TMI Blog2010 (5) TMI 596X X X X Extracts X X X X X X X X Extracts X X X X ..... : (i) The assessee had withheld tax for payment made to M/s. Menon Ltd., U. K., and based on that, M/s. Menon Ltd., U. K., had filed income-tax return for the assessment year 2000-01 reporting the income and claiming refund. The Revenue had accepted the return filed by them and taxes were refunded back. It is thus clear that the Revenue never considered such receipts in the hands of M/s. Menon Ltd., U. K., as taxable and hence the assessee was not under any obligation to deduct tax. The Tribunal, despite noting this line of argument, had not considered it while deciding the issue raised before it. (ii) The decision of the Mumbai Special Bench of this Tribunal in the case of Mahindra Mahindra Ltd. v. Dy. CIT [2009] 313 ITR (AT) 263/[2010] 122 ITD 216/[2009] 30 SOT 374 (Mum.) (SB) (Mumbai) was cited before the Tribunal and in that decision it was held that prerequisite condition for application of section 195 and thereafter section 201 of the Act was that the amount paid to a non-resident was chargeable to tax under the provisions of the Act. This decision of the Special Bench was clearly applicable to the assessee's case since the amount payable to the non-resident M/s. Meno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India nor received by them in India. Therefore, according to the assessee, it was not obliged to deduct tax at source. The assessee also relied on the decision of a co-ordinate Bench in the case of ITO v. Raj Television Net Works Ltd. in [IT Appeal Nos. 1827 and 1828/Mds/1998] for its contention that transponder hire charges would not fall within the definition of "royalty" or "fees for technical services". The learned Commissioner of Income-tax (Appeals) held in favour of the assessee and ruled that section 40(a)(i) of the Act could not be applied. 4. The Revenue brought the matter before this Tribunal in appeal. Reliance was placed by it on the Special Bench decision in New Skies Satellites N.V. v. Asstt. DIT [2009] 121 ITD 1 (Delhi) (SB). According to the Revenue, the learned Commissioner of Income-tax (Appeals) had placed wrong reliance on Raj Television Net Works Ltd. and in view of the Special Bench decision in New Skies Satellites N. V. (supra) the amounts paid by the assessee to the two companies were nothing but royalty falling within the meaning of clause (iii) and clause (vi) of Explanation 2 to section 9(1)(vi) of the Act. As against this, the submission of the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was no services whatsoever rendered in India, the transponders being placed about 30000 ft. into space, and without any situs of service or permanent establishment for M/s. Menon Ltd. in India, no income accrues or arises or can be deemed to accrue or arise in India to M/s. Menon Ltd. Consequently, M/s. Menon Ltd. being not exigible to Indian income-tax, the assessee is not under any legal obligation to deduct tax. As aforesaid the second line of defence has different limbs in it, all of which are crucial. These are : (i) It is not royalty as envisaged in the Special Bench decision. (ii) If it is technical services the situs of service is not in India. (iii) There is no permanent establishment for M/s. Menon Ltd. in India. (iv) The income of M/s. Menon Ltd. is not taxable in India (v) The assessee is not obliged to deduct tax under section 195. In the words of the learned authorised representative to trigger the application of section 40(a)(i), section 195 has to be violated. Failure to deduct tax at source as specified in section 195, which is the relevant one for payments made to non-residents under Chapter XVIIB, would result in three scenarios. The first is the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceiving stations made in Russia and training of Indian operators on the said receiving stations. To prepare an offer for transmission of both TV and radio signals together, as well as broadcasting of ITN, CNN and other TV programmers to India through the channel provided by the executor. The abovementioned offer should be submitted by November 30, 1992. Work shall be carried out under a special contract. To provide personnel to ensure effective operation of the equipment located in Russia required for broadcasting of signals to India. To assist the customer at his request to source ground receiving stations for Ekran and cable networking systems for distribution of the Ekran and other TV signals.' The assessee is banking on the last clause, to say that M/s. Menon Ltd. was not the owner of the satellite 'Ekran' and hence it would not be covered by the decision of the Special Bench in New Skies Satellites N. V. [2009] 319 ITR (AT) 269 (Delhi). Let us see how far it is true. A look at the Special Bench decision clearly brings out that, this was not the clinching reason for it to hold that the assessee there, was hiring a 'process' by taking up a transponder in a satellite, br ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... downlinking the same with the help of that process. Time of telecast and the nature of programme, all depends upon the telecasting companies and, thus, they are using that process. The consideration paid by telecasting companies to satellite companies is for the purpose of providing use and right to use of the process and, thus, it is royalty within the meaning of clause (iii) of Explanation 2 to section 9(1)(vi). It is also a royalty within the meaning of clause (vi) of Explanation 2 to section 9(1)(vi).' Further, if we look at the agreement between the assessee and M/s. Menon Ltd. closely, there can be no doubt whatsoever that the latter was having possession and control of the transponders and also the right to hire them out for long periods. In our opinion, therefore treating M/s. Menon Ltd. only as an intermediary, would not be correct. The assessee did not bring on record anything to show that M/s. Menon Ltd. was just passing on the money to the owner of satellite Ekran. That a satellite might have a number of transponders and such transponders could be given for long-term use to different parties by its owners and who in turn might give time slots or independent use there ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts return for the assessment year 2000-01 and the Revenue had refunded tax to such company. Learned counsel submitted that the argument taken in the course of hearing of the appeal was that such acceptance of return by the Revenue clearly proved that such income in the hands of M/s. Menon Ltd., U. K., was not chargeable to tax in India and time for reopening such assessment having already expired, this treatment given by the Revenue had become final. In this connection, considerable reliance was placed on the beginning part of paragraph 70 of the order of the Special Bench in Mahindra Mahindra Ltd.'s case (supra). The crux of his contention was that M/s. Menon Ltd., U. K., having been held to be not chargeable to tax, in respect of the receipts from the assessee, by the Revenue authorities, no liability can be fastened on the assessee for any alleged breach of duty of deducting tax at source. Learned senior counsel further submitted that once the recipient is not taxed by the Revenue authorities in India, it was not relevant whether he was assessable or not assessable. Therefore, according to him, question of application of section 195 of the Act did not arise nor that of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal in paragraph 9 at page 15 of its order. The question before the Tribunal was whether the assessee had failed in deducting tax on payments made by it to the companies abroad. This Tribunal relying on the Special Bench decision in the case of New Skies Satellites N. V. (supra) held that the payments made were nothing but royalty. Each of the arguments taken by the assessee now, as summarised by the Tribunal at page 19 of its order is reproduced hereunder once again : "As aforesaid the second line of defence has different limbs in it, all of which are crucial. These are : (i) It is not royalty as envisaged in the Special Bench decision. (ii) If it is technical services the citus of service is not in India. (iii) There is no permanent establishment for M/s. Menon Ltd. in India. (iv) Income of M/s. Menon Ltd. is not taxable in India. (v) The assessee is not obliged to deduct tax under section 195." 9. In the last limb of the findings given at paragraph 12, this Tribunal held that payments made by the assessee were being considered as royalty and, therefore, the other limbs of its argument, namely, whether they were fees for technical services or whether ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount paid was royalty as held by the Special Bench in the case of New Skies Satellites N. V. (supra) and if so such income has to be deemed as accruing and arising in India and would very much be a sum chargeable to tax under the Act under Chapter XVIIB. Once such income deemed as accruing or arising in India, the question of application of the principle laid down by Mahindra Mahindra Ltd. (supra) by the Special Bench would not be there. The Special Bench clearly held that it was only in a situation when there was no tax liability on the payee, that the question of treating the payer as the assessee in default would never arise. Just because M/s. Menon Ltd., U. K., had received refund of the TDS in the assessment year 2000-01, we cannot come to a conclusion that section 9(1) of the Act can be given a go-by. It was for this reason, the Tribunal held the payments made by the assessee to the company abroad being treated as royalty, other limbs of its argument had become irrelevant. No doubt, in the decisions relied on by the assessee, viz., Honda Siel Power Products Ltd. (supra) and that of Karamchand Premchand (P.) Ltd. (supra), it was held by the hon'ble apex court that non ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d position in law, it was held that (headnote) : "rectification is not possible if the question is debatable. Moreover, the point which was not examined on facts or in law cannot be dealt as a mistake apparent from the record." More recently, the hon'ble Supreme Court in the case of Asstt. CIT v. Saurashtra Kutch Stock Exchange Ltd. [2008] 305 ITR 227/173 Taxman 322 (SC) came to hold as under (headnote): "A patent, manifest and self-evident error which does not require elaborate discussion of evidence or argument to establish it, can be said to be an error apparent on the face of the record and can be corrected while exercising certiorari jurisdiction. An error cannot be said to be apparent on the face of the record if one has to travel beyond the record to see whether the judgment is correct or not. An error apparent on the record means an error which strikes one on mere looking and does not need a long drawn out process of reasoning on points on which there may be conceivably two opinions. Such error should not require any extraneous matter to show its incorrectness. To put it differently, it should be so manifest and clear that no court would permit it to remain on record. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uctible. The assessee moved a miscellaneous application under section 254(2) stating that although the appeal memo contained five different grounds of appeal the order of the Tribunal did not mention three of the grounds. It was contended that the order of the Tribunal did not consider some of the arguments advanced by the assessee. Such application was entertained by the Tribunal. On rehearing the matter the assessee was allowed deduction of the commission payment by the Tribunal. On appeal, the hon'ble Bombay High Court held as under (page 501): "These two arguments, according to the Tribunal, were overlooked by it while passing the earlier order, and, hence, it purported to exercise its power of rectification by re-examining all the circumstances relating to this transaction and upholding it. Clearly, this could not have been done in the exercise of any power of rectification. In the present case, in the first order, there is no mistake which is apparent from the record at all. The Tribunal was required to decide whether the commission payment of Rs. 54,000 was deductible under section 37 of the Income-tax Act. After examining the circumstances, the Tribunal came to the conclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . (supra) has not been diluted in any manner by any other court including the Rajasthan High Court in Ramesh Chand Modi (supra). Still recently Ras Bihari Bansal v. CIT [2007] 293 ITR 365/[2008] 170 Taxman 31 (Delhi) ruled that section 254(2) enables the Tribunal to rectify any mistake apparent from the record. It is well-settled that an oversight of a fact cannot constitute an apparent mistake rectifiable under this section. Failure of the Tribunal to consider the judgment of a non-jurisdictional High Court cited by a party before it, also could not be a mistake apparent from the record amenable to proceedings under section 254(2) as held by the hon'ble jurisdictional High Court in the case of Visvas Promoters (P.) Ltd. (supra). Similarly, failure of the Tribunal to consider an argument advanced by either party for arriving at a conclusion, is not an error apparent on the record, although it may be an error of judgment. The mere fact that the Tribunal had not allowed a deduction, will be no ground for moving an application under section 254(2). An erroneous order can only be rectified or modified or set aside in a modified or set aside in a procedure known to the law and not in a ..... X X X X Extracts X X X X X X X X Extracts X X X X
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