TaxTMI 
TaxTMI 
2016 (5) TMI 167
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....the facts and circumstances of the case, the Ld. CIT(A) has erred in concluding that TTPL, Singapore entity has worked as an agent for all other service provider entities, when in fact, the cost is also incurred by TTPL for providing services to TTL. 3. On the facts and circumstances of the case and the law, the Ld. CIT(A) has erred in concluding that the payment to Tata Technologies Pte Limited (TTPL), a tax-resident of Singapore, cannot be taxed as "fee for technical services" under Article 12(4)(b) of Double Taxation Avoidance Agreement ('DTAAs') between India and Singapore when the fact is that TTPL had made available their technical knowledge/experience/skill to the assessee and the same is of enduring nature capable of being utilized independently by the assessee without recourse to the service provider. 4. On the facts and circumstances of the case and the law, the Ld. CIT(A) has erred in concluding that the term 'make available' means to supplying or transferring of technical knowledge or technology to another. 5. On the facts and circumstances of this case, the Ld. CIT(A) was not correct in holding that the assessee has not acquired any technical....
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.... is allocation and distribution of cost incurred by the INCAT entities and by the assessee in providing services for the benefit derived by other INCAT entities namely: * INCAT systems Inc, USA * INCAT Ltd., UK * INCAT GmbH, Germany 4.2 As a part of the arrangement, costs incurred in providing services (group costs) are pooled in by the TTPL-Singapore in its hands. Thereafter, each group entity is allocated its share of cost required to be paid to TTPL for availing group services. The assessee has also charged the Singapore Company for the services rendered by it to the group. Likewise, it also paid for the services availed from the group companies (INCAT entities) to TTPL. This amount paid by the assessee to TTPL- Singapore in consideration of cost of services utilized was considered taxable by the Assessing Officer in India as 'Fee for technical services ( FTS)'. 4.3 The assessee company filed an application under section 195 of the Act on 17.03.2008 requesting the Assessing Officer to grant it certificate for 'Nil' or lower deduction of tax under section 195(2) on impugned remittance towards the group cost recharge to TTPL, Singapore. The AO foun....
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....d by it for each of the costs enumerated as under :- * Marketing and business development services. Promotion of the business of TIL inter alia, public relations, marketing, customer identification, contract making calls to Clients and prospective Clients and by rendering such services as may be required to develop the business, development of ESO strategy and market the business of the TIL. a. Attending to queries of Clients and prospective Clients and communicate the same to TIL. b. Assisting TIL in business development and development of ESO. c. Discussion of business proposals and contracts on the basis of inputs received from the parties, but not confirm or secure any order for or on behalf of the TIL. d. Providing of administrative, sales support and account handling services TIL. * IT infrastructure and support services. Services in relation to maintaining of INCAT Global web site. INCAT.com web site and Networks and managing of general IT projects and systems. * Global HR Support services Assistance and advice relating of issue arising in connection with temporary and permanent transfe....
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.... key parameters. 4.9 It was the case of the assessee before the Assessing Officer that in terms of the provisions of section 195(1) of the Act, any person responsible for making any payment to a non-resident or to a foreign company, any sum chargeable to tax under the Act (other than 'Salaries'), is under obligation to withhold income-tax thereon at the rates in force, at the time of credit of income to the account of the payee or at the time of payment thereof by any mode, whichever is earlier and pay the same into the Government Treasury within stipulated time limit. Accordingly, the obligation to withhold taxes on payments made to a non-resident/ foreign co. arises under S. 195 only if the payments are 'chargeable to tax' under the Act. It was the case of the assessee before the Assessing Officer that Singapore entity namely TTPL merely pooled group cost to be recharged to INCAT entity. In the absence of any mark-up in the group cost recharged by TTPL to TTL, remittance merely comprises of only actual costs allocated and therefore the payment is in the nature of reimbursement of expenses which is not chargeable to tax under the Act. The assessee next submitted that having reg....
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....4.11 However, the Assessing Officer was not impressed with the submissions of the assessee that it is a case of mere reimbursement of expenses. The Assessing Officer observed that reimbursement is different from allocation. In allocation of expenditure each party to the transaction derives some benefit and in lieu of the benefit so derived, it becomes liable to share the expenditure. The Assessing Officer further observed that there is no direct nexus between actual cost incurred by a INCAT company for benefit of the group and the fees payable by respective individual company which avails impugned services. 4.12 The Assessing Officer also sought to distinguish the meaning of expression 'make available' heavily relied upon by the assessee with reference to Article 12 of India - Singapore DTTA. The Assessing Officer addressed the argument of the assessee that payment can be termed as 'fee for technical services' as per beneficial provisions of DTAA only when the payment are in consideration of rendering managerial, technical or consultancy services and more importantly such services 'make available' technical knowledge, skill, processes, etc. which enables the person so availing t....
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..... He referred to the discussions in the order under S. 201(1) with respect to expression 'make available' in the context of treaty and contended that the Assessing Officer has rightly concluded that the expression 'make available' as used in the India - Singapore entity merely signifies that a person acquiring the services should be enabled to apply the technology contained therein and transfer of technical knowledge, experience, skill, processes etc. involved in rendering such services is not mandated per se. He therefore submitted that assessee was under legal obligation to deduct and deposit withholding tax both under the provisions of the Act as well as in terms of DTAA on all remittances made to Singapore entity. Accordingly, he asserted that the order of the Assessing Officer under section 201(1A) of the Act cannot be faulted and pleaded for reversal of the order of CIT(A). 8. Per contra, the Ld. Authorized Representative(AR) Shri Naresh Kumar appearing on behalf of the Assessee outlined that the assessee has inter-alia made certain payments to the associated enterprise(AE) namely TTPL domiciled and tax resident of Singapore. The Ld. AR for the assessee reiterated the fact....
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....ed our attention to the decision of Apex Court in the case of State of Orissa & Other vs. Titaghur Paper Mills Company, 1985 AIR 1293 (SC) wherein the Hon'ble Supreme Court has observed as under :- "It is now well settled that the dictionary meaning of a word cannot be looked at where that word has been statutorily defined or judicially interpreted but where there is no such definition or interpretation, the court may take the aid of dictionaries to ascertain the meaning of a word in common 1 parlance." 8.4 He thereafter contended that the expression 'make available' has been subjected to judicial scrutiny on various occasions. He relied upon the decision of the Co-ordinate Bench of the Tribunal in the case of Sandvik Australia Pty. Ltd. vs. DDIT (2013) 31 taxmann.com 256 (Pune - Trib.) to submit that payment in consideration would be regarded as 'fee for technical services' only if twin tests of rendering services as well as making technical knowledge available at the same time is satisfied which it is not shown in the present case. Reference was also made to the decision of ITAT, Mumbai in the case of Raymond Limited vs. CIT, (2003) 86 ITD 791 to understand the expres....
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....ined by the assessee do not come within the ambit of expression 'make available' which is a sin qua non to bracket it within the ambit of FTS under treaty. The CIT(A) observed that under the normal provisions of the Income-tax Act, the services availed by the assessee are in the nature of managerial or consultancy services as per Explanation to section 9(1)(vii) of the Income-tax Act. Accordingly, the payment would be considered as taxable under section 9(1)(vii) as per domestic tax law. However, in the same vain, the CIT(A) concluded in favour of the Assessee on the touchstone of Article 12 of the DTAA between India - Singapore. The CIT(A) returned a finding to the effect that the assessee has not acquired any technical knowledge, experience, skill etc. per se for its own future use or benefit without taking recourse to the service provider. Therefore the Singapore entity has not made available any technical knowledge, experience, skill, know-how, etc. which would enable the assessee acquiring the services to apply the technology contained therein. 9.2 We shall delineate the first plank of argument on behalf of the Assessee that the payment is in the nature of reimbursement and....
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..... 195 requires to be noticed. In view of the aforesaid expression set-out, Section 195 would apply only if an element of income, howsoever miniscule it may, is embedded in the impugned transaction. Decision of the Apex court in the case of Transmission corporation (1999) 239 ITR 587(SC) relied upon Ld. AR provides legal authority for this proposition. Yet another decision in the case of CIT vs. Dunlop Rubber Co. Ltd. 10 Taxman 179 (Cal.) relied on behalf of the Assessee echoes similar view that mere sharing of expenses together with other entities would not give rise to any income per se in the hands of recipient. We also notice that Goa Bench of Hon'ble Bombay High Court in the case of Sera Resources Ltd. vs. DCIT - Tax Appeal No.11 of 2016, order dated 07.03.2016 has restated the position of law that 'before effecting deduction at source one of the aspects to be examined is whether such income is taxable in terms of Income Tax Act'. In consequence, reimbursement of costs simplicitor without any element of profits embedded therein cannot be said to be a sum chargeable under the provisions of the Income-tax Act. In the light of above discussion, We are of the considered view that m....
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.... activities described in paragraph 4(b) or 4(c) of Article 8. 4. The term "fees for technical services" as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) If such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein; or (c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. For the purposes of (b) and (c) above, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person. 5. Notwithstanding paragraph 4, "fees for technical services" does not include payments: (a) for services....
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.... arise in the State in which the permanent establishment or fixed base is situated. 8. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of royalties or fees for technical services paid exceeds the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement."[ Underline is ours] 10.2 Perusal of the Article 12(4)(b) inter alia would show that in view of the aforesaid exclusion provided, payment cannot be taxed as TTPL has not 'made available' any technical knowledge, experience, skill, know-how, etc. which would enable the assessee acquiring the services to apply the technology contained therein. The assessee has quoted various decisions of the different benches, which have consistently held that merely because the provision of service requires technical input by the person providing the service does not per se mean....