TMI Blog2012 (11) TMI 903X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice provider in other words, to fit into terminology 'making available', the technical knowledge, skills etc., must remain with the person receiving the service even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider has gone into it. - The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Payment for bandwidth would constitute neither royalties nor fees for technical services either under the Act or under the agreement for Avoidance of Double Taxation with USA. - the assessee had no obligation whatsoever to deduct tax at source when the payments made to Novatel and as such, no disallowance u/s 40(a)(i) of the Act was called for. - Decided in favor of assessee. - IT Appeal No. 1297 (Bang.) of 2011 - - - Dated:- 28-9-2012 - George George K And Jason P. Boaz, JJ. Smt. Sheetal Borkar for the Appellant. Smt. Susan Thomas Jose for the Respondent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment was completed vide order dated 30/11/2010 wherein the Assessing Officer had computed deduction under section 10B of the Act after setting off of earlier year losses and determined the allowable deduction under section 10B of the Act at Rs. 4,10,018/- against the reduction in the claim of section 10B of the Act. 3.2 The assessee being aggrieved carried the matter in appeal before the first appellate authority. 3.3 The CIT(A), following the judgment of Hon'ble Karnataka High Court in the case of Himatasingike Seide Ltd. (supra) and his own order in the case of Cross domain Solutions (P.) Ltd. in ITA No.52/DC-11(2)/A-I/08-09(A.Y.2006-07) dated 12/9/2011, dismissed the appeal of the assessee. 3.4 The assessee, being aggrieved is in appeal before us. 3.5 At the very outset, the learned AR submitted that the issue in question is squarely covered by the Hon'ble jurisdictional High Court in the case of CIT v Yokogawa India Ltd. [2012] 341 ITR 385. 3.6 The learned DR present was duly heard. 3.7 We have heard the rival submissions and perused the materials on record. The Hon'ble jurisdictional High Court in the case of Yokogawa India Ltd. (supra) had held that deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f loss as provided u/s 72 of the Act. That is the benefit which is given to the assessee under the Act irrespective of the nature of business which he is carrying on. The said benefit is available even to undertakings u/s 10B of the Act. The expression "deduction of such profits and gains as derived by an undertaking shall be allowed from the total income of the assessee", has to be understood in the context with which the said provision is inserted in Chapter III of the Act. Sub-section (4) of section 10A clarifies this position. It provides that the profits derived from export of articles or things from computer software shall be the amount which bears to the profits of the business of the undertaking, the same proportion as the export turnover in respect of such articles or things or computer software bears to the total turnover of the business carried on by the undertaking. Therefore, it is clear that though the assessee may be having more than one undertaking for the purpose of section 10A it is the profit derived from export of articles or things or computer software from the business of the undertaking alone that has to be taken into consideration and such profit is not to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in favour of the assessees and against the revenue". 3.9. Respectfully following the dictum laid down by the Hon'ble jurisdictional High Court in the case of Yokogawa India Ltd. (supra), we hold that the deduction u/s 10A/10B of the Act is to be calculated without setting off of the carried forward business loss of the assessee in respect of the earlier assessment years. It is ordered accordingly. Accordingly, ground nos.2, 3 and 4 are allowed. 4. Ground Nos.5, 6 and 7 reads as follows:- (5) The learned CIT(A) ought to have appreciated that M/s Novatel USA being a non-resident company having no permanent establishment in India, it was not chargeable to tax under the Act in respect of its income earned from the appellant for providing facility outside India and consequently the provisions of section 195 of the Act were not applicable. (6) On the facts and in the circumstances of the case, the learned CIT(A) ought to have appreciated that Explanation to sec.9 is of no application to the appellant and there was no deemed income in India in respect of the non-resident company out of the payments made by the appellant and consequently the appellant had no obligation to deduct ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Heavy Industries Ltd. v. Director of Income-tax [2007] 288 ITR 408 (SC). In that case, it had been held that 'That ..to be rendered in India' 7.1. In simple terms, the amendment is clarificatory only. Thus, the source rule was from the beginning i.e., since 1976 to bring to tax all payments by a resident to a non-resident if such payment is inclusive of some profit in the hands of such non-resident. Even India's DTAA recognized such rule. But gradually, it became obliterated by the situs rule. The Situs Rule states that in order to be taxable in India such sum has to be either paid in India or the corresponding service has to be rendered in India. But the amendment had now blown the ash over the fire generating both heat and light. Here heat is s.9 sand light is provisions of s. 5 of I.T. Act. Thus, law has become simple now on this issue that sec. 5 which defines scopes of total income now includes income deemed to accrue or arise in India and does not have to actually accrue or arise in India and by a resident Indian. Thus, the amendment has also overcome the ratios of several decisions which held that business profits not being covered in Sec. 9 of Income-tax Act does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India, the telecom voice service was not chargeable in India in the absence of its permanent establishment in India; - that even if telecom voice service has been received by the non-resident on account of business connection mentioned in s. 9(1)(i) of the Act, then, the same was not chargeable in India because the non-resident was not having any permanent establishment in India; and that the telecom services provided by the payee outside India cannot be treated as technical services; - that the amount paid for such services could neither be treated as fee for technical services nor royalty and as such, no tax was to be deducted at source on payment for telecom services provided by Novatel. The amount paid to Novatel was not its income accruing in India u/s 9(1)((vii) or s. 9(1)(vi) or under Double Taxation Avoidance Agreement [DTAA] between India and USA. Thus, the liability to TDS u/s 195 would not arise in the hands of the assessee; - that the CBDT Circular No.333 dated 2.4.1982 had stated that a specific provision in DTAA is to be followed irrespective of the provision in Income-tax Act; Relies on the case laws: (a) CIT v. P.V.A.L. Kulandagan Chettia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cannot be said that the payment by the non-resident is received in India and such payments are not taxable in India. Thus, the Board was of the view that the service charges paid for the services rendered outside India was not liable for taxation in India and, therefore, no TDS was required to be made; Relies on the case laws: (a) Asia Satellite Telecommunications Co. Ltd. v. DIT [2011] 332 ITR 340; (b) Asstt. DIT (International Taxation) v. Wizcraft International Entertainment (P.) Ltd. [2011] 43 SOT 470 Mumbai Bench. In conclusion, it was prayed that the AO be directed not to treat the assessee as a defaulter as there was no obligation on the part of the assessee to deduct tax u/s 195 of the Act while making payment to a non-resident. 4.5 In the meanwhile, the learned AR in her application dated 12.9.2012 sought the permission of this Bench to raise the following additional ground, namely: "In the alternative, the learned CIT (Appeals) ought to have appreciated that a substantial payment was made to Novatel, USA before 31st March and hence section 40(a)(i) is not applicable to the sums paid, as per the ratio of ITAT, Special Bench decision in the case of Merilyn Sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... October 2011] had changed the situation. (iv) placing reliance as well as clarifying the rulings of the Hon'ble Supreme Court in the cases of (i) Transmission Corpn. of A.P. Ltd v. CIT [1999] 105 Taxman 742 and (ii) GE Electronics, it was submitted that the plea of the assessee that the income was not chargeable to tax at all in India was fallacious as the Act does not empower the assessee to sit on the judgment on what trading receipt in the hands of Novatel would constitute income. In conclusion, it was prayed by the learned DR that in view of retrospective amendments to s. 195 and s. 9 and in view of the assessee's admission that the terminology used technical infrastructure for services of Novatel and Verizone and also in conformity with the ruling of the Hon'ble Supreme Court in the case of Transmission Corpn. of A.P. Ltd (supra), the stand of the AO requires to be upheld. 4.7 In the rejoinder, the learned AR submitted that the payments made to Verizone, Singapore had permanent establishment in India, whereas Navatel, USA did not have permanent establishment in India. 4.8 We have heard the rival submissions, perused the relevant materials available on record and als ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here there is no specific provision in the agreement, it is the basic law, i.e., the I. T. Act that will govern the taxation of income." [Source: (1982) 137 ITR (St) 1] 4.12 We have also closely perused the clauses (v), (vi) and (vii) of s.9 (1) which has been amended retrospectively by Finance Act 2010. Moreover Explanation 2 to s. 9(1)(vii) of the Act clarifies the meaning of 'fees for technical services'. Also s.9 of the Act deals with the income deemed to accrual or arises in India. However, in the case on hand, the income of the non-resident - Novatel was in the form of service charges payment. As claimed by the assessee, the non-resident - Novatel - had not rendered any services of managerial, technical or consultancy in nature which expressly did not cover under the expression 'fees for technical services'. The Income-tax Act or the DTAA for that matter had not defined the term managerial, technical or consultancy. We have thus been left with only to refer the dictionaries. According to well established dictionaries the meaning for managerial relates to 'a manager or management, managerial responsibilities/decisions/skills etc.' However, in the present case, the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... surveys using substantial technical skills, it has not made available the technical expertise in respect of such collection or processing of data to the assessees which the assessee can apply independently and without assistance and undertake such survey independently. Consequently, the consideration is not assessable as 'fees for technical services." 4.15 As recently as in May, 2012, the Hon'ble Mumbai Tribunal had an occasion to decide as to whether the amount remitted by that assessee towards advertisements could be assessed as business profits as per s. 9, but, having regard to fact that non-resident advertising company had no permanent establishment in India, the amount in question could be brought to tax in India? and whether in the aforesaid circumstances, the assessee was laible to effect TDS under s. 195 of the Act. 4.16 After duly analyzing the issue, the Hon'ble 'L' Bench of Mumbai Tribunal in the case of Dy. CIT v. Sandoz (P) Ltd. [2012] 137 ITD 326 had decided the issue in favour of the assessee. The relevant findings of Hon'ble Bench are extracted as under: "(Page 329) There is no dispute to the fact that assessee remitted the amount towards expenses to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ders such as AT and T or MCI Telecommunications are for the use of bandwidth provided for down linking signals in the United States. The payments made are not in the nature of managerial, consultancy or technical services nor is it for the use of or right to use industrial, commercial or scientific equipment. The service provides such as MCI Telecommunications or AT and T only ensures that the sufficient bandwidth is available on an ongoing basis to the ultimate users to uplink and downlink the signals. 4.10 The Madras High Court in the case of Sky Cell Communication Services Ltd v. DCIT Manu/TN/0461/2001 - 2521 ITR 53 has held that payment for use of mobile phone services would not constitute royalties or fees for technical services. Payments made for bandwidth are akin to the payments made for use of mobile phone services. 4.11 The Bangalore Bench of the ITAT in the case of Wipro Ltd v. ITO 80 TTJ 191 has held that payment for bandwidth would constitute neither royalties nor fees for technical services either under the Act or under the agreement for Avoidance of Double Taxation with USA. This decision was followed by the Tribunal in the assessee's own case [ITA No.532 and 533 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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