9911796707
TMI Blog2012 (10) TMI 237X X X X Extracts X X X X X X X X Extracts X X X X ..... above at the time of hearing. 1.1 The disallowances in respect of other years are as follows:- Assessment year Amount 1998-99 19,09,440/- 1999-00 22,73,268/- 2000-01 22,46,763/- 2001-02 33,52,476/- 2002-03 24,98,058/- 1.2 For the sake of convenience all these appeals are being disposed of by a single order. 2. The facts as stated in the order of Assessing Officer as well as CIT(A) are that the assessee is in the business of inbound tour operation and it provides services to foreign tourists visiting the Indian subcontinent. The assessee does not have any branches/offices abroad. In order to generate business and to find new clients it entered into agreement with Mr. Patrice Dedeyn, 22 rue Lahire 75013 Paris France, a resident of France who was appointed as a business development representative of the assessee for Europe. His task, as per the agreement, is to find new clients and generate incremental business and his marketing activity principally to be concentrated around Belgium, France and Switzerland. He was to provide all possible commercial assistance as and when required by the existing clients, a list of which was to be provided to him and besides he was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elhi) (Copy enclosed at pages 205 to 212 where (i) & (ii) were followed). 5. Reference was also made to application submitted to ITO (TDS), Ward International Taxation, authorizing to make the payment in respect of assessment year 2005-06, 2006-07 & 2007-08 wherein ITO (TDS) has authorized the assessee to make the payment to Mr. Patrice Dedeyn without deduction of tax vide orders dated 29.11.2005, 14.7.2006 and 27.7.2007. 6. Copy of agreement with Mr. Dedeyn was filed explaining the activities performed by him and reliance was placed on the decision of Authority for Advance Ruling in the case of Ind. Telesoft (P.) Ltd., In re [2004] 267 ITR 725/140 Taxman 463 (AAR - New Delhi) wherein it was held that commission and retainer ship fee payable to foreign entities to secure orders from abroad for Indian business will not be taxable in India. 7. The provisions of section 9(1)(vii) read with explanation 2, are not applicable as the payment made by the assessee to Mr. Dedeyn did not refer to rendering services of managerial, technical or consultancy but was providing marketing support to generate incremental business to the assessee. This argument of the assessee was also supported b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made available. Reliance was also placed on the following decisions:- 1. DIT v. Sheraton International Inc. [2009] 178 Taxman 84 (Delhi). 2. Raymond Ltd. v. Dy. CIT [2003] 86 ITD 791 (Mum.) 3. C.E.S.C. Ltd. v. Dy. CIT [IT Appeal No. 527 (Cal.) of 1998, dated 23-7-2003] 4. NQA Quality Systems Registrar Ltd. v. Dy. CIT [2005] 2 SOT 249 (Delhi) 5. National Organic Chemical Industries Ltd. v. Dy. CIT [2006] 5 SOT 317 (Mum.) 6. Anapharm Inc., In re [2008] 174 Taxman 124 (AAR - New Delhi). 7. Intertek Testing Services India (P.) Ltd., In re [2008] 175 Taxman 375 (AAR - New Delhi). 10. Fourthly, it was submitted by the assessee that provisions of section 40a(i) are not applicable because non discrimination contained in Article 26 by DTAA with France and reliance was placed on the following decisions:- 1. Herbalife International India (P) Ltd. v. Asstt. CIT [2006] 101 ITD 450 (Delhi). 2. Millennium Infocom Technologies Ltd. v. Asstt. CIT [2009] 117 ITD 114 (Delhi). 11. The Ld. CIT(A) referring to these submissions firstly has held that section 40a(i) could not be invoked if the sum payable is not chargeable to tax in India. For this purpose, he has placed reliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Officer cannot apply the provisions of section 40a(i) of the Act and for this additional reason there should not have been any disallowance. It is in this manner, the CIT(A) has deleted the addition. Aggrieved, the department is in appeal. 16. After narrating the facts, the Ld DR relying upon the assessment order which has been referred in detail in the above part of this order, pleaded that disallowance was rightly made by the Assessing Officer u/s 40a(i) of the Act as the assessee did not deduct TDS on the payments made by it to Mr. Dedeyn. Therefore, he submitted that the disallowance deleted by the CIT(A) should be set aside and addition should be restored. 17. On the other hand, referring in detail to the order of CIT(A), it was pleaded by Ld AR that the CIT(A) was right in deleting the addition. He submitted that in any case, the decision of CIT(A) is well covered by the aforementioned two judgments which have later on to be followed by ITAT Chennai Bench in the case of Asianet Communications Ltd. v. Dy. CIT [2010] 38 SOT 158 (Chennai), copy of which has been also filed from pages 59 to 72 of the paper book. To elaborate, it is the case of the Ld AR that section 40 (a) as i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attracted the provisions of Indo-US DTAA. The payment in question, if at all, would be taxable in the hands of H in India only if it was a payment for included services within the meaning of Article 12(4) of said DTAA and not taxable in India otherwise. The sum in question could not be taxed as business income, since H admittedly did not have a permanent establishment in India. If the income was considered or having accrues or arisen in India, yet it could be taxed in India only if it was fees for included services. Even if the payment was considered as "fee for technical services" within the meaning of the Act, yet it could not be taxed because "fees for technical services" and "fees for included services" under Indo-US DTAA had different meaning and they were not one and the same. If the revenue wanted to tax the payment by the assessee to H in the hands of H in India, it had to bring its case within the ambit of Article 12(4) of DTAA i.e. fees for included services. Therefore, the payment have to be judged in the context of DTAA as to whether it was taxable in India or not. It was further held that the provisions of section 40a(i) as it existed prior to its amendment by Finance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sident of the other Contracting State, shall, for the purpose of determining the taxable profits of the first mentioned resident, be deductible under the same conditions as if they had been paid to a resident of the first mentioned state." 20. Article 26(4) of DTAA with Indo-France are reproduced below:- "26 (4): Except where the provisions of Article 10, paragraph 7 of Article 12 or paragraph 8 of Article 13, apply interest, royalties and other disbursements paid by an enterprise of one of the Contracting State to a resident of the other Contracting State shall, for the purpose of determining the taxable profits of such enterprise, be deductible under the same conditions as if they had been paid to a resident of the first mentioned Contracting State. Similarly, any debts of the enterprise of one of the Contracting State to a resident of the other Contracting State shall for the purpose of determining the taxable capital of such enterprise, be deductible under the same conditions as if they had been contracted to a resident of the first mentioned Contracting State." 21. The assessments involved in the present case are also prior to assessment year 2005-06, therefore, section 40 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be applied in this case and consequently no disallowance can be made. A decision on this question, in our view; will obviate the necessity of deciding the other questions raised in point (A) above. We may at this stage itself mention that apart from the consequence of disallowance of expenditure for non-deduction of tax at source at the time of making payment to a non-resident, the assessee as a person responsible for making payment of any sum chargeable to tax to a non-resident is obliged to deduct tax at source under the provisions of section 195 of the Act. On such failure the person responsible for deduction of tax at source is liable to pay the tax deductible together with interest from the date on which such tax is due to the date on which such tax is paid under the provision of section 201(1) and (1A) of the Act. In the present case the payment to M/s. HIAI had been made by the assessee office at Bangalore and, therefore, the officer having jurisdiction over the branch office at Bangalore had already initiated proceeding against the assessee under the provisions of Chapter XVII of the Act dealing with "collection and recurring of tax" and Part B thereof dealing with d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e may be, avoidance of double taxation then in relation to the assessee to whom such agreement applies, the provisions of this Act, shall apply to the extent they are more beneficial to that assessee." The payment in question by assessee to M/s. HIAI attracts the provisions of the Indo-US DTAA, The payment in question if at all will be taxable in the hands of M/s. HIAI in India only if it is a payment for included services within the meaning of Article 12(4) of the said DTAA 'and not taxable in India otherwise. The sum in question cannot be taxed as Business income, since M/s HIAI admittedly does not have a permanent establishment in India. If the income is considered as having accrued or arisen to M/s. HIAI in India, yet they can be taxed in India only if they are fees for included services. Even if the payment is considered as 'fees for Technical Services within the meaning of Income-tax Act, 1961, yet they cannot be taxed because 'fees for Technical Services' and 'fees for Included Services' under India-US DTAA have different meaning and they are not one and the same. If the Revenue wants to tax the payment by assessee to M/s, HIAI in the hands of M/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ther disbursements 24-18-Article 24(4) is not concerned with the discriminatory treatment of nationals etc. of one State in the other Contracting State, but the treatment of enterprises of a Contracting State under the tax law of that State. Subject to the position where a special relationship exists between the enterprise and the recipient, interest, royalties and other disbursements paid to a resident of the other Contracting State should be deductible to the same extent that they would be 'deductible if paid to a resident of the same State. Thus this prevents the indirect discrimination which would arise if the sums were not deductible. A similar provision is included in the Article relation to the deduction of debts owed to residents of the other Contracting State in determining the taxable capital of the enterprise." At page 411, the following commentaries are found on Article 24(4) : "This paragraph is designed to end a particular form of discrimination resulting from the fact that in certain countries the deduction of interest, royalties and other disbursements allowed without restriction when the recipient is resident, is restricted or even prohibited when he is a n ..... 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