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TMI Blog2019 (2) TMI 781X X X X Extracts X X X X X X X X Extracts X X X X ..... h are the profit and loss account and schedule 13 and its break up, schedule 13 miscellaneous income and break up there on, submitted that during the Assessment year under consideration the assessee earned exempt income of Rs..7,32,781/- only and the Assessing Officer computed the disallowance at Rs..23,10,532/-. Ld. Counsel for the assessee referring to Page Nos. 3 & 43 of the Paper Book submitted that assessee had sufficient own funds for making investments. Therefore, he placed reliance on the decision of the CIT v. HDFC Bank Ltd [366 ITR 505], and submitted that no interest disallowance under Rule 8D(2)(ii) is called for. In so far as disallowance under Rule 8D(2)(iii) is concerned Ld. Counsel for the assessee submitted that since the assessee has earned exempt income only to the extent of Rs..7,32,781/- the disallowance may be restricted to the exempt income earned by the assessee. Reliance is placed on the Judgment of the Hon'ble Delhi High Court in the case of Joint Investment Pvt. Ltd. v. CIT in ITA NO. 117 of 2015 dated 25.02.2015. Ld. Counsel for the assessee also placed reliance on the decision of the Coordinate Bench in the case of Pest Control India Pvt. Ltd., v. DCIT ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dvisors is situated in France and does not have any permanent establishment in India and they have provided only professional services to the assessee. It was further submitted that M/s. Phora Capital Advisors was a French company and not liable to tax in India and therefore, no disallowance u/s. 40(a)(i) is required to be made. However, the Assessing Officer observed that assessee has claimed the services rendered as professional services but the services are in nature of advisory services to review the strategic and which is clearly a specialized services requiring technical knowledge for which Article 13 of Double Taxation Avoidance Agreement [DTAA] between India and France would be applicable. Therefore, in view of the Article 13 of DTAA between India and France assessee was required to withhold the tax under the relevant provisions of the Act. Accordingly, the Assessing Officer disallowed Rs..25,97,275/- u/s. 40(a)(i) of the Act for non-deduction of tax at source u/s. 195 of the Act. 10. On appeal, Ld. CIT(A) agreed with the view of the Assessing Officer that the services rendered by the M/s. Phora Capital Advisors were fees for technical services and consequently was liable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and therefore, there shall not be any disallowance u/s. 40(a)(i) of the Act. 13. Ld. DR vehemently supported the orders of the Authorities below. Ld. DR further submitted that, in fact the assessee accepted for the disallowance of balance amount as observed by the Ld. CIT(A) in Page No. 7 of Ld. CIT(A) order. In reply Ld. Counsel for the assessee submitted that no such acceptance was made by the assessee and the finding of the Ld. CIT(A) that the assessee accepted for disallowance is erroneous. Ld. Counsel for the assessee further submitted that, it was submitted before the Ld. CIT(A) that without prejudice to the main contention since the assessee has got back Rs..12,92,911/- from M/s. Bennett, Coleman & Co. Ltd., which is the holding company of M/s. Phora Capital Advisors, it was submitted that disallowance cannot be made at Rs..25,97,275/-. 14. We have heard the rival submissions, perused the orders of the Authorities below. The assessee had engaged M/s. Phora Capital Advisors in France to provide advisory services by way of review strategic and M&A options for the assessee. The assessee had remitted Rs..25,97,275/- by way of fees to M/s. Phora Capital Advisors for the said se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... effect from the date on which the present Convention or the relevant Indian Convention Agreement or Protocol enters into force, whichever enters into force later." 15. Subsequent to entering into the DTAA with France (on 29th September 1992), India entered into a DTAA with UK on 25th January 1993 wherein Clause 4 of Article 13 defined "Fees for Technical Services" as follows: "For the purposes of paragraph 2 of this Article, and subject to paragraph 5 of this Article, the term "Fees for Technical Services", means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which: - (a) .......... (b) .......... (c) Make available technical knowledge, experience, skill, knowhow or processes, or consist of the development and transfer of a technical plan or technical design. " 16. It can be seen from the above definition of the expression "Fees for Technical Services' appearing in the DTAA between India and U.K. that the scope and ambit of the term "Fees for Technical Services" is more restrictive than the definition of the said expression in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as 13, 14, 22 and 23 of its judgement as under: - 13. The Double Taxation Avoidance Agreement with the French Republic dated 07.09.1994 define s technical service at Clause 4 of Article 13 as under: - "4. The term "fees for technical services" as used in this Article means payments of any kind to any person, other than payments to an employee of the person making the payments and to any individual for independent personal services mentioned in Article 15, in consideration for services of a managerial, technical or consultancy nature. 14. The protocol which is annexed at the end of the said agreement makes it clear that at the time of proceeding to the signature of the Convention between France and India for the avoidance of double taxation with respect to taxes on income and on capital, the undersigned agreed on the provisions which form an integral part of the Convention. Clause 7 reads as under: - "7. In respect of Articles 11 (Dividends), 12 (Interest) and 13 (Royalties, fees for technical services and payments for the use of equipment, if under any convention, agreement or protocol signed after 1st September 1989, between India and a third state which is a member of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... certainment of chargeability to Income Tax and ascertainment of total income to the extent of inconsistency with the terms of DTAA. 23. In the instant case, it is not in dispute that the remuneration is only for the services rendered on a foreign soil. In lieu of consideration paid, the foreign company has not made available any technical knowledge to the assessee nor any technical knowledge is transferred to the assessee and, therefore, the income derived out of rendering technical services is not liable to tax. If there is no liability to pay tax by a non-resident, there is no obligation cast on the assessee to deduct tax at source." 19. The Hon'ble Delhi High Court in Steria (India) Ltd. vs. CIT (386 ITR 390) was concerned with more or less identical set of facts. The Court also examined the DTAA between India and France. After referring to the Protocol and Clause 7 of the Protocol, the Hon'ble Court held that there is no need for the Protocol itself to be separately notified and that the benefit of a more restrictive scope of a definition of "Fees for Technical Services", under a DTAA signed after 1st September 1989 between India and an OECD Member, is to be extended to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e date on which the present Convention, Agreement or Protocol enters into force, whichever enters into force later". 14. An attempt has been made by Mr. Rahul Chaudhary, learned Counsel for the Revenue, to urge that if a reference is made to one Convention signed after 1st September, 1989 between India and another OECD member State for the purposes of ascertaining if it had a more restrictive scope or a lower rate of tax, then that Convention alone has to be referred to for both purposes. He submitted that in certain Conventions where the tax base was restricted the rate of tax would be higher and vice-versa i.e. where the tax base is larger the rate of tax would be lower. In other words, he contended that it is not permissible for the Petitioner, in terms of Clause 7 of the Protocol, to rely upon one Convention between India and an OECD member State for the purposes of taking advantage of a lower rate of tax and then refer to another Contention between India and another OECD member State to take advantage of a more restricted scope. 15. The Court finds no warrant for the above restrictive interpretation placed on Clause 7 of the Protocol. The words "a rate lower or a scope more ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the DTAA between India and France, does not automatically become applicable and that there has to be a separate notification incorporating the beneficial provisions of the DTAA between India and UK as forming part of the India- France DTAA." 20. Following the above decisions of the Hon'ble Karnataka High Court and the Hon'ble Delhi High Court, we hold that under the DTAA between India and France, the definition of "Fees for Technical Services" has to be given a restrictive meaning similar to that of the expression "Fees for Technical Services" appearing in the DTAA between India and U.K. Thus, reading the definition of "Fees for Technical Services" appearing in the DTAA between India and France, the advisory services rendered by Phora Capital Advisers to the Assessee do not "make available" any "technical knowledge, experience, skill, knowhow or processes" to the Assessee company since, the Assessee company would have to go back to Phora Capital Advisors even in the future for availing similar advisory services. 21. Consequently, in the absence of the professional services provided by Phora Capital Advisors "making available" any "technical knowledge, experience, skill, knowho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed for the purpose of business and the case of the assessee has duly been covered by the CIT(A) dated 01.12.2010 for the A.Y. 2006-07 and the I before the ITAT. In support of this contentions, the Ld. Representative of the assessee has placed reliance upon the law settled in ACIT Vs. Arthur Anderson & Co. (2005) 94 TTJ 736 (Mumbai), S.B. Billimoria & Co v. ACIT (2010) 125 ITD 122 (Mum), Raj Enterprises ITO (1995) 51 TTJ (Jp.) 408& M/s. Gillette India Limited Vs. ACIT (2014) 162 TTJ 137 (Jaipur Trib.). On the other hand, the Ld. Representative of the Revenue has strongly relied upon the order passed by the CIT(A) in question, we have heard the argument advanced by the Ld Representative of the parties and perused the record. We noticed that the assessee has filed the detail of Business Promotion Expenses which lies at page no. 62 of the paper book. Copy of the Tax Audit Report has already been filed which lies at page no.37 to 59 of the paper book. The appellant has paid the fringe benefit tax and such type of expenses has already been allowed for the CIT(A) in the assessee's own case for the A.Y. 2006-07 vide order dated 01.12.2010. Assessing Officer disallowed the 20% of the Bu ..... X X X X Extracts X X X X X X X X Extracts X X X X
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