Just a moment...

Report
FeedbackReport
Bars
×

By creating an account you can:

Logo TaxTMI
>
Feedback/Report an Error
Email :
Please provide your email address so we can follow up on your feedback.
Category :
Description :
Min 15 characters0/2000
TMI Blog
Home / RSS

2005 (6) TMI 550

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ssue. The assessee paid BZ, fee/sums at the rate of 4% of the aggregate principal amount of the issue. Total foreign expenditure incurred by the appellant for the issue was Rs. 8,72,88,862/- like Lead Manager fees, selling commission expenses, other out of pocket expenses, etc. For rendering the services, the financial experts of BZ visited India on various occasions. Various details have been discussed in various parts of the assessment order. There were prolonged discussions with various agencies. The services of BZ were availed of after few deliberations. Subsequently they assisted the appellant in arranging road shows for approaching the right investors and providing a total management, underwriting and consultancy services to the appellant. These included feasibility reports, fixation of right price, working out of marketing strategies during the job of underwriting and managing the issue in its totality, providing Due Diligence Certificate to SEBI. This certificate can be issued only after elaborate study of financial health of the appellant company. 5. On come information, the Assessing Officer issued notice to the assessee that why the provisions of section 9(1)(vii) of th....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....lication of section 201(1A) and whether the services wee technical, managerial, consultancy, etc. it was also objected that the reimbursement of expenses, which was held to be taxable. The case laws relied upon by the learned Assessing Officer were also distinguished. The grossing up provisions and applicability of DTAA were also raised before the CIT(A). The CIT(A) discussed the issues in great depth. The case laws relied upon by the assessee were also taken into consideration. However, the CIT(A) was of the view that the Assessing 201(1) and consequently charging interest under section 201(1A) of the Act. However, the matter was sent back to the file of the Assessing Officer only for the purpose of grossing up and tax calculation as the Assessing Officer has not given details in regard to grossing up of income and then calculation of the tax. 7. Now the assessee is in appeal here before the Tribunal. The assessee has challenged the order of the CIT (A) on each and every finding. The assessee has also challenged the order of the Assessing Officer on account of time limitation as the order was passed beyond 4 years time. 8. At the outset, the learned Departmental Representative, ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....d money through Euro Issue. Agreement was entered between various parties and bankers and accordingly the amount was paid on various accounts. In that case also the Assessing Officer issued notice under section 201(1) and 201(1A) and the matter traveled up to the stage of Tribunal and Tribunal has held that the provision of Treaty of DTAA is squarely applicable. Therefore, the assessee was not in default in terms of section 201(1) and consequently assessee was not liable to pay interest under section 201(1A) of the Act. Attention of the Bench was drawn on various parts of the order of the Tribunal placed on record. It was further submitted that in the case of CESC Ltd. vs. DCIT, 87 ITD 653 (Kol) (TM), the Kolkata Bench has held that provision of Treaty under DTAA between India and UK is applicable and therefore the assessee was not liable to deduct the tax under section 195. Again attention of the Bench was drawn on various parts of the order of the Tribunal placed on record. Accordingly it was submitted that on the amount on account of underwriting fees, selling commission/concession, management fees and reimbursement of expenses paid by the assessee, no TDS was liable to be deduc....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... appeal before the Tribunal. The assessee has taken the ground in regard to limitation, i.e. Ground No. (4)(c), which reads as under:- "(4)(c) the impugned order is liable to be quashed as being ab initio or otherwise void, illegal and inoperative." of course there is no mention in this ground about limitation, but the assessee has challenged the legality of the order by mentioning that order is ab initio or otherwise void, illegal and inoperative. There is no requirement in law that a specific point has to be mentioned. Once the order is said to be illegal, then all legal grounds should be treated as taken. Therefore, we reject the contention of the learned DR that no such ground on limitation has been taken by the assessee. 14. In the case of Raymond Woollen Mills Ltd. vs. ITO, 57 ITD 536 (Mum), the Bombay 'D' Bench has held that period of 4 years was reasonable to pass an order. The briefly stated facts in that case were that for the assessment years 1978-79 to 1986-87, the Assessing Officer passed orders on 21.05.1990 levying interest under section 201(1A) on the ground of delay in the depositing of tax deducted at source into Government's account. The assessmen....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... the decision of the Tribunal since it has been delivered after taking into consideration the aforesaid decision of the Supreme Court. Respectfully following the same, it is held that order under section 201 of the Act must be passed within a period of 4 years from the end of the assessment year. In the present case all the orders have been passed on 10.05.2000. Four years from the end of assessment year means 5 years from the end of financial year. In the present case, the orders have been passed with reference to financial years. Therefore, it is held that the order under section 201 of the Act for the financial year 1994-95 was barred by limitation. Other orders for the financial years 1995-96 to 1998-99 are within the period of limitation. Accordingly, the order under section 201(1) for financial year 1994-95 is quashed while other orders are held to be passed within reasonable period." In case of Mitsubishi Corpn. vs. DCIT, 85 ITD 414 (Del), the Tribunal has taken similar view in regard to limitation. The operative Para of the Tribunal is Para 37, which reads as under:- "37. After considering the rival submissions, we are of the view that this issue is squarely covered by t....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ce the order of the Tribunal in Raymond Woollen Mills (supra) states in para 11 as four years from the end of the assessment year. We have gone through the said decision of the Tribunal very carefully to resolve this dispute. The confusion had arisen because of two different dates from the orders under section 201(1A) mentioned in para 2 and para 11 of the order inasmuch as the date in para 11 was mentioned as 25.01.1990. The learned counsel for the assessee vide order dated 27.04.2002 has stated that on inspection of the record it was found that the correct date of the orders under section 201(1A) in that case was 25.01.1990. To substantiate the same, he has filed the copies of such letters were given to the learned CIT DR for comments but no reply has been received so far, even after two months. Hence, there is no reason for not accepting the correct date of the orders under section 201(1A) in the case of Raymond Woollen Mills (supra) as 25.01.1990. The perusal of the said order of the Tribunal also shows that assessment years involved were 1978-79 to 1986-87. The Tribunal had held that orders upto assessment year 1985-86 could not have been declared as time-barred unless period ....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....s styled as 'subscription agreement' which was entered into between the assessee company on the one hand and MIL, G Ltd and DSP Ltd. on the other. Another agreement styled as 'managers' agreement' was entered into between MIL Ltd. on the one hand and G. Ltd., DSP Ltd, B2 Ltd, BS Ltd. and S Corporation on the other. Each GDR issued was backed by two equity shares and the shares were issued in the name of depositary who subsequently issued the GDRs. The physical possession of the shares was entrusted to custodian; the custodian was the agent of the depository. Thus, the GDRs. represented the issuing of a company's shares but it had a district entity and did not figure in the books of the company separately. The assessee company engaged MIL, a company incorporated in UK as lead manager and others such as G Ltd., DSP Ltd. etc., as managers to the issue; these firms were remunerated for their services. However, no tax was deducted by the assessee company from the payments made to them. Therefore, the Assessing Officer passed an order under section 195(1) holding that the amounts were chargeable to tax in India as 'fees for technical services' within the m....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....not now be heard to say that it did not apply to the case. Paras 28 to 38 of the order under section 195 are quite elaborate on this. The AO, in these paragraphs, has examined the applicability of the DTA with UK on merits without ever raising the objection that it does not apply in the first place. Mr. Dastur is therefore right, in our view, in saying that the Revenue cannot now raise the point. The CIT(A) is also not correct in saying that the question of applicability of the DTA with UK is academic. Further, we cannot possibly inter that the assessee had impliedly admitted (as the CIT(A) says) that the fees paid were taxable in India, merely from the facts that the assessee did not make any application to the AO under section 195(2) for determination of the appropriate proportion of the sum which is chargeable to tax. 89. Even on merits, the objection of the Revenue that the UK agreement does not apply cannot be upheld. The clauses in the managers' agreement dated 9.11.1994 to which our attention was drawn on behalf of the assessee show the importance of Merrill Lynch in the issue of GDRs. It was appointed the lead manager. Even the payment was to be made only to Merrill L....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... "managerial services". We have, therefore, to interpret the "technical and consultancy" services. The article may be extracted below: "4. For the purposes of paragraph 2 of this article, and subject to paragraph 5 of this article, the term 'fees for technical services' means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including the provision of services of technical or other personnel) which:  (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in para 3(a) of this article is received; or  (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received; or  (c) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plain or technical design. 5. The definitions of fees for technical services in paragraph 4 of this Article shall not include amounts paid:  (a) for services that are ancillary and subsidiary, as well as inextricably and essenti....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....stand the meaning and scope of the concerned article in the same manner as one would understand the relevant provisions of the Income-tax Act andndash; As suggested on behalf of the Department before us andndash; would be totally off the mark. 91. Now we have to see if the meaning ascribed to the words "make available" by Mr. Dastur is acceptable or reasonable. Whereas section 9(1)(vii) stops with the "rendering" of technical services the DTA goes further and qualifies such rendering of service with words to the effect that the services should also make available technical knowledge, experience, skills, etc. tot eh person utilizing the services. These words are "which make available". The meaning ascribe by Mr. Kapila of the department is that these words merely mean "to allow somebody to make use of, whether actually made use of or not" but in our opinion and with respect, this meaning does not take due note of the addition of such words to the "rendering of any technical or consultancy services" the meaning suggested by Mr. Kapila is embedded in the "rendering" of the services itself. When somebody "renders" services, it presupposes that somebody else is "making use" of the sam....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....ices" is envisaged which will remain at the disposal of the person utilizing the services. The fruits of the services should remain available to the person utilizing the services in some concrete shape such as technical knowledge, experience, skills, etc. 93. In the present case, as Mr. Dastur pertinently pointed out, after the services of the managers (Merrill Lynch and other co-managers) came to an end the assessee-company is left with no technical knowledge, experience, skill etc. and still continues to manufacture cement, suiting etc. as in the past. 94. The Memorandum of Understanding appended to the DTA with USA and the Singapore DTA can be looked into as aids to the construction of the UK DTA. They deal with the same subject (fees for technical services, referred to in the US agreement as "Fees for included services"). As noted earlier, it can not be said that different meaning should be assigned to the US and UK agreements merely because of the MOU despite the fact that the subject-matter dealt with is the same and both have been entered into by the same country on one side (India). The MOU supports the contention of the assessee regarding the interpretation of the word....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

.... in his business in future without recourse to the person rendering the services? Would it not be a contradiction in terms to say that though the technical knowledge, etc. are "made available" the person to whom they are made available cannot apply the same for his benefit? The treaties, in our opinion, could not have intended such a result. What was therefore implicit in the concerned articles in the UK and US DTAs was made explicit by adding the necessary words in the Singapore agreements. As Mr. Dastur rightly remarked it is process of evolution guided by experience and what started in 1990 andndash; the DTA with the US - as a MOU gradually crystallized and not incorporated in the articles itself in the DTA with Singapore. 96. Contrast the definition of "fees for technical services" in article 3(b) of the DTA with Belgium, article 13.4 of the DTA with Canada, article 13.4 of the DTA with Denmark and article 13.4 of the DTA with Sweden. In all these articles the definition is substantially the same as in the superseded DTA with UK and in section 9(1)(vii) of the Income-tax Act. Thus a different intention has been expressed in these articles, which include managerial services wi....

X X   X X   Extracts   X X   X X

Full Text of the Document

X X   X X   Extracts   X X   X X

....d the commission cannot be allowed in the assessment as a deduction. The Board following its earlier circular issued in 1969, took the view that the commission cannot be considered as income arising to the non-resident agent operating outside India and therefore no tax was deductible under section 195. The view point was explained to the CAG who had agreed to drop the objection. 102. The Circular prima facie appears to support the assessee but we are unable to give effect to the same in the vie we have taken regarding the interpretation of the words "technical services" appearing in section 9(1)(vii) read with explanation 2. it may be recalled that we have taken the view that the services rendered by the lead manager and other managers in connection with the GDR issue shall be considered as "managerial" or "consultancy" services. The circular would appear to take a contrary view. However the circular has no application where the interpretation of the eleven articles in the DTA is involved. It has been issued in connection with section 195 of the Act. In the view we have taken of the import of the words make available" appearing in article 13.4 (c) of the DTA with UK, it is unnece....