TaxTMI 
TaxTMI 
2019 (2) TMI 223
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.... fall within the ambit of 'Fees for Technical 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....
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....was reimbursement of actual expense (except for the period from 01.01.2008 to 31.03.2008 wherein tax was deducted by 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 Payme....
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....onfirmed the disallowance made u/s 40(a)(i) of the Act. 5. Aggrieved, the assessee is in appeal before us for the Asst Year 2008-09 on the following grounds:- "I. That on the facts and in the circumstances 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 ....
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....services rendered by U.K. company were for expansion of assessee's business not only in U.K. but also in entire European area. For this purpose a 'Representation Agreement' was entered between the assessee and U.K. company on 17.11.2006 which was further modified on 03.10.2007 w.e.f. 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....
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....pply the technology contained therein: or (c) consist or the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the services to apply the technology contained therein." Similarly he argued that as per the India U.K. treaty, fees for technical services are defined as under:- Article 13 (4) "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 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 t....
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....e learned DR stated that the supplementary agreement entered into by the assessee was only to circumvent TDS provisions wherein actual expenses were sought to be reimbursed plus mark-up of 29% was agreed upon as consideration payable by the assessee to its subsidiaries. The nature of business carried out by the assessee is highly technical in nature and hence the services rendered by the subsidiaries of the assessee in order to promote the business of the 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 provi....
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.... in Article 12 and paragraph 4 (in general) have been given. Examples of services intended to be covered within the definition of included services and those intended to be excluded have been given. The Memorandum explains how Paragraph 4(b) of Article-12 has to be understood. The Memorandum explains that Article 12(4)(b) refers to technical or consultancy services that make available to the person acquiring the services, technical knowledge, experience, skill, know-how, or processes, 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 purc....
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....ill and processes. Example 4 Facts : A U.S. manufacturer operates a wallboard fabrication plant outside India. An Indian builder hires the U.S. company to produce wallboard at that plant for a fee. The Indian company provides the raw materials, and the U.S. manufacturer fabricates the wallboard in its plant, using advanced technology. Are the fees in this example payments for included services ? Analysis : The fees would not be for included services. Although the U.S. company is clearly performing a technical service, no technical knowledge, skill, etc., are made available to the Indian company, nor is there any development 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 computer....
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....l categories of services which are not intended to be treated as included services even if they satisfy the tests of paragraph 4. Set forth below are examples of cases where fees would be included under paragraph 4, but are excluded because of the conditions of paragraph 5." 12.2.1 The Memorandum of understanding is a tool to understand as to what meaning was intended to be conveyed in the DTAA between countries. Since the wording of Article 12(4) and 13(4) of the treaty with Singapore and UK respectively and Article 12(4)(b) of the DTAA between India and US are identical, the MoU to the Indo-US treaty can be looked into to see what meaning India and Singapore/UK (as the case may be) would have contemplated in the treaty. The law is settled that a DTAA with one country can be compared with the DTAA 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 ....
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....K Subsidiaries to the assessee made available to the assessee , such services , for its future use or utilization on a reasonably permanent basis. Hence the consideration paid thereon by the assessee would not fall under the ambit of fees for technical services as per the treaty. 12.4 Now the provisions of section 90(2) of the Act would have to be seen which states that the provisions of DTAA would prevail over the Act to the extent it is beneficial to the assessee. In view of the aforesaid finding that the payment made is not fees for technical services as per the Treaty, it would be academic to look into the fact whether the said payment would be fees for technical services as per the provisions of the Income-tax Act. The applicability of TDS provisions thereon due to retrospective amendment in Explanation 2 to Section 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....
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....scharged in the light of the law as it stands that point of time. Section 40(a)(i) of the Act provides that inter alia, notwithstanding anything to the contrary in sections 30 to 38 of the Act, any amount payable outside India, or payable in India to a non-resident, shall not be deducted in computing the income chargeable under the head 'profits and gains of business or profession' on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted. Accordingly, the assessee cannot be faulted for not deducting TDS and consequently, the deletion of disallowance by Commissioner (Appeals) is confirmed. [Para 20] In the result, the appeal of revenue is dismissed. [Para 21] 12.6 We find that as per Article 7 of UK and Singapore Treaty, in the absence of PE in India, the business income also would not get taxed in India. Hence we 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,....