TaxTMI 
TaxTMI 
2021 (12) TMI 585
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....A (for short "Bain, USA") for various expenses and reimbursement of cost incurred by Bain USA on behalf of the assessee. He noted that both the companies, i.e., the assessee M/s Bain & Co. India Pvt. Ltd. (in short "Bain India") and Bain USA are engaged in providing management consultancy services to its clients which includes areas such as strategy, performance improvement, organization enhancement, mergers and acquisitions, private equity, etc. The assessee furnished details of remittances made and copies of service agreement for providing various services and related agreement entered into by the assessee with its parent company i.e., Bain & Co., USA both dated 1st June, 2006. As per Appendix-A to the service agreement, the AO noted that Bain India and Bain USA shall provide to each other the following types of services:- a) Consulting services; b) Support services; and c) Administrative services. 3. He examined in detail the clauses of the service agreement and noted the following facts:- "(i) Bain USA desires to engage another party to perform management consulting services in India for certain clients of Bain USA. (ii) Bain Indi....
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....s described in Appendix 'A' to the agreement as may be necessary to meet the direct needs of current business activities of Bain India in a manner directly benefitting interests of Bain India. (xi) For the performance of 'Support Services' and 'Administrative Services' Bain India shall pay to Bain USA the amount. Said Payment shall constitute full compensation to Bain USA for all 'Support Services' and 'Administrative Services' given and expenses incurred. (xii) Bain USA acknowledges that currently the Indian government may impose a withholding tax of 10 % on payments relating to Information distribution services. This tax may apply to the agreement and if it does apply, the tax shall be borne by Bain USA. Bain USA also acknowledges that 10 % withholding tax may apply to some of the Professional Support charges and where it does apply, the tax shall be borne by Bain USA." 4. He noted that apart from computer expenses and royalty, all remittances are related to support services rendered by Bain USA to assessee or for cost for personnel of Bain USA and their related expenditure. He examined the remittances made by Bain Indi....
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....o Bain US and receivable from client. The out of pocket expenses incurred are separately recoverable from the client and does not become part of the professional fees received by Bain India from its clients. Computer maintenance charges Rs. 3696067/- are charges incurred for the assessee's business. The above payments are pure reimbursements and do not involve any element of service therein. 8. However, the AO was not satisfied with the arguments advanced by the assessee. Rejecting the various explanations given by the assessee he held that the assessee should have deducted taxes on payments to the tune of INR 7,89,70,432/- on the following amounts:- a) Professional support cost to cost reimbursement - Rs. 5,47,89,345/- b) Client related expenses - Rs. 2,04,85,020 c) Computer Maintenance Expenses - Rs. 36,96,067/- 9. So far as non-deduction of tax on professional support cost is concerned, the AO held that support services received by the assessee are technical in nature and does not satisfy the 'Make Available' clause under the India-USA DTAA. So far as the client related expenses are concerned, the AO took an ad hoc percentage being 80% of cli....
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....the action of the AO and held that the assessee is liable to withhold taxes on payment of Rs. 82,34,242/-. 13. Aggrieved with such order of the CIT(A), the assessee is in appeal before the Tribunal by raising the following grounds:- "1. That the learned Commissioner of Income Tax (Appeals) (Ld. CIT(A)) has erred on facts and in law in upholding that the Appellant was required to withhold taxes under Section 195 of the Income Tax Act, 1961 ('the Act') on payments amounting to Rs. 82,34,240 made by it to its parent company, Bain & Company Inc. (Bain US) on account of payments made to third parties. 2. The Ld. CIT (A) has erred in holding that there is no evidence that such expenses were reimbursement of expenses on a cost to cost basis. 3. That the Ld. CIT (A) has erred on facts and in law in holding that technology was 'made available' to the appellant and hence tax was required to be deducted on these payments under Article 12 of India-USA Double Tax Avoidance Agreement ('DTAA'). 4. That the Ld. CIT (A) has erred on facts and in law in not appreciating that the services were not 'technical' services so as to fall within the ambit of FIS under ....
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....skins & Sells v. ACIT [2017] 79 taxmann.com 175 (Mumbai -Trib.), ii) Boston Consulting case (280 ITR (AT) 1), iii) Bharat Petroleum Corpn. Ltd. vs Jt. DIT 111 TTJ 375 (ITAT Mumbai), iv) McKinsey & Co., Inc. (Philippines) v. ADIT [2006] 99 ITD 549 (MUM.), v) JCIT v. Telerate [2010] 3 taxmann.com 766 (Mumbai - Trib.) 16. In his another plank of argument, the ld. Counsel for the assessee submitted that the services do not make available technology to Bain India. Referring to the order of the CIT(A), he submitted that the ld.CIT(A) has erred in treating the services as 'fee for technical services' without appreciating that the services do not satisfy 'make available' clause which is a sine qua non for holding the payments as FTS under the India-USA DTAA. Referring to the India-USA tax treaty, he submitted it requires that in order for a service to qualify as FTS, technology should be "made available" to the recipient of services in a manner that in case the work were to come again to the recipient of services, he should be enabled to himself perform the work without any recourse to the service provider. For the above proposition, he relied on the ....
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....2 ITR 471, he submitted that the Hon'ble Supreme Court has thoroughly decided all the issues involved in the present appeal wherein it is held that the amount paid by resident Indian end user/distributors to non-resident computer software manufacturers/suppliers, as consideration for resale/use of computer software through EULA/distribution agreement, is not payment of royalty for use of copyright in computer software and, thus, the same does not give rise to any income taxable in India. He submitted that since the assessee, in the instant case, is a management consultancy firm, therefore, there is no technology involved. He accordingly submitted that the order of the CIT(A) be set aside and the grounds raised by the assessee be allowed. 19. The ld. DR, on the other hand, heavily relied on the order of the CIT(A). 20. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find, the assessee, in the instant case, has remitted the amount of Rs. 15,13,53,724/- to Bain USA for various expenses and towa....
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....vailable to the assessee or not which, in our opinion, is a sine qua non for holding payment as FIS under the Indo-USA DTAA. Further, the submission of the ld. Counsel that services were rendered outside India and, therefore, payments for the services could not qualify as fee for technical services in view of the decision of the Hon'ble Supreme Court in the case of Ishikawajima-Harima Heavy Industries Ltd. (supra) which was applicable at the relevant time, could not be controverted by the ld. DR. We find, the Hon'ble Supreme Court in the case of Ishikawajima-Harima Heavy Industries Ltd. (supra) has held that for a nonresident to be taxed in India, two events need to be fulfilled i.e., not only should the services be utilized in India, but, the same should also be rendered in India. We find, the above proposition was amended retrospectively by the Finance Act, 2010 with retrospective effect from 1st June, 1976. Therefore, we find merit in the argument of the ld. Counsel that it was under a bona fide belief that the payments were not taxable in India. 24. We find, the Hon'ble Supreme Court in the case of Engineering Analysis Centre of Excellence (P) Ltd. (supra) has thoroughly dis....
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....idents. In order to avoid any doubt or dispute in regard to the accrual of income by way of interest, royalty and fees for technical services in the case of nonresidents, it is proposed to make certain provisions in the Income-tax Act clearly specifying the circumstances in which such income shall be deemed to accrue or arise in India. xxx xxx xxx 40. Income by way of royalty payable by the Government will be deemed to accrue or arise in India. Royalty payable by a person who is resident in India will also be deemed to accrue or arise in India, except in cases where the royalty is payable for the transfer of any right or the use of any property or information or for utilising the services of the recipient for the purposes of a business or profession carried on outside India or for the purposes of making or earning any income from a source outside India. Royalty payable by a non-resident will be deemed to accrue or arise in India only in cases where the royalty is payable in respect of any right, property or information used or services utilised for the purposes of a business or profession carried on by the nonresident in India or for the purposes of making or earn....
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.... properties. The Tribunal, in our view, rightly observed that the CIT(A) had erred in coming to the conclusion that the expression "payments of any kind" was broad enough to include even an outright sale. To drive home this point the Tribunal, once again, has correctly drawn a distinction between the definition of royalty as appearing in the DTAA and that which finds mention in explanation 2 to section 9(1)(vi) of the I.T. Act. A perusal of the provisions of the said explanation would show that it brings within the ambit of royalty a wider range of transactions which would include payments made for "transfer of all" or "any right" in patents, inventions, model, design, etc. apart from payments based for use of such right, patent, innovation, model, design, secret formula or process or trade mark or similar property. As a matter of fact, a perusal of clause (i) of explanation 2 of section 9(1)(vi) of the I.T. Act would show that "transfer of all" or "any right" could take place by execution of licences as well, which was the methodology adopted by Tate and the assessee in the present case..." 72. However, when it comes to the expression "use of, or the right to use", the sa....
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.... to be located in India or control or possession of it has to be with the payer. Similarly, doubts have been raised regarding the meaning of the term processed. Considering the conflicting decisions of various courts in respect of income in nature of royalty and to restate the legislative intent, it is further proposed to amend the Income Tax Act in following manner:- (i) To amend Section 9(1)(vi) to clarify that the consideration for use or right to use of computer software is royalty by clarifying that transfer of all or any rights in respect of any right, property or information as mentioned in Explanation 2, includes and has always included transfer of all or any right for use or right to use a computer software (including granting of a licence) irrespective of the medium through which such right is transferred. (ii) To amend section 9(1)(vi) to clarify that royalty includes and has always included consideration in respect of any right, property or information, whether or not (a) The possession or control of such right, property or information is with the payer; (b) Such right, property or information is used directly by the payer; (....
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....ter software, explanation 3 thereof, refers to "computer software" for the first time with effect from 01.04.1991, when it was introduced, which was then amended vide the Finance Act 2000. Quite clearly, explanation 4 cannot apply to any right for the use of or the right to use computer software even before the term "computer software" was inserted in the statute. Likewise, even qua section 2(o) of the Copyright Act, the term "computer software" was introduced for the first time in the definition of a literary work, and defined under section 2(ffc) only in 1994 (vide Act 38 of 1994). 78. Furthermore, it is equally ludicrous for the aforesaid amendment which also inserted explanation 6 to section 9(1)(vi) of the Income Tax Act, to apply with effect from 01.06.1976, when technology relating to transmission by a satellite, optic fibre or other similar technology, was only regulated by the Parliament for the first time through the Cable Television Networks (Regulation) Act, 1995, much after 1976. For all these reasons, it is clear that explanation 4 to section 9(1)(vi) of the Income Tax Act is not clarificatory of the position as of 01.06.1976, but in fact, expands that positi....
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....e evidence by way of electronic record under section 65B of the Evidence Act, 1872 and held that having taken all possible steps to obtain the certificate and yet being unable to obtain it for reasons beyond his control, the respondent in the facts of the case, was relieved of the mandatory obligation to furnish a certificate. In so holding, this Court referred to previous judgments dealing with the doctrine of impossibility and concluded as follows: "47. However, a caveat must be entered here. The facts of the present case show that despite all efforts made by the respondents, both through the High Court and otherwise, to get the requisite certificate under Section 65-B(4) of the Evidence Act from the authorities concerned, yet the authorities concerned wilfully refused, on some pretext or the other, to give such certificate. In a fact-circumstance where the requisite certificate has been applied for from the person or the authority concerned, and the person or authority either refuses to give such certificate, or does not reply to such demand, the party asking for such certificate can apply to the court for its production under the provisions aforementioned of the Eviden....
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....f God, the circumstances will be taken as a valid excuse. Where the act of God prevents the compliance with the words of a statute, the statutory provision is not denuded of its mandatory character because of supervening impossibility caused by the act of God. (See Broom's Legal Maxims, 10th Edn. at pp. 162-63 and Craies on Statute Law, 6th Edn. at p. 268.)" It is important to note that the provision in question in Presidential Poll, In re [Presidential Poll, In re, (1974) 2 SCC 33] was also mandatory, which could not be satisfied owing to an act of God, in the facts of that case. These maxims have been applied by this Court in different situations in other election cases - See Chandra Kishore Jha v. Mahavir Prasad [Chandra Kishore Jha v. Mahavir Prasad, (1999) 8 SCC 266] (at paras 17 and 21); Special Reference No. 1 of 2002, In re (Gujarat Assembly Election matter) [Special Reference No. 1 of 2002, In re (Gujarat Assembly Election matter), (2002) 8 SCC 237] (at paras 130 and 151) and Raj Kumar Yadav v. Samir Kumar Mahaseth [Raj Kumar Yadav v. Samir Kumar Mahaseth, (2005) 3 SCC 601] (at paras 13 and 14). 48. These Latin maxims have also been applied in several other co....
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....n of purchase on the expiry of 2-12-1960, was impossible from the very commencement of Section 6. The performance of this impossible duty must be excused in accordance with the maxim, lex non cogitia ad impossibilia (the law does not compel the doing of impossibilities), and sub-section (4) of Section 6 must be construed as not being applicable to a case where compliance with it is impossible. We must, therefore, hold that the State Electricity Board was not required to give the notice under sub-section (4) of Section 6 in respect of its option of purchase on the expiry of 25 years. It must follow that the Board cannot be deemed to have elected not to purchase the undertaking under subsection (4) of Section 6. By the notice served upon the appellant, the Board duly elected to purchase the undertaking on the expiry of 25 years. Consequently, the State Government never became vested with the option of purchasing the undertaking under sub-section (2) of Section 6. The State Government must, therefore, be restrained from taking further action under its notice, Ext. G, dated 20-11-1959." 49. In Raj Kumar Dey v. Tarapada Dey [Raj Kumar Dey v. Tarapada Dey, (1987) 4 SCC 398] , th....
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....does not compel a man to do that which he cannot possibly perform and an act of the court shall prejudice no man would, apply with full vigour in the facts of this case and if that is the position then the award as we have noted before was presented before the Sub-Registrar, Arambagh on 25-11-1983 the very next one day of getting possession of the award from the court. The Sub- Registrar pursuant to the order of the High Court on 24- 6-1985 found that the award was presented within time as the period during which the judicial proceedings were pending that is to say, from 28-1-1978 to 24-11-1983 should be excluded in view of the principle laid down in Section 15 of the Limitation Act, 1963. The High Court [Tarapada Dey v. District Registrar, Hooghly, 1986 SCC OnLine Cal 101 : AIR 1987 Cal 107] , therefore, in our opinion, was wrong in holding that the only period which should be excluded was from 26-7-1978 till 20- 12-1982. We are unable to accept this position. 26-7- 1978 was the date of the order of the learned Munsif directing maintenance of status quo and 20-12-1982 was the date when the interim injunction was vacated, but still the award was in the custody of the court and ther....
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.... facts, the amendment by introduction of Explanation-6 to Section 9(1)(vi) of the Act took place in the year 2012 with retrospective effect from 1976. This could not have been contemplated by the Respondent when he made the payment which was subject to tax deduction at source under Section 194C of the Act during the subject Assessment Year, would require deduction under Section 194J of the Act due to some future amendment with retrospective effect." 84. In CIT v. Western Coalfields Ltd., ITA No. 93/2008, the High Court of Bombay dealt with the insertion of an explanation to section 17(2)(ii) of the Income Tax Act with retrospective effect and held: "11) We see no merit in the above contentions. The Apex Court in Arun Kumar's case (supra) while upholding the validity of Rule 3 has held that in the absence of any "deeming fiction" in the Act, it is open to the assessee to contend that there is no concession in the matter of accommodation provided by the employer to the employees and the case is not covered by Section 17(2)(ii) of the Act. In other words, even after the substitution of Rule 3 with effect from 1/4/2001, in the absence of any specific provision und....
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....pyright Act. 24.2 We find, the Hon'ble Supreme Court at para 117 has observed as under:- "117.The conclusions that can be derived on a reading of the aforesaid judgments are as follows: i) Copyright is an exclusive right, which is negative in nature, being a right to restrict others from doing certain acts. ii) Copyright is an intangible, incorporeal right, in the nature of a privilege, which is quite independent of any material substance. Ownership of copyright in a work is different from the ownership of the physical material in which the copyrighted work may happen to be embodied. An obvious example is the purchaser of a book or a CD/DVD, who becomes the owner of the physical article, but does not become the owner of the copyright inherent in the work, such copyright remaining exclusively with the owner. iii) Parting with copyright entails parting with the right to do any of the acts mentioned in section 14 of the Copyright Act. The transfer of the material substance does not, of itself, serve to transfer the copyright therein. The transfer of the ownership of the physical substance, in which copyright subsists, gives the purchaser the righ....