Cooper Standard Automative India Private Limited, Chengalput V. ACIT, CHENNAI

ITA 785/CHNY/2014

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 4991 (ITAT-CHENNAI)
• Duration Of Justice: 3 year(s) 10 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: D
• Next Hearing Date: 21-02-2017
• Assessment Year: 2003-2004
• Appeal Filed On: 01-04-2014
• Court: TRIBUNAL
• Department Lawyers: R DURAI
• Assessee Lawyers: T BANUSEKAR
• Keywords: Business income; Double taxation relief; Principle of natural justice; Services rendered outside India; Deemed to accrue or arise in india; Retrospective amendment; Permanent establishment; Non-deduction of tax
• Section: 139

Judgement Text

, , IN THE INCOME TAX APPELLATE TRIBUNAL D BENCH: CHENNAI . . . , '.. $ , ) BEFORE SHRI N.R.S. GANESAN, JUDICIAL MEMBER AND SHRI D.S.SUNDER SINGH, ACCOUNTANT MEMBER ./ ITA NO.785/MDS/2014 * * /ASSESSMENT YEAR: 2003-04 M/S.COOPER STANDARD AUTOMOTIVE INDIA PVT. LTD., (FORMERLY KNOWN AS COOPER TIRE & RUBBER COMPANY (I) PVT. LTD.), 3-A, FORD SUPPLIER PARK, KILLAKARANI VILLLAGE, MELROSAPURAM POST, SINGAPERUMAL KOIL, CHENGALPATTU 603 204. VS. THE ASST. COMMISSIONER OF INCOME TAX, COMPANY CIRCLE-I (3), CHENNAI. [PAN: AABCC 3665 P ] ( - /APPELLANT) ( ./- /RESPONDENT) - 0 / APPELLANT BY : MR.T.BANUSEKAR, CA ./- 0 /RESPONDENT BY : MR.R.DURAIPANDIAN, JCIT 0 /DATE OF HEARING : 21.02.2017 0 /DATE OF PRONOUNCEMENT : 12.04.2017 / O R D E R PER D.S.SUNDER SINGH , ACCOUNTANT MEMBER : THIS IS AN APPEAL FILED BY THE ASSESSEE AGAINST TH E ORDER DATED 31.12.2013 OF COMMISSIONER OF INCOME TAX (APPEALS)( C)-II, CHENNAI, IN ITA NO.390/13-14 FOR THE AY 2003-04 AND RAISED THE FOLLOWING GROUNDS: ITA NO.785/MDS/2016 :- 2 -: 1. FOR THAT THE ORDER OF THE COMMISSIONER OF INCOME TA X (APPEALS) IS CONTRARY TO LAW, FACTS AND CIRCUMSTANCES OF THE CASE TO THE EXTENT P REJUDICIAL TO THE INTEREST OF THE APPELLANT AND AT ANY RATE IS OPPOSED TO THE PRINCIP LES OF EQUITY, NATURAL JUSTICE AND FAIR PLAY. 2. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) F AILED TO APPRECIATE THAT THE ORDER OF THE ASSESSING OFFICER IS WITHOUT JURISDICTION. 3. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) F AILED TO APPRECIATE THAT THE REOPENING WAS BAD IN LAW. 4. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) F AILED TO APPRECIATE THAT THE ASSESSMENT WAS REOPENED BASED ON A MERE CHANGE OF O PINION. 5. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) E RRED IN UPHOLDING THE DISALLOWANCE OF PROFESSIONAL CHARGES OF RS.6,52,000/- U/S.40(A)( I). 6. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) E RRED IN UPHOLDING THE DISALLOWANCE OF CORPORATE MAINTENANCE CHARGES OF RS.27,55,966/- U/S.40(A)(I). 7. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) F AILED TO APPRECIATE THAT THE ASSESSMENT YEAR 2003-04 A DISALLOWANCE ULS.40(A)(I) WOULD NOT BE ATTRACTED IN THE CASE OF THE APPELLANT IN RESPECT OF THE PROFESSIONAL CHA RGES AND CORPORATE MAINTENANCE CHARGES. 8. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) F AILED TO APPRECIATE THAT IN THE INSTANT CASE THE APPELLANT HAD DEDUCTED TAX AT SOUR CE IN RESPECT OF THE PAYMENT OF PROFESSIONAL CHARGES AND CORPORATE MAINTENANCE CHAR GES. 9. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) E RRED IN UPHOLDING THE (DISALLOWANCE OF THE SERVER MAINTENANCE CHARGES RS. 7,32,960/- U/S.40(A)(I). 10. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) E RRED IN UPHOLDING THE DISALLOWANCE OF THE TESTING AND DEVELOPMENT CHARGES OF RS.16,20, 432/- U/S.40(A)(I). 11. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) F AILED TO APPRECIATE THAT THE PAYMENTS MADE TOWARDS SERVICE MAINTENANCE CHARGES A ND THE TESTING AND DEVELOPMENT CHARGES ARE NOT TECHNICAL FEES PAYABLE OUTSIDE INDI A. 12. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) F AILED TO APPRECIATE THAT THE APPELLANT IS NOT LIABLE TO DEDUCT TAX AT SOURCE ON THE PAYMENTS MADE TOWARDS SERVER MAINTENANCE CHARGES AS THE SAID PAYMENT WAS IN THE NATURE OF REIMBURSEMENT OF ACTUAL COST AND THERE WAS NO PROFIT ELEMENT RESULTI NG IN INCOME IN THE HANDS OF THE PARENT COMPANY. 13. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) F AILED TO APPRECIATE THAT THE APPELLANT IS NOT LIABLE TO DEDUCT TAX AT SOURCE ON THE PAYMENTS MADE TOWARDS TESTING AND DEVELOPMENT CHARGES AS THE SAID PAYMENT COULD A T BEST BE CONSIDERED AS BUSINESS PROFITS OF THE NON-RESIDENT AND THAT THE SAME WOULD NOT BE TAXABLE IN INDIA SINCE THE NON-RESIDENT DOES NOT HAVE A PERMANENT ESTABLISHMEN T IN INDIA. 14. FOR THAT THE COMMISSIONER OF INCOME TAX (APPEALS) F AILED TO APPRECIATE THAT TAX IS NOT REQUIRED TO BE DEDUCTED AT SOURCE ON THE PAYMENT OF SERVICE MAINTENANCE CHARGES AND THE TESTING AND DEVELOPMENT CHARGES IN LIEU OF THE PROVISIONS OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND ITALY AND IND IA AND GERMANY. 15. FOR THAT THE APPELLANT OBJECTS TO THE LEVY OF INTER EST UNDER SECTION 234B. ITA NO.785/MDS/2016 :- 3 -: 2.0 GROUND NOS.1 & 2 ARE GENERAL IN NATURE WHICH DO NO T REQUIRE SPECIFIC ADJUDICATION. 3.0 GROUND NOS.3 & 4 ARE RELATED TO THE RE-OPENING OF ASSESSMENT WHICH IS NOT PRESSED BY LEARNED AUTHORIZED REPRESENTATIVE (IN SHORT LD.AR) OF THE ASSESSEE. THEREFORE, GROUND NOS.3 & 4 ARE DISM ISSED AS NOT PRESSED. 4.0 GROUND NO.5 IS RELATED TO THE DISALLOWANCE OF PROF ESSIONAL CHARGES OF RS.6,52,000/- AND GROUND NO.6 IS RELATED TO THE DIS ALLOWANCE OF CORPORATE MAINTENANCE CHARGES OF RS.27,55,966/-. BOTH THE DI SALLOWANCES ARE MADE U/S.40(A)(I) OF INCOME TAX ACT (IN SHORT THE ACT) FOR BELATED REMITTANCE OF THE TDS MADE U/S.195 OF INCOME TAX ACT. GROUND NOS.7 & 8 ARE SUPPORTING GROUNDS OF THE ABOVE DISALLOWANCES. 4.1 DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING O FFICER (IN SHORT AO) FOUND THAT THE ASSESSEE HAS MADE THE PAYMENT OF RS.6,52,000/- UNDER THE HEAD PROFESSIONAL CHARGES IN MARCH, 2003 AND THE TDS U/S.195 WAS DEDUCTED ON THE SAME DATE. HOWEVER, THE ASSESS EE HAS REMITTED THE AMOUNT TO THE GOVERNMENT OF INDIA ACCOUNT IN NOVEMB ER, 2003 WHICH IS BEYOND THE DUE DATE SPECIFIED U/S.200(1) OF INCOME TAX ACT. 4.2 SIMILARLY, THE ASSESSEE HAS PAID A SUM OF RS.27,57, 966/- TOWARDS CORPORATE MANAGEMENT CHARGES AND DEDUCTED THE TDS U /S.195 BUT REMITTED THE SAME BEYOND THE DUE DATE SPECIFIED U/S .200(1) OF THE ACT. ITA NO.785/MDS/2016 :- 4 -: THEREFORE, THE AO MADE THE ADDITION OF RS.6,52,000/ - TOWARDS PROFESSIONAL CHARGES AND RS.27,55,966/- UNDER THE C ORPORATE MANAGEMENT CHARGES AGGREGATING TO RS.34,07,966/- U/ S.40(A)(I) OF THE ACT. 5.0 AGGRIEVED BY THE ORDER OF THE AO, THE ASSESSEE WEN T ON APPEAL BEFORE THE LD.CIT(A) AND THE LD.CIT(A) CONFIRMED TH E ADDITION MADE BY THE AO. THEREFORE, THE ASSESSEE FILED APPEAL BEFOR E THIS TRIBUNAL. 6.0 DURING THE APPEAL, THE LD.AR OF THE ASSESSEE MADE TWO FOLD ARGUMENTS. FIRSTLY THE AR ARGUED THAT AS PER THE PR OVISIONS OF THE 40(A)(I) OF THE ACT, PRIOR TO AMENDMENT THE WORD USED IN SEC TION WAS TAX HAS NOT BEEN PAID OR DEDUCTED AND ACCORDING TO THE LD.AR T HE DISALLOWANCE U/S.40(A)(I) IS APPLICABLE ONLY IN THE CASE, WHERE THE TAX HAS NOT BEEN PAID OR DEDUCTED UNDER CHAPTER-XVII-B OF INCOME TAX ACT. IN ASSESSEES CASE, THE ASSESSEE HAS DEDUCTED THE TDS BUT PAID TO THE GOVERNMENT OF INDIA ACCOUNT IN THE SUBSEQUENT YEAR. ACCORDING TO THE LD.A.R, THE ASSESSEE HAS COMPLIED WITH THE STATUTE BY DEDUCTING THE TAX AND HENCE THE DISALLOWANCE U/S.40(A)(I) DOES NOT ARISE. 6.1 THE SECOND ARGUMENT OF THE ASSESSEE ON THIS GROUND IS THAT THE ASSESSEE IS COVERED BY THE DTAA AND THE LD.AR INVI TED OUR ATTENTION TO THE PROVISIONS OF DTAA BETWEEN INDIA, GERMANY AND U K MORE SPECIFICALLY TO ARTICLE-24 OF THE INDO-GERMAN TREATY AND ARTICLE -26 OF THE INDO-UK ITA NO.785/MDS/2016 :- 5 -: TREATY AND ARGUED THAT BOTH THE TREATIES HAVE PROVI DED FOR THE NON- DISCRIMINATION CLAUSE FOR THE NATIONALS OF ONE OF THE TREATY COUNTRIES WILL NOT BE SUBJECT TO TAX IN OTHER COUNTRIES, WHICH IS MORE BURDENSOME TO THOSE FOREIGN NATIONALS THAN THE RESIDENTS OF THAT COUNTRY. THE ASSESSEE SUBMITTED THAT THE PROVISIONS OF DISALLOWANCE FOR N ON-DEDUCTION OF TAX AT SOURCE DO NOT APPLY TO DOMESTIC PAYMENTS IN THE YEA R UNDER APPEAL ON SIMILAR PAYMENTS. THEREFORE, SUCH DISALLOWANCE CAN NOT BE MADE APPLICABLE TO NON-DOMESTIC PAYMENTS BY VIRTUE OF NO N-DISCRIMINATORY CLAUSES IN THE TREATIES. ON THE OTHER HAND, THE LD .DR RELIED ON THE ORDERS OF THE LOWER AUTHORITIES. 7.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. THE FIRST ARGUMENT MADE BY THE LD.AR IS SEC.40(A)( I) WAS AMENDED AND PRIOR TO THE AMENDMENT, THE WORDS USED IN SEC.4 0(A)(I) WAS TAX HAS NOT BEEN PAID OR DEDUCTED. THUS, ACCORDING TO THE LD.COUNSEL, IT IS SUFFICIENT COMPLIANCE OF THE STATUTE, IF THE TAX IS PAID OR DEDUCTED UNDER CHAPTER-XVII-B OF INCOME TAX ACT. SINCE THE ASSESS EE HAS DEDUCTED THE TAX, THE ASSESSEE COMPLIED WITH THE PROVISIONS OF S TATUTE AND NO DISALLOWANCE IS CALLED FOR. THE ASSESSEE ALSO REFE RRED TO CIRCULAR NO.7 DATED 05.07.2003 IN EXPLANATORY NOTES AND PROVISION S RELATING TO DIRECT TAXES, WHEREIN IT WAS STATED THAT ACCORDING TO THE EXISTING PROVISIONS DISALLOWANCES WERE ATTRACTED FOR NON-PAYMENT OR NON -DEDUCTION. SINCE, ITA NO.785/MDS/2016 :- 6 -: THE ASSESSEE HAS DEDUCTED THE TAX AT SOURCE AND ALS O MADE THE PAYMENT OF THE TDS NO DISALLOWANCE IS WARRANTED. 7.1 WE HAVE GONE THROUGH THE PROVISIONS OF SEC.40(A)(I ) BEFORE THE AMENDMENT WHICH IS APPLICABLE TO THE INSTANT CASE A ND THE SAME IS EXTRACTED AS UNDER: 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SEC TIONS 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARG EABLE UNDER THE HEAD PROFITS AND GAINS OF BUSINESS OR PROFESSION, - (A) IN THE CASE OF ANY APPELLANT [(I) ANY INTEREST (NOT BEING INTEREST ON A LOAN ISS UED FOR PUBLIC SUBSCRIPTION BEFORE THE 1 ST DAY OF APRIL, 1938), ROYALTY, FEES FOR TECHNICAL SE RVICES OR OTHER SUM CHARGEABLE UNDER THIS ACT, WHICH IS PAYABLE OUTSIDE INDIA ON WHICH TAX HA S NOT BEEN PAID OR DEDUCTED UNDER CHAPTER XVII-B; (EMPHASIS SUPPLIED) PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN PAID OR DEDUCTED UNDER CHAPTER XVII-B IN ANY SUBSEQUENT YEAR, SUCH SUM SHA LL BE ALLOWED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PREVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID OR DEDUCTED. EXPLANATION.FOR THE PURPOSES OF THIS SUB-CLAUSE, (A) ROYALTY SHALL HAVE THE SAME MEANING AS IN EXPLANA TION 2 TO CLAUSE (VI) OF SUB-SECTION (1) OF SECTION 9; (B) FEES FOR TECHNICAL SERVICES SHALL HAVE THE SAME M EANING AS IN EXPLANATION 2 TO CLAUSE (VII) OF SUB-SECTION (1) OF SECTION 9; THE APPELLANT CONTENDS THAT THE SECTION PRESCRIBES DISALLOWANCE ONLY IN THOSE INSTANCES WHERE TAX HAS NOT BEEN PAID OR DEDUCTED UNDER CHAPT ER XVII B. THE APPELLANT HAS ALSO DRAWN ATTENTION TO THE AMENDED SECTION: SIMILARLY, AFTER THE AMENDMENT THE RELEVANT SEC.40 (A)(I) READS AS UNDER: AMOUNTS NOT DEDUCTIBLE. 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIONS 30 TO 47 [ 38 ], THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTING THE INCOME CHARG EABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUSINESS OR PROFESSION', ( A ) IN THE CASE OF ANY ASSESSEE 48 [( I ) 49 50 ANY INTERE ST (NOT BEING INTEREST ON A LOAN ISSUED FOR PUBLIC SUBSCRIPTION BEFORE THE 1ST DAY OF APRIL, 1938), ROYALTY, FEES F OR TECHNICAL SERVICES OR ITA NO.785/MDS/2016 :- 7 -: OTHER SUM CHARGEABLE UNDER THIS ACT, WHICH IS PAYAB LE, ( A ) OUTSIDE INDIA; OR ( B ) IN INDIA TO A NON-RESIDENT, NOT BEING A COMPANY OR TO A FOREIGN COMPANY, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII- B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID 51 [ON OR BEFORE THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139 ] : 52 [ PROVIDED THAT WHERE IN RESPECT OF ANY SUCH SUM, TAX HAS BEEN DEDUCTED IN ANY SUBSEQUENT YEAR, OR HAS BEEN DEDUCTED DURING THE PR EVIOUS YEAR BUT PAID AFTER THE DUE DATE SPECIFIED IN SUB-SECTION (1) OF SECTION 139 , SUCH SUM SHALL BE ALLOW ED AS A DEDUCTION IN COMPUTING THE INCOME OF THE PR EVIOUS YEAR IN WHICH SUCH TAX HAS BEEN PAID.] THE PROVISIONS OF SEC.40(A)(I) AS STOOD PRIOR TO A MENDMENT BY FINANCE ACT, 2003 PRESCRIBE THE DISALLOWANCE FOR NO N-DEDUCTION OR NON- PAYMENT. THE PROVISO TO SECTION CLARIFIES THAT WHE RE THE TAX HAS BEEN DEDUCTED BUT PAID IN ANY SUBSEQUENT YEAR THE SAME W ILL BE ALLOWED AS DEDUCTION IN THE YEAR IN WHICH TAX HAS BEEN PAID OR DEDUCTED. THE CIRCULAR NO.7 REFERRED TO BY THE ASSESSEE ALSO STAT ES THE SAME. THEREFORE, FOR ALLOWING THE DEDUCTION OF THE EXPENDITURE, NOT ONLY DEDUCTION OF TAX AT SOURCE BUT ALSO REMITTANCE TO GOVERNMENT OF INDIA A CCOUNT IS A MANDATORY REQUIREMENT. THE PROVISO TO SECTION 40(A)(I) MAKES IT VERY CLEAR THAT EXPENDITURE IS ALLOWED IN THE YEAR IN WHICH THE TAX HAS BEEN REMITTED TO GOVERNMENT ACCOUNT. THUS, THE ASSESSEE IS ENTITLED FOR CLAIMING THE EXPENDITURE IN THE YEAR IN WHICH IT WAS PAID. IN TH E ASSESSEES CASE, THOUGH THE TAX WAS DEDUCTED BUT REMITTED TO THE GOV ERNMENT ACCOUNT IN THE SUBSEQUENT YEAR. THEREFORE, THE AO HAS RIGHTLY APPLIED THE DISALLOWANCE U/S.40(A)(I) AND THE LD.CIT(A) HAS CON FIRMED THE ITA NO.785/MDS/2016 :- 8 -: DISALLOWANCE. THE ASSESSEES ARGUMENT ON THIS GROU ND IS NOT ACCEPTABLE AND THE SAME IS DISMISSED. 8.0 THE NEXT ARGUMENT TAKEN BY THE ASSESSEE ON THE ISS UE OF DISALLOWANCE IN NON-DISCRIMINATING CLAUSE PROVIDED IN DTAA WITH INDO-UK TREATY. FOR READY REFERENCE, WE RE-PRODUCE THE AER TICLE-24 OF DTAA BETWEEN INDIA AND GERMANY AND ARTICLE-26 OF INDO-UK TREATY WHICH READS AS UNDER: ARTICLE 24 - NON-DISCRIMINATION-1: NATIONALS OF A CONTRACTING STATE SHALL NOT BE SUBJECTED IN THE OTHER CONTRACTING STATE TO ANY TAX ATION OR ANY REQUIREMENT CONNECTED THEREWITH WHICH IS OTHER OR MORE BURDENSOME THAN TH E TAXATION AND CONNECTED REQUIREMENTS TO NATIONALS OF THAT OTHER STATE IN TH E SAME CIRCUMSTANCES AND UNDER THE SAME CONDITIONS ARE OR MAY BE SUBJECTED. ARTICLE 26 OF THE DTAA BETWEEN INDIA AND UK: ARTICLE 26 - NON-DISCRIMINATION-2: THE NATIONALS OF A CONTRACTING STATE SHALL NOT BE SUBJECTED IN THE OTHER CONTRACTING STATE TO ANY TAX ATION OR ANY REQUIREMENT CONNECTED THEREWITH WHICH IS OTHER OR MORE BURDENSOME THAN TH E TAXATION OR ANY REQUIREMENT CONNECTED THEREWITH WHICH IS OTHER OR MORE BURDENSO ME THAN THE TAXATION AND CONNECTED REQUIREMENTS TO WHICH NATIONALS OF THAT OTHER STATE IN THE SAME CIRCUMSTANCES ARE OR MAY BE SUBJECTED. THE IMPUGNED PAYMENTS UNDER CONSIDERATION ARE PAYME NTS MADE TO GERMAN/UK NATIONALS. IT IS THE CONTENTION OF THE APPELLANT THAT BOTH TRE ATIES PROVIDE THAT NATIONALS OF ONE OF THE TREATY COUNTRIES WILL NOT BE SUBJECTED TO TAXES IN THE OTHER COUNTRY WHICH ARE MORE BURDENSOME ON THESE FOREIGN NATIONALS THAN ON THE R ESIDENTS OF THAT OTHER COUNTRY. IT IS THE SUBMISSION OF THE APPELLANT THAT THE PROVISIONS FOR DISALLOWANCE FOR NON-DEDUCTION OF TAX AT SOURCE DID NOT APPLY TO DOMESTIC PAYMENTS IN THE YE AR UNDER APPEAL. IT IS THEREFORE THE CONTENTION OF THE APPELLANT THAT SUCH DISALLOWANCE CANNOT BE MADE APPLICABLE TO THE NON- DOMESTIC PAYMENTS AS WELL BY VIRTUE OF THE NON-DISC RIMINATORY CLAUSES IN THE TWO TREATIES. IT IS THE CONTENTION OF THE ASSESSEE THAT BOTH THE TREATIES PROVIDES THE NATIONALS OF THE ONE OF THE COUNTRIES WILL NOT BE SUBJECTED TO TAX WHICH IS MORE BURDENSOME THAN ON THE RESIDENTS OF THE OTH ER COUNTRY. THE ASSESSEE RELIED ON THE DECISION OF THE HONBLE ITAT DELHI A BENCH IN THE CASE OF MILLENNIUM INFOCOM TECHNOLOGIES LTD. VS. AC IT REPORTED IN [2009] 117 ITD 114 IN PARA NO.8.13, 8.16 & 8.17 WHICH READ S AS UNDER: ITA NO.785/MDS/2016 :- 9 -: 8.13 ANOTHER CONTENTION OF LEARNED AUTHORIZED REPRE SENTATIVE OF THE ASSESSEE IS THAT THE ASSESSEE IS PROTECTED UNDER ART.26(3) OF DTAA. ARTI CLE 26 OF INDIA-US DTAA DEALS WITH NON-DISCRIMINATION. ARTICLE 26(1) STATES THAT N ATIONALS OF ONE CONTRACTING STATE SHALL NOT BE SUBJECTED IN OTHER CONTRACTING STATE TO ANY TAXA TION OR ANY REQUIREMENT CONNECTED THEREWITH WHICH IS MUCH MORE BURDENSOME THAN IT IS ON THE NATIONALS OF THAT OTHER CONTRACTING STATE. ARTICLE 26(2) PROVIDES AGAINST D ISCRIMINATION IN THE CONTEXT OF A PE IN THE OTHER CONTRACTING STATE. ARTICLE 26(3) IS A GENERAL CLAUSE PROVIDING FOR INDIRECT DISCRIMINATION AGAINST A NON-RESIDENT. IT READS AS BELOW : 8.16 NOW QUESTION ARISES AS TO WHETHER THE RESIDENT ASSESSEE COULD TAKE ADVANTAGE OF PROVISIONS OF ART. 26(3) OF DTAA. AS ALREADY OBSERV ED BY US, THE PROVISIONS OF S. 40(A)(I) AS IT EXISTED PRIOR TO ITS AMENDMENT BY THE FINANCE (N O.2) ACT, 2004, W.E.F. 1ST APRIL, 2005 AND SUBSEQUENT AMENDMENT BY THE TAXATION LAWS (AMEN DMENT) ACT, 2006 WITH RETROSPECTIVE EFFECT FROM 1ST APRIL, 2006, PROVIDED FOR DISALLOWANCE OF PAYMENTS MADE TO A NON-RESIDENT ONLY WHERE TAX IS NOT DEDUCTED AT SOUR CE AT THE TIME OF REMITTANCE. HOWEVER, A SIMILAR PAYMENT TO A RESIDENT DOES NOT RESULT IN DISALLOWANCE IN THE EVENT OF NON- DEDUCTION OF TAX AT SOURCE. THUS, NON-RESIDENT LEFT WITH A CHOICE OF DEALING WITH A RESIDENT OR A NON-RESIDENT IN BUSINESS WOULD OPT TO DEAL WIT H THE A RESIDENT OWING TO THE PROVISIONS OF S.40(A)(I) OF THE ACT. TO THIS EXTENT THE NON-RE SIDENT IS DISCRIMINATED. ARTICLE 26(3) OF INDO-US DTAA SEEKS TO PROVIDE RELIEF AGAINST SUCH D ISCRIMINATION BY SAYING THAT DEDUCTION SHOULD BE ALLOWED ON THE SAME CONDITION AS IF THE P AYMENT IS MADE TO A RESIDENT. THUS THIS CLAUSE IN DTAA NEUTRALIZES THE RIGOUR OF THE PROVISI ON OF S.40(A)(I) OF THE ACT. IN THIS REGARD IT WOULD BE RELEVANT TO REFER TO THE PROVISIONS OF S. 90(2) OF THE IT ACT, 1961. IT READS THUS: 8.17 WE THEREFORE HOLD THAT IN VIEW OF THE PROVISIO N OF ART. 26(3) OF DTAA, THE AO CANNOT SEEK TO INVOKE THE PROVISIONS OF S.40(A)(I) OF THE ACT FOR DEDUCTION WHILE-COMPUTING THE PROFITS AND GAINS OF BUSINESS OR PROFESSION. A SIMI LAR VIEW WAS TAKEN BY TRIBUNAL DELHI BENCH IN THE CASE OF INTERNATIONAL INDIA (P) LTD. ( SUPRA). TO SUM UP, THE PAYMENTS MADE ON ACCOUNT OF RENTALS FOR HOSTING OF WEBSITES ON SE RVERS ARE NOT IN NATURE OF INTEREST OR ROYALTIES OR FEE FOR TECHNICAL SERVICES OR OTHER SU M CHARGEABLE TO TAX IN INDIA. CBDT HAS REVISED THE PROCEDURE FOR DEDUCTION OF TAX AT SOURC E ON REMITTANCES MADE OUT OF THE COUNTRY. THE PROVISIONS OF DTAA ARE ALSO IN FAVOUR OF THE ASSESSEE. ACCORDINGLY, THE ASSESSEE WAS NOT REQUIRED TO DEDUCT TAX AT SOURCE U NDER S.195 OF THE ACT WHILE MAKING PAYMENTS OUTSIDE INDIA. WE DECIDE THIS ISSUE IN FAV OUR OF THE ASSESSEE. IN PARA NO.8.16 OF THE ORDER CITED, THE CO- ORDINATE BENCH HELD THAT SIMILAR PAYMENTS IN RESIDENTS DOES NOT ATTRACT THE DISALLOWANCE IN THE EVENT OF NON-DEDUCTION OF TAX AT SOURCE. THUS, TAX ING THE AMOUNT U/S.40(A)(I) FOR NON-DEDUCTION OF TAX AT SOURCE ON SIMILAR AMOUNTS TANTAMOUNT TO DISCRIMINATION. THEREFORE, THE DTAA AND THE DECISION RELIED UPON BY THE ASSESSEE FOR NON-DISCRIMINATION CLAUSE SQUARELY APPLICABLE IN THE ASSESSEES CASE AND ACCORDINGLY, WE HELD THAT T HE DISALLOWANCE U/S.40(A)(I) WOULD NOT BE APPLICABLE IN THE CASE OF THE ASSESSEE. HENCE, WE SET-ASIDE THE ORDERS OF THE LOWER AUTHORITIES AN D DELETED THE ADDITION. GROUND NOS.5 TO 8 OF THE ASSESSEE APPEAL ARE ALLOWE D. ITA NO.785/MDS/2016 :- 10 -: 9.0 GROUND NO.9 IS RELATED TO THE DISALLOWANCE OF RS.7 ,32,960/- U/S.40(A)(I) OF THE ACT PERTAINS TO SERVER MAINTENA NCE CHARGES AND GROUND NO.10 IS RELATED TO THE DISALLOWANCE OF RS.1 6,20,432/- U/S.40(A)(I) THE ACT IN RESPECT OF TESTING AND DEVELOPMENT CHAR GES. GROUND NOS.11 TO 14 ARE SUPPORTIVE ARGUMENTS TO THE SERVER MAINTENAN CE CHARGES AND TESTING AND DEVELOPMENT CHARGES RAISED IN GROUND NO S.9 & 10. 9.1 DURING THE ASSESSMENT PROCEEDINGS, THE ASSESSING O FFICER FOUND THAT THE ASSESSEE MADE THE PAYMENT FOR SERVER MAINTENANC E CHARGES OF RS.7,32,960/- AND TESTING AND DEVELOPMENT CHARGES O F RS.16,20,432/- AND NO TAX WAS DEDUCTED AT SOURCE AS REQUIRED U/S.1 95 OF THE ACT, HENCE, THE AO MADE THE ADDITION OF RS.23,53,392/- U/S 40(A )(I) OF I.T. ACT. 10.0 THE ASSESSEE WENT ON APPEAL BEFORE THE LD.CIT(A) A ND THE LD.CIT(A) CONFIRMED THE ADDITION MADE BY THE AO. 11.0 AGGRIEVED BY THE ORDER OF THE LD.CIT(A), THE ASSES SEE FILED APPEAL BEFORE THIS TRIBUNAL. APPEARING FOR THE ASSESSEE, THE LD.AR ARGUED THAT THE SERVER MAINTENANCE CHARGES ARE PAID FOR THE USAGE ACCESS O F THE SERVER BELONGING TO THE PARENT COMPANY BASED AT GERMANY. ALL THE ACTIVITIES OF THE PARENT COMPANY AS WELL AS ITS SUBSIDIARY COMPAN IES BASED AROUND THE WORLD ARE ROUTED THROUGH THE SERVER. ACCORDING TO THE LD.AR, THE SERVER ITA NO.785/MDS/2016 :- 11 -: MAINTENANCE CHARGES ARE IN THE NATURE OF REIMBURSEM ENT CHARGES PAID TO THE PARENT COMPANY FOR USING SOFTWARE RELATED ISSUE S AND CANNOT BE HELD AS PAYMENT OF FEE FOR TECHNICAL SERVICES AND HENCE THE TDS IS NOT APPLICABLE. THE LD.AR RELIED ON THE DECISION OF IT AT, CHENNAI, IN THE CASE OF CAIRN ENERGY PVT. LTD., REPORTED IN (2010) 2 ITR 38. 11.1 SIMILARLY, IN THE CASE OF TESTING AND DEVELOPMENT CHARGES, THE LD.AR ARGUED THAT THE ASSESSEE IS USING THE OUTPUT OF TECHNOLOGY WITHOUT HUMAN INTERVENTION. FOR HOLDING THE PAYMENT AS FEE FOR TECHNICAL SERVICES(FTS) THE ELEMENT OF HUMAN INTERVENTION IS NECESSARY. WHEREAS IN THE ASSESSES CASE BOTH FOR SERVER MAINTENANCE A ND TESTING AND DEVELOPMENT CHARGES THERE IS NO HUMAN INVOLVEMENT A ND THUS THE PAYMENT CANNOT BE HELD AS FEE FOR TECHNICAL SERVICE S. 12.0 THE NATURE OF THE SERVICES RENDERED BY THE PARENT COMPANY IN RESPECT OF SERVER MAINTENANCE AND TESTING AND DEVEL OPMENT CHARGES WERE ELABORATELY DISCUSSED BY THE LD.CIT(A) IN HIS ORDER WHICH IS EXTRACTED AS UNDER: SERVER MAINTENANCE: THE APPELLANT HAS SUBMITTED THAT THE PAYMENTS ARE N OT IN THE NATURE OF FEES FOR TECHNICAL SERVICES. THESE PAYMENTS WERE ONLY TOWARDS COST OF SERVER MAINTENANCE SHARED BY THE APPELLANT. THE SERVER BELONGS TO THE PARENT COMPANY OF THE APPELLANT AND IS BASED IN GERMANY. ALL THE ACTIVITIES OF THE PARENT COMPANY A S WELL AS ITS SUBSIDIARIES BASED AROUND THE WORLD (INCLUDING THE APPELLANT) WERE ROUTED THR OUGH THIS SERVER. THE SERVER ENABLED THE ADMINISTRATION OF THE HYPERION ERP ACROSS ALL THE E NTITIES IN THE GROUP. THE ACTIVITIES INCLUDED PERIODICAL DATA BACK-UP, SOFTWARE UP-GRADA TION AND RENEWAL, INTER-OFFICE COMMUNICATIONS LIKE MESSENGER AND COMMUNICATOR, ETC ., MAIL AND USER ID CREATION WITHIN THE SERVER AND RELATED BACKUP, INTERNET AND INTRANE T, ANTI-VIRUS KITS AND TROUBLE-SHOOTING THE SOFTWARE RELATED ISSUES. THESE SERVICES WERE UT ILIZED BY THE PARENT AND THE SUBSIDIARIES ALONE AND NO THIRD PARTY WAS ALLOWED ANY USAGE OR A CCESS. BASED ON THE USAGE BY EACH ENTITY, THE COSTS OF THE SERVER MAINTENANCE WERE AP PORTIONED AMONG THEM. ITA NO.785/MDS/2016 :- 12 -: IT IS THE SUBMISSION OF THE APPELLANT THAT ONLY ACT UAL COSTS WERE RECOVERED BY THE PARENT COMPANY FROM THE GROUP CONSTITUENTS. THERE WAS NO P ROFIT ELEMENT AND THEREFORE NO INCOME IN THE HANDS OF THE PARENT COMPANY. AS SUCH THE APPELLANT SUBMITTED THAT SECTION 195 IS NOT ATTRACTED SINCE THERE IS NO INCOME EARNE D AT ALL. HENCE NO DISALLOWANCE WAS WARRANTED. RELIANCE HAS BEEN PLACED ON THE DECISION OF THE CHE NNAI BENCH OF THE INCOME TAX APPELLATE TRIBUNAL IN THE CASE OF CAIRN ENERGY PTY LTD. V. AS SISTANT COMMISSIONER OF INCOME TAX [2010] 2 ITR 38 (CHENNAI) WHERE IT WAS HELD THAT SI NCE NO INCOME AROSE OUT OF THE PAYMENTS IN THE NATURE OF REIMBURSEMENTS, SECTION 1 95 WAS NOT APPLICABLE AND THEREFORE THE PAYMENTS COULD NOT BE DISALLOWED BY INVOKING TH E PROVISIONS OF SECTION 40(A)(I). TESTING AND DEVELOPMENT CHARGES: THESE CHARGES WERE STATED TO HAVE BEEN PAID BY THE APPELLANT TO HUTCHINSON ITALY FOR THE SERVICES THAT THEY RENDERED IN THE VENDOR LOCATION IN ITALY. THE AUTO COMPONENTS MANUFACTURED BY THE APPELLANT WERE MANUFACTURED IN ACCORDANCE WITH DRAWINGS AND WERE SUBSEQUENTLY SENT TO VENDOR LOCATION IN ITALY FOR T ESTING ON THEIR EFFICIENCY AND STRENGTH. THIS TESTING WAS LARGELY DONE ON MACHINES AND VERY LITTLE OF HUMAN JUDGMENT OR SKILL WAS INVOLVED. THE ONLY SKILL REQUIRED WAS KNOWLEDGE TO OPERATE THE MACHINES AND TO TAKE READINGS. ANY SHORTCOMING FOUND IN THE COMPONENT WA S NOT SET RIGHT BY THE TESTING COMPANY, BUT THE COMPONENT WOULD BE SENT BACK TO TH E APPELLANT FOR RECTIFYING. THE ONLY TASK OF THE NON-RESIDENT WAS TO GIVE A REPORT ON TH E PERFORMANCE OF THE COMPONENTS BY GIVING ACTUAL VALUES BASED ON READINGS AGAINST DESI GN SPECIFICATIONS. THE APPELLANT CONTENDED THAT THE MERE NOTING OF ACT UAL READINGS AGAINST DESIGN SPECIFICATIONS DOES NOT AMOUNT TO RENDERING OF TECH NICAL SERVICES. THE NON-RESIDENT CARRIED OUT THE TESTING SERVICES IN THE NORMAL COURSE OF IT S BUSINESS. THERE WAS NO INVOLVEMENT OF THE APPELLANT AND NO INTERACTION BETWEEN THE APPELL ANT AND THE NON-RESIDENT APART FROM OBTAINING THE REPORTS. MOREOVER, THE TESTING DONE W AS NORMAL ROUTINE TESTING NOT INVOLVING ANY SPECIALIZED TREATMENT. THEREFORE, THE APPELLANT SUBMITTED THAT THE PAYMENT WAS NOT MADE FOR TECHNICAL SERVICES FALLING WITHIN THE MEAN ING OF TECHNICAL SERVICES ENVISAGED IN THE DTAA BETWEEN INDIA AND ITALY OR U/S 9(1)(VII) OF TH E INCOME TAX ACT. THE CHARGES PAID COULD ONLY BE CONSIDERED AS BUSINESS PROFITS OF THE NON-RESIDENT. THE APPELLANT FURTHER POINTED OUT THAT ARTICLE 7 OF THE DTAA BETWEEN INDIA AND ITALY PROVIDES THAT THE BUSINESS INCOME OF A RESIDENT OF ONE COUNTRY ARISING FROM ANOTHER COUNTRY IS CHARGEABLE TO TAX IN THE OTHER COUNTRY ONLY IF T HE ENTITY HAS A PERMANENT ESTABLISHMENT IN THAT COUNTRY, AND THAT TOO INCOME IS CHARGEABLE ONLY TO THE EXTENT OF PROFITS ATTRIBUTABLE TO THAT PERMANENT ESTABLISHMENT. HUTCHISON ITALY DI D NOT HAVE A PERMANENT ESTABLISHMENT IN INDIA TO WHICH INCOME FROM THESE TESTING AND DEV ELOPMENT ACTIVITIES COULD BE ATTRIBUTED. HENCE BY VIRTUE OF THE TREATY, THERE WAS NO INCOME CHARGEABLE TO TAX IN INDIA. THE APPELLANT HAS RELIED ON THE DECISION OF THE DEL HI BENCH OF THE INCOME TAX APPELLATE TRIBUNAL IN LUFTHANSA CARGO INDIA (P) LTD. V DEPUTY COMMISSIONER INCOME TAX [2004] 91 LTD 133 (DEL), THE DECISION OF THE BANGALORE BENCH OF INCOME TAX APPELLATE TRIBUNAL IN WIPRO LTD. V INCOME TAX OFFICER [2003] 80 TTJ (BANG ) 191, AND THE DECISION OF THE MADRAS HIGH COURT IN SKYCELL COMMUNICATIONS LTD. & ANR V D EPUTY COMMISSIONER OF INCOME TAX & ANR [2001] 251 ITR 53 (MAD), TO SUBMIT THAT MERE CO LLECTION OF A FEE FOR USE OF A STANDARD FACILITY PROVIDED TO ALL THOSE WILLING TO PAY FOR I T DOES NOT AMOUNT TO FEE FOR TECHNICAL SERVICES. THE APPELLANT HAS ALSO DRAWN ATTENTION T O THE DECISION OF THE DELHI HIGH COURT IN COMMISSIONER OF INCOME TAX V BHARTI CELLULAR LTD. [ 2009] 319 ITR 139(DEL) TO SAY THAT MACHINE CANNOT BE A MANAGER AND THAT FEES FOR TECHN ICAL SERVICES WOULD ARISE ONLY WHERE THE TECHNICAL SERVICE WERE RENDERED BY A HUMAN BEIN G AND NOT BY MACHINE, IN THE INSTANT CASE THE APPELLANT SUBMITTED THAT HUMAN INTERVENTIO N WAS ONLY TO THE EXTENT OF OPERATING THE MACHINE. THE STUDIES AND READING WERE AUTOMATIC ALLY OBTAINED FROM THE MACHINE AND HENCE THE SERVICE WAS RENDERED BY THE MACHINE AND N OT THE HUMAN BEING. CONSEQUENTLY THIS COULD NOT BE IN THE NATURE OF FEES FOR TECHNIC AL SERVICES. ITA NO.785/MDS/2016 :- 13 -: 13.0 THE LD.AR BROUGHT OUR NOTICE THAT THE AO IN THE AS SESSMENT ORDER OF THE AO STATED THAT THE TECHNICAL FEE PAYABLE OUT SIDE INDIA WOULD BE DEEMED TO ACCRUE OR ARISE IN INDIA WHETHER OR NOT T HE NON-RESIDENT HAS A PLACE OF BUSINESS CONNECTION OR THE ESTABLISHMENT I N INDIA BY VIRTUE OF AMENDMENT MADE TO EXPLANATION TO SEC.9(2) BY FINANC E ACT, 2007. THE ASSESSEE ALSO BROUGHT TO OUR NOTICE THAT THE DECISI ON OF THE HONBLE DELHI HIGH COURT IN THE CASE OF THE CIT V. BHARTI CELLULA R LTD., IN RESPECT OF FEE FOR TECHNICAL SERVICES AND ALSO RELIED ON THE DECIS ION OF SKYCELL COMMUNICATIONS LTD. & ANR. VS. DCIT & ORS. REPORTED 251 ITR 53 (MAD). ON THE OTHER HAND, THE LD.DR RELIED ON THE LOWER AU THORITIES ORDERS. 14.0 WE HEARD THE RIVAL SUBMISSIONS AND PERUSED THE MAT ERIAL PLACED BEFORE US. 14.1 THE ASSESSING OFFICER MADE THE ADDITION UNDER THE IMPRESSION THAT IN RESPECT OF SERVICES RENDERED OUTSIDE INDIA IS TA XABLE, EVEN THOUGH THERE IS NO PERMANENT ESTABLISHMENT IN INDIA, BY VIRTUE O F AMENDMENT TO EXPLANATION OF SECTION 9(2) OF INCOME TAX ACT THE F EE FOR TECHNICAL SERVICES (FTS) PAYABLE OUTSIDE INDIA WOULD BE DEEME D TO ACCRUE OR ARISE IN INDIA AND HENCE TDS IS DEDUCTIBLE. 14.2 THE LD.AR MADE THREE FOLD ARGUMENTS CONTESTING AD DITIONS MADE U/S.40(A)(I) RELATING TO THE SERVER MAINTENANCE CHA RGES AND THE TESTING AND DEVELOPMENT CHARGES, THE LD.AR ARGUED THAT THE PAYMENT WAS NOT IN ITA NO.785/MDS/2016 :- 14 -: THE NATURE OF FTS HENCE THE TDS U/S 195 IS NOT APPL ICABLE. FURTHER THE PAYMENTS ARE COVERED BY THE DTAA BETWEEN INDIA AND ITALY AND ACCORDING TO THE TREATY UNLESS THE PAYEE HAS PERMANENT ESTABL ISHMENT(PE) IN INDIA THE BUSINESS PROFITS ARE NOT TAXABLE U/S 9(1)(VII) OF IT ACT. THIRDLY THE AMENDMENT TO EXPLANATION-2 OF SECTION 9(2) WAS MADE BY FINANCE ACT, 2007 WITH RETROSPECTIVE EFFECT FROM 1976 AND THE AS SESSEE CANNOT PRESUME AND DEDUCT THE TAX AT SOURCE. 15.0 THE SERVER MAINTENANCE CHARGES ARE PAID FOR USAGE OF INTRANET, INTERNET, MAIL DATA BACKUP, ETC., LOCATED AT GERMAN Y. THE SERVER IS ADMINISTERED BY PARENT COMPANY AND THE ACTIVITIES S UPPORT THE PERIODICAL DATA BACKUP, SOFTWARE UPGRADATION AND RENEWAL, INTE R-OFFICE COMMUNICATION LIKE MESSENGER AND COMMUNICATOR ETC. , THE MAIN THRUST OF THE ARGUMENT OF THE ASSESSEE IS THAT THERE IS N O ELEMENT OF HUMAN INVOLVEMENT IN CASE OF SERVER MAINTENANCE THE MACHI NES ARE USED FOR ALL THE ABOVE ACTIVITIES. THE OUTPUT OF THE TECHNOLOG Y IS USED BY THE ASSESSEE AND IT WAS SUBMITTED THAT THE IT WAS LIKE USING THE INTERNET FROM THE GOOGLE WEBSITE OR USING THE TELEPHONE. 15.1 THE FEE FOR TECHNICAL SERVICES IS CHARGEABLE TO TA X U/S 9(1)(VII) OF INCOME TAX ACT AND THE MEANING OF FTS IS GIVEN IN E XPLANATION-2 OF SECTION 9(1)(VII) READS AS UNDER: EXPLANATION 57 [2].FOR THE PURPOSES OF THIS CLAUSE, 'FEES FOR 58 TECHNICAL SERVICES' MEANS ANY CONSIDERATION (INCLUDING ANY LUMP SUM CON SI-DERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY 58 SERVICES (INCLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY ITA NO.785/MDS/2016 :- 15 -: CONSTRUCTION 58 , ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY TH E RECIPIENT 58 OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIEN T CHARGEABLE UNDER THE HEAD 'SALARIES'.] 15.2 THE EXPRESSION FEE FOR TECHNICAL SERVICES IS C ONSIDERED IN THE CASE OF SIEMENS LTD. VS. CIT(A) BY THE HONBLE ITAT , MUMBAI, L BENCH IN 142 ITD 1 (MUMBAI) AS UNDER: 13. FROM THE ABOVE, IT IS SEEN THAT THE EXPRESSION FEES FOR TECHNICAL SERVICES HAS BEEN GIVEN AS CONSIDERATION FOR RENDERING MANAGERIA L, TECHNICAL OR CONSULTANCY SERVICES. NO OTHER DEFINITION AS SUCH OF THE TERM T ECHNICAL SERVICES IN THE ACT HAS BEEN GIVEN. THE WORD TECHNICAL AS APPEARING IN EX PLANATION 2 IS PRECEDED BY THE WORD MANAGERIAL AND SUCCEEDED BY THE WORD CONSUL TANCY. IT CANNOT BE READ IN ISOLATION AS IT TAKES COLOUR FROM THE WORD MANAGER IAL AND CONSULTANCY BETWEEN WHICH IT IS SANDWICHED. THE COURTS HAVE HELD THAT I N SUCH A CASE PRINCIPLE OF NOSCITUR A SOCLIS GETS ATTRACTED, WHICH MEANS THAT THE MEANING OF THE WORD OR EXPRESSION IS TO BE GATHERED FROM THE SURROUNDING W ORD I.E. FROM THE CONTEXT. COUPLING OF THE WORDS TOGETHER SHOWS THAT THEY ARE TO BE UNDERSTOOD IN THE SAME SENSE. THE WORD MANAGERIAL AND CONSULTANCY IS A D EFINITE INDICATIVE OF THE INVOLVEMENT OF A HUMAN ELEMENT. MANAGERIAL SERVICES AND CONSULTANCY SERVICES HAS TO BE GIVEN BY HUMAN ONLY AND NOT BY ANY MEANS OR E QUIPMENT. THEREFORE, THE WORD TECHNICAL HAS TO BE CONSTRUED IN THE SAME SE NSE INVOLVING DIRECT HUMAN INVOLVEMENT WITHOUT THAT, TECHNICAL SERVICES CANNOT BE HELD TO BE MADE AVAILABLE. WHERE SIMPLY AN EQUIPMENT OR SOPHISTICATED MACHINE OR STANDARD FACILITY IS PROVIDED ALBEIT DEVELOPED OR MANUFACTURED WITH THE USAGE OF TECHNOLOGY, SUCH A USER CANNOT BE CHARACTERIZED AS PROVIDING TECHNICAL SERVICES. THE HONBLE DELHI HIGH COURT IN THE CASE OF CIT VS. BHARATI CELLULAR LTD (SUPRA) IN THIS REGARD HAS OBSERVED AND HELD AS UNDER: 'IN THE SAID EXPLANATION THE EXPRESSION 'FEES FOR TECHNICAL SERVICES' MEANS ANY CONSIDERATION FOR RENDERING OF ANY ' MANAGERIAL , TECHNICAL OR CONSULTANCY SERVICES' . THE WORD ' TECHNICAL' IS PRECEDED BY TH E WORD ' MANAGERIAL' AND SUCCEEDED BY THE WORD ' CONSULTANCY' . SINCE THE EX PRESSION ' TECHNICAL SERVICES' IS IN DOUBT AND IS UNCLEAR, THE RULE OF NOSCITUR A SOC IIS IS CLEARLY APPLICABLE. THE SAID RULE IS EXPLAINED IN MAXWELL ON THE INTERP RETATION OF STATUTES (TWELFTH EDITION) IN THE FOLLOWING WORDS (PAGE 289) : ' WHERE TWO OR MORE WORDS WHICH ARE SUSCEPTIBLE OF ANALOGOUS MEANING ARE COUPLED TOGETHER, NOSICUTUR A SOCIIS, THEY ARE UNDERSTOOD TO BE USED IN THEIR COGNATE SENSE. THEY TAKE, AS IT WERE, THEIR COLOUR FROM EACH OTHER, THE MEANING OF THE MORE GENERAL BEING RESTRICTED TO A SENSE ANALOG OUS TO THAT OF THE LESS GENERAL.' THIS WOULD MEAN THAT THE WORD ' TECHNICAL' WOULD T AKE COLOUR FROM THE WORDS ' MANAGERIAL' AND ' CONSULTANCY' , BETWEEN WH ICH IT IS SANDWICHED. THE WORD ' MANAGERIAL' HAS BEEN DEFINED IN THE SHORTER OXFOR D ENGLISH DICTIONARY, FIFTH EDITION AS : ' OF PERTAINING TO, OR CHARACTERISTIC OF A MANAGER , ESP. A PROFESSIONAL MANAGER OF OR WITHIN AN ORGANIZATION, BUSINESS, EST ABLISHMENT, ETC.' THE WORD 'MANAGER' HAS BEEN DEFINED, INTER ALIA, AS : ' A PERSON WHOSE OFFICE IT IS TO MANAGE AN ORGANIZA TION, BUSINESS ESTABLISHMENT, OR PUBLIC INSTITUTION, OR PART OF ON E ;A PERSON WITH THE PRIMARILY EXECUTIVE OR SUPERVISORY FUNCTION WITHIN AN ORGANIZA TION, ETC., A PERSON CONTROLLING THE ACTIVITIES OF A PERSON OR TEAM IN SPORTS, ENTER TAINMENT, ETC.' ITA NO.785/MDS/2016 :- 16 -: IT IS, THEREFORE, CLEAR THAT A MANAGERIAL SERVICE WOULD BE ONE WHICH PERTAINS TO OR HAS THE CHARACTERISTIC OF A MANAGER. IT IS OB VIOUS THAT THE EXPRESSION 'MANAGER' AND CONSEQUENTLY 'MANAGERIAL SERVICE' HAS A DEFINITE HUMAN ELEMENT ATTACHED TO IT. TO PUT IT BLUNTLY, A MACHINE CANNOT BE A MANAGER. 14. SIMILARLY, THE WORD 'CONSULTANCY' HAS BEEN DEFI NED IN THE SAID DICTIONARY AS THE WORK OR POSITION OF A CONSULTANT; A DEPARTMENT OF C ONSULTANTS. 'CONSULTANT' ITSELF HAS BEEN DEFINED, INTER ALIA, 'AS A PERSON WHO GIVE S PROFESSIONAL ADVICE OR SERVICES IN A SPECIALIZED FIELD'. IT IS OBVIOUS THAT THE WORD 'CONSULTANT' IS A DERIVATIVE OF THE WORD 'CONSULT' WHICH ENTAILS DELIBERATIONS, CONSIDE RATION, CONFERRING WITH SOMEONE, CONFERRING ABOUT OR UPON A MATTER. CONSULT HAS ALSO BEEN DEFINED IN THE SAID DICTIONARY AS ' ASK ADVICE FOR, SEEK COUNSEL OR A P ROFESSIONAL OPINION FROM; REFER TO (A SOURCE OF INFORMATION) ; SEEK PERMISSION OR APPR OVAL FROM FOR A PROPOSED ACTION' . IT IS OBVIOUS THAT THE SERVICE OF CONSULTANCY ALS O NECESSARILY ENTAILS HUMAN INTERVENTION. THE CONSULTANT, WHO PROVIDES THE CONS ULTANCY SERVICE, HAS TO BE A HUMAN BEING. A MACHINE CANNOT BE REGARDED AS A CONS ULTANT. 15. FROM THE ABOVE DISCUSSION, IT IS APPARENT THAT BOTH THE WORDS 'MANAGERIAL' AND 'CONSULTANCY' INVOLVE A HUMAN ELEMENT. AND, BOTH, M ANAGERIAL SERVICE AND CONSULTANCY SERVICE, ARE PROVIDED BY HUMANS. CONSEQ UENTLY, APPLYING THE RULE OF NOSCITUR A SOCIIS, THE WORD 'TECHNICAL' AS APPEARIN G IN EXPLANATION 2 TO SECTION 9(1)(VII) WOULD ALSO HAVE TO BE CONSTRUED AS INVOLV ING A HUMAN ELEMENT. BUT, THE FACILITY PROVIDED BY MTNL/OTHER COMPANIES FOR INTER CONNECTION/PORT ACCESS IS ONE WHICH IS PROVIDED AUTOMATICALLY BY MACHINES. IT IS INDEPENDENTLY PROVIDED BY THE USE OF TECHNOLOGY AND THAT TOO, SOPHISTICATED TECHN OLOGY, BUT THAT DOES NOT MEAN THAT MTNL/OTHER COMPANIES WHICH PROVIDE SUCH FACILI TIES ARE RENDERING ANY TECHNICAL SERVICES AS CONTEMPLATED IN EXPLANATION 2 TO SECTION 9(1)(VII) OF THE SAID ACT. THIS IS SO BECAUSE THE EXPRESSION ' TECHNICAL SERVICES' TAKES COLOUR FROM THE EXPRESSIONS ' MANAGERIAL SERVICES' AND ' CONSULTANC Y SERVICES' WHICH NECESSARILY INVOLVE A HUMAN ELEMENT OR, WHAT IS NOW A DAYS FASH IONABLY CALLED, HUMAN INTERFACE' THIS PRINCIPLE HAS BEEN REITERATED SEVERAL TIMES BY VARIOUS COURTS AND THE TRIBUNALS AS HAVE BEEN HIGHLIGHTED BY THE LEARNED COUNSEL DUR ING THE COURSE OF HEARING. THUS, ONE HAS TO SEE WHETHER ANY KIND OF HUMAN INTE RFACE OR HUMAN INVOLVEMENT IS THERE FOR PROVIDING TECHNICAL SERVICES BY THE PTL I N THIS CASE. 15 . THE HON'BLE JUDGE IN THE CASE OF SKYCELLS COMMUNI CATIONS LTD. (SUPRA) WHILE INTERPRETING THE WORD 'FEES FOR TECHNICAL SERVICES' AS DEFINED IN EXPLANATION 2 TO SECTION 9(1)(VII) HAS MADE A VERY IMPORTANT OBSERVA TION: '5. IN THE MODERN DAY WORLD, ALMOST EVERY FACET OF ONE'S LIFE IS LINKED TO SCIENCE AND TECHNOLOGY IN AS MUCH AS NUMEROUS THINGS USED O R RELIED UPON IN EVERY DAY LIFE IS THE RESULT OF SCIENTIFIC AND TECHNOLOGICAL DEVEL OPMENT. EVERY INSTRUMENT OR GADGET THAT IS USED TO MAKE LIFE EASIER IS THE RESU LT OF SCIENTIFIC INVENTION OR DEVELOPMENT AND INVOLVES THE USE OF TECHNOLOGY. ON THAT SCORE, EVERY PROVIDER OF EVERY INSTRUMENT OR FACILITY USED BY A PERSON CANNO T BE REGARDED AS PROVIDING TECHNICAL SERVICE. WHEN A PERSON HIRES A TAXI TO MOVE FROM ONE PLACE T O ANOTHER, HE USES A PRODUCT OF SCIENCE AND TECHNOLOGY, VIZ., AN AUTOMOBILE. IT C ANNOT ON THAT GROUND BE SAID THAT THE TAXI DRIVER WHO CONTROLS THE VEHICLE, AND MONITORS ITS MOVEMENT IS RENDERING A TECHNICAL SERVICE TO THE PERSON WHO USE S THE AUTOMOBILE. SIMILARLY, WHEN A PERSON TRAVELS BY TRAIN OR IN AN AEROPLANE, IT CANNOT BE SAID THAT THE RAILWAYS OR AIRLINES IS RENDERING A TECHNICAL SERVI CE TO THE PASSENGER AND, THEREFORE, THE PASSENGER IS UNDER AN OBLIGATION TO DEDUCT TAX AT SOURCE ON THE PAYMENTS MADE TO THE RAILWAY OR THE AIRLINE FOR HAVING USED IT FO R TRAVELLING FROM ONE DESTINATION TO ANOTHER. WHEN A PERSON TRAVELS BY BUS, IT CANNOT BE SAID THAT THE UNDERTAKING WHICH OWNS THE BUS SERVICE IS RENDERING TECHNICAL S ERVICE TO THE PASSENGER AND, THEREFORE, THE PASSENGER MUST DEDUCT TAX AT SOURCE ON THE PAYMENT MADE TO THE BUS SERVICE PROVIDER, FOR HAVING USED THE BUS. THE ELECTRICITY SUPPLIED TO A ITA NO.785/MDS/2016 :- 17 -: CONSUMER CANNOT, ON THE GROUND THAT GENERATORS ARE USED TO GENERATE ELECTRICITY, TRANSMISSION LINES TO CARRY THE POWER, TRANSFORMERS TO REGULATE THE FLOW OF CURRENT, METERS TO MEASURE THE CONSUMPTION, BE REGARDED AS A MOUNTING TO PROVISION OF TECHNICAL SERVICES TO THE CONSUMER RESULTING IN THE CONSUMER HAVING TO DEDUCT TAX AT SOURCE ON THE PAYMENT MADE FOR THE POWER CONSUME D AND REMIT THE SAME TO THE REVENUE. SATELLITE TELEVISION HAS BECOME UBIQUITOUS, AND IS SPREADING ITS AREA AND COVERAGE, AND COVERS MILLIONS OF HOMES. WHEN A PERSON RECEIVE S SUCH TRANSMISSION OF TELEVISION SIGNALS THROUGH THE CABLE PROVIDED BY TH E CABLE OPERATOR, IT CANNOT BE SAID THAT THE HOME OWNER WHO HAS SUCH A CABLE CONNE CTION IS RECEIVING A TECHNICAL SERVICE FOR WHICH HE IS REQUIRED TO DEDUCT TAX AT S OURCE ON THE PAYMENTS MADE TO THE CABLE OPERATOR. INSTALLATION AND OPERATION OF SOPHISTICATED EQUIPME NTS WITH A VIEW TO EARN INCOME BY ALLOWING CUSTOMERS TO AVAIL OF THE BENEFIT OF TH E USER OF SUCH EQUIPMENT DOES NOT RESULT IN THE PROVISION OF TECHNICAL SERVICE TO THE CUSTOMER FOR A FEE. 6. WHEN A PERSON DECIDES TO SUBSCRIBE TO A CELLULAR TELEPHONE SERVICE IN ORDER TO HAVE THE FACILITY OF BEING ABLE TO COMMUNICATE WITH OTHERS, HE DOES NOT CONTRACT TO RECEIVE A TECHNICAL SERVICE. WHAT HE DOES AGREE TO IS TO PAY FOR THE USE OF THE AIRTIME FOR WHICH HE PAYS A CHARGE. THE FACT THAT T HE TELEPHONE SERVICE PROVIDER HAS INSTALLED SOPHISTICATED TECHNICAL EQUIPMENT IN THE EXCHANGE TO ENSURE CONNECTIVITY TO ITS SUBSCRIBER, DOES NOT ON THAT SCORE, MAKE IT PROVISION OF A TECHNICAL SERVICE TO THE SUBSCRIBER. THE SUBSCRIBER IS NOT CONCERNED WIT H THE COMPLEXITY OF THE EQUIPMENT INSTALLED IN THE EXCHANGE, OR THE LOCATIO N OF THE BASE STATION. ALL THAT HE WANTS IS THE FACILITY OF USING THE TELEPHONE WHEN H E WISHES TO, AND BEING ABLE TO GET CONNECTED TO THE PERSON AT THE NUMBER TO WHICH HE D ESIRES TO BE CONNECTED. WHAT APPLIES TO CELLULAR MOBILE TELEPHONE IS ALSO APPLIC ABLE IN FIXED TELEPHONE SERVICE. NEITHER SERVICE CAN BE REGARDED AS 'TECHNICAL SERVI CE' FOR THE PURPOSE OF SECTION 194J OF THE ACT. 7. THE USE OF THE INTERNET AND THE WORLD WIDE WEB I S INCREASING BY LEAPS AND BOUNDS, AND THERE ARE HUNDREDS OF THOUSANDS, IF NOT MILLIONS, OF SUBSCRIBERS TO THAT FACILITY. THE INTERNET IS VERY MUCH A PRODUCT OF TE CHNOLOGY, AND WITHOUT THE SOPHISTICATED EQUIPMENT INSTALLED BY THE INTERNET S ERVICE PROVIDERS AND THE USE OF THE TELEPHONE FIXED OR MOBILE THROUGH WHICH THE CON NECTION IS ESTABLISHED, THE SERVICE CANNOT BE PROVIDED. HOWEVER, ON THAT SCORE, EVERY SUBSCRIBER OF THE INTERNET SERVICE PROVIDER CANNOT BE REGARDED AS HAV ING ENTERED INTO A CONTRACT FOR AVAILING OF TECHNICAL SER- VICES FROM THE PROVIDER OF THE INTERNET SERVICE, AND SUCH SUBSCRIBER REGARDED AS BEING OBLIGED TO DEDUCT TAX AT SOURCE ON THE PAYMENT MADE TO THE INTERNET SERVICE PROVIDER. THUS IF A STANDARD FACILITY IS PROVIDED THROUGH A U SAGE OF MACHINE OR TECHNOLOGY, IT CANNOT BE TERMED AS RENDERING OF TECHNICAL SERVI CES. ONCE IN THIS CASE IT HAS NOT BEEN DISPUTED THAT THERE IS NOT MUCH OF THE HUMAN I NVOLVEMENT FOR CARRYING OUT THE TESTS OF CIRCUIT BREAKERS IN THE LABORATORY AND IT IS MOSTLY DONE BY MACHINES AND IS A STANDARD FACILITY, IT CANNOT BE HELD THAT PEHLA TESTING LABORATORY IS RENDERING ANY KIND OF TECHNICAL SERVICES TO ASSESSE E. IN OUR CONCLUSION, WE THUS HOLD THAT PAYMENT MADE BY ASSESSEE TO THE PTL IN GE RMANY IS NOT IN CONSIDERATION FOR RENDERING OF ANY KIND OF 'TECHNICAL SERVICES' E ITHER IN THE NATURE OF MANAGERIAL OR TECHNICAL OR CONSULTANCY SERVICES. THEREFORE, IT DOES NOT FALL WITHIN THE AMBIT OF SECTION 9(1)(VII). 15.3 IN THE CASE OF BHARTI CELLULAR ALSO THE HONBLE DE LHI HIGH COURT EXAMINED THE FEE FOR TECHNICAL SERVICES IN PARA NO. 13-15 AS UNDER: 13. WE HAVE ALREADY POINTED OUT THAT THE EXPRESSION FEES FOR TECHNICAL SERVICES AS APPEARING IN S. 194J OF THE SAID ACT HAS THE SAME M EANING AS GIVEN TO THE EXPRESSION IN EXPLN. 2 TO S.9(1)(VII) OF THE SAID ACT. IN THE SAI D EXPLANATION THE EXPRESSION FEES FOR ITA NO.785/MDS/2016 :- 18 -: TECHNICAL SERVICES MEANS ANY CONSIDERATION FOR REN DERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES. THE WORD TECHNICAL IS PREC EDED BY THE WORD MANAGERIAL AND SUCCEEDED BY THE WORD CONSULTANCY. SINCE THE EXPR ESSION TECHNICAL SERVICES IS IN DOUBT AND IS UNCLEAR, THE RULE OF NOSCITUR A SOCIIS IS CL EARLY APPLICABLE. THE SAID RULE IS EXPLAINED IN MAXWELL ON THE INTERP RETATION OF STATUTES (TWELFTH EDITION) IN THE FOLLOWING WORDS: WHERE TWO OR MORE WORDS WHICH ARE SUSCEPTIBLE OF A NALOGOUS MEANING ARE COUPLED TOGETHER, NOSCITUR A SOCIIS, THEY ARE UNDERSTOOD TO BE USED IN THEIR COGNATE SENSE. THEY TAKE, AS IT WERE, THEIR COLOUR FROM EACH OTHER, THE MEANING OF THE MORE GENERAL BEING RESTRICTED TO A SENSE ANALOGOUS TO THAT OF THE LESS GENERAL. THIS WOULD MEAN THAT THE WORD TECHNICAL WOULD TAK E COLOUR FROM THE WORDS MANAGERIAL AND CONSULTANCY, BETWEEN WHICH IT IS SANDWICHED. THE WORD MANAGERIAL HAS BEEN DEFINED IN THE SHORTER OXFORD ENGLISH DICTIONARY, FIFTH EDI TION AS: OF PERTAINING TO, OR CHARACTERISTIC OF A MANAGER, ESP. A PROFESSIONAL MANAGER OF OR WITHIN AN ORGANIZATION, BUSINESS, ESTABLISHMENT, ETC. THE WORD MANAGER HAS BEEN DEFINED, INTER ALIA, AS : A PERSON WHOSE OFFICE IT IS TO MANAGE AN ORGANIZATI ON, BUSINESS ESTABLISHMENT, OR PUBLIC INSTITUTION, OR PART OF ONE; A PERSON WITH THE PRIM ARILY EXECUTIVE OR SUPERVISORY FUNCTION WITHIN AN ORGANIZATION ETC.; A PERSON CONTROLLING TH E ACTIVITIES OF A PERSON OR TEAM IN SPORTS, ENTERTAINMENT, ETC. IT IS, THEREFORE, CLEAR THAT A MANAGERIAL SERVICE W OULD BE ONE WHICH PERTAINS TO OR HAS THE CHARACTERISTIC OF A MANAGER. IT IS OBVIOUS THAT THE EXPRESSION MANAGER AND CONSEQUENTLY MANAGERIAL SERVICE HAS A DEFINITE HUMAN ELEMENT A TTACHED TO IT. TO PUT IT BLUNTLY, A MACHINE CANNOT BE A MANAGER. 14. SIMILARLY, THE WORD CONSULTANCY HAS BEEN DEFI NED IN THE SAID DICTIONARY AS THE WORK OR POSITION OF A CONSULTANT; A DEPARTMENT OF CONSULTAN TS. CONSULTANT ITSELF HAS BEEN DEFINED, INTER ALIA, AS A PERSON WHO GIVES PROFESSIONAL ADV ICE OR SERVICES IN A SPECIALIZED FIELD. IT IS OBVIOUS THAT THE WORD CONSULTANT IS A DERIVATIVE OF THE WORD CONSULT WHICH ENTAILS DELIBERATIONS, CONSIDERATION, CONFERRING WITH SOMEO NE, CONFERRING ABOUT OR UPON A MATTER. CONSULT HAS ALSO BEEN DEFINED IN THE SAID DICTIONAR Y AS ASK ADVICE FOR, SEEK COUNSEL OR A PROFESSIONAL OPINION FROM; REFER TO (A SOURCE OF IN FORMATION); SEEK PERMISSION OR APPROVAL FROM FOR A PROPOSED ACTION. IT IS OBVIOUS THAT THE SERVICE OF CONSULTANCY ALSO NECESSARILY ENTAILS HUMAN INTERVENTION. THE CONSULTANT, WHO PRO VIDES THE CONSULTANCY SERVICE, HAS TO BE A HUMAN BEING. A MACHINE CANNOT BE REGARDED AS A CONSULTANT. 16. FROM THE ABOVE DISCUSSION, IT IS APPARENT THAT BOTH THE WORDS MANAGERIAL AND CONSULTANCY INVOLVE A HUMAN ELEMENT. AND, BOTH, M ANAGERIAL SERVICE AND CONSULTANCY SERVICE, ARE PROVIDED BY HUMANS. CONSEQUENTLY, APPL YING THE RULE OF NOSCITUR A SOCIIS, THE WORD TECHNICAL AS APPEARING IN EXPLN. 2 TO S. 9(1)(VII) WOULD ALSO HAVE TO BE CONSTRUED AS INVOLVING A HUMAN ELEMENT. BUT, THE FA CILITY PROVIDED BY MTNL/OTHER COMPANIES FOR INTERCONNECTION/PORT ACCESS IS ONE WH ICH IS PROVIDED AUTOMATICALLY BY MACHINES. IT IS INDEPENDENTLY PROVIDED, BY THE USE OF TECHNOLOGY AND THAT TOO, SOPHISTICATED TECHNOLOGY, BUT THAT DOES NOT MEAN TH AT MTNL/OTHER COMPANIES WHICH PROVIDE SUCH FACILITIES ARE RENDERING ANY TECHNICAL SERVICES AS CONTEMPLATED IN EXPLN. 2 TO S.9(1)(VII) OF THE SAID ACT. THIS IS SO BECAUS E THE EXPRESSION TECHNICAL SERVICES TAKES COLOUR FROM THE EXPRESSIONS MANAGERIAL SERVI CES AND CONSULTANCY SERVICES WHICH NECESSARILY INVOLVE A HUMAN ELEMENT OR, WHAT IS NOW A DAYS FASHIONABLY CALLED, HUMAN INTERFACE. IN THE FACTS OF THE PRESENT APPEAL S, THE SERVICES RENDERED QUA INTERCONNECTION/PORT ACCESS DO NOT INVOLVE ANY HUM AN INTERFACE AND, THEREFORE, THE SAME CANNOT BE REGARDED AS TECHNICAL SERVICES AS CONTEMPLATED UNDER S.1 94J OF THE SAID ACT. ITA NO.785/MDS/2016 :- 19 -: 15.4 FROM THE JUDICIAL PRONOUNCEMENTS DISCUSSED ABOVE T HE FEE FOR TECHNICAL SERVICES INVOLVE HUMAN ELEMENT AND CONSID ERATION IS FOR RENDERING THE MANAGERIAL, TECHNICAL AND CONSULTANCY SERVICES. CONSEQUENTLY, APPLYING THE RULE OF NOSCITUR A SOCIIS THE WORD TECHNICAL AS APPEARING IN EXPLANATION-2 TO SECTION 9(1)(VII) WOU LD ALSO HAVE TO BE CONSTRUED AS INVOLVING HUMAN ELEMENT. BUT FACILITY PROVIDED BY THE PARENT COMPANY IN THE CASE OF SERVER MAINTENANCE CHARGES W AS THE USAGE OF VARIOUS ACTIVITIES MENTIONED ABOVE AND NO HUMAN INT ERFACE IS INVOLVED. ACCORDING TO THE ASSESSEE, USAGE SERVICES ARE UTILI ZED BY THE PARENT COMPANY AND THE SUBSIDIARY COMPANIES ALONE AND NO T HIRD PARTY WAS ALLOWED ANY USAGE OR ACCESS. IT WAS ALSO EMPHASIZE D THAT ONLY ACTUAL COSTS ARE RECOVERED BY THE PARENT COMPANY FROM GROU P CONSTITUENTS AND THERE WAS NO PROFIT ELEMENT. THE AO AND LD.CIT(A) DID NOT BRING ANY MATERIAL TO SHOW HUMAN INVOLVEMENT IN THE ACTIVITI ES EXPLAINED BY THE ASSESSEE. FROM THE ABOVE FACTS IT IS OBSERVED THAT THE ASSESSEE IS MERELY USING THE TECHNOLOGY PROVIDED BY THE PARENT COMPAN Y AND NO MANAGERIAL, CONSULTANCY AND TECHNICAL SERVICES ARE PROVIDED BY THE PARENT COMPANY. THEREFORE, WE ARE OF THE CONSIDERED OPINION THAT TH E PAYMENT MADE IS NOT FOR FTS AND THE DECISIONS CITED IN THE ABOVE CASES RELIED UPON BY THE LD.AR ARE SQUARELY APPLICABLE IN THE ASSESSEE,S CAS E AND WE AGREE WITH THE ASSESSEE THAT THE PAYMENT WAS FOR REIMBURSEMEN T OF EXPENSES AND IN REIMBURSEMENT OF EXPENSES, NO TAX IS DEDUCTIBLE U/S .195 OF IT ACT AS HELD BY THIS TRIBUNAL IN CAIRN ENERGY PVT. LTD. V. ASSI STANT COMMISSIONER OF INCOME TAX [2010] 2 ITR 38 (CHENNAI). ACCORDINGLY, WE DELETE THE ITA NO.785/MDS/2016 :- 20 -: ADDITION MADE BY THE AO AND SET-ASIDE THE ORDERS OF LOWER AUTHORITIES. THE ASSESSEES APPEAL ON SERVER MAINTENANCE CHARGES IS ALLOWED. 16.0 IN RESPECT OF TESTING AND DEVELOPMENT CHARGES, THE PAYMENT WAS MADE TO HUTCHINSON ITALY FOR THE SERVICES RENDERED IN THE VENDOR LOCATION IN ITALY. THE AUTO COMPONENTS OF POWER STEERING SY STEM CONSISTING OF THREE HOSES SUCTION LINE, PRESSURE LINE, AND RETUR N LINE ARE TESTED FOR HOSE BURST PRESSURE NOISE TURNING IMPULSE TESTING BRAZING JOINT STRENGTH NVH TESTING AND DURABILITY 16.1 THE ASSESSEE COMPANY MANUFACTURES THE PARTS ACCOR DING TO DRAWING AND SPECIFICATIONS AND DESIGNS OF THE COMPA NY AND SUBSEQUENTLY SENT TO VENDOR LOCATION IN ITALY FOR TESTING ON THE IR EFFICIENCY AND STRENGTH. THE LD.A.R CONTENDED THAT THE TESTING WAS LARGELY DONE ON MACHINES WITH VERY LITTLE OF HUMAN JUDGMENT OR SKILL. THE ONLY S KILL REQUIRED WAS KNOWLEDGE TO OPERATE THE MACHINE AND TO TAKE READIN GS. THE ONLY TASK OF NON-RESIDENT WAS TO GIVE A REPORT ON THE PERFORMANC E OF COMPONENT BY GIVING ACTUAL VALUES BASED ON READINGS AND DESIGN S PECIFICATIONS. 16.2 THE ACTIVITY OF TESTING, OPERATING OF THE MACHINE AND NOTING OF ACTUAL READING , WHETHER IT SUITS TO THE DESIGN SPECIFICAT IONS OR NOT IS A SPECIALIZED ACTIVITY ONLY A TECHNICAL PERSON CAN D O BUT NOT THE MACHINES ALONE. THE MACHINE CANNOT DISCHARGE SUCH FUNCTIONS AND HUMAN EXPERT ITA NO.785/MDS/2016 :- 21 -: KNOWLEDGE ONLY CAN DECIDE WHETHER THE PARTS ARE ACC EPTABLE OR NOT. BEGINNING FROM THE ACTIVITY OF SENDING THE AUTO PAR TS TO THE ACTIVITY OF TESTING AND DEVELOPMENT THE HUMAN INTERVENTION AND SKILL IS NECESSARY. MERE MACHINE OPERATOR CANNOT DECIDE WHETHER THE AUT O PARTS ARE AS PER THE SPECIFICATIONS AND DRAWINGS OR NOT? THEREFORE W E ARE UNABLE TO AGREE WITH THE LD.AR THAT THE SERVICES ARE NOT IN THE NAT URE OF FTS AND HOLD THAT THE PAYMENT IS MADE FOR TECHNICAL SERVICES. 16.3 LD.AR ARGUED THAT THE ASSESSEE IS COVERED BY DTAA A ND AS PER THE ARTICLE-7 OF DTAA BETWEEN INDIA AND ITALY ONLY PROF ITS OF THE BUSINESS ARE CHARGEABLE TO TAX IF THE ENTITY HAS A PERMANENT ES TABLISHMENT IN THAT COUNTRY. IN THIS CASE, THE PARENT COMPANY HAS NO P ERMANENT ESTABLISHMENT IN INDIA AND HENCE NO TAX IS REQUIRED TO BE DEDUCTED. 16.4 THE ARGUMENT OF THE ASSESSEE IS NOT ACCEPTABLE SIN CE THE FEE FOR TECHNICAL SERVICES ARE COVERED BY ARTICLE-13 OF THE DTAA (AND NOT BY ARTICLE -7) WHICH READS AS UNDER: ARTICLE 13 ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. ROYALTIES AND FEES FOR TECHNICAL SERVICES ARISIN G IN A CONTRACTING STATE AND PAID TO A RESIDENT OF THE OTHER CONTRACTING STATE MAY BE TAXED IN THAT OT HER STATE. 2. HOWEVER, SUCH ROYALTIES AND FEES FOR TECHNICAL S ERVICES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THEY ARISE AND ACCORDING TO THE LAWS OF THAT STATE, BUT IF THE RECIPIENT IS THE BENEFICIAL OWNER OF THE ROYALTIES, OR FEES FOR TECH NICAL SERVICES, THE TAX SO CHARGED SHALL NOT EXCEED 20 PER CENT OF THE GROSS AMOUNT OF THE ROYAL TIES OR FEES FOR TECHNICAL SERVICES. 3. THE TERM 'ROYALTIES' AS USED IN THIS ARTICLE MEA NS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE OF, OR THE RIGHT TO USE, ANY COPYRIGHT OF LITERARY, ARTISTIC OR SCIENTIFIC WORK, INCLUDING CINEMATOGRAPH FILM OR FILMS OR TAPE S USED FOR RADIO OR TELEVISION BROADCASTING, ANY PATENT, TRADE MARK, DESIGN OR MODEL, PLAN, SECRET F ORMULA OR PROCESS, OR FOR THE USE OF, OR THE RIGHT TO USE, INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EQUIPMENT, OR FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL OR SCIENTIFIC EXPERIENCE. ITA NO.785/MDS/2016 :- 22 -: 4. THE TERM 'FEES FOR TECHNICAL SERVICES' AS USED I N THIS ARTICLE MEANS PAYMENTS OF ANY AMOUNT TO ANY PERSON OTHER THAN PAYMENTS TO AN EMPLOYEE OF TH E PERSON MAKING PAYMENTS, IN CONSIDERATION FOR THE SERVICES OF A MANAGERIAL, TECHNICAL OR CONS ULTANCY NATURE, INCLUDING THE PROVISIONS OF SERVICES OF TECHNICAL OR OTHER PERSONNEL. 5. THE PROVISIONS OF PARAGRAPHS 1 AND 2 SHALL NOT A PPLY IF THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES, BEING A RESIDENT OF A CONTRACTING STATE, CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE IN WHICH THE ROYALTIES OR F EES FOR TECHNICAL SERVICES ARISE, THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN, OR PERFOR MS IN THAT OTHER STATE INDEPENDENT PERSONAL SERVICES FROM A FIXED BASE SITUATED THEREIN, AND TH E RIGHT, PROPERTY OR CONTRACT IN RESPECT OF WHICH THE ROYALTIES OR FEES FOR TECHNICAL SERVICES ARE PA ID IS EFFECTIVELY CONNECTED WITH SUCH PERMANENT ESTABLISHMENT OR FIXED BASE. IN SUCH A CASE, THE RO YALTIES OR FEES FOR TECHNICAL SERVICES SHALL BE TAXABLE IN THAT OTHER CONTRACTING STATE ACCORDING T O ITS OWN LAW. 6. ROYALTIES AND FEES FOR TECHNICAL SERVICES SHALL BE DEEMED TO ARISE IN A CONTRACTING STATE WHEN THE PAYER IS THAT STATE ITSELF, A POLITICAL OR ADMI NISTRATIVE SUB-DIVISION, A LOCAL AUTHORITY OR A RESIDENT OF THAT STATE. WHERE, HOWEVER, THE PERSON PAYING THE ROYALTIES OR FEES FOR TECHNICAL SERVICES, WHETHER HE IS A RESIDENT OF A CONTRACTING STATE OR NOT, HAS IN A CONTRACTING STATE A PERMANENT ESTABLISHMENT OR A FIXED BASE IN CONNECTI ON WITH WHICH THE LIABILITY TO PAY THE ROYALTIES OR FEES FOR TECHNICAL SERVICES WAS INCURRED, AND SU CH ROYALTIES OR FEES FOR TECHNICAL SERVICES ARE BORNE BY SUCH PERMANENT ESTABLISHMENT OR FIXED BASE , THEN SUCH ROYALTIES OR FEES FOR TECHNICAL SERVICES SHALL BE DEEMED TO ARISE IN THE STATE IN W HICH THE PERMANENT ESTABLISHMENT OR FIXED BASE IS SITUATED. 7. WHERE, BY REASON OF A SPECIAL RELATIONSHIP BETWE EN THE PAYER AND THE BENEFICIAL OWNER OR BETWEEN BOTH OF THEM AND SOME OTHER PERSON, THE AMO UNT OF ROYALTIES OR FEES FOR TECHNICAL SERVICES PAID EXCEEDS THE AMOUNT WHICH WOULD HAVE B EEN PAID IN THE ABSENCE OF SUCH RELATIONSHIP, THE PROVISIONS OF THIS ARTICLE SHALL APPLY ONLY TO THE LAST-MENTIONED AMOUNT. IN SUCH CASE, THE EXCESS PART OF THE PAYMENTS SHALL REMAIN TAXABLE ACCORDING TO THE LAWS OF EACH CONTRACTING STATE, DUE REGARD BEING HAD TO THE OTHE R PROVISIONS OF THIS CONVENTION. 16.5 THE ASSESSEE SUBMITTED THAT THE SERVICES ARE RENDER ED OUTSIDE INDIA AND TO TAX THE INCOME UNDER SECTION 9(1)(VII) OF IT ACT IN THE YEAR UNDER CONSIDERATION THE SERVICES SHOULD HAVE BEEN RENDERE D IN INDIA AND UTILIZED IN INDIA. THE EXPLANATION TO SECTION 9(2) WAS INTR ODUCED IN 2007 WITH EFFECT FROM 1976 AND THE ASSESSMENT YEAR UNDER CONS IDERATION IS 2003-04 ASSESSEE CANNOT PREDICT THE AMENDMENT AND DEDUCT TH E TDS WHICH IS AN IMPOSSIBLE TASK. 16.6 THE PAYMENT WAS MADE FOR FTS AND IT IS TAXABLE AS PER THE IT ACT AND ALSO AS PER THE DTAA AS PER OUR DISCUSSION IN T HE PRECEDING PARAGRAPHS OF THIS ORDER. HOWEVER, THE SERVICES ARE RENDERED OUTSIDE INDIA AND UTILIZED IN INDIA. AS PER THE DECISION OF HONB LE SUPREME COURT RELIED ITA NO.785/MDS/2016 :- 23 -: UPON BY THE LD.AR IN THE CASE OF ISHIKAWAJIMA-HARIM A HEAVY INDUSTRIES LTD V/S DIT (2007) (288 ITR 408) , CLARIFIED THAT D ESPITE THE DEEMING FICTION IN SECTION 9, FOR ANY SUCH INCOME TO BE TAX ABLE IN INDIA, THERE MUST BE SUFFICIENT TERRITORIAL NEXUS BETWEEN SUCH INCOME AND THE TERRITORY OF INDIA. IT FURTHER HELD THAT FOR ESTABLISHING SUCH T ERRITORIAL NEXUS, THE SERVICES HAVE TO BE RENDERED IN INDIA AS WELL AS UT ILIZED IN INDIA. THE EXPLANATION TO SECTION 9(2) WAS INTRODUCED BY FINAN CE ACT 2007 W.E.F.1976 AND AS ON THE DATE OF ASSESSMENT THERE W AS NO PROVISION TO TAX THE FTS RENDERED OUTSIDE INDIA AND HENCE WE AGREE W ITH THE LD.A.R THAT NO TAX IS DEDUCTIBLE U/S 195 AND CONSEQUENT DISALLO WANCE IS NOT CALLED FOR. THIS VIEW IS SUPPORTED BY THE CO-ORDINATE BENCH OF ITAT (MUMBAI BENCH) 'L' (MUM.) CHANNEL GUIDE INDIA LTD. V. ASSISTANT COMMISSIONER OF INCOME- TAX, CIRCLE 4(1) RELIED UP ON BY THE LD.A.R. THE RE SPECTED COORDINATE BENCH IN THE DECISION SUPRA HELD AS UNDER: 25. IN OUR OPINION, THE ISSUE INVOLVED IN THE PRESENT CASE HOWEVER, IS RELATING TO DISALLOWANCE MADE U/S.40(A)(I) FOR NON-DEDUCTION OF TAX-AT-SOURCE FROM THE PAYMENT MADE BY THE ASSESSEE TO SSA AND AS HELD BY AHMEDABAD BEN CH OF THIS TRIBUNAL IN THE CASE OF STERLING ABRASIVES LTD. V. ITO [I.T. APPEALS 224 3 & 2244 (AHD.) OF 2008] BY ITS ORDER DATED 23.12.2010 CITED BY THE LD. COUNSEL FOR THE A SSESSEE, THE ASSESSEE CANNOT BE HELD TO BE LIABLE TO DEDUCT TAX AT SOURCE RELYING ON THE SU BSEQUENT AMENDMENTS MADE IN THE ACT WITH RETROSPECTIVE EFFECT. IN THE SAID CASE, EXPLAN ATION TO SEC.9(2) WAS INSERTED BY THE FINANCE ACT, 2007 WITH RETROSPECTIVE EFFECT FROM 1. 6.1976 AND IT WAS HELD BY THE TRIBUNAL THAT IT WAS IMPOSSIBLE FOR THE ASSESSEE TO DEDUCT T AX IN THE FINANCIAL YEAR 2003-04 WHEN AS PER THE RELEVANT LEGAL POSITION PREVALENT IN THE FI NANCIAL YEAR 2003-04, THE OBLIGATION TO DEDUCT TAX WAS NOT ON THE ASSESSEE. THE TRIBUNAL BA SED ITS DECISION ON A LEGAL MAXIM LEX NON COGIT AD IMPOSSIBLIA MEANING THEREBY THAT THE L AW CANNOT POSSIBLY COMPEL A PERSON TO DO SOMETHING WHICH IS IMPOSSIBLE TO PERFORM AND REL IED ON THE DECISION OF HON'BLE SUPREME COURT IN THE CASE OF KRISHNASWAMY S. PD V. UNION OF INDIA [2006] 281 ITR 305 / 151 TAXMAN 286 WHEREIN THE SAID LEGAL MAXIM WAS ACCEPTED BY THE H ON'BLE APEX COURT. 26. IN VIEW OF THE ABOVE DISCUSSION, WE ARE OF THE VIE W THAT THE AMOUNT IN QUESTION PAID BY THE ASSESSEE TO SSA WAS NOT TAXABLE IN INDI A IN THE HANDS OF SSA EITHER U/S.9(1)(VI) OR 9(1)(VII) AS PER THE LEGAL POSITION PREVALENT AT THE RELEVANT TIME AND THE ASSESSEE THEREFORE WAS NOT LIABLE TO DEDUCT TAX AT SOURCE FROM THE SAID AMOUNT PAID TO M/S. SSA AND THERE WAS NO QUESTION OF DISALLOWING THE SA ID AMOUNT BY INVOKING THE PROVISIONS OF ITA NO.785/MDS/2016 :- 24 -: SEC.40(A)(I). IN THAT VIEW OF THE MATTER, WE DELETE THE DISALLOWANCE MADE BY THE AO U/S.40(A)(I) AND CONFIRMED BY LD. CIT (A) AND ALLOW GROUND NO.1 OF THE ASSESSEE'S APPEAL. THEREFORE, WE HOLD THAT THE PAYMENT MADE BY THE ASSESSEE FOR FTS FOR THE SERVICES RENDERED OUTSIDE INDIA ARE NOT TAX ABLE UNDER SECTION 9(1)(VII) OF I.T. ACT IN THE ASSESSMENT YEAR UNDER CONSIDERATION AND THE DISALLOWANCE IS NOT CALLED FOR AND WE DELETE THE AD DITION MADE BY THE AO AND SET-ASIDE THE LOWER AUTHORITIES ORDERS. THE ASS ESSEES APPEAL ON THIS ISSUE IS ALLOWED. 17.0 GROUND NO.15 IS WITH REGARD TO THE LEVY OF INTERES T U/S.234 B WHICH IS CONSEQUENTIAL IN NATURE AND NO ARGUMENTS ARE ADV ANCED BY THE ASSESSEE. THEREFORE, THIS GROUND IS DISMISSED. 18.0 IN THE RESULT, THE APPEAL OF THE ASSESSEE IS ALLO WED. ORDER PRONOUNCED IN THE OPEN COURT ON 12 TH APRIL, 2017, AT CHENNAI. SD/ - SD/ - ( . . . ) (N.R.S. GANESAN) /JUDICIAL MEMBER ( ' . . $ ) (D.S.SUNDER SINGH) /ACCOUNTANT MEMBER /CHENNAI, 5 /DATED: 12 TH APRIL, 2017. TLN 0 .$6 76 /COPY TO: 1. - /APPELLANT 4. 8 /CIT 2. ./- /RESPONDENT 5. 6 . /DR 3. 8 ( ) /CIT(A) 6. * /GF