Italian Thai Development Public Company Ltd., New Delhi v. ADIT, New Delhi

ITA 2560/DEL/2011 | 2005-2006
Pronouncement Date: 25-11-2011 | Result: Allowed

Appeal Details

RSA Number 256020114 RSA 2011
Assessee PAN AABCI2013D
Bench Delhi
Appeal Number ITA 2560/DEL/2011
Duration Of Justice 6 month(s) 9 day(s)
Appellant Italian Thai Development Public Company Ltd., New Delhi
Respondent ADIT, New Delhi
Appeal Type Income Tax Appeal
Pronouncement Date 25-11-2011
Appeal Filed By Assessee
Order Result Allowed
Bench Allotted C
Tribunal Order Date 25-11-2011
Date Of Final Hearing 22-11-2011
Next Hearing Date 22-11-2011
Assessment Year 2005-2006
Appeal Filed On 16-05-2011
Judgment Text
1 IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH `C: NEW DELHI BEFORE SHRI G.D. AGRAWAL VICE PRESIDENT AND SHRI C.L. SETHI JUDICIAL MEMBER I.T. A. NO.2560/DEL/2011 ASSESSMENT YEAR: 2005-06 ITALIAN THAI DEVELOPMENT PUBLIC ASSTT. DIRECTOR OF INCOME-TAX COMPANY LTD. VS. CIRCLE 1(2) NEW DELHI. 301-302 3 RD FLOOR SAGAR TOWER DISTRICT CENTRE JANAKPURI NEW DELHI. PAN: AABCI2013D (APPELLANT) (RESPONDENT ) APPELLANT BY : S/SH. SUMEET SARIN & ASIT K. DASS CAS. RESPONDENT BY : SHRI N.K. CHAN D SR. DR. O R D E R PER C.L. SETHI JUDICIAL MEMBER: THE ASSESSEE IS IN APPEAL AGAINST THE ORDER DATED 0 7.03.2011 PASSED BY THE LEARNED COMMISSIONER OF INCOME-TAX (APPEALS) PE RTAINING TO THE ASSESSMENT YEAR 2005-06. 2. THE VARIOUS GROUNDS OF APPEAL RAISED BY THE ASSE SSEE MAINLY REVOLVE AROUND THE ORDER OF THE LEARNED CIT(A) IN CONFIRMIN G THE FOLLOWING DISALLOWANCES MADE BY THE ASSESSING OFFICER:- (I) RS.23 96 362/- INCURRED BY THE ASSESSEE AND CLAIMED AS DEDUCTION UNDER THE HEAD UPFRONT FEES. 2 (II) DISALLOWANCE OF RS.20 000/- ON ACCOUNT OF BANK CHAR GES. 3. THE ASSESSEE IS A FOREIGN COMPANY REGISTERED IN BANGKOK. IT HAS A LIAISON OFFICE IN INDIA UNDER THE COMPANIES ACT. T HE COMPANY WAS CARRYING OUT WORK KOLDAM HYDRO ELECTRIC POWER PROJECT AT DIS TRICT MANDI HIMACHAL PRADESH. THE ASSESSEE HAD OBTAINED A LOAN OF RS.87 00 00 000/- EQUIVALENT TO US$2 CRORE FROM STANDARD CHARTERED BANK INDIA. FOR OBTAINING THE SAID LOAN THE ASSESSEE COMPANY PAID AN UPFRONT FEE OF U S$2 LAKH TO STANDARD CHARTERED BANK THAILAND. THE SAID UPFRONT FEE OF RS.2 LAKH WAS NET OF TAXES PAYABLE TO STANDARD CHARTERED BANK THAILAND UNDER THE AGREEMENT DATED 3 RD MAY 2004. THE UPFRONT FEE WAS PAID TO THE AFORES AID BANK TO COORDINATE ALL RELEVANT DOCUMENTATION FOR SPECIFIC COMMITTED LOAN FACILITY FROM STANDARD CHARTERED BANK INDIA REQUIRED FOR TH E PURPOSE OF PURCHASING EQUIPMENTS FOR THE KOLDAM PROJECT. AS PER THE TERM S OF THE AGREEMENT DATED 3 RD MAY 2004 THE TAX ON THE SAID UPFRONT FEE OR COMM ISSION WAS TO BE BORNE BY THE ASSESSEE. 4. IN ORDER TO DETERMINE THE APPLICABLE WITHHOLDING TAX AT THE TIME OF MAKING PAYMENT TO STANDARD CHARTERED BANK THAILAND THE ASSESSEE HAS APPROACHED THE INCOME-TAX DEPARTMENT BY FILING AN A PPLICATION UNDER SEC. 195(1) OF THE ACT IN RESPECT OF WHICH THE DCIT HA S HELD THAT UPFRONT FEE PAYABLE BY THE ASSESSEE TO STANDARD CHARTERED BANK THAILAND WAS IN THE 3 NATURE OF FEE FOR TECHNICAL SERVICES LIABLE TO BE T AXED IN INDIA AND THUS ASKED THE ASSESSEE TO DEDUCT AND DEPOSIT TAX @ 20% PLUS A PPLICABLE SURCHARGE AND CESS AS PER THE PROVISIONS OF THE INCOME-TAX ACT. ACCORDINGLY THE SAID AMOUNT OF US$ 2 00 000 EQUIVALENT TO RS.89 34 000/- WAS GROSSED-UP TO THE TUNE OF RS.1 13 30 362/- OUT OF WHICH A TAX OF R S.23 96 362/- WAS DEDUCTED AND DEPOSITED BY THE ASSESSEE IN THE GOVERNMENT ACC OUNT. WHILE REMITTING THE SAID SUM TO STANDARD CHARTERED BANK THAILAND THE ASSESSEES BANK IN INDIA DEBITED SERVICE CHARGES OF RS.20 000/-. WHIL E FRAMING THE ASSESSMENT ORDER THE ASSESSING OFFICER HAS ALLOWED DEDUCTION OF UPFRONT FEE OF RS.89 34 000/- BUT DISALLOWED THE SUM OF RS.23 96 3 62/- BEING TAX DEDUCTED BY THE ASSESSEE FROM THE PAYMENT AND RS.20 000/- BE ING BANK CHARGES AGGREGATING TO RS.24 16 362/-. 5. BEING AGGRIEVED THE ASSESSEE WENT IN APPEAL BEF ORE THE LEARNED CIT(A) WHO UPHELD THE AOS ORDER BY OBSERVING THAT THE INCOME-TAX LIABILITY PAID BY THE ASSESSEE IS NOT ALLOWABLE UND ER SEC. 40(A)(II) AND HENCE THE AO IS JUSTIFIED IN DISALLOWING THE CLAIM OF DED UCTION OF RS.24 16 362/- ON ACCOUNT OF TAX DEDUCTED AT SOURCE ON UPFRONT FEE AND BANK CHARGES. THE RELEVANT PORTION OF THE LEARNED CIT(A)S ORDER IS A S UNDER:- THE AFORESAID CATEGORICAL LANGUAGE OF SECTION 40(A )(II) LEAVES NO ROOM FOR DOUBT THAT THE INCOMET-AX PAID IS NOT D EDUCTIBLE AND THE SECTION DOES NOT MAKE ANY DISTINCTION BETWE EN THE INCOME-TAX PAID BY THE ASSESSEE ON ITS OWN INCOME A ND THE 4 INCOME-TAX PAID BY THE ASSESSEE ON THE INCOME OF TH E PAYEE. IN MY CONSIDERED VIEW WHATEVER IS NOT DEDUCTIBLE IN THE HANDS OF THE PAYEE/DEDUCTEE AS A TRADING LIABILITY CANNOT BE ALLOWED AS A DEDUCTION IN THE HANDS OF THE PAYER/DEDUCTOR. BY R EASON OF THE TFRANSFER OF THE TAX LIABILITY THE NATURE AND CHAR ACTER OF THE LIABILITY CANNOT CHANGE. THE PLAIN WORDS OF SECTIO N 40(A)(II) HAVE TO BE GIVEN EFFECT TO. SO LONG AS THE LIABILI TY IS INCOME-TAX LIABILITY NO MATTER HOW AND UNDER WHAT CIRCUMSTANC ES IT IS PAID AND BY WHOM THE PERSONS PAYING IT CANNOT CLAIM IT A S A PERMISSIBLE DEDUCTION. IN WHATEVER LANGUAGE IT IS COUCHED TAX LIABILITY IS A TAX LIABILITY AND CAN ASSUME NO OTHE R CHARACTER. IT IS IMMATERIAL WHETHER SUCH TAX LIABILITY WAS A PART OF THE LOAN AGREEMENT OR NOT. THE PAYER/DEDUCTOR MAY BE MADE L IABLE FOR THE LIABILITY OF THE PAYEE/DEDUCTEE BUT IF THE PAY ER/DEDUCTOR DISCHARGES SUCH LIABILITY IT CANNOT BE SAID THAT S UCH PAYMENT HAS BEEN MADE FOR THE PRESERVATION AND PROTECTION O F THE ASSESSEES BUSINESS FROM ANY PROCESS OR PROCEEDINGS WHICH MIGHT HAVE RESULTED IN THE REDUCTION OF ITS INCOME AND PROFITS. IN ANY EVENT THIS LIABILITY WAS NOT INCURRED BY TH E ASSESSEE IN THE CONDUCT OF ITS BUSINESS. IN VIEW OF THE AFORES AID I AM OF THE CONSIDERED VIEW THAT THE ASSESSING OFFICER WAS JUST IFIED IN DISALLOWING THE CLAIM OF DEDUCTION OF RS.24 16 362/ - ON ACCOUNT OF TAX DEDUCTED AT SOURCE ON UPFRONT FEES AND BANK CHARGES PAID TO STANDARD CHARTERED BANK THAILAND. AS A RESULT GROUND NO.2 IS DISMISSED. 6. BEING AGGRIEVED THE ASSESSEE IS IN APPEAL BEFOR E US. 7. THE LEARNED COUNSEL FOR THE ASSESSEE HAS SUBMITT ED THAT THE UPFRONT FEE WAS PAID TO STANDARD CHARTERED BANK THAILAND FOR C OORDINATING ALL RELEVANT DOCUMENTATION FOR SPECIFIC COMMITTED LOAN FACILITY OBTAINED FROM STANDARD CHARTERED BANK INDIA UNDER THE AGREEMENT DATED 3 RD MAY 2004. THE ASSESSEE WAS REQUIRED TO PAY UPFRONT FEE OF US$2 00 000 TOWARDS COMMISSION NET OF TAXES. HE FURTHER SUBMITTED THA T IN THE LIGHT OF THE ORDER 5 PASSED UNDER SEC. 195(1) OF THE ACT THE ASSESSEE W AS REQUIRED TO DEDUCT TAX AT SOURCE FROM THE PAYMENT OF UPFRONT FEES PAID TO STANDARD CHARTERED BANK THAILAND AND ACCORDINGLY THE UPFRONT FEES OF US$2 00 000 EQUIVALENT TO RS.89 34 000/- WAS GROSSED UP TO THE TUNE OF RS.1 1 3 30 362/- OUT OF WHICH A TAX OF RS.23 96 362/- WAS DEDUCTED AND DEPOSITED IN THE GOVERNMENT ACCOUNT FOR AND ON BEHALF OF THE PAYEE. THE ASSESS EE ALSO PAID BANK CHARGES OF RS.20 000/- FOR REMITTING THE AFORESAID AMOUNT O F UPFRONT FEES TO STANDARD CHARTERED BANK THAILAND. HE THEREFORE CONTENDED THAT IN THE LIGHT OF THE FACTS OF THE CASE THE PAYMENT OF RS.23 96 362/- TO WARDS TAX DEDUCTED AT SOURCE PAYABLE BY STANDARD CHARTERED BANK THAILAND WAS AN INTEGRAL PART OF THE UPFRONT FEE PAYABLE BY THE ASSESSEE AS PER THE TERMS OF THE AGREEMENT. HE FURTHER SUBMITTED THAT HAD THE STANDARD CHARTERE D BANK THAILAND NOT BEING ASSURED OF THE ASSESSEE UNDERTAKING THE LIABI LITY TO PAY TAX AS PER THE TERMS OF THE AGREEMENT THEY WOULD HAVE CHARGED HIG HER UPFRONT FEES TO COVER THEIR LIABILITY FOR TAXES. HE THEREFORE SU BMITTED THAT SINCE THE PAYMENT OF RS.89 34 000/- HAS BEEN ALLOWED AS REVEN UE DEDUCTION BY THE ASSESSING OFFICER THE PAYMENT OF RS.23 96 362/- ON ACCOUNT OF THE TAX FOR AND ON BEHALF OF STANDARD CHARTERED BANK THAILAND IS DESERVED TO BE ALLOWED AS A DEDUCTION WHILE COMPUTING THE ASSESSEE S INCOME. HE FURTHER STATED THAT BANK CHARGES OF RS.20 000/- INCURRED FO R REMITTING THE 6 COMMISSION AMOUNT IS ALSO AN ALLOWABLE DEDUCTION. IN THIS CONNECTION THE LEARNED COUNSEL FOR THE ASSESSEE HAS RELIED UPON TH E FOLLOWING TWO DECISIONS:- (I) TATA YADOGAWA LTD. VS. CIT (2011) 335 ITR 53 (JHARK HAND). (II) CIT VS. STANDARD POLYGRAPH MACHINES P. LTD. (1998) 243 ITR 788 (MAD.). 8. THE LEARNED DR ON THE OTHER HAND SUBMITTED THAT THE ASSESSEE HAD OBTAINED LOAN FOR PURCHASING EQUIPMENTS FOR KOLDAM PROJECT. THE EQUIPMENTS SO PURCHASED BY THE ASSESSEE FOR KOLDAM PROJECT ARE UNDOUBTEDLY A CAPITAL INVESTMENT. HE THEREFORE S UBMITTED THAT ANY UPFRONT FEES PAID BY THE ASSESSEE FOR OBTAINING A LOAN REQU IRED FOR PURCHASING THE CAPITAL ASSET SHALL ALSO BE IN THE NATURE OF CAPITA L EXPENDITURE AND THEREFORE THE AUTHORITIES BELOW HAVE RIGHTLY DISALLOWED THE P AYMENT OF INCOME-TAX DEDUCTED BY THE ASSESSEE FROM THE PAYMENT MADE TO S TANDARD CHARTERED BANK BANGKOK UNDER SEC. 195(1) OF THE ACT. HE FUR THER SUPPORTED THE ORDERS OF THE AUTHORITIES BELOW. 9. WE HAVE HEARD BOTH THE PARTIES AND HAVE CAREFULL Y PERUSED THE MATERIAL ON RECORD. IT IS NOT IN DISPUTE THAT THE ASSESSEE HAD OBTAINED LOAN FROM STANDARD CHARTERED BANK INDIA TO FACILITATE E QUIPMENTS PURCHASED FOR KOLDAM PROJECT. IT IS ALSO NOT IN DISPUTE THAT STA NDARD CHARTERED BANK BANGKOK AGREED TO COMPLETE ALL RELEVANT DOCUMENTATI ON FOR SPECIFIC 7 COMMITTED LOAN FACILITY OBTAINED FOR THE PURPOSE OF PURCHASING EQUIPMENT FOR KOLDAM PROJECT AND FOR THE SERVICES RENDERED BY STANDARD CHARTERED BANK BANGKOK THE ASSESSEE HAD TO PAY NET UPFRONT FEES OF US$2 00 000 TO THE STANDARD CHARTERED BANK. IN ORDER TO REMIT THE UPFRONT FEES OF US$ 2 LAKH TO STANDARD CHARTERED BANK BANGKOK THE ASSES SEE FILED AN APPLICATION UNDER SEC. 195(1) OF THE ACT IN PURSUANCE TO WHICH THE DEPARTMENT DIRECTED THE ASSESSEE TO DEDUCT TAX @ 20% PLUS SURCHARGE AND CESS INASMUCH AS THE PAYMENT OF UPFRONT FEES WAS IN THE NATURE OF FEES F OR TECHNICAL SERVICES TAXABLE @ 20% UNDER SEC. 9(1)(VII) OF THE ACT READ WITH SEC. 115A OF THE ACT. THE ASSESSEE THEREFORE MADE THE PAYMENT OF R S.23 96 362/- AS INCOME-TAX FOR AND ON BEHALF OF THE STANDARD CHARTE RED BANK BANGKOK. IT IS NOT IN DISPUTE THAT THE NET PAYMENT OF UPFRONT F EES OF RS.89 34 000/- HAS BEEN ALLOWED AS DEDUCTION BY THE ASSESSING OFFICER HIMSELF. THE AO HAS ONLY DISALLOWED THE AMOUNT OF RS.23 96 362/- BEING INCOME-TAX DEDUCTED BY THE ASSESSEE AND PAID TO THE GOVERNMENT ACCOUNT FOR AND ON BEHALF OF STANDARD CHARTERED BANK BANGKOK. FROM THE FACTS O F THE CASE DISCUSSED ABOVE IT IS CLEAR THAT THE ASSESSEE WAS REQUIRED T O PAY UPFRONT FEES OF US$ 2 LAKH NET OF TAX. THEREFORE THE PAYMENT OF TAXES I N PURSUANCE TO THE ORDER PASSED UNDER SEC. 195 OF THE ACT BY THE DEPARTMENT IS NOTHING BUT AN INTEGRAL PART OF THE CONSIDERATION PAID BY THE ASSE SSEE TOWARDS UPFRONT FEES. 8 IN THIS CIRCUMSTANCES WE FIND NO LOGICAL REASON FO R NOT TREATING THE INCOME- TAX DEDUCTED AT SOURCE AND PAID BY THE ASSESSEE FOR AND ON BEHALF OF STANDARD CHARTERED BANK BANGKOK IN TERMS OF THE AG REEMENT AS PART OF THE UPFRONT FEES PAYABLE FOR COORDINATING ALL RELEVANT DOCUMENTS FOR OBTAINING LOAN FACILITY FROM STANDARD CHARTERED BANK INDIA. IN THIS CONNECTION RELIANCE MAY BE PLACED UPON THE DECISION OF HONBLE HIGH COURT OF JHARKHAND IN THE CASE OF TATA YADOGAWA LTD. (SUPRA) WHERE IT WAS HELD BY THE HONBLE HIGH COURT THAT PAYMENT OF TAXES BY THE ASSESSEE WAS INTEGRAL PART OF THE CONSIDERATION FOR ACQUISITION OF THE KN OW-HOW. THE RELEVANT FACTS OF THAT CASE AND THE DECISION GIVEN BY THE HONBLE HIGH COURT ARE EXTRACTED BELOW:- UNDER THE COLLABORATION AGREEMENT THE KNOW-HOW WAS TO BE PROVIDED TO THE ASSESSEE BY ESW IN CONSIDERA TION WHEREOF THE ASSESSEE WAS TO PAY A SUM OF TWO MILLIO N DEUTSCHE MARKS (HEREINAFTER REFERRED AS DM) OVERSEAS I.E. AUSTRIA IN THREE EQUAL INSTALMENTS IN THE MANNER LAID DOWN IN PARAGRAPH 13.1 OF THE AGREEMENT. IN ADDITION TO THE ABOVE T HE AGREEMENT PROVIDED THAT TAXES IF ANY ON THE AFORESAID PAYME NT WERE TO BE BORNE BY THE ASSESSEE VIDE PARAGRAPH 13.5 OF THE SA ID AGREEMENT. AFTER APPROVAL OF THE SAID TECHNICAL COLLABORATION AGREEMENT BY THE APPROPRIATE AUTHORITIES THE ASSES SEE APPLIED UNDER SECTION 195(2) OF THE INCOME-TAX ACT 1961 (H EREINAFTER REFERRED TO AS THE ACT FOR SHORT) TO THE ASSESSIN G OFFICER (HEREINAFTER REERRED TO AS THE AO) FOR GRANT OF PERMISSION TO REMIT THE SAID CONSIDERATION WITHOUT DEDUCTION OF T AX AT SOURCE. 9 THE ASSESSING OFFICER PASSED ORDERS DIRECTING THE ASSESSEE TO DEDUCT TDS UNDER SECTION 195(2) OF THE ACT DIRECTING THE ASSESSEE TO DEDUCT TDS WHILE REMITTIN G THE PAYMENTS TO ESW. AS A RESULT THE ASSESSEE PAID CERTAIN AMOUNTS BY W AY OF INCOME-TAX ON THE REMITTANCES AND ALSO PAID SOME FU RTHER AMOUNTS BY WAY OF RESEARCH AND DEVELOPMENT CESS B EFORE MAKING THE REMITTANCES. THE ASSESSEE FILED APPEALS UNDER SECTION 248 OF TH E ACT AGAINST THE ORDERS PASSED BY THE ASSESSING OFFICER UNDER SECTION 195(2) OF THE ACT. IN THE APPEALS THE ASSE SSEE ASSERTED THAT NO INCOME-TAX WAS PAYABLE ON THE REMITTANCES T O ESW BECAUSE OF THE PROVISIONS OF THE ACT READ WITH THE INTERNATIONAL AGREEMENT FOR AVOIDANCE OF DOUBLE TAXATION. THE APPEALS OF THE ASSESSEE WERE ALLOWED BY THE COMMISSIONER OF INCOME-TAX (APPEALS) UPHOLDING THE AFORESAID CONTENTION OF THE ASSESSEE AND HOLDING THAT NO INCO ME-TAX WAS PAYABLE ON THE REMITTANCES. HOWEVER THE INCOME-TA X DEPARTMENT WENT IN APPEAL BEFORE THE INCOME-TAX APP ELLATE TRIBUNAL AGAINST HE ORDERS OF THE COMMISSIONER OF I NCOME-TAX (APPEALS). BECAUSE THOSE APPEALS FILED BY THE DEPA RTMENT WERE PENDING BEFORE THE INCOME-TAX APPELLATE TRIBUNAL T HEREFORE THE ASSESSING OFFICER REFUNDED THE INCOME-TAX DEPOS ITED BY THE ASSESSEE ALONG WITH THE INTEREST ACCRUED ON THE SAI D TAX IN TERMS OF SECTION 244A AFTER OBTAINING INDEMNITY BONDS GU ARANTEEING REDEPOSIT OF THE REFUNDED TAX AND INTEREST IN CASE THE ORDER OF THE COMMISSIONER OF INCOME-TAX (APPEALS) WERE REVER SED BY THE INCOME-TAX APPELLATE TRIBUNAL. THE INCOME-TAX APPELLATE TRIBUNAL DISMISSED THE AP PEALS AND THEREAFTER ALSO REJECTED THE APPLICATIONS OF TH E DEPARTMENT SEEKING REFERENCE UNDER SECTION 256(1) OF THE ACT ( AS THE SAID SECTION STOOD IN THE RELEVANT YEARS). THE ORDERS R EJECTING THE REFERENCE APPLICATIONS OF THE DEPARTMENT UNDER SECT ION 256(1) BY THE INCOME-TAX APPELLATE TRIBUNAL WERE SERVED UP ON THE ASSESSEE ON MAY 17 1999 THAT IS TO SAY IN THE FIN ANCIAL YEAR RELEVANT TO THE ASSESSMENT YEAR 2000-01. THEREUPON THE 10 ASSESSEE CREDITED THE REFUNDED AMOUNTS IN ITS AUDIT ED ACCOUNTS DRAWN UP FOR THE SAID FINANCIAL YEAR ENDING MARCH 3 1 2000 CORRESPONDING TO THE ASSESSMENT YEAR 2000-01 IN ACC ORDANCE WITH SECTION 41 OF THE ACT. XX XX XX XX XX SO FAR AS THE FIRST QUESTION IS CONCERNED WE FIND FROM SECTION 35AB THAT DEDUCTION IS PERMISSIBLE IN RESPE CT OF ANY LUMP SUM CONSIDERATION FOR ACQUIRING ANY KNOW-HOW F OR USE FOR THE PURPOSES OF THE ASSESSEES BUSINESS. CONSIDERATION IN SECTION 35AB IS TO BE UNDERSTOO D IN THE SENSE IN WHICH IT HAS BEEN USED IN THE INDIAN C ONTRACT ACT. THEREFORE THE WORD CONSIDERATION WOULD INCLUDE TH E ENTIRE OBLIGATION OF THE ASSESSEE WITHOUT WHICH THE ASSES SEE WOULD NOT BE ABLE TO ACQUIRE THE KNOW-HOW. ON THE FACTS OF THIS CASE THE OBLIGATION OF THE AS SESSEE UNDER THE AGREEMENT WITH ESW EXTENDED NOT MERELY TO REMITTING THE AMOUNT OF TWO MILLION DM TO ESW BUT ALSO EXTEN DED TO PAYMENT OF TAXES WHICH WOULD INCLUDE THE INCOME-TAX AS WELL AS THE RESEARCH AND DEVELOPMENT CESS. IT SEEMS QUITE OBVIOUS THAT IF THE ASSESSEE HAD NOT PAID THE TAX OR THE RESEARC H AND DEVELOPMENT CESS AND HAD MERELY MADE PAYMENT OF TH E TWO MILLION DM TO ESW THE LATTER WOULD NOT BE OBLIGED TO PART WITH THE KNOW-HOW IN VIEW OF THE TERMS OF THE COLLABORAT ION AGREEMENT. THEREFORE PAYMENT OF THESE TAXES IS AS INTEGRAL A PART OF THE CONSIDERATION AS THE PAYMENT OF TWO M ILLION DM. IN FACT THE INCOME-TAX DEPARTMENT IS ITSELF TREATI NG NOT MERELY THE AMOUNT OF TWO MILLION DM PAID TO ESW BUT ALSO T HE RESEARCH AND DEVELOPMENT CESS AS PART OF CONSIDER ATION. IN THESE CIRCUMSTANCES WE FIND NO LOGICAL REASON FOR N OT TREATING THE INCOME-TAX PAID BY THE ASSESSEE IN TERMS OF THE COLLABORATION AGREEMENT AS PART OF THE CONSIDERATI ON FOR ACQUISITION OF THE KNOW-HOW. WE HOLD ACCORDINGLY A ND ANSWER THE FIRST QUESTION AS ABOVE. A REFERENCE IN THIS C ONNECTION MAY BE MADE TO THE DECISION OF THE SUPREME COURT IN THE CASE OF MCDOWELL AND CO. LTD. V. CTO REPORTED IN [1985] 154 ITR 148 (SC) WHEREIN IT WAS HELD THAT EXCISE DUTY WAS PART OF THE 11 CONSIDERATION. ANOTHER DIRECT DECISION COVERING THE QUESTION IS BY THE MADRAS HIGH COURT IN THE CASE OF STANDARD POLYGRAPH MACHINES P. LTD. [2000] 243 ITR 788 (MAD.). 10. IN THE ABOVE REFERRED CASE IN THE CASE OF TATA YODOGAWA LTD. (SUPRA) THE HONBLE JHARKHAND HIGH COURT HAS RELIED UPON TH E DECISION OF HONBLE MADRAS HIGH COURT IN THE CASE OF STANDARD POLYGRAPH MACHINES P. LTD. (SUPRA) WHERE THE HONBLE HIGH COURT HAS TAKEN A V IEW THAT THE TRIBUNAL WAS RIGHT IN ITS VIEW THAT THE AMOUNT PAID AS TAX B Y THE ASSESSEE WAS ONLY IN DISCHARGE OF A LIABILITY WHICH IT HAD UNDERTAKEN I N TERMS OF THE AGREEMENT ENTERED INTO BETWEEN THE ASSESSEE AND THE COLLABORA TOR AND IT THEREFORE FORMS PART OF THE CONSIDERATION FOR THE AGREEMENT R ELATING TO KNOW-HOW. IN OTHER WORDS IN THAT CASE BEFORE THE HONBLE HIGH C OURT THE PAYMENT OF TAX BY THE ASSESSEE FOR AND ON BEHALF OF THE COLLABORAT OR WAS TREATED TO BE PART OF THE CONSIDERATION FOR RECEIVING THE TECHNICAL KNOW- HOW UNDER THE AGREEMENT. IN THE LIGHT OF THE DISCUSSIONS MADE ABOVE WE THE REFORE HOLD THAT THE PAYMENT OF RS.23 96 362/- BEING AMOUNT OF TAX DEDUC TED AT SOURCE AND PAID TO THE GOVERNMENT ACCOUNT FOR AND ON BEHALF OF STAN DARD CHARTERED BANK BANGKOK IS TO BE TREATED AS A PART OF UPFRONT FEES PAID BY THE ASSESSEE FOR COORDINATING ALL RELEVANT DOCUMENTATION FOR OBTAINI NG LOAN FACILITY FROM THE BANK IN INDIA AND SINCE THE PAYMENT OF RS.89 34 00 0/- NET OF THE TAXES PAID BY THE ASSESSEE HAS BEEN ALLOWED AS A REVENUE DEDUC TION BY THE AO THE 12 PAYMENT OF RS.23 96 362/- BEING PART OF THE SAME CO NSIDERATION SHALL ALSO BE ELIGIBLE AS A REVENUE DEDUCTION. THUS THE DISALLO WANCE OF RS.23 96 362/- MADE BY THE AO IS DELETED. 11. SIMILARLY THE PAYMENT OF RS.20 000/- TOWARDS B ANK CHARGES FOR REMITTING THE UPFRONT FEES FROM INDIA TO THAILAND S HALL ALSO BE ALLOWED AS A REVENUE DEDUCTION. THUS THE DISALLOWANCE OF RS.20 000/- MADE BY THE ASSESSING OFFICER IS ALSO DELETED. 12. IN THE RESULT THE APPEAL FILED BY THE ASSESSEE IS ALLOWED. 13. THIS DECISION IS PRONOUNCED IN THE OPEN COURT O N 25 TH NOVEMBER 2011. SD/- SD/- (G.D. AGARWAL) (C.L. SETHI) VICE PRESIDENT JUDICIAL MEMBER DATED: 25 TH NOVEMBER 2011 COPY OF THE ORDER FORWARDED TO: 1. APPELLANT. 2. RESPONDENT. 3. CIT 4. CIT(A) 5. DR BY ORDER *MG DEPUTY REGISTRAR ITAT.