TMI Blog2016 (6) TMI 94X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee u/s.40(a)(ia) of the Act is partly allowed for statistical purposes TDS u/s 195 - Disallowance u/s.40(a)(i) on payment made to M/s.Korea Electro Technology Research Institute - withholding tax liability - Held that:- The services availed by the assessee is nothing but technical services and the fees paid for technical services only and the assessee is liable for deduction of TDS u/s.195 of the Act. As decided in the case of M/s.Havells (India) Ltd., [2012 (5) TMI 449 - DELHI HIGH COURT ] wherein held that the fees paid by the assessee to the US Company on account of testing and certification services is taxable in the hands of the US Company in India and assessee was liable to deduct tax at source while making payment thereof, since the export activities have been fulfilled in India, source of income was located in India and not outside India, and the mere fact that export proceeds emanated from persons situated outside India did not constitute them as source of income. - Decided against assessee - I.T.A. No. 412/Mds./2015 - - - Dated:- 6-5-2016 - Shri Chandra Poojari, Accountant Member And Shri Duvvuru RL Reddy, Judicial Member For the Appellant : Mr. G. Baskar, A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng at the end of the close of the assessment year in respect of the expenses either as outstanding expenses or as sundry creditors, this amount cannot be disallowed. This ground is remitted back to the Assessing Officer for fresh consideration. In view of the order of the Tribunal, we are inclined to remit this issue to the file of the ld. Assessing Officer with similar direction. These grounds raised by the assessee u/s.40(a)(ia) of the Act is partly allowed for statistical purposes. 4. The next ground for our consideration is with regard to disallowance u/s.40(a)(i) of the Act on payment made to M/s.Korea Electro Technology Research Institute. 5. Before us, the ld.A.R submits that there is no human interface in carrying out the certifying work and it was done by the machines without human interface or intervention. Hence, it cannot be considered as Technical Services provided by the concerned laboratories and cannot be treated as technical services u/s.9(1)(vii) of the Income Tax Act, 1961. Ld.A.R relied on the following judgements:- i) In the case of Siemens Limited Vs. CIT(A) reported in (2013) 84 DTR 0001 (Mum. Trib) ii) In the case of ITO Vs. Right Florist ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... anufacture of yarn and textiles as well as export of textiles from Pondicherry. The entire business operations were confined to the territory of Pondicherry. After the merger of Pondicherry with India in August, 1962, the Income-tax Act was extended to Pondicherry with effect from April 1, 1963. Till then, the French law relating to Income-tax was in force in Pondicherry. During the period when the French tax law was in force, the assessee surrendered certain raw cotton import and machinery import entitlement and received payments from the Textile Commissioner (Bombay). The question arose as to the taxability of the income referable to the import entitlements. While the Income-tax Department took the stand that the income accrued to the assessee outside Pondicherry and was, therefore, taxable under the Act, the assessee maintained that the receipts were only in Pondicherry and since the exports were made from Pondicherry, the income accrued or arose to the assessee in the territory of Pondicherry which was outside the purview of the Act. The Madras High Court observed that the import entitlements arose out of the export activity which was carried on by the assessee only in Pondiche ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the present case, we have to conclude that the export activity having taken place or having been fulfilled in India, the source of income was located in India and not outside. Moreover, just as in the Madras case it was held that the mere fact that the import entitlements which had their source in Bombay, did not constitute a source of income within the meaning of section 9 of the Act, we have also to hold in the present case that the mere fact that the export proceeds emanated from persons situated outside India did not constitute them as the source of income. 12. The question as to what is a source of income has been dealt with in some authoritative pronouncements. The Judicial Committee in Rhodesia Metals Ltd. (Liquidator) v. CIT [1941] 9 ITR (Suppl.) 45 (PC) observed that a source means not a legal concept but one which a practical man would regard as a real source of income. This observation was adopted by Malik J. in his separate but concurring judgment in the case of Rani Amrit Kunwar v. CIT [1946] 14 ITR 561 (All) [FB], a decision of the Full Bench of the Allahabad High Court. A source of income was described by R. S. Pathak J. (as he then was) in the following wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent of the monies or the export receipts is located or situated only in India. We are making a distinction between the source of the income and the source of the receipt of the monies. In order to fall within the second exception provided in section 9(1)(vii)(b) of the Act, the source of the income, and not the receipt, should be situated outside India. That condition is not satisfied in the present case. The Tribunal, with respect, does not appear to have examined the case from this aspect. Its conclusion that the technical services were not utilised for the assessee's business activity of production in India does not bring the assessee's case within the second exception in section 9(1)(vii)(b) of the Act. It does not bring the case under the first exception either, because in order to get the benefit of the first exception it is not sufficient for the assessee to prove that the technical services were not utilised for its business activities of production in India, but it is further necessary for the assessee to show that the technical services were utilised in a business carried on outside India. Therefore, we cannot also approve of the Tribunal's conclusion in parag ..... X X X X Extracts X X X X X X X X Extracts X X X X
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