Kirloskar Proprietary Ltd., Pune V. DCIT, Circle 11(1), Pune

ITA 536/PUN/2013

• Counselvise Citation: [2015] 120 COUNSELVISE.COM (IT) 9491 (ITAT-PUNE)
• Duration Of Justice: 1 year(s) 10 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 06-01-2015
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: B
• Next Hearing Date: 02-07-2014
• Assessment Year: 2008-2009
• Appeal Filed On: 22-02-2013
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: P S NAIK
• Keywords: Double taxation relief; Permanent establishment
• Section: 14A; 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE BEFORE: SHRI R.S. PADVEKAR, JUDICIAL MEMBER AND SHRI R.K. PANDA, ACCOUNTANT MEMBER ITA NO. 536 / P N/ 20 1 3 ASSESSMENT YEAR : 20 08 - 09 KIRLOSKAR PROPRIETARY LTD., 13A, KIR LOSKAR KISAN COMPOUND, KARVE ROAD, S. NO. 52/1, KOTHRUD, PUNE - 411038 VS. THE DEPUTY COMMISSIONER OF INCOME TAX, CIRCLE - 11(1), PUNE (APPELLANT) (RESPONDENT) PAN NO. AAACK7506Q APPELLANT BY: SHRI C.H. NANIWADEKAR RESPONDENT BY: SHRI P.S. NAIK DATE OF HEARING : 10 - 1 1 - 2014 DATE OF PRONOUNCEMENT : 06 - 01 - 201 5 ORDER PER R.S . PADVEKAR , JM : - THIS APPEAL IS FILED BY THE ASSESSEE CHALLENGING THE IMPUGNED ORDER OF THE LD. CIT(A) - I, PUNE DATED 03 - 12 - 2012 FOR THE A.Y. 20 08 - 09 . THE ASSESSEE HA S TAKEN THE FOUR GROUNDS IN THE APPEAL . 2. AT THE TIME OF HEARING OF APPEAL , LD. AR FOR THE ASSESSEE SUBMITTED THAT SO FAR AS GROUND NO. 1 IN RESPECT OF DISALLOWANCE MADE U/S. 14A IS CONCERNED THE SAME IS NOT PRESSED IN VIEW OF THE FACT THAT THE QUANTUM O F DISALLOWANCE IS SMALL BUT THE ASSESSEE KEEP S THE RIGHT TO CONTEST THE ISSUE IN OTHER YEARS. AS THE ASSESSEE HAS NOT PRESSED GROUND NO. 1 , THE SAME IS DISMISSED AS NOT PRESSED. THE LD. AR FURTHER SUBMITS THAT HE IS NOT PRESSING GROUND NOS. 3 AND 4 ALSO , CONSIDERING THE SMALL NESS OF THE AMOUNTS INVOLVED. AS THE ASSESSEE HAS NOT PRESSED GROUND NOS. 3 AND 4, THE SAME ARE ALSO DISMISSED AS NOT PRESSED. THE ONLY GROUND WHICH REMAINS FOR THE ADJUDICATION IS GROUND NO. 2 WHICH IS READS AS UNDER: 2 ITA NO. 536/PN/2013, KIRLOSKAR PROPRIETARY LTD., PUNE 2. DISALLOWANCE OF PAYMENT MADE TO SABA & CO. ON ACCOUNT OF NON DEDUCTION OF TAX AT SOURCE. THE LEARNED CIT(A) ERRED ON FACTS AND IN LAW IN UPHOLDING DISALLOWANCE OF PAYMENTS OF RS. 22,31,018 / - BEING LEGAL & PROFESSIONAL FEES MADE TO SABA & CO. ON ACCOUNT OF NON DEDUCTION OF TAX AT SOURCE. U/S 40(A)(I) OF THE ACT. HE FAILED TO APPRECIATE THE FACT THAT SABA & CO. HAD PROVIDED LEGAL SERVICES FOR INITIATING THE ANTI COUNTERFEITING PROCEEDINGS BEFORE THE TRIBUNAL OF COMMERCE OF RABAT AND ALL THE SERVICES ARE THUS RENDERED OUTS IDE INDIA WHICH DOES NOT ATTRACT DEDUCTION OF TAX AT SOURCE AS PER DTAA WITH MOROCCO. THE REASONS ASSIGNED ARE WRONG AND UNTENABLE. 3. THE PRECISE FACTS PERTAIN TO THE ISSUE ARISING FROM ABOVE GROUND ARE AS UNDER. THE ASSESSEE COMPANY IS ENGAGED IN THE B USINESS OF LICENSING, PROTECTION AND DEFENSE OF TRADEMARK. FOR THE A.Y. 2008 - 09 , THE ASSESSEE CLAIMED THE EXPENSES PAID TO SABA AND CO. OF RS.22,31,018/ - ON ACCOUNT OF LEGAL CONSULTANCY FEES. IN THE OPINION OF THE ASSESSING OFFICER THE ASSESSEE WAS REQUI RED TO DEDUCT THE TAX AT SOURCE U/S. 195 OF THE INCOME - TAX ACT. THE ASSESSING OFFICER, THEREFORE, SOUGHT THE EXPLANATION OF THE ASSESSEE WHY THE SAID EXPENDITURE SHOULD NOT BE DISALLOWED U/S. 40(A)(I) OF THE INCOME - TAX ACT. THE ASSESSEE SUBMITTED BEFORE THE ASSESSING OFFICER THAT SABA & CO. IS TRADEMARK AND PATENT AGENT AND HAS PROVIDED LEGAL CONSULTANCY FOR INITIATING AND PROSECUTING AN ANTI - COUNTERFEITING PROCEEDINGS BEFORE THE TRIBUNAL OF COMMERCE AT RABAT ( MOROCCO ) . THE SAID CONCERN DOES NOT HAVE ANY PERMANENT ESTABLISHMENT (PE) IN INDIA. IT WAS FURTHER SUBMITTED THAT AS PER THE PROVISIONS OF SEC. 195 OF THE ACT FOR DEDUCTING THE TAX AT SOURCE IS NECESSARY THAT THE INCOME HAS TO ACCRUE AND ARISE IN INDIA AND AS IN THE SAID CASE THERE IS NO ACCRUAL OF AN INCOME, THE ASSESSEE IS NOT BOUND TO DEDUCT THE TAX AT SOURCE. THE ASSESSEE ALSO PLEADED THAT AS PER THE PROVISIONS OF DTAA BETWEEN INDIA AND MOROCCO , THE PAYMENT IS NOT TAXABLE IN INDIA AND HENCE, THERE IS NO REQUIREMENT TO DEDUCT THE TAX AT 3 ITA NO. 536/PN/2013, KIRLOSKAR PROPRIETARY LTD., PUNE SOURCE. THE ASSESSING OFFICER HELD THE PAYMENT MADE BY THE ASSESSEE TO SABA & CO. AS THE FEES FOR TECHNICAL SERVICES AND HE HAS DISCUSSED THE SAID ISSUE IN THE ASSESSMENT ORDER ON PAGE NOS. 4 TO 7. 4. THE ASSESSING OFFICER ALSO RELIED FEW DECISIONS IN SUPPORT OF HIS STAND THAT EVEN IF THE SERVICES ARE RENDERED OUTSIDE INDIA AS THOSE SERVICES ARE USED IN INDIA THEN INCOME OF NON - RESIDENT IS TAXABLE . THE ASSESSING OFFICER ALSO REFE RRED TO ARTICLE 12 OF DTAA BETWEEN INDIA AND MOROCCO WHICH IS IN RESPECT OF ROYALT Y AND FEES FOR TECHNICAL SERVICES AND IT TREATMENT IN THE C ONTRACTING S TATE. THE ASSESSING OFFICER FINALLY MADE THE DISALLOWANCE OF RS.22,31,018/ - BY INVOKING THE PROVISIONS OF SEC. 40(A)(I) R.W.S. 195 OF THE ACT. THE ASSESSEE CARRIED THE ISSUE BEFORE TH E LD. CIT(A) BUT WITHOUT SUCCESSES. THE LD. CIT(A) CONFIRMED THE VIEW TAKEN BY THE ASSESSING OFFICER. THE REASONS GIVEN BY THE LD. CIT(A) ARE AS UNDER: 4.2 I HAVE EXAMINED THE RELEVANT CLAUSES I.E. ARTICLES 12 AND 14 OF THE DTAA BETWEEN INDIA AND MOROCCO . THE APPELLANT COMPANY IS EXCLUSIVELY ENGAGED IN ALLOWING THE LICENSED USE OF THE KIRLOSKAR TRADEMARK BOTH IN INDIA AND ABROAD SABA & CO. HAS BEEN ENGAGED FOR PROVIDING LEGAL CONSULTANCY SERVICES IN RESPECT OF AN ANTI COUNTERFEITING CASE AT MOROCCO. ART ICLE 12(4) DEFINES THE TERM FEES FOR TECHNICAL SERVICES AS PAYMENTS OF ANY KIND IN CONSIDERATION FOR THE RENDERING OF MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES, INCLUDING THE PROVISIONS OF SERVICES BY TECHNICAL OR OTHER PERSONNEL. SABA & CO. IP IS A LEADING INTELLECTUAL PROPERTY RIGHTS FIRM WITH A NETWORK OF BRANCH AND REPRESENTATIVE OFFICES ACROSS WEST ASIA, NORTH AFRICA AND NEIGHBORING REGIONS. IT CANNOT BE SAID THAT THE SERVICES RENDERED BY SABA & CO. RELATES TO INDEPENDENT ACTIVITIES OF LAWYERS, AND THUS COVERED UNDER ARTICLE 14 OF THE INDIA MOROCCO DTAA. UNDER THESE FACTS AND CIRCUMSTANCES, IT IS HELD THAT ARTICLE 12 OF THE DTAA WOULD APPLY. THUS, SEC. 40(A)(IA) WOULD BE APPLICABLE TO THE PAYMENTS MADE TO SABA & CO. BEING IN THE NATURE OF FE ES FOR TECHNICAL SERVICES WHICH ARE GOVERNED BY CLAUSE 12 OF THE DTAA. THEREFORE, THE ASSESSING OFFICER WAS RIGHT IN DISALLOWING RS.22,31,018/ - U/S. 40(A)(IA) ON ACCOUNT OF NON DEDUCTION OF TDS ON 4 ITA NO. 536/PN/2013, KIRLOSKAR PROPRIETARY LTD., PUNE PAYMENTS MADE TO SABA & CO. GROUND NO. 2 IS THEREFORE, DI SMISSED. NOW, THE ASSESSEE IS IN APPEAL BEFORE US. 5. LD. AR SUBMITS THAT THE SABA & CO. IS INVOLVED IN THE LITIGATION MORE PARTICULARLY RELATING TO TRADEMARK AND PATENT PROTECTION. HE REFERRED TO PAGE NO. 2 OF THE COMPILATION WHERE THE LETTER DAT ED 25 TH SEPTEMBER, 2007 SENT BY SABA & CO. IS PLACED. AS PER THE SAID LETTER , ACCORDING TO HIM , THE SAID FIRM WAS ENGAGED F OR PROTECTING THE TRADE MARK OF THE KIRLOSKAR GROUP AS SOME COUNTERFEITING AND ANALOGOUS NAME WAS ALSO IN CIRCULATION IN THE MARKET. HE ARGUES THAT THE SABA & CO. HAS CLAIMED THE LEGAL FEES AND EXPENSES FOR INITIATING THE ANTI - COUNTERFEITING PROCEEDINGS BEFORE THE TRIBUNAL OF COMMERCE AT RABAT (MOROCCO) AGAINST ONE NICE AGRICOLE WHICH ENTITY WAS USING THE ANALOGOUS NAME TO K IRLOSKAR . THE SAID ENTITY WAS USING THE TRADE NAME LIKE KARLOS*CAR. HE REFERRED TO PAGE NO. 3 OF THE COMPILATION AND SUBMITS THAT AS PER THE DESCRIPTION OF SERVICES THE SAID FIRM IS INVOLVED IN PROVIDING THE LEGAL SERVICES TO THE ASSESSEE COMPANY BY INITIATING LEGAL PROCEEDING AND GETTING A RESTRAINING ORDER FROM THE TRIBUNAL OF COMMERCE AT RABAT (MOROCCO) . HE ALSO REFERRED TO OTHER CORRESPONDENCE FROM SABA & CO. , COPIES ARE FILED AT PAGE NOS. 8, 9, 10, 11, 12, 13 & 14 ETC. HE SUBMITS THAT AS PER THE EVIDENCE ON RECORD WHATEVER THE SERVICES ARE RENDERED BY SABA & CO. ARE IN THE NATURE OF LEGAL SERVICES AND NOT TECHNICAL SERVICES . THE LEGAL SERVICES ARE COVERED IN ARTICLE 14 OF THE DTAA BETWEEN INDIA AND MOROCCO AND NOT UNDER ARTICLE 12. HE ARGUES THAT THE ASS ESSING OFFICER HAS TREATED THE PAYMENT MADE BY THE ASSESSEE AS THE FEES FOR TECHNICAL SERVICES WITHOUT UNDERSTANDING THE NATURE OF SERVICES RENDERED BY SABA & CO. HE SUBMITS THAT AS PER THE NORMAL PROVISIONS OF THE ACT U/S. 9 , THE PAYMENT MADE BY THE ASSE SSEE MAY COVER AS TAXABLE IN INDIA BUT AS THE PROVISIONS 5 ITA NO. 536/PN/2013, KIRLOSKAR PROPRIETARY LTD., PUNE OF DTAA BETWEEN INDIA AND MOROCCO ARE MORE BENEFICIAL TO THE ASSESSEE AND HENCE, THE ASSESSEE IS RELYING ON THE SAID T REATY. HE ARGUES THAT ARTICLE 14 OF DTAA BETWEEN INDIA AND MOROCCO SPECIFICALLY REFER S T O THE SERVICES OF THE LAWYERS AND UNLESS THE PERSON IS HAVING THE PERMANENT ESTABLISHMENT IN THE C ONTRACTING S TATE, THE SAME CANNOT BE BROUGHT TO TAX. HE ALSO RELIED ON THE FOLLOWING PRECEDENTS: I. CEDRICK JORDAN DA SILVA VS. ITO (IT) 98 DTR (PANAJI ) (TRIB) 314. II. IMP POWER LTD. VS. ITO 107 TTJ (MUM) 522. 6. PER CONTRA, THE LD. CIT (DR) RELIED ON THE ORDER OF THE LD. CIT(A). HE SUBMITS THAT THE SERVICES RENDERED BY THE SABA & CO. CANNOT BE TREATED AS LEGAL SERVICES AS THEY ARE ALSO ENGAG ED IN GETTING THE TRADEMARK REGISTERED AND ALLIED SERVICES. HE SUBMITS THAT THE INTERPRETATION MADE BY THE AUTHORITIES BELOW TREATING THE NATURE OF THE SERVICES AS ON TECHNICAL IS CORRECT ONE AND ACCORDINGLY, THE ASSESSEE CANNOT TAKE THE STAND THAT THE PA YMENT MADE TO SABA & CO. WAS NOT TAXABLE IN INDIA. 7. WE HAVE HEARD THE RIVAL SUBMISSIONS OF THE PARTIES AND PERUSED THE RECORD. THE ISSUE IS IN A NARROW COMPASS BEFORE US. THE FIRST ISSUE IS TO BE DECIDED THE NATURE OF SERVICES. WE HAVE GONE THROUGH THE COMPILATION FILED BY THE ASSESSEE. SABA & CO. HAS GIVEN CERTIFICATE DATED 4 - 10 - 2010 ( PAGE NO. 1 OF THE COMPILATION ) CERTIFYING THAT THE SAID FIRM DOES NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA. ON PAGE NO. 2 OF THE COMPILATION COPY OF LETTER DAT ED 25 TH SEPTEMBER, 2007 ADDRESS ED TO THE ASSESSEE AND CONTENTS OF SAID LETTER ARE A S UNDER: ANTI - COUNTERFEITING ACTION AGAINST NICE AGRICOLE FOR SALE OF KARLOS*CAR TO CLARIFY THE NATURE OF THE SERVICES RENDERED BY THE SABA & CO. IT WILL BE HELPFUL TO R EPRODUCE THE CONTENTS OF THE SAID COMMUNICATION. DEAR MR. CHITLEY, WE REVERT TO OUR EMAIL DATED JULY 23, 2007. 6 ITA NO. 536/PN/2013, KIRLOSKAR PROPRIETARY LTD., PUNE WE HAVE THE PLEASURE TO INFORM YOU THAT SUBSEQUENT TO THE ORDER ISSUED BY THE PRESIDENT OF THE TRADE COURT BASED ON OUR URGENT PETITION, THE P ROCESS - SERVER HAD UNDERTAKEN THE DESCRIPTIVE SEIZURE COUPLED WITH INTERPELLATIVE SUMMONS. HE VISITED THE PREMISES OF NICE AGRICOLE, WHERE HE FOUND 53 ENGINES BEARING THE BRAND 'KARLOS*CAR'. AIT SAID OF NICE AGRICOLE DECLARED THAT HE IMPORTS SUCH ENGINES F ROM INDIA. BASED ON THE REPORT OF DESCRIPTIVE SEIZURE AND INTERPELLATIVE SUMMONS ISSUED IN WHICH THE BAILIFF CONCLUDED AFTER COMPARISON THAT 'KARLOS*CAR' AND KIRLOSKAR' PRODUCTS ARE CONFUSINGLY SIMILAR, THE SUBSTANTIVE LAWSUIT WAS DULY FILED, CLAIMING THAT THE COURT ORDERS THE ADVERSE PARTIES TO CEASE ANY IMPORT, SALE OR DISTRIBUTION OF THE PRODUCTS BEARING THE KARLOS*CAR' BRAND, TO CONFISCATE AND DESTROY THE STOCK HELD BY THEM, TO PUBLISH THE EXPECTED JUDGEMENT IN LOCAL NEWSPAPERS AT THEIR EXPENSE AND TO B EAR JUDICIAL COSTS. WE HAVE ALSO SUBMITTED A PETITION TO THE PRESIDENT OF TRIBUNAL ACTING IN CHAMBERS SEEKING THE PRELIMINARY INJUNCTION. WE SHALL NOT FAIL TO KEEP YOU APPRISED OF ANY NEW PROGRESS OF THE PROCEEDINGS AND PARTICULARLY THE DATE OF THE UPCOMIN G HEARING AT THE APPROPRIATE TIME.' ATTACHED HEREWITH IS OUR DEBIT NOTE COVERING THE LEGAL FEES AND EXPENSES, FOR YOUR KIND SETTLEMENT, AT YOUR EARLIEST CONVENIENCE. ASSURING YOU ALWAYS OF OUR BEST SERVICES, WE REMAIN, VERY TRULY YOURS, SABA & CO., CASAB LANCA OFFICE MDD 8. T HE ASSESSEE HAS ALSO FILED THE COPY OF BILL RECEIVED FROM SABA & CO. AT PAGE NO. 3 OF THE COMPILATION , BEING BILL NO. MAT/7377697/08/IN DATED 24 TH SEPTEMBER, 2007. IN THE SAID BILL SABA & CO. HA S CLAIMED THE LEGAL FEES AND EXPENSES FOR INITIATING THE ANTI - COUNTERFEITING PROCEEDINGS BEFORE THE TRIBUNAL OF COMMERCE AT RABAT (MOROCCO) AGAINST ONE NICE AGRICOLE. THERE IS ANOTHER WRITTEN COMMUNICATION FROM SABA & CO. TO 7 ITA NO. 536/PN/2013, KIRLOSKAR PROPRIETARY LTD., PUNE THE ASSESSEE DATED 25 TH SEPTEMBER, 2007 , COPY PLACED AT PAGE NO. 4 O F THE COMPILATION , WHICH AGAIN REFER S TO THE ANTI - COUNTERFEITING CASE ASSIGNED BY THE ASSESSEE TO SABA & CO. AS PER THE EVIDENCE ON RECORD IT IS CLEAR THAT SABA & CO. WAS INVOLVED IN FILING THE LAWSUIT IN THE TRIBUNAL OF COMMERCE AT RABAT (MOROCCO) CLAIMI NG THAT NICE MOTEURS BE ORDERED TO CANCEL THEIR INFRINGING TRADEMARK KARLOS*CAR REG. NO. 101944 AND 108491 AND TO DISCONTINUE ANY MISUSE. AS PER THE DOCUMENTARY EVIDENCE IN THE NATURE OF THE COMMUNICATION AND THE BILLS / INVOICE S PLACED BEFORE US WE HAVE N O HESITATION TO HOLD THAT THE NATURE OF SERVICES RENDERED BY THE SABA & CO. FOR WHICH THE ASSESSEE HAS PAID RS.22,31,018/ - IS TOWARDS RENDERING THE LEGAL SERVICES. 9. NOW, THE NEXT QUESTION IS WHETHER THE SAID SERVICES ARE COVERED UNDER ARTICLE 12 OR AR TICLE 14 OF THE DTAA. THE ARGUMENT OF LD. AR IS THAT AS PER THE DTAA BETWEEN INDIA AND MOROCCO , THERE IS A SPECIFIC REFERENCE IN ARTICLE 14 IN RESPECT OF THE PERSONAL SERVICES WHICH INCLUDES THE SERVICES OF LAWYERS. ARTICLE 14 OF DTAA BETWEEN INDIA AND M OROCCO (HEREINAFTER REFERRED TO AS THE SAID TREATY) READS AS UNDER: ARTICLE 14: INDEPENDENT PERSONAL SERVICES 1. NOTWITHSTANDING THE PROVISIONS OF THE ARTICLE 12 RELATING TO FEES FOR TECHNICAL SERVICES, INCOME DERIVED BY A RESIDENT OF A CONTRACTING STAT E IN RESPECT OF PROFESSIONAL SERVICES OR OTHER INDEPENDENT ACTIVITIES OF A SIMILAR CHARACTER SHALL BE TAXABLE ONLY IN THAT CONTRACTING STATE EXCEPT IN THE FOLLOWING CIRCUMSTANCES: A. I F HE HAS A FIXED BASE REGULARLY AVAILABLE TO HIM IN THE OTHER CONTRACTING S TATE FOR THE PURPOSE OF PERFORMING HIS ACTIVITIES; OR B. I F HIS STAY IN THE OTHER CONTRACTING STATE IS FOR A PERIOD OR PERIODS AMOUNTING TO OR EXCEEDING IN THE AGGREGATE 183 DAYS IN THE RELEVANT FISCAL YEAR; IN SUCH CASE, ONLY SO MUCH OF THE INCOME AS IS ATT RIBUTABLE TO THAT FIXED BASE OR AS IS DERIVED FROM HIS ACTIVITIES PERFORMED IN THAT OTHER CONTRACTING STATE, AS THE CASE MAY BE, MAY ALSO BE TAXED IN THAT OTHER CONTRACTING STATE. 8 ITA NO. 536/PN/2013, KIRLOSKAR PROPRIETARY LTD., PUNE 2. THE TERM PROFESSIONAL SERVICES INCLUDES INDEPENDENT SCIENTIFIC, LITER ARY, ARTISTIC, EDUCATIONAL OR TEACHING ACTIVITIES AS WELL AS THE INDEPENDENT ACTIVITIES OF PHYSICIANS, SURGEONS, LAWYERS, ENGINEERS, ARCHITECTS, DENTISTS AND ACCOUNTANTS. 10. AS PER ARTICLE 14 OF THE SAID T REATY , THE SERVICES RENDERED BY THE LAWYERS ARE INCLUDED IN THE PROFESSIONAL SERVICES THESE ARE INDEPENDENT ON THE PERSONAL SERVICES. NOW, THERE ARE CONDITIONS IN A SITUATION WHEN INCOME FROM THE PROFESSIONAL SERVICES WILL BE TAXABLE IN THE CONTRACTING STATE IF THE RESIDENT OF THE ANOTHER CONTRACTI NG STATE HAS FIXED BASE REGULARLY AVAILABLE TO HIM IN THE OTHER CONTRACTING STATE FOR THE PURPOSE OF PERFORMING HIS ACTIVITIES OR IF HIS STAY IN THE OTHER CONTRACTING STATE IS FOR A PERIOD OR PERIODS AMOUNTING TO OR EXCEEDING IN AGGREGATE TO 183 DAYS IN TH E RELEVANT FISCAL YEAR. AS PER THE CERTIFICATE FILED BY THE SABA & CO. IT HAS NO PERMANENT ESTABLISHMENT IN INDIA. SABA & CO. IS NOT AN INDIVIDUAL BUT EVEN IF IT IS A FIRM THEN WHAT WOULD BE THE FA TE. 11. IN ARTICLE 14 THE TERM A RESIDENT IS USED. TH E TERM RESIDENT IS DEFINED IN ARTICLE 4 OF THE SAID T REATY WHICH READS AS UNDER: ARTICLE 4 RESIDENT : 1. FOR THE PURPOSES OF THIS CONVENTION, THE TERM 'RESIDENT OF A CONTRACTING STATE' MEANS ANY PERSON WHO, UNDER THE LAWS OF THAT STATE OR ANY POLITICAL S UB - DIVISION OR LOCAL AUTHORITY THEREOF, IS LIABLE TO TAX THEREIN BY REASON OF HIS DOMICILE, RESIDENCE, PLACE OF MANAGEMENT OR ANY OTHER CRITERION OF A SIMILAR NATURE. THIS TERM, HOWEVER, DOES NOT INCLUDE ANY PERSON WHO IS LIABLE TO TAX IN THAT STATE IN RES PECT ONLY OF INCOME FROM SOURCES IN THAT STATE. 2. WHERE, BY REASON OF THE PROVISIONS OF PARAGRAPH 1, AN INDIVIDUAL IS A RESIDENT OF BOTH CONTRACTING STATES, THEN HIS STATUS SHALL BE DETERMINED AS FOLLOWS: (A) HE SHALL BE DEEMED TO BE A RESIDENT ONLY OF T HE STATE IN WHICH HE HAS A PERMANENT HOME AVAILABLE TO HIM ; IF HE HAS A PERMANENT HOME AVAILABLE TO HIM IN BOTH STATES, HE SHALL BE DEEMED TO BE A RESIDENT OF THE STATE WITH WHICH HIS PERSONAL AND ECONOMIC RELATIONS ARE CLOSER (CENTRE OF VITAL INTERESTS); 9 ITA NO. 536/PN/2013, KIRLOSKAR PROPRIETARY LTD., PUNE (B) IF THE STATE IN WHICH HE HAS HIS CENTRE OF VITAL INTERESTS CANNOT BE DETERMINED, OR IF HE HAS NOT A PERMANENT HOME AVAILABLE TO HIM IN EITHER STATE, HE SHALL BE DEEMED TO BE A RESIDENT ONLY OF THE STATE IN WHICH HE HAS AN HABITUAL ABODE; (C) IF HE HAS AN HABITUAL ABODE IN BOTH STATES OR IN NEITHER OF THEM, HE SHALL BE DEEMED TO A RESIDENT ONLY OF THE STATE OF WHICH HE IS A NATIONAL; (D) IF HE IS A NATIONAL OF BOTH STATES OR OF NEITHER OF THEM, THE COMPETENT AUTHORITIES OF THE CONTRACTING STATES SHALL S ETTLE THE QUESTION BY MUTUAL AGREEMENT. 3. WHERE, BY REASON OF THE PROVISIONS OF PARAGRAPH 1, A PERSON OTHER THAN AN INDIVIDUAL IS A RESIDENT OF BOTH CONTRACTING STATES, THEN IT SHALL BE DEEMED TO BE A RESIDENT ONLY OF THE STATE IN WHICH ITS PLACE OF EFFE CTIVE MANAGEMENT IS SITUATED . 12. THE DEFINITION OF THE ARTICLE 4 OF THE SAID T REATY IS WIDE ENOUGH TO COVER ANY PERSON WHO IS LIABLE TO TAX BY REASON OF HIS DOM ICILE, RESIDEN CE, PLACE OF MANAGEMENT ETC. ARTICLE 4(3) PROVIDES IN RESPECT OF A PERSON OTHER THAN AN INDIVIDUAL AND CONDITION IS THAT INCOME WILL BE TAXABLE WHERE A PLACE OF EFFECTIVE MANAGEMENT IS SITUATED. CERTAINLY THERE IS NO AMBIGUITY IN RESPECT OF THE TERM RESIDENT AS USED IN ARTICLE 14 THAT IT IS NOT NECESSARY THAT THE INDEPENDENT PERSO NAL SERVICES ARE CONFINED TO THE INDIVIDUAL S ONLY . 13. IN THE CASE OF CEDRICK JORDAN DA SILVA (SUPRA) THE TRIBUNAL WAS S EIZED WITH THE INTERPRETATION OF ARTICLE 14 OF THE DTAA BETWEEN INDIA AND PORTUG AL , WHERE IN AN IDENTICAL PROVISION IS MADE . T HERE I S IDENTICAL CONDITION THAT UNLESS THE RESIDENT OF THE ANOTHER STATE HAS HAVING THE FIXED BASE IN THE OTHER CONTRACTING STATE , THEN ONLY THE INCOME DERIVED BY RENDERING PROFESSIONAL SERVICES IS TAXABLE IN THAT ANOTHER STATE. THE OPERATIVE PART OF THE DECIS ION READS AS UNDER: 2.2 THE LD. DR, ON THE OTHER HAND, RELIED ON THE ORDER OF THE TAX AUTHORITIES BELOW. 10 ITA NO. 536/PN/2013, KIRLOSKAR PROPRIETARY LTD., PUNE WE HAVE HEARD THE RIVAL SUBMISSIONS AND CAREFULLY CONSIDERED THE SAME. WE HAVE PERUSED THE MATERIAL ON RECORD ALONGWITH THE ORDER OF THE TAX AUTHORITI ES BELOW. IT IS A SETTLED LAW THAT THE PROVISIONS OF SEC. 195 OF THE INCOME TAX ACT WILL APPLY ONLY IF THE PAYMENT MADE TO THE NON - RESIDENT HAS AN ELEMENT OF INCOME CHARGEABLE TO TAX IN INDIA. IF THERE IS A CONFLICT BETWEEN THE PROVISIONS OF THE INCOME TAX ACT AND THE DTAA ENTERED BY INDIA WITH THE OTHER COUNTRY, THE PROVISIONS OF THE DTAA, IF BENEFICIAL TO THE ASSESSEE, SHALL PREVAIL. IN THIS CASE, IT IS NOT DISPUTED THAT THE LEGAL CONSULTANCY SERVICES HAS BEEN PROVIDED BY THE NON - RESIDENT TO WHICH ARTICL E 14 OF THE DTAA BETWEEN INDIA AND PORTUGAL ARE APPLICABLE. ARTICLE 14 CLEARLY LAYS DOWN THAT INCOME DERIVED BY A PERSON WHO IS AN INDIVIDUAL OR A FIRM OF INDIVIDUALS (OTHER THAN A COMPANY) WHO IS RESIDENT OF A CONTRACTING STATE FROM THE PERFORMANCE IN OTH ER CONTRACTING STATE OF PROFESSIONAL SERVICES OR OTHER INDEPENDENT ACTIVITIES OF SIMILAR CHARACTER SHALL BE TAXABLE ONLY IN THE FIRST MENTIONED STATE. IT FURTHER STATES THAT SUCH INCOME MAY ALSO BE TAXED IN THE OTHER CONTRACTING STATE UNDER THE FOLLOWING C IRCUMSTANCES: (A) IF SUCH PERSON HAS A FIXED BASE REGULARLY AVAILABLE TO HIM IN THE OTHER CONTRACTING STATE FOR THE PURPOSE OF PERFORMING HIS ACTIVITIES OR; (B) IF HE IS STAYING IN THE OTHER STATE FOR A PERIOD OR PERIODS EXCEEDING IN THE AGGREGATE 183 DAYS IN ANY 12 MONTHS PERIOD COMMENCING OR ENDING IN THE FISCAL YEAR CONCERNED. IN THAT CASE, ONLY SO MUCH OF THE INCOME AS IS DERIVED FROM HIS ACTIVITIES PERFORMED IN THE OTHER STATE MAY BE TAXED IN THAT STATE. THE NON - RESIDENT TO WHOM THE ASSESSEE HAS MADE T HE PAYMENT DOES NOT HAVE ANY FIXED BASE REGULARLY AVAILABLE TO HIM FOR PERFORMING HIS DUTY. EVEN HE DOES NOT HAVE ANY PERMANENT ESTABLISHMENT. THAT IS NOT THE CASE OF THE REVENUE. FROM THE COPY OF THE PASSPORT ALSO IT IS APPARENT THAT THE PERSON, MS. ELENA NISTAL TO WHOM THE ASSESSEE HAS MADE THE PAYMENT WAS IN INDIA ONLY FOR 22 DAYS I.E. FROM 2.5.2010 TO 23.5.2010. SHE WAS NOT IN INDIA FOR A PERIOD EXCEEDING IN THE AGGREGATE 183 DAYS. THEREFORE, INCOME DERIVED FROM HER ACTIVITIES PERFORMED IN INDIA CANNOT BE TAXED IN INDIA. EVEN UNDER ARTICLE 15 ALSO, THE INCOME CANNOT BE SAID TO BE TAXABLE IN INDIA AS UNDER THIS ARTICLE, A PERSON HAS TO BE IN THE OTHER STATE FOR A PERIOD OR PERIODS AGGREGATING TO 90 DAYS IN THE RELEVANT FISCAL YEAR. IN THE CASE OF THE PERS ON TO WHOM THE ASSESSEE MADE THE PAYMENT, THE PERSON HAD REMAINED IN INDIA ONLY FOR 22 DAYS. 11 ITA NO. 536/PN/2013, KIRLOSKAR PROPRIETARY LTD., PUNE THEREFORE, THIS INCOME CANNOT BE TAXABLE. WE HAVE ALSO GONE THROUGH THE PROVISIONS OF SEC. 9(1)(VII). EVEN IF THE PROVISIONS OF SEC. 9(1)(VII) ARE APPLICABLE, BUT DUE TO THE DTAA BETWEEN INDIA AND PORTUGAL IF THE INCOME IS NOT CHARGEABLE TO TAX, WE ARE OF THE FIRM VIEW THAT THE DTAA WILL PREVAIL AND THE INCOME WILL NOT BE CHARGEABLE TO TAX IN INDIA. SINCE THE INCOME IS NOT CHARGEABLE TO TAX IN INDIA, THE ASSESSEE WA S NOT UNDER AN OBLIGATION TO DEDUCT THE TDS. WE, ACCORDINGLY, SET ASIDE THE ORDER OF CIT(A) AND QUASH THE ORDER PASSED U/S 201(1) AND 201(1A) OF THE INCOME TAX ACT. 14. ADMITTEDLY, IN THE PRESENT CASE SABA AND CO. IS NOT HAVING ANY FIXED BASE IN INDIA AND HENCE, AS THE CONDITION OF ARTICLE 14 IS NOT FULFILL ED AND SABA AND CO. W HICH IS A RESIDENT OF MOROCCO CANNOT BE TAXED IN INDIA IN RESPECT OF FEES PAID BY THE ASSESSEE COMPANY FOR INITIATING AND PROSECUTING THE LEGAL PROCEEDINGS IN THE MOROCCO. WE, ACCOR DINGLY, ALLOW GROUND NO. 2 TAKEN BY THE ASSESSEE. 15. IN THE RESULT, THE ASSESSEES APPEAL IS PARTLY ALLOWED. PRONOUNCED IN THE OPEN COURT ON 06 - 01 - 20 1 5 SD/ - SD/ - ( R . K . PAN DA ) ( R.S. PADVEKAR ) ACCOUNTANT MEMBER JUDICIAL MEMBER PUNE , DATED : 06 TH JANUARY, 2015 RK/PS COPY TO 1 ASSESSEE 2 DEPARTMENT 3 THE CIT(A) - I, PUNE 4 THE CIT - I, PUNE 5 THE DR, ITAT, B BENCH, PUNE . 6 GUARD FILE. //TRUE COPY// BY ORDER ASSISTANT REGISTRA R , INCOME TAX APPELLATE TRIBUNAL , PUNE