Income Tax Appellate Tribunal - Mumbai
United Helicharters P.Ltd, Mumbai vs Assessee
आयकर अपील य अ धकरण,
धकरण मंुबई यायपीठ 'एल'
एल' मंुबई ।
IN THE INCOME
INCOME TAX APPELLATE TRIBUNAL "L" BENCH, MUMBAI
सव ी बी. रामकोटय
रामकोटय, लेखा सद य एवं ी वजयपाल राव,
राव या.स
या स ।
BEFORE SHRI B. RAMAKOTAIAH
RAMAKOTAIAH,
AMAKOTAIAH, AM & SHRI VIJAY PAL RAO,RAO, JM
आयकर अपील सं./I.T.A.
I.T.A. N o. 5136/Mum/2011
5136 /Mum/2011
( नधारण वष / Assessment Year : 2006-07)
आयकर अपील सं./I.T.A.
I.T.A. No. 5135/Mum/2011
( नधारण वष / Assessment Year : 2007-08)
M/s United Helich arters Pvt. Ltd., बनाम/ बनाम ACIT-10(2)
Hanger No. C2, Airport Authority Mumbai
Vs.
of India, Juhu Civil Aerodrome,
S.V. Road, Vile P arle,
Mumbai-400054
थायी ले खा सं . /जीआइआर सं . /PAN/GIR No. : AAACU3352N
(अपीलाथ /Appellant
Appellant)
Appellant .. ( यथ / Respondent)
Respondent
अपीलाथ ओर से / Appellant by : Mr. Mayur Kisnadwala & Ms. Arati
Deshmukh
यथ
यथ क ओर से/Respondent by : Mr. Neeraja Pradhan
सनवाई
ु क तार ख / D a te o f H e ar i n g : 29th July 2013
घोषणा क तार ख/D
ख at e O f P ro n o u n c e m e n t : 14th August 2013
आदे श / O R D E R
PER : वजयपाल राव, या.स. / VIJAY PAL RAO, JM
These appeals by the assessee are directed against two separate orders of the Commissioner of Income Tax(Appeals) both dated 31.5.2011 for the assessment years 2006-07 and 2007-08.
2. The assessee has raised common grounds in these appeals except the amount of disallowance. The grounds raised for the assessment year 2006-07 are as under:
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"1. The learned CIT(A) has erred in law and on facts in upholding the order passed by the Assessing Officer u/s 143(3) of the Income Tax Act, 1961, which is illegal and bad in law.
2. The learned CIT(A) has erred in law and on facts in sustaining the disallowance amounting to ` 22,94,014/- made by the Assessing Officer u/s 40(a)(i) of the Act."
3. Ground No. 1 is general in nature and no specific finding is required as it is consequential to the outcome of the Ground No. 2.
4. Ground No. 2 regarding disallowance u/s 40(a)(i) of the Act. The assessee company is engaged in the business of charter hire of helicopters. During the assessment proceeding the AO noted that the assessee has not deducted tax at source while making payment towards training expenses paid to Bell Helicopter Textron Inc. The assessee was asked to explain as to why the said payments should not be disallowed as per section 40(a)(i) of the Income Tax Act. In response the assessee contended that the recipient company is a resident of USA and does not have any permanent establishments in India. The assessee explained before the AO that these agencies are approved by the Directorate General of Civil Aviation of India (DGCA) for providing such training to enable the pilots or engineers as the case may be to get their respective licenses endorsed, to operate/work on respective type of helicopter. On completion of the training the agencies provide a certificate based on which the DGCA make endorsed of respective licenses. Therefore, the assessee contended that these payments are covered under the Article relating to the business profits under the respective DTAA and in the absence of permanent establishments in 3 ITA No. 5136 & 5135/M/2011 United Helicharters Pvt. Ltd.
India, TDS is not required to be deducted. The AO did not accept the contention of the assessee and held that in view of explanation 2 to section 9(1)(vii), the payments made by the assessee is "Fees for Technical Services" and therefore the same is liable to be taxed in India as per section 9(1)(vii). Accordingly, the AO has disallowed the amounts paid by the assessee on account of training expenses to Bell Helicopter Textron Inc. by invoking the provisions of section 40(a)(i) of the Income Tax Act. On appeal, the CIT(A) as confirmed the disallowance made by the AO by considering the explanation introduced by the Finance Act 2010, as retrospective amendment w.e.f 1.6.1976.
5. Before us the Ld. AR of the assessee has submitted that the said expenditure is incurred within the framework of the Government of India Regulations applicable to the Aviation Industry and with approval of DGCA. The training was conducted abroad and none of the companies have any place of business in India. The Ld. AR has further pointed out that the retrospective amendment brought into the statute by Finance Act 2010 is subsequent to the payments made by the assessee and therefore the payments which were made prior the amendment does not attract the provisions of section 40(a)(i). He has vehemently contended that prior to the assessment year 2006-07 there was no disallowance u/s 40(a)(i) and the assessee was under bonafide belief that no TDS is required to be deducted on these payments. The Ld. AR has also contended that the payments in the hand of the recipient are not taxable in India even as per the Article 12 of the Indo- 4
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US DTAA. He has referred para 4 of Article 12 and submitted that as per the meaning given in para 4 of the Article 12 of the Indo-US DTAA the 'fees for included services' means inter alia if such services make 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 was given to the pilots and other engineering staff as per the requirement of DGCA therefore it does not amount to services make available technical knowledge, experience, skill, know-how etc. The Ld. AR has further submitted that even otherwise the services in question does not fall under the definition of 'fees for technical services' or fees for included services (FIS) as per para 5 of Article 12 of the Indo-US DTAA. In support of his contention he has relied upon the decision of Ahmedabad Benches of this Tribunal in case of Sterling Abraive Ltd. Vs ACIT 44 SOT 652 and the same has also been followed in the subsequent decision of the same assessee vide order dated 23.12.2010.
6. On the other hand, the Ld. DR has submitted that the training in question was given to maintenance and flying operation staff of the assessee apart from the pilots other staff who are the employees of the assessee and therefore the services were made available to the assessee. She has relied upon the decision of Delhi Benches of this Tribunal in case of Steel Authority of India Vs ITO 120 TTJ 297 and submitted that the training fee paid by the assessee for training of its personnel was held as in nature of 'fees for technical services' within 5 ITA No. 5136 & 5135/M/2011 United Helicharters Pvt. Ltd.
the meaning of explanation 2 to section 9(1)(vii) as well as in terms of Article 13(4)(c) of Indo-UK DTAA. Thus, in the case in hand when the training was given to the employees of the assessee the payment made for the training falls under the definition of fees for technical services\fees for included services (FIS). She has also relied upon the decision of this Tribunal in case of Ashapura Minichem Ltd. Vs ACIT 40 SOT 220 and submitted that under the amended explanation to section 9(1) the income of non-resident shall be deemed to accrue or arise in India and shall be included in his total income whether or not the non- resident has a residence or place of business or business connection in India or the non-resident has rendered service in India. Utilisation of the services in India is enough to attract its taxability in India. She has relied upon the ruling of authority of advance ruling in case of Perfetti Van Melle Holding B.V Vs ADIT reported in 342 ITR 200.
7. In rejoinder/rebuttal the Ld. AR of the assessee has submitted that the decision relied upon by the Ld. DR are not applicable in the facts of the assessee's case because the training provided in the case of the assessee is a standard training as per the requirement of DGCA and no specific technical knowledge, experience, skill, know-how was transferred or made available to the assessee.
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 6 ITA No. 5136 & 5135/M/2011 United Helicharters Pvt. Ltd.
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 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 (v), (vi) and (vii) in sub-section (1) for income by way of interest, royalty or fees for technical 7 ITA No. 5136 & 5135/M/2011 United Helicharters Pvt. Ltd.
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, an 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. CIT (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 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.
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9. In view of the above facts and legal position, whether the assessee can be asked to do impossible Act, i.e., to deduct tax for the past period. With the insertion of the explanation retrospectively by the Finance Act, 2007 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, it is impossible for the assessee to deduct tax in the financial year 1-4-2003 to 3 1-3-2004, when the obligation to deduct TDS was not on the assessee during that period. The argument canvassed by the Ld. counsel on the basis of a legal Maxim lex non cogit ad impossibilia, meaning thereby that the law cannot possibly compel a person to do something which is impossible to perform. This Maxim is accepted by different courts of this country, including the Hon'ble Supreme Court in the case of Krishnaswamy S. Pd. v. Union of India [2006] 281 ITR 305 made the following observations in relation to the provisions of chapter XX-C of the Act.
"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 impossibilia - 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.S.R.T.C. v. Imtiaz Hussain [2006] 1 SCC 380, Shaikh Salim Haji Abdul Khagumsab v. Kumar [2006] 1 SCC 46, Mohammad Gazi v. State of MP [2000] 4 SCC 342 and Gursharan Singh v. New Delhi Municipal Committee [1996] 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 Life Insurance Corporation of India v. CIT [1996] 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 impossibilia. It is now to be seen whether the expression "included therein" in rule 2(1)(b) is alone sufficient to negative the logical legal effect of section 7 of the LIC Act."9
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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 CIT 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 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 CIT 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 VRS. It is a common knowledge that the Finance Bill is introduced on 10 ITA No. 5136 & 5135/M/2011 United Helicharters Pvt. Ltd.
February 28, 2001, and the same is made into the Act after passing the Bill in both the Houses of Parliament and receiving the assent of the Hon'ble President of India some where in May or 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 CIT [2001] 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 234B and 234C. In similar circumstances in the case of Priyanka Overseas Ltd. v. Deputy CIT [2001] 79 lTD 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 234B 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 234B and 234C 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 of filing of the return, which also proves the bona fide credentials of the assessee. In these circumstances, we set aside the order of the learned Commissioner of Income-tax (Appeals) and delete the levy of interest under sections 234B and 234C."
10. 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 11 ITA No. 5136 & 5135/M/2011 United Helicharters Pvt. Ltd.
not determined Hon'ble Allahabad High Court in the case of CIT v. Prem Kumar [2008] 169 Taxman 351 held as follows.
"Lex non cogit ad impossibilia 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 V.L.S. Finance Ltd. v CIT [2007] 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 impossibilia or the law, does not compel a man to do that which he cannot possibly perform."
In the case of Escorts Ltd. v. CIT [2002] 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 impossibilia' 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.
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 12 ITA No. 5136 & 5135/M/2011 United Helicharters Pvt. Ltd.
provision of act and the legal position as enumerated by Hon'ble Apex Court in the case of lshikawajma-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 13 ITA No. 5136 & 5135/M/2011 United Helicharters Pvt. Ltd.
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. Order pronounced in the open Court on this 14th day of August 2013 आदे श क घोषणा खले ु यायालय म दनांकः 14th अग त को क गई ।
Sd/- Sd/-
(बी. रामकोटय) ( वजयपाल राव)
लेखा सद य या यक सद य
(B. RAMAKOTAIAH) (VIJAY PAL RAO)
Accountant Member Judicial Member
Place: Mumbai : Dated: 14th August 2013
Subodh
Copy forwarded to:
1 Appellant
2 Respondent
3 CIT
4 CIT(A)
5 DR
/TRUE COPY/
BY ORDER
Dy /AR, ITAT, Mumbai