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TMI Blog2016 (8) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... impugned amount u/s. 40(a)(ia) of the Act. - IT (IT) A No. 715/Bang/2014 - - - Dated:- 29-7-2016 - Smt. Asha Vijayaraghavan, Judicial Member And Shri Inturi Rama Rao, Accountant Member Appellant by : Shri K.R. Pradeep, CA Respondent by : Shri Sanjay Kumar, CIT-III (DR) ORDER Per Asha Vijayaraghavan, Judicial Member This appeal by the assessee company is directed against the order dated 25.02.2014 of the CIT(Appeals)-III, Bangalore for the assessment year 2008-09. 2. The assessee is engaged in the development, sales and service of software products. During the year, under a scheme of arrangement approved by the Hon ble High Court of Karnataka, the service business of the assessee s parent company viz., Subex Ltd ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vying .interest under section 2340 of the Act at INR 93,865; and d) raising a demand at INR 307,863,457 upon the Appellant. 3. Disallowance under section 40(a)(i) of the Act 3.1 The learned JCIT has erred in disallowing sub-contracting charges of INR 624,985,438 payable by the Company to its Associated Enterprise ('AE') i.e. Subex Technologies Inc. (STI') under the provisions of section 40(a)(i) of the Act for non-deduction of tax at source. 3.2 The learned JCIT has erred in concluding that the subcontracting charges are liable for tax deduction at source under section 195 of the Act. 3.3 The JClT has erred in not taking cognisance of the Company's submissions that STI had not made available any ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rned Assessing Officer is not justified in referring the case of the Appellant to the TPO only to overcome the time-limit provided under first proviso to Section 153(1). 9. Without prejudice to the above, the Learned Assessing Officer has failed to appreciate that consideration paid by the STI to the Appellant also does not amount to 'fees for technical service' under Section 9(1)(vii) of the Act. 10. Without prejudice to the above, the Learned Assessing Officer has failed to appreciate that the case of the Appellant falls under the exception provided under Section 9(l)(vii)(b) of the Act and hence the recipient not liable to tax under the IT Act. 11. Without prejudice to the above, the Learned Assessing Officer ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .2 Accordingly, all the income expenses recorded in the books of Subex Limited in the intervening period (i. e., between 1st September 2007 31st March 2008) was recorded in our books by way of journal entry. The relevant Ledger account which reflects the expense of ₹ 624,985,348/- recorded by virtue of such journal entry is enclosed herewith as Annexure 2. 2. Requisite approvals for making payments to STI 2.1 Further, your goodself have also enquired whether the consideration payable by us to STI was duly approved prior to the payment. 2.2 In this regard, we would like to bring to your kind attention that the Karnataka High Court has approved the transfer of the service business on 27th March 2008 but with effect ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... exception provided u/s. 9(1)(vii)(b) of the Act and Explanation to section 9(2) substituted by the Finance Act, 2010 w.r.e.f. 1.10.1976 applies to the assessee s case. The CIT(A) was of the view that the consideration paid by assessee to STI amounts to fees for included services under Article 12(4) of Indo-u/s. DTAA by holding that the infrastructure support and ancillary services provided by STI to the assessee is to be regarded as technical services under Article 12(4) of the Indo-u/s. DTAA. 8. The CIT(A) also rejected the contention of the assessee that make available condition in the DTAA is not being satisfied by the assessee and hence the amount cannot be regarded as fees for included services as per Article 12(4) of Indo-US ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd reiterated the submissions made before the CIT(Appeals). 10. The ld. counsel for the assessee submitted that the Hon ble High Court of Karnataka had approved the transfer of service business on 27.3.2008, but w.e.f. 1.9.2007. During this intervening period between 1.9.2007 and 31.3.2008, these payments were duly approved by the officials of the parent company which is reflected in the vouchers. Accordingly all income and expenses recorded in the books of Subex Ltd. in the intervening period were recorded in the books of the assessee by way of a journal entry. In this regard, our attention was invited to the relevant ledger account at page 227 of the assessee s paperbook. It was also pointed out to the sample copy of voucher along with ..... X X X X Extracts X X X X X X X X Extracts X X X X
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