TMI Blog2010 (10) TMI 682X X X X Extracts X X X X X X X X Extracts X X X X ..... ran, Sanjay Arora, JJ. T.M. Sreedharan for the Appellant Babu Joseph for the Respondent ORDER Sanjay Arora, Accountant Member:- 1. This is an Appeal by the assessee arising out of Order by the Commissioner of Income-tax (Appeals)-I, Trivandrum ['CIT(A)' for short] dated 10-3-2010, partly allowing the assessee's appeal contesting its assessment for assessment year (A.Y.) 2007-08 vide Order dated 28-8-2009 under section 143(3) of the Income-tax Act, 1961 ('the Act' hereinafter). 2. The only question arising for adjudication in the instant appeal is the applicability or otherwise of the provision of section 40(a)(ia) of the Act. The said provision mandates the allowance of any of the expenditures as specified therein where subject to tax deduction at source under Chapter XVII-B of the Act, only on the deduction and payment of such tax. The exception is where the tax is deductible during the last month of the previous year, in which case the deduction (of allowance) is permissible where the tax is deposited to the credit of the Central Government by the due date of the filing of the return under section 139(1) of the Act by the payee. The various expense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld qualify as a contractual payment, being only a result of a contractual obligation, which is again subject to section 40(a)(ia). Further, the maintenance contract could not be undertaken without the authorised service provider (ASP), which the assessee is, being competent to undertake the same, i.e., the very fact that it has been so authorized establishes its professional competence for the same, so that the same are only technical services. Even professional services are covered under section 194J. As such, considered either way, the payment falls to be covered under section 40(a)(ia). The argument of no loss of revenue (to the Revenue) is not valid as the provision is a substantive provision of law which is unambiguous and clear in its intent and scope. 4. We have examined the records and given careful consideration to the rival submissions. 4.1 The assessee's case is that no services are being provided by XIL (or alternatively, 'the company') to it as an authorised service provider (ASP), and it is only a case of outsourcing of the services being initially provided by the company directly to its customers for a share to it (XIL), so that the provision of section 40(a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... It is a very comprehensive agreement, covering every aspect of the transaction, and is effective from 1-8-2004. Article 1 thereof defines the principal terms under the Agreement, including 'Service/s'. Vide Article 2, the assessee is appointed as a service provider (SP) for specified territories. Article 7 defines the relationship between the parties, which is to be on a 'Principal to Principal' basis, even as Article 2 also expressly states so. Article 9 carries the title 'Payments'. It includes both, the payments to be made, as well as received, by SP (to and from XIL). Article 9.4 reads as under:- "9.4 In consideration of XMC(*) agreeing to provide the various technical support services to the SP, as mentioned in Clause 10.2 to 10.4 hereinafter, the SP shall pay to XMC a technical support fee of Rs. 102900 per month during the term of this Agreement or any renewal thereafter. The technical support fee shall be paid by SP within 7 days of XMC raising the invoice." (*) XMC is the erstwhile name of XIL. Article 10 is titled 'Support to be given by XMC'. Articles 10.1 to 10.4 are reproduced below:- "10.1 XMC shall intimate in writing to SP, the details of the Product ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prehensive, and the nature and scope of the services to be provided under the SPA to an ASP, as the assessee, being clear, it is difficult to hold that the impugned payment/s is not a fees for technical services, but a recompense for outsourcing the maintenance services portfolio or a particular erstwhile business segment by XIL. The parties are acting on a 'Principal to Principal' basis, with defined rights and obligations, whereunder only the assessee as a service provider (SP) is obliged to, and is in fact, availing of services and remitting monthly charges to XIL thereagainst. The payment is only to the person rendering the services, in lieu thereof, and bearing the character of income in the hands of the recipient. There are or could be no two views about it; the Agreement itself specifying the services as 'technical support services' and, besides, clarifies their nature and scope. Both the nature of the products and that of the services required to maintain them are highly technical in nature, requiring back-up support, training and guidance from the product manufacturer. This also explains why the payments stand classified by the assessee in its accounts as 'technical fees'. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Legislature could have linked the operation of the section with the ultimate recovery of tax (which stands otherwise duly taken care of by the provisions of Chapter XVII-B), rather than the deduction and payment of tax deductible at source by the payer itself. Continuing further, why should there be, one may ask, such a provision at all; Chapter XVII-B, which is titled 'Collection and Recovery of tax - Deduction at source', being a comprehensive code in itself, with section 4(2) levying the charge of tax in respect of the tax deductible? Put differently, it is not permissible to go beyond the language of the provision to determine its scope where the same (language) is clear. of course, it would be a different matter where the provisions operate at cross purposes, e.g. where the assessee stands exonerated for the payment of tax deductible under Chapter XVII-B, while being still not allowed its claim on the ground of non-tax deduction, as the provisions, nevertheless, have to read harmoniously. However, such a situation does not obtain in the present case. A statute is an edict of the Legislature and has to be given full effect to where its intention as borne out by the languag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harged for the same, by the raising of invoices on it by the company, on a monthly basis, which it pays. The same leaves one in no manner of any doubt as to their nature. The assessee has itself classified the same in its books as 'technical fees' (also refer para 4.4 in this regard). A reasonable cause cannot operate as an alibi but is to be pleaded on some factual basis. The decision in the case of Woodward Governor (P.) Ltd. (supra), on which it relies, itself clarifies so when it explains 'a reasonable cause' as one which would constrain a person of average intelligence or ordinary prudence, i.e., which would reasonably lead an ordinary, prudent and cautious man, placed in the same situation, to come to the conclusion that that was the right thing to do. The said decision thus rather supports the Revenue's case on facts. It also does so legally when it clarifies that the words 'Notwithstanding anything...' at the beginning of a section, as obtaining in section 40(a)(ia), implies that it has to be given an overriding effect. No decision has been placed before us where a reasonable cause which it may be reiterated has not been shown - would lead to defeating or obviating a substa ..... X X X X Extracts X X X X X X X X Extracts X X X X
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