TMI Blog2020 (5) TMI 160X X X X Extracts X X X X X X X X Extracts X X X X ..... In any case, the facts presented by Ld A.R also, in our view, requires verification. Hence, we are of the view that this issue requires fresh examination at the end of the ld CIT(A). Accordingly we set aside the order passed by CIT(A) on this issue and restore the same to his file for examining it afresh, after affording adequate opportunity of being heard to the assessee. Disallowance for non deduction of tax at source u/s 195 - payment was made outside India for services rendered outside India i.e in Uganda - payment to a person for the purpose of handling of all operations including coordinating with Indian teams for maintaining, rectifying problems, testing, upgrading /supporting customers, contentproviders etc. in Uganda - HELD THAT:- Since the facts relating to this issue is identical in nature of assessee own case for asst. year 2011-12, we hold that disallowance made u/s 40(a)(i) is not justified and accordingly direct the AO to delete the same. Disallowance of write off of miscellaneous expenses - deduction being the rental/telephone deposits written off - HELD THAT:- Though the assessee claims that these payments were made in the normal course of business, we n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve appropriate application within the limitation period, if it is found that the tax effect involved is more than ₹ 50.00 lakhs or the issues contested fall in the category of exceptions provided in the Circular. With these observations, we dismiss the appeal of the revenue. 4. Now we shall take up the appeal filed by the assessee. The first issue relates to disallowance of depreciation. The facts relating to this issue, as narrated by the AO, are that the assessee had claimed depreciation of ₹ 30.99 lakhs on the WDV of imported software . Since the assessee did not deduct tax at source on the payment made for purchase of software, the AO took the view that depreciation claimed by the assessee is not allowable as deduction u/s 40(a)(ia) of the Act. Accordingly, he disallowed the depreciation claim of ₹ 30.99 lakhs. 5. Before the ld CIT(A), the assessee submitted that it had claimed depreciation of ₹ 30.99 lakhs on intellectual property rights purchased by it in the financial years 2005-06 and 2006-07 relevant to the asst. years 2006-07 and 2007-08 respectively. The assessee further contented, by placing reliance on the decision of Delhi ITAT in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, digital media and convergence other than those specified in class 2(b) of the agreement, then Shri Mohan Raju should offer 74% of his economic interest in the new venture to the assessee company. In consideration of granting above said right to the assessee company, Shri Mohan Raju was paid a sum of ₹ 5 crores in aggregate i.e ₹ 1.00 crore was during the financial year 2005-06 and the balance of ₹ 4.00 crores was paid during the financial year 2006-07. The ld AR further submitted that the assessee had capitalized the above said amount of ₹ 5.00 crores as Intellectual Property right and accordingly, the assessee has been claiming depreciation since then. 8. The ld AR further submitted that the assessee had not deducted tax from the above said payment of ₹ 5.00 crores, when it was paid to Shri Mohan Raju. Hence the TDS Officer had initiated proceedings u/s 201 of the Act for non-deduction of tax at source from the above said payment. The assessee challenged the order passed by TDS Officer and when the matter reached the Tribunal, the ITAT vide its order dated 24/2/2016 passed in ITA No.1624 to 1627/Bang/2012, has held that the payment of ₹ 5. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the facts surrounding the issue. In any case, the facts presented by Ld A.R also, in our view, requires verification. Hence, we are of the view that this issue requires fresh examination at the end of the ld CIT(A). Accordingly we set aside the order passed by ld CIT(A) on this issue and restore the same to his file for examining it afresh, after affording adequate opportunity of being heard to the assessee. 11. The next issue relates to disallowance of payments made outside India by invoking provisions of sec. 40a(i) of the Act. The Ld CIT(A) had confirmed disallowance of payments made outside India to two persons. At the time of hearing the ld AR did not press the ground numbered as 3.2 relating to disallowance of ₹ 5,17,951/- and in this regard, he also made necessary endorsement on the grounds of appeal. Accordingly we dismiss the said ground as not pressed. 12. The ground No.3.1 relates to disallowance of ₹ 7,62,090/- for non deduction of tax at source u/s 195 of the Act. 13. The assessee has made payment of ₹ 7,62,090/- to a person named Saabwe Paul Kisitu and it was paid for the purpose of handling of all operations including coordinating with Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nty Seventh,Twenty-Eighth and Twenty-Ninth grounds pertain to the payment made by the appellant to the following Non-Residents amounting to ₹ 13,92,346/-, which was claimed as a deduction but disallowed by the assessing officer. As per the admitted facts of the case, during the previous year relevant to the Asst. Year 2011-12, the Appellant made the followings payments:- Name of the person Place of business Amount remitted (Rs.) Saabwe Paul Kisitu Uganda 8,20,851 Nicholas Lugonjo Uganda 3,84,540 Timothy Nsubuga Uganda 1,86,955 Total 13,92,346 As the aforesaid non-residents were residents of Uganda, it was submitted that the appellant did not deduct taxes at source before making the aforesaid payments amounting to ₹ 13,92,346/=. At paragraph 6.1 of the assessment order, the assessing officer held that the aforesaid payment represented payment that was i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that business profit of a resident of a contracting state is not chargeable to tax in the other contracting state unless the non-resident carried out the business through a PE in India. In the absence of a PE in India, the business profit of the non-resident is not taxable in India. Accordingly, it is submitted that the payments made to M/s Saabwe Paul Kisitu, Nicholas Lugonjo and Timothy Nsubuga, the residents of Uganda, during the assessment year 2011-12, as retainer fees was also not chargeable to tax in India and therefore there was no liability to deduct tax at source in respect of this payment, under section 195 of the Income Tax Act, 1961. Alternatively, it is submitted that the payments of ₹ 38,71,485/- towards Retainer Fees were actually made during the previous year and there was no amount payable as on 31.3.2011 and hence no disallowance under section 40(a)(i) of the Income tax Act, 1961 can be made. We rely on the decision of the ITAT Special Bench in the case of Merilyn Shipplilg Transports Vs Addl. CIT (2012) 16 ITR (Trib) 1, where the Special Bench by majority held, the provisions of section 40(a)(ia) of the Act are applicable only to the amoun ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es or fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State maybe taxed in that other State. 2. However, such royalties or fees for technical services may also be taxed in the Contracting State in which they arise, and according to the laws of that State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties or fees for technical services. 7.3 When a resident of Uganda earns income from a source in India, the possibility of double taxation arises because India taxes that income on the source principle whereas Uganda may tax it on the residence principle. Generally, following the source based taxation, the Source Country is allocated the right to tax the income arising therein. While the Residence Country also taxes the ITA No.943/Bang/2017 Page 7 of 12 income following the residence based taxation, the Residence Country mitigates the effect of double taxation either by way of tax exemption or by way of tax credit. The profits of an enterprise of one Contracting State are taxable in the oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. Royalties or fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties or fees for technical services may also be taxed in the Contracting State in which they arise, and according to the laws of that State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties or fees for technical services. 3. (a) The term royalties as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, and films or tapes for television or radio broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or any industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience. (b) The term fees for technical services means payment of any kind in consideration for the rendering of any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 INDEPENDENT PERSONAL SERVICES 1. Income derived by a resident of a Contracting State in respect of professional services or other activities of an independent character shall be taxable only in that State except in the following circumstances, when such income may also be taxed in the other Contracting State : (a) if he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other State; or (b) if his stay in the other State is for a period or periods aggregating 183 days or more in any 12-month period commencing or ending in the fiscal year concerned; in that case only so much of the income as is derived from his activities performed in that other State may be taxed in that other State. 2. The term professional services includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, surgeons, dentists and accountants. 7. From the above two articles, it is seen that Articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10 % in India. Further, if the income as per article 14 is arising out of the fix base in India and if the services provider stays for 120 days or more in India, then such income shall be chargeable as per attribution rules pertaining to the activities or base in India. As Dr. Theile does not have any Fixed Base and does not satisfy the condition of the minimum stay in India, his income cannot be taxed in India but in Germany only as per Article 14 of the DTAA. From the above general analysis, it is clear on plain reading that the income is chargeable to tax under Article 14 as well as article 12 of The DTAA. It is also an established rule of the Interpretation of Treaties that specific or special provision in treaty shall prevail over and take precedence over the general ones. In the present case, the provision of article 14 of the DTAA is more specific as it applies specifically to professional services ‟ provided by the Individual resident , however, Article ITA No.943/Bang/2017 Page 11 of 12 12 provides for residents of foreign countries, therefore, Article 12 is broader in scope and general in nature compared to Article 14 of DTAA. Further the meaning of the Term ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duced from this Tribunal order, it is seen that it was held that Article 14 of DTAA is more specific as it applies specifically to professional services provided by the individual resident whereas Article 12 provides for residents of foreign countries and therefore Article 12 is broader in scope and general in nature compared to Article 14 of DTAA. In view of above discussion, we hold that in the facts of present case, the services ITA No.943/Bang/2017 Page 12 of 12 received by the assessee from these three persons is covered by Article 14 and therefore, same cannot be included in Article 12 because as per Article 12(3)(b), it is specifically provided that the term fees for technical services does not include payments for services mentioned in Articles 14 and 15 of this convention. We hold that in the present case, Article 14 is applicable and therefore, the receipt of these three persons cannot be considered under Article 12(3)(b) and as a consequence, the same is taxable in the country of resident i.e. Uganda and therefore, no TDS was deductible u/s 195 and consequently, disallowance u/s. 40(a)(i) is not justified and therefore, we delete the same. 9. In the result, the appeal f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s well as Commissioner has given a finding of fact and accordingly declined to interfere with the decision rendered by the Tribunal. 18. We heard ld DR and perused the record. The details of amount of ₹ 3,67,188/- has been tabulated by the ld CIT(A) as under in para 8 of its order. 19. Though the assessee claims that these payments were made in the normal course of business, we noticed that the rent deposits have been made to 5 persons and advance rent has been paid to one person. The payments made to 3 persons have been described as advance for services . Though there is no dispute with regard to the principle that the payment made in the normal course of conducting business, if not recoverable is allowed as deduction, yet we noticed that the AO did not examine the nature of payment and the fact whether these payments were made in the course of conduction of business. We have noticed earlier that the AO has disallowed the claim by holding that all the payments have been made on capital account. Accordingly we are of the view that this issue requires fresh examination at the end of the AO. Accordingly we set aside the order passed by the ld CIT(A) on this issue and res ..... X X X X Extracts X X X X X X X X Extracts X X X X
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