TMI Blog2024 (1) TMI 846X X X X Extracts X X X X X X X X Extracts X X X X ..... rightly deleted additions made by the Assessing Officer and thus, we are inclined to uphold the findings of the ld. CIT(A) and reject grounds taken by the revenue for all assessment years. Disallowance of bad debts - AO disallowed bad debts claimed on the ground that the assessee has claimed exemption u/s. 10A of the Act for earlier assessment years and income pertains to bad debts was not offered in the computation of total income for all previous years and thus, opined that conditions prescribed u/s. 36(2) of the Act are not satisfied - HELD THAT:- As not in dispute that income pertains to bad debts written off has been offered to tax in earlier assessment years. Further, whether the assessee has paid tax or claimed exemption under certain provisions of the Income-tax Act does not matter, but what is required is income pertains to said bad debts has been credited in the profit and loss account in earlier years or not. Since, the assessee has offered income pertains to bad debts written off in earlier years and also write off of bad debts in the books of accounts, in our considered view, conditions prescribed u/s. 36(2) of the Act are satisfied. Therefore, we are of the considere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 5 appeals filed by the revenue and two appeals filed by the assessee are directed against separate, but identical orders of the Commissioner of Income Tax (Appeals), National Faceless Appeal Centre (NFAC), Delhi, dated 19.09.2022, 16.11.2022 14.12.2022 and pertains to assessment years 2010-11, 2012-13, 2013-14, 2016-17 2017-18. Since, facts are identical and issues are common, for the sake of convenience, appeals filed by the revenue and the assessee are clubbed, heard together and are being disposed off, by this consolidated order. 2. The revenue has taken common grounds of appeal for all assessment years. Therefore, for the sake of brevity, grounds of appeal filed for assessment year 2016-17 are reproduced as under: 1. The order of the CIT(A) is contrary to law, facts and circumstances of the case. 2. Whether the Ld. CIT(A) erred in deleting the disallowances made u/s 40(a)(i) of the IT Act without appreciating the fact that the services rendered by ASUS and ASFZE fall within the ambit of provisions of Section 9(1)(vii) of Act and are also subject to explanation of Sec. 9(2) of Act? 3. Whether the Ld. CIT(A) erred in deleting the disallowances made u/s 40(a)(i) of the IT Act wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the grounds prayed at the time of hearing. 4. The brief facts of the case are that, the assessee M/s. Aspire Systems India Pvt. Ltd. (ASI) is engaged in the business of software development and provides complete lifecycle services, ranging from new product development and product advancement to product migration, re-engineering, sustenance and support. M/s. Aspire Systems Inc. (ASUS), incorporated in USA and Aspire Systems FZE, incorporated in UAE for the installation of software developed by the appellant at the client s site. The assessee company has paid outsourcing charges/consultancy charges to ASUS and Aspire Systems FZE for rendering installation and testing services to assessee s clients at USA and said payment has been made without deducting applicable TDS as per the provisions of section 195 of the Income-tax Act, 1961 (hereinafter referred to as the Act ). 5. The assessee has filed its return of income u/s. 139(1) of the Act. The cases were selected for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that outsourcing charges paid by the assessee to non-resident service providers is in the nature of fee for technical services (F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. 40(a)(i) of the Act for non-deduction of tax at source u/s. 195 of the Act. The relevant findings of the Assessing Officer are as under: 5.2.3 The submission of the assessee has been considered carefully and he same is not accepted for the following reasons. During the course of assessment proceedings, the assessee was required to produce a copy of the agreement entered into by the assessee company with Aspire US for rendering of Professional Service. In response, the assessee filed the same. The relevant portion of the submission is reproduced as under. The agreement entered into by the assessee with Aspire Systems Inc,. USA (ASUS). A few of the paragraphs in the said Agreement are produced as under. Contract Thursday, 1st April 2011 No.: ASUS\10-1 1\01 This contract for rendering of services is made effective as of 1st April, 2011 By and between Aspire Systems (India) Private Limited ( ASI ), of 1/D-1, SIPCOTNT Park, Siruseri, Tamil Nadu- 603103 JNDIA and Aspire Systems, Inc., ( ASUS ) 1735 Technology Drive, Suite 260, Scan Jose CA-95110,USA shall be valid for a period of One year. PERFORMANCE OF SERVICES AND USE OF FACILITIES: 1.1 Time to time, ASUS will subcontract part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eek of the month for the work of previous month. 1.6 As mutually agreed by the parties, the receivable and payable as per the agreements in effect will be set off against each other subject to RBI's approval and the balance will be received or paid by the respective party. 5.2.4. From the above, it is clear that, the Contract is for rendering of services taken as sub-contract by ASUS from the assessee. t can be clearly seen that, the services provided by the assessee are highly technical and professional. AS per the agreement between the assessee and the ASUS, some of these professional services are required to be sub-contracted to ASUS. The payments are also as per the time lines of deliverables. Therefore, unless Aspire US (ASUS) makes available the reports of the work done by it to the assessee, takes a feedback from the assessee and the client regarding the services, the work done by ASUS cannot form part of the weekly progress report of the assessee to be given to the client. Clearly it shows that, the services rendered by ASUS are made available to the assessee. Hence, even by the relevant DTAA between India and US, the payments made towards these services are chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees for technical services payable in pursuance of an agreement, made before the 1st day of April, 1976, and approved by the Central Government] [Explanation 1.-For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.] 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 ] (2) Notwithstanding anything contained in sub-section (1), any pension payable outside India to a person residing permanently outside India shall not be deemed to accrue or arise in India, if the pension is payable to a person referred to in article 314 of the Constitution or to a person ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Services rendered in India, It may be that some of the services are rendered abroad by the personnel employed or deputed by non-resident Company under collaboration agreement with the Indian Company. But, if the fees are paid for services utilised by the Indian company in its business carried on by it in India, irrespective of the place where the services were rendered, the amounts of the fees should be deemed to accrue or arise in India. 5.3.4. In absence of branch or PE outside India and since the payments were made to the non-residents from India, the business cannot be said to be carried on outside India. Therefore, the transactions fall outside the ambit of the exceptions provided in section 9 (1)(i)5 of the Act. Therefore, the payments made to non residents are liable to be taxed in India in hands of the non- residents. 5.3.5. In view of the above facts and discussions, the payment made by the assessee definitely fall within the provisions of Section 9(1)(vi) of the Act. Therefore, keeping in view of the provisions of Section 9(1)(vi) of the Act and Explanation to Section 9(2) of Act, the services rendered by ASUS and ASFZE are chargeable to tax in India. 5.4. TAXABILITY AS P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erns have made available Technical knowledge, experience, and Technical knowhow to the assessee in executing the business. The make available clause is elaborated in the following paragraphs. The term make available narrows down the scope of FTS to Include only those payments for FTS which fulfil conditions set out for make available , The term make available means: Technical knowledge, experience, skill, know-how, or Process, or Consist of development and transfer of a technical plan or technical design. If any of above three conditions as, set out is met it can be said that the FTS is made available. Payments made for consulting services (as per the invoices submitted by the assessee) are technical in nature and also make available technical knowledge, experience and thus taxable under FTS, Make available means recipient of the service should be in a position to derive an enduring benefit-and should be in a position to utilize this knowledge in future on his own. If fee received from the third party satisfies and is covered by Explanation 2 to section 9(1)(vi) it is fee for technical services. It will be immaterial whether the assessee had acquired or gained the said technical in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee further contended that assuming for a moment, said payment is in the nature of FTS, but it falls under the exception to section 9(1)(vii)(b) of the Act, because the services were utilized in the business or profession carried on by said person outside India or for the purpose of making or earning any income from any source outside India. Since, the appellant has paid consultancy charges to ASUS in USA for rendering services to appellant clients at USA, said payment is made outside India and for rendering services outside India. The assessee had also taken support from Article 12 of India- USA DTAA and argued that unless make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or technical design, any payment made to service provider cannot be treated as fees for technical services. 8. The ld. CIT(A), after considering relevant submissions of the assessee and also taken note of various judicial precedents, held that payment made by the assessee to ASUS and Aspire Systems FZE falls under the exception to section 9(1)(vii)(b) of the Act, wherein the payments made by the appellant to the non-residen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices as per clause 4 of Article 12 of India-USA DTAA and thus, as per the provisions of section 195 of the Act, the assessee ought to have deducted TDS while making payment to non-residents. Since, the assessee has failed to deduct TDS on payments made to non-residents, the Assessing Officer has rightly disallowed said payment u/s. 40(a)(i) of the Act, but the ld. CIT(A) without appreciating relevant facts simply deleted additions made by the Assessing Officer. 10. The ld. DR, further referring to the decision of Hon ble Supreme Court in the case of Transmission Corporation of Andhra Pradesh Ltd vs CIT [1999] 239 ITR 587, submitted that, if at all the assessee claims that payments made to non-residents are not liable for TDS, then the assessee should have filed application as per the provisions of section 197 r.w.s. 195(2) of the Act. The assessee without complying relevant provisions simply claimed that payment made to non-residents is not fees for technical services and provisions of section 195 of the Act is not applicable and consequently, disallowance cannot be made u/s. 40(a)(i) of the Act. In this regard, he has filed detailed written submissions on the issue which reads as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ight deployment was also observed for the software development - DELPHI (page 9 of the Agreement). 4. It is also observed from Page 19 of consulting agreement dt.5/1/2010 (Exhibit 'A' statement of work) that the on-sight research work was executed by the appellant to its clients. The relevant part of the agreement is reproduced as under: Onsite Resource Working form Offshore: If the Company requires any of the permanent (long term) onsite resources to work with the Consultant's Offshore team and approves such travels, Company will pay the consultant the Onsite rates applicable for such permanent onsite resource. Also, any associated travel, boarding lodging expenses will also be paid by the company for such duration of stay at Offshore. In view of the above, it is clear that the ultimate customers of the appellant company engage the off-shore team for the final execution of software developed by the appellant. 5. It has been submitted during the course of the hearing before the Hon'ble 'B' Bench that the appellant did not provide the financials of the subsidiary Companies in USA UAE (ASUS AS-UAE). Further, it has submitted during the course of the hearing th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Amarnath Reddy (126 ITD 113), Chennai. 9. In view of the above facts and circumstances, the issue may be remitted back to the file of the AO to verify the above acts as per the decision of the Hon'ble ITAT in assessee's own case for the A Ys 2011-12 2014-15 vide ITA Nos.2000 762/CHNY/2020 dt.23/ 12/2022. 11. The Ld. Counsel for the assessee, supporting the order of the ld. CIT(A) submitted that, if he go by the nature of work rendered by non-resident service providers, it is purely in the nature of support service, which cannot be considered as fees for technical services as per the provisions of section 9(1)(vii) of the Act. The services are rendered outside India and for making or earning income from a source outside India. Further, the service provider does not make available technical knowledge or processes to the appellant. In order to consider payment to non-residents within the ambit of section 9(1)(vii) r.w.s. 9(2) of the Act and Explanation thereto, said payments should be in the nature of fees for technical services as per the Income-tax Act or as per Article 12 of DTAA between India and USA. Since, Article 12 provides for make available clause, unless said clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, on perusal of contract between the assessee and the non-resident services providers, it is clear that payment made by the assessee to non-residents is directly related to services rendered to the customers outside India and income earned from such customers, in turn form part of the business of the assessee. Therefore, in our considered view it falls under the category of services utilized for a business or profession carried on by such person outside India. Further, the second aspect of exception as per Clause (b) to section 9(1)(vii) of the Act is that services utilized for the purpose of making income from any source outside India. In the instant case, services were carried on outside India by non-residents for offshore customers, because the customers of the appellant are situated outside India and services were utilized for earning income from source outside India. Therefore, in our considered view, the second part of exception as per section 9(1)(vii)(b) of the Act is also satisfied. Thus, from the above it is undoubtedly clear that the services were not rendered in India, the person to whom the payment was made is a non-resident and finally an amount paid is a business in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ient would not be able to apply it in future independently without support from the service provider, it will not be a case of technical service having been made available. The fact that the provisions of services may require technical input by the person providing the service which does not mean that technical knowledge, skills etc are made available to the person purchasing the service, if it is performing a technical service does not amount to make available technical knowledge, skill etc. This fact has been explained by the Hon ble High Court of Karnataka in the case of CIT ITO vs De Beers India Minerals (P) Ltd [2012] 72 DTR 82 (Kar). Therefore, in our considered view payment made by the assessee to non-resident service providers cannot be brought under Article 12 of India-USA DTAA. 15. The Assessing Officer had also raised another contention in light of provisions of section 197 r.w.s. 195(2) of the Act in light of decision of Hon ble Supreme Court in the case of Transmission Corporation of Andhra Pradesh Ltd vs CIT (Supra). We have gone through the decision of Hon ble Supreme Court in the case of Transmission Corporation of Andhra Pradesh Ltd vs CIT (Supra) and find that sai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT (Supra). 17. At this stage, it is relevant to consider the decision of ITAT, Chennai Benches in assessee s own case for assessment years 2011-12 2014-15. The Tribunal after considering relevant facts has set aside the issue of disallowance u/s. 40(a)(i) of the Act for non-deduction of TDS u/s. 195 of the Act, to the file of the CIT(A) for fresh adjudication. The Tribunal while deciding to set aside the issue has followed its earlier decision in assessee s own case for assessment year 2009-10. We find that for assessment year 2009-10, the issue has been remitted back to the file of the ld. CIT(A), after considering certain new evidences filed by the assessee which were not before the Assessing Officer or the CIT(A). But, for the impugned assessment years, the CIT(A) has considered all evidences filed by the assessee while adjudicating the issue of disallowance u/s. 40(a)(i) of the Act and thus, in our considered view, the issue need not to be set aside to the file of the CIT(A) for fresh adjudication. 18. In this view of the matter and considering facts and circumstances of this case, we are of the considered view that payments made by the assessee to non-residents for renderin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing bad debts u/s. 36(1)(v) r.w.s. 14A of the Act. The ld. CIT(A), after considering relevant facts has rightly directed the Assessing Officer to verify whether the amounts claimed as bad debts were included in the income for earlier assessment years. Thus, we are inclined to uphold the findings of the ld. CIT(A) and reject ground taken by the revenue. 21. The next issue that came up for our consideration from appeal filed by the assessee for assessment years 2012-13 and 2013-14 is disallowance of provision for expenses. The assessee company debited provisions for expenses under professional charges. The Assessing Officer, called upon the assessee to file necessary details with regard to the provisions made for expenses. According to the Assessing Officer, provision made for expenses is not ascertained liability and contingent in nature and thus, cannot be allowed as deduction. On appeal, the ld. CIT(A) sustained additions made by the Assessing Officer. 22. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. If a liability is arising in a particular accounting year, deduction should be allowed although the liab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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