TaxTMI 
TaxTMI 
2024 (2) TMI 784
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....g the facts and circumstances of the case, the delay in condoned. Assessment Year 2012-13: 2. At the very outset of the matter, the Ld.Counsel appearing for the assessee submitted before us that the ground challenging the reopening of assessment under section 148 though raised by the assessee in each year are not pressed. Hence this particular ground of appeal is dismissed as not pressed. The cross objections are, therefore, dismissed as not pressed. This here apply mutatis mutandis in A.Ys. 2013-14 and 2014- 15. 3. So far as the cross objection in respect of AY 2015-16 is concerned, this ground preferred by the assessee are dismissed as not pressed. However, the disallowance of provision for doubtful debts as has been challenged by the assessee will be considered by us. 4. In revenue's appeal, the following common grounds are raised: a) Deletion of addition in respect of sales commission paid to Manthan Systems Inc. ('MSI') under section 40(a)(i) of the Act. b) Deletion of addition in respect of ESOP expense made by the Ld.CIT(A). Deletion of addition in respect of sales commission paid to Manthan Systems Inc. ('MSI') u/s. 40(a)(i) of the Act. I....
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....M/s. Manthan System Inc. vs. DCIT (supra), a copy whereof is available in the paper book filed by the assessee. 9. The crux of the case made by the assessee is this that since the services rendered to the appellant by the said Manthan Systems Inc. have been held not falling within the ambit of FTS or under Article 12 of the DTAA, the appellant is also not liable to deduct TDS on the payment made to the said company MSI as held by ITAT in the order under reference hereinabove. In this regard, we have carefully considered the order passed by the Ld.CIT(A) who has taken into consideration this particular aspect of the matter and deleted the addition with the following observation: "4.3.4 FINDING AND DECISION In the impugned order, the AO has made disallowance under Section 40(a)(i) of the payment made to Manthan Systems Inc. towards sales and marketing commission. The AO has extensively discussed why the commission paid by the appellant to Manthan Systems Inc was in the nature of Fees for Technical Services and was taxable both under the provisions of the Act and under the India-USA DTAA. The AO in Para 4.1 (Page 3 86 4) of the assessment order has listed the serv....
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....s, technical and commercial discussions, product demonstrations and services portfolio presentations to the prospect. (e) Deploy, maintain, customize and support the product and services with clients (f) Carry Commercial and contractual ownership of the Customer Relationship (g) Bear equal share of the cost on all event participation focused on the promotion of the Product and Services. (h) Conduct Road shows. Paras 3.3 to 3.7 of the agreement also delineate the responsibilities of both parties to the agreement. 3.3 MSI shall use all reasonable efforts to pursue aggressive sales policies and procedures to realize the maximum sales potential for the ARC Products and Associated Services. 3.4 During the term of this Agreement, MSI shall not, without MSSPL's prior written consent, represent, promote or otherwise try to sell any other types of software Products and/or Services which perform identical functions as the Products and/or Services provided by MSSPL. 3.5 MSI shall support such special programs as may be developed by MSSPL from time to time in relation to the ARC Products and/or Associated Services. Such support....
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..... The AO has concluded that services are in the nature of technical or consultancy services (Para 6.7 of the order). Finally at Para 10.2, it is concluded that services are technical in nature. The DRP has confirmed the finding of AO (Page 4 of the DRP order). The DRP has also observed that services of assessee assist MSSPL in making managerial/business decision. In the instant case, the assessee acted as intermediary and facilitates sale of software products/services outside India. On perusal of copy of sale and marketing agreement dated 11.02.2009 entered between the assessee and MSSPL, it is seen that the assessee rendered the following services. * Promoting the software product/services on behalf of the Appellant; * Co-Ordination between the customers in North American, South American and Caribbean market and MSSPL; * Following up with the customers in North American, South American and Caribbean market for collection of amount. 10. In the instant case, the assessee is not providing any technical, managerial or consultancy services rather has been engaged to act as authorized business partner to market and promote the products or services of ....
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.... had held that where assessee has obtained certain sales consulting services from USA and commission is based on fixed percentage of sales, then merely because the service provider is technically qualified, sales commission paid for enabling sale could not become payment for rendering technical services and therefore, TDS is not applicable. 15. Similarly, the Bangalore tribunal in the case of Deccan Creations (P.) Ltd vs DCIT (2022) 134 taxmann.com 144 (Bangalore-Trib.) had held that services of foreign agents in the form of providing the data related to market trends and requirements of customers does not constitute as managerial services, as these services are usually provided by any agent. Thus, sales commission paid to foreign agents on the value of sales affected through them cannot be treated as technical services and therefore, not taxable in India The following judicial pronouncements have also taken an identical view:- * PCIT vs Puma Sports India (P.) Ltd (2021) 127 taxmann.com 169 (Karnataka} SLP dismissed by Supreme Court - (2022) 134 taxmann.com 60 (SC); * Bengal Tea & Fabrics Ltd.. v DCIT (2018) 91 taxmann.com 38 (Kolkata - Trib.); *....
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....assessee has rendered technical services. Therefore, the above decision of Hon'ble Supreme Court in GVK Industries is not applicable to the facts of the present case. Further, the decision does not deal with the taxability under the treaty. .......................... 19. Now, we shall deal with taxability as per DTAA: The assessee is admittedly a tax resident of USA and hence it is eligible to claim benefits under India-USA DTAA. The payment received by the assessee will not qualify as "fees for Included services" under the India-USA DTAA. The definition "fees for Included services" under Article 12 to India-USA DTAA is as follows: "fee for included services means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or b) make available technical knowledge, experience, skill, know-how, or processes, or consist of the....
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....ers India Minerals (P.) Ltd. 21 taxmann.com 214 (Kar.), wherein the Honourable High Court dealt with 'make available' clause. The High Court held that for attracting the liability to pay tax, not only the services should be of technical in nature, but it should be made available to the person receiving the technical services. The technology will be considered 'made available' when the person who received service is enabled to apply the technology. The Hon'ble High Court, held that test is whether the recipient of the service is equipped to carry on his business without reference to the service provider. If he is able to carry on his business in future without the technical service of the service provider in respect of services rendered then, it would be said that technical knowledge is made available. ..................... 22. Reliance is also placed on the judgment of Delhi High Court in the case of DIT v. Guy Carpenter & Co. Ltd. [2012] 346 ITR 504 (Del.) 23. The Kolkata Tribunal decision in the case of On process Technology India (P.) Ltd v DCIT (2018) 96 taxmann.com 428 (Kolkata-Trib.) is squarely applicable to the facts of the pre....
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.... as per DTAA: The assessee is admittedly a tax resident of USA and hence it is eligible to claim benefits under India-USA DTAA. The payment received by the assessee will not qualify as "fees for Included services" under the India-USA DTAA. The definition "fees for Included services" under Article 12 to India-USA DTAA is as follows: "fee for included services means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or b) make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design." 20. The payments towards sales and marketing services provide by the assessee is not covered under sub clause (a) to Article 12(4) of India-USA DTAA as it is not ancillary to application or enjoyment of any right. Further, clause (b) to Article 12(4) ....
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....rvices. The technology will be considered 'made available' when the person who received service is enabled to apply the technology. The Hon'ble High Court, held that test is whether the recipient of the service is equipped to carry on his business without reference to the service provider. If he is able to carry on his business in future without the technical service of the service provider in respect of services rendered then, it would be said that technical knowledge is made available. The relevant finding of the Hon'ble High Cot reads as follows:- "14. Therefore the Clause in Singapore agreement which explicitly makes it clear the meaning of the word 'make available', the said clause has to be applied, and to be read into this agreement also. Therefore, it follows that for attracting the liability to pay tax not only the services should be of technical in nature, but it should be made available to the person receiving the technical services. The technology will be considered 'made available' when the person who received service is enabled to apply the technology. The service provider in order to render technical services uses technical kn....
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....vice provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other word, payment of consideration would be regarded as 'fee for technical / included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied." 22. Reliance is also placed on the judgment of Delhi High Court in the case of DIT v. Guy Carpenter & Co. Ltd. [2012] 346 ITR 504 (Del.) 23. The Kolkata Tribunal decision in the case of On process Technology India (P.) Ltd v DCIT (2018) 96 taxma....
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.... to warrant interference. The same is, therefore, upheld. The revenue's this ground of appeal, is, thus, found to be devoid of any merit and therefore, dismissed. Deletion of addition in respect of ESOP expense made by the Ld.CIT(A). 13. At the outset of the proceedings, the Ld.Counsel appearing for the assessee submitted before us that the issue is squarely covered by the judgment of Hon'ble Karnataka High Court in case of CIT, LTU vs. Biocon Ltd., reported in [2020] 121 taxmann.com 351 (Karnataka). In this regard, the Ld.Counsel appearing for the assessee submitted the written notes which is reproduced as follows: "Ground 2 The Revenue has taken a Ground that services rendered by the US entity are in the nature of Consultancy as provided in Explanation 2 to Section 9(1)(vii) providing significant professional skills and the subsidiaries are not mere marketing or commission agents. In this regard, the Respondent submits as follows: a. The CIT(A) has held that sales commission is not taxable both under the Income Tax Act and DTAA. The Revenue has not taken ground that the CIT(A)'s decision of non-taxability under the DTAA needs to be reversed. T....
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.... expenses of the assessee), laid out or expended wholly and exclusively for the purposes of the business or profession shall be allowed in computing the income chargeable under the head, "Profits and Gains of Business or Profession". 7. Thus, from perusal of Section 37 (1) of the Act, it is evident that the aforesaid provision permits deduction for the expenditure laid out or expnded and does not contain a requirement that there has to be a pay out. If an expenditure has been incurred, provision of Section 37(1) of the Act would be attracted. It is also pertinent to note that Section 37 does not envisage incurrence of expenditure in cash. 8. Section 2(15A) of the Companies Act, 1956 defines 'employees stock option' to mean option given to the whole time directors, officers or the employees of the company, which gives such directors, officers or employees, the benefit or right to purchase or subscribe at a future rate the securities offered by a company at a free determined price. In an ESOP a company undertakes to issue shares to its employees at a future date at a price lower than the current market price. The employees are given stock options at discount....
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....e accounting in the books of accounts, which has been prepared in accordance with Securities And Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. 12. So far as reliance place by the revenue in the case of CIT VS. INFOSYS TECHNOLOGIES LTD. is concerned, it is noteworthy that in the aforesaid decision, the Supreme Court was dealing with a proceeding under Section 201 of the Act for non deduction of tax at source and it was held that there was no cash inflow to the employees. The aforesaid decision is of no assistance to decide the issue of allowability of expenses in the hands of the employer. It is also pertinent to mention here that in the decision rendered by the Supreme Court in the aforesaid case, the Assessment Year in question was 1997-98 to 1999- 2000 and at that time, the Act did not contain any specific provisions to tax the benefits on ESOPs. Section 17(2)(iiia) was inserted by Finance Act, 1999 with effect from 01.04.2000. Therefore, it is evident that law recognizes a real benefit in the hands of the employees. For the aforementioned reasons, the decision rendered in the case of Infosys Technologies is o....
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....he Provision for doubtful debts is allowable as per the decision of Honourable Supreme Court in the case of Vijaya Bank vs CIT [2010] 190 Taxman 257 [Para 7 and 8 at Pg No.47 and 48 of Paper Book-II]. 3.14 The CIT(A) has stated that amount of provision for doubtful debts debited to P&L account and amount of provision for doubtful debts reduced from debtors in the balance sheet is not matching [Page 26 of the CIT(A) Order]. The Respondent submits that the CIT(A) has not appreciated that the total provision for doubtful debts reduced from Debtors as on 31.3.2015 includes opening provision [Rs.78,06,193] and current year provision debited to P&L [Rs.3,03,61,700/-] [Page 28 and 31 of Paper Book-I of AY 2015-16]. Thus, contention of CIT(A) is without merit. 3.15 Therefore, Provision for Doubtful debts should be allowed as deduction. The Respondent Prays that Revenue Appeals be dismissed, and its CO be allowed." 17. It is the case of the assessee that the Ld.CIT(A) has not appreciated that the assessee has reduced the provision for doubtful debts from sundry debtors in the balance sheet (Schedule 2.12 of the financial statement). In this regard, he has drawn....
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....y] had an occasion to deal with the first question and it has been answered, accordingly, in favour of the assessee vide Paragraph (25), which reads as under: "Prior to April 1, 1989, the law, as it then stood, took the view that even in cases in which the assessee(s) makes only a provision in its accounts for bad debts and interest thereon and even though the amount is not actually written off by debiting the profit and loss account of the assessee and crediting the amount to the account of the debtor, the assessee was still entitled to deduction under section 36(1)(vii). [See CIT v. Jwala Prasad Tiwari (1953) 24 ITR 537 (Bom) and Vithaldas H. Dhanjibhai Bardanwala vs. CIT (1981) 130 ITR 95 (Guj)] Such state of law prevailed up to and including the assessment year 1988-89. However, by insertion (with effect from April 1, 1989) of a new Explanation in section 36(1)(vii), it has been clarified that any bad debt written off as irrecoverable in the account of the assessee will not include any provision for bad and doubtful debt made in the accounts of the assessee. The said amendment indicates that before April 1, 1989, even a provision could be treated as a write off. Howeve....
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....ri Bhattacharya. However, as stated by the Tribunal, in the present case, besides debiting the Profit and Loss Account and creating a provision for bad and doubtful debt, the assessee-Bank had correspondingly/simultaneously obliterated the said provision from it's accounts by reducing the corresponding amount from Loans and Advances/debtors on the asset side of the Balance Sheet and, consequently, at the end of the year, the figure in the loans and advances or the debtors on the asset side of the Balance Sheet was shown as net of the provision "for impugned bad debt". In the judgement of the Gujarat High Court in the case of Vithaldas H. Dhanjibhai Bardanwala [supra], a mere debit to the Profit and Loss Account was sufficient to constitute actual write off whereas, after the Explanation, the assessee(s) is now required not only to debit the Profit and Loss Account but simultaneously also reduce loans and advances or the debtors from the asset side of the Balance Sheet to the extent of the corresponding amount so that, at the end of the year, the amount of loans and advances/debtors is shown as net of provisions for impugned bad debt. This aspect is lost sight of by the High Cou....