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TMI Blog2011 (2) TMI 60X X X X Extracts X X X X X X X X Extracts X X X X ..... 0(a) even though necessary particulars were not filed before the AO. In doing so, CIT(A) has not adjudicated the applicability of section 44AD of Income-tax Act, 1961 relied upon by the AO. 3. The appellant craves leave to add, to alter, or amend any grounds of the appeal raised above at the time of the hearing." 2. The assessee company is incorporated in India in the year 2002 with the object of undertaking business in 'service sector' ranging from medical testing to tour operators. During the year under consideration it has carried on the activity of providing service in the form of DNA testing to the prospective Indian immigrants for USA Embassy located in Delhi and Mumbai. For this purpose, it had arrived at an understanding with MRO Ltd., New Zealand which has been spelt out in letter issued by them to the assessee dated 29th April, 2002 the copy of which is placed at page 53 of the paper book. The contents of the said letter are as under:- "Date: 29-4-2002 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 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... those persons to United States. The assessee was required to show cause as to why such amount could be allowed to the assessee. Vide submissions made vide letters dated 22nd September, 2006, 18th October, 2006 and 27th October, 2006, it was submitted by the assessee that MRO New Zealand (foreign company) has helped 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 India. 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) royalty; (b) fee for technical services; and (c) other sums chargeable under the Act. It was submitted that the foreign company has rendered liaison and coordination services for the assessee company with DNA diagnostic laboratory at USA and with US Federal Company. The coordination and liaison is required for approval and acceptance of DNA test reports submitted by the assessee company to US Embassy. The foreign company was constantly following up the changes in the i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... USA. The said payment does not fall within the ambit of royalty and fee for technical services. According to section 195, the assessee could be under an obligation to deduct tax at source only if the payment/remittance are a sum chargeable to tax in India. In the absence of liability regarding deduction of tax, section 40 (a) could not be applied, hence, he has deleted the disallowance. The department is aggrieved, hence, in appeal. 5. After narrating the facts, Ld. DR relying upon the observations of the Assessing Officer pleaded that the assessee was required to deduct tax at source from the aforementioned payments. As the tax was not deducted at source, the Assessing Officer had rightly disallowed 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 India. The services were rendered by the said concern only outside India for facilitating the obtaining of DNA test report from USA approved laboratories. The amount received by MR ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in India to a non-resident entity. It has been observed by Hon'ble Supreme Court that one cannot read section 195, as suggested by the department, namely, the moment there is remittance the obligation to deduct tax at source (TAS) arises and if such contention of the department is accepted, that would mean that on mere payment income would be said to arise or accrue in India and such interpretation would mean obliteration of expression "sum chargeable under the provisions 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 income which is chargeable under the Income-tax Act. Now, therefore, it has to be examined that whether the amount paid by the assessee to MRO, New Zealand is a sum which could be charged to income-tax in their hands in India. The chargeability of tax in India of a resident 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 27th March, 1987, as amended by GSR 477 (E) dated 24th April 1988 an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or radio broadcasting and any patent, trade mark, design or model, plan, secret formula or process or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience. 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 employee or the persons making the payments or to any individual for independent personal services mentioned in Article 14 in consideration for services of managerial, technical or consultancy nature, including the provision of services of technical or other personnel. The nature of payment made by the assessee to MRO New Zealand is of liaisoning and coordinating to ensure that the blood samples collected by the assessee is properly received at US and the reports are received in time and as per the terms fixed by the US Embassy. Neither of these services can be termed as services in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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