W.P.No.845 of 2012 IN HIGH COURT OF JUDICATURE AT MADRAS Reserved On 28.02.2020 Pronounced On 19.05.2020 CORAM HON'BLE MR.JUSTICE C.SARAVANAN W.P.No.845 of 2012 M/s.Shriram Capital Limited, Limited Company represented by its Vice-President, Mr.N.Mani, Mookambika Complex, No.4, Lady Desika Road, Mylapore, Chennai 600004. Petitioner Vs. 1.The Director of Income Tax, (International Taxation), VII Floor, Annexe Building, 121, Nungambakkam High Road, Chennai 600 034. 2.The Income Tax Officer, International Taxation I(2), VII Floor, Annexe Building, 121, Nungambakkam High Road, Chennai 600034. Respondents Writ Petition filed under Article 226 of Constitution of India praying to issue Writ of Certiorarified Mandamus, to call for http://www.judis.nic.in Page No 1 of 19 W.P.No.845 of 2012 records on file of respondents and quash impugned order passed by first respondent in D.C.No.112(2)/264/2011-12 dated 24.11.2011 as illegal and without jurisdiction and consequently direct second respondent herein to issue NIL deduction certificate u/s. 195 of Act. For Petitioner : Mr.R.Sivaraman For Respondents : M/s. Hema Muralikrishnan Standing Counsel. ORDER In this Writ Petition, petitioner has challenged impugned order dated 24.11.2011 passed by 1st respondent in bearing reference D.C.No.112(2)/264/2011-12. 2. In impugned order, 1st respondent has rejected revision petition filed by petitioner under Section 264 of Income Tax Act, 1961, on 06.09.2011, on ground that there was no undertaking furnished by petitioner waiving right of appeal before appropriate appellate forums. 3. petitioner had entered into agreement with abroad company namely M/s.MD IN Services Pvt. Limited in United Kingdom, http://www.judis.nic.in Page No 2 of 19 W.P.No.845 of 2012 for getting Insurance Product development. petitioner was payable to said abroad company of 2000 pounds per month for service to be rendered abroad and utilised by petitioner company abroad. 4. Therefore, petitioner had sent letter dated 24.05.2011 to 2nd respondent for waiver of interest from deducting tax at source for payments made to said non-resident company under Section 195 of Income Tax Act, 1961. 5. By order dated 01.08.2011, 2nd respondent ordered deducting of tax at source of payment at 20% under Double Taxation Avoidance Agreement (hereinafter referred as DTAA) entered between Government of India and Government of UK. operative portion of said order reads as under:- As per Article 13(2) of India U.K. DTAA also proposed payments for availing consultancy services are taxable in India as fees for technical services . Therefore as per India UK DTAA also, proposed payments are taxable in India, subject to certain tax rates:- In this case Non-resident (deductee) is not http://www.judis.nic.in Page No 3 of 19 W.P.No.845 of 2012 having Permanent Account Number (PAN), as mandated under Section 206AA of I.T. Act, 1961 and such payments effected to Non-resident not having PAN will attract tax deduction at sourced at higher rate of 20%. Hence M/s. Shriram Capital Limited (petitioner) is hereby authorised to make payment to M/s. MD IN Services P. Ltd., U.K., arising out of agreement dated 01.01.2011, after deduction of tax @ 20% (Twenty Percent). This authorization is valid till 31.03.2012 unless cancelled earlier under intimation to you. 6. Aggrieved by said order of 2nd respondent, petitioner filed revision petition under Section 264 of Income Tax Act, 1961 before 1st respondent. By impugned order 24.11.2011, 1st respondent has rejected same. Against same, present Writ Petition has been filed to quash impugned order. 7. Heard learned counsel for petitioner and learned Standing Counsel for respondents. 8. similar arrangement was entered into by petitioner with Indonesian law firm for procuring services in Indonesia. authorities had rejected request of petitioner, which was subject matter of http://www.judis.nic.in Page No 4 of 19 W.P.No.845 of 2012 W.P.No.4965 of 2011. said Writ Petition was disposed on 13.03.2020. operative portion of said order reads as under:- 21.Section 195 of Income Tax Act, 1961 reads as under:- Other sums. 195. (1) Any person responsible for paying to non- resident, not being company, or to foreign company, any interest (not being interest referred to in section 194LB or section 194LC) or section 194LD or any other sum chargeable under provisions of this Act (not being income chargeable under head "Salaries") shall, at time of credit of such income to account of payee or at time of payment thereof in cash or by issue of cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at rates in force : Provided that in case of interest payable by Government or public sector bank within meaning of clause (23D) of section 10 or public financial institution within meaning of that clause, deduction of tax shall be made only at time of payment thereof in cash or by issue of cheque or draft or by any other mode : Provided further that no such deduction shall be made in respect of any dividends referred to in section 115-O. Explanation 1. For purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in books of account of person liable to pay such income, such crediting shall be deemed to be credit of such income to account of payee and provisions of this section shall apply accordingly. Explanation 2. For removal of doubts, it is ____________ http://www.judis.nic.in Page No 5 of 19 W.P.No.845 of 2012 hereby clarified that obligation to comply with sub-section (1) and to make deduction thereunder applies and shall be deemed to have always applied and extends and shall be deemed to have always extended to all persons, resident or non-resident, whether or not non-resident person has (i) residence or place of business or business connection in India; or (ii) any other presence in any manner whatsoever in India. (2) Where person responsible for paying any such sum chargeable under this Act (other than salary) to non-resident considers that whole of such sum would not be income chargeable in case of recipient, he may make application 48[in such form and manner to Assessing Officer, to determine in such manner, as may be prescribed], appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub- section (1) only on that proportion of sum which is so chargeable. (3) Subject to rules made under sub-section (5), any person entitled to receive any interest or other sum on which income-tax has to be deducted under sub- section (1) may make application in prescribed form to Assessing Officer for grant of certificate authorising him to receive such interest or other sum without deduction of tax under that sub- section, and where any such certificate is granted, every person responsible for paying such interest or other sum to person to whom such certificate is granted shall, so long as certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub-section (1). (4) certificate granted under sub-section (3) shall remain in force till expiry of period specified therein or, if it is cancelled by Assessing Officer ____________ http://www.judis.nic.in Page No 6 of 19 W.P.No.845 of 2012 before expiry of such period, till such cancellation. (5) Board may, having regard to convenience of assessees and interests of revenue, by notification in Official Gazette, make rules specifying cases in which, and circumstances under which, application may be made for grant of certificate under sub-section (3) and conditions subject to which such certificate may be granted and providing for all other matters connected therewith. (6) person responsible for paying to non- resident, not being company, or to foreign company, any sum, whether or not chargeable under provisions of this Act, shall furnish information relating to payment of such sum, in such form and manner, as may be prescribed. (7) Notwithstanding anything contained in sub-section (1) and sub-section (2), Board may, by notification in Official Gazette, specify class of persons or cases, where person responsible for paying to non-resident, not being company, or to foreign company, any sum, whether or not chargeable under provisions of this Act, shall make application [in such form and manner to Assessing Officer, to determine in such manner, as may be prescribed], appropriate proportion of sum chargeable, and upon such determination, tax shall be deducted under sub- section (1) on that proportion of sum which is so chargeable. 22. As per decision of Hon'ble Supreme Court in G.V.K.Industries Ltd., Vs. Income Tax Officer, (2015) 11 SCC 734, Section 9(1)(vii)(b) of Income Tax Act, 1961 carves out exception. exception carved out in ____________ http://www.judis.nic.in Page No 7 of 19 W.P.No.845 of 2012 latter part of sub-clause (b) applies to situation when fee is payable in respect of services utilised for business or profession carried out by Indian payer outside India or for purpose of making or earning of income by Indian assessee i.e. payer, for purpose of making or earning any income from source outside India. On studied scrutiny of said clause, it becomes clear that it lays down principle what is basically known as source rule , that is, income of recipient to be charged or chargeable in country where source of payment is located, to clarify, where payer is located. clause further mandates and requires that services should be utilised in India. 23. Thus, to attract exception under Section 9(1)(vii)(b) of Income Tax Act, 1961, service should be utilized in India. Any payment by way of fees and technical service to non-resident by resident is income deemed to have accrued or arisen in India and is thus liable to tax. expression Fees for Technical Service has been defined in Explanation 2 to Section 9(1)(vii)(b) of Income Tax Act, 1961. 24. expression used in Explanation 2 is means . When expression means is used, it is hard and fast definition and no meaning other than that which is put in definition can be assigned to same [ see: ____________ http://www.judis.nic.in Page No 8 of 19 W.P.No.845 of 2012 Bharat Coop. Bank (Mumbai) Ltd. Vs. Employees Union, (2007) 4 SCC 685 and P.Kasilingam Vs. P.S.G. College of Technology, AIR 1995 SC 1395]. In Bharat Coop. Bank (Mumbai) Ltd. Vs. Employees Union, (2007) 4 SCC 685, it was observed that it is trite to say that when in definition clause given in any statute word means is used, what follows is intended to speak exhaustively. When word means is used in definition, to borrow words of Lord Esher, M.R. in Gough v. Gough, (1891) 2 QB 665, it is hard-and-fast definition and no meaning other than that which is put in definition can be assigned to same. 25. expression Managerial , Technical or Consultancy Service have not defined. expression Management has been defined in Oxford Advanced Learner's Dictionary, New 9th Edition published by Oxford University Press reads as follows:- Management: 1. act of running and controlling business or similar organization: carrier in management, hotel/project management, management training course. report blames bad management. 2. people who run and control business or similar organization: management is/are considering closing factory. shop is now under new management, junior/middle/senior management, management decision/job. My role is to act as mediator between employees and management. Most managements are keen to avoid strikes. 3. act or skill of dealing with people or ____________ http://www.judis.nic.in Page No 9 of 19 W.P.No.845 of 2012 situations in successful way: classroom management, time management, management of staff. Diet plays important role in management of heart disease. 26. In Black's Law Dictionary, 10th Edition published by Thomson Reuters, expression Management has been defined as follows:- Management. 1. people in organization who are vested with certain amount of discretion and independent judgment in managing its affairs. C-level management. (2001) Collectively, officers of organization holding titles prefixed by chief ; upper tier of top management - Also termed c- board. Middle management. (1941) Company employees who exercise some discretion and independent judgment in carrying out top management's directives. Top management. (1937) high level of company management at which major policy decisions and long-term business plans are made. - Also termed upper management. 2. act or system of controlling and making decisions for business, department, etc. line management. system of management in which information and instructions are passed from one person to someone immediately higher or lower in rank and to no one else. 27. expression Technical Service and Consultancy Service also have not been defined in Act. Technical Service would include any service in connection with engineering service as it is associated with service provided by person ____________ http://www.judis.nic.in Page No 10 of 19 W.P.No.845 of 2012 technically qualified in field of engineering. Consultancy Service is again very wide, it can include service of every nature. 28. expression Consultancy Service has been defined in Oxford Advanced Learner's Dictionary, New 9th Edition published by Oxford University Press, as follows:- Consultancy: 1. company that gives expert advice on particular subject to other companies or organizations: management/design/computer, etc. consultancy 2. expert advice that company or person is paid to provide on particular subject: consultancy fees. 29. Thus, expression Managerial , Technical or Consultancy Services are wide of import. 30. In fact, from nature of work that was to be undertaken by Indonesian firm was purely not that of work carried out by law firms. These services provided by any person holding expertise in relevant field. 31. Thus, if service provided by Indonesian law firm was for managerial, technical or consultancy service or provision of technical or other personnel, petitioner would be liable to deduct tax at source under Section 195 of Act, 1961. 32. service provided by Indonesian law firm ____________ http://www.judis.nic.in Page No 11 of 19 W.P.No.845 of 2012 is for following:- (a) Share Purchase Agreement (SPA) with appropriate warranties and indemnities; (b) Notarial share transfer deed; (c) Assist in obtaining all necessary regulatory approvals for acquisition including, but not limited to approval from Ministry of Finance / Indonesian Insurance regulators. scope of assistance will include advising on all legal aspects of approval application and process, preparation / vetting of all related papers / documents and accompanying your representative / representing you before regulatory authorities as and when required; (d) Power of Attorneys (as may be required); (e) Public announcements in respect of acquisition (as required by Indonesian company law); (f) Form in respect of shares transfers (e.g. Shares certificates, shareholders register); and (g) Amended Articles of Association of Target Company. 33. From scope of work undertaken, it is evident that Indonesian law firm has provided consultancy services. 34. In this case, Indonesian firm has provide Consultancy Service . Therefore, I am of view that it is not open for petitioner to state that said service fell within exception provided in Section 9(1)(vii)(b) of Income Tax Act, 1961 or outside Explanation 2 to said Section. 35. If service utilized by petitioner abroad was for pre-existing business in Indonesia, petitioner ____________ http://www.judis.nic.in Page No 12 of 19 W.P.No.845 of 2012 could have legitimately stated that service provided was utilized for business of profession carried out outside India or for purpose of making or earning any income from any source from outside India. There is no source that is existing in Indonesia. 36. In this case, there was mere proposal for acquiring insurance business in privately or Indonesian Insurance Policy. service of said law firm was sought for range of service which are approval consultancy service. 37. In light of above discussion, I am of view, decision impugned in this Writ Petition, cannot be assailed. During period in dispute, Double Taxation Avoidance Agreement as notified vide Notification No.GSR 77 (E), dated 04.02.1988, was in force. However, what was produced before me is notification notifying agreement signed on 27th July, 2012 and notified vide Notification No.S.O. 1144(E) [No.17/2016 (F.No.503/4/2005-FTD-II)], dated 16.03.2016, which is not relevant. Double Taxation Avoidance Agreement signed between India and Indonesia as notified vide Notification No.GSR 77 (E), dated 04.02.1988 has not been produced for my perusal. 38. In Danisco India (P.) Ltd. Vs. Union of India, 2018 SCC OnLine Del 7304, Delhi High Court observed ____________ http://www.judis.nic.in Page No 13 of 19 W.P.No.845 of 2012 as follows:- 9. In this context, ITAT in Dy. DIT Vs. Serum Institute of India Ltd., (2015) 68 SOT 254/56 taxmann.com 1 (Pune Trib.), discussed this very issue in some detail and stated, as follows: .......where section 90(2) of Act provides that DTAAs override domestic law in cases where provisions of DTAAs are more beneficial to assessee and same also overrides charging sections 4 and 5 of Act which, in turn, override DTAAs provisions especially section 206AA of Act which is controversy before us. Therefore, in our view, where tax has been deducted on strength of beneficial provisions of section DTAAs, provisions of section 206AA of Act cannot be invoked by Assessing Officer to insist on tax deduction @ 20%, having regard to overriding nature of provisions of section 90(2) of Act. CIT(A), in our view, correctly inferred that section 206AA of Act does not override provisions of section 90(2) of Act and that in impugned cases of payments made to non-residents, assessee correctly applied rate of tax prescribed under DTAAs and not as per section 206AA of Act because provisions of DTAAs was more beneficial. Thus, we hereby affirm ultimate conclusion of CIT(A) in deleting tax demand relatable to difference between 20% and actual tax rate on which tax was deducted by assessee in terms of relevant DTAAs. As consequence, Revenue fails in its appeals. 10.Having regard to position of law explained in Azadi Bachao Andolan(supra) and later followed in numerous decisions that Double Taxation Avoidance Agreement acquires primacy in such cases, where reciprocating states mutually agree upon acceptable principles for tax treatment, provision in Section 206AA (as it existed) has to be read down to mean that where deductee i.e overseas resident business concern conducts its operation from territory, whose ____________ http://www.judis.nic.in Page No 14 of 19 W.P.No.845 of 2012 Government has entered into Double Taxation Avoidance Agreement with India, rate of taxation would be as dictated by provisions of treaty. 39. Therefore, issue as to whether petitioner was entitled to benefit of any Clause in said Double Taxation Avoidance Agreement as notified in Notification No.GSR 77(E), dated 04.02.1988, is left open. It is for petitioner to file appropriate application before 2nd respondent within period of thirty days from date of receipt of copy of this order. 40. Accordingly, Writ Petition is dismissed with above observations. No cost. Consequently, connected Miscellaneous Petition is closed. 9. agreement entered into by petitioner with M/s. MD IN Services Pvt. Ltd. in United Kingdom is for following services:- i. Evaluation, development of risk management and insurance products for renewable energy sector for various overseas ventures of Shriram. ii. Insurance and pricing considerations for SME & specialist insurances e.g. Bankers Indemnity, Jewellers Block etc. iii. Co-ordination for RI placements including getting quotations for large industrial risks and other major ____________ http://www.judis.nic.in Page No 15 of 19 W.P.No.845 of 2012 risks. iv. Explore London market for types and scope of insurance available for serious complex fraud, etc. v. Provision of information on general matters of interest, innovative risks transfer, new products and risks from UK market etc. vi. Provide facilitation and overseas services as part of UK retainers responsibilities mainly to ensure that Shriram and International brokers are using, providing and capitalizing on relationship for mutual business development etc. 10. From reading of letter dated 01.01.2011 of said MD IN Services Private Limited UK, non-resident overseas company indicates that service provided by them to petitioner was in nature of consultancy services. Therefore, payments made by petitioner to said UK company would be income deemed to accrue/arise in India within meaning of Section 9(1)(vii)(b) of Income Tax Act, 1961. 11. payments made by petitioner to said UK company ____________ http://www.judis.nic.in Page No 16 of 19 W.P.No.845 of 2012 cannot be said to be towards fees payable in respect of services utilised in business or profession carried out by petitioner outside India as no such business had been established at time of such payment. Petitioner was merely prospecting such business and therefore engaged services of said UK company as consultant. As petitioner has not established any business, payment would not come within purview of exception provided in Section 9(1)(vii)(b) of Income Tax Act, 1961. 12. Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with United Kingdom of Great Britain and Northern Ireland also makes it clear that payments for fees towards technical services may also be taxed in contracting state in which they arise and according to law of that states. 13. expression fees for technical service has been defined in Article 13 Paragraph 4 to mean payments of any kind of any person in consideration for rendering of any technical or consultancy services (including provision of services offered technical or other personnel). http://www.judis.nic.in Page No 17 of 19 W.P.No.845 of 2012 14. exception to definition of fees for technical services in Paragraph 4 has been specified in Paragraph 5 to Article 13. It is to be noted that none of exception provided in Paragraph 5 are attracted. 15. Therefore, I do not find any merits in present Writ Petition. Therefore, this Writ Petition is devoid of merits and is liable to be dismissed. Accordingly, writ petition is dismissed. No cost. 19.05.2020 Index : Yes/No Internet :Yes/No jen http://www.judis.nic.in Page No 18 of 19 W.P.No.845 of 2012 C.SARAVANAN, J. jen To 1.The Director of Income Tax, (International Taxation), VII Floor, Annexe Building, 121, Nungambakkam High Road, Chennai 600 034. 2.The Income Tax Officer, International Taxation I(2), VII Floor, Annexe Building, 121, Nungambakkam High Road, Chennai 600 034. Pre-Delivery Order in W.P.No.845 of 2012 19.05.2020 http://www.judis.nic.in Page No 19 of 19 Shriram Capital Limited v. Director of Income-tax, (International Taxation), Chennai / Income-tax Officer, International Taxation-I(2), Chennai