AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2011 (7) TMI 534
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....resentatives") The Appellate Tribunal has dismissed the appeal of the Petitioner/Appellant and confirmed the disallowance under section 40(a)(i) of the Act, without analyzing and concluding the following issues raised before the Tribunal. The Petitioner has raised the following submissions while arguing the matter before the Hon'ble Bench : (i) Applicability of Circular 786, dated 7-2-2000. The Petitioner in Pages 3 & 4 of the appellate order states with respect to Circular 786, dated 7-2-2000 as under: "Both are payments for acquiring orders from abroad. By virtue of Circular 786 of 2000 the amount is not taxable. Withdrawal of the Circular is only prospective. JCIT v. George Williamson (Assam) Ltd. (116 ITD 328) Gau., Indopel Garments (P.) Ltd. v. DCIT (86 ITD 102 Mad.) SOL Pharmaceuticals Ltd. v. ITO (83 ITD 72 Hyd.) Indtelesoft (P.) Ltd., In Re 267 ITR A.A.R. Withdrawal of CBDT Circular 786, dated 7-2-2000 of 2009 is prospective: Siemens 2010-TIOL-102-ITAT-Mum. Shakthi Raj Film Distributors v. CIT 213 ITR 20 Bom. CIT v. Janardhana Mills (311 ITR 439) Mad." The Petitioner submits that though the Appellate Tribunal has reproduced in its order the notes of arguments submit....
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....nsidered these arguments, its order suffers from apparent mistake which requires to be rectified. (iii) Article 26(3) of India-USA Tax Treaty. The Petitioner submits that Article 26(3) of the India-USA tax treaty deals with non-discrimination clause which provides that royalty and other disbursements made by a resident of a contracting State (Petitioner) to a non-resident (Consultant) is deductible in computing the income of a resident (Petitioner) as if the payment is made to a resident. Further, section 40(a)(ia) was amended to include fee for technical services paid to residents by Finance Act No. 2 of 2004 with effect from 1-4-2005. Hence payments made to non-resident prior to 1-4-2005 cannot be disallowed by virtue of Article 26(3) as similar payments to residents were not covered under section 40(a)(ia) of the Income-tax Act. The Appellate Tribunal having not considered these arguments, its order suffers from apparent mistake which requires to be rectified. (iv) Applicability of Article 12(4)(b) of India-USA Double Taxation Avoidance Agreement (DTAA) - Fee for included services The relevant notes of arguments as given in Page 4 of the appellate order are extracted below: ....
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....emplates that technology will be considered as 'made available' when the person acquiring the service is enabled to apply the technology/skills involved in rendering such service. However, the Appellate Tribunal has not considered the arguments of the Petitioner and has not interpreted the term 'make available' in the proper perspective. Therefore, there is an apparent mistake in the order which requires to be rectified. Applicability of provisions of DTAA "The applicability of the DTAA cannot be considered at this stage as one should remember that DTAA is for avoidance of double taxation. It is in the assessment, if any of the two non-resident representatives of the assessee that the provisions of DTAA are to be considered. This is because the DTAA also provides for the beneficial taxation subject to the condition that the income of the non-resident, which has accrued in India has been offered for taxation in the country in which they are resident." The Petitioner submits that as per sub-section (2) of section 90 of the Act, where the Central Government has entered into an agreement with the Government of any country outside India for granting relief of tax or avoidance of dou....
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....e had a bona fide belief. Once, it is held that the assessee did not have bona fide belief that the payment to the non-residents did not have the income component, the decision of the Special Bench in the case of Prasad Productions Ltd. referred to supra would no more come to the rescue of the assessee. " The Petitioner submits that the Appellate Tribunal has not correctly applied the decision of Special Bench (supra). The Special Bench states that assessee should have bona fide belief that the payment is not chargeable to tax and it does not contemplate that the payment should not have income component. Even if the payment has income component only if the same is chargeable to tax in India, tax has to be deducted on such payments. Further, the Petitioner respectfully submits that while arguing the appeal this issue was clarified. The counsel on record pointed out that the act of non-deduction of tax by Petitioner itself establishes the fact that Petitioner had bona fide belief that the payment is not chargeable to tax in India and as such it does not warrant withholding of tax. Therefore, non-application of the decision of the Special Bench in a correct perspective would amount....
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....as Fees for included services the assessee should himself make available technical knowledge, skill etc. The examples given as an annexure to the DTAA has explained. In any event two views are possible. 5. ITAT has referred to Explanation 2 to section 9(1) by FA, 2010. Subsequent amendment cannot substantiate the CIT's order [CIT v. Max India Ltd. 295 ITR 282 (SC)]. 6. The Tribunal has not considered the case of the other agent Al Aquilli Trading LLC, Iran whose job is only to procure orders and liaise with importers. They have not sourced any technical information. 7. These payments were paid in connection with exports and hence exempt under section 9(1)(vii)(b). ITAT has held that as the source of income is business in India. Assessee's contention is supported by jurisdictional High Court in 262 ITR 513 where also Royalty was paid for exports from India. In any event two views are possible. 8. The ITAT has held that applicability of DTAA cannot be considered at this stage. If an amount paid to Non-resident is not taxable, under DTAA, then the payer is not required to deduct tax at source and the payme....
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.... Ltd. v. KIT (111 TTJ 375 Mum.), ACIT v. Paradigm Geophysical Pty Ltd. (117 TIJ 812 Del.) Taxation Deptt. ICICI Bank [20 SOT 453 (Mum.)] Under Article 26(3) of the DTAA dealing with which provides for non-discrimination provides that Royalty and other disbursements made to a Non-resident is deductible in computing the payer's taxable income, under same conditions as if they had been paid to a resident. Section 40(a)(ia) was amended to include fees for technical services paid to residents, by Finance Act (No. 2) of 2004 with effect from 1-4-2005. Hence payment made prior to that cannot be disallowed under section 40(a)(ia) in view of Article 26 of the DTAA between India and USA, the expenditure cannot be disallowed. Millenium Infocom Technologies Ltd. v ACIT (117 ITD 114 Delhi) Asianet Communications Ltd. (2010-TIOL-75-ITAT-Mad.) Asianet C The only reason the (IT has held the order to be erroneous is because the assessee has not deducted the tax or approached the Assessing Officer under section 195(2) for approval to remit without deducting tax. He has not rebutted the assessee's contention that the amounts remitted is not taxable. He has concluded that it is not necessary to....