TMI Blog2003 (11) TMI 604X X X X Extracts X X X X X X X X Extracts X X X X ..... $ 79,500. The company remitted the said consideration in three equal instalments of US $ 26,500 on 30-7-1990, 3-12-1993 and 24-2-1994 respectively. After a lapse of about one and a half year, the Report became old and the company felt that in view of the fast changing technology, it was necessary and desirable to get the same updated. For this purpose, the company had approached Raytheon. Raytheon agreed to update the report outside India for a consideration of US $ 25,000. The Reserve Bank of India had imposed a pre-condition for depositing advance TDS for granting approval to remit US $ 25,000. Accordingly, the assessee had deposited ₹ 1,73,700 as advance TDS. The assessee company approached the ITO (TDS) for issuance of no objection certificate without deduction and payment of tax in respect of remittance on the ground that the amount payable for updation of the report was for services rendered outside India by Raytheon. Therefore, the question of taxability of the said amount in India did not arise. The ITO (TDS) did not agree with the submissions made before him and directed the assessee company vide order under section 195(2) dated 6-10-1995 to deduct tax @20% as per D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chnical services and, therefore, if no business connection is in India, then the fees for technical services is not taxable in view of section 9(1)(i). 8. The learned counsel further submitted that there is no provision in section 9(1)(vii) for the situation where the services are not actually utilized by residents. He pointed out that section 9(1)(vii)( b) contemplate only for that situation where the fees is payable in respect of services utilized in a business or profession carried on by the resident outside India. The learned counsel referred to the decision of the Hon ble Supreme Court in the case of Federation of A.P. Chambers of Commerce Industry v. State of Andhra Pradesh [2001] 247 ITR 361 and pointed out that the Hon ble Supreme Court has considered the expression is used and has held that it implied actual user and not merely meant for utilization. 9. He submitted that utilization of services in fact is necessary and during the intervening period the situation remains fluid as liability to tax does not crystallize. The learned counsel for the assessee further submitted that no period of utilisation has been given in the section. He also referred to one hypothet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eign companies under existing agreements will continue to be charged on the existing basis, subject to the modification that the expenditure incurred for earning such income will be limited to 20 per cent of the gross payments. 11. The learned counsel for the assessee submitted that as a matter of fact section 9(1)(vi) and ( vii) have been misplaced and they should have been made part of section 9(1)(i). He relied on the decision of the Hon ble Supreme Court in the case of CIT v. V. Venkatachalam [1993] 201 ITR 7371. In this case the facts were that the assessee HUF derived long term capital gains in a sum of ₹ 1,02,740 during the previous year relevant to the assessment year 1973-74. It claimed deductions thereon under and as provided by section 80T of the Income-tax Act. The ITO, however, adopted a different method. He found that during the said previous year, the assessee had suffered business loss of ₹ 41,892. He set off the said loss against capital gains of ₹ 1,02,740 and applied the deductions provided in section 80T to the balance figure. The assessee s claim for allowing deductions under section 80T on the gross capital gains of ₹ 1,02,740 was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... accrue or arise in India, being of substantial public importance, especially as it concerned collaboration agreements with foreign companies and such other arrangements for the better development of industry and commerce in India has been referred to a Constitution Bench of the Supreme Court. Further he submitted that if section 9(1)( vi) and (vii) is not treated as part of section 9(1)(i), then quantification is not possible. The learned counsel for the assessee, however, fairly submitted that in the following decisions, the Courts have held that section 9(1)(vii) is independent of section 9(1)(i) but the aforementioned arguments had not been considered in the said cases: CIT v. Copes Vulcan Inc., [1987] 167 ITR 8841 (Mad.) Cochin Refineries Ltd. v. CIT [1996] 222 ITR 354 (Ker.) 13. The learned Departmental Representative submitted that there is no dispute regarding US $ 79,500 on which the assessee himself had deducted tax for the technical services rendered by Raytheon. The learned DR pointed out that plain reading of the Act clearly suggest that the business connection has nothing to do with the rendering of technical services by person outside India and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sider various arguments of the learned counsel for the assessee, it would be useful to refer to some of the principles of interpretation as noted in the Commentary of Chaturvedy Pithisaria Vol. I at page 347:- (1)It is the duty of the courts to avoid a head-on clash between two sections of the Act and to construe the provisions which appears to be in conflict with each other in such a manner as to harmonize them. (2)The provisions of one section of a statute cannot be used to defeat the other provisions unless the court, in spite of its efforts, finds it impossible to effect reconciliation between them. (3)It has to be borne in mind by all the courts all the time that when there are two conflicting provisions in an Act, which cannot be reconciled with each other, they should be so interpreted that, if possible, effect should be given to both. This is the essence of the rule of harmonious construction. Thus, it is evident that principles of interpretation are to be applied only where the meaning is not manifest from the plain words of the statute. The interpretation which would create unfair, irrevalent or unreasonable result, should, if possible, be avoided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The rule is, that whenever there is a particular enactment and a general enactment in the same statute, and the latter, taken in its most comprehensive sense, would overrule the former, the particular enactment must be operative, and the general enactment must be taken to affect only the other parts of the statute to which it may properly apply. 18. Now, we would examine the learned counsel s argument with respect to business connection in India. We find that in all categories of section 9 only those incomes have been deemed to accrue or arise in India which have some business connection in India. The Hon ble Supreme Court in Electronics Corpn. of India Ltd.s case (supra) has clearly observed that unless there exists a nexus with something in India, Parliament will have no competence to make the law. Such a law may have extra territorial operations in order to subserve the object and that object must be related to something in India. Section 9(1)(vii), with which we are concerned, has been referred to a Constitution Bench. No judgment of Hon ble Supreme Court was brought to our notice which has declared the provisions of section 9(1)(vii)(b ) ultra virus the constitutio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he learned counsel for the assessee has also submitted that there is no provision for the situation where the technical services are actually utilized in India though meant for utilisation abroad. In our opinion, in such a situation, the income would go out of the purview of exception clause and will become taxable. It is well settled principle of taxing statute that charging section is to be construed strictly. 20. The next argument of the learned counsel for the assessee is that the main purpose of section 9(1)(vi) and 9(1)(vii) is to define royalty and technical services. The learned counsel for the assessee pointed out that section 9(1)(vi) and ( vii) are not redundant as they have been incorporated for rate purposes as is evident from the Finance Minister s Budget Speech. In this regard we have reproduced earlier the extracts of the Speech of the Hon ble Finance Minister, from which as pointed out earlier, it is evident that this amendment was brought out to obviate several administrative difficulties and uncertainities. As is evident, the fees for technical services has been defined vide Explanation 2 and, therefore, it cannot be said that the whole object of inserting sec ..... X X X X Extracts X X X X X X X X Extracts X X X X
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