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TMI Blog2012 (12) TMI 763X X X X Extracts X X X X X X X X Extracts X X X X ..... essee to the said entity in USA for such services. According to the AO, the said amount payable by BAH India to the USA entity was chargeable to tax in India in its hands as "fees for technical services" and BAH India was liable to treat as an agent of the said entity for this purpose. He, therefore, issued a notice to BAH India requiring it to show cause why it should not be treated as an agent. Although the assessee raised objection in this regard, the AO overruled the same and passed order u/s 163 treating BAH India as an agent of the USA entity which was upheld by the learned CIT (Appeals). The AO, therefore, issued notice u/s 148 to BAH India as an agent of the USA entity in response to which return of income was filed by the assessee declaring total income of the said entity chargeable to tax in India for the year under consideration at Nil. In the assessment completed u/s 143(3) read with section 148 of the Act on BAH India as agent of the USA entity, the amounts payable by BAH India to the said entity was brought to tax in India by the AO as "fees for technical services". 3. Against the order passed by the AO u/s 143(3) read with section 148 of the Act, appeal was filed by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nowledged by BAH India by claiming deduction in its profit & loss account, income had accrued during the year under consideration. 4. It was also contended on behalf of BAH India that as per the specific language used in the relevant tax treaties, "fees for technical services" could be taxed only when it was paid to the resident of the other contracting States. It was contended that since the amounts of fees for technical services had not been paid by BAH India to the USA entity in the year under consideration, the same could not be taxed in that year. The learned CIT (Appeals) did not find merit in this contention also raised before him. According to him, the word "paid" used in the relevant Article of the treaty dealing with "fees for technical services" was not used to denote actual payment of the same but the same was used in the sense of incurring a liability. He, therefore, held that the amount payable by BAH India to the USA entity was chargeable to tax in India as "fees for technical services" in the year under consideration although the same was not actually paid in that year. Accordingly, the addition made by the AO on account of fees for technical services in the assess ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of Hon'ble Supreme Court in the case of LIC of India v. Escorts Ltd. (supra) which was not rendered in connection with the Income-tax proceedings. He contended that the said decision was rendered by the Hon'ble Supreme Court taking into consideration the provisions of section 29 of FERA which are very specific in this regard. He contended that the issue before the Hon'ble Supreme Court in any case was not related to accrual of income and the decision rendered by the Hon'ble Supreme Court in altogether different context was wrongly relied upon by the learned CIT (Appeals). 8. The learned DR, on the other hand, submitted that in the case of assessee following mercantile system of accounting, once income is accrued, the same is taxable. He contended that the amount in question payable to USA entity was claimed by BAH India as deduction by passing necessary entries in the books of account which itself shows that there was accrual of income to the said entity. He submitted that in the case laws relied upon by the learned counsel for the assessee, the assessee had actually sought permission from the RBI whereas in the present case, no such permission has even been applied to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to foreign lawyers, payment of which was subject to approval from the RBI, could be said to have accrued only on receipt of such approval and the assessee was entitled to claim deduction for the said amount only in the year when such approval was granted by the RBI. 11. In our opinion, the judicial pronouncements discussed above clearly support the stand of the assessee that income on account of the amount payable by BAH India to the USA entity could be said to have accrued to the said entity only on receipt of the required approval from RBI and there being no such approval received during the year under consideration, the same could not be taxed as income in that year. It is observed that the learned CIT (Appeals), however, has not accepted this stand relying on the decision of Hon'ble Supreme Court in the case of LIC of India v. Escorts Ltd. (supra) wherein it was held that permission granted by the RBI is to be construed to mean both permission granted previously or obtained subsequently. As rightly contended by the learned counsel for the assessee, the said decision, however, was not rendered by the Hon'ble Supreme Court in relation to income-tax proceedings and there was n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... followed by the assessees has not been pressed by the learned counsel for the assessee at the time of hearing before us. The same is accordingly dismissed as not pressed. 14. In ground No.7 raised in this appeal, the assessee has disputed the addition made by the AO and confirmed by the learned CIT (Appeals) on account of the amount payable by BAH India on the ground that the same is not liable to tax in India under the relevant tax treaty which covers only the amount paid. 15. The learned counsel for the assessee submitted that the amount in question payable by BAH India to the USA entity was not actually paid during the year under consideration. In this regard, he referred to the relevant provision of Article 12 of the treaties to point out that the term "Royalties" as used in Article 12 is defined to mean "Payments of any kind received as a consideration for .. .. .. .. .. .. .." and the term "fees for technical services" is defined to mean "Payments of any amount in consideration for". He contended that royalties and fees for technical services thus are liable to tax as per Article 12 of the relevant treaties only on payment basis and there being no payments made by BAH India ..... X X X X Extracts X X X X X X X X Extracts X X X X
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