TaxTMI 
TaxTMI 
2014 (9) TMI 193
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....eduction by invoking the provisions of Section 40(a)(i) of the Act. 3. The assessee is engaged in market research activity in India and abroad. Market research is an analysis of market response to products and services launched by various companies. It involves processes like preparing questionnaire, collecting data from a sample representative of the population which uses or has some experience with the desired product/service, analyzing the results and then preparing reports based on the results of the analysis. The same are given to the clients who engage the services of the assessee, who are in countries like USA, Japan, Germany, France, Korea etc. The assessee is registered as a STPI unit. One of the method by which the assessee collects data is through online survey which is conducted via e-mail through internet. The assessee sends questionnaire and conducts survey through e-mail from consumers and decision makers worldwide. These are specialist agencies who maintain records of potential online consumers. The specialist agencies have details of each online consumer in terms of his/her e-mail address, name, age, gender, occupation, demographics etc. To enable to carry out i....
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....together for consideration. 6. Contentions on behalf of the assessee : As far as appeal by assessee is concerned, the learned counsel for the assessee submitted that the clients of the assessee send survey questionnaire and entrust the assessee with managing the entire operations cycle from completing survey scripting, sample purchase (through online panels providers), survey deployment and data/report delivery. The clients neither ask for individual's personal information nor sell their goods or services post survey. They are interested only in summarized information on the attitudes, opinions, market practices etc., of the sampled groups. The extent of personal and demographic information which is shared by online panel company with the assessee is already in public domain as the panel company collects this information as a part of panel registration process and for the same the sample has voluntarily accorded his/her/their consent and is aware that this could be shared with any one in the context of the business of the panel company, its vendors and clients. In a case where the data base of online panel company do not contain the email addresses of consumers as per the....
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....de for providing access to information. 9. On the above factual background, the learned counsel for the assessee submitted that income to the non-residents does not accrue or arise in India. It was contended by him that the scope of income chargeable to tax in India in case of non-resident is dealt in section 5(2) of the Act. As per the said sub-section, a non-resident is chargeable to tax in respect of the following categories of income : * Income received in India ; * Income deemed to be received in India ; * Income accruing or arising in India; * Income deemed to accrue or arise in India. Income accruing or received outside India is not taxable in the case of a nonresident. It was his submission that in the present case, all the payments to panel companies were made outside India. Therefore, the said receipts are not chargeable in India on 'receipt basis'. The payments to non-resident cannot be said to be income which is deemed to be received in India is set out in section 7 and section 198 of the Act. The payments to non-resident were made for obtaining ....
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...., the underlying income cannot be said to have accrued through or from any property or asset in India. 14. The third limb of Sec.9(1)(i) of the Act, deals with Income accruing or arising through or from any source of income in India. It was his submission that "Source" is not a legal concept, but something which a practical man would regard as a real source of income. The source of income has to be in India for section 9(1)(i) to apply. In the present case, the source of income for payees was the business which was carried on outside India. The payer i.e., the assessee cannot be regarded as a source of income. Thus, the source of income was outside India and not in India. As a result, the underlying income cannot be said to be arising from any source of income in India. As a result of the above, the above limb of section 9(1)(i) would not be attracted and the underlying income cannot be brought to tax under the said section. Even otherwise, section 9(1)(i) which deals with "business connection" is general in nature and section 9(1)(vi) and 9(1)(vii) dealing with a particular nature of income viz., 'royalty' and 'fees for technical services is specific in nature. It i....
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....ictionary means "the act or the process of informing, communication, or reception of knowledge". It may mean knowledge obtained directly as by observation or study or derived inferentially, or from communication from others. The term "information" has not been used in its general sense in section 9(1)(vi). This is primarily because the term "information" is used in the context of regarding some payments as royalties. A payment for getting any information would not be royalty. Thus for example, the payments made for a railway time table which gives information about the train schedules would not constitute royalties. A payment made to obtain a book by itself would not constitute royalties. Another reason, why the term "information" is to be read as not being deployed in a general sense is because the term is used along with the terms "right" and "property". Applying the maxim of "ejusdem generic" a word coming at the end of a series of words is to be interpreted in the light of the preceding words. The meaning of a word is to be gathered from the company it keeps. The word "information" is used along with "right" and "property". The term "information" should therefore be interpreted....
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....b would not result in either royalties or fees for technical services. It is only another mode of accessing information. Further, as per the clause (iv) of the definition of royalty it is only the imparting of such information that should give rise to royalty income. The term "impart" does not have any special legal connotation. The term "impart" as used in the definition means making available knowledge or experience or skill. The term "impart" is used as a verb; having a proactive essence. Payments in the present case have not been made for the imparting of any information, knowledge or experience or skill. The payees only host information in web. They have not made available any information specifically to the assessee. The information "hosted" is generic in nature. It is also available to any person. There is no exclusivity of the information as far as the assessee is concerned. No specialized information has been specifically been made available to the assessee. It was argued that in the definition of 'royalty', the various limbs refer to a payment being made to secure rights to use or the actual user of a particular asset. Similarly, the main body of section 9(1)(vi) ....
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.... : A consultant is thus a person who gives professional advice or services in a specialist field. The dictionary has used the term 'consulting' along with prefix such as "consulting architect, consulting engineer, consulting physician". The term "consultancy" can be understood to mean an act of seeking an advice or an opinion from a consultant or an expert in the specialized areas. Eg., consulting engineer or architect or a consulting physician. 20. The payments in the instant case are largely for accessing information from databases maintained by various non-resident companies. These payments would not fall within the ambit of three terms constituting "fees for technical services viz., managerial, technical or consultancy". None of the payees are managing anything for the assessee. Therefore the payments would not be for managerial services. The payees are also not rendering technical services to the appellant. The fact that the payees are providing email addresses from their database does not by itself mean that these companies are rendering technical services to the appellant. The fact that a lot of technology may have been used in preparing, generating and hosting th....
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....r not deducting tax at source. In other words, the deeming fiction applies retrospectively only for the purpose of charge of income tax in the hands of non-resident. It does not retrospectively create liability to deduct tax at source or to retrospectively treat the assessee as an assessee in default. 22. It was also argued that as per DTAA with some of the countries in which the non-residents are tax residents. FTS is taxable in India only if the payment is for FTS which makes available to the payer technical skill or knowledge. In this regard our attention was drawn to several judicial pronouncements to which we will make a reference in the latter part of this order. 23. Contentions on behalf of the Revenue: The learned DR placed strong reliance on the decision of the Hon'ble Karnataka High Court in ITA.No.2804/2005 in CIT v. M/s. Wipro Ltd., dt 15.10.2011 wherein the Hon'ble Karnataka High Court took the view that fee paid for allowing access to data base was in the nature of "Royalty" and was taxable in India. Reliance was also placed on the decision of the ITAT, Cochin bench in the case of U. S. Technology Resources (P.) Ltd. v. ACIT wherein it was held that i....
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.... provisions of Sec.40(a)(i) of the Act are not applicable? 25. We shall first see the relevant provisions of the Act that are applicable in the present case. Sec.40(a)(i) of the Act reads as follows: "Amounts not deductible. 40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession",- (a) in the case of any assessee- (i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable,- (A) outside India; or (B) in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid during the previous year, or in the subsequent year before the expiry of the time presc....
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....e by way of royalty as consists of lump sum payment made by a person, who is a resident, for the transfer of all or any rights (including the granting of a licence) in respect of computer software supplied by a non-resident manufacturer along with a computer or computer-based equipment under any scheme approved under the Policy on Computer Software Export, Software Development and Training, 1986 of the Government of India. Explanation 1.-For the purposes of the first 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; so, however, that, where the recipient of the income by way of royalty is a foreign company, the agreement shall not be deemed to have been made before that date unless, before the expiry of the time allowed under sub-section (1) or sub-section (2) of section 139 (whether fixed originally or on extension) for furnishing the return of income for the assessment year commencing on the 1st day of April, 1977, or the assessment year in respect of which such income first becom....
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....sp; Explanation 4.-For the removal of doubts, it is hereby clarified that the transfer of all or any rights in respect of any right, property or information includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred. Explanation 5.-For the removal of doubts, it is hereby clarified that the royalty includes and has always included consideration in respect of any right, property or information, whether or not- (a) the possession or control of such right, property or information is with the payer; (b) such right, property or information is used directly by the payer; (c) the location of such right, property or information is in India. Explanation 6.-For t....
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.... the Assessee either in the nature of interest, royalty or fees for technical services rendered or any other sum chargeable to tax in India in the hands of the non-resident. The payment by the Assessee to the non-resident is admittedly not in the nature of interest. It has therefore to be examined as to whether the said payment can be said to be "Royalty" or "Fees for technical services" or "Business Income" chargeable to tax in India. 28. The nature of services rendered by the non-residents to the Assessee for which the Assessee made payments to them has to be examined. The particulars of the non-residents, payments made to them by the Assessee and the countries in which they are "resident" is given in page 53-1 of the Assessee's paper book. The same is given below : The invoices raised by them and the nature of services rendered by them as described in the invoice, which could throw some light on the nature of services rendered by the non-residents is placed at pages 53-2 to 53-31 of the Assessee's paper book. An analysis of the same shows the following: Name of the non-resident nature of services 1. Greenfield on-line "Internet user Satisfaction" 2. ....
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....he Assessee were easily distinguishable as in the case of the Assessee the data was tailor-made data whereas in the cases cited the data in question were standard-data. Thereafter the AO has concluded that the payments by the Assessee are liable to be disallowed u/s.40(a)(i) of the Act. There is no discussion on the question whether the payments would be "Royalty" or "Fees for Technical Services" or "Income from Business". 31. In his remand report before the CIT(A), the AO has opined that the payment in question would be in the nature of "Fees for Technical Services". The CIT(A) after reproducing the contentions of the Assessee, which are on the same lines as that of the submissions made before us, given his conclusions in paras 3.7 & 3.8 of his order. The CIT(A) has concluded that the payments by the Assessee to the non-resident was in the nature of fees paid for rendering "Fees for Technical Services". He has held that the payments were not for rendering any technical or management services but were for rendering Consultancy Services and therefore would fall within the ambit of "Fees for technical Services". The CIT(A) upheld the order of the AO. 32. In our view, even if fo....
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....e not applicable? On the above point, the learned counsel for the Assessee has placed reliance on the decision of the ITAT Bangalore Bench in the case of DCIT v. Ananda Markala ITA No.l584/Bang/2012 order dated 13.9.2013 had taken the view that in case the payments are made on or before the last date of the previous year and nothing remains payable, then the provisions of Sec.40(a)(i) of the Act cannot be invoked to make disallowance of expenses. Similar view has been expressed by the ITAT Bangalore Bench in the case of Varun Transport v. CIT ITA No.277/Bang/2013 order dated 10.10.2013 and the Chennai Bench of the ITAT in the case of DCIT v. MRF Ltd. ITA No.l985/Mds/2011 order dated 4.3.2014. No contrary view was brought to our notice. 35 We have considered the submissions of the learned counsel for the Assessee. In the case of Ananda Markala (Supra), the Bangalore Bench of the Tribunal had an occasion to deal with a case where the assessee was a PWD registered contractor carrying on the business of civil construction. He was awarded Govt. contracts for construction of canals etc. For the purpose of executing the work, the assessee engaged certain contractors. In the course of a....
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....Section 40(a)(ia) of the Act are not applicable in respect of sums/amount paid during the year and which are not payable at end of the year on date of balance sheet, as it is applicable only in respect of "Payable amount" shown in balance sheet as outstanding expenses on which TDS has not been made. Similar laws were laid in various other cases. * To resolve the above issue Special Bench was constituted and the Hon'ble Visakhapatnam Special Bench of ITAT in the case of Merilyn Shipping & Transport v. Addl CIT reported in has decided the issue against the Revenue and after comparing the proposed and enacted provision which is intended from the replacement of the words in the proposed and enacted provision from the words 'amount credited or paid' to 'payable' has held that it has to be concluded that provisions of Section 40(a)(ia) are applicable only to the amounts of expenditure which are payable as on the date 31st March of every year and it cannot be invoked to disallow expenditure which has been actually paid during the previous year, without deduction of TDS. 28. In CIT v. Sikand....
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....ansports (ITA.477/Viz./2008 dated 20.3.2012) were not acceptable. 29. However, we find that the Hon'ble Allahabad High Court has however upheld the view taken by the Special Bench ITAT in the case of Merilyn Shipping (supra) in the case of M/s. Vector Shipping Services Pvt. Ltd. (supra). The relevant observations of the Hon'ble Court were as follows:- "We do not find that the revenue can take any benefit from the observations made by the Special Bench of the Tribunal in the case of Merilyn Shipping and Transport Ltd. (136 ITD 23) (SB) quoted as above to the effect Section 40(a)(ia) was introduced in the Act by the Finance Act, 2004 with effect from 1.4.2005 with a view to augment the revenue through the mechanism of tax deduction at source. This provision was brought on statute to disallow the claim of even genuine and admissible expenses of the assessee under the head 'Income from Business and Profession' in case the assessee does not deduct TDS on such expenses. The default in deduction of TDS would result in disallowance of expenditure on which such TDS was deductible. In the present case tax was deducted as....
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..... As a consequence of the action of the Revenue authorities in disallowing the fee so paid by invoking provisions of section 40(a)(i) of the Act for non-deduction of tax at source, the profits/income of the assessee stood enhanced/increased. The income of the assessee was eligible for exemption u/s. 10A of the Act. The assessee pleaded before the Assessing Officer that in the event of the Assessing Officer coming to the conclusion that the fee in question has to be disallowed as deduction while computing income by reason of invoking the provisions of section 40(a)(i) of the Act, the deduction u/s. 10A of the Act should be allowed on the income as increased by the disallowance of expenditure by invoking provisions of section 40(a)(i) of the Act. The CIT(A) agreed with the submissions of the Assessee in this regard. 38. The learned counsel for the Assessee has placed reliance on the decision of the ITAT Bangalore in the case of Bearing Point Business Consulting Private Limited v. DCIT ITA M.P.No.47/Bang/2013 in ITA No. 1124/Bang/2011 order dated 5.7.2013 wherein the Tribunal took the view that deduction u/s. 10A of the Act has to be allowed on the profits as increased by the disal....
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....A No. 70/2009 & others (2012) 247 CTR 334, which has not been accepted by the department and SLP has been filed before the Hon'ble Supreme Court against such order." 41. As we have already seen the assessee is engaged in the business of providing market research within and outside India. The Assessee was entitled to deduction u/s. 10A of the Act in respect of business of export of computer software. While computing the export turnover for the purpose of allowing deduction u/s. 10A of the Act, the AO did not exclude Leaseline charges and internet subscription charges amounting to Rs. 3,14,404/- from the total turnover but excluded the same from the Export turnover. The assessee submitted that Explanation 2 to section 10A defines 'export turnover' to mean consideration in respect of export of articles or things or computer software received in, or brought into India by the assessee in convertible foreign exchange in accordance with sub-section (3), but does not include freight, telecommunication charges or insurance attributable to the delivery of articles or things or computer software outside India or expenses, if any, incurred in foreign exchange in providing techni....
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....e date relying on the decision of the Karnataka High Court in the case of Sabari Enterprises against which an SLP has been filed and the same is pending before the Supreme Court." 46. The AO disallowed claim of the Assessee for deduction of a sum of Rs. 18,086/- which was employees contribution to Provident Fund which had been paid after the due date prescribed under the relevant Act but had been paid before the due date for filing of the return of income. The CIT(A) however allowed the claim of the Assessee for deduction by following the decision of the Hon'ble Karnataka High Court in the case of Sabari Enterprises 298 ITR 141 (Karn.) wherein the Hon'ble Court held that payment of employees contribution though belated under the relevant enactment relating to Provident fund but if the same had been paid before due date for filing return of income then the same should be allowed. The revenue aggrieved by the order of the CIT(A) has raised Gr.No.10 before the Tribunal. 47. We have heard the submissions of the learned DR who relied on the order of the AO. The decision of the CIT(A) is based on the decision of the Hon'ble Karnataka High Court rendered in the case of S....
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....pt by the assessee and allowed as a deduction u/s 36(1)(va) on making deposit with the concerned authorities. S. 43B(b) stipulates that such deduction would be permissible only on actual payment; (ii) The question as to when actual payment should be made is answered by Vinay Cements 213 CTR 268 where the deletion of the second Proviso to s. 43B w.e.f 1.4.2004 was held applicable to earlier years as well. As the deletion of the 2nd Proviso is retrospective, the case has to be governed by the first Proviso. Dharmendra Sharma 297 ITR 320 (Del) & P.M. Electronics 313 ITR 161 (Delhi) followed; (iii) If the employees' contribution is not deposited by the due date prescribed under the relevant Acts and is deposited late, the employer not only pays interest on delayed payment but can incur penalties also, for which specific provisions are made in the Provident Fund Act as well as the ESI Act. Therefore, the Act permits the employer to make the deposit with some delays, subject to the aforesaid consequences. Insofar as the Income-tax Act is concerned, the assessee can get the benefit if the actual payment is made before the return ....