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TMI Blog2015 (7) TMI 737X X X X Extracts X X X X X X X X Extracts X X X X ..... tomers across the globe. The most essential tool in its business activity was the hyper bandwidth connection service. During the year under consideration the assessee had incurred operation cost of D2,21,63,895/- towards connectivity services. The Assessing Officer disallowed a sum of D33,91,949/- and D1,46,48,969/- by invoking provisions of Section 40(a)(i) and u/s.40(a)(ia) of the Act respectively. Aggrieved, the assessee preferred an appeal before the Commissioner of Income Tax (Appeals). The Commissioner of Income Tax (Appeals) confirmed the disallowances. Against this, the assessee is in appeal before us. 4. The ld. Authorised Representative for assessee submitted that the amount paid to foreign service providers was towards international toll free services. According to the ld. Authorised Representative for assessee these do not amount to payment for technical services under section 9 and therefore tax was not required to be withheld on these payments made by the assessee to a non-resident. The Department has taken a stand that the payment should be subject to tax unless an application has been made u/s.195(2) or 195(3) of the Act. The Karnataka High Court in the case of CIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 355, the authority for advance rulings had held that payment made by an Indian subscriber to the Cargo community network pvt. Ltd at Singapore, for providing a password to a access and use the portal hosted at Singapore, is taxable in India and is subject to deduction of tax at source. The assessee makes payments to the international toll free serves provider to tenable its clients outside India access its services. It therefore, falls squarely under the ambit of Section 195 and therefore, payments made without deducting withholding tax and remitting the same would not qualify as expenditure u/s.40(a)(i) of the Act. 6. We have heard both the parties and perused the material on record. A similar issue was considered by the Tribunal in the case of Frontier Offshore Exploration (India) Ltd. vs. DCIT, 118 ITD 494 (Chennai) wherein held that ''The provisions of section 195 clearly show that any person responsible for Making payment to a non-resident in respect of any interest or any other sum chargeable under the provisions of this Act has to deduct tax at the rates in force. Obviously 'any other sum' chargeable under the provisions of this Act would mean that portion of the sum ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd get such "appropriate proportion" of the same on which tax is to be deducted, determined and accordingly deduct tax. Therefore, wherever a general situation exists a general order is passed by the Department in the form of circular etc. No such circular has been issued by the CBDT, which means such parties must apply under section 195(2) for special order so as to get the "appropriate proportion" determined. Also the word "appropriate proportion" is significant. If the payer of such sum was to decide the proportion of amount which was chargeable, then there was no need to use the words "appropriate proportion". The use of these words clearly suggests that somebody needs to determine such appropriate proportion after considering all the facts and circumstances of the case. Naturally this somebody cannot be the assessee him-required self. Therefore, assessee is to come before the income- tax authorities in the form of application under section 195(2) and make a claim that only a particular proportion is chargeable and the appropriateness of the same is to be decided by the Assessing Officer and only after that, such sum is to be determined. This clearly shows the requirement of ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... return. We think, by adopting this course of action, the assessee tried to decide everything on his own ignoring all statutory provisions''. Being so, this issue is squarely covered by the above order. Taking a consistent view, we are inclined to hold that the assessee is liable to deduct TDS for payment made to foreign service provider. However, if there is short deduction of TDS then the payment cannot be disallowed as short deduction is different from no deduction of TDS. Accordingly, the Assessing Officer is directed to segregate the short deduction and no deduction of TDS on the payments made to foreign provider and he has disallowed only payment where there is no deduction of TDS. Accordingly, this ground is partly allowed. 7. The next ground is with regard to disallowance of D.1,46,48,969/- made u/s.40(a)(ia) of the Act. This issue is squarely covered by the order of the Special Bench of the Tribunal (Vizag) in the case of Merilyn Shipping and Transports vs. ACIT (2012) 136 ITD 23 (Visakhapatnam) wherein it was held that the provisions of section 40(a)(ia) are applicable only to the expenses that are "payable" and outstanding at the end of the close of the financial year ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nly utilising the services of the service provider and not in a position to provide similar service to third parties independently. The assessee is not learning or gaining knowledge, skill set while receiving the said services. Thus, the 'made available' test of the tax treaty has not been satisfied as the assessee is not enabled to independently perform such services. The Assessing Officer had giving following reasons for the disallowance. 7.1 The management services are provided by the associated enterprises for the business activity of the assessee. As per Section 9, which is a deeming provision, to determine an income that has accrued or arisen in India. As per Section 9(1)(vii) which brings in deemed income by way of ''fees for technical services'' wherein, the sum is paid by a resident except to a person outside India for the purpose of making or earning any income from any source outside India. In the present case, the payment is made by a resident for the purpose of services utilized in the business or profession carried on by a person in India and for earning an income from such source in India. Further, as per Explanation(2) to Section 9(1)(vii) fee for technical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch its own investigation of facts. Hence, the Assessing Officer is directed to examine the issue with reference to the relevant Double Taxation Avoidance Agreement (DTAA) and then make the disallowance if required and accordingly the DRP not given any findings for the assessment year 2009-10. Thus, the assessee is in appeal before us. 10. In our opinion, the DRP has not given any findings and only given direction to the Assessing Officer to examine the entire issue afresh in the light of DTAA and to decide thereupon. Being so, at this stage we are not in a position to express any opinion on the findings of the DRP. This issue is required to be properly examined by the Assessing Officer with reference to the relevant DTAA. Accordingly the findings of the DRP is confirmed. 11. The assessee has also raised another ground with regard to levy of interest u/s.234B and 234D of the Act. Since, the interest is consequential and mandatory in nature, the same to be considered by Assessing Officer while passing consequential order. With these observations, the appeal of the assessee is dismissed. 12. In the result, the appeals of the assessee in ITA No.484/Mds/2014 is partly allowed for sta ..... X X X X Extracts X X X X X X X X Extracts X X X X
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