TaxTMI 
TaxTMI 
TaxTMI 
2019 (2) TMI 223
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....al Services' and if so whether the disallowance u/s 40(a)(i) of the Act could be made in the facts and circumstances of the case. 4. We find that the issue under dispute is squarely covered by the decision of this tribunal in the assessee's own case for the Asst Years 2008-09 and 2009-10 reported in 71 taxmann.com 142 (Kolkata Trib.) dated 8.7.2016, which was authored by one of us, wherein the facts of the case were dealt with at length and decision rendered thereon as under:- 3. The facts in Asst Year 2008-09 are considered here for adjudication in respect of this issue and decision rendered thereon would apply with equal force for Asst Year 2009- 10 also as the issue involved is identical in Asst Year 2009-10 also. The brief facts of this issue are that the assessee company is a stockbroker company. The assessee carries on business of brokerage on behalf of institutional clients. During the previous year relevant to the assessment year under consideration, the assessee had made payments to two of its wholly owned subsidiaries namely, M/s B&K Securities Ltd. (U.K.) and M/s. B&K Securities Pvt. Ltd. (Singapore). M/s B&K Securities Ltd (U.K.) is engaged in business of providi....
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....oversight and paid. (ii) Mark-up @ 29% on expenses reimbursed as per agreement dated 01.10.2007 32,25,600 (ii) Tax was deducted and paid and there is no dispute on this payment. 3.2 The details of payments made to B & K Securities Ltd, Singapore are as below:- M/s. Batlivala & Karani Securities (India) P. Ltd. DETAILS OF PAYMENTS MADE TO B&K SECURITIES LTD. SINGAPORE ON ACCOUNT OF MARKETING SUPPORT SERVICES Sr. No. Period Nature of expenses Amount Remarks 1. 01.04.2007 to 30.09.2008 (I) Reimbursement of actual expenses as per agreement dated 01.04.2007 1,59,18,988 (i) No TDS was deducted from the said payment since it was reimbursement of actual expenses (ii) Mark-up @ 29% on expenses reimbursed as per agreement dated 01.04.2007 52,07,491 (ii) tax was deducted and paid and there is no dispute on this payment. ON ACCOUNT OF RESEARCH SERVICES Sr. No. Period Nature of expenses Amount Remarks 2. 01.04.2007 to 31.08.2007 Payment made as per agreement dated 01.04.2007 46,19,765 There is no dispute on this payment 4. It was submitted before the Assessing Officer that the assessee had deducted TDS on th....
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....ces of the case, the Ld. CIT(A) erred in affirming the disallowance of Rs. 2,17,79,771/- under section 40(a)(ia) of the Act as a result of wrongly applying the provisions of section 195 of the Act; II. That on the facts and in the circumstances of the case, the ld. CIT(A) failed to appreciate that the assessee duly complied with the requirements of section 195 as well as section 40(a)(ia) of the Act by deducting tax from fees payable to the said disburses under the contract for services and therefore, there was no scope for invoking the provisions of section 40(a)(ia) of the Act." 6. Payments to Singapore Subsidiary Ld. AR. Argued that Singapore subsidiary is engaged in business, inter alia, of research and marketing services for securities/markets locally and overseas. B&K had provided various services, such as research and marketing services to the assessee. The services rendered by Singapore company were for expansion of assessee's business not only in Singapore but also in entire South East Asian countries. For this purpose a 'Business Services Agreement' was entered between the assessee and B&K on 01.04.2007 stipulating the terms and conditions. The services ....
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....01.10.2007. It is submitted that as per the earlier agreement dated 17.11.2006 the assessee was to pay lump sum amount of 18,000 pounds per month. The assessee deducted TDS while making the said payment hence, there is no dispute. As per the new agreement dated 03.10.2007 w.e.f. 01.10.2007, the assessee will reimburse the actual expenses incurred by the U.K. company and in addition will pay a service fee @ 29% for the services rendered by U.K. company. It is submitted that no TDS was deducted while making the payment for reimbursement of cost since it was reimbursement of actual expenses and there was no element of income in the said payment. 8. In essence, it was argued that the services rendered by both the subsidiaries are in the nature of marketing support services and not in the nature of 'fees for technical services' as alleged by the lower authorities. The Learned AR made his arguments based on the following propositions:- (a) The payments are not for fees for technical services within the meaning of Article 13/12 of DTAA with UK and Singapore as the case may be. (b) As there is no permanent establishment of UK and Singapore Subsidiaries in India, payments made....
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....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 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 available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design." He argued that with regard to Singapore Treaty, the payments made would admittedly not fall under Article 12(4)(a) and 12(4) (c). Similarly in respect of U.K. Treaty, the payments made would admittedly not fall under Article 13 (4)(a) and 13(4)(b). He argued that as could be seen from the above definition of 'fees for technical services' that in order to ....
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....e assessee in India should also be construed only as rendering of technical services and accordingly the consideration paid thereon is to be treated as fees for technical services. The assessee is not carrying on any trading activity in India. Accordingly he vehemently relied on the order of the lower authorities. 11. In defence, the learned AR stated that the revenue had not disputed the contents of the supplementary agreement entered into by the assessee and they have grievance only on the limited aspect of the compliance with TDS provisions in respect of payments made pursuant to such supplementary agreement. In this scenario, the argument of the learned DR that the said agreement was entered into to circumvent TDS provisions is to be rejected. He further argued that no technical services, if any, have been made available to the assessee and there was no transfer of technology by the subsidiaries to the assessee in India in order to fall within the ambit of fees for technical services as per the treaty. 12. We have heard the rival submissions and perused the materials available on record including the paper book filed by the assessee comprising of copy of agreement with B&K ....
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....es, or consist of the development and transfer of a technical plant or technical design to such person. The Memorandum explains category of services referred to Article 12(4)(b) as narrower than the category described in paragraph 4(a) because it excludes any service that does not make technology available to the person acquiring the service. It further explains that generally speaking, technology will be considered made available when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc., are made available to the person purchasing the service, within the meaning of paragraph 4(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. The Memorandum further explains with examples as to how Article 12(4)(b) has to be understood as follows: "Typical categories of services that generally involve either the development and transfer of technical plants or technical designs, or making technology available as described in paragraph 4(b), i....
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....ent and transfer of a technical plant or design. The U.S. company is merely performing a contract manufacturing service. Example 5 Facts : An Indian firm owns inventory control software for use in its chain of retail outlets throughout India. It expands its sales operation by employing a team of travelling salesmen to travel around the countryside selling the company's wares. The company wants to modify its software to permit the salesmen to assess the company's central computers for information on what products are available in inventory and when they can be delivered. The Indian firm hires a U.S. computer programming firm to modify its software for this purpose. Are the fees which the Indian firm pays treated as fees for included services ? Analysis : The fees are for included services. The U.S. company clearly performs a technical service for the Indian company, and it transfers to the Indian company the technical plan (i.e., the computer programme) which it has developed. Example 6 Facts : An Indian vegetable oil manufacturing company wants to produce a cholesterolfree oil from a plant which produces oil normally containing cholesterol. An American compa....
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....TAA with another country in case of ambiguity and in order to understand the true scope and meaning of the concerned DTAA. The Hon'ble Karnataka High Court in the case of AEG Telefunken v. CIT [1998] 233 ITR 129/101 Taxman 109 (Kar.) compared the DTAA with German Democratic Republic with the DTAA with Finland towards this end. 12.2.2 The Mumbai Bench of the Tribunal in the case of Raymond Ltd. v. Dy. CIT [2003] 86 ITD 791 had to deal with a case of payment of commission by an Indian company to a non-resident in connection with Public Issue of Global Depository Receipts (GDR) for services rendered outside India. The question before the Tribunal was whether the commission so paid can be said to be "Fees for included services" i.e., Fees for Technical Services under Article 13(4)(c) of the Indo-UK DTAA which is the same as that of Article 12(4)(b) of the treaty between India and Singapore. After considering Article 12(4)(b) of the Indo-US DTAA (which are similar to Articles 12(4) and 13(4) of the treaty between India and Singapore/UK (as the case may be)), and after referring to the Memorandum of understanding to the Indo-US DTAA, the Tribunal held as follows: 'Whereas sec....
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.... 9(1)(vii) of the Act by the Finance Act 2010 with effect from 1.6.1976 need not be gone into. We also feel that the aspect of applicability of TDS provisions on the reimbursement component also becomes irrelevant in the facts of the case in view of the aforesaid findings. Similarly the applicability of the provisions of section 40(a)(i) of the Act for short deduction of tax at source also becomes academic in nature and no decision is hereby rendered thereon. The question as to whether the payment by the assessee to its subsidiary in UK and Singapore comprised partly of reimbursement of expenses or not also does not require any consideration, in view of the conclusion that the payment in question does not, even otherwise, attract the provisions of Sec.40(a)(i) of the Act. 12.5 Since the payment made by the assessee to its subsidiaries is not fees for technical services, then the same would be construed as only business income in the hands of the subsidiaries which would get taxed in India only in the event of existence of permanent establishment (PE) in India. We find that the Learned AO had categorically stated in more than one place in his order that the Singapore and UK subsid....
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....e hold that the payment made by the assessee to its subsidiaries is not chargeable to tax in India in the hands of the subsidiaries in India. The provisions of section 195(1) of the Act mandates a requirement that the income should be chargeable to tax in India to assume jurisdiction in India. In the instant case, it is proved beyond doubt that the subsidiaries do not have any income chargeable to tax in India and hence the decision rendered by the Hon'ble Apex Court in the case of GE India Technology Cen. (P) Ltd. (supra), supports the case of the assessee. This decision has been rendered after duly considering the case law vehemently relied upon by the learned AO on the decision of the Hon'ble Apex Court in the case of Transmission Corpn. of A.P. Ltd. (supra) vide para 10 of the judgment at pages 465 & 466. We are also in complete agreement with the arguments advanced by the learned AR that the various case laws relied upon by the learned CITA in his order vide paras 7 to 12 were rendered prior to rendering of Hon'ble Supreme Court decision in GE India Technology Cen.(P) Ltd. (supra), Hence we don't deem it fit and appropriate to discuss those case laws for the pu....