TaxTMI 
TaxTMI 
2023 (5) TMI 157
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....Circle 2(2X1), Mumbai, Maharashtra (the Ld. AO') and directions issued by the Dispute Resolution Panel-1, Mumbai, Maharashtra ('the Ld. Panel') are erroneous on facts and are bad in law. 2. The Ld. AO and Ld. Panel have grossly erred in fact and in law, by ignoring that when the payments made by the Appellant to the non-resident payees were not chargeable to tax in India in pursuant to Double Taxation Avoidance Agreement (DTAA') between India and other countries to which the payee belong, then no tax was required to be withheld under section 195 of the Act by the Appellant and consequently, no disallowance under section 40(a)(i) of the Act is to be made in the hands of the Appellant. 2.1 The Ld. AO and the Ld. Panel erred in not appreciating the nature of payments made by the Appellant before observing that the payments were prima facie chargeable to tax in India and accordingly tax was required to be withheld thereon under section 195 of the Act. 3. The Ld. AO and Ld. Panel have grossly erred in facts and in law, by holding that that the Appellant was required to make an application under section 195 of the Income-tax Act (the Act) before the Assessing Office....
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....e before or at the time of hearing before the Hon'ble ITAT." 3. The issue arising in grounds no.1-8, raised in assessee's appeal, is pertaining to the disallowance of payment made to non-residents under section 40(a)(i) of the Act. 4. The brief facts of the case as emanating from the record are: The assessee is a company incorporated in the USA and is also a tax resident of the USA. The assessee is engaged in the business of manufacturing and operating aircraft. The assessee established a project office in India on 10/12/2016. The project office of the assessee is engaged in the rendering of helicopter operations services to customers based in India. For the year under consideration, the assessee filed its return of income on 31/03/2018 declaring a total income of Rs.4,21,09,881. During the assessment proceedings, upon perusal of the Tax Audit Report, it was observed that the assessee has made payment on which tax has not been deducted at source. Accordingly, the assessee was asked to show cause as to why the amount of Rs.4,86,45,310 being payments made to the non-residents be not disallowed under section 40(a)(i) of the Act. In response thereto, the assessee filed detailed s....
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....nder section 195 of the Act only arises when payment to the non-resident is chargeable under the provisions of the Act. Since the assessee believed that services are not taxable in India, therefore, no tax was deducted under section 195 of the Act while making payment to the non-residents. 7. On the contrary, the learned Departmental Representative ("learned DR") vehemently relied upon the orders passed by the lower authorities. 8. We have considered the rival submissions and perused the material available on record. The assessee is an aircraft manufacturing and operating company. It is undisputed that the assessee is a tax resident of the USA. In India, the assessee electrical power line transmission crew are bringing power from Central Punjab to the far reaches of Jammu and Kashmir. To raise transmission lines over Himalayas' Pir Panjal Range, and fly heights between 9000 to 12,000 feet, the S-64 Aircrane heavy-lift helicopter is required in order to access terrains that the vehicles could not. In order to efficiently conduct business in India, the assessee established the project office in India on 10/11/2016. During the year, the assessee made payments to the following non-re....
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....e": * The "make available" test is fulfilled if the service recipient is able to absorb the technical knowledge, know-how, processes and skill. * Just because technical knowledge, experience is used by the service provider, the services need not qualify as fees for technical services / included services. * Where the intention is to buy a product, then merely the fact that sophisticated know- how was used by service provider, will not be the lone factor to decide whether the "make available" test is fulfilled. The concept of "make available' has been deliberated in a plethora of cases' in India. Services are considered as 'made available' only if the person acquiring the service is enabled to apply the technology contained therein, without any recourse to the service provider. It has been clarified that merely because the person rendering services applied technical knowledge or skill for rendering the said services cannot be treated as 'included services', unless the person utilizing the service is able to make use of the technical knowledge etc. by himself in his business or for his own benefit and without recourse to the performer of the services in....
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....orted a helicopter and related equipment through vessel, which are shipped by Erickson Air Crane Inc., US. The ocean 7 project has rendered logistics services to the Indian PO for its operations in Kashmir and accordingly, charged a transportation fee. We understand that Ocean 7 project is a tax resident of Denmark and does not have a permanent establishment. The India Denmark DTAA has a wider scope of FTS. Generally, under this category of Tax Treaties the term FTS is defined in a broad manner to mean payments of any kind received as a consideration for services of a managerial, technical or consultancy nature, including the provision of services by technical or other personnel. However, the logistics services as rendered above would not qualify to be the services in the nature of managerial, technical or consultancy and accordingly, no taxes are to be withheld on such payments. Refer Annexure 4 for TRC and Annexure 5 for no PE declaration as provided by Ocean 7 Project. In support of our understanding above, we have relied on the judgement of Mumbai Tribunal the case of UPS SCS (Asia) Ltd v. ADIT (IT), the extract of which is reproduced as below "Assessee, a foreign compa....
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....ent for freight and logistics will not partake of the character of fees of technical services" Since the facts in the present scenario is similar to the one discussed above, it can be inferred that the logistics services do not qualify as fees for technical services. Reliance is also placed on the following cases where the same view is taken by Indian courts for logistics services: * Rane (Madras) Ltd. V. DOT [2017] 80 taxmann.com 305 * DIT (IT) v. Sun Microsystems India (P.) Ltd [2014] 48 taxmann.com 93 * The Avectra Group, LLC - The company is providing risk evaluation and assessment services to Erickson Indian P0 for its operations in Kashmir. Assessments are made regarding business operations and travel, lodging to work site transportation, work and residential security, etc. The Avectra Group, LLC is a tax resident of USA and as also discussed above, India - USA DTAA nas a restricted scope for definition of FTS/FIS. The nature of services provided in the instant case is such that the provider of services cannot 'make available' the services rendered to the Indian P0. Accordingly, the services rendered would not qualify to fall under the purview of FTS/FIS und....
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....determination by general or special order. 11. In the aforesaid decision, the Hon'ble Supreme Court also emphasised that section 40(a)(i) of the Act ensures effective compliance of section 195 of the Act relating to tax deduction at source in respect of payments made outside India in respect of Royalties, Fees for Technical Services or other sums chargeable under the Act. The Hon'ble Supreme Court further held that under section 40(a)(i) of the Act if the AO finds that sums remitted outside India come within the definition of Royalty or Fees for Technical Services or other sums chargeable under the Act, then it would be open to the AO to disallow such claim for deduction. In the present case, from the perusal of the record, it is evident that the AO did not conduct any such enquiry. The learned DRP on the basis of receipt and utilisation of services in India held that the income accrues or arises through the business connection in India and therefore, chargeable under section 9 of the Act, however, did not analyse in detail the chargeability under the respective tax treaties. We find that neither the AO nor the learned DRP has analysed the detailed submissions of the assessee on t....