AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (7) TMI 475
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....nder the head 'Supervision charges.' On being called upon to explain as to why no deduction of tax at source was made in respect of such payments credited to non-resident, the assessee stated that such amount was not chargeable to tax in the hands of the recipient as per Article 13 of the Double Taxation Avoidance Agreement between India and Finland (hereinafter called 'DTAA') and as such there was no obligation to deduct tax at source. At the same time, the assessee admitted the taxability of the amount in the hands of the payee in terms of section 9 of the Act. The AO observed that the assessee started deducting tax at source after 1.4.2011 on payments made to this resident of Finland, for similar services at the applicable rates of tax. The assessee's contention that deduction of tax at source was started after 1.4.2011 because of the later amendment in the DTAA, did not persuade the AO. In the final analysis, the AO came to hold that the amount of Rs. 1.92 crore incurred for supervisory services was deemed income accruing or arising in India to the resident of Finland and, hence, was chargeable to tax. In the absence of the assessee deducting tax at source u/s 195 of the Act, t....
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....rore was outstanding at the end of the year. In view of the fact that the so-called agreement provided for realizing payment within 15 days from the date of receipt of invoices and there was no payment whatsoever made by the assessee to IPS throughout the year, the ld. CIT(A), prima facie, inferred that there was no evidence of rendering of any services by IPS. Then, the ld. CIT(A) required the assessee to furnish copies of its correspondence with IPS about the requirement of services to be rendered, nature of services rendered and the correspondence during and after the rendition of services. The assessee admitted that no such correspondence was available. The ld. CIT(A) noticed that the aspect of rendition of actual services by IPS was not examined by the AO. He further noticed an inconsistency in the date of the so-called Agreement between the assessee and IPS, being 1.11.2008, which was prior to the Agreement between the assessee and Sterlite dated 21.11.2008 for providing the supervisory services. The ld. CIT(A) wondered as to how an Agreement between the assessee and IPS could be made much in advance on 1.11.2008 for outsourcing the services which were to be rendered in pursu....
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.... the sustainability or otherwise of disallowance of Rs. 1.92 crore made u/s 40(a)(i) of the Act. The factual matrix in a nutshell is that the assessee received a sum of Rs. 2.41 crore from Sterlite Industries (I) Ltd., for rendering of supervisory services in connection with erection, commissioning and training for their plant in Tuticorin. Such services were provided by the assessee by outsourcing the same and a sum of Rs. 1.92 crore was paid for that. The assessee claimed deduction for Rs. 1.92 crore, which the AO disallowed u/s 40(a)(i) as, in his opinion, the amount so paid was chargeable to tax in the hands of the recipient and, on the failure of the assessee to deduct tax at source in terms of section 195 of the Act, the disallowance was called for u/s 40(a)(i). 5. At this juncture, it is relevant to note the mandate of section 40(a)(i), which provides that notwithstanding anything to the contrary in sections 30 to 38, no deduction shall be allowed to an assessee in the computation of income under the head 'Profits and gains of business or profession' in respect of interest, royalty, fees for technical services or other sum chargeable under this Act, which is payable outside....
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....t chargeable to tax in the hands of IPS. On the other hand, the AO has made out a case that the amount in question is income of the Finland resident by way of `fees for technical services' in terms of section 9(1)(vii) read with section 5 of the Act. In order to appreciate the rival claims, it is befitting to take note of the prescription of section 9(1)(vii) of the Act, which provides that any income by way of fees for technical services payable, inter alia, by: `(b) a person who is a resident, except where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India' shall be deemed to accrue or arise in India. Explanation 2 to section 9(1)(vii) gives meaning to the expression 'fees for technical services', as under:- "Explanation 2.--For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any ....
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....rds, if there is a conflict between the provisions under the Act and the DTAA on a point, the assessee will be entitled to be subjected to the more beneficial provision out of the two. If the provision of the Act on a particular issue is more beneficial to the assessee vis-a-vis that in the DTAA, then such provision of the Act shall apply and vice versa. The Hon'ble Supreme Court in the case of CIT v. P.V.A.L. Kulandagan Chettiar [(2004) 267 ITR 654 (SC)] has held that the provisions of sections 4 and 5 are subject to the contrary provision, if any, in DTAA. Such provisions of a DTAA shall prevail over the Act and work as an exception to or modification of sections 4 and 5. Similar view has been taken by the Hon'ble Bombay High Court in CIT v. Siemens Aktiongesellschaft [(2009) 310 ITR 320 (Bom.)]. In the light of the foregoing discussion it is discernible that if the provisions of the Treaty are more beneficial to the assessee vis-a-vis its counterpart in the Act, then the assessee shall be entitled to be ruled by the provisions of the Treaty. 10. Now, the question arises as to whether the 'fees for technical services' payable by the assessee to the resident of Finland is chargea....
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....' for the purposes of the DTAA makes it vivid that it refers to payment of any kind for rendering of any technical or consultancy services which make available technical knowledge, skill or know how, etc. to the payer. 12. The expression 'make available' in the context of 'fees for technical services' contemplates that the technical services should be of such a nature that the payer of the services comes to possess the technical knowledge so provided which enables it to utilize the same thereafter. The Hon'ble Karnatka High Court in the case of CIT & Ors. Vs. De Beers India Minerals Pvt. Ltd. [2012 (346 ITR 467) (Karn)] has dealt with the concept of 'make available' in the context of fees for technical services. It has been held that : "The expression 'make available' only means that the recipient of the service should be in a position to derive an enduring benefit and be in a position to utilise the knowledge or know-how in future on his own. By making available the technical skills or know- how, the recipient of the same will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service provider .......". From the above....
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.... definition of 'fees for technical services' as given in para 4 of this Article, as nothing has been `made available' by the rendition of technical services for any future use. If the provisions of Article 13 of DTAA are exhausted and it is not the case of the AO that the amount be considered under any other Article of the DTAA, it would mean that albeit the amount is chargeable to tax in the hands of the non-residents as per section 9(1)(vii) read with section 5(2) of the Act, but, the chargeability will be waived because of the inapplicability of Article 13 of the DTAA, which is a more beneficial provision than section 9 read with section 5 of the Act. In that view of the matter, the assessment order considering payment of Rs. 1.92 crore to M/s IPS Finland for technical services as violating the provisions of section 195, thereby resulting into disallowance u/s 40(a)(i), cannot be countenanced. 14. It is noticed that when the matter was carried by the assessee in appeal before the ld. CIT(A), the latter opined that there was no genuine agreement between the assessee and the IPS Finland. In view of the fact that the assessee did incur Rs. 1.92 crore to certain persons which was d....
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....he paper book is a copy of a certificate allegedly issued by IPS Finland stating that five of its employees were sent to India at the instance of the assessee. This document has been purportedly signed by one Mr. Erkko Virrankoski, the President of IPS, Finland. When we compare the signature on this supposed certificate with the signatures made on pages 3 and 4 of the so-called agreement, it can be easily deduced that both the signatures are entirely different. Apart from that, if IPS was to render services on a regular basis to Sterlite at the instance of the assessee, it is but natural that the assessee would have assigned some duties in specific and monitored regularly by interacting with the Finland concern. As against that, the assessee miserably failed to place copies of any correspondence whatsoever with IPS. The assessee admitted before the ld. CIT(A) that no such correspondence in the form of letters or e-mails was available. We are at loss to appreciate as to how is it possible that a party to whom the assessee was to allegedly pay a sum of Rs. 1.92 crore, did not correspond at all on any aspect of the work assigned or to ascertain the progress of the work on a periodic b....
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....e taxed in that State. Such income may also be taxed in the other Contracting State if such services are performed in that other State and if: (a) he is present in that other State or a period or periods aggregating to 90 days or more in the relevant fiscal year; or (b) he has a fixed base regularly available to him in that other State for the purpose of performing his activities; but in each case only so much of the income as is attributable to those services. 2. The term "professional services" includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants. 18. On going through the mandate of Article 15 of the DTAA, it can be seen that it covers professional services or other independent activities of similar character. The term `professional services', inter alia, includes independent activities of engineers. Five engineers from Finland rendered engineering services in the erection and commissioning of the plant of Sterlite. Such services fall within the domain of the `Professional services' of Article 15 of the DTAA. 19....