TaxTMI 
TaxTMI 
2021 (12) TMI 585
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....enses 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 India will provide services to Bain USA in relation to clients of Bain USA but ma....
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....ies 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 India to Bain USA and noted that these are in lieu of or in relation to various services rendered by Bain USA to Bain India under the Agreemen....
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.... 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 client related expenses and held that the assessee was under obligation to deduct tax on 80% of the client related expenses i.e., all expenses amounting to Rs. 2,04,85,020/....
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....eal 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 the India- USA DTAA. 5. That the appellant reserves its right to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing of this appeal." 14. The ld. counsel for ....
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....hilippines) 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 following decisions:- i) CIT v. De Beers India Minerals (P.) Ltd. [ (2012) 21 taxmann.com 214 (Kar.)]; ii) ICICI Bank Ltd. v. DCIT [2008] 20 SOT 453 (MUM.); iii) Raymond Ltd. [2003] 86 ITD 791 (Mum.); iv) Bovis Lend Lease (India) (P....
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....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 towards reimbursement of cost incurred by Bain USA on behalf of the assessee. We find, out of the aforementioned amount, the AO held that the assessee should have deducted taxes on payments to the tune of Rs. 7,89,70,432/- on account of various payments such as: (i) Professional support cost - Rs. 5,47,89,345/-; (ii) Client re....
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....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 discussed the issue regarding royalty under the Income-tax Act and has held that a person 'mentioned in section 195 of the Income-tax Act cannot be expected to do the impossible, namely to apply the expanded definition of 'royalty' inserted by Explanation 4 to section 9(1)(vi) of the Income-tax Act for the assessment years in question at a time when Explan....
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....alty 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 earning any income from any source in India." 69. Consequently, section 9(1)(vi) of the Income Tax Act was brought into force. The definition of royalty contained in explanation 2(v) of section 9(1)(vi) of the Income Tax Act includes the transfer of all or any rights (including the granting of a licence) "in respect of any copyright, literary, artistic or scientific work". 70. The comma ....
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....visions 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 same position would obtain under explanation 2(v) of section 9(1)(vi) of the Income Tax Act, inasmuch as, there must, under the licence granted or sale made, be a transfer of any of the rights contained in sections 14(a) or 14(b) of the Copyright Act, for explanation 2(v) to apply. To this extent, there will be no difference in the position between the definition of "royalties" in the DTAAs and the definition of "royalty" in explanation 2(v) of section 9(1....
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.... 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; (c) The location of such right, property or information is in India (iii) To amend section 9(1)(vi) to clarify that the term "process" includes and shall be deemed to have always included transmission by satellite (including up-linking, amplification, conversion for down-linking of any signal), cable, optic fibre or by any other similar technology, whether or not such process is secret. These amendments will take effect retrospectively from 1st June, 1976 and will accordingly apply in relation to the a....
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....der 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 position to include what is stated therein, vide the Finance Act 2012. 79. The learned Additional Solicitor General then relied upon the Finance Minister's statement made before the Lok Sabha on 07.09.1990, which allowed lump sum payments to be made without the deduction of tax at source under section 195(1) of the Income Tax Act and did away with the dual levy, both by way of customs duty and income tax, on royalty payments for the licensing of software. This statement, again, in no manner furthers the case of the Revenue that explanation....
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....ts 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 Evidence Act, CPC or CrPC. Once such application is made to the court, and the court then orders or directs that the requisite certificate be produced by a person to whom it sends a summons to produce such certificate, the party asking for the certificate has done all that he can possibly do to obtain the requisite certificate. Two Latin maxims become important at this stage. The first is lex non cogit ad impossibilia i.e. the law does not demand the impossible, and impotentia excusat legem i.e. when there is a disability that makes it impossible to obey the law, th....
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....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 contexts by this Court. In Cochin State Power & Light Corpn. Ltd. v. State of Kerala [Cochin State Power & Light Corpn. Ltd. v. State of Kerala, (1965) 3 SCR 187 : AIR 1965 SC 1688] , a question arose as to the exercise of an option of purchasing an undertaking by the State Electricity Board under Section 6(4) of the Electricity Act, 1910. The provision required a notice of at least 18 months before the expiry of the relevant period to be given by such State Electricity Board to the State Government. Since this mandatory provision was impossible of compliance, it was held that th....
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....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] , the maxim lex non cogit ad impossibilia was applied in the context of the applicability of a mandatory provision of the Registration Act, 1908, as follows : (SCC pp. 402-03, paras 6-7) "6. We have to bear in mind two maxims of equity which are well settled, namely, actus curiae neminem gravabit - An act of the court shall prejudice no man. In Broom's Legal Maxims, 10th Edn., 1939 at p. 73 this maxim is explained that this maxim was founded upon justice and good sense; and afforded a safe and certain guide for the administration of the law. The above maxim should, however, be applied w....
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.... 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 there is ample evidence as it would appear from the narration of events hereinbefore made that the arbitrators had tried to obtain the custody of the award which the court declined to give to them." (emphasis in original) 50. These maxims have also been applied to tenancy legislation - see B.P. Khemka (P) Ltd. v. Birendra Kumar Bhowmick [B.P. Khemka (P) Ltd. v. Birendra Kumar Bhowmick, (1987) 2 SCC 407] (at para 12), and have also been applied to relieve authorities of fulfilling their obligation to allot plots when such plots have been found to be unallottable, owing to the contravention of the Centra....
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....ffect 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 under the Act, it was open to the assessee not to deduct tax at source relating to the accommodation given to the employees on the ground that no concession in rent has been given to the employees. This contention of the assessee has been in fact upheld by the Apex Court in the case of Arun Kumar (supra). To overcome the above decision, the law has been amended by Finance Act, 2007 with retrospective effect from 1/4/2002. The retrospective amendment merely takes away the above argument, which was available to the assessee. Once the salary is paid by the employer after deducting tax at source as per the law prevailing on the date of paying the salary, ....
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....mes 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 right to do with it whatever he pleases, except the right to reproduce the same and issue it to the public, unless such copies are already in circulation, and the other acts mentioned in section 14 of the Copyright Act. iv) A licence from a copyright owner, conferring no proprietary interest on the licensee, does not entail parting with any copyright, and is different from a licence issued under section 30 of the Copyright Act, which is a licence which grants the licensee an interest in the rights mentioned in section 14(a) and 14(b) of the Copyright Act. Where the core of a transaction is to authorize the end-user to have access to and make use of the "licensed" computer software produ....