TaxTMI 
TaxTMI 
2012 (7) TMI 118
X X X X Extracts X X X X
X X X X Extracts X X X X
....expertise gained by the LLAH or its associates' during its operations of similar business world-wide. In accordance with the terms of the MSA agreement, the LLAH was to provide services like administration, personnel, legal, finance and accounting information, marketing support, insurance matters, treasury management and information technology to the assessee. As per Article 3 of the MSA, the LLAH after providing the services shall submit a statement of service charges to the assessee and the claim has to be settled within 30 days from the time the invoice is tendered. Accordingly, the LLAH, after providing the services, has raised invoices and submitted them to the assessee. The claim has been admitted and accordingly, amounts were debited as expenditure for the relevant financial years under the head 'Regional Overhead Charges Account' and corresponding amounts were credited to the 'Outstanding Expenses Account'. The debit entries have reduced the income of the assessee for the relevant assessment years. After making such credit entries, no tax at the rate in force was deducted by the assessee under Section 195 (1) of the Income Tax, 1961 (hereinafter referred to as "the Act" for....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in question on the payments is for consideration for the services rendered by LLAH to the assessee. Therefore, these amounts cannot be called as reimbursement of expenses. The reimbursement of actual expenditure is also subject to tax deduction under provisions of Section 195 of the Act. The use of the term 'reimbursement' will be determinative on the question of payments. He also further held the services which were rendered by LLAH involved training which would clearly 'make available technical knowledge expertise, skill, know haw' for purposes of the assessee and hence, they fall into the category of FTS (Fees for Technical Services). The LLAH has to make the technology available to the assessee within the meaning of the MOU. Therefore, the credits/payments clearly fall into the category of FTS and liable to tax and therefore, proceeded to pass an order levying tax and interest Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals). 5. After reappreciation of the entire material on record, the appellant Commissioner found no justification to interfere with the order passed by the Assessing authority and accordingly, dismisse....
X X X X Extracts X X X X
X X X X Extracts X X X X
....be allowed. 7. The revenue has preferred these appeals challenging the findings of the Tribunal that the assessee was not required to deduct tax at source under Section 195 of the Act and consequently was not liable to pay interest under Section 201 (1A) The assessee in turn has preferred cross appeals in these appeals challenging the findings recorded by all the three authorities that the management services rendered by LLAH did not involve "make available their expertise, skill and know how" and therefore no tax is liable to be paid on the said consideration. They are also challenging the findings of the authorities that the amount paid by the assessee is not towards reimbursement of the expenses. 8. The learned Additional Solicitor General assailing the impugned order of the Tribunal contended that as is clear from Section 197 tax is required to be deducted at the time of crediting the amount in the accounts. The assessing officer had not issued the certificates under section 197 (1) and therefore the assessee was under an obligation to deduct the tax. Secondly he contended that the certificates issued by the assessing officer is not conclusive. In the regular assessment p....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ssessee and its counter part abroad was not liable to deduction of tax at source under Section 195 of the Act, in view of the judgment of this Hon'ble Court in Jindal Thermal Power Company v. DCIT and the judgment of the Apex Court in Ishikawajma Harima Heavy Industries Limited v. Dy. CIT 286 ITR 408? (ii) Whether the Tribunal was correct in ignoring the findings recorded by the Assessing Officer and Appellate Commissioner that the contract entered into between the assessee and its group company M/s. Lend Lease Asia Holding's Private Limited, Singapore, was a management services agreement and the payments were for fees towards technical services and the same was deemed income under Section 9 read with Article 12 of the DTAA between India and Singapore and consequently recorded a perverse finding? (iii) Whether the certificate issued wider Section 197 of the Act, would have any bearing as the same was issued beyond the period, without jurisdiction and without examining the facts of the terms and conditions of the contract and the provisions of the Act?" The relevant statutory provisions, which are required to be noticed are (1) section 195 (2) and section 197 (1....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... similar application being made by the recipient of the income. On such an application being made under Section 197 (1), the assessing officer can give to him such certificate as may be appropriate. If such certificates states no tax is deductible, until such certificate is cancelled by the assessing officer, the person responsible for paying the income is under "No obligation" to deduct tax while making payment. In fact the language employed is "Shall". Therefore, it is mandatory in nature. What is the effect of such a certificate was the subject matter of interpretation. 13. The Delhi High Court in the case of Areva T& D, SA v. Asstt. DIT [2011] 200 Taxman 84/10 taxmann.com 379 dealing with the nature and effect of certificates under Section 197 has held that the said certificate is interim in nature and in fact the same could not have been anything else, but interim in character as the scope of Section 197 is limited. On a conjoint reading of Sections 195 and 197 of the Act, if any opinion is expressed at the time of the grant of certificate, it is tentative or provisional or interim in nature and the same does not debar the assessing authority from initiating proceedings und....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... both the payer and the recipient of the payment can approach the Assessing Authority under the Act seeking for a certificate providing for exemption from payment of tax, i.e. exemption from deducting tax at source. Once such a certificate is issued, there is no obligation on the part of the payer to pay tax. In view of the fact that the word used is "shall", if the recipient were to obtain such a certificate and make it available to the payer, then, the payer shall not deduct tax at source. 15. Under the aforesaid provision, there is no obligation on the part of the payer to pay tax as long as the said certificate is in force and rest cancelled. Even if tax is payable under the Act, the payer cannot be treated as an assessee in default. If in a regular assessment, an order is passed holding that the said income is liable to tax, the issue of such a certificate under the aforesaid provision would not come in the way of levying and collecting tax. However, the payer cannot be treated as an assessee in default and he cannot be proceeded with. It is because as long as the said certificate stands, the payer shall not make any payment and shall not deduct from the consideration payab....