TaxTMI 
TaxTMI 
2012 (11) TMI 903
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....rities are justified in invoking the provisions of section 40a(i) of the Act and disallowing the payment of Rs.30,59,752/- to M/s Novatel, USA. We shall dispose off the grounds in chronological order. 3. Ground nos.2, 3 and 4 reads as follows:- (2) The learned CIT(A) ought to have allowed the deduction under section 10B of the Act to the extent of Rs.52,44,417/- by quantifying the export income of the relevant assessment year before setting off of the unabsorbed depreciation and losses of the earlier years in the preceding year. (3) The learned CIT(A) ought to have appreciated that the relief under section 10B is required to be quantified out of the relevant year's income and required to be allowed since the said income is excluded for computation of taxation under the Act and the unabsorbed losses and depreciation are required to be set off only against the other total income computed under the provisions of the Act. (4) The learned CIT(A) ought to have followed the later judgment of the Karnataka High Court which was binding on him and also ought to have appreciated the ratio of the High Court in the case of CIT v. Himatasingike Seide Ltd.[2006] 156 Taxman 151 (Kar.),....
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....n 10A or section 10B of the Act during the current assessment year has to be allowed without setting off brought forward unabsorbed losses and the depreciation from earlier assessment year or current assessment year either in the case of non-STP units or in the case of the very same undertaking?" (Emphasis supplied) 3.8 The relevant findings of the Hon'ble High Court at paras 19, 20, 31 to 33 reads as follows:- "19. It is after the deduction under Chapter VI-A that the total income of an assessee as arrived at. Chapter VI-A deductions are the last stage of giving effect to all types of deductions permissible under the Act. At the end of this exercise, the total income is arrived at. Total income is thus, a figure arrived at after giving effect to all deductions under the Act. There cannot be any further deduction from the total income as the total income is itself arrived at after all deductions. 20. From the aforesaid discussion it is clear that the income of 10A unit has to be excluded before arriving at the gross total income of the assessee. The income of 10A unit has to be deducted at source itself and not after computing the gross total income. The total income used ....
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....ious provisions of the Act including those of Chapter VI-A. If in such a year, the assessee has suffered losses, such losses would be subject to inter source and inter head set off. The balance if any thereafter can be carried forward, for being set off against profits of the subsequent assessment years in the normal course. Unabsorbed depreciation also merits a similar treatment. 33. As the income of 10-A unit has to be excluded at source itself before arriving at the gross total income, the loss of non 10-A unit cannot be set off against the income of 10-A unit u/s 72. The loss incurred by the assessee under the head profits and gains of business or profession has to be set off against the profits and gains if any, of any business or profession carried on by such assessee. Therefore as the profits and gains under section 10-A is not be included in the income of the assessee at all, the question of setting off the loss of the assessee of any profits and gains of business against such profits and gains of the undertaking would not arise. Similarly, as per section 72(2), unabsorbed business loss is to be first set off and thereafter unabsorbed depreciation treated as current year....
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....S u/s 195 of the Act. As no TDS was effected on those payments, the AO resorted to disallow the entire expenditure incurred u/s 40(a)(i) of the Act. 4.2 Before the CIT (A), it was challenged as to whether the payments of Rs. 30.59 lakhs towards voice charges to Novatel can be held as 'sum chargeable' under the provisions of the Act appearing in s. 195(1) of the Act? 4.3 After having considered the lengthy and exhaustive contentions of the assessee, duly recorded in his order and also taking cognizance of the findings of the earlier Bench of the Tribunal in the case of Infosys Technologies Ltd. v. Dy. CIT [2011] 45 SOT 157, the CIT (A) had decided the issue against the assessee. The reasoning of the CIT (A) in rejecting the assessee's contentions is extracted as under: "9.1. Thus, the crucial words are - 'chargeable under the provisions of the Act.' In other words, the sum should be taxable in the hands of the payee non-resident. It becomes chargeable when an element of profit gets embedded in such sum. I have always held that unless the sum is paid as loan or charity, it inherently covers an element of profit therein and therefore becomes compulsorily taxable as busines....
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....ct r. w. s. 195(1) of Income-tax Act. Nevertheless, I have a feeling that the appellant was in full knowledge that to such payment TDS is applicable and, therefore, in earlier years, it had applied for no-deduction certificates and had received the same on the plea of situs theory. However, admittedly no such application had been filed even in the fact of change in law by FA 2007 quoted supra. 10. In a nutshell, I confirm the order of the AO. Addition is upheld." 4.4 During the course of hearing before this Bench, the learned AR came up with a extensive submission, the sum and substance of which is as under: (i) that the assessee was engaged in providing voice based call center services to the clients in USA; and for that the telecom infrastructure was provided by Tata Communication and Reliance Communications at India and Verizon by USA; (ii) that the Novatel was a telecom voice service provider in USA and Novatel was helping the assessee for connecting to the USA Telecom network; that all the calls which received from USA or made to USA required the help of local telecom voice service provider at USA and Novatel was providing this service to the assesee; a....
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.... (g) Dy. CIT v. Hyderabad Industries Ltd [2008] 24 SOT 98 (Hyd.) - that the amendment made in Finance Act 2010 retrospectively is applicable to clauses (v)(vi) and (vii) of s. 9(1) and not clause (i) thereof with an intention to provide a legal fiction for services which are rendered in India. However, Explanation to s. 9(2) is applicable to clauses (v),(vi) & (vii) of s. 9(1) and not to clause (i) thereof. - further Explanation 2 to s. 9(1)(vii) of the Act also clarifies the meaning of 'fees for technical services'. S. 9 of the Act deals with income deemed to accrue or arise in India. In the present case, the income of the non-resident was in the form of service charges paid and, hence, s. 9(1) will only be applicable because the other sub-clauses will not be applicable as the payment was not in the nature of payment referred to in other sub-clauses; (iii) that the non-resident was not rendering any service of managerial, technical or consultancy in nature and, thus, it was also not covered under the expression 'fees for technical service'; - that the I.T Act as well as DTAA have not defined the term managerial, tec....
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....edger extract of Novatel Ltd in the books of the assessee was also furnished. 4.6 On the other hand, the learned D R came up with the following submission: (i) that the assessee's vehement contention of lack of permanent establishment of Novatel in India had lost its relevance as amendment to Explanation to s.9(2) w. e. f. 1.6.1976. Also the amendment brought in by the Finance Act, 2012 by way of insertion of Explanation 2 to s. 195(1) w. r. e. f. 1.4.1962 is also relevant here. Thus, whether or not Novatel had permanent establishment, the assessee was under obligation to deduct tax u/s 195; - that the assessee's argument that its services were not covered by the terms royalty/fees for technical/managerial services etc., is misconceived in view of the amendments brought in to s.9(1)(vi) by Finance Act 2012 with retrospective effect from 1.6.1976. (ii) that at page 23 of the paper book, the detailed diagram had indicated the process under the caption 'Technical infrastructure'. Thus, it would, in the language employed by the assessee, remuneration for providing technical support; and that the assessee had deducted tax on payments made to Ve....
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....ccording to the AO, the fee for technical service is liable for TDS u/s 195 of the Act. 4.9 On an appeal, the CIT (A) took a stand that the amendment overcomes the ratios of several decisions which held that business profits not being covered in s.9 of the Act does not accrue or arise in India unless the situs of payment or service is not in India. He had, further, reasoned that Novatel cannot deny that the sum received was not inclusive of any profit element and, therefore, the sum has to be treated as deemed income in the hands of the assessee. However, the learned AR took a strong view that the assessee had entered into an agreement with Novatel and the non-resident [Novatel] was paid service charges for having lent telecom voice services in USA. Further, it was argued that since the recipient did not have any permanent establishment in India, the telecom voice service was not chargeable in India. It was, further, justified that even if telecom voice service has been received by the non-resident on account of business connection mentioned in s. 9(1)(i) of the Act, then, the same was not chargeable in India since the non-resident was not having any permanent establishment in I....
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....T v. De Beers India Minerals (P.) Ltd [2012] 346 ITR 467. The issue before the Hon'ble Court, in brief, was that the assessee engaged in prospecting and mining for diamonds entered into an agreement with a Netherlands company for conducting air borne survey and providing high resolution geophysical data. However, the AO took a view that the consideration was chargeable to tax as 'fees for technical services' under Article 12 of the India - Netherlands DTAA and, accordingly, held that the assessee had failed to deduct tax at source [TDS] u/s 195 of the Act. The stand of the AO has been negated by the CIT (A) as well as the Tribunal on the ground that though the Dutch company had performed services using technical knowledge and expertise, such technical experience etc., had not been 'made available to the assessee. 4.14 On an appeal by the Revenue, the Hon'ble Court had held as under: "Article 12(5) of the DTAA defines 'fees for technical services' to mean payments in consideration for the rendering of any technical or consultancy services 'which make available technical knowledge, experience, etc., or consist of the development and transfer of a technical plan or technical des....
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.... PE in India. Considering above facts and also the fact that there is DTAA agreement between India and Switzerland and also between Indian and Russia, the said amount remitted by the assessee towards advertisements even if assessable could be assessed as business profits as per section 9 but having regard to the fact that these non-resident companies i.e., recipients and/or advertising companies have no PE in India, the assessee rightly contended that the said amount could not be taxed in India under section 5(2). Apex Court has held in GE India Technology Cen. P) Ltd v. CIT [2010] 327 ITR 456 that TDS is required to be deducted under section 195 only if whole or a part of the remittances is liable to tax in India. If tax is not assessable, there is no question to deduct TDS. Therefore, the findings of authorities below that the assessee is liable to deduct TDS under section 195 has no merit because the provisions of section 195 will be applicable only if an income is chargeable to tax under the Act. Accordingly, section 40(a)(i) does not apply. Hence, the authorities below were not justified to deny the claim of the assessee under section 40(a)(i) as the assessee has not committed....