TMI Blog2019 (5) TMI 458X X X X Extracts X X X X X X X X Extracts X X X X ..... nufacture. Thus the assessee is not entitled to the additional depreciation - HELD THAT:- It is an undisputed fact that the assessee is engaged in the manufacturing business as well as in the business of leasing. Therefore the condition imposed under section 32(iia) of the Act gets fulfilled for claiming the additional depreciation. Regarding this we find support and guidance from the judgment of Hon ble Gujarat High Court in the case of Diamines Chemicals Ltd [ 2013 (12) TMI 373 - GUJARAT HIGH COURT] claiming the deduction under Section 32(1)(iia) of the Income-tax Act setting up wind-mill has nothing to do with the power industry and what is required to be satisfied in order to claim additional depreciation is that the setting up of new machinery or plant should have been acquired and installed by an assessee, who was already engaged in the business of manufacture or production of any article or thing. We are of the considered opinion that the assessee is eligible for the additional depreciation under section 32(iia) of the Act. - Decided in favour of assessee. - ITA No. 539/AHD/2018, ITA No. 1246/AHD/2016 - - - Dated:- 27-3-2019 - SHRI WASEEM AHMED, ACCOUNTANT MEMBER ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... C Foreign Technician Supervision charges paid to Mr. Kenneth Harmston (UK) ₹ 31,58,605 Foreign Technician Supervision charges paid to Mr. Hunt Waugh Jr. (USA) Rs. ₹ 37,33,847 Re-imbursement exps. Paid to Mr. Kenneth Harmston (UK) Rs. ₹ 14,739 Re-imbursement exps. Paid to Mr. Hunt Waugh Jr.(USA) ₹ 8,994 Total ₹ 69,16,185/- 5. In addition to the above assessee also submitted the following shreds of evidence. In support of the said payment made to above referred foreign technician/consultant, we furnish the details/information as asked by you in your notice under para-4 as under: 1. Copy of set of Additional Evidences along-with Application filed to Hon. ITAT Bench-C on 22-07-13. 2. Copies of Retainership Agreement executed with Mr.Kenneth Harmston (UK) on 01/04/07 and with Mr.W ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ikawajma Harima heavy industries Ltd (288 ITR 408). The assessee also contended that the same decision was followed by the Bombay high court in case of Clifford Chance (318 ITR 237). 9.1 The assessee also relied on the decision of ITAT Agra in case of Virola international (147 ITD 419) wherein it was held that the position for the fees of technical services cannot be taxed in India unless it is rendered in India, has been changed by Finance Act 2010 w.e.f. 08.05.2010 with retrospective effect. 9.2 It was held in this case (supra) that although this amendment was retrospective, however, an amendment in law cannot change the tax withholding liability with retrospective effect. 9.3 Considering the principle held in the above order of ITAT assessee contended that such amendment has no value in the present case as all the foreign remittances were made before 08.05.2010. 9.4 Assessee alternatively also submitted that impugned payment do not qualify for as the fees for technical services as per the definition of DTAA as detailed under: C. In the alternative it is further submitted that the careful reading of both Articles under DTAA wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gy being transferred in India to our company. Such fact can be verified from the duties of Consultants and Plant Superintendent submitted hereinabove under para -1 being the requirement met with para-4 of your present notice. 9.5 The assessee also relied on several case laws and contended that these services could be held taxable only when services fall under the category of make available, and the recipient was enabled to apply the technology, but in the present case, nothing was made available to it. 10. After considering the submission of the assessee, the AO after due verification accepted the contention of the assessee in respect of Mr. Luis Spelzini that payment made of ₹ 3,73,060/- for Consultancy fees and ₹ 70,983/- for reimbursement of expenses due TDS was deducted and deposited by the assessee. 10.1 In respect of all the other payment, AO observed in his order that assessee is taking the approbating and reprobating approach as the agreement between Mr. Luis Spelzini(TDS deducted) and Mr. W.H. Waugh (TDS not deducted) are identical, prepared on the stamp of ₹ 100/- each and subject to Ahmedabad Court jurisdiction. Therefo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ima Heavy Industries Ltd (supra) assessee has relied only on the catch note without going into the details of judgment. In this case, the Hon ble Apex court held that section 9(1)(vii) read with the memo, cannot be given a wide meaning to held that amendment was only to include the income of nonresident taxpayers received by them outside India for services rendered outside India. In the instant case, the services of consultants were utilized in India, and the live- link was established which is very much evident from the copy of agreements. 3. Reliance placed by the assessee on ITAT Agra in case of Virola International (supra) is not correct as the assessee has entered into two agreement for consultancy services with Mr. Luis Spelzini and Mr. W. Hunt Waugh on 01/03/2007 and 01/04/2007 respectively for a period of 12 months. Now in case of one party assessee has deducted TDS it means assessee was fully conscious towards its responsibilities and liabilities of tax withholding for fees of technical services. 10.6 AO also disagreed with the contention of the assessee by observing that services are like fees for included services as per Article 12 of the Indo- US ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peal to ld. CIT-A wherein it submitted as under: 1. There are two types of agreement, i.e., retainer ship agreement consultancy agreement. The retainer ship agreement was entered with Mr. Kenneth Harmstone (UK) and Mr. W. hunt Waugh Jr. (USA) both on 01.04.2007. The consultancy agreement was entered with Mr. Whitney Waugh (USA) and with Mr. Luis Spelzini (Argentina) on 01.04.2007. 2. Even if agreement is almost the same but in the case of Mr. Luis Spelzini (Argentina) services were provided in India as evident from invoices issued by him and in case of Mr. Whitney Waugh (USA) services were provided at the plant site of the client which is outside India as evident from the copy of invoices submitted. 3. Charging service tax cannot establish that the services were taxable in India, it was charged only from a safety point of view as it was claimed as Input Tax Credit. 4. AO without any findings made only a general statement that two plant supervisors were deputed at the plant site of the client situated at abroad as decided by the assessee. Whereas all the documents were submitted which clearly state that they were deputed on abroad plant site ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resident. CIT-A also relied on the judgment of GE India (193 taxman 234) Mr. Hunt Waugh Jr.(USA) ₹ 37,33,847/- As per the note, Mr. Hunt Waugh Jr. was present in India for 63 days. However, the stay of Mr. Hunt does not exceed 90 days. There was also no factual finding regarding fixed base of Mr. Hunt in India of the AO. Mr. Kenneth Harmston (UK) ₹ 31,58,605/- Similarly, Mr. Kenneth Harmston was in India for 73 days which is less than 90 days. There was also no factual finding regarding fixed base of Mr. Hunt in India of the AO. 12.1 Similarly the ld. CIT-A also deleted the addition for the reimbursement of the expenses to Mr. Hunt Waugh Jr. (USA) ₹ 8,994/- and Mr. Kenneth Harmston (UK) ₹ 14739.00. 13. Being aggrieved by the order of ld. CIT-A, the Revenue is in appeal before us. The learned DR before us vehemently supported the order of the AO. On the other hand the learned AR drew our attention on the order passed by the tribunal in the own case of the assessee in ITA number 2745/Ahd/2014 and CO. 326/Ahd/2014 on the provisions of section 201(1)/ 201(1A) of the Act pertaining to the assessment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taxmann.com 111 (Mumbai-Trib.) to buttress this aforesaid proposition. The Ld.Senior Counsel contended that the assessee cannot be expected to implement a retrospective amendment carried out at a later point of time after the event of payment/credit in favour of the non-resident. The Ld.Senior Counsel also contended on merits with reference to various clauses of DTAA to demonstrate that the payee non-residents are not chargeable to tax in India under the provisions of DTAA and therefore obligation to deduct TDS under s.195 of the Act does not arise. 13. The Ld.DR relied upon the order of the AO to fasten the obligation under s.195 of the Act on the assessee and extensively relied upon the agreement executed by the assessee with the non-residents for availing their services qua the provisions of DTAA. The Ld.DR submitted that the aforesaid services availed from the nonresidents cannot be covered as independent personal services but are in the nature of fee for technical services/royalty payment in view of various clauses of consultancy agreement. 14. As the legal issue seeking to oust the applicability of s.9(1)(v), (vi) (vii) at the relevant time of making pay ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on carried on by such person in India, or for the purposes of making or earning any income from any source of India'.' Reading the provision in its plain sense, as per the apex Court it requires two conditions to be met-the services which are the source of the income that is sought to be taxed, has to be rendered in India, as well as utilized in India, to be taxable in India. Both the above conditions have to be satisfied simultaneously. Thus for a non-resident to be taxed on income for services, such a service needs to be rendered within India, and has to be part of a business or profession carried on by such person in India. In the above judgment, the apex Court observed that (p. 444) : 'Sec. 9(1)(vii) of the Act must be read with s. 5 thereof, which takes within its purview the territorial nexus on the basis whereof tax is required to be levied, namely, (a) resident; and (b) receipt of accrual of income'. According to the apex Court, the global income of a resident although is subjected to tax, the global income of a non-resident may not be. The answer to the question would depend upon the nature of the contract and the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reme Court, in the case of Ishikawajma- Harima Heavy Industries Ltd. (supra) , binds everyone under Article 141 of the Constitution of India. The legal position thus was that unless the services are rendered in India, the same cannot be brought to tax as 'fees for technical services' under Section 9. However, this legal position did undergo a change when Finance Act 2010 received assent of the President of India on 8th May 2010. Explaining the scope of this amendment, a coordinate bench of this Tribunal, in the case of Ashapura Minichem Ltd. v. Asstt. DIT [2010] 40 SOT 220 (Mum.), has explained thus: (this legal position)does no longer hold good in view of retrospective amendment w.e.f. 1st June, 1976 in s. 9 brought out by the Finance Act, 2010. Under the amended Explanation to s. 9(1), as it exists on the statute now, it is specifically stated that the income of the non-resident shall be deemed to accrue or arise in India under cl. (v) or cl. (vi) or cl. (vii) of s. 9(1), and shall be included in his total income, whether or not (a) the non-resident has a residence or place of business or business connection in India; or (b) the non-resident has rendered serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n deducted, and such deductibility of tax at source, as we have discussed above, has to be in the light of the legal position as it stood at the point of time when payment was made or credited- whichever is earlier. Clearly, therefore, the disallowance under section 40(a)(i) can come into play only when the assessee had an obligation to deduct tax at source from payments to non-residents, and the assessee fails to comply with such an obligation. In view of these discussions, so far as payments made before 8th May 2010 are concerned, the assessee did not have any tax withholding liabilities from foreign remittances for fees for technical services unless such services were rendered in India, and a fortiori no disallowance can be made under section 40(a)(i) for assessee's failure to deduct tax at source from such payments. 9. In the case before us, there is no material whatsoever to demonstrate and establish that the design and development services, for which impugned payments were made, were rendered in India. Therefore, the assessee did not have any liability under section 195 r.w.s. 9(1)(vii) to deduct tax at source from these payments. Once we come to the conclusion ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eamended S.9(1)(vi)/(viii) of the Act. Prior to the amendment, it was well settled that services provided offshore or outside India could not be taxed in India. The amendment to Explanation-9(2) brought in by Finance Act, 2010 has sought to amend this position whereby only requirement for taxing such income shall be the utilization of services in India and not place of rendering services. Thus, at the time of occurance of event of obligation to apply providing S.195, the preamended provisions towards chargeability of income was in place, where income from services outside India were outside tax net. 14.4. Hence, for the parity of reasons noted in the aforesaid decisions, we find merit in the legal contention raised on behalf of the assessee. 14.5. In view thereof, we are not inclined to deal with the merits of chargeability of tax on payments made to the non-residents or otherwise as contemplated in terms of various Articles of the DTAA with respective countries. On perusal of the above order, there remains no ambiguity that the assessee was not liable to deduct the TDS under section 195 of the Act on the payment as discussed above. Accordingly we hold ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 00/-. Thus AO was of the view that since assessee is engaged in the business of leasing; therefore, additional depreciation is not available to the assessee. Accordingly, the AO issued show cause notice to the assessee. 21. In response to the notice, the assessee submitted that it has rightly claimed additional depreciation at the rate of 10% since it was used for less than 180 days. As per the provision of section 32(iia) of Act assessee is required to be engaged in the business of manufacture or production of any article or thing and it is not necessary whether new machinery is used for the business of manufacture or production. 22. Further, it is also important to note that assessee is engaged in manufacture or production and on this account also assessee is eligible for the additional depreciation. 23. The assets have been used in the business of leasing the assets of the assessee. Accordingly, the assessee is eligible for additional depreciation. 24. However, AO disregarded the contention of the assessee by holding that the assets were used in the business of leasing and not in the business of manufacture. Thus the assessee is not entitl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of ₹ 1,17,98,030/- by observing that as the assessee is not in the business of generation and distribution of power, the assessee shall not be entitled to deduction under Section 32(1)(iia) of the Income-tax Act of ₹ 1,17,98,030/-. The said addition has been deleted by the CIT(A) relying upon the decisions of the Madras High Court in the case of VTM Ltd (Supra) and in the case of Hi Tech Arai Ltd. (Supra). In both the aforesaid decisions, the Madras High Court had an occasion to consider the similar issue and it is held that while claiming the deduction under Section 32(1)(iia) of the Income-tax Act setting up wind-mill has nothing to do with the power industry and what is required to be satisfied in order to claim additional depreciation is that the setting up of new machinery or plant should have been acquired and installed by an assessee, who was already engaged in the business of manufacture or production of any article or thing. Considering the aforesaid facts and circumstances and considering the relevant provisions of Section 32(1)(iia) of the Incometax Act, which was prevailing at the relevant time, i.e. during the year under consideration, it cannot be sai ..... X X X X Extracts X X X X X X X X Extracts X X X X
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