AI Drafter 
TaxTMI 
TaxTMI 
TaxTMI 
2023 (1) TMI 1246
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....e remittance made to various non resident entities towards Architectural Design consultancy services, Wind Engineering Consultancy services and Landscape Architectural Consultancy Services as consultancy services when the services provided are make available in nature and come in the purview of Fees for Technical Services as per India Singapore DTAA. 2. Whether, on the fact and circumstances of the case and in law, the Ld. CIT(A) erred in treating the remittance made to LDL UK Ltd. towards marketing services for projects of the assessee company as consultancy services when the services provided come in purview of Fees for Technical Services as per India UK DTAA." 3. Whether, on the fact and circumstances of the case and in law, the Ld. CIT(A) erred in treating the remittance made to various non resident entities towards. brokerage for sale of projects in India as consultancy services ignoring the fact that the income of the non resident has accrued in India." 4. Whether, on the fact and circumstances of the case and in law, the Ld. CIT(A) erred in treating the remittance made to various non resident entities for reimbursement of expenses as consulta....
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.... 2. Rowan Williams Davies United Kingdom Wind and Microclimate Engineering Consultancy Services. Such services are not taxable as 'Fees for Technical Services' since the services do not meet 'make available' criteria. Annexure B 3. Sitetectonix Pte. Ltd. Singapore Landscape Architectural Consultancy Services. Such services are not taxable as 'Fees for Technical Services' since the services do not meet 'make available' criteria. Annexure C 4. Lodha Developer UK Ltd. UK Marketing Consultancy Services. Such services are not taxable as 'Fees for Technical Services' since the services do not meet 'make available' criteria. Annexure D 6. The assessee submitted that such services did not meet 'make available' criteria, therefore, the same were not taxable in India pursuant to beneficial provision of respective DTAA. However, the assessing officer after referring provision of Sec. 195(1), section 5 (2) and Section 9(1)(vii) and the document submitted by the assessee come to the conclusion that the payment to non-resident were taxable and assessee failed to deduct tax on such remittance, therefore he held that assessee was in default as pe....
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....missions in the light of decisions relied upon and perused the materials on record Undisputedly, the assessee , at the relevant point of time was developing a residential project at BKC In connection with the development of such project the assessee had availed certain technical/consultancy services from three non- resident entities located in Singapore. For availing such services, the assessee has pav certain amount to the non-resident entities. The short issue arising for consideration before us is, whether the payment made by the non-resident entities can be termed as FTS under Article 12(4) of India Singapore Tax Treaty For better appreciation, Article 12(4) of the tax treaty is reproduced hereunder:- "4. The term fees for technical services as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services: (a) are ancillary...... (b) make available technical knowledge, experience, skill, knowhow or processes, which enables the person acquiring the services to apply t....
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....art of the project will remain the intellectual property of the service provider and are intended for use solely with respect to the project further restrains the assessee from utilizing such intellectual property for any other project or for addition to the subject project or for completion of the project by any other entity Similar is the scope of work and terms and conditions in respect of Web Structures Pte. Ltd another non-resident entity 11. Thus from the nature of services provided by the non-resident entities and the tem and conditions under which it was provided, it is clear that whatever services were provided are project specific and cannot be used for any other project by the assessee Further while providing such services neither any technical knowledge, skill, etc. is made available to the assessee for utilizing them in future, independently nor any developed drawing or design have been provided to the assessee which can be applied by the assessee independently. Thus, it is very much clear, the conditions of Article 12(4) of the tax treaty are not fulfilled 12. Though the assessing officer has generally observed that in course ....
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....esign positioning of various buildings, placement, of common amenities like swimming pool & club houses etc. The assessee submitted along with the supporting document that while providing such services not any technical knowledge skill etc. was made available to the assessee to apply these services independently in future. 11. We have also perused the details of payment towards architectural design consultancy services to Woha Design Pte. Ltd, comprising copies of work order, note on payment made to Woha Design Pte. Ltd, copy of invoices, Form No. 15CA and 15CB along with other relevant documents placed in the paper book. The nature of payment was pertained to consultancy services for master planning of the specific project namely Wadala TT, Mumbai. As per clause 14 of the agreement, the design prepared by the design consultant was solely for the purpose of the above referred project. Woha design consultant is a tax resident of Singapore and Article 12 of the India Singapore DTAA deals with the taxability of income from Royalties & FTS. It provides that services will be considered as FTS only if such vendor is making available the technical knowledge, experience, skill, knowhow ....
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....rvices, payment made to landscape architectural consultancy service to Sitetectonix Pte. Ltd. & payment for marking consultancy services to Lodha Developer U.K. Ltd were also not taxable as fees for technical services, since, the services do not meet 'make available' criteria. Since as per Article 13 of India U.K. DTAA payment for services rendered would fall within the ambit of FTS only if such services are in the nature of 'make available'. 12. We have also perused the various judicial pronouncements referred by the ld. Counsel: "1. ITAT Mumbai in the case of Forum Homes (P) Ltd. [2021] 132 taxmann.com 223 2. ITAT Pune in the case of Gera Development (P) Ltd. [2016] 72 taxmann.com 238 3. ITAT Mumbai in the case of Buro Happold Limited [TS-76-ITAT-2019 (Mum)] 4. Hon'ble Karnataka High Court in the case of De Beers India Minerals (P) Ltd. [2012] 21 taxmann.com 214 5. ITAT Mumba in the case of SCA Hygiene Products AB [2021] 123 taxmann.com 152" In the case of Forum Homes (P) Ltd. [2021] 132 taxmann.com 223 the head note is reproduced as under: Section 9 of the Income-tax Act, 1961, read with article 12 of DTAA between India....
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....under consideration the assessee has made certain remittances on account of brokerage to non-resident without deduction of tax. The detail of such payment are as under: Sr. No. Name of Broker Remittance Amount (INR) Country of Residence Remarks detailed in 1. Ashkanani International General Trading & Contracting 12,80,071 Kuwait Brokerage paid for sale of flats in New Cuffe Parade Project 2. Avendus Capital Inc. 17,00,582 USA Brokerage paid for sale of flat in Cuffe Parade Project Total 29,80,653 15. On query the assessee explained that foreign parties were carrying out there business operations in the territory outside India in their respective countries and they do not have any business operations or any business in India. The commission was paid merely for referring customers to the company who have expressed interest in buying properties in the projects which were developed by the company in India. There was no technical knowledge or special skills which was required for providing such services nor the services were managerial in nature. Therefore, the such payment cannot be treated as FTS under....
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....keting agency, therefore, tax need not be deducted on the payments made to them. However, in respect of M's Stratum Resources, the CIT(A) found that it is consultancy charges, therefore, tax has to be deducted Accordingly, the CIT(A) confirmed the disallowance made by the assessing officer." assessee 's arguments "According to the Id representative. M's Stratum Resources was engaged only for purpose of marketing the assessee 's product in South East Asian countries, therefore, the payment cannot be considered as consultancy charges. Hence, it is not taxable in India and consequently, the question of deduction of tax at source u's 195 of the Act does not arise. The ld representative has placed has reliance on the judgment of the Apex Court in V. Lakshmanan v. BR Mangalagiri & Ors [1995 Supp (2) SCC33] and submitted that the nomenclature or label given in the agreement cannot be a decisive factor. According to the ld representative, the substance of the agreement should be taken into consideration. Referring to another judgment of the Supreme Court in the case of Assam Small Scale Ind Dev Corp Ltd and JD Pharmaceuticals and Anr [2005 13 SCC [9] t....
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.... assessee in South East Asian countries. In the absence of any enabling provision to enable the foreign party to market the assessee 's product in foreign countries, the payment made by the foreign party cannot be construed as payment for marketing According to the Id DR, marketing survey and identifying the potential customers for the assessee 's product are only consultancy services and therefore, the payment made to foreign party is taxable in India. Hence, the assessee is bound to deduct tax u's 195 of the Act Referring to the provisions of section 201(3) of the Act, the Id DR submitted that the assessing officer passed the imped order before 3103-2011. Proviso to section 20113) of the Ad enables assessing officer to pass order before 31-03-2011 in respect of financial year commencing on or before 04-2007 Therefore, the order passed by the assessing officer is within the period provided in section 201(3) of the Act. Therefore, there is no question of any impossibility as claimed by the assessee " Hon"ble ITAT's findings "5. We have considered the rival submissions on either side and also perused the material available on record. We ....
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....age is directly related to sales have gone through the invoices and it was seen that brokerage in these cases was paid @ of 2% of sale consideration (invoices attached as Anx 1 & 2) 5.5.7 It can also be seen that even in the case of English Indian Clays Limited payment made to M/s. Tionale Enterprise Pte Ltd. for marketing agency were held to be not taxable and therefore it was held, by the CIT(A) itself, that no tax was deductible. 5.5.8 Considering the above, I am of the opinion that brokerage payment can at the best be equated with commission. 5.5.9 In this regard, I place my reliance on the judgment of Hon'ble Delhi High Court in the case of DCIT vs. EON Technology (P) Ltd (15 taxmann.com 391) 2011 (Delhi HC). For ready reference, the finding of Hon'ble Delhi High Court is reproduced below. "2. The respondent assessee EON Technology Pvt. Ltd is a private limited company engaged in business of development and export of software. During the relevant assessment year 2007-08, the assessee had paid commission of Rs. 33,36,068/ to its parent/holding company EON Technologies, U.K., (ETUK, for short) on the sales and amounts reali....
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....ess are carried out in the taxable territories of India then the income accruing abroad through on any business connection in India cannot be deemed to accrue or arising in India, does not hold any water as the source of such income arising to ETUK is its business connection with the assessee company in India Le. the source is situate wholly and completely within territories of India. Another contention of the assessee regarding that that this commission payment is remitted directly to ETUK and is therefore not received in India is also not tenable since receipt and right to receive are two distinct concepts both of which cannot be used interchangeably Here the ETUK may not have received the amount in India but due to its business connection in Indio, ETUK has earned the right to receive this income "deemed to accrue" and thereby becoming liable to be taxed in India of the portion that accrues or arises in India." (emphasis supplied) 4. The reasoning of the Assessing Officer is confusing, laconic and not clear. In the first paragraph of the assessment order quoted above it has been held that the right to receive income by ETUK had situs or origin in In....
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....s received or is deemed to be received in India or accrues or arises or is deemed to accrue or arise to him in India. Explanation 1 to the said section stipulates that income accruing or arising outside India shall not be deemed to be received in India within the meaning of the said section by reason of the fact that it is taken into account in the balance sheet prepared in India. Explanation 1 is a complete answer to the observations of the Assessing Officer that commission income had accrued, arisen or was received by ETUK in India because it was recorded in the books of respondent assessee in India or was paid by the respondent assessee situated in India. This aspect has been also examined below while dealing with the question of deemed accrual. 9. Section 9 of the Act postulates and states when income is deemed to arise in India. The Assessing Officer has not mentioned any specific provision of Section 9 but it appears that he had invoked Section 9(1)(1) of the Act which for the sake of convenience is reproduced below:- "9. Income deemed to accrue or arise in India-(1) The following incomes shall be deemed to accrue or arise in India-() all income accruing ....
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....esident: Provided that such business connection shall not include any business activity carried out through a broker, general commission agent or any other agent having an independent status, if such broker, general commission agent or any other agent having an independent status is acting in the ordinary course of his business: Provided further that where such broker, general commission agent or any other agent works mainly or wholly on behalf of a non-resident (hereafter in this proviso referred to as the principal non-resident) or on behalf of such non- resident and other non-residents which are controlled by the principal non-resident or have a controlling interest in the principal non-resident or are subject to the same common control as the principal non-resident, he shall not be deemed to be a broker, general commission agent or an agent of an independent status 10. For the said provision to apply, the Assessing Officer was required to examine whether the said commission income is accruing or arising directly or indirectly from any business connection in India. The Assessing Officer has not dealt with or examined the said aspect but has merely recorded that the paym....
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....y had procured export orders Questions arose; what was the effect of the entries in the books of accounts of the Indian assessee which had resulted in debit and credit entries on account of commission and secondly, whether procurement of export orders by the foreign companies for the Indian company had resulted in a business connection. Two contentions were rejected by the Supreme Court inter-alia recording as under- "It cannot be said that the making of the book entries in the books of the statutory agent amounted to receipt by the assessee s who were non-residents as the amounts so credited in their favour were not at their disposal or control. It is not possible to hold that the non-resident assessee s in this case either received or can be deemed to have received the sums in question when their accounts with the statutory agent were credited, since a credit balance, without more, only represents a debt and a mere book entry in the debtor's own books does not constitute payment which will secure discharge from the debt. They cannot, therefore, be charged to tax on the basis of receipt of income actual or constructive in the taxable territories during the relev....
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.... (1977) 2 SCC 862 and Ishikawajma-Harima Heavy Industries Itd. Vs. Director of income Tax, Mumbai (2007) 3 SCC 481] The test which is to be applied is to examine the activities in India and whether the said activities have contributed to the business income earned by the nonresident, which has accrued, arisen or received outside India. The business connection must be real and intimate from which the income had arisen directly or indirectly. The question of business connection, therefore, has to be decided on facts found by Assessing Officer (or in the appellate proceedings). In the present case, facts found by the Assessing Officer do not make out a case of business connection as stipulated in Section 9(1) (i) of the Act. There is hardly any factual discussion on the said aspect by the Assessing Officer. He has not made any foundation or basis for holding that there was business connection and, therefore, Section 9(1)(1) of the Act is applicable. Appellate authorities; on the basis of material on record, have rightly held that "business connection" is not established. 15. The scope and ambit of Section 195 of the Act has been explained by the Supreme Court in GE India Tech....
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..... The purpose of TDS provisions in Chapter XVII-B is to see that the sum which is chargeable under Section 4 for levy and collection of income tax, the payer should deduct tax thereon of the rotes in force, if the amount is to be paid to a non-resident. The said TDS provisions are meant for tentative deduction of income tax subject to regular assessment. (See Transmission Corpn of AP Ltd. v. CIT, SCC pp. 273-74, para 10: ITR pp. 594-95.)" (emphasis supplied) It was thereafter lucidly clarified: "73. On the question as to whether there is any interlinking of the charging provisions and the machinery provisions under the 1961 Act, we may, at the very outset, point out that in CIT v. BC Srinivasa Setty this Court has held that: "10. the charging section and the computation provisions together constitute an integrated code. When there is a case to which the computation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section." We may add that the 1961 Act is an integrated code and, as stated hereinabove, Section 9(1) integrates the charging section, the computation provisions as well as the machinery provisions. (See Section 9(....
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....gle integral inseparable code. Hence, the provisions relating to TDS applies only to those sums which are chargeable to tax under the IT Act. 18. If the contention of the Department that any person making payment to a non-resident is necessarily required to deduct TAS then the consequence would be that the Department would be entitled to appropriate the monies deposited by the payer even if the sum paid is not chargeable to tax because there is no provision in the IT Act by which a payer can obtain refund. Section 237 read with Section 199 implies that only the recipient of the sum i.e. the payee could seek a refund. It must therefore follow, if the Department is right, that the law requires tax to be deducted on all meats. The payer, therefore, has to deduct and pay tax, even if the so-called deduction comes out of his own pocket and he has no remedy whatsoever, where the sum paid by him is not a sum chargeable under the Act. The interpretation of the Department, therefore, not only requires the words "chargeable under the provisions of the Act" to be omitted, it also leads to an absurd consequence. The interpretation placed by the Department would result in a situation w....
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....s. Toshoku Ltd. (1980) (125 ITR 525) wherein held as under: "Section 5(2), read with section 9 of the Income-tax Act, 1961 Income Accrual of Assessment year 1962-63 An Indian exporter sold tobacco abroad through nonresident sales agents (assessee s) - Sales agents were entitled to commission, as per agreement Sale price received on sale abroad was remitted wholly to Indian exporter who debited commission account and credited amount of commission payable to non-resident agents (i.e. assessee s) Amount of commission was later remitted to non-resident agents- Whether, since nonresident asssessees did not carry on any business operations in India, amounts earned for services rendered outside India could not be deemed to be incomes which had either accrued or arisen in India - Held, yes - Whether, moreover, assessee s could not be charged to tax on basis of receipt of income, actual or constructive, in taxable territories during relevant accounting period as they neither received nor could be deemed to have received sums in question when their accounts with Indian exporter were credited - Held, yes" 18. Heard both the sides and perused the material on record. The assessee ha....
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....rendering services to the assesse. After referring the invoices the assessee submitted that it has reimbursed the expenses of cost to cost basis without any mark up. In respect of reimbursement of travel expenses to Lodha Developer U.K. Ltd, the assessee submitted that Lodha Developer U.K had incurred certain business related expenses on behalf of the assessee and same was charged by the Lodha Developer U.K to the assessee on cost to cost basis without any mark up. Similarly, the other expenses were also made cost to cost basis. assessee also explained that there was no component of income embedded on the reimbursement of expenses made by the assessee and provision of Sec. 195 of the Act is not applicable since no income arose to the non-resident out of reimbursement (being cost to cost basis) without any markup and the same was not taxable in India. Therefore, the assessee was not required to withheld tax on the same. However, the A.O had not agreed with the submission of the assessee he was of the view that reimbursement made for the services were in the nature of FTS taxable both as per the act as well as DTAA. The AO also stated that the expenses met out by the service re....
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.... contrary disproved by the assessing officer. The assessee has also referred the following judicial pronouncements: * GE India Technology Centre Private Ltd vs CIT [2010] 327 ITR 456 (Supreme Court) * DIT (IT)-I vs AP Moller Maersk A S [Civil Appeal No. 8040 of 2015] (Supreme Court) * CIT vs Siemens Aktiongesellschaft [2009] 177 Taxman 81 (Bombay High Court) * DIT - (IT) vs Krupp Udhe GMBH [2013] 40 taxmann.com 38 (Bombay High Court)" In the case of DIT (IT)-I vs AP Moller Maersk A S [Civil Appeal No. 8040 of 2015] (Supreme Court), the head note is reproduced as under: Section 9 of the Income-tax Act, 1961, read with article 13 of the DTAA between India and Denmark Income Deemed to accrue or arise in India (Royalties and fee for technical services) - assessee was a foreign company engaged in shipping business and was a tax resident of Denmark assessee had agents in India working for it, who booked cargo and acted as clearing agents for assessee -In order to help all its agents, across globe, assessee had set up and was maintaining a global telecommunication facility which was a vertically integrated communication sys....
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....ground No. 1 & 2 of ITA No. 497/Mum/2022 therefore, applying the same findings mutatis mutandis, both ground of appeal of the revenue are dismissed. Ground No. 3 & 4: 25. As the facts and the issue involved in this ground are the same as supra ground No. 3 & 4 of ITA No. 497/Mum/2022 therefore, applying the same findings mutatis mutandis, both ground of appeal of the revenue are dismissed. ITA No. 500/Mum/2022 Ground No.1: 26. As the facts and the issue involved in this ground is the same as supra ground No. 1 of ITA No. 497/Mum/2022 therefore, applying the same findings mutatis mutandis, this ground of appeal of the revenue is dismissed. Ground No. 2: 27. As the facts and the issue involved in this ground is the same as supra ground No. 3 of ITA No. 497/Mum/2022 therefore, applying the same findings mutatis mutandis, this ground of appeal of the revenue is dismissed. Ground No. 3: 28. As the facts and the issue involved in this ground is the same as supra ground No. 4 of ITA No. 497/Mum/2022 therefore, applying the same findings mutatis mutandis, this ground of appeal of the revenue is dismissed. ITA No.499/Mum/2022 Ground No. 1 to 5: 29. As the fa....