Rane (Madras) Ltd., CHENNAI v. ITO (OSD), CHENNAI

MA 76/CHNY/2011 | 2004-2005
Pronouncement Date: 18-07-2011 | Result: Dismissed

Appeal Details

RSA Number 7621724 RSA 2011
Assessee PAN AACCR9772M
Bench Chennai
Appeal Number MA 76/CHNY/2011
Duration Of Justice 2 month(s) 7 day(s)
Appellant Rane (Madras) Ltd., CHENNAI
Respondent ITO (OSD), CHENNAI
Appeal Type Miscellaneous Application
Pronouncement Date 18-07-2011
Appeal Filed By Assessee
Order Result Dismissed
Bench Allotted A
Tribunal Order Date 18-07-2011
Date Of Final Hearing 01-07-2011
Next Hearing Date 01-07-2011
Assessment Year 2004-2005
Appeal Filed On 11-05-2011
Judgment Text
IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH CHENNAI BEFORE DR. O. K. NARAYANAN VICE PRESIDENT AND SHRI GEORGE MATHAN JUDICIAL MEMBER .. M.A. NO. 76/MDS/2011 (IN ITA NO. 106/MDS/2009) ASSESSMENT YEAR : 2004-05 M/S. RANE (MADRAS) LTD. MAITHRI 132 CATHEDRAL ROAD CHENNAI-600 086. V. THE INCOME TAX OFFICER COMPANY CIRCLE-V(3) CHENNAI. (PAN: AACCR9772M) (APPLICANT) (RESPONDENT) APPLICANT BY : SHRI R. VIJAYARAGHAVAN RESPONDENT BY : SHRI ANIRUDH RAI O R D E R PER GEORGE MATHAN JUDICIAL MEMBER : THIS IS A MISCELLANEOUS APPLICATION FILED BY THE A SSESSEE ON 11-05-2011 AGAINST THE ORDER OF THE TRIBUNAL IN ITA NO. 106/MD S/2009 DATED 11-06-2010 FOR THE ASSESSMENT YEAR 2004-05. 2. SHRI R. VIJAYARAGHAVAN ADVOCATE REPRESENTED ON BEHALF OF THE ASSESSEE AND SHRI ANIRUDH RAI LEARNED CIT-DR REPRESENTED ON BEH ALF OF THE REVENUE. 3. THE ASSESSEE HAS FILED THIS MISCELLANEOUS APPLIC ATION WHEREIN IT HAS BEEN STATED AS FOLLOWS : MA 76/MDS/2011 2 THE MISCE L LA N EO U S PETITION IS FI L E D AGA IN S T TH E OR D E R OF THE INCOME TAX APPELLATE T R I BUN A L ' A ' B E N C H ( ' A PP EL L A T E T RIBUNAL ' ) D A T E D 11 TH JUN E 20 1 0 . T H E IS S UE INVO L VED IN T H E A PP EA L IS D ISA LL OWA N CE UNDER S E CTION 40(A )( I ) O F THE INC O M E- T AX ACT 1961 ( ' TH E ACT ' ) ON PAYME N TS OF E X PO R T C OMMI SSI ON T O M / S . A L A QU I LL I TRA D ING L . L . C . D U BAI A ND MR . JA M ES DRU TC H AS U . S . A ( HEREIN R E F E RR E D AS 'C ON S ULT A NT S / R E P RESENTATIVE S' ) T H E AP P E LL ATE TRI BUN AL H AS DI S MIS S ED TH E APP E AL OF TH E P ET ITI ONER / APPELLA N T AND CO N FIRME D TH E D ISA LL OWANCE U ND E R S ECTION 40 (A)( I ) OF T H E ACT W I THOUT ANA L Y Z ING A N D CO N C LUD ING TH E F OLL OW IN G ISSUES R A I S ED B E FOR E TH E T RIBUNAL . T H E PETITIO N ER H AS RA I SED THE FO LL OWI N G S UB M I SSIONS W H I L E A R GUING THE MATTER BEFORE T H E HON ' B L E BE N CH : I) APPLICABILITY OF CIRCULAR 786 DATED 07.02.2000 THE P E T I TI O N E R I N P AGE 3 & 4 OF TH E A PP E LL A T E O RD ER S T ATES W I TH RESPECT TO C IRCULAR 78 6 D A T E D 07 . 02 . 2000 AS UND E R : ' BOTH ARE PA Y MENT S FOR AC Q UIRING ORDERS FROM ABROAD. B Y VIRTU E OF C IR C ULAR 7 86 OF2000 TH E A M OUN T IS NOT T A XABL E . WI TH DRAWAL OF T H E CIRCULAR I S ONL Y PROSPECTIVE . JCIT V GEORGE WI L LIAMS ON (AS SAM) LTD . L INDOPEL GARMENTS (P) LTD.V. DCIT SOL PHARMACEUTICALS LTD V ITO 116 ITD 328 GAU 86 ITD 102 MAD 83 I TD 72 H Y D INDTELESOFT (P) LTD. IN RE 267 ITR A.A.R. WITHDRAWAL OF CBDT CIRCULAR 786 DT. 7.2.2000 OF 2009 IS PROSPECTIVE: SIEMENS 2010-TIOL-102-ITAT-MUM SHAKTHI RAJ FILM DISTRIBUTORS V. CIT 213 ITR 20 BOM CIT V. JANARDHANA MILLS 311 ITR 439 MAD MA 76/MDS/2011 3 T H E P E TITI O NE R S U BMIT S THAT THOU G H TH E APPE L LAT E TRIBUN A L H AS REPROD U CED IN ITS O RD E R TH E N O TE S O F A R G UM E NT S S UBMITT E D AT THE TIM E O F H EA RIN G I T H AS NOT GIVEN ANY A N A L YS I S AND CONCLUSI O N O N THE APPLICABI L IT Y OF T H E C IRCULA R . TH E R EFORE THE R E IS A MI S T A K E I N T H E O RD ER W HI CH RE QUIR ES T O B E R E CTIFI E D . II)SECTION 9(1)(VII)(B) EARNING OF INCOME FROM A SOURCE OUTSIDE INDIA T H E RE L EV ANT NOTE S OF A R GUMENTS A S G IVEN IN PA G E 4 OF THE O RD ER A R E EX T RAC T ED BE L OW: ' THE PAY M E N T IS I N CO NN ECTIPN WI TH EXPO R TS A ND H E N CE IT IS NOT DEEMED TO A CC RU E IN INDIA B Y TH E VIRTU E O F E X C LU S ION UND ER SEC 9( 1 )(VII)(B) . CI T V KK K WEST GER M A N Y 262 ITR 513 MAD. TITA N I N DUS TR IES LT D V I T O (2007) 11 SOT 206 BANG. LUFTHANSA 1 NDIA CARGO P LTD. 91 ITD 133 DEL. IN THE SAID ORDER THE APPELLATE TRIBUNAL HAS OBSE RVED AS UNDER : ' IT IS TRUE T H AT THE TEC HN ICA L I N FO RM ATIO N DOES NOT BE L ONG TO THE REPRES E NTATIVE BU T T H E REPRESENTA T IVES H AVE SO U RCE T H E TEC HNI C AL I N FO RM A T ION IN THEIR T E RRITORY A N D SUP PL IED THE S AME TO TH E ASSESSEE FO R TH E ADVANCE M ENT OF THE R&D IN TH E ASSESSEE ' S BUSINE S S . THUS T H E SOURCE OF T H E USE OF T H E TECHNICAL INFORMATION I S T H E BUSI N ESS OF T H E ASSESSEE IN IN D IA . T H E PAY M E NT HA S BEEN MADE TO A NON- RESIDENT BY A RECIPIENT FOR ASSISTING THE RESIDENT IN OBTAININ G T EC HNICAL K NOWHOW FOR THE IMPROVE M ENT OF THE RESIDENT ' S PRODUCT IN LIN E WITH TH E R E QUI RE M E NT OF T H E AUTO M OB IL E IND U STRY I N TH E T ER R I T ORY OF THE NON-R E SID E N T . T H US T H E S O URCE OF THE INCOME OF THE N O N- RESI D ENT IS T H E BUSINES S OF TH E ASSESSEE I N INDI A A ND CO N SE QU ENT L Y IT WOULD HAV E TO BE H E LD TH AT T H E INCOME OF T H E N O N-R ESIDENTS IN RE L AT ION TO TH E SO UR CES F R OM IN DIA ARE T H E INCOME BEING ' F EE FOR TECHNICA L SERVICE ' W HI C H ARE D EE M E D TO ACCRUE OR AR I SE IN INDIA ' T H E PET IT IONER S UB MITS T HAT SECTIO N 9( 1 )(VI I )( B ) S TAT ES TH A T I N COME BY WAY OF FEES FOR T E CHNIC A L SE R V IC ES S HALL B E DEEMED T O ACCRU E OR ARI S E I N INDI A I F I T IS PAYA BL E BY A PERSON W H O IS A R ESI D E NT EXCEPT WHERE THE FEES ARE PAYABLE IN RESPE CT O F S ER V IC ES UTILISED IN A BUSINESS OR PROFESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME {ROM ANY S OURCE OUTSIDE INDIA . HOWEVE R TH E A PPELL A T E T RIBUN A L H AS N O T A PPR EC I A T E D TH A T T H E EXPE N SES ARE INCURRED I N CO NN ECTIO N WI TH T H E EX PORT T O US A ND TH E EX P E N SES IN C U RRE D IN CONNECTION WIT H MA 76/MDS/2011 4 EA R NI N G I N CO M E FROM A SO U RCE O UT S ID E INDI A. T H EREFO R E T H E PA Y MENT C A NN O T B E CO N S IDER E D AS I N CO M E DEE M E D T O A CCRU E O R A RI SE TO A N ON- R ESI D ENT IN INDIA. T H E A PP E LL A T E TRI B U N A L H A VING N OT CO N S ID ERE D T H ESE ARGUMENTS ITS ORDER S UFF E R S F ROM AP P ARE N T M I S T AKE W H IC H R E QU IRES TO B E REC TI F I E D. III)ARTICLE 26(3) OF INDIA-USA TAX TREATY. T H E P E TITION E R S UBMIT S TH A T AR TI C L E 26(3) O F T HE INDI A - USA TAX TREATY DEA L S WITH NON - DI SC RIMINA T I O N C LAU SE W H IC H PRO V ID ES TH A T R OY ALT Y A ND OT H E R D I S B URSEMENTS MADE B Y A RES ID E NT OF A C ONTR A CT I N G S TAT E ( PETITIONER ) TO A N ON-RES ID ENT (CONSU L TA N T) I S D E DU C T I BL E IN COMP UT I NG T H E INCO M E OF A RES ID E N T ( P ET IT IONER) A S IF TH E PA Y M E NT I S M ADE TO A RES ID ENT. F URTH ER SEC TI O N 40( A)( I A) W AS A M E ND E D TO INCLUDE FEE FOR T EC H N I CA L SERV I CES PA I D TO RESI D E NT S B Y F INAN CE AC T NO.2 OF 2004 W .E.F 01 . 04 .2 005 . HE N CE PAYME N TS MA D E TO NO N-R ESI D E NT PRIOR TO 0 1 . 0 4 .20 0 5 CA NN OT BE DI S AL L OWED B Y V IRTU E OF A RTI C L E 26(3) A S S IMILAR P A YME N T S T O R ES IDENT S W E R E N OT COVERED U NDER SECTIO N 4 0(A)( IA ) OF TH E IN CO M E TAX AC T . T H E A PP E LL ATE TRIB U NAL HA V ING NOT CONSI D ERE D T H ESE AR G U ME NT S IT S O RD ER S U FFE R S F R O M A PP A R EN T M I STAKE WHICH REQ U IRE S TO B E R EC TIFI E D . IV ) APPLICABILIT Y OF A R TICLE 12(4)(B) OF INDIA - USA DOUBLE T A X AT I ON AV O I DANC E AGREEMENT (DT AA ) - FEE FOR INCLUDED SERVICE S THE RELEVAN T NOTES O F A R G U ME NT S AS G I VEN I N PAGE 4 OF THE APPELLAT E O RD E R A R E EX TRACT E D B E L OW : ' FEE S JAR IN C LUDED S ERVICE AS PER A R TI C L E 12(4)(B) MEANS SERVI CES THAT MAK E AVAI L ABLE TEC HN I C A L KN OW L E D GE EXPERIE N CE S KILL K N OW HOW OR PRO CESS OR TECHNICAL KNOWHOW OR P R OCES S OR CO N SIST OF DEV E LOPMENT AND T R AN SFE R OF TECHNICAL P L AN OR TEC HN IC AL D ES I G N . O NL Y T ECH N ICA L KNOWHOW WHI C H CAN B E UTILIZED FURTH E R B Y TH E R E CIPIE N T W ILL NOT IN C LUD E OTHER S ERVI CES . FICLLIN R E 320IT R 124 (A . A.E . ) ANAPHARM I NC IN R E . 305 ITR 394 A . A . R . IN VERNSYS SYSTE M S I N R E 31 7 IT R 438 A . A . R WORLE Y PARSONS S ERVICE S PVT LTD 313 ITR 7 4 A . A. R BOVIS LEND LEAS (I N DIA ) LTD 2009 - TIOL-666-IT A T-B ANG BHARAT H PE TR O L EU M CO R PO R ATION L T D V JCIT 111 TTJ 3 7 5 MUM . AC IT V . PARADIGM G E OPHYSICAL PTY LTD 11 7 TTJ 8 1 2 D E L ICICI BANK 20 SOT 453 (MUM ) ' IN THE SAID ORDER THE APPELLATE TRIBUNAL HAS OBSE RVED AS UNDER: ' I N RESPECT OF T H E R EP R ESE N TATIVE M R . JD IS TO ASSI S T THE A S S E S SEE C OMPANY A L ONG WI TH I T S G R O UP IN GAI NIN G ACCE S S TO SPEC I AL T RAI N I N G R ESE AR C H PAP E R S AND PUBLICATION S IN C LUDING CUR R ENT JOU RN A L S A N D MAGAZI N ES PERTAININ G TO TH E AUTOMOBIL E IND U STRY TO SUP P O R T T H E R&D A C TI V I T Y O F TH E ASSES S EE C OMPANY ' S GR OU P. T H IS C LEA RL Y MA 76/MDS/2011 5 S H OWS TH A T T EC HNI C AL I N FO RM A T IO N IS BEING MADE AVAILABLE TO THE ASSESSEE A N D MR . J D DID NOT HAVE TEC HN ICA L KNOWLEDG E . IT IS T RUE THAT THE TECHNICAL INFORMATION DOES NOT BELONG TO THE REPRESENTATIVES BUT THE REPRESENTATI VES HAVE SOURCE THE TECHNICAL INFORMATION IN THEIR TERRITOR Y AND SUPPLIED THE SAME TO THE ASSESSEE FOR THE ADVANCEMENT OF THE R&D IN THE ASSESSEE'S BUSINESS ' TH E PETITI O NER R ES PE C T F ULL Y S UBMIT S THAT TH E RE I S MIS CO NC E PTION OF FACT U A L D ETA IL S . TH E APP E LLATE TRIBUNAL OU G H T TO HAVE APPRECIAT E D THAT TH E NON-RES ID E NT R E PR ESE NT A TI VES M E REL Y ASS I S T THE COMPANI ES IN GA ININ G A CC ESS TO TRA I NI N G AND T H EY D O NO T UND ERGO A N Y TR A ININ G A ND PA SS O N TH E T E CHN ICA L INF O R MAT I ON TO THE PETITIONER . I N S U C H A SCE N AR I O T HE SA ID AC T O F RE P RESE NT A T IO N B Y N ON -R ES ID ENT AGENTS CANNOT BE CO N S IDE RE D AS M A K I NG AVA ILABL E T E CHNICAL SE R VI C ES . T H E PE TIT IO N E R S U B MI T S TH A T EVE N I F TH E P AY M E NT IS CO N S ID E R E D AS ' FEE FOR TECH N ICA L SERVICES' AS PER AR TI C L E 1 2( 4 )( B ) O F TH E INDIA - USA D TAA T H E P AY M E N T WOU L D NOT B E TAXA BL E IN INDI A DU E T O TH E A VAILABI L IT Y O F TH E C LA U SE ' MAK E AVAI L A BL E ' IN T H E TAX TREATY . IT IS F URTH ER S UBMITTE D T H AT TH E T E RM ' M A K E AVA IL A BL E ' H AS NOT B EEN DEFINED IN THE I NDI A - USA D TAA . H OWEVE R TH E M E M O R A NDUM OF U N D E R S T AN D I N G (MOU) IN T H E I ND IA - U S A D TAA CONT E MPL A T ES TH A T T EC HNOL OGY W I LL B E CO N SI D ERED AS ' M ADE AV A I L A BL E ' W H E N TH E P E R SO N ACQUIRIN G T H E SERV IC E IS E N A BL E D TO APPLY THE TECHNO L OGY / S KILL S I N VO L VE D I N RE ND E R I NG S U C H SE R VICE. HOWEVE R T H E A PP E LLA T E T RIBUNAL H AS N O T CO N S ID E R E D TH E A R G UM E NT S OF THE PET I TIO N ER A ND HA S N O T INTERPRE T ED THE TERM ' MAK E A V A IL A BLE ' IN TH E PR O P ER PERSPEC TI VE. T H E R EFO R E T H ERE I S A N A PP A R E NT MI S T A K E I N TH E O RD ER W HI C H REQ U IRES TO BE R E CTIFIED . APPLICABILITY OF PROVISIONS OF DTAA ' T H E A PPL ICA B I L I T Y OF TH E D TAA CA NNO T BE CO N S I DERED AT THI S S TA GE A S ONE S HOUL D RE M E MBE R T HAT D T AA I S F OR A VOI D A N CE O F D OUBL E TAXATION . IT I S IN TH E ASSESS M E N T IF AN Y OF TH E TW O NO N- RESIDE NT R EP R ESENTATIV ES OF TH E A SSESSEE THAT THE PROV I SIONS OF DTAA ARE TO BE CO N S ID E R ED . T H IS IS B E CAU S E TH E DT A A AL S O P R OVIDES FOR THE BENEFI C IAL TA XATIO N SU BJ EC T TO TH E CONDITIO N THAT TH E IN C OM E OF T H E NON -R ES I DE NT W H IC H H AS A CC RU E D I N IN D I A HA S B EE N OFFE R ED FOR TAXATION IN THE COUNTRY IN WHICH THE Y ARE RESIDE N T ' THE PETITIONE R SUB MIT S THAT AS PER S U B - SEC T IO N (2) OF SEC T ION 90 OF THE A CT WHERE TH E CE NTR A L GOVE RNM E NT H AS E NT E RED INTO A N AG R EE MEN T W ITH THE GOVERNMENT OF ANY CO UNTR Y O UT S IDE IND IA F O R GR ANTING R E LI EF O F T A X OR AV OIDANC E OF D O UBL E TAXA T IO N THE N IN RE L A T IO N TO TH E ASSESSEE TO W H OM S UCH AG RE E M E NT A PPLI ES T H E PR OVISIO N S OF T H E ACT S H A LL A P P L Y T O TH E EXTE N T TH EY AR E M O R E B E N EFICIA L TO TH A T ASSESSEE. T H E P E TITION E R SUBMIT S T H A T TH E APP E LLAT E T RIBUN A L HA S NOT CO N S ID ERED T H E ABOVE P R OVISION A ND H E LD TH AT PRO V I S ION S OF D T A A A R E TO B E CO N S ID ERED ONL Y IN T H E A SS ESSMENT OF THE N O N-RE S IDENT . SINCE THE OBSER V ATION IN TH E ORD ER IS NO T IN MA 76/MDS/2011 6 ACCORDANC E WITH PRO V I SION S OF S E CTION 90(2 ) O F THE A CT TH E A PPELLAT E OR D E R S U FFE R S FROM APPARENT MISTAK E WHICH REQUIRES TO BE RECTIFIED. V) NON CONSIDERATION OF PAYMENT TO AIAQUILLI TRADI NG LLC DUBAI TH E PETITIONER F URTHER SUBMITS THAT THERE ARE TWO PAYMENT S V I Z . O N E TO J A M ES DRUTCHAS U SA AND THE OTHER TO AL AQUILLI TRADING LLC DUB A I. H O W E VE R TH E APPELLATE TRIBUNAL IN ITS ORDER RESTRICTED THE DISCUSSION ON THE PA Y MENT S O F EX PORT COMMI SS ION MADE TO JAMES DRUTCHAS U SA ONL Y . TH E PETITI O NER S UBMIT S THAT NON - CONSIDERATION O F SPECIFIC I SS UE A M O UNT S TO MI S T A K E APPARENT ON RECORD WHICH REQUIRES TO BE RECTIFIED . VI ) NON-APPLICATION O F THE DECISION OF THE SPECIAL BENCH C HENNA I IN PR ASAD PRODUCTION S THE SPECIAL BENCH IN THE CASE OF PRASAD PRODUCTIONS HELD AS UNDER: ' T H EREF O RE I N OUR VIEW I T I S T H E PA YE R W H O I S TH E F I RS T PERSON TO D E CI D E W H E T HER T H E P AYME N T H E I S MAKIN G B E AR S AN Y IN C OM E C HARA C T E R OF NOT . NOW W E CAN VI S UALI SE VARIOUS S ITUATION S THAT CAN ARIS E FOR THE APPLICABILIT Y OF SEC 1 95 : ( A ) I F TH E BONA F ID E B E LI EF IS T H AT N O PA R T O F T H E PAY M E N T H AS AN Y PORT I ON C HAR GE ABL E TO TA X SEC 195 W OULD B E T OTALL Y INAPPLI C ABL E (B) IF THE PAY E R BELIEV ES THAT WHOL E OF THE PAYMENT I S IN CO M E C H A R GEA BL E T O TA X H E WILL B E LIABLE TO DEDUCT TAX UND E R SEC . 195 ( 1 ) OF TH E ACT . IN TH E ABOV E DECI S ION THE SPECIAL BENCH OBSER VE D THAT THE ASSESSEE S HOULD H AVE B O N A FIDE BELIEF THAT THE PAYMENT IS NOT CHARGEABLE TO T AX IN INDIA. HOW E V E R IN PA GE 18 O F THE APPELLATE ORD E R DATED 11 TH JUNE 2010 THE APPELLATE T RIBUN A L HA S H E LD AS UND ER : ' TH E PA Y M E NT S MAD E BY TH E A S S ESS E E TO TWO REPR ESE NTAT IVES IS P L AI N A ND SIMPL E R E MUNERATION AND NOT R E IMBUR SE MENT OF EXP E N SES. IN FAC T ; I N TH E S UBM ISS ION S MAD E B Y T H E A SSESSEE W HICH I S EX TRACT E D IN P AGE 3 & PAGE 5 OF TH E O RD E R OF TH E C IT TH E WORD U SE D I S R E MUN E RAT E D. T H E R E M U N ERATIO N I S WE LL UND E R S TOOD TO E NCOMPAS S WITHIN IT SE LF TH E E LEM E NT OF I N CO M E . I N TH E C IR C UMSTANCES IT CANNOT BE S AID THAT THE ASSESS E E HAD A BONA FI D E BE LI EF O NC E I T I S H E LD THAT TH E A S S ESSEE DID NOT HA VE BONA F ID E B E LI EF THAT TH E PAY M E NT TO TH E N O N -RES ID E NT S DI D NOT H AVE TH E IN C OM E CO MPON E NT TH E D ECI S ION OF T H E SP E CIAL B E N C H I N TH E C A SE OF PR AS AD P R ODU C TION S LTD. R EFE RR ED TO SUPRA WOU L D NO MORE COM E TO TH E RE SC UE OF TH E A SSESS EE . ' T H E P E TITION E R S UBMIT S THAT THE APPELLATE TRIBUNAL HAS NOT CORR E CTL Y A PPL IE D TH E DECI S ION O F SPECIAL BENC H (SUPRA). THE SPECIAL B E NCH STATES THAT AS S E S SE E S HOULD HA VE BONA FIDE BELIEF THAT THE PAYMENT IS NOT CHARGEABLE TO TAX AND IT DOES NOT C ONTEMPLATE THAT TH E PA Y MENT S HOULD NOT HA V E INCOME C O MPONENT . MA 76/MDS/2011 7 EV EN IF THE PAYMENT H AS INC O M E CO MP O N E NT O NL Y IF T H E S A M E I S C H ARGEA BL E TO TAX IN INDI A T AX H AS TO BE DEDUCTED ON S UCH P AY MENT S . F URTH ER TH E P E TITION E R RES P EC T F ULL Y S UBMIT S THAT W HIL E A R G U I N G TH E APPEA L THIS ISS U E W AS C LARIFI E D . T H E COUN SE L ON R EC ORD POINTED OUT THAT THE ACT O F N O N-D E DU C TI O N OF T AX B Y P E TITION ER IT SE LF ES T A BLI S H ES THE F A CT THAT PETITION E R H A D B O N A FI D E BE L IEF THAT T H E P AY M E NT I S NOT C H ARGEA BL E TO T AX IN INDI A AND A S S UCH IT D O E S NO T WARRANT WITHHOLDING OF T AX . T H ERE FOR E NON- A PPLICATION OF THE DECISION O F THE SP EC I A L B E N C H IN A COR R ECT P ERS P EC TI VE W OULD A M O UNT T O MI S TAKE APPARENT O N R ECO RD W H ICH REQUIRES TO BE RE C T I FIED . T H E P E TITI O N E R TH E R EFORE PR AYS TH A T TH E H O N ' BL E A PP E LL A T E T R IB UN A L MAY BE PLEASED TO RECA LL T H E OR D E R D A T E D 1 1 TH JUN E 2 010 AND REP OS T TH E A PP EA L FOR FRESH HEARING OR IN THE A LT E RN A TI VE S UITABL Y AM E ND TH E ORDER TO RECTIF Y THE AFORESAID MI S TAK ES T H AT ARE APPARE N T F R O M RECO RD A ND TH E R E B Y R END E R J U S TIC E . 4. AT THE TIME OF HEARING THE ASSESSEE HAS ALSO FIL ED A NOTE OF 4 PAGES WHICH READS AS UNDER: NOTE PAYMENT MADE TO TWO NON RESIDENTS FOR PROCUREMENT O R ORDERS. CIRCULA R NO 786 DT 7.2.2000 HAS C L ARIFIED THAT IT IS NOT TAXABLE IN INDIA. THE WITHDR AWAL OF THIS CI RCULAR IN 2009 IS ONLY PROSPECTIVE. 1 . THE CL T HAS DISALLOWED ON THE ONLY GROUND THAT TAX HAS NO T BEEN DEDUCTED AND THAT THE PAYER CANNOT DECIDE WHETHER THE AMOUNT IS TAXAB L E OR NOT. THE CIT'S DECISION IS AGAINST THE DECISION OF THE S PECIAL BENCH AND THE SC DEC I S I ON IN GE TECHNOLOGY. 2. THE ASSESSEE SUBMITTED THAT THE C IT H AS NOT CONSIDERED THE EFFECT OF (A) CBDT CIRCULAR NO 86 DT 7.2.2000. (B) THE I MPORT OF 'M A KE AVAILABLE' CLAUSE UNDER THE DTAA WITH USA. (C) PAYMENT WAS MADE IN CONNECTION WITH EXPORTS- MA DRAS HIGH COURT DECISION. (D) UNDER ARTICLE 26(3) OF THE DTAA BETWEEN INDIA A ND USA DISALLOWANCE OF MA 76/MDS/2011 8 IN THE HANDS OF A RESIDENT PAYMENT MADE TO NON DEDUCTION CAN B E MAD E UNDER THE SAME CONDITIONS AS IF THEY HAVE BEEN PAID TO A RESIDENT . DISALLOWANCE OF FEES FOR TECHNICAL SERV I CES PAID TO NON RESIDENT FOR NON TDS IS NOT PERM I SSI B L E AS SIMILAR PROV I SION IS NOT APPLICABL E TO RESIDENTS T ILL LA T ER . AS THESE ISSUE HAD NOT BEE N CONSIDERED BY THE CIT THE SAME SHOULD HAVE BEEN SET A SI DE TO THE CLT OR THE AO FOR CONSID E RATION. 3. THE TRIBUNAL HAS HELD THAT THE ASSESSEE DID NOT HAVE BONAFIDE BELIEF THAT THE AMOUNT I S NOT TA X ABLE ON THE SOLE GRO U ND THAT PAYMENT IS REMUNERATION AND NOT REIMBU R SEMENT. EVEN REMUN E RATION UNDER THE ABOVE CIRCUMSTANCES IS NOT TAXABLE IN I ND I A . HENCE THE ASSESSEE BONA F I DE BE LI EVED THAT THE A MOUNT IS NOT TAXABLE . 4 . I N CA S E OF JD USA HE ME R ELY ASSISTED THE APPELLANT IN GAINING ACCESS TO TRAIN I NG ET C . FO R A N A MOUN T T O B E CONSIDERED A S FEES FOR INCLUDED SERV I CES THE ASSESSEE SHOULD HIMSELF MAKE AVAILABLE TECH NICAL KNOWLEDGE SKILL ETC . THE EXAMPLES GIVEN AS AN ANNEXURE TO THE DTAA HAS E XPLAIN E D . IN ANY EVENT TWO VIEWS ARE POSSIBLE . 5 . ITAT H AS R EFER RED TO E X PLANAT I ON2 TO SEC 9(1) BY FA 2010. SUBSEQUENT A MENDMENT CANNOT SUBSTANTI A TE THE CIT ' S ORDER (CIT V MAX INDIA LTD 295 ITR 282 ( SC) . 6 . THE TR I BUNAL HAS NOT CONSIDERED THE CASE OF THE OTHER AGEN T AI AQU I LLI TRADING LLC IRAN WHOSE JOB IS ONLY TO PROCURE ORDERS AND LIAISE WITH IMPORTERS . THEY HAVE NOT SOURCED ANY TECHN I CAL INFORMATION . 7. THESE PAYMENTS WERE PAID IN CONNECTION WITH EXPO RTS AND HENCE EXEMPT U/S 9(1)(VII)(B). ITAT HAS HELD THAT AS THE SOURCE OF INCOME IS BUSINESS IN IN DIA . ASSESSEE ' S CONTENTION IS SUPPORTED BY JURISDICTIONAL HIGH COURT IN 262 ITR 513 WHERE ALSO ROYALTY WAS PAID FOR EXPORTS FROM INDIA . IN ANY EVENT TWO VIEWS ARE POSSIBLE. 8 . THE ITAT HAS HELD THAT APPLICABILITY OF DTAA CANNOT BE CONSIDERED AT THIS STAGE. IF AN AMOUNT PAID TO NON RESIDENT IS NOT TAXABLE UNDER DTAA THEN THE P AYER IS NOT REQUIRED TO DEDUCT TAX AT SOURCE AND TH E PAYMENT CANNOT BE DISALLOWED U/S 40(A) FOR NON DEDU CTION OF TAX . HEN C E THE PROVISIONS OF DTAA ARE REQUIRED TO BE CONSIDERED. 8 . THE APPELLANT SUBMITTED THAT UNDER ARTICLE 26 (3) O F DTAA WITH USA PAYMENTS MADE TO A NON RESIDENT IS DEDUCTIBLE IN PAYER'S TAXABLE INCOME U NDER THE SAME C ONDITIONS AS IF THEY HA D BEEN PAID TO A RESID E NT. FTS PAID TO A RESIDENT CANNOT BE DISALLOWED FOR NON DEDUCTIO N OF TAX TILL SEC 40(A) WAS AMENDED BY FINANCE ACT (N02) OF 2004 W.E . F. 1 . 4 2005. HENCE THE AMOUNT CANNOT BE DISALLOWED U/S 40(A) FOR THE YEAR IN APPEAL VIZ. 2004-05 . THIS WAS NOT CONSIDERED BY ITAT. 9. I N A NY EVENT IN ALL THE ABOVE ISSUES THERE ARE TWO VIEW S POSSIBLE AND HENCE THE ORDER OF THE CIT CANNOT BE SUSTAINED . MA 76/MDS/2011 9 NOTE B OTH ARE P A YMENT S FOR ACQUIRIN G ORDER S FROM ABROAD . BY V I RTUE OF CIRCU L AR 786 OF 2 0 00 THE A MOUNT I S NOT T A XA BLE . WITH D RAWAL OF THE CIRCULAR IS ON L Y PRO S PECTIVE . K IT V G E OR G E WI L L I AM S ON (AS S AM) LTD . 116 ITD 328 GAU. INDOPE L GARMEN T S ( P) LTD V DCIT 86 ITD 102 MAD. SO L PHARM A CE UT I CAL S LTD V ITO 83 ITD 72 HYD. I T A IN D TE L E S OFT (P) LTD IN R E 267 ITR 725 AAR WITHDRAWAL OF CBDT CIRCULAR 786 DT 7.2.2000 BY CIRC ULAR NO.23 OF 2009 IS PROSPECTIVE: SIEMENS 2010-TIOL-102-ITAT- MUM S H AK T H I RAJ F LM D I S T RI BUTOR S V C IT 213 ITR 20 BOM CI T V JAN A RDHANA MILL S 311 ITR 439 MAD. EVEN IF IT IS CONSIDERED AS FEES FOR TECHNICAL SERV ICES THE P AYME NT I S IN C ONN E CTION W I TH E X PORTS AND HENCE I T IS NOT DEEM E D TO ACCRUE I N IN D IA BY THE VIRT U E OF EX CLU S ION UNDER SEC 9 (1)( V IIB) . CIT V. KKK WEST GERMANY 262 ITR 513 MAD. TITAN INDUSTRIES LTD. V. ITO (2007) 11 SOT 206 B ANG LUFTHANSA INDIA CARGO P. LTD. 91 ITD 133 DEL. IN CASE OF PAYMENT TO THE NON RESIDENT OF USA FEES FOR INCLUDED SERVICE AS PER ARTICLE 12(4)(B) M EANS SERVICES THAT MAKE AVAILABLE TECHNICAL KNOWLEDGE EXPERIENCE SKILL KNOW HOW OR PROCESS OR TECHNICAL KNOW HOW OR PROCESS OR CONSISTOF D EVE LO P M E NT A N D TRAN S F E R OF TECHNICAL PLAN OR TECHNI C AL DES I G N . ONLY TECHN ICA L K NO W H OW WH I CH CAN B E U TI L ISE D FU RTH E R B Y T HE RECIP I ENT. WILL NOT IN C L UD E O T HER S E RVICES. FICCI IN RE 320 ITR 124 (AAR) ANAPHARM INC IN RE . 305 ITR 3 94 AAR I N VE N SYS SYS T EMS I N R E 3 17 I T R 438 A AR WORLEY PARSONS SE R VI C ES P T Y LT D 3 1 3 I T R 74 A AR MA 76/MDS/2011 10 BOVIS L E ND L EAS ( IND I A) ITD 2009-TI O L- 6 66-ITAT -BANG B H A R A TH P E TROLEUM CO R P OR A T I ON LTD V KIT 111 TTJ 3 75 MUM . ACIT V P A RA DIGM GE O P H YSICA L PTY L TD 117 TI J 8 1 2 DE L TAXATION DEPT. ICICI BANK 20 SOT 453 (MUM) UNDER ARTICLE 26(3) OF THE DTAA DEALING WITH WH I CH P R OVID ES F OR NON DI S CRI M I N ATION PROVID E S THAT ROYALTY AND OTHER D ISBURSEMEN T S MADE TO A NON RE S ID E N T IS D E DU C TIB LE IL C O MP U TING THE PAYER ' S TA X ABLE I NCOME UNDER SAME COND I TION S A S I F T H EY HAD BEEN PAI D TO A RESI DENT . 40( A )( I A) WA S AMENDED T O I NCLUDE FEES FOR TECHNICAL S ERVICE S P AI D TO RESIDENTS BY FI N ANCE ACT ( N O 2) OF 2004 WITH EFF E CT FRO M 1.4 . 2005 . HENCE PAYM EN T MA D E PRIOR TO T H AT CA N NOT BE DI S A LL O W E D U /S 40 ( A )( IA ) IN VI EW OF ARTICLE 26 OF THE DTAA B ET WEEN I N D IA AN D U SA THE EXPENDITURE CANNOT BE DISALLOWED MI LL E N I U M I N F O CO M T E C HN OLOG I E S L TD V ACIT 117 ITD 1 1 4 DEL ASIANET COMMUNICATIONS LTD. 2010-TIOL-75-I TAT-MAD AS I ANET C THE O NL Y REASON T HE (IT HAS HELD THE ORDER TO BE ERRON E OU S IS B ECA U SE TH E AS S ESSEE HA S NOT DEDUCTED THE TA X OR APPROACHED THE AO U/S 195(2) FOR APPROVAL TO REMIT W ITHOUT D E D U CT ING TAX. HE HAS NOT REBUTTED THE ASSESSEES CONTENTION THAT THE AMOUNTS REMITTED IS NOT TAXABLE. H E HA S C ONC L UDED THAT IT IS NOT NEC E SSARY TO DETERMINE WH E TH E R IT IS TA X ABLE OR NO T A ND H ENCE NON D E DUCT I ON W I LL RE SULT I N DISALL O WANCE . CIT V. INDIA PISTONS LTD. 295 ITR 550 MAD VIJAY SHIP BREAKING CORPN V. CIT 314 ITR 309 SC PRASAD PRODUCTIONS 2010 TIOL 182-ITAT-MAD-S IN ANY EVENT THERE ARE TWO VIEWS POSSIBLE AND HENCE HE HAS NO JURISDICTION U/S 263. MALABAR INDUSTRIAL CO. LTD. VS. CIT - 243 ITR 83 SC. 11 M .A. 76/MDS/2011 5. AT THE TIME OF HEARING IT WAS SUBMITTED BY THE LEAR NED AUTHORISED REPRESENTATIVE THAT THE TRIBUNAL HAD NOT CONSIDERED THE FACT THAT THE PAYMENT TO THE IRANIAN AGENT WAS NOT FEES FOR TECHNICAL SERVIC ES. IT WAS ALSO THE SUBMISSION THAT THE TRIBUNAL HAD NOT CONSIDERED THAT AS PER AR TICLE 26(III) OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) THE RIGOUR OF SECTION 40(A)(I) OF THE INCOME TAX ACT 1961 (THE ACT FOR SHORT) COULD NOT APPLY SINCE AS PER THE DTAA THE NON- RESIDENT CANNOT BE WORSE OF FROM A RESIDENT TAX PA YER IN RELATION TO TRANSACTION ENTERED BY THE LATTER WITH EVERYBODY IN INDIA. IT WAS THE SUBMISSION THAT THE DECISION PF THE TRIBUNAL IN THE CASE OF ASIANET COM MUNICATIONS LTD. HAD ALSO NOT BEEN CONSIDERED. IT WAS THE SUBMISSION THAT THE OR DER OF THE TRIBUNAL WAS LIABLE TO BE RECALLED. 6. IN REPLY THE LEARNED DR SUBMITTED THAT ALL THE I SSUES WHICH HAD BEEN ARGUED HAD BEEN CONSIDERED BY THE TRIBUNAL AND THE MISCELL ANEOUS APPLICATION FILED BY THE ASSESSEE WAS NOTHING BUT A PRAYER FOR REVIEW OF THE ORDER OF THE TRIBUNAL WHICH WAS NOT PERMISSIBLE. 7. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. A PE RUSAL OF THE MISCELLANEOUS APPLICATION FILED BY THE ASSESSEE SHOWS THAT WHAT H AS BEEN RAISED BY THE ASSESSEE ARE FRESH ARGUMENTS ON THE ISSUES. IT IS NOT POINT ING OUT ANY MISTAKE APPARENT FROM THE RECORD. THE ASSESSEE HAS ALSO RAISED AN I SSUE THAT THE NON-APPLICATION OF THE DECISION IN A PROPER PERSPECTIVE WOULD AMOUNT T O A MISTAKE APPARENT FROM RECORD. HERE WE MAY MENTION THAT THERE HAS BEEN NO NON-APPLICATION OF A DECISION M.A. NO.76/MDS/2011 12 IN THE PROPER PERSPECTIVE. IT IS NOT THE ARGUMENT OF THE ASSESSEE THAT THE DECISION HAS NOT BEEN CONSIDERED. A VERIFICATION OF THE LOG BOOK ALSO SHOWS THAT THE DECISION IN THE CASE OF ASIANET COMMUNICATIONS LTD. WHICH NOW BEING QUOTED BY THE ASSESSEE WAS NOT ARGUED AT THAT POINT OF TIME. THE ASSESSEE DID RAISE AND ARGUED THE CASE ON THE APPLICABILITY OF THE SPECIAL BENCH DECISION IN THE CASE OF PRASAD PRODUCTIONS LTD. WHICH WAS CONSIDERED IN DETAIL. FURTHER ON A SPECIFIC QUERY FROM THE BENCH AS TO WHETHER ANY APPEAL HAS BEEN FILED A GAINST THE DECISION OF THIS BENCH OF THE TRIBUNAL IN ITA NO. 106/MDS/2009 DATED 11-06-2010 NO ANSWER WAS FORTHCOMING. A PERUSAL OF THE NOTE FILED AT THE TI ME OF HEARING ALSO SHOWS THAT THE ARGUMENTS ON THE ISSUES HAD BEEN CONSIDERED AND IT HAS NOT BEEN POINTED OUT THAT THERE WAS ANY MISTAKE APPARENT FROM RECORD. IN THE CIRCUMSTANCES WE ARE OF THE VIEW THAT AS THE ISSUES AS RAISED IN THE APPEAL HAV E BEEN CONSIDERED AND THE SUBMISSIONS OF THE ASSESSEE HAVE ALSO BEEN CONSIDER ED WHILE DECIDING THE APPEAL IN ITA NO. 106/2009 NO MISTAKE APPARENT FROM THE RECO RD IS SHOWN IN REGARD TO THE SAID ORDER. CONSEQUENTLY THE MISCELLANEOUS APPLIC ATION STANDS DISMISSED. 8. THE ORDER WAS PRONOUNCED IN THE COURT ON MONDAY 18 TH DAY OF JULY 2011. SD/- SD/- (DR. O. K. NARAYANAN) (GEORGE MATHAN) VICE PRESIDENT JUDICIAL MEMBER CHENNAI DATED THE 18 TH JULY 2011. H.. COPY TO: APPLICANT/AO/CIT (A)/CIT/D.R./GUARD FILE