TaxTMI 
TaxTMI 
2016 (10) TMI 7
X X X X Extracts X X X X
X X X X Extracts X X X X
....ct tax u/s. 195 of the Act under the facts and in the circumstances of the appellant's case and therefore, the learned CIT [A] ought to have cancelled the tax and consequential interest levied. 3. Without prejudice to the above, the learned CIT [A] is not justified in holding that the payments made by the appellant to M/s. MJR CONSULTANCY PTE LTD., Singapore, was fees for Technical Services within the meaning of Section 9[1][vii] of the Act as well as Article 12 of the Double Taxation Avoidance Agreement [DTAA] between India and Singapore and therefore, the appellant was required to deduct tax at source u/s. 195 of the Act before making the payment under the facts and in the circumstances of the appellant's case. 3.1 The learned ClT [A] failed to appreciate that the payments made by the appellant to M/s. MJR CONSULTANCY PTE LTD., Singapore, was not in the nature of fees for technical services since, there was no technical service rendered by the said company and the payments so made by the appellant could only be regarded as business profits of the said company in terms of Article 7 of the DTAA since, there was no such income was chargeable to tax in India....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ries) shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. Further, as per the provisions of section 201(1) of the Act, if any person fails to deduct tax as required by or under the Act, he shall be deemed to be an assessee in default in respect of the tax. 3. Since the assessee has not complied with the provisions of section 195 of the Act, proceedings u/s. 201(1) were initiated against the assessee and in response to the show cause notice, it was submitted that it cannot be treated as defaulter u/s. 201(1) as the payments in question are not covered under Article 7, 9 or 12. 4. The AO asked the assessee to explain as to why the above payments to M/s. MJR Consultancy Pte Ltd., Singapore towards consultancy charges for the above financial years should not be treated as fees for technical services as per the provisions of section 9(1)(vii) of the Act. It was also asked to furnish full details of payments and in response thereto, the assessee has filed the complete details. Having examined t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....company towards the consultancy charges. Since the assessee has not paid fees for technical services, he was not under obligation to deduct tax at source as required by the Act. Therefore, the order of the AO holding assessee to be in default u/s. 201(1) of the act is bad in law. 6. The CIT(Appeals) examined the claim of the assessee in the light of various judicial pronouncements at page Nos. 3 to 39 of his order and has finally concluded that the Singapore company as a consultant made available to the assessee technical knowledge in the form of expertise and operation of business which was in its possession along with experience, skill and know-how. Thus, the assessee was under obligation to deduct tax at source as it made the payment for technical services. The relevant observations of the CIT(Appeals) is extracted hereunder for the sake of reference:- "6. I have considered the facts and circumstances of the case, it is clear from the agreement that the services rendered are in the capacity of a consultant who has skill, knowledge & expertise and is a professional in the concerned field. Passing on knowledge, expertise and skill in matter of strategic and operational....
X X X X Extracts X X X X
X X X X Extracts X X X X
....'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 utilize the knowledge or know-how in future on his own. "By making available the technical skills or knowhow, the recipient of the service will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service provider." See Intertek Testing Services India (P) Ltd. In re (supra). So when the expertise in running the industry run by the group is provided to the Indian entity in the group to be applied in running the business, the employees of the Indian entity get equipped to carry on that business model or service model on their own without reference to the service provider, when the service agreement comes to an end. It is not as if for making available, the recipient must also be conveyed specifically the right to continue the practice put into effect and adopted under the service agreement on its expiry." 6.1 Thus, it is held that the Singapore company as a consultant made available to the assessee company technical knowledge in the form of expertise in operation of business which was ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....used the word 'resident in India'. Therefore, the intention of the legislature is very clear that they do not want to fix the time limit for initiating action u/s. 201(1) for non-residents. In the light of these facts, we are of the view that the assessment is not barred by limitation as no time frame has been specified for initiating action u/s. 201(1) of the Act against the non-residents. 11. So far as the merits of the case is concerned, we have carefully examined the order of the authorities below and agreement executed between the assessee and foreign constituent i.e., MJR Consultancy Pte Ltd., Singapore. Copy of the agreement is available at pages 9 to 11 of the compilation of the assessee. Since certain clauses of the agreement are relevant in order to adjudicate the controversy raised before us, we extract the consultancy agreement as under:- "AGREEMENT executed December 18, 2006 between The Nilgiri Dairy Farm Private Limited ("NILGIRIS"), a company incorporated in India with its registered office at 171, Brigade Road, Bangalore - 560025, India, and MJR CONSULTANCY PTE. LTD, a company incorporated in Singapore, having offices at 73A, Kheam Hock Road, Singapore 2....
X X X X Extracts X X X X
X X X X Extracts X X X X
....inal monthly payment to be made on September 30, 2009. The total fee that will be paid to CONSULTANT during the full Term is not to exceed US $255,000 (Two hundred and Fifty-five thousand U.S. Dollars). b) Further, the CONSULTANT shall be reimbursed for reasonable and necessary expenses, including office supplies and reasonable phone expenses that are required in order for CONSULTANT to complete the Services assigned. CONSULTANT shall also be reimbursed for travel costs to and from Singapore and India, or as otherwise designated by the Managing Director of NILGIRIS. Travel and lodging expense must have NILGIRIS' concurrence. CONSULTANT will provide copies of receipts / vouchers for all expenditures, along with an invoice / statement, when requesting reimbursement. All invoices should be sent by CONSULTANT directly to: NILGIRIS Dairy Farm Private Limited, Finance Department, 171, Brigade Road, Bangalore - 560 025. Such reimbursements will be settled within 30 (thirty) days of receipt by NILGIRIS. c) CONSULTANT agrees that no compensation will be due from NILGIRIS beyond what has been expressly outlined herein. 5. Taxes, Benefits and Licenses. CONSULTAN....
X X X X Extracts X X X X
X X X X Extracts X X X X
...., or which would reasonably be understood under the circumstances to be confidential. All Confidential Information shall remain the sole property of NILGIRIS. a) CONSULT ANT agrees that, during the time that CONSULTANT is retained by NILGIRIS, CONSULTANT will not engage in India in any business activity directly related to the business in which NILGIRIS is now involved or becomes involved, if such agreement would in any manner negatively impact NILGIRIS. CONSULTANT also agrees that he will not issue a press release or other public statement regarding CONSULTANT's relationship with NILGIRIS or this Agreement without clearance of NILGIRIS. b) This Agreement shall be governed by and interpreted under the laws of India." 12. In this agreement, the nature of services and duties of the Consultant have been specified. The responsibility of the Consultant with respect to intellectual property has also been specified. Though assessee has contended that no technical know-how was made available to the assessee while rendering the consultancy services by the Consultant and therefore it cannot be held that fees for technical services were paid by the assessee; but the l....
X X X X Extracts X X X X
X X X X Extracts X X X X
....technical knowledge, skills, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and lot of technical knowledge and experience of the service provider have gone into it. The relevant observations of the Hon'ble jurisdictional High Court are extracted hereunder:- "21. What is the meaning of "make available". The technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, knowhow and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology "making available", the technical knowledge, skills, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... will get equipped with the knowledge or expertise and will be able to make use of it in future independent of the service provider. The services offered may be the product of intense technological effort and a lot of technical knowledge and experience of the service provider would have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in future without depending on the provider. 17. In light of this proposition, if we examine the facts of the case in hand, we would find from the consultancy agreement that the assessee entered into agreement with the foreign constituent, i.e., MJR Consultancy Pte Ltd., a company incorporated in Singapore for rendering the following services:- 1) Attending Board meetings of NILGIRIS in Bangalore and spending time with the NILGIRIS management; 2) Advising the CEO of NILGIRIS on various matters of strategic and operational importance; 3) Advising the management of NILGIRIS on any other issues in connection with the business of NILGIRIS. 4) Under the head 'Duties', the Consultant's duty....