TaxTMI 
TaxTMI 
2022 (10) TMI 712
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....facture and export of software. The assessee filed the return of income for AY 2013-14 on 17.3.2014 by declaring an income of Rs.8,67,63,830 and return for AY 2014-15 on 12.9.2014 declaring an income of NIL. The case was selected for scrutiny through CASS and notice u/s. 143(2) was duly served on the assessee. The AO made the following disallowances:- * Disallowance u/s. 14A r.w. Rule 8D * Addition towards foreign exchange gain * Disallowance of expenses for setting up of office * Onsite project expenses without TDS disallowed u/s. 40(a)(i) 5. Aggrieved, the assessee preferred an appeal before the CIT(Appeals). The CIT(Appeals) gave partial relief to the assessee by deleting the disallowances made u/s. 14A and section 40(a)(i). The revenue is in appeal against the order of the CIT(Appeals). Disallowance u/s. 14A r.w. Rule 8D 6. The AO noticed during the course of assessment that the assessee has made certain investments the income from which is exempt from tax. The AO also noticed that the assessee has not worked out any disallowance towards income from investments exempt under the Act. The assessee submitted before the AO that during th....
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....refore no disallowance is warranted in assessee's case since there is no exempt income earned. 11. We notice that the Hon'ble Delhi High Court in the case of PCIT v. Era Infrastructure India Ltd. (supra) held as follows:- "5. However a perusal of the Memorandum of the Finance Bill, 2022 reveals that it explicitly stipulates that the amendment made to section 14A will take effect from 1st April, 2022 and will apply in relation to the assessment year 2022-23 and subsequent assessment years. The relevant extract of Clauses 4, 5, 6 & 7 of the Memorandum of Finance Bill, 2022 are reproduced hereinbelow: "4. In order to make the intention of the legislation clear and to make it free from any misinterpretation, it is proposed to insert an Explanation to section 14A of the Act to clarify that notwithstanding anything to the contrary contained in this Act, the provisions of this section shall apply and shall be deemed to have always applied in a case where exempt income has not accrued or arisen or has not been received during the previous year relevant to an assessment year and the expenditure has been incurred during the said previous year in relation to such exempt i....
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....3 Explanation expressly introduced with effect from a particular date would not effect the earlier assessment years. 12. In this state of the law, on 27-2-1999 the Finance Bill, 1999 substituted the Explanation to Section 9(1)(ii) (or what has been referred to by us as the 1999 Explanation). Section 5 of the Bill expressly stated that with effect from 1-4-2000, the substituted Explanation would read: "Explanation.-For the removal of doubts, it is hereby declared that the income of the nature referred to in this clause payable for- (a) service rendered in India; and (b) the rest period or leave period which is preceded and succeeded by services rendered in India and forms part of the service contract of employment, shall be regarded as income earned in India." The Finance Act, 1999 which followed the Bill incorporated the substituted Explanation to Section 9(1)(ii) without any change. 13. The Explanation as introduced in 1983 was construed by the Kerala High Court in CIT v. S.R. Patton [(1992) 193 ITR 49 (Ker.)] while following the Gujarat High Court's decision in S.G. Pgnatale [(1980) 124 ITR 391 (Guj.)] to hold that the Exp....
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....force in the relevant assessment year unless otherwise provided expressly or by necessary implication. (See also Reliance Jute and Industries Ltd. v. CIT [(1980) 1 SCC 139 : 1980 SCC (Tax) 67].) An Explanation to a statutory provision may fulfil the purpose of clearing up an ambiguity in the main provision or an Explanation can add to and widen the scope of the main section [See Sonia Bhatia v. State of UP., (1981) 2 SCC 585, 598 : AIR 1981 SC 1274, 1282 para 24]. If it is in its nature clarificatory then the Explanation must be read into the main provision with effect from the time that the main provision came into force [See Shyam Sunder v. Ram Kumar, (2001) 8 SCC 24 (para 44); Brij Mohan Das Laxman Das v. CIT, (1997) 1 SCC 352, 354; CIT v. Podar Cement (P.) Ltd., (1997) 5 SCC 482, 506]. But if it changes the law it is not presumed to be retrospective, irrespective of the fact that the phrases used are "it is declared" or "for the removal of doubts".' (emphasis supplied) 7. The aforesaid proposition of law has been reiterated by the Supreme Court in M.M. Aqua Technologies Ltd. v. CIT [2021] 129 taxmann.com 145/282 Taxman 281/436 ITR 582. The relevant portion of the s....
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....s of the view that the amendment of section 14A, which is "for removal of doubts" cannot be presumed to be retrospective even where such language is used, if it alters or changes the law as it earlier stood. 12. In the given case, on perusal of the statement of computation of income it is noticed that for the AYs 2013-14 & 2014-15 the assessee does not have any exempt income (page 2 and page 456 of paper book) and therefore applying the ratio laid down by the Hon'ble Delhi High Court in the case of PCIT v. Era Infrastructure India Ltd. (supra), we delete the addition made by the AO u/s. 14A for both the assessment years. Onsite project expenses without TDS disallowed u/s. 40(a)(i) 13. On verification of the financial statements of the assessee, the AO noticed that the asse has made payments towards certain onsite project expenses amounting to Rs.56,41,12,597towards reimbursement of salary expenses incurred outside India for the projects. The AO noted that these payments are made to Datamatics Solutions Inc. and Link List Ltd., where no TDS has been deducted at source. The assessee submitted before the AO that these companies mainly employ manpower services for the purpose ....
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.... TDS in India, which has not been deducted by the assessee, hence the same is not allowable as revenue expenditure under :he provisions of the Act. 8.3.6 In the rejoinder filed on 31-07-2018 to the findings of the AO in the remand report, the appellant has submitted essentially the following facts/ arguments: i. Up to the financial year 2011-12 relevant to the Asst. Year 2012-13, the company was doing very well with the profit margin of about 30%. However, in the financial year 2012-13 relevant to the Asst. Year 2013-14, there has been a major setback due to mis-management by the CEO which lead to high attrition of Senior technical staff, Managers, etc leaving the company abruptly. Because of this, the implementation and technical support at the onsite client's places, got adversely impacted, consequently, the appellant could not execute. and complete the ongoing projects. The client's had stopped the payment related to the contract. ii. In order to keep the relationship with the ultimate clients; Tech Caliper Inc and Datassured Inc, intact and also to realize the payments for the work already completed, the appellant sought their help to find way....
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....tics Solutions to provide required manpower directly to the client location abroad to complete the balance pending work under the supervision of the client's Managers. This arrangement was not originally foreseen while signing the Master Services Agreement (MSA) with the ultimate clients Tech Caliper Inc, (ICI) and DataAssured Inc (DA). The e-mail and other correspondence exchanged between the end Clients with the appellant, establish the above beyond doubt. Therefore, it is not true that the appellant's own employees were deputed for the onsite work and the vendors Linklist and Datamatics, have only facilitated the said deployment. 8.3.9 It is also true that the services were rendered by both the overseas third party service providers (Linklist Ltd., and Datamatics Solutions) directly at the client's (TCI and DA) locations, without interaction with the appellant's staff and considering the same, it cannot be said that any technology was transferred to the appellant to fulfil the definition of making available clause. The employees of the appellant having been laid off/retrenched, there was no active/passive connect of the employees of the appellant with th....
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....nd for this purpose the vendors were billed on "service fee" plus the "reimbursement of the salaries of the manpower hired". Thus, under these circumstances it can be said that the appellant being the recipient of services has not been enabled to use the technology which the service provider has used. Further, there was no new and sophisticated technology involved in the work as the deployment was for the untrained manpower hired from the local market abroad. 8.3.10 Considering the circumstantial evidence furnished, it is clear from the direct deployment of the Technical manpower engaged from the market and at the clients onsite (to get the work done), without any training or skill up-gradation, that the nature of the work to be 'simple and basic entry level needed for the implementation and maintenance tech support work'. Therefore, the assumption drawn by the AO that highly skilled Technology services were rendered by the manpower to the Appellant is incorrect." 16. Aggrieved the revenue is in appeal before the Tribunal. 17. We have considered the rival submissions and perused the material on record. The ground under which the AO is contending that TDS prov....
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.... The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as "fee for technical/included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied. 23. The agreement entered into between the assesses and the Fugro makes it clear that the objective of the survey will be to provide high quality, high resolution geophysical data suitable for selecting probable kimberlite targets. The assessees acknowledge the Fugro to be an expert in all aspects of the air borne survey and subsequent data processing. All operations, tests and calibrations have to be carefully undertaken to ensure the highest possible data quality and to meet or exceed the specifications described in the agreement. It is the responsibility of the Fugro to take the appropriate action to maintain the level ....
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....h Fugro was essentially for providing specific data for which Fugro was required to conduct the airborne survey. Fugro undertook all the operations, test and calibrations in order to provide the assessees with the highest possible data quality. Fugro has performed the surveys using substantial technical skills, knowledge and expertise. After completion of the said survey work, Fugro has delivered the following products: (1) Raw XYZ file for each block with header. (2) Final XYZ file for each block with header. (3) Digital plot files for the RTP and 3kHz Resistivity maps for each block. (4) Aircraft data for entire survey. Pseudocolour 3kHz resistively map for each block, Pseudo-sunshare RTP TMI map for each block;-. Acquisition and processing report. (Tests and Calibrations report), Analog rolls for the entire survey. 26. Thus, in terms of the contract entered into with Fugro, they have given the data, photographs and maps. But they have not made available technical expertise, skill or knowledge in respect of such collection or processing of data to the assessees, which the assessee can apply independently and without assistance and unde....
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....hnical services which is rendered by Fugro is not of enduring in nature. It is a case specific. That information pertains to 8 blocks. The assessees can make use of the data supplied by way of technical services and put its experience in identifying the locations where the diamonds are found and carrying on its business. But the technical services which is provided by Fugro will not enable the assesses to independently undertake any survey either in the very same area Fugro conducted the survey or in any other area. They did not get any enduring benefit from the aforesaid survey. In that view of the matter, though Fugro rendered technical services as defined under Section 9(1)(vii) Explanation 2, it does not satisfy the requirement of technical services as contained in DTAA. Therefore the liability to tax is not attracted. Accordingly the first substantial question of law is answered in favour of the assessees and against the Revenue. 28. Fugro is engaged in providing services relating to collection and processing of the data. The contract is for providing of services and not for supply of technical design or plan. Fugro compiles the data and processes them for error corre....
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....f persons engaged and disclosing in full the geological, geophysical or other valuable data collected by him during the period. Further sub-rule (3) makes it clearly obligatory that while submitting the report under sub-rule (1) or (2), the licensee may specify that the whole or any part of the report or data submitted by him shall be kept confidential and the State Government shall thereupon, keep the specified portions as confidential for a period of two years from the expiry of the licence or abandonment of operations or termination of the licencee, whichever is earlier. 30. It is because of the statutory obligation imposed on the licencee in the contract entered into between the assessees and Fugro, it is specifically provided in clause (15) that all information and data relating to any site on which any work or services are performed under the agreement shall belong exclusively to the assessees and its assigns and the contractor shall keep such information strictly confidential. All information recorded in digital and analog form and all products derived from information are the property of the assessees. The contractor agrees not to divulge any information to any per....
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....not be seen in isolation with the fees for technicalservices. Its only the fact of, and mode of, taxation in the absence of PE or fixed base, which gets affected as a result of the fees for technicalservices. 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 technicalservices as well. With FTS article or without FTS article, the income by way of fees of technicalservices 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 technicalservices. 29. In view of the above discussions, in our c....
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.... the assessee. The scheme of arrangement as can be seen from the facts of this case is that the assessee has entered into agreement with Datamatics Solutions Inc., USA and Link List Ltd., UAE for supply of manpower to be employed in customer locations instead of assessee's own staff being employed. It is also noticed that the vendor employees work as per the directions of the ultimate customers without much interaction with the assessee. Therefore, it can be said that the services rendered by third party vendors can be described as payroll services and in the invoices raised by the vendors the description is towards reimbursement of salaries of the manpower hired. Considering the nature of service rendered by the vendors to the assessee, there is no use of technology in the services provided. The vendor is not employing any technology but is providing manpower service to the assessee in order to enable the assessee to meet the project commitments given to the customers. Though the deployed employees may possess the technical knowledge to carry out the services to the customers, no technology is made available to the assessee. Therefore, following the ratio laid down by the jurisdic....