TaxTMI 
TaxTMI 
2019 (9) TMI 500
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....ax at source on different items. So, first we take up the appeal for assessment year 2009-10. 4. The Revenue in ITA No.1857/PUN/2014, relating to assessment year 2009-10 has raised the following grounds of appeal:- 1. On the facts and circumstances of this case, the Ld. CIT(A) was not correct in deleting the additions made on account of payment for design services and technical consultancy charges since the assessee company could not prove whether the recipient was the beneficial owner of the royalties or fees for technical services as per Article 12 of the DTAA with Singapore and Switzerland. 2. The CIT(A) erred in not considering the fact that the payment for design services and technical consultancy charges was rightly treated by the AO as FTS under the Act as well as relevant DTAA. 3. The CIT(A) erred in law by concluding that, if the payment, made for design services and technical consultancy charges, is treated as FTS, the same will not satisfy the "make available" clause without discussing the facts as mentioned by the AO in his order. 4. The CIT(A) erred in law in concluding that sec 206AA is not applicable in case of non-residents as ....
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....me was taxable under the Income Tax Act as well as under the DTAA as Royalty. 1.2 The learned CIT(A) erred in not appreciating that the amount of Rs. 20,29,919/- was not covered under Royalties and / or fees for technical services of the DTAA between India and Singapore and that the Appellant Company was not required to withhold tax u/s. 195 on above amounts. 1.3 The learned CIT(A) ought to have appreciated that the payments made to Tetra Pak Global Information Management, Singapore was on account of reimbursement of software license fees and IT support services and since there was no income earned by the said entity, no TDS was required to be deducted on such reimbursement of expenditure. 2.1 The learned CIT(A) erred in holding that the assessee company should have deducted TDS on training charges paid of Rs. 1,12,05,118/- to various entities without appreciating that the said amount was not taxable in India and accordingly, the assessee was not required to deduct any TDS on the said payments. 2.2 The learned CIT(A) - IT / TP erred in not appreciating that the payment of Rs. 1,12,05,118/- for training was not covered under clause "fees for techn....
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....s against non deduction of tax on payment for software licenses and IT support services. The assessee had made the aforesaid payments for the acquisition of software licenses, wherein the assessee had acquired copyrighted article and hence, such payments were not taxable as royalty in India, as per DTAA between India and Singapore. He further stated that the CIT(A) in turn, had relied on the decision of Pune Bench of Tribunal in the case of Cummins Inc for assessment years 2004-05 and 2006-07 in ITA Nos.73 & 74/PN/2011, order dated 08.08.2013. The learned Authorized Representative for the assessee submitted that the said issue is squarely covered by the decision in the case of John Deere India Ltd. reported in 70 ITR (Trib) 73 (Pune) and there was no requirement to deduct tax out of such payments and hence, the assessee had not defaulted. 7. Coming to the next issue i.e. grounds of appeal No.2.1 to 2.5, the learned Authorized Representative for the assessee pointed out that the dispute was relating to deduction of tax at source out of training charges paid. The total training charges were Rs. 1.19 crores, out of which the assessee had deducted TDS of Rs. 7,72,418/-, against w....
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....issue was not there before the Hon'ble High Court. 8. Coming to para 2.5.19 at page 39 of appellate order, wherein the CIT(A) refers to the payments made to companies located in Italy, China, Denmark and Germany and in the DTAAs with these countries, there is an Article providing taxability of FTS without 'make available' condition. The CIT(A) thus, observed that the provision taxing FTS under the Income Tax Act and under DTAA with these countries were same and hence, the payments made to companies located in the said countries would be taxable under the DTAA with respective countries. In this regard, the learned Authorized Representative for the assessee relied on its submissions made before the CIT(A). 9. Coming to the list of countries which are referred in para 2.5.20 at page 39 of appellate order by the CIT(A) i.e. India's DTAA with Singapore, USA, Switzerland and Sweden, wherein the case of CIT(A) was that the same was governed by make available condition. The learned Authorized Representative for the assessee here stressed that the question which arises is whether in providing training, the clause of 'make available' was satisfied. He stressed that in the absence of an....
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....he payments made by the assessee to non-resident suppliers / foreign companies and the assessee was bound by law to deduct tax before remitting the money to non-residents. However, the assessee had failed to deduct tax or withhold the tax and as such had committed default in terms of section 201(1) and 201(1A) of the Act. The Assessing Officer tabulated the payments made by the assessee, which are annexed to the assessment order and held the assessee liable to deduct tax @ 20% and also grossing up the amount and charged interest under section 201(1A) of the Act. The CIT(A) passed consolidated order for assessment years 2007-08, 2009-10 to 2011-12. The breakup of foreign remittances made by assessee year-wise are tabulated in the appellate order and for assessment year 2009-10, which reads as under:- AY 2009-10 Particulars Amount (Rs) Software licence and IT Support services 24,64,643 Leased line charges 1,19,77,536 Payment for training 25,66,504 Inspection fees, repairs and maintenance and service charges 22,03,728 Total 1,92,12,411 14. The CIT(A) in view of retrospective amendment to section 9(1)(vi) Explanation 4 of the Act held ....
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....id payments were on account of reimbursement of airfare, hotel and other actual expenses were grouped under staff training, were taxable as FTS considering the description given by assessee as the training imparted to the employees of assessee was technical in nature, under section 9(1)(vii) of the Act. The plea of assessee that in the absence of any technical knowledge being imparted, was not accepted in the absence of details and evidences being filed in this regard. Then, he referred to various case laws i.e. Hon'ble High Court of Calcutta in the case of CIT Vs. Davya Ashmore India Ltd. (supra) and Chennai Bench of Tribunal in DCIT Vs. TVS Electronics Ltd. (supra) and also in the case of Gearbulk AG, in re (2009) 184 Taxmann.383 (AAR) and held that the payments made to companies located in different countries would be taxable under DTAA with respective countries. 17. The last issue which was decided was the payment for design services and technical consultancy services. The plea of assessee was that it was engaged in the manufacturing of packaging material and basic artwork was provided by the client and finally it was converted in polymer plates for printing, cost incurred i....
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....e amount as the assessee had to bear the tax liability and since the assessee had already remitted the full amounts, the assessee was held to be liable to pay simple interest for every month of the default. The plea of assessee was that it had not undertaken to bear taxes of non-resident payees and hence, there was no need to gross up the payments for the purpose of computing TDS liability. The CIT(A) held that in respect of foreign companies, there was nothing on record to come to conclusion that the assessee had agreed to bear the tax liability and hence, the Assessing Officer was directed to apply the provisions of section 195A of the Act. 21. The last issue which was decided by the CIT(A) was with regard to application of section 206AA of the Act i.e. charging of tax at source @ 20%. The CIT(A) held that provisions of section 206AA of the Act could not override the provisions of DTAA. The assessee could not be held to be in default, if it had deducted taxes at the rates provided in DTAA. He accordingly, deleted the demand and interest raised by the Assessing Officer only on application of section 206AA in absence of PAN of the deductees. 22. The assessee is in appeal a....
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....cation and the matters were recalled and decided. Vide order dated 06.12.2017 in MA Nos.28 & 29/PUN/2017, relating to assessment years 2004-05 & 2006-07 in the case of Cummins Inc Vs. ACIT, Tribunal has held that there was a mistake apparent from record in the order of Tribunal, which needs to be rectified, wherein the Tribunal in its order had failed to consider the decision of Co-ordinate Bench in the case of Allianz SE Vs. ADIT (2012) 51 SOT 399 (Pune) and also the decision of Hon'ble High Court of Delhi in DIT Vs. Ericsson A.B. & two others (2012) 343 ITR 470 (Del). Thus, the Tribunal vide order dated 06.12.2017 has recalled its order in Cummins Inc. (supra). It may also be noted that Mumbai Bench of Tribunal in bunch of Miscellaneous Applications had also recalled its order in DIT Vs. Reliance Infocom Ltd. / Lucent Technologies Hindustan Ltd., against which the Revenue filed Writ Petition before the Hon'ble Bombay High Court, which was also dismissed by the Hon'ble High Court vide order dated 08.08.2017 and approved the decision of Tribunal in recalling its earlier order in proceeding under section 254(2) of the Act. Once both the decisions on which the CIT(A) had relied on to....
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....;. First of all, we hold that the aforesaid payments of IT support services, support charges are not in the realm of "royalty‟ as no technology was made available to the assessee. It is service provided to the assessee by associate entity in USA and there is no merit in holding that the assessee was liable to deduct tax at source out of such payments to its associated enterprises. In this regard, we find support from the ratio laid down by the Pune Bench of Tribunal in Sandvik Australia Pty. Ltd. Vs. DDIT (supra), by Ahmedabad Bench of Tribunal in DCIT Vs. Bombardier Transportation India (P.) Ltd. (supra) and also on the ratio laid down by Chennai Bench of Tribunal in ACIT Vs. Vishwak Solutions (P.) Ltd. (supra), wherein it has been held that payments made for data storage charges were not in the realm of "royalty‟. The Pune Bench of Tribunal in Sandvik Australia Pty. Ltd. Vs. DDIT (supra), wherein agreement existed for providing backup services and IT support services and the Non-resident company receives payment thereof, since no technical knowledge had been made available to the Indian subsidiary, then such services rendered by Non-resident company to its Indian grou....
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....is akin to purchase of copyrighted article and in the absence of purchase of any copyright in the article, the assessee cannot be held liable to deduct tax at source out of such payments. Hence, the assessee has not defaulted in not deducting the tax at source. Accordingly, we hold so in respect of payments made for purchase of software and also in respect of IT support service charges. 29. The next issue is the training fees charges paid by assessee. The details and breakup of which year-wise are available at page 32 of appellate order. The perusal of aforesaid details which are referred, reflects the payments being made to different entities in different countries. The CIT(A) in respect of assessment year 2009-10 had allowed relief in respect of TDS of Rs. 7,72,448/- as the assessee had deducted the said TDS and the balance payment for assessment year 2009-10 was Rs. 1.12 crores (approx.). The plea of assessee is that it had not received any technical services as defined in the Act and hence, there was no requirement to deduct tax at source as it did not fall within realm of Fees for Technical Services as defined in section 9(1)(vii) of the Act. In this regard, the CIT(A) has ....
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....n this context, we find that the CIT(A) in para 2.1 of his order has tabulated the services provided by the three payees to the assessee. In the course of hearing, learned counsel for the assessee has furnished copies of agreements with the respective foreign concerns as also the invoices raised by the said concerns on account of the services rendered to the assessee. The inference drawn by the CIT(A) is that the services rendered by the recipient foreign concerns are taxable as "fees for technical services" u/s 9(1)(vii)(b) of the Act. In the context of the above finding of the CIT(A), we have perused the scope of work undertaken by the three recipient concerns as per the respective agreements, whose copies have been placed in the Paper Book. It is quite evident from the perusal of the agreements as also the scope of work enumerated by the CIT(A) in para 2.1 of his order that it involved provision of architectural, designs and drawings services. Factually speaking, the aforesaid finding of the CIT(A) that the services rendered by the recipient concerns to the assessee company in India fall for consideration as "fee for technical services" u/s 9(1)(vii)(b) of the Act is not in disp....
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.... Hon‟ble High Court, "fee for technical services" cannot be taxed under residual Article 22 of Indo-Thailand DTAA. 14. Further, as per the Revenue, CIT(A) erred in not appreciating Article 14 of the DTAA which provides for taxation of income on account of professional services. In this context, it is to be appreciated that the Article prescribes for taxation of professional services only in a case where the recipient is present in India for more than 183 days or it maintains a fixed base/permanent establishment in India. In the present case, there is no material to suggest that the recipient concerns have a permanent establishment in India or that they were present in India for a period exceeding 183 days during the previous year relevant to the assessment year under consideration. In this context, learned counsel for the assessee furnished appropriate certificates from the three recipient concerns tabulating the period for which their representatives were present in India during the relevant period which show that the presence in India was for less than 183 days. Therefore, on this aspect also, we find no merit in the plea of the Revenue and the discussion made by t....
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.... been relied upon by CIT(A) in the present case before us). The Tribunal held that 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 recipient. In our opinion, when DTAA is silent on an aspect, the provisions of the Act has to be considered and applied. In this regard reliance was placed on the decision of Hon'ble High Court of Madras in Bangkok Glass Industries Pvt. Ltd Vs ACIT (2013) 215 Taxman 116 (Mad), which was also dealing with India-Thailand Tax Treaty, which did not have FTS clause and rejected the claim of Revenue that even though the Thailand entity did not have any PE in India and for that reason this amount could not have taxed in India under Article 7, but could be taxed as other income under Article 12. The Hon'ble High Court had held that the said income does not fall as miscellaneous income and the same could not be brought under Article 12 of DTAA. 33. The Tribunal further vide para 25 held as under:- "25. To understand the scope of these treaty provisions, which are broadly in pari materia with the provisions of article 21 of UN Model Convention, we fin....
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....n also be not taxed as 'Other Income' under the respective tax treaties i.e. Article 22 of DTAA cannot be applied. The Hon'ble High Court of Madras in Bangkok Glass Industries Pvt. Ltd Vs ACIT (supra), was deciding the issue of DTAA between India and Thailand. The said tax treaty does not have any FTS clause and the entity of Thailand had no PE in India. The Hon'ble High Court rejected the claim of Revenue that in the absence of PE in India, where the amount could not be taxed under Article 7, then such FTS could be taxed as other income under Article 22 of DTAA. 35. The Ahmedabad Bench of Tribunal in the case of DCIT-(IT) Vs. Welspun Corporation Ltd. (supra) applying said principle elaborated on the issue in para 25, which we have extracted above. We may look at the relevant Treaty provisions, which read as under:- India Thailand tax treaty ARTICLE 22- Other income Items of income of a resident of a Contracting State, wherever arising, not expressly dealt with in the foregoing Articles may be taxed in that State. Such items of income may also be taxed in the Contracting State where the income arises. India UAE tax treaty ARTICLE 22- ....
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....ct of, and mode of, taxation in the absence of PE or fixed base, which gets affected as a result of the fees for technical services. When there is an FTS clause, the FTS gets taxed even in the absence of the PE or the fixed base, but the character of FTS receipt is the same, i.e. business income or professional (independent personal) income, in the hands of the same. When there is no FTS clause, this sub categorization of income becomes irrelevant, because FTS or any other business receipt, the income embedded in such receipts gets taxed only if there is a permanent establishment or fixed base- as the case may be. The scope of business profit and independent personal service completely covers the fees for technical services as well. With FTS article or without FTS article, the income by way of fees of technical services continues to be dealt with the provisions of articles relating to business profits, independent personal services, and additionally, in the event of existence of an FTS article, with the article relating to the fees for technical services. 29. In view of the above discussions, in our considered view, even if the receipts in question are in the nature of fee....
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.... with whom assessee before us had dealings). Since such receipts are taxable in the hands of recipients, there was obligation on assessee to deduct tax or withhold tax out of such payments. The assessee having not deducted tax at source out of such payments or having not withheld the tax, thus had defaulted and is liable to the demand raised under section 201(1) of the Act and interest charged under section 201(1A) of the Act. 40. The third category of cases are in category III i.e. payments being made to entities resident of tax jurisdiction with whom India has tax treaties; further in such tax treaties, there is a clause of FTS, with condition of 'make available' of any technology. With regard to such entities in countries of category III, the condition of 'make available' is to be fulfilled in order to attract the provisions of clause of FTS. In other words, there has to be transfer of technology by such entities to the recipients of other Contracting States, while providing services to them. With regard to the countries of category III, the question which needs to be satisfied that while providing training, clause of make available of technology was satisfied or not. In the ....
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....at least two non-jurisdictional High Court decisions, namely Hon‟ble Delhi High Court in the case of DIT Vs Guy Carpenter & Co Ltd (346 ITR 504) and Hon‟ble Karnataka High Court in the case of CIT Vs De Beers India Pvt Ltd (346 ITR 467) in support of this proposition, and there is no contrary decision by Hon‟ble jurisdictional High Court or by Hon‟ble Supreme Court. We, therefore, hold that unless there is a transfer of technology involved in technical services extended by the UK based company, the "make available‟ clause is not satisfied and, accordingly, the consideration for such services cannot be taxed under Article 13(4)(c) of India UK tax treaty. No doubt, as pointed out by the learned Assessing Officer, there can indeed be situations in which technical training is imparted resulting in transfer of technology, even consideration for rendering of training services will be covered by the definition of "fees for technical services‟ but what is really the decisive factor is not the fact of training services per se but the training services being of such a nature that it results in transfer of technology. In the present case, the training servi....
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.... provider were general in nature and which did not involve any transfer of technology, it was held that where the onus was on Revenue authorities to demonstrate that these services too involve any transfer of technology and since that onus was not discharged, then the payment was not covered by the definition of "Fees for Technical Services‟. The facts of the said case are similar to the facts before us, wherein training availed by employees of assessee were web based services available on internet and no technical knowledge was being imparted by service provider and the Revenue has failed to demonstrate that the services did involve transfer of technology and in the absence of same, it cannot be said to be payments in the nature of Fees for Technical Services. Applying the said ratio, we hold that there was no liability upon the assessee to deduct tax at source on the aforesaid payments and hence, assessee cannot be held to be in default under section 201(1) and 201(1A) of the Act. The grounds of appeal No.6 to 8 are thus, allowed." 42. Applying the said parity of reasoning, we hold that the authorities below in the present case have not come to any finding that training ....
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....ement to deduct tax in the absence of satisfying 'make available' condition. Thus, grounds of appeal No.1 to 3 raised by Revenue are dismissed. 47. The issue raised vide grounds of appeal No.4 to 6 is against applicability of provisions of section 206AA of the Act. The limited issue which arises in the present case is against order of CIT(A) in holding that the provisions of section 206AA of the Act could not override the relevant DTAA provisions. 48. The Revenue is aggrieved by the aforesaid relief given by CIT(A). We find no merit in the grounds of appeal raised by Revenue in this regard as the beneficial provisions of DTAA would override the provisions of Income Tax Act and accordingly, there is no requirement to deduct tax at source as per provisions of section 206AA of the Act. The issue stands settled by decision of Pune Bench of Tribunal in DDIT Vs. Serum Institute of India Ltd. in ITA No.792/PUN/2013 and ITA Nos.1601 to 1604/PUN/2014, relating to assessment year 2011-12, order dated 30.03.2015. The Hon'ble Bombay High Court has dismissed the appeal filed by Revenue against the said decision of Tribunal in Income Tax Appeal No.548 of 2016 & Ors vide judgment dated 17.1....
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....lief given by CIT(A) vis-à-vis the payments made towards repairs and maintenance and other services and whether tax was deductible. The details of aforesaid payments are available at page 47 of CIT(A)'s order. The assessee claims to have made payment of Rs. 18,16,940/- to Core Link AB. The assessee claimed that the said payments included payments for material purchase or machinery part charges. The CIT(A) has directed the Assessing Officer to verify the claim of assessee and if the payments were made for material purchase or machinery part charges, then there was no requirement to deduct tax at source and for such non deduction of tax at source, no disallowance can be made. We find no merit in the grounds of appeal raised by Revenue in this regard as the CIT(A) has asked the Assessing Officer to make necessary verification and decide the issue. The grounds of appeal No.1 to 3 raised by Revenue are thus, dismissed. 55. Now, coming to the next issue vide grounds of appeal No.4 to 6, which is against applicability of provisions of section 206AA of the Act. The Revenue in assessment year 2009-10 had also raised similar issue vide grounds of appeal No.4 to 6 and our decision i....
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....A) were of the view that there was requirement to deduct tax at source, hence the demand was raised under section 201(1) of the Act and interest was charged under section 201(1A) of the Act. We have already deliberated upon this issue and have decided the same while deciding the grounds of appeal No.2.1 to 2.5 relating to assessment year 2009-10 and given directions in respect of entities based in different countries ranging from category I to III. The Assessing Officer is directed to apply the said decision and re-compute the demand, if any, under section 201(1) and 201(1A) of the Act. The grounds of appeal No.3 to 3.4 are thus, allowed. 61. The ground of appeal No.4 raised by assessee is not pressed, hence the same is dismissed as not pressed. 62. Now, coming to Revenue's appeal in ITA No.1859/PUN/2014 relating to assessment year 2011-12. 63. The ground of appeal No.1 raised by Revenue is against deleting the addition made on account of IT support services. 64. The learned Authorized Representative for the assessee pointed out that as per agreement entered into between assessee and AB Tetra Pak, Sweden, IT support services were provided by the said associated enterpri....