TMI Blog2018 (5) TMI 1644X X X X Extracts X X X X X X X X Extracts X X X X ..... er the assessee was right in law in not deducting any tax thereon under sec. 195 - Decided in favour of assessee Addition on account of employee’s contribution to PF by invoking provision of section 36(1)(va) - contribution to PF after the due date of the relevant Act - held that:- Deduction claimed should be allowed as the employee’s contribution to PF & ESI has been admittedly remitted on or before the due date for filing the return of income u/s. 139(1) of the Act. See case of M/s. Akzo Nobel India Ltd. Vs. CIT [2016 (6) TMI 1128 - CALCUTTA HIGH COURT]- Decided in favour of assessee Disallowance of bad debts u/s. 36(1)(vii) - Held that:- Subsequent to the judgment of Hon’ble Supreme Court in the case of TRF Ltd. (2010 (2) TMI 211 - SUPREME COURT), the CBDT has also issued a circular no. 12/2016 dated 30.05.2016 wherein the Board have clarified that it is no longer necessary for the assessee to prove irrecoverability of debts and once the debts are written off in the books of account, then the assessee is legally entitled to claim bad debts u/s. 36(1)(vii) of the Act subject to satisfying condition of section 36(2) - Decided in favour of assessee Disallowance of loss of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort BSPL) was engaged in the business of providing BPO services and real estate. It had established wholly owned subsidiary at USA by the name M/s. BNKe Solutions Inc. USA to provide marketing support services to the Indian assessee for securing orders abroad. Apart from the US subsidiary, it also availed market support services from other entities. Under a scheme of arrangement affirmed by the Hon ble Calcutta High Court, M/s. BSPL transferred by way of demerger its BPO business to M/s. BNKe Software Services Pvt. Ltd. (M/s. BNKSSPL) w.e.f. 01.04.2011. The said resultant company M/s. BNKe Software Service Pvt. Ltd. (M/s. BNKSSPL) was taken over by M/s. On Process Technology Inc. of USA in the month of December, 2011 and consequently M/s. BNKSSPL i.e. the resultant company was renamed as M/s. On Process Technology India Pvt. Ltd., i.e. the present assessee before us. Thereafter, the assessee continued to carry on its BPO business from its office located at Sector V, Salt Lake, Kolkata. It was primarily catering to its clients based in USA, UK and Australia. The BPO services were primarily rendered in the field of supply chain optimisation and customer experience management services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... partment of Telecommunication, Telecom Enforcement Reserves Monitoring Cell, Kolkata recognising the assessee to be other service provider (OSP) as per the guidelines annexed to the Registration Certificate, the expression OSP, inter alia, included activities of call centre, tele tracking system, bill payment etc. From the list of services rendered by the assessee and the list of employees of the assessee s pay roll and their respective educational qualifications indicated that the assessee was performing functions of Call Centre . The assessee also furnished copies of few agreements with its customers and few sample copies of invoices to substantiate its contention that the assessee was primarily performing the task of tracking calls, tracing shipments, conducting follow ups and performing customer care activities. With reference to its documents, the Ld. AR submitted that the assessee primarily rendered BPO services to its foreign clients and the service fees were paid on the number of hours called by the employees on attending to the customer calls. The Ld. AR submitted that in order to procure new customers and also to service the existing customers in foreign countries, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... well s terminates in India. Disbursement of any fund to any party including non-residents is controlled from the office based in India. In the instant case, though the payment was made to the non-residents who had rendered service to the parties outside India but execution of the order arises from India. 5. In the light of the AO s factual finding, the Ld. AR submitted that no income had accrued in India either in terms of section 5 or section 9(1)(i) of the Act and in that view of the matter the income of the payees were chargeable to tax which is to attract sec. 195 of the Act as erroneously held by the AO. The ld. AR further submitted that the order passed by the Ld. CIT(A) was full of contradictions and suffered from many factual infirmities because either he did not correctly understand the facts of the case or he collected the facts out of context leading to totally incorrect legal and factual affairs. The Ld. AR drew our attention to page 29 of the impugned order of the Ld. CIT(A) wherein he has recorded the following admitting that the assessee was rendering BPO services which did not involve rendering of any technical or software development service. He in his own wo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her intangible belonging to foreign holding company and for which the payments were being made. Drawing our attention to the agreement between the parties the ld. AR pointed out that the actual fact was exactly opposite and the Indian assessee was holding company who owned the IPRs and other intangibles and the US subsidiary was granted limited right of use for promoting the sales and BPO services of the assessee amongst US based customers. According to the Ld. AR, since the facts of the case clearly established that the foreign subsidiary and other entities were rendering only the marketing and market support services and not any technical services, no income chargeable to tax accrued to any of the foreign payees in India. He therefore, submitted that both under the provisions of domestic tax laws of India and under the provisions of DTAA between India and USA, the fees received by the foreign entitles were not taxable in India so as to require tax withholding u/s. 195 of the Act. He, therefore, prayed that the orders of the lower authorities be reversed and disallowances may be deleted. 8. On the other hand, the Ld. DR appearing on behalf of the revenue supported the order o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions Inc USA was required to provide only the following services as per schedule A which is placed at page 51 of the paper book. The Service Provider shall at all times during the term of this Agreement use best efforts to assist and support the Entrepreneur by providing the following Services- 1. Render marketing and support services 2. Recruit and maintain at all times appropriate number of marketing personnel and other competent personnel for the performance of servies under this agreement. 10. From the sample copies of the invoices placed in the paper book, we find that such services were confined to rendering marketing of assessee s BPO service on cost plus mark up basis and no part of the marketing services were rendered or performed in India. We further note that the nature of services contractual performed by the M/s BNKe solutions Inc., USA did not involve rendering or providing or making available to the assessee any technical service or technical knowledge so as to attract the provisions of sec. 9(1)(vii) of the Act or Article 12 of the DTAA between India and USAR. Similar are the facts with regard to the agreement with other service provider to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... companies in India. The said French company in turn engaged the services of its US holding company M/s. Foster Wheeler, USA for reviewing the work and services performed by its employees for M/s. Reliance Petroleum Ltd. in India. On these facts, the issue arose whether the non-resident company while making payment to the US holding company was liable to withhold tax u/s. 195 of the Act. In the case before the Tribunal, Mumbai it was an admitted fact that US holding company was in fact making available to the non-resident company technology, know-how and service in connection with business carried on in India. However, in the present case, the Ld. CIT(A) did not bring on record any material which can in any manner prove that any of the foreign service providers rendered any technical service or made available any technological know-how to the assessee in India in connection with BPO business carried on in India. We also note that the Ld. CIT(A) in the impugned order erroneously found similarities of assessee s case with the facts of the Foster Wheeler, France, USA, supra and we note at many places straight away lifted the facts and finding recorded in that decision, which have been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Having regard to the facts in the respective cases, the Coordinate Benches at Cochin and Mumbai held that since the foreign companies made available to the Indian payers technical services, the payers had the liability to withhold tax u/s. 195 of the Act. 14. In the present case, it is however, noted that the foreign payees rendered only marketing and sales support services for canvassing assessee s BPO business in foreign countries and, therefore, no technical service was either rendered or any technical knowhow, drawings and designs were made available by them to the assessee in India to enable it to carry on its BPO business. We also note that in the present case the payments were made to the entities based in USA and, therefore, the provisions of DTAA between India and USA came into play deciding as to whether the assessee had liability to deduct tax at source or not. 15. Article 12 (4) of the Indo USA DTAA deals with fees for included services and relevant articles reads as follows: 4. For purposes of this Article, fees for included services means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Treaty unless the person utilizing services is also able to make use of the technical knowledge, experience, skill etc. by himself in his business or for his own benefit and without recourse to the performer of the services in future. The technical knowledge, expertise, skills etc. must remain with the person utilizing the services even after the rendering of service comes to an end. This has also been specifically explained in the MOU between India and USA on the DTAA. The relevant extracts of the MOU is reproduced as under: Article 12 includes only certain technical and consultancy services. But technical services, we mean in this context services requiring expertise in a technology. By consultancy services, we mean in this context advisory services. The categories of technical and consultancy services are to some extent overlapping because a consultancy service could also be a technical service. However, the category of consultancy services also includes an advisory service, whether or not expertise in a technology is required to perform it. Under paragraph 4, technical and consultancy services are considered included services only to the following extent: (1) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cle 12(4) and example set out in the annexure to the treaty, we note that the services which the foreign entities rendered to the assessee herein were in the field of marketing of assessee s BPO services in foreign countries and it did not involve making available to the assessee any technical know-how, drawings, designs etc. with the help of which the assessee carried on its BPO business. As noted in the earlier paras the assessee was not engaged in the business of software analytical packages and, therefore, the Ld. CIT(A) s extensive reliance on the decision of the coordinate bench of this Tribunal at Cochin and Mumbai in the case of US Technology Research Pvt. Ltd. ITA No. 222/Coch/2013 dated 27.09.2013 and Foster Wheeler France SA (supra) was clearly untenable and erroneous. 18. On the other hand, reliance placed by the Ld. AR on the decision of the Hon ble Delhi high Court in the case of DIT Vs. Guy Carpenter Co. Ltd. (2012) 346 ITR 504 (Del) and Hon ble Karnataka High Court in the case of CIT Vs. De Beers India Minerals Pvt. Ltd. (2012) 346 ITR 467 (Kar) appear more appropriate on the facts of the case. We also note that the Coordinate bench of this Tribunal at Kolkata ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India and USA cannot, therefore, be available to the parties. In fact this is completely a new contention raised by the ld. DR without bringing any material on record to support such an averment. We are therefore of the view that the decision in the case of Vodafone South (supra) is factually not applicable and, therefore, is of no help to the new plea of the revenue before us. 20. In the course of the argument, the ld. DR also submitted that in view of Article 24 of the Indo-USA DTAA, the assessee could not have invoked the benefit of Tax Treaty. According to Ld. DR, the onus was on the assessee to prove that the foreign entities to which payments were made were eligible to claim benefit of the provision of the Tax Treaty and for that purpose it was for the assessee to prove that conditions prescribed in Article 24(1) were satisfied by the parties. In the absence of any material brought on record which proves that the parties were eligible to claim the benefit of DTAA it was not open to the assessee to claim the protection provided by DTAA between India and USA. We find that the revenue has raised this objection for the first time before the Tribunal without bringing on record ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. For this revenue has raised the following ground no.1: 1. Whether on the basis of facts and circumstances of the instant case, the Ld. CIT(A) 1, Kolkata has erred in deleting the addition without adjudicating the issue as to whether the employee s contribution to PF after the due date of the relevant Act will be guided as per provision of section 36(1)(va) r.w.s. 2(24)(x) of the Act or under section 43B of the Act. 23. Briefly stated facts of the case are that the assessee being the employer had withheld the PF and ESI contributions payable by its employees from their salaries. As per sec. 36(1)(va) of the Act, employees contribution to PF ESI withheld by the employer could not be allowed to be deducted if not paid on or before the due dates provided under the relevant laws governing PF ESI. Before the AO, the assessee pleaded that the employees contribution to PF ESI has been paid by the assessee on or before the due date of filing the return of income for the relevant assessment year u/s. 139(1) of the Act and, therefore, deduction claimed should be allowed as provided under the proviso to sec. 43B of the Act. The said plea was rejected by the AO for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act. We, therefore, find that no substantial question of law is involved in this appeal and consequently, we dismiss this appeal. 25. In view of the aforesaid decision of the Hon ble Calcutta High court, we are of the view that deduction claimed should be allowed as the employee s contribution to PF ESI has been admittedly remitted on or before the due date for filing the return of income u/s. 139(1) of the Act. Therefore, we do not find any infirmity in the order of the Ld. CIT(A) and, we confirm the same and dismiss this ground of appeal of revenue. 26. Ground no. 2 of the revenue is against the action of the Ld. CIT(A) which relates to disallowance of bad debts of ₹ 35,58,342/- u/s. 36(1)(vii) of the Act. Briefly stated the facts of the case are that the assessee had written off unrealized bad debts to the extent of ₹ 35,58,342/-. According to AO, the assessee could not establish the said debts have actually become bad and were incidental to the business which according to him was the basic condition for claiming deduction u/s. 36(1)(vii) of the Act and he, therefore, disallowed the aforesaid claim. Aggrieved, the assessee preferred an appeal b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... misperceived the separate accounting entries of the profit of ₹ 2,72,482/- and loss of ₹ 8,18,562/- derived by the assessee on sale of fixed assets in the P L Account and the depiction of net addition of ₹ 5,46,200/- in the computation of income. Therefore, the Ld. CIT(A) held the finding of AO to be factually erroneous and hence, deleted the impugned disallowance holding it to be a double addition. Aggrieved by the Ld. CIT(A) s decision, the Revenue is before us. 29. Before us, the Ld. DR appearing on behalf of the revenue was unable to controvert this fact and could not point out any infirmity in the order of the Ld. CIT(A) and accordingly, this ground of appeal of revenue is dismissed. 30. Ground no. 4 of revenue relates to the disallowance of deduction claimed u/s. 35DD of the Act in respect of travelling expenses of ₹ 15,29,581/-. Briefly stated the facts of the case are that the assessee company was the resultant company under the scheme of de merger which was approved by the Hon ble Calcutta High Court during the year. In relation to the scheme of demerger, the assessee had incurred travelling expenses of the legal advisors to the extent of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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