UNITED HELICHARTERS P.LTD, MUMBAI V. ACIT 10(2), MUMBAI

ITA 5136/MUM/2011

• Counselvise Citation: [2013] 140 COUNSELVISE.COM (IT) 70811 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 1 month(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 14-08-2013
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: L
• Next Hearing Date: 29-07-2013
• Assessment Year: 2006-2007
• Appeal Filed On: 04-07-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: ARATI DESHMUKH
• Keywords: Business income; Double taxation relief; Bonafide belief; Deemed to accrue or arise in india; Retrospective amendment; Permanent establishment; Capital receipt
• Section: 143(3); 234B

Judgement Text

, IN THE IN IN THE IN IN THE IN IN THE INCOME TAX APPELLATE TRIBUNAL COME TAX APPELLATE TRIBUNAL COME TAX APPELLATE TRIBUNAL COME TAX APPELLATE TRIBUNAL L BENCH, L BENCH, L BENCH, L BENCH, MUMBAI MUMBAI MUMBAI MUMBAI . , !' !' !' !' , . BEFORE BEFORE BEFORE BEFORE SHRI SHRI SHRI SHRI B. R B. R B. R B. RAMAKOTAIAH AMAKOTAIAH AMAKOTAIAH AMAKOTAIAH, AM , AM , AM , AM & && & SHRI SHRI SHRI SHRI VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO VIJAY PAL RAO, ,, , JM JMJM JM ./ I.T.A. N I.T.A. N I.T.A. N I.T.A. NO. O.O. O. 5136 5136 5136 5136/MUM/2011 /MUM/2011 /MUM/2011 /MUM/2011 ( #$ #$ #$ #$ % % % % / ASSESSMENT YEAR : 2006-07) ./ I.T.A. NO. I.T.A. NO. I.T.A. NO. I.T.A. NO. 5135/MUM/2011 5135/MUM/2011 5135/MUM/2011 5135/MUM/2011 ( #$ #$ #$ #$ % % % % / ASSESSMENT YEAR : 2007-08) M/S UNITED HELICHARTERS PVT. LTD., HANGER NO. C2, AIRPORT AUTHORITY OF INDIA, JUHU CIVIL AERODROME, S.V. ROAD, VILE PARLE, MUMBAI-400054 $ $ $ $ / VS. ACIT-10(2) MUMBAI & ./ '' ./ PAN/GIR NO. : AAACU3352N ( &( / APPELLANT APPELLANT APPELLANT APPELLANT) .. ( )*&( / RESPONDENT RESPONDENT RESPONDENT RESPONDENT) &( &( &( &( + + + + / APPELLANT BY : MR. MAYUR KISNADWALA & MS. ARATI DESHMUKH )* )* )* )*&( &(&( &( , ,, , + + + + /RESPONDENT BY : MR. NEERAJA PRADHAN $ $ $ $ , ,, , - - - - / DATE OF HEARING : 29 TH JULY 2013 .% .% .% .% , ,, ,- - - - /DATE OF PRONOUNCEMENT: 14 TH AUGUST 2013 / / O R D E R PER : !' , . . / VIJAY PAL RAO, JM THESE APPEALS BY THE ASSESSEE ARE DIRECTED AGAINST TWO SEPARATE ORDERS OF THE COMMISSIONER OF INCOME TAX(APPEALS) B OTH DATED 31.5.2011 FOR THE ASSESSMENT YEARS 2006-07 AND 2007 -08. 2. THE ASSESSEE HAS RAISED COMMON GROUNDS IN THESE APPEALS EXCEPT THE AMOUNT OF DISALLOWANCE. THE GROUNDS RAIS ED FOR THE ASSESSMENT YEAR 2006-07 ARE AS UNDER: ITA NO. 5136 & 5135/M/2011 UNITED HELICHARTERS PVT. LTD. 2 1. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FAC TS IN UPHOLDING THE ORDER PASSED BY THE ASSESSING OFFICER U/S 143(3) OF THE INCOME TAX ACT, 1961, WHICH IS ILLEGAL AND B AD IN LAW. 2. THE LEARNED CIT(A) HAS ERRED IN LAW AND ON FACT S IN SUSTAINING THE DISALLOWANCE AMOUNTING TO ` 22,94,01 4/- MADE BY THE ASSESSING OFFICER U/S 40(A)(I) OF THE ACT. 3. GROUND NO. 1 IS GENERAL IN NATURE AND NO SPECIFI C FINDING IS REQUIRED AS IT IS CONSEQUENTIAL TO THE OUTCOME OF T HE GROUND NO. 2. 4. GROUND NO. 2 REGARDING DISALLOWANCE U/S 40(A)(I) OF THE ACT. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF CHAR TER HIRE OF HELICOPTERS. DURING THE ASSESSMENT PROCEEDING THE A O NOTED THAT THE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE WHILE MAKIN G PAYMENT TOWARDS TRAINING EXPENSES PAID TO BELL HELICOPTER T EXTRON INC. THE ASSESSEE WAS ASKED TO EXPLAIN AS TO WHY THE SAID PA YMENTS SHOULD NOT BE DISALLOWED AS PER SECTION 40(A)(I) OF THE INCOME TAX ACT. IN RESPONSE THE ASSESSEE CONTENDED THAT THE RECIPIENT COMPANY I S A RESIDENT OF USA AND DOES NOT HAVE ANY PERMANENT ESTABLISHMENTS IN I NDIA. THE ASSESSEE EXPLAINED BEFORE THE AO THAT THESE AGENCIE S ARE APPROVED BY THE DIRECTORATE GENERAL OF CIVIL AVIATION OF INDIA (DGCA) FOR PROVIDING SUCH TRAINING TO ENABLE THE PILOTS OR ENGINEERS AS THE CASE MAY BE TO GET THEIR RESPECTIVE LICENSES ENDORSED, TO OPERATE/ WORK ON RESPECTIVE TYPE OF HELICOPTER. ON COMPLETION OF THE TRAINING T HE AGENCIES PROVIDE A CERTIFICATE BASED ON WHICH THE DGCA MAKE ENDORSED O F RESPECTIVE LICENSES. THEREFORE, THE ASSESSEE CONTENDED THAT TH ESE PAYMENTS ARE COVERED UNDER THE ARTICLE RELATING TO THE BUSINESS PROFITS UNDER THE RESPECTIVE DTAA AND IN THE ABSENCE OF PERMANENT EST ABLISHMENTS IN ITA NO. 5136 & 5135/M/2011 UNITED HELICHARTERS PVT. LTD. 3 INDIA, TDS IS NOT REQUIRED TO BE DEDUCTED. THE AO D ID NOT ACCEPT THE CONTENTION OF THE ASSESSEE AND HELD THAT IN VIEW OF EXPLANATION 2 TO SECTION 9(1)(VII), THE PAYMENTS MADE BY THE ASSESSE E IS FEES FOR TECHNICAL SERVICES AND THEREFORE THE SAME IS LIABL E TO BE TAXED IN INDIA AS PER SECTION 9(1)(VII). ACCORDINGLY, THE AO HAS D ISALLOWED THE AMOUNTS PAID BY THE ASSESSEE ON ACCOUNT OF TRAINING EXPENSE S TO BELL HELICOPTER TEXTRON INC. BY INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE INCOME TAX ACT. ON APPEAL, THE CIT(A) AS CONFIRMED THE DIS ALLOWANCE MADE BY THE AO BY CONSIDERING THE EXPLANATION INTRODUCED BY THE FINANCE ACT 2010, AS RETROSPECTIVE AMENDMENT W.E.F 1.6.1976. 5. BEFORE US THE LD. AR OF THE ASSESSEE HAS SUBMITT ED THAT THE SAID EXPENDITURE IS INCURRED WITHIN THE FRAMEWORK OF THE GOVERNMENT OF INDIA REGULATIONS APPLICABLE TO THE AVIATION INDUST RY AND WITH APPROVAL OF DGCA. THE TRAINING WAS CONDUCTED ABROAD AND NONE OF THE COMPANIES HAVE ANY PLACE OF BUSINESS IN INDIA. THE LD. AR HAS FURTHER POINTED OUT THAT THE RETROSPECTIVE AMENDMENT BROUGH T INTO THE STATUTE BY FINANCE ACT 2010 IS SUBSEQUENT TO THE PAYMENTS M ADE BY THE ASSESSEE AND THEREFORE THE PAYMENTS WHICH WERE MADE PRIOR THE AMENDMENT DOES NOT ATTRACT THE PROVISIONS OF SECTIO N 40(A)(I). HE HAS VEHEMENTLY CONTENDED THAT PRIOR TO THE ASSESSMENT Y EAR 2006-07 THERE WAS NO DISALLOWANCE U/S 40(A)(I) AND THE ASSESSEE W AS UNDER BONAFIDE BELIEF THAT NO TDS IS REQUIRED TO BE DEDUCTED ON TH ESE PAYMENTS. THE LD. AR HAS ALSO CONTENDED THAT THE PAYMENTS IN THE HAND OF THE RECIPIENT ARE NOT TAXABLE IN INDIA EVEN AS PER THE ARTICLE 12 OF THE INDO- ITA NO. 5136 & 5135/M/2011 UNITED HELICHARTERS PVT. LTD. 4 US DTAA. HE HAS REFERRED PARA 4 OF ARTICLE 12 AND S UBMITTED THAT AS PER THE MEANING GIVEN IN PARA 4 OF THE ARTICLE 12 OF TH E INDO-US DTAA THE FEES FOR INCLUDED SERVICES MEANS INTER ALIA IF SUCH SERVICES MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, K NOW-HOW, OR PROCESSES, OR CONSISTS OF THE DEVELOPMENT AND TRANS FER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. THE TRAINING WAS GIVEN TO THE PILOTS AND OTHER ENGINEERING STAFF AS PER THE REQUIREMENT OF DGCA TH EREFORE IT DOES NOT AMOUNT TO SERVICES MAKE AVAILABLE TECHNICAL KNOWLED GE, EXPERIENCE, SKILL, KNOW-HOW ETC. THE LD. AR HAS FURTHER SUBMITT ED THAT EVEN OTHERWISE THE SERVICES IN QUESTION DOES NOT FALL UN DER THE DEFINITION OF FEES FOR TECHNICAL SERVICES OR FEES FOR INCLUDED SERVICES (FIS) AS PER PARA 5 OF ARTICLE 12 OF THE INDO-US DTAA. IN SUPPOR T OF HIS CONTENTION HE HAS RELIED UPON THE DECISION OF AHMEDABAD BENCHES O F THIS TRIBUNAL IN CASE OF STERLING ABRAIVE LTD. VS ACIT 44 SOT 652 AN D THE SAME HAS ALSO BEEN FOLLOWED IN THE SUBSEQUENT DECISION OF THE SAM E ASSESSEE VIDE ORDER DATED 23.12.2010. 6. ON THE OTHER HAND, THE LD. DR HAS SUBMITTED THAT THE TRAINING IN QUESTION WAS GIVEN TO MAINTENANCE AND FLYING OPERAT ION STAFF OF THE ASSESSEE APART FROM THE PILOTS OTHER STAFF WHO ARE THE EMPLOYEES OF THE ASSESSEE AND THEREFORE THE SERVICES WERE MADE AVAIL ABLE TO THE ASSESSEE. SHE HAS RELIED UPON THE DECISION OF DELHI BENCHES OF THIS TRIBUNAL IN CASE OF STEEL AUTHORITY OF INDIA VS ITO 120 TTJ 297 AND SUBMITTED THAT THE TRAINING FEE PAID BY THE ASSESSE E FOR TRAINING OF ITS PERSONNEL WAS HELD AS IN NATURE OF FEES FOR TECHNI CAL SERVICES WITHIN ITA NO. 5136 & 5135/M/2011 UNITED HELICHARTERS PVT. LTD. 5 THE MEANING OF EXPLANATION 2 TO SECTION 9(1)(VII) A S WELL AS IN TERMS OF ARTICLE 13(4)(C) OF INDO-UK DTAA. THUS, IN THE CASE IN HAND WHEN THE TRAINING WAS GIVEN TO THE EMPLOYEES OF THE ASSESSEE THE PAYMENT MADE FOR THE TRAINING FALLS UNDER THE DEFINITION OF FEES FOR TECHNICAL SERVICES\FEES FOR INCLUDED SERVICES (FIS). SHE HAS ALSO RELIED UPON THE DECISION OF THIS TRIBUNAL IN CASE OF ASHAPURA MINIC HEM LTD. VS ACIT 40 SOT 220 AND SUBMITTED THAT UNDER THE AMENDED EXPLAN ATION TO SECTION 9(1) THE INCOME OF NON-RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDIA AND SHALL BE INCLUDED IN HIS TOTAL INCOME WHE THER OR NOT THE NON- RESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BU SINESS CONNECTION IN INDIA OR THE NON-RESIDENT HAS RENDERED SERVICE IN I NDIA. UTILISATION OF THE SERVICES IN INDIA IS ENOUGH TO ATTRACT ITS TAXABILI TY IN INDIA. SHE HAS RELIED UPON THE RULING OF AUTHORITY OF ADVANCE RULI NG IN CASE OF PERFETTI VAN MELLE HOLDING B.V VS ADIT REPORTED IN 342 ITR 2 00. 7. IN REJOINDER/REBUTTAL THE LD. AR OF THE ASSESSEE HAS SUBMITTED THAT THE DECISION RELIED UPON BY THE LD. DR ARE NOT APPLICABLE IN THE FACTS OF THE ASSESSEES CASE BECAUSE THE TRAINING P ROVIDED IN THE CASE OF THE ASSESSEE IS A STANDARD TRAINING AS PER THE R EQUIREMENT OF DGCA AND NO SPECIFIC TECHNICAL KNOWLEDGE, EXPERIENCE, SK ILL, KNOW-HOW WAS TRANSFERRED OR MADE AVAILABLE TO THE ASSESSEE. 8. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS AS WELL AS RELEVANT MATERIAL ON RECORD. THE ASSESSING OFFICER HAS DISAL LOWED THE PAYMENT IN QUESTION AS PER THE PROVISIONS OF SECTION 9(1)(VII) WITHOUT CONSIDERING THE PROVISIONS OF DTAA. THE CIT(A) HAS ALSO RELIED UPON THE ITA NO. 5136 & 5135/M/2011 UNITED HELICHARTERS PVT. LTD. 6 RETROSPECTIVE AMENDMENT BROUGHT TO THE STATUTE BY F INANCE ACT 2010 WHEREBY THE EXPLANATION HAS BEEN INTRODUCED. THERE IS NO DISPUTE ON THE POINT THAT PRIOR TO THE ASSESSMENT YEAR 2006-07 THERE IS NO DISALLOWANCE BY THE AO U/S 40(A)(I). THE RETROSPECT IVE AMENDMENT BROUGHT BY FINANCE ACT 2010 WAS NOT IN EXISTENCE WH EN THE ASSESSEE MADE THE PAYMENTS. THEREFORE, IT CANNOT BE RULED OU T THAT THE ASSESSEE HAS ACTED UNDER BONAFIDE BELIEF THAT NO TDS WAS REQ UIRED TO BE DEDUCTED ON SUCH PAYMENT. IN VIEW OF THE FACT THAT THERE WAS NO SUCH DISALLOWANCE MADE PRIOR TO THE ASSESSMENT YEAR 2006 -07 AND IT IS NOT THE CASE OF THE ASSESSMENT OF INCOME IN THE HAND OF THE NON-RESIDENT RECIPIENT OF THE AMOUNT BUT IT IS A CASE OF DISALLO WANCE OF THE CLAIM OF EXPENDITURE CLAIMED BY THE ASSESSEE. AT THE TIME OF SUCH PAYMENT THE PROVISIONS RELIED UPON BY THE CIT(A) WAS NOT IN EXI STENCE. THUS, THE ASSESSEE WAS NOT EXPECTED TO DO SOMETHING WHICH WER E IMPOSSIBLE TO PERFORM. THE AHMEDABAD BENCH OF THIS TRIBUNAL IN CA SE OF STERLING ABRAIVE LTD. VS ACIT (SUPRA) HAS EXTENSIVELY DISCUS SED THIS ISSUE IN PARA 8 TO 11 AS UNDER: 8. WE HAVE HEARD THE RIVAL CONTENTIONS AND GONE TH ROUGH THE FACTS AND CIRCUMSTANCES OF THE CASE. WE FIND THAT B Y AMENDMENT IN THE FINANCE ACT, 2007, THE LEGISLATURE INSERTED THE EXPLANATION RETROSPECTIVELY WITH RETROSPECTIVE EFFECT FROM 1- 6-1976 TO SECTION 9(2) OF THE ACT, WHEREAS THE ASSE SSMENT YEAR INVOLVED IS 2004-05 RELEVANT TO PREVIOUS YEAR 2003- 04 AND IT IS IMPOSSIBLE FOR THE ASSESSEE TO DEDUCT TAX IN THE FI NANCIAL YEAR 1- 4-2003 TO 31-3-2004, WHEN THE OBLIGATION TO DEDUCT TDS WAS NOT ON THE ASSESSEE DURING THAT PERIOD. THE PROVISI ON OF SECTION 9 PROVIDES FOR SITUATIONS WHERE INCOME IS DEEMED TO ACCRUE OR ARISE IN INDIA TO A NON-RESIDENT. WE FIND THAT THE LEGISLATURE VIDE FINANCE ACT, 1976, A SOURCE RULE WAS PROVIDED IN SE CTION 9 THROUGH INSERTION OF CLAUSES (V), (VI) AND (VII) IN SUB-SECTION (1) FOR INCOME BY WAY OF INTEREST, ROYALTY OR FEES FOR TECHNICAL ITA NO. 5136 & 5135/M/2011 UNITED HELICHARTERS PVT. LTD. 7 SERVICES RESPECTIVELY AND THE INTENTION OF INTRODUC ING THE SOURCE RULE WAS TO BRING TO TAX INTEREST, ROYALTY AND FEES FOR TECHNICAL SERVICES, BY CREATING A LEGAL FICTION IN SECTION 9, EVEN IN CASES WHERE SERVICES ARE PROVIDED OUTSIDE INDIA AS LONG A S THEY ARE UTILIZED IN INDIA BUT THE HONBLE SUPREME COURT IN THE CASE OF ISHIKAWAJMA-HARIMA HEAVY INDUSTRIES LTD. (SUPRA) HE LD THAT DESPITE THE DEEMING FICTION IN SECTION 9, FOR ANY S UCH INCOME TO BE TAXABLE IN INDIA, THERE MUST BE SUFFICIENT TERRI TORIAL NEXUS BETWEEN SUCH INCOME AND THE TERRITORY OF INDIA. IT FURTHER HELD THAT FOR ESTABLISHING SUCH TERRITORIAL NEXUS, THE S ERVICES HAVE TO BE RENDERED IN INDIA AS WELL AS UTILIZED IN INDIA. ACCORDING TO THE LEGISLATURE THIS INTERPRETATION WAS NOT IN ACCORDAN CE WITH THE LEGISLATIVE INTENT THAT THE SITUS OF RENDERING SERV ICE IN INDIA IS NOT RELEVANT AS LONG AS THE SERVICES ARE UTILIZED I N INDIA AND THEREFORE, TO REMOVE DOUBTS REGARDING THE SOURCE RU LE, AN EXPLANATION WAS INSERTED BELOW SUB-SECTION (2) OF S ECTION 9 WITH RETROSPECTIVE EFFECT FROM 1-6-1976 VIDE FINANCE ACT , 2007. THE EXPLANATION SOUGHT TO CLARIFY THAT WHERE INCOME IS DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CLAUSES (V), (VI) AN D (VII) OF SUB- SECTION (1) OF SECTION 9, SUCH INCOME SHALL BE INCL UDED IN THE TOTAL INCOME OF THE NON-RESIDENT, REGARDLESS OF WHE THER THE NON- RESIDENT HAS A RESIDENCE OR PLACE OF BUSINESS OR BU SINESS CONNECTION IN INDIA. EVEN AFTER THAT, THE HONBLE K ARNATAKA HIGH COURT, IN A RECENT JUDGMENT IN THE CASE OF JINDAL T HERMAL POWER CO. LTD. V. DY. CIT (TDS) [2010] 321 ITR 31 HAS HEL D THAT THE EXPLANATION, IN ITS PRESENT FORM, DOES NOT DO AWAY WITH THE REQUIREMENT OF RENDERING OF SERVICES IN INDIA FOR A NY INCOME TO BE DEEMED TO ACCRUE OR ARISE TO A NON-RESIDENT UNDE R SECTION 9. IT HAS BEEN HELD THAT ON A PLAIN READING OF THE EXP LANATION, THE CRITERIA OF RENDERING SERVICES IN INDIA AND THE UTI LIZATION OF THE SERVICE IN INDIA LAID DOWN BY THE SUPREME COURT IN ITS JUDGMENT IN THE CASE OF ISHIKAWAJMA-HARIMA HEAVY INDUSTRIES LTD. (SUPRA) REMAINS UNTOUCHED AND UNAFFECTED BY THE EXPLANATION . FURTHER THE LEGISLATURE VIDE FINANCE BILL, 2010 IN ORDER TO REMOVE ANY DOUBT ABOUT THE LEGISLATIVE INTENT OF THE AFORESAID SOURCE RULE, SUBSTITUTED IN PLACE OF THE EXISTING EXPLANATION A NEW EXPLANATION TO SPECIFICALLY STATE THAT THE INCOME O F A NON- RESIDENT SHALL BE DEEMED TO ACCRUE OR ARISE IN INDI A UNDER CLAUSE (V) OR CLAUSE (VI) OR CLAUSE (VII) OF SUB-SE CTION (1) OF SECTION 9 AND SHALL BE INCLUDED IN HIS TOTAL INCOME , WHETHER OR NOT, (A) THE NON-RESIDENT HAS A RESIDENCE OR PLACE OF BU SINESS OR BUSINESS CONNECTION IN INDIA; OR (B) THE NON-RESIDENT HAS RENDERED SERVICES IN INDIA . THIS AMENDMENT WAS MADE RETROSPECTIVELY FROM 1-6-19 76 AND WILL ACCORDINGLY, APPLY IN RELATION TO THE ASSESSME NT YEAR 1977- 78 AND SUBSEQUENT YEARS. ITA NO. 5136 & 5135/M/2011 UNITED HELICHARTERS PVT. LTD. 8 9. IN VIEW OF THE ABOVE FACTS AND LEGAL POSITION, W HETHER THE ASSESSEE CAN BE ASKED TO DO IMPOSSIBLE ACT, I.E., T O DEDUCT TAX FOR THE PAST PERIOD. WITH THE INSERTION OF THE EXPL ANATION RETROSPECTIVELY BY THE FINANCE ACT, 2007 WITH RETRO SPECTIVE EFFECT FROM 1-6-1976 TO SECTION 9(2) OF THE ACT, WH EREAS THE ASSESSMENT YEAR INVOLVED IS 2004-05 RELEVANT TO PRE VIOUS YEAR 2003 -04, IT IS IMPOSSIBLE FOR THE ASSESSEE TO DEDU CT TAX IN THE FINANCIAL YEAR 1-4-2003 TO 3 1-3-2004, WHEN THE OBL IGATION TO DEDUCT TDS WAS NOT ON THE ASSESSEE DURING THAT PERI OD. THE ARGUMENT CANVASSED BY THE LD. COUNSEL ON THE BASIS OF A LEGAL MAXIM LEX NON COGIT AD IMPOSSIBILIA, MEANING THEREB Y THAT THE LAW CANNOT POSSIBLY COMPEL A PERSON TO DO SOMETHING WHICH IS IMPOSSIBLE TO PERFORM. THIS MAXIM IS ACCEPTED BY DI FFERENT COURTS OF THIS COUNTRY, INCLUDING THE HONBLE SUPRE ME COURT IN THE CASE OF KRISHNASWAMY S. PD. V. UNION OF INDIA [ 2006] 281 ITR 305 MADE THE FOLLOWING OBSERVATIONS IN RELATION TO THE PROVISIONS OF CHAPTER XX-C OF THE ACT. THE MAXIMUM OF EQUITY, NAMELY, ACTUS CURIAE NEMINE M GRAVABIT - AN ACT OF COURT SHALL PREJUDICE NO MAN, IS FOUNDED UPON JUSTICE AND GOOD SENSE WHICH SERVES A SAFE AND CERTAIN GUIDE FOR THE ADMINISTRATION OF LAW. TH E OTHER RELEVANT MAXIM IS, LEX NON COGIT AD IMPOSSIBILIA - THE LAW DOES NOT COMPEL A MAN TO DO WHAT HE CANNOT POSSIBLY PERFORM. THE LAW ITSELF AND ITS ADMINISTRATION IS UNDERSTOOD TO DISCLAIM AS IT DOES IN ITS GENERAL AP HORISMS, ALL INTENTION OF COMPELLING IMPOSSIBILITIES, AND TH E ADMINISTRATION OF LAW MUST ADOPT THAT GENERAL EXCEP TION IN THE CONSIDERATION OF PARTICULAR CASES. (SEE U.P. S.R.T.C. V. IMTIAZ HUSSAIN [2006] 1 SCC 380, SHAIKH SALIM HA JI ABDUL KHAGUMSAB V. KUMAR [2006] 1 SCC 46, MOHAMMAD GAZI V. STATE OF MP [2000] 4 SCC 342 AND GURSHARAN SINGH V. NEW DELHI MUNICIPAL COMMITTEE [1996] 2 SCC 459. SIMILARLY, WHILE DEALING WITH A QUESTION AS TO WHET HER AN ASSESSEE CAN BE PENALIZED FOR FAILURE TO CARRY OUT AN ACT PRIOR TO ITS INCORPORATION THE APEX COURT IN THE CASE OF LIF E INSURANCE CORPORATION OF INDIA V. CIT [1996] 219 ITR 410 MADE FOLLOWING OBSERVATIONS. 11. IT IS OBVIOUS THAT IN THE SURPLUS OR DEFICIT I N ANY INTER- VALUATION PERIOD RELATING TO THE CORPORATION WHICH CAME TO BE FORMED ONLY ON THE APPOINTED DAY IN 1956, THIS A MOUNT COULD NOT BE REFLECTED SINCE IT RELATED TO A PERIOD PRIOR TO THE FORMATION OF THE CORPORATION. THE LAW DOES NOT CONTEMPLATE OR REQUIRE THE PERFORMANCE OF AN IMPOSS IBLE ACT - LEX NON COGIT AD IMPOSSIBILIA. IT IS NOW TO B E SEEN WHETHER THE EXPRESSION INCLUDED THEREIN IN RULE 2 (1)(B) IS ALONE SUFFICIENT TO NEGATIVE THE LOGICAL LEGAL E FFECT OF SECTION 7 OF THE LIC ACT. ITA NO. 5136 & 5135/M/2011 UNITED HELICHARTERS PVT. LTD. 9 WHILE DEALING WITH QUESTION AS TO WHETHER AN ASSESS EE CAN BE LIABLE TO PAY INTEREST FOR FAILURE TO PAY ADVANCE T AX DURING THE YEAR WHEN THE LIABILITY TO PAY TAX HAD ARISEN ON AC COUNT OF AMENDMENT TO LAW WHICH TOOK PLACE AFTER THE END OF THE YEAR, HONBLE MADRAS HIGH COURT IN THE CASE OF CIT V. REV ATHI EQUIPMENT LTD. [2008] 298 ITR 67, REPRODUCED AND TH EREAFTER APPROVED THE REASONING CONTAINED IN THE FOLLOWING P ASSAGE OF THE TRIBUNAL ORDER. WE HAVE NO DOUBT IN OUR MIND THAT THE LEVY OF INTER EST UNDER SECTIONS 234B AND 234C ARE OF MANDATORY NATUR E, BUT AT THE SAME TIME, IF WE READ SECTIONS 234B AND 234C CAREFULLY, WE FIND THAT SUCH LIABILITY IS FASTENED TO THOSE ASSESSEES WHO ARE LIABLE TO PAY ADVANCE TAX. NOW, L ET US SEE WHO ARE LIABLE TO PAY ADVANCE TAX AND HOW. SECT IONS 207 AND 208 READ AS UNDER: 207. TAX SHALL BE PAYABLE IN ADVANCE DURING ANY FI NANCIAL YEAR, IN ACCORDANCE WITH THE PROVISIONS OF SECTIONS 208 TO 219 (BOTH INCLUSIVE), IN RESPECT OF THE TOTAL INCOM E OF THE ASSESSEE WHICH WOULD BE CHARGEABLE TO TAX FOR THE ASSESSMENT YEAR IMMEDIATELY FOLLOWING THAT FINANCIA L YEAR, SUCH INCOME BEING HEREAFTER IN THIS CHAPTER R EFERRED TO AS CURRENT INCOME. 208. ADVANCE TAX SHALL BE PAYABLE DURING A FINANCIA L YEAR IN EVERY ;A CASE WHERE THE AMOUNT OF SUCH TAX PAYA BLE BY THE ASSESSEE DURING THAT YEAR, AS COMPUTED IN ACCORDANCE WITH THE PROVISIONS OF THIS CHAPTER, IS FIVE THOUSAND RUPEES OR MORE. 7. A COMBINED READING OF THE ABOVE PROVISIONS MAKES IT CLEAR THAT THE ASSESSEE HAS TO PAY TAXES IN ADVANCE IN RESPECT OF THE TOTAL INCOME OF THE ASSESSEE, WHICH WOULD BE CHARGEABLE IN A PARTICULAR ASSESSMENT YEAR. NOW BEFORE INTRODUCTION OF SECTION 35DDA, THE LEGAL DIC TUM WAS VERY CLEAR THAT THE ASSESSEE COULD CLAIM EXPEND ITURE INCURRED ON ACCOUNT OF PAYMENT MADE FOR THE VRS BY THE ASSESSEE IN VIEW OF THE BINDING DECISIONS OF THE HO NBLE JURISDICTIONAL HIGH COURT IN THE CASE OF CIT V. GEO RGE OAKES LTD. [1992] 197 ITR 288 (MAD.) AND CIT V. SIM PSON AND CO. LTD. (NO. 2) [1998] 230 ITR 794 (MAD.). IN BOTH THE DECISIONS, IT WAS CLEARLY LAID DOWN BY THE HONBLE JURISDICTIONAL HIGH COURT THAT PAYMENTS TO EMPLOYEE S UNDER THE VRS WERE IN THE NATURE OF BUSINESS EXPEND ITURE AND WAS DEDUCTIBLE UNDER SECTION 37. THEREFORE, TIL L THE INTRODUCTION OF NEW PROVISIONS UNDER SECTION 35DDA, THE ASSESSEE COULD HAVE ESTIMATED THE INCOME LEGITIMATE LY AFTER REDUCING THE EXPENDITURE INCURRED ON THE VRS. IT IS A COMMON KNOWLEDGE THAT THE FINANCE BILL IS INTRODUCE D ON ITA NO. 5136 & 5135/M/2011 UNITED HELICHARTERS PVT. LTD. 10 FEBRUARY 28, 2001, AND THE SAME IS MADE INTO THE AC T AFTER PASSING THE BILL IN BOTH THE HOUSES OF PARLIA MENT AND RECEIVING THE ASSENT OF THE HONBLE PRESIDENT OF IN DIA SOME WHERE IN MAY OR JUNE, WHICH MEANS TILL THAT DA TE NO ASSESSEE CAN VISUALIZE THAT A NEW LIABILITY WOULD B E FASTENED TO HIM. NORMALLY, NEW PROVISIONS ARE INTRO DUCED WITH EFFECT FROM THE NEXT ASSESSMENT YEAR, BUT THIS PROVISION UNDER SECTION 35DDA WAS INTRODUCED BY PARLIAMENT IN ITS WISDOM WITH EFFECT FROM APRIL 1, 2001, I.E., THE SAME YEAR AND THAT IS WHY DIFFICULTY HAS ARISEN FOR VISUALIZING THE LIABILITY AND THE ASSESSEE COULD NO T DEDUCT SUCH EXPENDITURE. IN FACT IN ALMOST IDENTICAL CIRCUMSTANCES IN THE THIRD MEMBER DECISION BY THE D ELHI BENCH IN THE CASE OF HARYANA WAREHOUSING CORPORATIO N V. DEPUTY CIT [2001] 252 ITR (AT) 34 IT WAS HELD THAT IN SUCH SITUATIONS THE LEGAL DICTUM AD IMPOSSIBILIA WOULD B E ATTRACTED. THE SIMPLE MEANING OF THIS DICTUM IS THA T LAW CANNOT COMPEL YOU TO DO THE IMPOSSIBLE. IN THE CAS E BEFORE US ALSO, THE ASSESSEE COULD NOT HAVE VISUALI ZED TILL THE LAST INSTALMENT OF ADVANCE TAX, I.E., MARCH 15, 2001, THAT IT WOULD NOT BE ENTITLED TO DEDUCT THE VRS PAY MENTS. THEREFORE, THE ASSESSEE COULD NOT HAVE DONE ANYTHIN G OTHER THAN TO ESTIMATE THE LIABILITY TO PAY ADVANCE TAX ON THE BASIS OF EXISTING PROVISIONS. WE ARE OF THE CON SIDERED OPINION THAT IN SUCH SITUATION, IT CANNOT BE SAID T HAT THE ASSESSEE WAS LIABLE TO PAY ADVANCE TAX. ONCE WE COM E TO THE CONCLUSION THAT THE ASSESSEE WAS NOT LIABLE TO PAY ADVANCE TAX, THERE IS NO QUESTION OF CHARGING TAX U NDER SECTIONS 234B AND 234C. IN SIMILAR CIRCUMSTANCES IN THE CASE OF PRIYANKA OVERSEAS LTD. V. DEPUTY CIT [2001] 79 LTD 353 (DELHI) WHERE THE ASSESSEE HAD TREATED THE RECEIPT OF CASH ASSISTANCE AS CAPITAL RECEIPTS, WHI CH WAS SUBSEQUENTLY AMENDED TO BE BUSINESS RECEIPT BY THE FINANCE ACT, 1990, IT WAS HELD THAT IN SUCH CASES I NTEREST UNDER SECTIONS 234B AND 234C WAS NOT CHARGEABLE. IN THESE CIRCUMSTANCES, WE THINK THAT THE ASSESSEE WAS NOT LIABLE TO PAY ADVANCE TAX AND THEREFORE LEVY OF INT EREST UNDER SECTIONS 234B AND 234C IS NOT JUSTIFIED. FURT HER, IT IS PERTINENT TO NOTE THAT THE ASSESSEE BY WAY OF ABUND ANT CAUTION DEPOSITED A SUM OF RS. 90,00,000 ON AUGUST 6, 2001, I.E., MUCH BEFORE THE DUE DATE OF FILING OF T HE RETURN, WHICH ALSO PROVES THE BONA FIDE CREDENTIALS OF THE ASSESSEE. IN THESE CIRCUMSTANCES, WE SET ASIDE THE ORDER OF THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) AND DELETE THE LEVY OF INTEREST UNDER SECTIONS 234B AND 234C. 10. WHILE DEALING WITH THE QUESTION AS TO WHETHER A N ASSESSEE CAN BE FAULTED FOR NOT DECLARING THE AMOUNT OF CAPI TAL GAIN ON ACQUISITION OF LAND, WHEN THE AMOUNT OF COMPENSATIO N ITSELF IS ITA NO. 5136 & 5135/M/2011 UNITED HELICHARTERS PVT. LTD. 11 NOT DETERMINED HONBLE ALLAHABAD HIGH COURT IN THE CASE OF CIT V. PREM KUMAR [2008] 169 TAXMAN 351 HELD AS FOLLOWS . LEX NON COGIT AD IMPOSSIBILIA IS AN AGE OLD MAXIM MEANING THAT THE LAW DOES NOT COMPEL A MAN TO DO WH ICH HE CANNOT POSSIBLY PERFORM. REQUIRING THE ASSESSEE TO FILE A PROPER AND COMPLETE RETURN BY INCLUDING THE INCOM E UNDER THE HEAD CAPITAL GAIN WOULD BE IMPOSSIBLE F OR THE ASSESSEE, IN CASES OF THE NATURE REFERRED ABOVE. IN THE CASE OF V.L.S. FINANCE LTD. V CIT [2007] 289 ITR 286 HONBLE DELHI HIGH COURT WAS CONCERNED WITH THE QUE STION AS TO WHETHER ASSESSMENT PROCEEDINGS WERE WITHIN THE PERI OD OF LIMITATION IN VIEW OF THE FACT THAT SPECIAL AUDIT, WHICH WAS TO PRECEDE THE ASSESSMENT ORDER WAS STAYED, FOR SOME T IME BY THE ORDER OF THE COURT. IN THIS CONNECTION, THE COURT N OTED AS FOLLOWS. IN RAJ KUMAR DEY V. TARAPADA DEY AIR 1987 SC 2195, THE SUPREME COURT EXAMINED THE SCOPE OF A STAY ORDER ON CALCULATION OF TIME/LIMITATION. IN THIS CASE, AN AW ARD COULD NOT BE REGISTERED WITHIN THE TIME STIPULATED BY THE REGISTRATION ACT OWING TO AN INTERIM INJUNCTION AND AN ORDER DIRECTING THE AWARD TO BE DEPOSITED IN COURT. THE SUPREME COURT ALLOWED THE ENTIRE PERIOD DURING WHIC H THE STAY ORDER WAS IN OPERATION TO BE EXCLUDED WHILE AP PLYING THE MAXIM LEX NON COGIT AD IMPOSSIBILIA OR THE LAW, DOES NOT COMPEL A MAN TO DO THAT WHICH HE CANNOT POSSIBL Y PERFORM. IN THE CASE OF ESCORTS LTD. V. CIT [2002] 257 ITR 4 68, HONBLE DELHI HIGH COURT WAS CONCERNED WITH CLAIM OF AN ASS ESSEE FOR GRANT OF REFUND UNDER SECTION 244 OF THE ACT, WHICH WAS DENIED TO AN ASSESSEE BY THE REVENUE ON THE GROUND THAT TH E ASSESSEE HIMSELF WAS RESPONSIBLE FOR DELAY OF REFUND, AND TH EREFORE CANNOT CLAIM THE AMOUNT OF INTEREST. WHILE CONSIDER ING THE RIGHTS OF THE ASSESSEE TO CLAIM INTEREST, THE DELHI HIGH COURT HELD AS FOLLOWS: LEX NON COGIR AD IMPOSSIBILIA IS A WELL-KNOWN MAX IM. IT MEANS THE LAW DOES NOT COMPEL A MAN TO DO THAT WHIC H HE CANNOT POSSIBLY PERFORM. IF THE ASSESSING OFFICER C OULD NOT PERFORM HIS DUTIES TO COMPLETE THE ORDER OF ASSESSM ENT IN THE ABSENCE OF ANY EVIDENCE FURNISHED BY THE ASSESS EE, THE DEPARTMENT CANNOT BE BLAMED THEREFORE. A LAW CANNOT BE INTERPRETED IN VACUUM. IT HAS TO BE INTERPRETED HAVING REGARD TO THE FACTS AND CIRCUMST ANCES INVOLVED IN EACH CASE. 11. WE FIND FROM THE ABOVE LEGAL POSITION AND FACTS OF THE CASE THAT THE ASSESSEE ACTED BONA FIDE IN CONFORMITY WIT H THE ITA NO. 5136 & 5135/M/2011 UNITED HELICHARTERS PVT. LTD. 12 PROVISION OF ACT AND THE LEGAL POSITION AS ENUMERAT ED BY HONBLE APEX COURT IN THE CASE OF LSHIKAWAJMA-HARIMA HEAVY INDUSTRIES LTD. (SUPRA). AT THE RELEVANT POINT OF TIME IT WAS IMPOSSIBLE ON THE PART OF THE ASSESSEE TO DEDUCT TAX ON THE INCOM E OF NON- RESIDENT. ADMITTEDLY, UP TO THE INSERTION OF EXPLAN ATION VIDE FINANCE ACT, 2007, THE ASSESSEE WAS UNDER BONA FIDE BELIEF NOT TO DEDUCT TAX AND ACCORDINGLY HE ACTED AS PER LAW. ACCORDINGLY WE ALLOW THE APPEAL OF THE ASSESSEE. 9. THEREFORE, IN VIEW OF THE LEGAL PROPOSITION DISC USSED BY THE AHMEDABAD BENCH (SUPRA) WE AGREE WITH THE CONTENTIO N OF THE ASSESSEE THAT THE ASSESSEE HAS ACTED UNDER BONAFIDE BELIEF THAT NO TAX WAS TO BE DEDUCTED AT SOURCE ON THESE PAYMENTS. APA RT FROM THE BONAFIDE BELIEF WE FURTHER NOTED THAT AS PER PARA 4 (B) OF ARTICLE 12 OF INDO-US DTAA FEES FOR INCLUDED SERVICES MEANS IF SU CH SERVICES MADE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, K NOW-HOW, OR PROCESSES, OR CONSISTS OF THE DEVELOPMENT AND TRANS FER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. THE TRAINING IN THE CASE IN HAND WAS GIVEN TO THE PILOTS AND OTHER STAFF AS PER THE REQUIREMENT O F THE DGCA RULES THEREFORE, IT WAS ONLY A PART OF THE ELIGIBILITY OF THE PILOTS AND OTHER STAFF FOR WORKING IN THE INDUSTRY OF AVIATION AND SUCH TR AINING WOULD NOT FALL UNDER THE TERM SERVICE MAKE AVAILABLE. THE DECISI ONS RELIED UPON BY THE LD. DR ARE ON THE TAXABILITY OF THE INCOME IN T HE HAND OF THE NON- RESIDENT IN VIEW OF THE RETROSPECTIVE AMENDMENT THE REFORE THE SAID PRINCIPLE CANNOT BE APPLIED WHILE DECIDING THE ISSU E OF DISALLOWANCE U/S 40(A)(I). IN VIEW OF THE ABOVE DISCUSSION AND THE F ACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE CONSIDERED OPINION THAT THE ITA NO. 5136 & 5135/M/2011 UNITED HELICHARTERS PVT. LTD. 13 DISALLOWANCE OF U/S 40(A)(I) IS NOT JUSTIFIED AND A CCORDINGLY THE SAME IS DELETED. 9. IN THE RESULT, BOTH THE APPEALS OF THE ASSESSEE ARE ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 14 TH DAY OF AUGUST 2013 / , .% 0 1$2 14 TH 3 - , 3 SD/- SD/- ( . ) (B. RAMAKOTAIAH) ACCOUNTANT MEMBER ( !' ) # (VIJAY PAL RAO) JUDICIAL MEMBER PLACE: MUMBAI : DATED: 14 TH AUGUST 2013 SUBODH COPY FORWARDED TO: 1 APPELLANT 2 RESPONDENT 3 CIT 4 CIT(A) 5 DR /TRUE COPY/ BY ORDER DY /AR, ITAT, MUMBAI