TaxTMI 
TaxTMI 
2016 (8) TMI 57
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....uring the year, under a scheme of arrangement approved by the Hon'ble High Court of Karnataka, the service business of the assessee's parent company viz., Subex Ltd. was transferred to the assessee company for a consideration of Rs. 31,00,00,000. A return has been filed offering income of Rs. 1,70,10,894. 3. The Assessing Officer during the course of assessment proceedings examined the nature of expenses debited as sub-contract charges of Rs. 62,49,85,438 and held that this amount which was paid to Subex Technologies Inc. ["STI"], an Associate Enterprise ["AE"] based at New Jersey was hit by the provisions of section 40(a)(ia) of the Income-tax Act, 1961 ["the Act"] as the payment has been made for technical services and no tax was deduc....
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....le for tax deduction at source under section 195 of the Act. 3.3 The JClT has erred in not taking cognisance of the Company's submissions that STI had not made available any services to it as per the India-US Double Tax Avoidance Agreement ('the Treaty'). 3.4 The learned JCIT has erred in holding that: * the agreement produced by the Appellant did not clearly mention the nature of services and appears vague. Further, the agreement copy furnished by the Appellant would have evidentiary significance only in the presence of corroborative documents; * the process flow document does not throw light on the transaction between the Company and STI as it is merely a guidance note meant for internal use....
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.... of the Appellant falls under the exception provided under Section 9(l)(vii)(b) of the Act and hence the recipient not liable to tax under the IT Act. 11. Without prejudice to the above, the Learned Assessing Officer has failed to appreciate that the consideration paid by the Appellant to the STI is not taxable by virtue of Article 7 of the Indo-USA DTAA as STI does not have permanent establishment in India. 12. Without prejudice to the above, the Learned Assessing Officer is not justified in failing to appreciate that in respect of Appellant's parent Company i,e. Subex Ltd. for the AY 2007- 2008, during the assessment proceedings the Learned ACIT had raised the objection for the very same transaction. Upon filing of t....
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....le by us to STI was duly approved prior to the payment. 2.2 In this regard, we would like to bring to your kind attention that the Karnataka High Court has approved the transfer of the service business on 27th March 2008 but with effect from t" September 2007. During this intervening period, these payments were duly approved by the official of the Parent Company which is reflected in the vouchers. Sample copy of the voucher along with copy of invoices raised by STI on Subex Limited during the intervening period of 1st September 2007 & 31st March 2008 are enclosed as Annexure 3. 2.3 Further, these amounts have been duly adopted by the board of directors & the shareholders & audited by an independent chartered accountant. Th....
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.... The CIT(A) also rejected the contention of the assessee that "make available" condition in the DTAA is not being satisfied by the assessee and hence the amount cannot be regarded as fees for included services as per Article 12(4) of Indo-US DTAA. The CIT(A) also did not agree with the arguments of the assessee that the technical services which STI provides are directly to the end customers and not to the assessee and hence there is no "make available" of the technical knowledge to the assessee. The contention of the assessee that the impugned payment is in the nature of reimbursement which cannot be regarded as income of STI so as to require tax deduction at source at the time of making payment was rejected by the CIT(A). The CIT(A) also d....
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....ed in the books of the assessee by way of a journal entry. In this regard, our attention was invited to the relevant ledger account at page 227 of the assessee's paperbook. It was also pointed out to the sample copy of voucher along with copy of invoice raised by STI on Subex Ltd. during the intervening period placed on record. Further, these amounts have been duly adopted by the board of directors and the shareholders and audited by an independent chartered accountant. 11. The ld. counsel for the assessee submitted that there is no dispute as regards the fact that the assessee derives revenue from provision of software to customers in USA and such revenue cannot be earned without seeking support from STI. It was submitted that STI helps....