TMI Blog2018 (7) TMI 1400X X X X Extracts X X X X X X X X Extracts X X X X ..... es fit for functioning and efficient for carrying on the business is revenue expenditure. TDS u/s 195 - disallowance of payment made by the assessee to Nunhems BV u/s 40(a)(ia) - contentions of the assessee have been that the above payment was reimbursement of expenditure incurred by Nunhems BV on behalf of the assessee towards the inter-connectivity facility which was provided to the assessee at its Gurgaon facility - Held that:- The payment does not fall under the category of “fee for technical services” or “Royalty” and is thus not liable for TDS. Further, the CIT (A) has held it to be business income of M/s. Equant u/s 9(1)(i) of the Act and since the non-resident Equant does not have PE in India, it cannot be brought to tax. It is undisputed that only such income which is taxable in India is amenable to TDS provisions. TDS liability on payment to Bayor Crop Science Ltd - said amount was paid by the assessee on account of provision of I.T. facilities and services as Bayor was to manage the Lotus Notes and other LAN facilities of the assessee for economies of cost - Held that:- the payment has been made to a resident sister concern for IT support given by the said conce ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rsement of the expenditure and if it is found that there is no such element, then we hold that there can be no mark up on such reimbursement. This ground of appeal is accordingly treated as allowed for statistical purposes. - ITA No 290/Hyd/2011, ITA No. 327/Hyd/2012 And ITA No. 1775/Hyd/2013 - - - Dated:- 6-7-2018 - Smt. P. Madhavi Devi, Judicial Member And Shri S.Rifaur Rahman, Accountant Member For The Assessee : Shri Nageswar Rao For The Revenue : Smt. Suman Malik ORDER Per Smt. P. Madhavi Devi, J.M. ITA 290/Hyd/2011: This is assessee s appeal against the order of the CIT(A)-5, Hyderabad dated 22.12.2010. The assessee has raised the following grounds of appeal. On the facts of and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) V, Hyderabad ( CIT(A) ) has: 1. Erred in confirming the disallowance of the revenue expenditure incurred by the appellant on leasehold improvements amounting to ₹ 1,05,04,205/- treating it as capital expenditure. 2. Erred in confirming the disallowance of payment made to Nunhens BV for ₹ 63,21,003/- u/s 40(a)(ia) of the IT Act without ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lly processed u/s 143(1) of the IT Act and resultant refund of ₹ 1,33,08,189/- was made on 09.10.2007. 2.1 The assessee, thereafter, filed a revised return of income on 06.12.2010 admitting taxable income of ₹ 9,67,39,768/-, which was selected for scrutiny. During the assessment proceedings u/s 143(3) of the IT Act, the A.O asked for various details, which were produced by the assessee. From the statement of income filed along with the return of income the A.O observed that the assessee company claimed an amount of ₹ 1,05,04,205/-as revenue expenditure under the head leasehold improvements, though the same has been capitalized in the books of accounts. The A.O observed that the expenditure in question related to the property, leased out to the assessee company from Monica Enterprises private limited by virtue of lease agreement dated 15.12.2004, and that as per the terms and conditions of the agreement, the lease is for a period of 5 years and the assessee shall not be entitled to terminate the lease during the lock-in period of 5 years unless there is a gross and serious breach of the terms of the lease and that it was further extendable for another five years ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is not allowable. He accordingly, brought it to tax. 4. From the revised return of income, the A.O observed that the assessee has claimed the expenditure of Leave Travel Allowance offered to tax in the A.Y 2007-08, relating to the A.Y 2006-07 of ₹ 54,89,084/-; and ₹ 60,80,259/- towards bonus paid prior to due date of filing the return offered to tax in the A.Y 2007-08. In this connection, the A.O observed that the assessee has debited vacation pay of ₹ 19,99,081/- only and that the balance amount of ₹ 34,90,006/- was not debited during the year. Likewise, he observed that the bonus of ₹ 60,80,259/- was also not debited during the year. He, therefore, held that they are not allowable for deduction u/s 43B of the IT Act and accordingly brought ₹ 95,70,265/- to tax. The A.O also verified the computation of income and observed that the assessee has claimed brought forward unabsorbed depreciation of ₹ 1,04,87,077/- as against the actual brought forward depreciation available for set off of ₹ 35,25,951/- only. Thus, he allowed the set off of ₹ 35,25,951/- only and brought the balance to tax. 5. Aggrieved, the assessee preferre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the CIT(A), it is seen that such expenditure is towards making, the wooden cubical, staff cabins etc. The furniture and fittings are also towards the almirahs, windows and doors etc., which can be removed only after dismantling from the leased premises. Thus, it is seen that the expenditure is towards facilitating and efficient conduct of the business and there is no creation of any fixed asset. 6.5 We find that the Hon ble Delhi High Court in the case of Sri Ram Refrigeration Ltd., (supra) has considered a similar issue of expenditure on furniture, wooden partitions, cable works, wall tiles, sundry fittings in rented premises and has held it to be revenue expenditure. We find that the decisions on which the Ld. DR has placed reliance upon are distinguishable from the facts of the case before us, as in those cases, it was held that the repairs were giving enduring benefit to the assessees therein, whereas in the case before us, though the assessee is entitled to remove and take the additional fittings etc., at the time of leaving the premises, we find that the electrical fittings, wooden partitions etc., would be of no use to the asseessee as they would get damaged in the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... urce before making such payment and therefore, the disallowance u/s 40(a)(ia) is justified. 7.3 Having regard to the rival contentions and the material on record, we find that the AO has treated the payment as fee for technical services u/s 9(1)(vii) of the Act, while the CIT (A) in his order, had brought out the nature of services received by the assessee for which the payment was made. We find that the Bayor group had entered into an agreement with M/s. Equant to provide global inter-connectivity and made the payment and each unit in each country reimburses the payment, taking into account their usage. Though, the CIT (A) agreed with the assessee that the payment is actually made to M/s. Equant through Nunhems BV, he did not agree with the assessee that it did not require TDS. He was of the opinion that the services rendered to the assessee by non-resident Equant fall under section 9(1)(i) of the Act and therefore, the provisions of section 195 of the Act are attracted. 7.4 We find that the CIT (A), at Para 8.5 of his order has brought out that Equant is a German Company providing global inter-connectivity services and that it has provided the service directly to the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce the decision of Tribunal was based on the findings of fact, there was no reason to entertain question Nos.4 and 5. 24. Applying the principle laid down by the Hon'ble High Court of Delhi in DIT Vs. New Skies Satellite BV (supra), we hold that where the provisions of DTAA overrides the provisions of Income-tax Act and the definition of 'royalty' having not been undergone any amendment in DTAA, the assessee was not liable to withhold tax on the lease line charges paid by it. The amended provisions of section 9(1)(vi) of the Act brought into force by the Finance Act, 2012 are applicable to domestic laws and the said amended definition cannot be extended to DTAA, where the term has been defined originally and not amended. 25. Now, coming to the next aspect of the issue that reimbursement of charges is not subject to tax in India. The basic principle underlying the same is that where reimbursement of expenses do not include any income element, then the same is not subject to tax in India. The assessee before us has filed extensive evidence in this regard i.e. Qwest Communications Inc had raised charges upon T-3, USA and the portion allocable to the assessee wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al service provided to one or a section of the members of the Stock Exchange to deal with special situations faced by such a member(s) or the special needs of such member(s) in the conduct of business in the Stock Exchange. In other words, there is no exclusivity to the services rendered by the Stock Exchange and each and every member has to necessarily avail of such services in the normal course of trading in securities in the Stock Exchange. Such services, therefore, would undoubtedly be appropriate to be termed as facilities provided by the Stock Exchange on payment and does not amount to technical services provided by the Stock Exchange, not being services specifically sought for by the user or the consumer. It is the aforesaid latter feature of a service rendered which is the essential hallmark of the expression technical services as appearing in Explanation 2 to Section 9(1)(vii) of the Act. 10. For the aforesaid reasons, we hold that the view taken by the Bombay High court that the transaction charges paid to the Bombay Stock Exchange by its members are for 'technical services' rendered is not an appropriate view. Such charges, really, are in the nature of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by the Board for the purposes of s. 44AA or of this section; (b) 'fees for technical services' shall have the same meaning as in Expln. 2 to cl. (vii) of sub-s. (1) of s. 9; ............... 11. It is apparent that in respect of fees for technical services tax is to be deducted at source at 5 per cent (as it then was). It is also clear that the expression 'fees for technical services' has the same meaning as in Expln. 2 to cl. (vii) of sub-s. (1) of s. 9. The said Expln. 2 reads as under : Explanation 2 : For the purposes of this clause, 'fees for technical services' means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head 'Salaries'. The aforesaid Explanation makes it clear that 'fees for technical services' means any consideration (including any lump sum consideration) for the rend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xpression in Expln. 2 to s. 9(1)(vii) of the said Act. In the said Explanation the expression 'fees for technical services' means any consideration for rendering of any 'managerial, technical or consultancy services'. The word 'technical' is preceded by the word 'managerial' and succeeded by the word 'consultancy'. Since the expression 'technical services' is in doubt and is unclear, the rule of noscitur a sociis is clearly applicable. The said rule is explained in Maxwell on The Interpretation of Statutes (Twelfth Edition) in the following words: Where two or more words which are susceptible of analogous meaning are coupled together, noscitur a sociis, they are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general. This would mean that the word 'technical' would take colour from the words 'managerial' and 'consultancy', between which it is sandwiched. The word 'managerial' has been defined in the Shorter Oxford English Dictionary, Fifth Edition as : ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnology, but that does not mean that MTNL/other companies which provide such facilities are rendering any technical services as contemplated in Expln. 2 to s. 9(1)(vii) of the said Act. This is so because the expression 'technical services' takes colour from the expressions 'managerial services' and 'consultancy services' which necessarily involve a human element or, what is now a days fashionably called, human interface. In the facts of the present appeals, the services rendered qua interconnection/port access do not involve any human interface and, therefore, same cannot be regarded as 'technical services' as contemplated under s. 194J of the said Act. 16. Since we have applied the rule of noscitur a sociis, it would be necessary to indicate that this rule or principle has been applied and accepted by the Supreme Court whenever the meaning of a word, which falls within a group of words, is unclear and the intention of the legislature is doubtful. In Godfrey Phillips India Ltd. Anr. vs. State of U.P. Ors. (2005) 194 CTR (SC) 257 : (2005) 2 SCC 515, a Constitution Bench of the Supreme Court was considering the meaning of the word 'Luxuries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly apply and, therefore, the expression 'technical services' would have to take colour from the expressions 'managerial services' and 'consultancy services'. 18. To conclude the discussion on the application of the rule of noscitur a sociis, we think that a reference to the Supreme Court decision in the case of Stonecraft Enterprises vs. CIT (1999) 153 CTR (SC) 86 : (1999) 3 SCC 343 would be apposite. In that case the Supreme Court was required to interpret the provisions of s. 80HHC(2)(b) of the said Act relating to asst. yrs. 1985-86, 1987-88 and 1988-89. In the said sub-s. (2)(b) of s. 80HHC, it was provided that the section did not apply to the following goods or merchandise, namely : (i) mineral oil; and (ii) minerals and ores. The question that arose before the Supreme Court was whether granite fell within the meaning of the word 'minerals'. The contention of the assessee before the Supreme Court was that while granite was a mineral in the general sense, it was not a mineral for the purposes of s. 80HHC and, therefore, the deduction provided for therein was available to the assessee who was in the business of exporting granite. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven be construed as a 'service' in the broader sense such as a 'communication service'. But, when we are required to interpret the expression 'technical service', the individual meanings of the words 'technical' and 'service' have to be shed. And, only the meaning of the whole expression 'technical services' has to be seen. Moreover, the expression 'technical service' is not to be construed in the abstract and general sense but in the narrower sense as circumscribed by the expressions 'managerial service' and 'consultancy service' as appearing in Expln. 2 to s. 9(1)(vii) of the said Act. Considered in this light, the expression 'technical service' would have reference to only technical service rendered by a human. It would not include any service provided by machines or robots. 21. Thus, it is clear, whether we follow the line of reasoning taken in Skycell (supra) or not, the result is the same. The interconnect charges/ port access charges cannot be regarded as fees for technical services. Consequently, both the questions are answered against the Revenue and in favour of the assessees. Their Lord ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e the following issues for our adjudication:- WHETHER THE PAYMENT OF IUC BY ASSESSEE TO FTOS ARE TAXABLE AS FEE FOR TECHNICAL SERVICES U/S. 9(1)(VII) OF THE ACT. WHETHER THE PAYMENT TO FTOS FOR 'IUC'S ARE IN THE NATURE OF ROYALTY UNDER SECTION 9(1)(VI) OF THE ACT. WHETHER THE ASSESSEE IS LIABLE TO BE TREATED AS ASSESSEE IN DEFAULT U/S. 201 OF THE I.T. ACT. WHETHER THE PAYMENT MADE BY THE ASSESSEE TO THE FTO CAN BE DEEMED TO ACCRUE OR ARISE IN INDIA. WHETHER BENEFICIAL RATE PROVIDED UNDER DTAA OVERRIDE THE PROVISIONS OF SECTION 206AA AND WHETHER SECTION 206AA OF THE ACT IS APPLICABLE RETROSPECTEVELY. Whether the ld. CIT(A) acted in violation of the provisions of Rule 46A in admitting the additional evidence filed by the assessee. Whether the payment is revenue sharing or not. 21. Before we adjudicate each of the issue, it would be relevant to discuss as to what is the Inter-connection, Inter-Connection Usage charges (IUC), International Long Standing Distance Services (ILD) etc. 22. The Ld. CIT(A)'s in this impugned order at para no. 8.1 to 8.4 at pages 16 to 19 has explained the meaning of the aforesaid technical terms ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n ITA Nos. 3593 TO 3596/Del/2012 [Bharti Airtel Ltd. vs. ITO(TDS)] ITA Nos. 4076 TO 4079/Del/2012 [ITO(TDS) vs. Bharti Airtel Ltd.] NLD network till ILD gateway (say Mumbai) from where it is transported to international operator(s) outside India. In order to provide seamless services to its subscribers, the appellant enters into agreement with overseas network operators, to connect the call over their network. Therefore, call traffic originating from India is carried first by the Access Provider, then by the NLD operator, then by the ILD operator and finally by the foreign telecom operator, and/or last mile service provider. The factual position, therefore, is that the entire chains of operator(s) pool their network/infrastructure to provide integrated and seamless connectivity service to the subscriber(s). The Access Provider, due to practical/legal considerations, enters into contract to provide seamless end to end connectivity to the subscriber, and earns revenue from the subscriber. The entire revenue paid by the subscriber to the Access Provider and collected by the Access Provider is shared with the NLD operators (where the NLD operator is different from the Access Pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ircle traffic excluding intra-circle traffic except where such carriage is with mutual agreement with originating service provider. ( b) The LlCENCEE can also make mutually agreed arrangements with Basic Service Providers for picking up, carriage and delivery of the traffic from different legs between long Distance Charging Center (LDCe) and Short Distance Charging Centers (SDCCs). ( c) In the case of Cellular Mobile Telephone Service traffic, the inter-circle traffic shall be handed/taken over at the Point of Presence (POP) situated in LDCA at the location of level I TAX in originating/terminating service area. For West Bengal, Himachal Pradesh and Jammu Kashmir such locations shall be Asansol, Shimla Jammu respectively. ( d) NLD service licensee shall be required to make own suitable arrangements / agreements for leased lines with the Access Providers for last mile. Further, NLD Service Providers can access the subscribers directly only for provision of leased Circuits/Close User Groups (CUGs). leased circuit is defined as virtual private network (VPN) using circuit or packet switched (IP Protocol) technology apart from point to point non-switched physica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tor is difference from Access Provider, then the NLD Operator Bills the Access Provider for his part of service rendered. The ILD Operator is in turn billed by the FTO in the form of Interconnected Usage Charges (IUC). 24. The basic issue before us is whether such Interconnected Charges Billed by the FTOs and paid by the Assessee are in the nature of Fee of Technical Services (FTS) or in the nature of Royalty. We would first take up the adjudication of these two issues and then we would be reverting to other issues. WHETHER THE PAYMENT OF IUC BY ASSESSEE TO FTOS ARE TAXABLE AS FEE FOR TECHNICAL SERVICES U/S. 9(1)(VII) OF THE ACT. (As the Section 9(1)(vii) has already been extracted in the earlier paragraphs, we do not repeat the same.) 26. The Hon'ble Delhi High Court on this issue held as follows in the assessee's own case i.e. CIT vs. Bharti Cellular Ltd. (2009) 319 ITR 139 (Delhi):- The expression 'fees for technical services' as appearing in s. 194J has the same meaning as given to the expression in Expln. 2 to s. 9(1)(vii). In the said Explanation. the expression 'fees for technical services' means any consideration. for rende ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... respondents/ assessees in managing, operating, setting up their infrastructure and networks. No doubt, the facility of interconnection and port access provided by MTNL/ other companies is 'technical' in the sense that it involves sophisticated technology. The facility may even be construed as a 'service' in the broader sense such as a 'communication service'. But, while interpreting the expression 'technical service', the individual meanings of the words 'technical' and 'service' have to be shed. And only the meaning of the whole expression 'technical services' has to be seen. Moreover, the expression 'technical service' would have reference to only technical service rendered by a human. It would not include any service provided by machines or robots. Thus, the interconnect charges/ port access charges cannot be regarded as fees for technical services. [emphasis supplied] 27. The judgment of the Hon'ble Delhi High Court in the aforesaid case may thus be summarized as under: The rule of noscitur a sociis is clearly applicable and the word 'technical' would take colour from the words &# ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for technical services under Section 194Jread with clause (b) of the Explanation to Section 194J of the Income Tax Act, 1961, [ Act', for short] which, inter alia, states that fees for technical services shall have the same meaning as contained in Explanation 2 to clause (vii) of Section 9(1) of the Act. Right from 1979 various judgments of the High Courts and Tribunals have taken the view that the words technical services have got to be read in the narrower sense by applying the rule of Noscitur a sociis, particularly, because the words technical services in Section 9(1)(vii) read with Explanation 2 comes in between the words managerial and consultancy services . The problem which arises in these cases is that there is no expert evidence from the side of the Department to show how human intervention takes place, particularly, during the process when calls take place, let us say, from Delhi to Nainital and vice versa. If, let us say, BSNL has no network in Nainital whereas it has a network in Delhi, the Interconnect Agreement enables M/s. Bharti Cellular Limited to access the network of BSNL in Nainital and the same situation can arise vice versa in a given case. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... expert(s) will be examined (including cross-examined) within a period of four weeks from the date of receipt of the order of this Court. Liberty is also given to Respondent No.1 to examine its expert and to adduce any other evidence. Before concluding, we are directing CBDT to issue directions to all its officers, that in such cases, the Department need not proceed only by the contracts placed before the officers. (Emphasis ours). 29.1 Thus in our view the proposition of law laid down in the judgment of the Hon'ble Delhi High Court have attained finality. The Hon'ble Supreme Court held that the issue as to whether there is involvement / presence of human element or not was a factual and technical matter and required to be examined. The other proposition have been accepted by the Hon'ble Supreme Court. As the Hon'ble Supreme Court was of the opinion that this factual aspect of human intervention was not examined by the AO, the matter was remanded to the AO for factual examination only. The AO in pursuance of the directions of the Hon'ble Supreme Court examined witness on oath and also gave the assessee the opportunity to cross examine them. He also reexam ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e operators while roaming, is done automatically and does not require human intervention and accordingly cannot be construed as technical services. It is common knowledge that when one of the subscribers in the assessee's circle travels to the jurisdiction of another circle, the call gets connected automatically without any human intervention and it is for this, the roaming charges is paid by the assessee to the Visiting Operator for providing this service. Hence we have no hesitation to hold that the provision of roaming services do not require any human intervention and accordingly we hold that the payment of roaming charges does not fall under the ambit of TDS provisions u/ s 194J of the Act. 30. The Jaipur Bench of the Tribunal in the case of Bharti Hexacom Ltd. vs. ITO (TDS) in ITA 656/JP/2010 dated 12.6.2015 held as follows : 11. We have heard the rival contentions of both the parties and perused the material available on the record. After going through the order of the Assessing Officer, ld CIT(A); submissions of the assessee as well as going through the process of providing roaming services; examination of technical experts by the ACIT TDS, New Delhi in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is that human intervention is not required for providing roaming facility, therefore, it cannot be considered to be a technical service. We have gone though the judgment of Apex Court in Bharti Cellular Limited (supra). The Apex Court after examining the provisions of Section 9(l)(vii) of the Act, found that whenever there was a human intervention, it has to be considered as technical service. In the light to the above judgment of the Apex Court, the Department obtained an expert opinion from Sub-Divisional Engineer of BSNL. The SubITA Nos.290 of 2011 327 of 2012 and 1775 of 2013 Nunhems India, Medchal, RR Distt. Page 28 of 38 Divisional Engineer clarified that human intervention is required for establishing the physical connectivity between two operators for doing necessary system configurations. After necessary configuration for providing roaming services, human intervention is not required. Once human intervention is not required as found by the Apex Court, the service provided by the other service provider cannot be considered to be a technical Service. It is common knowledge that, when one' of the subscribers in the assessee's circle travels to the jurisdiction of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s services to the customers. Human intervention is also required in case where the network capacity has to be enhanced by the telecom operators. Such human intervention cannot be said to be for inter-connection of a call. 34. Where routing of every call has been decided, the exhaustive standard of capacity of the transporter network will automatically re-route through another channel through another operator. Human intervention in setting up enhanced capacity has no connection or relation with the traffic of call. Thus it is clear that in the process of actual calls, no manual intervention is required. The finding of the revenue authorities that interconnection is a composite process, involving several processes which require human intervention is erroneous. The test laid down by the Hon'ble Supreme Court of India in its order when the case was remanded to the AO is to find out as to whether during traffic of calls, is there was any manual intervention? . There is no reference to the issues of set up, installation or operation maintenance or repair of network as explained by the Ld. CIT(A). These decisions of the various Benches of the ITAT, when read with the judgment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Tribunal has held as under:- Deduction. of tax at source-Fees for technical services- Assessee was engaged in business of software development of products and providing software services in India and overseas-Assessee was treated as assessee in default u/s 201(1) on account of non-deduction of TDS u/ s 194J from payment made for use of tele-communication services i.e telephone charges, link charges and band width charges as 'fee for technical services u/ s 9(1}(vii}-CIT(A} reversed findings of AO-Held, payments were made to MTNL BSNL etc. for providing space for transmission of data for carriage of voice and for availing service of inter-communication, port access for which no human intervention was necessary- Payment cannot be characterized as fee for technical services -Thus, assessee cannot be held to be in default - for non- deduction of tax at source from payment of telecommunication. charges in terms of section 194J- Revenue's ground dismissed. 38. The Bangalore ITAT in the case of Wipro Ltd. vs. ITO (2003) 80 TTJ (Bang) 191 held as follows:- Income deemed to accrue or arise in India-Fees for technical services/ royalty-Payment for transmiss ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a Mahindra Ltd. vs. DCIT 313 ITR 263; Ramond Limited vs. DCIT 86 ITD 791; Cable and Wireless Networks India P. Ltd. (2009) 315 ITR 72. 41. The next aspect of this issue, which is raised as Ground No. 8 in the Department's Appeal is that, when the treaties do not contain FTS clause, what is the impact on taxability. Wherever FTS clause is not available in the treaty with a country, then the income in question would be assessable as business income and it can be brought to tax in India, only if the FTO has the permanent establishment in India and if the earning of income is attributable to activities or functions performed by such permanent establishment. This view is supported by the decision of the Coordinate Bench. 42. The Delhi Bench of the Tribunal in the case of ACIT vs. Paradigm Geophysical Pty. Ltd. 122 ITD 155 (2010) held as follows:- What art. 7(7) seems to convey is that where the business profits of the nonresident include items of income for which specific or separate provisions have been made in other articles of the treaty, then those provisions would apply to those items. Per contra, if it is found that those provisions are not applicable to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 9inserted by the Finance Act, 2007 would not arise and further, assessee having no PE in India, such income would not be taxable in India as industrial and commercial profits in terms of art. III of Indo-German DTAA-Income from activities covered by arts. V to XII by virtue of art. 111(3) are specifically excluded from the expression 'industrial or commercial profits' in art. III as they are to be taxed in the manner provided under arts. V to XII-Therefore, income other than of the nature provided in arts. V to XII, if relatable to industrial or commercial profits would fall under art. III, not chargeable to tax in the absence of PE-This view is further fortified by the fact that art. III of the 1960 DTAA has been substituted by DTAA of 1995 and a new art. VIIIA has been inserted explaining the expression 'royalties ' 44. In view of the above reasons, we hold that wherever under the DTAA's. Make available clause is found, then as there is no imparting, the payment in question is not 'FTS' under the Treaty and when there is no 'FTS' clause in the treaties, the payment falls under Article 7 of the Treaty and is business income . 7.6 S ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o TDS provisions. 8.2 Having regard to the rival contentions and the material on record, we find that the payment has been made to a resident sister concern for IT support given by the said concern. The services rendered by Equant and Nunhems BV are different from services rendered by Bayor Crop Science to the assessee. Bayor was managing the Lotus Notes of the assessee and that the ultimate recipient of the payments have not been revealed by the assessee. We therefore, agree with the findings of the CIT (A) that the management of the LOTUS Note is not a mere sharing of any infrastructure or facility and since the assessee has received the technical services from Bayor, the same is liable to TDS provisions. Therefore, we uphold the findings of the CIT (A) on this issue and the assessee s ground of appeal No.3 is rejected. 8.3 As regards Ground of appeal No.4, brief facts are that the CIT (A) has confirmed the disallowance u/s 40(a)(ia) of the Act only with respect to provision for commission to be paid on sales. The learned Counsel for the assessee submitted that though the assessee has made the provisions on the basis of the sales, but since the payment had not accrued to re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed on past practice for discounts, but the AO, disallowed the same and brought it to tax. The CIT (A) confirmed the said disallowance. 8.6 At the time of hearing, the learned Counsel for the assessee submitted that similar issue had arisen in the assessee s own case for the A.Y 2009-10 and the AO after scrutiny has allowed the same. He has filed a copy of the said order before us. He also submitted that even for the A.Y 2008-09, the CIT (A) has allowed the said discount though on different basis and therefore, there should be uniform stand by the Revenue and this amount should be allowed. As the decisions of CIT (A) and the AO are in respect of subsequent A.Ys, we deem it fit and proper to remand this issue also to the file of the AO for reconsideration in accordance with the view taken by the Department for the A.Ys 2008-09 and 2009-10. Thus, this ground of appeal is treated as allowed for statistical purposes. 9. As regards Ground No.6 against the disallowance of Leave Travel Expenditure and Bonus as not paid during the A.Y, it is submitted by the learned Counsel for the assessee that the payments related to the year under consideration, but were made before the date of fil ..... X X X X Extracts X X X X X X X X Extracts X X X X
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