AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (5) TMI 157
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....Deputy Commissioner of Income Tax, International Taxation, 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 applicati....
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....income and not on the assessed income. The Appellant craves leave to add and/or alter, amend, modify or rescind the grounds hereinabove 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.4,86,45,3....
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....hargeable to tax in India and therefore, no TDS was deducted under section 195 of the Act. The learned AR submitted that the obligation to deduct TDS under 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....
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...., technical or consultancy nature partake the nature of FTS if, and only if, it falls within the ambit of conditions specified in this regard. The following are important parameters to be satisfied with respect to concept of "make available": • 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 o....
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....r 'other income'. Since GardaWorld is a tax resident of UAE and there is no PE or any office maintained or controlled in India to render such services, no income would be taxable in the hands of GardaWorld and no tax withholding is warranted in the instant case too. • Ocean 7 Project - The Indian PO has imported 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 accordingl....
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.... .......... use of computer, though indirect, remote and not necessary, cannot bring the payment for freight and logistics services within the purview of technical services. The essence of the consideration for the payment is rendering of services and not the use of computer. If incidentally computer is used at any stage, which is otherwise not necessary for rendering such services, the payment 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 transporta....
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....visions, i.e., section 4, 5 and 9, as the term used in section 195(1) is "sum chargeable under the provisions of the Act". Therefore, it is now settled that for deduction of tax under section 195 of the Act, the sum is to be chargeable under the provisions of the Act. In view of the aforesaid, we find no merits in the findings of the AO that for the payment to be considered as not taxable in India, the assessee should have made an application to the AO for 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....