2015 (11) TMI 1292 - AT - Income Tax

ITAT directs AO to probe if Liftech's services impact taxability under India-US DTAA Treaty -Treaty

Gujarat Pipavav Port Limited Versus Income Tax Officer (International Taxation) TDS-3, Mumbai

Gujarat Pipavav Port Limited Versus Income Tax Officer (International Taxation) TDS-3, Mumbai - TMI Issues:Challenge to the taxability of payment made to M/s Liftech Consultants Inc., USA as per Income Tax Act, 1961.Analysis:The appellant, a resident Indian Company, contested the tax treatment of payments to M/s Liftech Consultants Inc., USA for review of crane design under A.Y. 2007-08. The appellant engaged M/s Liftech Consultants Inc. to monitor adherence to pre-agreed standards during crane manufacturing by M/s ZPMC, China. The Assessing Officer (A.O.) deemed the payment taxable under India-US DTAA for included services, managerial, technical, or consultancy services, or as royalty. The appellant argued that the services were limited to reviewing design, not development or transfer, citing agreements and reports. The A.O. and the CIT(A) disagreed, classifying the payments as fees for included services under Article 12(4)(b) of the India-US DTAA. The appellant appealed to the ITAT against the CIT(A)'s decision.The appellant's counsel contended that the services were consultancy, not imparting technical knowledge, citing legal precedents. The Departmental Representative supported the lower authorities' decisions. The ITAT analyzed the service agreement and reports, concluding that M/s Liftech Consultants Inc.'s role was reviewing, implying suggesting and advising but not necessarily transferring design or development. The ITAT noted suggestions made by M/s Liftech Consultants Inc. regarding product improvements, questioning if these suggestions led to major design changes or were mere defect identification. The ITAT directed the A.O. to investigate if M/s Liftech Consultants Inc. physically implemented the suggestions, as mere suggestions would constitute review, while physical implementation would indicate transfer of technical services and design, invoking Article 12 of the India-US DTAA Treaty.In conclusion, the ITAT allowed the appeal for statistical purposes, emphasizing the need for further examination by the A.O. to determine if the services provided by M/s Liftech Consultants Inc. constituted mere review or actual transfer of technical services and design, impacting the taxability under the India-US DTAA Treaty.