TMI Blog2018 (5) TMI 253X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice provider, the 'make available' clause is not satisfied and, accordingly, the consideration for such services cannot be taxed under Article 13 (4) of Indo UK DTAA. Whether rendition of consultancy services makes available any technical knowledge, skill, know how so as the recipient of services can render the same services without recourse to the service provider? - Held that:- Merely because consultancy services has technical inputs, these services donot become technical services and simply because the recipient of a technical consultancy services learns something with each consultancy, there is no transfer of technology in the sense that recipient of service is enabled to provide the same service without recourse to the service provider. Our careful perusal of the consultancy services agreement does not help us find any provision for transfer of technology either. Thus uphold the relief granted by the CIT(A) with respect to payments made to O&O, particularly as it is not even revenue’s case that O&O had any PE in India. On this point, the conclusions arrived at by the CIT(A) are confirmed. As for the payment made to Pharma Action, we find that the details placed on rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 9(1)(vii) at all. This profits of such a business can have taxability in India only to the extent such profits relate to the business operations in India, but then, as are the admitted facts of this case, no part of operations of business were carried out in India. The commission agents employed by the assessee, therefore, did not have any tax liability in India in respect of the commission agency business so carried out. Addition u/s 40(a)(ia) - assessee did not deduct tax at source from the related payment of conference charges - Held that:- In accordance with the law laid down by Hon’ble Delhi High Court in the case of CIT vs Ansal Landmark Township Pvt Ltd (2015 (9) TMI 79 - DELHI HIGH COURT) with the direction that in case the recipient has discharged his tax liability in respect of income embedded in these payments, the disallowance under section 40(a)(ia) will stand deleted. - ITA No. 1388,2766 and 3154/Ahd/2014 And CO Nos. 208 and 328 /Ahd/2014 - - - Dated:- 18-4-2018 - Pramod Kumar AM And S S Godara JM For The Revenue/Appellant : Mudit Nagpal For The Respondent and Cross Objector : Bandish Soparkar ORDER Per Pramod Kumar, AM: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r period expenses. The disallowance was thus deleted. The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us. 6. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 7. Learned counsel for the assessee has invited our attention to Hon ble jurisdictional High Court s judgment dated 20th July 2016, in the case of PCIT Vs Adani Enterprises Ltd (Tax Appeal No. 566 of 2016) wherein Their Lordships have upheld the decision and reasoning of the Tribunal, as relied upon by the CIT(A), and have also observed that even the Revenue does not dispute that the company would be taxed at the same rate in the present assessment year as in the earlier year . When Their Lordships are of such an opinion and taking a broad view of the matter in this wholly tax neutral situation, it was futile for the Assessing Officer to take a pedantic view of the matter as he did. Whether the amount is deductible in year x or year y, as long as delayed claim is not malafide, nothing much really turns on the same, That apart, even on the first principles and under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fficer, however, did not agree. The payment made to O O was, according to the AO, taxable as fees for technical services under article 13 of the Indo UK Double Taxation Avoidance Agreement, and that there was no evidence on record to suggest that M E Shreiff and Paul Jenser were employees of the assessee. He also noted that there was absolutely no explanation with respect to payment made to Pharma Action. He thus disallowed entire payments of ₹ 34,95,874 under section 40(a)(i). Aggrieved, assessee carried the matter in appeal before the CIT(A). The copies of agreements, employment letters and invoices raised by the recipients were duly furnished to the CIT(A). While CIT(A) agreed that the services rendered by O O Mdc Ltd are simply in the nature of consultancy services , which donot make available any technical knowledge, skill or knowhow- as is the condition precedent for invoking taxability under article 13 of Indo UK DTAA, the CIT(A) declined to admit evidences in support of non taxability of payments made to Pharma Action France. To that extent, i.e. ₹ 4,09,927, the disallowance was upheld. As regards the payments for salaries to M E Shreiff and Paul Jenser, lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rticle is received; or ( c)make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. 11. As far as services covered by 13(4)(a) and (b) are concerned, the provisions are self explanatory and there is no controversy about scope of these two categories. The controversy, however, arises about the scope of services covered by 13(4)(c) and in particular by the scope of expression make available used therein. We may also mention that, according to the learned Commissioner, the services rendered by the MEP are covered by the scope of Article 13(4)(c) of the DTAA. 12. The provisions of Article 13(4)(c) clearly depart from the normal definition of fees for technical services in DTAAs that India has entered into with foreign countries which is somewhat on the lines of definition given in Explanation 2 to section 9(1)(vii) of the Income Tax Act. The key difference, in our considered view, is that as against reference to rendering of technical services in the statute and most of the DTAAs, the stress here is on making available technical knowledge, experience, skil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to the provisions, unless there is anything repugnant in the context. We find nothing to support any deviation from the interpretation canvassed in the memorandum of understanding, attached to and forming part of Indo US DTAA, extracts from which have been reproduced above. As stated by Lord Mansfield, where there are different statutes in pari materia though made at different times, or even expired, and not referring to each other, they shall be taken together, as one system and as explanatory of each other . R. v. Loxdale 97 ER 394 at page 395. In our considered view, principle of interpretation of statutes should also govern the interpretation of DTAAs, particularly when those DTAAs deal with the same thing and are identical in material respects. We may also refer to the observations of Griffith, CJ. in the case of Webb v. Outrim AC 81 PC, at page 89 that, When a particular form of legislative enactment, which has received authoritative interpretation whether by judicial decision or by a long course of practice, is adopted in framing a later statute, it is a sound rule of construction to hold that the words so adopted by the Legislature to bear the meaning which has been so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical services has received, in the context of traditional definition of that expression. The question then arises as to what is the precise scope of definition of technical services referred to in Article 13(4)(c) of the India UK DTAA. 17. In our considered view, in order to be covered by the provisions of Article 13(4)(c) of the India UK DTAA, not only the services should be of technical in nature but such as to result in making the technology available to the person receiving the technical services. We also agree that merely because the provision of the service may require technical input by the person providing the service, it cannot be said that technical knowledge, skills, etc., are made available to the person purchasing the service. As to what are the connotations of making the technology available to the recipient of technical services , as is appropriately summed up in protocol to Indo US DTAA, generally speaking, technology will be considered made available when the person acquiring the service is enabled to apply the technology. We are in considered agreement with the views so expressed in the protocol to Indo USA DTAA which, as we have mentioned earlier, als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eiff, Egypt, and Paul Jenser, Philippines, we find that the appointment letters are on record, that there is no dispute that the services are rendered in the related jurisdictions, and that, in terms of the then applicable India Egypt DTAA (Article 16) and India Philippines DTAA (Article 16), the services so rendered by these gentlemen did not lead to any tax implications in India. When the income embedded in the payments did not have any tax implications in India, there was no question of any tax withholdings, and, accordingly, disallowance under section 40(a)(i) could not have come into play. We, therefore, uphold the relief granted by the CIT(A) on this point as well. 16. As for the payment made to Pharma Action, we find that the details placed on record are not really sufficient to form any opinion one way or the other. Prima facie these details show that the payment is made to a French resident for consultancy services but having regard to the fact that al that the assessee has furnished is a copy of invoice without any further details on facts, we deem it fit and proper to remit the matter to the file of the Assessing Officer for fresh adjudication on merits after giving y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... interest liability that had been incurred. In such circumstances, relying on the case of Torrent Financiers (supra), it found that the disallowance was not justifiable. 6. The Tribunal on noting these details, in terms held that there was nothing contrary that could be brought on record by the Department. The assessee's equity share capital ₹ 3.85 cores and reserve and surplus of ₹ 5.52 crores also were noted by the Tribunal. It found that the interest-free funds available with the assessee was far greater than the loan advanced to the sister concerns and as a corollary to that, it concluded that the borrowed money was not utilized for the purpose of advance to the sister concerns, as had been noted by the Assessing Officer. What had weighed with the Tribunal is the fact that the entire interest-free funds included owner's own capital and accumulated profits and other interest-free credits and loans and if the total interest-free advances including the debit balance of the partners did not exceed the total interest-free funds available with the assessee, interest was not disallowable merely on account of the utilization of the funds for non-business purposes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of business. The expenditure may not have been incurred under any legal obligation, but yet it is allowable as a business expenditure if it was incurred on grounds of commercial expediency.. . . We agree with the view taken by the Delhi High Court in CIT v. Dalmia Cement (B.) Ltd. [2002] 254 ITR 377 (Delhi), that once it is established that there was nexus between the expenditure and the purpose of the business (which need not necessarily be the business of the assessee itself), the Revenue cannot justifiably claim to put itself in the arm-chair of the businessman or in the position of the board of directors and assume the role to decide how much is reasonable expenditure having regard to the circumstances of the case. No businessman can be compelled to maximize its profit. The income-tax authorities must put themselves in the shoes of the assessee and see how a prudent businessman would act. The authorities must not look at the matter from their own view point but that of a prudent businessman. As already stated above, we have to see the transfer of the borrowed funds to a sister concern from the point of view of commercial expediency and not from the point of view whether th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t. The short case of the assessee, which has been accepted by the CIT(A), is that functionality test needs to be applied in this context and when equipment is relatable to plant and machinery, depreciation at the rate admissible for plant and machinery needs to be applied. In coming to this conclusion, learned CITI(A) has followed Hon ble Bombay High Court s judgment in the case of CIT vs Park Davis India Ltd (214 ITR 587). The Assessing Officer is aggrieved of the relief so granted and is in appeal before us. 27. Having heard the rival contentions and having perused the material on record, we are not inclined to disturb well reasoned findings of the learned CIT(A). We have also noted that the amount involved in the appeal on this issue is also very small. We confirm and approve the stand of the CIT(A) and decline to interfere in the matter . 28. Ground no. 1 is thus dismissed. 29. In ground no. 2, the Assessing Officer has raised grievance against learned CIT(A) s deleting the disallowance of ₹ 15.38 lakhs under section 40(a)(i) on account of non deduction at source from certain payments made to non-resident, namely Moataz El Sherif, in respect of his salaries. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... processing, a different kind of processing at each stage. With each process suffered, the original commodity experiences a change. Whenever a commodity undergoes a change as a result of some operation performed on it or in regard to it, such operation would amount to processing of the commodity. But it is only when the change or a series of changes takes the commodity to the point where commercially it can no longer be regarded as the original commodity but instead is recognized as a new and distinct article that a manufacture can be said to take place. Process in manufacture or in relation to manufacture implies not only the production but also various stages through which the raw material is subjected to change by different operations. It is the cumulative effect of the various processes to which the raw material is subjected to that the manufactured product emerges. Therefore, each step towards such production would be a process in relation to the manufacture. Where any particular process is so integrally connected with the ultimate production of goods that but for that process processing of goods would be impossible or commercially inexpedient, that process is one in relation t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mpire Industries Ltd. v. Union of India [1985] 3 SCC 314). 8. The aforesaid aspects were highlighted in Kores India Ltd. v. CCE [2005] 1 SCC 385 in the background of Central Excise Act, 1944 (in short the 'Excise Act') and Central Excise Rules, 1944 (in short the 'Excise Rules') and Central Excise Tariff Act, 1985 (in short the 'Tariff Act'). The stand of the revenue was that it amounted to manufacture , contrary to what has been pleaded in these cases. This Court held that it amounted to manufacture. 9. The matter can be looked at from another angle. In CIT v. Sesa Goa Ltd. [2004] 271 ITR 331, this Court considered the meaning of word 'production'. The issue in that case was whether the extraction and processing of iron ore amounted to manufacture or not in view of the various processes involved and the various processes would involve production within the meaning of section 32A of the Act. It was inter alia observed as under: ...There is no dispute that the plant in respect of which the assessee claimed deduction was owned by it and was installed after 31-3-1976, in the assessee's industrial undertaking for excavating, mining and pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Viewed thus, conversion of acrylic sheets into intra ocular lens is clearly manufacture of new product and the grievance of the Assessing Officer does not merit acceptance. We reject the same. 38. Ground no. 4 is thus dismissed. 39. In the result, the appeal of the Assessing Officer for the assessment year 2010-11 is partly allowed for statistical purposes. 40. We now take up the appeal of the Assessing Officer, as also cross objection of the assessee, for the assessment year 2011-12. 41. In the first ground of appeal, the Assessing Officer is aggrieved of the CIT(A) deleting the disallowance of ₹ 1,37,427 on equipment not included in para 3 of the New Appendix I. 42. In the impugned order, learned CIT(A) has merely followed his order for the assessment year 2010-11, but, in our discussions earlier in this consolidated order, we have confirmed and approved the same. Respectfully following the views so formed by us for the assessment year 2010-11, we confirm this order of the CIT(A) as well and decline to interfere in the matter. 43. Ground no. 1 is thus dismissed. 44. In the second ground of appeal, the Assessing Officer is aggrieved of learned CIT(A) de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by such person outside India or for the purposes of making or earning any income from any source outside India; or ( c)** ** ** Explanation 1- .* Explanation 2.- For the purposes of this clause, fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head Salaries .' * Not relevant for our purposes 32. So far as deeming fiction under section 9(1)(i) is concerned, it cannot be invoked in the present case since no part of the operations of the recipient's business, as commission agent, was carried out in India. Even though deeming fiction under section 9(1)(i) is triggered on the facts of this case, on account of commission agent's business connection in India, it has no impact on taxability in the hands of commission agent because admittedly no business operations wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39; for the purpose of Section 5(2)(b). The point of time when commission agent's right to receive the commission fructifies is irrelevant to decide the scope of Explanation 1 to Section 9(1 )(i), which is what is material in the context of the situation that we are in seisin of. The revenue's case before us hinges on the applicability of Section 9(1)(i) and, it is, therefore. important to ascertain as to what extent would the rigour of Section 9(1)(i) be relaxed by Explanation 1 to Section 9(1)(i). When we examine things from this perspective, the inevitable conclusion is that since no part of the operations of the business of the commission agent is carried out in India, no part of the income of the commission agent can be brought to tax in India. In this view of the matter, views expressed by the Hon'ble AAR, which do not fetter our independent opinion anyway in view of its limited binding force under s. 245S of the Act, do not Page 18 of 21 impress us, and we decline to be guided by the same. The stand of the revenue, however, is that these rulings, being from such a high quasi-judicial forum, even if not binding, cannot simply be brushed aside either, and that thes ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not the rendition of alleged technical services. In a situation in which the agent does not render any of the services but secures the business anyway, the agent is entitled to his commission which is computed in terms of a percentage of the value of the order. In a reverse situation, in which an agent renders all the alleged technical services but does not secure any order for the principal i.e. the assessee, the agent is not entitled to any commission. Clearly, therefore, the event triggering the earnings by the agent is securing the business and not rendition of any services. In this view of the matter, in our considered view, the amounts paid by the assessee to its non-resident agents, even in the event of holding that the agents did indeed render technical services, cannot be said to be consideration for rendering of any managerial, technical or consultancy services (Emphasis by underlining supplied by us) . The services rendered by the agents, even if these services are held to be in the nature of technical services, may be technical services, but the amounts paid by the assessee are not for the rendition of these technical services nor the quantification of these amounts hav ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ecuring business cannot be taxed under section 9(1)(vii) at all. This profits of such a business can have taxability in India only to the extent such profits relate to the business operations in India, but then, as are the admitted facts of this case, no part of operations of business were carried out in India. The commission agents employed by the assessee, therefore, did not have any tax liability in India in respect of the commission agency business so carried out. 46. We see no reasons to take any other view of the matter than the view so taken by us in Welspun s case (supra). Respectfully following the aforesaid order, we approve the conclusions arrived at by the CIT(A) and decline to interfere in the matter. 47. Ground no. 2 is thus dismissed. 48. Ground no. 3 of the appeal as also ground no 3 of the cross objection deal with the interest disallowance in respect of interest free advances made by the assessee. While the Assessing Officer is aggrieved of the learned CIT(A) deleting the disallowance of ₹ 35,96,180, the assessee is aggrieved of learned CIT(A) sustaining the disallowance to the extent of ₹ 73,917. 49. Vide our order for the assessment yea ..... X X X X Extracts X X X X X X X X Extracts X X X X
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