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2020 (11) TMI 901
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....ed order returned perverse finding against the records in as much as it was not appreciated that no payment is made from India to the employees of Head Office. 1.2. That on the facts and in the circumstances of the case and in law the Ld. CITA while sustaining the addition of Rs. 73,17,1597- did not appreciated applicability of section -9(1)(ii), which limitedly taxes salary earned India. 1.3 That on the facts and in the circumstances of the case and in law the Ld. CITA while sustaining the addition of Rs. 73,17,159/- did not appreciated that since no payment is made by assessee in India within the meaning of section-192, there can be no occasion to apply section- 40(a) (i)/ 40(a) (iii). 1.4 That on the facts and in the circumstances of the case and in law the Ld. CITA while sustaining the disallowance of Rs. 73,17,159/- did not objectively considered non- discrimination article in India-Netherland's DTAA (Direct Taxation Avoidance Agreement), which immunizes the disallowance of salary expense because similar provision was not there u/s 40(a)(ia), which in the period under consideration excluded salary expenses. 1.5 That on the facts and in the c....
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....h the explanation given by the assesee on the ground that as per the contract, employees of the assessee have provided their services from India itself. Therefore, the salary paid to the employees would be taxable in India as it accrues or arises in India. Therefore, the assessee should have deducted TDS on salary as per provisions of section 40(a)(i) of the Act. Since the assessee failed to do so the AO disallowed the amount of Rs. 73,17,159/- claimed as salary expenses and added the same to the total income of the assessee. 5. Before the Ld. CIT(A) the assessee relying on various decisions submitted that the AO has applied incorrect provision of law for disallowing the salary expenses. Referring to various provisions of DTAA between India and Netherelands and relying on various decisions, it was argued that since salaries did not accrue or arise in India , the same was not chargeable to tax. 6. However the Ld. CIT(A) was also not satisfied with the arguments advanced by the assessee and upheld the action of the AO by observing as under :- FINDINGS "6.3. In terms of Article 15 of India-Netherlands DTAA, the taxation of dependent personnel services is governed as ....
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....that only Dr. Adnan Rahman (95 days), Mr. Robert Ossevoort (27 days) and Uil Drs (16 days) had visited India for the limited period, which is less than 183 days and worked on the project. It is evident that the above employees have contributed to the project, for which services were rendered in India through the PE of the appellant in the form of the project office. Further, since in terms of the above mentioned agreement, the appellant was to provide consultancy services for preparing and finalizing State transport policy and strategy through a consultative process,it is evident that even if some of the employees may have worked from Netherlands, the services by the appellant were rendered in India. The appellant does not get benefit of paragraph 2 of Article 15 as all were 3 conditions were not cumulative satisfied. In particular, the condition at paragraph 2(c) stating that the remuneration is not borne by a PE is not satisfied. In view of this, I -uphold the action of the AO of making disallowance u/s 40(a)(i) as such salary income was taxable in India and the appellant failed to deduct tax thereon. Accordingly, the Ground No. 1 is dismissed." 7. Aggrieved with such order of....
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....atively mandates that the remuneration of resident of one of the States in respect of employment exercised in the other State shall be taxable only in the first mentioned State if the conditions mentioned in sub Clause (a), (b) (c) are fulfilled. It was accordingly held that provision of Section 40(a) (i) would not apply for such non deduction of tax. He submitted that the above decision of the Hon'ble Delhi High Court is squarely applicable to the facts of the present case. Therefore disallowance made by the AO and sustained by the Ld. CIT(A) should be deleted. 10. Ld. DR on the other hand heavily relied on the order of the AO and Ld. CIT(A). Referring para 6.5 of the Ld. CITA() Ld. DR submitted that he has given a categorical finding that three of the employees have visited India for less than 183 days and have contributed to the project for which services were rendered in India through the PE of the assessee in the form of the project office. He has given a categorical finding that the assessee does not get benefit of paragraph 2 of Article 15 as all 3 conditions were not cumulatively satisfied. He has given a finding that the condition at paragraph 2(c) stating that the r....
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....uch tax has been paid:] [Provided further that where an assessee fails to deduct the whole or any part of the tax in accordance with the provisions of Chapter XVII-B on any such sum but is not deemed to be an assessee in default under the first proviso to sub- section (1) of section 201, then, for the purposes of this sub-clause, it shall be deemed that the assessee has deducted and paid the tax on such sum on the date of furnishing of return of income by the payee referred to in the said proviso] Explanation - For the purposes of this sub- clause - (A) 'royalty' shall have the same meaning as in Explanation 2 to clause (vi) of sub-section (1) of section 9; (B) "fees for technical services' shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9: ............. (iii) any payment which is chargeable under the head " Salaries", if it is payable - (A) outside India: or (B) to a non-resident, and if the tax has not been paid thereon nor deducted therefrom under Chapter XVII-B]." 12. We find the assessee before the Ld. CIT(A) in its grounds of appeal has mentioned a....
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....ax Appellate Tribunal was justified in law in reversing the order of the Commissioner of Income Tax (Appeals) and thereby upholding the disallowance of ` 1,929,632/- made by the assessing officer under Section 40 (a) (iii) of the Act, representing the amount of salaries paid in foreign currency to the employees at Netherlands, who were non-residents, without appreciating the same was not chargeable to tax under the provisions of the Income Tax Act 1961 by virtue of Article 15 of the Double Taxation Avoidance Agreement (DTAA) between Indian and Netherlands?" 14.1. In that case the AO had made disallowance of Rs. 19,29,632/- being salary paid to non resident outside India i.e. Netherlands u/s 40(a)(iii) of the Act which the Ld. CIT(A) deleted on the ground that the provision of TDS would not be applicable when the basic requirement is not fulfilled i.e the sum paid should have been chargeable to tax in India in accordance with provision of section 40(a)(iii) of the Act read with section 5(2) and section 9(i)(iii). The revenue challenged the order of the Ld. CIT(A) before the Tribunal and the Tribunal allowed the appeal of the revenue holding that the provision of section 40(a)(i) ....
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....er State." 15. It is clear from the above that if the employees outside India, who are non-residents, have received salary even from Indian company, said salary will not be chargeable to tax in India. Clause (2) authoritatively mandates that the remuneration of resident of one of the States in respect of employment exercised in the other State shall be taxable only in the first-mentioned State if the conditions mentioned in sub Clause (a), (b) (c) are fulfilled. All these conditions are applicable in the instant case. The employees whom the salaries were paid were non-resident as per Section 6(1) (a) of the Act, as none of them were in India for a period of 182 days or more. The remuneration is also paid by an employer i.e. the respondent assessee who is not a resident of other State i.e. Netherlands. Further, there is no permanent establishment of the respondent assessee in Netherlands which had borne the remuneration. 16. In view of the above, provisions of Section 40 (a) (iii) of the Act were not applicable in the instant case. As per that Section certain amounts are not allowed as deductions in computing the income chargeable under the head "profits and gains ....
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....d as income earned India." 18. Reading of this provision makes it clear that the salary payment can be said to be earned in India only if the corresponding services are rendered in India. In other words, if the services are rendered outside India, for which salary has been paid, then the income cannot be said to accrue or arise in India. Further, since in the instant case services are rendered outside India in respect of which the employees received salary outside India, it cannot be said that the same accrue or arise in India. 19. We may record here that Mr. C.S. Aggarwal, learned Sr. Counsel appearing for the appellant had referred to the judgment of Bombay High Court in the case of CIT Vs. Avtar Singh Wadhawan, 247 ITR 260. That was a case where the assessee had worked outside the India; he received salary outside India from an Indian employer namely Shipping Corporation of India, the Bombay High Court on these facts held that since the place where the services are rendered is relevant for determining chargeability of the tax, no tax would be payable on the salary received on the services rendered outside India. While laying down this principle, the court made ....
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....cision we hold that the assesee is not liable to deduct tax at source from the salary paid to the non resident and has not committed any default in not deducting tax at source from the reimbursement to the head office on account of salary expenses. Accordingly the order of the Ld. CIT(A) is set aside and the grounds raised by the assessee are allowed. 16. Grounds of appeal No. 2 to 2.5 are as under :- "2. That on the facts and in the circumstances of the case and in law the Ld. CITA while sustaining the disallowance of Rs. 48,34,6697- in paragraph no. 7.3 to 7.5 of the impugned order, made on account of alleged non deduction of tax at source, on professional fees etc., ignored submissions and arguments of the appellant company. 2.1 That on the facts and in the circumstances of the case and in law the Ld. CITA while sustaining the disallowance of Rs. 48,34,669/-did not appreciated that payment being reimbursement of technical expenses, in turn remitted to foreign professionals located outside India, paid outside India was exempt from taxation under Article of 14 of India- Netherlands DTAA. 2.2.That on the facts and in the circumstances of the case and i....
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....ble in India. Article 12 of the India-Netherlands treaty was brought to the notice of the Ld. CIT(A) and it was argued that since the 'make available' clause was not satisfied, therefore, it can not be held that technical services were rendered by the professionals. Article 14 of the said agreement (Independent Personnel Service) was also brought to his notice and it was submitted that since these professionals stayed in India for less than 180 days such payment was not covered under Article 14 either. It was submitted that the same also cannot be taxed in the hands of the assessee under Article 7 of the India Netherlands DTAA. The decision of Hon'ble Supreme Court in the case of Vodafone International Holdings BV reported in 341 ITR 1 (SC) and the decision of the Bangalore Bench of the Tribunal in the case of ITO vs. Cepha Imaging Pvt. Ltd. (2009-TIOL-558-ITAT-BANG) was also relied upon. It was further submitted that in terms of Article 12, clause 5 such services cannot be held as technical or consultancy services since such services were ancillary and subsidiary to the application of enjoyment of any right property or information for which the payment was made. 19. However ....
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....bly and essentially linked, to the sale of property; (b) For services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic; (c) For teaching in or by educational institutions; (d) For services for the personal use of the individual or individuals, making the payment; or (e) To an employee of the person making the payments or to any individual or partnership for professional services defined in Article 14 (Independent Personal Services) of this Convention.] 7. The provisions of paragraphs 1 and 2 shall not apply it the beneficial owner of the royalties or gees for technical services, being a resident of one of the States, carries on business in the other 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 royalties or fees for technical services are effectively connected with such permanent establishment or fixed base. In such case,....
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....S in respect of 2 professionals, who had visited India from time to time for this purpose. The appellant's reliance on the Article 14 in this regard is clearly misplaced. Accordingly, Ground No. 2 is also dismissed." 20. Aggrieved with such order of the Ld. CIT(A), the assessee is in appeal before the Tribunal. 20.1 Ld. Counsel for the assessee strongly challenged the order of the Ld. CIT(A). He drew the attention of the bench to para 6 of Article 12 of the India Netherlands Agreement which reads as under :- ARTICLE 12 ROYALTIES AND FEES FOR TECHNICAL SERVICES ............. "6. Notwithstanding paragraph 5, "fees for technical services" does not include amounts paid : (a) For services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property: (b) For services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic; (c) For teaching in or by educational institutions; (d) For services for the personal use of the individual or individuals, making the ....
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.... of the assessee. We have also considered the various decisions cited before us. We find the AO invoking the provisions of section 40(a)(i) made disallowance of Rs. 48,38,669/- being the amount paid to professionals without deduction of tax as according to him the said services are fees for technical services (FTS) in the hands of the recipient in view of section 9(1)(vii) of the Act and provisions of India Netherlands DTAA. We find the Ld. CIT(A) sustained the disallowance made by the AO the reasons of which has already been reproduced in the preceding paragraphs. It is the submission of the Ld. Counsel for the assessee that the payment of consultancy charges is nothing but reimbursement of technical expenses which have been remitted to foreign professionals located outside India and is exempt from taxation under Article 14 of India Netherlands DTAA. It is also his submission that in view of clause 6 of Article 12 fee for technical services does not include amount paid to any individual for professional services as defined in Article 14. We find Article 14 of the India Netherlands DTAA read as under :- ARTICLE - 14 INDEPENDENT PERSONAL SERVICES 1. "Income derived....
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....n the instant case the nonresident parties are limited liability partnership firms. We note that this objection of the Revenue has been analysed in detail by the Ld. CIT(A) after referring DTAA with UK, observing as under: "4.2.2 Thus, it can be seen from the above DTAAs that an income derived by an individual or a partnership firm by rendering of professional services is taxable in the Country / State of his / its residence. If DTAA of UK is considered for illustration, income of a UK firm for rendering professional services in UK will be taxable in UK. However, such income may also be taxable in India if the individual or any partner of the professional firm is present in India up to 90 days in a previous year or the person / firm has a fixed base regularly available to him / it in India for performing his / its activities. However, in this case, none of the members / employees of M/s Grant Thornton UK LLP came to India. It is categorically submitted that there is no fixed base or office or permanent establishment (PE) of the said UK LLP in India. Therefore, in the absence of a PE / fixed base of the recipient (i.e., M/s Grant Thornton UK LLP) in India and on account of ....
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....lant on the ground that it is applicable only if the recipient of income is an 'individual' and not a 'Limited Liability Partnership firm' has no legs to stand. 4.2.9 Moreover, in each of these DTAAs the term "professional services" includes the independent activities of 'lawyers' and 'accountants' amongst other such professional. The appellant is undisputedly engaged in rendering accounting and advisory services of international standards to various clients in India and abroad. Photocopies of the bills raised by the said parties towards rendering of services along with photocopies of form no. 15CA and 15CB filed are enclosed. Interestingly, the AO has also admitted vide para no. 5 at page 17 of the assessment order that "it is important to point out that the same 'professional fees' paid by the assessee within India is covered for deduction of tax u/s 194J of the Income-tax Act, 1961. Accordingly, the payment of professional fees made abroad to the parties referred to in the foregoing paras is also covered u/s 195 of the Income-tax Act, 1961..." 4.2.10 Therefore, it cannot be doubted that the impugned professional fees paid are squarely covered by the pr....
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....cal design' being involved in this case. Even the AO has not mentioned about any such technical plan or design anywhere in the assessment order. Thus, the second limb of clause (c) above is not applicable in this case. 4.3.9 Now there remains only the first limb of clause (c) above as per which the technical knowledge, experience or skill should be made available in India. For this purpose it is necessary to examine the meaning and concept of "make available" in India. 4.3.10 "Make available" implies that the technical knowledge, skill, etc. remains with the person utilizing the services even after the particular transaction is over. In other words, it means that the technical knowledge, skills, etc. must remain with the person receiving the services even after the particular contract comes to an end. The recipient of service must be able to absorb and apply the technology on its own in its future activities. ............" 3.7 The Ld. CIT(A) in support of his finding, has relied on following decisions: a) Cushman & Wakefiled (S) Pte., reported in (2008) 305 ITR 208; b) Sandvik Australia Pty. Ltd. Vs. DDIT (International Taxation),reported in (201....
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....cordingly, dismissed." 4. We also find that there is no material change in the facts pertaining to this ground in the appeal before us. The ld. DR could not bring anything controverting the facts on record. Hence, based on the order of this Tribunal in the assessee's own case and the rationale of the Tribunal given above, the appeal of the Revenue for this year is hereby dismissed. 5. In the result, the appeal of the Revenue is dismissed.-" 28. Since the assessee has made the payment outside India to independent professionals, therefore, in view of Article 14 of India Netherlands DTAA the assessee is not liable to deduct any tax from such payment. Therefore, the order of the Ld. CIT(A) is set aside and the grounds raised by the assessee are allowed. 29. Ground of appeal No.3 reads as under :- "3. That on the facts and in the circumstances of the case and in law the Ld. CIT(A) while sustaining the addition of Rs. 12,00,414/- did not appreciated that :- a. That no project office was opened for DMIC Project and the appellant received payment from another Netherlands co., namely, Kniper outside India. b. That payment by one Du....
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....ssible to open another project office for this project and tax profits of this as such. But ecorys nederlands BV did not receive any amount from an Indian company, instead it provided services to Kuiper compagnon Ruintelijke Oldening Stendenbouw Archectur Landschap BV, which is a Netherlands company, so the amount was paid for services by a Netherlands company to another Netherlands company, without involvement of project office. Had it been taxable in India, the amount remitted to Netherlands would also have been subject to TDS and payer should have deducted the same. No services were provided using the staff/professional services from project office." 32. It was further submitted that since assesssee has received the amount from Neetherlands Company to another Netherlands Company and the payment did not belong to the project office which is permanent establishment in India nor the services of this project office were used to complete the project billed to Kuiper, therefore, the amount are not taxable as foreign technical services u/s 9(1)(vii). 33. However, the AO was not satisfied with the arguments advanced by the assessee by observing as under ....
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....tisfied with the arguments advanced by the assessee and upheld the action of the AO by observing as under :- "8.2. I have carefully considered the facts of the case in the light of submission made by the appellant. For the purpose of deciding the issue, I had asked the AR to provide the details of key professional staff/consultants who had worked on the DMIC Project. The appellant was also asked to explain whether services were rendered from the existing project office for the PSRBDB. In support of the appellant's plea, the TDS was already deducted by the payer in the hands of the Kuiper evidence in the form of 26AS statement or TDS certificate was required. The appellant was asked to explain the manner, in which the services were rendered to the DMIC project and to furnish a break-up of expenses in DMIC project. The Id. counsel of the appellant failed to furnish the details despite several opportunities were rendered in this regard. 8.3. On careful perusal of the agreement, it is seen that Mr. Adnan Rahman, the professional staff of the appellant had furnished services for this assignment also. Since the appellant had booked the expenses of Mr. Adnan Rahman i....
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....f the order of the Ld. CIT(A) he submitted that the finding of the Ld. CIT(A) that technical services were provided to DMIC by the assessee from its PE India is patently erroneous. Ld. Counsel for the assessee drew the attention of the bench to ground No. 3 raised before the Ld. CIT(A) wherein it was sated that this contract was given to different consultants. He referred to the contents of Article 7 read with Article 5 and 12 of the India Netehrlands DTAA. He further submitted that there is no force of attraction clause as per Article 7 of the Treaty. He accordingly submitted that the disallowance made by the AO is uncalled for. In his alternative arguments, he submitted that in case the same is brought to tax then the global profit rate of 1% can be applied to the said income and the entire income can not be taxed. 37. Ld. DR on the other hand heavily relied on the order of the Ld. CIT(A). 38. We have heard the rival arguments made by both the sides, perused the order of the Ld. CIT(A) and the paper book filed on behalf of the assessee. We have also considered the various decisions cited before us. We find that AO in the instant case made addition of Rs. 12,00,414/- bein....