TMI Blog2011 (5) TMI 150X X X X Extracts X X X X X X X X Extracts X X X X ..... sed. - 4687 (DELHI) OF 2010 - - - Dated:- 5-5-2011 - G.E. VEERABHADRAPPA, A.D. JAIN, JJ. Dharender Kumar for the Appellant. S. Mohanty for the Respondent. ORDER A.D. Jain, Judicial Member. This is department's appeal for assessment year 2007-08 contending that the CIT(A) has erred in deleting the addition of Rs. 17,73,000 made under section 40(a)(i) of the Income-tax Act, 1961, for not deducting and paying tax at source before making payment to foreign company. 2. The assessee company is engaged in the business of import of testing and measuring instruments, primarily for the power sector, which it sells to various customers including PSUs, State Electricity Boards, etc. The Assessing Officer noticed the assessee to have made payment of Rs. 17,73,000 to M/s Seba without deduction of tax at source. The assessee was asked to show as to why the same be not disallowed under section 40(a)(i) of the Act for non-deduction of tax at source. 3. In response, the assessee company contended that the amounts had been paid to non-resident parties; that it was the business profit of non-resident party and not technical fees; that the non-resident parties did not have ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... follows: "10. Ground No. 3 is against deletion of addition of Rs. 41,55,712 made by the Assessing Officer under section 40(a)(i) of the Act. The assessee paid, sum of Rs. 41,55,712 under the head "Technical service charges". An amount of Rs. 40,63,237 was paid to foreign companies and Rs. 92,475 was paid to Indian companies. However, the Assessing Officer disallowed the entire sum by invoking the provisions of section 40(a)(i) of the Act. To understand the controversy, it is imperative to consider the business of the company. The assessee is engaged in the manufacture and dealing of Testing Measuring instruments and Precision components. The assessee also purchases/imports Testing and Measuring instruments and allied products from various organizations situated outside India notably from Germany and sells them independently in India. The assessee had paid training fees debited under the head Technical Services on training of its personnel/customers outside India for educating them to explain to proposed buyers the salient features of the products imported by it in India/to impart training to the customers to use the equipment. During the course of assessment proceedings before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le outside India or in India to a non-resident, on which tax is deductible at source under Chapter XVI- B and such tax has not been deducted shall not be allowed as deduction. Under Explanation (B) to section 40(a)(i), "fees for technical services" shall have the same meaning as in Explanation 2 to section 9(1)(vii) of the Act. Thus the pre-requisite for disallowance is that the amount paid should be in the nature of "Fees for technical services" and on which tax should be deductible. In the case of Parasrampuria Synthetics Ltd. (supra) ITAT Delhi Bench to which one of us (Accountant Member) was a party, held as under : "The term "fees for technical services" as per Explanation 2 to section 194J means as defined in Explanation 2 below clause (vii) of sub-section (1) of section 9, extracted herein: "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 docs not include consideration for any construction, assembly, mining or like project undertaken by the recipient ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t to receive a technical service. What he does agree to is to pay for the use of the airtime for which he pays a charge. The fact that the telephone service provider has installed sophistical technical equipment in the exchange to ensure connectivity to its subscriber, docs not on that score, make it provision of technical service to the subscriber. The subscriber is not concerned with the complexity of the equipment installed in the exchange or the location of the base station. All that he wants is the facility of using the telephone when he wishes to, and being able to get connected to the person at the number to which he desires to be connected. What applies to cellular mobile telephone is also applicable in fixed telephone service. Neither service can be regarded as "technical service" for the purpose of section 194J of the Act. In the present case, it is seen that there may be use of services of technically qualified persons to render the services but that itself do not bring the amount paid as "fees for technical services" within the meaning of Explanation 2 to section 9(1)(vii). The amounts paid are towards annual maintenance contract of certain machinery or for converting P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rs), the Tribunal, following Dy. CIT v. Parasrampuria Synthetics Ltd. [2008] 20 SOT 248 (Delhi), wherein the Tribunal had followed the decision of the Hon'ble Madras High Court in the case of Skycell Communications Ltd. v. Dy. CIT [2001] 251 ITR 53/119 Taxman 496, held that what was paid by the assessee was by way of training fee for training its personnel or customers to explain to its proposed buyers, the salient features of the products imported by the assessee in India and to enable the customers to use the equipment, due to which, the payment could not have been made for availing technical services; that the technology was never made available to the assessee; that rendering services by using technical knowledge or skill is different from charging fee for technical services; that the knowledge imparted was as to how to use the machinery; that therefore, the amount did not fall within definition of 'fee for technical service', as defined in Explanation 2 to section 9(1)(vii) of the Act; And that so, section 40(a)(i) of the Act had no application. 12. To reiterate, the facts under the year consideration are not different from those present before the Tribunal either for assess ..... 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