TaxTMI 
TaxTMI 
2017 (4) TMI 459
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.... erred in deleting the tax and interest levied u/s 201(1)/201(1A) of the Income Tax Act 1961 by the assessing officer on account of non deduction of tax at source in respect payments made by the assessee to following parties :- S.No Name of the Party Country Amount (Rs) Nature of service 1 Fuji Asia Co Ltd Thailand 5,36,550 Commissioning charges for tools & dies 2 Fuji Asia Co Ltd Thailand 2,45,250 Commissioning and Blanking die modification charges to add 3 holes 3 Auto Alliance Co Ltd Thailand 2,12,298 Reflash cost for stage 4pcms-Pull ahead - Business income - other than categories 2.1 The Id. CIT(A) failed to appreciate that the services rendered by the above parties to the assessee falls within the meaning of fee for Technical services(FTS) as per explanation 2 to Sec.9(1)(vii)of Income Tax Act, hence the assessee was liable to deduct tax on the same. 2.2 The Id. CIT(A) erred in holding that Article 12 of DTAA with Thailand provides only for taxation of royalty and the fee for technical services is not defined and therefore same was in the nature of "business profit" falls within the ambit of Article 7....
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....es for technical services is not taxable in India. The Assessing Officer is aggrieved and is in appeal before us. 6. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 7. There is no dispute that there is no specific provision for taxation of fees for technical services in India Thailand tax treaty. There is also no dispute that Fuji Asia Co Ltd Thailand and Auto Alliance Co Ltd Thailand did not have any permanent establishments in India. 8. The stand of the Revenue, however, is that the income embedded in the amounts received by the assessee could anyway be taxed as 'other income' under the respective tax treaties. There is a decision of a coordinate bench of this Tribunal, in the case of DCIT VS TVS Electronics Ltd [(2012) 52 SOT 287 (Chennai)], which support this school of thought and holds that "Admittedly, Chapter III of DTAA between India and Mauritius did not provide for taxing any fees paid for technical services. Only for a reason that DTAA is silent on a particular type of income, we cannot say that such income will automatically become business income of the rec....
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.... income earned by a resident of a contracting state by carrying on business in the other contracting state. When, for example, article 5 provides that the income of resident of a contracting state, from carrying on business in the other contracting state, cannot be taxed in the source state unless such a resident has a permanent establishment in the other contracting state, i.e. source state, it cannot be open to the tax administration of source state to contend that even if it cannot be taxed as business income, it can be taxed as 'other income' nevertheless. It is important to bear in mind the import of expression 'not expressly dealt with in the foregoing articles'. Similarly, if independent personal services cannot be taxed in the source state as minimum threshold limit of fixed base is not satisfied, such a treaty concession cannot be nullified by invoking article 21. When a particular nature of income is dealt with in the treaty provisions, and its taxability fails because of the conditions precedent to such taxability and as specified in that provision are not satisfied, that is the end of the road for taxability in the source state. It is also important to bear in mind the ....
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.... but is not taxable in India as the condition precedent for the taxability under the related article is not satisfied, it is an inevitable corollary of this finding that article 22 cannot be pressed into service in respect of the said income. As we hold so, we are alive to the fact that there is no specific taxability provision, under India Thailand tax treaty with respect to taxability of fees for technical services. Profits earned by rendering fees for technical services are only a species of business profits just as the profits any other economic activity. However, without the character of such receipts in the nature of business receipts being altered, the fee for technical services is dealt with separately in some treaties for the reason because, under those treaties the related contracting states proceed on the basis that even in the absence of the permanent establishment or fixed base requirements, the receipts of this nature can be taxed, on gross basis, at the agreed tax rate, and, to that extent, such receipts does not fall in line with the scheme of taxation of business profits under art. 7 and professional income under 14. It is interesting to note that the moment the th....
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....ssue, we may also take note of the landmark Special Bench decision in the case of Motorola Inc. vs. Dy. CIT [(2005) 96 TTJ (Del)(SB) 1] wherein the Tribunal had, inter alia, observed that "DTAA is only an alternate tax regime and not an exemption regime" and, therefore, "the burden is first on the Revenue to show that the assessee has a taxable income under the DTAA, and then the burden is on the assessee to show that that its income is exempt under DTAA". Quite clearly, when there is no taxability under the respective treaty provisions, there cannot be any taxability under the provisions of the Income Tax Act either. 11 Ground no. 2 is thus dismissed. 12. In ground no. 3, the Assessing Officer has raised the following grievance: 3. The Id. CIT(A) erred in deleting the tax and interest levied u/s 201(1)/201(1A) of the Income Tax Act 1961 by the assessing officer on account of non deduction of tax at source in respect payments made by the assessee to following parties :- S.No Name of the Party Country Amount (Rs) Nature of service 1. Ford Motor Company FIPL USA 6,19,411 Reimbursement of expenses of plant fire protection engineering services fee....
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....ve filed an application under section 195(2). With this analysis, the Assessing Officer held the assessee liabile to have deducted tax at source, and, accordingly raised a demand under section 201 r.w.s 195. Aggrieved, assessee carried the matter in appeal before the CIT(A). Learned CIT(A) upheld the stand of the assessee and deleted the impugned tax withholding demands. Now Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us. 14. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 15. We have noted that even going by the case of the Assessing Officer, it is at best a case of payment of fees for technical services but then it is not even the case of the Assessing Officer that by rendition of these services, there was any transfer of technology in the sense that the recipient of service was enabled to render this service on his own without recourse to the service provider. There is no dispute that the recipient of these amounts are based in USA and UK and are entitled to the benefits of India US Double Taxation Avoidance Agreement [(....
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....r of service should be enabled to do the same thing next time without recourse to the service provider. The services provided by non residents did not involve any transfer of technology. It is not even the case of the Assessing Officer that the services were such that the recipient of service was enabled to perform these services on its own without any further recourse to the service provider. It is in this context that we have to examine the scope of expression 'make available'. 17. As for the connotations of make available clause in the treaty, this issue is no longer res integra. There are at least two non-jurisdictional High Court decisions, namely Honble Delhi High Court in the case of DIT Vs Guy Carpenter & Co Ltd ([(2012) 346 ITR 504 (Del)] and Honble Karnataka High Court in the case of CIT Vs De Beers India Pvt Ltd [(2012) 346 ITR 467 (Kar)] in favour of the assessee, and there is no contrary decision by Honble jurisdictional High Court or by Honble Supreme Court. In De Beers case (supra), Their Lordships posed the question, as to "what is meaning of make available", to themselves, and proceeded to deal with it as follows: The technical or consultancy service rendered....
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....eneficial to that assessee". When the amounts are not taxable under the provisions of the respective tax treaties, there cannot be any occasion to deal with the provisions of the Income Tax Act. We, therefore, approve the conclusions arrived at by the CIT(A) on this issue as well, and decline to interfere in the matter. 19. Ground no. 3 is also dismissed. 20. In ground no. 4, the Assessing Officer has raised the following grievance: 4. The Id. CIT(A) erred in deleting the tax and interest levied u/s 201(1)/201(1A) of the Income Tax Act 1961 by the assessing officer on account of non deduction of tax at source in respect payments made by the assessee Ford Motor Company (FIPL) USA of Rs. 11,00,000/- on account of insurance brokerage. 4.1 The Id. CIT(A) erred in holding the payment i.e. FIPL's share of brokerage paid to the USA broker, does not fall under the explanation 2 to Sec.9(1)(vii) and also not covered by Article 12 of DTAA between India and USA. 4.2 The Ld. CIT(A) failed to appreciate that no detail was produce by the assessee to substantiate their claim that Ford Motor FIPL USA had engaged Marsh USA for the services as claimed and the claim that cost is to....
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.... which apply mutatis mutandis in this context as well, we uphold the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter. 24. Ground no. 4 is also thus dismissed. 25. In the result, appeal of the Assessing Officer for the assessment year 2011-12 is dismissed. 26. We now move on to the appeal filed by the assessee for the assessment year 2011-12. 27. Ground no. 1 is general and does not call for any specific adjudication by us. 28. In the ground no. 2, the assessee has raised the following grievances: 2. Installation and commissioning charges paid to non-residents treated as Fees for technical services and consequently held that such payments attract withholding tax liability. 2.1 The learned CIT(A) erred in holding that the following remittances in the nature of installation and commissioning charges qualify as Fees for Technical Services under the provisions of section 9(1)(vii) of the Income -tax Act, 1961 ('the Act'): Parties Country Amount (in INR) a) Cinetics Landis Ltd UK 1,40,98,343 b) Marposs Ltd UK 92,84,969 c) Royal Tool Control Ltd UK 75,96,835 d) Mov....
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.... Relying upon the ruling given by the Authority for Advance Ruling, in the case of HESS ACC Systems BV, In Re [(2012) 349 ITR 532 (AAR)], the Assessing Officer concluded that "the payments made fall under the category 'fees for technical services' as per Explanation 2 to Section 9(1)(vii), which prevails over the treaty where it is defined the services are inexplicably and essentially linked to the supply of goods". It was thus concluded that the assessee had an obligation to deduct tax at source from these payments and, accordingly, a tax withholding demand under section 201 r.w.s 195, was raised on the assessee. Aggrieved, assessee carried the matter in appeal before the learned CIT(A) but without any success. Learned CIT(A) held that "appellant is under an obligation to deduct tax at source in respect of payments made in connection with installation/ erection of machinery etc as installation is ancillary and subsidiary to use equipment or enjoyment of the right for such use". Aggrieved, the assessee is in second appeal before us. 30. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal p....
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....e, the same rate or scope as provided for in that Convention, Agreement or Protocol on the said items of income shall also apply under this Convention [Emphasis by underlining etc supplied by us] 32. Under the protocol provision, therefore, in case India limits its taxation of fees for technical services to a lower rate or narrower scope with any OECD country, the same lower rate or narrower scope is to apply in respect of Indo Swedish tax treaty as well. It is not even a condition precedent that such a treaty should be a subsequent treaty or that any further steps are required to be taken by the contracting states. There are number of treaties with OECD countries, subsequent to Indo Swedish tax treaty as also prior to Indo Swedish tax treaty, that provide for a narrower scope of taxability by having a 'make available' clause in the FTS provision. India's Double Taxation Avoidance Agreement with Portuguese Republic (Indo Portugal tax treaty, in short), which is a subsequent treaty, for example, limits the definition of 'fees of fees for technical services' to a narrower scope- as is evident from the definition under article 12(4) and 12(5) of the said treaty. These provisions....
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....ur considered view, the benefit of lower rate of or restricted scope of 'fees for technical services' under the Indo-French DTAA is not dependent on any further action by the respective Governments, unlike the situation envisaged in, for example, para 4 of protocol to Indo-Philippines DTAA or para 3 of protocol to Indo-Swiss. We leave it at that. ..........we are of the considered view that the same scope of 'fees for technical services' as provided for in the India DTAAs with UK, USA and Switzerland, which is far more restricted vis-a-vis scope of this expression in Indo-French DTAA, shall also apply under Indo-French DTAA, with effect from the date on which the Indo-French DTAA or such other DTAA enters into force, whichever enters into force later. As all the three DTAAs discussed above entered into force on a date earlier than the commencement of the previous year 1995-96, the scope of technical services, for the purpose of Indo-French DTAA, cannot be broader than that envisaged in the above DTAAs. In this view of the matter, we hold that the 'fees for services that are ancillary and subsidiary, as well as inextrically and essentially linked, to the sale ....
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....t is not there so as to change tax complexion of the Treaty provision. Protocol or Memorandum of Association can be made use for interpreting provision of the Treaty, it will not be correct/proper to import words, phrases or clause that is not available into the Treaties between two Sovereign nations, on the basis of Treaties with another countries. In this particular case, it may be stated at the most that India is under obligation as per the terms of the Protocol to limit its tax rate or rate of scope as was done in the notification as mentioned above but such type of action will not be within the purview of this Authority. 14. The services being accepted as technical services under the Act and the Tax Treaty, the payment for the services will be covered by 'fees for technical services' chargeable under the Act. The submission of the applicant that the services being managerial which was omitted in the definition of fees for technical services in the revised DTAA between India - UK entered into in the year 1993, the managerial services rendered by the applicant will also automatically be omitted in the definition of fees for technical services under the Tax Treaty betw....
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....TAT in DCIT v. ITC Ltd. (2002) 82 ITD 239 (ITAT Kolkata), where the Protocol separately executed between the India and France which formed part of the DTAA between the two countries was interpreted. It was held by the ITAT, and in the view of this Court correctly, that the benefit of the lower rate or restricted scope of fee for technical services under the Indo-French DTAA was not dependent on any further action by the respective governments. It was held that the more restricted scope of fee for technical services as provided for in a DTAA entered into by India with another OECD member country shall also apply under the Indo-French DTAA with effect from the date on which the Indo-French DTAA or such other DTAA enters into force. 36. Quite clearly, in the light of the above discussions, even under Indo Swedish tax treaty 'make available' clause is to be read into. Accordingly, for the detailed reasons set out earlier in this order while dealing with ground no. 3 of the appeal filed by the Assessing Officer for the same assessment year, unless by rendition of the technical services there is a transfer of technology in the sense that the recipient of these services is enabled to p....
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....hat this condition is satisfied in the cases before us. It is well settled in law, as we have noted earlier in our discussions, that the onus is on the revenue authorities that the conditions for permanent establishment coming into existence are satisfied, and that onus is clearly not discharged. The assessee's contention is that no part of the income embedded in the impugned payments is in respect of the installation, assembly or commissioning activities of the plant, machinery and equipment purchased. There has to be something, apart from shallow prolixity, to even point in the direction that the consideration for installation or assembly project, or supervisory activities connected therewith, exceed 10% of the value of related plant, machinery or equipment. 40. These provisions with respect to permanent establishment on account on construction, installation and assembly activities, or supervisory activities connected therewith are broadly on the line of the model provisions in the 'UN Model Double Taxation Convention between the Developed and Developing Countries'. While elaborating upon this model provision and recognizing, while rejecting, the legitimate concerns about eros....
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....untry unless time limit threshold is satisfied as "the reason for the time limit (indeed for the permanent establishment threshold more generally) is to encourage businesses to undertake preparatory or ancillary operations in another State that will facilitate a more permanent and substantial commitment later on, without becoming immediately subject to tax in that State". In our considered view, therefore, it is plain on principle that as long as threshold time limit for PE is not satisfied, the consideration for such installation or assembly activities, or supervisory activities in connection therewith, cannot be brought to tax in the source country. During the course of hearing and at the instance of the bench, learned counsel for the assessee has filed details of the work carried on at the installation and assembly site in respect of all the transactions, as it did take place in the relevant financial period, and, as evident from even a cursory look at these details, in none of these cases the conditions for creation of PE are satisfied. 42. In view of the above discussions, even if a part of the income, embedded in the impugned payments made to non-resident vendors, can inde....
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....s relating to Service PE, there is indeed overlapping effect of Article 5 and Article 12 or Article 13, so far as such services are concerned. As to what should be done in such a situation, we find guidance from the observations of Hon'ble Supreme Court in the case of Union of India vs. India Fisheries (P) Ltd. [57 ITR 331 (1965)] "If there is an apparent conflict between two independent provisions of law, the special provision must prevail." This principle is described in Sampat lyengar's Commentary on Law of Income-tax (9th Edn; Vol. 1, p. 48) as follows: "The general maxim is generalia specialibus non derogant, that is, general things will not derogate from special things. The maxim is also otherwise expressed as generalibus specialia derogant. A special provision normally excludes the operation of a general provision. ... It can be resorted to for deciding the competing claims of two provisions in the same enactment, one specific and other general with some overlapping between the two. The requisite conditions to attract this principle are: Firstly, both the general enactment and the particular enactment must be simultaneously operative, the general enactment c....
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....d even though "the period during which foreign personnel remain in the source country is (perhaps) irrelevant to their right to tax the income", the right to tax will not vest in the source country unless time limit threshold is satisfied as "the reason for the time limit (indeed for the permanent establishment threshold more generally) is to encourage businesses to undertake preparatory or ancillary operations in another State that will facilitate a more permanent and substantial commitment later on, without becoming immediately subject to tax in that State". If we are to interpret the FTS and FIS clauses overlapping with PE clause in practice, and apply the FTS and FIS clauses when PE taxation cannot be invoked, the very purpose of PE provisions will stand defeated and it will be contrary to the UN Model Convention Commentary quoted earlier in this order, which, as a coordinate bench has held in the case of Graphite India Ltd Vs DCIT [6 ITD 384 (2002)], are in the nature of 'contemporanea expositio'. While holding so, the coordinate bench, speaking though one of us (i.e. the Accountant Member), had observed as follows: 17. The aforesaid interpretation is clearly in harmo....
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....taxability of such payments as FTS or FIS was taken as granted, without appreciating this nuance of the matter, as coming to the light in the course of this hearing, so far as standalone payments for these services were concerned, but neither such a conduct on the part of the assessee can constitute estoppel against the correct legal position nor would it imply that the a part of sale consideration can be fictionally treated as towards such services and then treated as FTS or FIS while the scope of such payments, under the tax treaties, is confined to amounts actually paid as FTS or FIS. We are unable to see legally sustainable merits in the stand of the learned Departmental Representative. The taxability of an income is to be decided on the basis of the provisions of law and not conduct of the parties. Just because the assessee has accepted a taxability in respect of some other transaction, no matter howsoever related, the legal remedies available to the assessee cannot be negated. There cannot be, and there is no, estoppel against the law. In view of the above discussions, in our considered view, in a situation in which there are specific PE clauses in relation to a particular ty....
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....able to be taxed in the source country. 24. The scheme of the tax treaty, so far as royalties and fees for technical services (termed as 'fees for included services' in the India US tax treaty) is clearly like this. When principal transaction itself is such that it involves taxability in the source country, the transactions subsidiary and integral to such a transaction also give rise to the taxability of subsidiary transact ions in the source country. On the other hand, when principal transaction is such that it does not generally give rise to taxability in the source country, the transaction subsidiary and integral to such a transaction also does not give rise to taxability in the source country. In other words, the subsidiary and integral transactions have to take colours from the principal transaction itself and are not to be viewed in isolation. That is the intent and purpose, in our understanding, of the provisions of art. 12(5)(a) .................... 55. In view of these discussions, in our humble understanding, Installation, commissioning or assembly of a plant, machinery or equipment, or any supervision activity connected therewith, is ancillary and subsidiary,....
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....ted with final determination of tax liability in the hands of the recipient of such income. No doubt, in case of non-resident assessee, it is open to the regular AO to treat person from or through whom such assessee is in receipt of any income, as an agent under s. 163(1)(c) of the Act and, accordingly, assess such person in respect of that income as a 'representative assessee', but the case before us does not relate to such assessment under Chapter XV and we are only in seisin of the issue regarding tax deduction at source liability of the tax deductor company. The only relevant question, therefore, is as to at what point of time tax deduction at source liability under s. 195 crystallises in the present case-at the time of payment of the franchise fees, at the time of crediting the same to the account of M/s Societe Des Hotels Meridien, or, as argued by the Revenue, at the time of the franchise fees accruing to the aforesaid company. The answer to this question is provided by the plain and unambiguous language of s. 195 itself which states that tax is to be deducted "at the time of credit of such income to the account of the payee or at the time of payment thereof............which....
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....or FIS provisions cannot be invoked for taxing a non-resident on the basis of accrual of liability, whether credited or not, or on the notions of fiction of an element of FTS or FIS being embedded in the business receipts for sale of plant, equipment or machinery. The receipts in the hands of the vendors are in the nature of business income, and the deeming fiction, as sought to be canvassed by the revenue, has no application in the matter. The business income can be taxed under article 7 read with article 5, and, as we have seen earlier in this order, the conditions precedent for taxability under article 7 r.w.a. 5 are not fulfilled on the facts of this case. In many of the cases, as noted in the orders of the authorities below, the related installation and commissioning services, and supervision services in connection therewith, have been rendered by the domestic entities and payments made to those entities have already been subjected to tax withholding under other provisions of chapter XVII D but, disregarding this reality, the CIT(A) has proceeded on the basis that "cost of services is also vested in the cost of material" whether such services are performed or not. When admitte....
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....treaty applies, "the provisions of this (i.e. Income Tax) Act shall apply to the extent they are more beneficial to that assessee". When the amounts are not taxable under the provisions of the respective tax treaties, there cannot be any occasion to deal with the provisions of the Income Tax Act. We, therefore, disapprove the conclusions arrived at by the CIT(A) and direct the Assessing Officer to delete the related disallowance. Ground no. 2 is thus allowed. 38. In ground no. 3, the assessee has raised the following grievance: 3. Fees for professional services paid to non-residents treated as Fees for technical services and consequently held that such payments attract withholding tax liability. 3.1 The learned CIT(A) erred in law and in facts and circumstances of the case by confirming that the amounts of 1NR 13,76,775 and INR 556.970 paid to Mr. Steve Lazenby, proprietor of Lazenby Construction Safety Services and Mr. Joe Oszvart respectively was in the nature of Fees for technical services and not fees for independent personal services under Article 15 of India-UK and India-US DTAAs. 3.2 The learned CIT(A) erred in law by holding That a tax residency certificate is r....
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.... being more beneficial to the assessee vis-à-vis the provisions of the Income Tax Act, 1961, the provisions of the Act cannot be invoked; Section 90(2) specifically provides in a situation in which assessee is entitled to a tax treaty protection, "the provisions of this Act (i.e. Income Tax Act, 1961) shall apply to the extent they are more beneficial to that assessee". The short issue that we have to, therefore, examine is whether the assessee is liable to tax under the provisions of the Indo-US tax treaty. While the case of the Assessing Officer is that the assessee is taxable under section 12(4) of the Indo-US tax treaty, learned CIT(A) has granted the impugned relief on the basis that the assessee has rendered professional services which can be taxed, if at all, under article 15, but then since taxability under article 15 fails on the facts of this case, the income in the hands of the assessee cannot be taxed at all. Let us take a look at the relevant treaty provisions, i.e. article 12 and 15, which are reproduced below for ready reference: ARTICLE 12 Royalties and fees for included services 1. Royalties and fees for included services arising i....
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.... or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of Article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 or Article 8. 4. For purposes of this Article, 'fees for included services' means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of 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, or consist of the development and transfer of a technical plan or technical design. 5. Notwithstanding paragraph 4, 'fees for included services' does not include amounts paid : (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in paragraph 3(a); (b) for services that are ancillary and subsidiary to the rental ....
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....he amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the lastmentioned 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 the Convention. ARTICLE 15 Independent personal services 1. Income derived by a person who is an individual or firm of individual (other than a company) who is a resident of a Contracting State from the performance in the other Contracting State of professional services or other independent activities of a similar character shall be taxable only in the first-mentioned State except in the following circumstances when such income may also be taxed in the other Contracting State : (a) if such person has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other State; or (b) if the person's stay in the other Contracting State is for a period or periods amounting to o....
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....red by the assessee can fall in this category of services. This issue, regarding the scope of article 15 of Indo-US tax treaty, came up for consideration, almost one and a half decade ago, before a coordinate bench of this Tribunal in the case of Graphite India Ltd Vs DCIT [(2002) 86 ITD 384 (Kol)]. Speaking through one of us, i.e. the Accountant Member, the Tribunal had then, inter alia, observed as follows: 12. The definition of 'professional services', which are termed as 'independent personal services' in the phraseology employed in tax treaties, is, however, not defined in tax treaties or even official commentaries on UN and OECD Model Conventions. The meaning of this term is illustrated by some examples of typical liberal professions, and this enumeration of professions has only an explanatory character. 'The Law Lexicon' edited by Justice Y.V. Chandrachud (1997 Edition) defines 'profession', inter alia, as involving 'the idea of an occupation requiring either purely intellectual skill or if any manual skill, as in painting and sculpture or surgery, skill controlled by the intellectual skill of the operator, as distinguished from an occupation whi....
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....the facts of this case. While dealing with the scope of services which are covered by article 15, it is important to bear in mind the fact that there could indeed be overlapping effect of the scope of services covered by the other articles but as long as the services are rendered by an individual or group of individuals, generally rendition of such services is covered by article 15. The exclusion clause set out in article 12(5)(e) typically exemplifies this approach. We may, in this regard, also refer to the observations made by a coordinate bench of this Tribunal, in the case of Linklaters LLP Vs ITO [(2011) 9 ITR Tri 217 (Mum)], as follows: 105. Learned counsel has also contended that the professional services can only be taxed under the head art. 15 and in case chargeability under art. 15 fails, that is end of the road. It cannot be open to Revenue authorities to tax income from professional services under art. 7. It is contended that art. 15 applies only to individuals. As to the situations in which art. 5 will apply in respect of the professional services and the situations in which art. 15 of the India-UK tax treaty, which is in pari materia with art. 14 of the UN Mo....
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....be taxed under article 12(4) either. Revenue's case for taxability under article 12(4) is thus clearly unsustainable in law and on the facts of this case. Learned CIT(A) was thus quite correct in this conclusions. We uphold his conclusions and decline to interfere in the matter. 42. We see no reasons to take any other view of the matter than the view so taken by the coordinate bench. Respectfully following the same, we uphold the grievance of the assessee and direct the Assessing Officer to delete the tax withholding demand so far as US based recipient is concerned. 43. The relevant treaty provisions in the Indo UK tax treaty are not any different either. These provisions are reproduced below for ready reference: Article 13(5) - Fees for technical services 5. The definition of fees for technical services in paragraph 4 of this Article shall not include amounts paid: ............ ............. .............. (e) to an employee of the person making the payments or to any individual or partnership for professional services as defined in Article 15 (Independent personal services) of this Convention. Article 15- Independent Personal Services 1. Income deriv....
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....f the case by confirming that the data processing charges amounting to INR 10.58,295 paid to Ford Espana qualify as Fees Technical services under section 9(1 )(vii) of the Act. 4.2 The learned CIT(A) erred in denying the benefit of applying the Most Favored Nation clause under paragraph 7 of the protocol to the India- Spain DTAA, based on which the Appellant had applied the restricted scope of taxation contained in India's DTAA with Portugal or USA or UK. which had come into force after 01 January 1990. 4.3 The learned C1T(A) erred in law by affirming that the protocol governs the rate of taxation and not incidence of taxability. 47. The relevant material facts are as follows. During the relevant previous year, the assessee made a payment of Rs. 10,58,295 to Ford Espana Spain towards payment of data processing charges. The case of the assessee was that in view of the protocol to India Spain Double Taxation Avoidance Agreement [(1995) 214 ITR (St) 197; Indo Spanish tax treaty, in short], 'make available' requirement is to be read into the provisions for taxation of fees for technical services, and that rendition of data processing services do not make available any tech....
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.... it is important to bear in mind the fact that by the virtue of the protocol clause reproduced above, in case India enters into any DTAA, coming into force after 1st January 1990, with any OECD Member State which provides for a lower rate or narrower scope than the provisions in the Indo Spanish DTAA, the same rate or the same scope will apply to Indo Spanish DTAA as well. In this light, let us take a look at the definition of fees for technical services in Indo UK DTAA which, inter alia, states as follows: 4. For the purposes of paragraph 2 of this Article, and subject to paragraph 5, of this Article, the term "fees for technical services" means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received ; or (b are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received ; or (c) make avai....
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....s within the meaning of fee for Technical services (FTS) as per explanation 2 to Sec.9(1)(vii)of Income Tax Act, hence the assessee was liable to deduct tax on the same. 2.2 The Id. CIT(A) erred in holding that Article 12 of DTAA with Thailand provides only for taxation of royalty and the fee for technical services is not defined and therefore same was in the nature of "business profit" fails within the ambit of Article 7 of DTAA as per which business profit can be taxed in India only if the enterprises carries on business in India through PE situated in India and thus the assessee was not liable for deduction u/s 195 in respect of these payments. 2.3 The Id. CIT(A) erred in not considering the Circular No.333 dated 02/04/1982 of the CBDT as per which when there is no specific provision in the agreement ,it is basic law i.e. the Income Tax Act will govern the taxation of income 2.4 The Ld.CIT(A) failed to appreciate that as the services rendered by the non-resident in Thailand fall within the definition of fee for technical service as per Income tax Act, there is no requirement for PE in India and the same is taxable in India and hence the assessee ought to have deducted T....
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....S is applicable even in reimbursement of expenses. 3.4 The Ld. CIT(A) erred in not considering the decision of the Delhi Tribunal in the case of HNS India VSAT Inc. Vs. DDIT, wherein it is held that "in view of the fact, that no application was made by the assessee u/s. 195(2) to Assessing Officer, assessee was under obligation to deduct tax at source from payments made to sub-contractors in terms of Section 195(1), having failed to do so, Assessing Officer was fully justified in making additions 60. In this case also, the line of reasoning adopted by the Assessing Officer was somewhat similar to the issue in ground no. 3 of the Assessing Officer's appeal for the assessment year 2011-12. The Assessing Officer held these payments as fees for technical service under section 9(1)(vii) and brought them to tax accordingly. 61. Aggrieved, assessee carried the matter in appeal before the CIT(A) and the CIT(A), following his order for the assessment year 2011-12 inn assessee's own case, upheld the contentions of the assessee. The Assessing Officer is aggrieved of the relief so granted and is in appeal before us. 62. We have heard the rival contentions, perused the material on r....
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....e imported machineries and the same does not qualify as Fees for technical services/Fees for included services under the respective articles of the Double Taxation Avoidance Agreement ('DTAA'). 2.3 Without prejudice to the above grounds, the learned CIT(A) failed to appreciate that the services had not been made available to the Appellant and consequently the charges paid would not qualify as Fees for technical services/ Fees for included services under the respective articles of the DTAA. 69. Learned representatives fairly agree that all the material facts and circumstances of this issue are materially the same as in ground no. 2 in assessee's appeal for the assessment year 2011-12, and, therefore, whatever we decide for the assessment year 2011-12 will apply mutatis mutandis to this assessment year as well. Vide our order on this issue earlier in this order, and for the detailed reasons set out in this order earlier dealing with scope of make available clause in the related treaties, we uphold the plea of the assessee. It is not even the case of the Assessing Officer that the assessee, i.e. recipient of services, was enabled to use these services in future without r....
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....CIT(A) erred in denying the benefit of applying the Most Favored Nation clause as per the protocol to the India-France and India- Sweden DTAAs, based on which the Appellant had applied the restricted scope of taxation contained in India's DTAA with Portugal or USA or UK. 3.3 The learned CIT(A) failed to appreciate that installation and commissioning was a part of the composite contract to purchase the imported machineries and the same does not qualify as Fees for technical services / Fees for included services under the respective articles of the DTAA. 3.4 Without prejudice to the above grounds, the learned CIT(A) failed to appreciate that the services had not been made available to the Appellant and consequently the charges paid would not qualify as Fees for technical services / Fees for included services under the respective articles of the DTAA. 72. Learned representatives fairly agree that the outcome of this ground will depend on what we decide, on the scope of MFN clause and scope of make available clause in tax treaties, in ground nos 3 and 4 in assessee's appeal for the assessment year 2011-12. Both these issues, as concluded earlier in this order, are decided ....
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....ons, perused the material on record and duly considered facts of the case in the light of the applicable legal positon. 77. We find this issue is covered, in favour of the assessee, by a coordinate bench decision in the case of DCIT Vs Andaman Food Products Pvt Ltd [(2012) 18 ITR Trib 509 (Kol)] wherein it was, inter alia, observed as follows: 6. There is no, and cannot be any, dispute with the basic legal position, as inherent in the scheme of the Indian Income Tax Act under section 90, that the provisions of a duly notified double taxation avoidance agreement will override the provisions of the Income Tax Act, unless, and to the extent, the latter are beneficial to the assessee. As Late Prof. Klaus Vogel, in his oft referred book 'Klaus Vogel on Double Taxation Conventions', had observed that, "the treaty acts like a stencil that is placed over the pattern of domestic law and covers over certain parts". Dr. Vogel's perception on this issue quite appropriately sums up the legal position in India as well. A tax treaty essentially restricts the rights of the source state on taxation of an income arising therein, inasmuch as residence country generally has unqualifi....
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.... either. As a matter of fact, learned Departmental Representative submits that the CIT(A) was quite justified in holding that the income in the hands of the GMPL is neither taxable as a business income under article 7 of as fees for technical service under article 12, even though learned Director of Income Tax (International Taxation) Shri Sanjay Kumar, who was present in the court room in connection with some other case, immediately got up to disown this argument and submit that the views so expressed by the learned Departmental Representative are quite at variance with the stand being taken by the directorate of international taxation in all other cases. That does not make any difference to our decision on this issue, because even without this benevolence of the learned Departmental Representative, we will still come to the same conclusion. The reason is this. There are at least two non-jurisdictional High Court decisions, namely Hon'ble Delhi High Court in the case of DIT Vs Guy Carpenter & Co Ltd (2012 TII 14 HC DEL INTL) and Hon'ble Karnataka High Court in the case of CIT Vs De Beers India Pvt Ltd (TS-312-HC-2012), in favour of the assessee, and there is no contrary de....
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....tmental Representative has also laid lot of emphasis about, what he perceives as, learned CIT(A)'s categorical finding that the payments made to GMPL were in the nature of 'other income' and, therefore, should be taxed under article 23 of the Indo Singapore tax treaty. 8. As for learned Departmental Representative's reference to the alleged finding of the CIT(A) regarding the amount having been paid to GMPL falling within category of the "other sum", it is important to note that the CIT(A) h ad stated that "Section 40(a)(i) of the Income Tax Act provides that in computing income of an assessee under the head 'profits and gains of business', deduction will not be allowed for any expenditure being royalty, fees for technical services and other sum chargeable under the Act, if it is payable outside India, or in India to a non resident, and on which tax is deductible at source under Chapter XVII B and such tax has not been deducted", and it wa s in this context that the CIT(A) noted that though the fee paid to GMPL was not covered by fees for technical services, it could fall under the head 'other sum' but since the said other sum was not chargeable t....
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....n not taxable under article 7, can always be taxed under article 23. That is clearly an absurd result. A tax treaty assigns taxing rights of various types of income to the source state upon fulfilment of conditions laid down in respective clauses of the treaty. When these conditions are satisfied, the source state gets the right to tax the same, but when those conditions are not satisfied, the source state does not have the taxing right in respect of the said income. When a tax treaty does not assign taxability rights of a particular kind of income to the source state under the treaty provision dealing with that particular kind of income, such taxability cannot also be invoked under the residuary provisions of Article 23 either. The interpretation canvassed by the learned Departmental Representative, if accepted, will render allocation of taxing rights under a treaty redundant. In any case, to suggest that consultancy charges, brokerage and commission can be taxed under article 23, as has been suggested by the learned Departmental Representative, overlooks the fact that these incomes can indeed be taxed under article 7, article 12 or article 14 when conditions laid down in the resp....
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....is irrelevant under article 8. Hence, a separate article. As far as the profits from international operation of ships are concerned, it is an integral part of business profits; at the same time, they are excluded from the business profits - article for the obvious reason that it is not intended to be covered by the Treaty. That income has been left to the care of domestic law under which the burden of taxation on such income has been minimized (vide section 172 of Income-tax Act). We are of the considered view that a particular species of income which is specifically referred to in article 7 and deliberately left out of its genus, namely business profits, cannot be said to be an item of income not dealt with under article 7. The expression 'deal with' is a comprehensive expression having different shades of meaning. In the New Chambers Thesaurus, the meanings of'deal with' are given thus: "1. deal with a situation, attend to, concern, see to, manage, handle, tackle, cope with, get to grips with, take care of, look after, sort out, process." In Collins Cobuild English Language Dictionary, it is stated thus: "If a book, speech, film etc. deals with a particular ....
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....proval of the Hon'ble jurisdictional High Court in the case of Bangkok Glass Industry (supra) wherein Their Lordships declined to examine taxability of a receipt in the nature of fees for technical service, which failed the test of taxability under the respective treaty provision, under 'other income' clause of the treaty. This aspect of the matter and the impact of Hon'ble jurisdictional High Court's decision in the case of Bangkok Glass Industry (supra) has been discussed at length in dealing with ground of appeal no. 2 of the appeal by the Assessing Officer for the assessment year 2011-12. We rely upon the said analysis in this context as well. As the issue regarding approaching the residuary income clause, in a case in which the FTS tests fail, is covered by the decision of Hon'ble jurisdictional High Court, it is not even necessary to deal with how other Hon'ble High Courts have dealt with the issue. In view of Hon'ble jurisdictional High Court's aforesaid decision on the issue, and in the absence of any Hon'ble Supreme Court decision to the contrary, the view so take by the coordinate bench decision holds good in law. Respectfully following the view so taken by the coordinate....
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....ever, rejected this plea and held as follows: The submissions of the company is carefully considered. However, the same is not acceptable. In respect of above payments, the same is made towards annual fees and towards software support services which is continuously provided to the company for utilizing technical knowledge by way of licence fees and the same is imparted to the company by technically qualified persons, the technical skill is provided to the company in installing software and for maintaining the same without break which falls under the category "fees for technical services' as per section 9(1)(vii) of the Income Tax Act. Hence, it is held that the assessee should have deducted tax at source from the remittances made to the above parties at 10% of the amount paid. 82. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. In a brief order, the CIT(A) upheld the action of the Assessing Officer and declined to interfere in the matter. The assessee is not satisfied and is in further appeal before us. 83. We have heard the rival contentions, perused the material on record and duly considered the facts of the case in the light o....