DCIT 10(2), MUMBAI vs. UNITED HELICHARTERS P.LTD, MUMBAI

PER SANDEEP GOSAIN,JUDICIAL MEMBER:

The present appeal has been filed by the Revenue against the

order of the learned CIT (A)-21, Mumbai dated 23-09-2013 passed in appeal No.CIT (A) 21/IT/242/2013-14 for assessment year 2005-06

whereby the learned CIT (A) has allowed the appeal filed by the assessee on the ground mentioned herein below:-

1.1 "On the facts and in the circumstances of the case as well as in law,

the Ld. CIT(A) erred in deleting the addition made by the AO on account of disallowance of Rs.30,04,700/- u/s.40(a)(i) of the Act for

non-deduction of TDS on payments made for training of Pilots and Staff.

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1.2 "On the facts and in the circumstances of the case 'as well as in law, the Ld. CIT(A) erred in not appreciating that the said payment towards training expenses paid to non- residents is squarely covered u/s.9(1)(vii) r.w. Explanation 2 as fees for technical services".

1.3 "On the facts and in the circumstances of the case as well as in law, the Ld. CIT(A) erred in holding that the assessee's case is not covered by exception provided in clause (b) to sec. 9(1)(vii) of the Act and that the Explanation introduced by the Finance Act 2010 is a retrospective Amendment w.e.f. 1/6/1976.

2.1 "On the facts and in the circumstances of the case as well as in law, the Ld. CIT(A) erred in deleting the addition of Rs.43,90,000/- made by the AO on account of disallowance ix] s.40(a)(ia) of the Act due to non-deduction of TDS on the mobilization expenses paid in foreign currency.

2.2 "On the facts and in the circumstances of the case as well as in law, the Ld. CIT(A) erred in not appreciating that, during assessment, assessee claimed before AO that such payment is exempt u/s.10(15A) and as the said claim was rejected by the AO on merits, the assessee took a stand before the Ld.CIT(A) that it is simply in the nature of reimbursement and no TDS ought to have been made.

The appellant craves leave to add, amend, vary, omit or substitute any of the aforesaid grounds of appeal at any time before or at the time of hearing of appeal .

The appellant prays that the order of CIT(A) on the above ground be set aside and that of the assessing officer be restored."

times but, nobody appeared on behalf of the assessee and even; no

application for adjournment of the case was filed. As per the records it is

revealed that none appeared on behalf of the assessee on the previous

date of hearing also though notice was already issued by RPAD.

Therefore, it seems that the assessee is not interested to contest the

3 ITA No.6917/Mum/2013(A.Y.2005-06) DCIT Vs. M/s. United Helicharters P.Ltd. present appeal. The learned DR representing the Revenue is present

before the Bench and submitted that he wish to contest the same.

Therefore, we proceed to dispose of the appeal after hearing the learned

DR and perusal of the materials available on record.

the business of providing helicopter services. The helicopters were

acquired by the assessee on lease from foreign principles. The return of

income for A.Y. 2005-06 was filed by the assessee on 31.10.2005

declaring total income of Rs.3,55,92,645/-. The return was accompanied

by Tax Audit Report u/s 44AB of the Income Tax Act along with other

relevant annexure/schedules. The return of income was processed u/s

143(1) and thereafter the case was selected for scrutiny and after serving

statutory notices and seeking reply from the assessee. The AO disallowed

training expenses paid to three foreign parties amounting to

Rs.30,04,700/- u/s 40(a)(i) of the I.T. Act,1961 on the ground that as the

assessee was liable to deduct TDS on such payments but assessee has

failed to do so. In addition disallowance of mobilization expenses paid in

foreign currency of Rs.43,90,000/- were also disallowed u/s 40(a)(i) of the

I.T. Act,1961 vide order of assessment dated 12.12.2008.

Aggrieved by the aforesaid order of the AO, the assessee preferred

appeal before the leaned CIT (A) and the learned CIT (A) after

considering the case has allowed the appeal of the assessee and deleted

4 ITA No.6917/Mum/2013(A.Y.2005-06) DCIT Vs. M/s. United Helicharters P.Ltd.

the additions vide its order dated 23.09.2013. Aggrieved by the order of

the learned CIT (A) the Revenue is now in appeal before us on the

aforementioned grounds.

Ground No.1.1, 1.2 & 1.3

and inter-related therefore we thought it fit to dispose off the same

through the present common order. The said ground has been dealt by

CIT(A) in para number 2.1 & 2.2 and the same is reproduced herein

below for the sake of reference:

“2.1 The facts of the / were that the appellant is engaged in the business of providing helicopter service on hire. The A.D. during the year under consideration had disallowed training expenses paid to CHC Helicopters International Rs.2,86,364/- (anada), Bell Textron Rs.12,87,990/- and Flight Safety International Rs.14,30,346/- (USA) on the ground that tax was not deducted at source. 2.2 I have considered the facts of the case. This issue has come into consideration in the assessee's own case wherein the Hon’ble ITAT, Mumbai in para no.9 held as under: 9. Therefore, in view of the legal proposition discussed by the Ahmedabad Bench (supra), we agree with the contention of the assessee that the assessee has acted under bonafide belief that no tax was to be deducted at source on these payments. Apart from the bonafide belief we further noted that as per para 4(b) of Article 12 of Indo-US DTAA fees for included services means if such services made available technical knowledge, experience, skill, know-how, or processes, or consists of the development and transfer of a technical plan or technical design. The training in the case in hand was given to the pilots and other staff as per the requirement of the DGCA Rules therefore; it was only a part of the eligibility of the pilots and other staff for working in the industry of aviation and such training would not fall under the term "service make available". The decisions relied upon by the Ld. DR are on the taxability of the income and in the hand of the non resident in view of the retrospective amendment therefore the said principle cannot be applied while deciding the issue of disallowance u/ s.40(a)(i). In view of the above discussion and the facts and circumstances of the case we are of the considered opinion that the

5 ITA No.6917/Mum/2013(A.Y.2005-06) DCIT Vs. M/s. United Helicharters P.Ltd.

disallowance of u/ s. 40(a)(i) is not justified and accordingly the same is deleted." Following the above decision, the addition made by A.D. is deleted. This ground of appeal is allowed.”

placed on record as well as the orders passed by the Revenue

authorities. We are of the considered view that ld. CIT(A) while

adjudicating the appeal has followed the decision of Hon’ble ITAT in

assessee’s own case for A.Y. 2006-07 and A.Y.2007-08. The CIT(A)

while following the ITAT’s decision has deleted the addition made by AO.

We have also perused the orders passed by Hon’ble ITAT in ITA No.

5136/Mum/2011 for A.Y.2006-07 and ITA No.5135/Mum/2011 for A.Y.

2007-08. We find that Hon’ble ITAT in the afore mentioned appeals have

considered the said ground in detail in para no.8&9 and the same is

reproduced herein below:

“8. We have considered the rival submissions as well as relevant material on record. The Assessing Officer has disallowed the payment in question as per the provisions of section 9(1)(vii) without considering the provisions of DTAA. The CIT(A) has also relied upon the retrospective amendment brought to the statute by Finance Act 2010 whereby the explanation has been introduced. There is no dispute on the point that prior to the assessment year 2006-07 there is no disallowance by the AO u/s 40(a)(i). The retrospective amendment brought by Finance Act 2010 was not in existence when the assessee made the payments. Therefore, it cannot be ruled out that the assessee has acted under bonafide belief that no TDS was required to be deducted on such payment. In view of the fact that there was no such disallowance made prior to the assessment year 2006-07 and it is not the case of the assessment of income in the hand of the non-resident recipient of the amount but it is a case of disallowance of the claim of expenditure claimed by the assessee. At the time of such payment the provisions relied upon by the CIT(A) was not in existence. Thus, the assessee was not expected to do something which were impossible to perform. The Ahmedabad Bench of this Tribunal in

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case of Sterling Abraive Ltd. Vs ACIT (supra) has extensively discussed this issue in para 8 to 11 as under: "8. We have heard the rival contentions and gone through the facts and circumstances of the case. We find that by amendment in the Finance Act, 2007, the Legislature inserted the explanation retrospectively with retrospective effect from 1- 6-1976 to section 9(2) of the Act, whereas the assessment year involved is 2004-05 relevant to previous year 2003-04 and it is impossible for the assessee to deduct tax in the financial year 1- 4-2003 to 31-3-2004, when the obligation to deduct TDS was not on the assessee during that period. The provision of section 9 provides for situations where income is deemed to accrue or arise in India to a non-resident. We find that the Legislature vide Finance Act, 1976, a source rule was provided in section 9 through insertion of clauses (vl. [vi) and (vii) in sub-section (1) for income by way of interest, royalty or fees for technical services respectively and the intention of introducing the source rule was to bring to tax interest, royalty and fees for technical services, by creating a legal fiction in section 9, even in cases where services are provided outside India as long as they are utilized in India but the Hon 'ble Supreme Court in the case of Ishikawajma-Harima Heavy Industries Ltd. (supra) held that despite the deeming fiction in section 9, for any such income to be taxable in India, there must be sufficient territorial nexus between such income and the territory of India. It further held that for establishing such territorial nexus, the services have to be rendered in India as well as utilized in India. According to the Legislature this interpretation was not in accordance with the legislative intent that the situs of rendering service in India is not relevant as long as the services are utilized in India and therefore, to remove doubts regarding the source rule, and Explanation was inserted below sub- section (2) of section 9 with retrospective effect from 1-6- 1976 vide Finance Act, 2007. The Explanation sought to clarify that where income is deemed to accrue or arise in India under clauses (v), (vi) and (viI) of sub- section (1) of section 9, such income shall be included in the total income of the non-resident, regardless of whether the non- resident has a residence or place of business or business connection in India. Even after that, the Hon 'ble Karnataka High Court, in a recent judgment in the case of jindal Thermal Power Co. Ltd. v. Dy. ClT (TDS) [2010} 321 ITR 31 has held that the Explanation, in its present form, does not do away with the requirement of rendering of services in India for any income to be deemed to accrue or arise to a non-resident under section 9. It has been held that on a plain reading of the Explanation, the

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criteria of rendering services in India and the utilization of the service in India laid down by the Supreme Court in its judgment in the case of Ishikawajma-Harima Heavy Industries Ltd. (supra) remains untouched and unaffected by the Explanation. Further the Legislature vide Finance Bill, 2010 in order to remove any doubt about the legislative intent of the aforesaid source rule, substituted in place of the existing Explanation a new Explanation to specifically state that the income of a non- resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) of section 9 and shall be included in his total income, whether or not,

(a) the non-resident has a residence or place of business or business connection in India,' or

(b) the non-resident has rendered services in India.

This amendment was made retrospectively from 1-6-1976 and will accordingly, apply in relation to the assessment year 1977- 78 and subsequent years.

"The maximum of equity, namely, actus curiae neminem gravabit - an act of court shall prejudice no man, is founded upon justice and good sense which serves a safe and certain guide for the administration of law. The other relevant maxim is, lex non cogit ad Impossibitie - the law does not compel a man to do what he cannot possibly perform. The law itself and its administration is understood to disclaim as it does in its general aphorisms, all intention of compelling impossibilities, and the administration of law must adopt that general exception in the consideration of particular cases. (see U.P.5.R. T.e v. Imtiaz Hussain [2006J 1 SCC 380,

8 ITA No.6917/Mum/2013(A.Y.2005-06) DCIT Vs. M/s. United Helicharters P.Ltd.

Shaikh Salim Ha;i Abdul Khagumsab v. Kumar [2006J 1 SCC 46, Mohammad Gazi v. State of MP [2000J 4 SCC 342 and Gursharan Singh v. New Delhi Municipal Committee [1996J 2 SCC 459."

Similarly, while dealing with a question as to whether an assessee can be penalized for failure to carry out an act prior to its incorporation the Apex Court in the case of Lite Insurance Corporation of India v. c/T [1996J 219 ITR 410 made following observations. "11. It is obvious that in the surplus or deficit in any inter- valuation period relating to the Corporation which came to be formed only on the appointed day in 1956, this amount could not be reflected since it related to a period prior to the formation of the Corporation. The law does not contemplate or require the performance of an impossible act - Lex non cogit ad impossibilie. It is now to be seen whether the expression "included therein" in rule 2(l)(b) is alone sufficient to negative the logical legal effect of section 7 of the LlC Act.

While dealing with question as to whether an assessee can be liable to pay interest for failure to pay advance tax during the year when the liability to pay tax had arisen on account of amendment to law which took place after the end of the year, Hon 'ble Madras High Court in the case of OT v. Revathi Equipment Ltd. [2008] 298 ITR 67, reproduced and thereafter approved the reasoning contained in the following passage of the Tribunal order.

We have no doubt in our mind that the levy of interest under sections 234B and 234C are of mandatory nature, but at the same time, if we read sections 234B and 234C carefully, we find that such liability is fastened to those assessees who are liable to pay advance tax. Now, let us see who are liable to pay advance tax and how. Sections 207 and 208 read as under:

'207. Tax shall be payable in advance during any financial year, in accordance with the provisions of sections 208 to 219 (both inclusive), in respect of the total income of the assessee which would be chargeable to tax for the assessment year immediately following that financial year, such income being hereafter in this Chapter referred to as "current income". 208. Advance tax shall be payable during a financial year in every;- A case where the amount of such tax payable by the assessee during that year, as computed in accordance with the provisions of this Chapter, is five thousand rupees or more. ' 7. A combined reading of the above provisions makes it clear that the assessee has to pay taxes in advance in respect of the total

9 ITA No.6917/Mum/2013(A.Y.2005-06) DCIT Vs. M/s. United Helicharters P.Ltd.

income of the assessee, which would be chargeable in a particular assessment year. Now before introduction of section 35DDA, the legal dictum was very clear that the assessee could claim expenditure incurred on account of payment made for the VRS by the assessee in view of the binding decisions of the Hon 'ble jurisdictional High Court in the case of CIT v. George Oakes Ltd. [1992] 197 ITR 288 (Mad.) and OT v. Simpson and Co. Ltd. (No.2) [1998]230 ITR 794 (Mad.). In both the decisions, it was clearly laid down by the Hon 'ble jurisdictional High Court that payments to employees under the VRS were in the nature of business expenditure and was deductible under section 37. Therefore, till the introduction of new provisions under section 35DDA, the assessee could have estimated the income legitimately after reducing the expenditure incurred on the VR5. It is a common knowledge that the Finance Bill is introduced on February 28, 2001, and the same is made into the Act after passing the 8ill in both the Houses of Parliament and receiving the assent of the Hon 'ble President of India some where in Mayor june, which means till that date no assessee can visualize that a new liability would be fastened to him. Normally, new provisions are introduced with effect from the next assessment year, but this provision under section 35DDA was introduced by Parliament in its wisdom with effect from April 1, 2001, i. e., the same year and that is why difficulty has arisen for visualizing the liability and the assessee Could not deduct such expenditure. In fact in almost identical circumstances in the Third Member decision by the Delhi Bench in the case of Haryana Warehousing Corporation v. Deputy OT [2001J 252 ITR (AT) 34 it was held that in such situations the legal dictum ad impossibilia would be attracted. The simple meaning of this dictum is that 'law cannot compel you to do the impossible'. In the case before us also, the assessee could not have visualized till the last instalment of advance tax, i.e., March 15, 2001, that it would not be entitled to deduct the VRS payments. Therefore, the assessee could not have done anything other than to estimate the liability to pay advance tax on the basis of existing provisions. We are of the considered opinion that in such situation, it cannot be said that the assessee was liable to pay advance tax. Once we come to the conclusion that the assessee was not liable to pay advance tax, there is no question of charging tax under sections 2348 and 234C. In similar circumstances in the case of Priyanka Overseas Ltd. v. Deputy OT [2001J 79 ITD 353 (Delhi) where the assessee had treated the receipt of cash assistance as capital receipts, which was subsequently amended to be business receipt by the Finance Act, 1990, it was held that in such cases interest under sections 2348 and 234C was not chargeable. In these circumstances, we think that the assessee was not liable to pay advance tax and therefore levy of interest under sections 2348 and 234 C is not justified. Further, it is pertinent to note that the assessee by way of abundant caution deposited a sum of Rs. 90,00,000 on August 6, 2001, i.e., much before the due date filing of the return, which also proves the bona fide credentials of the assessee. In these circumstances, we

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set aside the order of the learned Commissioner of Income-tax (Appeals) and delete the levy of interest under sections 2348 and 234C." 1O. While dealing with the question as to whether an assessee can be faulted for not declaring the amount of capital gain on acquisition of land when the amount of compensation itself is not determined Hon’ble Allahabad High Court in the case of CIT vs. Prem Kumar [2008] 169 Taxman 351 held as follows:

"Lex non cogit ad impossibilie is an age old maxim meaning that the law does not compel a man to do which he cannot possibly perform. Requiring the assessee to file a proper and complete return by including the income under the head 'Capital gain' would be impossible for the assessee, in cases of the nature referred above. "

In the case of VL.S. Finance Ltd. v ClT [20Q7J 289 ITR 286 Hon 'ble Delhi High Court was concerned with the question as to whether assessment proceedings were within the period of limitation in view of the fact that special audit, which was to precede the assessment order was stayed, for some time by the order of the court. In this connection, the court noted as follows.

"In Raj Kumar Dey v. Tarapada Dey AIR 1987 SC 2195, the Supreme Court examined the scope of a stay order on calculation of time/limitation. In this case, an award could not be registered within the time stipulated by the Registration Act owing to an interim injunction and an order directing the award to be deposited in Court. The Supreme Court allowed the entire period during which the stay order was in operation to be excluded while applying the maxim lex non cogit ad impossibitie or the law, does not compel a man to do that which he cannot possibly perform. " In the case of Escorts Ltd. v. ClT [2002J 257 ITR 468, Hon'ble Delhi High Court was concerned with claim of an assessee for grant of refund under section 244 of the Act, which was denied to an assessee by the revenue on the ground that the assessee himself was responsible for delay of refund, and therefore cannot claim the amount of interest. While considering the rights of the assessee to claim interest, the Delhi High Court held as follows:

"Lex non cogir ad impossibitie' is a well-known maxim. It means the law does not compel a man to do that which he cannot possibly perform. If the Assessing Officer could not perform his duties to complete the order of assessment in the absence of any evidence furnished by the assessee, the Department cannot be blamed therefore.

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A law cannot be interpreted in vacuum. It has to be interpreted having regard to the facts and circumstances involved in each case." 11. We find from the above legal position and facts of the case that the assessee acted bona fide in conformity with the provision of act and the legal position as enumerated by Hon 'ble Apex Court in the case of Ishikawajma-Harima Heavy Industries Ltd. (supra). At the relevant point of time it was impossible on the part of the assessee to deduct tax on the income of non- resident. Admittedly, up to the insertion of explanation vide Finance Act, 2007, the assessee was under bona fide belief not to deduct tax and accordingly he acted as per law. Accordingly we allow the appeal of the assessee. 9. Therefore, in view of the legal proposition discussed by the Ahmedabad Bench (supra) we agree with the contention of the assessee that the assessee has acted under bonafide belief that no tax was to be deducted at source on these payments. Apart from the bonafide belief we further noted that as per para 4(b) of Article 12 of Indo-US DTAA fees for included services means if such services made available technical knowledge, experience, skill, know-how, or processes, or consists of the development and transfer of a technical plan or technical design. The training in the case in hand was given to the pilots and other staff as per the requirement of the DGCA Rules therefore, it was only a part of the eligibility of the pilots and other staff for working in the industry of aviation and such training would not fall under the term "service make available". The decisions relied upon by the Ld. DR are on the taxability of the income in the hand of the non- resident in view of the retrospective amendment therefore the said principle cannot be applied while deciding the issue of disallowance u/s 40(a)(i). In view of the above discussion and the facts and circumstances of the case we are of the considered opinion that the disallowance of u/s 40(a)(i) is not justified and accordingly the same is deleted. 9. In the result, both the appeals of the assessee are allowed.”

After co-joint reading of the above mentioned order, as well as the orders

passed by revenue regarding the year under consideration we are of the

considered view that Hon’ble ITAT has rightly held that the assesee has

acted under bonafide belief that no tax has to be deducted at source on

these payments. Apart from the bonafide belief the Hon’ble ITAT has

further held that as per para 4(b) of Article 12 of Indo-US DTAA fees for

12 ITA No.6917/Mum/2013(A.Y.2005-06) DCIT Vs. M/s. United Helicharters P.Ltd. included services means “If such services made available technical

knowledge, experience, skill, know-how, or processes, or consists of the

developments and transfer of a technical plan or technical design”. Since

in the present case the training was given to pilots and other staff as per

the requirement of the DGCA Rules therefore, training was only a part of

the eligibility of the pilots and other staff for working in the industry of

aviation and such training would not fall under the term “service make

available.” Ld. CIT(A) has rightly held that the disallowance u/s40(a)(i) is

not justify as per the facts of the present case and the same was rightly

deleted.

Considering the totality of the facts and circumstances of the

present case, we are of the view that the learned CIT (A) has passed a

reasonable and judicious order. Therefore, we find no reason to deviate

from or interfere with the findings of the learned CIT (A). Accordingly, we

uphold his order. These grounds of appeal of the revenue stand rejected.

Ground No.2.1&2.2

and inter-related therefore we thought it fit to dispose of the same through

the present common order. The said ground has been dealt with by

CIT(A) in para no.3.1 and the same is reproduced herein below for the

sake of reference:

“3.1 I have considered the facts and circumstances of the case. This issue has come into consideration of CIT(A) order in A.Y. 2005-06 wherein in para 3.7 it is held as under:

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“3.7 In the light of the above judgement, I am of the view that in the case of appellant company, the TDS was not deductible for reimbursement of expenses by the appellant company for transporting/mobilizing these helicopters in India. In absence of any embedded income in the reimbursement of these expenses, the question of deducting TDS does not arise. Accordingly, the Assessing Officer is directed to delete the demand of TDS and interest u/s 201(1A) of the Income-tax Act thereon in the case of the appellant company.” Following the above decision, the disallowance of mobilization expenses paid in foreign currency is deleted. This ground of appeal is allowed.”

placed on record as well as the orders passed by the Revenue

authorities. We have noticed that in the assessment order it has been

categorically mentioned that mobilization of expenses of Rs.43,90,000/-

were paid to Canada Inc. for acquiring the aircrafts on lease. Mobilisation

expenses pertain to expenses incurred on bringing the aircraft from the

Country of Lessor to India and hence they are in the nature of expenditure

incurred for acquiring the aircrafts as they are covered in the specific

lease agreements with the Lessors. We have also perused the orders of

CIT(A) where in para number 3.1 of the CIT(A). There is reference of

order for previous year wherein it has been categorically mentioned that

the TDS was not deductable for reimbursement of expenses by the

assessee accompanied for transporting/mobilizing the helicopters in India

and in the absence of any embedded income in the reimbursement of

these expenses, the question of deducting TDS does not arise.

14 ITA No.6917/Mum/2013(A.Y.2005-06) DCIT Vs. M/s. United Helicharters P.Ltd.

Considering the totality of the facts and circumstances of the

present case, we are of the view that the learned CIT (A) has passed a

well reasoned and judicious order. Therefore, we find no reason to

deviate from or interfere with the findings of the learned CIT (A).

Accordingly, we uphold his order. This grounds of appeal of the revenue

stand rejected.

Order pronounced in the open court on 10-08-2016.

Sd/- Sd/-

(JASON P. BOAZ) (SANDEEP GOSAI) JUDICIAL MEMBER ACCOUNTANT MEMBER

Mumbai, Dated 10/8/2016 Ashwini/ Ashwi ni/PS PS Ashwi Ashwi ni/ ni/ PS PS Copy of the Order forwarded to : The Appellant 1. The Respondent. 2. The CIT (A), Mumbai. 3. CIT 4. 5. DR, ITAT, Mumbai 6. Guard file. BY ORDER, //True Copy//

Assistant Registrar ITAT, MUMBAI