Case Law Details

Case Name : DCIT Vs Force Motors Ltd. (ITAT Pune)
Appeal Number : ITA No. 1192/PUN/2017
Date of Judgement/Order : 18/03/2021
Related Assessment Year : 2004-05

DCIT Vs Force Motors Ltd. (ITAT Pune)

During the First Appellate Proceedings before the Ld. CIT(Appeals), it was submitted by the assessee that payments were made to technical consultants from Japan, Germany and Italy. The assessee submitted that these consultants are not residents of India and further their stay in India was less than the periods specified in the respective DTAA agreements with those countries for the technical fee to be treated as taxable in India. The assessee relied on the Article 14 of the German DTAA, Article 14 of Japan DTAA and Article 15 of Italian DTAA in support of its claims and also filed copies of the passports of these individuals. The assessee further claimed that the TDS was not deducted on these payments based on the Chartered Accountants certification.

The Ld. CIT(Appeals) vide Para 4.18.3 of his order observed that the fee for technical services paid by a resident are deemed to be the income arising in India as per Section 9(1)(vii) of the Act. Further, any payment made to a non resident which is chargeable to tax in India is liable to deduct TDS u/s.195 of the Act. The Ld. CIT(Appeals) further observed that however, the DTAA agreements between India and those countries as referred by the assessee indicate that the technical service fee received by those individuals are not liable to tax in India as they meet the criteria specified therein. Once the income is not chargeable in India, there is no liability of TDS as per the provisions of Section 195 of the Act. Therefore, the disallowance of the expenditure u/s.40(a)(i) of the Act is not permissible and addition was deleted by the Ld. CIT(Appeals).

We observe that one of the important criteria in the DTAA agreement is number of days of stay in India for each of these technical consultants and this fact was not analyzed or examined specifically by the Ld. CIT(Appeals). It is only when this criteria is satisfied then only the provision of DTAA agreement will come into play in order to indicate that such technical services received from those individuals were not liable to be tax in India since they meet criteria specified in those DTAA agreements. In this respect, we have directed the Ld. DR to file written submissions asking for report from the concerned Assessing Officer verifying details whether number of days of stay of those technical consultants meet criteria of DTAA agreements or not so to absolve the assessee company from TDS liability.

In the letter to the Assessing Officer by the Addl. CIT (Ld.DR) dated 08.02.2021, it was specifically asked to examine whether payments made to the referred technical foreign consultants are covered under the head “Independent Personal Services” of Article 14 of the India Germany DTAA, Article 15 of the India Italy DTAA & Article 14 of India Japan DTAA and not subject to tax in India. However, the report of the Assessing Officer dated 03.03.2021 is silent on this aspect. Thereafter, at Para 4 the Ld. DR on the basis of the various paper book submitted by the Ld. Counsel for the assessee has verified only to the extent on the basis of those documents as submitted by the assessee. However, these facts needs to be corroborated and factually verified by the Assessing Officer which he was silent about in his report earlier filed on 03.03.2021. In the interest of justice, we are of the considered view that this issue should be verified by the Assessing Officer while complying with the principles of natural justice. In view thereof, we set aside the order of the Ld. CIT(Appeals) in respect of this ground only and restore the same to the file of the Assessing Officer to re-adjudicate the issue as indicated hereinabove.

FULL TEXT OF THE ITAT JUDGEMENT

This appeal preferred by the Revenue emanates from the order of the Ld. CIT(Appeals)-6, Pune dated 31.01.2017 for the assessment year 2004-05 as per the following grounds of appeal on record :

1. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the addition on account of disallowance of prepaid taxes of Rs.10,56,220/- u/s.43B of the Act as the same has not been debited to the P & L account for the year and the amount is shown as prepaid expenses in the balance sheet of the company.

2. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the addition on account of disallowance of expenses of Rs.41,86,159/- pertaining to AY 2004-05 which was not claimed in the return.

3. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the addition on account of disallowance of expenses of Rs.32,26,958/- for legal and professional charges in R & D to monthly Retainer as the assessee failed to establish that the expenditure incurred during the year was for the purpose of business and the services were actually rendered by the persons to whom the payments were made. The company also did not produce any evidence to show that the persons to whom payments were made on retainer-ship basis had actually worked for the company.

4. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) failed to appreciate the fact that no evidence to establish the rendering of services and the benefits derived by the assessee company from these payments was filed in support of the genuineness of these payments for the purpose of business. It is an established principal that the onus is on the assessee to establish that the particular expense claimed in spent wholly and exclusively for the purpose of business before it is allowed as deduction from the taxable income.

5. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the addition on account of disallowance of commission to non working directors and directors as the assessee failed to produce satisfactory evidence of the business need for the above expenses.

6. Whether on the facts and circumstances of the case and in law, the Ld.CIT(A) was justified in deleting the addition on account of disallowance of account of foreign Consultancy Expenses when the Authority for Advance Ruling AAR in recent decision dated 27.02.2012 in the case of M/s.SKF Boilers and Driers Pvt. Ltd. has held that the commission payable to the agents abroad in deemed to accrue and arise in India.

7. The appellant craves to add, amend or alter any of the above grounds of appeal.”

2. The brief facts of the case are that the assessee company is engaged in the manufacturing of light and commercial vehicles, utility vehicles, tractors and three wheelers. The assessee company filed its return of income for assessment year 2004-05 on 01.11.2004 showing an income of Rs.45,17,70,470/-. The assessment was completed determining the income at Rs.70,35,87,168/- and brought forward losses of Rs.20,76,92,188/- have been set off against this income resulting taxable income of Rs.49,58,94,980/-. That on completion of assessment, various additions/disallowances has been made which are on record. The additions thereafter deleted by the Ld. CIT(Appeals) gave rise to the grievance of the Revenue.

3. Ground No.1 of the Revenue’s appeal pertains to deletion of addition by the Ld. CIT(Appeals) on account of disallowance of prepaid taxes of Rs.10,56,220/- u/s.43B of the Income Tax Act, 1961 (hereinafter referred to as the Act’).

4. The Assessing Officer with regard to this ground has observed that the expenditure of Rs.10,56,220/- being prepaid taxes paid by the assessee during F.Y.2003-04 is not allowance expenditure u/s.43B of the Act since the same is not deducted to the P & L account for the year.

5. The Ld. CIT(Appeals) as per his order at Para 4.7.2 has held that similar issue in assessment year 2003-04 was confirmed by the Ld. CIT(Appeals)-III, Pune. However, the Income Tax Appellate Tribunal, Pune has allowed the claim of the assessee in ITA No.1522/PN/2007 for assessment year 2003-04 dated 21.01.2010 relying upon Chandigarh Special Bench’s decision in the case of DCIT Vs. Glaxo Smithkline Consumer Healthcare Ltd. reported in 107 ITD 343. Following the Income Tax Appellate Tribunal decision, the Ld. CIT(Appeals) directed the Assessing Officer to delete the addition of Rs.10,56,220/-.

6. At the time of hearing, the Ld. Counsel for the assessee placed strong reliance on the findings of the Ld. CIT(Appeals) and submitted that it is settle position of law, this issue has been consistently held in favour of the assessee not only by the decision of Pune Bench of the Tribunal (supra.) relying on the Chandigarh Special Bench‟s decision (supra.) but also Income Tax Appellate Tribunal, Jaipur Bench in the case of ACIT Vs. Bhatia Corporation Pvt. Ltd., ITA No.417/JP/2012 for the assessment year 2008-09 wherein on this issue, Jaipur Bench of the Tribunal has held at Para 10 of its order that the payment of road tax in advance is allowance u/s.43B of the Act even if it pertained to the subsequent year. That for the sake of completeness, the relevant Para is extracted as follows:

“10. The 4th ground of the assessee’s C.O. is against confirming the disallowance of Rs.11,200/- out of payment of Rs.55.105/- of road tax for trucks by treating the same as prepaid expenditure. The learned Assessing Officer found that the assessee had claimed Rs.1,84,758/-under the head truck expenses. On verification of details, it was found by the Assessing Officer that Rs.55,105/- was paid/deposited on account of road tax on 25/3/2008, which included a sum of Rs.11,200/-as prepaid road taxes, which pertained to next financial year. Thus, he made addition of Rs.11,200/- in the income of the assessee, which was confirmed by the learned CIT(A) by observing that as per Section 43B of the Act, the expenses is allowable if the same is allowable otherwise. This expense of Rs.11,200/- is not allowable otherwise as pertained to next year.

The learned AR submitted that as per Section 43B, a deduction otherwise allowable under this Act, is allowable in the previous year in which such sum is actually paid. The road tax is expenditure allowable under the Act and therefore the same is to be allowed on actual payment basis even if a part of it relate to the subsequent year. He relied upon the following case laws:-

(i) Paharpur Cooling Towers Pvt. Ltd. Vs. CIT 61 DTR 309 (Cal.)(HC)

(ii) DCIT Vs. Glaxo Smithkline Consumer Health Care Ltd. 107 ITD 343 (Chd.)(SB)

(iii) C.P. Ltd. Vs. ITO 38 ITD 15 (Hyd.)(SB)

(iv) CIT Vs. Southern Roadways Ltd. 265 ITR 404 (Mad.)(HC) 20 ITA 417/JP/2012 & C.O. 42/JP/2012_ ACIT Vs Bhatia Corp. Pvt. Ltd.

(v) CIT Vs. Modipon Ltd. 205 Taxman 79 (Del.)(HC)(Magz.)

The learned D.R. has vehemently supported the order of the learned CIT(A). After considering the submissions of both the parties and the case laws cited by the assessee, we find that the payment of road tax in advance is allowance U/s 43B even pertained to subsequent year. Accordingly, the assessee’s C.O. is allowed on this ground.”

7. We have perused the findings of the Assessing Officer as well as the Ld. CIT(Appeals) on this issue. We find that on this issue facts are absolutely identical to the facts pertaining to those cases before the Tribunal as relied upon by the assessee hereinabove. Therefore, following the same parity of reasoning, the relief granted to the assessee by the Ld. CIT(Appeals) is hereby sustained. Thus, Ground No.1 raised in appeal by the Revenue is dismissed.

8. Ground No.2 of the Revenue‟s appeal pertains to deletion of addition by the Ld.CIT(Appeals) on account of disallowance of expenses of Rs.41,86,159/-which was not claimed in the return of income.

9. The Ld. Counsel for the assessee on this issue submitted that this ground of appeal assailed by the Revenue is incorrect for the fact that though the assessee has not debited these expenses in the P & L account but however, they have claimed the same in the return of income. Demonstrating these facts, he brought to the notice of the Bench at Page 7 of the paper book wherein the statement of computation of profit and gains of business and total income for assessment year 2004-05 have been filed and therein at Column- 8, the amount specifically mentioned Rs.41,86,159/- as expenditure incurred in the F.Y. 2003-04 ( AY 2004-05) but not debited to Profit and loss account for the year. Therefore, it is crystal clear that this amount was reflected in the return of income filed by the assessee. The Ld. Counsel further submitted that the assessee has incurred these expenses which were accounted in the accounting year 2003-04 relevant to assessment year 2004­05. The assessee has also furnished certificate from Chartered Accountant certifying these expenses pertain to assessment year 2004-05. In support of its claim, the assessee has also produced vouchers and bills showing these expenses pertaining to assessment year 2004-05.

10. During the First Appellate Proceedings, the Ld. CIT(Appeals) on this issue has held and observed as follows :

“4.8.1 It is the claim of the appellant that an expenditure on Rs.41,86,159/- pertaining to the current year has been debited in the books of the subsequent years. However, during the assessment proceeding, the appellant had made a claim for this amount of Rs.41,86,159/- before the AO. These amounts though accounted in the subsequent accounting years have not be claimed as expenditure as they are prior period expenditure. The appellant claimed that these claims were received subsequently after the year end and hence could not be accounted in the relevant accounting year. He also claimed that the return could not be revised by filing a revised return. The appellant claimed that as the bills pertaining to these claims have been submitted in the subsequent year, hence could not be accounted in the relevant accounting years. He also further stated that no provision could be made as the company is a big company and the works/services rendered could not be quantified as they are incurred in various sections of the company. As the claims have been certified by the Chartered Accountant, disallowance of these expenditure on the ground that they have not been debited to the P & L account of the current year and have not accounted in the books of the current year to which they pertain to in view of mercantile system of accounting followed by the assessee would be unfair and cause financial harm to the appellant.

4.8.2 The AO did not allow the claim as the amount was not part of the return. The AO was constrained by the decision of the Supreme Court in the case of Goetze India Ltd vs. CIT reported in 284 ITR 323 (sq. As the Supreme Court in that case has restricted the power of the AO to admit the additional claims which are not reflected in the returns, the action of the AO cannot be found fault with. The question remains whether such claims can be entertained by the appellate authorities. The Mumbai High Court in CIT vs. Pruthvi Brokers and Share holder Pvt Ltd reported in [2012] 23 Taxman.com. 23(Born) had elaborately discussed the judgments of Supreme Court rendered in Goetze India Ltd [as cited Supra], NTPC v. CIT [1998] 229 ITR 383 (SC) and Jute Corporation of India [1991] 187 ITR 688 (sq. All these judgments relate to the powers of appellate authorities and the AO as regards admission of the additional claims made before them which are not claimed in the returns. In the case of NTPC, the Supreme Court held that the Tribunal has jurisdiction to examine a question of law which arises from the facts as found by the authorities below and having a bearing on the tax liability of the assessee. In the Jute Corporation of India Ltd, the Supreme Court upheld the CIT(A)’s admission of the claim of deduction of purchase tax though not claimed in the return, as the company was assessed to purchase tax by the Sales Tax Authorities subsequent to the Income tax assessment order. It held that the power of the appellate Commissioner is co-terminus with that of the AO, there is no reason as to why the appellate authority cannot modify the assessment order on additional ground even if not raised before the Income Tax Officer. The Bombay High Court after examining all the Supreme Court decisions has upheld the decision of the CIT(A) in admitting the claim of the party of payment made during the year though pertaining to the earlier year but allowed on payment basis u/s 43B but not made in the return.

4.8.3. In the present case, the expenditure pertaining to the current year has been accounted in the subsequent years but not claimed as a expense in the returns filed for those years as prior period expenses. The claim for allowing these expenditures was made before the AO who could not admit the same, in view of the Supreme Court decision. However, in view of the decision of the Bombay High Court in the case of Pruthvi Brokers and Share holders Pvt. Ltd, such claims can be entertained by the appellate authorities. Following the jurisdictional High Court decision, the claim made by the appellant is admitted and the same is allowed as expenditure for the current year, as the expenses relate to the current year though accounted in the subsequent years. The AO is directed to ensure that these expenses have not been claimed in the returns filed for the subsequent years. Subject to this, the ground is allowed.”

11. We have observed from the documents placed on record at Page 7 of the paper book that in the return filed by the assessee, these expenses have been claimed by the assessee. The Ld. CIT(Appeals) has further relied on the decision of the Hon‟ble Jurisdictional High Court in the case of Pruthvi Brokers and Share Holders Pvt. Ltd. (2012) 23 Taxman. 23 (Bom.) and following that decision, the claim of the assessee was admitted and the same was allowed as expenditure for the current year as the expenses relate to the current year even though it was accounted in the subsequent years. Therefore, we do not find any reason to interfere with the findings of the Ld. CIT(Appeals) and the same is hereby upheld. Thus, Ground No.2 raised in appeal by the Revenue is dismissed.

12. Ground Nos.3 and 4 pertains to deletion of addition by the Ld. CIT(Appeals) on account of disallowance of expenses of Rs.32,26,958/- for legal and professional charges in R & D to monthly Retainer.

13. The grievance of the Revenue in these grounds is that the assessee has failed to establish that the expenditures incurred during the year were for the purpose of business and that the services were actually rendered by the persons to whom payments were made.

14. The Assessing Officer has disallowed the expenses on the ground that the assessee did not prove the rendering of services by these persons though the assessee had filed the evidence of extension letters granting them in the retainer ship.

15. That during the First Appellate Proceedings, the assessee had submitted that the retainers were working prior to the retirement in the R & D division and therefore, their services were utilized post retirement by employing them as retainers. The assessee submitted that the payments made to them are by cheque and filed attendance register to indicate their presence in the R & D premises. The assessee also submitted a note on the R & D activity and claimed it to be in house R & D unit approved by the DSIR. In support of the same, the assessee filed renewal of recognition on in house R & D issued on the letter head of the DSIR and it says that it has been decided to accord renewal to the in house R & D unit of the firm at Mumbai Pune Road, Akurdi, Pune up to 31.03.2008.

16. The Ld. CIT(Appeals) vide Para 4.13.2 on this issue has held and observed as follows:

“4.13.2 During the course of appeal proceedings, the appellant submitted that the retainers were working prior to the retirement in the R & D division and therefore there services were utilized post retirement by employing them as retainers. The appellant submitted that the payments made to them are by cheque and filed attendance register to indicate their presence in the R & D premises. The appellant had submitted a note on the R & D activity and claimed it to be in house R & D unit approved by the DSIR. In support of the same, the appellant filed the renewal of recognition on in house R & D issued on the letter head of the DSIR and it says that it has been decided to accord renewal to the in house R & D unit of the firm at Mumbai Pune Road, Akurdi, Pune up to 31.03.2008. This letter does not give any reference of the earlier recognition granted. The deduction u/s.35(2AB) mandates that the approval by the DSIR should be in Form No. 3CM and the appellant had to entered in agreement with the DSIR in Form no. 3CK. The AO should insist on the production of the same before allowing the deduction u/s 35(2AB), as they are mandatory in nature for allowing the deduction. Further, it is seen that expenditure of Rs.19,45,850/- incurred on Vinay Mundada claims to be for the services in managing the small commercial vehicle division. It is claimed that he was in design and development of small commercial vehicles. The offer letter dtd. 11/10/2004 shows him to be an advisor for business development. So the expenditure relating to’ him cannot be claimed under the clause 35(2AB). The AO should accordingly allow the expenditure under the general expenditure relating to the business and not under R & D. Therefore, the ground raised by the AO is partly allowed.”

17. At the time of hearing, the Ld. Counsel for the assessee vehemently submitted that these expenses incurred by the assessee were genuine and that it has been paid to the various retainers employed in R & D division of the assessee for their services rendered and these services were also genuine and that these were essential for the production purpose of the assessee. Demonstrating these facts, the Ld. Counsel for the assessee referred various pages of the paper book starting from Pages 56 onwards filed before us which was also filed before the Department wherein all the details and genuineness of the services rendered by the retainers for which expenses were incurred by the assessee have been clearly spelled out.

18. The Ld. DR could not refute the findings of the Ld. CIT(Appeals) and the facts brought on record that the expenses incurred by the assessee were genuine.

19. Taking the totality of facts and circumstances and hearing the parties herein, we hold it has been demonstrated by the assessee that the expenses incurred for the R & D division of the assessee for paying monthly retainer ship charges are genuine in nature. Thus, Ground Nos. 3 and 4 raised in appeal by the Revenue are dismissed.

20. Ground No.5 of the Revenue‟s appeal pertains to the deletion of addition by the Ld. CIT(Appeals) on account of disallowance of commission to non working directors and directors. The grievance of the Revenue is that the assessee has failed to produce any satisfactory evidence of the business need for the above expenses.

21. The Assessing Officer has discussed this issue at Page 14, Para 17 and Page 16, Para 20 of his order. The Ld. CIT(Appeals) has dealt with this issue at Page 10, Para 4.17 of his order. The assessee had claimed an amount of Rs.1,00,00,000/- as commission payment to director Shri Firodia and Rs.25,00,000/- to Mr. M.G. Chopada and claimed that this payment was approved by the shareholders in the AGM in 11th September, 2004. The Assessing Officer held it to be excessive and disallowed 30% of the same. Similarly commission paid to non working directors was claimed at Rs.69,00,000/- and this amount was claimed to have been approved by the AGM held on 11.09.2004. The assessee himself disallowed an amount of Rs.25,00,000/- out of the commission paid to the non working directors. The Assessing Officer has held that the assessee has failed to produce satisfactory evidence of the business need for the above expenses and disallowed balance amount of Rs.44,00,000/-. Therefore, there is disallowance of commission to non working directors of Rs.44,00,000/- and disallowance of commission to working directors of Rs.37,50,000/-.

22. The Ld. Counsel for the assessee at the time of hearing reiterated the submissions placed before the Sub-ordinate Authorities and also placed strong reliance on the findings of the Ld. CIT(Appeals). The assessee claimed that the commission payment to the working and non working directors were calculated as per the relevant clauses of the Companies Act and is within the limits specified therein. The assessee had also filed audit report in support of the same. The assessee further claimed that the non working directors are highly successful individuals in their fields and their services were of great help to the assessee company.

23. The Ld.CIT(Appeals) vide Para 4.17.3 of his order directed the Assessing Officer to allow the expenditure subject to the limitations specified in the Companies Act in respect of the commission payable to the directors. The Ld. Counsel for the assessee also submitted that in consequent upon the order passed by the Ld. CIT(Appeals), the Assessing Officer also passed consequential order giving relief to the assessee. This fact has been conceded by the Ld. DR. There is no violation of the Companies Act and also of the Income Tax Act. The expenses were approved by the AGM of the company. The Assessing Officer also passed consequential order as directed by the Ld. CIT(Appeals) providing relief to the assessee. The Ld. DR could not place on record any material or evidence contradicting these facts on record and conceded the issue is in favour of the assessee. Thus, Ground No.5 raised in appeal by the Revenue is dismissed.

24. Ground No.6 of the Revenue‟s appeal pertains to the deletion of addition by the Ld. CIT(Appeals) on account of foreign Consultancy Expenses.

25. The Assessing Officer has discussed this issue at Page 15 of his order and the Ld. CIT(Appeals) has decided this issue at Page 11, Para 4.18 of his order. The assessee had paid fee for technical foreign consultancy and advice to the extent of Rs.1,51,17,904/-. The Assessing Officer noted that the assessee did not deduct the TDS on some of the payments and has disallowed the expenditure to the extent of Rs.59,79,735/- on which no TDS has been paid u/s.40(a)(i) of the Act.

26. During the First Appellate Proceedings before the Ld. CIT(Appeals), it was submitted by the assessee that payments were made to technical consultants from Japan, Germany and Italy. The assessee submitted that these consultants are not residents of India and further their stay in India was less than the periods specified in the respective DTAA agreements with those countries for the technical fee to be treated as taxable in India. The assessee relied on the Article 14 of the German DTAA, Article 14 of Japan DTAA and Article 15 of Italian DTAA in support of its claims and also filed copies of the passports of these individuals. The assessee further claimed that the TDS was not deducted on these payments based on the Chartered Accountants certification.

27. The Ld. CIT(Appeals) vide Para 4.18.3 of his order observed that the fee for technical services paid by a resident are deemed to be the income arising in India as per Section 9(1)(vii) of the Act. Further, any payment made to a non resident which is chargeable to tax in India is liable to deduct TDS u/s.195 of the Act. The Ld. CIT(Appeals) further observed that however, the DTAA agreements between India and those countries as referred by the assessee indicate that the technical service fee received by those individuals are not liable to tax in India as they meet the criteria specified therein. Once the income is not chargeable in India, there is no liability of TDS as per the provisions of Section 195 of the Act. Therefore, the disallowance of the expenditure u/s.40(a)(i) of the Act is not permissible and addition was deleted by the Ld. CIT(Appeals).

28. We observe that one of the important criteria in the DTAA agreement is number of days of stay in India for each of these technical consultants and this fact was not analyzed or examined specifically by the Ld. CIT(Appeals). It is only when this criteria is satisfied then only the provision of DTAA agreement will come into play in order to indicate that such technical services received from those individuals were not liable to be tax in India since they meet criteria specified in those DTAA agreements. In this respect, we have directed the Ld. DR to file written submissions asking for report from the concerned Assessing Officer verifying details whether number of days of stay of those technical consultants meet criteria of DTAA agreements or not so to absolve the assessee company from TDS liability.

29. With regard to the direction from the Bench, the Ld. DR filed written submission dated 16.03.2021 and for the sake of completeness, the relevant portion of the written submissions are extracted herein below:

“3…………….. Further I had asked the AO vide letter dated 08.02.2021 to examine the paper books submitted by the counsel of the assessee and state whether the payments of Rs.5,85,036/- & Rs.5,67,345/- to Mr. Reinhard Harmeier & Prof. Wolfgang Kraus of Germany, Rs.47,36,409/-to Dr. G. L. Sessa of Italy & Rs.90,945/- to Dr. Yasutoshi Washio of Japan are covered under the head “Independent Personal Services’ of Article 14 of the India Germany DTAA, Article 15 of the India Italy DTAA & Article 14 of India Japan DTAA and not subject to tax in India. However his report dated 03.03.2021 is silent on this aspect.

The Hon’ble Bench has directed me to verify and submit a report by the close of working hours today as to whether the payment of Rs.59,79,735/- made to foreign technicians was covered by the terms & conditions laid’ down in the Article titled “INDEPENDENT PERSONAL SERVICES” of the DTAA between India and the respective countries to whom the foreign technicians belonged. I have gone through the various paper books submitted by the counsel for assessee. My verification is summarized as under :-

Sr. No Name of the foreign
technician
Payment made in Rs. Services
rendered
1.   Mr. Reinhard Harmeier of Germany 5,85,036/- Consultancy for development of Medium Commercial Vehicles to be manufactured at the plant of assessee company.
Comments :- Copy of documents filed show period of visit to India to be between 01.11.2003 to 07.11.2003 ( payment made for 6 days of consultancy) and between 04.01.2004 to 14.01.2004 ( payment made for 10 days of consultancy). To & For Air Travel, Local Boarding & Lodging cost to be borne by assessee company. Period of stay in India less than 120 days stipulated in “Article-14-Independent Personal Services” of the India Germany DTAA.
2.   Prof.  Wolfgang Kraus of Germany 5,67,345/- Consultancy for development     of HCV-  Full forward CAB to be manufactured at the plant of the assessee
company.
Comments :- Copy of documents filed show period of visit to India to be between 17.07.2003 to 23.07.2003 (payment made for 6 days of consultancy) and between 26.02.2004 to 05.03.2004 ( payment made for 8 days of consultancy). To & For Air Travel, Local Boarding & Lodging cost to be borne by assessee company. Period of stay in India less than 120 days stipulated in “Article-14-Independent Personal Services” of the India Germany DTAA.
3.              Mr. G.L. Sessa of Italy 47,36,409/- which includes Rs.10,000/- for out of pocket expenses. Consultancy for development    of new TDII 550 CC Engine
Comments :- Copy of document filed show period of visit to India to be between 11.07.2003 to 07.09.2003 ( payment made for 60 days of consultancy including one day for arrival journey and one for return journey), 08.11.2003 to 22.12.2003 ( payment made for 46 days of consultancy including one day for arrival journey and one day for return journey) and 04.02.2004 to 07.04.2004 ( payment made for 66 days of consultancy including one day for arrival journey and one day for return journey). Period from 01.04.2004 to 07.04.2004 excluded as falling in AY 2005-06. Total period of stay in India during AY 2004-05 is 165 days ( 60 + 46 +59). To & For Air Travel, Local Boarding & Lodging cost to be borne by assessee company. Period of stay in India less than 183 days stipulated in “Article-15-Independent Personal Services” of the India Italy DTAA.
4.              Dr.Yasutoshi    Washio    of Japan   Consultancy fee for      conducting workshop        on TQM
Comments :-Consultancy payment stated to be for 1 days for conducting workshop on TQM. Period of stay in India less than 183 days stipulated in “Article 14- Independent Personal Services” of India Japan DTAA.
Total Payment 59,79,735/-

5. The Ground No.6 of the appeal by Revenue may therefore be decided in the light of the submissions in the preceding paragraph.”

30. That it is evident from the Para 3 of the aforesaid, in the letter to the Assessing Officer by the Addl. CIT (Ld.DR) dated 08.02.2021, it was specifically asked to examine whether payments made to the referred technical foreign consultants are covered under the head “Independent Personal Services” of Article 14 of the India Germany DTAA, Article 15 of the India Italy DTAA & Article 14 of India Japan DTAA and not subject to tax in India. However, the report of the Assessing Officer dated 03.03.2021 is silent on this aspect. Thereafter, at Para 4 the Ld. DR on the basis of the various paper book submitted by the Ld. Counsel for the assessee has verified only to the extent on the basis of those documents as submitted by the assessee. However, these facts needs to be corroborated and factually verified by the Assessing Officer which he was silent about in his report earlier filed on 03.03.2021. In the interest of justice, we are of the considered view that this issue should be verified by the Assessing Officer while complying with the principles of natural justice. In view thereof, we set aside the order of the Ld. CIT(Appeals) in respect of this ground only and restore the same to the file of the Assessing Officer to re-adjudicate the issue as indicated hereinabove. Thus, Ground No.6 raised in appeal by the Revenue is allowed for statistical purposes.

31. In the result, appeal of the Revenue is partly allowed for statistical purposes.

Order pronounced on 18th day of March, 2021.

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