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TMI Blog2005 (6) TMI 550X X X X Extracts X X X X X X X X Extracts X X X X ..... f DTA are not applicable. Therefore, respectfully following the finding of the Tribunal, we hold that in the present case also the provisions of DTA are applicable. Therefore, the reimbursement of expenses, underwriting fees and selling commission cannot be considered as taxable in India even u/s 9(1)(vii). As we have held that DTA agreement with UK is applicable and payments made do not fall within the definition of fees for technical services under Article 13.4 (c) of the agreement. Hence these were not taxable in India. Therefore, the assessee company was not liable to deduct tax from them it cannot therefore be treated as assessee in default u/s 201 (1). Consequently, no interest u/s 201 (1A) can be charged. Therefore, we delete the additions made, by holding the assessee was not in default in terms of section 201(1) and consequently charging interest in terms of section 201 (1A). In the result appeal of the assessee is allowed. - RK GUPTA, JUDICIAL MEMBER AND AK GARODIA, ACCOUNTANT MEMBER For the Petitioner : Dinesh Vyas For the Respondent : K K Sharma ORDER R K GUPTA, JM : This is an appeal by the assessee, against the order of CIT(A), relating to assessment year 1999-2000. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s provided in section 9(1)(vii). As per DTAA between India and UK, the provisions of Article 13(4) are applicable on the facts of the present case. Accordingly it was submitted that taxability of payments would be governed by the provisions of Treaty and not of the Act provisions of section 9 (1)(vii) of the Act, therefore, do not apply. However, the Assessing Officer, who after considering the submissions and considering the case laws, held that the provisions of Treaty are not applicable and provisions of the Act are applicable. It was also held that the services obtained by the assessee and payments in lieu of those services made were taxable in India. Hence, the assessee was liable to deduct tax under section 195, which it failed to do so. Accordingly, it was held that the assessee was in default in terms of section 201(1) and consequently the assessee was also liable to interest under section 201(1A) of the Act. After holding so, the Assessing Officer calculated the tax. TDS on payment/credit of ₹ 8,72,88,862/- with applicable grossing up was worked to ₹ 3,74,09,512/-. From the closing date, i.e. February 1994 to December 1999, the Assessing Officer calculated the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t has not brought any material on record that they want to engage a special counsel or they are engaging a special counsel to argue the case. It was further submitted by him that the issue is squarely covered by the decision of the Tribunal in the case of Raymond Ltd vs. DCIT, 86 ITD 791 ( Mum). It was further added that in the case of Raymond Ltd. the Department has engaged special counsel, Shri S.D. Kapila, who had argued at length and after taking his arguments, then only the case was decided by the Bench. At this point of time the learned DR fairly conceded that in the case of Raymond Ltd. the Department has engaged special counsel, therefore, he stated that he is ready to argue the case on behalf of the Department. 9. The learned counsel of the assessee, who appeared before the Tribunal, firstly raised the issue in regard to time limitation. It was submitted that the agreement between the assessee and BZ was entered sometime in the month of February 1994 and payments were made accordingly on account of various expenditures. It was further submitted that after a period of more than 5 years the Assessing Officer issued notice in terms of section 201(1) and 201(1A), which is beyo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entered in the month of February 1994 and the order was passed in the year of 2000. It was further stated that earlier, with the permission of CIT, the proceeding can be taken within 10 years and now under the new law, the proceeding can be taken within 6 years. As the AO has passed the order within 6 years, therefore, the order is within the time limit allowed under the provision of law. It was further submitted that there is no provision in law now for taking permission of CIT. Accordingly it was submitted that the ratio of the decision in the case of Raymond Woollen Mills Ltd. vs. ITO, 57 ITD 536 (Mum) and in the case of Sahara Airlines Ltd. vs. DCIT, 83 ITD 11 (Del) are not applicable on the facts of the present case. On merit it was submitted that the decisions of the tribunal in the case of Raymond Ltd. vs. DCIT, 86 ITD 791 (Mum) and in the case of CESC Ltd vs. DCIT, 87 ITD 653 (Kol) (TM) are distinguishable on facts. Therefore, they are not applicable. Further reliance was placed on the decision of the Karnataka High Court reported in 250 ITR 853 (Kar). 12. In reply, the learned counsel of the assessee stated that it is wrong to suggest that there is no ground taken by the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... however, upheld the levy of interest. On appeal, the Tribunal has held that a person of 4 years has been held to constitute a reasonable time for levy of interest under section 201(1A), taking into account the various periods of limitation under the Act, which range from 2 to 4 years, except in exceptional cases. It was further observed by the Tribunal that the intention of the Parliament in not putting a specific bar of limitation is not to give a licence to the Assessing Officer to hold the assessee to ransom for all time to come but to ensure that all pre-assessment taxes were collected promptly and such proceedings were finalised much before taking up the regular assessment proceedings. Accordingly the orders of the Assessing Officer for the assessment years 1978-79 to 1985-86 were quashed by the Tribunal. 15. In the case of Sahara Airlines Ltd. vs. DCIT, 83 ITD 11 (Del), similar view was taken by the Tribunal. The finding of the Tribunal are given in Para 44, which are as under:- 44. Rival contentions of the parties have been considered carefully. No doubt, the decision of the Calcutta High Court relied upon by the ld. Sr. DR helps the case of the revenue since it has been he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of section 231 is concerned, it has no relevance since that section was for recovery of the tax or interest levied by the Assessing Officer for which demand notice had already been issued or for which assessee was deemed to be in default. Section 231 could be applied only if any tax was to be recovered and thereafter limitation provided in that section did not control the action of Assessing Officer under section 201 which was anterior to section 231. Therefore, in our opinion, such plea of learned CIT DR cannot be accepted. At this stage, it would be appropriate to mention that earlier there was some confusion as to whether period of 4 years was to be counted from the end of the assessment year or the financial year due to certain discrepancy regarding date of order under section 201(1) in the case of Raymond Woollen Mills Ltd. (supra). However, such confusion has been removed by the Delhi Bench in the case of Pepsi Foods (ITA Nos. 542 and 543 (Del) 96) after ascertaining the factual aspects in the case of Raymond Woollen Mills Ltd. (supra). It has been clarified by the Bench vide order dated 08.08.2002 that period of four years laid down by the Bombay Bench was to be counted f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar. We hold accordingly In view of the above discussion, it is held that impugned orders under section 201/201(1A) pertaining to financial years 1988-89 to 1994-95 are illegal, being time barred since the orders were passed on 30.03.2000. being time barred since the orders were passed on 30.03.2000. Consequently, the orders under section 201/204(1A) for these years are quashed. 17. After taking into consideration of the ratio of the above decisions and taking into consideration the submissions of both the parties, we find that the orders passed by the Assessing Officer under section 201(1) and 201(1A) are barred by limitation. Undisputedly the tax was to be deposited before 31st March 1994. However, the proceedings under section 201(1) and 201(1A) were initiated by the Assessing Officer in 2000. As the order was passed on 24.01.2000, it is beyond the period of limitation of 4 years, which has been held as reasonable period for deciding such issues. Therefore, following the decision of the Tribunal, we hold that the orders of the Assessing Officer are barred by limitation. 18. Now we will take up the issue on merits. We have considered the arguments of both the sides and also consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... international market. Similar agreements were entered into by the assessee and other parties along with bankers. Road shows were held to attract the investors and various types of expenditures were incurred, which were reimbursed by the assessee and in view of the DTAA no tax was deducted at source, as the assessee was of the view that there is no tax liability on the assessee, as the expenses reimbursed were not in the nature of revenue in the hands of recipient, therefore, they were not liable to tax. In the case of Raymond Ltd. (supra), the assessee filed appeal against the order of the CIT(A) and the Tribunal, after considering the various arguments of learned counsel, Shri S E Dastur, who appeared on behalf of the assessee and Shri S D kapila, special counsel, who appeared on behalf of the Department, it was held that provisions of DTAA are applicable on the facts of the present case. Various contentions were raised by the counsel on behalf of the assessee was dealt with by the Tribunal. Some of the contentions were rejected. However, the convention that whether the Treaty under DTAA between India and UK is applicable or not, it was held by the Tribunal that provisions of DTA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch of UK. As it turned out later, the subscription agreement was entered into with Merrill Lynch of UK. We have already seen that there can be no water-tight compartmentalisation between what happened before and after 9.11.1994. Nothing has been brought to record to show that Merrill Lynch UK has disowned the contract of appointment or the terms and conditions thereof embodied in the letter dated 26.9.1994 which was signed by the assessee-company on 23.10.1994. This letter refers to Merrill Lynch International Ltd. which is situated in UK. The appointment as lead manager is of Merrill Lynch international Ltd. as is clear from this letter itself. Further, the subscription agreement is, inter alia, with Merrill Lynch International Ltd. and the complete London address is given therein. Apparently Merrill Lynch International Ltd. of UK negotiated with the assessee-company through its Asia Pacific Regional office in Hongkong in the preliminary stages. But from that it cannot be said that the assessee utilised the services of the Asia Pacific Regional office of Merrill Lynch, which was located in Hongkong, and therefore the UK treaty does not apply. Mr. kapila's preliminary objection ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dividual or partnerships for professional service as defined in article 15 (Independent personal service) of this convention.andrdquo; The definition of technical services in Article 13.4 of the earlier DTA agreement with UK which was superseded by the 1993 agreement, was similar to the language employed in Section 9(1)(vii) of the Income-tax Act 1961 and included managerial services. But in the subsequent agreement in 1993, the Article 13.4 (c) used different language as may be seen. It dropped the managerial services. There are also significant additions. It is however, common ground that Article 13.5 does not apply. We should also keep in view the gentle but firm reminder of Mr. Dastur that in the meantime (1990) India had entered into a DTA with USA and also a MOU thereunder in which the parties thereto had understood the definition in a particular way and there was no reason why the parties would not have intended to give the same meaning to the identical definition in the subsequent DTA with UK. There is a good deal of sense and logic in the argument because it is difficult to postulate that the same country (India) would have intended to give different types of treatment to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent [see High School English Grammar and Compositions by Wren and Martin (1994), revised edition, page 45]. The noun going before the relative pronoun which: in the article is service . At pages 46 and 47 of the same book by wren and Martin, it is stated as under: Note- The relative pronouns who and which can be used andndash; (i) to restrict, limit, or define more clearly the antecedent; (ii) To give some additional information about the antecedent;.................. 92. We hold that the word which occurring in the article after the word services and before the words make available not only describes or defines more clearly the antecedent noun ( services ) but also gives additional information about the same in the sense that it requires that the services should result in making available to the user technical knowledge, experience, skill etc. thus, the normal plain and grammatical meaning of the language employed, in our understanding is that a mere rendering of services is not roped in unless the person utilizing the services is able to make use of the technical knowledge, etc. by himself in his business or for his own benefit and without recourse to the performer of the service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e used by the Indian company to suit a particular purpose. A modified computer software programme is supplied by the US Company to the Indian company. It is therefore held that there is a transfer of a technical plan (i.e., computer software) which the US company has developed and made available to the Indian company. The fees are chargeable. These examples affirm the position taken by the assessee-company before us as to the interpretation of the words make available . 95. Article 12.4 (b) of the DTA with Singapore was relied on by both sides by Mr. Dastur to show that the words used therein, viz., if such services make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein andhellip;.. merely make it explicit what is meant by make available while Mr. Kapila contended that these words being absent in the DTA with UK, it indicates that the assessee-company need not be in a position to apply the technology for its own use in future without recourse to the person rendering the services. On a careful consideration of the matter we are of opinion that the addition of these words ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the GDR issue (Merrill Lynch and others) within the meaning of article 13.4(c) of the DTA. What happens if the DTA with UK is applicable? 98. We now proceed to consider the consequence of our conclusion that the DTA with UK is applicable to the present case. 99. It was very fairly stated by Mr. Kapila, learned representative for the Revenue, that if the DTA is held applicable, then no part of the fees for managerial services can be considered as fees for technical services, since the word managerial does not find a place in the article concerned. There can be no two opinions about his view. We therefore hold that the management commission of US$ .0939 per GDR cannot be charged to tax in the hands of Merrill Lynch to whom the same is paid. The assessee-company consequently was under no obligation to deduct tax under section 195. we hold accordingly. 100. As regards the underwriting commission , in view of the foregoing discussion, we have to hold that no technical knowledge, etc. was made available to the assessee-company by the rendering of the underwriting services and therefore the definition in the Double Tax Agreement is not applicable. 101. As regards selling concession or ..... X X X X Extracts X X X X X X X X Extracts X X X X
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