DCIT RG 7(2), MUMBAI v. REDIFF. COM INDIA LTD, MUMBAI

ITA 3061/MUM/2009 | 2005-2006
Pronouncement Date: 05-09-2011 | Result: Partly Allowed

Appeal Details

RSA Number 306119914 RSA 2009
Assessee PAN AAACR2762F
Bench Mumbai
Appeal Number ITA 3061/MUM/2009
Duration Of Justice 2 year(s) 3 month(s) 24 day(s)
Appellant DCIT RG 7(2), MUMBAI
Respondent REDIFF. COM INDIA LTD, MUMBAI
Appeal Type Income Tax Appeal
Pronouncement Date 05-09-2011
Appeal Filed By Department
Order Result Partly Allowed
Bench Allotted D
Tribunal Order Date 05-09-2011
Date Of Final Hearing 09-06-2011
Next Hearing Date 09-06-2011
Assessment Year 2005-2006
Appeal Filed On 11-05-2009
Judgment Text
ITA NO. 3061/MUM/2009 ASSESSMENT YEAR: 2005-06 PAGE 1 OF 11 IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI D BENCH MUMBAI BEFORE SHRI PRAMOD KUMAR (ACCOUNTANT MEMBER) AND SMT ASHA VIJAYRAGHAVAN (JUDICIAL MEMBER) ITA NO. 3061/MUM/2009 ASSESSMENT YEAR: 2005-06 DEPUTY COMMISSIONER OF INCOME TAX RANGE 7(2) MUMBAI .. APPE LLANT VS. REDIFF.COM INDIA LIMITED RESPONDE NT 1 ST FLOOR MAHALAXMI ENGINEERING ESTATE L J ROAD NO. 1 MAHIM (W) MUMBAI 400 016 [PAN: AAACR2762F] APPEARANCES: PAVAN VED FOR THE APPELLANT JITENDRA SINGHVI FOR THE RESPONDENT DATE OF HEARING : JUNE 09 2011 DATE OF PRONOUNCEMENT : SEPTEMBER 5 TH 2011 O R D E R PER PRAMOD KUMAR: 1. BY WAY OF THIS APPEAL THE ASSESSING OFFICER HAS CHALLENGED THE CORRECTNESS OF CIT(A)S ORDER DATED 18 TH FEBRUAURY 2009 IN THE MATTER OF ASSESSMENT UNDER SECTION 143(3) OF THE INCOME TAX ACT 1961 FOR THE ASSESSM ENT YEAR 2005-06. 2. IN THE FIRST TWO GROUNDS OF APPEAL WHICH ARE IN TERCONNECTED THE ASSESSING OFFICER HAS RAISED THE FOLLOWING GRIEVANCES: 1. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CAS E AND IN LAW THE CIT(A) ERRED IN DIRECTING THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF RS 3 04 03 553 MADE UNDER SECTION 40(A)(I) ON AC COUNT OF LEGAL AND ITA NO. 3061/MUM/2009 ASSESSMENT YEAR: 2005-06 PAGE 2 OF 11 PROFESSIONAL FEES PHOTOGRAPHY CHARGES AND BANDWIDT H CHARGES PAID TO THE OVERSEAS PARTIES WITHOUT DEDUCTING TAX AT SOUR CE AS REQUIRED UNDER SECTION 195(1) OF THE INCOME TAX ACT. 1A. ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CA SE AND IN LAW THE CIT(A) ERRED IN NOT APPRECIATING THE FACTS THAT THE ASSESSEES CASE IS COVERED BY THE DECISION OF HONBLE SUPREME COURT IN THE CASE OF TRANSMISSION CORPORATION OF AP LTD VS CIT (239 ITR 587). 3. THE RELEVANT MATERIAL FACTS ARE LIKE THIS. THE A SSESSEE IS ENGAGED IN THE INTERNET RELATED SERVICES AND IS ONE OF THE PROMINENT ONLINE PROVIDER OF NEWS INFORMATION COMMUNICATION ENTERTAINMENT AND SHOPPING SERVICES. DURING THE COURSE OF THE ASSESSMENT PROCEEDINGS THE ASSESSING OFFICER NOTIC ED THAT THE ASSESSEE HAS CLAIMED DEDUCTION IN RESPECT OF LEGAL AND PROFESSIONAL FEE S PHOTOGRAPHY CHARGES AND BANDWIDTH CHARGES AGGREGATING TO RS 3 04 03 553 P AYABLE TO THE PERSONS RESIDENT OUTSIDE INDIA BUT HAS NOT DEDUCTED ANY TAX AT SOU RCE FROM THE SAME. THE ASSESSING OFFICER WAS OF THE VIEW AS PER SECTION 195 OF THE I NCOME TAX ACT 1961 TAX HAS TO BE DEDUCTED AT SOURCE WHILE REMITTING THE MONIES OUTSI DE INDIA AND SINCE ASSESSEE HAS NOT DEDUCTED TAX AT SOURCE THE AMOUNT SO PAID TO THE NON-RESIDENTS IS NOT DEDUCTIBLE IN VIEW OF THE PROVISIONS OF SECTION 40(A)(I) OF TH E INCOME TAX ACT. THE ASSESSING OFFICER WAS OF THE VIEW THAT EVEN IF THERE WERE ANY DOUBTS ABOUT TAXABILITY OF PAYMENT MADE TO NON-RESIDENT IN VIEW OF TRIBUNALS DECISIO N IN THE CASE OF ARTHUR ANDERSON & CO (ITA NO. 9125/MUM/95; ORDER DATED 29 TH JULY 2003) THE TAX IS REQUIRED TO BE DEDUCTED AS A MEASURE OF ABUNDANT CAUTION I.E. EX ABUNDENTI CAUTELA . ACCORDING TO THE ASSESSING OFFICER AS THE ASSESSEE FAILED TO DEDUCT THE TAX AT SOURCE FROM THESE PAYMENTS THE ASSESSEE DID NOT DISCHARGE HIS TAX WI THHOLDING OBLIGATIONS AND ACCORDINGLY DISALLOWANCE UNDER SECTION 40(A)(I) WA S TO BE INVOKED. AGGRIEVED BY THE DISALLOWANCE SO MADE ASSESSEE CARRIED THE MATTER I N APPEAL BEFORE THE CIT(A). LEARNED CIT(A) WAS OF THE VIEW THERE IS NO FINDING BY THE ASSESSING OFFICER TO THE EFFECT THAT INCOME EMBEDDED IN THESE PAYMENTS NON-R ESIDENTS IS TAXABLE IN INDIA AND THEREFORE THE ASSESSEE DID NOT HAVE ANY OBLIGATION TO DEDUCT TAX AT SOURCE FROM THIS PAYMENT. IT WAS ALSO NOTED THAT THE ASSESSEE HAD MA DE PAYMENTS TO NON-RESIDENTS AFTER DULY OBTAINING THE CHARTERED ACCOUNTANTS CER TIFICATE TO THE EFFECT THAT NO TAX IS ITA NO. 3061/MUM/2009 ASSESSMENT YEAR: 2005-06 PAGE 3 OF 11 DEDUCTIBLE FROM THESE PAYMENTS AND THEREFORE IT C ANNOT BE SAID THAT THE ASSESSEE HAD ANY DOUBTS ABOUT NON TAXABILITY OF THESE AMOUNT S IN INDIA. THE CIT(A) FURTHER OBSERVED THAT .. NOW THE CBDT HAS ENTRUSTED THE J OB OF OBTAINING SUCH CERTIFICATE ( CERTIFYING NON TAXABILITY IN THE HANDS OF THE RECIPI ENT) FROM THE CHARTERED ACCOUNTANTS AND THEREFORE WHERE REMITTANCES HAVE BEEN (SO) MADE TO RESPECTIVE PARTIES WHOSE INCOME IS NOT CHARGEABLE TO TAX UNDER THE INDIAN IN COME TAX ACT THERE WILL BE NO LIABILITY TO MAKE ANY TDS. THE CIT(A) THUS APPARE NTLY PROCEEDED ON THE BASIS THAT AS LONG AS A CHARTERED ACCOUNTANT HAS CERTIFIED IN TERMS OF THE CBDT CIRCULAR THAT NO TAX IS DEDUCTIBLE AT SOURCE FROM THESE PAYMENTS DI SALLOWANCE UNDER SECTION 40(A)(I) CANNOT BE MADE FOR NON-DEDUCTION AT SOURCE FROM SUC H PAYMENTS. SINCE THE ASSESSEE HAD DULY OBTAINED THE CHARTERED ACCOUNTANTS CERTIF ICATE IN RESPECT OF ALL THE REMITTANCES IN THE ABSENCE OF WHICH HE COULD NOT H AVE MADE THE FOREIGN REMITTANCES ANYWAY DISALLOWANCE UNDER SECTION 40(A)(I) WAS HELD TO BE NOT SUSTAINABLE IN LAW AND WAS DELETED. THE ASSESSING OFFICER IS AGGRIEVED OF THE RELIEF SO GRANTED BY THE CIT(A) AND IS IN APPEAL BEFORE US. 4. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 5. WE FIND THAT AS HELD BY HONBLE SUPREME COURT I N THE CASE OF GE INDIA TECHNOLOGY CENTRE PVT LTD VS CIT (327 ITR 456) TAX DEDUCTION AT SOURCE OBLIGATIONS UNDER SECTION 195(1) ARISE ONLY IF THE PAYMENT IS C HARGEABLE TO TAX IN THE HANDS OF NON-RESIDENT RECIPIENT. THEREFORE MERELY BECAUSE A PERSON HAS NOT DEDUCTED TAX AT SOURCE FROM A REMITTANCE ABROAD IT CANNOT BE INFER RED THAT THE PERSON MAKING THE REMITTANCE HAS COMMITTED A FAILURE IN DISCHARGING H IS TAX WITHHOLDING OBLIGATIONS BECAUSE SUCH OBLIGATIONS COME INTO EXISTENCE ONLY W HEN RECIPIENT HAS A TAX LIABILITY IN INDIA. THE UNDERLYING PRINCIPLE IS THIS. TAX WIT HHOLDING LIABILITY OF THE PAYEE IS INHERENTLY A VICARIOUS LIABILITY ON BEHALF OF THE RECIPIENT AND THEREFORE WHEN RECIPIENT DOES NOT HAVE THE PRIMARY LIABILITY TO BE TAXABLE IN RESPECT OF INCOME EMBEDDED IN THE RECEIPT THE VICARIOUS LIABILITY OF THE PAYER CANNOT BUT BE ITA NO. 3061/MUM/2009 ASSESSMENT YEAR: 2005-06 PAGE 4 OF 11 INEFFECTUAL. THIS VICARIOUS TAX WITHHOLDING LIABIL ITY CANNOT BE INVOKED UNLESS PRIMARY TAX LIABILITY OF THE RECIPIENT IS ESTABLISH ED. JUST BECAUSE THE PAYER HAS NOT OBTAINED A SPECIFIC DECLARATION FROM THE REVENUE AU THORITIES TO THE EFFECT THAT THE RECIPIENT IS NOT LIABLE TO BE TAXED IN INDIA IN RES PECT OF INCOME EMBEDDED IN PARTICULAR PAYMENT HOWSOEVER DESIRABLE BE THAT PRA CTICE THE ASSESSING OFFICER CAN NOT PROCEED ON THE BASIS THAT THE PAYER HAD AN OBLI GATION TO DEDUCT TAX AT SOURCE. HE STILL HAS TO DEMONSTRATE AND ESTABLISH THAT THE PAY EE HAS A TAX LIABILITY IN RESPECT OF THE INCOME EMBEDDED IN THE IMPUGNED PAYMENT. THAT E XERCISE WAS NOT CARRIED OUT BY THE ASSESSING OFFICER ON THE FACTS OF THIS CASE. THE ASSESSING OFFICER WAS THUS CLEARLY IN ERROR IN PROCEEDING TO INVOKE DISALLOWAN CE UNDER SECTION 40(A)(I) ON THE SHORT GROUND THAT THE ASSESSEE DID NOT DEDUCT TAX A T SOURCE FROM THE FOREIGN REMITTANCE. TO THAT EXTENT CIT(A) WAS JUSTIFIED IN DELETING THE IMPUGNED DISALLOWANCE. 6. HOWEVER WHAT ALSO FOLLOWS FROM THE ABOVE DISCUS SIONS IS THAT IN ORDER TO EXAMINE WHETHER A DISALLOWANCE UNDER SECTION 40(A)( I) CAN BE MADE THE FIRST STEP IS THAT THE ASSESSING OFFICER HAS TO EXAMINE WHETHER T HE RECIPIENT OF A PAYMENT HAS TAX LIABILITY IN RESPECT OF THE REMITTANCE IN QUESTION AND THAT ASPECT OF THE MATTER CAN ONLY BE EXAMINED WHEN ALL THE RELEVANT DETAILS ARE DULY FURNISHED BY THE ASSESSEE. A CERTIFICATE ISSUED BY CHARTERED ACCOUNTANT ON WHIC H A LOT OF RELIANCE IS PLACED BY THE LEARNED CIT(A) CANNOT BE A CONCLUSIVE DETERMINATIO N OF TAXABILITY IN THE HANDS OF THE RECIPIENT OF INCOME. IN OUR CONSIDERED VIEW SU CH A CHARTERED ACCOUNTANTS CERTIFICATE IS NOT A SUBSTITUTE FOR SUCH A DETERMIN ATION OF TAXABILITY IN THE HANDS OF THE RECIPIENT BY THE ASSESSING OFFICER. 7. IT IS IN OUR CONSIDERED VIEW ESSENTIAL TO UNDE RSTAND THE NATURE OF A CHARTERED ACCOUNTANTS CERTIFICATE ON THE BASIS OF WHICH FOREIGN REMITTANCES ARE MADE. THE CERTIFICATE IN QUESTION IS ISSUED BY A CH ARTERED ACCOUNTANT UNDER CBDT CIRCULAR NO. 759 DT. 18TH NOV. 1997 [(1997) 143 C TR (ST) 290] AS MODIFIED BY CBDT CIRCULAR NO. 10 OF 2002 DT. 9TH OCT. 2002 [( 2002) 177 CTR (ST) 41]. IN VIEW ITA NO. 3061/MUM/2009 ASSESSMENT YEAR: 2005-06 PAGE 5 OF 11 OF THE PROVISIONS OF S. 195 IT IS OBLIGATORY FOR A PERSON MAKING ANY PAYMENTS TO ANY NON-RESIDENTS THAT INCOME-TAX THEREON IN CONNECTION WITH THE SAME IS DEDUCTED AT SOURCE. IT WAS WITH A VIEW TO ENSURE COMPLIANCE WIT H THIS REQUIREMENT THAT THE RBI REQUIREMENT WAS TO OBTAIN A NO OBJECTION CERTIFICA TE FROM THE AO FOR EACH SUCH REMITTANCE SO AS TO ENSURE THAT ALL REMITTANCES WE RE EXAMINED BY THE AO. THIS PROCEDURE RESULTED IN INORDINATE DELAYS IN MAKING T HE REMITTANCES BECAUSE ON MANY OCCASIONS THE PROCESS OF DETERMINING TAX DEDUCTIONS BY THE AO TOOK LONG TIME. IT WAS IN THIS BACKDROP AND IN THE LIGHT OF TO OUR MIND C OMMERCIAL REALITIES AS ALSO INCREASED MEASURE OF FAITH IN TAXPAYERS AND PROFESS IONALS THAT THE SYSTEM WAS SIMPLIFIED IN 1997. THE CBDT HAS VIDE CIRCULAR NO. 759 DT. 18TH NOV. 1997 [(1997) 143 CTR (ST) 290] DISPENSED WITH THE REQUIREMENT O F OBTAINING A NO OBJECTION CERTIFICATE FROM THE AO BEFORE MAKING A FOREIGN REM ITTANCE. UNDER THE NEW SCHEME SET OUT IN THE AFORESAID CIRCULAR WHICH HAS BEEN S UBSEQUENTLY MODIFIED BY THE CBDT CIRCULAR NO. 10 OF 2002 DT. 9TH OCT. 2002 [(2002) 177 CTR (ST) 41] IT IS NOT NECESSARY FOR AN ASSESSEE TO OBTAIN PRIOR DETERMINA TION OF TAX WITHHOLDING LIABILITY. THE ASSESSEE COULD UNDER THE NEW SCHEME APPROACH ANY INDEPENDENT CHARTERED ACCOUNTANT FOR DETERMINING HIS WITHHOLDING TAX LIAB ILITY FROM A REMITTANCE AND MAKE A REMITTANCE ON THE BASIS OF THIS CERTIFICATIO N AS LONG AS THE ASSESSEE TAX DEDUCTOR GAVE AN UNDERTAKING TO THE AO ON THE FOLLO WING LINES: I/WE. (NAME ADDRESS AND PAN NUMBER) PROPOSE TO MAKE A REMITTANCE OF. BEING (NATURE OF PAYMENT) TO. (NAME AND COMPLETE ADDRESS OF THE PERS ON TO WHOM THE REMITTANCE HAS BEEN MADE) AFTER DEDUCTING A SUM OF R S. .. BEING TAX @ . WHICH IS THE APPROPRIATE RATE OF TDS ON THE SA ID AMOUNT OF REMITTANCE. 2. A CERTIFICATE FROM THE ACCOUNTANT AS DEFINED IN EXPLANATION BELOW S. 288 OF THE IT ACT CERTIFYING THE NATURE AND AMOUNT OF INC OME AMOUNT OF TAX PAYABLE AND THE AMOUNT ACTUALLY PAID IS ALSO ANNEXED. 3. IN CASE IT IS FOUND THAT THE TAX ACTUALLY PAYABL E ON THE AMOUNT OF REMITTANCE MADE HAS EITHER NOT BEEN PAID OR HAS NOT BEEN PAID I N FULL I/WE UNDERTAKE TO PAY THE SAID AMOUNT OF TAX ALONG WITH INTEREST FOUN D DUE IN ACCORDANCE WITH THE IT ACT. ITA NO. 3061/MUM/2009 ASSESSMENT YEAR: 2005-06 PAGE 6 OF 11 4. I/WE WILL ALSO BE SUBJECT TO PROVISIONS FOR PENAL TY AND PROSECUTION FOR THE SAID DEFAULT AS PER THE IT ACT. 5. I/WE ALSO UNDERTAKE TO SUBMIT THE REQUISITE DOCUM ENTS ETC. FOR ENABLING THE IT DEPARTMENT TO DETERMINE NATURE AND AMOUNT OF INC OME AND TAX INTEREST PENALTY ETC. PAYABLE THEREON. 8. IN OUR HUMBLE UNDERSTANDING SO FAR AS TDS UNDER THE REVISED PROCEDURE OF MAKING REMITTANCES TO NON-RESIDENTS IS CONCERNED T HE POSITION IS NOW LIKE THIS. IN CASE A PERSON HAS TO MAKE A REMITTANCE TO A NON-RES IDENT AND HE IS OF THE VIEW THAT THE NO TDS IS WARRANTED OR TAX IS REQUIRED TO BE DE DUCTED AT A CERTAIN RATE HE CAN APPROACH AN INDEPENDENT CHARTERED ACCOUNTANT FOR CE RTIFYING IN THE PRESCRIBED FORMAT THE RATE AT WHICH TAX IS TO BE DEDUCTED OR THAT TAX IS NOT TO BE DEDUCTED AND MAKE THE REMITTANCE ON THE BASIS OF SUCH A CERTIFIC ATE. EVEN THIS REMITTANCE ON THE BASIS OF THE CHARTERED ACCOUNTANTS CERTIFICATE IS AT ASSESSEES OWN RISK OF CONSEQUENCES WHICH FOLLOW THE SHORT DEDUCTION OR NO N-DEDUCTION OF TAX AT SOURCE. THE ASSESSEE HAS TO GIVE AN UNDERTAKING TO THAT EFF ECT. HOWEVER AS LONG AS ASSESSEES STAND IS AT LEAST SUPPORTED BY A CHARTER ED ACCOUNTANTS CERTIFICATE THE ASSESSEE IS AT LEAST ALLOWED TO MAKE THE REMITTANCE ON THAT BASIS. CONTRAST THIS WITH THE OLD PROCEDURE OF PRIOR CERTIFICATION OF WITHHOL DING TAX REQUIREMENT BY THE AO IN WHICH THE ASSESSEE HAS TO FIRST PAY THE TAX AND TH EN MAKE THE REMITTANCE. UNDER THE REVISED SCHEME THE ASSESSEE CAN SUBJECT TO THE SU PPORT OF A CHARTERED ACCOUNTANTS CERTIFICATE AND FURNISHING OF AN UNDERTAKING EXTRAC TED EARLIER IN THIS ORDER FIRST MAKE THE REMITTANCE AND THE FINALIZATION OF WITHHOL DING TAX LIABILITY FOLLOWS. ALL IT DOES IS THAT THE REAL TIME CONTROL MECHANISM TO ENS URE REVENUE COLLECTIONS FROM FOREIGN REMITTANCE AT THE POINT OF REMITTANCE WHIC H WAS IN THE NATURE OF STEERING CONTROL IS GIVEN UP THOUGH NATURALLY WITH THE RIG HT TO TAKE SUITABLE REMEDIAL MEASURES WHEN ANY LOSS OF REVENUE IS CAUSED BY THE TAX-DEDUCTORS. NOTHING MORE THAN THIS PARADIGM SHIFT IN APPROACH NEEDS TO BE RE AD INTO THIS SCHEME OF THINGS. IT IS NOT ABANDONMENT OF THE INSTITUTION OF AO (TDS) IN FAVOUR OF THE PROFESSIONALS IN ACCOUNTANCY PRACTICE. IT IS ALSO IMPORTANT TO TAKE NOTE OF A CLARIFICATIO N ISSUED BY THE CBDT. AS CLARIFIED BY THE CBDT VIDE CIRCULAR N O. 767 DT. 22ND MAY 1998 [(1998) 147 CTR (ST) 1] TO THE EFFECT THAT 'IF AN O RDER UNDER S. 195(2) HAS BEEN ITA NO. 3061/MUM/2009 ASSESSMENT YEAR: 2005-06 PAGE 7 OF 11 OBTAINED BY THE PERSON RESPONSIBLE FOR DEDUCTING TA X THE NEW PROCEDURE OF FILING AN UNDERTAKING ALONG WITH THE CERTIFICATE PRESCRIBED I N CIRCULAR NO. 759 WOULD NOT BE APPLICABLE.' IT IS THUS CLEAR THAT THE NEW SCHEME O F REMITTANCES BEING ALLOWED ON THE BASIS OF CHARTERED ACCOUNTANTS CERTIFICATE IS NOT IN SUBSTITUTION OF THE SCHEME OF THINGS ENVISAGED UNDER S. 195(2) OF THE ACT BUT ME RELY TO SUPPLEMENT THE SAME. HOWEVER THE CIT(A) APPEARS TO HAVE PROCEEDED ON TH E BASIS THAT AS LONG AS CHARTERED ACCOUNTANTS CERTIFICATE IS ON RECORD IT IS NOT NECESSARY FOR THE ASSESSING OFFICER TO EXAMINE THE MATTER ANY FURTHER SO FAR A S DISALLOWANCE UNDER SECTION 40(A)(I) IS CONCERNED. BY IMPLICATION THUS THE CHA RTERED ACCOUNTANTS CERTIFICATE IS TREATED AS CONCLUSIVE TO FINALIZE THE STATUS OF TAX ABILITY IN THE HANDS OF THE RECIPIENT OF PAYMENT IN INDIA. 9. IN OUR CONSIDERED VIEW THE CERTIFICATE ISSUED B Y THE CHARTERED ACCOUNTANT ON THE QUESTION OF TAXABILITY OF PAYMENT TO NON-RESIDE NT IN INDIA HAS NO DECISIVE IMPACT ON DETERMINATION OF TAXABILITY OF INCOME IN THE HAN DS OF THE RECIPIENT NON-RESIDENT; IT IS ONLY A PRIMA FACIE EVIDENCE ABOUT THE TAXABIL ITY STATUS AND ITS ACCEPTABILITY BY THE REVENUE AUTHORITIES IS CONFINED TO PERMITTING T HE REMITTANCE ON THE BASIS OF TAXABILITY STATUS CERTIFIED BY THE CHARTERED ACCOUN TANT. IT CANNOT SUBSTITUTE FOR ADJUDICATION ON TAXABILITY IN THE HANDS OF NON-RESI DENT BY THE ASSESSING OFFICER NOR CAN IT BE USED AS A SHIELD BY THE ASSESSEE TO THWAR T ANY PROBE ON THAT ASPECT OF THE MATTER BY THE TAX AUTHORITIES. AS A MATTER OF FACT AS ASSESSEE TAX DEDUCTORS MANDATORY UNDERTAKING ACCOMPANYING THIS CERTIFICATE SHOWS THE QUESTION OF TAXABILITY IN THE HANDS OF THE RECIPIENT REMAINS OP EN AND THE ASSESSEE CONTINUES TO HAVE OBLIGATION TO FILE ALL THE RELEVANT DETAILS E NABLING DETERMINATION OF SUCH LIABILITY BEFORE THE REVENUE AUTHORITIES. IN THIS VIEW OF THE MATTER THE CIT(A) WAS CLEARLY IN ERROR IN ACCEPTING THE CHARTERED ACCOUNT ANTS CERTIFICATES ON THE BASIS OF FOREIGN REMITTANCES WERE MADE AS DECISIVE OF THE Q UESTION THAT THE ASSESSEE DID NOT INDEED HAVE ANY OBLIGATION TO DEDUCT TAXES AT SOURC E FROM THESE PAYMENTS. IN OUR CONSIDERED VIEW THE CIT (A) OUGHT TO HAVE DIRECTED THE ASSESSEE TO FURNISH COMPLETE DETAILS ABOUT EACH OF THE FOREIGN REMITTANCE AND E XAMINE THESE DETAILS TO DETERMINE WHETHER OR NOT TAX WAS INDEED DEDUCTIBLE UNDER SECT ION 195(1) FROM EACH OF THESE ITA NO. 3061/MUM/2009 ASSESSMENT YEAR: 2005-06 PAGE 8 OF 11 PAYMENTS PARTICULARLY AS ADMITTEDLY ASSESSEE DID NOT FURNISH THESE DETAILS BEFORE THE ASSESSING OFFICER AND THE ASSESSING OFFICER HA D NO OCCASION TO DECIDE THE MATTER ON MERITS. TO THAT EXTENT RELIEF GRANTED BY THE CI T(A) CANNOT BE SUSTAINED BY US. AND LEARNED COUNSEL FOR THE ASSESSEE HAS NOW FILED SOME OF THESE DETAILS BEFORE US AND URGED US TO ADJUDICATE THE ISSUE OF TAXABILITY OF THESE PAYMENTS ON MERITS. SOME OF THESE DETAILS ON SAMPLE BASIS ARE AS FOLLOWS: SL NO. NAME AND ADDRESS OF AMOUNT THE BASIS ON WH ICH AMOUNTS THE THE NON RESIDENT NON RESIDENT PAYEE ARE SAID TO BE NOT T AXABLE IN THE HANDS OF THE RECIPIENT 1. RUSSEL NELSON $ 17 753 PROFESSIONAL FEE PAYM ENT CRYNWER SOFTWARE AS RUSSEL NELSON DID NOT HAVE 521 PLEASANT VALLEY ROAD A FIXED BASE IN INDIA THE INCOME POTSDAM NY 13676 WAS NOT TAXABLE IN INDIA UNDER ARTICLE 15 OF THE INDIA US DTAA. 2. SASAM & F LLP $ 3 82 952 PROFESSIONAL FEE PAYM ENT- POBOX 1764 AS THIS CONCERN DID NOT HAVE WHITE PLAINS NY 10602 A FIXED BASE IN INDIA T HE INCOME WAS NOT TAXABLE IN INDIA UNDER ARTICLE 15 OF THE INDIA US DTAA. 3. ORRICK HERRINGTON $ 232 PROFESSIONAL F EE PAYMET- & SUTCLIFFE LLP AS THIS CONCERN DID NOT HAVE A 666 FIFTH AVENUE A FIXED BASE IN INDIA THE IN COME NEW YORK NY 10103 WAS NOT TAXABLE IN INDIA UNDE R ARTICLE 15 OF THE INDIA US DTAA. 10. IN VIEW OF THE FACT THAT NONE OF THE AUTHORITIE S BELOW HAD ANY OCCASION TO EXAMINE THE STATUS OF TAXABILITY IN THE HANDS OF TH E RECIPIENT WE ARE NOT INCLINED TO ADJUDICATE ON THE TAXABILITY OF THESE PAYMENTS IN T HE HANDS OF THE RECIPIENT FOR THE FIRST TIME AT THIS STAGE. IN OUR CONSIDERED VIEW T HE ENDS OF JUSTICE WILL BE MET BY REMITTING THE MATTER TO THE FILE OF THE ASSESSING O FFICER FOR EXAMINING ON MERITS THE TAXABILITY OF THESE PAYMENTS IN THE HANDS OF THE RE CIPIENTS AND WITH A DIRECTION TO RESTRICT THE DISALLOWANCE UNDER SECTION 40(A)(I) IN RESPECT OF ONLY SUCH CASES IF ANY WHERE THE AMOUNTS REMITTED ABROAD HAVE BEEN HELD TO BE CHARGEABLE TO INDIAN INCOME TAX ACT. ITA NO. 3061/MUM/2009 ASSESSMENT YEAR: 2005-06 PAGE 9 OF 11 11. GROUND NOS. 1 AND 1 A ARE THUS ALLOWED FOR STA TISTICAL PURPOSES IN THE TERMS INDICATED ABOVE. 12. IN GROUND NO. 2 THE ASSESSING OFFICER IS AGGRI EVED OF CIT(A)S DELETING THE DISALLOWANCE OF RS 53 12 824 EVEN AS ACCORDING TO THE ASSESSING OFFICER FAILED TO GIVE COMPLETE DETAILS OF EXPENSE SO AS TO FACILITAT E NECESSARY VERIFICATIONS. 13. DURING THE COURSE OF ASSESSMENT PROCEEDINGS TH E ASSESSING OFFICER MADE THE IMPUGNED DISALLOWANCE UNDER SECTION 40(A)(IA) ON TH E GROUND THAT NO TAXES WERE DEDUCTED AT SOURCE BY THE ASSESSEE AND ALSO OBSERV ED THAT APART FROM THE ABOVE (REASON) THE ASSESSEE HAS NOT BEEN ABLE TO GIVE FURTHER DET AILS OF ADDRESS OF THE ABOVE PARTIES AND THE PROOF OF SERVICES ACTUALLY RE NDERED BY THE SAID PARTIES SO AS TO QUALIFY THE EXPENSES WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS. AGGRIEVED ASSESSEE CARRIED THE MATTER IN APPEAL BE FORE THE CIT(A) AND CONTENDED THAT TAXES WERE DULY DEDUCTED AT SOURCE AND THAT TH E PAYMENTS WERE MADE FOR EDITORIAL CHARGES PHOTOGRAPHY CHARGES MUSIC STREA MING CHARGES WHICH WAS WHOLLY AND EXCLUSIVELY FOR THE PURPOSES OF BUSINESS OF TH E ASSESSEE. THE CIT(A) ACCEPTED THESE CONTENTIONS AND REMITTED THE MATTER TO THE FI LE OF THE AO FOR VERIFICATIONS ABOUT COMPLIANCE WITH TAX DEDUCTION OBLIGATIONS. TH E ASSESSING OFFICER IS AGGRIEVED AND IN APPEAL BEFORE US. 14. HAVING HEARD THE RIVAL CONTENTIONS AND HAVING P ERUSED THE MATERIAL ON RECORD WE SEE NO REASONS TO INTERFERE IN THE MATTE R. THE MATTER IS REMITTED TO THE FILE OF THE AO FOR VERIFICATIONS ABOUT FACTUAL ASPE CTS OF DISCHARGING TDS OBLIGATIONS AND AS REGARDS NON SUBMISSION OF INFORMATION IT I S NOT EVEN LEARNED DEPARTMENTAL REPRESENTATIVES CASE THAT ANY SPECIFIC REQUISITION MADE BY THE ASSESSING OFFICER WAS NOT COMPLIED WITH. AS EVIDENT FROM DETAILS TAKE N ON RECORD EVEN IN THE ASSESSMENT ORDER THE EXPENSES ARE INCURRED FOR EDI TORIAL AND OTHER CONTENTS ON THE WEBSITE AND THE ASSESSING OFFICER HAS NOT DISPUTED THE PURPOSES EITHER. IN VIEW OF ITA NO. 3061/MUM/2009 ASSESSMENT YEAR: 2005-06 PAGE 10 OF 11 THESE DISCUSSIONS AS ALSO BEARING IN MIND ENTIRETY OF THE CASE WE APPROVE THE CONCLUSIONS ARRIVED AT BY THE CIT(A) AND DECLINE TO INTERFERE IN THE MATTER. 15. GROUND NO. 2 IS THUS DISMISSED. 16. IN GROUND NO. 3 THE ASSESSING OFFICER IS AGGRI EVED OF CIT(A)S DELETING THE DISALLOWANCE OF RS 63 74 486 IN RESPECT OF SOFTWARE AND PRODUCT DEVELOPMENT EXPENSES. 17. IN THE COURSE OF THE ASSESSMENT PROCEEDINGS TH E ASSESSING OFFICER DISALLOWED RS 1 91 60 012 IN RESPECT OF SOFTWARE USAGE CHARGES AND PRODUCT DEVELOPMENT CHARGES INCURRED BY THE ASSESSEE EVEN AS THE ASSES SEE CONTENDED THAT THESE EXPENSES ARE ROUTINE EXPENSES INCURRED ON WEBSITE C ONTENT UPGRADATION AND NOT FOR CREATION OF NEW ASSETS. WHEN THE MATTER WAS CARRIED IN APPEAL BEFORE THE CIT(A) HE DELETED THE DISALLOWANCE TO THE EXTENT THE EXPENSES WERE INDEED ROUTINE AND PERIODIC EXPENSES SUCH AS ANNUAL MAINTENANCE CONTR ACTS UPGRADATIONS AND TECHNICAL SUPPORT- WHICH AGGREGATED TO RS 63 74 486 . THE ASSESSING OFFICER IS NOT SATISFIED AND IS IN APPEAL BEFORE US. 18. WE HAVE HEARD THE RIVAL CONTENTIONS PERUSED TH E MATERIAL ON RECORD AND DULY CONSIDERED FACTUAL MATRIX OF THE CASE AS ALSO THE APPLICABLE LEGAL POSITION. 19. HAVING CAREFULLY PERUSED THE NATURE OF ITEMS WH ICH HAVE BEEN HELD TO BE OF ROUTINE AND PERIODIC NATURE HAVING REGARD TO THE F ACT THAT NO NEW ASSETS CAME INTO EXISTENCE AND NO ENDURING ADVANTAGE WAS GAINED BY T HE ASSESSEE AS A RESULT OF THIS EXPENDITURE AS ALSO HAVING REGARD TO THE FACT THAT LEARNED DR ALSO COULD NOT POINT OUT ANY SPECIFIC ITEM WHICH COULD BE SAID TO BE NON ROUTINE AND ONE TIME EXPENSE EITHER WE UPHOLD THE ORDER OF THE CIT(A) AND DECLI NE TO INTERFERE IN THE MATTER. ITA NO. 3061/MUM/2009 ASSESSMENT YEAR: 2005-06 PAGE 11 OF 11 20. GROUND NO. 3 IS ALSO DISMISSED. 21. IN THE RESULT THE APPEAL IS PARTLY ALLOWED FOR STATISTICAL PURPOSES IN THE TERMS INDICATED ABOVE. PRONOUNCED IN THE OPEN COURT TODAY ON 5TH DAY OF SEPTEMBER 2011. SD/- SD/- (ASHA VIJAYRAGHAVAN ) (P RAMOD KUMAR) JUDICIAL MEMBER ACCOUNTANT MEMBER MUMBAI; 5 TH DAY OF SEPTEMBER 2011 . COPY FORWARDED TO : 1. THE APPELLANT 2. THE RESPONDENT 3. COMMISSIONER MUMBAI 4. COMMISSIONER (APPEALS) MUMBAI 5. DEPARTMENTAL REPRESENTATIVE D BENCH MUMBAI 6. GUARD FILE TRUE COPY BY ORDER ETC. ASSISTANT REGISTRAR INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES MUMBAI