2012 (12) TMI 1161

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....connection, BAH India had availed the services from various Booz Allen group entities for which payments were made as under : Name of Entity Amount paid. Booz Allen & Hamilton (India) Ltd.& Co. Kg.,Germany 11,97,950/- Booz Allen & Hamilton (India) Ltd.& Co. Kg. Indonesia. 37,23,586/- Booz Allen & Hamilton (India) Ltd.& Co. Kg. South East Asia 81,24,382/- Booz Allen & Hamilton (India) Ltd.& Co. Kg., Singapore. 4,37,589/- Booz Allen & Hamilton (India) Ltd.& Co. Kg., Hong Kong 3,91,117 Booz Allen & Hamilton (India) Ltd.& Co. Kg., U.K. 7,72,966/-   According to the AO, the above payments made by BAH India to the other group entities abroad were chargeable to tax in India in their hands as "fees for technical services" and BAH India was liable to treat as an agent of the said entities for this purpose. He, therefore, issued a notice to BAH India requiring it to show cause why it should not be treated as an agent. Although the assessee raised objection in this regard, the AO overruled the same and passed orders u/s 163 treating BAH India as an agent of the six foreign entities which were upheld by the learned CIT(Appeals). The AO, ther....

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....t of permission from RBI. In this regard, he relied on the decision of Hon'ble Supreme Court in the case of LIC of India vs. Escorts Ltd. (1986) 59 Comp.cas 548, AIR 1986 SC 1370 wherein it was held that permission obtained from Reserve Bank of India for establishing business in India should be construed as permission granted previously or obtained subsequently as long as the relevant statutory provisions did not stipulate that such permission should have been obtained previously. The learned CIT(Appeals) thus held that there was a liability arising as a result of the entries made in the books of account of BAH India and the effect of liability having been acknowledged by BAH India by claiming deduction in its profit & loss account , income had accrued during the year under consideration. 4. It was also contended on behalf of BAH India that as per the specific language used in the relevant tax treaties, "fees for technical services" could be taxed only when it was paid to the resident of the other contracting States. It was contended that since the amounts of fees for technical services had not been paid by BAH India to the six foreign entities in the year under consideration, t....

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....the same, no income could be said to have accrued to the overseas group entities in respect of the amounts in question. He contended that such income could accrue only in the year when RBI permission would be obtained for the remittance of the said amount. In support of this contention, he relied on the decision of Hon'ble Bombay High Court in the case of CIT vs. Kirloskar Tractors Ltd. (supra) wherein it was held that the liability to pay the amount pertaining to the earlier assessment years could be said to have accrued or arisen only in the years when the required approval u/s 9 of the Foreign Exchange Regulation Act, 1963 was granted by the Reserve Bank of India. He also relied on the another decision of Hon'ble Bombay High Court in the case of CIT vs. John Fowler (India) Ltd. (supra) wherein it was held that the liability to pay royalty did not accrue or arise during the previous year ending on 31st December, 1979 and the same accrued only on 30th December, 1980 when the Government of India granted its approval to the agreement. He contended that both these decisions of the Hon'ble Bombay High Court which are directly on the issue were brushed aside by the learned CIT(Appeals)....

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....id amounts did not constitute income of the year under consideration for want of the RBI approval as no income chargeable to tax in India could be said to have accrued in the absence of the required approval from RBI. In support of this contention, reliance has been placed, inter alia, on the decision of Hon'ble Bombay High Court in the case of Kirloskar Tractors Ltd. (supra) wherein it was held that the approval of RBI having been received in the subsequent years and the relevant amounts also having remitted during those years, liability could be said to accrue or arise in such subsequent years though the same pertained to the earlier years. Reliance has also been placed on another decision of Hon'ble Bombay High Court in the case of Dorr-Oliver (India) Ltd. vs. CIT 234 ITR 723 wherein it was held that collaboration agreement being subject to Government approval, deduction of sum paid as compensation and fees under collaboration agreement was allowable only upto the date till the agreement enjoyed approval by Government of India and not for any subsequent year. Following these two decisions of Hon'ble Bombay High Court, the coordinate bench of this Tribunal in the case of UBS Secu....

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....upra) stating that permission in the said cases was applied by the assessee from the RBI whereas no such permission has been sought by the assessee in the present case. However, as explained by the learned counsel for the assessee, permission has not been sought from RBI since BAH India having substantial losses is not in a position to remit the amounts in question to the overseas group entities. In any case, this aspect, in our opinion, is not relevant for deciding the issue of accrual of income which as held by the Hon'ble Bombay High Court in the case of Kirloskar Tractors Ltd. (supra) and in the case of Dorr-Oliver (India) Ltd. takes place only on the obtaining of the necessary approval required from RBI. Keeping in view the said decision of Hon'ble Bombay High Court, we accept the contention raised on behalf of the assessee that the amounts payable by BAH India to three group entities in Germany, India and Panama (SE Asia) did not constitute their income chargeable to tax in the year under consideration as there was no accrual of income in the absence of permission obtained from RBI as required by FERA. We, therefore, delete the additions made on this count by the AO and confi....

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....'s case on this issue. 18. We have considered the rival submissions and also perused the relevant material on record. It is observed that the amounts in question payable by BAH India to the three overseas group entities in Germany, Singapore and U.K. were not paid during the year under consideration and there is no dispute about the same. The said amounts payable to the concerned overseas group entities have been brought to tax in India in their hands by the Revenue authorities as fees for technical services. As per the relevant provisions of the Double Taxation Avoidance Treaty between India and the three concerned States, the term "fees for technical services" as used in the relevant treaties is defined to mean "Payments of any amount in consideration for the services of managerial, technical or consultancy nature including the provision of services of technical or other personnel." In the case of Seamens Aktiengesellschaft (supra), a similar language was employed in the relevant provisions of DTAA between India and Germany and keeping in view the language so employed, the Tribunal held that royalty and fees for technical services should be reckoned for taxation only when it i....