TaxTMI 
TaxTMI 
TaxTMI 
2014 (9) TMI 193
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....on 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 its market research for its clients, the assess....
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....alf 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 requirements of the assessee, the online panel compan....
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.... 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 information of consumers. The non-resident payees were carrying business outside India and not in India and do not have a place of business in India. Therefore, income cannot be considered as actually accruing ....
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....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 is the case of the CIT(A)that the income in question is "Fees for Technical Services". Once an item falls within the specific category of sub-clause (vii)/(vi) of clause (1) of section 9, the applicability of the general ....
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.... 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 in a sense akin to right and property. Such information may be either statutorily protected right. There may arise a number of other situations where information may be of the nature of a right or a property but the same is....
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....on 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) states that royalty should be related to a right to property or information or services utilized. The deployment of the term "use" is in the sense of a verb and not as a noun. On payment of the subscription charges/fees to t....
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.... 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 the reports would not mean that technical services have been made available to the appellant. The fact that the analysts who help in the preparation of the reports are technically competent per-se does not mean that technical services h....
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....etrospectively 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 if advice given by non-resident is used for decision making process then the fee paid to non-resident for use of the input would be in the nature of FTS and it can be said that technology was "made available" to the resident by the nonresident. In a....
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....nbsp; 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 prescribed under sub-section (1) of Section 200: Provided that where in respect of any such sum, tax has been deducted in any subsequent year or, has been deducted in the previous year but paid in any subsequent year after the expiry of the time prescribe....
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....cheme 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 becomes chargeable to tax under this Act, whichever assessment year is later, the company exercises an option by furnishing a declaration in writing to the Assessing Officer (such option being final for that assessment year and for every subsequent assessment year) that the agreement may be regarded as a....
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....e 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 the removal of doubts, it is hereby clarified that the expression "process" includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret;]....
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....e "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. Global Market Insite Inc. "Project Management Fee"/Project complete Fee/Panel Screener Fee" 3. Survey Sampling Intl. "Survey Spot/Survey Spot UK/Records Survey Spot UK-Set up" 4. I-Think "Screener and 1101 completions/Incentive Drawing Fee/Ua/UK Message evaluation study/Online usage charges" 5. MV3 "Internet Service Brands tracking study-2004 Sept. 6....
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....siness". 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 for argument sake, we accept the plea of the learned counsel for the Assessee that the payments made by the Assessee to the nonresident is not "Fees for Technical Services", the Assessee cannot avoid its obligation to deduct tax at source u/s.195 of the Act. The learned DR has in this regard brought to our attention the decision of the Hon'ble Karnataka High Court in the case of CIT v. WIPRO Ltd. (supra). In the afor....
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....isallowance 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 assessment proceedings for the AY 2005-06, the AO noticed that the assessee had made payment of Rs. 99,95,152 to Sri Dayananda Amin and a sum of Rs. 32,38,300 to D.Y. Uppar. According to the AO, the aforesaid payments were made to the sub-contractor by the assessee for carrying out works on behalf of the assessee and therefore the assessee was under an obligation to deduct tax at source on such payments under the provisions o....
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.... 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. Sikandarkhan N.Tunvar & Others, TAX APPEAL NO. 905 of 2012 & others Dated02/05/2013, the Hon'ble Gujarat High Court held that in Merilyn Shipping 146 TTJ 1 (Viz) (SB,) the majority held that as the Finance Bill proposed the words "amount credited or paid" and as the Finance Act used the words "amounts payable", s. 40(a)(ia) could only apply to amounts that are outstanding as of 31st March and not to amounts already paid during the year.....
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.... 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 TDS from the salaries of the employees paid by M/s Mercator Lines Ltd., and the circumstances in which such salaries were paid by M/s Mercator Lines Ltd., for M/s Vector Shipping Services, the assessee were sufficiently explained. It is to be noted that for disallowing expenses from business and profession on the ground that TDS has not been deducted, the amount should be payable and not which has been paid by t....
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....stion 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 disallowance u/s.40a(ia) of the Act. The Tribunal followed the ratio laid down in the following decisions wherein it was held that where profits of an enterprise eligible for deduction u/s. 10A of the Act is increased consequent to disallowance of expenditure then the deduction u/s10A has to be allowed on the enhanced profits, (i) CIT v. Gemplus Jewellery India Ltd. 330 ITR 175 (Bom); (ii) ITO v. Shasra Electronics Pvt. Ltd. 2010 TIOL-89-ITAT-Del; (iii) Int....
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....owing 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 technical services outside India. The assessee submitted that none of the aforesaid items of expenditure set out above fell within the exclusive clause of the definition of 'export turnover'. Alternatively, it was submitted that if the aforesaid amounts are excluded from the Export Turnover, the same should also be excluded from the Total Turnover as laid down in the decision of the Hon'ble High Court of Karnataka in the case of Tata Elxsi Ltd. 349 ITR 98 (K....
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....er 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 Sabari Enterprises (supra). The revenue does not dispute the fact that the said decision is squarely applicable to the present case. The only object of the revenue is that they have preferred SLP to the Hon'ble Supreme court against the decision of the Hon'ble High court. That by itself may not be a ground not to follow the decision of the Hon'ble Karnataka High court. Apart from the above, we find that in CIT v. AIMIL Limited The Hon'ble Delhi High Court in ITA ....