TMI Blog2010 (9) TMI 661X X X X Extracts X X X X X X X X Extracts X X X X ..... 97-98 to 1999-2000 respectively. As the disputes raised in these appeals are identical, these are being disposed of by a single consolidated order for the sake of convenience. The identical disputes raised relate to disallowance of expenditure on account of payments to Master Card and VISA, USA and disallowance of bad debt. Though the assessee in A.Y.1997-98 has raised some other grounds also, only the two grounds mentioned above have been cleared for litigation before the Tribunal by COD and therefore only these grounds are admitted for adjudication. 2. The first dispute which is common in all the appeals is regarding disallowance of bad debt. The claim of bad debt is allowable under the provisions of clause (vii) and (viia) of section 36(1). These provisions are reproduced below as a ready reference : (vii) subject to the provisions of sub-section (2) the amount of any bad debt or part thereof which is written off as irrecoverable in the accounts of the assessee for the previous year. Provided that in case of an assessee to which clause (viia) applies, the amount of deduction relating to any such debt or part thereof shall be limited to the amount by which such debt or p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ase in assessment year 1989-90 (supra) carefully. Tribunal in the said year followed the decision of the special bench of Cochin tribunal in case of DCIT Vs Catholic Syrian Bank Ltd. (88 ITD 185) and decided the issue in favour of the assessee. The special bench in case of Catholic Syrian Bank Ltd. (supra) had noted that the provisions of clause (viia) apply only to rural advances by a bank as clarified by the CBDT vide circular No.258 dated 14.6.1979 and 464 dated 18.7.1998. The special bench accordingly held that in case amount of bad debt actually written off in the accounts of the bank represented only debts arising out of non rural (urban advances), the allowance thereof in the assessment was not affected or controlled or limited in any way by the proviso to clause (vii) of section 36(1). Therefore only those debts which arose out of rural advance were to be limited in accordance with the said proviso. The assessee in that case was maintaining separate accounts for bad and doubtful debts other than the provisions for bad debt in respect of rural advances for which separate account was maintained. The tribunal therefore restored the matter to the AO for deciding the issue afres ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the previous year in which such tax had been paid or deducted. Explanation for the purpose of this sub clause (A) royalty shall have the same meaning as in Explanation 1 to clause (vi) of sub section (1) of section 9. (B) Fees for technical services shall have the same meaning as in Explanation-2 to clause (vii) of sub section (1) of section 9. 3.1 The assessee disputed the decision of the AO and submitted before CIT(A) that income arising on this account to Master Card and VISA was not taxable in India as these international agencies were not having any permanent establishment in India. The income had also arisen outside India. Therefore no tax was required to be deducted. CIT(A) however did not accept the contentions and observed that these US companies had acquired leased telephone lines in India and had also installed machinery and computers for their network in India without which it was not possible to provide the various services. These agencies were therefore, having permanent establishment in India through their networking computers and through leased telephone lines. Therefore the income received by them was taxable in India. CIT (A) accordingly confirmed the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26(3) and no disallowance could be made as under the provisions at the relevant time no disallowance could be made in case of payment to residents on the ground of non deduction of tax at source. In the present case also, it was pointed out that the exception provided in section 26(3) were not applicable. It was submitted that paragraph 8 of Article 12 relating to royalties and fees for included services was relevant in case of the assessee and the said paragraph 8 applied only if the amount paid was more than the market value due to relationship between the parties. The assessee bank had no relationship with the payee and therefore paragraph 8 of Article 12 was not applicable and the case of the assessee was thus not covered by any exceptions provided in Article 26(3). The Learned DR on the other hand placed reliance on the order of CIT(A) and the AO. 3.4 We have perused the records and considered the rival contentions carefully. The dispute is regarding disallowance of deduction claimed by the assessee on account of payments made to Master Card and VISA Cards. The said payments were made by the assessee for services rendered by the foreign non residents and disallowance has b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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