TaxTMI 
TaxTMI 
TaxTMI 
2010 (5) TMI 596
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....dra Ltd. v. Dy. CIT [2009] 313 ITR (AT) 263/[2010] 122 ITD 216/[2009] 30 SOT 374 (Mum.) (SB) (Mumbai) was cited before the Tribunal and in that decision it was held that prerequisite condition for application of section 195 and thereafter section 201 of the Act was that the amount paid to a non-resident was chargeable to tax under the provisions of the Act. This decision of the Special Bench was clearly applicable to the assessee's case since the amount payable to the non-resident M/s. Menon Ltd., U. K., was not taxable either on the merits or even if taxable could not be taxed now because of expiry of limitation. (iii) The line of contention that persons responsible for paying a sum could not be fastened with liability of deducting tax at source and could not be treated as assessee in default, if the payee was not chargeable to tax, in view of the Special Bench decision in Mahindra and Mahindra Ltd. (supra) was not considered. Similarly, the decision of Bangalore Bench of the Tribunal in Bovis Lend Lease (India) (P.) Ltd. v. ITO [2010] 36 SOT 166 was also not considered despite being cited. (iv) Non-consideration of a decision of the co-ordinate Bench was a mistake apparent on r....
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.... Asstt. DIT [2009] 121 ITD 1 (Delhi) (SB). According to the Revenue, the learned Commissioner of Income-tax (Appeals) had placed wrong reliance on Raj Television Net Works Ltd. and in view of the Special Bench decision in New Skies Satellites N. V. (supra) the amounts paid by the assessee to the two companies were nothing but royalty falling within the meaning of clause (iii) and clause (vi) of Explanation 2 to section 9(1)(vi) of the Act. As against this, the submission of the assessee's counsel was that both the companies to which payments were made were not owners of the transponders, services of which were hired by the assessee and therefore, the decision of Raj Television Net Works Ltd. (supra) would apply. Further contention was that payment made by the assessee to M/s. Menon Ltd., U. K., which was one among the two companies was one on which tax was not deductible under Chapter XVIIB of the Act. According to him, payments made were neither fees for technical services nor royalty. The crux of the contention of the assessee was that section 40(a)(i) of the Act was triggered only when payment was made to a non-resident, on which tax was not deducted or paid under Chapter XVIIB ....
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....tablishment for M/s. Menon Ltd. in India. (iv) The income of M/s. Menon Ltd. is not taxable in India (v) The assessee is not obliged to deduct tax under section 195. In the words of the learned authorised representative to trigger the application of section 40(a)(i), section 195 has to be violated. Failure to deduct tax at source as specified in section 195, which is the relevant one for payments made to non-residents under Chapter XVIIB, would result in three scenarios. The first is the payer being treated as assessee-in-default, the second is the payer being considered as an agent of the non-resident and the third is the payer being fastened with a disallowance of the claim of payment as an expenditure while computing its income from business. The types of payment that are covered by section 195 are of the kind which would be chargeable to tax under the Act in the hands of the recipients. Sub-section (2) thereof specifies the course to be adopted if a payer feels that the whole of the payment made is not exigible to tax. Then he has to make an application to the lower authorities concerned for this. Then comes, the vexed question whether the assessee itself is having the....
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....ls.' The assessee is banking on the last clause, to say that M/s. Menon Ltd. was not the owner of the satellite 'Ekran' and hence it would not be covered by the decision of the Special Bench in New Skies Satellites N. V. [2009] 319 ITR (AT) 269 (Delhi). Let us see how far it is true. A look at the Special Bench decision clearly brings out that, this was not the clinching reason for it to hold that the assessee there, was hiring a 'process' by taking up a transponder in a satellite, bringing the payment made thereon, within the ambit of the term 'royalty' as defined in section 9(1)(vi) of the Act. Paragraph 256 of the decision is reproduced to bring out this aspect (page 404). 'On facts, it is held that a process is involved in the transponder through which the telecasting companies are able to uplink the desired images/data and downlink the same in the desired area which, inter alia, covers Indian territory. For the purpose of falling within the scope of royalty, it is not necessary that the process which has been used and in respect of which the consideration is paid should be a secret process. Even consideration paid in respect of simple process shall be covered by the scope of....
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....o the right to hire them out for long periods. In our opinion, therefore treating M/s. Menon Ltd. only as an intermediary, would not be correct. The assessee did not bring on record anything to show that M/s. Menon Ltd. was just passing on the money to the owner of satellite Ekran. That a satellite might have a number of transponders and such transponders could be given for long-term use to different parties by its owners and who in turn might give time slots or independent use thereof to various others, all should not take our vision away from the vital aspect that the ultimate user of the transponder was using a 'process', while utilising it for the transmission of its signals and it was paying the fees for such use. The payments retain the same character, despite change of hands from M/s. Menon Ltd., to a third party, and for the recipient also it is nothing but a receipt for using the 'process' in the transponder. That the recipient would be having his rights for transponder use, through another contract with the ultimate owner of the satellite, makes no difference, since he had such rights which included the right to use various processes in the transponder, which was in turn ....
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....argeable to tax, in respect of the receipts from the assessee, by the Revenue authorities, no liability can be fastened on the assessee for any alleged breach of duty of deducting tax at source. Learned senior counsel further submitted that once the recipient is not taxed by the Revenue authorities in India, it was not relevant whether he was assessable or not assessable. Therefore, according to him, question of application of section 195 of the Act did not arise nor that of section 40(a)(i). 6. The further submission was that the second part of section 40(a)(i) of the Act was not considered by this Tribunal while giving its decision. According to him, not only should the royalty, fees for technical services or other sum be chargeable to tax under the Act, but it should be such that, tax was deductible at source from such amount under Chapter XVIIB of the Act. Learned counsel further explained that Chapter XVIIB was not applicable in the assessee's case since the Revenue itself did not consider that receipts of M/s. Menon Ltd., U. K., as taxable in their hands but on the other hand, had refunded all tax deductions made. Considerable reliance was placed on the decisions of the hon'....
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....s of service is not in India. (iii) There is no permanent establishment for M/s. Menon Ltd. in India. (iv) Income of M/s. Menon Ltd. is not taxable in India. (v) The assessee is not obliged to deduct tax under section 195." 9. In the last limb of the findings given at paragraph 12, this Tribunal held that payments made by the assessee were being considered as royalty and, therefore, the other limbs of its argument, namely, whether they were fees for technical services or whether there was any permanent establishment for M/s. Menon Ltd. in India or whether the receipts would be taxable in the hands of the recipient under the Income-tax Act became irrelevant. This ruling was made on the basis of section 9(1)(vi) of the Act. As per section 9(1) of the Act, income mentioned thereunder in clauses (i) to (vii) should be deemed to accrue or arise in India. No doubt, the Special Bench in Mahindra & Mahindra Ltd.'s case (supra) had held that if there was no tax liability in the hands of the payee, there cannot be any question of treating the person responsible for paying the sum, without deducting tax at source, an assessee in default. But as aforesaid, section 9(1)(vi) of the Act clear....
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....e TDS in the assessment year 2000-01, we cannot come to a conclusion that section 9(1) of the Act can be given a go-by. It was for this reason, the Tribunal held the payments made by the assessee to the company abroad being treated as royalty, other limbs of its argument had become irrelevant. No doubt, in the decisions relied on by the assessee, viz., Honda Siel Power Products Ltd. (supra) and that of Karamchand Premchand (P.) Ltd. (supra), it was held by the hon'ble apex court that non consideration of a co-ordinate Bench decision and/or non-consideration of a statutory provision would be a mistake apparent on record. However, here, as aforesaid, the Special Bench decision in Mahindra & Mahindra Ltd. (supra) case, as also application of section 195 and section 40(a)(i) of the Act was duly considered by the Tribunal in the light of the definition of the terms "income deemed to accrue or arise in India" as given under section 9 of the Act. Vis-a-vis the grievance of the assessee that the decision of the Bangalore Tribunal in Bovis Lend Lease (India) (P.) Ltd. (supra) was not considered, the sum and substance of such decision was well considered in the impugned order of the Tribunal....
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....ace of the record if one has to travel beyond the record to see whether the judgment is correct or not. An error apparent on the record means an error which strikes one on mere looking and does not need a long drawn out process of reasoning on points on which there may be conceivably two opinions. Such error should not require any extraneous matter to show its incorrectness. To put it differently, it should be so manifest and clear that no court would permit it to remain on record. If the view accepted by the court in the original judgment is one of possible views, the case cannot be said to be covered by an error apparent on the face of the record." 11. A survey of the aforenoted three judgments of the hon'ble apex court makes it manifest that the scope of proceedings under section 254(2) is confined to rectifying any mistake which is apparent on the very face of it. If the point needs to be proved on the strength of different facets of reasoning, the same would become debatable. Once a particular point falls in the realm of "debatable issue" that automatically goes out of the domain of sub-section (2) of section 254. Thus the error, capable of rectification under this sub-sectio....
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....cation by re-examining all the circumstances relating to this transaction and upholding it. Clearly, this could not have been done in the exercise of any power of rectification. In the present case, in the first order, there is no mistake which is apparent from the record at all. The Tribunal was required to decide whether the commission payment of Rs. 54,000 was deductible under section 37 of the Income-tax Act. After examining the circumstances, the Tribunal came to the conclusion that it was not so deductible. The Tribunal cannot, in exercise of its power of rectification, look into some other circumstances which would support or not support its conclusion so arrived at. The mistake which the Tribunal is entitled to correct is not an error of judgment but a mistake which is apparent from the record itself. No such mistake was apparent from the record. In fact, we doubt if this sort of an exercise could have been done by the Tribunal even if it had the power of review. The Tribunal has, patently, far exceeded its jurisdiction under section 254(2) of the Income-tax Act in redeciding the entire dispute which was before it in this fashion, and the Tribunal has committed a gross and ....