9911796707
TMI Blog2024 (8) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... ive years are exactly identical and admitted by ld.counsel for the assessee as well as ld.Senior DR, these appeals are heard together and are disposed off by this common order. 2. At the outset, it is noticed that the appeal by assessee in ITA 1477/CHNY/2018 is barred by limitation by 99 days. It is noticed from Form 36 that the order of CIT(A) dated 27.10.2017 was received by assessee on 24.11.2017. The appeal has to be filed on or before 23.01.2018 but it was actually filed on 02.05.2018 with a delay of 99 days. The assessee has filed condonation petition for condoning the delay along with affidavit. The assessee has stated the following reason in its affidavit for the delay of 99 days and requested for condonation of delay:- 3. I state that the aforesaid delay in filing the appeal is as mentioned as under: 4. I state that, upon receipt of the CIT(A) order, the order was shared with our tax consultants on 29th November 2017 through e-mail. Since the tax consultants were held up with income tax compliances during the last week of November 2017, the e-mail was inadvertently overlooked for taking necessary action. 5. I state that, while the statutory auditors of the Petitione ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on of TDS u/s. 195 of the Act and thereby invoking the provisions of section 40(a)(i) of the Act. The ld.counsel for the assessee as well as the ld. Senior DR agreed that facts and circumstances are exactly identical in all the five years and grounds raised are also identical. Hence, we will take the facts and grounds from assessment year 2011-12 in ITA No.1497/CHNY/2017 and will decide the issue. The relevant grounds raised in assessment year 2011-12 reads as under:- 2.1 Disallowance of Professional Fees paid to Eva Delith: 2.1.1 The CIT(A) erred in confirming the disallowance of professional fees amounting to Rs. 43,18,481 made by the AO in relation to marketing support services rendered by Ms.Eva M Delith ('Ms.Eva'), an Independent Consultant outside India. 2.1.2 The CIT(A) ought to have appreciated that the support services rendered by the Ms.Eva are only facilitation in nature not involving managerial, technical or consultancy knowledge and hence does not fall within the meaning of "fee for technical service" as per explanation 2 to section 9(1)(vii) of the Act. 2.1.3 Without prejudice to the above, even if the above services are considered as technical in natu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ge so as to fall within the meaning of 'fee for technical services (FTS)'. But the AO was of the view that in view of section 195 of the Act, the assessee company has to approach the Income-tax Department u/s. 195(2) of the Act before remitting the payments to a non-resident but the assessee did not file the prescribed undertaking along with certificate from an accountant while remitting these payments and the source of income emanates principally on account of business activities conducted in India and hence, the payments made are liable to be disallowed u/s. 40(a)(i) of the Act. Accordingly, he disallowed these payments and added back to the income of the assessee. Aggrieved, assessee preferred appeal before CIT(A). 4.2 The CIT(A) following the earlier order i.e., for assessment year 2008-09 in ITA No.28/2010-11/CIT(A)-3 dated 31.01.2017 confirmed the disallowance made by AO. Aggrieved, assessee came in appeal before the Tribunal. 4.3 Before us, the ld.counsel for the assessee argued that the assessee company has employed Ms. Eva M Delith, Germany, a marketing specialist in German market. Her services were meeting and soliciting customers in Germany, periodic visit to warehouse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... could not negate. Further, the ld.counsel for the assessee took us through the relevant DTAA between India and Germany, wherein Article 14 deals with independent professional services, as claimed by assessee, the payment to Ms.Eva M Delith falls under the category of independent professional services, which deals with the income of an individual resident in contracting state and performing professional services or other independent activities and income for the same shall be taxable only in that state unless she has fixed base in India nor did she visited India at all for any period during the relevant previous years falling in the above five assessment years under appeals and hence, her income is taxable only in Germany. As pointed out by ld.counsel, this issue is covered by the Co-ordinate Delhi Bench of this Tribunal wherein Article 14 of DTAA of India and Germany was considered in the case of DCIT vs. Mira Exim Ltd., in ITA No.125/DEL/2014 & CO No.256/DEL/2014, order dated 24.04.2017 and vide para 6.4 has held that since the income itself was not chargeable to tax in India, therefore, there was no liability for assessee to deduct TDS u/s. 195 of the Act. Consequently, no disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 8 wherein the services rendered by the applicant as "an engineer by way of technical and marketing consultancy services were held to be covered under Article-14 of the DTAA between India and Germany. In this case it was held that the expression "professional services" in article 14 of the Agreement for Avoidance of Double Taxation between Germany and India is wide enough to include services, if any, rendered by the applicant as an engineer and marketing consultancy services rendered by the applicant were in the nature of professional services falling under article 14 of the Double Taxation Avoidance Agreement between India and the Federal Republic of Germany. The conditions mentioned in the said article were clearly satisfied, as there was no permanent establishment in India in the facts and circumstances of the case. The professional fees and fee for independent personal services receivable by the applicant were not taxable in India. Where an individual (who is not a salaried employee) renders independent, personal services in the foreign state, then such independent personal services are covered by Article- 14 whereby they would only be taxable in the foreign state where the inde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices rendered outside India under section 40(a)) of the Act. 2.2.2 The CIT(A) failed to appreciate that the payment is only in the nature of business receipt to the non-resident and in the absence of any Permanent Establishment (PE) for the non-resident in India, the same is not chargeable to tax in India. 2.2.3 The CIT(A) ought to have appreciated that the professional fee is not chargeable to tax in India as the services were rendered outside India. 2.2.4 Without prejudice to the above, the CIT(A) ought to have appreciated that the payment is not chargeable to tax in India under Section 9(1)(vii)(b) of the Act, as it relates to services utilized for the purpose of making or earning income from any source of income outside India. 5.1 The brief facts of the issue are that the AO during the course of assessment proceedings noted that the assessee has made payment of fee to BDO, Deutsche Warentreuhand, Germany without deduction of TDS on foreign payments made under this head as under:- Vendor Name Nature of Expenses FCY Amount in FCY Amount in INR BDO Deutsche Warentreuhand German VAT Consultant EUR 7120 430932 The AO issued show-cause notice requiring th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t was providing professional services in respect of filing VAT returns and compliance services in Germany. These are professional services and non-resident does not have a permanent establishment in India and hence, no part of it is taxable in India. The ld.counsel for the assessee drew our attention to pages 23 to 25 of assessee's paper-book, wherein agreement with the foreign parties in enclosed. The ld.counsel for the assessee also relied on the decision of this Tribunal, Mumbai Bench in the case of ACIT vs. BSR & Co, in ITA No.1917/MUM/2017, order dated 06.05.2016 for this proposition. 5.4 On the other hand, the ld.Senior DR heavily relied on the assessment order and that of the CIT(A) and argued that this issue may be decided on merits. 5.5 We have heard rival contentions and gone through facts and circumstances of the case. Admittedly, the party BDO Deutsche Warentreuhand, Germany is a foreign party providing professional services in making VAT return and compliance services in Germany. This issue now stands covered in favour of assessee by the decision of Co-ordinate Mumbai Bench of this Tribunal in the case of BSR & Co., supra, wherein the Tribunal held as under:- 5.1 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services and in the absence of any fixed place of business of the recipient in India, income from such services was not chargeable to tax in India. Therefore, there was no requirement to deduct tax at source and accordingly the invoking of section 40(a)(i) of the Act has been set-aside by the CIT(Appeals). The aforesaid factual matrix brought out by the CIT(Appeals) has not been assailed by the Revenue before us on the basis of any cogent material and, thus, the same is hereby affirmed." As the issue is covered, the different types of professional services rendered to an Indian company by overseas companies outside India in relation to audit, taxation, transfer pricing, information technology, background checks etc., would be independent personnel services and since these professional overseas companies had not fixed base or PE in India, the payments made to them would not be chargeable to tax in India and consequently, no TDS is to be deducted. Consequently, no disallowance under 40(a)(i) of the Act can be made. Hence this issue of assessee's appeal is allowed. 5.6 Since the facts are identical in other four assessment years i.e., 2012-13 to 2015-16 also, taking a consistent vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he nature of business receipt to the non-residents and in the absence of any Permanent Establishment (PE) for the non-residents in India, the charges are not chargeable to tax in India. 2.3.4 The CIT(A) ought to have appreciated that the question of obtaining a certificate under section 195(2) arises only when the income of the non-resident is chargeable to tax in India and not otherwise. 2.3.5 Without prejudice to the above claim, the CIT(A) ought to have appreciated the fact that when the facilities have been utilized for the purpose of making or earning source of income outside India, the charges are not deemed to accrue in India as fees for technical services under section 9(1)(vii)(b) of the Act. 6.1 The brief facts are that the AO on perusal of books of accounts noted that the assessee company has made payment in foreign currency to non-resident on account of segregation charges paid. The details are as under:- Vendor Name FCY Amount in FCY Amount in INR Ceva Logistics GMBH EUR 36728 2223200 Hqm Mess Pruf and weksoffzen EUR 26495 1596647 HORMANN Serwis Polska EUR 8967 72190 The AO issued show-cause notice dated 20.03.2014 asking the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... receipt relating to non-resident. If the assessee is of the opinion that no taxability arises on account of payment made to non-resident, then it should approach the ITO for a certificate for 'Nil' deduction of TDS or lower deduction of TDS. Further, it was noted by the CIT(A) that it does not matter as to whether the non-resident has permanent establishment or business connection or any presence in India insofar as TDS provisions are concerned especially in view of the amendment of Section 195, Explanation 2 of the Act. Therefore, he confirmed the disallowance. Aggrieved, assessee is in appeal before the Tribunal. 6.3 Before us, the ld.counsel for the assessee stated that the company is exporting their products, being automobile components, to the clients at Germany mostly to M/s. Volkswagen. The client has several factories in Germany. The client is insisting that the assessee supplies their products to various factories of the client as and when required by the respective factory of the client. In view of the delay in transporting and delivering components from India to Germany through shipping or Air Transport, the assessee found it necessary to ship component in advance. How ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services will be rendered outside India and there is no permanent establishment or business connection with the non-resident in India. Hence, providing of the services outside India cannot be taxed in India unless a non-resident has permanent establishment in India. Once taxability of these payments are not there, the disallowance cannot be made by invoking the provisions of section 40(a)(i) of the Act. 6.4 On the other hand, the ld. Senior DR only stated that the CIT(A) has not adjudicated the issue and hence, matter can be remitted back to the file of the CIT(A). Rest, he relied on the assessment order. 6.5 We have heard rival contentions and gone through facts and circumstances of the case. We noted that the assessee company is exporting their products being automobile components to their clients at Germany mostly to M/s. Volkswagen. As its client is having several factories in Germany and client is insisting for supplying of their products to various factories as per their requirement and hence, there are segregation charges as the agent has to store the component in their warehouses hired by assessee and store the components as and when they are shipped in bulk from India a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o 60th Anniversary deming prize to Union of Japanese Scientists and Engineers (JUSE) amounting as under:- Sl.No. Vendor Name Nature of Expenses Foreign Currency Amount in FC Amt. in FCY 1 Union of Japanese Scientists and Engineers (JUSE) In connection with 60th Anniversary Deming Prize JPY 210000 114597 The AO noted that the assessee has made payment to JUSE in lieu of revenue expenses for which TDS was deducted at 10%. But on the main payment as given in the above chart, assessee has not deducted TDS. Therefore, the AO required the assessee to explain as to why the amount should not be disallowed by invoking the provisions of section 40(a)(i) of the Act as no TDS deducted on the above payment. The assessee replied that during the year the assessee company has contributed to JUSE in connection with 60th Anniversary deming prize conducted by JUSE. The contribution is made for publication and advertisement in Japan and it is not for any service. Hence, it is not in the nature of fee for technical services and since the activity is of publication, which happened outside India, the subject payment was made without TDS. The AO was not convinced and hence, he disal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in India rather earned outside India, it will not be taxable in India. Hence the disallowance made by AO and confirmed by CIT(A) is deleted. 8. The next issue of the assessee's appeals in assessment years 2011-12, 2012-13 & 2013-14 is as regards to the order of CIT(A) confirming the disallowance made by AO towards corporate social responsibility. Since, facts and circumstances are exactly identical in all the three years and grounds raised are also identical, we will take the facts and ground from assessment year 2011-12 in ITA No.1497/CHNY/2017 and will decide the issue. The relevant ground raised in assessment year 2011-12 reads as under:- 4. Disallowance of Corporate Social Responsibility expenditure 4.1 The CIT(A) erred in confirming the disallowance of Rs. 4,50,000 incurred towards corporate social responsibility. 4.2 The CIT(A) ought to have appreciated that the above expenditure has benefitted the society at large and should be allowed as business expenditure. 4.3 Without prejudice to the above, the CIT(A) ought to have appreciated that disallowance of CSR expenses as per explanation 2 to under section 37(1) of the Act was inserted only with effect from 01.04.201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ears 2011- 12 & 2012-13 in regard to disallowance of interest free advances given to Rane Foundation after taking loan on interest from bank. The facts and circumstances are exactly identical in both the years and grounds raised are also identical, we will take the facts and ground from assessment year 2011-12 in ITA No.1497/CHNY/2017 and will decide the issue. The relevant ground raised in assessment year 2011- 12 reads as under:- 5. Disallowance of Interest free advance: 5.1 The CIT(A) erred in confirming the disallowance of a notional amount of Rs. 2,62,500 as expenditure attributable to the advance given to Rane Foundation under section 37(1) of the Act. 5.2 The CIT(A) ought to have appreciated that the Appellant had made interest free advance out of surplus funds available. 5.3 The CIT(A) failed to consider that the Appellant had reserves of Rs. 84.97 crores which is more than sufficient for giving the interest free loan of Rs. 25 lakhs to Rane Foundation. 5.4 The CIT(A) ought to have appreciated that the loans borrowed were used for specific purpose like purchase of plant & machinery etc. which can be utilized only for the purpose it was granted. 9.1 The brief fact ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce. The ld. Senior DR also agreed for this. This issue is squarely covered by the decision of Hon'ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd., reported in 313 ITR 340 and the Hon'ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd., reported in [2014] 366 ITR 505. Hence, we remit this issue back to the file of the AO for verification purpose and he will verify whether the interest free funds are available with the assessee, which is more than the interest free advances given to Rane Foundation. In term of the above, this issue is allowed in both the assessment years 2011-12 & 2012-13 subject to verification by the AO. 10. The next issue in the appeal of assessee for assessment year 2012-13 in ITA No.1498/CHNY/2017 is as regards to the order of CIT(A) confirming the disallowance of claim u/s. 80G of the Act made by the AO. For this, assessee has raised the following grounds:- 5. Disallowance of donation under section 80G of the Act 5.1 The CIT(A) erred in confirming the disallowance of deduction claimed under section 80G amounting to Rs. 20,60,000. 5.2 The CIT(A) ought to have appreciated that the AO has denied the claim of deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... garding claim of market research and development expenses paid in USA disallowed by AO for non-deduction of TDS by invoking the provisions of section 40(a)(i) of the Act, as additional ground for assessment year 2012-13. The CIT(A) has not adjudicated this issue in assessment year 2012-13 and 2014-15. However this issue has been adjudicated by CIT(A) in assessment years 2013-14 & 2015-16. Hence, we will take the facts and issue from assessment year 2013-14 and grounds raised by assessee in assessment year 2013-14. The relevant grounds read as under:- 2.6 Market Research and development expenses: 2.6.1 The CIT(A) erred in holding the disallowance amounting to Rs. 21,35,648 paid to Rane Holdings America Inc., USA (RHAI) towards market research and development services rendered outside India under section 40(a)(1) of the Act. 2.6.2 The CIT(A) ought to have appreciated that the non-resident agent rendered marketing support outside India to sell the products of the Appellant outside India and the services rendered is not in the nature of technical services under section 9(1)(vii) of the Act. 2.6.3 The CIT(A) ought to have appreciated that the fee has accrued and earned outside I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng the service. It therefore provides that mere provision of technical services is not enough but the service provider should also furnish his technical knowledge, experience, skill, know-how to the recipient such that the recipient can independently perform the technical function himself in the future without the assistance of the service provider." The CIT(A) finally stated that in view of Explanation 2 to Section 195 of the Act, the assessee should have deducted TDS or he should have obtained 'nil' deduction or lower deduction certificate from the ITO and hence, the CIT(A) confirmed the disallowance by observing in para 4.11 as under:- "4.11 Therefore, in my considered opinion, appellant has failed to deduct tax at source on payments made to non-residents. In the circumstances, I hold that AO has rightly invoked Sec.40(a)(ia) and disallowed the expenditure debited in P&L a/c relating to payments to non-residents. Hence, I confirm the above addition made by the AO for A.Y. 2013-14." Aggrieved, assessee came in appeal before the Tribunal. 11.4 Before us, the ld.counsel for the assessee argued that the disallowance of marketing expenses by the AO and confirmed by the CIT(A), f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology "'making available", the technical knowledge, skill?, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, withi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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