9911796707
Advanced Search 
TMI Blog2016 (12) TMI 1478X X X X Extracts X X X X X X X X Extracts X X X X ..... 18,26,347/-. 3. Whether on facts and circumstances of the case, the Ld. CIT(A) erred in not appreciating the fact that Hon'ble Supreme Court in the case of CIT Vs. Gem India Manufacturing Co. (2001) 249 ITR 307(SC) and Hon'ble High Court of Bombay in the case of London Star Diamond Co. (10 Ltd. 213 ITR 517 (Bom) had held that the diamond cutting and polishing amounts to processing of goods and not manufacturing of goods and decision relied upon in the case or M/s. Sheetal Manufacturing has not been accepted on merits." 3. Although the Revenue has raised three Grounds of appeal, but two issues have been raised, which we shall deal in seriatim. 4. Insofar as the Ground of appeal no. 1 is concerned, the same relates to an amount of Rs. 22,95,152/- representing payment to one M/s. HRD, Antwerp NV, Belgium (in short 'HRD'), which has been disallowed by the Assessing Officer by invoking Sec. 40(a)(i) of the Act on the ground that assessee failed to deduct tax at source on such payment. The CIT(A) has since set-aside the disallowance by holding that Sec. 40(a)(i) of the Act was inapplicable since assessee was not required to deduct tax at source on such payment. 5. The rele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer further referred to the provisions of Sec. 9(1)(vii) of the Act, specially Explanation 2 to the said clause, and noting that the Explanation prescribed that the impugned payment amount to income accrued to HRD in India, being 'fees for technical services' rendered, he held that assessee was liable to deduct tax at source therefrom. In the assessment order, the Assessing Officer has also referred to Article 12 of the Double Taxation Avoidance Agreement (DTAA) between India and Belgium and noted that the definition of 'fees for technical services' prescribed therein was on a similar footing to the definition of 'fees for technical services' provided in Explanation 2 to Sec. 9(1)(vii) of the Act. In nutshell, the Assessing Officer held that the impugned payment was made towards 'fees for technical services' rendered by HRD, which was liable to be taxed in India in view of Sec. 9(1)(vii) of the Act and, therefore, assessee was liable to deduct tax at source on such payment u/s 195(1) of the Act. Having failed to do so, Assessing Officer invoked the provisions of Sec. 40(a)(i) of the Act and disallowed the expenditure of Rs. 22,92,152/-. 7. In appeal, assessee reiterated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnical services" is similar under the Act as well as in the India- Belgium DTAA, so however, he referred to the Protocol Article of India- Belgium DTAA which prescribes that if under any convention and agreement between India and a third state, entered after 1.1.1990, India limits it taxation on "royalties" or "fees for technical services" to a rate lower or a scope more restricted than the rate or scope provided for in the DTAA with Belgium on the said items of income, then the same rate or scope as provided for in the later convention or agreement with the third state on the said items of income shall also apply to the India-Belgium DTAA with effect from the date on which the present agreement with Belgium or the convention or agreement with third state is effected, whichever date is earlier. On the strength of the said Protocol, CIT(A) noted that the subsequent DTAA between India and United Kingdom prescribed that "fees for technical services" would be taxable in India only if technical knowledge, expertise, skill, knowhow or process, etc., which are the basis for the services rendered, are 'made available' or 'parted with' in favour of the client located in India along with t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l submissions. The factual aspects of the controversy have already been noted by us in the earlier part of this order in detail and are not being repeated for the sake of brevity. It would suffice to note at this stage that the impugned payment to HRD has been made towards grading and certification of diamonds. The question is as to whether the payment made to HRD constitutes "fees for technical services" or not ? For this purpose, the elaborate discussion by CIT(A) in his order reflects that so far as the definition of "fees for technical services" in the India-Belgium DTAA is concerned, it is an expanded definition if considered in the light of the definition prescribed in the India-United Kingdom DTAA. The scope of the expression "fees for technical services" has been restrictively defined in the India-United Kingdom DTAA to mean that the technical knowledge, expertise, skill or know-how, etc., which are the basis for providing the services, ought to be transferred to or parted with in favour of the client so as to fall within the meaning of "fees for technical services". Now, in the present case, CIT(A) has rightly relied upon the judgment of the Hon'ble Bombay High Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... we may also refer to the alternative plea raised by assessee, which also supports the ultimate conclusion of CIT(A) that Sec. 40(a)(i) of the Act is not applicable. The alternative plea proceeds on the basis that even if the services rendered by HRD are in the nature of technical services, and are rendered and utilised in India so as to be taxable in terms of Sec. 9(1)(vii) of the Act, even then the disallowance is not warranted. In this regard, the requirement of rendering of services in India in order to attract Sec. 9(1)(vii) of the Act was removed by insertion of the Explanation by the Finance Act, 2010 with retrospective effect from 1.4.1976. According to the Revenue, inspite of the services having been rendered by HRD outside India, the same is deemed to be taxable in India in view of the aforesaid amendment and, therefore, according to the Revenue assessee was liable to deduct tax at source u/s 195(1) of the Act. 14. In our considered opinion, such retrospective amendment is determinative of the tax liability in the hands of a recipient of income, but so far as the present case is concerned, what is held against the assessee is the failure to deduct tax at source at the tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) dealt with an activity which was identical to that carried out by the assessee, and further that the decision of the Hon'ble Supreme Court in the case of Gem India Manufacturing Co. (supra) was also considered. Therefore, the CIT(A) has held the assessee entitled to the claim of Additional depreciation u/s 32(1)(iia) of the Act on the ground that the activity of cutting and polishing of rough diamonds constituted manufacturing. Against such a decision of CIT(A), Revenue is in appeal before us. 16. Before us, the only plea of Revenue is that the Assessing Officer made no mistake by following the judgment of Hon'ble Supreme Court in the case of Gem India Manufacturing Co. (supra) to hold that the activity of cutting and polishing of rough diamonds did not amount to manufacture or production. 17. On the other hand, the learned representative for the assessee pointed out that the objection raised by Assessing Officer is based on the judgment of Hon'ble Supreme Court in the case of Gem India Manufacturing Co. (supra), which has been appropriately considered by the Mumbai Bench of the Tribunal in the case of Sheetal Diamonds Ltd. (supra), and it has been held that the ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven Diamonds Pvt. Ltd. in C.A No. 9936 of 2010, wherein the following observations have been made :- "Heard learned counsel on both sides. Leave granted. We find from the impugned order of the Income Tax Appellate Tribunal ['Tribunal', for short] that there is no discussion on the process undertaken by the assessee, who claims benefit of Section 80IB of the Income Tax Act, 1961 [Act', for short]. The assessee imports raw diamonds and applies thereon the process of Sawing, Turning, Profiling, Cutting, Drilling, Polishing, etc., by the use of sophisticated machineries resulting in production of a superior marketable commodity. Detailed procedure has been set out in the paper book. The Tribunal ought to have examined the process as to whether such process would constitute 'manufacture' under Section 80IB of the Act. That exercise has not been undertaken. The reliance on the judgment of this Court in the case of Commissioner of Income Tax vs. Gem India Manufacturing Company, reported in [2001] 249 I.T.R. 307, may not be correct for the simple reason that, in that case, the Revenue succeeded as Gem India Manufacturing Company was not able to demonstrate the process undertaken by it ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
