2016 (11) TMI 1744

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.... ('DTAA'), without appreciating that the revenue is in the nature of business income not taxable in India, since the Appellant does not have a permanent establishment ('PE') in India. The Appellant prays that the action of the AO/CIT (A) with respect to the above ground be quashed. Ground 2: On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in upholding the action of the Ld. AO in alternatively treating the revenues of Rs. 12,65,32,280 received from Indian customers during the year under consideration as 'fees for technical services' as per the provisions of section 9 of the Act and the DTAA, without appreciating that the revenue is in the nature of business income not taxable in India, since the Appellant does not have a permanent establishment ('PE') in India. The Appellant prays that the action of the AO/CIT(A) with respect to the above ground be quashed. Ground 3: On the facts and in the circumstances of the case and in law, the learned CIT(A) erred in levying interest under section 234B of the Act amounting to Rs. 17,98,349 without appreciating that the entire income of the appellant is subject to TDS. The Appellant prays that t....

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.... having considered both, I find that the appellant is trying to mislead the incidence of chargeability of tax on receipt arisen from the Indian Customer to the appellant on merely stating that the appellant is a non-resident and all the infrastructure is also situated outside India. Hence the same cannot be termed as 'Royalty' or 'Fee' for technical services.' I also find that similar issue in the appellant's own case for A.Y. 2009-10 has been decided by me against the appellant vide this office order No.CIT(A)- 10/DDIT(IT)-3(1)/IT-453/11-12 dated 31.10.2013. For the sake of clarify, the operative portion of the said order is extracted herein below:- "7. I have considered the AO's order as well as the appellant's AR submission. Having considered both, I find that the appellant's is trying to mislead the incidence of chargeability of tax on receipt arising from the Indian Customer to the appellant on merely stating that the appellant is a non-resident and all the infrastructure is also situated outside India. Hence the same cannot be termed as 'Roylaty' or 'Fee' for technical services,'. But having taken note of the AO's order, I am completely in agreement with the AO's finding t....

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....al and is in the nature of services which has been rendered by the appellant to the Indian customers and for that only such payments have been made. Having taken note of the Article of India-UK-DTAA on royalty and fee for technical services and also to Sec.9 of the Incometax Act, I am in complete agreement with the AO's finding that these payments are in the nature of royalty or fee for technical services. Accordingly, I consider it proper and appropriate to hold that the reasoning assigned by the AO for taxability of such receipt in the hands of the appellant in India is completely justified and correct as per the provisions of law. Accordingly, the addition made by the AO of Rs. 12,65,32,280/- is confirmed. The appellant's these grounds of appeal are dismissed". 8. The Tribunal in the AY 2009-10 has dealt with this issue after anlaysing the scope and ambit of 'royalty' as given in Article 13 of India-UK-DTAA, which, admittedly is applicable in the case of the assessee and thereafter observed and held as under:- "8. So far as taxation of the receipts in question as royalty, under the above treaty provision, is concerned, it can only be in the two situation- (a) first, when it i....

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....ting the fixed and variable price, is not unusual". That does not, however, alter the character of arrangement. The payment continues to be for service alone. The assessee may charge a fixed amount to cover its costs in employing enhanced capacity so as not to incur losses when this capacity is not used, but what the customer is paying for is a service and not the use of equipment involved in additional capacity, nor, as we have seen above, for any scientific work, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. It cannot, therefore, be axed as royalty under article 13 of the Indo UK tax treaty. The payment for a service can be brought to tax under article 13 only when it makes available the technology in the sense that recipient of service is enabled to perform the same service without recourse to the service provider. As held by this Tribunal, in the case of CESC Ltd Vs DCIT [(2003) 87 ITD TM 653 (Kol)], "..... in order to be covered by the provisions of art. 13(4)(c) of the India UK DTAA, not only the services should be of technical in nature but such as to result in making th....