TMI Blog2012 (9) TMI 95X X X X Extracts X X X X X X X X Extracts X X X X ..... to the file of the AO to decide the same afresh after giving the assessee an opportunity to produce all the evidence to support and substantiate its claim for higher rate of depreciation on the vehicles given on lease - in favour of assessee for statistical purposes. Disallowance of bad debts written off - Held that:- As decided in T.R.F. LTD. Versus COMMISSIONER OF INCOME-TAX [2010 (2) TMI 211 - SUPREME COURT] in order to obtain a deduction in relation to bad debts, it is not necessary for the assessee to establish that the debt, in fact has become irrecoverable. It is enough of the bad debt is written off as irrecoverable in the accounts of the assessee - in favour of assessee. - IT Appeal Nos. 579 & 1221 (Mum.) of2006 - - - Dated:- 29-8-2012 - P.M. JAGTAP, AMIT SHUKLA, JJ. ORDER P.M. Jagtap, Accountant Member These two appeals, one filed by the assessee being ITA No.1221/M/2006 and other filed by the revenue being ITA No.579/Mum/2006, are cross appeals which are directed against the order of Ld. CIT (A) -4, Mumbai dated 14.11.2005. 2. The issue raised in ground no.1 of the assessee's appeal relates to disallowance of Transponder Service Fee of Rs. 83,03,3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submissions in writing by letter dated 18.02.2005 explaining its case on this issue. In the said submissions, it was pointed out by the assessee that M/s. SSA is a company incorporated and registered in Thailand and its management and control being wholly situated in that country, it is a tax resident of Thailand. It was submitted that the taxability of the income of M/s. SSA in India therefore is governed by both the Income-tax Act as well as DTAA between Indian Thailand and M/s. SSA has an option to rely on the provisions of Income-tax Act or that of Indo-Thailand DTAA whichever are more beneficial to it as provided in sec.90(2) of the Income-tax Act, 1961. It was submitted that the amount paid by the assessee to M/s. SSA towards broadcasting and telecasting as well as towards consultancy charges was not in the nature of 'royalty' chargeable to tax in India within the meaning of Article 12 of Indo-Thailand DTAA. The submission made by the assessee in support of this stand was as under: "In the present case under review, we are neither in possession of equipment nor we have any control over the same. All the risks in relation to the equipments used in providing digital channel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entific experience. It was contended that the amount paid by the assessee to M/s. SSA was thus not in the nature of royalty as defined in Article 12(3) of Indo-Thailand DTAA and the same therefore was not chargeable to tax in India. It was also pointed out that there are no specific provisions in India-Thailand DTAA dealing with taxation of income arising from technical services and in the absence thereof, the same was covered by Article 7 of Indo Thailand treaty being 'business income'. The assessee claimed that such business income, however, was not chargeable to tax in India on the basis of following submissions made before the AO: "The relevant provisions 01 Indo-Thailand DTAA, which has implications on the taxability of payment under review, are contained in Article 7 and Article 12 of Indo-Thailand DTAA. Article 7 deals with taxation of Business profits of an enterprise and Article 12 deals with taxation of Royalties. ( a ) Under Article 7 of Indo-Thailand DTAA, business profits of an enterprise of Thailand are liable to tax in Thailand only unless that enterprise carries on its business in India through a permanent establishment (P.E.) situated in India. Thus, the bus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2005. 6. Against the order passed by the AO u/s.143(3), an appeal was preferred by the assessee before the Ld. CIT (A) disputing therein inter alia the disallowance made by the AO on account of payment made to M/s. SSA by invoking the provisions of sec.40(a)(i). During the course of Appellate proceedings before the Ld. CIT (A), a detailed written submission was filed by the assessee in support of its claim that the payment made to M/s. SSA towards transponder service fee and consultancy charges was not chargeable to tax in India in the hands of the M/s. SSA and there was thus no requirement of deduction of tax at source from the said payment and no question of disallowance u/s.40(a)(i). The said submission as summarised on page no.11 of the impugned order of the Ld. CIT (A) was as under: Provisions of Indo-Tha1and DTAA applies in the present case of SSA and in order to ascertain t} obligation of appellant to deduct tax at source u/s. 195, provisions of DTAA are relevant; Payments to SSA of Rs. 83,03,368 for digital channel services and of Rs. 9,34,100 for consultancy services are not in the nature of royalties under the provisions of Indo-Thailand DTAA; These payments a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat point of time in India from M/s. SSA and the payment made for availing such services was chargeable to tax in India u/s.9(1)(vii) r.w. Explanation 2 thereto. He held that the assessee thus was liable to deduct tax at source from the said payment and having failed to do so, the disallowance was rightly made by the AO by invoking the provisions of sec.40(a)(i). The Ld. CIT (A) then referred to the definition of 'royalty' given in Article 12(3) of the DTAA between India and Thailand and noted that as per clause (b) of the said Article, payment of any kind received as a consideration for use or right to use industrial, commercial or scientific equipment constituted royalty. He held that the assessee company could uplink or downlink the signals of its programmes for broadcast only by using the scientific equipment owned by the M/s. SSA and the amount paid for such use was alternatively chargeable to tax India as royalty as per article 12 of the Indo Thailand DTAA. He held that the assessee therefore was liable to deduct tax at source from the payment made to M/s. SSA which was chargeable to tax in India as fees for technical services or alternatively as royalty and the assessee havi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amendment made by the Finance Act, 2012, the Ld. Counsel for the assessee relied on the decision of the Tribunal in ITA No.3326/M/2006 in the case of B4U International Holdings Ltd. wherein it has been held that the said amendment cannot be applied unless there a corresponding amendment made in the relevant treaty. He submitted that the definition of royalty given in the relevant treaty has not been amended and in the absence of such amendment made in the treaty corresponding to the amendment made in the relevant provisions by the Finance Act, 2012, the amendment made in the domestic law cannot be relied upon and the assessee can rely on provisions of the treaty being more favourable to him. 10. The Ld. Counsel for the assessee submitted that the Ld. CIT (A) has held the amount in question as royalty on the basis that the same was paid for use of equipment. He contended that a similar issue has been considered by Hon'ble Delhi High Court in the case of Asia Satellite and the decision has been rendered in favour of the assessee and against the revenue on this aspect (page no.69 Para 74). He contended that in any case it is a case of disallowance u/s.40(a)(i) and once it is e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Explanation 2 to sec.9(1)(vi) which has been inserted w.e.f. 01.04.2002. He contended that the said provision is applicable in the present case whereas it was not applicable in the case of Asia Satellite ( supra ). He invited our attention to Para 44 of the decision of Asia Satellite ( supra ) and submitted that the provisions of sec.9(1)(vic) was considered therein which is applicable to payment made by a non-resident to non-resident. He contended that the payment in the present case has been made by a resident to non-resident and, therefore sec.9(1)(vib) is applicable. The Ld. DR submitted that the domestic law is very clear on this point in view of Explanation 2(iva) r.w. Explanation 5 to sec.9(1)(vi). 14. As regards applicability of sec.9(1)(vii) to treat the impugned payment as fees for technical services, the Ld. DR relied on the relevant observations of the AO recorded in the assessment order. As regards the decision rendered by the Tribunal in the case of M/s. SSA holding the amount as not in the nature of royalty which has been relied upon by the Ld. Counsel for the assessee, the Ld. DR submitted that the Tribunal in the said decision has relied on the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Ld. DR on Article 22 dealing with other income, he submitted that the said article deals with items of income not expressly dealt with any other articles. He contended that the amount in question paid by the assessee to SSA was business income going by the nature of business of SSA and since such income was expressly dealt with in Article 7, the residuary Article 22 cannot be applied. As regards the decision of AAR in the case of XYZ ( supra ) cited by the Ld. DR, he pointed out that the AAR in the said case has simply relied on its earlier decision rendered in the case of Lanka Hydraulic Institute Limited. (AAR No.874 of 2010 dated 16.05.2011) He pointed out from Para 5 of the order passed by the AAR in the case of Lanka Hydraulic Institute Limited that the entire consideration paid in the said case was held to be in the nature of royalty covered under Article 12 and therefore the question of considering scope of Article 22 was not involved in the said case at all. As regards the amendments made by Finance Act, 2012 with retrospective effect and relied upon by the Ld. DR, he contended that the said amendments cannot be regarded as clarificatory especially when the original pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s conclusively held that while providing transmission services to its customers, the control of the satellite or the transponder always remains with the satellite operator and the customers are merely given access to the transponder capacity. Accordingly, since the customer does not utilize the process or equipment involved in its operations, the charges paid to the satellite operators are not covered within the meaning of royalty as provided under Explanation 2 to sec. 9(1)(vi) and therefore, the same cannot be treated as royalty. In this case, the revenue also raised the question regarding applicability of sec. 9(1)(vii) for the first time before the Tribunal. Although, this ground was admitted, it was not decided as the receipt was held to be assessable under sec. 9(1)(vi) of the Act by the Tribunal. No argument was advanced by the learned counsel for the revenue before the Hon'ble High Court in this matter. Therefore, the submission of the revenue regarding applicability of see. 9(1)(vii) was not accepted. The result of the decision of the Hon'ble High Court is that the receipt received by the assessee is not taxable either under Sec. 9(1)(vi) or sec. 9(1)(vii) of the Act." ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to use any industrial, commercial or scientific equipment but not including the amounts referred to in section 44BB." 21. As already held in the various judicial pronouncements, the use or right to use any industrial, commercial or scientific equipment as envisaged in clause (iva) of Explanation 2 to sec.9(1)(vi) contemplates full control and possession of the user over the equipment. In this regard, it is relevant to refer to the following observations / findings recorded by the Hon'ble Delhi High Court in Para no. 65 to 68 of the order passed in the case of Asia Satellite: "65. It needs to be emphasized that a satellite is not a mere carrier, nor is the transponder something which is distinct and separable from the satellite as such. It was explained that the transponder is in fact an inseverable part of the satellite and cannot function without the continuous support of various systems and components of the satellite, including in particular: ( a ) Electrical Power Generation by solar arrays and Storage Battery of the satellite, which is common to and supports multiple transponders on board the satellite. ( b ) Common input antenna for receiving signals from the cust ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ightly so because satellite is not plotted at a fixed place. It rotates in the same direction and speed as the earth. If it had been fixed at a particular place or the speed or direction had been different from that of earth, it could not have produced the desired results. Transponder is part of satellite, which is fixed in the satellite and is neither moving in itself nor assisting the satellite to and the transponder, namely, a part of it, playing howsoever important role, cannot be termed as equipment." 67. Even after stating so, the Tribunal did not take the aforesaid view to its logical conclusion, viz., the process carried on in the transponder in receiving signals and retransmitting the same, is an inseparable part of the process of the satellite and that process is utilized only by the appellant who is in control thereof. Whether it is done with or without amplification of the signal would not make any difference, in such a scenario. 68. We are inclined to agree with the argument of the learned Senior counsel for the appellant that in the present case, control of the satellite or the transponder always remains with the appellant. We may also observe at this stage that t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices, it is covered by article 7 of the Indo-Thailand Treaty dealing with business income. There is thus no need to take a recourse to Article 22 of the treaty which covers only the items of income which are not covered expressly by any other article of the Treaty. 24. As already observed, the Ld. DR in support of revenue's contention on the issue under consideration has relied on explanation 5 to sec.9(1)(vi) which, according to him, clarifies the scope of clause (iva) of Explanation 2 to sec.9(1)(vi) dealing with use or right to use any industrial, commercial or scientific equipment. He has also relied on Explanation 6 to sec.9(1)(vi) which, according to him, clarifies the expression "process" used in clause (i) (ii) (iii) of Explanation 2 to sec.9(1)(vi). The provisions of both these Explanations 5 6 have been inserted in the statute by the Finance Act, 2012 with retrospective effect from 1.6.1976. The Ld. Counsel for the assessee has vehemently opposed the stand taken by the Ld. DR by raising the various contentions which have already been narrated by us. He has also relied on the decision of co-ordinate Bench of this Tribunal in the case of B4U ( supra ) as well as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s given on lease was restricted by the AO to 25% on the ground that necessary evidence of leasing and license had not been made available. In the year under consideration, the AO disallowed the entire claim of the assessee for deprecation amounting to Rs. 28,48,095/- on the ground that there was failure on the part of the assessee to support and substantiate its claim that it was in fact the owner of the vehicles. On appeal, the Ld. CIT (A) allowed the deprecation on vehicles given on lease to the assessee but only at the normal rate relying on his appellate order in assessee's own case for the AY 1998-99. 29. We have heard the arguments of both the sides on this issue and also perused the relevant material on the record. It is observed that a similar issue had come up for consideration before the Tribunal in assessee's case for AY 1998-99 and vide its order dated October 1, 2003 passed in ITA No.3001/Mum/2002, the Tribunal restored the same to the file of the AO to decide the same afresh after giving the assessee an opportunity to produce all the evidence to support and substantiate its claim for higher rate of depreciation on the vehicles given on lease. Before us, the Ld. Re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with recovery proceedings and to avoid legal proceedings a policy was adopted to pursue the debtor for payment. The assessee has recovered some of the amounts in subsequent years, which have been offered for taxation and have been assessed (there is a reference of amount of Rs. 9,24,418 in AY 1999-2000 in this behalf). As far as the prima facie view about considering the bad debt is concerned, the assessee, as a business policy, has considered default in three installment payments as fit for recovery proceedings and on this basis and other factors the claim of bad debt was made and actually written off in the books.. According to us, it is a. proper write off of claim as bad debt. Our view is supported by Girish Bhagwat Prasad's case and Tribunal judgments cited supra. Regarding the contention of learned DR that the Gujarat High Court has allowed the claim on the basis that genuineness of assessee's claim was not in doubt, in assessee's case also none has doubted the genuineness of loan transaction. Besides, subsequent recovery has been taxed by the department. In light of these facts, it cannot be said that the genuineness of the transactions has been doubted, it is merely the al ..... X X X X Extracts X X X X X X X X Extracts X X X X
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