ENTERTAINMENT NETWORK (INDIA) LTD, MUMBAI V. JCIT RG 11(1), MUMBAI

ITA 643/MUM/2017

• Counselvise Citation: [2018] 118 COUNSELVISE.COM (IT) 8062 (ITAT-MUMBAI)
• Duration Of Justice: 1 year(s) 10 month(s) 24 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 21-12-2018
• Appeal Filed By: Assessee
• Order Result: Partly Allowed
• Bench Allotted: E
• Assessment Year: 2011-2012
• Appeal Filed On: 27-01-2017
• Result in Favour of: Partly Allowed
• Court: TRIBUNAL
• Department Lawyers: M RAJGURU; CHAUDHARY ARUN KUMAR SINGH
• Assessee Lawyers: S VENKATARAMAN
• Keywords: Double taxation relief; Earning of tax free income; Permanent establishment; Corroborative evidences
• Section: 14A; 201(1); 195; 90

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH E , MUMBAI BEFORE SHRI C.N. PRAS AD, HON'BLE JUDICIAL MEMBER AND SHRI RAJESH KUMAR , HON'BLE ACCOUNTANT MEMBER ITA NO. 643 /MUM/201 7 (A.Y: 2011 - 12) M/S. ENTE RTAINMENT NETWORK (INDIA) LTD., 4 TH FLOOR, A WING, MATUL YA CENTRE, SENAPATI BAPAT MARG, LOWER PAREL (WEST), MUMBAI 400 013 PAN: AAACE 7796 G V. JOINT COMMISSIONER OF INCOME TAX , RANGE 16 (1) , ROOM NO . 467 AAYAKAR BHAVAN , M.K. ROAD, MUMBAI - 400 020 (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI S. VENKATARAMAN DEPARTMENT BY : SHRI M. RAJGURU & SHRI CHAUDHARY ARUN KUMAR SINGH DATE OF HEARING : 26 .10.2018 DATE OF PRONOUNCEMENT : 21 . 12 .2018 O R D E R PER C. N. PRASAD (JM) 1. THIS APPEAL IS FILED BY THE ASSESSEE AGAINST THE ORDER OF THE LD. COMMISSIONER OF INCOME TAX (APPEALS) 4, MUMBAI [HEREINAFTER IN SHORT LD. CIT(A)] DATED 20.10.2016 FOR THE ASSESSMENT YEAR 2011 - 12. 2. THE FIRST ISSUE IN THE GROUNDS OF APPEAL OF THE ASSESSEE IS WITH RESPECT TO DISALLOWANCE U/S. 14A OF THE ACT. 2 ITA NO.643/MUM/2017 (A.Y: 2011 - 12) M/S. ENTERTAINMENT NETWORK (INDIA) LTD., 3. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT INVOKING THE PROVISIONS OF SECTION 14A R.W. RULE 8D MADE DISALLOWANCE OF .23,10,532/ - COMPRISING OF .7,85,532/ - UNDER RULE 8D(2)(II) BEING INTEREST AND .15,25,000/ - BEING ADMINISTRATIVE EXPENSES AT 0.5% OF AVERAG E INVESTMENTS. ON APPEAL THE LD. CIT(A) SUSTAINED THE SAME. 4. LD. COUNSEL FOR THE ASSESSEE REFERRING TO PAGE NOS. 5 & 7 OF THE PAPER BOOK WHICH ARE THE PROFIT AND LOSS ACCOUNT AND SCHEDULE 13 AND ITS BREAK UP, SCHEDULE 13 MISCELLANEOUS INCOME AND BREAK UP THERE ON, SUBMITTED THAT DURING THE ASSESSMENT YEAR UNDER CONSIDERATION THE ASSESSEE EARNED EXEMPT INCOME OF .7,32,781/ - ONLY AND THE ASSESSING OFFICER COMPUTED THE DISALLOWANCE AT .23,10,532/ - . LD. COUNSEL FOR THE ASSESSEE REFERRING TO PAGE NOS. 3 & 43 OF T HE PAPER BOOK SUBMITTED THAT ASSESSEE HAD SUFFICIENT OWN FUNDS FOR MAKING INVESTMENTS. THEREFORE, HE PLACED RELIANCE ON THE DECISION OF THE CIT V. HDFC BANK LTD [366 ITR 505], AND SUBMITTED THAT NO INTEREST DISALLOWANCE UNDER RULE 8D(2)(II) IS CALLED FO R. IN SO FAR AS DISALLOWANCE UNDER RULE 8D(2)(III) IS CONCERNED LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINCE THE ASSESSEE HAS EARNED EXEMPT INCOME ONLY TO THE EXTENT OF .7,32,781/ - THE DISALLOWANCE MAY BE RESTRICTED TO THE EXEMPT INCOME EARNED BY TH E ASSESSEE. RELIANCE IS PLACED ON THE JUDGMENT OF THE HONBLE DELHI HIGH COURT IN THE CASE OF JOINT INVESTMENT PVT. LTD. V. CIT I N ITA NO. 117 OF 2015 DATED 25.02.2015. 3 ITA NO.643/MUM/2017 (A.Y: 2011 - 12) M/S. ENTERTAINMENT NETWORK (INDIA) LTD., LD. COUNSEL FOR THE ASSESSEE ALSO PLACED RELIANCE ON THE DECISION OF THE COORDINATE BENCH IN THE CASE OF PEST CONTROL INDIA PVT. LTD., V. DCIT IN ITA.NO. 5048/MUM/ 2016 AND 5608/MUM/201 6 DATED 31.10.2017 IN SUPPORT OF HIS CONTENTION . 5. LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 6. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW AND THE CASE LAWS RELIED ON. ON A PERUSAL OF THE BALANCE SHEET, PROFIT AND LOSS ACCOUNT AND THE SCHEDULE S THEREIN, WE FIND THAT THE ASSESSEE EARNED EXEMPT INCOME FROM MUTUAL F UNDS AT .7,32,781/ - . THE ASSESSING OFFICER MADE DISALLOWANCE U/S. 8D(2)(II) OF I.T. RULES BEING INTEREST AT .7,85,532/ - AND UNDER RULE 8D(2)(III) BEING ADMINISTRATIVE EXPENSES AT .15,25,000/ - . WE HAVE ALSO PERUSED THE BALANCE SHEET FOR THE YEAR ENDED 31.03.2011 AND FOUND THAT ASSESSEE HAD SUFFICIENT OWN FUNDS BEING SHAREHOLDERS FUNDS & RESERVES AND SURPLUS, FAR MORE THAN THE INVESTMENTS MADE. THEREFORE, THE PRESUMPTION IS THAT THE ASSESSEE MADE INVESTMENTS FROM ITS OWN FUNDS. THE HONBLE JURISDICTIO NAL HIGH COURT IN THE CASE OF CIT V. HDFC BANK LTD (SUPRA) HELD THAT IF THE ASSESSEES CAPITAL, PROFIT, RESERVES AND SURPLUS AND CURRENT ACCOUNT DEPOSITS WERE HIGHER THAN THE INVESTMENTS IN THE TAX FREE S ECURITIES , IT WOULD HAVE TO BE PRESUMED THAT THE INV ESTMENT MADE BY THE ASSESSEE WOULD BE OUT OF THE INTEREST FREE FUNDS AVAILABLE WITH THE ASSESSEE. 4 ITA NO.643/MUM/2017 (A.Y: 2011 - 12) M/S. ENTERTAINMENT NETWORK (INDIA) LTD., THEREFORE, RESPECTFULLY FOLLOWING THE SAID DECISION, WE HOLD THAT THE NO INTEREST CAN BE DISALLOWED UNDER RULE 8D(2)(II) OF THE I.T. RULE S. 7. COMING TO THE DISALLOWANCE UNDER RULE 8D(2)(III) BEING ADMINISTRATIVE EXPENSES FOLLOWING THE DECISION OF THE COORDINATE BENCH IN THE CASE OF M/S. PEST CONTROL INDIA PVT. LTD., (S UPRA), WE DIRECT THE ASSESSING OFFICER TO RESTRICT THE DISALLOWANCE UNDER RULE 8D(2)(II I) TO THE EXEMPT INCOME OF .7,32,781/ - AND DELETE THE BALANCE DISALLOWANCE. GROUNDS RAISED BY THE ASSESSEE ARE PARTLY ALLOWED ON THIS ISSUE. 8. THE SECOND ISSUE IN THE GROUNDS OF APPEAL OF THE ASSESSEE IS WITH RESPECT TO THE DISALLOWANCE U/S. 40(A)(I) OF TH E ACT. 9. BRIEFLY STATED THE FACTS ARE THAT, THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT NOTICED THAT ASSESSEE MADE REMITTANCE OF .25,97,275/ - TO M/S. PHORA CAPITAL ADVISORS IN FRANCE FOR PROFESSIONAL SERVICES RENDERED. HE ALSO NOTICED THAT NO TAX HAS BEEN DEDUCTED BY THE ASSESSEE ON SUCH REMITTANCE. ASSESSEE WAS REQUIRED TO EXPLAIN AS TO WHY THE SAID AMOUNT IS NOT LIABLE FOR TDS. ASSESSEE SUBMITTED THAT M/S. PHORA CAPITAL ADVISORS IS SITUATED IN FRANCE AND DOES NOT HAVE ANY PERMANENT ESTABLISHME NT IN INDIA AND THEY HAVE PROVIDED ONLY PROFESSIONAL SERVICES TO THE ASSESSEE. IT WAS FURTHER SUBMITTED THAT M/S. PHORA CAPITAL ADVISORS WAS A FRENCH COMPANY AND NOT LIABLE TO TAX IN 5 ITA NO.643/MUM/2017 (A.Y: 2011 - 12) M/S. ENTERTAINMENT NETWORK (INDIA) LTD., INDIA AND THEREFORE, NO DISALLOWANCE U/S. 40(A)(I) IS REQUIRED TO BE MADE. H OWEVER, THE ASSESSING OFFICER OBSERVED THAT ASSESSEE HAS CLAIMED THE SERVICES RENDERED AS PROFESSIONAL SERVICES BUT THE SERVICES ARE IN NATURE OF ADVISORY SERVICES TO REVIEW THE STRATEGIC AND WHICH IS CLEARLY A SPECIALIZED SERVICES REQUIRING TECHNICAL KNOWL EDGE FOR WHICH ARTICLE 13 OF DOUBLE TAXATION AVOIDANCE AGREEMENT [DTAA] BETWEEN INDIA AND FRANCE WOULD BE APPLICABLE. THEREFORE, IN VIEW OF THE ARTICLE 13 OF DTAA BETWEEN INDIA AND FRANCE ASSESSEE WAS REQUIRED TO WITHHOLD THE TAX UNDER THE RELEVANT PROVIS IONS OF THE ACT. ACCORDINGLY, THE ASSESSING OFFICER DISALLOWED .25,97,275/ - U/S. 40(A)(I) OF THE ACT FOR NON - DEDUCTION OF TAX AT SOURCE U/S. 195 OF THE ACT . 10. ON APPEAL, LD. CIT(A) AGREED WITH THE VIEW OF THE ASSESSING OFFICER THAT THE SERVICES RENDERED BY THE M/S. PHORA CAPITAL ADVISORS WERE FEES FOR TECHNICA L SERVICES AND CONSEQUENTLY WAS LIABLE FOR DEDUCTION OF TAX AT SOURCE. HOWEVER, SINCE THE ASSESSEE HAD RECOVERED AN AMOUNT OF .12,92,911/ - THROUGH DEBIT NOTE FROM BENNETT, COLEMAN & CO. LTD., WHICH IS THE HOLDING COMPANY OF M/S. PHORA CAPITAL ADVISORS , HE RESTRICTED THE DISALLOWANCE ONLY TO .13,04,364/ - . 11. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT DURING THE ASSESSMENT YEAR ASSESSEE PAID ADVISORY FEES TO M/S. PHORA CAPITAL ADVISORS A RESIDENT OF FRANCE. LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE 6 ITA NO.643/MUM/2017 (A.Y: 2011 - 12) M/S. ENTERTAINMENT NETWORK (INDIA) LTD., PAYME NT WAS MADE OVERSEAS FOR THE PROFESSIONAL SERVICES RENDERED BY M/S. PHORA CAPITAL ADVISORS WHICH HAS NO PERMANENT ESTABLISHMENT IN INDIA AND THE SERVICES RENDERED BY M/S. PHORA CAPITAL ADVISORS ARE NOT TECHNICAL SERVICES AND THEREFORE, DOES NOT FALL UN DER FEES FOR TECHNICAL SERVICES. 12. THE LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT THE EXPR ESSION FEES FOR TECHNICAL SERVICES APPEARING IN THE DTAA BETWEEN INDIA AND FRANCE, BY VIRTUE OF THE PROTOCOL THAT FORMS AN INTEGRAL PART OF THE SAID DTAA, READ WITH THE DEFINITION OF FEES FOR TECHNICAL SERVICES APPEARING IN THE DTAA BETWEEN INDIA AND U K, HAS ALSO TO BE GIVEN A RESTRICTIVE MEANING. IT IS SUBMITTED THAT T HE MAKE AVAILABLE CLAUSE APPEARING IN THE DTAA BETWEEN INDIA AND UK, WHICH HAS BEEN ENTERED INTO AFTER 1 ST SEPTEMBER, 1989, HAS THEREFORE, TO BE READ INTO AS FORMING PART OF THE DEFINITION OF FEES FOR TEC HNICAL SERVICES APPEARING IN THE DTAA BETWEEN INDIA AND FRANCE, FROM THE DATE THE DTAA BETWEEN INDIA AND UK WAS ENTERED INTO. LD. COUNSEL FOR THE ASSESSEE PLACED RELIANCE ON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF CIT V. ISRO SATELLITE CENTRE [218 TAXMAN 7 4] AND SUBMITTED THAT, EVEN ASSUMING THAT IT IS TECHNICAL SERVICES THEY SHOULD BE MAKE AVAILABLE TO ASSESSEE AND SINCE NO TECHNICAL SERVICES WERE MADE AVAILABLE TO THE ASSESSEE NO DEDUCTION IS LIABLE TO BE MADE FOR NOT WITHHOLDING TAX. HE 7 ITA NO.643/MUM/2017 (A.Y: 2011 - 12) M/S. ENTERTAINMENT NETWORK (INDIA) LTD., ALSO PLACED RELIANCE ON THE DECISION OF THE HONBLE DELHI H IGH COURT IN THE CASE OF STERIA (INDIA) LTD., V. CIT [386 ITR 390] AND SUBMITTED THAT A SIMILAR VIEW HAS BEEN TAKEN BY THE HONBLE DELHI HIGH COURT. THEREFORE, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT SINCE M/S. PHORA CAPITAL ADVISORS DO NOT PROVIDE ANY TECHNICAL SERVICES PARTICULARLY THEY HAVE NOT MADE AVAILABLE TO THE ASSESSEE, IN VIEW OF THE CLAUSE (7) PROTOCOL UNDER DTAA BETWEEN INDIA AND FRANCE NO TAX IS REQUIRED TO BE MADE BY THE ASSESSEE AND THEREFORE, THERE SHALL NOT BE ANY DISALLOWANCE U/S. 40(A )(I) OF THE ACT. 13. LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. LD. DR FURTHER SUBMITTED THAT , IN FACT THE ASSESSEE ACCEPTED FOR THE DISALLOWANCE OF BALANCE AMOUNT AS OBSERVED BY THE LD. CIT(A) IN PAGE NO. 7 OF LD. CIT(A) ORDER. IN REPL Y LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT NO SUCH ACCEPTANCE WAS MADE BY THE ASSESSEE AND THE FINDING OF THE LD. CIT(A) THAT THE ASSESSEE ACCEPTED FOR DISALLOWANCE IS ERRONEOUS. LD. COUNSEL FOR THE ASSESSEE FURTHER SUBMITTED THAT, IT WAS SUBMITTED BEF ORE THE LD. CIT(A) THAT WITHOUT PREJUDICE TO THE MAIN CONTENTION SINCE THE ASSESSEE HAS GOT BACK .12,92,911/ - FROM M/S. BENNETT, COLEMAN & CO. LTD., WHICH IS THE HOLDING COMPANY OF M/S. PHORA CAPITAL ADVISORS , IT WAS SUBMITTED THAT DISALLOWANCE CANNOT BE MADE AT .25,97,275/ - . 8 ITA NO.643/MUM/2017 (A.Y: 2011 - 12) M/S. ENTERTAINMENT NETWORK (INDIA) LTD., 14. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. THE ASSESSEE HAD ENGAGED M/S. PHORA CAPITAL ADVISORS IN FRANCE TO PROVIDE ADVISORY SERVICES BY WAY OF REVIEW STRATEGIC AND M&A OPTIONS FOR THE ASSESSEE . T HE ASSESSEE HAD REMITTED .25,97,275/ - BY WAY OF FEES TO M/S. PHORA CAPITAL ADVISORS FOR THE SAID SERVICES WITHOUT DEDUCTION OF TAX AT SOURCE. THE ASSESSING OFFICER DISALLOWED THE AMOUNT OF .25,97,275/ - U/S. 40(A)(I) OF THE ACT SINCE HE WAS OF THE VIEW T HAT THE ASSESSEE OUGHT TO HAVE DEDUCTED TDS ON THE SAID REMITTANCE. ON APPEAL , THE LD. CIT(A) CONFIRMED THE VIEW OF THE ASSESSING OFFICER THAT THE SERVICES WERE IN THE NATURE OF FEES FOR TECHNICAL SERVICES AND CONSEQUENTLY ASSESSEE WAS LIABLE FOR DEDUCTION OF TAX AT SOURC E. HOWEVER, SINCE THE ASSESSEE HAD RECOVERED AN AMOUNT OF .12,19,911/ - THROUGH DEBIT NOTE FROM M/S. BENNETT, COLEMAN & CO. LTD., HE RESTRICTED THE DEDUCTION TO THE BALANCE AMOUNT OF .13,04,364/ - . WE OBSERVED THAT M/S. PHORA CAPITAL ADVISORS BEING A RES IDENT OF FRANCE IS ELIGIBLE TO CLAIM RELIEF UNDER DTAA BETWEEN INDIA AND FRANCE . CLAUSE (4) OF ARTICLE 13 OF THE DTAA BETWEEN INDIA AND FRANCE ENTERED INTO ON 29 TH SEPTEMBER, 1992 DEFINES FEES FOR TECHNICAL SERVICES AS UNDER: - 'THE TERM 'FEES FOR TECHNICAL SERVICES' AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND TO ANY PERSON, OTHER THAN PAYMENTS TO AN EMPLOYEE OF THE PERSON MAKING THE PAYMENTS AND TO ANY INDIVIDUAL FOR INDEPENDENT PERSONAL SERVICES MENTIONED IN ARTICLE 15, IN CONSIDE RATION FOR SERVICES OF A MANAGERIAL, TECHNICAL OR CONSULTANCY IN NATURE.' 9 ITA NO.643/MUM/2017 (A.Y: 2011 - 12) M/S. ENTERTAINMENT NETWORK (INDIA) LTD., A PROTOCOL WHICH IS ANNEXED AT THE END OF THE SAID DTAA PROVIDES FOR THE FOLLOWING: - 'AT THE TIME OF PROCEEDING TO THE SIGNATURE OF THE CONVENTION BETWEEN FRANCE AND INDIA FOR THE AVOIDANCE OF DOUBLE TAXATION WITH RESPECT TO TAXES ON INCOME AND ON CAPITAL, THE UNDERSIGNED HAVE AGREED ON THE FOLLOWING PROVISIONS WHICH SHALL FORM AN INTEGRAL PART OF THE CONVENTION .' CLAUSE 7 OF THE PROTOCOL TO THE SAID DTAA READS AS UNDER: 'IN RESPECT OF ARTICLES 11 (DIVIDENDS), 12 (INTEREST) AND 13 (ROYALTIES, FEES FOR TECHNICAL SERVICES AND PAYMENTS FOR THE USE OF EQUIPMENT), IF ANY, UNDER ANY CONVENTION, AGREEMENT OR PROTOCOL, SIGNED AFTER 1 ST SEPTEMBER 1989 BETWEEN INDIA AND A THIRD STATE, W HICH IS A MEMBER OF THE OECD, INDIA LIMITS ITS TAXATION AT SOURCE ON DIVIDENDS, INTEREST, ROYALTIES, FEES FOR TECHNICAL SERVICES OR PAYMENTS FOR THE USE OF EQUIPMENT TO A RATE LOWER OR A SCOPE MORE RESTRICTED THAN THE RATE OR SCOPE PROVIDED FOR IN THIS CON VENTION ON THE SAID ITEMS OF INCOME, THE SAME RATE OR SCOPE AS PROVIDED FOR IN THAT CONVENTION, AGREEMENT OR PROTOCOL ON THE SAID ITEMS OF INCOME SHALL ALSO APPLY UNDER THIS CONVENTION, WITH EFFECT FROM THE DATE ON WHICH THE PRESENT CONVENTION OR THE RELEV ANT INDIAN CONVENTION AGREEMENT OR PROTOCOL ENTERS INTO FORCE, WHICHEVER ENTERS INTO FORCE LATER.' 15. SUBSEQUENT TO ENTERING INTO THE DTAA WITH FRANCE (ON 29 TH SEPTEMBER 1992), INDIA ENTERED INTO A DTAA WITH UK ON 25 TH JANUARY 1993 WHEREIN CLAUSE 4 OF ARTICL E 13 DEFINED 'FEES FOR TECHNICAL SERVICES' AS FOLLOWS: 'FOR THE PURPOSES OF PARAGRAPH 2 OF THIS ARTICLE, AND SUBJECT TO PARAGRAPH 5 OF THIS ARTICLE, THE TERM 'FEES FOR TECHNICAL SERVICES', MEANS PAYMENTS OF ANY KIND OF ANY PERSON IN CONSIDERATION FOR THE R ENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PROVISION OF SERVICES OF A TECHNICAL OR OTHER PERSONNEL) WHICH: - (A) .......... (B) .......... (C) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOWHOW OR PROCESSES, OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. ' 16. IT CAN BE SEEN FROM THE ABOVE DEFINITION OF THE EXPRESSION 'FEES FOR TECHNICAL SERVICES' APPEARING IN THE DTAA BETWEEN INDIA AND U.K. THAT THE SCOPE AND AMBIT OF THE TERM 'FEES FOR TECHNICAL SERVICES' IS MORE RESTRICTIVE THAN THE DEFINITION OF THE SAID EXPRESSION IN THE DTAA BETWEEN 10 ITA NO.643/MUM/2017 (A.Y: 2011 - 12) M/S. ENTERTAINMENT NETWORK (INDIA) LTD., INDIA AND FRANCE. THE DTAA BET WEEN INDIA AND UK CONTAINS A 'MAKE AVAILABLE' CLAUSE, FOR A SERVICE TO CONSTITUTE 'TECHNICAL SERVICE'. THIS CLAUSE HAS BEEN INTERPRETED BY THE HONBLE KARNATAKA HIGH COURT IN CIT VS. DE BEERS INDIA MINERALS PVT. LTD. (346 ITR 467) AND BY THE HONBLE DELHI HIGH COURT IN DIT VS. GUY CARPENTER PVT. LTD. (346 ITR 507) TO MEAN THAT THE KNOWLEDGE, EXPERIENCE, SKILL, KNOWHOW ETC. SHOULD PASS ON TO THE RECIPIENT SO THAT IN THE FUTURE THE RECIPIENT CAN CARRY OUT THIS SERVICE ON HIS OWN. IN OTHER WORDS, THE PROVIDER OF THE SERVICE, MUST 'MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOWHOW OR PROCESSES', TO THE PERSON TO WHOM THE SERVICE IS RENDERED IN ORDER FOR IT TO FALL WITHIN THE DEFINITION OF 'FEES FOR TECHNICAL SERVICES'. 17. WE OBSERVE THAT T HE INTERPRETATION OF THE ARTICLE ON FEES FOR TEC HNICAL SERVICES APPEARING IN THE DTAA BETWEEN INDIA AND FRANCE HAS BEEN CONSIDERED BY THE HONBLE KARNATAKA HIGH COURT IN CIT VS. ISRO SATELLITE CENTRE (218 TAXMAN 74 ) (KAR.). IN THE SAID CASE, A NON - RESIDENT COMPANY, ARIANESPACE, RESIDING IN FRANCE PROVI DED VARIOUS COMPLEX TECHNICAL SERVICES TO ISRO SATELLITE CENTRE, GOVERNMENT OF INDIA, RELATING TO LAUNCHING OF SATELLITES INTO ORBIT. THE TECHNICAL SERVICES WERE ALL RENDERED BY ARIANESPACE IN FRANCE, AGAINST PAYMENT OF FEES UNDER AN AGREEMENT. ISRO HAD NO T DEDUCTED TAX AT SOURCE ON THE REMITTANCE TO ARIANESPACE, AND CONSEQUENTLY, THE A.O. HAD HELD IT TO BE AN ASSESSEE - 11 ITA NO.643/MUM/2017 (A.Y: 2011 - 12) M/S. ENTERTAINMENT NETWORK (INDIA) LTD., IN - DEFAULT AS PER THE PROVISIONS OF SECTION 201(1) OF THE ACT. BEFORE THE HONBLE KARNATAKA HIGH COURT, THE FOLLOWING QUESTIONS OF LAW AROSE FOR CONSIDERATION: - (A) WHETHER THE SERVICE RENDERED BY A NON - RESIDENT IS A TECHNICAL SERVICE? (B) WHETHER THE REMUNERATION PAID IN LIEU OF TECHNICAL SERVICE IS LIABLE TO TAX UNDER THE ACT AND IF SO, WHETHER THE ASSESSEE IS LIABLE TO DEDUCT TAX UNDER SEC . 195(1) OF THE ACT? 18. INSOFAR AS THE FIRST QUESTION WAS CONCERNED, THE HONBLE COURT HELD THAT THE SERVICES RENDERED BY ARIANESPACE, FRANCE, THE NON - RESIDENT COMPANY WAS FOR TECHNICAL SERVICES AND HENCE FELL WITHIN THE DEFINITION OF 'FEES FOR TECHNICAL SERVICES' UNDER EXPLANATION 2 TO SECTION 9(L)(VII) OF THE INCOME TAX ACT, 1961. HOWEVER, IN VIEW OF THE DTAA BETWEEN INDIA AND FRANCE, THE HONBLE COURT EXAMINED THE PROVISIONS UNDER THE SAID DTAA ALONG WITH THE PROTOCOL ANNEXED THERETO AND CONCLUDED IN PARAS 13, 14, 22 AND 23 OF ITS JUDGEMENT AS UNDER: - 13. THE DOUBLE TAXATION AVOIDANCE AGREEMENT WITH THE FRENCH REPUBLIC DATED 07.09.1994 DEFINE S TECHNICAL SERVICE AT CLAUSE 4 OF ARTICLE 13 AS UNDER: - 4. THE TERM FEES FOR TECHNICAL SERVICES AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND TO ANY PERSON, OTHER THAN PAYMENTS TO AN EMPLOYEE OF THE PERSON MAKING THE P AYMENTS AND TO AN Y INDIVIDUAL FOR INDEPENDENT PERSONAL SERVICES MENTIONED IN ARTICLE 15, IN CONSIDERATION FOR SERVICES OF A MANAGERIAL, TECHNICAL OR CONSULTANCY NATURE. 14. THE PROTOCOL WHICH IS ANNEXED AT THE END OF THE SAID AGREEMENT MAKES IT CLEAR THAT AT THE TIME OF PROCEEDING TO THE SIGNATURE OF THE CONVENTION BETWEEN FRANCE AND INDIA FOR THE AVOIDANCE OF DOUBLE TAXA TION WITH RESPECT TO TAXES ON INCOME AND ON CAPITAL, THE UNDERSIGNED A GREED ON THE PROVISIONS WHICH FORM AN INTEGRAL PART OF THE CONVENTION. CLAUSE 7 READS AS UNDER: - 7. IN RESPECT OF ARTICLES 11 ( DIVIDENDS ), 12 (INTEREST) AND 13 (ROYALTIES, FEES FOR TECHNICAL SERVICES AND PAYMENTS FOR THE USE OF EQUIPMENT, IF UNDER ANY CONVENTION , AGREEMENT OR PROTOCOL SIGNED AFTER 1 ST SEPTEMBER 1989, BETWEEN INDIA AND A THIRD STATE WHICH IS A MEMBER OF THE OECD, INDIA LIMI TS ITS TAXATION AT SOURCE ON DIVIDENDS, INTEREST, ROYALTIES, FEES FOR TECHNICAL SERVICES OR PAYMENTS FOR THE USE OF EQUIPMENT TO A RATE LOWER OR A SCOPE MORE RESTRICTED THAN THE RATE OF SCOPE PROVIDED FOR IN THIS CONVENTION ON THE SAID ITEMS OF INCOME, THE SAME RATE OR SCOPE AS PROVIDED FOR IN THAT CONVENTION, AGREEMENT OR PROTOCOL ON THE SAID ITEMS 12 ITA NO.643/MUM/2017 (A.Y: 2011 - 12) M/S. ENTERTAINMENT NETWORK (INDIA) LTD., INCOME SHALL ALSO APPLY UNDER THIS CONVENTION, WITH EFFECT FROM THE DATE ON WHICH THE PRESENT CONVENTION OR THE RELEVANT INDIAN CONVENTION. , AGREEMENT OR PROTO COL ENTERS INTO FORCE, WHICHEVER ENTERS INTO FORCE LATER. . '22. IN THE DTAA READ WITH PROTOCOL AS PER ARTICLE 12 WHICH DEALS WITH ROYALTY AND TECHNICAL SERVICES, ETC. THE SERVICES ARE CALLED FTS ONLY IF SUCH SERVICES MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOWHOW OR PROCESSES OR CONSIST OF DEVELOPMENT AND TRANSFER OF TECHNICAL PLAN OR TECHNICAL DESIGN. THEREFORE, A NON - RESIDENT COULD BE CHARGED ONLY IF THE TECHNICAL SERVICE RENDERED BY HIM INCLUDES MAKING AVAILABLE THE TECHNICA L KNOWLEDGE OR TRANSFERRING SUCH TECHNICAL KNOWLEDGE TO A RECIPIENT. THEREFORE, UNLESS THIS CONDITION IS FULFILLED, THE INCOME DERIVED FROM THE NON - RESIDENT IS NOT CHARGEABLE TO TAX. IT IS BECAUSE CLAUSE 7 OF THE PROTOCOL REFER TO SUPRA MAKES IT CLEAR THAT IN RESPECT OF ANY AGREEMENT ENTERED INTO AFTER 1 ST SEPTEMBER 1989 BETWEEN INDIA AND A THIRD STATE, WHICH IS A MEMBER OF THE OECD, INDIA LIMITS ITS TAXATION AT SOURCE OF FEES FOR TECHNICAL SERVICES TO A RATE LOWER OR A SCOPE MORE RESTRICTED THAN THE RATE O R SCOPE PROVIDED FOR IN THE CONVENTION ON THE SAID ITEMS OF INCOME. WHATEVER BENEFIT CONFERRED ON A THIRD STATE UNDER AN AGREEMENT, WHICH COME INTO FORCE LATER, THE SAID BENEFIT IS EXTENDED TO THIRD STATE IN RESPECT OF AN AGREEMENT ENTERED INTO EARLIER THO UGH SUCH A FAVORABLE CLAUSE IS NOT THERE IN THE EARLIER AGREEMENTS. THEREFORE, BY VIRTUE OF CLAUSE 7 OF THE PROTOCOL, EVEN THOUGH SUCH A BENEFIT IS NOT AVAILABLE UNDER DTAA WITH FRANCE THE BENEFICIAL CLAUSE IN THE DTAA ENTERED INTO INDIA WITH THE USA APPL IES IN RESPECT OF THE ACT THE DTAA WITH FRANCE. THEREFORE, UNLESS THE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOWHOW OR PROCESSES ARE TRANSFERRED TO THE ASSESSEE, THE LIABILITY TO TAX DOES NOT ARISE. THE SAID FAVORABLE CLAUSES IN THE DTAA READ WITH THE PR OTOCOL OVERRIDE THE PROVISIONS OF THE INCOME TAX ACT IN THE MATTER OF ASCERTAINMENT OF CHARGEABILITY TO INCOME TAX AND ASCERTAINMENT OF TOTAL INCOME TO THE EXTENT OF INCONSISTENCY WITH THE TERMS OF DTAA. 23. IN THE INSTANT CASE, IT IS NOT IN DISPUTE THAT T HE REMUNERATION IS ONLY FOR THE SERVICES RENDERED ON A FOREIGN SOIL. IN LIEU OF CONSIDERATION PAID, THE FOREIGN COMPANY HAS NOT MADE AVAILABLE ANY TECHNICAL KNOWLEDGE TO THE ASSESSEE NOR ANY TECHNICAL KNOWLEDGE IS TRANSFERRED TO THE ASSESSEE AND, THEREFORE , THE INCOME DERIVED OUT OF RENDERING TECHNICAL SERVICES IS NOT LIABLE TO TAX. IF THERE IS NO LIABILITY TO PAY TAX BY A NON - RESIDENT, THERE IS NO OBLIGATION CAST ON THE ASSESSEE TO DEDUCT TAX AT SOURCE. 19. THE HONBLE DELHI HIGH COURT IN STERIA (INDIA) LTD. VS. CIT (386 ITR 390) WAS CONCERNED WITH MORE OR LESS IDENTICAL SET OF FACTS. THE COURT ALSO EXAMINED THE DTAA BETWEEN INDIA AND FRANCE. AFTER REFERRING TO THE PROTOCOL AND CL AUSE 7 OF THE PROTOCOL, THE HON BLE COURT HELD THAT THERE IS NO NEED FOR THE PROTOCOL ITSELF TO BE SEPARATELY NOTIFIED AND THAT THE BENEFIT OF A MORE RESTRICTIVE SCOPE OF A DEFINITION OF 'FEES FOR TECHNICAL SERVICES', UNDER A DTAA SIGNED AFTER 1 ST SEPTEMBER 1989 BETWEEN INDIA AND AN OECD MEMBER, IS TO BE EXTENDE D TO THE SAME DEFINITION UNDER THE DTAA 13 ITA NO.643/MUM/2017 (A.Y: 2011 - 12) M/S. ENTERTAINMENT NETWORK (INDIA) LTD., BETWEEN INDIA AND FRANCE. IN THE SAID DECISION ALSO, THE HON'BLE COURT HELD THAT NO TAX WAS TO BE WITHHELD UNDER SEC. 195 OF THE ACT ON THE REMITTANCE OF FTS. WHILE HOLDING SO THE HON'BLE HIGH COURT HELD AS UNDER: 12. AT THIS JUNCTURE, IT IS NECESSARY TO REFER TO CLAUSE 7 OF THE PROTOCOL EXECUTED SEPARATELY BETWEEN INDIA AND FRANCE WHICH FORMS PART OF THE DTAA. CLAUSE 7 THEREOF WHICH IS RELEVANT FOR THE PRESENT PURPOSES READS AS UNDER: 'AT THE TIME OF PROCEEDING T O THE SIGNATURE OF THE CONVENTION BETWEEN FRANCE AND INDIA FOR THE AVOIDANCE OF DOUBLE TAXATION WITH RESPECT TO TAXES ON INCOME AND ON CAPITAL, THE UNDERSIGNED HAVE AGREED ON THE FOLLOWING PROVISIONS WHICH SHALL FORM AN INTEGRAL PART OF THE CONVENTION. ... .... 7. IN RESPECT OF ARTICLES 11 (DIVIDENDS), 12 (INTEREST) AND 13 (ROYALTIES, FEES FOR TECHNICAL SERVICES AND PAYMENTS FOR THE USE OF EQUIPMENT), IF UNDER ANY CONVENTION, AGREEMENT OR PROTOCOL SIGNED AFTER 1 - 9 - 1989 BETWEEN INDIA AND A THIRD STATE WHICH I S A MEMBER OF THE OECD, INDIA LIMITS ITS TAXATION AT SOURCE ON DIVIDENDS, INTEREST, ROYALTIES, FEES FOR TECHNICAL SERVICES OR PAYMENTS FOR THE USE OF EQUIPMENT TO A RATE LOWER OR A SCOPE MORE RESTRICTED THAN THE RATE OF SCOPE PROVIDED FOR IN THIS CONVENTIO N ON THE SAID ITEMS OF INCOME, THE SAME RATE OR SCOPE AS PROVIDED FOR IN THAT CONVENTION AGREEMENT OR PROTOCOL ON THE SAID ITEMS INCOME SHALL ALSO APPLY UNDER THIS CONVENTION, WITH EFFECT FROM THE DATE ON WHICH THE PRESENT CONVENTION OR THE RELEVANT INDIAN CONVENTION, AGREEMENT OR PROTOCOL ENTERS INTO FORCE, WHICHEVER ENTERS INTO FORCE LATER.' 13. WHAT IS IMMEDIATELY APPARENT ON A PLAIN READING OF CLAUSE 7 IS THAT IT APPLIES IN RESPECT OF THREE DIFFERENT KINDS OF PAYMENTS I.E. DIVIDEND UNDER ARTICLE 11 , INTEREST IN ARTICLE 12 AND ROYALTIES, FEES FOR TECHNICAL SERVICES AND PAYMENTS FOR USE OF EQUIPMENTS UNDER ARTICLE 13. IN RESPECT OF ANY OF THE ABOVE PAYMENTS, IF ANY CONVENTION AGREEMENT OR PROTOCOL IS SIGNED BETWEEN INDIA AND A OECD MEMBER STATE UNDER WHICH INDIA LIMITS ITS TAXATION AT SOURCE ON THE ABOVE 'TO A RATE LOWER OR A SCOPE MORE RESTRICTED T HAN THE RATE OF SCOPE PROVIDED FOR IN THIS CONVENTION ON THE SAID ITEMS OR INCOME, THE SAME RATE OR SCOPE AS PROVIDED FOR IN THAT CONVENTION, AGREEMENT OR PROTOCOL ON THE SAID ITEMS INCOME SHALL ALSO APPLY UNDER THIS CONVENTION, WITH EFFECT FROM THE DATE O N WHICH THE PRESENT CONVENTION, AGREEMENT OR PROTOCOL ENTERS INTO FORCE, WHICHEVER ENTERS INTO FORCE LATER'. 14. AN ATTEMPT HAS BEEN MADE BY MR. RAHUL CHAUDHARY, LEARNED COUNSEL FOR THE REVENUE, TO URGE THAT IF A REFERENCE IS MADE TO ONE CONVENTION SIGNED AFTER 1ST SEPTEMBER, 1989 BETWEEN INDIA AND ANOTHER OECD MEMBER STATE FOR THE PURPOSES OF ASCERTAINING IF IT HAD A MORE RESTRICTIVE SCOPE OR A LOWER RATE OF TAX, THEN THAT CONVENTION ALONE HAS TO BE REFERRED TO FOR BOTH PURPOSES. HE SUBMITTED THAT IN CERTA IN CONVENTIONS WHERE THE TAX BASE WAS RESTRICTED THE RATE OF TAX WOULD BE HIGHER AND VICE - VERSA I.E. WHERE THE TAX BASE IS LARGER THE RATE OF TAX WOULD BE LOWER. IN OTHER WORDS, HE CONTENDED THAT IT IS NOT PERMISSIBLE FOR THE PETITIONER, IN TERMS OF CLAUSE 7 OF THE PROTOCOL, TO RELY UPON ONE CONVENTION BETWEEN INDIA AND AN OECD MEMBER STATE FOR THE PURPOSES OF TAKING ADVANTAGE OF A LOWER RATE OF TAX AND THEN REFER TO ANOTHER CONTENTION BETWEEN INDIA AND ANOTHER OECD MEMBER STATE TO TAKE ADVANTAGE OF A MORE RESTRICTED SCOPE. 15. THE COURT FINDS NO WARRANT FOR THE ABOVE RESTRICTIVE INTERPRETATION PLACED ON CLAUSE 7 OF THE PROTOCOL. THE WORDS 'A RATE LOWER OR A SCOPE MORE RESTRICTED' 14 ITA NO.643/MUM/2017 (A.Y: 2011 - 12) M/S. ENTERTAINMENT NETWORK (INDIA) LTD., OCCURRING THEREIN ENVISAGES THAT THERE COULD BE A BENEFIT ON EITHER SCORE I.E. A LOWER RATE OR MORE RESTRICTED SCOPE. ONE DOES NOT EXCLUDE THE OTHER. THE OTHER EXPRESSION USED IS 'IF UNDER ANY CONVENTION, AGREEMENT OR PROTOCOL SIGNED AFTER 1 - 9 - 1989 BETWEEN INDIA AND A THIRD STATE WHICH IS A MEMBER OF THE OECD'. THIS ALSO INDICATES T HAT THE BENEFIT COULD ACCRUE IN TERMS OF LOWER RATE OR A MORE RESTRICTIVE SCOPE UNDER MORE THAN ONE CONVENTION WHICH MAY BE SIGNED AFTER 1ST SEPTEMBER 1989 BETWEEN INDIA AND A STATE WHICH IS AN OECD MEMBER. THE PURPOSE OF CLAUSE 7 OF THE PROTOCOL IS TO AFF ORD TO A PARTY TO THE INDO - FRANCE CONVENTION THE MOST BENEFICIAL OF THE PROVISIONS THAT MAY BE AVAILABLE IN ANOTHER CONVENTION BETWEEN INDIA AND ANOTHER OECD COUNTRY. 16. THE AAR APPEARS TO HAVE FAILED TO NOTICE THAT THE WORDING OF CLAUSE 7 OF THE PROTOCOL MAKES IT SELF - OPERATIONAL. IT IS NOT IN DISPUTE THAT THE INDIA - FRANCE DTAA WAS ITSELF NOTIFIED BY THE CENTRAL GOVERNMENT BY ISSUING A NOTIFICATION UNDER SECTION 90 OF THE ACT. IT IS ALSO NOT IN DISPUTE THE SEPARATE PROTOCOL SIGNED BETWEEN INDIA AND FRANCE SIMULTANEOUSLY FORMS AN INTEGRAL PART OF THE CONVENTION ITSELF. THE PREAMBLE IN THE PROTOCOL, WHICH STATES 'THE UNDERSIGNED HAVE AGREED ON THE FOLLOWING PROVISIONS WHICH SHALL FORM AN INTEGRAL PART OF T HE CONVENTION', MAKES THIS POSITION CLEAR. ONCE THE DTAA HAS ITSELF BEEN NOTIFIED, AND CONTAINS THE PROTOCOL INCLUDING PARA 7 THEREOF, THERE IS NO NEED FOR THE PROTOCOL ITSELF TO BE SEPARATELY NOTIFIED OR FOR THE BENEFICIAL PROVISIONS IN SOME OTHER CONVENT ION BETWEEN INDIA AND ANOTHER OECD COUNTRY TO BE SEPARATELY NOTIFIED TO FORM PART OF THE INDO - FRANCE DTAA. 17. RELIANCE IS RIGHTLY PLACED BY THE PETITIONER ON THE FOLLOWING PASSAGE AT PAGE 32 IN THE COMMENTARY BY KLAUS VOGEL ON 'DOUBLE TAXATION CONVENTIONS': 'AS PREVIOUSLY MENTIONED, (FINAL) PROTOCOLS AND IN SOME CASES OTHER COMPLETING DOCUMENTS ARE FREQUENTLY ATTACHED TO TREATIES. SUCH DOCUMENTS ELABORATE AND COMPLETE THE TEXT OF A TREATY, SOMETIMES EVEN ALTERING THE TEXT. LEGALLY THEY ARE PART OF THE TREATY, AND THEIR BINDING FORCE IS EQUAL TO THAT OF THE PRINCIPAL TREATY TEXT. WHEN APPLYING A TAX TREATY, THEREFORE, IT IS NECESSARY CAREFULLY TO EXAMINE THESE ADDITIONAL DOCUMENTS' 18. THE COURT IS, THEREFORE, UNABLE TO AGREE WITH THE CONCLUSION O F THE AAR THAT THE CLAUSE 7 OF THE PROTOCOL, WHICH FORMS PART OF THE DTAA BETWEEN INDIA AND FRANCE, DOES NOT AUTOMATICALLY BECOME APPLICABLE AND THAT THERE HAS TO BE A SEPARATE NOTIFICATION INCORPORATING THE BENEFICIAL PROVISIONS OF THE DTAA BETWEEN INDIA AND UK AS FORMING PART OF THE INDIA - FRANCE DTAA. 20. FOLLOWING THE ABOVE DECISIONS OF THE HONBLE KARNATAKA HIGH COURT AND THE HONBLE DELHI HIGH COURT, WE HOLD THAT UNDER THE DTAA BETWEEN INDIA AND FRANCE, THE DEFINITION OF 'FEES FOR TECHNICAL SERVICES' HAS TO BE GIVEN A RESTRICTIVE MEANING SIMILAR TO THAT OF THE EXPRESSION 'FEES FOR TECHNICAL SERVICES APPEARING IN THE DTAA BETWEEN INDIA AND U.K. THUS, READING THE DEFINITION OF 'FEES FOR TECHNICAL SERVICES' APPEARING IN THE DTAA BETWEEN INDIA AND FRANCE , THE ADVISORY SERVICES RENDERED BY 15 ITA NO.643/MUM/2017 (A.Y: 2011 - 12) M/S. ENTERTAINMENT NETWORK (INDIA) LTD., PHORA CAPITAL ADVISERS TO THE ASSESSEE DO NOT 'MAKE AVAILABLE' ANY 'TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOWHOW OR PROCESSES' TO THE ASSESSEE COMPANY SINCE, THE ASSESSEE COMPANY WOULD HAVE TO GO BACK TO PHORA CAPITAL ADVISORS EVEN IN THE FUTURE FOR AVAILING SIMILAR ADVISORY SERVICES. 21. CONSEQUENTLY, IN THE ABSENCE OF THE PROFESSIONAL SERVICES PROVIDED BY PHORA CAPITAL ADVISORS 'MAKING AVAILABLE' ANY 'TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOWHOW, ETC.' TO THE ASSESSEE COMPANY, THE REMITTANCE MADE TO THEM WAS NOT CHARGEABLE TO TAX IN VIEW OF THE BENEFICIAL PROVISIONS UNDER THE DTAA AND NO TAX WAS DEDUCTIBLE AT SOURCE ON THE SAID REMITTANCE. IN THE CIRCUMSTANCES, THE REMITTANCE OF .13,04,364/ - MADE TO PHORA CAPITAL ADV ISORS BEING NOT CHARGEABLE TO TAX IN INDIA, THERE WAS NO REQUIREMENT TO DEDUCT TAX AT SOURCE ON THE SAID REMITTANCE. HENCE ASSESSING OFFICER IS DIRECTED TO DELETE THE DISALLOWANCE MADE SECTION 40(A)(I) OF THE ACT. 22. THE NEXT ISSUE IN THE GROUNDS OF APPEAL OF THE ASSESSEE IS IN RESPECT OF SUSTAINING THE DISALLOWANCE IN RESPECT OF BUSINESS PROMOTION EXPENSES. 23. THE ASSESSING OFFICER WHILE COMPLETING THE ASSESSMENT DISALLOWED 10% OF THE BUSINESS PROMOTION EXPENSES ON ADHOC BASIS FOR WANT OF SUPPORTING EVIDENCES WHICH WAS SUSTAINED BY THE LD. CIT(A). 16 ITA NO.643/MUM/2017 (A.Y: 2011 - 12) M/S. ENTERTAINMENT NETWORK (INDIA) LTD., 24. LD. COUNSEL FOR THE ASSESSEE AT THE OUTSET SUBMITTED THAT SIMILAR DISALLOWANCE WAS MADE BY THE ASSESSING OFFICER FOR THE ASSESSMENT YEAR 2008 - 09 & 2009 - 10 AND THE TRIBUNAL BY ITS ORDER IN ITA.NO. 181 /MUM/2012 & 1864 /MUM/2013 DATED 04.10.20 17 DELETED THE ADHOC DISALLOWANCE. 25. LD. DR VEHEMENTLY SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 26. WE HAVE HEARD THE RIVAL SUBMISSIONS, PERUSED THE ORDERS OF THE AUTHORITIES BELOW. ON A PERUSAL OF THE ORDER OF THE TRIBUNAL FOR THE ASSESSMENT YEARS 2008 - 0 9 & 2009 - 10, WE FIND THAT IDENTICAL ISSUE HAS BEEN DECIDED IN FAVOUR OF THE ASSESSEE WHEREIN THE TRIBUNAL DELETED THE ADHOC DISALLOWANCE MADE TOWARDS BUSINESS PROMOTION EXPENSES OBSERVING AS UNDER: - 8. UNDER THIS ISSUE THE ASSESSEE HAS CHALLENGED THE ADH OC DISALLOWANCE TO THE EXTENT OF 10% OF THE BUSINESS PROMOTION EXPENSES TO THE TUNE OF . 3,14,292/. THE LD. REPRESENTATIVE OF THE ASSESSEE HAS ARGUED THAT THE ASSESSEE HAS GIVEN THE DETAILS OF THE BUSINESS PROMOTION EXPENSES WHICH LIES AT PAGE NO. 62 OF T HE PAPER BOOK AND ALSO SUBMITTED THE COPY OF TAX AUDIT REPORT WHICH LIES AT PAGE NO. 37 TO 59 OF THE PAPER BOOK. THE AO DISALLOWED THE 20% OF THE BUSINESS PROMOTION EXPENSES WITHOUT ANY BASIS AND THE CIT(A) HAS RESTRICTED THE DISALLOWANCE TO THE EXTENT OF 10% OF THE BUSINESS PROMOTION EXPENSES JUST ON ESTIMATION BASIS WHICH IS WRONG AGAINST LAW AND FACT, THEREFORE, THE SAID EXPENSES ARE LIABLE TO BE ALLOWED IN THE INTEREST OF JUSTICE. IT IS ALSO ARGUED THAT THE APPELLANT HAS PAID THE FRINGE BENEFITS TAX ON THESE EXPENDITURES INCURRED FOR THE PURPOSE OF BUSINESS AND THE CASE OF THE ASSESSEE HAS DULY BEEN COVERED BY THE CIT(A) DATED 01.12.2010 FOR THE A.Y. 2006 - 07 AND THE I BEFORE THE ITAT. IN SUPPORT OF THIS CONTENTIONS, THE LD. REPRESENTATIVE OF THE ASSESSEE HAS PLACED RELIANCE UPON THE LAW SETTLED IN ACIT VS. ARTHUR ANDERSON & CO. (2005) 94 TTJ 736 (MUMBAI), S.B. BILLIMORIA & CO V. ACIT (2010) 125 ITD 122 (MUM), RAJ ENTERPRISES ITO (1995) 51 TTJ (JP.) 408& M/S. GILLETTE INDIA LIMITED VS. ACIT (2014) 162 TTJ 137 (JAIPUR TRIB.). ON THE OTHER HAND, THE LD. REPRESENTATIVE OF THE REVEN UE HAS STRONGLY RELIED UPON THE ORDER PASSED BY THE CIT(A) IN QUESTION, WE HAVE HEARD THE ARGUMENT ADVANCED BY THE LD REPRESENTATIVE OF THE PARTIES AND PERUSED THE RECORD. WE NOTICED THAT THE ASSESSEE HAS FILED THE DETAIL OF BUSINESS PROMOTION EXPENSES WHICH LIES AT PAGE NO. 62 OF THE PAPER BOOK. COPY OF THE TAX AUDIT REPORT HAS ALREADY BEEN FILED WHICH LIES AT PAGE NO.37 TO 59 OF THE PAPER BOOK. THE APPELLANT HAS PAID THE FRINGE BENE FIT TAX AND SUCH TYPE OF EXPENSES HAS ALREADY BEEN ALLOWED FOR THE CIT(A) IN THE ASSESSEE'S OWN CASE FOR THE A.Y. 2006 - 07 VIDE ORDER DATED 01.12.2010. ASSESSING OFFICER DISALLOWED THE 20% OF THE BUSINESS PROMOTION EXPENSES ON 17 ITA NO.643/MUM/2017 (A.Y: 2011 - 12) M/S. ENTERTAINMENT NETWORK (INDIA) LTD., ADHOC BASIS. ON APPEAL THE CIT (A) HAS RESTRICTED THE SAID EXPENSES TO THE EXTENT OF 10%. DISALLOWANCE ON THE BASIS OF THE ESTIMATION IS NOT JUSTIFIABLE WITHOUT REJECTING THE BOOK OF ACCOUNT IF ANY. IN THIS REGARD WE FIND SUPPORT OF LAW SETTLED IN: - ACIT VS. ARTHUR ANDERSON & CO. (2005) 94 TTJ 736 (MUMBAI), S.B. BILIIMORIA & CO VS. ACIT (2010) 125 ITD 122 (MUM), RAJ ENTERPRISES VS. ITO (1995) 51 TTJ (JP.) 408 GILLETTE INDIA LIMITED VS. ACIT (2014) 162 TTJ 137 MOREOVER, THE CIT(A) HAS ALSO ALLOWED SUCH EXPENSES . IN THE ASSESSE ES OWN CASE FOR THE A.Y. 2006 - 07 BY VIRTUE OF ORDER DATED 01.12.2010. TAKEN INTO ACCOUNT OF ALL THESE FACTS AND CIRCUMSTANCES, WE ARE OF THE VIEW THAT THE AD HOC DISALLOWANCE ON THE BASIS OF ESTIMATION IS NOT JUSTIFIABLE, THEREFORE, WE ALLOWED THE CLAIM OF THE ASSESSEE AND SET ASIDE THE FINDING OF THE CIT(A) ON THIS ISSUE. ACCORDINGLY, THIS ISSUE IS DECIDED IN FAVOUR OF TH E ASSESSEE AGAINST THE REVENUE. 27. RESPECTFULLY FOLLOWING THE SAID DECISION, WE DIRECT THE ASSESSING OFFICER TO DELETE THE ADHOC DISALLOW ANCE MADE TOWARDS BUSINESS PROMOTION EXPENSES. 28. LAST ISSUE IN THE APPEAL OF THE ASSESSEE IS REGARDING DISALLOWANCE OF SERVICES TAX. AT THE TIME OF HEARING, LD. COUNSEL FOR THE ASSESSEE SUBMITTED THAT THIS GROUND IS NOT PRESSED, IN VIEW OF THE SUBMISSION MA DE BEFORE US BY THE LD. COUNSEL FOR THE ASSESSEE, WE DISMISS THIS GROUND AS NOT PRESSED. 29. IN THE RESULT, APPEAL OF THE ASSESSEE IS PARTLY ALLOWED AS INDICATED ABOVE. ORDER PRONOUNCED IN THE OPEN COURT ON THE 21 ST DECEMBER , 2018 SD/ - SD/ - ( R AJESH KUMAR) ) (C.N. PRASAD) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI / DATED 21 / 12 / 2018 GIRIDHAR , SR. PS 18 ITA NO.643/MUM/2017 (A.Y: 2011 - 12) M/S. ENTERTAINMENT NETWORK (INDIA) LTD., COPY OF THE ORDER FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT. 3. THE CIT(A), MUMBAI. 4. CIT 5. DR, ITAT, MUMBAI 6. GUARD FILE. //TRUE COPY// BY ORDER (ASSTT. REGISTRAR) ITAT, MUM