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TMI Blog2015 (7) TMI 737X X X X Extracts X X X X X X X X Extracts X X X X ..... ARI, ACCOUNTANT MEMBER The appeal of the assessee for the assessment year 2007- 2008 is directed against the order of the Commissioner of Income Tax (Appeals)-II, Chennai dated 20.11.2013, whereas the appeal for the assessment year 2009-2010 is directed against the order of the Assessing Officer dated 17.12.2014 consequent to the direction of the Dispute Resolution Panel (DRP), Chennai. 2. First we take up ITA No.484/Mds/2014. In this appeal, the first ground is with regard to disallowances of D33,91,949/- u/s.40(a)(i) and D1,46,48,969/- u/s.40(a)(ia) of the Income Tax Act, 1961. 3. The brief facts of the case are that the assessee was engaged in the business of providing audio, video and web conferencing services to various customers across the globe. The most essential tool in its business activity was the hyper bandwidth connection service. During the year under consideration the assessee had incurred operation cost of D2,21,63,895/- towards connectivity services. The Assessing Officer disallowed a sum of D33,91,949/- and D1,46,48,969/- by invoking provisions of Section 40(a)(i) and u/s.40(a)(ia) of the Act respectively. Aggrieved, the assessee preferred an appeal befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In the case of Dell International Services Pvt. Ltd 305 ITR 37, wherein held that an issue decided on the basis of DTA agreement, the authority for advance ruling had observed that having regard to the fact that the entire operations are carried on by the applicant in India and the income is earned from such operations taking place in India, it would be futile to contend that the source of income earning activity is outside India i.e. in the country of the customer. Source is referable to the starting point or the origin or the spot where something springs into existence . The corollary of this finding is also true and therefore the non-resident certainly has income arisen in India and in the case of Cargo Community Network Pvt. Ltd. 289 ITR 355, the authority for advance rulings had held that payment made by an Indian subscriber to the Cargo community network pvt. Ltd at Singapore, for providing a password to a access and use the portal hosted at Singapore, is taxable in India and is subject to deduction of tax at source. The assessee makes payments to the international toll free serves provider to tenable its clients outside India access its services. It therefore, falls squar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum is taxable in case of a similar assessee and the income- tax authorities may make a general order that in the case of such type of assessees a particular proportion of the sum has to be considered as income chargeable to tax and tax can be deducted accordingly. It seems that the Central Board of Direct Taxes has already issued a circular in respect of advertisement income earned by non-resident TV channels, etc., where a proportion of income has been fixed to be considered as income. But there can be situations which can be generalized and the proportion of the sum can be determined on a general basis. In all other situations, where 'appropriate proportion is required to be determined, the assessee has to go before the taxing authorities and get such appropriate proportion of the same on which tax is to be deducted, determined and accordingly deduct tax. Therefore, wherever a general situation exists a general order is passed by the Department in the form of circular etc. No such circular has been issued by the CBDT, which means such parties must apply under section 195(2) for special order so as to get the appropriate proportion determined. Also the word appropriate ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the average rate of tax has to be deducted depending upon the income of the assessee, otherwise tax has to be deducted on the rates specified. We have already clarified in the initial portion of the order that the provisions regarding computation of income and tax cannot be mixed up and confused with the provisions regarding deduction of tax at source. We fail to understand, what prevented the assessee from making an application under section 195(2) and claim the so-called benefits under section 44BB. We are at a loss to understand how the assessee sitting in his own office can take such a decision that whatever payments it was making to the non-residents ultimately would be covered under section 44BB, even when such non-resident had never filed any return. We think, by adopting this course of action, the assessee tried to decide everything on his own ignoring all statutory provisions . Being so, this issue is squarely covered by the above order. Taking a consistent view, we are inclined to hold that the assessee is liable to deduct TDS for payment made to foreign service provider. However, if there is short deduction of TDS then the payment cannot be disallowed as short d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere not taxable under the relevant tax treaty as the same had not satisfied the make available test. As per the relevant tax treated, the services availed from service provider would constitute Fees for Technical Services only if such services pass the make available test. Technical knowledge experience, skill etc should be considered to have been make available' when the person acquiring the service is enabled to apply the same knowledge, technology, etc. independently. The service recipient should be able to make use of the knowledge, by itself in its business for its benefit and without the recourse to the service provider in future. In other word the recipient of the services can independently provide it to others. The assessee claims to be only utilising the services of the service provider and not in a position to provide similar service to third parties independently. The assessee is not learning or gaining knowledge, skill set while receiving the said services. Thus, the 'made available' test of the tax treaty has not been satisfied as the assessee is not enabled to independently perform such services. The Assessing Officer had giving following reaso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Therefore, the claim of the assessee was not accepted. 9. The Dispute Resolution Panel ( DRP ) observed that it was apparent that the services in question are managerial services. The make available clause should apply differently in the case of managerial services than the way it was applied to purely technical services. Managerial consultancy is basically aimed at increasing the productivity of the business by improving skill set or efficiency of the employees or by improving the systems etc., Thus, the recipient of the services is made available the knowledge and skills of the managers. It was observed by DRP that no material was placed before DRP to interfere with the Assessing Officers findings. In the limited time allowed to the DRP, the panel cannot launch its own investigation of facts. Hence, the Assessing Officer is directed to examine the issue with reference to the relevant Double Taxation Avoidance Agreement (DTAA) and then make the disallowance if required and accordingly the DRP not given any findings for the assessment year 2009-10. Thus, the assessee is in appeal before us. 10. In our opinion, the DRP has not given any findings and only given direction to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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