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TMI Blog2009 (8) TMI 845X X X X Extracts X X X X X X X X Extracts X X X X ..... of managing and underwriting the issue. For this purpose the Lead Managers were entitled commission calculated on the principal amount of the bonds at 0.5 per cent for underwriting, 0.5 per cent for management and 1.50 per cent as selling commission. Thus total of 2.5 per cent was to be retained by them. In addition, the assessee also agreed to reimburse certain costs and expenses. The Lead Managers were to collect proceeds of the GDR issue on behalf of the assessee and the net amount was to be remitted after deducting their commission and out of pocket expenses etc. The Assessing Officer noted that following payments had been made by the assessee to different non-resident Lead Managers in connection with bringing out the Euro issue. S. No. Name & Address of the Party Amount (Rs.) Nature of services claimed 1. C.S. First Boston One Cabot Square, Canary Wharf London E14 4Q Lead Manager to the issue 47,055,000 15,685,000 15,685,000 15,685,000 2,527,808 615,913 1,005,760 Selling Commission Management Commission Underwriting Commission Initial Expenses Out of pocket expenses Listing Fees Printing Charges of Prospectus 2. International Finance Corporation 1818, h Street, NW Wa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... levant provisions of the DTAA? (c)Whether some services connected with managing and underwriting the issue are rendered in India? (d)Whether it is relevant for some of the services to be rendered in India to determine the taxability of its payment? (e)Whether it would be appropriate to call the consideration as 'sales commission' in place of the 'managing fee'? (f)Whether the provisions of section 9(1)(vii) and section 9(1)(i) are to be invoked in exclusion to one another or whether section 9(1)(vii) is a sub-set of section 9(1)(i) of the Income-tax Act, 1961?" 4. Considering the meaning of the words "technical and consultancy" as per dictionary as well as the judgment in the case of Central Board of Direct Taxes v. Oberoi Hotels India (P.) Ltd. [1998] 231 ITR 148 (SC) and GVK Industries Ltd. v. ITO [1997] 228 ITR 564 2 (AP), the Assessing Officer held that the services received by the assessee were nothing but technical and consultancy services in the financial field. As regards the second basic issue he held that the assessee was not covered under the two exceptions provided in section 9(1)(vii). As far as the Tax Treaty between India and U.K. is concerned, the provisions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the commission by way of selling concession and management services paid to non-resident Lead Managers and Co-Managers are not liable to tax. 2. On the facts and in the circumstances of the case and in law, the CIT(A) erred in holding that the reimbursement of expenses to the non-resident Lead Managers cannot be considered as taxable in India even under section 9(1)(vii) of the Income-tax Act, 1961 ignoring the fact that the reimbursement of expenses represent constructive receipt in the hands of the non-resident Lead Managers/Managers and, therefore, the provisions of section 9(1) of the Act are attracted." 7. We have heard the rival submissions and perused the relevant material on record. It is noticed that similar issue came up for consideration before the Special Bench of the Tribunal in Mahindra & Mahindra Ltd. v. Dy. CIT [2009] 30 SOT 374 (Mum.). In that case also GDR issue was brought out and the service of Lead Managers were availed to whom amounts in the nature of management, underwriting and selling commission were paid, apart from the reimbursement of certain expenses. In that case it has been held that the fees for technical services under section 9(1)(vii), read with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (supra) has considered this aspect and it has been held that the legal services will also be covered within the ambit of 'fees for technical services' as per the provisions of section 9(1)(vii). In the opposition the learned A.R. candidly accepted that the legal charges have been held to be falling under section 9(1)(vii) in that case. 10. He, however, argued that the Special Bench order has been rendered per incuriam for non-consideration of legal position which was not brought to its notice. He relied on the Judgment of Hon'ble jurisdictional High Court in the case of Clifford Chance v. Dy. CIT [2009] 176 Taxman 458 (Bom.) in which it has been held that section 9(1)(vii)(c ) envisages the fulfilment of two conditions : services which are source of income sought to be taxed in India must be (i) utilized in India and (ii) rendered in India. He argued that the legal services rendered by the Hongkong firm were not utilized in India and hence the conditions as set out by the Hon'ble Bombay High Court are not satisfied. He referred to another judgment of the Hon'ble Karnataka High Court in the case of Jindal Thermal Power Co. Ltd. v. Dy. CIT [2009] 182 Taxman 252 in which the judgmen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ction 9(1)(vii) and contended that the ld. CIT(A) had rightly decided this controversy in favour of the revenue. 12. We have heard the rival submissions and perused the relevant material on record. Admittedly there was no DTAA with Hongkong for the relevant year. As such we will restrict ourselves in examining the provisions of section 9(1)(vii) in order to ascertain the deductibility or otherwise of tax at source from the payment so made to the firm of legal advisors at Hongkong. At this stage it will be relevant to consider the material part of section 9(1)(vii), as under :- "(vii)Income by way of fees for technical services payable by- (a)the Government; or (b )a person who is a resident, except where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c )a person who is a non-resident, where the fees are payable in respect of services utilized in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India. Explanation 2.-For the purposes of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l services. The Hon'ble Andhra Pradesh High Court in the case of G.V.K. Industries Limited v. ITO (1997) 228 ITR 564 (AP) had also the occasion to consider the meaning of the term "technical services". In that case also section 9(1)(vii)(b ), read with Explanation 2 was involved and it was held that the fees received by the non-resident for offering its services as financial advice to the project fell in "technical services" within the ambit of section 9(1)(vii )(b). In our considered opinion the Assessing Officer was right in terming the services rendered by the lead managers as falling within the purview of managerial technical or consultancy services so as to be considered as "fees for technical services" under Explanation 2 to section 9(1)(vii)." 15. In the case before Special Bench also some payment was made to legal advisors in connection with the GDR issue, which was held to be falling within the expression 'fees for technical services'. The learned A.R. has tried to make out a case that the relevant provisions were not considered by the Special Bench in concluding that such legal charges were also covered within the expression 'fees for technical services' as per Explanati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce" referred to in section 9(1) contemplates rendering of a "service" to the payer of the fee. Mere collection of a fee for use of a standard facility provided to all those willing to pay for it does not amount to the fee having been received for technical services. When a person decides to subscribe to a cellular telephone service in order to have the facility of being able to communicate with others, he does not contract to receive a technical service. From the above observations of the Hon'ble High Court it can be easily seen that the matter for consideration before the Hon'ble High Court was to consider whether the cellular mobile telephone service provided to the subscriber would come within the meaning "technical services" or not. This judgment has been rendered in an altogether different context. We are dealing with a case in which GDR issue was brought out by the assessee and several payments were made to the Lead Managers in order to facilitate the proper subscription to the GDR issue. The management and selling commission allowed to the non-resident in respect of GDR issue have also been held to be falling within the expression "fees for technical services" under section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e (a) of this provision states that if the income is payable by the Government which is in the nature of 'fees for technical services' as defined in Explanation 2, then it will be deemed to be accruing or arising in India to the recipient. Thus it is immaterial that the payee is resident or non-resident and whether such services are rendered and/or utilised in India or not. So long as the income payable by the Government is on account of fees for technical services, its exclusion from section 9 is not possible. On the contrary clause (c) deals with the income payable by non-resident. Unless the services are rendered and utilised in India, as has been held in Clifford Chance's case (supra), the fees for technical services shall not be considered as covered under this provision. It is so for the reason that the language of clause (c) makes it explicitly clear that it shall be applicable 'where the fees are payable in respect of services utilised in a business or profession carried on by such person in India. . .'. When we turn to clause (b) it is evident that the same applies to the income by way of fees for technical services payable by a person who is a resident. After this part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... red opinion that there is no substance in this contention raised by the ld. AR. This ground is partly allowed to the extent of granting immunity from deduction of tax at source only on the reimbursement of expenses, as discussed above. The remaining amount in Indian rupees equivalent to 1,60,000 $ is taxable under section 9(1)(vii). Having failed to deduct tax at source, the assessee is in default as per section 195 and liable to be visited with the consequences as per section 201(1) and (1A). 21. The assessee has raised an additional ground challenging the order passed by the Assessing Officer on account of limitation period. It was submitted by the ld. AR that this ground could not be raised earlier due to certain reasons beyond the control of the assessee. It was, however, pleaded that it being a legal ground going to the root of the matter should be admitted and disposed of on merits. No serious objection was raised by the ld. DR on the admission of the ground. We find that in Mahindra & Mahindra Ltd.'s case (supra) also the question of limitation was raised by the assessee by way of an additional ground which was admitted and disposed of on merits. Following the reasoning giv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... once the Special Bench has decided this aspect then it should not be re-agitated time and again. 23. After considering the rival submissions and perusing the relevant material on record it is noticed that the Special Bench of the Tribunal in identical circumstances considered the different views expressed by the Hon'ble Delhi High Court and the Hon'ble Calcutta High Court. After taking note of various aspects of the limitation issue at great length, it has been finally held that the order passed under section 194, read with sections 201(1) and 201(1A) cannot be held as barred by limitation "in law" if it is not passed within four years from the end of the relevant financial year. 24. We will like to clarify that Special Bench is constituted to resolve the controversy between the conflicting views on a particular subject. Once the Special Bench of the Tribunal decides a controversy in a particular manner then that becomes binding on the other Division Benches of the Tribunal. In the absence of any direct judgment of the Hon'ble Supreme Court or the Hon'ble jurisdictional High Court, it is not open to the Division Benches to deviate from the view expressed by the Special Bench. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AR is taken to a logical conclusion then the very constitution of the Special Benches of the Tribunal will become infructuous and all such Special Benches, following this dictum, will simply sit and decide the issue in favour of the assessee. Going further the issues come up before the Hon'ble Supreme Court involving the divergence of views by the various High Courts. The Hon'ble Supreme Court, after considering all the rele-vant aspects of the matter, decides which view is correct. If this standard rule, as agitated before us, is taken further and applied by the Hon'ble Supreme Court also, then there will not remain any need for going into the merits of the case vis-a-vis the prevalent legal position. It will simply follow the view expressed by the Hon'ble High Court in favour of the assessee, even if the other contrary view in favour of the revenue is more logical and convincing. The proposition raised before us about universal application of this rule and that too under all circumstances, is not acceptable for the reason that it is the duty of the Courts or the Tribunal to consider various aspects of the issue and the prevalent legal position before deciding whether the case sho ..... X X X X Extracts X X X X X X X X Extracts X X X X
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