TaxTMI 
TaxTMI 
2019 (10) TMI 990
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....nt of expenses Rs. 2,16,962/- i.e. (Rs. 147,766/- payment made to Super Potato Company Ltd, Japan and Rs. 69,196/- to Creative Kitchen Planet Intt, Malaysia) made by the assessee company to various non resident recipients by holding that " Payment made by the appellant to Super Potato Co. Ltd (SPC, Japan) & Creative Kitchen Planners Intl. Malaysia were in the nature of Fees for Technical Services and therefore chargeable to tax in India. The appellant was required to withhold tax on these payments u/s 195" 1.2 That the learned CIT(A) has failed to appreciate that the payment is in the nature of reimbursements made to Super Potato (SPC) & Creative Kitchen Planners Intl. (CKP) (the non resident service provider) on account of actual expenses incurred by the non resident like air fare charges, travelling, boarding & lodging etc in India in pursuance of the respective agreements with the concerned parties, on the basis of back up invoice/ supports of third parties and there is no element of income present in such remittance which may be chargeable to tax under the provisions of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). 1.3 That the learned CIT(A....
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....ce 'make available' condition is not fulfilled, but failing to appreciate the fact the receipt was not required to make such a knowledge or technical expertise available on a permanent basis and the services were provide in connection with review of aircraft- records and condition survey to DLF Ltd and enable it to purchase a second hand aircraft. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made by the AO, by holding that payment made for aircraft maintenance are not in the nature of FTS, since 'make available' condition is not fulfilled but at the same time failing to appreciate the fact that the recipient was not required to make such a knowledge or technical expertise available on a permanent basis and the services were provided in connection with maintenance or aircraft. 5. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made by the AO, by holding that payment made for crew support services are not in the nature of FTS, since 'make available' condition is not fulfilled but at the same time failing to appreciate that it was not intended by the assess....
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....Ltd (SPC, Japan), Creative Kitchen Planners Intl. Malaysia & Small, Wood, Reynolds Stewart Singapore were in the nature of Fees for Technical Services and therefore chargeable to tax in India. The appellant was required to withhold tax on these payments u/s 195" 1.2 That the learned CIT(A) has failed to appreciate that the payment is in the nature of reimbursements made to Super Potato (SPC), Creative Kitchen Planners Intl. (CKP) & Small, Wood, Reynolds Stewart .Singapore (the non resident service provider) on account of actual expenses incurred by the non resident like air fare charges, travelling, boarding & lodging etc in India in pursuance of the respective agreements with the concerned parties, on the basis of back up invoice/ supports of third parties and there is no element of income present in such remittance which may be chargeable to tax under the provisions of the Income Tax Act, 1961 (hereinafter referred to as 'the Act'). 1.3 That the learned CIT(A) has grossly erred in law in applying section9(1 )(vii) of the I.T. Act, 1961 by treating the payment made by the appellant company to these non residents recipients in nature of fees for technical service ....
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.... provide in connection with review of aircraft- records and condition survey to DLF Ltd and enable it to purchase a second hand aircraft. 4. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made by the AO, by holding that payment made for aircraft maintenance are not in the nature of FTS, since 'make available' condition is not fulfilled but at the same time failing to appreciate the fact that the recipient was not required to make such a knowledge or technical expertise available on a permanent basis and the services were provided in connection with maintenance or aircraft. 5. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made by the AO, by holding that payment made for crew support services are not in the nature of FTS, since 'make available' condition is not fulfilled but at the same time failing to appreciate that it was not intended by the assessee to have such service in the form of training or transferring permanent expertise. 5. On the facts and in the circumstances of the case, the Ld. CIT(A) has erred in deleting the addition made by the AO....
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....y as an assessee in default for non deduction of Tax at Source in respect of payment of Rs. 36,85,48,449/- for the A.Y. 2007-08 & 2008-09 made by the assessee company to various non residents recipients which are in the nature of Royalty/FTS and is chargeable to tax in India as per the Assessing Officer. The items identified by the Assessing Officer for treating the assessee in default u/s 201 in respect to remittances made to the non-resident payees for different assessment years have been tabulated as under: Issue Party Name /Payee Country AY 2006-07 AY 2007-08 AY 2008-09 1. Hiring / Chartering of Aircraft Air Partner Inc. USA 37,22,865 - - Air Partner PLC UAE - 53,84,363 - Net Jets UK Ltd. UK - - 1,10,86,070 London Air Charter Center Ltd. UK - 6,92,145 - 2. Legal Consultancy Services White & Case UK - 2,35,00,341 88,10,931 3. Reimbursement of expenses Creative Kitchen Planners Intl. Malaysia 69,169 1,00,622 Super Potato Co. Ltd. Japan - 1,47,766 12,51,250 Smallwood, Reynolds, Steward Singapore - - 4,64,089 4.....
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....ection 9(1) of the Act and also not coming under the purview of relevant DTAA of India with the other country and that the machinery provisions of Section 195 do not apply to the said payment. The Ld. AR relied upon the decision of the Tribunal in case of Pernod Ricard India Pvt. Ltd. vs. ITO (TDS) ITA No. 6640/DEL/2013 order dated 08.01.2019 wherein the reliance was made on the decisions of the Hon'ble Delhi High Court in case of Industrial Engineering Projects Pvt. Ltd. 202 ITR 1014 and the Hon'ble Bombay High Court in case of Krupp Udhe GmbH 354 ITR 173. 6. The Ld. DR relied upon the order under Section 271 of the Act as well as the order of the CIT(A) on this issue. 7. We have heard both the parties and perused all the relevant records. It is pertinent to note that payments made to non residents in the present case the payments made to them are purely of reimbursement in nature and does not fall within the remuneration at all. The findings given by the CIT(A) that whether the payments are made directly to non-residents or part of their expense is reimbursed by the assessee has same effect, is not correct. In fact actual expenses in the nature of airfare charges, courier c....
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.... in India, as this is not the case of the AO even. Now, the issue involved is whether such payments can be characterized as royalty as provisions of Explanation 2 (iva) to section 9(1)(vi) of the Act. Section 9(1)(vi) provides the source rule and its clause (b) says that income by way of royalty paid by Indian resident shall be deemed to accrue or arise in India. This clause also provides an exception to this rule, which is however not applicable in case of appellant. For applicability of this source rule, the nature of income should be 'royalty'. The term royalty has defined in Explanation 2 to section 9(1)(vi) and its clause (iva): .................... The appellant has hired aircraft on chartered basis from non-resident airlines. ..................The appellant is engaged in business of real estate and is not in aviation business. Therefore, it can not be inferred that the aircraft taken on hire by the appellant has been used in its business for producing goods or providing services in any manner. If at all it is to be inferred that air craft is in nature of equipment, then if the appellant hires a taxi, may be on chartered basis, that will al....
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....gel' commentary as discussed supra, therefore this payment falls outside purview of Article 12(3)(b) and hence it is not in nature of royalty. ......................... As per discussion supra, it is seen that the hire charges for chartered fully equipped aircraft is, not in nature of royalty as per definition of royalty as contained in 9(1)(vi) of the Act, because such aircraft shall not be an industrial, commercial or scientific equipment for the appellant. The payment is not in nature of royalty even as per relevant DTAA as discussed supra. In view this finding, I hold that since the payment is not chargeable to tax in India, there is no obligation cast on the appellant to withhold tax on it. This issue is decided in favour of the appellant. This disposes off relevant portion of ground no. 2.1 for AY 2006-07, 2007-08 & 2007-08 which are allowed." From the perusal of the above findings given by the CIT(A) and from the records produced before the Assessing Officer at the time of the proceedings under Section 201 of the Act, it can be seen that the assessee company entered into an agreement with London Air Charter Centre Ltd. (UK) and Air Partner PLC (UAE) both....
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.... per Article 15(1), such payment shall be taxable only in UK. The AO' case is that since the payment has been made to a partnership firm and not to the individual, Article 15 does not apply. This argument of AO is not correct in view of first sentence of Article 15(1) which talks about the income derived by an individual, whether in his own capacity or as a member of a partnership. The partnership firm can provide services through its members and collect payment through its members. The words 'partnership' appearing in the Article is not without any meaning. Further, in case of partnership firm, stay of a specific individual member of partnership is not relevant for counting the period of 90 days as is clear from provisions of Article 15(2), which say that stay of any member of partnership shall be relevant. A similar interpretation has been given in case of Clifford Chance, UK vs. DCIT (2003-TII-53-ITAT-MUM-INTL), wherein Indo-UK treaty was involved as in the present case. In view of the discussion, it is clear that in present case, the payment made to White & Case is taxable in UK and not in India because the services were rendered in UK and the firm or its member did not have a ....
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....ted to tax in India as the said White & Case is partnership firm. The firm is a resident of UK which does not have any fixed base regularly in India and aggregate stay in India during the period April, 2006 to March 2007 does not exceed 90 days. Hence TDS will be not applicable as per Article 15 of the DTAA agreement in between India and UK. The Assessing Officer overlooked the vital fact that the payment is covered under Article 15 and not under Article 13 since the remittance has been made to a non-resident partnership firm, as is also evident from the invoice of the payee produced by the assessee company. The benefit of exemption under Article 15 are available to an individual as well as to a partnership firm and thus, tax is not required to be withheld on the concerned payment. Thus, the findings given by the CIT(A) is correct and there is no need to interfere with the same. Hence, Ground No. 2 is dismissed. 14. The Ld. DR submitted that as regards to Ground No. 3, the CIT(A) erred in deleting the addition made by the Assessing Officer, by holding that payment made for survey of aircraft and routine service are not in the nature of FTS since 'make available' condition is ....
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....st for its travelling purpose, in the same way as a businessman buys a vehicle for his travelling purpose. The aircraft was not meant to be a source of income situated outside India for the appellant. Therefore, case of the appellant does not fall out of purview of provisions of section 9(1)(vii)(b) of the act. The services provided by non-resident squarely fall within definition of technical services under the domestic act. Now, we have to examine the position under Indo-USA DTAA. Article 13(4) of said DTAA defines technical services and it contains 'make available' clause. The meaning attached to 'make available; by different judicial authorities have been discussed supra in issue no.2. Therefore, unless the appellant has been enabled by the non-resident service provider to apply the said service in future on its own without resorting to the non-resident service provider, it cannot be said that the service has been made available. Hon'ble Bombay High Court in case of Diamond Services International (P) Ltd. Vs. Union of India [2008-TOIL-268-HC-MUM-IT], has reiterated the same principle. The AO has not established that the appellant has been trained by General Dyn....
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....of FTS, since 'make available' condition is not fulfilled but at the same time failing to appreciate the fact that the recipient was not required to make such a knowledge or technical expertise available on a permanent basis and the services were provided in connection with maintenance or aircraft. 18. The Ld. AR relied upon the order u/s 201 of the Act and order of the CIT(A). 19. We have heard both the parties and perused all the relevant material available on record. The CIT(A) held as under: "8.4 Finding: The appellant has made payment to Gulf Stream Aerospace Ltd., UK for aircraft maintenance which is in the nature of routine repair and maintenance and includes labour and material charges. The AO has taken a view that the non-resident has provided FTS to the appellant. The nature of job done by Gulf Stream Aerospace Ltd., UK is like another repair job, which included both men and material. The AO has not pointed out any special feature of this repair job so as to label it as technical service within the meaning of sec 9(1)(vii) of the Act and Article 13(4) of Indo-UK DTAA. If it is to be a technical service, then any kind of repair of a motor vehicle sh....
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....has erred in deleting the addition made by the Assessing Officer, by holding that payment made for crew support services are not in the nature of FTS, since 'make available' condition is not fulfilled but at the same time failing to appreciate that it was not intended by the assessee to have such service in the form of training or transferring permanent expertise. 21. The Ld. AR relied upon the order u/s 201 of the Act and order of the CIT(A). 22. We have heard both the parties and perused all the relevant material available on record. The CIT(A) held as under: "9.3 Finding: The appellant has made payment to ACASS Canada Ltd., Canada, in respect of crew support services for its aircraft for a short duration of time. The AO has taken a view that it is in the nature of FTS. The appellant has hired service of a pilot for a short duration and it is analogous to engaging a driver for one's car. It is not understandable how the services provided by a driver are in nature of technical service. Such kind of services are not meant to be covered under provisions of section 9(1)(vii) of the Act. Without prejudice to it, even if it is assumed that the ....
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.... 25. We have heard both the parties and perused all the relevant material available on record. The CIT(A) held as under: "10.3 Finding: ........... ........... I have carefully considered various submissions made by the appellant and the order of the AO. The agreement between the appellant and Percept D Mark Gulf LLC shows that the appellant has taken sponsorship of India-Pakistan Friendship Series cricket matches played in UAE and the Malaysia Tri Series played in Malaysia. The appellant has got nothing to do with cricket ground. The term equipment has neither been defined in the Act nor in the DTAA. The Oxford Concise dictionary defines "Equipment" as - Things needed for a particular purpose". MacMillan Dictionary defines it as Machine or Tools needed for a job. The Merriam Websters dictionary defines an equipment as "All fixed assets other than land and building" used in a business enterprises. A fixed asset is an asset held with the intention of being used for the purpose of producing or providing goods or services and is not held for sale in the normal course of business. [ICAI Accounting Standard (AS), 10, Accounting for fixed a....
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....o tax in India, I hold that the appellant is under no obligation to withhold tax on such payments. The issue is decided in favour of the appellant." It is pertinent to note that the assessee company entered into an agreement with Percept D Mark Gulf LLC (Percept) for obtaining the ground rights in respect of the India-Pakistan Friendship Series Cricket Matches played in UAE. The assessee company was to make payment to the said company for securing the ground rights of the matches from Board of Cricket Control of India. The assessee company made payment to Percept D Mark Gulf LLC towards publicity expenses during the year which was for securing the ground rights which enabled it to find any other sponsors for the event. Thus, the payment in this respect does not come under the purview of the definition of Royalty as provided under Section 9(1)(vi) of the Act. The payment made by the assessee company merely enabled it to find a sponsor for the event in order to share the ground. Thus, no income was received or deemed to be received in India or accrues or arises or is deemed to accrue or arise in India to the Non-Resident payee in terms of Section 5(2) read with Section 9 of the....
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.... criteria of 'make available' clause as per the treaty with Singapore but at the same time failing to appreciate as the services were provided to the assessee to improve its security profile along with the security profile of other important persons of the company. 30. The Ld. AR relied upon the order u/s 201 of the Act and order of the CIT(A). 31. We have heard both the parties and perused all the relevant material available on record. The CIT(A) held as under: "12.4 Finding: The services provided to the appellant are in nature of technical services within the meaning of section 9(1)(vii) of the Act. This is not disputed by the appellant even. However, Article 12(4) of Indo-Singapore treaty contains 'make available' clause. The meaning attached to this clause has been discussed supra in issue no. 2 and it has been held that unless the services provided by non-resident equip the recipient of services with adequate expertise to the extent that the recipient is in a position to utilize those services own their own, the services can not be characterized as FTS. In present case, the AO has not established how the risk control report given by M/s Control....