NUNHEMS INDIA PRIVATE LIMITED,R.R.DIST vs. JCIT, RANGE 16, HYDERABAD

Per Smt. P. Madhavi Devi, J.M.

ITA 290/Hyd/2011:

This is assessee’s appeal against the order of the CIT(A)-5, Hyderabad dated 22.12.2010. The assessee has raised the following grounds of appeal.

“On the facts of and in the circumstances of the case and in law, the learned Commissioner of Income Tax (Appeals) – V, Hyderabad (‘CIT(A)’) has:

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1.1 Further vide letter dated 19.06.2015, the assessee has raised the following additional ground of appeal: Additional Ground No. 1.1

“Without prejudice to Ground No.1, that on the facts and circumstances of the case and in law, if the expenditure incurred on leasehold improvement is treated as being capital in nature, depreciation shall be allowed in respect of the same @ 10% in accordance with the written down value method prescribed under the Income Tax Act, 1961 for every successive year as a consequence”.

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1.2 In support of the above additional ground of appeal, the assessee has also filed additional evidence vide letter dated 20.09.2016 and sought admission of the additional evidence. However, at the time of hearing, the learned Counsel for the assessee submitted that the assessee does not wish to press the same. They are accordingly not considered.

2.1 The assessee, thereafter, filed a revised return of income on 06.12.2010 admitting taxable income of Rs. 9,67,39,768/-, which was selected for scrutiny. During the assessment proceedings u/s 143(3) of the IT Act, the A.O asked for various details, which were produced by the assessee. From the statement of income filed along with the return of income the A.O observed that the assessee company claimed an amount of Rs.1,05,04,205/-as revenue expenditure under the head leasehold improvements, though the same has been capitalized in the books of accounts. The A.O observed that the expenditure in question related to the property, leased out to the assessee company from Monica Enterprises private limited by virtue of lease agreement dated 15.12.2004, and that as per the terms and conditions of the agreement, the lease is for a period of 5 years and the assessee shall not be entitled to terminate the lease

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during the lock-in period of 5 years unless there is a gross and serious breach of the terms of the lease and that it was further extendable for another five years by executing a fresh deed and on payment of additional stamp duty at the time of extension and that during or at and that during or the end of the lease period, all permanent fittings including the interior designing of the said office and the warehouse done by the assessee at his own cost, can be removed.

3.1 Further, he also observed that the assessee has made payments to various parties without deducting tax at source. He observed that assessee had made payments to: 1) Nunhems BV Rs. 63,21,003/-. 2) Bayer crop science limited Rs. 38,72,492/-. 3) To various other parties totaling to Rs. 99,41,131/-

3.2 The A.O was of the opinion that the payment made to Nunhems BV Ltd is a payment towards IT services rendered and is also a payment made to non-resident Indian and therefore, the assessee was required to deduct tax at source u/s 195 of the Act.

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As regards the payments to Bayer Crops Science Ltd., the A.O was of the opinion it was towards Technical services received and was subject to TDS u/s 194J of the Act and is not reimbursement of expenditure incurred by Bayer Crops Science Ltd., on its behalf as claimed by the Assessee. As regards the payments to various other parties, A.O observed that these payments are towards commission, security charges etc., attracting the provisions of Sec. 194C, 194H and 194J of the IT Act, and since the assessee failed to deduct tax from these payments, he held that such expenditure is not allowable u/s 40(a)(ia).

3.3 Further, the A.O also observed that the assessee has made a provision of Rs.51,91,186/- towards scheme discount i.e the additional discount to the customers who participated in the special schemes launched by the Assessee. A.O observed that it was only a provision and is not the expenditure which has crystalized during the year and as such is not allowable. He accordingly, brought it to tax.

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not allowable for deduction u/s 43B of the IT Act and accordingly brought Rs. 95,70,265/- to tax. The A.O also verified the computation of income and observed that the assessee has claimed brought forward unabsorbed depreciation of Rs. 1,04,87,077/- as against the actual brought forward depreciation available for set off of Rs. 35,25,951/- only. Thus, he allowed the set off of Rs. 35,25,951/- only and brought the balance to tax.

6.2 The Ld. DR, on the other hand, supported the orders of the authorities below and placed reliance upon the following decisions: i. Coastal Resorts India Ltd., reported in [2014] 47 Taxmann.com 384 (Kar).

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ii. Tajmahal Hotel Vs CIT, reported in [1967] 66 ITR 303 (AP). iii. Surender Madan Vs ACIT, reported in [2013] 37 Taxmann.com 388 (Del).

6.3 Having regard to the rival contentions and material placed on record, we find that the expenditure which is incurred by an assessee on the leasehold premises for carrying on its business is allowable as current repairs and as revenue expenditure. In the case before us, we find that the expenditure incurred by the assessee is as follows: Main gate - Rs. 7,643/- Electrical fitting- Rs. 19,47,034/- Structure - Rs. 1,73,335/- Temporary Structure- Rs. 98,691/- Designing & Layout for interiors- Rs. 4,18,465/- Furniture, fixtures & fittings- Rs. 78,59,037/-

6.4 From the above details, we find that the gate is not a fixed asset, and the electrical fitting is essential for carrying on the business and cannot be removed during or the end of the lease period without damage and cannot be reused. Therefore, there is no enduring benefit from such expenditure. The details of structures or the temporary structures are not available but from the submissions before the CIT(A), it is seen that such expenditure is towards making, the wooden cubical, staff cabins etc. The furniture and fittings are also towards the almirahs, windows and doors etc., which can be removed only after dismantling from the leased premises. Thus, it is seen that the expenditure is towards facilitating and efficient conduct of the business and there is no creation of any fixed asset.

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6.5 We find that the Hon’ble Delhi High Court in the case of Sri Ram Refrigeration Ltd., (supra) has considered a similar issue of expenditure on furniture, wooden partitions, cable works, wall tiles, sundry fittings in rented premises and has held it to be revenue expenditure. We find that the decisions on which the Ld. DR has placed reliance upon are distinguishable from the facts of the case before us, as in those cases, it was held that the repairs were giving enduring benefit to the assessees’ therein, whereas in the case before us, though the assessee is entitled to remove and take the additional fittings etc., at the time of leaving the premises, we find that the electrical fittings, wooden partitions etc., would be of no use to the asseessee as they would get damaged in the process of dismantling itself. Therefore, we are inclined to accept the assessee’s contentions and treat the expenditure incurred by the assessee on the leased premises for making the premises fit for functioning and efficient for carrying on the business is revenue expenditure. The ground of appeal No. 1 is accordingly allowed.

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at Gurgaon which was reimbursed by the assessee and therefore, there is no income element therein to Nunhems BV and is not taxable in India. It was also submitted that the facility provided by M/s. Equant to the assessee and its group is not a technical service and therefore, it is not liable to TDS u/s 195 of the I.T. Act.

7.1 The learned Counsel for the assessee has relied on the

following decisions of in support of his contentions above:

i) ITAT, Bangalore Bench, in the case of CIT vs. Torry Harris Business Solutions (P) Ltd reported in (2015) 61 Taxmann.com 235 (Bang.Trib); ii) ITAT at Delhi in the case of Bharti Airtel Ltd reported in (2016) 67 Taxmann.com 223 (Delhi Trib.); iii) Hon'ble Madras High Court in the case of Skycell Communications Ltd, reported in 251 ITR 53 (Mad.) iv) Hon'ble Supreme Court in the case of Kotak Securities reported in 67 Taxmann.com 336; v) ITAT at Pune in the case of T-3 Enetry Services Pvt Ltd reported in 91 Taxmann.com 334; and vi) ITAT at Delhi in the case of Vodafone Essar Digilink in ITA No.1950/Del/2014.

7.2 The learned DR, on the other hand, submitted that the payment made to Numhems BV is for the technical services rendered by M/s. Equant and therefore, the payment is actually to M/s. Equant and it being a non-resident, the assessee was required to deduct taxes at source before making such payment and therefore, the disallowance u/s 40(a)(ia) is justified.

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7.3 Having regard to the rival contentions and the material on record, we find that the AO has treated the payment as fee for technical services u/s 9(1)(vii) of the Act, while the CIT (A) in his order, had brought out the nature of services received by the assessee for which the payment was made. We find that the Bayor group had entered into an agreement with M/s. Equant to provide global inter-connectivity and made the payment and each unit in each country reimburses the payment, taking into account their usage. Though, the CIT (A) agreed with the assessee that the payment is actually made to M/s. Equant through Nunhems BV, he did not agree with the assessee that it did not require TDS. He was of the opinion that the services rendered to the assessee by non-resident Equant fall under section 9(1)(i) of the Act and therefore, the provisions of section 195 of the Act are attracted.

7.4 We find that the CIT (A), at Para 8.5 of his order has brought out that Equant is a German Company providing global inter-connectivity services and that it has provided the service directly to the assessee at its Gurgaon Office. Therefore, what is the nature of services provided by Equant is to be seen. In its written submissions, the assessee has contended that Nunhems BV has not rendered any services to the assessee in India and further that the DTAA between India and Netherlands provided for a ‘make available’ clause which was not satisfied in the case before us. However, we find that it is not Nunhems BV which has rendered the services to the assessee, but it is Equant which has rendered services and the payment was routed through Nunhems BV. The CIT (A) has held it to be business income of Equant u/s 9(1)(i) of the Act and the Revenue has not challenged this finding

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of the CIT (A). Business income of a non-resident is taxable in India, provided it has a PE in India. Admittedly, Equant has no PE in India and therefore, such income is not chargeable to tax in India. Provisions of section 195 are attracted if a payment is made to a non-resident, provided the income is chargeable to tax in India. In the decisions relied upon by the assessee, it was held that payment for bandwidth services is not royalty or FTS. For the sake of clarity and ready reference, the relevant paragraphs are reproduced hereunder: i) T-3 Energy Services India (P) Ltd – para 23 to 25

“23. The assessee on the other hand, has relied on the decision in WNS North America Inc. Vs. ADIT (supra) i.e. decision of Mumbai Bench of Tribunal, which has been approved by the Hon'ble High Court in DIT Vs. WNS UK Ltd. (2013) 214 taxman 317 (Bom). The issue before the Hon'ble High Court of Delhi was in the hands of recipient of lease line charges. The assessee therein had recovered internal telecommunication charges from WNS charges and the Tribunal held the amount in question was received by the said assessee as reimbursement of lease line charges and would not qualify either as 'royalty' or as income attributable to PE in India and hence, it was held that there was no income earned by the assessee. The question before the Hon'ble High Court was whether the amount received on account of reimbursement of lease line charges would qualify as 'royalty' under Article 12 of India - UK Treaty and the second question was in respect of charges being attributable to PE in India. The Hon'ble High Court vide para 5 had noted the decision of Tribunal but had held that since the decision of Tribunal was based on the findings of fact, there was no reason to entertain question Nos.4 and 5.

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and consequently, we hold that where the assessee had reimbursed the expenses having no income element, there is no requirement to withhold tax out of such payments. The case of Revenue in this regard is that it is not case of reimbursement but is a case of payment to third party through its associated enterprise and hence, the need for withholding tax. We have already decided this issue in the paras hereinabove that under the provisions of DTAA, the term 'royalty' is defined and it does not cover any such services availed and payment made and hence, there is no merit in the stand of Revenue in this regard and the same is dismissed. In any case, the privity of contract is between Qwest Communications Inc, the service provider and T-3, USA, who in turn had received bandwidth and passed on the services to various entities of group on cost to cast basis. The assessee as recipient of services had reimbursed the same and in the absence of profit / income element, there is no liability to deduct tax at source. Hence, the assessee cannot be held to be in default”.

ii) Kotak Securities Ltd (Paras 9 & 10)

“9. There is yet another aspect of the matter which, in our considered view, would require a specific notice. The service made available by the Bombay Stock Exchange [BSE Online Trading (BOLT) System] for which the charges in question had been paid by the appellant – assessee are common services that every member of the Stock Exchange is necessarily required to avail of to carry out trading in securities in the Stock Exchange. The view taken by the High Court that a member of the Stock Exchange has an option of trading through an alternative mode is not correct. A member who wants to conduct his daily business in the Stock Exchange has no option but to avail of such services. Each and every transaction by a member involves the use of the services provided by the Stock Exchange for which a member is compulsorily required to pay an additional charge (based on the transaction value) over and above the charges for the membership in the Stock Exchange. The above features of the services provided by the Stock Exchange would make the same a kind of a facility provided by the Stock Exchange for transacting business rather than a technical service provided to one or a section of the members of the Stock Exchange to deal with special situations faced by such a member(s) or the special needs of such member(s) in the conduct of business in the Stock Exchange. In other words, there is no exclusivity to the services rendered by the Stock Exchange and each and every member has to necessarily avail of such services in the normal course of trading in securities in the Stock Exchange. Such services, therefore, would undoubtedly be appropriate to be termed as facilities provided by the Stock Exchange on payment and does not amount to “technical services” provided by the Stock Exchange, not being services specifically sought for by the user or the consumer. It is the aforesaid latter feature of a service rendered which is the essential hallmark of the expression “technical services” as appearing in Explanation 2 to Section 9(1)(vii) of the Act.

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iii) Tony Hariris Business Solutions (P) Ltd – Para 5…..

“5. Having regard to the rival contentions and the material on record, we find that the issue is covered in favour of the assessee by the decision of this Tribunal in the assessee's own case for assessment year 2009-10 to which both of us are signatories. The relevant portion of the Tribunal order is reproduced hereunder:

"194J. (1) Any person, not being an individual or an HUF, who is responsible for paying to a resident any sum by way of--

(a) fees for professional services, or

(b) fees for technical services, ...............

shall, at the time of credit of such sum to the account of the payee or at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode, whichever is earlier, deduct an amount equal to five per cent of such sum as income- tax on income comprised therein :

...............

Explanation : For the purposes of this section,--

(a) 'professional services' means services rendered by a person in the course of carrying on legal, medical, engineering or architectural profession or the profession of accountancy or technical consultancy or interior decoration or advertising or such other profession as is notified by the Board for the purposes of s. 44AA or of this section;

(b) 'fees for technical services' shall have the same meaning as in Expln. 2 to cl. (vii) of sub-s. (1) of s. 9;

...............

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technical services' has the same meaning as in Expln. 2 to cl. (vii) of sub-s. (1) of s. 9. The said Expln. 2 reads as under :

"Explanation 2 : For the purposes of this clause, 'fees for technical services' means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head 'Salaries'."

The aforesaid Explanation makes it clear that 'fees for technical services' means any consideration (including any lump sum consideration) for the rendering of any 'managerial, technical or consultancy services' but does not include consideration for any construction, assembly, mining or like project in the country by the recipients or consideration which would be income of the recipients chargeable under the head 'salaries'. The said definition is in two parts. The first part is 'means and includes' type of definition and the second part is 'does not include' definition. In the present appeals we are not concerned with the second part. The entire focus is attracted to the first part and that too, to the expression 'consideration for the rendering of any managerial, technical or consultancy services'. It is only if the payments made by the respondents/ assessees to MTNL/other companies in respect of interconnect/port access charges fall within the ambit of this expression that the said payments could be regarded as fees for technical services as contemplated under s. 194J of the said Act.

The said rule is explained in Maxwell on The Interpretation of Statutes (Twelfth Edition) in the following words:

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"Where two or more words which are susceptible of analogous meaning are coupled together, noscitur a sociis, they are understood to be used in their cognate sense. They take, as it were, their colour from each other, the meaning of the more general being restricted to a sense analogous to that of the less general."

This would mean that the word 'technical' would take colour from the words 'managerial' and 'consultancy', between which it is sandwiched. The word 'managerial' has been defined in the Shorter Oxford English Dictionary, Fifth Edition as :

"of pertaining to, or characteristic of a manager, esp. a professional manager of or within an organization, business, establishment, etc."

The word 'manager' has been defined, inter alia, as :

"a person whose office it is to manage an organization, business establishment, or public institution, or part of one; a person with the primarily executive or supervisory function within an organization etc.; a person controlling the activities of a person or team in sports, entertainment, etc."

It is, therefore, clear that a managerial service would be one which pertains to or has the characteristic of a manager. It is obvious that the expression 'manager' and consequently 'managerial service' has a definite human element attached to it. To put it bluntly, a machine cannot be a manager.

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"81. We are aware that the maxim of noscitur a sociis may be a treacherous one unless the 'societas' to which the 'socii' belong, are known. The risk may be present when there is no other factor except contiguity to suggest the 'societas'. But where there is, as here, a term of wide denotation which is not free from ambiguity, the addition of the words such as 'including' is sufficiently indicative of the societas. As we have said, the word 'includes' in the present context indicates a commonality or shared features or attributes of the including word with the included."

(i) mineral oil; and

(ii) minerals and ores.

The question that arose before the Supreme Court was whether granite fell within the meaning of the word 'minerals'. The contention of the assessee before the Supreme

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Court was that while granite was a mineral in the general sense, it was not a mineral for the purposes of s. 80HHC and, therefore, the deduction provided for therein was available to the assessee who was in the business of exporting granite. The Supreme Court noted the arguments of the learned counsel for the assessee based upon the doctrine of noscitur a sociis that the word 'minerals' in s. 80HHC should be read in the context of the words 'ores' which it was associated with and must draw colour therefrom. It was submitted that the word 'minerals' must be read as referring only to such minerals as are extracted from ores and not others. While the Supreme Court agreed that the doctrine of noscitur a sociis was applicable, it held that the word 'minerals', in sub-s. (2)(b) of s. 80HHC must be read in the context of both 'mineral oil' and 'ores' and not just 'ores'. The Supreme Court held that these three words taken together are intended to encompass all that may be extracted from the earth. Consequently, the Supreme Court held that all minerals extracted from the earth, granite included, must, therefore, be held to be covered by the provisions of sub-s. (2)(b) of s. 80HHC, and the exporter thereof was, therefore, disentitled to the benefit of that section.

Their Lordships had followed the decision of the Hon'ble Mumbai High Court in the case of Sky cell (supra), though for different reasons. Assessee here had produced bills to show that payments effected thereof for purchasing inter-net band width. We are therefore, of the opinion that assessee was not bound to deduct tax at source u/s 194J

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of the Act on the payments effected to the service providers. Vis-à-vis application of Sec.194C, the AO was not able to show that the service provided were based on any specific contract entered by the assessee with the service providers. We are therefore, of the opinion that disallowance u/s 40(ia) of the Act was not warranted. Such a disallowance stands deleted. Ground no.13 of the assessee is allowed.

Respectfully following the same, we do not see any reason to interfere with the order of the CIT(A). Ground No.2 is accordingly rejected”.

7.5 In the case of Bharati Airtel Ltd, also, the ITAT “A” Bench of Delhi at Paras 19 to 44 has held as under:

“19. The grounds in the assessees' appeal are summarized as follows:-

i). Whether the assessee is liable to be treated as the assessee in default u/s. 201(1).

ii) Whether inter-connected agreements between the assessee and the FTOs are in the nature of revenue sharing arrangements.

iii) Whether the payment made by the assessee to Foreign Telecom Operators under inter-connection agreements are taxable in India as FTS.

iv) Whether payment made by the assessee to FTOs, can be deemed to accrue or arise in India u/s. 9(1)(vi) & 9(1)(vii) of the Act.

v) Whether beneficial rate provided under DTAA would override the provisions of section 206AA.

i) Whether the payment made by the Assessee to FTOs are taxable as royalty for the use of process under section 9(1)(vii) of the Act and relevant DTAA's.

ii) Whether the assessee can be treated as "assessee in default" u/s. 201 of the Act in respect of the liability imposed by virtue of retrospective amendment to law.

iii) Whether "make available" clause under relevant DTAA are satisfied.

iv) Whether section 206AA of the Act is applicable retrospectively.

v) Whether the Ld. CIT(A) acted in violation of the provision of Rule 46A in admitting additional evidence by the assessee.

20.1 We now frame the following issues for our adjudication:-

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WHETHER THE PAYMENT OF IUC BY ASSESSEE TO FTOS ARE TAXABLE AS FEE FOR TECHNICAL SERVICES U/S. 9(1)(VII) OF THE ACT.

WHETHER THE PAYMENT TO FTOS FOR 'IUC'S ARE IN THE NATURE OF ROYALTY UNDER SECTION 9(1)(VI) OF THE ACT.

WHETHER THE ASSESSEE IS LIABLE TO BE TREATED AS ASSESSEE IN DEFAULT U/S. 201 OF THE I.T. ACT.

WHETHER THE PAYMENT MADE BY THE ASSESSEE TO THE FTO CAN BE DEEMED TO ACCRUE OR ARISE IN INDIA.

WHETHER BENEFICIAL RATE PROVIDED UNDER DTAA OVERRIDE THE PROVISIONS OF SECTION 206AA AND WHETHER SECTION 206AA OF THE ACT IS APPLICABLE RETROSPECTEVELY.

Whether the ld. CIT(A) acted in violation of the provisions of Rule 46A in admitting the additional evidence filed by the assessee.

Whether the payment is revenue sharing or not.

"8.1 The appellant is carrying on the business of providing telecommunication services to its subscribers. In order to provide international connectivity to its subscribers, the appellant has been granted license to provide International Long Distance services (ILD) [License Agreement No.10- Q7/2002-BS-I(ILD- 02) dated 14th March 2002]. Clause 2.2 (a) of the said License is reproduced below [refer page 36 of letter dated 28.03.2012]:

"2.2(a) The ILD Service is basically a network carriage service (also called Bearer), providing International connectivity to the Network operated by foreign carriers. The ILD service provider is permitted full flexibility to offer all types of bearer services from an integrated platform. ILD service providers will provide bearer services so that end-to-end tele-services such as voice, data, fax, video and multi-media etc. can be provided by Access Providers to the customers.

.... ILD service providers would be permitted to offer international bandwidth to other operators. ILD service provider shall not access the subscribers directly which should be through NLD service provider or the Access Provider. Resellers are not permitted."

Clause 1 of the "DEFINITIONS AND INTERPRETATIONS' of the said license defines Access Providers as follows:

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"ACCESS PROVIDERS" means Basic, Cellular, and cable service providers who have a direct access with the subscribers.

8.2 Thus, ILD business is nothing but provision of connectivity to the subscriber for international portion of a call, which may or may not originate domestically. The local connectivity [within India] is provided by Access Providers and National Long Distance (NLD) operators, and the international leg of the connectivity is provided by the ILD operator in conjunction with a foreign telecom operator(s), who provide the last mile connectivity. The following are three illustrations of carriage of calls provided by the ILD operator:

a) Carriage of calls from India to outside India:

To give an example, if a cellular subscriber is located in Delhi and seeks to make a call to New York, through his cell phone, the call will be routed as follows:

In the above diagram, the call moves from Aurangabad mobility circle to the NLD gateway (say at Nagpur), travels on ITA Nos. 3593 TO 3596/Del/2012 [Bharti Airtel Ltd. vs. ITO(TDS)] & ITA Nos. 4076 TO 4079/Del/2012 [ITO(TDS) vs. Bharti Airtel Ltd.] NLD network till ILD gateway (say Mumbai) from where it is transported to international operator(s) outside India.

In order to provide seamless services to its subscribers, the appellant enters into agreement with overseas network operators, to connect the call over their network. Therefore, call traffic originating from India is carried first by the Access Provider, then by the NLD operator, then by the ILD operator and finally by the foreign telecom operator, and/or last mile service provider. The factual position, therefore, is that the entire chains of operator(s) pool their network/infrastructure to provide integrated and seamless connectivity service to the subscriber(s). The Access Provider, due to practical/legal considerations, enters into contract to provide seamless end to end connectivity to the subscriber, and earns revenue from the subscriber. The entire revenue paid by the subscriber to the Access Provider and collected by the Access Provider is shared with the NLD operators (where the NLD operator is different from the Access Provider) and with ILD operator, who in turn shares the revenue with the foreign telecom operator(s).

b) Carrying calls from outside and terminating such calls in India:

The call in this case originates from outside India. The call may originate from, say, a subscriber of AT & T, USA. The call travel automatically on the network of AT & T, USA and will be handed over at the Point of Presence (POP) / landing station in New York of the appellant. From such landing station, the call is carried to the landing station of the appellant, in say, Mumbai, where it is handed over to the network of NLD service provider in India for further carriage/transportation to its destination. It is also possible that the network of the NLD service provider may transfer the call to the

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Access Provider, (if the two are different), who may transport it to the customer. As can be observed from the above, the role of ILD operator is to transport the call from outside India till the first landing station in India. As submitted earlier, the ILD operator is not allowed to transport calls within India.

c) Carrying calls from a telecom service provider in one country outside India to another telecom service provider and its subscriber in a third country (Hubbing'):

To illustrate, the subscriber of a US telecom service provider, in New York wants to make a call to Singapore. The call will originate at the local network of the US telecom subscriber which telecom network will carry the calls for interconnect to the landing station of the appellant in New York. Here the call is transported to the ILD network. The call will then be automatically carried on the network of the ILD operator to Singapore and then transported to the local operator in Singapore. The ILD operator will earn income from the US telecom service provider but will have to pay the IUC/access charges to the local Singaporean telecom service provider.

8.3 It may be noted that the appellant is not authorized, under the ILD license, to carry call traffic from one place to another within India which can be carried only by a NLD license holder. In this regard, the relevant clause of the NLD license is given below:

"2.2(a) The NLD Service refers to the carriage of switched bearer telecommunications service over a long distance and NLD Service Licensee will have a right to carry inter circle traffic excluding intra-circle traffic except where such carriage is with mutual agreement with originating service provider.

(b) The LlCENCEE can also make mutually agreed arrangements with Basic Service Providers for picking up, carriage and delivery of the traffic from different legs between long Distance Charging Center (LDCe) and Short Distance Charging Centers (SDCCs).

(c) In the case of Cellular Mobile Telephone Service traffic, the inter-circle traffic shall be handed/taken over at the Point of Presence (POP) situated in LDCA at the location of level I TAX in originating/terminating service area. For West Bengal, Himachal Pradesh and Jammu & Kashmir such locations shall be Asansol, Shimla & Jammu respectively.

(d) NLD service licensee shall be required to make own suitable arrangements / agreements for leased lines with the Access Providers for last mile. Further, NLD Service Providers can access the subscribers directly only for provision of leased Circuits/Close User Groups (CUGs). leased circuit is defined as virtual private network (VPN) using circuit or packet switched (IP Protocol) technology apart from point to point non-switched physical connections/transmission bandwidth. Public network is not to be connected with leased circuits/CUGs. It is clarified that NLD service licensee can provide bandwidth to other telecom service licensee also."

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8.4 It will thus be appreciated that the entire services are provided by the appellant as an ILD operator, outside India. From the ILD gateway of the appellant in India, the call is carried to the gateway of the appellant outside India and if the appellant has no gateway outside India, the call is carried on the telecom network of the foreign operator(s}. The call from the gateway outside India is transported to the customer destination by the local foreign telecom operator(s)." (Emphasis ours)

The Assessee, as part of its ILD Telecom Services business, is responsible for providing services to its subscribers in respect of calls originated/terminated outside India. Thus, for the provisions of ILD services, the Assessee is required to obtain the services of FTOs for provision of Carriage Connectivity Services over the last leg by the communication channel i.e. the lack of communication channel where the assessee does not have a Licence/ capacity to provide connectivity services. Thus, the ILD business is the provisions of connectivity to the subscribers for international portion of the call, which may or may not originate domestically. The local connectivity within India is provided by the Access Providers and the National Long Distance Operators (NLD operators) and the International connectivity by the ILD Operators interconnection with FTO, who provide the last mile connectivity. An international call has to be routed through NLD/ILD using the International Gate way. For termination of the international calls in India, ILD have commercial arrangements with foreign carriers who deliver the Traffic using the international connectivity and calls are delivered to the Indian ILD Operator. The assessee entered into an agreement with Overseas Network Corporate to connect the call over the network. This is done to provide seamless connectivity services to the subscribers. The Access Provider provide seamless end to end connectivity to the subscribers and the entire revenue arise out of such services is paid by the subscribers to the Access Provider. If the NLD Operator is difference from Access Provider, then the NLD Operator Bills the Access Provider for his part of service rendered. The ILD Operator is in turn billed by the FTO in the form of Inter- connected Usage Charges (IUC).

WHETHER THE PAYMENT OF IUC BY ASSESSEE TO FTOS ARE TAXABLE AS FEE FOR TECHNICAL SERVICES U/S. 9(1)(VII) OF THE ACT. (As the Section 9(1)(vii) has already been extracted in the earlier paragraphs, we do not repeat the same.)

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"The expression 'fees for technical services' as appearing in s. 194J has the same meaning as given to the expression in Expln. 2 to s. 9(1)(vii). In the said Explanation. the expression 'fees for technical services' means any consideration. for rendering any (managerial, technical or consultancy services'. The word (technical' is preceded by the word (managerial' succeeded by the word 'consultancy'. Since the expression (technical services' is in doubt and is unclear, the rule of noscitur a sociis is clearly applicable. This would mean that the word 'technical' would take colour from the words 'managerial' and 'consultancy', between which it is sandwiched. A managerial service would be one which pertains to or has the characteristic of a manager. It is obvious that the expression (manager' and consequently (managerial service' has a definite' human element attached to it. To put it bluntly, a machine cannot be a manager. The service of consultancy also necessarily entails human intervention. The consultant, who provides consultancy service, has to be a human being. A machine cannot be regarded as a consultant. From the above discussion, it is apparent that both the words 'manaqerial" and 'consultancy' involve a human element. And, both, managerial service and consultancy service, are provided by humans. Consequently, applying the rule of noscitur a soccis, the word 'technical' as appearing in Expln. 2 to s. 9(1)(vii) would also have to be construed as involving a human element. But, the facility provided by MTNL/ other companies for interconnect/ port access is one which is provided automatically by machines. It is independently provided by the use of technology and that too, sophisticated technology, but that does not mean that MTNL/ other companies which provide such facilities are rendering any technical services as in Expln. 2 to s. 9(l)(vii). This is so because the expression 'technical services' takes colour from the expressions 'managerial services' and 'consultancy services' which necessarily involve a human element or, what is nowadays fashionably called, human interface. In the facts of the present appeals, the services rendered qua interconnection port access do not involve any human interface and, therefore, the same cannot be regarded as 'technical services' as contemplated under s. 194J. The interconnect/ port access facility is only a facility to use the gateway and the network of MTNL/ other companies. MTNL or other companies do not provide any assistance or aid or help to the respondents/ assessees in managing, operating, setting up their infrastructure and networks. No doubt, the facility of interconnection and port access provided by MTNL/ other companies is 'technical' in the sense that it involves sophisticated technology. The facility may even be construed as a 'service' in the broader sense such as a 'communication service'. But, while interpreting the expression 'technical service', the individual meanings of the words 'technical' and 'service' have to be shed. And only the meaning of the whole expression 'technical services' has to be seen. Moreover, the expression 'technical service' would have reference to only technical service rendered by a human. It would not include any service provided by machines or robots.

Thus, the interconnect charges/ port access charges cannot be regarded as fees for technical services." [emphasis supplied]

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• The rule of noscitur a sociis is clearly applicable and the word 'technical' would take colour from the words 'managerial' and 'consultancy', between which it is sandwiched.

• Both managerial service and consultancy service are provided by humans.

Consequently, applying the rule of noscitur a soccis, the word 'technical' as appearing in Expln. 2 to s. 9(1)(vii) would also have to be construed as involving a human element • The expression 'technical service' would have reference to only technical service rendered by a human.

• MTNL or other companies do not provide any assistance to the assessee in managing, operating, setting up their infrastructure and networks.

• No doubt, such a facility is 'technical' in the sense that it involves sophisticated technology and may even be construed as 'communication service' but while interpreting the entire expression 'technical service', the individual meanings of the words 'technical' and 'service' have to be shed and only the meaning' of the whole-expression 'technical services' has to, be seen.

• The services rendered qua interconnection/ port access do not involve any human interface and, therefore, the same cannot be regarded as 'technical services' as contemplated under s. 194J."

"The question basically involved in the lead case is:

whether TDS was deductible by M/s. Bharti Cellular Limited when it paid interconnect charges/access/port charges to BSNL? For that purpose, we are required to examine the meaning of the words "fees for technical services" under Section 194Jread with clause (b) of the Explanation to Section 194J of the Income Tax Act, 1961, [`Act', for short] which, inter alia, states that "fees for technical services" shall have the same meaning as contained in Explanation 2 to clause (vii) of Section 9(1) of the Act. Right from 1979 various judgments of the High Courts and Tribunals have taken the view that the words "technical services" have got to be read in the narrower sense by applying the rule of Noscitur a sociis, particularly, because the words "technical services" in Section 9(1)(vii) read with Explanation 2 comes in between the words "managerial and consultancy services".

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The problem which arises in these cases is that there is no expert evidence from the side of the Department to show how human intervention takes place, particularly, during the process when calls take place, let us say, from Delhi to Nainital and vice versa. If, let us say, BSNL has no network in Nainital whereas it has a network in Delhi, the Interconnect Agreement enables M/s. Bharti Cellular Limited to access the network of BSNL in Nainital and the same situation can arise vice versa in a given case. During the traffic of such calls whether there is any manual intervention, is one of the points which requires expert evidence. Similarly, on what basis is the "capacity" of each service provider fixed when Interconnect Agreements are arrived at? For example, we are informed that each service provider is allotted a certain "capacity". On what basis such "capacity" is allotted and what happens if a situation arises where a service provider's "allotted capacity" gets exhausted and it wants, on an urgent basis, "additional capacity"? Whether at that stage, any human intervention is involved is required to be examined, which again needs a technical data. We are only highlighting these facts to emphasise that these types of matters cannot be decided without any technical assistance available on record. There is one more aspect that requires to be gone into. It is the contention of Respondent No.1 herein that Interconnect Agreement between, let us say, M/s. Bharti Cellular Limited and BSNL in these cases is based on obligations and counter obligations, which is called a "revenue sharing contract". According to Respondent No.1, Section 194J of the Act is not attracted in the case of "revenue sharing contract". According to Respondent No.1, in such contracts there is only sharing of revenue and, therefore, payments by revenue sharing cannot constitute "fees" under Section 194J of the Act. This submission is not accepted by the Department. We leave it there because this submission has not been examined by the Tribunal. In short, the above aspects need reconsideration by the Assessing Officer. We make it clear that the assessee(s) is not at fault in these cases for the simple reason that the question of human intervention was never raised by the Department before the CIT. It was not raised even before the Tribunal; it is not raised even in these civil appeals. However, keeping in mind the larger interest and the ramification of the issues, which is likely to recur, particularly, in matters of contracts between Indian Companies and Multinational Corporations, we are of the view that the cases herein are required to be remitted to the Assessing Officer (TDS).

Accordingly, we are directing the Assessing Officer (TDS) in each of these cases to examine a technical expert from the side of the Department and to decide the matter within a period of four months. Such expert(s) will be examined (including cross-examined) within a period of four weeks from the date of receipt of the order of this Court. Liberty is also given to Respondent No.1 to examine its expert and to adduce any other evidence. Before concluding, we are directing CBDT to issue directions to all its officers, that in such cases, the Department need not proceed only by the contracts placed before the officers." (Emphasis ours).

29.1 Thus in our view the proposition of law laid down in the judgment of the Hon'ble Delhi High Court have attained finality. The Hon'ble Supreme Court held that the issue as to whether there is involvement / presence of human element or not was a factual and technical matter and required to be examined. The other proposition have been accepted by the Hon'ble Supreme Court. As the Hon'ble Supreme Court was of the opinion that this factual

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aspect of human intervention was not examined by the AO, the matter was remanded to the AO for factual examination only. The AO in pursuance of the directions of the Hon'ble Supreme Court examined witness on oath and also gave the assessee the opportunity to cross examine them. He also re- examined the expert witness. Our decision will be based on the evidence so collected by the AO on this aspect of human intervention in the services rendered. It held that the word "technical services" have got to be read in the narrower sense by applying the rule of noscitur a sociis, particularly, because the words "technical services" in Section 9(1)(vii) r/w Expln. 2 comes in between the words "managerial and consultancy services". Hence, there should be involvement/ presence of human element for coming to a conclusion that "technical services" can be said to have been rendered in terms of Explanation 2 to Section 9(1)((vii) of the Act. In our view the Hon'ble Supreme Court of India has approved the proposition laid down by the Hon'ble High Court, that this is a service and that if would be FTS as defined u/s. 9(1)(vii) if there is human interference in such communication service. Hence the issue to be considered is narrow and based on evidence collected by the Revenue post the Hon'ble Supreme Court judgment. All other issues are no more res-integra.

29.2 This aspect as to whether a human element is involved in such interconnect services or not, has been examined by different Benches of the Tribunal based on the evidence collected by the AO in the above stated set- aside proceedings. The facts that are on record are the same as the facts and evidence which have been examined by various Coordinate Benches of the Tribunal. These include the statement of experts recorded by the Assessing Officer and the cross examination done by the Representative of the Company. For the sake of brevity, we do not extract the statement and cross examination etc. of the various experts, as these were considered in detail by the Coordinate Benches and it was held as follows:

29.3 The Kolkata Bench of the Tribunal in the case of Vodafone East Ltd. vs. Addl. CIT in ITA No. 243/Kol/2014, vide order dated 15.9.2015 held as follows:-

"From the aforesaid statement recorded from technical experts pursuant to the directions of the Supreme Court in CIT Vs. Bharti Cellular Ltd. (330 ITR 239) which has been heavily relied upon by the Learned CITA, we find that human intervention is required only for installation! setting up/ repairing/ servicing/ maintenance/ capacity augmentation of the network. But after completing this process, mere interconnection between the operators while roaming, is done automatically and does not require human intervention and accordingly cannot be construed as technical services. It is common knowledge that when one of the subscribers in the assessee's circle travels to the jurisdiction of another circle, the call gets connected automatically without any human intervention and it is for this, the roaming charges is paid by the assessee to the Visiting Operator for providing this service. Hence we have no hesitation to hold that the provision of roaming services do not require any human intervention and accordingly we hold that the payment of roaming charges does not fall under the ambit of TDS provisions u/ s 194J of the Act."

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"11. We have heard the rival contentions of both the parties and perused the material available on the record. After going through the order of the Assessing Officer, ld CIT(A); submissions of the assessee as well as going through the process of providing roaming services; examination of technical experts by the ACIT TDS, New Delhi in the case of Bharti Cellular Ltd.; thereafter cross examination made by M/s Bharti Cellular Ltd.; also opinion of Hon'ble the then Chief Justice of India Mr. S.H. Kapadia dated 03/09/2013 and also various judgments given by the ITAT Ahmadabad Bench in the case of Canara Bank on MICR and Pune Bench decision on Data Link Services. We find that for installation/ setting up/ repairing/ servicing/ maintenance capacity augmentation are require human intervention but after completing this process mere interconnection between the operators is automatic and does not require any human intervention. The term Inter Connecting User Charges (IUC) also signifies charges for connecting two entities. The Coordinate Bench also considered the Hon'ble Supreme Court decision in the case of Bharti Cellular Ltd. in the case of i-GATE Computer System Ltd. and held that Data Link transfer does not require any human intervention and charges received or paid on account of this is not fees for technical services as envisaged in Section 194J read with Section 9(1)(vii) read with Explanation-2 of the Act. In case before us, the assessee has paid roaming charges i.e. IUC charges to various operators at Rs. 10,18,92,350/-. Respectfully following above judicial precedents, we hold that these charges are not fees for rendering any technical services as envisaged in Section 194J of the Act. Therefore, we reverse the order of the ld CIT(A) and assessee's appeal is allowed on this ground also."

"25. Now coming to roaming charges, the contention of the assessee is that human intervention is not required for providing roaming facility, therefore, it cannot be considered to be a technical service. We have gone though the judgment of Apex Court in Bharti Cellular Limited (supra). The Apex Court after examining the provisions of Section 9(l)(vii) of the Act, found that whenever there was a human intervention, it has to be considered as technical service. In the light to the above judgment of the Apex Court, the Department obtained an expert opinion from Sub-Divisional Engineer of BSNL. The Sub-

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Divisional Engineer clarified that human intervention is required for establishing the physical connectivity between two operators for doing necessary system configurations. After necessary configuration for providing roaming services, human intervention is not required. Once human intervention is not required as found by the Apex Court, the service provided by the other service provider cannot be considered to be a technical Service. It is common knowledge that, when one' of the subscribers in the assessee's circle travels to the jurisdiction of another circle, the call gets connected automatically without any human intervention. It is due to configuration of software system in the respective service provider's place. In fact, the Sub- Divisional Engineer of BSNL has explained as follows in response to Question No. 23:-

"Regarding roaming services as explained to question no. 21. Regarding interconnectivity, initial human intervention is required for establishing the physical connectivity and also for doing the required configuration. Once it is working fine, no intervention is required. In case of any faults human intervention is required for taking necessary corrective actions." In view of the above, once configuration was made, no human intervention is required for connecting roaming calls. The subscriber can make and receive calls, access and receive data and other services without human intervention. Like any other machinery, whenever the system breakdown, to set right the same, human intervention is required. However, for connecting roaming call, no human intervention is required except initial configuration in system. This Tribunal is of the considered opinion that human intervention is necessary for routine maintenance of the system and machinery. However, no human intervention is required for connecting the roaming calls. Therefore, as held by the Apex Court in Bharti Cellular Limited (supra), the roaming connections are provided without any human intervention and therefore, no technical service is availed by the assessee. Therefore, TDS is not required to be made in respect of roaming charges paid to other service providers."

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intervention is erroneous. The test laid down by the Hon'ble Supreme Court of India in its order when the case was remanded to the AO is to find out as to whether "during traffic of calls, is there was any manual intervention?". There is no reference to the issues of set up, installation or operation maintenance or repair of network as explained by the Ld. CIT(A). These decisions of the various Benches of the ITAT, when read with the judgment of the Hon'ble Delhi High Court as well as the Hon'ble Supreme Court, would settle this matter in favour of the assessee. But as a number of other decisions have been relied upon, we examine the same.

"Tribunal considered the agreement that had been entered into by the assessee with T and came to the conclusion that there was no privity of contract between the customers of the assessee and T. In fact, the assessee was merely paying for an internet bandwidth to T and then selling it to its customers. The use of internet facility may require sophisticated equipment but that does not mean that technical services were rendered by T to the assessee. It was a simple case of purchase of internet bandwidth by assessee from T. Under the circumstances, the Tribunal came to the conclusion that there were no technical services provided by T to the assessee and, therefore, the provisions of s. 9(l)(vii) did not apply. Tribunal has rightly dismissed the appeal after taking into consideration the agreement between the assessee and T and the nature of services provided by T to the assessee. It was a simple case of payment for the provision of a bandwidth. No technical services were rendered by T to the assessee. On a consideration of the material on record, no substantial question arises in the matter."

"Deduction. of tax at source-Fees for technical services- Assessee was engaged in business of software development of products and providing software services in India and overseas-Assessee was treated as "assessee in default" u/s 201(1) on account of non-deduction of TDS u/ s 194J from payment made for use of tele-communication services i.e telephone charges, link charges and band width charges as 'fee for technical services" u/ s 9(1}(vii}-CIT(A} reversed findings of AO-Held, payments were made to MTNL & BSNL etc. for providing space for transmission of data for carriage of voice and for availing service of inter-communication, port access for

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which no human intervention was necessary- Payment cannot be characterized as "fee for technical services"-Thus, assessee cannot be held to be in default - for non- deduction of tax at source from payment of telecommunication. charges in terms of section 194J- Revenue's ground dismissed.

"Income deemed to accrue or arise in India-Fees for technical services/ royalty-Payment for transmission of data and software through uplink and down link services- Assessee engaged, inter alia, in the business of development of software providing on line software services through customer based circuits with the help of VSNL and foreign telecom companies outside India-As per the agreements with such telecom companies assessee is to use the standard facility having standard pricing patterns-There is nothing to show that assessee was provided with any technology or technical services- Therefore, the amounts paid by assessee-company to non- resident telecom companies for downlinking and transmitting of data to the assessee's customers located outside India cannot be considered as 'fees for technical services' under s. 9(l)(vii), moreso when similar services offered by VSNL is not regarded as technical services-Further, no process has been made available to the assessee-Hence, there is no question of applicability of s. 9(l)(vi) too-So long as the amount paid is not taxable under the Act, the clause in the DTAA cannot bring the charge-Hence, there was no liability to deduct tax under s. 195"

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to activities or functions performed by such permanent establishment. This view is supported by the decision of the Coordinate Bench.

"What art. 7(7) seems to convey is that where the business profits of the non- resident include items of income for which specific or separate provisions have been made in other articles of the treaty, then those provisions would apply to those items. Per contra, if it is" found that those provisions are not applicable to those items of income, then the logical result would be that those items of income will remain in art.7 and will not go out of the same. Such items of income which do not fall under any other provision of the double tax treaty, would continue to be viewed as business profits covered by art. 7. The position canvassed by the counsel for the assessee seems to be more logical than the view canvassed on behalf of the Department. Fees for technical services are essentially business profits since the rendering of such services is the business of the non-resident. In order to take out an item of income from the business profits, it is necessary under art. 7(7) that there should be some other provision in the treaty dealing specifically with the item of income sought to be taken out from the business profits. If there is no other provision in the treaty or if the provision made in the treaty is not found applicable or to cover the item of income sought to be taken out from the business profits, for whatever reason, then it follows that the particular item of income should continue to remain under art. 7. In light of the above discussion, the amount received by the assessee company from RIL under the contract did not represent consideration for any technical services rendered to RIL which made available technical knowledge, experience, skill, etc. or consisted of the development and transfer of any technical plan or design within the meaning of art. 12(3)(g) of the Indo Australian Treaty. The consideration will continue to be viewed as business profits under art. 7 of the treaty and since the assessee had no PE in India the business profits cannot be taxed in India."

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DTAA of 1995 and a new art. VIIIA has been inserted explaining the expression 'royalties '" 44. In view of the above reasons, we hold that wherever under the DTAA's. Make available clause is found, then as there is no imparting, the payment in question is not 'FTS' under the Treaty and when there is no 'FTS' clause in the treaties, the payment falls under Article 7 of the Treaty and is business income”.

7.6 Since the facts and circumstances of the case before us are similar, we are of the opinion that the payment does not fall under the category of “fee for technical services” or “Royalty” and is thus not liable for TDS. Further, the CIT (A) has held it to be business income of M/s. Equant u/s 9(1)(i) of the Act and since the non-resident Equant does not have PE in India, it cannot be brought to tax. It is undisputed that only such income which is taxable in India is amenable to TDS provisions. Thus, the ground of appeal No.2 is accordingly allowed.

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any services to the assessee. It is also submitted that there is no profit element included in the reimbursement of cost and therefore, there was no income chargeable to tax and TDS provisions are not applicable. The CIT (A) however, held that the Lotus Note is a highly technical I.T tool which includes Data Base Management and complicated set of programming code to be written and it is not a simple sharing of facility as internet facility shared by Nunhems BV and the assessee. Therefore, he held that the assessee was provided technical services by Bayor and the payments are subject to the TDS and since the assessee failed to deduct TDS, it was to be disallowed under section 40(a)(ia) of the Act. Aggrieved, the assessee is in appeal before us.

8.1 The learned Counsel for the assessee reiterated the submissions made by the assessee before the authorities below and relied upon the same case law for treating the payments made to Nunhems BV as not amenable to TDS provisions.

8.2 Having regard to the rival contentions and the material on record, we find that the payment has been made to a resident sister concern for IT support given by the said concern. The services rendered by Equant and Nunhems BV are different from services rendered by Bayor Crop Science to the assessee. Bayor was managing the Lotus Notes of the assessee and that the ultimate recipient of the payments have not been revealed by the assessee. We therefore, agree with the findings of the CIT (A) that the management of the LOTUS Note is not a mere sharing of any infrastructure or facility and since the assessee has received the technical services from Bayor, the same is liable to TDS

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provisions. Therefore, we uphold the findings of the CIT (A) on this issue and the assessee’s ground of appeal No.3 is rejected.

8.3 As regards Ground of appeal No.4, brief facts are that the CIT (A) has confirmed the disallowance u/s 40(a)(ia) of the Act only with respect to provision for commission to be paid on sales. The learned Counsel for the assessee submitted that though the assessee has made the provisions on the basis of the sales, but since the payment had not accrued to recipient at that point of time, the assessee has debited the said amount to the provision a/c and that the TDS was made when the ultimate payment was made. Before the CIT (A), the assessee had explained in Para 10.4 as under: “In both the cases mentioned above, the agents are “entitled” to receive commission only after NIPL actually receives such payment against the supplies made (Refer to clause 4 of the agreement with Himgiri Agro Traders – enclosed as Annexure 42). Accordingly, the ‘entitlement’ of the commission to the agent depends on the receipt of payment by NIPL against supplies after taking into consideration the amount of actual bad debts and discounts. 2.7.1.2 Our Submissions The obligation to deduct tax under the withholding tax provisions of the Act arises only when the vendor acquires a right to enforce/receive payment from the payer and not on the basis of mere credit by the payer in the books of account of any adhoc provision. The concept of “accrual of income” to the vendor is a very important factor in determining the liability of the payer to deduct taxes at source under the provisions of the Act. Mere crediting in the books of account as a provision in expense payable or other payable account does not mean that actual accrual of liability or income especially until such time as the bill or invoice is received and duly passed for payment followed by an entry in the books of account”. 8.4 The learned Counsel for the assessee reiterated the submissions made before the authorities below and we find that the agents who are entitled to the commission are identified and that the commission is paid only after receipt of the payment

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against the supplies made. Therefore, the ultimate recipients are ascertainable and hence the assessee ought to have made the TDS at the time of crediting the said a/c. Therefore, we see no reason to interfere with the order of the CIT (A) on this issue and the Ground of appeal No.4 is accordingly rejected.

8.5 As regards Ground No.5, we find that the assessee had offered the scheme discount amounting to Rs.51,91,186 to various distributors and retailers and that the discount was based mostly on net sale and that the actual discount on net sales is known only at the end of the season i.e. after the end of the financial year. The assessee had created a discount during the financial year based on past practice for discounts, but the AO, disallowed the same and brought it to tax. The CIT (A) confirmed the said disallowance.

8.6 At the time of hearing, the learned Counsel for the assessee submitted that similar issue had arisen in the assessee’s own case for the A.Y 2009-10 and the AO after scrutiny has allowed the same. He has filed a copy of the said order before us. He also submitted that even for the A.Y 2008-09, the CIT (A) has allowed the said discount though on different basis and therefore, there should be uniform stand by the Revenue and this amount should be allowed. As the decisions of CIT (A) and the AO are in respect of subsequent A.Ys, we deem it fit and proper to remand this issue also to the file of the AO for reconsideration in accordance with the view taken by the Department for the A.Ys 2008-09 and 2009-10. Thus, this ground of appeal is treated as allowed for statistical purposes.

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ITA No.1775/Hyd/2013 A.Y 2009-10

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Sd/- Sd/- (S.Rifaur Rahman) (P. Madhavi Devi) Accountant Member Judicial Member Hyderabad, dated 6th July 2018. Vinodan/sps

Copy to: 1 Nunhems India Private Ltd, S-196 Kandlakoya, Medchal to Miyapur By-pass Road, Near Railway Gate, Medchal, Ranga Reddy Distt. 501403 2 Addnl. CIT, Range-16, Hyderabad 3 CIT (A)-V, Hyderabad 4 CIT – IV Hyderabad 5 The DR, ITAT Hyderabad 6 Guard File

By Order

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