TaxTMI 
TaxTMI 
2023 (4) TMI 840
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....ed in not appreciating the nature of the payments read with the relevant articles of DTAA / Sec.9 / Sec.195 and Sec.90(2) of the Income Tax Act to consider them as fee for Technical services subject to deduction of tax U/s.195. 5. The learned CIT(A) erred in upholding the disallowance of Rs.59,23,000/- being prior period expenses on the ground that the appellant had failed to demonstrate the nature of the expenditure and the year of its crystallization despite such facts having been presented to the learned AO. 6. The C1T(A) erred in upholding disallowance of Rs.5AOA04/- out of the provision made for security expenses solely on the base of actual expenditure subsequently incurred." 3. The brief facts of the case are that assessee is a Central Public Sector undertaking under the control of Department of Atomic Energy (DAE) and is in the business of manufacture and sale of electronic goods and components. For A.Y. 2010-11, the assessee company filed the return of income declaring a total income of Rs.62,07,56,570/- and the assessment was completed u/s 143(3) of the Act determining the total income at Rs.68,88,29,370/- by making various additions / disallowances. ....
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....ssion of the assessee that the assessee had deducted the tax at source and paid the same to the credit of the Central Government are required to be verified in respect of the two payments made to M/s. Gintek Eswation, South Africa, of Rs.14,77,500/- and Rs.27,75,000/-. 11. In the light of the above, the matter is remanded back to the file of Assessing Officer for verification and grant relief if the assessee has deducted the tax at source and deposited the same with the Central Government with respect to M/s. Gintek Eswation, South Africa of Rs.14,77,500/- and Rs.27,75,000/-. 12. With respect to the payments made by the assessee to BAE Systems, USA for an amount of Rs.2,31,34,988/- for site testing charges, our attention was drawn to page 18 of the paper book, which is the purchase order issued by the assessee to BAE Systems and at Sl.No.1, it was mentioned as "T082059001 - Long Range Position and Velocity Tracking Doppler Radar System Model No.DRX41320 and at Sl.No.7, it was mentioned as "T082059108 - Training (1Lot) (Two weeks on site). On the basis of the above, it was submitted that the supply of equipment and the installation thereof were forming part and parcel of the s....
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....or included services as defined in this Article that are ancillary and subsidiary to the enjoyment of the property for which payment is received under paragraph 3(b) of this Article, 10 per cent of the gross amount of the royalties or fees for included services. 3. The term "royalties" as used in this Article means : (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with 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 or property which are contingent on the productivity, use, or disposition thereof ; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial, or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of Article 8 (Shipping and Air Tr....
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....d as fees for technical services. 15. The ld.AR has submitted that however, Paragraph 5(a) of Article 12 of the DTAA between India and USA states that 'Fees for included services' does not include amounts paid for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in paragraph 3(a). Paragraph 3(a) of Article 12 of the DTAA relates to payments for Royalties. In this case there was no such royalty. The above services are rendered by payee in connection with the purchase of equipment. The services were absolutely necessary so that the equipment could be used. And, the services were to be performed while supplying the equipment. Hence, these services were covered under the exception in 5(a) of Article 12 of the DTAA. Therefore, the entire contract needs to be categorized as business and the profits were to be considered under Article 7 of the DTAA as business profits. The payee, being resident of USA does not have any permanent establishment in India as per Article 4 of the DTAA. In the absence of such a permanent establishment in India, the business profits of USA resident were not ....
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.... connected with the Completion of the site Acceptance Test and Completion of On-site Training in India. 19. We have heard the rival contentions of the parties and perused the material available on record. From the bare perusal of the DTAA, it is abundantly clear that DTAA agreement has not used the term 'Fee for technical services', as has been used in Section 9 of the Income Tax Act, 1961. Para 4 of the agreement defined 'Fee for included services, however, Para 5(a) has provides the services which will not fall within the provision of fee 'For included services'. Para 5(a) provides that the services which are ancillary and subsidiary and are inextricably and essentially linked to the sale of property would not fall within the purview of the 'Fee for included services'. In the present case, as clear from the sale invoice that the total sale value of equipment including the charges paid for completion of the site acceptance test and completion of on-site training in India was USD 46,24,949. Whereas, the sale value component of "online services and completion of onsite acceptance test" was only meager amount of USD 46,24,949. From the nature of charges paid by the assessee to the....