TaxTMI 
TaxTMI 
2022 (1) TMI 1032
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....inable, and the consequent demand in not enforceable in law. 2. Addition to the total income on account of professional services * The learned AO and the Honourable Dispute Resolution Panel ('Hon'ble DRP') has erred on fact and in law on making an adjustment to the total income of the Appellant on account of receipts from services. * The learned AO and Hon'ble DRP has erred in not appreciating that the services in question were provided for the export business of the service recipient and therefore not liable to tax as Fees for Technical Services (FTS) under section 9(1)(vii) of the Act. * The learned AO and Hon'ble DRP has erred in not recognizing that payments received by the Appellant fell within the purview of the exclusionary clause of Section 9(1)(vii)(b) of the Act and were not, therefore, chargeable to tax in India under the provisions of the Act. * The learned AO and Hon'ble DRP has erred in not appreciating that professional services provided by the Appellant to MTR Foods Pvt. Ltd. is not taxable as FTS under the India-Singapore Double Tax Avoidance Agreement (DTAA'). * The learned AO and Ho....
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....ion 234B of the Act. * The learned AO has erred in fact and law by levying interest under section 234B of the Act as the Appellant is a non-resident company, entire tax was to be deducted at source on payments made by payer to it and there was no question of payment of advance tax by Appellant. * Notwithstanding above, the learned AO has erred in computing interest under section 234B amounting to INR 24,93,810 being consequential in nature. 8. Surcharge and education cess * The learned AO has erred in levying surcharge and education cess. * The learned AO has erred in fact and law by levying surcharge and education cess, without appreciating that surcharge/education cess should not be charged when taxes are levied at the rate prescribed under the DTAA. The appellant craves leave to add, alter, rescind and modify the grounds herein above or produce further documents, facts and evidence before or at the time of hearing of this appeal. For the above and any other grounds which may be raised at the time of hearing, it is prayed that necessary relief may be provided." 2. Brief facts of the case are as under: 2.1. Asses....
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....ear under consideration. 3. Assessee before the authorities below submitted that provisions of double taxation avoidance agreement between India and Singapore are more beneficial, according to which, assessee was under a bona fide belief that the professional charges received from M/s. MTS Foods Pvt. Ltd., were not in the nature of FTS. The Ld. AO rejected the submissions of assessee for following reasons: * The foreign company is relying on section 90 of the Income Tax Act where it can avail the beneficial provisions of the tax treaty unless the domestic tax laws provided for a more beneficial provision. * Further the company has analysed that whether professional charges received by the company constitute FTS under Article 12 of DTAA by relying on make available clause. * Thereafter the company has submitted that there is no permanent Establishment (PE) in India by referring to article 5 of the DTAA and has taken a stand that the income of Rs. 71,21,169/- earned by the company during the FY 2014-15 by way of legal and professional charges from their 100% subsidiary company M/s. MTR Foods Pvt. Ltds in India is a Business Income and hence taxable at Si....
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....d its objections before the DRP. 5. Before the DRP the assessee relied on para 4 of Article 12 of India Singapore DTAA that defines FTS to be managerial, technical consultancy nature if such services make available technical knowledge, experience, skill, know-how or process to the Indian entity. The assessee before the DRP submitted that since the technical knowledge was not made available to the Indian entity (MTR foods Private Limited), treating the payments as FTS and charging the same to Income tax under section 9(1)(vii) of the act is incorrect. 6. The DRP after considering the submissions of assessee decided the issue by observing as under: "2.1.2 The sole bone of contention as to whether the secondment charges paid in respect of the professional services rendered by Shri Mithun Sachdeva falls under the classification as FTS and thus taxable u/s. 9(1)(vii) of the Act or otherwise. The AO has relied on four decisions which are as under: * International Hotel Licensing Co. 158 Taxman 231 (AAR) * Shell India Markets (P) Ltd. (2012) 342 ITR 223 (AAR) * Guangzhou Usha International Ltd. (2015) 62 taxmann.com 96 (AAR) * GVK Industr....
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....taxmann.com 300 (Delhi) squarely applies to the fact situation in the present case. Similar to that of the case under consideration, the technology was only deployed for rendering services to the Indian entity and such technical knowledge was not passed on to the Indian entity. Even other vise, the Hon'ble Delhi High Court held as under: "Section 9 of the laconic-tax Act, 1961, read with article 13 of DTAA between India and UK and article 12 of DTAA between India and Canada - Income - Deemed to accrue or arise in India (Royalties and fees for technical services) - Assessee, an Indian company, was a wholly owned subsidiary of Centrica Plc., a company incorporated in United Kingdom ('UK') - BSTL and DEML were also subsidiaries of Centrica Plc. and those overseas concerns were in business of supplying gas and electricity to consumers across UK and Canada - Overseas entities outsourced their back office support functions to third party vendors. in India - To ensure that Indian vendors comply with quality guidelines, assessee was established in India to act as service provider to overseas entities - To seek support during initial year of its operation, assessee soug....
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....eved by the final assessment order passed by the learned DCIT to, the season appeal for us. 7. At the outset alone they are submitted that assessee do not seek to press the issue raised in Ground No. 1. Accordingly, the Ground No. 1 raised by assessee stands dismissed as not pressed. 8. Ground number 1-4 is in respect of the taxability of receipts received by assessee from M/s. MTR Foods Pvt. Ltd., as FTS under section 9(1)(vii) of the Act. 8.1. The Ld. AR submitted that it is an undisputed fact that professional services were rendered by non-resident assessee to M/s. MTR Foods Pvt. Ltd. and the invoices were raised on a monthly basis by the non resident assessee in respect of services rendered by one Mr. Mithun Sachdeva at Singapore. The Ld. AR submitted that the invoice includes cost towards rental, administrative support, office cost, office maintenance, staff expenses, office expenses and travelling expenses. The details of the invoice raised by the non resident assessee are as under: S.No. Month SGD INR 1 Apr-14 16120 772613 2 May-14 14916 703309 3 Jun-14 10506 506635 4 Jul-14 11143 541210 5 Au....
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....y are ancillary and subsidiary to the application or enjoyment of a right, property or information for which are royalty payment is made; or -They make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. Therefore, under paragraph 4 of Article 12 of the DTAA, technical and consultancy services are considered included services only to the extent they make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. The assessee pointed out that by providing the back office services referred in the earlier paragraph, nothing is made available to the recipient of services from the assessee. The Ld. AR relied on the following decisions. * Raymond Ltd. reported in [2003] 86 ITD 791 (MUM.) * ABB Inc. reported in [2015] 59 taxmann.com 159 (Bangalore - Trib.) * Koninklijke Philips Electronics N.V. reported in [2018] 99 taxmann.com 23 (Kolkata - Trib.) * Guy Carpenter & Co. Ltd. reported in [2012] 20 taxmann.com 807 (Delhi) * ....
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....Sachdeva is found to be highly skilled and technically competent and not an ordinary employee of OAP, the rendering of managerial or professional services of such high expertise also falls under the ambit of FTS defined in explanation (ii) to Sec. 9(1)(vii). Under such circumstances, the position taken by the AO to treat the amount received by OAP from MTR as per the terms of the agreement as fees for technical services and subjecting it to tax @ 10% is upheld. I agree with the decision of the Hon'ble DRP and the same may be upheld. (9) Levy of Interest u/s. 234A, 234B of the Act and levy of education cess. Submission: Charging of interest u/s. 234A and 2346 are consequential in nature and they are automatic and they are as per specific provisions of the Act and the same may be retained. Levy of cess is as per the tax determined and the same may be retained. Conclusion: In view of the submissions made above, examination of submissions made by the assessee, the order of the Ld. A.O. and Hon'ble DRP Bangalore are not erroneous and not bad in law. The assessee's appeal may be dismissed. Prayer: In the wake of the above ....
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.... 8. OAP agree to dedicate at least 50 % of one full-time position employee to provide sales and marketing services to the benefit of MTR and also at the request of MTR. 9. Apart from services mentioned in this agreement, MTR may also request OAP to render additional special services, the remuneration for which shall be agreed on a case-by-case basis. In the absence of any express agreement to the contrary, the scope of this agreement shall be limited to the South East Asia region. Article 4 SCOPE OF SERVICES 10. During the term of this agreement, and subject to the terms and conditions stated herein, OAP will render, or arrange to be rendered, the following Marketing services for the benefit of MTR; limited to 50% of one full-time position to: * Assist MTR in market research, product launch, price negotiations, etc * Assist MTR on any sales or marketing matters that may arise Article 5 REMUNERATION FOR SERVICES RENDERED 11. MTR will pay for 50% of Jasmine's regular working hours during the term of this contract, Any additional use of services each year will be invoiced by hour. The costs payable ....
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....ion of this agreement shall be declared invalid, this agreement shall be construed as if such term or condition had not been inserted. The headings or titles used herein are for the purpose of convenience only and are not to be used in construing the meaning or intent of this agreement: 4.2 Therefore, from the description of the services rendered by OAP by providing experienced personnel, Assisting MTR in market research, product launch, price negotiations, etc" 9.1. On perusal of the above Service Agreement, we observe that MTR Foods Pvt. Ltd., entered into an agreement with assessees as a company and not with the employee of assesses, who was to render the marketing research and sales support services. It is also observed that at the time of entering into the service agreement in 2010 the personnel who was rendering services was one (sic)'s ms. Jas' sne Lee Sock Khoon and sequentially there was a change in the person was providing services and we know that one Mithun Sachdeva who rendered services on behalf of assessee from April 2014. Assessee has also provided the certificate of residents therein categorically states that assessee is a resident in S....
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....a person residing permanently outside India shall not be deemed to accrue or arise in India, if the pension is payable to a person referred to in Article 314 of the Constitution or to a person who, having been appointed before the 15th day of August, 1947, to be a Judge of the Federal Court or of a High Court within the meaning of the Government of India Act, 1935, continues to serve on or after the commencement of the Constitution as a Judge in India. Explanation.--For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total income of the nonresident, whether or not,-- (i) the non-resident has a residence or place of business or business connection in India; or (ii) the non-resident has rendered services in India. The contention of ld. AR is that, all the services were rendered by the non-resident assessee outside India and therefore the statutory provisions under the Act cannot be attracted. Hon'ble Delhi Tribunal in case of Lufthansa Cargo India Pvt. ....
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....any copyright of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information; (b) any industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities described in paragraph 4(b) or 4(c) of Article 8. 4. The term "fees for technical services" as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contai....
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....of that State. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for technical services was incurred, and such royalties or fees 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 royalties or fees for technical services paid exceeds the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Agreement. A plain reading of above clause makes it clear that only such tech....
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....the technical knowledge, etc. by himself in his business or for his own benefit and without recourse to the performer of the services in future. The technical knowledge, experience, skill etc. must remain with the person utilizing the services even after the rendering of the services has come to an end. A transmission of the technical knowledge, experience, skill, etc. from the person rendering services to the person utilizing the same is contemplated by the article. Some sort of durability or permanency of the result of the 'rendering services' is envisaged which will remain at the disposal of the person utilizing the services. The fruits of the services should remain available to the person utilizing the services in some concrete shape such as technical knowledge, experience skill etc." Hon'ble Mumbai Tribunal in Raymond's case (supra), the also held that rendering of technical services cannot be equated with making available the technical services. Hon'ble Karnataka High court in case of CIT v. De Beers India Minerals (P.) Ltd. I reported in (2012) 21 taxmann.com 214 dealt with identical issue of FTS being made available. In that case, the assessee therein....
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....ce in Tax Treaty and not liable to tax. Based on the above requirement of taxation of FTS as above, court held that there is no doubt that the services performed by Furgo are using technical knowledge and expertise but such technical experience, skill or knowledge had not been made available to assessee and accordingly, the said services are not taxable as fees for technical services under India - Netherlands Tax Treaty. The relevant extract of the decision has been reproduced below: '22. What is the meaning of "make available". The technical or consultancy service rendered should be of such a nature that it "makes available "to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology "making available", the technical knowledge, skill?, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services ....