TMI Blog2009 (8) TMI 845X X X X Extracts X X X X X X X X Extracts X X X X ..... spectfully following the Special Bench order in Mahindra Mahindra Ltd. s case [ 2009 (4) TMI 207 - ITAT BOMBAY-H] , we hold that the disputed amount paid in Hongkong is covered by the definition of fees for technical services as given in Explanation 2 and is in the nature of income deemed to accrue or arise in India as per section 9(1)(vii). However, we want to make it clear that on going through the two bills raised by the said firm, it is noticed that the second bill dated 9-11-1994 has two components. One part is of 40,000 Dollars representing out of pocket expenses and disbursement . This part of the total amount of 200,000 Dollars paid to C.S.First Boston Others shall be considered as reimbursement of expenses on which tax is not deductible as per the Special Bench order in the case of Mahindra Mahindra Ltd. We, therefore, hold that equivalent of 160,000 Dollars in Indian rupees is covered under the Explanation-2 as fees for technical services . Insofar as the reliance of the learned A.R. on the case of Cliford Chance [ 2008 (12) TMI 30 - HIGH COURT OF BOMBAY] is concerned we find that the ratio of that judgment is not applicable for the reason that the said j ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent, more so when the scope of section 147 also ropes in the cases of assessment apart from reassessment. The golden rule - If two views are possible, then the view in favour of the taxpayer should be adopted - envisages two equally convincing views sustainable in law, based on the interpretation of section. It presupposes the existence of two divergent plausible views with equal pull from both the sides. If a provision is capable of interpretation in such a manner that two views can be possibly formed, then, of course, the one in favour of the assessee should be followed. But if force in both the views is not of same magnitude inasmuch as one view greatly overweighs the other by considering either the language of the provision itself or as interpreted by the Hon ble Supreme Court, then the view not in conformity with such interpretation shall have to lean in favour of the other view, notwithstanding the fact that it is in favour of the assessee. In that view of the matter, it is manifest that once a particular view has been expressed by the Hon ble Supreme Court on an issue, then any contrary view taken by the other High Courts has to be considered as impliedly overruled ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Commission Management Commission Underwriting Commission Initial Expenses Out of pocket expenses Listing Fees Printing Charges of Prospectus 2. International Finance Corporation 1818, h Street, NW Washington DC 20433 1,398,441 Out of Pocket Expenses 3. Skadden, Arps, Slate Meagher Flom 3,455,100 3,139,200 Professional (legal) expenses paid to lawyers S. No. Name Address of the Party Amount (Rs.) Nature of services claimed 38th Floor One Exchange Square Hong Kong 4. Solarts Films 150,000 150,000 For presentation expenses on film For Presentation exp. on film 5. Citibank NA 24th Floor Citi Corp Centre 18 Whitefield Road Causeway Bay Hong Kong 62,860 5,844 85,750 89,800 106,900 Initial Expenses-custodian Postage etc. Annual fees Annual fees Annual fees 6. The Economist 499,262 Advertisement 7. Chase Manhattan Trustees Limited Woolgate House Coleman Street London EC2P 2HD 424,413 Professional charges - Trustees 8. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of Central Board of Direct Taxes v. Oberoi Hotels India (P.) Ltd. [1998] 231 ITR 148 (SC) and GVK Industries Ltd. v. ITO [1997] 228 ITR 564 2 (AP), the Assessing Officer held that the services received by the assessee were nothing but technical and consultancy services in the financial field. As regards the second basic issue he held that the assessee was not covered under the two exceptions provided in section 9(1)(vii). As far as the Tax Treaty between India and U.K. is concerned, the provisions of Article 13 were held to be applicable. The definition "fees for technical services" as appearing in Article 13(4) of the Tax Treaty was found to be identical to the definition as per Explanation 2 to section 9(1)( vii ). It was, therefore, held that the payment made by the assessee was for the services rendered falling within the purview of Explanation-2 to section 9(1)( iv ) and Article 13(4) of the Tax Treaty between India and U.K. With regard to the third and fourth issues he held that as per the provisions of section 9(1)( vii ), it was not necessary for the services to be rendered in India. As regards the fifth item the Assessing Officer held that it was not cor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sions and perused the relevant material on record. It is noticed that similar issue came up for consideration before the Special Bench of the Tribunal in Mahindra Mahindra Ltd. v. Dy. CIT [2009] 30 SOT 374 (Mum.). In that case also GDR issue was brought out and the service of Lead Managers were availed to whom amounts in the nature of management, underwriting and selling commission were paid, apart from the reimbursement of certain expenses. In that case it has been held that the fees for technical services under section 9(1)( vii ), read with Explanation-2, covers management and selling commission allowed to the non-resident in respect of the GDR issue. Underwriting commission has been found to be not falling within the definition of fees to technical services under section 9(1)( vii ). Reimbursement of expenses has also been held to be not having an element of income and hence cannot assume the character of income deemed to accrue or arise in India. Further after considering the provisions of first DTAA with U.K., it has been held by the Special Bench that since the technical services were not made available to the Indian party though used by the non-resident for its be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9] 176 Taxman 458 (Bom.) in which it has been held that section 9(1)( vii )( c ) envisages the fulfilment of two conditions : services which are source of income sought to be taxed in India must be ( i ) utilized in India and ( ii ) rendered in India. He argued that the legal services rendered by the Hongkong firm were not utilized in India and hence the conditions as set out by the Hon ble Bombay High Court are not satisfied. He referred to another judgment of the Hon ble Karnataka High Court in the case of Jindal Thermal Power Co. Ltd. v. Dy. CIT [2009] 182 Taxman 252 in which the judgment of the Hon ble Bombay High Court in Cliford Chance s case ( supra ) has been followed. It was argued that section 9(1)( vii ) applies only to the technical services and the legal services cannot be brought within the ambit of the technical services. He further referred to section 44AA to submit that the Legislature has used the legal, medical, engineering or the profession of accountancy as different from technical consultancy. In his opinion the technical consultancy cannot cover the legal services for the reason that both of them have been separately prescribed in section 44AA. Had the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... section 9(1)( vii ), as under : "( vii )Income by way of fees for technical services payable by ( a )the Government; or ( b )a person who is a resident, except where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or ( c )a person who is a non-resident, where the fees are payable in respect of services utilized in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India. 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 ." 13. Explanation 2 gives the meaning of "fees for technical services" as c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Assessing Officer was right in terming the services rendered by the lead managers as falling within the purview of managerial technical or consultancy services so as to be considered as "fees for technical services" under Explanation 2 to section 9(1)( vii )." 15. In the case before Special Bench also some payment was made to legal advisors in connection with the GDR issue, which was held to be falling within the expression fees for technical services . The learned A.R. has tried to make out a case that the relevant provisions were not considered by the Special Bench in concluding that such legal charges were also covered within the expression fees for technical services as per Explanation . He relied on section 44AA and section 194J of the Act for contending that legal services were to be considered as distinct from technical services for section 9(1)( vii ) also in the light of the rule ejusdem generis. We are not inclined to accept this proposition for the reason that the expression fees for technical services has been specifically defined in section 9(1)( vii ) by way of Explanation-2. When a specific meaning is assigned to a particular expression, its general ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above observations of the Hon ble High Court it can be easily seen that the matter for consideration before the Hon ble High Court was to consider whether the cellular mobile telephone service provided to the subscriber would come within the meaning "technical services" or not. This judgment has been rendered in an altogether different context. We are dealing with a case in which GDR issue was brought out by the assessee and several payments were made to the Lead Managers in order to facilitate the proper subscription to the GDR issue. The management and selling commission allowed to the non-resident in respect of GDR issue have also been held to be falling within the expression "fees for technical services" under section 9(1)( vii ), to which the ld. AR has not raised any objection. These legal services, the payment in respect of which has been disputed before us, are not de hors GDR issue but very much part and parcel of it. These legal services are not independent of the GDR issue so that these may be sliced from the payments made for other services in respect of GDR issue which have been held to be falling under section 9(1)( vii ), read with Explanation-2. It is manifest t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on account of fees for technical services, its exclusion from section 9 is not possible. On the contrary clause ( c ) deals with the income payable by non-resident. Unless the services are rendered and utilised in India, as has been held in Clifford Chance s case ( supra ), the fees for technical services shall not be considered as covered under this provision. It is so for the reason that the language of clause ( c ) makes it explicitly clear that it shall be applicable where the fees are payable in respect of services utilised in a business or profession carried on by such person in India. . . . When we turn to clause ( b ) it is evident that the same applies to the income by way of fees for technical services payable by a person who is a resident. After this part of clause ( b ), then certain exceptions are carved out , which are not claimed to be applicable in the present case. So to this extent the language of clause ( b ) is similar to that of clause ( a ) and different from clause ( c ). Income in the nature of fees for technical services payable by a resident is deemed to accrue or arise in India within the meaning of section 9 notwithstanding the fact that the payee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urce, the assessee is in default as per section 195 and liable to be visited with the consequences as per section 201(1) and (1A). 21. The assessee has raised an additional ground challenging the order passed by the Assessing Officer on account of limitation period. It was submitted by the ld. AR that this ground could not be raised earlier due to certain reasons beyond the control of the assessee. It was, however, pleaded that it being a legal ground going to the root of the matter should be admitted and disposed of on merits. No serious objection was raised by the ld. DR on the admission of the ground. We find that in Mahindra Mahindra Ltd. s case ( supra ) also the question of limitation was raised by the assessee by way of an additional ground which was admitted and disposed of on merits. Following the reasoning given by the Special Bench, we admit this additional ground. 22. The learned A.R. stated that the Special Bench in Mahindra Mahindra Ltd. s case ( supra ) has held that the maximum time-limit for passing the order under section 201(1) or (1A) is the same as prescribed under section 149 i.e., four years or six years from the end of the relevant assessme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d the Hon ble Calcutta High Court. After taking note of various aspects of the limitation issue at great length, it has been finally held that the order passed under section 194, read with sections 201(1) and 201(1A) cannot be held as barred by limitation "in law" if it is not passed within four years from the end of the relevant financial year. 24. We will like to clarify that Special Bench is constituted to resolve the controversy between the conflicting views on a particular subject. Once the Special Bench of the Tribunal decides a controversy in a particular manner then that becomes binding on the other Division Benches of the Tribunal. In the absence of any direct judgment of the Hon ble Supreme Court or the Hon ble jurisdictional High Court, it is not open to the Division Benches to deviate from the view expressed by the Special Bench. If such a course, as suggested by the ld. AR that this Division Bench should again look at the controversy and decide the matter afresh in disregard to the Special Bench s view, is allowed to prevail then it will result in chaos and lead to complete judicial indiscipline. Further the very purpose of constituting the Special Bench, being to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of views by the various High Courts. The Hon ble Supreme Court, after considering all the rele-vant aspects of the matter, decides which view is correct. If this standard rule, as agitated before us, is taken further and applied by the Hon ble Supreme Court also, then there will not remain any need for going into the merits of the case vis-a-vis the prevalent legal position. It will simply follow the view expressed by the Hon ble High Court in favour of the assessee, even if the other contrary view in favour of the revenue is more logical and convincing. The proposition raised before us about universal application of this rule and that too under all circumstances, is not acceptable for the reason that it is the duty of the Courts or the Tribunal to consider various aspects of the issue and the prevalent legal position before deciding whether the case should be decided this way or that way. 27. The Special Bench in Eicher Tractors Ltd. v. Dy. CIT [2003] 84 ITD 49 (Delhi) has held that the legal proposition that a view favourable to the assessee should be adopted cannot be applied in all circumstances. Similar view has been reiterated by another Special Bench in the case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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