M/s. T - 3 Energy Services India Pvt. Ltd., Pune V. Joint Commissioner of Income-tax,

ITA 826/PUN/2015

• Counselvise Citation: [2018] 125 COUNSELVISE.COM (IT) 9396 (ITAT-PUNE)
• Duration Of Justice: 2 year(s) 7 month(s) 29 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 02-02-2018
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2010-2011
• Appeal Filed On: 03-06-2015
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: VIVEK AGGARWAL
• Assessee Lawyers: SHRADDHA SWARUP
• Keywords: Transfer pricing; Double taxation relief; International transaction; Retrospective amendment; Permanent establishment
• Section: 143(3); 37(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL PUNE BENCH B , PUNE , , BEFORE MS. SUSHMA CHOWLA, JM AND SHRI ANIL CHATURVEDI, AM . / ITA NO. 826 /P U N/20 1 5 / ASSESSMENT YEAR : 20 10 - 11 M/S. T - 3 ENERGY SERVICES INDIA PVT. LTD., D - II/65 - 1, MIDC, TELCO ROAD, CHINCHWAD, PUNE 411019 . / APPELLANT PAN: AA CCT9805F VS. THE JT. COMMISSIONER OF INCOME TAX , RANGE 10, PUNE . / RESPONDENT / APPELLANT BY : S /S HRI ARIJIT CHAKRAVARTY AND SHRADDHA SWARUP / RESPONDENT BY : SHRI VIVEK AGGARWAL / DATE OF HEARING : 06 . 11 .2017 / DATE OF PRONOUNCEMENT: 02 .0 2 .201 8 / ORDER PER SUSHMA CHOWLA, JM: THE APPEAL FILED BY THE ASSESSEE IS AGAINST ORDER OF CIT(A), PUNE - 6, DATED 2 7 .0 3 .201 5 RELATING TO ASSESSMENT YEAR 20 1 0 - 11 AGAINST THE ORDER PASSED UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 (IN SHORT THE ACT). 2 . THE ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL: - 1 . THE LEARNED CIT ERRED IN LAW AND ON FACTS IN CONFIRMING THE DISALLOWANCE U/S 40(A)(I) OF RS.31,22,300/ - OF PAYMENT TO ITS ASSOCIATED ENTERPRISE TOWARDS LEASE LINE CHARGES ON THE GROUND THAT THE PAYMENT WAS MADE WITHOUT DEDUCTION OF TAX. 2 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. 2. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN NOT ACCEPTING THE PAYMENTS OF LEASE LINE CHARGES WERE REIMBURSEMENT OF EXPENSES AND FURTHER FAILED TO APPRECIATE THAT THERE WAS NO CONTRACT BETWEEN THE APPELLANT AND THE SERVICE PROVIDER QUEST COMMUNICATION INC. 3. THE LEARNED CIT(A) ERRED IN LAW AND ON FACTS IN CONFI RMING THE ACTION OF LEARNED AO IN TREATING THE PAYMENTS AS ROYALTIES OR FEES FOR INCLUDED SERVICES IGNORING THE PROVISIONS OF DTAA WITH USA. THE SAID PAYMENTS CANNOT BE HELD TO BE ROYALTIES OR FEES FOR INCLUDED SERVICES IN VIEW OF THE DTAA WITH USA. 4. W ITHOUT PREJUDICE TO GROUND NO.1 TO 3, THE AMENDMENTS RELIED UPON BY AO TO SECTION 9(1)(VI) THOUGH RETROSPECTIVE, SECTION 40(A)(I) WOULD NOT APPLY FOR NON - DEDUCTION AS THE DEDUCTOR COULD NOT ANTICIPATE SUCH AMENDMENTS AND THEREFORE THERE COULD BE NO DEFAULT AS PER THE LAW EXISTING ON THE DATE OF DEDUCTION. 3. THE ISSUE RAISED IN THE PRESENT APPEAL IS IN RELATION TO PAYMENT OF LEASE LINE CHARGES BY THE ASSESSEE TO ITS ASSOCIATED ENTERPRISES. THE ASSESSING OFFICER HAS DISALLOWED THE CLAIM OF DEDUCTION OF 3 1,22,300/ - ON THE GROUND THAT THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT HAVE NOT BEEN COMPLIED WITH BY THE ASSESSEE. 4. BRIEFLY, IN THE FACTS OF THE CASE, THE ASSESSEE FOR THE YEAR UNDER CONSIDERATION DECLARED TOTAL INCOME OF 1,63,82,191/ - . THE ASSESSING OFFICER REFERRED THE MATTER TO THE TRANSFER PRICING OFFICER (TPO) FOR COMPUTING ARM'S LENGTH PRICE IN RESPECT OF INTER NATIONAL TRANSACTIONS ENTERED INTO BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISES. THE TPO VIDE ORDER DATED 10.10.2013 UNDER SECTION 92CA(3) OF THE ACT ACCEPTED INTERNATIONAL TRANSACTIONS OF ASSESSEE AT 19,48,32,921/ - WITH ITS ASSOCIATED ENTERPRISES TO BE AT ARM'S LENGTH. THE ASSESSING OFFICER DURING THE COURSE OF ASSESSMENT PROCEEDINGS NOTED THAT THE ASSESSEE HAD PAID LEASE LINE CHARGES TO QWEST COMMUNICATIONS INC , USA THROUGH ITS ASSOCIATED ENTERPRISE T - 3 ENERGY SERVICES CREEKMONT AMOUNTING TO 20,4 7,432/ - . SIMILARLY, FOR THE IMMEDIATE PREVIOUS FINANCIAL YEAR I.E. 2008 - 09, THE ASSESSEE HAD PAID 10,74,870/ - DURING THE YEAR ONLY. THE ASSESSEE WAS ASKED AS TO WHY NO TDS UNDER SECTION 195 OF THE ACT WAS DEDUCTED ON THE SAID 3 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. AMOUNTS WHILE REMITTING TH E SAME TO NON - RESIDENTS. THE ASSESSEE IN REPLY , POINTED OUT THAT THE SAID EXPENSES WERE PURE REIMBURSEMENT OF EXPENSES, HAVING NO PROFIT ELEMENT EMBEDDED IN IT. THE ASSESSEE ALSO PRODUCED BACK TO BACK EXPENSES BILLS AND IT WAS CLAIMED THAT THE LEASE LINE CHARGES DID NOT CONSTITUTE FEES FOR TECHNICAL SERVICES WITHIN THE MEANING OF EXPLANATION 2 TO SECTION 9(1)(VII) OF THE ACT. IT WAS ALSO POINTED OUT THAT LEASE LINE CHARGES WERE NOT FEES FOR INCLUDED SERVICES UNDER ARTICLE 12 OF DTAA BETWEEN INDIA AND U SA . THE ASSESSEE CLAIMED THAT WHERE IF ANY SUM PAID OR PAYABLE TO NON - RESIDENT WAS CHARGEABLE TO TAX UNDER ANY PROVISIONS OF THE INCOME TAX ACT, THEN TDS UNDER SECTION 195 OF THE ACT WAS TO BE DEDUCTED. HOWEVER, IN THE ABSENCE OF THE SAME, NO TDS WAS REQU IRED TO BE DEDUCTED. RELIANCE IN THIS REGARD WAS PLACED ON THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN GE INDIA TECHNOLOG Y CENTRE ( P ) LTD. VS. CIT & ANR. (2010) 193 TAXMAN 234 (SC). RELIANCE WAS ALSO PLACED ON THE SPECIAL BENCH DECISION IN MAHIND RA & MAHINDRA LTD. VS. DCIT (2009) 30 SOT 374 (MUMBAI - TRIB) (SB), WHEREIN IT WAS HELD THAT IN RESPECT OF REIMBURSEMENT OF EXPENSES, THERE WAS NO OBLIGATION TO DEDUCT TAX AT SOURCE A S THERE WAS NO ELEMENT OF INCOME INVOLVED IN SUCH PAYMENTS. RELIANCE WAS P LACED ON VARIOUS OTHER DECISIONS FOR THE SAME PROPOSITION THAT THE PAYMENTS TOWARDS REIMBURSEMENT OF EXPENSES WAS NOT IN THE NATURE OF INCOME AND THERE WAS NO OBLIGATION TO DEDUCT TAX AT SOURCE UNDER SECTION 195 OF THE ACT. THE ASSESSEE ALSO POINTED OUT T HAT LEASE LINE / BANDWIDTH CHARGES WERE NOT ROYALTY FOR THE USE OF PROCESS AND IT SHOULD NOT BE CONSIDERED SO. THE SUBMISSIONS OF ASSESSEE ARE REPRODUCED BY THE ASSESSING OFFICER UNDER PARA 7.2 AT PAGES 2 TO 6 OF THE ASSESSMENT ORDER. THE ASSESSING OFFIC ER VIDE PARA 7.3 OBSERVED THAT CONTENTION OF ASSESSEE WAS NOT CORRECT SINCE IT WAS NOT REIMBURSEMENT OF EXPENSES TO THE ASSOCIATED ENTERPRISES FOR ANY SERVICES 4 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. PROVIDED BY THEM TO THE ASSESSEE, ACTUALLY IT WAS PAYMENT MADE TO THIRD PARTY QWEST COMMUNICATIO N INC, THROUGH ASSOCIATED ENTERPRISE OF ASSESSEE. THE SAID PAYMENT WAS FOR PROVIDING LEASE LINE S FOR COMMUNICATION PURPOSES. THE ASSESSING OFFICER FURTHER OBSERVED THAT IN THE ABSENCE OF ASSOCIATED ENTERPRISE, IF THE ASSESSEE INTENDED TO TAKE SERVICES OF QWEST COMMUNICATIONS, INC, SERVICES WOULD BE PROVIDED TO HIM AT THE SAME RATES AS CHARGED BY ASSOCIATED ENTERPRISE. THUS, THE AMOUNT REMITTED TO THIRD PARTY WAS INCOME IN ITS HANDS FOR THE SERVICES PROVIDED. HENCE, IT WAS HIT BY PROVISIONS OF SECTION 195 OF THE ACT. THE REIMBURSEMENT OF EXPENSES AS INTERPRETED BY THE ASSESSEE WAS HELD BY THE ASSESSING OFFICER, TO BE A VEIL TO SHADOW PROFIT ELEMENT (INCOME) IN THE HANDS OF RECIPIENT I.E. THIRD PARTY. FURTHER, REFERENCE WAS MADE TO THE AMENDMENT IN DEFINITION OF ROYALTY UNDER SECTION 9 OF THE ACT WITH RETROSPECTIVE EFFECT, TO POINT OUT THAT THE INTENTION OF LEGISLATURE IN THIS REGARD WAS CLEAR AND EXPLICIT. IT WAS POINTED OUT BY THE ASSESSING OFFICER THAT REASON BEHIND THE AMENDMENT OF DEFINITI ON OF ROYALTY WAS IN THE WAKE OF VARIOUS CONFLICTING DECISIONS ON ISSUE OF DEDUCTION OF TDS UNDER SECTION 194J / 195 OF THE ACT ON PAYMENT OF LEASE LINE CHARGES. REFERENCE WAS MADE TO AMENDED PROVISIONS OF SECTION 9 OF THE ACT AND THE ASSESSING OFFICER HELD THAT THE SAID AMENDMENT WAS WITH RETROSPECTIVE EFFECT AND IT CLARIFIED THE POSITION AND HELD AS UNDER: - W ITH THE ABOVE AMENDMENT WHICH IS WITH RETROSPECTIVE EFFECT I T IS CL EAR THAT - 1 ) LT IS NOT NECESSARY THAT THE LOCATION OF SUCH RIGHT, PROPERTY OR INFORMATION (IN THIS CASE SERVER ETC) IS LOCATED IN I NDIA (E XPLANATION 5) AND, 2 ) IT IS ALSO NOT NECESSARY THAT THIS ACTION WILL BE APPLICABLE ONLY WHEN SUCH RIGHT, PROPERTY OR IN FORMATION IS USED DIRECTLY BY THE PAYER (EXPL AN A TION 5). 3 ) THE D EFI NITION OF PROCESS IS CLARIFIED AS PER EXP L ANATION 6 TO BRING OUT CLEARLY THE NATURE OF SERVICES INVOLVED. T H E L EASE LINE CHARGE S ARE SQUARELY COVERED IN THE DE FINITION OF PROCESS AND HOW IT IS CLEAR THAT PROCESS DOT NOT MEAN ANY SECRE T FORMU L A A S INTERPRET ED BY T HE ASSESSEE. THE L EASE LINE CHARGES PAID ARE NOW CL EARLY SPELT OUT TO COME UNDER ROYALTY AND WHEREIN IN CASE OF RESIDENT DEDUCTION U/S 194J IS TO BE M ADE , IN CASE ON NON RESIDENT DEDUCTION U/S 195 IS TO BE DONE. 5 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. 4 ) THE DEFINITION OF ROYALTY AS CLARIFIED WILL BE APP L ICAB L E TO THE DEFINITION OF ROYALTY AS PER DTAA ALSO. THIS IS BECAUSE IT IS CLEAR L Y EXPLAINED BY THE LEGIS LATURE THAT THIS IS NOT SOMETHING THAT IS ADDED TO THE MEANING O F ROYALTY . THE AMENDMENT IS MADE TO CLARIFY T HE SECTION MORE EXPLICITLY AND WHAT IS INCLUDED WAS ALWAYS THERE. THERE IS NO JUS TIFICATION ON THE COUNT THAT THERE IS NO HUMAN INTERVENTION AT ANY POINT OF TIME. WH IL E FRAMING THE DTAA, THE LEGISLATURE HAS ALWAYS THE SAME INTENT AS IT HAS NOW WHICH IS MADE MORE CLARIFICATORY IN VIEW OF THIS AMENDMENT. THUS, THE DEFINITION OF ROYALTY AS PER DTAA H A S INCLUDES AND SHALL BE DEEM E D TO HAVE ALWAYS INCLUDED THE CL ARIFICATORY MEANING ONLY. THE DTAA IS IN CONSONANCE WITH THE I .T ACT ONLY AND SO T HERE IS NO QUESTION O F THEM BEING INCONSONANCE. 5 ) THE VARIOUS COURT DECISIONS WHICH ARE QUOTED BY THE ASSESSEE FOR NON PAYMENT OF TDS O N L EASE LINE CHARGES HAVE NO SIG NIFICANCE NOW. THE TRANSMISSION OF EVERY KIND WHET HE R B Y SATE L LITE CABLE OR OPTIC F IBRE AND USED FOR UPLINKING / DOWN LIN KING OF SIGNAL / DATA COMES UNDER ROYALTY ON WHICH TDS WAS A LWAYS DED U CTIBLE. AND IT COVERS THE CASE WHERE THE S ERVICE PROVIDER PROVIDES THE SERVICE THROUGH THE EQU I PMENT (BE IT CAB L E, OPTIC F I BRE, SATE LLITE ) AN D SERVI CE RECIPIENT USES IT FOR THE PRICE. IT IS THE BUSINESS OF THE SERVICE PROVIDER TO PROVIDE THE TECHNICAL SERVICE OF THIS KIND. I T CANNOT BE SAID THAT AS THE SERVICE I S PRO VI DED BY THE PROVIDER TO MANY CUSTOMER S IT HAS CHANGED ITS NATURE FROM BEING TECHNIC AL IN NATURE. IN VIEW OF THE ABOVE FACTS THE PLEA TAKEN BY THE ASSESSEE REGARDING THE DTAA, REIMBURSEMENT OF EXPENSES, NO DIRECT PAYMENT TO QWEST COMMUNICATIONS INC AND CASE LAWS IN THEIR FAVOUR STANDS NEGATED. 5. THE ASSESSING OFFICER FURTHER OBSERVED THAT DURING THE YEAR THE ASSESSEE HAD MADE PAYMENT OF 20.47 LAKHS PERTAINING TO ASSESSMENT YEAR 2010 - 11 AND ALSO PAYMENT OF 10.74 LAKHS PERTAINING TO ASSESSMENT YEAR 2009 - 10. RELYING ON THE CIRCULAR NO.10/DV/2013 OF CBDT, DATED 16.12.2013, THE ASSESSING OFFICER HELD THAT THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT WOULD APPLY TO ALL PAYMENTS MADE DURING THE YEAR, IRRESPECTIVE OF THE YEAR IN WHICH SUCH TAX WAS DEDUCTIBLE. THEREFORE, SUM OF 20,47,432/ - PERTAINI NG TO ASSESSMENT YEAR 2010 - 11 AND SUM OF 10,74,870/ - PERTAINING TO ASSESSMENT YEAR 2009 - 10 WAS DISALLOWED UNDER SECTION 40(A)(I) OF THE ACT FOR DEFAULT OF PAYMENT OF TDS ON ROYALTY UNDER SECTION 195 OF THE ACT, RESULTING IN ADDITION OF 31,22,300/ - . 6. BEFORE THE CIT(A), ASSESSEE FILED WRITTEN SUBMISSIONS STRESSING THAT LEASE LINE CHARGES PAID TO THE PARENT COMPANY WAS NOT ROYALTY TAXABLE IN INDIA AND HENCE, NO TAX WAS REQUIRED TO BE DEDUCTED FROM THE SAME. THE DISALLOWANCE 6 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. MADE UNDER SECTION 40(A)(I) OF THE ACT WAS THUS, NOT WARRANTED. THE ASSESSEE ALSO FILED A NOTE ON LEASE LINE CHARGES I.E. SERVICES AVAILED BY IT, WHICH IS REPRODUCED UNDER PARA 8 AT PAGES 12 AND 13 OF THE APPELLATE ORDER. THE CIT(A) OBSERVED THAT IN CASE THE ASSESSEE DIRECTLY PA YS THE AMOUNT TO QWEST COMMUNICATIONS INC, USA, IT WOULD HAVE BEEN REQUIRED TO DEDUCT TDS AS THE INCOME WAS CHARGEABLE TO TAX IN THE HANDS OF RECIPIENT. HOWEVER, THE ONLY DISTINCTION WAS THAT PAYMENT IN THE CASE WAS ROUTED THROUGH ASSOCIATED ENTERPRISE ON TH E BASIS OF BACK TO BACK BILLS, WHICH WAS CLAIMED AS REIMBURSEMENT. REFERRING TO THE RATIO LAID DOWN BY THE MUMBAI BENCH OF TRIBUNAL IN C.U. INSPECTIONS (I) (P) LTD. VS. DCIT REPORTED IN 156 TTJ 690 (MUMBAI - TRIB.), THE CIT(A) OBSERVED THAT THE TRIBUNAL HAD HELD SUCH PAYMENT COULD NOT BE TREATED AS REIMBURSEMENT OF EXPENSES. THE RELEVANT PORTION OF THE ORDER OF TRIBUNAL IS REPRODUCED BY CIT(A) AT PAGES 14 TO 16 OF THE APPELLATE ORDER. THE CIT(A) VIDE PARA 10 HELD AS UNDER: - 10. THUS, FROM THE ABOVE ORDER OF HONBLE TRIBUNAL, IT IS CLEAR THAT ROUTING OF EXPENSES THROUGH AE AND CLAIMING THE SAME AS REIMBURSEMENT IS IMPERMISSIBLE AND IS JUST TO THWART THE FLOW OF LAW. SINCE, IN THIS CASE, THE INCOME IN THE HANDS OF QWEST COMMUNICATIONS INC WOULD HAVE BEEN TA XABLE HAD THE SAME BEEN PAID DIRECTLY THE APPELLANT CANNOT BE ALLOWED TO CIRCUMVENT THE LAW ON THE GROUND OF REIMBURSEMENT. 7. RELIANCE OF ASSESSEE ON THE DECISION OF MUMBAI BENCH OF TRIBUNAL IN WNS NORTH AMERICA INC. VS. ADIT IN ITA NO.821/MUM/2010 FOR ASSESSMENT YEAR 2006 - 07, DATED 14.12.2012 (2013) DTR (MUMBAI)(TRIB) 402 FOR THE PROPOSITION THAT ON SIMILAR ISSUE OF REIMBURSEMENT OF LEASE LINE CHARGES PAID TO ASSOCIATED ENTERPRISE, IT WAS HELD THAT THE SAME COULD NOT BE INCOME OF ASSOCIATED ENTERPRISE A S PAYMENT WAS MADE WITHOUT MARK UP, WAS HELD TO BE NOT CORRECT SINCE THE DECISION IN C.U. INSPECTIONS (I) (P) LTD. VS. DCIT (SUPRA) WAS DATED 06.03.2013 WHILE THE DECISION IN WNS NORTH AMERICA INC. VS. ADIT (SUPRA) WAS DATED 14.12.2012. THE CIT(A) HELD TH AT THE LATER DECISION OF MUMBAI BENCH OF 7 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. TRIBUNAL NEEDS TO BE FOLLOWED . AS REGARDS THE CLAIM OF ASSESSEE THAT DECISION OF MUMBAI BENCH OF TRIBUNAL HAS BEEN UPHELD BY THE HONBLE HIGH COURT, THE CIT(A) OBSERVED THAT THE HONBLE HIGH COURT HAD SIMPLY REFUSED TO ENTERTAIN QUESTION NOS.4 AND 5 PERTAINING TO THIS ISSUE ON ADMISSION STAGE ITSELF BEING QUESTION OF FACT. THEREFORE, HE UPHELD THE ORDER OF ASSESSING OFFICER AND CONFIRMED THE DISALLOWANCE OF 31,22,300/ - . 8. THE ASSESSEE IS IN APPEAL AGAINST THE ORDER OF CIT(A). 9. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE BEFORE US POINTED OUT THAT THE ISSUE RAISED IN THE PRESENT APPEAL IS WITH REGARD TO REIMBURSEMENT OF TELECOMMUNICATION CHARGES. HE POINTED OUT THAT QWEST COMMUNICATIONS INC R ENDERED COMMUNICATION SERVICES AND FOR THE INDIAN PART OF OPERATIONS, THE ASSESSEE REIMBURSED THE AMOUNT TO ITS ASSOCIATED ENTERPRISE I.E. T - 3, USA. HE STATED THAT THE CASE OF ASSESSING OFFICER WAS THAT ROUTING THE TRANSACTION WAS THROUGH ASSOCIATED ENTER PRISE, SO MAKING THE PAYMENT TO THIRD PARTY WAS THROUGH ASSOCIATED ENTERPRISE. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT T - 3, USA HAD ENTERED INTO A CONTRACT WITH QWEST COMMUNICATIONS INC AND THE PAYMENT FOR TELECOMMUNICATION CHARGES WERE AS PER THE CONTRACT. HE FURTHER STATED THAT T - 3, USA RAISES DEBIT NOTES ON THE ASSESSEE, WHO IN TURN, MAKES THE PAYMENT TO T - 3, USA. HE STRESSED THAT THERE WAS NO PROFIT ELEMENT IN THE SAID PAYMENT AND IT IS NOT DISPUTED THAT IT WAS PURE RE IMBURSEMENT OF EXPENSES. HE REFERRED TO THE ORDER OF ASSESSING OFFICER AND POINTED OUT THAT THE ASSESSING OFFICER STATED THAT IT WAS REIMBURSEMENT OF EXPENSES BUT HE CONCLUDED BY HOLDING IT TO BE ROUTING THROUGH ASSOCIATED ENTERPRISE. THE LEARNED AUTHORI ZED REPRESENTATIVE FOR THE ASSESSEE FURTHER 8 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. STATED THAT THE TPO HAD ACCEPTED INTERNATIONAL TRANSACTIONS , BY LOOKING AT THE TRANSACTIONS THAT IT WAS REIMBURSEMENT OF EXPENSES AND NO ADJUSTMENT WAS MADE BY THE TPO. IN THIS REGARD, HE STRESSED THAT WHERE THE TPOS ORDER IS BINDING ON ASSESSING OFFICER, THEN THE ASSESSING OFFICER CANNOT CHANGE THE CHARACTER OF TRANSACTION, AT BEST, THE ASSESSING OFFICER COULD HAVE DISALLOWED THE SAID EXPENSES UNDER SECTION 37(1) OF THE ACT. THE CLAIM OF ASSESSEE WAS THAT IN T HE ABSENCE OF ANY PROFIT ELEMENT, PROVISIONS OF SECTION 195 OF THE ACT WERE NOT ATTRACTED AND IN THE ABSENCE OF THE SAME, PROVISIONS OF SECTION 40(A)(I) OF THE ACT WERE NOT ATTRACTED. HE FURTHER STATED THAT THERE WAS A FACTUAL DISCREPANCY IN THE DISALLOWA NCE MADE BY ASSESSING OFFICER AT 31,22,300/ - , WHERE SUM OF 10,74,870/ - PERTAINED TO ASSESSMENT YEAR 2009 - 10 AND THE SAID AMOUNT WAS CLAIMED AS DEDUCTION IN THE PRECEDING YEAR AND WAS NOT CLAIMED AS DEDUCTION IN THE INSTANT ASSESSMENT YEAR. THE LEA RNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE THUS, POINTED OUT THAT AT BEST, THE DISALLOWANCE COULD BE MADE AT 20,47,432/ - . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ALSO POINTED OUT THAT SUM OF 10,74,870/ - HAS BEEN ALLOWED AS DEDUCTIO N IN THE PRECEDING YEAR. 10. HE FURTHER REFERRED TO THE SECOND ASPECT OF THE ORDER OF ASSESSING OFFICER, WHEREIN HE STATED THAT PAYMENT WAS IN THE NATURE OF ROYALTY AND ALSO IN THE NATURE OF FEES FOR TECHNICAL SERVICES (FTS), BECAUSE OF AMENDMENT TO SECTION 9(1)(V) OF THE ACT. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE TP STUDY REPORT AT PAGE 55 ONWARDS AND POINTED OUT THAT THE SAID TRANSACTION OF REIMBURSEMENT OF EXPENSES WAS PART OF THE SAID REPORT AND THE TPO HA D AL SO IN ITS ORDER REFERRED TO THE REIMBURSEMENT OF LEASE LINE CHARGES AS AN INTERNATIONAL TRANSACTION . THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE 9 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. ASSESSEE FURTHER REFERRED TO THE INVOICE RAISED BY QWEST COMMUNICATIONS INC O N T - 3 ENERGY SERVICES FOR ENTIR E T - 3 GROUP, OF WHICH INDIA WAS ONE PART. REFERENCE WAS MADE TO PAGE 23 OF PAPER BOOK IN THIS REGARD. HE FURTHER POINTED OUT THAT T - 3, USA IN THE FIRST INSTANCE MAKES THE PAYMENT AND THEN THE AMOUNT IS COLLECTED FROM THE ASSESSEE. THE ASSESSEE REFERRED TO CHART FILED AS ANNEXURE - 1 TO MAKE ITS CLAIM. FURTHER, OUR ATTENTION WAS DRAWN TO INVOICE OF T - 3, USA ON THE ASSESSEE, WHICH IS PLACED AT PAGE 25 OF THE PAPER BOOK AND ALSO AT PAGE 26 OF THE PAPER BOOK, WHERE THE ASSESSEE HAD TRANSFERRED MONEY TO T - 3 TH ROUGH BANK DRAFT. HE STRESSED THAT WHERE LEASE LINE S W ERE PROVIDED TO DIFFERENT GLOBAL ENTITIES WORLDWIDE AND THE ASSESSEE WAS ONE PART OF IT, THEN IT COULD NOT BE HELD THAT THE ASSESSEE HAD MADE THE PAYMENT FOR LEASE LINE CHARGES TO QWEST COMMUNICATIONS INC. REFERRING TO THE DECISION OF MUMBAI BENCH OF TRIBUNAL IN WNS NORTH AMERICA INC. VS. ADIT (SUPRA) , IT WAS POINTED OUT THAT THERE WERE TWO ISSUES; ONE WAS REIMBURSEMENT OF EXPENSES, WHERE THERE WAS NO INCOME ELEMENT , HENCE NO SECTION 195 OF THE ACT AND NO 40(A)(I) DISALLOWANCE AND THE SECOND ISSUE WAS THE PAYMENT MADE ON ACCOUNT OF REIMBURSEMENT OF EXPENSES INCURRED ON TWO TRAINEES, WHICH WERE ARRANGED FOR ASSESSEE. THE FIRST ISSUE WAS IN RESPECT OF NON APPLICATION OF SECTIONS 195 AND 40(A)(I) OF THE A CT. FURTHER, HE PLACED RELIANCE ON THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN GE INDIA TECHNOLOGY CEN (P.) LTD. (2010) 327 ITR 456 (SC) AND DIT VS. A.P. MOLLER MAERSK A S (2017) 392 ITR 186 (SC) . 11. COMING TO THE NEXT PROPOSITION OF ASSESSING OFFICER THAT THE PAYMENT MADE BY ASSESSEE WAS EITHER ROYALTY OR FTS. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN THIS REGARD POINTED OUT THAT IN CASE OF PAYMENT MADE TO THIRD PARTY, THE QUESTIO N IS WHETHER ROYALTY OR FTS. HE 10 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. REFERRED TO THE AMENDMENT TO SECTION 9(1)(VI) OF THE ACT BY THE FINANCE ACT, 2012 AND POINTED OUT THAT THE YEAR UNDER APPEAL IS ASSESSMENT YEAR 2010 - 11. HE STRESSED THAT THE ASSESSEE HAD NO PRE MONITION THAT RETROSPECTI VE EFFECT WOULD BE GIVEN BY THE FINANCE ACT, 2012. EVEN OTHERWISE, HE POINTED OUT THAT IT WOULD NOT BE OPEN TO PERFORM IMPOSSIBILITY OR TO ENVISAGE THAT THE AMENDMENT WOULD TAKE PLACE. HE FURTHER POINTED OUT THAT TPO OR THE ASSESSING OFFICER AND CIT(A) D O NOT DISPUTE THE REIMBURSEMENT OF EXPENSES. REFERENCE WAS MADE TO THE DECISION OF KOLKATA BENCH OF TRIBUNAL IN ERSHISANYE CONSTRUCTION GROUP INDIA PVT. LTD. VS. DCIT IN ITA NO.756/KOL/2015, RELATING TO ASSESSMENT YEAR 2010 - 11, ORDER DATED 12.04.2017 , WHE REIN IT HAS BEEN HELD THAT IN THE CASE OF PAYMENT FOR ONSHORE SERVICES, THEN PAYMENT HAS TO BE MADE AFTER WITHHOLDING TAX. RELIANCE WAS PLACED ON THE RATIO LAID DOWN BY THE HON'BLE SUPREME COURT IN GE INDIA TECHNOLOGY CEN (P.) LTD. VS. CIT ( SUPRA ) AND DIT VS. A.P. MOLLER MAERSK A S (SUPRA) FOR THE PROPOSITION THAT IF THERE WAS NO PROFIT ELEMENT IN THE PAYMENTS, THEN THERE IS NO NEED FOR ANY WITHHOLDING TAX. HE STRESSED THAT IT C ANNOT BE SAID THAT FOR EACH PAYMENT, THERE HAS TO BE WITHHOLDING OF TAX. HE STRESSED THAT WHERE THE TPO HAD ACCEPTED REIMBURSEMENT OF EXPENSES TO BE WITHIN ARM'S LENGTH AND WHERE THE BOOKS OF ACCOUNT OF ASSESSEE HAVE NOT BEEN REJECTED, SO THE TRANSACTION CONTAINED IN, NEEDS TO BE A CCEPTED. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE ALSO STRESSED THAT BETWEEN QWEST COMMUNICATIONS INC AND T - 3, USA, THERE WAS A PRIVITY OF CONTRACT FOR GLOBAL UTILIZATION OF FACILITIES ; IF INDIVIDUALLY AGREEMENTS WERE ENTERED WITH EACH OF TH E ENTITY OF T - 3, USA, THEN COST WOULD BE AFFECTED. HE FURTHER STRESSED THAT T - 3, USA HAD NO PERMANENT ESTABLISHMENT (PE) IN INDIA AND HAD ENTERED INTO AN AGREEMENT WITH QWEST COMMUNICATIONS INC OUTSIDE INDIA TO PROVIDE LEASE LINES WORLDWIDE TO ITS ENTITIE S. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE 11 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. ASSESSEE STRONGLY RELIED ON THE DECISION OF THE HONBLE HIGH COURT OF DELHI IN DIT VS. (1) NEW SKIES SATELLITE BV (2) SHIN SATELLITE PUBLIC CO. LTD. (SUPRA) AND STATED THAT IN ANY CASE IN THE ABSENCE OF CHA NGE IN TERM ROYALTY IN INDO - USA DTAA, THE AMENDED PROVISIONS DEFINING ROYALTY UNDER THE ACT WERE NOT APPLICABLE. 12. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, STRESSED THAT CASE OF ASSESSEE IS THAT THE PAYMENT HAS BEEN MADE ON COST TO COST BASIS WITHOUT ANY MARK UP AND THE SAME WAS ROUTED THROUGH ASSOCIATED ENTERPRISE. HE STRESSED THAT IF THE AMOUNT WAS PAID DIRECTLY TO QWEST COMMUNICATIONS INC, THEN TDS PROVISIONS WOULD BE ATTRACTED. THE LEARNED DEPARTMENTAL REPRESEN TATIVE FOR THE REVENUE PLACED RELIANCE ON THE ORDERS OF AUTHORITIES BELOW. IN RESPECT OF REIMBURSEMENT OF EXPENSES, THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE STRESSED THAT WHERE ASSOCIATED ENTERPRISE HAD NOT PROVIDED ANY SERVICES THEN, IT CO ULD NOT BE A CASE OF REIMBURSEMENT OF EXPENSES. THE SERVICES WERE PROVIDED BY QWEST COMMUNICATIONS INC AND THE PAYMENT TO THE SAID THIRD PARTY WAS MADE THROUGH ASSOCIATED ENTERPRISE. IN THIS REGARD, HE SUBMITTED THAT THE RATIO LAID DOWN BY MUMBAI BENCH O F TRIBUNAL IN C.U. INSPECTIONS (I) (P) LTD. VS. DCIT (SUPRA) AND KOLKATA BENCH OF TRIBUNAL IN ERSHISANYE CONSTRUCTION GROUP INDIA PVT. LTD. VS. DCIT (SUPRA) W ERE SQUARELY APPLICABLE. HE ALSO DISTINGUISHED THE CASE LAWS ON WHICH THE LEARNED AUTHORIZED REPR ESENTATIVE FOR THE ASSESSEE HA D RELIED ON. IN RESPECT OF TREATMENT OF SAID EXPENSES AS ROYALTY , THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT IT HAD TWO FACETS I.E. PROCESS AND EQUIPMENT. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE POINTED OUT THAT SOME DECISIONS TALKS OF PROCESS ROYALTY, WHEREAS MUMBAI BENCH 12 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. OF TRIBUNAL IN VIACOM 18 MEDIA (P.) LTD. VS. ACIT (2014) 44 TAXMANN.COM 1 (MUMBAI - TRIB.) AND BANGALORE BENCH OF TRIBUNAL IN V ODAFONE SOUTH LTD. VS. DDIT (IT) (2015) 53 TAXMANN.COM 441 (BANGALORE TRIB.) , FOLLOWED DECISION OF HONBLE HIGH COURT OF MADRAS IN VERIZON COMMUNICATION S SINGAPORE PTE. LTD. VS. ITO (2014) 361 ITR 575 (MAD) . HE REFERRED TO THE DEFINITION OF ROYALTY UN DER ARTICLE 12(3) OF DTAA BETWEEN INDIA AND USA, WHICH PROVIDED RIGHT TO USE OR USE ITSELF. HE STRESSED THAT IN INDIAN TAX LAWS, THE WORD USE WAS MISSING. 13. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE IN REJOINDER STRESSED THAT NO PAYMENT WAS MADE TO QWEST COMMUNICATIONS INC AND THE PAYMENT WAS MADE TO ASSOCIATED ENTERPRISE, WHO WAS NOT THE HOLDER OF INTELLECTUAL PROPERTY, FOR WHICH THE PAYMENT WAS BEING MADE TO HIM . THE INVOICE WAS RAISED BY QWEST COMMUNICATIONS INC ON T - 3 USA ON USAGE BA SIS AND IT WA S NOT CASE OF TAX PLANNING WHERE CONSTANT AMOUNT WAS BEING PAID. HE THEN, REFERRED TO THE DECISION OF DELHI BENCH OF TRIBUNAL IN M/S. GEO CONNECT LTD. VS. DCIT IN ITA NOS.1927/DEL/2008 & 127/DEL/2011 RELATING TO ASSESSMENT YEARS 2002 - 03 & 200 3 - 04 AND IN DCIT VS. M/S. GEO CONNECT LTD. IN ITA NOS.2088/DEL/2008 & 5851/DEL/2011, RELATING TO ASSESSMENT YEAR 2002 - 03, VIDE ORDER DATED 17.01.2017 AND STRESSED THAT WHERE STAND ARD FACILITIES WE RE BEING PROVIDED FOR TRANSMISSION , IT WAS NEITHER ROYALTY NOR FTS. THERE IS NO SECRET PROCESS FOR SUCH TRANSMISSION, WHEREAS THE DEFINITION OF ROYALTY TALKS OF SECRET PROCESS. IN RESPECT OF RELIANCE OF LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE RATIO LAID DOWN BY MUMBAI BENCH OF TRIBUNAL IN VIACOM 18 MEDIA (P.) LTD. VS. ADIT (IT) (SUPRA) AND HONBLE HIGH COURT OF MADRAS IN VERIZON COMMUNICATIONS SINGAPORE PTE. LTD. VS. ITO , THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE POINTED OUT THAT IT WAS CONTRARY TO THE DECISION 13 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. OF THE HONBLE HIGH COURT OF DELHI IN ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. VS. DIT (2011) 332 ITR 340 (DEL) , HENCE BENEFICIAL VIEW BE TAKEN . 14. WE HAVE HEARD THE RIVAL CONTENTIONS AND PERUSED THE RECORD. THE ASSESSEE IS ENGAGED IN THE MANUFACTURING OF INDUSTRIAL VALVES & VALVE COMPONENTS WHICH WE RE MAINLY USED IN OIL FIELD SERVICE INDUSTRY. THE ASSESSEE DURING THE YEAR HAD CLAIMED EXPENDITURE OF 20,47,432/ - BEING THE AMOUNT PAID ON ACCOUNT OF REIMBURSEMENT OF EXPENSES TO ITS ASSOCIATED ENTERPRISE. THE PARENT C OMPANY OF ASSESSEE T - 3, USA HAD ENTERED INTO AN AGREEMENT WITH SERVICE PROVIDER QWEST COMMUNICATIONS INC FOR PROVIDING OF BANDWIDTH SERVICES AGAINST STATED CONSIDERATION. THE SAID AGREEMENT IS CONTRACT FOR PROVIDING BANDWIDTH SERVICES BETWEEN PARENT COMPANY AND QWEST COMMUNICATIONS INC AND THE PARENT COMPANY IN TURN, PROVIDED BANDWIDTH SERVICES TO ITS SUBSIDIARIES AGAINST REIMBURSEMENT OF LEASE LINE CHARGES. THE ASSESSEE AVAILED LEASE LINE SERVICES FROM ITS PARENT COMPANY AND REIMBURSED THE LEASE LIN E CHARGES TO IT. THE CHARGE WAS ON COST TO COST BASIS AND THE ASSESSEE IN VIEW OF IT REIMBURSING THE SAID COST WHICH DID NOT INVOLVE ANY PROFIT ELEMENT DID NOT DEDUCT ANY TAX FROM THE SAID PAYMENT. THE CASE OF REVENUE ON THE OTHER HAND, IS THAT THE ASSES SEE WAS LIABLE TO DEDUCT TAX AT SOURCE SINCE THE AMOUNT WAS HIT BY SECTION 195 OF THE ACT AND ALSO BECAUSE AFTER THE AMENDMENT IN DEFINITION OF ROYALTY UNDER SECTION 9 OF THE ACT WITH RETROSPECTIVE EFFECT BY THE FINANCE ACT, 2012, THE PAYMENTS WERE EXPLI CITLY COVERED UNDER THE TERM ROYALTY. SINCE THE ASSESSEE HAD FAILED TO DEDUCT TAX AT SOURCE, THE AMOUNT WAS NOT TO BE ALLOWED AS EXPENDITURE IN VIEW OF THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT. THE ASSESSING OFFICER DISALLOWED 20,47,432/ - WH ICH WAS CLAIMED BY THE ASSESSEE AS REIMBURSED DURING THE YEAR. THE ASSESSING OFFICER ALSO DISALLOWED 14 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. SUM OF 10,74,870/ - RELATING TO THE PREVIOUS YEAR WHICH WAS PAID BY THE ASSESSEE DURING THE YEAR. THE CASE OF ASSESSEE IN THIS REGARD WAS THAT THE SAID AMOUNT WAS DEBITED IN THE PRECEDING YEAR AND WAS ALLOWED IN THE HANDS OF ASSESSEE IN THE PRECEDING YEAR. HOWEVER, THE ASSESSING OFFICER HELD THAT SINCE THE PAYMENT WAS MADE DURING INSTANT ASSESSMENT YEAR AND WITHOUT DEDUCTION OF TAX AT SOURCE, THEN THE SA ME MERITS TO BE DISALLOWED UNDER SECTION 40(A)(I) OF THE ACT. THE ASSESSEE IS IN APPEAL AGAINST CUMULATIVE DISALLOWANCE OF 31,22,300/ - MADE UNDER SECTION 40(A)(I) OF THE ACT. 15. THE FIRST ASPECT WHICH NEEDS TO BE SEEN IS THE FACTUAL ASPECT, WHEREIN IN PURSUANCE TO THE CONTRACT BETWEEN QWEST COMMUNICATIONS INC AND T - 3, USA, INVOICES WERE RAISED BY QWEST COMMUNICATIONS ON T - 3, USA, COPIES OF WHICH ARE PLACED AT PAGE 13 ONWARDS OF PAPER BOOK. THE SAID INVOICES TALKED ABOUT LEASE LINE USAGE BY DIFFERENT ENTITIES OF T - 3 GROUP AT OKLAHOMA CITY, CANADA, INDIA, AZURA , ETC . CONSEQUENT THERETO, T - 3 ENERGY SERVICES INDIA LTD. RECEIVED INVOICE FROM T - 3 USA AND THE AMOUNT WAS REMITTED THROUGH BANKING CHANNEL TO T - 3, USA. THE FIRST SET OF COMMUNICATIONS IN THI S REGARD ARE PLACED AT PAGES 13 TO 18 OF THE PAPER BOOK. THEREAFTER, THE DOCUMENTS ARE PLACED AT PAGES 19 TO 54 OF THE PAPER BOOK. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE DURING THE COURSE OF HEARING HAS ALSO FILED TABULATED CHART AT ANNEX URE - 1, WHEREIN THE AMOUNTS PAYABLE ON ACCOUNT OF LEASE LINE CHARGES MONTHWISE ARE PROVIDED. INVOICES ARE RAISED BY QWEST COMMUNICATIONS INC, USA ON 7 TH OF EACH MONTH, COPIES OF WHICH ARE PLACED IN PAPER BOOK. THEREAFTER, THE DATES OF PAYMENTS MADE BY T - 3 , USA ARE TABULATED WHICH START FROM 27.04.2009 FOR THE MONTH OF APRIL, 2009 AND THEREAFTER. CONSEQUENTLY, INVOICES HAVE BEEN RAISED UPON THE ASSESSEE I.E. ON THE DATE ON WHICH PAYMENT HAS BEEN MADE BY T - 3, 15 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. USA . HOWEVER, AS AGAINST THE SAME, THE ASSESSEE HAS MADE PAYMENT ON 28.01.2010. THE ASSESSEE IN ITS TRANSFER PRICING REPORT HAD DECLARED THE SAID TRANSACTION WITH ITS ASSOCIATED ENTERPRISE I.E. T - 3, USA AS REIMBURSEMENT OF LEASE LINE CHARGES PERTAINING TO CURRENT YEAR OF 20,47,432/ - AND OF PRECEDING YEAR OF 10,74,870/ - . THE RELEVANT EXTRACT OF TRANSFER PRICING REPORT IS PLACED AT PAGES 55 AND 56 OF THE PAPER BOOK. THE AUDITOR IN ANNEXURE V TO FORM NO.3CEB AUDIT REPORT HAD SIMILARLY DECLARED PARTICULARS IN RESPECT OF TRANSACTIONS IN PROVIDING SE RVICES TO ITS ASSOCIATED ENTERPRISE I.E. ON ACCOUNT OF REIMBURSEMENT OF LEASE LINE CHARGES PERTAINING TO THE CURRENT YEAR AND ALSO TO THE LAST YEAR. THE SAID ANNEXURE IS PLACED AT PAGE 57 OF PAPER BOOK. THE TPO HAS PASSED THE ORDER UNDER SECTION 92CA(3) OF THE ACT, COPY OF WHICH IS PLACED AT PAGES 58 AND 59 OF THE PAPER BOOK. THE PERUSAL OF TABULATED DETAILS OF INTERNATIONAL TRANSACTIONS BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISE, WHEREIN THE SAID TRANSACTION WA S CLEARLY MENTIONED AS THAT OF REIMBURS EMENT OF LEASE LINE PERTAINING TO CURRENT YEAR AND LAST YEAR WITH T - 3, USA. THE TPO AFTER CONSIDERING THE FACTS AND CIRCUMSTANCES OF THE CASE AND DOCUMENT FURNISHED BY THE ASSESSEE HAS ACCEPTED THE VALUE OF INTERNATIONAL TRANSACTIONS AT ARM'S LENGTH AND H AS NOT PROPOSED ANY ADJUSTMENT TO THE SAME. IN OTHER WORDS, THE FIRST ASPECT OF IT BEING REIMBURSEMENT OF EXPENSES AS CLAIMED BY THE ASSESSEE HAS NOT BEEN DISTURBED BY THE TPO AND NO ADJUSTMENT WAS PROPOSED ON THE AFORESAID BY THE TPO. THE PLEA OF ASSESS EE IN THIS REGARD IS THAT THERE WAS CONTRACT OF PROVIDING BANDWIDTH WHICH WAS BETWEEN T - 3, USA AND SERVICE PROVIDER QWEST COMMUNICATION INC, FOR WHICH AN INDEPENDENT AGREEMENT WAS ENTERED INTO BETWEEN THE TWO PARTIES. THE SAID CONTRACT WAS FOR PROVIDING B ANDWIDTH FOR GLOBAL BUSINESS OF T - 3, USA AND WAS NOT RESTRICTED TO THE BUSINESS OF ASSESSEE. THE TRANSACTION BETWEEN THE PARTIES WAS FOR COMMERCIAL 16 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. TRANSACTIONS, UNDER WHICH T - 3, USA CONTRACTED FOR PROVISION OF SERVICES BY QWEST COMMUNICATIONS INC ON WORL DWIDE BASIS AND HENCE, NEGOTIATIONS OF PRICE TO BE CHARGED FOR PROVIDING LEASE LINES TO DIFFERENT ENTITIES. THE UNDERSTANDING WAS BETWEEN T - 3, USA AND QWEST COMMUNICATIONS INC AND THE ASSESSEE WAS NOT PART OF SAID UNDERSTANDING THOUGH IT BENEFITED FROM TH E UNDERSTANDING , WHEREIN LEASE LINES WERE PROVIDED FOR USE BY THE ASSESSEE ON BANDWIDTH WHICH WAS MADE AVAILABLE TO ENTITIES OF T - 3, USA WORLDWIDE AND THE ASSESSEE WAS ONE SUCH ENTITY USING THE SAID SERVICES AND HENCE, BENEFITING FROM REDUCED RATES OF CHAR GES. THUS, THE CLAIM OF ASSESSEE OF REIMBURSEMENT OF EXPENSES TO T - 3, USA SINCE IT WAS UNDER CONTRACT WITH QWEST COMMUNICATIONS INC , WHICH WAS THE SERVICE PROVIDER. IT IS NOBODYS CASE THAT T - 3, USA WAS THE PERSON PROVIDING SERVICES. HOWEVER, BOTH THE AUTHORITIES AND EVEN LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE BEFORE US HAS URGED THAT THE ASSESSEE HAD MADE PAYMENTS TO QW EST COMMUNICATIONS INC THROUGH ITS ASSOCIATED ENTERPRISE , S INCE THE AMOUNT WAS REIMBURSED ON COST TO COST BASIS . ON THE OTHER HAND , THE ASSESSEE PLEADS THAT SINCE IT HAD REIMBURSED THE EXPENSES ON COST TO COST BASIS AND THERE WAS NO PROFIT ELEMENT OF PAYME NTS BEING MADE TO ASSOCIATED ENTERPRISE, THERE WAS NO QUESTION OF WITHHOLDING OF ANY TAX FROM SUCH PAYMENTS. THE ISSUE WHICH ARISES BEFORE US IS WHETHER SUCH PAYMENTS MADE BY THE ASSESSEE AGAINST PROVISION OF LEASE LINE CHARGES ARE LIABLE FOR WITHHOLDING OF TAX OR NOT. 16. THE SECOND CONNECTED ISSUE IS WHETHER SUCH PAYMENTS MADE TO ASSOCIATED ENTERPRISE FOR THE LEASE LINE CHARGES ARE ROYALTY OR FTS AND HENCE, LIABLE TO TAX DEDUCTION AT SOURCE WITHIN THE MEANING OF DTAA WITH USA READ WITH PROVISIONS O F THE INCOME - TAX ACT. 17 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. 17. THE HONBLE HIGH COURT OF DELHI IN DIT VS. (1) NEW SKIES SATELLITE BV (2) SHIN SATELLITE PUBLIC CO. LTD. (2016) 382 ITR 114 (DEL) HAS ELABORATED ON THE GENERAL PRINCIPLES RELATING TO INTERNATIONAL TRANSACTIONS OF DTAA VIS - - VIS ROYALTY AND ALSO THE AMENDMENT IN THE INCOME - TAX ACT WIDENING THE SCOPE OF ROYALTY. IN THE FACTS BEFORE THE HONBLE HIGH COURT, THE ASSESSEE WAS A COMPANY INCORPORATED IN THAILAND, WHICH WAS ENGAGED IN THE BUSINESS OF PROVIDING DIGITAL BROADCASTING SERVICES AS WELL AS CONSULTANCY SERVICES TO ITS CUSTOMERS, WHO CONSIST OF BOTH RESIDENTS AND NON - RESIDENTS. THE SERVICES WERE PROVIDED THR OUGH SATELLITES AND THE ASSESSEE HAD DERIVED INCOME FROM LEASE OF TRANSPONDERS OF ITS SATELLITES. THE ASSESSEE THEREIN WAS THE SERVICE PROVIDER AND THE RECEIPTS WERE SOUGHT TO BE TAXED UNDER SECTION 9(1)(VI) OF THE ACT. THE HONBLE HIGH COURT CONSIDERED THE PRE - AMENDED AND POST - AMENDED PROVISIONS OF THE SAID SECTION AND OBSERVED THAT THOUGH THE REVENUE AUTHORITIES CONSIDERED THE INCOME FROM DATA TRANSMISSION SERVICES AS TAXABLE AS ROYALTY UNDER SECTION 9(1)(VI) OF THE ACT ; H OWEVER, THE TRIBUNAL ON THE BAS IS OF RATIO LAID DOWN IN ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. VS. DIT (SUPRA) DID NOT. T HE HONBLE HIGH COURT IN THAT CASE HAD HELD THAT RECEIPTS EARNED FROM PROVIDING DATA TRANSMISSION SERVICES THROUGH PROVISION OF SPACE SEGMENT CAPACITY ON SATELLI TES DID NOT CONSTITUTE ROYALTY WITHIN THE MEANING OF SECTION 9(1)(VI) OF THE ACT. IT WAS FURTHER HELD THAT WHILE PROVIDING TRANSMISSION SERVICES TO ITS CUSTOMERS, CONTROL OF SATELLITE ALWAYS REMAINED WITH SATELLITE OPERATOR AND THE CUSTOMERS WERE ONLY GIV EN ACCESS TO TRANSPONDER CAPACITY AND HENCE, THE PAYMENT COULD NOT BE TERMED AS ROYALTY FOR THE USE OF A PROCESS OR EQUIPMENT. THE SAID DECISION WAS IN THE CONTEXT OF SECTION 9(1)(VI) OF THE ACT AND THE PROVISIONS OF DTAA WERE NOT CONSIDERED THEREIN. THE HONBLE HIGH COURT IN THE CASE OF NEW SKIES THEN TOOK NOTE OF THE AMENDMENT BY THE FINANCE ACT, 2012, WHICH INSERTED EXPLANATIONS 4, 18 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. 5 AND 6 UNDER SECTION 9(1)(VI) OF THE ACT. THE REVENUE BEFORE THE HONBLE HIGH COURT CLAIMED THAT THE SAID EXPLANATIONS WERE CLARIFICATORY AND IT HAD SETTLED THE MATTER I.E. REASONING IN ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. VS. DIT (SUPRA) COULD NOT STAND BECAUSE THE BASIS OF THAT RULING HAD BEEN UNDONE. THE SECOND PROPOSITION WHICH WAS RAISED WAS WHETHER DTAA APPLIED AND RESULTED RENDERING ACTIVITY NON TAXABLE WAS ALSO ARGUED BY THE REVENUE WOULD NOT ARISE, SINCE THE DTAA PREDATED THE AMENDMENT. T HE COUNSEL FOR THE ASSESSEE THEREIN HOWEVER, CONTENDED THAT THE MATTER WAS NO LONGER R ES INTEGRA . IT WAS ARGUED THAT THE REVENUE COULD NOT CONTEND THAT ANY CHANGE IN THE SUBSTANTIVE LAW WOULD AUTOMATICALLY RESULT ANY LIKE CHANGE IN RESPECT OF TAXABILITY O F TRANSACTION OR SERVICE WHICH WAS OTHERWISE TAXED IN TERMS OF DTAA, OR WHICH WAS SUBJECT TO LOWER RATE OF TAX MANDATED BY A TREATY. RELIANCE IN THIS REGARD WAS PLACED ON THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. SEIMENS AKTIONGESELL SCHAFT (2009) 310 ITR 320 ( BOM ) AND THE HONBLE HIGH COURT OF ANDHRA PRADESH IN SANOFI PASTEUR HOLDING SA VS. DEPT. OF REVENUE AND OTHERS (2013) 354 ITR 316 (AP). RELIANCE WAS ALSO PLACED ON THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF DELHI IN DIT VS . NOKIA NETWORKS OY (2013) 358 ITR 259 (DEL), WHEREIN THE CONTEXT WAS THE EFFICACY OF INTERPRETATION GIVEN TO STATUTE I.E. EXPLANATION INSERTED TO SECTION 9(1)(VI) OF THE ACT VIS - - VIS DTAA. THE HONBLE HIGH COURT HAD REJECTED THAT ANY AMENDMENT COULD CHA NGE THE SITUATION AND RENDER THE SERVICE OR ACTIVITY TAXABLE. THE HONBLE HIGH COURT THEREAFTER TOOK NOTE OF VARIOUS DECISIONS ON THE ISSUE INCLUDING TH AT OF HONBLE HIGH COURT OF MADRAS IN VERIZON COMMUNICATIONS SINGAPORE PTE. LTD. VS. ITO (SUPRA) AND DI SCLINED TO CONCLUSIVELY DETERMINE OR RECORD A FINDING AS TO WHETHER AMENDMENT TO SECTION 9(1)(VI) OF THE ACT INDEED WAS CLARIFICATORY AS THE REVENUE SUGGESTED OR PROSPECTIVE, GIVE WHAT ITS NATURE MAY TRULY BE. THE HONBLE HIGH COURT FURTHER 19 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. COMMENTED THAT THE ISSUE OF TAXABILITY OF INCOME OF ASSESSEE MAY BE RESOLVED WITHOUT REDRESSAL OF ABOVE QUESTION PURELY BECAUSE THE ASSESSEE DID NOT PRESS THE SAID LINE OF ARGUMENT AND HAD INSTEAD STATED THAT ULTIMATE TAXABILITY OF INCOME SHALL REST ON THE INTERPRETATION OF TERMS OF DTAA. THE HONBLE HIGH COURT VIDE PARA 39 ONWARDS THEN TOOK NOTE OF ARTICLE 12 OF THE DTAA, UNDER WHICH THE STATE OF RESIDENCE HAD THE PRIMARY RIGHT TO TAX ROYALTY ; THE SOURCE STATE SHALL CONCURRENTLY HAVE THE RIGHT TO T AX THE INCOME, TO THE EXTENT OF 15% OF TOTAL INCOME. THE HONBLE HIGH COURT ALSO OBSERVED THAT BEFORE THE AMENDMENT BROUGHT ABOUT BY THE FINANCE ACT, 2012, THE DEFINITION OF ROYALTY UNDER THE ACT AND DTAA WERE TREATED AS PAR I MATERIA . AGAIN REFERENCE WA S MADE TO THE RATIO LAID DOWN IN ASIA SATELLITE TELECOMMUNICATIONS CO. LTD. VS. DIT (SUPRA) AND OBSERVED THAT THE QUESTION WAS WHETHER IN AN ATTEMPT TO INTERPRET THE TWO DEFINITIONS UNIFORMLY I.E. DOMESTIC DEFINITION AND THE TREATY DEFINITION, THE AMENDMEN TS WILL HAVE TO BE READ INTO THE TREATY AS WELL. THE HONBLE HIGH COURT HELD AS UNDER: - 41. THIS COURT IS OF THE VIEW THAT NO AMENDMENT TO THE ACT, WHETHER RETROSPECTIVE OR PROSPECTIVE CAN BE READ IN A MANNER SO AS TO EXTEND IN OPERATION TO THE TERMS OF AN INTERNATIONAL TREATY. IN OTHER WORDS, A CLARIFICATORY OR DECLARATORY AMENDMENT, MUCH LESS ONE WHICH MAY SEEK TO OVERCOME AN UNWELCOME JUDICIAL INTERPRETATION OF LAW, CANNOT BE ALLOWED TO HAVE THE SAME RETROACTIVE EFFECT ON AN INTERNATIONAL INSTRUMENT EF FECTED BETWEEN TWO SOVEREIGN STATES PRIOR TO SUCH AMENDMENT. IN THE CONTEXT OF INTERNATIONAL LAW, WHILE NOT EVERY ATTEMPT TO SUBVERT THE OBLIGATIONS UNDER THE TREATY IS A BREACH, IT IS NEVERTHELESS A FAILURE TO GIVE EFFECT TO THE INTENDED TRAJECTORY OF THE TREATY. EMPLOYING INTERPRETIVE AMENDMENTS IN DOMESTIC LAW AS A MEANS TO IMPLY CONTOURED EFFECTS IN THE ENFORCEMENT OF TREATIES IS ONE SUCH ATTEMPT, WHICH FALLS JUST SHORT OF A BREACH, BUT IS NEVERTHELESS, IN THE OPINION OF THIS COURT, INDEFENSIBLE. 18. REFERRING TO THE DECISION OF APEX COURT IN UNION OF INDIA VS. AZADI BACHAO ANDOLAN & ARN. (2003) 263 ITR 706 (SC) AND THE VIENNA CONVENTION ON THE LAW OF TREATIES, 1969, THE HONBLE HIGH COURT HELD THE AMENDMENTS TO A TREATY MUST BE BROUGHT ABOUT BY AN AGR EEMENT BETWEEN THE PARTIES. UNILATERAL AMENDMENTS TO TREATIES ARE THEREFORE, CATEGORICALLY PROHIBITED. THE HONBLE HIGH COURT HELD 20 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. THAT THE WORDS IN THE TREATY WOULD BE CONTROLLED BY DEFINITION OF THOSE WORDS IN THE TREATY, IF THEY ARE SO PROVIDED. IN CASE THEY ARE NOT PROVIDED, THEN THE DOMESTIC LAW SHALL MANDATORILY SUPPLY THE IMPORT TO BE GIVEN TO THE WORD IN QUESTION. THE HONBLE HIGH COURT CONCLUDED BY HOLDING THAT THE AMENDMENTS TO DOMESTIC LAW CANNOT BE READ INTO TREATY PROVISIONS WITHOUT AME NDING THE TREATY ITSELF. IT WAS THUS, HELD THAT MERE AMENDMENT TO SECTION 9(1)(VI) OF THE ACT COULD NOT RESULT IN A CHANGE AND IT WAS IMPERATIVE THAT SUCH AMENDMENT WAS BROUGHT ABOUT IN THE AGREEMENT AS WELL AND HENCE, THE AMENDMENTS WERE NOT APPLICABLE T O DTAA. THE FINDING OF THE HONBLE HIGH COURT WAS THUS, AS UNDER: - 60. CONSEQUENTLY, SINCE WE HAVE HELD THAT THE FINANCE ACT, 2012 WILL NOT AFFECT ARTICLE 12 OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT, IT WOULD FOLLOW THAT THE FIRST DETERMINATIVE INTERPR ETATION GIVEN TO THE WORD 'ROYALTY' IN ASIA SATELLITE, WHEN THE DEFINITIONS WERE IN FACT PARI MATERIA (IN THE ABSENCE OF ANY CONTOURING EXPLANATIONS), WILL CONTINUE TO HOLD THE FIELD FOR THE PURPOSE OF ASSESSMENT YEARS PRECEDING THE FINANCE ACT, 2012 AND I N ALL CASES WHICH INVOLVE A DOUBLE TAXATION AVOIDANCE AGREEMENT, UNLESS THE SAID DOUBLE TAXATION AVOIDANCE AGREEMENT ARE AMENDED JOINTLY BY BOTH PARTIES TO INCORPORATE INCOME FROM DATA TRANSMISSION SERVICES AS PARTAKING OF THE NATURE OF ROYALTY, OR AMEND T HE DEFINITION IN A MANNER SO THAT SUCH INCOME AUTOMATICALLY BECOMES ROYALTY. IT IS REITERATED THAT THE COURT HAS NOT RETURNED A FINDING ON WHETHER THE AMENDMENT IS IN FACT RETROSPECTIVE AND APPLICABLE TO CASES PRECEDING THE FINANCE ACT OF 2012 WHERE THERE EXISTS NO DOUBLE TAXATION AVOIDANCE AGREEMENT. 19. THE ABOVE JUDGMENT WAS DELIVERED BY THE HONBLE HIGH COURT ON 08.02.2016. 20. THE LEARNED AUTHORIZED REPRESENTATIVE FOR THE ASSESSEE RELIED ON VARIOUS DECISIONS OF THE HONBLE HIGH COURTS FOR THE PROPOSITION THAT TELECOMMUNICATION SERVICES RENDERED BY NON - RESIDENTS OUTSIDE WERE NOT TAXABLE IN INDIA. THE LEARNED DEPARTMENTAL REPRESENTATIVE FOR THE REVENUE ON THE OTHER HAND, POINTED OUT THAT THE PAYMENT TO NON - RESIDENTS ON ACCOUNT OF IT BEING ROUTED THROUGH HOLDING OR RELATED COMPANY ABROAD , WAS TAXABLE . BOTH LEARNED AUTHORIZED REPRESENTATIVES HAVE RELIED ON SERIES OF DECISIONS FOR THE PROPOSITION AS TO 21 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. WHETHER THE PAYMENTS TO NON - RESIDENTS PAID DIRECTLY OR ROUTED THROUGH A THIRD PARTY ON ACCOUNT OF LEASE LINE CHARGES FALLS WITHIN AMENDED DEFINITION OF ROYALTY, WHICH IS TO BE APPLIED RETROSPECTIVELY. IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF DELHI IN DIT VS. NEW SKIES SATELLITE BV (SUPRA) AND DELHI BENCH OF TRIBUNAL IN SHIN SATEL LITE PUBLIC CO. LTD. VS. DDIT (IT) (2011) 12 TAXMANN.COM 6 (DEL), WE ARE NOT GOING INTO THE ASPECT OF THE AMENDMENT TO SECTION 9(1)(VI) OF THE ACT, UNDER WHICH EXPLANATIONS 4, 5 AND 6 HAVE BEEN ADDED, WHICH INTERALIA, AMENDS THE DEFINITION OF ROYALTY WIT H RETROSPECTIVE EFFECT . W E HOLD THAT THE SAME NEED NOT TO BE GONE INTO SINCE THE ISSUE OTHERWISE STANDS DECIDED IN FAVOUR OF ASSESSEE. THE HONBLE HIGH COURT OF DELHI IN DIT VS. NEW SKIES SATELLITE BV & ORS. (SUPRA) HAVE HELD THAT EVEN THOUGH THE TERM R OYALTY AS USED IN SECTION 9(1)(VI) OF THE ACT HAS BEEN AMENDED BY INTRODUCING EXPLANATION RETROSPECTIVELY, BUT IN VIEW OF NO CHANGE IN THE DEFINITION OF ROYALTY IN DTAA, THE BENEFICIAL PROVISIONS OF DTAA WOULD APPLY. THE AMENDMENT MADE UNDER THE ACT DO ES NOT AFFECT THE TERMS OF DTAA UNLESS AND UNTIL THE SAME IS AMENDED BY TWO CONTRACTING STATES. 21. IN THE PRESENT CASE ALSO, THOUGH DEFINITION OF ROYALTY UNDER THE ACT H A D B E E N A M E N D E D , BUT THE TERM ROYALTY UNDER THE DTAA BETWEEN INDIA AND USA IS NOT AMENDED. IN T HE ABSENCE OF THE SAME, WE HOLD THAT IN VIEW OF THE DEFINITION OF ROYALTY UNDER DTAA, THE ASSESSEE IS NOT LIABLE TO WITHHOLD TAX ON THE PAYMENTS MADE TO ITS ASSOCIATED ENTERPRISE ON ACCOUNT OF LEASE LINE CHARGES. WE ARE NOT GOING INTO DIFFERENT DECISION S OF THE TRIBUNAL ON THIS ASPECT, IN VIEW OF THE RATIO LAID DOWN BY THE HONBLE HIGH COURT OF DELHI, WHICH THOUGH IS NOT JURISDICTIONAL HIGH COURT BUT THE ISSUE RAISED IN THE SAID APPEAL IS SIMILAR TO THE ISSUE RAISED BEFORE US IN THE PRESENT APPEAL. WE M AY ALSO POINT OUT THAT THE 22 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. HONBLE HIGH COURT OF DELHI HAD ALSO TAKEN NOTE OF THE RATIO LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. SEIMENS AKTIONGESELLSCHAFT (SUPRA), WHICH IN TURN, HAS APPLIED THE RATIO OF THE HON'BLE SUPREME COURT OF CANADA IN R VS. MELFORD DEVELOPMENTS INC., 82 DTC 6281 (1982) AND OBSERVED AS UNDER: - 'THE RATIO OF THE JUDGMENT, IN OUR OPINION, WOULD MEAN THAT BY A UNILATERAL AMENDMENT IT IS NOT POSSIBLE FOR ONE NATION WHICH IS PARTY TO AN AGREEMENT TO TAX INCOME WHICH OTHERWISE WAS NOT SUBJECT TO TAX. SUCH INCOME WOULD NOT BE SUBJECT TO TAX UNDER THE EXPRESSION 'LAWS IN FORCE'. . . WHILE CONSIDERING THE DOUBLE TAX AVOIDANCE AGREEMENT THE EXPRESSION 'LAWS IN FORCE' WOULD NOT ONLY INCLUDE A TAX ALREADY COVERED BY THE TREATY BUT WOULD ALSO INCLUDE ANY OTHER TAX AS TAXES OF A SUBSTANTIALLY SIMILAR CHARACTER SUBSEQUENT TO THE DATE OF THE AGREE MENT AS SET OUT IN ARTICLE I(2). CONSIDERING THE EXPRESS LANGUAGE OF ARTICLE I(2) IT IS NOT POSSIBLE TO ACCEPT THE BROAD PROPOSITI ON URGED ON BEHALF OF THE ASSESSEE THAT THE LAW WOULD BE THE LAW AS APPLICABLE OR AS DEFINE WHEN THE DOUBLE TAXATION AVOIDANCE AGREEMENT WAS ENTERED INTO.' 2 2 . IN THE FACTS OF THE CASE BEFORE THE HONBLE BOMBAY HIGH COURT THE WORD ROYALTY WAS NOT DEFINE D IN GERMAN TREATY AND IN THAT CONTEXT, THE HONBLE BOMBAY HIGH COURT HELD THAT THEY WERE UNABLE TO ACCEPT THE ASSESSEES CONTENTION THAT LAW APPLICABLE WOULD BE LAW WHICH EXISTED AT THE TIME THE DTAA WAS ENTERED INTO. IN THE FACTS OF THE CASE BEFORE US, THE WORD ROYALTY IS DEFINED IN DTAA ENTERED INTO BETWEEN USA AND INDIA AND APPLYING THE RATIO IN CIT VS. SEIMENS AKTIONGESELLSCHAFT (SUPRA), WE HOLD THAT ONCE A TERM HAS BEEN DEFINED IN DTAA, THEN THE SAID TERM IS TO BE APPLIED UNLESS AND UNTIL THE PARTI ES TO THE DTAA AMENDS THE SAME. THE HONBLE HIGH COURT OF DELHI IN DIT VS. NOKIA NETWORKS OY (SUPRA) HAD APPLIED THE PROPOSITION LAID DOWN BY THE HONBLE BOMBAY HIGH COURT IN CIT VS. SEIMENS AKTIONGESELLSCHAFT (SUPRA) AND HELD THAT THE AMENDMENTS COULD NO T BE READ INTO THE TREATY. UNILATERAL AMENDMENT BY THE INDIAN GOVERNMENT TO THE TERM ROYALTY BY WAY OF AMENDMENT TO SECTION 9(1)(VI) OF THE ACT CANNOT BE EXTENDED TO THE MEANING OF THE TERM UNDER DTAA. HENCE, WE HOLD RELIANCE OF LEARNED DEPARTMENTAL RE PRESENTATIVE FOR THE REVENUE ON 23 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. MUMBAI BENCH OF TRIBUNAL IN VIACOM 18 MEDIA (P.) LTD. VS. ACIT (SUPRA) AND BANGALORE BENCH OF TRIBUNAL IN VODAFONE SOUTH LTD. VS. DDIT (IT) AND ALSO MUMBAI BENCH OF TRIBUNAL IN C.U. INSPECTIONS (I) (P) LTD. VS. DCIT (SUPRA) ARE NOT TO BE APPLIED IN VIEW OF THE ISSUE BEING SETTLED BY THE HONBLE HIGH COURT OF DELHI. 2 3 . THE ASSESSEE ON THE OTHER HAND, HAS RELIED ON THE DECISION IN WNS NORTH AMERICA INC. VS. ADIT (SUPRA) I.E. DECISION OF MUMBAI BENCH OF TRIBUNAL, WHICH HAS B EEN APPROVED BY THE HONBLE HIGH COURT IN DIT VS. WNS UK LTD. (2013) 214 TAXMAN 317 (BOM). THE ISSUE BEFORE THE HONBLE HIGH COURT OF DELHI WAS IN THE HANDS OF RECIPIENT OF LEASE LINE CHARGES. THE ASSESSEE THEREIN HAD RECOVERED INTERNAL TELECOMMUNICATION CHARGES FROM WNS CHARGES AND THE TRIBUNAL HELD THE AMOUNT IN QUESTION WAS RECEIVED BY THE SAID ASSESSEE AS REIMBURSEMENT OF LEASE LINE CHARGES AND WOULD NOT QUALIFY EITHER AS ROYALTY OR AS INCOME ATTRIBUTABLE TO PE IN INDIA AND HENCE, IT WAS HELD THAT T HERE WAS NO INCOME EARNED BY THE ASSESSEE. THE QUESTION BEFORE THE HONBLE HIGH COURT WAS WHETHER THE AMOUNT RECEIVED ON ACCOUNT OF REIMBURSEMENT OF LEASE LINE CHARGES WOULD QUALIFY AS ROYALTY UNDER ARTICLE 12 OF INDIA UK TREATY AND THE SECOND QUESTIO N WAS IN RESPECT OF CHARGES BEING ATTRIBUTABLE TO PE IN INDIA. THE HONBLE HIGH COURT VIDE PARA 5 HAD NOTED THE DECISION OF TRIBUNAL BUT HAD HELD THAT SINCE THE DECISION OF TRIBUNAL WAS BASED ON THE FINDINGS OF FACT, THERE WAS NO REASON TO ENTERTAIN QUEST ION NOS.4 AND 5. 2 4 . APPLYING THE PRINCIPLE LAID DOWN BY THE HONBLE HIGH COURT OF DELHI IN DIT VS. NEW SKIES SATELLITE BV (SUPRA) , WE HOLD THAT WHERE THE PROVISIONS OF DTAA OVERRIDES THE PROVISIONS OF INCOME - TAX ACT AND THE DEFINITION OF ROYALTY HAVING 24 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. NOT BEEN UNDERGONE ANY AMENDMENT IN DTAA , THE ASSESSEE WA S NOT LIABLE TO WITHHOLD TAX ON THE LEASE LINE CHARGES PAID BY IT. THE A MENDED PROVISIONS OF SECTION 9(1)(VI) OF THE ACT BROUGHT INTO FORCE BY THE FINANCE ACT, 2012 ARE APPLICABLE TO DOMESTIC LAWS AND THE SAID AMENDED DEFINITION CANNOT BE EXTENDED TO DTAA , WHERE THE TERM HAS BEEN DEFINED ORIGINALLY AND NOT AMENDED . 2 5 . NOW, C OMING TO THE NEXT ASPECT OF THE ISSUE THAT REIMBURSEMENT OF CHARGES IS NOT SUBJECT TO TAX IN INDIA. THE BASIC PRINCIPLE UNDERLYING THE SAME IS THAT WHERE REIMBURSEMENT OF EXPENSES DO NOT INCLUDE ANY INCOME ELEMENT, THEN THE SAME IS NOT SUBJECT TO TAX IN I NDIA. THE ASSESSEE BEFORE US HAS FILED EXTENSIVE EVIDENCE IN THIS REGARD I.E. QWEST COMMUNICATIONS INC HAD RAISED CHARGES UPON T - 3, USA AND THE PORTION ALLOCABLE TO THE ASSESSEE WAS CHARGED ON COST TO COST BASIS. HENCE, IT CANNOT BE SAID THAT THERE WAS A NY INCOME ELEMENT WHICH HAS ARISEN IN THE CASE AND CONSEQUENTLY, WE HOLD THAT WHERE THE ASSESSEE HAD REIMBURSED THE EXPENSES HAVING NO INCOME ELEMENT, THERE IS NO REQUIREMENT TO WITHHOLD TAX OUT OF SUCH PAYMENTS. THE CASE OF REVENUE IN THIS REGARD IS THAT IT IS NOT CASE OF REIMBURSEMENT BUT IS A CASE OF PAYMENT TO THIRD PARTY THROUGH ITS ASSOCIATED ENTERPRISE AND HENCE, THE NEED FOR WITHHOLDING TAX. WE HAVE ALREADY DECIDED THIS ISSUE IN THE PARAS HEREINABOVE THAT UNDER THE PROVISIONS OF DTAA, THE TERM RO YALTY IS DEFINED AND IT DOES NOT COVER ANY SUCH SERVICES AVAILED AND PAYMENT MADE AND HENCE, THERE IS NO MERIT IN THE STAND OF REVENUE IN THIS REGARD AND THE SAME IS DISMISSED. IN ANY CASE, THE PRIVITY OF CONTRACT IS BETWEEN QWEST COMMUNICATIONS INC, THE SERVICE PROVIDER AND T - 3, USA, WHO IN TURN HAD RECEIVED BANDWIDTH AND PASSED ON THE SERVICES TO VARIOUS ENTITIES OF GROUP ON COST TO CAST BASIS. THE ASSESSEE AS RECIPIENT OF SERVICES HAD REIMBURSED THE SAME AND IN THE ABSENCE OF PROFIT / INCOME ELEMENT, THERE IS NO 25 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. LIABILITY TO DEDUCT TAX AT SOURCE. HENCE, THE ASSESSEE CANNOT BE HELD TO BE IN DEFAULT. 26 . THE ASSESSING OFFICER HAD ALSO RAISED THE ISSUE OF PAYMENT BEING IN THE NATURE OF FEES FOR TECHNICAL SERVICES . HOWEVER , IN THE FINAL ANALYSIS DISAL LOWANCE HAS BEEN MADE IN THE HANDS OF ASSESSEE FOR NON DEDUCTION OF TAX AT SOURCE ON THE PAYMENTS BEING MADE IN THE NATURE OF ROYALTY I.E. AMENDED PROVISIONS OF THE INCOME - TAX ACT. WE HAVE ALREADY DECIDED THE SAID ISSUE IN THE PARAS HEREINABOVE AND ACCORD INGLY, WE HOLD THAT THERE IS NO MERIT IN INVOKING THE PROVISIONS OF SECTION 40(A)(I) OF THE ACT FOR NON WITHHOLDING OF TAX ON THE AMOUNT OF CHARGES PAID FOR REIMBURSING ASSOCIATED ENTERPRISE FOR LEASE LINE CHARGES. 2 7 . ANOTHER RELATED ASPECT OF THE ISSU E IS THE ACCEPTANCE OF INTERNATIONAL TRANSACTIONS TO BE AT ARM'S LENGTH PRICE BY THE TPO IN ITS ORDER PASSED UNDER SECTION 92CA(3) OF THE ACT. THE INTERNATIONAL TRANSACTIONS WITH ASSOCIATED ENTERPRISE OF REIMBURSEMENT OF EXPENSES ON ACCOUNT OF LEASE LINE CHARGES HA D BEEN REPORTED IN THE TP STUDY REPORT. THE ASSESSING OFFICER MADE REFERENCE TO THE TPO TO BENCHMARK THE INTERNATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE. THE TPO VIDE HIS ORDER UNDER SECTION 92CA(3) OF THE ACT HAD ACCEPTED DIFFERENT INTER NATIONAL TRANSACTIONS UNDERTAKEN BY THE ASSESSEE WITH ITS ASSOCIATED ENTERPRISE AT ARM'S LENGTH PRICE AND NO ADJUSTMENT HAS BEEN MADE IN THE HANDS OF ASSESSEE ON THIS COUNT. ONCE THE TRANSACTION WITH ASSOCIATED ENTERPRISE HA D BEEN ACCEPTED TO BE AT ARM'S LENGTH PRICE AND THE TRANSACTION IN QUESTION WAS REIMBURSEMENT OF EXPENSES, THE ORDER PASSED BY THE TPO IS BINDING ON THE ASSESSING OFFICER , NOT ONLY IN RESPECT OF DETERMINATION OF ARM'S LENGTH PRICE OF TRANSACTIONS BUT ALSO VIS - - VIS NATURE OF INTERNATION AL TRANSACTIONS. 26 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. THE ASSESSEE HAD DECLARED THE SAME IN ITS TP STUDY REPORT TO BE REIMBURSEMENT OF EXPENSES ON ACCOUNT OF LEASE LINE CHARGES WHICH HAS BEEN VERIFIED BY THE TPO AS AN INTERNATIONAL TRANSACTION AND HAS BEEN ACCEPTED AS SUCH I.E. NATURE OF EXP ENSES I.E. REIMBURSEMENT OF EXPENSES TO ASSOCIATED ENTERPRISE ON ACCOUNT OF LEASE LINE CHARGES. ONCE THE NATURE OF EXPENSES HAS BEEN SO ACCEPTED BY THE TPO, THE ASSESSING OFFICER CANNOT SIT IN JUDGMENT OF THE TPO ORDER SINCE UNDER THE PROVISIONS OF THE AC T, THE ORDER PASSED BY THE TPO IS BINDING UPON THE ASSESSING OFFICER. THE ASSESSING OFFICER AT BEST COULD HAVE INVOKED THE PROVISIONS OF INCOME TAX ACT PERSE AND NOT QUESTION THE NATURE OF EXPENDITURE I.E. AFTER THE TPO ACCEPTED TO BE REIMBURSEMENT OF EXPENSES, THE ASSESSING OFFICER CHALLENGED THE SAME AND HELD IT TO BE ROYALTY. WE FIND NO MERIT IN THE ORDER OF ASSESSING OFFICER IN THIS REGARD AND HENCE, TH E ASSESSEE SUCCEEDS ON THE ALTERNATE PLEA ALSO. ACCORDINGLY, WE HOLD THAT THERE IS NO MERIT IN THE DISALLOWANCE OF 20,47,432/ - BEING PAYMENT TO ASSOCIATED ENTERPRISE TOWARDS REIMBURSEMENT OF LEASE LINE CHARGES BY INVOKING PROVISIONS OF SECTION 40(A)(I) OF THE ACT. 2 8 . NOW, COMING TO THE PAYMENT OF 10,74,870/ - , WHICH RELATES TO THE PRECEDING YEAR. ADMITTEDLY, THE SAID EXPENDITURE WAS BOOKED IN THE PRECEDING YEAR AND HAS BEEN ALLOWED IN THE HANDS OF ASSESSEE. ONCE THE SAME HAS BEEN SO ALLOWED, THERE I S NO MERIT IN MAKING THE DISALLOWANCE AGAIN IN THE YEAR UNDER APPEAL. THE SAID EXPENDITURE WAS REPORTED IN TP STUDY REPORT BEING REIMBURSEMENT OF LEASE LINE CHARGES RELATING TO THE PRECEDING YEAR , BUT THE SAME WAS PAID IN THE YEAR UNDER CONSIDERATION. TH E PROVISIONS OF SECTION 40(A)(I) OF THE ACT ARE ATTRACTED AT THE FIRST STAGE I.E. WHEN BOOKED ON ACCOUNT OF ACCRUAL BASIS OR PAID , WHICHEVER IS EARLIER. IF THE SAID PROVISIONS HAD TO BE APPLIED, THEN 27 ITA NO. 826 /PUN/20 15 T - 3 ENERGY SERVICES INDIA PVT. LTD. THE SAME AT BEST COULD BE APPLIED IN THE PRECEDING YEAR AND NOT IN THE YEAR UNDER CONSIDERATION. ACCORDINGLY, WE REVERSE THE ORDER OF ASSESSING OFFICER IN THIS REGARD. WE HAVE ALREADY DECIDED THIS ISSUE ON MERITS OF ALLOWABILITY OF THE SAID PAYMENT BUT ALSO WE HOLD THAT THE ORDER OF ASSESSING OFFICER IN DISA LLOWING THE SAID AMOUNT RELATING TO THE PRECEDING YEAR BY INVOKING PROVISIONS OF SECTION 40(A)(I) OF THE ACT IS UNWARRANTED AND AGAINST PROVISIONS OF THE ACT. HENCE, THE SAME IS ALSO CANCELLED. 2 9 . IN THE RESULT, APPEAL OF ASSESSEE IS ALLOWED. ORDER PRO NOUNCED ON THIS 2 N D DAY OF FEBRUARY , 201 8 . SD/ - SD/ - (ANIL CHATURVEDI) (SUSHMA CHOWLA) / ACCOUNTANT MEMBER / JUDICIAL MEMBER / PUNE ; DATED : 2 N D FEBRUARY , 201 8 . G G C C V V S S R R / COPY OF THE ORDER IS FORWARDED TO : 1. / THE APPELLANT ; 2. / THE RESPONDENT; 3. ( ) / THE CIT (A) , PUNE - 6 ; 4. THE PR. C IT - 5 , PUNE ; 5. , , / DR B , ITAT, PUNE; 6. / GUARD FILE. / BY ORDER , // TRUE COPY // / SR. PRIVATE SECRETARY , / ITAT, PUNE