2023 (1) TMI 9

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....oration and refining of crude oil, manufacturing and trading of petrochemicals, polyester, fibers intermediate textiles, etc. The assessee filed an application u/s 195(1) on 16.06.2017 seeking authorization for payment to M/s Phillip Townsend associates Inc. (PTAI). The assessee stated that the deduction of tax at source should be at NIL rate for certain 'Benchmarking services' of Site Personnel Index (SPI) for five petrochemical sites at Patalganga, Noagothane, Hazira, Dahej, Vadodara and the refinery site at Jamnagar-DTA including RTF and solids dispatch area, under an agreement /work order no. MJA/230026568 dated 08.03.2017. 2. Before the AO, it was stated that assessee has made payment for providing services by PTAI as fees, net of taxes. The total expected payment to be made in FY 2017-18 under the said work order was Rs. 4.50 crores approx. The assessee also filed the tax residency certificate of PTAI which was tax resident of USA and it was also stated that PTAI did not had permanent establishment in India, therefore, it was in the nature of business income of PTAI and hence not taxable in India. The payment was purely commercial in nature and there was no technical element....

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....AI will develop a management review presentation and gap analysis. PTAI will deliver the management presentation at Reliance Industries offices. 1.9 Publication of a final report incorporating any Reliance Industries Patalganga, Nagothane, Hazira, Dahej, Vadodara and DTA-Jamnagar site changes from the Management presentation. 1.10 PTAI will conduct a one-day workshop to guide Reliance Industries on the development of a strategic plan to be used to close their largest opportunity gaps. 4. He further noted from the website of PTAI that benchmarking services of site personnel index (SPI), which consists of:- * Identify areas for manpower efficiency improvements between 25% to 50% on total hours worked in manufacturing facilities * Guide your decisions on personnel levels before or following restructuring * Harmonize your organizational structures * Communicate best practices and benchmarks to highlight key drivers * Build networks within your company * Set baseline targets, start "pacesetter" improvement programs and monitor changes in manpower efficiency year to year * Drive a step change in manpower efficiency performance * Design staffing levels for new....

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....ns of DTAA would be applicable, if they are beneficial to non-resident as per section 90(2) of the Act. PTAI is a company incorporated and tax resident of USA under Article 4 of the India-USA Double Taxation Avoidance Agreement (DTAA). 4.3.8. Article 12(4) of the DTAA defines the term 'fees for included services' as payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including the provision of services of 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) of that Article is received; or b) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design 4.3.9. On perusal of the terms of the Agreement, it is clear that the payment/ credit made by the Appellant under the Agreement between PTAI and the Appellant is essentially towards benchmarking services, which are not ancillary or subsidiary to the application or enjoyment of any right, property or information and, ....

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.... been rendered by the said entity in the earlier years and the similar application made u/s 195(1) has been accepted by the AO and in support, he relied on the orders u/s 195(2) dated 19.04.2013 for FY 2013-14 exactly for similar nature of payment from undertaking benchmarking services of SPI. Once the similar nature of payment not been treated as FIS, albeit as business income of the said non-resident entity which does not have PE in India, then the said payment cannot be taxed in India. 10. From the perusal of the agreement as well as nature of services rendered by the non-resident company PTAT, we find that the payment is purely towards benchmarking of the services of SPI and such benchmarking study merely enables the clients to undertake further course of action to improve its qualitative capacity of personnel which has been stated to be as under:- * Identify areas for manpower efficiency improvements between 25% to 50% on total hours worked in manufacturing facilities. * Guide your decisions on personnel levels before or following restructuring. * Harmonize your organizational structures. * Communicate best practices and benchmarks to highlight key drivers. * Build....