TMI Blog2015 (2) TMI 983X X X X Extracts X X X X X X X X Extracts X X X X ..... pondent : Shri Ajay Vohra, Gaurav Jain, Adv and Shri Upvan Gupta, CA ORDER PER T.S. KAPOOR, AM: This is a bunch of four appeals relating to Assessment Years 2007-08 2008-09. I.T.A. No. 210 and 498 are cross appeals filed by assessee and revenue respectively against the order of Ld. CIT(A) dated 01.11.2011 whereas I.T.A. No. 1989 and1778 are cross appeals in Assessment Year 2008-09 filed by assessee and Revenue respectively against the order of Ld. CIT(A) dated 28.01.2013. These appeals were heard together and therefore, for the sake of convenience, a common and consolidated order is being passed. In I.T.A. No. 210, the assessee has taken only one ground of appeal which is on account of the action of Ld. CIT(A) by which he had confirmed the disallowance u/s 40(a)(i) which was made by A.O. for non deduction of TDS on payments made to non-resident persons outside India for representation charges. In I.T.A. No. 498, the Revenue is aggrieved with the action of Ld. CIT(A) by which he had deleted the addition on account of excess depreciation on computer peripherals. The Revenue is also aggrieved with the action of Ld. CIT(A) by which he had deleted the addition of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deemed to accrue at arrival in India and consequently were liable to be taxed and consequently were liable for tax deduction at source and since assessee had not deducted tax thereon in India. Therefore, the A.O. made the following additions for violation of the provisions of Section 40(a)(i) of the Act in these two Assessment Years: 2007-08 2008-09 Disallowance on account of tour exp. 1,75,49,089 4,39,66,623 Disallowance u/s 40(a)(i ) 2,77,62,022 4,50,82,827 3. The A.O. also made disallowance on account of excess depreciation charged on computer peripherals amounting to ₹ 1,73,070/- and ₹ 1,26,000/- in the above two Assessment Years respectively. Aggrieved with the additions, the assessee filed appeals before Ld. CIT(A) and Ld. CIT(A) deleted the disallowance of excess depreciation on computer peripherals relying upon various case laws decided by various courts. As regards the disallowance made by A.O. on account of tour expenses, Ld. CIT(A) deleted the same in Assessment Year 2007-08 by hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee has to apply u/s. 195 (2) only in case where it had a doubt as to the amount to be deducted at source and could approach the Assessing Officer to compute the amount which was liable to be deducted at source not otherwise in every case. Just because the payer has not obtained a specific declaration from the revenue authorities to the effect that the recipient is not liable to be taxed in India in respect of income embedded in particular payment, howsoever desirable be that practice, the Assessing Officer cannot proceed on the basis that the payer had an obligation to deduct tax at source. He still has to demonstrate and establish that the payee has a tax liability in respect of the income embedded in the impugned payment. That exercise was not carried out by the Assessing Officer on the facts of this case. 5.3 The Assessing officer has not brought any new facts on record to show that the foreign tour operators were having a person acting on their behalf for either of the activities provided in the definition of Business Connection given in Explanation 2 of section 9 (i) of the Act. In view of the discussion made above, it is held that the disallowance of S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch payment. It was submitted that as per Section 195, the duty casted upon payer is to deduct tax in respect of income payable to non residents which is chargeable under t he provisions. It was submitted that in case where no taxable income arises to a nonresident tax is not required to be deducted and in this respect, reliance was placed on the case law of G. E. Technology Centre Pvt. Ltd. Vs CIT 327 ITR 456 (S.C.). It was further argued that as per provisions of Section 40(a)(i), the disallowance of expenditure can only be made where tax is deductible at source and, therefore, if no tax is deductible then expenditure cannot be disallowed u/s 40(a)(i). It was submitted that since in this case, the payments were made to nonresident overseas agents situated outside India, therefore, the income accruing or arising to them, did not accrue or arose in India. It was submitted that Section 9 of the Act provides that such payment will deem to have accrued in the hands of the non-resident and therefore, will be chargeable to tax in India and consequently, payer will be liable to deduct tax therefrom. It was submitted that such income as mentioned in section 9(1)(vii) of the Act is income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dia. In support of the explanation that sale and marketing expense do not fall within the meaning of fee for technical services, as defined u/s 9(i)(vii), Ld. A.R. further relied upon following case laws: i) DIT Vs Sheraton International 313 ITR 267 (Del.) ii) CLSA Ltd. vs ITO 56 SOT 254 (Mum.) iii) WNS North America Inc. Vs ACIT 141 ITD 17 (Mum) iv) ACIT Vs Model Exim: 64 SOT 4 (Luck.) v) DCIT Vs Farida Prime Tannery (P) Ltd. 64 SOT 145 (Chenn.) vi) Cushman and Wakefield(s) Pte. Ltd., in Re: 305 ITR 208 (AAR) 8. In view of the facts and circumstances of the present cases and in view of the ratio emanating from various decisions of the Hon ble Courts, Ld.A.R. submitted that sales promotion and marketing services rendered outside India were not in the nature of fee for technical services and, therefore, assessee was not liable to deduct tax therefrom. Further arguing, the Ld. A.R. submitted that the manner of calculation and consideration for availing such services does not matter which can be paid by a fixed commission on the basis of sales or which can be based upon fixed payment and therefore, the manner of calculation of consideration cannot come in the way ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DS from payments for services rendered by non-resident agens. It was submitted that during the year under consideration, certain payments were made by assessee without deduction of tax at source relying upon those circulars. Reliance in this respect was placed on Hon'ble Delhi High Court decision in the case of CIT Vs EON Technology P. Ltd. 343 ITR 356 where it has been held that assessee was not liable to deduct tax at source form payment to nonresident for carrying out any operation in India by applying the provision of Circulars 23 and 786. Ld. A.R. has relied upon a number of case laws as mentioned in page 10 of his synopsis. It was submitted that above circulars were withdrawn by Circular No.7/2009 which fell in Assessment Year 2010-2011 and therefore, in these two years, the circulars were very much in existence and its withdrawal was not retrospective as held by Hon'ble Delhi High Court in the case of Angilique International Ltd. 359 ITR 9 wherein it was held that withdrawal of circular was prospective. In view of all alternative arguments, Ld. A.R. submitted that the assessee was not liable to deduct TDS and therefore, disallowance u/s 40(a)(i) was not warranted. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces should have been rendered by payees. The terms managerial, technical and consultancy do not find mention in the I. T. Act, 1961 and it is a settle law that they need to be interpreted based on their understanding in common parlance. Hon'ble Delhi High Court, in J.K. (Bom.) Limited Vs CBDT and Another 118 ITR 312 (Del.) referred an article on Management Services wherein it is stated that the Management action includes at least the following: (a) Discovering, developing, defining and evaluating the goals of the organization and the alternative policies that will lead towards the goals; (b) Getting the organization to adopt the policies; (c) Scrutinizing the effectiveness of the policies that are adopted and (d) Initiating steps to change policies when they are judged to be less effective than they ought to be. Management thus pervades all organizations. Technical: In the case of Skycell Communications Ltd. Vs DCIT, the Hon'ble High Court had held that the popular meaning associated with the word technical is involving or concerning applied and industrial science. Consultancy: is generally understood to mean an advisory service. Further, it may be fair to state that not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... answering service, office telephone, cel1phone, charges for internet. Normal office material (excluding printing), Postal charges,' electricity, reasonable entertainment etc. on an actual basis. Local bus transport etc on actual basis Bus / train and car rental expenses on actual basis for making sales calls within the tri state area (New York. New Jersey . Connecticut). 14. Similarly, the area of activities to be performed by another agent Mr. Naresh Sarvaria as placed in paper book pages 119-122 are reproduced below: Functions of Mr. Naresh Sarvaria: Mr. Naresh Sarvaria will conduct regular direct e-mailing campaigns to key clients tour operators and incentive houses in JK, Scotland and Ireland markets for Le Passage to India Tours and Travels Pvt. Ltd. Mr. Naresh Sarvaria will conduct regular direct e-mailing campaigns to key clients tour operators and incentive houses in JK, Scotland and Ireland market as and make sales calls on them as required. Mr. Naresh Sarvaria will follow up his sales calls as result of the emailing comparing and will pass on to the Le Passage to India Tours and Travels Pvt. Ltd. the full e-mail correspondence file for canvassing the sales le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ultancy services. Accordingly, the consideration paid by the assessee cannot be classified as fee for technical services (FTS). 16. We further find that Hon'ble Delhi High Court in the case of Panalfa Autoelektrik Ltd. while explaining meaning of the word managerial, technical or consultancy services falling under the scope of FTS u/s 9(i)(vii) of the Act held that sales and marketing services made by an overseas commission agent do not fall within the meaning of aforesaid words and, therefore, the payment of commission made to such agent will not be deemed to accrue or arise in India and consequently, would not be liable to tax in India. Similarly, in a number of case laws relied upon by Ld. A.R. as noted in his synopsis page 5, we find that various courts have held that sales and marketing services rendered outside India do not fall within the meaning of FTS u/s 9(i)(vii) of the Act. Therefore, keeping in view the facts and circumstances of the present case and on the basis of various case laws relied upon by the assessee, we hold that the amount of retainer-ship charges and commission paid by the assessee to an overseas nonresident agent is not in the nature of FTS and, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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