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TMI Blog2016 (5) TMI 25X X X X Extracts X X X X X X X X Extracts X X X X ..... xpiry of four years, we proceeded to decide the cross objections first. 2. The Cross Objections of the assessee for both the assessment years are found to have filed late by 240 days. The assessee has filed an affidavit for condonation of delay of 240 days in filing the cross objections before the Tribunal. The ld. Counsel for the assessee has submitted that the ground raised in the Cross Objections has been decided by the learned CIT(A) against the assessee and submitted that delay in filing the Cross Objections was due to the bona fide belief that the assessee could support the order passed by the learned CIT(A) without filing the Cross Objections because Rule 27 of the Appellate Tribunal Rules permit the Respondent in departmental appeal to support the order appealed against on any of the grounds decided against him. He has, therefore, submitted that the assessee however, due to abandoned precaution filed the Cross Objections. The ld. DR has submitted that the points raised in the Cross Objections are decided against the assessee by the ld. CIT(A) and submitted that the above reason would not disclose any sufficient cause for filing the Cross Objections belatedly. The ld. DR ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... und raised by the assessee with regard to challenging jurisdiction of reopening of assessment under section 147 of the Act. The Income Tax Act has provided sufficient time of 60 days for consultation, preparing appeal papers, etc. for filing further appeals/cross objections before the Tribunal. But in this case, it was sheer negligence on the part of assessee to simply slept on the orders of the first appellate authority and did not wake-up even though the Tribunal has issued notice of hearing and the assessee has not only received the notice, but also the hearings were adjourned at the request of ld. AR, who put his appearance on many occasion before the Tribunal but factually not filed its cross objections before the Tribunal in time. To condone the delay, the onus lies on the assessee to substantiate sufficient cause for delay in filing the cross objections. Since the assessee has failed to substantiate sufficient cause for delay in filing the cross objections beyond the stipulated time, the affidavits filed for condonation of delay is liable to be dismissed. Our view find support from the decision of the Hon'ble Jurisdictional High Court in the case of Madhu Dadha v. ACIT [2009 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion while computing the taxable income. After considering the submissions of the assessee, the case of the assessee was selected for scrutiny and notice under section 143(2) of the Act was issued on 18.10.2002. In response to subsequent hearing notice, the AR of the assessee appeared before the Assessing Officer and filed explanation to queries raised by the Assessing Officer. After considering various submissions, the assessment was completed under section 143(3) of the Act on 20.01.2004 by determining the total income of the assessee at Rs..1,55,99,729/- after making various additions. 7. The Assessing Officer suo motu reopened the assessment order passed under section 143(3) of the Act by issuing notice under section 148 of the Act on 28.03.2008. In response to the notice, the assessee has filed the return of income on 20.01.2004 and requested that the revised return filed on 08.05.2002 may be taken as return filed. In response to the notice issued, reasons were communicated to the assessee on 11.09.2008 and notice under section 143(2) also issued on 11.09.2008. In response to which the assessee has filed its objection vide letter dated 20.10.2008, which was disposed off by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sment years. If such payments are not claimed in the preceding year, this can be allowed in the year under consideration. We set aside the impugned order on this count and restore this issue to the file of the Assessing Officer with a direction to decide it de novo in accordance with law after providing adequate opportunity of being heard to the assessee." 11. Against the above order of the Tribunal, the Assessing Officer should have passed order giving effect to the findings of the Tribunal. We find that the Assessing Officer has simply ignored the order passed by the Tribunal on 16.05.2007 and suo moto reopened the assessment by issuing notice under section 148 of the Act on 28.03.2008 after 4 years from the end of the assessment year 2001-02. Against the order of the reassessment under section 143(3) r.w.s. 147 of the Act dated 19.12.2008, the assessee preferred an appeal before the ld. CIT(A). After considering various judicial precedents, and facts of the case, the ld. CIT(A) has observed that reopening of the assessment under section 147 beyond 4 years from the end of the relevant assessment year was bad in law and is accordingly held it as invalid and quashed the reassessm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd perused the orders of authorities below. The assessee had developed prototypes of 420 KV 40/50 KA SF6 Gas Circuit Breakers & 36 KV 200a Outdoor Type PCOB 36 Vacuum Circuit Breakers and the said prototype development will be completed only after the design tests as specified in the IEC standards are fulfilled. KEMA is an internationally recognised testing agency in Europe which carries out these design tests for the electrical engineering industry. Towards this purpose, the assessee company had entered into contract with KEMA to conduct various types of tests to these Circuit Breakers that is mandatory to achieve world wide acceptance of the Company's Circuit Breakers and components thereby make these products saleable in export markets. Like KEMA Netherlands, CESl, ltaly was another international agency to carry out the design tests for the electrical engineering industry. The Company at its factory at Naini/Kolkata had entered into a contract with CESI Italy (an International Testing Laboratory) to conduct various types of tests to Vacuum Circuit Breakers. These tests are mandatory to achieve world wide acceptance of the Company's Circuit Breakers and components, thereb ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, claimed that the provisions of Section 40(a)(ia) cannot be invoked to disallow the payment on the ground of non-deduction of tax at source. 5. The Assessing Officer did not agree with the assessee's contentions. According to him the assessee was not right in saying that no income had accrued or arisen to the US Company in India. According to him the deeming provisions of Section 9(1)(vii) of the Act was applicable and that the amount paid represented fees for technical services rendered by the US Company to the assessee within the meaning of Explanation 2 below Section 9(1)(vii)(b) of the Act. According to the Assessing Officer the testing of the equipment was a highly specialised job of technical nature and, therefore, the amount paid by the assessee to the US Company represented consideration for the rendering of technical services to the assessee. He, therefore, held that the amount was assessable in the hands of the US Company as income deemed to have accrued or arisen in India and since no tax was deducted by the assessee from the remittance of the amount, Section 40(a)(ia) came into operation and thus the amount of Rs..14,71,095/- fell to be disallowed. The Assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee exports the products which bear the KEMA certification and that such certification is not required in India or by the Indian buyers and the taxing authorities were wrong in saying that the technical services were utilised by the assessee for its business in India. (d) In any case under Article 12(4)(b) of the double tax avoidance agreement between India and USA makes it a condition that the mere rendering of technical services is not sufficient and that it is also necessary, in order that the fees for included services are taxable in India, that such services should have resulted in "making available" to the assessee technical knowledge, experience and skill. 8. The Tribunal, on the basis of arguments and the materials placed before them and after referring to Section 9(1)(vii)(b) of the Act recorded the following findings: - (a) The certification obtained by the assessee from the US Company was for enabling the export of its products. (b) The income tax authorities have not been able to bring anything on record to support their stand that the service of testing and certification has been applied by the assessee for its manufacturing activity within India. (c) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee‟s case and not (a). In other words his contention was that the fees were payable for the purposes of making or earning income from a source outside India. He elaborated this by submitting that the certification by the US Company that the products turned out by the assessee were KEMA certified and were fit for being used in European countries and in countries where such certification is accepted, was indispensable for the export of such products to those countries and accordingly the fees for such certification and testing were for the purposes of making or earning income from a source outside India. It was accordingly contended that the conditions of the second exception in Section 9(1)(vii)(b) of the Act were satisfied. 10. In support his contention, the learned counsel for the assessee drew our attention to a judgment of the Madras High Court in CIT v. Aktiengesellschaft Kuhnle Kopp & Kausch W. Germany By BHEL, (2003) 262 ITR 513. In this case it was held that the exports of goods represented a source outside India. The High Court was concerned with Section 9(1)(vi) which was concerned with payment of royalty by a person resident in India to a non-resident. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xability of the income referable to the import entitlements. While the income tax department took the stand that the income accrued to the assessee outside Pondicherry and was therefore texalite under the Act, the assessee maintained that the receipts were only in Pondicherry and since the exports were made from Pondicherry, the income accrued or arose to the assessee in the territory of Pondicherry which was outside the purview of the Act. The Madras High Court observed that the import entitlements arose out of the export activity which was carried on by the assessee only in Pondicherry, that no part of the manufacturing or selling activity of the assessee was carried on outside Pondicherry, that the import entitlements were relatable only to the export performance which took place in Pondicherry and that on the fulfillment of the export activity, a right to receive the export incentive accrued in favour of the assessee in the territory of the Pondicherry. The argument of the department was that the incentive was quantified and sent from Bombay from the office of the Textile Commissioner and, therefore, the income arose within the taxalite territories. This argument was rejected b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as been dealt with in some authoritative pronouncements. The Judicial Committee in Rhodesia Metals Ltd. v. Commissioner of Income Tax, (1941) 9 ITR (Suppl.) 45 observed that a "source" means not a legal concept but one which a practical man would regard as a real source of income. This observation was adopted by Malik, J. in his separate but concurring judgment in the case of Rani Amrit Kaur v. CIT, (1946) 14 ITR 561, a decision of the Full Bench of the Allahabad High Court. A source of income was described by R. S. Pathak, J. (as he then was) in the following words in Seth Shiv Prasad v. CIT, (1972) 84 ITR 15 (All.) at page 18: - "A source of income, therefore, may be described as the spring or fount from which a clearly defined channel of income flows. It is that which by its nature and incidents constitutes a distinct and separate origin of income, capable of consideration as such in isolation from other sources of income, and which by the manner of dealing adopted by the assessee can be treated so." The observations of the Judicial Committee (supra) as to what is a source of income have been approved by the Supreme Court in CIT v. Lady Kanchanbai, (1970) 77 ITR 123. The lo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... second exception in Section 9(1)(vii)(b) of the Act. It does not bring the case under the first exception either, because in order to get the benefit of the first exception it is not sufficient for the assessee to prove that the technical services were not utilised for its business activities of production in India, but it is further necessary for the assessee to show that the technical services were utilised in a business carried on outside India. Therefore, we cannot also approve of the Tribunal's conclusion in para 29 of its order to the extent it seems to suggest that the assessee satisfies the condition necessary for bringing its case under the first exception. Be that as it may, as we have already pointed out, since the source of income from the export sales cannot be said to be located or situated outside India, the case of the assessee cannot be brought under the second exception provided in the Section. 14. Mr. Vohra, learned counsel for the assessee, however, contended that income arose not only from the manufacturing activity but also arose because of the sales of the products and if necessary a bifurcation of the income should be made on this basis and that portion of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssed the applicability of Article 12 of the Indo-US Treaty, which defines "fees for included services" in a manner which is different from the definition of "fees for technical services" in Explanation 2 below Section 9(1)(vii) of the Act. It would therefore not be proper or necessary for us to examine the applicability of the treaty which should be left to the Tribunal. While therefore answering the first substantial question of law in the negative, in favour of the Revenue and against the assessee, we restore the issue relating to the applicability of the Indo-US treaty to the receipt in question and consequently the applicability of Section 40(a)(ia) of the Act to the Tribunal." 19. In the instant case, it is a fact that the export contracts are concluded in India and the assessee's products are sent outside India under these contracts. Further the manufacturing activity of the assessee is also located in India. The source of income is created at the moment when the export contracts are concluded in India. Even though the importer of the assessee's products is situated outside India, he is only the source of the monies received and he cannot be regarded as a source of inco ..... X X X X Extracts X X X X X X X X Extracts X X X X
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