TaxTMI 
TaxTMI 
2023 (9) TMI 107
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....rounds of appeal along with sub-grounds in A.Y. 2018-19 and eight grounds of appeal along with sub-grounds in A.Y. 2020-21. As far as the first ground of appeals is concerned, it is general in nature, which does not call for recording of any specific finding. 4. In Ground No. 2, the assessee has raised sub grounds also and it has agitated the determination of taxable income under the head "IT Services". 5. Brief facts of the case are that the assessee-company has filed its return of income electronically on 29.03.2019 and 12.02.2021 declaring income of Rs. 4,05,940/- and Rs. 2,33,61,680/- in A.Y. 2018-19 and 2020-21 respectively. The case of the assessee was selected for scrutiny assessment in both the years and accordingly notice under section 143(2) was issued and served upon the assessee. The assessee has provided IT Services to Indian customers during the relevant financial year. It has raised invoices on account of supply of services amounting to Rs. 2,04,00,802/- in A.Y. 2020-21, whereas Rs. 1,38,10,480/- in A.Y. 2018-19. The stand of the assessee was that it had earned income from IT Services in pursuance of a Service Agreement with Outotec India Private Limited and it....
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.... Finland, then such FTS shall be deemed to arise in the State in which the services are performed, which in this case is Finland. Hence the income therefore will only be taxable in Finland and not in India. On the PE observation of the AO, the assessee stated that the provision will apply only if the non-resident has a PE in India and that it had no PE in India during the year. 3.4. The submissions have been examined along with the materials available on record. The dispute is essentially about the scope and applicability of Paragraphs (1), (2) and (5) of the DTAA to the facts and circumstances relating to the assessee's rendition of IT services is. Relevant extracts of said Article 12 of the India- Finland DTAA are as follows- ARTICLE 12 ROYALTIES AND FEES FOR 'TECHNICAL SERVICES 1. Royalties or fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State, 2. However, such royalties or fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of trie royalt....
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....acting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for technical services was incurred, and such royalties or fees for technical services are borne by such permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated. 3.5. A conjoint reading of Paragraphs (1) and (2) clearly shows that Royalties / fees for technical services may be taxed in the State of residence of the payee [Paragraph (1)] as well as in the State of Source [Paragraph (2)]. In this context, Paragraph (5), inter alia, provides that ivhere the payer is a resident of a Contracting State (India in the present case), royalties/FTS shall be deemed to arise in such Contracting State. However, if the right/property for which such royalties are paid is used within a Contracting State or the services in relation to such FTS are performed in that Contracting State, the said royalties/FTS shall be deemed to arise in that Contracting State. As the India - Finland DTAA does not contain ....
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....es have been rendered outside India, the same was not taxable in India under Article 12(5) of the DTAA. Specifically, the Hon'ble Tribunal held as follows - "22, The assessee argues that the technical services of testing is performed outside the country, i.e. in Finland and hence cannot be taxed in India in view of the exception carved out to Article 12(5) of the India - Finland DTAA. The exception in question is, when the fees is paid for technical services which are performed within a contracting state, then the income therefrom is deemed to accrue or arise within the state in which the services were performed. In our view, this Clause does not apply as the payment in question was made for the test results which were used within the contracting state. India. It may be true that the process of testing may have been conducted outside India. But the payment in question is not for the process but for the results of testing which is used in India. The argument of the Id. DR that these services were available in India and hence are taxable in India has to be upheld. Hence, we agree with the finding of the Assessing Officer as upheld by the DRP on this issue. In the result,....
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....ow how these services available for everybody and anybody can claim it over the counter. These are specific services for the entities of the assessee only, which are to be used in their respective organisation between different countries. Therefore, as far as the user of the services in India is concerned, their fees paid for such user in India deserve to be taxed in India. The ld. DRP has observed that there is no clause to make available in the treaty between India and Finland. According to which, it was not necessary upon the assessee to make the technology available to Indian entity and only then the receipt would be taxable. Without making it available, if the technology has been used, then also, on those receipts, the assessee has to pay taxes. 9. The next issue involved in both the appeals is, whether receipt received in the shape of guarantee fees deserves to be taxed in India within the meaning of Article 21 of India- Finland Treaty. The ld. DRP has made discussion on this issue as under:- "4. Ground of objection No 3: Taxability of income from fee for Corporate Guarantee (a)That on the facts and in the circumstances of the case and in law, the Ld. AO ....
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....ted that the DRP had confirmed the AO's view that the income from fee for providing corporate guarantee is income from other sources and taxable under Article 21(3) of the India- Finland DTAA but had held that since the income arose in Finland and corporate guarantee was provided in Finland, it was not taxable under Article 21(3). The AO noted that the assessee did not submit any evidence to show that the corporate guarantee was provided in Finland, while the invoices submitted by the assessee confirmed that the income accrued in India as the invoices were addressed to Outotec India Private Limited in India. The AO further held that the service is treated to be performed only when the beneficiary is able to use it for its own purpose and that the intended use of the corporate guarantee was ultimately in India from where the assessee derived its right to receive the income and raise the invoices. 4.2 In DRP proceedings, the assessee stated that it earned guarantee fees from Outotec India on account of parent company guarantee under its Articles of Association, which defines the scope of the line of business of the company. The Articles permit the company to engage in bu....
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....ead arranger of syndicate of banks) for OT1N. OTIN used this bank guarantee to give bank guarantee to its customers in respect of the advance money received for the projects. The AO has held that the income earned by the assessee against the bank guarantee given in favour of OTIN as income from other sources for the assessee giving bank guarantee is not the business of the assessee. To this extent the findings of the A.O. is correct. Once having decided the head of income, the A.O. relied upon Indo Finnish DTAA to determine the taxability of the commission received for providing bank guarantee... The A.O has held that the commission income earned by the assessee for providing bank guarantee is taxable under sub clause 3 of the Article 21 of the DTAA. The assessee claimed that the Articles of Association of the assessee authorizes the company to engage in business of providing guarantees to its group companies including Outotec India on a regular basis. Provision of guarantee is not an isolated event but a planned continuous systematic activity which has direct impact on the revenues of the company. The assessee also charges premium on the guarantee provided to its....
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....d held that the income was not taxable under Paragraph 3 of Article 21 on the grounds that the service had been provided in Finland and hence the income arose in Finland. Said Article 2lof the India-Finland DTAA reads as under- ARTICLE 21 OTHER INCOME (1)Items of income of a resident of a Contracting State, wherever arising, not dealt with in the foregoing Articles of this Agreement shall be taxable only in that State. (2)The provisions of paragraph 1 shall not apply to income, other than income from immovable property as defined in paragraph 2 of Article 6, if the recipient of such income, being a resident of a Contracting State, carries on business in the other Contracting State through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right or property in respect ofiohich the income is paid is effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 14, as the case may be, shall apply. (3)Notwithstanding the provisions of paragraphs 1 and 2 of this Article, items of income of a re....
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.... arising in India and falling within the scope of the non-obstante Paragraph 3 of Article 21. In view of the above, the Panel upholds the action of the AO. The objection in Ground 3 stands dismissed. 4.8. Since the factual and legal matrix remain same, the Panel reiterates its own stands as spelt out for assessment year 2018-19. The assessee objection on the above is rejected. 10. The ld. Counsel for the assessee while impugning the finding of the ld. DRP raised multiple submissions as were raised before the ld. DRP. He drew our attention towards pages no. 55 to 61 of the paper book, wherein submissions filed by the assessee are placed on record. He pointed out that the assessee has received guarantee fees from Outotec India Private Limited for standing as a Corporate Guarantee qua the loan obtained by the Outotec India Private Limited as a subsidiary company of the assessee. According to the assessee, it has included providing of a Corporate Guarantee as a line of business in its Memorandum of Association and in lieu of that, it has provided Corporate Guarantee towards loan taken by its subsidiary and sister concern. Therefore, whatever has been received by the assesse....
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....y to be a shareholders' obligation/service than business activity. The ld. DRP has held that it is not a business activity and we do not find any error in this finding of the ld. DRP. Because except its subsidiary, the assessee has not given Bank Guarantee to anybody else, which can establish that it was engaged in the business of providing Bank guarantee. It was just only safeguarding the business interest of a subsidiary and providing them this type of guarantee. The commission income earned on providing such guarantee is taxable under the head "income from other sources". The ld. DRP has rightly dealt with the issue and rightly directed the ld. Assessing Officer to tax it under the head "income from other sources" as per Article 21. 13. During the course of hearing, the assessee has pointed out that it has raised additional ground of appeal under Grounds No. 4.1 and 4.2 in A.Y. 2020-21. In these grounds, the assessee has pleaded that it has received interest on refund amounting to Rs. 2,33,61,678/- and under Article 11 of DTA, this interest income ought to have been assessed @ 10%, which has not been considered by the revenue authorities. The ld. Counsel for the assessee has ....