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2020 (9) TMI 31
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....aid to Syndicate Bank as capital nature as against revenue in nature claimed by the appellant company. 2 (i) That on the facts and in the circumstances of the case and the legal position, the learned CIT (Appeals) has erred; - in confirming the amount of Rs. 5 lacs paid to G.S Lighting Pvt. Ltd towards non-compete fee as capital expenditure as against revenue expenditure claimed by the appellant company. ' - in holding that the payment of non-compete fee has been made to prevent/eliminate competition whereas the same has been paid where the manufacturing facility were reserved for the appellant company and the same benefitted both the parties in view of the increase in the turnover in this line of business. (ii) Without prejudice to the ground no.2(i) above, the CIT (Appeals) has erred in not amortizing the non-compete fee over a period of agreement. 3 That on the facts and in the circumstances of the case and the legal position, the learned CIT (Appeals) has erred; - in not allowing the interest income earned at Rs . 4441951/- as part of business income as claimed by the appellant company. in not netting out the in....
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.... iii. The deduction under section 80HHC was also decided by him with income from FDR and NSC amounting to Rs. 444195/- as income from other sources. Even netting of the interest was not allowed relying on the decision of the Hon'ble Delhi High Court in 16 DTR 339 and Hon'ble Madras High Court 221 CTR 196. iv. He further held that Rs. 3438525/- received from Crabtree India Ltd, sister concern of the assessee is pertaining to leasing out of premises and therefore he upheld the action of the ld AO adjusting 90% of the same while working out deduction u/s 80HHC. Thus, appeal of the assessee was partly allowed. Therefore, the assessee is aggrieved with the order of the ld CIT(A) and is in appeal before us. 06. Ground No. 1 of the appeal is with respect to additions of Rs. 2,80,276/- being interest paid by the assessee to Syndicate Bank held to be capital expenditure. Facts shows that the Assessee has taken term loan from Syndicate Bank and out of total interest paid of Rs. 4,69,918/- on that loan , Assessee capitalized interest payment of Rs. 1,89,342/- and claimed the balance expenditure of Rs. 2,80,276/- as revenue expenditure. The ld AO was of the view that as the ....
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....ave carefully considered the rival contentions and perused the orders of the lower authorities. The facts placed before us shows that loan from Syndicate Bank was for Rs. 13.40 crores as per sanction letter dated 26.02.2004. The above loan was partly utilized for capital expenditure i.e. purchase of plant and machinery, which have not been put to use till date and partly for assets already capitalized. Assessee stated that sum of Rs. 5.4 crores is the amount of loan utilized for which the asset are not put to use and therefore, interest relevant to that for 16 days was computed @8% amounting to Rs. 1,89,342/- was capitalized. This is in accordance with the proviso to section 36(1)(iii) of the Act. The assessee has claimed that Rs. 8 crores is already utilized by the assessee for purchase of plant and machinery and said capital asset were financed by the above loan of Syndicate Bank. Such amount of investment in plant and machinery was related to three different units of the assessee located at Faridabad, Noida and Alwar. According to that, the assessee has already invested a sum of Rs. 8,00,00,210/- in the plant and machinery ,which has already been 'put to use' prior to disburseme....
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....ing of the above product. The agreement also says that GSL do not have any right in the intellectual property right pertaining to that product after this agreement. In this manufacturing agreement, the assessee guaranteed minimum turnover of the above product and remuneration to the GSL. As per this agreement, all the employees and the technical representative of GSL factory would also remain as employee of the assessee. Along with this manufacturing agreement, the assessee also entered on the same date an assignment deed in favour of the one QRG Enterprise Ltd, which is also the group company [subsidiary] of the assessee. In this assignment deed along with GSL Lighting Ltd, partners of another partnership firm M/s. GS Electricals also joined. This agreement was entered in terms of memorandum of understanding entered into by the assessee on 01.08.2003 wherein, GSL Lighting and partnership firm agreed to assign all proprietary and ownership rights in the registered trade mark and design registration along with all common law rights including the goodwill to the QRG Enterprises. The assessee also entered on the same date i.e. 11.09.2003, a non competition agreement with GS Lightin....
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....recedents to submit that non compete fees is a revenue expenditure. His submission is that the assessing officer and CIT(A) have failed to appreciate the facts of the case and have erroneously treated the expenditure as being 'capital in nature' for the reasons that i. In the relevant assessment year, the appellant made payment of Rs. 5 lacs on account of business necessity and commercial expediency in order to promote its existing business in the line of manufacturing and trading in lighting fixtures and fittings, by utilizing the manufacturing facility of GSL. ii. It is pertinent to mention here that on 11th August, 2003, three separate agreements were entered into with GSL: a) Assignment Deed between GSL and M/s. QRG Enterprises Limited, subsidiary of the appellant, for assigning of trademark/ brand "Pole Star" owned by GSL; b) Exclusive Manufacturing Agreement between appellant and GSL where under GSL agreed to exclusively manufacture products of the appellant at its factory at Gurgaon; c) Non-competition Agreement between appellant and GSL where under the appellant paid Rs. 5 lacs for GSL agreeing not to manufacture and market produ....
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....terminated. Thus, life/tenure of the non-competition agreement was dependent upon the life/ tenure of the exclusive manufacturing agreement. In view of the aforesaid, it is submitted that payment under the non-competition agreement was in essence payment made for obtaining commercial advantage in the form of continued manufacturing and supply by GSL, thereby ensuring smooth operations of the appellant. As a result of such payment, no enduring benefit in capital field and/ or no capital asset was brought into existence; on the contrary payment was for a bulk deal of GSL agreeing to enter into exclusive manufacturing agreement with the appellant. It is, thus, submitted that the amount paid to GSL was in the ordinary course of business and for carrying on the business more profitably and not for acquisition of any asset or any right of a permanent nature. In pursuance of the aforesaid agreements, the manufacturing facilities of GSL were exclusively reserved for manufacturing the appellant's products/orders. iv. Referring to manufacturing agreement, he submitted that Agreement was terminable by either of the parties after first 3 years of operation, after giving 12 months adva....
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.... [172 ITR 257], and again in the case of Alembic Chemical Works Co. Ltd. v. CIT: [177 ITR 377]. He also referred to several decisions to the same effect as i. CIT vs. Madras Auto Service (P) Ltd.: 233 ITR 468 (SC) ii. CIT vs. Associated Cement Companies Ltd: 172 ITR 257(SC) iii. Commissioner of Income Tax v. Hindustan Zinc Ltd. : 322 ITR 478 (Raj) iv. CIT v. Jai Parabolic Springs Ltd.: 306 ITR 42 (Delhi HC), v. CIT v. Salora International: 308 ITR 199/ 177 Taxman 456 (Del. HC) vi. CIT v. Pepsico India Holdings (P) Ltd.: ITA No.319,1185,1448,1822 & 2091 of 2010 vii. CIT v. Citi Financial Consumer Fin. Ltd: 335 ITR 29 (Delhi) viii. CIT v. Casio India Ltd.: 335 ITR 196 (Del.) ix. CIT v. Geoffrey Manners and Co. Ltd.: 315 ITR 134(Bom) x. CIT v. Liberty Group Marketing Division: 315 ITR 125 (P&H) xi. CIT v. Rakhra Technologies (P)Ltd.: 243 CTR 505(P&H) xii. DCIT v. Core Healthcare Limited: 308 ITR 263 (Gujarat HC) xiii. CIT v. Brilliant Tutorials (P) Limited: 292 ITR 399 (Mad.) v. In that view of the matter, payment of Rs. 5,00,000 described as non-compete fees i....
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....he advantage and the same can be put to an end at any time. How long the period of contemplated advantage should be in order to constitute enduring benefit would depend upon the circumstances and the facts of each individual case." vi. It would, therefore, be seen that the Supreme Court in Coal Shipment's case (supra) did not lay down any rigid rule that all expenditure related to warding off competition would constitute capital expenditure. It is only when the expenditure brings into existence a benefit of enduring nature would such a payment of non-compete fees be treated as capital expenditure and not otherwise It is further submitted that on reading the aforesaid decision of the apex Court in Coal Shipment (supra) in juxtaposition with the later decision of the Supreme Court in Empire Jute Mills (supra), it could be inferred that only when the expenditure incurred by the assessee brings into existence benefit of enduring nature in the capital field, would such payment of non-compete fees be treated as capital expenditure and not otherwise. If the expenditure so incurred is for carrying on business more efficiently and profitably, without addition to the profit earning ....
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....or. The High Court, while concurring with the view expressed by the Supreme Court in Coal Shipment (supra) held that the purpose and the intended object of the payment was the most important test for determining whether expenditure was capital or revenue in nature. The relevant observations of the Court, while upholding the order of the Tribunal and dismissing the appeal of the Revenue are as under: "Learned counsel for the assessee pointed out, and we think rightly, that the length of time for which the competition was eliminated was important in the facts of that case, but that is not always so. What is more necessary to appreciate is the purpose of the payment and its intended object and effect. In CIT v. Coal Shipments P. Ltd. [1971] 82 ITR 902, the Supreme Court noted the contention of the Revenue to the effect that payments made to eliminate competition were capital expenditure. Rejecting this contention, it was held on page 909 of the Report as follows: "The case which has been set up on behalf of the Revenue is that, as the object of making the payments in question was to eliminate competition of a rival exporter, the benefit which enured to the respondent....
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.... acquire any capital asset by making the payment of non-compete fee. It merely eliminated competition in the two-wheeler business, for a while. From the record, it is not clear how long the restrictive covenant was to last, but it was neither permanent nor ephemeral. In that sense, the advantage was not of an enduring nature. There is also nothing to show that the amount of Rs. 4 crores was drawn out of the capital of the Assessee. On a cumulative appreciation of these facts, it must be held that the CIT (A) and the Tribunal did not err in concluding that the payment of non-compete fee by the Assessee was a business expenditure and not a capital expenditure."(emphasis supplied) In conclusion, the Hon'ble Delhi Court held that by making payment of non-compete fee the assessee did not acquire any capital asset and, therefore, such expenditure could not be treated as capital expenditure. The SLP filed by the Revenue against the aforesaid decision of the Hon'ble Delhi Court in CIT vs Eicher Ltd: SLP(Civil) 7005 of 2009 was dismissed by the Supreme Court vide order dated 20.03.2009 . he also submitted that to the same effect are the following decisions: - i. CIT vs. Lahoty Bros....
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....ist any third party, or sell or render advise or act as a Consultant in respect of the specified products. This agreement was also effective for a period of five years. The amount of non-compete fees paid by assessee to such employee of amalgamating companies was claimed as deduction in the year of payment. However, the assessing officer rejected the claim of the assessee on the ground that the said employee was the erstwhile Chairman and Managing Director of the amalgamating company and such non-compete agreement had increased the assessee's market presence and improved its potential to have better results in the market. The assessing officer further held that the non-compete payment made for a period of five years was for procuring an enduring benefit to the business and accordingly, disallowed the claim of the assessee. On appeal, the CIT (A) and Tribunal affirmed the order of the assessing officer. On further appeal, the High Court holding in favour of the assessee observed, as under: "19. It is not denied by the Revenue that U.Mohanrao was the Chairman and Managing Director of some of the companies which got merged with the assessee company. The said U.Mo....
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...."Havells Polstar' in specified number of years and also paid a sum of Rs. 5 lakhs which is not only to GSL but to the partner of GS Electricals and shareholders of GSL Electrical as per non compete fee agreement coupled with the fact that the assessee has also invested 24% in the capital of the above company. These facts cannot be looked into isolation but clearly shows that it is a purchase of 'Polstar' business of GSL group, the IPR of which is also transferred to Group Company of the assessee, which clearly shows that the non compete fee paid is capital expenditure. 15. He further stated that the judicial precedent cited by the ld Addll. CIT in his 144A direction and the ld CIT (A) in his order are neither distinguished nor challenged by the ld AR and therefore, same are accepted and therefore claim of the assessee that it is revenue expenditure cannot be allowed. 16. He further stated that the alternative submission of the assessee that depreciation on it should be allowed clearly shows that non compete fee paid is capital expenditure. He further submitted that the ld AR has cited the decision, however, none of them applies to the facts of the case. 17. With respect to....
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....of the agreement, the GSL and its shareholders undertook not to use the above trademark during the continuation of this agreement and even after the termination thereof. The action was also taken by GSL to withdraw approval granted to it even on the expiry of the termination of the agreement for manufacturing of the above products. The manufacturing agreement further divested GSL with any right in the above 'Polstar' products in consideration of this appellant agreed to remunerate the GSL on cost plus basis. The tenure of the agreement started from the effective date and shall remain in force until 12 months advance notice of termination by either party. There is also a lock in period for three years for issue of such notice. Thus only after three years period, 12 months notice is required by either party to terminate it. iii. Third agreement, Simultaneously a non-compete agreement was also entered on the same date between the appellant on one part and GS Lightings Pvt. Ltd, Mr. Krishan Mehta himself and other shareholders of GSL Lightings Pvt. Ltd on the other part. According to that all the other parties representing GSL Lightings Pvt. Ltd , G S Electricals, Shareholders....
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....ay specified amount per ton of coal shipped to Burma. Incidentally, the last coal shipment was made in June 1954 and the arrangement ended. The non compete fee paid was hooked to the volume of the coal shipped to Burma. The Hon'ble Supreme Court has categorically held that the payment made to ward off competition in business to a rival dealer would constitute capital expenditure, if the object of making that payment is to derive an advantage eliminating the competition over some length of time, the same result would not follow if there is no certainty of the duration of the advantage and the same can be put to an end at any time. It is further held that how long the period of contemplated advantage should be in order to constitute an enduring benefit would depend upon the circumstances and facts of each individual case. Comparing the facts of that case with the case before us, it is apparent that payment of non compete fees was connected to acquisition of 'Polestar' brand and favour of QRG Enterprises. Therefore, it was a sale of the brand. The tenure of the manufacturing agreement was also till it gets cancelled i.e. Minimum 4 years. Even the notice period could not be given befor....
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....CIT Vs. Max India Ltd. In ITA No. 193/ 2013 dated 06.08.2018 of Hon'ble Punjab and Haryana High Court, in that particular case the non compete expenses paid to an ex-employee restraining him in doing particular business for a particular time. The Hon'ble Court held that since on the issue whether the expenditure was revenue or capital in nature, two opinions were possible and therefore, the view taken by the ld CIT (A) was upheld. The court also noted that the non compete fee was paid to safeguard the business interest as strategic investor in the joint venture agreement, assessee has obligation to them [JV Partners] that neither the assessee nor any of its employees get into competing business. In those circumstances, it was held to be expenses out of "commercial expediency". In the present case manner of acquisition of business of 3rd parties with its manufacturing facilities and warding off the competition of all the concerned persons including the family members of the stake holders clearly shows that expense of the Non compete fees is capital in nature. Therefore, the facts are distinguishable. More so, in the present case the assessee has acquired an enduring benefit of a bus....
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....enefit accruing to the assessee may at times be irrelevant. In that case, the Court was concerned with the duration of the lease. At the same time, even while accepting the contentions of the assessee, the Supreme Court had cautioned that if an advantage accrues in a short span of time or is "epheramal", it cannot be considered a capital benefit qualifying as a capital expenditure. Necessarily, therefore, the Court has to adopt a fact-based approach and apply settled proposition. In the present case, the advantage which the assessee/appellant derived on account of its agreement with L&T was that the latter, a previous joint-venture partner to the extent of 26% was kept put out of the market for a period of 7 years. In this context, the decision in Blaze & Central (P) Ltd. v. CIT [1979] 120 ITR 33/1 Taxman 546 (Mad.), the decision of the Madras High Court is instructive. The assessee had entered into an agreement with one Saraswati Publicities by which the latter agreed to part with its business of film exhibition shots and not to compete with the assessee in business within a specified territory for nine years. The Supreme Court's decision in Coal Shipments (P.) Ltd. (supra) wa....
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.... of the honourable jurisdictional High Court that non compete fees paid by the assessee is a capital expenditure, respectfully following the same, we also hold that the non compete fee paid by the assessee of Rs. 5 lakhs has correctly been held to be capital expenditure by the lower authorities. Accordingly, this ground of appeal is dismissed holding that, in the facts and circumstances of this case, non compete fee is capital expenditure. 26. In the end, without prejudice he stated that if in the instance non compete fee is held to be capital in nature then the ld AO may be directed to allow depreciation thereon. For this proposition, also he referred to the decision of the Hon'ble Supreme Court in 225 ITR 802 and also on following decision stating that depreciation is an admissible allowance on non compete fees. He submitted Without prejudice to the aforesaid, that in the instance the aforesaid payment of non-compete fee is held to be capital in nature, then in alternate, the assessing officer may be directed to either allow depreciation or amortization on/ of the said amount in terms of the provision of the Act [Refer Madras Industrial Investment Corp 225 ITR 802 (SC)]. Re....
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.... necessarily they are depreciable. The appellant claims for depreciation of "know-how", "patents", "copyrights", "trademarks", "licenses", "franchises" or other business or commercial rights of similar nature being intangible assets acquired on or after 1st day of April 1998. Arguing by analogy, learned counsel for the appellant relied upon the judgment of the Supreme Court in Techno Shares & Stocks Ltd. (supra) where the issue was whether the contention of the assessee that it could claim depreciation on the Bombay Stock Exchange Membership Card held by it on the plea that it was a license or "business or commercial right of similar nature" was upheld. The appellant also relied upon the decision of this Court in Hindustan Coca Cola Beverages (P.) Ltd. (supra) and the judgement of the Kerala High Court in B. Raveendran Pillai v. CIT [2011] 332 ITR 531 /[2010] 194 Taxman 477 . As would be evident from Section 32(1)(ii), depreciation can be allowed in respect of intangible assets. Parliament has spelt-out the nature of such assets by express reference to 'know-how', 'patents', 'copyrights', 'trademarks', 'licenses' and 'franchises'. So ....
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....serves that such nature was held to be akin to a license because it enable the member, for the duration of the membership, to access the Stock Exchange. Undoubtedly, it conferred a business advantage and was an asset which and was clearly an intangible asset. The question here, however, is whether a non-compete right of the kind acquired by the assessee against L&T for seven years amounts to a depreciable intangible asset. As discussed earlier, each of the species of rights spelt-out in Section 32(1)(ii), i.e. know-how, patent, copyright, trademark, license or franchise as or any other right of a similar kind which confers a business or commercial or any other business or commercial right of similar nature has to be "intangible asset". The nature of these rights mentioned clearly spell-out an element of exclusivity which enures to the assessee as a sequel to the ownership. In other words, but for the ownership of the intellectual property or know-how or license or franchise, it would be unable to either access the advantage or assert the right and the nature of the right mentioned or spelt-out in the provision as against the world at large or in legal parlance "in rem". However, in....
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....learned assessing officer found that assessee has claimed that interest income of Rs. 4,441,951 which represented interest received on margin money deposited with the banks as 'business income' of the assessee. The learned assessing officer held that interest income received from the bank FDRs and National savings certificates is chargeable under the head 'income from other sources' and cannot be held to be 'business income'. Furthermore, the learned assessing officer also reduced 90% of the amount of the above interest from deduction claimed u/s 80 HHC of the act applying explanation (baa) of that section. 31. The ld AR vehemently assailed the orders of the lower authorities. He submitted that appellant is engaged in the business of manufacture of energy meters and other electrical items. The energy meters are supplied to various electricity boards throughout the country, the supplies are made against open tenders, and bank guarantees furnished to buyers against earnest money / performance guarantees. The letter of credits is opened to import the materials required for manufacturing. During the relevant assessment year, the appellant received an amount of Rs. 46,78,544, out of ....
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.... vi. CIT v. Indo Matsushita Carbon Co. Ltd.: 286 ITR 201 (Mad): 80HH vii. Tata Sponge Iron Ltd. v. CIT: 292 ITR 175 (Orissa): 80HH viii. JCIT v. Sidheshwari Paper Udyog Ltd.: 94 ITD 187 (Del. Trib.) (TM): 80IA 145 taxman 22 ix. Joyco India P. Ltd. v. ITO: [2009] 122 TTJ 940 (Del. Trib.): 80IA x. G. S. C. Toughened Glass P. Ltd.: 13 SOT 668 (Del. Trib.) xi. Kirloskar Electrodyne Ltd. v. DCIT: 87 ITD 264 (Pune Trib.) xii. Asst. CIT v. Biotech Medicals P. Ltd.: 119 ITD 143 (Hyd Trib.) 17 xiii. CIT vs Universal Pipes (P) Ltd.: 211 Taxman 420 (Gauhati) 33. The learned departmental representative vehemently supported the order of the learned CIT - A stating that fixed deposit receipt and National savings certificate interest cannot be regarded as business income and has to be treated as income from other sources. He further submitted that they cannot also be considered as income derived from export of goods for the purpose of Section 80 HHC of the income tax act. He further stated that the various decisions relied upon by the learned authorised representative are related to the income derived from the industrial under....
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....red interest expenditure of Rs. 14.07 cr [refer pg. 76 of PB]. For the purpose of computing `profits of the business' under Explanation (baa) to section 80HHC of the Act, the concept of netting of interest income with interest expenditure has been upheld in the case of ACG Associated Capsules (P.) Ltd. v. CIT: 343 ITR 89 (SC), it has been held that 90% of only net interest or net rent, which has been included in the profits of business of assessee as computed under the head 'Profits and Gains of Business or Profession', is to be deducted under clause (1) of Explanation (baa) to section 80HHC for determining profits of business. 36. For this proposition , he further multiplied reliance on following decisions i. CIT vs. Paliwal Industries : 42 Taxmann.com 412 (P&H) ii. Shri Ram Honda Power Equipments: 289 ITR 475 (Del.) iii. CIT vs Nectar Life Science Ltd.: 203 Taxman 318 (Del.) iv. CIT v. Taj International Jewellers: 335 ITR 144 (Del.) v. CIT v UK Bose: 212 Taxman 399 (Del.) vi. CIT v. Infosys Technologies Ltd: 352 ITR 74 (Karn) vii. CIT v. Gokkuldas Exports: 333 ITR 214 (Kar.) viii. Paramount....
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....e same cannot be reduced while working out deduction u/s 80HHC of the Act. During the course of assessment proceedings in Schedule 11 AO noted that assessee has received Rs. 6438525/- from M/s. Crabtree India Ltd on account of reimbursement of common office and infrastructure facilities availed by the such company from the assessee company. The ld AO asked the assessee to show that how the above sum can be 'profits of the business'. The assessee submitted that miscellaneous receipt shown under the head "other income" are connected with the business of the assessee company and therefore, they have taken as a profit of the business for calculation of deduction u/s 80HHC of the Act. The ld AO noted that reimbursement of expenses from the above company cannot be considered to be receipt derived from export undertaken by the assessee and therefore, same is hit by provision of explanation (baa) of section 80HHC and therefore, for the working of eligible deduction the same is required to be reduced to the extent of 90% from profits of the business. 40. The assessee carried the above issue before the ld CIT(A) who held that the appellant had received this amount as a reimbursement of ce....
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....penditures were reimbursed. The copy of the agreement is also entered into at the fag end of the accounting year. In absence of any detail of expenditure incurred, which was reimbursed by Crabtree to the assessee, the argument of reimbursement of expenses is also not tenable. Thus, we do not find any infirmity in the order of the lower authorities. Accordingly, ground No. 3 of the appeal is partly allowed. 44. In the result the appeal of the assessee in ITA no 6072/Del/2010 for A Y 2004-05 is partly allowed. ITA no 466/Del/2011 [ By AO] & ITA No 6073/Del/2011 [By Assessee] AY 2007-08 45. For assessment year 2007 - 08, assessee filed its return of income declaring an income of Rs. 427,259,528 and 27/9/2007. The assessment u/s 143 (3) of the income tax act, 1961 was passed by the learned Deputy Commissioner of income tax, large taxpayers unit, Delhi (the learned AO) on 30 December 2009 determining the total taxable income of Rs. 444966560/-. The learned assessing officer made following disallowances:- i. disallowance u/s 40 (a) (i) of Rs. 26,02,844/- of payment made to foreign parties without deducting tax u/s 195 of the income tax act ii. disallowanc....
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....der:- "30. Second ground of the appeal of the Revenue relates to the deletion of the addition made on account of the provision for sale incentive 'Sahenshah Scheme". Brief facts of this aspect are that the assessee had launched a sales incentive scheme for the authorized dealer under the name Shahen shah Scheme. As per the scheme on every payment of Rs. 300/- made by the customers within 90 days the customers would earn one point and one point was equal to Rs. 1/-. The customers could request for redemption of these point for their holiday package in India and abroad. The points accumulated are communicated to the customers from time to time. The same has also been posted on the web portal. The purpose of the scheme was to promote the sales for the company and therefore, to increase the profit. The scheme was effective from one month, 2001 and is continuing during the year under consideration. As per the offer document it could also be seen that unutilized points can be null and void only six months after the closer of the scheme. It could further be seen that all authorized dealers of the assessee are automatically enrolled at member of the scheme. 31. Ld. AO....
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....fter the closer of the scheme and till such time there is no question of lapse of points. Till the scheme wound up, the liability of the assessee exists and the assessee shall discharge their liability as and when the performance was demanded by the customers. The ratio of outflow of funds with the quantum of provision is an irrelevant consideration so long as the expected or anticipated liability of the assessee is made on scientific basis. 36. On perusing the details of the sales and the points earned by the customers, we are satisfied that the provision is created on scientific basis. We, therefore, do not find anything illegal or irregular in the findings of the id. CIT(A) and no interference is warranted. We, therefore, dismiss the second ground of appeal of the Revenue." 51. The learned departmental representative did not point out any distinguishing feature during the current year with respect to the facts prevalent in assessment year 2006 - 07. Therefore, respectfully following the decision of the coordinate bench in assessee's own case in earlier year, we dismiss solitary ground of appeal in the appeal of the assessing officer. 52. In the result ITA number 4....
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....for services rendered outside India and has been utilized for the export business outside India. Same are outside the purviews of section 9(1)(vii) and shall not be chargeable to tax in India. 56. The ld AO rejected the contention of the assessee and held that the above payment are chargeable to tax in India in terms of provision of section 9(1)(vii) of the Act as they fall into the definition of 'fees for technical services'. With respect to the applicability of Double Taxation Avoidance Agreement, also he held that it also satisfied the 'make available' criteria of technical services. Therefore, the sum was disallowed. 57. On appeal before the ld CIT(A) he confirmed the above disallowance held as under:- "Ground no. 2 is regarding the disallowance made by the assessing officer u/s 40(a)(i) of Rs. 2602844/-. While making the above disallowance the has made the following observation "In the present case, it is undisputed fact that testing report, certification etc. was obtained in respect of product to be utilized the purpose of business of assessee, (a resident) in India. That testing is highly specialized job of technical nature and therefore is covered in....
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....ity, China 46956/- M/s Hongkong Sensing Trade Co. Ltd., China 95981/- M/s VDE Prufund Zertifizierungs Institute, Germany 611490/- M/s Zhejiang Dongshun Electronic app. Group .China 30987/- Total 2602844/- The aforesaid entities are authorized for certification of products for export which are mandatory for selling of the products in USA, Europe, Middle East Countries, China, South African Countries, Singapore , Spain and U.K. No TDS have been deducted on aforesaid payments since the testing was done by foreign entities outside India for the purpose of exports outside India. That no income has accrued or arisen in India. The payment to foreign entities for the purpose of certification is not required to be utilized in manufacturing activities of the assessee company. The products are being tested and certified by the various agencies outside India to enable the assessee company to export its products, as it is the requirements of the importing countries to get the products tested from the agencies designated by them in their own country. The assessee vide letter dated 27/11/2009 has explained that the purpose of certification from outside agencies....
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....ase of Ishikawajima-Harima Heavy Industries Ltd. vs. Director of Income Tax [2007] 158 Taxman 259 (SC), wherein it was held that "For section 9(1 )(vii) to be applicable, it is necessary that services provided by a non - resident assessee under a contract should not only be utilized within India, but should also be rendered in India or should have such a live link with India that entire income from fees, etc., becomes taxable in India; thus, for a non - resident to be taxed on income for services, such a service needs to be rendered within India, and has to be a part of a business or profession carried on by person in India. Whatever is payable by a resident to a non - resident by way of fees for technical services would not always come within purview of section 9(1 )(vii) but it must have sufficient territorial nexus with India so as to furnish a basis for imposition of tax." In view of the above it has been stated that Hon'ble Supreme Court has held that income can be deemed to accrue or arise in India only if the said services are utilized in India as well as rendered in India. In the case of the assessee, which goes a step ahead, neither the services have rend....
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.... making available technical knowledge and experience and the same is used in manufacturing and sale of product in the business of the appellant. In view of the above the AO was of the opinion that section 195 was applicable on the payment made by the appellant to the foreign company and since no deduction was made, therefore, under provisions of section 40(a)(i) , ;an amount of Rs. 3199076/- was liable to be added to the income of the appellant. Explanation 2 to sub section (b) of section 9(i)(viii) is as under: For the purpose 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 provisions of services or 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 salaries. The Hon'ble Kerala High Court in the case of Cochin Refineries Ltd. vs CIT 222 ITR 354 has held that "Fees paid by Indian Company to foreign company to evaluate quality of certain products and ....
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....rising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other Contracting State. 2. However, such royalties or fees for technical services may also be taxed in the Contracting State in which they arise, and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties or fees for technical services. 3........................... 4. The term "fees for technical services" as used in this Article means any payment for the provision of services of managerial, technical or consultancy nature by a resident of a Contracting State in the other Contracting State, but does not include payment for activities mentioned in paragraph 2(k ) of Article 5 and Article 15 of the Agreement." (emphasis supplied). Article 12(4) of the India-China DTAA defines 'fees for technical services' to mean payment for provision of services of managerial, technical or consultancy nature by a resident of a Contracting State "in the other Contracting State". Presence of ....
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.... 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 head "Salaries"." For any payment to fall within the garb of the expression FTS under section 9(1)(vii) of the Act, the following conditions should be cumulatively satisfied: (i) Payment is for rendering of services by the non-resident payee to the payer; and (ii) such services must be of "managerial", "technical" or "consultancy" nature Thus, for any payment to fall in the category of FTS, the same should be for "managerial", "technical" or "consultancy" services. The words "managerial", "technical" or "consultancy" have not been defined in the Act. However, meaning of the said words has been examined by various Courts in the following decisions: a) The Supreme Court in the case of CIT V. Bharti Cellular Ltd: [2011] 330 ITR 239 observed as under: "......Right from 1979, various judgments....
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....o develop software and data used in a computer game that would subsequently be used in carrying on the business of allowing consumers to play this game on the internet for a fee. Similarly, special skill or knowledge is used to create a troubleshooting database that customers will pay to access over the Internet. In these examples, however, the relevant special skill or knowledge is not used when providing the service for which the fee is paid, i.e. allowing the consumer to play the computer game or consult the troubleshooting database. 42. Many categories of e-commerce transactions similarly involve the provision of the use of, or access to, data and software (see, for example, categories 7, 8, 9, 11, 13, 15, 16, 20 and 21 in annex 2). The service of making such data and software, or functionality of that data or software, available for a fee is not, however, a service of a technical nature. The fact that the development of the necessary data and software might itself require substantial technical skills is irrelevant as the service provided to the client is not the development of that data and software (which may well be done by someone other than the supplier) but rathe....
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....technical achievement. 3 resulting from mechanical failure: a technical fault and 4 according to a strict application or interpretation of the law or the rules: the arrest was a technical violation of the treaty. 6. Having regard to the fact that the term is required to be understood in the context in which it is used, 'fee for technical services' could only be meant to cover such things technical as are capable of being provided by way of service for a fee. The popular meaning associated with 'technical' is 'involving or concerning applied and industrial science'. 7. In the modern day world, almost every facet of one's life is linked to science and technology inasmuch as numerous things used or relied upon in every day life is the result of scientific and technological development. Every instrument or gadget that is used to make life easier is the result of scientific invention or development and involves the use of technology. On that score, every provider of every instrument or facility used by a person cannot be regarded as providing technical service. 8. When a person hires a taxi to move from one place to another, he uses a product of scien....
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....al nature, when special skills or knowledge relating to technical field are required for their provision. Similarly, the word "consultancy" means giving some sort of consultation de hors the performance or the execution of any work. It is only when some consideration is given for rendering some advice or opinion etc. that the same falls within the scope of "consultancy services". The word `consultancy' excludes actual 'execution'. The word "managerial" means performing management functions in an organization i.e. head and brain of the organization. It is undisputed that the activities undertaken by the foreign entities do not fall within the ambit of 'consultancy' or 'managerial' services. If at all, it needs to be determined whether the activity undertaken by such entities falls within the ambit of "technical services" for the purposes of deduction of tax at source under the Act. It is submitted that in the present case, the said testing/certification charges were paid by the appellant to ensure quality of its electrical products/equipment to enable sale of such products in the overseas markets and did not involve rendering of any technical service. He r....
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....of the international standards. The assessee claimed that as the said tests were carried out by sophisticated machines without human intervention, the services did not constitute "fees for technical services" as defined in section 9(1)(vii) of the Act. However, the assessing officer & CIT(A) rejected the claim of the assessee on the ground that the services were "technical" in nature and would qualify as fees for technical services under section 9(1)(vii) of the Act. On second appeal, the Tribunal held that as per Explanation 2 to section 9(1)(vii) of the Act, if any human renders any technical skill or service or makes available any such service through aid of any machine, equipment or any kind of technology, then such a rendering of services can be inferred as 'technical services', as in such a situation, there is a constant human endeavor and involvement of the human interface. On the contrary, if any technology or machine developed by human and put to operation automatically, i.e., it operates without much of human interface or intervention, then usage of such technology cannot per se be held as rendering of 'technical services' by human skills and further, it h....
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....ledge or receiving any technical services from the A.E. Thus, the payments of testing fee to the A.E. is not fee for technical services. Since A.E. of the assessee is not giving any permanent establishment in India, therefore, the said receipt/income in the hands of the A.E. is not taxable in India and consequently, the assessee was under obligation to deduct TDS at source." In that view of the matter, it is submitted that the assessee was not required to deduct tax at source on payment of testing charges and disallowance under section 40(a)(i) of the Act, in this regard, is not called for. Accordingly, there was no default on the part of the appellant in not deducting tax at source from such payments, so as to warrant any disallowance under section 40(a)(i) of the Act. 61. He further raised several alternative contentions without prejudice to the primary contention of the appellant that tax was not required to be deducted on the payments made towards testing and certification charges and hence, disallowance under section 40(a)(i) of the Act was not warranted. 62. He submitted that no disallowance u/s 40(a)(i) It is submitted that where tax is not deducted by an asse....
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.... CIT vs. ITC Ltd: 263 CTR 241 (All) iii. ACIT vs. M/s. UBS Securities India Pvt. Ltd.: iv. ITA No. 6451 of 2011 (Del) - Bharti Airtel Ltd. vs. ACIT: MA No. 27 and 28 of 2017 (Del Tri.) v. DCIT vs. Satellite Television Asian Region Ltd: 23 taxmann.com 100 (Mum Tri.) vi. ACIT vs. Priyasha Meven Finance Ltd: ITA No. 115/Mum/2012 (Mum) vii. DCIT vs. Anant Investment - ITA No. 6428/Mum/2010 (Mum) viii. CMS (India) Operations & Maintenance Co. (P.) Ltd: 19 taxmann.com 139 (Chen Tri.) ix. Infotech Enterprises Ltd. vs. ACIT: 41 taxmann.com 364 (Hyd Tri.) x. Cyient Ltd vs. DCIT: 58 taxmann.com 70 (Hyd. Trib.) In view of the above, it is submitted that since the appellant was, in any case, under bonafide belief that tax was not deductible at source on the transaction under consideration, no fault can be found in not deducting the tax at source and consequently, disallowance under Section 40(a)(i) of the Act is not warranted. 63. He also submitted that disallowance under section 40(a)(i) should, if at all, be directed to be made having regard to the clarificatory/ curative amendment made under section 40(a)(ia) of t....
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....years."(emphasis supplied) The aforesaid amendment, it may be noted, is curative in nature, being introduced to reduce the undue hardship caused to assessee on disallowance of entire amount of expenditure. Accordingly, the same would, have retrospective operation. 64. He further referred to the decision of the Larger Bench of the Supreme Court in the case of CIT vs. Gold Coin Health Food (P) Limited: 304 ITR 308, wherein Their Lordships, while analyzing the principles regarding retrospective operation of statutes categorically observed, "The presumption against retrospective operation is not applicable to declaratory statutes... In determining, therefore, the nature of the Act, regard must be had to the substance rather than to the form." Reliance in this regard is placed on the following decisions, where the Courts/Tribunals have, in context with second proviso to section 40(a)(ia) of the Act inserted by Finance Act, 2012, held that the amendment being declaratory and curative in nature, should be given retrospective effect from 1st April, 2005, being the date from which sub-clause (ia) of section 40(a) was inserted by the Finance (No. 2) Act, 2004 - ....
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....etween payments made to the residents and non-residents and any pre conditions for deductibility which are harsher than payments made to the residents, are ineffective in law by the virtue of such non-discrimination clause: i. CIT vs. Herbalife International India (P.) Ltd: 384 ITR 276 (Delhi HC) ii. Mitsubishi Corporation India Private Limited vs. ACIT: 5147/Del/2010 (Del. ITAT) iii. Rajeev Sureshbhai Gajwani Vs ACIT: 137 TTJ 1 (Ahmedabad ITAT) iv. DCIT vs. Gupta Overseas [ITA No. 257/Agr/2013 (Agra ITAT) In view of the aforesaid, it is emphatically reiterated that amendment in section 40(a) (ia) of the Act, being clarificatory and retrospective in nature should equally apply to section 40(a) (i) of the Act. Being so, it is submitted that disallowance, if at all, should be directed to be restricted only to 30% of the expenditure claimed in the year under consideration. 67. However, the Ld Authorised Representative was fair enough to state that the issue of payment to agents in China, as far as it relates to the issue of provision of such services in India is clearly covered against the assessee by the decision of the coordinate bench in As....
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.... Photometric Light. Photometric lights use data provided by lighting manufacturers in the form of IES or EULUMDAT format photometry files. These files contain "photometric" measurements of a light's intensity in different directions, as well as information about the size of the actual luminous surface. Undoubtedly, these are the certification for assistance to exporters in international market. This is an international process of testing and certification wherein the specialized will provide the knowledge and guidance the exporters need for electric and electronic products for the areas international market. These testing are done by accredited companies who are specialized and certified to do that and are carrying the mandatory mark and Mark of the certification for the respective products. When the products are exported and sold in the market to which the certification belongs to, they must carry along with the product the certificate. These accredited laboratories are conducting testing and provide the assessee with the certification body test reports so that the product can obtain necessary mark of the certifying organization. It also eliminates many redundant testing in ....
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....e accredited agencies for certification, which lays down the process of the certification as well as the respective liabilities. One such agreement is placed at page number 108 of the paper book. (Page number 93 -108 of the paper book of assessee). 73. Assessee has contended that "Further, such testing is, the assessee understands, done through machines not involving any human intervention in testing (viz., photometric testing and CB Testing); the same, therefore, do not, constitute technical service warranting deduction of tax at source." 74. For assessment year 2005 - 06 in assessee's own case the issue was before the honourable Delhi High Court in 21 taxmann.com 476 (352 ITR 376). In para number nine of such order the honourable High Court in the first line itself has held that "It appears to us on reading of the orders of the departmental authorities and the order of the tribunal that there is no dispute that the amount paid by the assessee to the US company represented "fees for technical services "within the meaning of Section 9 (1) (viib) of the act. In fact, to the specific query put hon Court in the course of the hearing to the learned counsel for t....
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.... technical analysis may fall into the definition of 'technical services'. Further in para number [4] of that decision of the honourable Delhi High Court recording the facts of the case clearly noted that that the US company had specialized knowledge and facilities for carrying out the type of testing and necessary certification, which was required by the assessee. Even otherwise, the assessee has merely expressed an understanding without pointing out anything else that testing services does not require human intervention. The honourable High Court in assessee's own case for assessment year 2005 - 06 has categorically held with respect to the US company that US company had specialized knowledge and facilities for carrying out the type of testing and the necessary certification, which was required by the assessee for the purpose of its goods to be exported in a specified country. The natures of services have also been referred to by us in earlier paragraph. In view of the above facts, the argument of the assessee that it does not require human intervention, remains merely an assertion and even otherwise the honourable Supreme Court in case of CIT versus Kotak securities (supra) has c....
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....services. The honourable court also noted that the assessee online trading (BOM) system for which the charges have been paid by the appellant are common services that every member of the stock exchanges necessarily required to avail of to carry out trading in securities in the exchange. The honourable Supreme Court also noted that the view taken by the honourable High Court that a member of the stock exchange has an option of trading through an alternative mode is not correct. A member who wants to conduct his daily business in the stock exchange has no option but to avail such services. Each and every transaction by a member in will have to use services provided by the stock exchange for which a member is compulsorily required to pay an additional charge. That feature of the services provided by the stock exchange would make some kind of a facility provided by the stock exchange for transacting business rather than a technical services provided to one of Section of the member of stock exchange to deal with special situation. Thus, the honourable Supreme Court held that there is no exclusivity of the services rendered by the stock exchange and each and every member has to necess....
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....ima Harima Heavy Industries Ltd. v. DIT [2007] 288 ITR 408 1 and of Hon'ble jurisdictional High Court's judgment in the case of Clifford Chance v. Dy. CIT [2009] 318 ITR 2372 (Bom.). As far as taxability under the domestic law is concerned, learned counsel primarily relies upon his exhaustive written submissions filed before us. Coming to the taxability under the applicable treaty provisions, it is submitted that even in terms of the provisions of article 12 of India China tax treaty, taxability of royalty can only arise when not only the services are used in India but also rendered in India. According to the learned counsel, the only other situation in which impugned receipt can be taxed in India, under article 7 of the applicable tax treaty provisions, is when the said income is earned in the course of business carried on by the assessee in India though a permanent establishment in India. Learned counsel submits that it is not even the case of the revenue that the Chinese company had any permanent establishment in India, and, therefore, the business profits of the Chinese company cannot be taxed under article 7 of the tax treaty. He fairly accepts that, in case impugned receipt i....
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....approach will render article 12(6) meaningless, since, in such a case, deeming clause to the effect that 'services are deemed to have arisen in the other Contracting State' can only be invoked when services are performed in that other Contracting State - something which is patently absurd, learned counsel submits that if words of the treaty result in an absurdity, at best, to that extent, it is to be treated as unworkable. We cannot change the entire complexion of treaty provision in the name of making a segment thereof workable. Learned counsel thus urges us to hold that, in terms of the provisions of the applicable tax treaty, the payment in question were not liable to be taxed in India. Learned Departmental Representative, on the other hand, relies upon the orders of the authorities below, takes us through the same, and urges us to confirm the same. As far as taxability under the domestic law is concerned, it is submitted that in case we are to proceed on the basis that the royalties or fees for technical services can only be taxed in India only when not only the services are utilized in India, but also rendered in India, the source rule will cease to have any meaning. It is con....
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....ide India or for the purposes of making or earning any income from any source outside India" will be deemed to accrue or arise in India. There is also no dispute that the fees received by the assessee is covered by the scope of 'fees for technical services' under Explanation 2 to section 9(1)(vii) which provides that for 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). There is also no dispute that the exclusion clause set out in the said definition is not attracted. 6. The case of the assessee, however, is that since the services are not rendered in India, the provisions of section 9(1)(vii) cannot be invoked. The main support for this proposition is assessee's reliance on the Hon'ble Bombay High Court's judgment in the case of Clifford Chance (supra). It is, therefore, necessary to deal with this case in some detail. 7. In the case of Clifford Chance (supra) the appellant, an English law firm, was rendering legal services in connection with three projects....
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....ncome of a resident although is subjected to tax, the global income of a non-resident may not be. The answer to the question would depend upon the nature of the contract and the provisions of the DTA. What is relevant is receipt or accrual of income, as would be evident from a plain reading of section 5(2) of the Act subject to the compliance with 90 days rule. As per the above judgment of the apex court, the interpretation with reference to the nexus to tax territories also assumes significance. Territorial nexus for the purpose of determining the tax liability is an internationally accepted principle. An endeavour should, thus, be made to construe the taxability of a non-resident in respect of income derived by it. Having regard to the internationally accepted principle and the DTAA, no extended meaning can be given to the words "income deemed to accrue or arise in India" as expressed in section 9 of the Act. Section 9 incorporates various heads of income on which tax is sought to be levied by the Republic of India. Whatever is payable by a resident to a non-resident by way of fees for services, thus, would not always come within the purview of section ....
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....not (a) the non-resident has a residence or place of business or business connection in India; or (b) the non-resident has rendered services in India. It is thus no longer necessary that, in order to attract taxability in India, the services must also be rendered in India. As the law stands now, utilization of these services in India is enough to attract its taxability in India. To that effect, recent amendment in the statute has virtually negated the judicial precedents supporting the proposition that rendition of services in India is a sine qua non for its taxability in India. 10. The concept of territorial nexus, for the purpose of determining the tax liability, is relevant only for a territorial tax system in which taxability in a tax jurisdiction is confined to the income earned within its borders. Under this system, any foreign income that is earned outside of its borders is not taxed by the tax jurisdiction, but then apart from tax heavens, the only prominent countries that are considered territorial tax systems are France, Belgium, Hong Kong and the Netherlands, and in those countries also this system comes with certain anti abuse riders. In other major tax systems....
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....r the domestic tax law. 12. The next issue to be examined by us is whether or not the income earned by the Chinese company is liable to be taxed in India under article 12 of the India China tax treaty. 13. Article 12 of the India China tax treaty provides as follows : Royalties and fees for technical services 1.Royalties or fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other Contracting State. 2.However, such royalties or fees for technical services may also be taxed in the Contracting State in which they arise, and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties of fees for technical services. 3.The term "royalties" as used in this Article means payment of any kind received as a consideration for the use of or the right to use, any copyright of literary, artistic or scientific work including cinematograph films and films or tapes for radio or television broadcastin....
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....on for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement. 14. A plain reading of the above treaty provisions show that under article 12(4) shows that what is covered by the basic definition of the expression 'fees for technical services' is the "provision of services of managerial, technical or consultancy nature" by a resident of a Contracting State in the other Contracting State. In other words, technical services being provided by resident of one of the Contracting State in the other Contracting State is what will be covered by the basic rule under article 12(4). The expression 'provision of services' is not defined or elaborated anywhere in the tax treaty. The argument of the learned counsel is that 'provision of services' should be construed as 'rendition of services', but we will come to that aspect a little later. ....
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....any will be deemed to have arisen in India even under the Indo China tax treaty, he has submitted that once a fees for technical service is not covered by the basic provisions of article 12(4), which is confined to services having been rendered in the Source State, there is no occasion of invoking article 12(6). It is submitted that the deeming provision for article 12(6) is confined to what is already covered by 'royalties and fees for technical services' which are neatly defined in article 12(4) and it does not seek to extend the scope of the said basic definition. It is only after 12(4) is satisfied that the deeming fiction can be invoked. He invites our attention to corresponding article of China Pakistan tax treaty, i.e., article 13, which does not have any such deeming fiction but which provides that "the term 'fees for technical services', as used in this article, means any consideration (including any lump sum consideration) for the provision of rendering of any managerial, technical or consultancy services by a resident of one of the Contracting State in the other Contracting State". It is pointed out that in China Pakistan tax treaty, there is no additional sourc....
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....ession 'provision of services' has to be something wider than 'provision of rendering of services'. If at all this contrast with China Pakistan tax treaty shows something, this contrast shows that the India China tax treaty intends to follow the source rule, while China Pakistan tax treaty gives up the source rule for fees for technical services. The difference between these two clauses can hardly be missed, and it becomes all the more clear when one takes into account the fact that while there is a deeming fiction clause in article 12(6) of India China tax treaty, taking care of the situations in which payments are made by persons not resident in the other Contracting State, though they have a permanent establishment or fixed base in the other Contracting State, there is no such corresponding clause in China Pakistan tax treaty. It is thus clear, from the material placed before us, that while India China tax treaty follows the source rule in the matter of fees for technical services, Pakistan China tax treaty does not do so. That's a conscious choice by the respective Governments, and just because China Pakistan have negotiated a bilateral tax treaty in a particular manner, it doe....
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....re to be understood with reference to the subject-matter, i.e., verba accopoenda sunt secundum subjectum materiam. u It is inevitable that interpreter of a tax treaty is likely to be required to cope with disorganised composition instead of precision drafting. Therefore, the words employed in the treaty are to be given a general meaning - general to lawyers and general to layman alike. u When a tax treaty does not define a term employed in it, and the context of the treaty so requires, it can be given a meaning different from domestic law meaning thereof. The meaning of the undefined terms in a tax treaty should be determined by reference to all of the relevant information and all on the relevant context. There cannot, however, be any residual presumption in favour of a domestic law meaning of a treaty term." (Emphasis supplied) 19. In view of the above, a literal interpretation to a tax treaty, which renders treaty provisions unworkable and which is contrary to the clear and unambiguous scheme of the treaty, has to be avoided. In any case, even on merits, we are of the considered view that the scope of the expression 'provision for services' is much wide....
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....fore us, no evidences were produced before us that there was any bona fide belief for non-deduction of tax at source as revenue was constantly saying that the tax at sources are deductible on such payments. No evidences were produced before us that the assessee was under a bona fide belief that tax is not deductible on such testing charges. It is also not shown, even if there is a belief, whether the same was bona fide or not. The other decisions relied upon by the learned authorised representative all were related to the provisions of Section 201 of the income tax that where there is a specific exclusion for 'good and sufficient reasons' for non-deduction of tax at source. Such provisions are absent under the provisions of Section 40 (a)(i) of the act. In view of this, this argument of the assessee is rejected. 80. The learned authorised representative submitted that a provision of Section 40 (a) (ia) has undergone changes over a period of time. This Section relate to payment to a resident. It is submitted that the disallowance according to the amendment made with effect from 1 April 2015 restricted the disallowance at the rate of 30% of the sum payable. Therefore, according to....
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....e payment to China based agents and Germany based agents the disallowance is confirmed and the payment made to Kema and CSA International is deleted. Thus, AO is directed to delete the disallowance of Rs payment of Rs. 18,17,430/- are related to payment made to USA and Netherland and we confirm the disallowance of Rs. 7,85,444/- for payments made to Testing agencies in China and Germany. Accordingly, ground No. 1 of the appeal is partly allowed. 84. Ground No. 2 is with respect to the claim of the assessee of deduction u/s 80IC of the Act. The facts show that in the return of income assessee has claimed deduction of Rs. 645962957/- u/s 80IC of the Act. The assessee also supported it by filing audit report in the form 10CCB along with tax audit report. During the course of hearing on 11.11.2009 the assessee filed a revised report in the form No. 10CCB wherein, deduction was increased by Rs. 4488012/- at Rs. 650450969/-. The AO noted that assessee has not filed any revised return but has claimed the enhanced deduction by filing the letter. The reason for such revision in the claim was found that the assessee had suffered loss of Rs. 4488012/- in its unit No. 2 of Badi, Hamichal Pr....