TMI Blog2019 (2) TMI 781X X X X Extracts X X X X X X X X Extracts X X X X ..... MUMBAI], we direct the Assessing Officer to restrict the disallowance under Rule 8D(2)(iii) to the exempt income of ₹.7,32,781/- and delete the balance disallowance. Grounds raised by the assessee are partly allowed on this issue. TDS u/s 195 - Disallowance u/s. 40(a)(i) - remittance to M/s. Phora Capital Advisors in France for professional services rendered - no tax has been deducted by the assessee on such remittance - Held that:- As seen from the definition of the expression “Fees for Technical Services' appearing in the DTAA between India and U.K. that the scope and ambit of the term “Fees for Technical Services” is more restrictive than the definition of the said expression in the DTAA between India and France. The DTAA between India and UK contains a “make available” clause, for a service to constitute “Technical Service”. The interpretation of the Article on “Fees for Technical Services” appearing in the DTAA between India and France has been considered in CIT vs. ISRO Satellite Centre [2011 (10) TMI 617 - KARNATAKA HIGH COURT]. The Court finds no warrant for the restrictive interpretation placed on Clause 7 of the Protocol. The purpose of Clause 7 of the P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n 40(a)(i) of the Act. Disallowance in respect of business promotion expenses - AO while completing the assessment disallowed 10% of the business promotion expenses on adhoc basis for want of supporting evidences - Held that:- We have heard the rival submissions, perused the orders of the Authorities below. On a perusal of the order of the Tribunal for the Assessment years 2008-09 & 2009-10, we find that identical issue has been decided in favour of the assessee wherein the Tribunal deleted the adhoc disallowance made towards business promotion expenses observing that the ad hoc disallowance on the basis of estimation is not justifiable, therefore, We allowed the claim of the assessee and set aside the finding of the CIT(A) on this issue. - ITA NO.643/MUM/2017 - - - Dated:- 21-12-2018 - C.N. PRASAD, JUDICIAL MEMBER AND SHRI RAJESH KUMAR, ACCOUNTANT MEMBER For The Assessee : Shri S. Venkataraman For The Department : Shri M. Rajguru And Shri Chaudhary Arun Kumar Singh ORDER PER C.N. PRASAD (JM) 1. This appeal is filed by the assessee against the order of the Ld. Commissioner of Income tax (Appeals) 4, Mumbai [hereinafter in short Ld. CIT(A) ] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... being administrative expenses at ₹.15,25,000/-. We have also perused the balance sheet for the year ended 31.03.2011 and found that assessee had sufficient own funds being shareholder s funds reserves and surplus, far more than the investments made. Therefore, the presumption is that the assessee made investments from its own funds. The Hon ble Jurisdictional High Court in the case of CIT v. HDFC Bank Ltd (supra) held that if the assessee s capital, profit, reserves and surplus and current account deposits were higher than the investments in the tax free securities, it would have to be presumed that the investment made by the assessee would be out of the interest free funds available with the assessee. Therefore, respectfully following the said decision, we hold that the no interest can be disallowed under Rule 8D(2)(ii) of the I.T. Rules. 7. Coming to the disallowance under Rule 8D(2)(iii) being administrative expenses following the decision of the Coordinate Bench in the case of M/s. Pest Control India Pvt. Ltd., (supra), we direct the Assessing Officer to restrict the disallowance under Rule 8D(2)(iii) to the exempt income of ₹.7,32,781/- and delete the balan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... endered by M/s. Phora Capital Advisors which has no permanent establishment in India and the services rendered by M/s. Phora Capital Advisors are not technical services and therefore, does not fall under fees for technical services. 12. The Ld. Counsel for the assessee further submitted that the expression Fees for Technical Services appearing in the DTAA between India and France, by virtue of the protocol that forms an integral part of the said DTAA, read with the definition of Fees for Technical Services appearing in the DTAA between India and UK, has also to be given a restrictive meaning. It is submitted that the make available clause appearing in the DTAA between India and UK, which has been entered into after 1st September, 1989, has therefore, to be read into as forming part of the definition of Fees for Technical Services appearing in the DTAA between India and France, from the date the DTAA between India and UK was entered into. Ld. Counsel for the assessee placed reliance on the decision of the Hon ble Karnataka High Court in the case of CIT v. ISRO Satellite Centre [218 Taxman 74] and submitted that, even assuming that it is technical services they should be m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h debit note from M/s. Bennett, Coleman Co. Ltd., he restricted the deduction to the balance amount of ₹.13,04,364/-. We observed that M/s. Phora Capital Advisors being a resident of France is eligible to claim relief under DTAA between India and France. Clause (4) of Article 13 of the DTAA between India and France entered into on 29th September, 1992 defines fees for technical services as under: - The term Fees for Technical Services as used in this Article means payments of any kind to any person, other than payments to an employee of the person making the payments and to any individual for independent personal services mentioned in Article 15, in consideration for services of a managerial, technical or consultancy in nature. A Protocol which is annexed at the end of the said DTAA provides for the following: - At the time of proceeding to the signature of the convention between France and India for the Avoidance of Double Taxation with respect to taxes on income and on capital, the undersigned have agreed on the following provisions which shall form an integral part of the convention. Clause 7 of the Protocol to the said DTAA reads as under: ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he recipient can carry out this service on his own. In other words, the provider of the service, must make available technical knowledge, experience, skill, knowhow or processes , to the person to whom the service is rendered in order for it to fall within the definition of Fees for Technical Services . 17. We observe that the interpretation of the Article on Fees for Technical Services appearing in the DTAA between India and France has been considered by the Hon ble Karnataka High Court in CIT vs. ISRO Satellite Centre (218 Taxman 74) (Kar.). In the said case, a Non-resident company, Arianespace, residing in France provided various complex technical services to ISRO Satellite Centre, Government of India, relating to launching of Satellites into Orbit. The technical services were all rendered by Arianespace in France, against payment of fees under an agreement. ISRO had not deducted tax at source on the remittance to Arianespace, and consequently, the A.O. had held it to be an assessee- in-default as per the provisions of Section 201(1) of the Act. Before the Hon ble Karnataka High Court, the following questions of law arose for consideration: - (a) Whether the service r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e present Convention or the relevant Indian Convention. , Agreement or Protocol enters into force, whichever enters into force later. . 22. In the DTAA read with Protocol as per Article 12 which deals with Royalty and Technical Services, etc. the services are called FTS only if such services make available technical knowledge, experience, skill, knowhow or processes or consist of development and transfer of technical plan or technical design. Therefore, a non-resident could be charged only if the technical service rendered by him includes making available the technical knowledge or transferring such technical knowledge to a recipient. Therefore, unless this condition is fulfilled, the income derived from the non-resident is not chargeable to tax. It is because Clause 7 of the Protocol refer to supra makes it clear that in respect of any agreement entered into after 1st September 1989 between India and a third state, which is a member of the OECD, India limits its taxation at source of fees for technical services to a rate lower or a scope more restricted than the rate or scope provided for in the Convention on the said items of income. Whatever benefit conferred on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resent purposes reads as under: At the time of proceeding to the signature of the Convention between France and India for the avoidance of double taxation with respect to taxes on income and on capital, the undersigned have agreed on the following provisions which shall form an integral part of the Convention. ....... 7. In respect of articles 11 (Dividends), 12 (Interest) and 13 (Royalties, fees for technical services and payments for the use of equipment), if under any Convention, Agreement or Protocol signed after 1-9-1989 between India and a third State which is a member of the OECD, India limits its taxation at source on dividends, interest, royalties, fees for technical services or payments for the use of equipment to a rate lower or a scope more restricted than the rate of scope provided for in this Convention on the said items of income, the same rate or scope as provided for in that Convention Agreement or Protocol on the said items income shall also apply under this Convention, with effect from the date on which the present Convention or the relevant Indian Convention, Agreement or Protocol enters into force, whichever enters into force later. 13. W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e than one Convention which may be signed after 1st September 1989 between India and a State which is an OECD member. The purpose of Clause 7 of the Protocol is to afford to a party to the Indo-France Convention the most beneficial of the provisions that may be available in another Convention between India and another OECD country. 16. The AAR appears to have failed to notice that the wording of Clause 7 of the Protocol makes it self-operational. It is not in dispute that the India- France DTAA was itself notified by the Central Government by issuing a notification under Section 90 of the Act. It is also not in dispute the separate Protocol signed between India and France simultaneously forms an integral part of the Convention itself. The preamble in the Protocol, which states the undersigned have agreed on the following provisions which shall form an integral part of the Convention , makes this position clear. Once the DTAA has itself been notified, and contains the Protocol including para 7 thereof, there is no need for the Protocol itself to be separately notified or for the beneficial provisions in some other Convention between India and another OECD country to be separatel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cer is directed to delete the disallowance made section 40(a)(i) of the Act. 22. The next issue in the grounds of appeal of the assessee is in respect of sustaining the disallowance in respect of business promotion expenses. 23. The Assessing Officer while completing the assessment disallowed 10% of the business promotion expenses on adhoc basis for want of supporting evidences which was sustained by the Ld. CIT(A). 24. Ld. Counsel for the assessee at the outset submitted that similar disallowance was made by the Assessing Officer for the Assessment year 2008-09 2009-10 and the Tribunal by its order in ITA.No. 181/Mum/2012 1864/Mum/2013 dated 04.10.2017 deleted the adhoc disallowance. 25. Ld. DR vehemently supported the orders of the Authorities below. 26. We have heard the rival submissions, perused the orders of the Authorities below. On a perusal of the order of the Tribunal for the Assessment years 2008-09 2009-10, we find that identical issue has been decided in favour of the assessee wherein the Tribunal deleted the adhoc disallowance made towards business promotion expenses observing as under: - 8. Under this issue the assessee has challenged the adh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... prises Vs. ITO (1995) 51 TTJ (Jp.) 408 Gillette India Limited Vs. ACIT (2014) 162 TTJ 137 Moreover, the CIT(A) has also allowed such expenses. In the assessee s own case for the A.Y. 2006-07 by virtue of order dated 01.12.2010. Taken into account of all these facts and circumstances, we are of the view that the ad hoc disallowance on the basis of estimation is not justifiable, therefore, We allowed the claim of the assessee and set aside the finding of the CIT(A) on this issue. Accordingly, this issue is decided in favour of the assessee against the revenue. 27. Respectfully following the said decision, we direct the Assessing Officer to delete the adhoc disallowance made towards business promotion expenses. 28. Last issue in the appeal of the assessee is regarding disallowance of services tax. At the time of hearing, Ld. Counsel for the assessee submitted that this ground is not pressed, in view of the submission made before us by the Ld. Counsel for the assessee, we dismiss this ground as not pressed. 29. In the result, appeal of the assessee is partly allowed as indicated above. Order pronounced in the open court on the 21st December, 2018 - - TaxTMI - TMITax - ..... X X X X Extracts X X X X X X X X Extracts X X X X
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