TaxTMI 
TaxTMI 
2017 (4) TMI 1645
X X X X Extracts X X X X
X X X X Extracts X X X X
....facts and circumstances of the case & in law, the Ld. CIT(A) failed to appreciate the fact that the Finance Act 2010 has inserted an explanation to the section 9 w.r.e.f. 01.06.1976, 1961, which has clarified that even if the non-resident has no business connection in India or has not rendered any service in India then also the payments received deemed to accrue or arise in India? 3. Whether on the facts and circumstances of the case & in law, the Ld. CIT (A) failed to appreciate that Article 12 of the DTAA of India with Germany clearly states that the services of these nature are taxable in India if they are chargeable to tax as per the laws of India? 4. Whether on the facts and circumstances of the case & in law, the Ld. CIT(A) erred in deleting the disallowance of interest payment of 1,02,22,500/-, made by the A.O. on account of interest free advance given to the daughter of the Managing Director of assessee Company, by following the judgement of Hon'ble Delhi High Court in case of Bharti Tele ventures 331 ITR 502 without appreciating the fact that the assessee failed to prove any Commercial Expediency and failed to substantiate any business purpose of assessee for advan....
X X X X Extracts X X X X
X X X X Extracts X X X X
....that payments are in respect of professional & legal services, consultancy services as well as designing services. The details are as below: Name of the Party Nature of transaction Amount(Rs.) Not known Professional fees 8552 Macera & J arzyna LLP Canada Professional fee for legal services 72680 Martin Zaepfel, Germany. Huntswood Consultancy Charges 646300 Marketing Ltd., London Consultancy charges for design Services 1249474 Total 19,77,006 The assessee was asked to explain whether tax has been deducted on the above payments. The assessee vide reply dated 20.10.2011 stated that the payments in foreign currency are towards services relating to services outside India and the payments have been made outside India. It was further stated that services involved being business profits of non-residents are taxable in their home countries and therefore TDS being not applicable thereon, no TDS has been deducted. In order to examine the nature of services rendered by these foreign parties, the assessee vide order sheet entry dated 23.12.2011 was required to give a detailed note on these services .and also asked to explain why the payments against them be not treated as f....
X X X X Extracts X X X X
X X X X Extracts X X X X
....should have deducted tax on this payment u/s. 195 of the Act. Since the assessee has defaulted in deducting tax, the same is disallowed u/s 40(a)(ia) of the LT. Act. It is further seen that the assessee has paid consultancy charges of Rs. 6,46,300/- to Martin Zaepfel, Germany. From the bill filed it is seen that the same have been paid as consultancy charges for arrangmg business for Mira Exim Ltd. Consultancy charges are squarely covered under the definition of 'technical services' in article 12 of the DT AA between India and Germany, and are also liable to be taxed under the DTAA. Accordingly, the same are added back u/s. 40(a)(ia) of the Act for non-deduction of tax u/s. 195 of the Act. Further, the assessee has paid consultancy and designing charges of Rs. 12,49,474/- to Huntswood Marketing Ltd., London, for rendering consultancy charges towards the design services provided during the period. The relevant services are squarely covered under article 13 of the DT AA between India and United Kingdom and are to be taxed under the said DT AA. Since the assessee has defaulted in deducting tax u/s. 195 of the Act on these payments, Rs. 12,49,474/- is being disallowed u/s 4....
X X X X Extracts X X X X
X X X X Extracts X X X X
....2/- the AO held that no names of the payee is given hence not allowable. Regarding payment to Macera & Jazyna LLP, Rs. 72,680/-, the AO held that it is a company and as per DTAA (Double Taxation Avoidance Agreement) between India and Canada, professional fee paid for legal services to individual and firm is not taxable. In this case, payee is a company hence TDS should be made. On consultancy charges paid to Martin Zaefel, Germany, Rs. 6,46,300/-, the AO held that such charges are included in 'technical services' as defined in DTTA between India and Germany which is taxable and TDS is applicable. Similarly, amount paid to Huntswood Marketing Ltd. is also covered under DTAA and TDS is applicable. Basically, AO has treated all the payments as FTS and hence TDS is applicable. The AO also mentioned S.9(2) of the Act. 6.2 As regard Rs. 8,552/- paid to Abacus Management Solutions a professional consultancy firm at Mauritius for advice from Mauritius relating to wholly owned subsidiary, being business income of non- resident, as per DTAA, it is taxable in Mauritius not in India. Disallowance of Rs. 72,680/- paid to M/s. Macera & Jarzyna has been made on the ground that the payee ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is clearly not so in this case. Payee is pure independent consultant not involved in management of the company and with no powers to bind or direct the company." Technical: In the case of Skycell Communications Ltd. vs. DCIT (251 ITR 53 (Madras), the Hon'ble High Court has held that the popular meaning associated with the word 'technical' is 'involving or concerning applied and industrial science'. Consultancy: consultancy is generally understood to mean advisory services Further, it may be fair to state that not all kind of advisory could qualify as technical services. For any consultancy to be treated as technical services, it would be necessary that a technical element is involved in such advisory. Thus, the consultancy should be rendered by someone who has special skills and expertise in rendering such advisory. The payee is not rendering any technical services but arranging only business meetings with foreign buyers." For the interpretation given above, the assessee relied on the decision of Hon'ble Delhi Tribunal in the case of Adidas Sourcing Limited vs. ADIT (ITA No. 5300/DEL/2010). 6.4 The assessee further submitted that the services involved w....
X X X X Extracts X X X X
X X X X Extracts X X X X
....le-14 of the DTAA between India and Germany. In this case it was held that the expression "professional services" in article 14 of the Agreement for Avoidance of Double Taxation between Germany and India is wide enough to include services, if any, rendered by the applicant as an engineer and marketing consultancy services rendered by the applicant were in the nature of professional services falling under article 14 of the Double Taxation Avoidance Agreement between India and the Federal Republic of Germany. The conditions mentioned in the said article were clearly satisfied, as there was no permanent establishment in India in the facts and circumstances of the case. The professional fees and fee for independent personal services receivable by the applicant were not taxable in India. Where an individual (who is not a salaried employee) renders independent, personal services in the foreign state, then such independent personal services are covered by Article-14 whereby they would only be taxable in the foreign state where the independent individual is resident. So in this case, the payee who an individual is rendering such professional or independent personal services is only taxable....
X X X X Extracts X X X X
X X X X Extracts X X X X
....aid on account of notional interest on the said interest free advance given against purchase of guest house property. The notional interest has been worked out on the entire advance of Rs. 7,05,00,000/- @14.5% for the whole year. The 14.5% rate of interest has been adopted being the rate of interest paid by the assessee on debenture advance received from the director. Actual interest being paid to banks on various business loans and limits is less than the rate of interest of 14.5% applied by the Assessing Officer. 9. Learned CIT(A) deleted the additions as per the reasons recorded hereinabove. 10. We have heard the rival contentions and perused the facts of the case. The reasons given to A.O., submission of the assessee and the facts on record considered. In the facts and circumstances of the case and in view of the judicial pronouncements of this issue, two facts needed to be established by A.O. in the case of disallowance of interest on borrowed fund u/s. 36(1)(iii) against interest free advance given to sister concerns. First is the nexus between the borrowed funds and the commercial expediency. The schedule 1 & 2 of the relevant balance sheet shows reserves & surplus Rs. 18,....