAYMENT IS CHARGEABLE TO TAX IN INDIA. IN THE IMPUGNED MATTER, DISCUSSION INDICATES THAT THERE WAS NO SUBSTANTIVE GROUND FOR APPELLANT TO HAVE A BONA FIDE BELIEF THAT NO AMOUNT WAS CHARGEABLE TO TAX IN RESPECT OF THESE TWO PAYMENTS TO DTI. 2.1.10 APART FROM APPELLANT NOT ABLE TO ESTABLISH THAT THESE WERE OPERATIONAL EXPENSES PAYABLE BY APPELLANT TO DTT ON PRINCIPLES OF MUTUALITY, THERE IS ALSO NO EVIDENCE ON RECORD TO INDICATE THAT THE REMITTANCES MADE BY APPELLANT TO D TT CONSISTED ONLY OF PAYMENT OF OPERATIONAL 13 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 CHARGES AND THAT PAYMENTS WERE NOT OR DID NOT INCLUDE AMOUNTS FOR PROFESSIONAL OR TECHNICAL SERVICES. IN ABSENCE OF SUCH DETAILS, APPELLANT'S CLAIM THAT THE REMITTANCE TO DTT WAS NOT LIABLE FOR TAX DEDUCTION AT S OURCE DUE TO THE PRINCIPLE OF MUTUALITY IS PRIMA FACIE INCORRECT AND NOT IN CONSONANCE WITH THE PROVISIONS OF INCOME TAX ACT. ON THE ISSUE OF CLAIM OF REIMBURSEMENT OF EXPENSES TO DTT BY ASSESSEE, THE OBSERVATION OF LD. CIT (A) WAS AS UNDER: - 2.1.1 1 THE OTHER CLAIM OF APPELLANT IS THAT THIS PAYMENT WAS IN THE NATURE OF REIMBURSEMENT OF EXPENSES. IT IS TO BE OBSERVED THAT APPELLANT IS CLAIMING PAYMENT TO BE OF THE NATURE OF REIMBURSEMENT AND NOT THAT IT WAS FACTUALLY A REIMBURSEMENT. APPELLANT HAS CI TED VARIOUS CASE LAWS WHICH WERE SPECIFICALLY ON THE ISSUE OF REIMBURSEMENT OF EXPENSES AND NOT IN RESPECT OF PAYMENT IN THE NATURE OF REIMBURSEMENT. AS DISCUSSED SUPRA, APPELLANT HAS NOT BEEN ABLE TO ESTABLISH ANY ASCERTAINABLE BASIS REGARDING EXPENSES PE RTAINING TO APPELLANT'S SHARE EXCEPT STATING THAT AN INVOICE WAS RAISED UPON IT TO PAY THE SAME AS APPELLANT'S SHARE. AS OBSERVED BY THE AUTHORITY ON ADVANCE RULING IN DANFOSS INDUSTRIES (P) LTD. 2004) 268 ITR 001, WHEN THE DIRECT NEXUS BETWEEN ACTUAL COST INCURRED AND SUMS PAYABLE ARE INCONCLUSIVE, IT CANNOT BE STATED THAT IT IS IMBURSEMENT OF ACTUAL EXPENDITURE AND NO INCOME IS EMBEDDED IN THE P AYMENTS MADE AND THEREFORE, PAYMENTS HAVE TO BE MADE AFTER WITHHOLDING TAX. 2.1.2 IT IS ALSO NOT ASCERTAINABLE THAT THIS WAS REIMBURSEMENT OF EXPENSES BY APPELLANT AS APPELLANT IN THE SAME ARGUMENTS ALSO CLAIMS THAT THE PAYMENTS WERE SUBSCRIPTION FEE. DETAILS FILED BY APPELLANT ALSO INDICATE QUITE CLEARLY THAT THE PAYMENTS FORM PART OF CONTRACT REVENUES I.E. WHERE APPELLANT IS PAYING FOR EXPENSES WHICH ARE THE OBLIGATION OF RECIPIENT BUT ARE CONTRACTUALLY AGREED TO BE BORNE BY THE PAYER. THE PAYMENTS CAN, THEREFORE, BE REGARDED AS TAXABLE AND INCLUDED IN THE GROSS AMOUNT OF FEE FOR TECHNICAL SERVICES/ROYALTY. IN THE FACTS AND CIRCUMSTANCES OF THE CASE, THE CLAIM OF REIMBURSEMENT OF EXPENSES HAS ALSO NOT BEEN ESTABLISHED BY APPELLANT AND, THEREFORE, ON FACTS THE CITED CASE LAWS, WITH DUE RESPECT, ARE 14 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 NOT APPLICABLE. 2.1.3 IN VIEW OF THE FACTS AND CIRCUMSTANCES OF THE CASE DISCUSSED SUPRA AND FURTHER IN VIEW OF AO'S RELIANCE UPON (I) THE HONORABLE SUPREME COURT IN THE CASE OF TRANSMISSION CORPORATION SUPRA AND (II) THE DECISION OF HONORABLE ITAT IN ARTHUR ANDERSEN AND CO, THE VIEW OF THE AO THAT APPELLANT OUGHT TO HAVE APPROACHED THE ASSESSING OFFICER UNDER SECTION 195 IS HELD TO BE REASONABLE. IN VIEW OF THE DISCUSSION SUPRA, IT IS HELD THAT THE PAYMENTS MADE TO DTT STATED TO BE ON ACCOUNT OF APPELLANT'S SHARE OF OPERATIONAL CHARGES ARE NOT ALLOWABLE EXPENSES UNDER SEC TION 40(A)(I). THE ASSESSING OFFICER'S ACTION IN DISALLOWING THE SAME UNDER SECTION /40(A)(I) IS, THEREFORE, CONFIRMED. 9 . BEFORE US, LD. SENIOR COUNSEL , MR. PARDIWALLA SUBMITTED THAT, SO FAR AS THE REASON FOR DISALLOWANCE GIVEN BY THE ASSESSING OFFICER A S WELL AS LD. CIT(A) THAT THE ASSESSEE SHOULD HAVE FOLLOWED THE PROCEDURE LAID DOWN IN SECTIONS 195 AND 197 , THE SAME CANNOT BE UPHELD THAT FOR EVERY FOREIGN REMITTANCE OR PAYMENT, AUTHORIZATION FROM THE ASSESSING OFFICER ON AN APPLICATION HAS TO BE MADE EITHER FOR NIL OR LOWER TAX DEDUCTION. IF THE AMOUNT WHICH IS SUBJECT MATTER OF REMITTANCE HAS TO BE SEEN FROM THE PERSPECTIVE OF WHETHER THE INCOME IS CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE INCOME TAX ACT OR NOT. IF IT IS NOT CHARGEABLE UNDER THE ACT THEN THE AUTHORIZATION ENVISAGED UNDER SECTION 195(2)/195(3) IS NOT REQUIRED. IT IS ONLY IN THE CASE WHERE THE PART OF THE REMITTANCE IS CLAIMED TO BE NOT TAXABLE, THEN THE DEDUCTOR CANNOT DETERMINE WHICH PART OF THE REMITTANCE, TAX SHOU L D BE DEDUCTED . SUCH A DETERMINATION CAN ONLY BE DONE BY THE ASSESSING OFFICER UNDER SECTION 195. IF A SUM IS NOT CHARGEABLE TO TAX AT SOURCE IN THE HANDS OF THE NON - RESIDENT , THEN NO TAX IS REQUIRED TO BE DEDUCTED AT SOURCE. THE CRUCIAL 15 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 POINT FOR TRIGGERING THE PROVISI ON OF SECTION 195 IS THAT, THERE SHOULD BE SUM CHARGEABLE TO TAX UNDER THE ACT. HERE IN THIS CASE, THE ASSESSEE HAD SPECIFICALLY PLEADED THAT THE AMOUNT PAID TO DTT SWITZERLAND IS NOT CHARGEABLE TO TAX UNDER THE ACT, FIRSTLY , FOR THE REASON THAT, PRINCIPL E OF MUTUALITY SHOULD BE APPLIED ; AND SECONDLY , THE PAYMENT IS PURELY IN THE NATURE OF REIMBURSEMENT OF EXPENSES. EXPLAINING THE PRINCIPLE OF MUTUALITY, HE DREW OUR ATTENTION TO THE ARTICLES OF ASSOCIATION OF VERE I N DTT SWITZERLAND AND DREW OUR SPECIFIC A TTENTION TO ARTICLE 1, WHICH DEALS WITH SITUATION AND THE PURPOSE; ARTICLE 8 WHICH DEALS WITH THE FINANCE MATTERS AND EXPENDITURES; AND ARTICLE 12 DEALING WITH THE DISSOLUTION. AFTER REFERRING TO THE VARIOUS ARTICLES, HE HIGHLIGHTED THE FOLLOWING POINTS: - ( I ) THE ARTICLES OF VEREIN BEING THE CONSTITUTIONAL DOCUMENT ESTABLISHES THAT IT IS A MEMBER S ORGANIZATION, VARIOUS PROVISIONS OF ARTICLES SUCH AS OBJECTS, MEMBERS ELIGIBILITY CRITERIA, MANAGEMENT OF ACTIVITIES, DISTRIBUTION IN THE EVENT OF DISSOLUTION CLE ARLY ESTABLISHES THAT IT IS AN ORGANIZATION BY THE MEMBER, OF THE MEMBERS AND FOR THE MEMBERS; ( II ) THE VEREIN ITSELF DOES NOT CARRY ON ANY INCOME EARNING ACTIVITY OF RENDERING PROFESSIONAL SERVICES. THE EXPENSES OF VEREIN ARE MET THROUGH THE CONTRIBUTIONS BY I TS MEMBERS; ( III ) THE CONTRIBUTION IS MADE BY THE MEMBERS IN THE FORM OF ANNUAL SUBSCRIPTION FEES AND THE ARTICLES PROVIDE FOR DISTRIBUTION AMONGST MEMBERS IN THE EVENT OF WINDING UP; ( IV ) BASED ON ANNUAL BUDGETED EXPENSES OF DTT, MEMBERS ARE EXPECTED TO CONTRIBUTE I N THE PROPORTION OF THEIR SIZE 16 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 CONSIDERED ON THE BASIS OF THEIR RESPECTIVE GROSS REVENUE; AND ( V ) DTT IS A VEREIN ESTABLISHED IN ZURICH, SWITZERLAND. THE VEREIN HAS AN OFFICE IN THE USA. SUBSCRIPTION FEES WERE REMITTED TO THE US OFFICE OF THE VEREIN. THE BENEF ICIAL OWNER OF SUBSCRIPTION FEES IS DTT BEING ENTITY ESTABLISHED IN ZURICH, SWITZERLAND . 10. O N THE REIMBURSEMENT OF EXPENSES, HE SUBMITTED THAT, TRUE NATURE OF REMITTANCE IS ASSESSEES CONTRIBUTION TO ITS SHARE OF OPERATIONAL EXPENSES OF MEMBERS ORGA NIZATION OF WHICH IT IS A MEMBER. THIS IS EVIDENT FROM ARTICLE 8.1 OF THE VEREIN DOCUMENT WHICH PROVIDES THAT EACH MEMBER FIRM SHALL CONTRIBUTE TOWARDS ITS BUDGETED EXPENSE OF VEREIN. THE VARIATIONS OF ACTUAL EXPENSES WITH BUDGETED EXPENSES ARE ADJUSTED IN THE NEXT YEARS CONTRIBUTION. T HE CERTIFICATE FROM D T T (THE COPY OF WHICH HAS BEEN PLACED IN THE PAPER - BOOK AT PAGE 67 ) , CONFIRMS THAT THE SUBSCRIPTION FEES REMITTED BY THE ASSESSEE IS ONLY ALLOCATION OF SHARES OF ASSESSEES EXPENSES. THE SAID ALLOCATIO N IS WITHOUT ANY PROFIT OR MARK - UP. HE ALSO DREW OUR ATTENTION TO THE STATEMENT OF REVENUE AND EXPENDITURE ACCOUNT OF DTT AND ALSO THE INVOICES RAISED BY THEM. THUS, HE SUBMITTED THAT BEING IN THE NATURE OF REIMBURSEMENT OF EXPENSES; NO TDS WAS REQUIRED TO BE DEDUCTED. HE FURTHER SUBMITTED THAT, THE LD. CIT(A) HAS ERRONEOUSLY REFERRED TO SECTION 80P WHILE ADJUDICATING THE ISSUE OF PRINCIPLE OF MUTUALITY WHICH HAS NO BEARING OR ANY RELEVANCE IN THE CONTEXT OF ASSESSEES CASE. HE SUBMITTED THAT THE ENTIRE APPROACH OF ASSESSING OFFICER AND CIT(A) IS ERRONEOUS AS F IRST OF ALL, THE ASSESSING OFFICER OR CIT(A) SHOULD 17 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 HAVE DISCUSSED OR GIVEN A SPECIFIC FINDING THAT THE SUBSCRIPTION FEE PAID BY THE ASSESSEE TO DTT WAS IN FACT CHARGEABLE TO TAX UNDER THE ACT AND P ROVISION OF TDS ARE APPLICABLE , THEN ONLY DISALLOWANCE UNDER SECTION 40(A)(I) , IF AT ALL , COULD HAVE BEEN MADE. AS REGARDS THE STRONG RELIANCE PLACED BY THE ASSESSING OFFICER AND LD. CIT(A) ON THE DECISION OF ITAT, MUMBAI BENCH IN THE CASE OF ARTHUR ANDER SEN & CO. , HE SUBMITTED THAT THE RATIO OF THE SAID DECISION LOSES ITS SIGNIFICANCE IN THE LIGHT OF THE SUBSEQUENT JUDGMENT OF HONBLE SUPREME COURT IN THE CASE OF G E TECHNOLOGY CENTRE PVT . LTD VS. CIT, REPORTED IN 327 ITR 456. HE ALSO REFERRED TO ITAT DE CISION OF MUMBAI BENCH IN THE CASE OF K . S . AIYER AND CO., REPORTED IN [2013] 36 TAXMAN.COM 317 WHEREIN, THIS DECISION OF ARTHUR ANDERSEN & CO. HAS BEEN DISTINGUISHED BY THE COORDINATE BENCH . 11 . ON THE ISSUE OF PAYMENT FOR PROFESSIONAL SERVICES TO DTT NEW ZEALAND AND DTT CANADA, HE SUBMITTED THAT; FIRSTLY , THE SERVICES WERE RENDERED IN INDIA AND THE RELATIONSHIP BETWEEN THE ASSESSEE AND DTT CANADA AS WELL AS DTT NEW ZEALAND WAS OCCASIONAL ; AND SECONDLY, THERE WAS NO BUSINESS CONNECTION IN INDIA IN TER MS OF SECTION 9(1)(I). IN THE CONTEXT OF DTT CANADA, HE SUBMITTED THAT THE AFORESAID REMITTANCE IS PURELY IN THE NATURE OF PROFESSIONAL SERVICES FOR WHICH THERE IS SPECIFIC ARTICLE 14 UNDER INDIA - CANADA DTAA WHICH APPLIES TO THE SAID KIND OF PAYMENT. IF T H E SERVICES FOR WHICH THE SAID PAYMENT HAS BEEN MADE WAS ENTIRELY PERFORMED OUTSIDE INDIA AND THE NON - RESIDENT RECIPIENT DOES HAVE FIXED BASE OR PE IN INDIA OR NONE OF ITS EMPLOYEE OR PROFESSIONAL WAS IN INDIA FOR MORE THAN 183 DAYS, THEN SAME CANNOT BE H ELD TO BE TAXABLE 18 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 IN INDIA IN TERMS OF ARTICLE 14 , WHERE THE RIGHT TO TAX LIES WITH THE CANADA. APART FROM THAT, THE PROFESSIONAL FEES CANNOT BE SAID TO BE COVERED UNDER ARTICLE 12 AS FIS/FTS ALSO, BECAUSE THE SERVICES DO NOT MAKE AVAILABLE ANY KIND OF TEC HNICAL KNOWLEDGE, EXPERIENCE, SKILL OR KNOWHOW TO THE ASSESSEE. HENCE, IT CANNOT BE TAXED UNDER ARTICLE 12 ALSO. REGARDING DTT NEW ZEALAND, HE SUBMITTED THAT, HERE ALSO ARTICLE 14 OF INDIA - NEW ZEALAND DTAA PROVIDES THAT IF THE SERVICES HAVE BEEN PERFORMED OUTSIDE INDIA AND RECIPIENT DOES NOT HAVE ANY FIXED BASE OR PE IN INDIA OR NONE OF ITS EMPLOYEE OR PROFESSIONAL WAS IN INDIA FOR MORE THAN 183 DAYS, THEN SAME CANNOT BE TAXED IN INDIA. HOWEVER, SO FAR AS THE DEFINITION FOR FEES FOR TECHNICAL SERVICES UND ER ARTICLE 12(4), HE ADMITTED THAT SAME IS SIMILAR TO THE DEFINITION AS PROVIDED IN DOMESTIC LAW I.E., UNDER SECTION 9(1)(VII) R.W. EXPLANATION 2 OF THE INCOME TAX ACT . HOWEVER B EFORE THAT , TO FALL WITHIN THE DEFINITION OF FEE FOR TECHNICAL SERVICES, THE N ATURE OF SERVICES SHOULD BE IN THE CATEGORY SPECIFIED UNDER 9(1)(VII) R.W. EXPLANATION 2, THAT IS, RENDERING OF MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES. THE PROFESSIONAL SERVICES CAN NOT BE HELD TO BE COVERED UNDER SECTION 9(1)(VII) UNDER THE INCOME - T AX ACT BECAUSE SAME HAS BEEN SEPARATELY DEALT AND DEFINED UNDER SECTION 194J R.W. CLAUSE (A) OF EXPLANATION THERETO WHICH PROVIDES SEPARATE DEFINITION OF PROFESSIONAL SERVICES. 12 . ON THE OTHER HAND, THE LD. DR STRONGLY RELIED UPON THE FINDING OF THE CI T(A) ON BOTH THE ISSUES AND DREW OUR ATTENTION TO THE VARIOUS OBSERVATIONS MADE IN THE IMPUGNED ORDERS . TH EREAFTER HE POINTED OUT TO THE ALLOCATION OF THE EXPENSES IN THE CASE OF DTT SWITZERLAND AND POINTED OUT THAT 19 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 THE ALLOCATION OF EXPENSES IS DECIDED BY THE BOARD OF DIRECTORS AND NOT ON THE BASIS OF ACTUAL, THEN HOW CAN IT BE RECKONED AS REIMBURSEMENT OF EXPENSES. HE ALSO SUBMITTED THAT, THE PAYMENT IS MADE TO USA OFFICE AND NOT TO THE SWISS ENTITY, AS NOTED BY THE CIT(A) IN THIRD PARAGRAPH . T HE REIMBURS EMENT MEANS THE ACTUAL REIMBURSEMENT AND NOT WHICH COULD BE SOMETHING MORE OR SOMETHING LESS. ON THE ISSUE OF MUTUALITY HE SUBMITTED THAT MATTER CAN BE RESTORED BACK TO THE FILE OF AO TO EXAMINE THE RELATIONSHIP AND ACTIVITIES QUA THE MEMBERS. ON THE ISSUE OF DISALLOWANCE OF PROFESSIONAL FEES PAID TO TWO PARTIES , THE LD. DR STRONGLY RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 1 3 . IN THE REJOINDER, MR. PARDIWALLA CLARIFIED THAT, DTT SWI SS IS THE SOURCE ENTITY WHICH HAS OFFICE IN USA AND SUBSCRIPTION FE ES W ERE REMITTED FROM US OFFICE TO DTT SWITZERLAND. 1 4 . WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE RELEVANT FINDING GIVEN IN THE IMPUGNED ORDERS AS WELL AS MATERIAL PLACED ON RECORDS. WE WILL FIRST TAKE THE ISSUE OF DISALLOWANCE UNDER SECTION 40(A )(I) OF RS.24,05,014/ - IN RESPECT OF SUBSCRIPTION FEES PAID TO DTT SWISS VEREIN FOR NON - DEDUCTION OF TAX AT SOURCE. FROM THE MATERIAL PLACED ON RECORD, IT IS SEEN THAT, THE ASSESSEE FIRM WAS ASSOCIATED WITH DTT INTERNATIONAL WHICH IS A SWISS VEREIN (ASSO CIATION) , A GLOBAL ORGANIZATION OF P ROFESSIONAL SERVICES F IRM. ALL THE MEMBERS OF THE ASSOCIATION ARE RENDERING PROFESSIONAL SERVICES IN SEVERAL COUNTRIES AND OPERATIONAL EXPENDITURE OF DTT SWISS VERIEN IS SHARED BY ITS MEMBER FIRMS. THE VERIEN RECOVER S TH E AMOUNT OF THEIR OPERATING EXPENDITURE FROM THEIR 20 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 MEMBER FIRM S . THE NATURE AND CONSTITUTION AND PURPOSE HAVE BEEN ENUMERATED IN ARTICLE 1 OF VEREIN WHICH READS AS UNDER: - ARTICLE: 1 NAME, DOMICILE AND PURPOSES 1.1 NAME AND DOMICILE. A VEREIN IS HEREBY ES TABLISHED WITH DOMICILE IN ZURICH, SWITZER LAND, UNDER THE NAME OF DELOITTE TOUCHE TOHMATSU ('VEREIN'). THE VEREIN CONSISTS OF MEMBERS THAT ARE PROFESSIONAL FIRMS ('MEMBER FIRMS'). THE MEMBER FIRMS ARE ENGAGED IN RENDERING PROFESSIONAL SERVICES, TO THE EXT ENT THEY MAY LAWFULLY BE PERFORMED UNDER LOCAL LAWS (7.1), IN THE FIELDS OF ACCOUNTING, AUDITING, INSOLVENCY, LAW, MANAGEMENT CONSULTING, TAXATION AND RELATED SERVICES ('PROFESSIONAL SERVICES'). THE VEREIN IS GOVERNED BY THESE ARTICLES, BY THE SUPPLEMENTA L AGREEMENT AMONG THE MEMBER FIRMS SUPPLEMENTING THESE ARTICLES ('SUPPLEMENTAL AGREEMENT'), AND BY THE APPLICABLE PROVISIONS OF THE SWISS CIVIL CODE. 1.2 PURPOSES . THE PURPOSES OF THE VEREIN SHALL BE: (A) TO FURTHER INTERNATIONAL COOPERATION AND COHESION AMONG THE MEMBER FIRMS; (B) TO ASSURE THAT THEIR PRACTICES SHALL CONFORM TO PROFESSIONAL STANDARDS OF THE HIGHEST QUAL ITY; (C) TO ADVANCE THE INTERNATIONAL AND NATIONAL LEADERSHIP OF THE MEMBER FIRMS IN RENDERING PROFESSIONAL SERVICES; AND TO PERFORM AL L OTHER FUNCTIONS INCIDENTAL TO THE ABOVE PURPOSES . ARTICLE 8 DEALS WITH FINANCIAL MATTERS AND CLAUSE (B) OF THE SAID ARTICLE READS AS UNDER: - ( A ) EACH MEMBER FIRM SHALL CONTRIBUTE TOWARD THE BUDGETED OPERATING EXPENSES OF THE VEREIN FOR EACH FISCAL YEAR IN SUCH PROPORTIONS AS SHALL BE ALLOCATED BY THE BOARD OF DIRECTORS ; AND ( B ) THE AMOUNT ALLOCATED TO EACH MEMBER FIRM SHALL BE BASED UPON AGGREGATE REVENUES AND SUCH OTHER FACTORS, IF ANY, AS / 21 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 MAY BE DETERMINED BY THE BOARD OF DIRECTORS AND APPROVED BY THE MEMBER FIRMS. AND ARTICLE 12 DEALS WITH DISSOLUTION, WHICH READS AS UNDER: - 12.1 BY RESOLUTION. A DISSOLUTION OF THE VEREIN SHALL OCCUR IF A RESOLUTION TO THAT EFFECT IS, ADOPTED BY THE MEMBER FINNS. 12.2 DISTRIBUTIONS. UPON DISSOLUTION OF THE VEREIN, ANY LIQUI DATION PROCEEDS SHALL BE APPLIED IN THE FOLLOWING ORDER: (A) PAYMENT OR DISCHARGE OF ALL LIABILITIES OF THE VEREIN, INCLUDING ANY UNPAID PRINCIPAL OF AND ACCRUED INTEREST ON ANY LOANS AND ADVANCES MADE BY THE MEMBER FIRMS TO THE VEREIN; AND (B) PAYMENT OF ANY REMAINING BALANCE TO EACH MEMBER FINN IN THE PROPORTION THAT ITS ALLO - CATED CONTRIBUTIONS TO BUDGETED OPERATING EXPENSES OF THE VEREIN BEAR TO THE TOTAL BUDGETED OPERATING EXPENSES OF THE VEREIN FOR THE THEN CURRENT FISCAL YEAR, LESS ANY UNPAID PORTION OF THE MEMBER FINN'S CONTRIBUTION OUTSTANDING ON THE DATE OF DISSOLUTION . FROM THE READING OF ABOVE ARTICLES, IT IS SEEN THAT THE ASSOCIATION CONSTITUTES OF MEMBER FIRMS WHICH ARE ENGAGED IN RENDERING OF PROFESSIONAL SERVICES AND THE PURPOSE OF VEREIN I S TO FURTHER THE INTERNATIONAL COOPERATION AND COHESION AMONG THE MEMBER FIRMS; TO ASSURE THAT PRACTICES OF THE MEMBERS SHALL CONFORM TO PROFESSIONAL STANDARDS OF HIGHEST QUALITY; TO ADVANCE THE INTERNATIONAL AND NATIONAL LEADERSHIP OF THE MEMBER FIRMS IN RENDERING PROFESSIONAL SERVICES , ETC. EACH MEMBER CONTRIBUTES TOWARDS THE BUDGETED OPERATING EXPENSES OF VEREIN IN SUCH PROPORTION WHICH HAS BEEN 22 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 ALLOCATED TO THEM. THE AMOUNT ALLOCATED TO THE EACH MEMBER FIRM IS BASED ON AGGREGATE REVENUES AND OTHER FACTO RS AS ILLUSTRATED THEREIN . IN PURSUANCE OF SUCH ALLOCATION, INVOICES WERE ISSUED BY DTT TO ASSESSEE IN INDIA ALLOCATING THE DTTS OPERATIONAL BUDGET . THIS IS EVIDENT FROM CERTIFICATE OF THE CHARTERED ACCOUNTANT GIVEN AT PAGE 67. WHILE MAKING THE SAID PAYME NT, THE ASSESSEE HAD NOT DEDUCTED THE TDS INTER ALIA ON THE GROUND THAT , FIRSTLY, THE RELATIONSHIP BETWEEN THE DTT AND ITS MEMBER IS BASED ON PRINCIPLE OF MUTUALITY , THEREFORE, THE VEREIN ITSELF DOES NOT EARN ANY INCOME OR RENDERS ANY KIND OF PROFESSIONA L SERVICES AND T HE EXPENSES ARE MADE THROUGH CONTRIBUT ION BY ITS MEMBERS; AND SECONDLY, THE REIMBURSEMENT OF EXPENSES IS BA SED ON ALLOCATION MADE BY THE DT T WHICH IN TURN IS ON THE BASIS OF ACTUAL EXPENSES. HOWEVER BOTH THE AUTHORITIES, ASSESSING OFFICER A S WELL AS CIT ( A) , INSTEAD OF ADJUDICATING THE ISSUE WHETHER THE SUBSCRIPTION FEES PAID BY THE ASSESSEE TO DTT SWITZERLAND IS TAXABLE UNDER THE ACT IN INDIA OR NOT , HA VE PROCEEDED TO DISALLOW THE PAYMENT ON THE PREMISE THAT EVEN IF THERE EXISTED A DOUBT RE GARDING CHARGEABILITY OF INCOME TAX, THE ASSESSEE SHOULD HAVE ANY WAY DEDUCTED THE TAX AND SHOULD HAVE COMPLIED WITH THE PROVISION OF SECTION 195 AND 197. IN SUPPORT, STRONG RELIANCE HAS BEEN PLACED ON THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF ARTHU R ANDERSEN & CO. AND HONBLE SUPREME COURT JUDGMENT IN THE CASE TRANSMISSION CORPORATION ANDHRA PRADESH (SUPRA). 15. IN OUR OPINION, BEFORE INVOKING THE PROVISION OF SECTION 195 FOR MAKING ABSOLUTE OBLIGATION UPON THE ASSESSEE TO COMPLY WITH SUCH PRO VISION, THE PRE - REQUISITE CONDITION IS 23 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 THAT, THE SUM WHICH IS SUBJECT MATTER OF REMITTANCE SHOULD BE FIRST HELD TO BE CHARGEABLE TO TAX IN THE HANDS OF THE NON - RESIDENT IN INDIA UNDER THE PROVISIONS OF THE ACT . PRELUDE TO INVOKING OF SECTION 195 IS THAT, T HE SUM SHOULD BE CHARGEABLE UNDER THE PROVISIONS OF THE INCOME - TAX ACT . IF THE SUM IS NOT CHARGEABLE TO TAX UNDER THE PROVISIONS OF THE ACT THEN NO TAX IS REQUIRED TO BE DEDUCTED AT SOURCE AND CONSEQUENTIALLY SECTION 195 HAS NO APPLICABILITY. THE HONBLE S UPREME COURT IN THE CASE OF GE INDIA T ECHNOLOGY CENTRE PVT . LTD VS . CIT (SUPRA) AFTER TAKING NOTE OF THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TRANSMISSION CORPORATION LTD ANDHRA PRADESH LTD (SUPRA) (WHICH HAS BEEN RELIED UPON BY THE AUTHORITIES BELOW) OBSERVED AS UNDER: - THE MOST IMPORTANT EXPRESSION IN S. 195(1) CONSISTS OF THE WORDS 'CHARGEABLE UNDER THE PROVISIONS OF THE ACT'. A PERSON PAYING INTEREST OR ANY OTHER SUM TO A NON - RESIDENT IS NOT LIABLE TO DEDUCT TAX IF SUCH SUM IS NOT CHARGEABL E TO TAX UNDER THE IT ACT. FOR INSTANCE, WHERE THERE IS NO OBLIGATION ON THE PART OF THE PAYER AND NO RIGHT TO RECEIVE THE SUM BY THE RECIPIENT AND THAT THE PAYMENT DOES NOT ARISE OUT OF ANY CONTRACT OR OBLIGATION BETWEEN THE PAYER AND THE RECIPIENT BUT IS MADE VOLUNTARILY, SUCH PAYMENTS CANNOT BE REGARDED AS INCOME UNDER THE IT ACT. IT MAY BE NOTED THAT S. 195 CONTEMPLATES NOT MERELY AMOUNTS, THE WHOLE OF WHICH ARE PURE INCOME PAYMENTS, IT ALSO COVERS COMPOSITE PAYMENTS WHICH HAS AN ELEMENT OF INCOME EMBED DED OR INCORPORATED IN THEM. THUS, WHERE AN AMOUNT IS PAYABLE TO A NON - RESIDENT, THE PAYER IS UNDER AN OBLIGATION TO DEDUCT TAX AT SOURCE IN RESPECT OF SUCH COMPOSITE PAYMENTS. THE OBLIGATION TO DEDUCT TAX AT SOURCE IS, HOWEVER, LIMITED TO THE APPROPRIATE PROPORTION OF INCOME CHARGEABLE UNDER THE ACT FORMING PART OF THE GROSS SUM OF MONEY PAYABLE TO THE NON - RESIDENT. THIS OBLIGATION BEING LIMITED TO THE APPROPRIATE PROPORTION OF INCOME FLOWS FROM THE WORDS USED IN S. 195(1), NAMELY, 'CHARGEABLE UNDER THE PR OVISIONS OF THE ACT'. IT IS FOR THIS REASON THAT VIDES CIRCULAR NO. 728, DT. 30TH OCT., 1995 THE CBDT HAS CLARIFIED THAT THE TAX DEDUCTOR CAN TAKE INTO CONSIDERATION THE EFFECT OF DTAA IN RESPECT OF PAYMENT OF ROYALTIES AND TECHNICAL FEES WHILE 24 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 DEDUCTING T AX AT SOURCE. THE APPLICATION OF S. 195(2) PRE - SUPPOSES THAT THE PERSON RESPONSIBLE FOR MAKING THE PAYMENT TO THE NON - RESIDENT IS IN NO DOUBT THAT TAX IS PAYABLE IN RESPECT OF SOME PART OF THE AMOUNT TO BE REMITTED TO A NON - RESIDENT BUT IS NOT SURE AS TO W HAT SHOULD BE THE PORTION SO TAXABLE OR IS NOT SURE AS TO THE AMOUNT OF TAX TO BE DEDUCTED. IN SUCH A SITUATION, HE IS REQUIRED TO MAKE AN APPLICATION TO THE ITO ( TDS) FOR DETERMINING THE AMOUNT. IT IS ONLY WHEN THESE CONDITIONS ARE SATISFIED AND AN APPLIC ATION IS MADE TO THE ITO(TDS) THAT THE QUESTION OF MAKING AN ORDER UNDER S. 195(2) WILL ARISE. WHILE DECIDING THE SCOPE OF S. 195(2) IT IS IMPORTANT TO NOTE THAT THE TAX WHICH IS REQUIRED TO BE DEDUCTED AT SOURCE IS DEDUCTIBLE ONLY OUT OF THE CHARGEABLE SU M. THIS IS THE UNDERLYING PRINCIPLE OF S. 195. HENCE, APART FROM S. 9 (1), SS. 4, 5, 9, 90, 91 AS WELL AS THE PROVISIONS OF DTAA ARE ALSO RELEVANT, WHILE APPLYING TDS PROVISIONS. REFERENCE TO ITO ( TDS) UNDER S. 195(2) OR S. 195(3) EITHER BY THE NON RESIDEN T OR BY THE RESIDENT PAYER IS TO AVOID ANY FUTURE HASSLES FOR BOTH RESIDENT AS WELL AS NON - RESIDENT. SEC. 195(2) AND 195(3) ARE SAFEGUARDS. THE SAID PROVISIONS ARE OF PRACTICAL IMPORTANCE. FROM THIS IT FOLLOWS THAT WHERE A PEOPLE RESPONSIBLE FOR DEDUCTION IS FAIRLY CERTAIN THEN HE CAN MAKE HIS OWN DETERMINATION AS TO WHETHER THE TAX WAS DEDUCTIBLE AT SOURCE AND, IF SO, WHAT SHOULD BE THE AMOUNT THEREOF. IF THE CONTENTION OF THE DEPARTMENT THAT THE MOMENT THERE IS REMITTANCE THE OBLIGATION TO DEDUCT TAX AT S OURCE ARISES IS TO BE ACCEPTED THEN THE WORDS 'CHARGEABLE UNDER THE PROVISIONS OF THE ACT' IN S. 195(1) WOULD BE OBLITERATED. THE SAID EXPRESSION IN S. 195(1) SHOWS THAT THE REMITTANCE HAS GOT TO BE OF A TRADING RECEIPT, THE WHOLE OR PART OF WHICH IS LIABL E TO TAX IN INDIA. THE PAYER IS BOUND TO DEDUCT TAX AT SOURCE ONLY IF THE INCOME IS ASSESSABLE IN INDIA. IF INCOME IS NOT SO ASSESSABLE, THERE IS NO QUESTION OF TAX AT SOURCE BEING DEDUCTED TRANSMISSION CORPORATION OF A . LTD. VS. CIT (1999) 155 CTR (SC) 48 9: (1999) 239 ITR 587 (SC) AND VIJAY SHIP BREAKING CORPN. & ORS. VS. CIT (2008) 219 CTR (SC) 639: (2008) 14 DTR (SC) 74: (2009) 314 ITR 309 (SC) RELIED ON; CIT VS. COOPER ENGINEERING LTD. (1968) 68 ITR 457 (BOM) IMPLIEDLY APPROVED. SEC. 195 FALLS IN CHAPTE R XVII WHICH DEALS WITH COLLECTION AND RECOVERY. CHAPTER XVII - B DEALS WITH DEDUCTION AT SOURCE BY THE PAYER. ON ANALYSIS OF VARIOUS PROVISIONS OF CHAPTER XVII ONE FINDS USE OF DIFFERENT EXPRESSIONS, HOWEVER, THE EXPRESSION 'SUM CHARGEABLE UNDER THE PROVISI ONS OF THE ACT' IS USED ONLY IN S. 195. IN NONE OF THE PROVISIONS THE EXPRESSION 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT' IS FOUND, WHICH, IS AN EXPRESSION USED ONLY IN S. 195(1). IT FOLLOWS, THEREFORE, THAT THE OBLIGATION TO DEDUCT TAX AT SOURCE A RISES ONLY WHEN THERE 25 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 IS A SUM CHARGEABLE UNDER THE ACT. SEC. 195(2) IS NOT MERELY A PROVISION TO PROVIDE INFORMATION TO THE ITO (TDS). IT IS A PROVISION REQUIRING TAX TO BE DEDUCTED AT SOURCE TO BE PAID TO THE REVENUE BY THE PAYER WHO MAKES PAYMENT TO A N ON - RESIDENT. THEREFORE, S. 195 HAS TO BE READ IN CONFORMITY WITH THE CHARGING PROVISIONS, I.E., SS. 4, 5 AND 9. THIS REASONING FLOWS FROM THE WORDS 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT' IN S. 195(1). THE FACT THAT THE REVENUE HAS NOT OBTAINED AN Y INFORMATION PER SE CANNOT BE A GROUND TO CONSTRUE S. 195 WIDELY SO AS TO REQUIRE DEDUCTION OF TAX AT SOURCE EVEN IN A CASE WHERE AN AMOUNT PAID IS NOT CHARGEABLE TO TAX IN INDIA AT ALL. SEC. 195 CANNOT BE READ, AS SUGGESTED BY THE DEPARTMENT, NAMELY, THA T THE MOMENT THERE IS REMITTANCE THE OBLIGATION TO DEDUCT TAX AT SOURCE ARISES. IF SUCH A CONTENTION IS ACCEPTED IT WOULD MEAN THAT ON MERE PAYMENT INCOME WOULD BE SAID TO ARISE OR ACCRUE IN INDIA. THEREFORE, AS STATED EARLIER, IF THE CONTENTION OF THE DEP ARTMENT WAS ACCEPTED IT WOULD MEAN OBLITERATION OF THE EXPRESSION 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT' FROM S. 195(1). WHILE INTERPRETING A SECTION ONE HAS TO GIVE WEIGHTAGE TO EVERY WORD USED IN THAT SECTION. WHILE INTERPRETING THE PROVISIONS OF THE IT ACT ONE CANNOT READ THE CHARGING SECTIONS OF THAT ACT DE HORS THE MACHINERY SECTIONS. THE ACT IS TO BE READ AS AN INTEGRATED CODE. HENCE, THE PROVISION RELATING TO TDS APPLIES ONLY TO THOSE SUMS WHICH ARE CHARGEABLE TO TAX UNDER THE IT ACT. IF TH E CONTENTION OF THE DEPARTMENT THAT ANY PERSON MAKING PAYMENT TO A NON - RESIDENT IS NECESSARILY REQUIRED TO DEDUCT TAX AT SOURCE IS ACCEPTED THEN THE CONSEQUENCE WOULD BE THAT THE DEPARTMENT WOULD BE ENTITLED TO APPROPRIATE THE MONEYS DEPOSITED BY THE PAYER EVEN IF THE SUM PAID IS NOT CHARGEABLE TO TAX BECAUSE THERE IS NO PROVISION IN THE IT ACT BY WHICH A PAYER CAN OBTAIN REFUND. SEC. 237 R/W S. 199 IMPLIES THAT ONLY THE RECIPIENT OF THE SUM, I.E., THE PAYEE COULD SEEK A REFUND. IT MUST THEREFORE FOLLOW, IF THE DEPARTMENT IS RIGHT, THAT THE LAW REQUIRES TAX TO BE DEDUCTED ON ALL PAYMENTS. THE PAYER, THEREFORE, HAS TO DEDUCT AND PAY TAX, EVEN IF THE SO - CALLED DEDUCTION COMES OUT OF HIS OWN POCKET AND HE HAS NO REMEDY WHATSOEVER, EVEN WHERE THE SUM PAID BY HIM IS NOT A SUM CHARGEABLE UNDER THE ACT. THE INTERPRETATION OF THE DEPARTMENT, THEREFORE, NOT ONLY REQUIRES THE WORDS 'CHARGEABLE UNDER THE PROVISIONS OF THE ACT' TO BE OMITTED, IT ALSO LEADS TO AN ABSURD CONSEQUENCE. THE INTERPRETATION PLACED BY THE DEPART MENT WOULD RESULT IN A SITUATION WHERE EVEN WHEN THE INCOME HAS NO TERRITORIAL NEXUS WITH INDIA OR IS NOT CHARGEABLE IN INDIA, THE GOVERNMENT WOULD NONETHELESS COLLECT TAX. SEC. 195(2) PROVIDES A REMEDY BY WHICH A PERSON MAY SEEK A DETERMINATION OF THE 'AP PROPRIATE PROPORTION OF SUCH SUM SO CHARGEABLE' WHERE A PROPORTION OF THE SUM SO CHARGEABLE IS LIABLE TO TAX. THE ENTIRE BASIS OF THE 26 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 DEPARTMENT'S CONTENTION IS BASED ON ADMINISTRATIVE CONVENIENCE IN SUPPORT OF ITS INTERPRETATION. THERE IS NO MERIT IN THE CONTENTION. AS STATED HEREINABOVE, S. 195(1) USES THE EXPRESSION 'SUM CHARGEABLE UNDER THE PROVISIONS OF THE ACT.' ONE HAS TO GIVE WEIGHTAGE TO THOSE WORDS. FURTHER, S. 195 USES THE WORD 'PAYER' AND NOT THE WORD 'ASSESSEE'. THE PAYER IS NOT AN ASSESSEE. TH E PAYER BECOMES AN ASSESSEE - IN - DEFAULT ONLY WHEN HE FAILS TO FULFILL THE STATUTORY OBLIGATION UNDER S. 195(1). IF THE PAYMENT DOES NOT CONTAIN THE ELEMENT OF INCOME THE PAYER CANNOT BE MADE LIABLE. HE CANNOT BE DECLARED TO BE AN ASSESSEE - IN - DEFAULT. THE CO NTENTION OF THE DEPARTMENT IS BASED ON AN APPREHENSION WHICH IS ILL FOUNDED. THE PAYER IS ALSO AN ASSESSEE UNDER THE ORDINARY PROVISIONS OF THE IT ACT. WHEN THE PAYER REMITS AN AMOUNT TO A NON - RESIDENT OUT OF INDIA HE CLAIMS DEDUCTION OR ALLOWANCES UNDER T HE IT ACT FOR THE SAID SUM AS AN 'EXPENDITURE'. UNDER S. 40(A)(I), INSERTED VIDE FINANCE ACT, 1988 W.E.F. 1ST APRIL, 1989, PAYMENT IN RESPECT OF ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUMS CHARGEABLE UNDER THE IT ACT WOULD NOT GET THE BENEFIT OF DED UCTION IF THE ASSESSEE FAILS TO DEDUCT TAX AT SOURCE IN RESPECT OF PAYMENTS OUTSIDE INDIA WHICH ARE CHARGEABLE UNDER THE IT ACT. THIS PROVISION ENSURES EFFECTIVE COMPLIANCE OF S. 195 RELATING TO TDS IN RESPECT OF PAYMENTS OUTSIDE INDIA IN RESPECT OF ROYALT IES, FEES OR OTHER SUMS CHARGEABLE UNDER THE IT ACT. IN A GIVEN CASE WHERE THE PAYER IS AN ASSESSEE HE WILL DEFINITELY CLAIM DEDUCTION UNDER THE IT ACT FOR SUCH REMITTANCE AND ON INQUIRY IF THE AO FINDS THAT THE SUMS REMITTED OUTSIDE INDIA COMES WITHIN THE DEFINITION OF ROYALTY OR FEES FOR TECHNICAL SERVICE OR OTHER SUMS CHARGEABLE UNDER THE IT ACT THEN IT WOULD BE OPEN TO THE AO TO DISALLOW SUCH CLAIM FOR DEDUCTION. SIMILARLY, VIDE FINANCE ACT, 2008, W.E.F. 1ST APRIL, 2008 SUB - S. (6) HAS BEEN INSERTED IN S . 195 WHICH REQUIRES THE PAYER TO FURNISH INFORMATION RELATING TO PAYMENT OF ANY SUM IN SUCH FORM AND MANNER AS MAY BE PRESCRIBED BY THE BOARD. THEREFORE, THERE ARE ADEQUATE SAFEGUARDS IN THE ACT WHICH WOULD PREVENT REVENUE LEAKAGE. CIT VS. ELI LILLY & COM PANY (INDIA) (P) LTD. (2009) 223 CTR (SC) 20: (2009) 21 DTR (SC) 74 : (2009) 312 ITR 225 (SC) RELIED ON; TRANSMISSION CORPORATION OF A.P. LTD. VS. CIT (1999) 155 CTR (SC) 489 : (1999) 239 ITR 587 (SC) DISTINGUISHED; CIT VS. SAMSUNG ELECTRONICS CO. LTD. & O RS. (2009) 227 CTR (KAR) 335 : (2009) 31 DTR (KAR) 257 AND CIT (INTERNATIONAL TAXATION) & ANR. VS. SONATA INFORMATION TECHNOLOGY LTD. (2010) 232 CTR (KAR) 20 : (2010) 38 DTR (KAR) 350 SET ASIDE . THUS, AFORESAID DECISION, CLEARLY CLINCHES THE ISSUE AND IN WAKE OF LAW LAID DOWN BY THE HONBLE APEX COURT, THE DECISION 27 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 OF ITAT MUMBAI BENCH IN THE CASE OF ARTHUR ANDERSEN AND CO. HAS NO RELEVANCE OR BEARING AT AL L WHICH LAID DOWN THE PROPOSITION THAT EVEN WHERE THERE EXISTED A DOUBT TO THE CHARGEABILITY OF IN COME - TAX THEN A LSO THE TAX IS TO BE DEDUCTED AT SOURCE BY WAY OF ABUNDANT CAUTION AND T HE FACT WHETHER INCOME IS ELIGIBLE TO TAX OR NOT CAN ONLY BE DETERMINED AFTER THE ASSESSMENT. ON THE CONTRARY, AS THE HONBLE APEX COURT AS REPRODUCED ABOVE HAS HELD THA T, THE PERSON MAKING THE PAYMENT TO NON - RESIDENT WOULD BE LIABLE TO DEDUCT TAX UNDER SECTION 195 ONLY IF SUCH SUM IS CHARGEABLE TO TAX IN INDIA AND NOT OTHERWISE. THUS, PREREQUISITE CONDITION FOR GOING THROUGH THE PROCEDURE OF 195 IS THAT, INCOME SHOULD BE FIRST HELD TO BE CHARGEABLE TO TAX IN INDIA. THE ASSESSEE, AS NOTED ABOVE, HAS MADE OUT ITS CASE IN A VERY ELABORATE MANNER AS TO WHY THE PAYMENT MADE TO DTT SWITZERLAND IS NOT LIABLE FOR TAX IN INDIA. HOWEVER, BOTH THE AUTHORITIES HAVE NO T PRO PERLY ADJUD ICATED THESE ASPECTS. T HEREFORE, IN THE INTEREST OF JUSTICE, WE ARE OF THE OPINION THAT THIS MATTER SHOULD GO BACK TO THE FILE OF THE ASSESSING OFFICER WHO SHALL DECIDE , FIRST LY, WHETHER THE PAYMENT OF SUBSCRIPTION FEE TO DTT IS LIABLE TO TAX IN INDIA UNDE R THE PROVISIONS OF THE ACT OR NOT; AND SECONDLY, HE SHOULD ALSO TO EXAMINE WHETHER IT IS IN THE NATURE OF REIMBURSEMENT OF EXPENSES. IF IT IS FOUND THAT THE PAYMENT MADE TO D T T SWITZERLAND IS IN THE NATURE OF REIMBURSEMENT OF EXPENSES, THEN ASSESSEE CANNO T BE HELD TO BE LIABLE FOR DEDUCTING TDS. WITH THIS DIRECTION, THE MATTER IS RESTORED BACK TO THE FILE OF THE ASSESSING OFFICER AND ACCORDINGLY, GROUND NO.1 IS TREATED AS PARTY ALLOWED FOR STATISTICAL PURPOSES. 28 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 1 6 . NOW, WE SHALL ADVERT TO THE SECOND ISSUE OF DISALLOWANCE OF PAYMENT OF PROFESSIONAL FEES IN RESPECT OF TWO PARTIES UNDER SECTION 40(A)(I); NAMELY: (I) DTT (DELOITTE TOUCHE TOHMATSU) CANADA OF RS.2,90,000/ - ; AND (II) DTT (DELOITTE TOUCHE TOHMATSU) NEW ZEALAND OF RS.1,45,290/ - . REGARDING PAYMEN T TO DTT CANADA, IT WAS SUBMITTED THAT, T HE ASSESSEE WAS APPOINTED BY PUNJAB AGRO INDUSTRIAL CORPORATION LTD., A GOVERNMENT OF PUNJAB ENTERPRISE TO CARRY OUT A STUDY OF THE DAIRY SECTOR AND ASSIST THE GOVERNMENT IN DEVELOPMENT OF ITS BUSINESS PLAN. IN THE PROCESS OF PROVIDING THE ABOVE SERVICES, THE APPELLANT AVAILED SERVICES OF DTT , CANADA , WHO HAD RENDERED THE PROFESSIONAL SERVICES IN RESPECT OF PROVIDING INFORMATION OF THE GLOBAL ENVIRONMENT IN THE DAIRY SECTOR IN RESPECT OF THE MARKETS, COMPETITION, T ECHNOLOGY AND REGULATIONS AND OTHER BEST PRACTICES FOLLOWED BY THE GLOBAL PLAYERS. THE ENTIRE SERVICES IN RELATION TO THIS JOB WERE PERFORMED OUTSIDE INDIA BY THE DTT AND I N RESPECT OF THE AFORESAID SERVICES IT RAISED THE INVOICE DATED 23 OCTOBER 2002 FOR AN AMOUNT OF USD 6,000. THE ASSESSEE MADE REMITTANCE TO THE DTT , CANADA WITHOUT DEDUCTION OF TAX AT SOURCE BASED ON THE CERTIFICATE OBTAINED FROM A CHARTERED ACCOUNTANT IN A PRESCRIBED FORM . THE LD. COUNSEL BEFORE US HAD STATED THAT, RELATIONSHIP BETWEEN T HE ASSESSEE AND DTT CANADA WAS OCCASIONAL AND THERE IS ABSOLUTELY NO BUSINESS CONNECTION OF DTT CANADA IN INDIA IN TERMS OF SECTION 9(1)(I) AND SINCE SERVICES HAVE BEEN RENDERED OUTSIDE INDIA, THEREFORE, IT CANNOT BE TAXED IN INDIA. THE ASSESSING OFFICER H AS MADE DISALLOWANCE UNDER SECTION 40(A)(I) ON THE 29 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 GROUND THAT, IN SOME OF THE CASES, THE ASSESSEE ITSELF HAS DEDUCTED TDS AND IN SOME IT DOES NOT. WITH REGARD TO THIS ALLEGATION, IT HAS BEEN CLARIFIED BEFORE US THAT IN RESPECT OF OTHER DTT ENTITIES, THE P ROFESSIONAL PEOPLE HAD COME TO INDIA FOR RENDERING OF THE SERVICES AND THAT IS WHY THE ASSESSEE HAD DEDUCTED THE TDS. BUT IN THESE TWO CASES, SERVICES WERE RENDERED OUTSIDE INDIA, THEREFORE, SAME IS NOT LI ABLE TO BE TAXED IN INDIA. HERE AGAIN, THE ALL EGATI ON OF THE ASSESSING OFFICER HAS BEEN THAT, ASSESSEE SHOULD HAVE SOUGHT APPROVAL UNDER SECTION 195 WITHOUT GIVING ANY COGENT REASON AS WHY AND HOW SUCH PROFESSIONAL FEES PAYABLE TO NON - RESIDENT ENTITY IS TAXABLE EITHER UNDER THE ACT OR IN TERMS OF DTAA. THE LD. CIT(A), CAME TO DIFFERENT CONCLUSION AND FINDING THAT IT IS IN THE NATURE OF FEES FOR TECHNICAL SERVICES , WHICH WAS NOT THE CASE OF AO . SHE REFERRED TO THE DECISION OF ITAT MUMBAI BENCH IN THE CASE OF ASHAPURA MINICHEM VS. ADIT, REPORTED IN [2010] 5 TAXMAN.COM 57 AND AFTER QUOTING THE SAID DECISION, SHE OBSERVED THAT, IF FEE FOR TECHNICAL SERVICES IS RENDERED OUTSIDE INDIA THE SAME IS TA XA BLE IN VIEW OF RETROSPECTIVE AMENDMENT TO SECTION 9(1)(VII) BROUGHT BY FINANCE ACT, 2010, WHICH ENVISAGES/CLARI FIES THAT IT IS NOT NECESSARY THAT SERVICES SHOULD HAVE BEEN RENDERED IN INDIA. ACCORDINGLY, SHE CONCLUDED THAT, THE PAYMENT HAS TO BE RECKONED UNDER SECTION 9(1)(VII) BEING FEE FOR TECHNICAL SERVICES . NOT ONLY THAT, SHE FURTHER HELD THAT THE PAYMENT MAD E TO DTT CANADA ALSO FALLS UNDER ARTICLE 12(3 )(A ) AND ARTICLE 12(4 )(A ). 17. FROM THE PERUSAL OF THE IMPUGNED ORDERS AND MATERIAL ON RECORD, FIRST OF ALL, WE ARE UNABLE TO APPRECIATE THE 30 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 APPROACH OF THE ASSESSING OFFICER FOR THE REASON THAT HE HAS NOT GIVEN ANY FINDING AS TO HOW THE PAYMENT OF FEES FOR PROFESSIONAL SERVICES WHICH HAS BEEN PAID TO DTT CANADA IS TA XA BLE IN INDIA EITHER IN TERMS OF THE PROVISIONS OF THE ACT OR UNDER ANY ARTICLE OF THE DTAA. IF THE PAYMENT HAS BEEN MADE TO NON - RESIDENT, T HEN IT HAS TO BE SEEN FIRSTLY, WHETHER UNDER THE TERMS OF DTAA SUCH A FEE OR PAYMENT IS TA XA BLE IN INDIA OR NOT AND IF NOT, THEN WHETHER IT IS TAXABLE IN TERMS OF INCOME TAX ACT . WITHOUT ANY FINDING QUA THE TAXABILITY OF THE PAYMENT, HOW DISALLOWANCE U/S 4 0(A)(I) CAN BE MADE. THE LD. CIT(A) TOO WITHOUT ANALYZING THE FACTUAL ASPECT AND ASCERTAINING THE NATURE OF PAYMENT HAS SIMPLY CAME TO A CONCLUSION SANS ANY FINDING BY THE AO THAT THE IMPUGNED PAYMENT IS TAXABLE AS FEE FOR TECHNICAL SERVICES. SHE SIMPLY REFERRED TO A DECISION OF TRIBUNAL AND HELD THAT RETROSPECTIVE AMENDMENT WHICH HAS BEEN BROUGHT IN SECTION 9(1)(VII) BY THE FINANCE ACT, 2010 , WHEREBY IT HAS BEEN CLARIFIED THAT, IF THE TECHNICAL SERVICES HAVE BEEN RENDERED OUTSIDE INDIA THEN ALSO SAME IS TAXABLE IN INDIA. BEFORE COMING TO THIS CONCLUSION, SHE HAS NOT GIVEN ANY FINDING WHATSOEVER HOW SUCH A PAYMENT OF FEES FOR RENDERING OF PROFESSIONAL SERVICES FALLS WITHIN THE AMBIT OF FEES FOR TECHNICAL SERVICES. SHE HAS ALSO FAILED TO TAKE THE NOTE OF TH E FACT THAT, UNDER THE DTAA WITH CANADA, THERE IS M AKE A VAILABLE C L AUSE , IF THIS KIND OF PAYMENT IS TO BE RECKONED AS FEES FOR INCLUDED SERVICES . FOR THE SAKE OF READY REFERENCE ARTICLE 12(4) FEES FOR TECHNICAL SERVICES IS REPRODUCED HEREUNDER: - 4. FO R THE PURPOSES OF THIS ARTICLE, 'FEES FOR INCLUDED SERVICES' MEANS PAYMENTS OF ANY KIND TO ANY PERSON CONSIDERATION FOR THE RENDERING OF ANY TECHNICAL OR 31 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 CONSULTANCY SERVICES (INCLUDING THROUGH THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) IF SUCH SERVICES: (A) ARE ANCILLARY AND SUBSIDIARY TO THE APPLICATION OR ENJOYMENT OF THE RIGHT, PROPERTY OR INFORMATION FOR WHICH A PAYMENT DESCRIBED IN PARAGRAPH 3 IS RECEIVED; OR ( B) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW - HOW, OR PROCE SSES OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. THUS, TO FALL WITHIN THE MEANING OF FEE FOR INCLUDED SERVICES OR FOR RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES IT IS SINE - QUA - NON THAT SUCH SERVICES SHOULD MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOWHOW OR PROCESSES OR CONSIST OF DEVELOPMENT AND TRANSFER OF TECHNICAL PLAN OR TECHNICAL DESIGN. HERE IN THIS CASE, THE PROFESSIONAL SERVICE HAS BEEN RENDERED BY DTT CANADA ONLY FOR PROVIDING INFO RMATION ABOUT THE DIARY SECTOR AND NOT FOR THE PURPOSE OF ANY TECHNICAL SERVICES AS DEFINED. IN ANY CASE T HERE IS NO MAKE AVAILABLE OF ANY OF THE TERMS AS MENTIONED IN THE SAID ARTICLE. THEREFORE, IN TERMS OF ARTICLE 12(4) THE PAYMENT DOES NOT FALL W ITHIN THE REALM OF FEE FOR INCLUDED SERVICES. IF IT IS A PAYMENT FOR INDEPENDENT PERSONAL SERVICES IN TERMS OF ARTICLE 14, THEN SAME CAN BE TAXED ONLY WHEN IN THE HANDS OF NON - RESIDENT , IF HE H AS SOME KIND O F FIXED BASE OR IS REGULARLY AVAILABLE IN IND IA OR HIS STAY FOR RENDERING OF PROFESSIONAL SERVICES HAS EXCEEDED 183 DAYS OR THERE IS SOME KIND OF PE IN INDIA. THE TERM PROFESSIONAL SERVICES HAS BEEN DEFINED IN PARA 2 OF ARTICLE 14 , WHICH DEALS WITH INDEPENDENT PERSONAL SERVICES . THE ARTICLE READS A S UNDER: - 32 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 ARTICLE 14: INDEPENDENT PERSONAL SERVICES 1. INCOME DERIVED BY AN INDIVIDUAL OR A FIRM OF INDIVIDUALS (OTHER THAN A COMPANY) WHO IS A RESIDENT OF A CONTRACTING STATE IN RESPECT OF PROFESSIONAL SERVICES OR OTHER INDEPENDENT ACTIVITIES OF A S IMILAR CHARACTER SHALL BE TAXABLE ONLY IN THAT STATE. HOWEVER, IN THE FOLLOWING CIRCUMSTANCES, SUCH INCOME MAY BE TAXED IN THE OTHER CONTRACTING STATE, THAT IS TO SAY (A) IF HE HAS OR HAD A FIXED BASE REGULARLY AVAILABLE TO HIM IN THE OTHER CONTRACTING STA TE 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 CONTRACTING STATE; OR (B) IF HIS STAY IN THE OTHER CONTRACTING STATE IS FOR A PERIOD OR PERIODS AMOUN TING TO OR EXCEEDING IN THE AGGREGATE 183 DAYS IN THE RELEVANT FISCAL YEAR; OR (C) IF THE REMUNERATION FOR THE SERVICES IN THE OTHER CONTRACTING STATE IS EITHER DERIVED FROM RESIDENTS OF THAT OTHER CONTRACTING STATE OR IS BORNE BY A PERMANENT ESTABLISHMENT WHICH A PERSON NOT RESIDENT IN THAT OTHER CONTRACTING STATE HAS IN THAT OTHER CONTRACTING STATE AND SUCH REMUNERATION EXCEEDS TWO THOUSAND FIVE HUNDRED CANADIAN DOLLARS ($2,500) OR ITS EQUIVALENT IN INDIAN CURRENCY IN THE RELEVANT FISCAL YEAR. 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. HERE IN THIS CASE, EV EN IF THE PAYMENT IS SAID TO BE MADE TOWARDS PROFESSIONAL SERVICES THEN ALSO SAME CANNOT BE TAXED BECAUSE, DTT CANADA DOES NOT HAVE ANY FIXED BASE, PE OR ANY OF ITS EMPLOYEE HAVE STAYED IN INDIA FOR MORE THAN 183 DAYS. THUS, UNDER THE DTAA, THE SAID PAYMEN T IS NOT TAXABLE AS FEE FOR PROFESSIONAL SERVICES BECAUSE NONE OF THE CONDITIONS AS MENTIONED IN THE AFORESAID PARA OF ARTICLE 14 IS SATISFIED. 33 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 ONCE, THE PROFESSIONAL FEE IS NOT TAXABLE UNDER DTAA, THEN, NO DISALLOWANCE UNDER SECTION 40(A)(I) CAN BE MA DE. ON THIS GROUND ALONE, THE DISALLOWANCE MADE BY THE AO AND CONFIRMED BY THE CIT (A) STANDS DELETED. 18. EVEN OTHERWISE, UNDER THE INCOME TAX ACT THE PAYMENT OF PROFESSIONAL FEE TO THE NON - RESIDENT CANNOT BE TAXED IN INDIA IN TERMS OF SECTION 9 (1) (I), BECAUSE SUCH AN INCOME SHOULD BE RECEIVED OR DEEMED TO BE RECEIVED IN INDIA OR ACCRUE OR ARISE IN INDIA TO THE NON - RESIDENT THROUGH OR FROM ANY BUSINESS CONNECTION IN INDI A , OR THROUGH OR FROM ANY PROPERTY IN INDIA , OR THROUGH OR FROM ANY ASSET , OR S OURCE OF INCOME IN INDIA. HERE, IN THE P RESENT CASE ONE HAS TO SEE WHETHER THE NON - RESIDENT, I.E. DTT CANADA HAS ANY KIND OF BUSINESS CONNECTION IN INDIA IN TERMS OF EXPLANATION 2 TO SECTION 9(1)(I) . THE RELATIONSHIP BETWEEN DTT CANADA AND THE ASSESSEE I S ON PRINCIPAL - TO - PRINCIPAL BASIS AND THERE IS NO PERSON WHO IS ACTING ON BEHALF OF DTT CANADA IN INDIA. THUS, IN TERMS OF SECTION 9(1) (I) NO INCOME OF DTT CANADA HAS BEEN RECEIVED OR ACCRUED OR DEEMED TO HAVE BEEN RECEIVED OR ACCRUED IN INDIA AS IT DOES NOT HAVE ANY KIND OF BUSINESS CONNECTION IN INDIA AND, THEREFORE, THERE WAS NO LIABILITY FOR DEDUCTING TDS ON PAYMENT MADE TO DTT CANADA. 19. NOW, WHETHER SUCH A PAYMENT CAN BE SAID TO BE IN THE NATURE OF FEES FOR TECHNICAL SERVICES IN TERMS OF SECTI ON 9(1) (VII). EXPLANATION 2 TO SECTION 9 (1) (VII) DEFINES FEES FOR TECHNICAL SERVICES AS ANY CONSIDERATION FOR RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES . THESE SERVICES ARE DISTINCT FROM PROFESSIONAL SERVICES WHICH HAS BEEN SEPAR ATELY DEFINED UNDER THE INCOME TAX ACT IN CLAUSE (A) TO 34 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 EXPLANATION BELOW SECTION 194J WHICH FOR THE SAKE OF READY REFERENCE IS REPRODUCED HEREUNDER: - (A) PROFESSIONAL SERVICES MEANS SERVICES RENDERED BY A PERSON IN THE COURSE OF CARRYING ON LEGAL, MEDI CAL, ENGINEERING OR ARCHITECTURAL PROFESSION OR THE PROFESSION OF ACCOUNTANCY OR TECHNICAL CONSULTANCY OR INTERIOR DECORATION OR ADVERTISING OR SUCH OTHER PROFESSION AS IS NOTIFIED BY THE BOARD FOR THE PURPOSE OF SECTION 44AA OR OF THIS SECTION. CLAUSE (B ) OF THE SAME EXPLANATION DEFINES FEE FOR TECHNICAL SERVICES AS HAVING THE SAME MEANING GIVEN IN EXPLANATION 2 TO SECTION 9 (1) (VII). S EPARATE DEFINITIONS OF PROFESSIONAL SERVICES AND TECHNICAL SERVICES UNDER THE ACT INTER - ALIA INDICATES THAT THE ST ATUTE MAKES CLEAR DISTINCTION BETWEEN THESE TWO TERMS . THE TERM PROFESSION ALLUDES TO SOME KIND OF VOCATION OR OCCUPATION WHICH REQUIRE S SPECIAL, ADVANCED EDUCATION, KNOWLEDGE OR SKILL ETC. A PERSON PR OFESSING ANY KIND OF PROFESSION REQUIRES EXTENSIVE TR AINING AND STUDY AND MASTERY OF SPECIALIZED KNOWLEDGE. A PROFESSIONAL PERSON HAS TO CONDUCT HIMSELF WITHIN SPECIFIED CODE OF CONDUCT OR ETHICAL CONDUCT WHICH IS REQUIRED FROM HIS FIELD OF PROFESSION LIKE LEGAL, MEDICAL, ACCOUNTANCY ETC. IN THE CASE OF REND ERING OF TECHNICAL SERVICES, THE EMPHASIS IS MORE ON GIVING SERVICES WHICH ARE TECHNICAL IN NATURE AND ALLUDES TO SOME KIND OF GIVING ADVICE OR CONSULTANCY IN THE FIELD OF TECHNOLOGY OR IMPARTING OF TECHNICAL SKILLS, KNOWLEDGE, EXPERIENCE, KNOW - HOW ETC. H ERE CONSULTANCY ALSO MEANS SOME KIND OF TECHNICAL CONSULTANCY BECAUSE IT IS PRECEDED BY THE WORD TECHNICAL . THE TERM MANAGERIAL IS INDICATIVE OF MANAGEMENT OF BUSINESS OR SOMETHING LIKE WHICH IS DISTINCT FROM PROFESSION OR RENDERING OF PROFESSIONAL S ERVICES . HERE IN THIS 35 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 CASE, PROFESSIONAL SERVICES WERE RENDERED BY DTT CANADA IN RESPECT OF PROVIDING INFORMATION OF THE GLOBAL ENVIRONMENT IN DAIRY SECTOR IN RESPECT OF THE MA RKETS, COMPETITION, REGULATIONS AND OTHER BEST PRACTICES FOLLOWED BY GLOBAL PLAY ERS. THUS, THE IMPUGNED PAYMENT CANNOT BE RECKONED AS FEES FOR RENDERING OF TECHNICAL SERVICES IN TERMS OF SECTION 9 (1) (VII). 20. AS REGARDS THE PROFESSIONAL FEES PAID TO DTT NEW ZEA LAND, THE SAME TOO WERE AKIN TO PAYMENT MADE TO DTT CANADA. THE EXPL ANATION OF THE ASSESSEE BEFORE THE AUTHORITIES BELOW QU A THIS PAYMENT WAS AS UNDER: - WE WERE APPOINTED BY PUNJAB AGRO INDUSTRIAL CORPORATION LTD., A GOVERNMENT OF PUNJAB ENTERPRISE TO CARRY OUT A STUDY OF THE AQUA SECTOR AND ASSIST THE GOVERNMENT IN DEVELO PMENT OF ITS BUSINESS PLAN. IN THE PROCESS OF PROVIDING THE ABOVE SERVICES, WE AVAILED SERVICES OF DELOITTE TOUCHE TOHMATSU, NEW ZEALAND. DELOITTE TOUCHE TOHMATSU, NEW ZEALAND IS A FIRM OF CERTIFIED PUBLIC ACCOUNTANTS. DELOITTE TOUCHE TOHMATSU, NEW ZEALAN D RENDERED PROFESSIONAL SERVICES OF PROVIDING INFORMATION ON THE GLOBAL ENVIRONMENT IN THE AQUA SECTOR IN RESPECT OF THE MARKETS, COMPETITION, TECHNOLOGY AND REGULATIONS AND OTHER BEST PRACTICES FOLLOWED BY THE GLOBAL PLAYERS. THE ENTIRE SERVICES IN RELATI ON TO THIS JOB WERE PERFORMED OUTSIDE INDIA BY DELOITTE TOUCHE TOHMATSU, NEW ZEALAND. IN RESPECT OF THE AFORESAID SERVICES, DELOITTE TOUCHE TOHMATSU, NEW ZEALAND RAISED THE INVOICE DATED 9 OCTOBER 2002 FOR AN AMOUNT OF USD 3,000. A COPY OF THE INVOICE IS ENCLOSED AT PAGE 72 OF THE COMPILATION. WE HAVE MADE REMITTANCE TO THE DELOITTE TOUCHE TOHMATSU, NEW ZEALAND WITHOUT DEDUCTION OF TAX AT SOURCE BASED ON THE CERTIFICATE OBTAINED FROM A CHARTERED ACCOUNTANT. WITH REGARD TO THIS PAYMENT ALSO THERE IS NO SPE CIFIC FINDING BY THE AO OR THE CIT (APPEAL) AS TO HOW IT IS TAXABLE IN INDIA AND UNDER WHICH PROVISION OF THE ACT. IN THIS CASE ALSO THE LEARNED CIT (A) HAS RECKONED THE PAYMENT AS FEES FOR / 36 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 TECHNICAL SERVICES WITHOUT ELABORATING OR ELUCIDATING THE NATURE OF PAYMENT. SO FAR AS THE BENEFIT UNDER INDIA - NEW ZEALAND DTAA, THE PAYMENT OF PROFESSIONAL FEE IS NOT TAXABLE UNDER ARTICLE 14, WHICH DEALS WITH INDEPENDENT PERSONAL SERVICES. THE LANGUAGE OF ARTICLE 14 IS SIMILAR TO THE LANGUAGE OF INDIA - CANADA DTAA W HICH HAS BEEN REPRODUCED HEREINABOVE. HERE ALSO DTT NEW ZEALAND NEITHER HAS ANY FIXED BASE / PE N OR HAD ANY OF ITS EMPLOYEES/PROFESSIONALS STAYED IN INDIA FOR THE PERIOD EXCEEDING 183 DAYS IN ANY CONSECUTIVE TWELVE MONTHS PERIOD. ACCORDINGLY, UNDER THE DTAA THE PROFESSIONAL FEE PAID TO DTT IS NOT TAXABLE IN INDIA. HOWEVER, ARTICLE 12(4) OF INDIA - NEW ZEALAND DTAA DEALING WITH FEES FOR TECHNICAL SERVICES IMBIBES SAME DEFINITION AS HAS BEEN GIVEN UNDER THE INCOME TAX ACT. OUR FINDING GIVEN ON THE ISSUE OF FTS UNDER SECTION 9 (1) (VII) WILL APPLY MUTATIS MUTANDIS HERE ALSO. THEREFORE, IN VIEW OF OUR FINDING GIVEN THEREIN, THE SAID PAYMENT CANNOT BE HELD TO BE TAXABLE IN INDIA EITHER UNDER SECTION 9 (1) (VII) OR UNDER SECTION 9 (1) (I). ACCORDINGLY, DISALLOWA NCE MADE BY THE AO U/S 40(A) (I) IS DIRECTED TO BE DELETED. 21. AS REGARDS THE ISSUE OF INTEREST U/S 244A, IT HAS BEEN POINTED OUT BY THE LEARNED SR. COUNSEL THAT FO R ONE MONTH I . E . SEPTEMBER, 2003 THE RATE OF INTEREST WAS TWO THIRD PERCENT INSTEAD OF HAL F PERCENT IN TERMS OF RULE 119A. THE AO HAS NOT CORRECTLY WORKED OUT THE INTEREST IN ACCORDANCE THE SAID RULE. ACCORDINGLY, THE AO IS DIRECTED TO EXAMINE THE WORKING OF THE INTEREST AND RATE OF INTEREST AND GRANT CORRECT INTEREST IN ACCORDANCE WITH THE LAW . 22. THUS , THE APPEAL OF THE ASSESSEE FOR THE AY 2003 - 04 IS 37 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 PARTLY ALLOWED FOR STATISTICAL PURPOSES. 23. NOW, WE WILL TAKE UP THE APPEAL FOR AY 2004 - 05, WHERE THE ASSESSEE HAS ASSAILED THE FOLLOWING GROUNDS: (I) DISALLOWANCE U/S 40(A) (IA) OF RS.15,02, 099/ - IN RESPECT OF PAYMENT OF SUBSCRIPTION FEE TO DTT SWISS VEREIN. (II) DISALLOWANCE U/S 40(A) (I) FOR NON - DEDUCTION OF TAX AT SOURCE IN RESPECT OF REMITTANCE OF PROFESSIONAL FEE TO DTT AUSTRALIA OF RS.1,16,693/ - . (III) DISALLOWANCE OF SATYANARAYAN PUJA EXPENSES OF RS.93,980/ - . 24. SO FAR AS FIRST ISSUE AS RAISED IN GROUND NO.1 IS CONCERNED, IT HAS BEEN ADMITTED BY BOTH THE PARTIES THAT THE ISSUE INVOLVED IS IDENTICAL TO GROUND NO.1 AS RAISED IN THE APPEAL FOR THE ASSESSMENT YEAR 2003 - 04. HENCE , OUR FIND ING GIVEN THEREIN IN RESPECT OF PAYMENT MADE TO DTT SWISS VEREIN TOWARDS SUBSCRIPTION FEE WILL APPLY MUTATIS MUTANDIS; ACCORDINGLY, THE MATTER WOULD BE DECIDED BY THE AO IN LINE WITH THE DIRECTIONS GIVEN ABOVE . THUS, GROUND NO.1 IS TREATED AS PARTLY ALLOWE D FOR STATISTICAL PURPOSES. 25. AS REGARDS SECOND ISSUE RAISED I N GROUND NO. 2 THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF RS.1,16,693/ - MADE U/S 40(A) (I) IN RESPECT OF PAYMENT OF PROFESSIO NAL FEES MADE TO DTT AUSTRALIA ON THE GROUND THAT THE ASSESSEE SHOULD HAVE DEDUCTED TDS. ADMITTEDLY, HERE IN THIS CASE ALSO, THE OBSERVATION AND FINDING OF THE AO AS WELL AS CIT(A) ARE EXACTLY THE SAME. REGARDING RENDERING OF PROFESSIONAL SERVICES 38 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 BY DTT AUSTRALIA, IT WAS SUBMITTED THAT THE ASSESSEE HAD SOUGHT PROFES SIONAL SERVICE IN RESPECT OF SYDNEY STRAT. OS SERVICE CENTRE AUDIT FOR ONE OF THE ASSESSEES CLIENT NAMELY, VATICO INDIA (MUMBAI) FOR THE YEAR ENDING 31 ST DECEMBER, 2002. THE ENTIRE PROFESSIONAL SERVICES WERE RENDERED OUTSIDE INDIA. DTT AUSTRALIA RAISED INVOICE FOR RS.1,60,693/ - WHICH WAS REMITTED WITHOUT DEDUCTION OF TAX AT SOURCE BASED ON CERTIFICATE OBTAINED FROM CHARTERED ACCOUNTANT. SIMILAR SUBMISSION WAS MADE BY THE ASSESSEE WITH REGARD TO THIS PAYMENT. OUR FINDING GIVEN IN RESPECT OF DTT CANADA AS WELL AS DTT NEW ZEALAND WILL APPLY MUTATIS MUTANDIS QUA THIS PAYMENT ALSO . IN VIEW OF OUR FINDING GIVEN ABOVE, THE PAYMENT OF PROFESSIONAL FEE TO DTT AUSTRALIA IS HELD NOT TO BE TAXABLE U/S 9(1)(I) OR 9(1)(VII) OR IN TERMS OF ARTICLE 12(4) OF DTAA , WHICH H AS MAKE AVAILABLE CLAUSE AND IS SIMILAR TO INDIA CANADA DTAA . THUS, THE DISALLOWANCE MADE BY THE AO AND AS CONFIRMED BY THE CIT (A) IS DIRECTED TO BE DELETED. ACCORDINGLY, GROUND NO.2 IS ALLOWED. 26. SO FAR AS GROUND NOS. 3 AND 4 ARE CONCERNED, THE SAM E WERE NOT PRESSED BY THE LEARNED COUNSEL. ACCORDINGLY, THESE GROUNDS ARE TREATED AS DISMISSED AS NOT PRESSED. 27. THE LAST ISSUE WHICH HAS BEEN RAISED IN GROUND NO.5 THE ASSESSEE HAS CHALLENGED THE DISALLOWANCE OF SATYANARAYAN PUJA EXPENSES OF RS.96,98 0/ - . THE ASSESSEE HAD DEBITED AN AMOUNT OF RS.16,76,844/ - AS GENERAL CHARGES. THE AO NOTED THAT THESE EXPENDITURES INCLUDE EXPENSES OF RS.96,980/ - INCURRED FOR SATYANARAYAN PUJA , WHICH ACCORDING TO HIM CANNOT BE SAID TO HAVE BEEN INCURRED FOR THE PURPO SE OF ASSESSEES PROFESSION. THE LEARNED CIT (A) TOO HAS C ONFIRMED 39 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 THE SAID DISALLOWANCE, ON THE GROUND THAT IT IS RELIGIOUS IN NATURE. 28. BEFORE US, THE LEARNED COUNSEL SUBMITTED THAT THE SATYANARAYAN PUJA WAS AN ANNUAL AFFAIR WHEREIN ALL THE STAFF AN D THEIR FAMILY MEMBERS USED TO MEET AND HAVE INTER - ACTIONS. IT WAS MAINLY FOR GOODWILL GESTURE AND MAINTAINING GOOD RELATIONSHIP AMONGST THE PROFESSIONALS AND EMPLOYEES IN THE FIRM. IN SUPPORT, STRONG RELIANCE WAS PLACED ON THE FOLLOWING DECISIONS: - (I) CI T VS MOHAN MEAKIN LTD. [2010] 189 TAXMAN 377 (DELHI) (II) COMMERCIAL MILLS CO. LTD. V. CIT [1994] 204 ITR 505 (GUJ.) (III) BRIJRAM DAS & SONS V. CIT 142 ITR 509 (IV) PRANAV CONSTRUCTION CO. V. ASST. CIT 61 TTJ 145 (MUMBAI) ON THE OTHER HAND, THE LEARNED DR STRONGLY RELIED UPON THE ORDERS OF THE AUTHORITIES BELOW. 29. AFTER CONSIDERING THE RIVAL SUBMISSIONS AND PERUSAL OF THE IMPUGNED ORDERS, WE FIND THAT THE ASSESSEES MAIN CONTENTION IS THAT SATYANARAYAN PUJA IS DONE AT THE BUSINESS PREMISES FOR THE LARG ER INTEREST OF THE PROFESSIONAL AND EMPLOYEES OF THE ASSESSEE FIRM. IT WAS MORE IN THE NATURE OF GOODWILL GESTURE AND KEEPING GOOD RELATIONSHIP AND ENVIRONMENT AMONGST THE COLLEAGUES. IF ANY EXPENDITURE WHICH IS INCURRED FOR THE GENERAL BENEFIT OF THE PROF ESSIONALS AND EMPLOYEES, THE SAME CANNOT BE HELD TO BE INCURRED FOR NON - BUSINESS PURPOSES. THIS HAS BEEN HELD SO IN THE 40 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 AFORESAID DECISIONS CITED ABOVE BY THE LEARNED COUNSEL. IN THE AFORESAID CASES, THE PUJA EXPENSES HAVE BEEN ALLOWED FOR BUSINESS PURPOSE S. THUS, FOLLOWING THE RATIO LAID DOWN IN THE AFORESAID DECISIONS, WE DIRECT THE AO TO ALLOW THE SAID EXPENSES. ACCORDINGLY, GROUND NO.5 IS TREATED AS ALLOWED. 30. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED FOR STATISTICAL PURPOSES. 31. NOW, WE TAKE UP THE APPEAL FOR THE ASSESSMENT YEAR 2005 - 06, WHEREIN THE ASSESSEE HAS RAISED FOLLOWING ISSUES IN VARIOUS GROUNDS OF APPEAL: - (I) DISALLOWANCE U/S 40(A) (I) FOR NON - DEDUCTION OF TAX AT SOURCE IN RESPECT OF REMITTANCE OF PROFESSIONAL FEE TO DTT U K OF RS.1,09,273/ - . (II) DISALLOWANCE U/S 40(A) (IA) OF RS.30,33,217/ - IN RESPECT OF PAYMENT OF SUBSCRIPTION FEE TO DTT SWISS VEREIN. (III) DISALLOWANCE OF ENTERTAINMENT EXPENSES OF RS.1,00,000/ - . 32. SO FAR AS THE FIRST ISSUE IS CONCERNED, AS RAISED IN GR OUND NO.1, THE PAYMENT MADE TO DTT UK WAS MADE FOR RENDERING OF PROFESSIONAL SERVICES IN RELATION TO TAX MATTERS OF DR. Y. K. HAMIED OF CIPLA LTD. AS ADMITTED BY BOTH THE PARTIES, THIS ISSUE IS SIMILAR TO OTHER SIMILAR PAYMENTS MADE TO OTHER DTTS IN THE EA RLIER YEARS. LEARNED COUNSEL POINTED OUT THAT THE LEARNED CIT (A) IN ASSESSMENT YEAR 2003 - 04 HAS ALLOWED THE PAYMENT OF PROFESSIONAL FEE TO DTT LONDON. OTHERWISE, THE NATURE OF PROFESSIONAL PAYMENT IS NOT 41 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 DISPUTED. BOTH THE AO AND THE CIT (A) HAVE GIVEN TH E SAME REASONING AS HAS BEEN GIVEN IN THE EARLIER YEARS. 33. AFTER CONSIDERING THE RELEVANT FINDINGS IN THE IMPUGNED ORDER, WE FIND THAT THIS ISSUE IS SIMILAR TO THE PAYMENT OF PROFESSIONAL FEE MADE TO DTT CANADA AND DTT AUSTRALIA. OUR FINDING GIVEN THERE IN WILL APPLY HERE ALSO. NOT ONLY THE SAID PAYMENT IS TAXABLE IN THE HANDS OF DTT LONDON IN TERMS OF SECTION 9 (1) (I) IN ABSENCE OF ANY BUSINESS CONNECTION BUT, ALSO UNDER SECTION 9 (1) (VII). EVEN UNDER THE DTAA, ARTICLE 13 DEALING WITH THE FTS, THE SAME IS NOT TAXABLE DUE TO MAKE AVAILABLE CLAUSE. THE NATURE OF PROFESSIONAL SERVICES IS COVERED UNDER ARTICLE 15 WHICH IS SIMILAR TO ARTICLE 14 OF INDIA CANADA AND INDIA AUSTRALIA TREATY AND SINCE, THERE IS NO FIXED BASE OR PE IN INDIA, THEREFORE, THE PAYME NT OF PROFESSIONAL FEE WILL NOT BE TAXABLE IN INDIA. OUR FINDING GIVEN IN THE EARLIER YEARS WILL APPLY MUTATIS MUTANDIS HERE ALSO. ACCORDINGLY, THE ISSUE RAISED IN GROUND NO.1 IS ALLOWED. 3 4. SO FAR AS THE SECOND ISSUE IS CONCERNED AS RAISED IN GROUND NO .2, THE SAME IS SIMILAR TO GROUND NO.1 WHICH HAS BEEN DECIDED IN THE EARLIER YEARS AS ABOVE. THUS, IN VIEW OF OUR FINDING GIVEN THEREIN, THIS MATTER IS RESTORED TO THE FILE OF THE AO TO BE DECIDED IN LINE WITH THE DIRECTIONS GIVEN ABOVE. ACCORDINGLY, THE I SSUE RAISED IN GROUND NO.2 IS TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSE. 3 5. THE LAST ISSUE AS RAISED IN GROUND NO.3, RELATES TO DISALLOWANCE OF ENTERTAINMENT EXPENSES OF RS.1,00,000/ - . THE ASSESSEE HAS DEBITED ENTERTAINMENT EXPENDITURE OF RS.2,46 ,278/ - UNDER THE HEAD GENERAL EXPENSES AGGREGATING 42 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 TO RS.51,93,534/ - . THE AO NOTED THAT THE ASSESSEE HAS NOT FURNISHED THE DETAILS OF THE ENTERTAINMENT EXPENSES. HENCE, HE HELD THAT NATURE OF PERSONAL EXPENSES CANNOT BE RULED OUT. THE LEARNED CIT (A) HAS SCALED DOWN THE DISALLOWANCE TO RS.1,00,000/ - . 3 6. AFTER HEARING BOTH THE PARTIES AND ON PERUSAL OF THE FINDING GIVEN IN THE IMPUGNED ORDERS, WE FIND THAT THERE IS NO REASON TO TINKER WITH THE DISALLOWANCE UPHELD BY THE LEARNED CIT (A), BECAUSE THE ASSES SEE COULD NOT FURNISH ANY DETAILS TO CONTROVERT THE FINDING. THE DISALLOWANCE AS CONFIRMED BY THE LEARNED CIT (A) APPEARS TO BE REASONABLE BECAUSE PERSONAL NATURE EXPENDITURE CANNOT BE RULED OUT IN THE ENTERTAINMENT EXPENSES IN ABSENCE OF DETAILS. ACCORDIN GLY, THIS ISSUE RAISED IN GROUND NO.3 IS DISMISSED. 3 7. IN THE RESULT, ALL THE THREE APPEALS OF THE ASSESSEE ARE TREATED AS PARTLY ALLOWED FOR STATISTICAL PURPOSES. ORDER PRONOU NCED IN THE OPEN C OURT ON 30 TH NOVEMBER, 2016. SD/ - SD/ - ( ) ( ) ( RAJENDRA ) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DATE: 30 TH NOVEM BER, 2016. 43 DELOTTE HASKINS AND SELLS ITA NO.: 5096/MUM/2011 ITA NO.: 5097/MUM/2011 ITA NO. : 5094 /MUM/201 1 / COPY TO: - 1 ) / THE APPELLANT. 2 ) / THE RESPONDENT. 3 ) THE CI T ( APPEAL ) 3 , MUMBAI. 4 ) THE CIT - 11 , MUMBAI 5 ) , , / THE D.R. L BENCH, MUMBAI. 6 ) \ COPY TO GUARD FILE. / BY ORDER / , DY. / ASSTT. REGISTRAR I.T.A.T., MUMBAI * . . *CHAVAN, SR.PS . SR.N EPISODE OF AN ORDER DATE INITIALS CONCERNED 1 DRAFT ON HANDWRITTEN MANUSCRIPT 06 . 11 .2016 . . SR.PS 2 DRAFT PLACED BEFORE AUTHOR 17 . 11 .2016 . . SR.PS 3 DRAFT PROPOSED & PLACED BEFORE THE SECOND MEMBER / JM 4 DRAFT DISCUSSED/APPROVED BY SECOND MEMBER /AM 5 APPROVED DRAFT COME S TO THE SR.PS/PS . . SR.PS 6 KEPT FOR PRONOUNCEMENT ON . . SR.PS 7 FILE SENT TO THE BENCH CLERK . . SR.PS 8 DATE ON WHICH FILE GOES TO THE HEAD CLERK 9 DATE OF DISPATCH OF ORDER