TaxTMI 
TaxTMI 
2010 (10) TMI 682
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.... previous year, in which case the deduction (of allowance) is permissible where the tax is deposited to the credit of the Central Government by the due date of the filing of the return under section 139(1) of the Act by the payee. The various expense listed therein are commission and brokerage; fees for technical services or professional services; contract payments; rent; and royalty, and the definition and scope of each of them is as per the corresponding sections prescribing tax deduction under Chapter XVII-B. 3.1 The assessee is a dealer for Xerox India Ltd. (XIL), authorised to sell and otherwise promote products of the latter in specified territories, being the four southern districts of Kerala. It was found during the assessment proceedings to have paid, what is termed Technical fees' to XIL at Rs. 14,77,860. As no tax was deducted and paid, the disallowance thereof under section 40(a)(ia) was effected and confirmed in first appeal. The assessee's explanation was that, apart from sales, it is also required to render service support to the customers, i.e., the purchasers of the products by XIL, which includes services during the warranty period and comprehensive servic....
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....XIL (or alternatively, 'the company') to it as an authorised service provider (ASP), and it is only a case of outsourcing of the services being initially provided by the company directly to its customers for a share to it (XIL), so that the provision of section 40(a)(ia) would not apply. In support, it seeks to emphasize that while services rendered by the assessee are to its customers, from whom service charges are received, the payment under reference is to XIL, which is only to compensate it for the loss of revenue arising thereto on the outsourcing of the said service contracts to the service providers [SP(s)]. The same would, thus, not stand to be covered under section 194C as well. The Revenue has found the same as not convincing, as that does not explain the nature of the payment to XIL; the same being only pursuant to a contract of services which are in the nature of technical and professional services. 4.2 Before we could apply the law, it is incumbent on us to clarify the facts. The basic issue is with regard to the nature of the payment in respect of which deduction is being sought. The assessee, when it advances the argument that no services are in fact being re....
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....ll be paid by SP within 7 days of XMC raising the invoice." (*) XMC is the erstwhile name of XIL. Article 10 is titled 'Support to be given by XMC'. Articles 10.1 to 10.4 are reproduced below:- "10.1 XMC shall intimate in writing to SP, the details of the Products sold directly by XMC in the area of operation of SP to enable him to render necessary services under this agreement. 10.2 XMC shall, from time to time, based on evaluation by authorised XMC personnel, provide to SP and his personnel as nominated by SP, such training support as determined by XMC. 10.3 XMC may provide such technical service support, as XMC may deern necessary, from time to time. 10.4 XMC shall supply to SP, where it feels appropriate, maintenance manuals as are generally required in carrying out the Services of the Products." The term 'Service(s)' is defined in Article 1.3 as under:- "1.3 'Services(s)' shall mean and include the following:- (i) installation of the Products at the customers'place as per the instructions of XMC; (ii) services rendered in pursuance of various types of calls received either during the period of warr....
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....rifies their nature and scope. Both the nature of the products and that of the services required to maintain them are highly technical in nature, requiring back-up support, training and guidance from the product manufacturer. This also explains why the payments stand classified by the assessee in its accounts as 'technical fees'. The same, therefore, stand to be covered by section 40(a)(ia), and there has been no omission in invocation of the said provision by the Revenue in the instant case. 5. The matter though is primarily factual, and decided by us on that basis, after considering the arguments as advanced and the applicable provisions of law, we shall, nevertheless, also deal with the assessee's supplementary arguments. 5.1 Firstly, it says that there is no link between the services provided by it to the customers and the payments made by it to XIL. This is indeed so, but it is only it, and not the Revenue, which is linking the two. The payments to the company (XIL) is for services rendered by it to the assessee as an ASP. That the latter requires these services to be able to provide the necessary services to the customers of the XIL products (as the Agreement ....
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....nder Chapter XVII-B, while being still not allowed its claim on the ground of non-tax deduction, as the provisions, nevertheless, have to read harmoniously. However, such a situation does not obtain in the present case. A statute is an edict of the Legislature and has to be given full effect to where its intention as borne out by the language is clear. Not doing so, would amount to an appropriation or usurpation of the legislative function by the judiciary, as stands explained by the higher courts of law time and again. Reference in this context is drawn to the decisions, inter alia, in the case of Padmasundara Rao v. State of Tamil Nadu [2002] 255 ITR 147 (SC) and Narayanan and Co. v. CIT [1997] 223 ITR 209 (Ker.) (FB). There is no doubt that the provision is, and would be at times unduly, harsh. That the provision leads to a hardship is an altogether different matter, and would not operate to impugn its validity. In the present case, even as argued on behalf of the Revenue, the bar (on deduction) is not absolute, but only defers the deduction to the time where the tax deductible thereon is deducted and deposited with the Government, i.e., is essentially a timing issue. In this co....