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DCIT, CHENNAI v. Inzi Control India Limited, Sriperambudur

Income Tax Appellate Tribunal

Aug 16, 2018

Judgment

CaseIQ

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Factual and Procedural Background

This appeal was filed by the Revenue against the order dated 23.02.2015 of the Commissioner of Income Tax (Appeals)-6, Chennai, which had deleted a disallowance made by the Assessing Officer under section 40(a)(i) of the Income-tax Act, 1961. The disallowance related to development fees and royalty totalling Rs. 3,12,69,759 claimed by the assessee (an Indian company engaged in manufacture of automobile parts and accessories). The Assessing Officer observed that although the assessee had deducted tax at source, it had not remitted the deducted tax to the exchequer before filing its return of income, and therefore made the disallowance.

The assessee appealed to the Commissioner (Appeals) contending that the amounts were only credited (booked) and remained unpaid as on 31.03.2010, and that under Article 13 of the India–Korea DTAA tax liability in respect of royalties and fees for technical services would arise only upon payment. The CIT(A) accepted the assessee's contentions, noted that when payments were subsequently made the tax was remitted to the exchequer, and deleted the disallowance.

The Revenue then appealed to the Tribunal. The Tribunal heard departmental and assessee representatives and pronounced its order on 16th August, 2018 at Chennai, dismissing the Revenue's appeal and upholding the CIT(A)'s deletion of the disallowance. The order is authored per Abraham P. George, Accountant Member, with Duvvuru Reddy as Judicial Member.

Legal Issues Presented

Whether, for purposes of section 40(a)(i) read with section 195 of the Income‑tax Act, tax was required to be deducted and remitted by the assessee at the time the expenditure was charged (booked/credited) in the assessee's accounts, or only when actual payment was made to the non‑resident recipients.
Whether Article 13 (Royalties and Fees for Technical Services) of the India–Korea DTAA renders the royalty and technical fees taxable in India at the point of credit (i.e., when the Indian payer credits the amount), or only at the point of actual payment and receipt by the non‑resident.
Whether the decisions of coordinate Benches of the Tribunal (cited by the assessee) remain applicable in view of later Supreme Court authority (Palam Gas Service) interpreting related statutory wording.

Arguments of the Parties

Revenue's Arguments (Departmental Representative)

Article 13(2) of the India–Korea DTAA permits taxation of royalties and fees for technical services in the state in which they arise; therefore India can tax such amounts.
Reliance on the Supreme Court judgment in Palam Gas Service vs. CIT (2017) 394 ITR 300, which held that the word "payable" in Section 40(a)(ia) should be construed as inclusive of "paid" — the Departmental Representative argued this supports treating booked/payable amounts as within the scope of withholding/deduction obligations.
Since the assessee did not remit the deducted tax to the exchequer before filing its return, the Assessing Officer was justified in making the disallowance under section 40(a)(i).
Decisions of the Tribunal relied upon by the assessee were rendered prior to the Palam Gas Service judgment and therefore, according to the Departmental Representative, cannot be treated as binding in the face of the Supreme Court decision.

Assessee's Arguments (Authorised Representative)

The amounts in question were only credited to the accounts of non‑resident entities and remained unpaid as on 31.03.2010; there were no payments made in the relevant previous year.
Under Article 13 of the Indo–Korea DTAA, taxability in the non‑resident's hands arises on payment; therefore tax withholding obligation under domestic law (section 195) does not arise at the point of mere crediting.
Relied on a number of Tribunal decisions (including DCIT vs. PHA India Pvt. Ltd, Pizza Hut International LLC vs. DDIT, CSC Technology Singapore Pte Ltd. vs. ADIT, DCIT vs. UHDE GMBH, National Organic Chemical Industries Ltd vs. DCIT and Saira Asia Interiors Pvt. Ltd vs. ITO) that, in the assessee's submission, support the proposition that both accrual/credit and payment are relevant and that withholding is triggered by payment.
Noted that when payments were later effected the assessee remitted the deducted taxes to the exchequer (specific remittance entries were recorded for payments to Inzi Controls Co. Ltd.).

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
DCIT vs. PHA India Pvt. Ltd (ITA No.167/168/168/Mds/2013 - Order dated 11.03.2014)	Cited as a coordinate Tribunal decision supporting the view that taxability/withholding in respect of royalties/technical fees arises on payment and not merely on credit.	The Tribunal noted this decision among others relied upon by the assessee and treated it as supporting the CIT(A)'s conclusion; it formed part of the body of coordinate Bench authority the Tribunal followed.
Pizza Hut International LLC c/o. Dinesh Mahta & Co vs. DDIT (2012) 54 SOT 425 (Delhi)	Cited as authority supporting that tax withholding obligations do not arise at the point of mere crediting where payment has not been made.	The Tribunal identified this decision as one of the coordinate Bench authorities supporting the assessee's position and used it as part of the persuasive judicial material for upholding the CIT(A).
CSC Technology Singapore Pte Ltd. vs. ADIT (2012) 50 SOT 399 (Delhi)	Cited as a Tribunal decision relevant to the timing of taxability/withholding in respect of royalties/technical fees.	The decision was relied upon by the assessee and considered by the Tribunal as a coordinate Bench view consistent with the CIT(A)'s order.
DCIT vs. UHDE GMBH (1996) 54 TTJ 355 (Bom)	Cited among Tribunal decisions addressing taxability/withholding in cross‑border royalty/technical fee contexts.	Treated by the Tribunal as part of the line of decisions supporting the assessee's contention that payment (not merely credit) is necessary to trigger withholding obligations.
National Organic Chemical Industries Ltd vs. DCIT (2006) 5 SOT 317 (Mum) [also referenced at (2005) 96 TTJ 765 (Mum) in the text]	Held that, with reference to relevant DTAA provisions, twin conditions of accrual/credit and actual payment must be satisfied for taxing royalties/fees for technical services; taxing by the payer State depends on payment.	The Tribunal explicitly relied on this decision (and described it as being in respectful agreement) when upholding the CIT(A)'s deletion of the disallowance; the Bench followed the coordinate Bench view.
Saira Asia Interiors Pvt. Ltd vs. ITO (2017) 164 ITD 687 (Ahmedabad Bench)	Interpreted the analogous Article 13 of the India–Italy DTAA and explained the application of clause (2), holding that taxability for royalties/technical fees depends on tax liability in the recipient's hands at the relevant time and that both credit and payment events are relevant.	The Tribunal relied on the Ahmedabad Bench's elucidation of clause (2) and followed its reasoning when applying Article 13 of the India–Korea DTAA to the facts, adopting the view that payment is material to taxability/withholding.
Palam Gas Service vs. CIT (2017) 394 ITR 300 (Supreme Court)	Interpreted the word "payable" in Section 40(a)(ia) (statutory provision) to include "paid" — i.e., construed "payable" as embracing paid amounts for the statute's purposes.	The Tribunal considered the Revenue's reliance on this decision but rejected its application for interpreting the word "paid" in Article 13 of the DTAA, holding that treaty terminology must be interpreted by general principles of treaty interpretation rather than by statutory interpretation rules applied in Palam Gas Service.
UOI vs. Azadi Bachao Andolan (2006) 263 ITR 706 (Supreme Court)	Explains that principles of treaty interpretation differ from interpretation of municipal/legislative texts; treaties are to be interpreted on broad principles of general acceptation rather than by technical rules of statutory construction.	The Tribunal invoked this authority to support its conclusion that the Palam Gas Service statutory interpretation could not be used to construe "paid" in the DTAA; it applied the treaty‑interpretation principles cited from this case.
GE Information Technology (case referenced in the order; citation not fully detailed in the text)	Referenced for the proposition that where royalty credited by the payer is not taxable in the recipient's hands at the time of credit, it does not give rise to withholding obligations under section 195(1).	The Tribunal referred to the view attributed to the GE Information Technology decision to support the proposition that mere crediting, where not taxable in the recipient's hands, does not trigger withholding under section 195.

Court's Reasoning and Analysis

The Tribunal proceeded in a step‑by‑step analysis, confined to the facts and authorities placed before it:

Establishment of basic facts: the amounts (development fees and royalty totalling Rs. 3,12,69,759) were charged to the assessee's accounts but were not paid to the non‑resident recipients before the end of the relevant previous year (they stood as outstanding on 31.03.2010). When payments were later effected the assessee remitted the deducted taxes to the exchequer (the order records specific payments and TDS remittance dates for Inzi Controls Co. Ltd.).
Identification of the legal question: whether the obligation to deduct tax at source and remit it arises on the date of booking/credit of expenditure in the accounts or only on the date of actual payment to the non‑resident.
Treaty analysis — Article 13 of the India–Korea DTAA: the Tribunal reproduced Article 13 in full (paragraphs 1–7) and analysed the meaning of the term "paid" in clause (1). The Tribunal rejected the Revenue's submission that the word "paid" in the DTAA should be construed to include "payable" by reference to the Palam Gas Service statutory interpretation. The Tribunal emphasised the established principle (relying on UOI vs. Azadi Bachao Andolan) that treaties are to be interpreted on broad principles of general acceptation and not by the same technical rules as statutory legislation; therefore "paid" in the DTAA denotes a past event (actual payment) and cannot be construed to include future or merely payable amounts.
Consideration of clause (2) of Article 13 (taxation in the State in which the amounts arise): the Tribunal referred to the Ahmedabad Bench decision in Saira Asia Interiors which interpreted a pari materia Article 13 (India–Italy DTAA). That decision explained that for tax deduction liability under section 195 it is necessary to examine whether there is a tax liability in the recipient's hands at the time the triggering event (credit or payment) occurs. If no tax liability exists in the recipient at that point, there is no obligation to withhold; if there is tax liability, withholding is required at the earlier of credit or payment.
Application of coordinate Bench precedent and judicial discipline: the Tribunal observed that a series of coordinate Bench decisions (including National Organic Chemical Industries Ltd and others cited by the assessee) had held that mere crediting does not trigger taxability under the comparable DTAA provisions and therefore does not trigger withholding under section 195; the Tribunal stated it would follow those coordinate Bench decisions (absent a showing of per incuriam).
Conclusion applied to facts: given that the amounts were outstanding on 31.03.2010 and that tax was remitted when payments were actually made in the subsequent year, the Tribunal concluded that clause (1) of Article 13 did not render the amounts taxable in Korea at the earlier date, and that section 40(a)(i) had no application to deny the expenditure. The Tribunal therefore upheld the deletion of the disallowance by the CIT(A).

Holding and Implications

Core Ruling: The Revenue's appeal is dismissed. The Tribunal upheld the Commissioner (Appeals)'s deletion of the disallowance under section 40(a)(i) of the Income‑tax Act.

Implications and immediate consequences:

The order of the CIT(A) deleting the disallowance of Rs. 3,12,69,759 stands affirmed by the Tribunal.
The Tribunal held that, on the facts before it, mere crediting/booking of development fees and royalty (amounts outstanding on 31.03.2010) did not trigger taxability under Article 13 of the India–Korea DTAA nor the withholding obligations under section 195; obligation to deduct and remit arose when actual payments were made and were, in fact, remitted then.
The Tribunal relied on and followed coordinate Bench decisions interpreting analogous DTAA provisions to require actual payment (or a tax liability in the recipient's hands at the relevant time) before withholding obligations arise. The order does not purport to lay down a new legal precedent beyond applying and following those existing coordinate Bench rulings and the principles of treaty interpretation cited.
No broader legal principle overturning Supreme Court authority was announced; the Tribunal expressly declined to apply the statutory reading in Palam Gas Service to interpret the word "paid" in the DTAA, on treaty‑interpretation grounds.

Order pronounced on 16th August, 2018 at Chennai. Members: (DUVVURU RL REDDY) — Judicial Member; (ABRAHAM P. GEORGE) — Accountant Member.

Show all summary ...

PER ABRAHAM P. GEORGE, ACCOUNTANT MEMBER:- In this appeal filed by the Revenue, which is directed against an order dated 23.02.2015 of ld. Commissioner of Income Tax (Appeals)-6, Chennai, it is aggrieved on deletion of disallowance made by the ld. Assessing Officer on development fees and royalty paid by ITA No.1820/CHNY /2015 :- 2 -: the assessee to a non resident entity for want of deduction of tax at source.

2. Ground No.2 of the Revenue summarizes its grievance and this is reproduced hereunder:- 2.1. The Id. CIT(A) ought not to have allowed the development fees and royalty payments to non- residents claimed by the assessee when it attracted the provisions of section 40(a)(i) r.w.s. 195 of the Act. 2.2. The Id. CIT(A) ought to have appreciated that when the .assessee company is an Indian Company, it ought to have abided by the provisions of Sec.195 of the IT Act , 1961. 2.3. The Id. CIT(A) ought to have appreciated that Clause 6 .of Article 13 of DTAA with Korea specifies "Royalties and fees for technical services shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State". 2.4. The decision of the Hon'ble ITAT in the case of PHA India Limited has not been accepted by the department and further appeal has been preferred before the Hon'ble High Court of Madras and has not reached finality.

3. Facts apropos are that assessee an Indian company engaged in manufacture of automobile parts and accessories had filed its return of income for the impugned assessment year disclosing income of C3,17,67,041/-. During the course of assessment proceedings, it was noted by the ld. Assessing Officer that assessee had claimed expenses in the nature of incurred development fees and royalty, aggregating to C3,12,69,759/-. As per the ld. Assessing ITA No.1820/CHNY /2015 :- 3 -: Officer, though assessee had deducted TDS on such amount, it did not remit such tax to the exchequer before the date of filing of return of income. Ld. Assessing Officer applied Section 40(a)(i) of the Income Tax Act, 1961 (in short the Act) and made a disallowance of C3,12,69,759/-.

4. Aggrieved, assessee moved in appeal before ld. CIT(A). Argument of the assessee was that there were no payment of any development fees or royalty during the relevant previous year. According to the assessee, such amounts were credited to the accounts of the non-resident companies to whom payments were due. Contention of the assessee was that the amounts remained outstanding as on 31.03.2010 and by virtue of Article 13 of the Double Taxation Avoidance Agreement (DTAA) between India and Korea, tax liability on a non resident on royalty and technical fees, arose only when the amounts were paid to such non-residents. Reliance was placed by the assessee on the following decisions of different benches of this Tribunal.

1 DCIT vs. PHA India Pvt. Ltd, - ITA No.167/168/168/Mds/2013- Order dated 11.03.2014.

2 Pizza Hut International LLC c/o. Dinesh Mahta & Co vs. DDIT (International Taxation ) (2012) 54 SOT 425, Delhi.

3 CSC Technology Singapore Pte Ltd. vs. ADIT (2012) 50 SOT ITA No.1820/CHNY /2015 :- 4 -:

399 (Delhi).

4 DCIT vs. UHDE GMBH (1996) 54 TTJ 355 (Bom)

5 National Organic Chemical Industries Ltd vs. DCIT, (2006) 5 SOT 317 (Mum)

5. Ld. Commissioner of Income Tax (Appeals) was appreciative of the above contentions. According to him, tax liability on the non- resident, in relation to royalties and fees for technical services, would arise only at the time when such amounts were paid to non-residents. As per the ld. Commissioner of Income Tax (Appeals), assessee had not paid the amounts before the end of the relevant previous year. Ld. Commissioner of Income Tax (Appeals) also noted that assessee, when it effected the payments in the subsequent year, had remitted the deducted taxes to the exchequer as under:- Party Name Nature of Expenditure Amount in TDS amount Date of TDS remittance Inzi Controls Co. Ltd Royalty 82,36,890 10,85,598 20.11.2011 & 18.03.2011 Inzi Controls Co. Ltd Development 2,30,32,869 24,31,698 18.01.2011 Relying on the decisions of the different Benches of the Tribunal cited by us at para 4 above, ld. Commissioner of Income Tax (Appeals) held that Section 40(a)(i) of the Act had no application, since assessee was yet to pay the development fees and royalty, though such expenses were booked in its accounts. He deleted the disallowance made by the ld. Assessing Officer. ITA No.1820/CHNY /2015 :- 5 -:

6. Now before us, ld. Departmental Representative strongly assailing the order of the ld. Commissioner of Income Tax (Appeals) submitted that royalty and fees for technical services could be taxed in a contracting state, by virtue of clause (2) to Article 13 of the DTAA. Further, according to him, Honble Apex Court in the case of Palam Gas Service vs. CIT, (2017) 394 ITR 300, had held that the word payable as appearing Section 40(a)(ia) of the Act had to be construed as inclusive of paid amounts. Thus, according to him, assessee was obliged to deduct tax at source on the sum of C3,12,69,759/-. Since, assessee had not done so, as per the ld. Departmental Representative, the ld. Assessing Officer was justified in making a disallowance under section 40(a)(i) and ld. Commissioner of Income Tax (Appeals) fell in error in deleting such disallowance. Ld. Departmental Representative submitted that decisions of this Tribunal relied on the ld. Commissioner of Income Tax (Appeals), were all rendered prior to judgment of Honble Apex Court in the case of Palam Gas Service (supra) and therefore could not be considered as binding precedents.

7. Per contra, ld. Authorised Representative strongly supporting the order of the ld. Commissioner of Income Tax (Appeals) submitted that Mumbai Bench of the Tribunal in the case of National Organic Chemical Industries Ltd. (supra) had, with reference to Article 12(1) ITA No.1820/CHNY /2015 :- 6 -: and Article 12(2) of Indo-USA Tax Treaty, which was pari materia with Article 13(1) and Article 13(2) of Indo-Korea DTAA, held that for taxing royalties and fees for technical services, twin conditions of accrual as also the payment were to be satisfied. Reliance was also placed on the decision of Ahmedabad Bench of the Tribunal in the case of Saira Asia Interiors Pvt. Ltd vs. ITO, (2017) 164 ITD 687. According to him, ld. Commissioner of Income Tax (Appeals) was justified in deleting the disallowance made u/s. 40(a)(i) of the Act.

8. We have considered the rival contentions and perused the orders of the authorities below. There is no dispute that development fees and royalty of C3,12,69,759/- was charged by the assessee in its accounts as expenditure, but not paid to non-residents, before the end of the relevant previous year. In other words, the amounts were shown as outstanding dues by the assessee on 31.03.2010. The question before us is whether tax has to be deducted and remitted with reference to the date of the charge of the expenditure in the accounts or date of actual payment. Ld. Commissioner of Income Tax (Appeals) held that assessee having paid development fees and royalty in the subsequent year, its liability to deduct and pay the tax, arose only at the point of time when such payments were made. As against this, Revenues argument is that assessee having shown the sum of C3,12,69,759/- as outstanding dues against development fees and ITA No.1820/CHNY /2015 :- 7 -: royalty, it should have deducted tax thereon and remitted it to the Government. As per the Revenue, assessee having failed to do so, Section 40(a)(i) of the Act stood attracted.

9. There is no dispute that the amounts were due to a Korean concern and the DTAA between India and Korea applied for deciding on the taxability of such amounts in the hands of the Korean concerns. Article 13 of the said DTAA which is apposite is reproduced hereunder:-

1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 15 per cent of the gross amount of the royalties or fees for technical services.

3. The term " royalties " as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph film, or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience.

4. The term " fees for technical services " as used in this Article means payments of any kind to any person, other than payments to an employee of the person making the payments and to any individual for independent personal services mentioned in Article 15, in consideration for services of managerial, technical or consultative nature, including the provision of services of technical or other personnel.

5. The provisions of paragraphs 1 and 2 of this Article shall not apply if the beneficial owner of the royalties or fees ITA No.1820/CHNY /2015 :- 8 -: for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise through a permanent establishment situated there or perform in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services and paid is effectively connected with such permanent establishment or fixed base. In such cases the provisions of Article 7 or Article 15, as the case may be, shall apply.

6. Royalties and fees for technical services shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not has in a contracting State a permanent establishment or a fixed base in connection with which the obligation to make the payments was incurred and the payments are borne by the permanent establishment or fixed base, then the royalties or fees for technical services shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated.

7. Where, owing to a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties or fees for technical services paid, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the recipient in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such cases, the excess part of the payments shall remain taxable according to the law of each Contracting State due regard being had to the other provisions of this Convention. First contention of the ld. Departmental Representative is that term paid used in clause (1) will include payable amount also. To buttress this argument, reliance has been placed on the judgment of Honble Apex Court in the case of Palam Gas Service (supra). Said case concerned interpretation of Section 40(a)(ia) of the Act where the ITA No.1820/CHNY /2015 :- 9 -: word payable occurred and the word paid was not mentioned. Their lordships held that word payable appearing in Section 40(a)(ia) of the Act would include paid amount also. In our opinion, this judgment would not aid the Revenue in interpreting, the word paid as appearing clause (1) of Article 13 of the DTAA. Terms used in treaties are not to interpreted in the manner which terms are used in a legislative edict in the form of a statute or law. Honble Apex Court had noted as under in its judgment in the case of UOI vs. Azadi Bachao Andolan (2006) 263 ITR 706, which throws light on the manner which a treaty is to be interpreted. Interpretation of treaties, The principles adopted in interpretation of treaties are not the same as those in interpretation of statutory legislation. While commenting on the interpretation of a treaty imported into a municipal law, Francis Bennion observes : With indirect enactment, instead of the substantive legislation taking the well-known form of an Act of Parliament, it has the form of a treaty. In other words the form and language found suitable for embodying an international agreement become, at the stroke of a pen, also the form and language of a municipal legislative instrument. It is rather like saying that, by Act of Parliament, a woman shall be a man. Inconveniences may ensue. One inconvenience is that the interpreter is likely to be required to cope with disorganised composition instead of precision drafting. The drafting of treaties is notoriously sloppy usually for very good reason. To get agreement, politic uncertainty is called for. . . . The interpretation of a treaty imported into municipal law by indirect enactment was described by Lord Wilberforce as being unconstrained by technical rules of English law, or by English legal precedent, but ITA No.1820/CHNY /2015 :- 10 -: conducted on broad principles of general acceptation. This echoes the optimistic dictum of Lord Widgery C. J. that the words are to be given their general meaning, general to lawyer and layman alike. . . the meaning of the diplomat rather than the lawyer. In the light of observation of Honble Apex Court reproduced above, we feel that the word paid cannot be construed in a manner to include in it payable amounts also. Paid indicates a past event and not one which is to happen in future. Hence, we cannot say that the Korean entity was liable to tax on these amounts under clause (1) of Article 13 of the DTAA.

10. Now the question, is whether clause (2) of Article 13 would apply. Said clause says that royalties and fees for technical services might also be taxed in that contracting state in which they arose. We find that the decision of Ahmedabad Bench of the Tribunal in the case of Saira Asia Interiors Pvt. Ltd (supra) elucidates the manner in which this clause has to be interpreted. Ahmedabad Bench was considering application of Article 13 of DTTA between India and Italy, in a more or less similar fact circumstances. Said article was pari materia to Article

13 of the India and Korea, DTAA. Observations of the Tribunal at para

7 & 8 of its order dated 20.03.2017 is reproduced hereunder:-

7. Clearly, therefore, so far as tax deduction at source ITA No.1820/CHNY /2015 :- 11 -: liability under section 195 is concerned, all that is required to be seen is the taxability of income embedded in a payment, in the hands of the non-resident, as existing in law If there is no tax liability in the hands of the recipient at the point of time when event triggering tax deduction liability takes place- i.e. at the point of time when credit is afforded and when the payment is made. If the recipient does not tax any tax liability, in respect of the said amount at that point of time, there is no question of tax deduction at source, and, as a corollary to this proposition, if there is a tax liability in respect of that amount at that point of time, the said tax liability is to be withheld by the person crediting or paying the money. Of course, if there is same tax liability in either of the situation, the tax is to be withheld at the point of time when either of these events, whichever is earlier, takes place. We may also, while on the subject, reproduce Article 13 of India Italy DT AA, which deals with taxation of royalty, as below: Article 13 ROYALTIES AND FEES FOR TECHNICAL SERVICES

1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

4. The term " fees for technical services " as used in this Article means payments of any kind to any person, other than payments to an employee of the person making the payments and to any individual for ITA No.1820/CHNY /2015 :- 12 -: independent personal services mentioned in Article 15, in consideration for services of managerial, technical or consultative nature, including the provision of services of technical or other personnel.

5. The provisions of paragraphs 1 and 2 of this Article shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise through a permanent establishment situated there or perform in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services and paid is effectively connected with such permanent establishment or fixed base. In such cases the provisions of Article 7 or Article 15, as the case may be, shall apply.

8. A or the point of time of crediting the amount payable to non resident, i.e. "at the time of credit of such income to the account of payee", the royalty so paid by the assessee was not taxable in the hands of the resident, for the simple reason that, in terms of article 13 of Indo Italian DTAA- which is reproduced above for the ready reference, taxability of royalty is dependent on the payment by the resident of a contracting state and receipt of the same by the resident of the other contracting state. Unless, therefore, the actual payment takes place, the taxability under article 13 of Indo Italian DTAA does not arise. In other words, the mere fact that an Indian resident credits the amount of royalty payable to an Italian resident does not trigger taxability under article

13 of the Indo Italian DTAA. Such is also the view taken by a series of decisions by the coordinate benches, including the decision in the case National Organic Chemical Industries Ltd [(2005) 96 TT J 765 (Mum)], with which we are in respectful agreement. When the royalty so credited by the assessee is not taxable at the time of credit of such amount to the account of payee, in the light of law laid down by Hon'ble Supreme Court in the case of GE Information Technology (supra), it does not give rise to any tax withholding obligations under section 195 (1) either. It was held by the Co-ordinate Bench that for triggering the taxability under article 13 of the Indo-Italian DTAA, mere credit of amount of the royalty payable to the non-resident concerns account would not be sufficient. According to them, it was imperative that actual payments were effected. Or in other words, both conditions had to be satisfied. Judicial discipline requires us to follow the decisions of a Co- ordinate Bench, unless it is per-incuriam, so as to avoid multiplicity of litigation and the disconcerting effect of differing opinions by different Benches on similar issue. Hence we are choosing to follow the Co-ordinate Bench view. Ld. Commissioner of Income Tax ITA No.1820/CHNY /2015 :- 14 -: (Appeals) has at para 4.1.3 clearly observed that amounts stood outstanding on 31.03.2010. Ld. Commissioner of Income Tax (Appeals) also observed that when payments were effected, assessee had remitted the tax to the exchequer. In such circumstances, we are of the opinion that ld. Commissioner of Income Tax (Appeals) was justified in deleting the disallowance made u/s.40(a)(i) of the Act. We do not find any reason to interfere with the order of the ld. Commissioner of Income Tax (Appeals).

11. In the result, the appeal of the Revenue stands dismissed. Order pronounced on Thursday, the 16th day of August, 2018, at Chennai. Sd/- Sd/- ($% . &) (DUVVURU RL REDDY) ) /JUDICIAL MEMBER ( . ) (ABRAHAM P. GEORGE) /ACCOUNTANT MEMBER #/Chennai $/Dated:16th August, 2018. '( )(/Copy to:

1. /Appellant 3. * ()/CIT(A) 5. ( //DR

2. /Respondent 4. */CIT 6. /GF ITA No.1820/CHNY /2015 :- 15 -: