DCIT Circle 5 (1), v. MRO (India) (P) LTd,

IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCH : D : NEW DELHI BEFORE SHRI I.P. BANSAL JUDICIAL MEMBER AND SHRI K.G. BANSAL ACCOUNTANT MEMBER ITA NO.3838/DEL/2007 ASSESSMENT YEAR : 2004-05 THE DCIT CIRCLE 5 (1) NEW DELHI. VS. M/S MRO (INDIA) (P) LTD. 519 VTH FLOOR ANSAL CHAMBER-II BIKAJI CAMA PLACE NEW DELHI. PAN : AACCK8748K (APPELLANT) (RESPONDENT) ASSESSEE BY : SHRI AJAY VOHRA & SHRI SACHIT JOLLY ADVOCATES REVENUE BY : SHRI K. RAVI RAMACHANDRAN DR ORDER PER I.P. BANSAL JUDICIAL MEMBER THIS IS AN APPEAL FILED BY THE REVENUE. IT IS DIRECTE D AGAINST THE ORDER PASSED BY THE CIT (A) DATED 4 TH JUNE 2007 FOR ASSESSMENT YEAR 2004-05. GROUNDS OF APPEAL READ AS UNDER:- 1. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS JUSTIFIED IN ALLOWING THE DED UCTION OF RS. 27 11 280/- TOWARDS OPERATING EXPENSES BEING AMOUNT PAID/PAYABLE OF M/S MRO INTERNATIONAL NEW ZEALAND HOL DING THAT THE SERVICES IN THE FILED OF DNA TESTING TO THE PROSPECTIV E INDIAN IMMIGRANTS BY USA BASED CERTIFIED LABORATORY ARE NOT C OVERED BY THE PROVISIONS OF TDS AND SEC. 40(A) OF INCOME TA X ACT 1961. 2. WHETHER ON THE FACTS AND IN THE CIRCUMSTANCES OF THE CASE THE LD. CIT(A) WAS JUSTIFIED IN HOLDING THAT THE I MPUGNED SERVICES NOT LIABLE FOR TDS AND NOT COVERED UNDER PRO VISIONS OF SEC. 40(A) EVEN THOUGH NECESSARY PARTICULARS WERE NOT FILED BEFORE THE AO. IN DOING SO CIT(A) HAS NOT ADJUDICATE D THE ITA NO.3838/DEL/2007 2 APPLICABILITY OF SEC. 44AD OF INCOME TAX ACT 1961 RE LIED UPON BY THE AO. 3. THE APPELLANT CRAVES LEAVE TO ADD TO ALTER OR AMEN D ANY GROUNDS OF THE APPEAL RAISED ABOVE AT THE TIME OF THE HE ARING. 2. THE ASSESSEE COMPANY IS INCORPORATED IN INDIA IN THE YEAR 2002 WITH THE OBJECT OF UNDERTAKING BUSINESS IN SERVICE SECT OR RANGING FROM MEDICAL TESTING TO TOUR OPERATORS. DURING THE YEAR U NDER CONSIDERATION IT HAS CARRIED ON THE ACTIVITY OF PROVIDING SERVICE I N THE FORM OF DNA TESTING TO THE PROSPECTIVE INDIAN IMMIGRANTS FOR USA E MBASSY LOCATED IN DELHI AND MUMBAI. FOR THIS PURPOSE IT HAD ARRIVE D AT AN UNDERSTANDING WITH MRO LTD. NEW ZEALAND WHICH HAS BE EN SPELT OUT IN LETTER ISSUED BY THEM TO THE ASSESSEE DATED 29 TH APRIL 2002 THE COPY OF WHICH IS PLACED AT PAGE 53 OF THE PAPER BOOK. THE C ONTENTS OF THE SAID LETTER ARE AS UNDER:- DATE: 29.4.002 FROM: MRO LTD. NEW ZEALAND TO: MRO INDIA PVT. LTD. SUB: BUSINESS PLAN FOR INDIA OPERATIONS DEAR SIRS AS YOU ARE AWARE MRO INTERNATIONAL HAS SUCCESSFULLY FINALIZED A LONG TERM CONTRACT FOR YOU WHEREBY YOU ARE APPOINTED AS THE SOLE AUTHORIZED REPRESENTATIVE FOR DELHI FOR THE PURPOS ES OF CONDUCTING DNA TESTS FOR THE US CONSULATE. THE DETAILED TERMS OF CONTRACT ARE BEING SENT TO YOU. PL EASE ORGANIZE YOUR FACILITIES IN ORDER TO PROVIDE SATISFACTO RY SERVICES TO THE CLIENTS. INITIALLY THE US CONSULATE HAS AGREED TO THIS APPOINTMENT FOR ONLY NEW DELHI BUT WE ARE ALSO TRYING TO EXTEND THIS CON TRACT FOR YOU TO MUMBAI. THE TWO LOCATIONS WOULD HAVE THEIR OBVIOUS ADVANTAGES. AS PER YOUR REQUEST THE MRO GROUP HEAD QUARTERS IN NE W ZEALAND WILL PROVIDE THE FOLLOWING SERVICES ON A REG ULAR BASIS FOR YOUR BUSINESS OPERATIONS: - ITA NO.3838/DEL/2007 3 1. WE SHALL PROVIDE ALL THE NECESSARY DATA PROCEDURE S AND DOCUMENTATION FORMATS FOR THE OPERATION OF THE BUSINESS. 2. WE WILL PASS ON ALL THE RELEVANT INFORMATION ON THE VARIOUS DNA LABS OPERATING IN THE USA GIVING THEIR RELIABILITY CAPACITY QUALITY OF SERVICE AND CHARGES. 3. ONCE YOU SHORT LIST THE DNA LAB WE CAN NEGOTIATE WITH THEM IN ORDER TO OBTAIN THE MOST COMPETITIVE AND ECONOMICAL RATES. SIMULTANEOUSLY YOUR CONCERN ON THE TIMELY DELIVERY OF TEST REPORTS AT A VERY NOMINAL EXTRA COST SHALL BE KEPT IN MIND WHILE FINALIZING TERMS WITH THE LAB. 4. WE SHALL COORDINATE WITH YOUR APPROVED DNA LAB AND THE US GOVERNMENT IN THE US FOR THE SMOOTH RUNNING OF YOUR BUSINESS AND TIMELY DELIVERABLES. OUR REPRESENTATIVE OFFICE IN THE US CAN BE APPROACHED FOR ANY SPECIFIC ISSUES. 5. ALL THE ABOVE SERVICES SHALL BE RENDERED IN THE US AND/OR IN NEW ZEALAND. 6. OUR CHARGES FOR PROVIDING THE ABOVE SERVICES SHAL L BE @ USD 260 PER CASE. WE AGREE TO YOUR SPECIAL REQUEST TO GRANT YOU A MORATORIUM PERIOD OF NEARLY A YEAR IN RESPECT OF OUR CHARGES. THIS IS FOR INITIA L ESTABLISHMENT AND THE STREAM LINING OF YOUR BUSINESS OPERATIONS. THE CHARGES SHALL BE LEVIED STARTING FROM 1.4.03 AND ARE TO BE SETTLED ANNUALLY. WE TRUST THAT THIS SPECIAL CONCESSION WILL PROVIDE A BREATHER TO YOUR OPERATIONS. IN CASE YOU HAVE ANY QUERIES REGARDING THE ABOVE PL EASE INFORM US. THANKS YOURS SINCERELY CHRIS ANDERSEN FOR MRO LTD. (NEW ZEALAND) 3. ACCORDINGLY DURING THE YEAR UNDER CONSIDERATION THE ASSESSEE HAD INCURRED A LIABILITY TOWARDS MRO NEW ZEALAND FOR PAYING A SUM OF ` 27 11 280/- ON ACCOUNT OF SERVICES RENDERED BY THEM T O THE ASSESSEE TO FACILITATE TO GET THE DNA TEST REPORTS OF PROSPECTI VE INDIAN IMMIGRANTS REQUIRED TO BE SUBMITTED TO US EMBASSY FOR I MMIGRATION OF THOSE PERSONS TO UNITED STATES. THE ASSESSEE WAS REQUIRED T O SHOW CAUSE AS TO WHY SUCH AMOUNT COULD BE ALLOWED TO THE ASSE SSEE. VIDE ITA NO.3838/DEL/2007 4 SUBMISSIONS MADE VIDE LETTERS DATED 22 ND SEPTEMBER 2006 18 TH OCTOBER 2006 AND 27 TH OCTOBER 2006 IT WAS SUBMITTED BY THE ASSESSEE THAT MRO NEW ZEALAND (FOREIGN COMPANY) HAS HELP ED THE ASSESSEE FOR ESTABLISHING ITS BUSINESS PROCUREMENT OF WORK FOR US EMBASSY AS WELL AS DNA TEST LABORATORY BY USA AT THE MOST REASONABLE AND DISCOUNTED BASIS. THESE SERVICES WERE RENDERED OUTSIDE INDIA AND INCOME OF THE RECIPIENT COMPANY IS NOT TAXABLE IN IN DIA. SUCH PAYMENT DID NOT ATTRACT THE PROVISIONS OF TDS. SECTION 40 (A ) APPLIES ONLY IF THE PAYMENTS MADE BY THE ASSESSEE ARE IN THE NATURE OF (A) R OYALTY; (B) FEE FOR TECHNICAL SERVICES; AND (C) OTHER SUMS CHARGEAB LE UNDER THE ACT. IT WAS SUBMITTED THAT THE FOREIGN COMPANY HAS RE NDERED LIAISON AND COORDINATION SERVICES FOR THE ASSESSEE COMPANY WITH D NA DIAGNOSTIC LABORATORY AT USA AND WITH US FEDERAL COM PANY. THE COORDINATION AND LIAISON IS REQUIRED FOR APPROVAL AND ACCEPTANCE OF DNA TEST REPORTS SUBMITTED BY THE ASSESSEE COMPANY TO US E MBASSY. THE FOREIGN COMPANY WAS CONSTANTLY FOLLOWING UP THE C HANGES IN THE IMMIGRATION LAWS AND OBTAINING ALL NEW REGULATIONS ON DNA TESTING IMMIGRATION AND STIPULATION OF USA IMMIGRATION OFFIC E AND THE IDENTITY ASSESSMENTS PROCEDURE FOR PROSPECTIVE IMMIGRANTS. IT WAS F URTHER SUBMITTED THAT ALL USA IMMIGRATION OFFICES FOR ENSURI NG THAT THE COUNTRY OFFICE FOR DNA TEST DOING THE JOB-WISE RULE B OOK USED THE TERM CHAIN OF CUSTODY. THE ASSESSING OFFICER DID NOT ACCEP T SUCH SUBMISSIONS OF THE ASSESSEE AS ACCORDING TO THE ASSESSING OFFIC ER THE ASSESSEE HAS NOT FILED NUMBER AND DESIGNATION OF STAFF DUR ING LIAISON IN USA. IT DID NOT GIVE THE NATURE AND DETAIL OF LIAI SONING DONE BY MRO INTERNATIONAL EACH CASE WISE FOR 237 CASES. THE ASSESSEE H AS ALSO PAID TESTING CHARGES OF ` 46 34 422/- IN THE NATURE OF REI MBURSEMENT TO DNA LABORATORY AT USA. THE NATURE OF BUSINESS OF THE ASSESSEE COMPANY IS TO PROVIDE SPECIALIZED SERVICE TO PROSPECTIVE IMMIGRAN TS TO US REFERRED BY US EMBASSY. THE ASSESSEES PLEA FOR NON-DEDUCTION OF T AX ALSO TURNED DOWN BY THE ASSESSING OFFICER ON THE GROUND THAT SIMPLY IF ITA NO.3838/DEL/2007 5 OUTSIDE PARTY DOES NOT HAVE PERMANENT ESTABLISHMENT IN INDIA EVEN THEN ACCORDING TO THE PROVISIONS OF SERVICE TAX ACT THE SERVICE TAX IS CHARGEABLE ON NUMBER OF SERVICES WHICH ARE PROVIDED B Y A PERSON WHO DOES NOT HAVE ANY FIXED ESTABLISHMENT OR PERMANENT ADD RESS IN INDIA. THE ASSESSING OFFICER HAS REFERRED TO A CIRCULAR ISSUED BY CENTRAL BOARD OF EXCISE AND CUSTOMS AND HAS COME TO THE CONCLUSION THA T TAX WAS DEDUCTIBLE. THE ASSESSING OFFICER HAS ALSO MENTIONED ABO UT APPLICABILITY OF PROVISIONS OF DTAA SECTION 9(1) AND 40(A) AND 195 OF THE INCOME-TAX ACT AND ACCORDINGLY HE DISALLOWED T HE AMOUNT OF ` 27 11 280/-. 4. BEFORE CIT (A) THE ASSESSEE HAD FILED DETAILED SUBMI SSIONS AND IT WAS SUBMITTED THAT THE PAYMENTS MADE BY THE ASSESSEE TO MR O NEW ZEALAND WERE NEITHER IN THE NATURE OF ROYALTY NOR IN THE NATURE OF FEE FOR TECHNICAL SERVICES. IT WAS SUBMITTED THAT IT IS ALSO NOT CHARGEABLE TO TAX UNDER OTHER SUM CHARGEABLE UNDER THE ACT. A CERTIFICATE WAS ALSO PRODUCED ACCORDING TO WHICH MRO NEW ZEALAND HAD CONSIDERED THE SAID AMOUNT FOR THE PURPOSE OF OFFE RING THE INCOME IN NEW ZEALAND. AFTER CONSIDERING ALL THE SUBMISSIONS O F THE ASSESSEE LEARNED CIT (A) HAS RECORDED A FINDING THAT MRO NEW ZEALAND DOES NOT HAVE PE IN INDIA. MRO INDIA HAS PAID TO MRO NEW ZEA LAND A SUM OF ` 27 11 280/- FOR RENDERING LIAISON AND COORDINATING SE RVICES AT USA. THE SAID PAYMENT DOES NOT FALL WITHIN THE AMBIT OF ROYALT Y AND FEE FOR TECHNICAL SERVICES. ACCORDING TO SECTION 195 THE ASSE SSEE COULD BE UNDER AN OBLIGATION TO DEDUCT TAX AT SOURCE ONLY IF THE PAYMENT/REMITTANCE ARE A SUM CHARGEABLE TO TAX IN IN DIA. IN THE ABSENCE OF LIABILITY REGARDING DEDUCTION OF TAX SEC TION 40 (A) COULD NOT BE APPLIED HENCE HE HAS DELETED THE DISALLOWANCE. THE DEPARTMENT IS AGGRIEVED HENCE IN APPEAL. ITA NO.3838/DEL/2007 6 5. AFTER NARRATING THE FACTS LD. DR RELYING UPON TH E OBSERVATIONS OF THE ASSESSING OFFICER PLEADED THAT THE ASSESSEE WAS REQUIRED TO DEDUCT TAX AT SOURCE FROM THE AFOREMENTIONED PAYMENTS. AS TH E TAX WAS NOT DEDUCTED AT SOURCE THE ASSESSING OFFICER HAD RIGHTLY DI SALLOWED THE SAID AMOUNT UNDER THE PROVISIONS OF SECTION 40 (A) OF THE ACT AND THUS HE PLEADED THAT THE ORDER OF LEARNED CIT (A) SHOULD BE SET ASIDE AND THAT OF ASSESSING OFFICER SHOULD BE RESTORED. 6. ON THE OTHER HAND IT WAS SUBMITTED BY LEARNED AR THAT MRO NEW ZEALAND DOES NOT HAVE PERMANENT ESTABLISHMENT IN I NDIA. THE SERVICES WERE RENDERED BY THE SAID CONCERN ONLY OUTSIDE INDIA FOR FACILITATING THE OBTAINING OF DNA TEST REPORT FROM U SA APPROVED LABORATORIES. THE AMOUNT RECEIVED BY MRO NEW ZEALAN D WERE NOT CHARGEABLE TO TAX IN INDIA AND THOSE WERE ASSESSABLE IN NEW ZEALAND. IT WAS CONTENDED THAT PROVIDING LIAISONING AND COORDI NATING SERVICES AT USA CAN NEITHER BE TERMED AS RIGHT TO USE THE EQUIPME NT OR EXPERIENCE TO BRING THE SAME WITHIN THE AMBIT OF RO YALTY. SIMILARLY IT WAS PLEADED THAT IT WAS ALSO NOT IN THE NATURE OF FEE FOR TECHNICAL SERVICES. HE SUBMITTED THAT THE TERM FEE FOR TECHNI CAL SERVICES AS PER PARA 4 OF ARTICLE 12 OF INDO-NEW ZEALAND DTAA M EANS PAYMENTS OF ANY KIND TO ANY PERSON OTHER THAN PAYMENTS TO AN EMP LOYEE OF THE PERSONS MAKING THE PAYMENTS AND TO ANY INDIVIDUAL FOR INDEPENDENT PERSONAL SERVICES MENTIONED IN ARTICLE 14 IN CONSIDERA TION FOR SERVICES OF A MANAGERIAL TECHNICAL OR CONSULTANCY NATURE IN CLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL. IT WAS SUBMITTED THAT THE SERVICES RENDERED BY MRO NEW ZEALAND WERE NE ITHER IN THE NATURE OF MANAGERIAL NOR TECHNICAL NOR CONSULTANCY N ATURE. THUS IT WAS PLEADED THAT LEARNED CIT (A) HAS RIGHTLY HELD THA T UNLESS THE AMOUNT PAID BY THE ASSESSEE TO MRO NEW ZEALAND IS CHARGE ABLE TO TAX UNDER INDIAN INCOME-TAX ACT THE ASSESSEE WAS NOT UNDER AN OBLIGATION TO DEDUCT TAX AT SOURCE AND THUS HE HAS RIGHTLY HELD THAT SECTION 40 ITA NO.3838/DEL/2007 7 (A) WAS NOT APPLICABLE. HE SUBMITTED THAT RECENTLY H ONBLE SUPREME COURT IN THE CASE OF GE INDIA TECHNOLOGY CENTRE PVT. LTD. VS. CIT 327 ITR 456 (SC) HAS HELD THAT FOR AN OBLIGATION TO DEDU CT TAX AT SOURCE U/S 195 IT IS A CONDITION PRECEDENT THAT THE AMOUNT ON WHICH TAX IS SOUGHT TO BE DEDUCTED SHOULD BE CHARGEABLE TO TAX UNDER IND IAN INCOME-TAX ACT. THUS IT WAS PLEADED BY LEARNED AR THAT LEARNED CIT (A) HAS RIGHTLY DELETED THE DISALLOWANCE AND HIS ORDER SHOULD UPHELD. 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS IN THE LIGHT OF THE MATERIAL PLACED BEFORE US. THE QUESTION THAT THE ASSESSEE WHETHER IS UNDER AN OBLIGATION TO DEDUCT TAX AT SOURCE HAS TO BE CONSIDERED IN THE LIGHT OF THE DECISION OF HONBLE SUPREME COURT I N THE CASE OF GE INDIA TECHNOLOGY CENTRE PVT. LTD. VS. CIT (SUPRA). N OW IT HAS BECOME A SETTLED LAW THAT THE EXPRESSION CHARGEABLE UNDER TH E PROVISIONS OF THE ACT IS TO BE UNDERSTOOD AS A LIABILITY TO PAY TAX UNDER INCOME-TAX ACT AND UNLESS THERE IS A LIABILITY TO PAY INCOME-TAX UNDER THE INDIAN INCOME-TAX IT CANNOT BE SAID THAT IN ALL CASES TAX HA S TO BE DEDUCTED FROM THE PAYMENT/REMITTANCE MADE BY AN ASSESSEE IN INDI A TO A NON- RESIDENT ENTITY. IT HAS BEEN OBSERVED BY HONBLE SUPRE ME COURT THAT ONE CANNOT READ SECTION 195 AS SUGGESTED BY THE DEPAR TMENT NAMELY THE MOMENT THERE IS REMITTANCE THE OBLIGATIO N TO DEDUCT TAX AT SOURCE (TAS) ARISES AND IF SUCH CONTENTION OF THE DEPAR TMENT IS ACCEPTED THAT WOULD MEAN THAT ON MERE PAYMENT INCO ME WOULD BE SAID TO ARISE OR ACCRUE IN INDIA AND SUCH INTERPRETATI ON WOULD MEAN OBLITERATION OF EXPRESSION SUM CHARGEABLE UNDER THE P ROVISIONS OF THE ACT FROM SECTION 195 (1). THEREFORE TO HOLD THAT THE ASSESSEE IS UNDER AN OBLIGATION TO DEDUCT TAX AT SOURCE U/S 195 IT IS NECESSARY THAT THE PAYMENT/REMISSION SHOULD CONTAIN AN ELEMENT OF INC OME WHICH IS CHARGEABLE UNDER THE INCOME-TAX ACT. NOW THEREFOR E IT HAS TO BE EXAMINED THAT WHETHER THE AMOUNT PAID BY THE ASSESSEE T O MRO NEW ZEALAND IS A SUM WHICH COULD BE CHARGED TO INCOME-TAX IN THEIR HANDS ITA NO.3838/DEL/2007 8 IN INDIA. THE CHARGEABILITY OF TAX IN INDIA OF A R ESIDENT OF NEW ZEALAND IS GOVERNED BY THE AGREEMENT OF AVOIDANCE OF DOUBLE TAXATION AND PREVENTION OF FISCAL EVASION WITH NEW ZEALAND ISSUED BY NOTIFICATION NO. GSR 314 (E) DATED 27 TH MARCH 1987 AS AMENDED BY GSR 477 (E) DATED 24 TH APRIL 1988 AND GSR 37 (E) DATED 12 TH JANUARY 2000. THE ASSESSEE HAS PAID LIAISON AND COORDINATION CHARGES TO ITS C OUNTERPART AT NEW ZEALAND AND SUCH PAYMENT HAS THE POSSIBILITY OF ASSESSMENT IN INDIA UNDER TWO ARTICLES NAMELY (I) ARTICLE 7 WHIC H REGULATES THE BUSINESS PROFITS; AND (II) ARTICLE 12 WHICH REGULATES I NCOME ARISING OUT OF ROYALTY AND FEE FOR TECHNICAL SERVICES. 8. FOR NON APPLICABILITY OF ARTICLE 7 IT HAS BEEN T HE CONTENTION OF THE ASSESSEE THAT UNLESS MRO NEW ZEALAND HAS A PE IN INDIA THE ARTICLE 7 COULD NOT BE APPLIED TO MAKE THE SAID PAYM ENT LIABLE FOR TAX IN INDIA IN THE HANDS OF MRO NEW ZEALAND. THE CONTE NTION THAT MRO NEW ZEALAND DOES NOT HAVE PE WAS RAISED BY THE ASSESSEE EV EN BEFORE THE ASSESSING OFFICER. NO MATERIAL HAS BEEN BROUGHT ON RECORD BY THE ASSESSING OFFICER TO SUGGEST THAT SUCH CONTENTION OF THE A SSESSEE IS WRONG. THEREFORE THE APPLICABILITY OF ARTICLE 7 IS RULED OUT. 9. NOW COMING TO ARTICLE 12 THE TERM ROYALTY HA S BEEN DEFINED IN PARA 3 OF ARTICLE 12 AND THE TERM FEE FOR TECHNICA L SERVICES IS DESCRIBED IN PARA 4 OF ARTICLE 12. BOTH THE PARAS AR E REPRODUCED BELOW:- 3. THE TERM ROYALTIES AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND RECEIVED AS A CONSIDERATION FOR THE USE O F OR THE RIGHT TO USE ANY COPYRIGHT OF LITERARY ARTISTIC OR SCIE NTIFIC WORK INCLUDING CINEMATOGRAPH FILMS FILMS OR VIDEO TAPES F OR USE IN CONNECTION WITH TELEVISION OR TAPES FOR USE IN CONNECTIO N WITH RADIO BROADCASTING ANY PATENT TRADE MARK DESIGN OR M ODEL PLAN SECRET FORMULA OR PROCESS OR FOR THE USE OF O R THE RIGHT TO USE INDUSTRIAL COMMERCIAL OR SCIENTIFIC EQUIPMENT OR FOR INFORMATION CONCERNING INDUSTRIAL COMMERCIAL OR SCIE NTIFIC EXPERIENCE. ITA NO.3838/DEL/2007 9 4. THE TERM FEES FOR TECHNICAL SERVICES AS USED IN THIS ARTICLE MEANS PAYMENTS OF ANY KIND TO ANY PERSON OTHER THAN PAYMENTS TO AN EMPLOYEE OF THE PERSONS MAKING THE PAYME NTS AND TO ANY INDIVIDUAL FOR INDEPENDENT PERSONAL SERVIC ES MENTIONED IN ARTICLE 14 IN CONSIDERATION FOR SERVICES OF A MANAGERIAL TECHNICAL OR CONSULTANCY NATURE INCLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL . 10. AS IT CAN BE SEEN ROYALTY CAN CONSTITUTE ONLY I F IT IS A PAYMENT OF ANY KIND RECEIVED AS A CONSIDERATION FOR USE OF OR THE RIGHT TO USE ANY COPYRIGHT OF LITERARY ARTISTIC OR SCIENTIFIC WOR K INCLUDING CINEMATOGRAPHIC FILMS FILMS ON VIDEO TAPES USED IN CON NECTION WITH TELEVISION OR RADIO BROADCASTING AND ANY PATENT TRAD E MARK DESIGN OR MODEL PLAN SECRET FORMULA OR PROCESS OR FOR THE USE O F OR THE RIGHT TO USE INDUSTRIAL COMMERCIAL OR SCIENTIFIC EQUIPMENT O R FOR INFORMATION CONCERNING INDUSTRIAL COMMERCIAL OR SCIENTIFIC EXPER IENCE. NO MATERIAL HAS BEEN BROUGHT ON RECORD TO SUGGEST THAT THE PAYMENT MADE BY THE ASSESSEE TO MRO NEW ZEALAND QUALIFY FOR ANY OF THE WORK FOR WHICH THE PAYMENT COULD BE TERMED AS PAYMENT FOR ROYALTY AS PER PARA 3 OF ARTICLE 12. 11. SIMILARLY THE TERM FEE FOR TECHNICAL SERVICES MEAN PAYMENT OF ANY KIND TO ANY PERSON OTHER THAN PAYMENTS TO AN EMPL OYEE OR THE PERSONS MAKING THE PAYMENTS OR TO ANY INDIVIDUAL FOR I NDEPENDENT PERSONAL SERVICES MENTIONED IN ARTICLE 14 IN CONSIDERAT ION FOR SERVICES OF MANAGERIAL TECHNICAL OR CONSULTANCY NATURE INCL UDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL. THE NATU RE OF PAYMENT MADE BY THE ASSESSEE TO MRO NEW ZEALAND IS OF LIAISONING AND COORDINATING TO ENSURE THAT THE BLOOD SAMPLES COLLECTE D BY THE ASSESSEE IS PROPERLY RECEIVED AT US AND THE REPORTS ARE R ECEIVED IN TIME AND AS PER THE TERMS FIXED BY THE US EMBASSY. NEI THER OF THESE SERVICES CAN BE TERMED AS SERVICES IN THE NATURE OF MANA GERIAL TECHNICAL OR CONSULTANCY NATURE. IT IS ALSO NOT PROVI DING THE SERVICES OF ITA NO.3838/DEL/2007 10 TECHNICAL OR OTHER PERSONNEL THEREFORE IT ALSO CANN OT BE SAID THAT SUCH SERVICES FALL WITHIN THE TERM FEE FOR TECHNICAL SERVICES. 12. THE ASSESSING OFFICER HAS DRAWN ANALOGY FROM SERVICE TAX PROVISIONS WHICH ARE TOTALLY DIFFERENT FROM THE PROVI SIONS CONTAINED IN AFOREMENTIONED AGREEMENT OF INDIA WITH NEW ZEALAND AND CANNOT BE SAID TO APPLY ON THE PAYMENTS MADE BY THE ASSESSEE TO MRO NEW ZEALAND. IN OUR OPINION LEARNED CIT (A) HAS RIGHTL Y HELD THAT THE PAYMENTS MADE BY THE ASSESSEE TO MRO NEW ZEALAND WERE NO T THE PAYMENTS IN THE NATURE OF INCOME WHICH COULD BE ASSESSED AS CHARGEABLE TO TAX IN INDIA IN THE HANDS OF MRO NEW Z EALAND. IF IT IS SO THEN THE ASSESSEE WAS NOT UNDER AN OBLIGATION TO DEDUCT TAX AT SOURCE U/S 195 OF THE ACT AND HENCE THE QUESTION OF DISALLO WANCE TO BE MADE U/S 40 (A) OF THE ACT DOES NOT ARISE. HE HAS RIGHTLY D ELETED THE ADDITION. WE CONFIRM HIS ORDER AND THE APPEAL FILED BY THE REVENUE IS DISMISSED. 13. IN THE RESULT THE APPEAL FILED BY THE REVENUE I S DISMISSED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 11.02.20 11. SD/- SD/- [K.G. BANSAL] [I.P. BANSAL] ACCOUNTANT MEMBER JUDICIAL MEMBER DATED 11.02.2011. DK ITA NO.3838/DEL/2007 11 COPY FORWARDED TO: - 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR ITAT TRUE COPY BY ORDER DEPUTY REGISTRAR ITAT DELHI BENCHES