TaxTMI 
TaxTMI 
2013 (10) TMI 748
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.... the case of Havells India Limited v. Additional Commissioner of Income Tax reported in 140 ITJ 283 and Madras High Court decision in the case of CIT v. Aktiengesellschaft Kuhnle Kopp And Kausch W. Germany By Bhel reported in 262 ITR 513 without any difference and hence it is only a distinction without difference and a difference without distinction. 2.2 The learned Commissioner of Income Tax (Appeals) is not correct in coming to the conclusion based on the decision of Kerala High Court in the case of Cochin Refineries Ltd. v. Commissioner of Income Tax reported in 222 ITR 354 on the facts and circumstances of the case. 2.3 The learned Commissioner of Income Tax (Appeals) is not correct in coming to the conclusion that for the sources earned outside India there should be either a Branch outside India or a PE outside India. 2.4 Having the settled fact that the payments are made to Non Residents and having seen that the payments are made for earning income outside India, both the Assessing officer and the Commissioner of Income Tax (Appeals) is not correct in not applying the provisions of sec. 9(1)(v....
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.... was further submitted that the Assessing Officer, in his remand report, has wrongly relied on Explanation to section 9 inserted by Finance Act, 2007 with effect from 1.6.1976 and submitted that the Explanation will cover the above payment. It was submitted that after the decision of Hon'ble Supreme Court in the case of Ishikawajima Harima Heavy Industries Ltd. v. DIT,288 ITR 408, the Explanation had been brought in only to explain the provisions of section 9(1)(vii)(c) and not take away the exception given in section 9(1)(vii)(b). It was further contended that the provisions of section 9(1)(vii)(b) clearly stipulates that the amount paid by a resident to a non-resident for services rendered outside India was not taxable in India in view of exception contained in that section. It was stated that Explanation would not take away the exception. For this, reliance was placed on the decision of the Delhi Bench of the Tribunal in the case of Havells India Ltd. v. Addl. CIT, 140 TTJ 283, and Hon'ble Madras High Court's decision in the case of CIT v. Aktiengesellschaft Kuhnle Kopp and Kausch W. Germany by BHEL , 262 ITR 513. Further, it was submitted that the Assessing Officer has stated i....
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....he non-residents for services rendered outside India was not taxable in India, hence, the disallowance u/s 40(a)(i) is not warranted. 8. The CIT(A), after considering the above submissions of the assessee, dismissed the appeal of the assessee by observing as under: "6.4 I have carefully considered the facts of the case and the submission of the Id AR. I have also gone through the decisions relied on by the AO and the AR. I have also carefully perused the relevant provisions of the Act and the Explanation introduced by the Finance Act, 2007 and Finance Act, 2010. The appellant has paid to non-resident divers a sum of Rs.74,63,768/- which is not disputed. The divers are Indian citizens who became non-resident because of their stay outside India for more than 180 days. The nature of payments are "fees for technical services"(FTS). There is no dispute regarding this. Income from technical service rendered by a non-resident is taxable in India irrespective of the fact whether the non-resident has a residence or a place of business or business connection in India. The same is provided by Explanation below sec.9(2) introduced by the Finance Act, 2007 with re....
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....yalty paid on export sales. Since the place of business was outside India, the decision is not applicable. 6.6 The question whether the payment would come within the exclusion part of this Explanation 2 to sec 9(1)(vii) or not would have to be established by the person who claims the exclusion as held by the Orissa High Court in Orissa Synthetics Ltd. v. ITO (203 ITR 34). From a combined reading of clause (vii)(b) and Explanation 2 of Sec.9(1), it becomes abundantly clear that any consideration, whether lump sum or otherwise, paid by a person who is resident in India to a non-resident for rendering any managerial or technical or consultancy service would be income by way of fees for technical services and would, therefore, be within the ambit of "income deemed to accrue or arise in India". It is to be noted that u/s 9(1)(vii)(b), the expression used is fees for services utilised in India and not the expression fees for 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 u....
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.... 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 sec 9(1)(vii)(b). Therefore, the payments made to non-residents are liable to be taxed in India in the hands of the non-residents. For failure to deduct tax, the AO has rightly disallowed such payments u/s 40(a)(i). The ground is dismissed." 9. The A.R of the assessee reiterated the submissions made before the lower authorities. He placed reliance on the decision of the Chennai Bench of the Tribunal in the case of Ajappa Integrated Project Management Consultants (P.) Ltd v. ACIT in I.T.A.No.578/Mds/2012,order dated 25.6.2012, and submitted that the case of the assessee was squarely covered by the said decision. 10. On the other hand, the DR fully supported the orders of the lower authorities. He argued that the assessee did not have any Branch or PE outside India and as the payments were made to non-residents from India, the business cannot be said to be carried on outside India. He further submitted that the said expenses were claimed as deduction in the Profit & Loss Account of t....
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....t source which the assessee had not deducted and therefore, the provisions of section 40(a)(i) were applicable. He, therefore, disallowed the entire expenditure of Rs. 74,63,768/-. 13. The CIT(A) has confirmed the action of the Assessing Officer observing that the decision of the Hon'ble Supreme Court in the case of Ishikawajima Harima Heavy Industries Ltd. (supra) and the decision of the Hon'ble Karnataka High Court in the case of Jindal Power Company Ltd, 321 ITR 31, were nullified by the amendment made by Finance Act, 2010 with retrospective effect from 1.6.1976 by insertion of explanation below section 9(2) of the Act. He relied on the decision of Hon'ble AP High Court in the case of Elkem Technology v. DCIT,250 ITR 164, and held that the facts in the present case are similar to the facts that were before the Hon'ble High Court. The Hon'ble AP High Court in that case has held that payments made by Indian Company to the Norwegian company towards charges for engineering and other personnel services were part and parcel in the processing of utilizing the technical services in India and would come within the meaning of section 9(1)(vii) of the Act. Therefore, the CIT(A) held tha....
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.... carried on by such person in India or for the purposes of making or earning any income from any source in India : [Provided that nothing contained in this clause shall apply in relation to any income by way of fees 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 hea....
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....e made to non-residents from India, the business cannot be said to be carried on outside India. However, the CIT(A) has not examined as to whether the fee was paid in respect of the services utilized for the purposes of making or earning any income from any source outside India or not. 18. Before us, the A.R relied upon the decision of this Bench of the Tribunal in the case of Ajappa Integrated Project Management Consultants (P.) Ltd. (supra), ChenTrib, wherein the assessee was engaged in providing consultancy services at Nigeria. The Tribunal in the said case has held as under: "18 After considering the rival submissions and perusing the orders of the lower authorities and materials available on record, we find that the assessee is engaged in the business of rendering technical consultancy services for oil and exploration industries in India and abroad. During the year under consideration, the assessee received consultancy fees of Rs. 12,33,75,833/- against which it claimed to have paid consultancy fees of Rs. 10,22,97,112/-. From the details filed by the assessee, the Assessing Officer found that for the following non-residents, TDS had not been ded....
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....pos are that assessee had paid consultancy fees to one Shri Sashi Kant and Shri Umamaheshwar for consultancy services rendered in Nigeria. When put on notice regarding non-deduction of tax at source, reply of the assessee was that the said consultants were used in the business of the assessee in Nigeria and therefore, sub-clause (b) of clause (vii) of sub-section (1) of Section 9 would apply. Assessee submitted before the A.O. that the payments were for services rendered by the consultants on account of its business abroad and hence, the income of such non-residents could not be deemed to accrue or arise in India. However, the A.O. was not impressed. He, following the directions of ACIT under Section 144A of the Act, held that assessee was not carrying any separate business outside India and it did not have any branches outside India. Therefore, according to A.O., assessee was not liable for tax in Nigeria and the payments constituted income in India of the concerned non-residents. He, therefore, considered the amounts as income of the non-residents accruing in India and for non-deduction of tax at source, disallowance of Rs. 60,95,311/- was made relying on Section 40(a)(i) of the ....
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....n words of section 195(1) which in clear terms lays down that tax at source is deductible only from 'sums chargeable' under the provisions of the Act, i.e. chargeable under sections 4, 5 and 9 of the Income-tax Act, 1961." It is absolutely clear from the above ruling of the Apex Court that section 195(2) springs into action only when the payment to the recipient contains an element of income chargeable to tax in India. It has already been discussed above that the payments made to the non-residents for services rendered outside India would not amount to income accrued or arising in India. Since the sum is not chargeable to tax in India, provisions of sec. 195(2) are not attracted. Hence, the disallowance u/s 40(a)(i) would also not arise. Accordingly the AO is directed to delete the addition. This ground is accordingly allowed." 14. Now before us, learned D.R., strongly assailing the order of ld. CIT (Appeals), submitted that the assessee could not be given freedom to decide whether tax is to be deducted at source or not. According to him, the assessee-company had made payments directly from India and not from Nigeria and wheth....