TaxTMI 
TaxTMI 
2018 (3) TMI 1195
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.... purchase of drawings no TDS was deductible. 2.1 Ground No. 1 of the Revenue's appeal is as under: That on the facts and in the circumstances of the case, the ld. CIT(Appeals) erred in holding that TDS was not applicable on drawing to UAE, Dubai and as such disallowance u/s 40(a)(ia) was not warranted, ignoring that payment of Rs. 63,07,123/- to UAE (Dubai) was fees for technical service in nature on which tax was required to be deducted u/s 195, but not deducted and as such, provision of disallowance u/s 40(a)(ia) was rightly invoked. 2.2 Both these grounds deal with the common issue of the assessee's liability to deduct tax u/s 195 of the Act. In Ground No. 1 of the assessee has objected to disallowance of the cost of purchase of drawings made from M/s ACTA International Pte Ltd, Singapore ('ACTA Singapore'). Ground No. 1 of the Revenue's appeal concerns the relief allowed by CIT (A) in respect of the disallowance of payment for purchase of drawings from Mr. PredagEror of Dubai ('PD, Dubai'). Briefly stated the facts are that the assessee is a joint sector company wherein the Government of West Bengal holds 26% stake. The assessee is engaged in the business of deve....
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....der none of the clauses, particularly clause (c), which ostensibly appeared to be the basis for conclusion of CIT(A), did the payment in question qualify as "fees for technical services". The assessee placed reliance on the decision of coordinate Bench of ITAT, Pune in the case of Brahma Corp Hotels & Resorts Limited (61 taxmann.com 186). 2.5 On the other hand the ld. DR appearing on behalf of the Revenue vehemently supported the order of the lower authorities and argued that the payment indeed qualified as "technical fee" within Article 12(4) of the India-Singapore DTAA. We note that the Ld. CIT(A) had held that the outright purchase of drawings from ACTA, Singapore came within the definition of "fees for technical services" set out in Explanation 2 to Section 9(1)(vii) of the I. T. Act as well as Article 12 of the DTAA between India & Singapore. The Ld. CIT(A) observed that although in the agreements with the non-resident the scope & object was described to be product procurement but from the description of the so-called "product", the Ld. CIT(A) gathered that it was not a case of purchase of readymade product. Rather the assessee had engaged an architect concern to design and....
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....) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein ; or (c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein." 2.8 From the above we note that it is the Revenue's case that the payment made by the assessee for purchase of drawings & designs from the architect firm of Singapore came within the ambit of clause (c) of Article 12(4) of the tax treaty. Careful reading of Article 12(4)(c) however shows that in order to bring a payment within its ambit, it is not sufficient that the payment should be towards development; transfer& supply of technical plan or design but additionally as a result of transfer& supply of technical plan or design, the recipient should also be able to apply the technology contained therein. Therefore under the tax treaty with Singapore, supply of drawings & designs simplicitor is not sufficient to qualify as "fees for technical services" but it should also be coupled with transfer of....
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....s of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received ; or (b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein ; or (c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. For the purposes of (b) and (c) above, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person. 5. Notwithstanding paragraph 4, "fees for technical services" does not include payments : (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in paragraph 3 (a) ; (b) for services that are a....
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....ents and drawings prepared by the overseas consultant will remain with the consultant. In the case of termination of agreement, upon payment and settlement of fees the assessee is at liberty to utilize drawings/information with respect to the project on the site. Thus, the designs and plans made by the consultant are projects specific. Therefore, in our considered view there is no transfer of any technology, technical know-how or technical designs which the assessee can utilize subsequently in other projects. The Architectural design/drawings are project specific. The assessee cannot take advantage of same in other projects. 9. The assessee has separately entered into a design agreement with M/s. FBEYE International Pte. Ltd., Singapore. The said agreement also lists the covenants with respect to scope of service and work, payment of fees, liabilities, etc. A perusal of the agreement shows that the firm shall make designs according to the assessee's requirement in respect of a particular project. There has been no transfer of any technology or technical design which would result in enduring benefit to the assessee or the payment of which would take the colour of paymen....
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....propriate steps to ensure that the construction is carried out according to the design and plan. Thus, it is unambiguously clear from the agreement that the designs and plans supplied by the oversea consultant are for the particular project, for which their services have been engaged. 11. The assessee in support of his contention placed reliance on the judgment of Hon'ble Madras High Court and various decisions of the Tribunal. The issue whether the payment made to the consultant par take the character of 'fees for technical services' depends on facts and circumstances of each case. Where in rendering of any service there is no transfer of technology, technical know-how or any technical knowledge or skill that assessee cannot apply in furtherance of his business objects, the payments for same in our opinion does not fall within the scope of 'fees for technical services'. Once, the payments are held not to be in the nature of 'fees for technical' services there is no point in travelling to the next step to ascertain whether they are exempt in view of DTAA between the two countries or not. Since, we have held that the payments made to Singapore pa....
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.... in the relevant fiscal year, in that case, only so much of the income, as is derived from his activities, performed in that other State may be taxed in that other State. 2. The term "professional services" includes independent scientific, literary, artistic, educational or teaching activities, as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants. 2.12 From plain reading of Article 14, we find that the right to tax the income from professional activities by the resident of Dubai vested with the Contracting State of the payee, i.e. UAE alone and not the Source Country i.e. India. It therefore follows that in the present case the sum of Rs. 63,07,123/- paid for procurement of drawings to PD, Dubai was taxable in UAE alone. Since the payment in question was not liable to tax in India, there is no question of making any disallowance under Section 40(a)(i) of the Act. The Ld. CIT(A)'s action of deleting the disallowance of Rs. 63,07,123/- is therefore upheld, but on modified grounds, as discussed. 3. Ground No. 2 of the assessee's appeal read as under: For that on the facts and in the circumstance....
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....6.09.2007, the MCA approved the appointment of the Managing Directorfor a period of 2 years i.e. from 01.04.2007 to 31.03.2009. The authorities below held that since the terms of appointment of the Managing Director for the relevant FY 2009-10 was not approved by the Central Government and the auditors had certified allowable remuneration only at Rs. 1,15,963/-, the excess sum of Rs. 16,72,607/- paid to Managing Director was not allowable as deduction from the profits of the business. 4.3 In the course of hearing the Ld. AR of the assessee vehemently opposed the action of the lower authorities. Referring to the communications & correspondences at Pages 75 to 100 of the paper book, the Ld. AR explained that the approval for the terms of appointment was sought from MCA as per Schedule XIV of Companies Act because the assessee did not possess sufficient profits during the project execution period. It was explained that in the letter dated 06.09.2007, the MCA had approved the appointment for a period of 2 years but that did not in any manner suggest that MCA had specifically rejected the terms of appointment of Managing Director for subsequent three years which inter alia included t....
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....e Ld. AO nor the Ld. CIT(A) disputed the fact that Mr. Todi was the Managing Director of the assessee company and rendered services in terms of his appointment & therefore the AO himself allowed deduction for remuneration of Rs. 1,15,963/-. We further find that the judgment of the Supreme Court in the case of Nosuch Tea Estate Ltd Vs CIT (supra) relied upon by the CIT(A) was distinguishable on facts. In that case, in the prior years, the assessee did not claim deduction for Managing Agent's remuneration since the terms of its appointment were not approved by Central Government. Upon receiving the approval in the relevant year which was granted with retrospective effect, the assessee claimed the deduction for the remuneration for the relevant year as well as for the prior years. The Ld. AO disallowed the remuneration pertaining to earlier years, treating it to be in the nature of prior period expenditure. On the contrary, it was the assessee's case that until the appointment was approved it could not account for the remuneration of Managing Agent. On appeal the Supreme Court allowed the assessee's case. As such, we find that the dispute between the parties before the Supreme Court p....
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....ng director was appointed by the company but he rendered services and also was paid remuneration. Subsequently, the Central Government did not approve the appointment of the managing director. In the meantime the managing director rendered services for which remuneration was paid. Accordingly, the actual salary paid for the services rendered by the managing director cannot be disallowed on the ground that the Central Government did not approve his appointment. If one has been rightly or wrongly appointed and such appointment is dependent on the Central Government, remuneration for the services rendered between the time of appointment and the date when the approval was refused cannot be denied to such employee who discharged his duties and responsibilities as the managing director of the company. We are of the view that the Tribunal was justified in allowing the actual salary paid to the managing director. For the reasons aforesaid, we answer the second question in this reference in the affirmative and in favour of the assessee." 4.6 We note that in the present case the appellant company has made all endeavors for approval from the Ministry of Corporate Affairs ....
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....this issue and submitted that the observations recorded by the Ld. CIT(A) in this context at Para 6.2 & 6.3 of his impugned order may be taken into consideration. 5.3 We have considered the rival submissions and also perused the relevant material available on record. As noted by us, the assessee company was developing a residential township project in East Kolkata. The flats and bungalows being developed were marketed primarily to non-resident Indians. The 1stBilat Bangla Utsav organized in London, was meant to cater to the non-resident Bengali diaspora residing there. The assessee had therefore sponsored the aforesaid programme with a view to advertise and obtain publicity for its residential project in United Kingdom. Having regard to these facts, we find that the assessee had sufficiently discharged its onus to prove that the sponsorship expenses of Rs. 2,00,000/- paid to Bilat Bangla Utsav was incurred in the course of and for the purposes of its business. The order of the Ld. CIT(A) deleting the disallowance of advertisement expenses to the extent of Rs. 2,00,000/- is therefore upheld. Ground No. 2 of the Revenue's appeal is therefore dismissed. 6. Ground No.3 of the Rev....
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....o longer recoverable. In that sense it was an expendable item. The Ld. AR of the assessee also referred to detailed literature obtained from the manufacturer on this particular type of machine along with a certificate from a Chartered Engineer confirming that it was a 'one time' use equipment. Having taken note of these facts and material on record, Ld. CIT(A) deleted the addition made by the Ld. AO by observing as under: "10.5 I have considered the facts of the case. The assessing officer had, in the assessment, treated the expenditure in respect of load testing equipment to be capital in nature. It is true that the expenditure was incurred for purchase of load testing machine. However, as explained by the appellant, it is not the machinery which is used as a fixed asset. Rather it is for one time use, because at the time of testing the machinery gets imbedded in the pile to be tested. In the certificate dated 05.03.2013, Shri S.N.Sil, Chartered Engineer has certified that it was 'one time use machinery', which is imbedded in the pile to be tested at the time of casting. Therefore, he has explained the mode of operation and concluded by observing that such machineries are....
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....struction of tall building towers. For carrying out the load bearing capacity tests the equipment was embedded in the pile shaft and concrete poured in the test pile was allowed to be cured for 14 days. Once equipment was ready for testing, the machine was internally pressurized through instrumentation cables for conducting the load test. The machine in question was sacrificial in nature because once equipment was submerged in the concrete pile; it could not be retrieved. Having regard to these peculiar facts, we are of the considered view that the payment made by the assessee for purchasing load bearing equipment for conducting test regarding load bearing capacity of the piles was constructing was in the nature of revenue expenditure and therefore formed part of the land development cost. The Ld. CIT(A)'s action of deleting the disallowance of Rs. 61,46,712/- is therefore justified & accordingly upheld. Ground No. 3 of the Revenue's appeal is therefore dismissed. 7. Ground No.4 of the Revenue's appeal is as under: That on the facts and in the circumstances of the case, the ld. CIT(Appeals) erred in deleting the disallowance of Rs. 8,15,20,814/- relying on the submissio....
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....ained that in the Form 16As generated from the NSDL system for the Income-tax Department as well as the Form 26AS of the payees reflected the credit of such taxes paid for the AY 2010-11. In this regard the Ld. AR referred to the email communication from Assistant Director Systems TDS CPC wherein it was confirmed that the credit for the challans deposited on 29.05.2010 was granted for AY 2010-11 and not AY 2011-12. Referring to provisions of Section 40(a)(ia), the Ld. AR of the assessee therefore submitted that this Section could be invoked only where taxes were not deducted or after having been deducted were not paid. In the facts of present case, the taxes were deducted from the expenditure of Rs. 8,15,20,814/- and also paid to the credit of Government within the time permitted in Rule 30. Even the payees got the credit of the taxes deducted at source in the relevant AY 2010-11. In the circumstances a mere mistake of mentioning wrong assessment year i.e. AY 2011-12 in place of AY 2010-11, was of no relevance to justify disallowance under Section 40(a)(ia) of the Act. The Ld. AR further submitted that the observations recorded by the Ld. CIT(A) in this context at Para 14.4 of his ....
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....4/- and also paid it to the Government. The assessee had only committed a mistake while filling the challans dated 29.05.2010 for payment of taxes deducted at source on the expenses pertaining to Financial Year 2009-10 relevant to Assessment Year 2010-11 while filing the challan instead of AY 2010-11 it was wrongly mentioned to be AY 2011-12. The facts on record however show that the payees were given the credit for the taxes paid in AY 2010-11 and in the TDS certificates generated by the system of the I. T. Dept. the credit for taxes was reflected in AY 2010-11. Even the Assistant Director (Systems), CPC confirmed that the challans were given credit for the AY 2010-11. Having regard to these facts, we are of the considered view that the assessee had duly deducted and paid the taxes on expenses of Rs. 8,15,20,814/- and therefore no disallowance was warranted under Section 40(a)(ia) of the Act as there was no violation as contemplated in the said provision. The action of the Ld. CIT(A) deleting the disallowance of Rs. 8,15,20,814/- is therefore upheld. Ground No. 4 of the Revenue's appeal is therefore dismissed. 8. Ground No. 5 of the Revenue's appeal is as under: That o....
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.... about the denial, the appellant has produced documentary evidences, such as the invoice issued by the party and cheque etc. The payment was through account payee cheque, which is duly appearing in bank statement. The assessing officer has not conducted any further enquiry in the matter. Under the circumstances mentioned above, I am of the view that the onus to prove the genuineness of the claim has been discharged by the appellant. The disallowance of Rs. 3,00,000/- is therefore deleted. The assessing officer, however, if deemed fit, inform the assessing officer of the payee regarding the above payment." Aggrieved, the Revenue is in further appeal before us. 8.2 The Ld. DR appearing on behalf of the Revenue strongly relied on the Ld. AO's order in support of the revenue's case on this issue.The Ld. DR submitted that the fact that the payee had denied of having any transaction with the assessee substantiated the fact that the advertisement expenditure claimed by the assessee was bogus. On the other hand the Ld. AR for the assessee strongly supported the impugned order of the Ld. CIT(A) giving relief to the assessee on this issue and submitted that the observations recorded by....