TaxTMI 
TaxTMI 
2018 (8) TMI 1817
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....x, Circle-14(1), New Delhi [ The Ld AO] u/s 143(3) of the Income Tax Act [ The Act ] dated 30.12.2010. In this appeal Assessee has raised a solitary ground against the confirmation of disallowance of Rs. 336150/- u/s 40(a)(i) by holding that payment made to a Dr. U. Thiele is "fees for technical services‟ covered under Article 12 of The Double Taxation Avoidance Agreement [ The DTAA] between India and Germany and therefore, assessee was required to deduct tax at source u/s 195 of the Act which the assessee failed, hence, disallowance was made. 4. Brief facts of the case are that the assessee is a company engaged in the business of manufacturing of master batches and engineering plastic compounds. It filed its return of income on 29.09.2008 declaring income of Rs. 54438260/-. The ld AO noted that assessee has paid a technical fees of Rs. 336150/- to one Dr. Thiele a German individual resident, which falls under the provision of section 40(a)(i)of the act as assessee has not deducted tax at source. The assessee submitted that the payment is made to an individual resident of Germany towards consultancy charges, who is a scientists engaged in developing new products by applyin....
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.... the above issue vide para No. 5 at page No. 10 to 15 of his order dated 26.06.2014 confirming the above disallowance as under:- "5. The only issue in the grounds of appeal is in respect of disallowance of Rs. 3,36,150/- u/s 40(a)(i). The amount of Rs. 3,36,150/- was pertaining to payment made to Dr. Thiele for technical rendered. 5.1. The appellant is in the business of manufacturing master batches and engineering plastic compounds. During the year, the AO noted that the appellant had paid Rs. 10,20,167/- to non residents out of which one amount of Rs. 3,36,150/- was paid to Dr. Thiele. 5.2. The appellant contended that Dr. Thiele was a scientist and engaged in developing new products by applying different chemistry to raw materials. Dr. Thiele was engaged in inventing different processes of PET/Polymers. The payment was made to Dr. Thiele for an independent scientific activity and fell under Article 14 of the DTAA between India and Germany and therefore the appellant stated section 9(l)(vii) was not applicable as Article 14 prevailed over the Act. 5.3. The AO on the other hand stated that Article 14 was not applicable. Further, the payment made....
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....half of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year. ― Explanation 1:- Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India. Explanation 2:- For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India. In view of this section therefore the payment made by the appellant to the non resident was income as it was received and deemed to accrue in India. 5.5. Section 9(l)(vii) states:- ―9. Income deemed to accrue or arise in India. -(1) The following incomes shall be deemed to accrue or arise in India - (vii) income by way of fees for technical services payable by- (a) the Government; or (b) a person who is a resident, except where th....
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.... has a residence or place of business or business connection in India ; or(ii) the non-resident has rendered services in India. ― 5.6. I don't find any clause in section 9 which talks of the difference between technical services and scientific services. Section 9(l)(vii) explanation is clear about what would be covered and what would not be. 5.7. Explanation of section 9(l)(vii) talks of fees for technical services. No distinction has been made in respect of fees for scientific services rendered. Further explanation (2) defines fees for technical services which includes consultancy services. In my view the consultancy/scientific services rendered by the non resident would fall under this category. 5.8. I shall now quote section 195: "195. Other sums.-(l) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") 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....
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....e expiry of the period specified therein or, if it is cancelled by the Assessing Officer before the expiry of such period, till such cancellation. (5) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub¬section (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith.' 5.9. The main components of the section are that 1. any person 2. making payment of interest or any other sum (not being salary). 3. to a non resident or to a foreign company. 4. shall at the time of payment. 5. by any mode 6. deduct income tax. 5.10. The section applies to all person's resident or non resident and the persons may or may not have residence or place of business in India or any other presence in any manner in India. 5.11. It is clear from the above that the appellant has made payment of fees to a non resident an....
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....provided "independent scientific services‟. e. He further relied on the decision of coordinate bench in Graphite India Ltd Vs. DCIT [86 ITD 384] and ITO Vs. Susanto Purnamo [73 Taxmann.com 108 (Ahmadabad)]. He further referred to the copy of the remand report before the ld CIT(A) dated 19.12.2013, wherein, the ld AO has noted that various bills and documents in the form of invoices have been filed by the assessee. Therefore it shows that services have been provided as " independent scientific services‟ by Dr and all evidences for consulting fees has been provided. He further referred to the technical and research agreement dated 16th August 2006 between the assessee and Dr. Thiele to show the kind of services provided by Dr Theile. He submitted that services are provided by an individual, German Resident, in nature of scientific services, no fixed base is available to him, and he does not stay in India for 120 days or more. f. He further submitted that as the income is falling under the specific article 14 the article 12 is more general, hence, Article 14 should be applied which is more specific to the facts of the case. g. He further submitte....
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....extile Yam for U.V protection. 2.1.12 Reactive chain extender MB for PET Yam. 2.1.13 Easy Dyeable MB 2.1.14 Others, to be specified in consultation with both the parties‖ 10. To determine whether the tax is required to be deducted on the above sum or not, first we need to examine the provision of The Income Tax Act to ascertain whether the sum is chargeable to tax in India or not. According to section 5(2) of the Act, any income which accrues or arise or is deemed to accrue or arise to a Non Resident in India during the previous year forms parts of his total income. According to section 9(1)(vii) of the Act, the above income is income by way of fees for technical services as same is consideration for technical or consultancy services. Therefore, according to section 5(2) read with section 9(1)(vii) of the Act, the above services are chargeable to tax under the Indian Income Tax Act, 1961. This has also been confirmed in the case of the assessee for AY 2007-08 by the coordinate bench that such sum is chargeable to tax u/s 9(1) (vii) of the Act. It is also not the claim of the assessee that it is not chargeable to tax as per provisions of the Income tax Act....
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....dependent activities shall be chargeable to tax only in Germany, if he does not have any fix base regularly available to him in India for performing his activities and he has not stayed in India for a period or period exceeding 120 days in the relevant previous year. It is not the case of the revenue that Dr. Thiele has any fix base in India or he stayed for 120 days or more in India. Professional Services under Article 14(2) includes "independent scientific services‟ activities. The assessee has submitted the copy of the various trials conducted by Dr. Thiele, which are placed at paper book page NO. 38 to 61. The assessee further placed various exchange of emails between the assessee and Dr. Thiele at page No. 67 to 108 of the paper book. On perusal of these documents, it is apparent that same are for the trials conducted for the production of Cationic Dyable PET MBs. Page No. 81 of the paper book also shows the working protocol between the assessee and Dr. Thiele. On looking at those emails, it is apparent that Dr. Thiele is providing "independent scientific services‟ to the assessee. In view of this the services rendered by Dr. Thiele are "independent personal servic....
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....the services of managerial, technical or consultancy nature, including the provision of services by technical or other personnel, but does not include payments for services mentioned in Article 15 of this Agreement. 5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply. 6. Royalties and fees for technical services shall be deemed to arise in a Contracting State when the payer is that State itself, a land or a political sub-division, a local authority or a resident of that State. Where, however, the person paying the royalties....
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....hall prevail over and take precedence over the general ones. In the present case, the provision of article 14 of the DTAA is more specific as it applies specifically to "professional services‟ provided by the "Individual resident‟, however, Article 12 provides for residents of foreign countries, therefore, Article 12 is broader in scope and general in nature compared to Article 14 of DTAA. Further the meaning of the Term " fees For technical services‟ in Article 12 (4) of The DTAA excludes only income covered under Article 15 i.e. "Dependent personal Services‟ and not income Covered under Article 14 of The DTAA. Therefore, if there can be many instances of such incomes derived by the individuals which can be characterized as " Fee For Technical services‟ may also be covered under Article 12 as well as Article 14 of The DTAA. Only distinguishing feature is that Article 12 is an omnibus provisions for such income where as article 14 is a specific provisions related to individuals. Further Article 14 is para material similar to Article 7 of the DTAA, the only difference being that Article 7 applies to all the enterprises of the states whereas the Article ....
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....acts before the coordinate bench were that The assessee-company entered into a consortium agreement with a West German non-resident firm under which the latter was required to render technical co-operation, and fees at specified rate would be paid therefore to the non-resident. The assessee claimed that the non-resident was not assessable to tax in India by virtue of article III of the Direct Taxes Avoidance Agreement between India and the Federal Republic of Ger-many under which industrial or commercial profits earned by the non-resident were not liable to tax. The assessee, therefore, requested the ITO for a certificate under section 195(2) so that no tax need be deducted at source before making remittance to the non-resident. However, the ITO rejected the assessee‟s claim and the Commissioner (Appeals) also upheld the ITO‟s decision. According to the Commissioner (Appeals), the amounts payable were in the nature of fees for services rendered and the assessee, not being an agent of the non-resident, had no right to argue about the nature of income, its assessability or otherwise under the agreement, etc., since all these matters would be decided by the ITO only at the....
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....rent wherein, the services provided by the assessee falls under Article 14 of DTAA. Therefore, reliance placed on the above decision by the revenue is not correct. 17. Further on identical issue it has been decided in case of the assessee for Assessment Year 2007-08 wherein, in para 6.6 it has been held that income of the non-resident is chargeable to tax as per Income Tax Act within the provision of section 9(1)(vii) of the Act. We have concurred with the finding of the coordinate bench to that extent and followed it for the same reasons. Further, with respect to applicability of Article 14 the coordinate bench has specifically held that the assessee has failed to demonstrate that the services rendered by Dr. Thiele are independent scientific services and therefore, it was held to be covered by Article 12 of the DTAA before us. The assessee has produced enough evidences placed at page NO. 29 to 108 of the paper book in the form of literature Thiele, various reports of different states of various development activities and exchange of several emails shows that the services provided by the German national is an independent providing scientific services. Therefore, the facts of th....
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....u/s 195. 3. The learned Commissioner of Income Tax (Appeals) has erred on facts and in law in confirming the action of the AO in making disallowance of Rs. 329767/- u/s 14A of the IT Act r.w.r 8D of IT Rules. 20. Ground No. 1 involves two payments, first payment of Rs. 268980/- which was disallowance u/s 40(a)(i) where payment is made to Dr. U Thiele who is a German individual resident provided professional services to the assessee. The identical facts as has been decided by us in appeal of the assessee for Assessment Year 2008-09 wherein, the disallowance u/s 40(a)(i) of the Act was made. Both the parties agreed before us that there is no change in the facts and circumstances of the case of the appellant as well as nature of the services and applicability of relevant articles of DTAA between India and Germany. It was further submitted by parties that these payment are also made to the individual for similar services. 21. We have considered the rival contentions and perused the orders of the lower authorities. The identical issue has been decided by us in the appeal of the assessee for Assessment Year 2008-09 wherein, we have held that such services are covered....
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.... period or periods aggregating 183 days or more in any 12 month period commencing or ending in the fiscal year concerned; in that case, only so much of the income as is derived from his activities performed in that other State may be taxed in that other State. 2. The term "professional services" includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, lawyers, engineers, architects, surgeons, dentists and accountants.] 26. Article 12 of the Indo Swiss DTAA is as under :- [ARTICLE 12] ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. - Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that State; but if the beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties or....
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....for technical services are borne by such permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated.] 8. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties or fees for 1[technical] services paid exceeds the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply on the lastmentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of such Contracting State, due regard being had to the other provisions of this Agreement. 27. According to Article 12 (5) (b) meaning of the Term "fees For Technical Services" specifically excludes income covered under Article 14 and 15 of the DTAA. Therefore, issue in this year is specifically covered in favour of the assessee by the decision of the coordinate bench in case of Graphite India [2003] 127 Taxman 90 (Kolkata)(MAG)/[2003] 86 ITD 384 (Kolkata)/[2003] 78 TTJ 418 (Kolkata) wherein identical ....
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....e revenue that such services are provided by him from its fixed base in India or he has stayed for more than 183 days in India. Therefore, we hold that no tax is required to be deducted on payment made to Dr. Werner Stibal who is a resident of Swiss Confederation and rendered the professional services with respect to the similar services as provided by Dr. U Thiele, therefore, those services are independent, personal services in the nature of independent scientific services which shall be taxable only in Swiss confederation. Hence, no tax is required to be deducted on sum paid by the assessee to Dr. Werner Stibal u/s 195 of the Act. In view of this ground No. 1 of the appeal of the assessee is allowed. 29. Ground No. 2 of the appeal is not pressed therefore, it is dismissed. 30. Ground No. 3 of the appeal is with respect to the disallowance of Rs. 329767/- u/s 14A of the Act. 31. The brief facts of the issue show that during the year the assessee has earned exempt income of Rs. 686257/- as dividend. Assessee was asked to show the applicability of provisions of section 14A. The assessee submitted that it has received dividend from Dalmia Cement Bharat Ltd. the shares were p....
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....ontentions and perused the orders of the lower authorities. The ld AO has raised the specific query about the disallowance u/s 14A of the Act and after considering the reply of the assessee he noted that investment has been made out of cash credit account of the assessee and further cash credit loans of the company have been used for the purposes of making investment. He further stated that resources of the company have been used for making investments and earning dividend. Therefore, according to us proper satisfaction has been recorded by AO. Further when the assessee has made a huge investment of Rs. 3.80 crores in a company it cannot be said that there no efforts of the board and other committee members were used. However, with respect to disallowance of interest expenditure of Rs. 234769/-, we hold that assessee has own fund and non interest bearing funds amounting to Rs. 38 crores which is more than the investment of Rs. 3.8 crores it could have been presumed that the investment is made out of interest free funds available with the assessee. Therefore, respectfully following the decisions of the Hon‟ble Bombay High Court in case of CIT Vs. HDFC bank Ltd 366 ITR 505, we ....