In this case Payment was made for reimbursement of the permission granted to the assessee for using trade mark ‘Wool, New Zealand’. Such payment cannot be said to be fee fortechnical services. Even otherwise also, in the light of the detailed discussions made in paragraph nos. 13, 14 and 15 of this order, such reimbursement of expenses are not subject to TDS. Accordingly, no disallowance iswarranted. The addition of Rs. 2,88,135/- is deleted.
ITAT ALLAHABAD BENCH
Obeetee (P.) Ltd.
v.
Additional Commissioner of Income-tax
IT APPEAL NO. 249 (All.) OF 2011
[ASSESSMENT YEAR 2005-06]
[ASSESSMENT YEAR 2005-06]
Date of Pronouncement – 23.11.2012
ORDER
2. The assessee has raised the following grounds of appeal :-
“1. Because “CIT(A)” has erred in law and on facts in holding to the effect that
(a) Addl. CIT, Range-III, Mirzapur stood validly vested with the jurisdiction of Assessing Officer in the case of the “appellant”, in terms of Notification No.267/201/F.No.187/5/2001 dated 17.09.2001; and
(b) the appellant having not objected to the assumption of jurisdiction Assessing Officer by Addl. CIT, Range – III, Mirzapur, such objection could not have been raised at the appellate stage.
and in upholding the validity of assessment order dated 29.12.2008 passed by the Addl. CIT Range-III, Mirzapur.
2. BECAUSE the ACIT, Mirzapur having initiated “regular assessment-related proceedings” by issue of notice under section 143(2), he continued to remain vested with the jurisdiction of Assessing Officer in the case of the appellant and such jurisdiction could not have been divested and conferred on the Addl. CIT, Range-III, Mirzapur without there being an order passed by the CIT, Allahabadunder section 127, after complying with the procedure laid down therein.
3. BECAUSE various case laws as have been referred to and relied upon by CIT(A), while upholding the jurisdiction of Addl. CIT, Range-III, Mirzapur to act as Assessing Officer and the validity of assessment order dated 29.12.2008, had been rendered in all together different context and decision based on the said case laws is wholly vitiated as the same is violative of well laid rule of following a judicial precedence.
4.1 BECAUSE payment of guarantee commission could not have been disallowed on the ground that
(a) the payment had been made in violation of the guidelines issued by RBI as given to scheduled banks ; and
(b) such a violation is opposed to public policy and is hit by the explanation below section 37.
4.2 BECAUSE while upholding the disallowance of guarantee commission as aforesaid, “CIT(A)” has missed to note and failed to consider that
(a) instructions contained in the guidelines issued to scheduled banks, were of advisory in nature, and did not provide for any penal consequence in the event of failure to comply with the same;
(b) such instructions were of advisory nature, meant to be followed by scheduled banks and such scheduled banks were given instruction to relax the condition in appropriate cases;
(c) in the case of the appellant, such relaxation had actually been granted also by other banks;
(d) in any case in the absence of any over-riding provision contained in the RBI Act, such “instructions of advisory nature” could not be equated with law as enacted by the Parliament ; and
(e) In any case, violation of such instructions being not inviting any punitive action, violation of the same could not be said to be opposed to public policy as envisaged in the explanation below section 37 of the Act.
and, accordingly, the view taken by the “CIT(A)” is wholly vitiated.
4.3 BECAUSE the appellant’s case of admissibility of guarantee commission amounting to Rs. 81,60,000 was based on well laid principles of law, duly supported by direct authorities, and the decision arrived at by the “CIT(A)” in disregard of such well laid “principles” and decided case laws, is wholly unsustainable.
5.1 BECAUSE the “CIT(A)” has erred in law and on facts in upholding the disallowance of expenses reimbursed to Obeetee Inc. (WOS) USA
(i)
| Graphics & design charges paid by them to Andrea Alari |
31,68,042
| |
(ii)
| Salary paid to Mr. Bill Ward |
20,66,042
|
52,34,084
|
(iii)
| Payment of rent of show room of Obeetee Inc., USA |
56,69,588
| |
(iv)
| Advertisement, Website, Photography, Software, travelling expenses, Commission Charges and freight |
38,44,189
|
by observing that
(a) payment to M/s Andrea Alari and Mr. Bill Ward is fee for technical services and not in the nature of reimbursement of expenses;
(b) payment of rent comes in the category of ‘any other sum’. Therefore provisions of section 195 are applicable;
(c) various payments under the head advertisement, website, photography, software, courier, freight, travelling etc. come in the category of ‘any other sum’ stipulated in section 195 and taxable in India; and
(d) accordingly, failure at the part of the appellant to deduct tax at source, attract disallowance under section 40(a)(i) of the Act.
5.2 BECAUSE none of the payments as aforesaid is fall within the charging section 5 of the Act and accordingly, the same were outside the purview of provision relating to withholding tax under section 195 of the Act and the appellant did not carry any obligation to deduct tax at source and disallowance of the same (on the ground of non-deduction of tax at source) is wholly illegal.
6.1 BECAUSE the “CIT(A)” has erred in law and on facts in confirming the disallowance of subscription charges amounting to Rs. 3,12,087/- paid to Woolmark Services India (P) Limited on the ground that though the bill related to assessment year 2005-06 but its payment had been remitted on 23.3.2004 and the same constituted expenses relating to earlier year.
6.2 BECAUSE the “CIT(A)” has failed to appreciate that the appellant had been maintaining its account on mercantile system of accounting which is mandatory also as per section 209 of the Companies Act 1956 and the expenses in question being related to the year under appeal itself, disallowance of the same (as upheld by ld. First Appellate Authority) is wholly erroneous.
7. BECAUSE the authorities below have erred in law and on facts in holding that payment of Rs. 2,88,135 as made to M/s Canesis Network Limited, by way of Woolmark label charges, was in the nature of payment of royalty and tax at source having not been deducted on such payment, the same was disallowable under section 40(a)(i) of the Act.
8. BECAUSE the payment in question neither fell in the category of “royalty” nor fee for “technical services” and disallowance of the same could not have been made/upheld by the authorities below on the round that the same invited deduction of tax at source, which the appellant has failed to do.
9. BECAUSE the order appealed against is contrary to the facts law and principles of natural justice.”
3. Ground nos.1, 2 & 3 have not been pressed. Therefore, the same are dismissed as not pressed.
4. Ground no.4 is in respect of disallowance of guarantee commission of Rs. 81,60,000/-.
5. The brief facts of the case are that the assessee claimed Rs. 85,50,000/- as guarantee commission paid to Shri Dipankar Chatterjee, one of the Directors of the Company. The Assessing Officer was of the view that as per RBI guidelines vide Circular No. RBI/2004-05/68 DBOD No.Dir.BC.18/13.03.00/2004-05 dated 23rd July, 2004 (Master Circular – Guarantees and Co-acceptances) issued to all the Chief Executives of all Scheduled Commercial Banks, para 2.10 part C which has been quoted by the A.O. in his order at page no. 3. The guarantee commission paid by the assessee to the Director is not allowable in view of explanation to section 37(1) of the Income Tax Act, 1961 (‘the Act’ hereinafter). The assessee submitted before the Assessing Officer that the Guarantee Commission was paid for the purpose of carrying on the business as the assessee has availed credit facility from banks of which details found at page no.2 of his order. The Assessing Officer, after considering assessee’s submission, the payment made to Shri Dipankar Chatterjee by way of guarantee commission related to credit taken from State Bank of India was allowed as expenditure but did not allow balance amount of guarantee commission pertaining to other than the State Bank of India. The Assessing Officer accordingly disallowed Rs. 81,60,000/- out of total claim of Rs. 85,50,000/-.The CIT(A) confirmed the order of the AO.
6. The learned Authorised Representative reiterated the contention which were made before the CIT(A). The learned Authorised Representative submitted that the restriction given in the Circular was not statutory restriction but was other restriction. Learned Authorised Representative submitted that such expenses are allowable in view of various judgments including Prakash Cotton Mills (P.) Ltd. v. CIT [1993] 201 ITR 684, Art Leasing Ltd. v. CIT [2010] 187 Taxman 29 (Ker.).
7. The learned Departmental Representative, on the other hand, relied upon the order of CIT(A).
8. We have heard the learned Representatives of the parties ad records perused. The case of the Assessing Officer is that the guarantee commission paid to the Director is not allowable expense in view of explanation to section 37(1) of the Act. The explanation to section 37(1) requires that any expenditure incurred by an assessee for any purpose which is an offense or which is prohibited by law shall not be deemed to have been incurred for the purpose of business or profession and no deduction or allowance shall be made in respect of such expenditure. If we consider the nature of the impugned expenditure, we find that the circular of RBI referred by the A.O. which was addressed to all the Chief Executives of all Scheduled Commercial Banks. The said circular has been issued for guidelines relating to conduct of guarantee business in banking sector. A guideline relating to obtaining of personal guarantee of Directors and other managerial personnel of borrowing concerns was provided in the said circular. In respect of personal guarantee of Director, it was provided that the Banks could take personal guarantees of Directors for the credit facilities, etc. granted to the corporate, public or private, only, when absolutely warranted after a careful examination of the circumstances of the case and not as a matter of course. In order to identify the circumstances under which the guarantee may or may no be considered necessary, the banks could follow the broad considerations provided in the Circular. It has also been provided that the system of obtaining guarantees should not be used by the Directors and other managerial personnel as a source of income from the company. The banks should obtain an undertaking from the borrowing company as well as the guarantors that no consideration whether by way of commission, brokerage fees or any other form would be paid by the former or received by the latter directly or indirectly. This requirement should be incorporated in the bank’s terms and conditions for sanctioning of credit limits. During the periodic inspections, the bank’s inspectors should verify that this stipulation has been complied with. There may be exceptional cases where payment of remuneration may be permitted. On perusal of the said circular of RBI, we find that basically this was the guidelines for the Scheduled Commercial Banks working under the RBI and not the Circular under the Income Tax Act. The assessee has produced the details regarding the loan taken from SBI, HDFC, and Small Industries Development Bank of India. Copies of terms and conditions of SBI have also been furnished by the assessee. The concerned bank did not make any objection regarding the payment of guarantee fee. In respect of RBI guidelines we may state that for the purpose of Income Tax proceedings what are to be seen are relevant provisions of the Income tax Act. The Kerala High Court in the case of Art Leasing Ltd. (supra) held that the appellant of that case NBFCs are not entitled to deduction of any provision created for bad debts and doubtful debts, no matter such provision is crated based on the guidelines issued by the RBI. So what to see in such cases is the relevant provisions of the Income Tax Act and not guidelines of RBI. The explanation to section 37(1) restricted allowance of expenditures in respect of expenditure incurred for any purpose of an offence or which is prohibited by law. The claim of the assessee in the case under consideration is neither for the purpose of any offense nor prohibited by law. The guideline of RBI was for Banks and Banks did object such claim of the assessee. Further, in this clause what stated by Revenue is not part and parcel of agreement between the assessee and Banks. The assessee has demonstrated with facts and figures that the expenditure incurred was for the purpose of business and in accordance with commercial expediencies.
8.1 Further, the payment under the guarantee commission are being paid from A.Y. 2002-03 as noted from the assessee’s submission which is reproduced by the CIT(A) at page no.39 of his order. In A.Y. 2002-03 the claim of the assessee was allowed after perusal of the said details of the guarantee commission. Similarly, such claim was allowed in A.Y. 2003-04 & 2004-05.
8.2 In the light of above discussions and on a perusal of section 37(1) and explanation to section 37(1) we noticed that any expenditure incurred for any purpose which is an offense or which is prohibited by law is only disallowable. But in the case under consideration as stated above that the said RBI guidelines was administrative guidelines in respect of Scheduled Commercial Banks. Banks did not object such disallowance of the commission. There is no such prohibition in the agreement of loan with the assessee and banks. Under the circumstances the expenditures incurred for the purpose of business and in accordance with commercial expediencies is allowable expenditure. Therefore, we are of the view that such expenditure is allowable. We accordingly allow the expenditure claimed by the assessee and delete the addition of Rs. 81,60,000/-
9. Ground no.5 is in respect of disallowance of expenses on account that the assessee did not deduct tax at source at the time of making payment on account of graphic design charges etc. During the assessment proceedings, the Assessing Officer noticed that the assessee paid Rs. 31,68,042/- on account of graphic design charges, Rs. 20,66,042/- on account of salary of Mr. Bill Ward (Total Rs. 52,34084/-), Rs. 56,69,588/- Show Room rent and Rs. 38,44,189/- advertisement expenses etc. The Assessing Officer was of the view that these payments were of the nature of technical receipt. The A.O. was of the view the payment of graphic design and salary to Mr. Bill Ward is nothing but fee for technical services. The Assessing Officer noted that as per section 9(vii)(c) and explanation thereof, the assessee was required to deduct tax at source under section 195 of the Act but the assessee has failed to deduct tax at source, therefore, the claim of the assessee is not allowable.
10. In respect of show room rent of Rs. 56,69,588/-., the Assessing Officer was of the view that this payment is also subject to tax deducted at source. Since the assessee did not deduct tax at source, therefore, the Assessing Officer disallowed the expenditure under section 40(a)(i) of the Act. A Similar disallowance was made by the Assessing Officer in respect of payment on account of advertisement etc. under section 40(a)(i) of the Act. The CIT(A) confirmed the addition made by the Assessing Officer.
11. The learned Authorised Representative reiterated the submissions made before the Revenue Authorities.
12. The learned Departmental Representative, on the other hand, relied upon the order of CIT(A).
13. We have heard the learned Representatives of the parties and records perused. The submissions of the assessee are that Mr. Andrea Aleri is designer and part of establishment of Obeetee Inc. The debit memo raised by the Obeetee Inc. reveals that the sums were paid to Mr. Andrea Aleri on behalf of the assessee. Similar position is in respect of amount of Rs. 38,44,189/- which was in respect of advertisement expenses, website expenses, photography expenses, software expenses, courier charges, freight and travelling etc. The submission of the assessee is that these are reimbursement of the expenses which is not subject to deduction of tax at source. The submission of the assessee that these are the reimbursement of the expenses as per the M.O.U., the relevant submission of the assessee noted from the order of CIT(A) at paragraph no. 4.1, page 49 is reproduced as under :-
“4.1. Submission of the appellant:
The written submission furnished by the appellant comprises of copy of explanation dated 25.11.2008 filed before the A.O. in respect of payment to M. Bill Ward and Mr. Andrea Aleri, copy of MOA dated 31.07.2002 entered into with Obeetee Inc., copy of bill dated 01.03.2004 raised by Woolmark Services India (P) Ltd., the copy of judgement passed by Hon’ble Apex Court in the case of Ge India technology Centre Pvt. Ltd v. CIT 327 ITR 456. The relevant part of the submission before the A.O. and enclosed in the submission before me is extracted below :-
“7.1 As per the information already on record, our relationship with our wholly owned subsidiary (WOS) M/s Obeetee Inc. is governed by a Memorandum of Understanding as has been arrived at between us earlier (copy enclosed for the sake of ready reference). As per Clause 4(a) of the said Memorandum of Understanding, it had been agreed to by us that the expenses that might be incurred by WOS on our behalf would be duly reimbursed by Obeetee (P) Ltd., the assessee before your good self. Therefore, the reimbursement made by us is not by way of payment of any income to Obeetee Inc., but merely a reimbursement (to WOS) of the expenses incurred by them on our behalf. He said payment by way of reimbursement are outside the purview of provisions contained in Chapter XVII-B of the Income ax Act, 1961.
7.2 By way of clarification, it is submitted that Mr. Andrea Alari and Mr. Billward form part of the establishment WOS and we have no dealings with them directly. They have merely collected payments from us, on behalf of WOS, to whom we are obliged o reimburse the expenses incurred by them from time to time on our behalf. Therefore, no adverse view deserves to be drawn, in relation to the said payments.”"
14. The ld. Authorised Representative relied upon the judgement of Hon’ble Apex Court in the case of GE India Technology Cen. (P.) Ltd. v. CIT [2010] 327 ITR 456 wherein it has been held that – mere remittance to non-resident – duty to deduct tax at source – does not arise unless remittance contains wholly or partly taxable income in India. Ld. Authorised Representative has also relied upon a judgement of Hon’ble Bombay High Court in the case of CIT v. Information Architects [2010] 322 ITR 1 wherein it has been held that reimbursement of salary expenses – not salary – deduction need not to be made at source on such reimbursement. To apply section 195, the amount in question should be income of payee and not a mere reimbursement of the cost incurred by the payee. Such reimbursement is not subject to deduction of tax at source – Danfoss Industries (P) Ltd., In re [2004] 138 Taxman 280 (AAR – New Delhi). In the case under consideration, the assessee has demonstrated that these were reimbursement of expenses. The assessee furnished a copy of MOU dated 31.07.2002 to the Assessing Officer and relevant bill dated 01.03.2004 raised by Woolmark Services India Pvt. Ltd. M/s Obeetee Inc. is governed by memorandum of understanding which has been arrived at between the assessee and that the said party. As per clause 4(a) of the said memorandum of understanding it has been agreed that the expenses that might be incurred on behalf of the assessee would be duly reimbursed by Obeetee Pvt. Ltd. The reimbursement made by the assessee was not by way of payment of any income to Obeetee Inc. but merely a reimbursement of expenses incurred by them on behalf of the assessee. In the light of the law laid down by the Hon’ble Apex Court in the case of GE India Technology Cen. (P.) Ltd.(supra) the assessee was not liable to deduct tax at source. Therefore, the Assessing Officer was not correct in disallowing the expense under section 40(a)(ia) of the Act.
15. The second aspect of the matter is that certain amount of graphic design and salary paid to Mr. Billward is in the nature of fee for technical services under section 195 of the Act. The Assessing Officer has presumed this payment in the category of “any other sum” under section 9 of the Act. As held above that these are reimbursement of expenses, therefore, the action of the Assessing Officer confirmed by the CIT(A) cannot be upheld as a correct nature and this payment is reimbursement of the expense.
15.1 In the light of the above discussion, we delete the impugned addition made by the Assessing Officer and confirmed by the CIT(A) of Rs. 31,68,042/- on account of Graphics & design charges, Rs. 20,66,042/- on account of salary paid to Mr. Bill Ward, Rs. 56,69,580/- on account of payment of rent of show room and Rs. 38,44,100/- on account of advertisement expenses.
16. Ground no.6 is in respect of disallowance of Rs. 3,12,087/-. The brief facts of this issue are that during the assessment proceedings the Assessing Officer noticed that the assessee has claimed Rs. 3,12,087/- as fee for Woolmark license. The bill issued by Woolmark Services (India) Pvt. Ltd. was dated 01.03.2004. The amount was paid on 23.03.2004. The Assessing Officer was of the view that the expenses related to F.Y. 2003-04 & A.Y. 2004-05. Similarly, the Assessing Officer made addition as expenses was not pertaining to the year under consideration. The action of the Assessing Officer has been confirmed by the CIT(A).
17. We have heard the learned Representatives of the parties and records perused. The contention of the assessee that the payment made was advance payment for the service during the F.Y. 2004-05, relevant to A.Y. 2005-06.
18. Learned Authorised Representative drew our attention to page no.280 of Paper Book where a copy of letter dated 15.03.2004 has been placed. In the said letter it is clearly stated that the license fee was for the year 2004-05 relevant to A.Y. 2005-06. It is relevant to state that as per the Mercantile System of accounting the expenditure incurred in the year when its services have been rendered. In the case under consideration, the license fee is for the year F.Y. 2004-05 relevant to A.Y. 2005-06. Therefore, the expenditure has been accrued in the financial year 2004-05 relevant to Assessment year 2005-06 though it may have been paid in advance. As per Mercantile System of accounting the expenditure is allowable in the year under which it is incurred. Since the expenditure incurred in the year under consideration, therefore, the same is allowable. We accordingly delete the addition of Rs. 3,12,087/-.
19. Grounds No 7 and 8 relates to disallowance of Rs 2, 88,135/-. The case of the A.O. is that the payment made was in respect of brand level which requires deduction of tax at source under section 195 of the Act as payment was for technical services. The assessee fails to deduct tax at source therefore clam of the assessee is not allowable. The CIT(A) confirmed the order of the AO.
20. We heard the learned Representatives of the parties. We noticed that the payment was made for the permission granted to the assessee for using trade mark “Wool, New Zealand”, whether this payment is fee for technical services or not. What is ‘fees for technical service’ has been examined by the Hon’ble Madras High Court in the case of Skycell Communications Ltd. v. Dy. CIT [2001] 251 ITR 53, the court held as under :-
Page No: 0057–
That Explanation 2 in section 9(1)(vii) reads thus:
“For the purposes of this clause, ‘fees for technical service’ 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’.”
This definition shows that consideration paid for the rendering of any managerial, technical or consultancy service, as also the consideration paid for the provision of services of technical or other personnel, would be regarded as fees paid for “technical service”. The definition excludes from its ambit consideration paid for construction, assembly, or mining or like project undertaken by the recipient, as also consideration which would constitute income of the recipient chargeable under the head “Salaries”.
Thus while stating that “technical service” would include managerial and consultancy service, the Legislature has not set out with precision as to what would constitute “technical” service to render it “technical service”. The meaning of the word “technical” as given in the New Oxford
Dictionary is adjective
1. of or relating to a particular subject, art or craft or its techniques: technical terms (especially of a book or article) requiring special knowledge to be understood: a technical report.
2. of involving, or concerned with applied and industrial sciences: an important technical achievement.
3. resulting from mechanical failure: a technical fault.
4. according to a strict application or interpretation of the law or the rules: the arrest was a technical violation of the treaty.
Having regard to the fact that the term is required to be understood in the context in which it is used, “fee for technical services” could only be meant to cover such things technical as are capable of being provided by way of service for a fee. The popular meaning associated with “technical” is “involving or concerning applied and industrial science”.
In the modern day world, almost every facet of one’s life is linked to science and technology inasmuch as numerous things used or relied upon in every day life is the result of scientific and technological development. Every instrument or gadget that is used to make life easier is the result of scientific invention or development and involves the use of technology. On that score, every provider of every instrument or facility used by a person cannot be regarded as providing technical service.
When a person hires a taxi to move from one place to another, he uses a product of science and technology, viz., an automobile. It cannot on that ground be said that the taxi driver who controls the vehicle, and monitors its movement is rendering a technical service to the person who uses the automobile. Similarly, when a person travels by train or in an aeroplane, it cannot be said that the railways or airlines is rendering a technical service to the passenger and, therefore, the passenger is under an obligation to deduct tax at source on the payments made to the railway or the airline for having used it for travelling from one destination to another. When a person travels by bus, it cannot be said that the undertaking which owns the bus service is rendering technical service to the passenger and, therefore, the passenger must deduct tax at source on the payment made to the bus service provider, for having used the bus. The electricity supplied to a consumer cannot, on the ground that generators are used to generate electricity, transmission lines to carry the power, transformers to regulate the flow of current, meters to measure the consumption, be regarded as amounting to provision of technical services to the consumer resulting in the consumer having to deduct tax at source on the payment made for the power consumed and remit the same to the Revenue.
Satellite television has become ubiquitous, and is spreading its area and coverage, and covers millions of homes. When a person receives such transmission of television signals through the cable provided by the cable operator, it cannot be said that the home owner who has such a cable connection is receiving a technical service for which he is required to deduct tax at source on the payments made to the cable operator.
Installation and operation of sophisticated equipments with a view to earn income by allowing customers to avail of the benefit of the user of such equipment does not result in the provision of technical service to the customer for a fee.
When a person decides to subscribe to a cellular telephone service in order to have the facility of being able to communicate with others, he does not contract to receive a technical service. What he does agree to is to pay for the use of the airtime for which he pays a charge. The fact that the telephone service provider has installed sophisticated technical equipment in the exchange to ensure connectivity to its subscriber, does not on that score, make it provision of a technical service to the subscriber. The subscriber is not concerned with the complexity of the equipment installed in the exchange, or the location of the base station. All that he wants is the facility of using the telephone when he wishes to, and being able to get connected to the person at the number to which he desires to be connected. What applies to cellular mobile telephone is also applicable in fixed telephone service. Neither service can be regarded as “technical service” for the purpose of section 194J of the Act.
The use of the internet and the world wide web is increasing by leaps and bounds, and there are hundreds of thousands, if not millions, of subs -
Page No: 0059
cribers to that facility. The internet is very much a product of technology, and without the sophisticated equipment installed by the internet service providers and the use of the telephone fixed or mobile through which the connection is established, the service cannot be provided. However, on that score, every subscriber of the internet service provider cannot be regarded as having entered into a contract for availing of technical services from the provider of the internet service, and such subscriber regarded as being obliged to deduct tax at source on the payment made to the internet service provider.
At the time the Income-tax Act was enacted in the year 1961, as also at the time when Explanation 2 to section 9(1)(vii) was introduced by the Finance (No. 2) Act, with effect from April 1, 1977, the products of technology had not been in such wide use as they are today. Any construction of the provisions of the Act must be in the background of the realities of day- to-day life in which the products of technology play an important role in making life smoother and more convenient. Section 194J, as also Explanation 2 in section 9(1)(vii) of the Act were not intended to cover the charges paid by the average house-holder or consumer for utilising the products of modern technology, such as, use of the telephone fixed or mobile, the cable T. V., the internet, the automobile, the railway, the aeroplane, consumption of electrical energy, etc. Such facilities which when used by individuals are not capable of being regarded as technical service cannot become so when used by firms and companies. The facility remains the same whoever the subscriber may be-individual, firm or company.
“Technical service” referred in section 9(1)(vii) contemplates rendering of a “service” to the payer of the fee. Mere collection of a “fee” for use of a standard facility provided to all those willing to pay for it does not amount to the fee having been received for technical services.”
21. In the light of above discussions we noticed that the payment was made for reimbursement of the permission granted to the assessee for using trade mark “Wool, New Zealand”. Such payment cannot be said to be fee for technical services. Even otherwise also, in the light of the detailed discussions made in paragraph nos. 13, 14 and 15 of this order, such reimbursement of expenses are not subject to TDS. Accordingly, no disallowance is warranted. The addition of Rs. 2,88,135/- is deleted.
22. Ground No.9 is general in nature requires no separate finding.
23. In the result, appeal of the assessee is partly allowed.
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