TaxTMI 
TaxTMI 
2026 (6) TMI 1185
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....r technical services' ought to be taxed at the rate of 10% plus applicable surcharge and cess in terms of section 115A of the Income-tax Act, 1961 and the stand taken by the Assessing Officer/Dispute Resolution Panel in this regard is misconceived, illegal, erroneous and incorrect. 1:3 The Appellant submits that the Assessing Officer be directed to tax at the rate of 10% and to re-compute it tax liability accordingly. Without prejudice to the foregoing, 2:0 Re.: Erroneous levy of education cess: 2:1 The Assessing Officer has erred in charging Health and Education Cess at the rate of 3%, over and above the tax-rate of 15% specified in the India-USA Double Taxation Avoidance Agreement while calculating the net tax liability payable by the Appellant. 2:2 The Appellant submits that considering the law prevailing on the subject, the tax rate specified in the India-USA Double Taxation Avoidance Agreement is inclusive and maximum rate of tax that can be charged to the appellant and hence, the education cess calculated by the Assessing Officer is illegal, erroneous and incorrect. 2: 3 The Appellant submits that the Assessing Officer....
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....t should not be included in the taxable income of the assessee. 2.2 It was submitted by the assessee that the travel cost not being in the nature of fees for technical services (FTS) and purely reimbursement of expenditure incurred, is not taxable either under the provisions of the Act or under the India-USA Double Taxation Avoidance Agreement (DTAA). Further, the assessee submitted that this Tribunal has decided the issue in favour of the assessee in the preceding assessment years. 2.3. However, the Ld.AO, not being convinced with the submissions made by the assessee, held that the payment towards travel expenses was intrinsically connected with and incidental to the rendering of training and technical services and, therefore, was liable to be regarded as Fees for Technical Services (FTS). While arriving at the said conclusion, the Ld.AO placed reliance on the observations made by the DRP and Ld.CIT(A) in the assessee's own case for the assessment years 2009-10, 2010-11 and 2011-12. Accordingly, the travel cost amounting to Rs.10,61,365/- was treated as FTS and brought to tax in the hands of the assessee. Aggrieved by the aforesaid addition, the assessee raised objections....
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....aised in Ground No.2 of the appeal to the file of the Ld.AO for fresh adjudication. The Ld.AO was directed to examine the applicability of the Master Directions issued by the Reserve Bank of India and any other rules/regulations framed by the RBI/Central Government, and also to consider the judicial precedents relied upon by the assessee. 2.5.1. In the proceedings pursuant to the remand order of the Tribunal, the Ld.AO called upon the assessee to furnish details and substantiate that the remittances made towards Fees for Technical Services were covered under the automatic route of approval by the Reserve Bank of India. In response, the assessee submitted that since the remittances were permitted under the automatic route prescribed by the Reserve Bank of India, such permission ought to be regarded as approval granted by the Central Government for the purposes of section 115A(1)(b) of the Act. 2.5.2. The assessee furnished copy of the Master Direction on Other Remittance Facilities issued by the Reserve Bank of India dated 01.01.2016 (updated as on 06.11.2018), and submitted that prior approval of the RBI is required only in respect of remittances exceeding USD 1 million per p....
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....at the rate of 10% in terms of section 115A(1) of the Income-tax Act, 1961, as claimed by the assessee. 4.1. In this regard, the Ld.Sr.Counsel appearing on behalf of the assessee submitted that, in the first round of assessment proceedings, this Tribunal, while considering the identical issue, had observed as under:- "12. In rejoinder, learned counsel for the assessee submitted, the tax rate of 10% under section 115(1)(b)(B) has been made applicable from 01-04- 2016. Hence, it would apply to assessment year 2016-17. Further, he submitted, while the assessing officer has applied the tax rate of 15% by incorrectly mentioning note 2 to the return of income, learned DRP, while considering the issue of applicability of section 115A(1) has never allowed any opportunity to the assessee to have its say on the fulfillment of conditions of the said provision. 13. We have considered rival submissions and perused materials on record. The short issue arising for consideration is whether, the tax rate of 10% provided u/s 115A(1)(b)(B) would be applicable to the payments received by the assessee towards FTS. Apparently, the assessing officer has referred to note 2 to the note....
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....in force, of the Government of India, the agreement should be in accordance with such policy. 15. In this regard, assessee's contention is - the amount by way of FTS received by the assessee is little more than Rs. 41 lakhs. Therefore, there is no need for any specific approval from the Central Government. On a perusal of paragraph 4.3 of the master direction dated 01-01-2016 (updated from time to time) issued by the RBI, a copy of which is at page 54 of the paper book, we find that prior approval of RBI would be necessary, if remittances exceed USD 10,00,000 per project for 'other consultancy services' procured from outside India. As per Foreign Exchange Management (Current Account Transaction) Rules, 2000, remittances in certain instances are prohibited as per Schedule 2 and Schedule 3. Prima facie, it appears, the amount received by way of FTS by the assessee does not come within the prohibited items. Though, there are certain conditions set out in section 115A(1); however, it has to be considered whether such conditions are mandatorily required to be fulfilled, even, in a case where specific approval is neither required nor contemplated as per the extant rules/regulati....
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....own case for other assessment years, similar receipts had consistently been offered to tax at the rate of 10% under section 115A(1)(b) of the Act, and such treatment had been accepted by the Revenue. 4.3. The Ld.Sr.Counsel submitted that, in view of the findings recorded by this Tribunal in the first round of proceedings, the issue regarding the applicability of the tax rate of 10% under section 115A(1)(b) of the Act stands settled. It was submitted that, pursuant to the remand directions issued by the Tribunal, the limited scope of examination before the Ld.AO was only to verify whether the conditions prescribed under section 115A(1)(b) of the Act stood satisfied in the facts of the assessee's case, particularly in the context of the approval requirement contemplated under the said provision. 4.4. The Ld.Sr.Counsel submitted that, for the purpose of applicability of section 115A(1)(b) of the Act, the relevant conditions requiring examination are as under: (i) the income by way of royalty or Fees for Technical Services received from the Government or an Indian concern should be pursuant to an agreement entered into by the foreign company with the Government or the In....
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....hich was substantially below the threshold limit of USD 1 million prescribed under the Master Direction. Therefore, no prior approval was required in the present case and the remittance was permissible under the automatic route. 4.8. The Ld.Sr.Counsel further referred to the Statement on Industrial Policy dated 24.07.1991 and submitted that the said policy provided for automatic approval in respect of specified payments, including lump-sum payments and royalty payments within the prescribed limits. It was contended that separate approval was not required for foreign technology arrangements or payments covered under the general permissions granted in accordance with RBI guidelines. 4.9. Accordingly, the Ld.Sr.Counsel submitted that the agreement entered into between the assessee and the Indian concern was in accordance with the industrial policy of the Government of India and the remittances made pursuant thereto were covered under the automatic approval mechanism prescribed under the applicable FEMA provisions and RBI regulations. 4.10. The Ld.Sr.Counsel also placed reliance on the decision of Co-ordinate Bench of this Tribunal in the case of Kaiser Aluminium Technical Ser....
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....ase, we note that this Tribunal, in the first round of proceedings, has already held that the receipts earned by the assessee are in the nature of Fees for Technical Services and that the rate of tax prescribed under section 115A(1)(b) of the Act, i.e., 10%, is applicable with effect from 01.04.2016. 5.1. The Revenue, however, disputs the applicability of the said concessional rate on the ground that the agreement entered into by the assessee with the Indian concern was not approved by the Central Government and that the arrangement was merely an internal arrangement between group entities pursuant to the group policy. 5.2. In our considered view, the aforesaid objection raised by the Revenue already stands addressed by this Tribunal in the first round of proceedings, wherein it was observed as under:- "15....... Though, there are certain conisation set out in section 115A(1); however, it has to be considered whether such conditions are mandatorily required to be fulfilled, even, in a case where specific approval is neither required nor contemplated as per the extant rules/regulations/guidelines of RBI or Central Government. In case, the Government has not l....