TaxTMI 
TaxTMI 
2005 (2) TMI 450
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....learned CIT(A) erred in not providing the appellant with the reasons recorded by the Assessing Officer while determining the taxability of the payments, in the order passed under section 195(2) of the Income-tax Act." 4. "He erred in not appreciating in the correct perspective the submissions made by the appellant." 5. "Each one of the above grounds of appeal is without prejudice to each other." 2. In the present case the appellant has objected to the order passed by the Assessing Officer under section 195 of the I.T. Act directing the appellant to deduct tax at source @15% on remittance of US $3,57,000 to be remitted to M/s. Wet Enterprises, Inc., U.S.A. In the impugned order under section 195 of the Act the Assessing Officer, however, did not give any reasons for directing the appellant to withhold tax before remitting the funds in convertible foreign exchange. 3. In the first appeal the assessee challenged the order of the Assessing Officer requiring assessee to withhold tax @15%. Before the CIT(A) it was argued by the appellant that the payment made to Non-Resident American Company did not give rise to any income, which accrued in India. Referring to the....
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....laim that the services rendered did not give rise to the income in India which was the country of the source. The Ld. A/R also relied on the decision of the Mumbai Bench of the ITAT in the case of Raymond Ltd. v. Dy. CIT [2003] 86 ITD 791 (Mum.) and also on the decision of the ITAT, Kolkata in the case of CESC Ltd. v. Dy. CIT [2003] 80 TTJ (Cal.) 806. 5. The Ld. D/R on the other hand fully supported the order of the CIT(A). He argued that the agreement between the Non-Resident company and the appellant provided for rendering of technical services for the benefit of the appellant in India. In terms of the agreement, the services were actually provided in India and for which purpose the employees of the Non-Resident company visited India to render such services. Further in terms of the scope of agreement the Non-Resident company had also provided drawings and designs which were used by the appellant for its benefit and therefore the services provided by the Non-Resident Company fell squarely within the ambit of article 12(4)(b) of the DTAA between India and the USA. The Ld. D/R therefore argued that as per article 12(4) of the agreement the country of source had right to tax the f....
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....vices, designs etc. for development of Water features at the said premises. In the written note submitted, the A/R of the assessee has clarified that as per articles 2 to 6 of the agreement between the American company and the assessee the work was to be performed in the following five phases:- 2. Schematic Design Phase 3. Design Development Phase 4. Engineering and Construction Phase 5. Construction and Installation Phase 6. Field Commissioning and Programming Phase 8a. We note from the agreement that in the Schematic Design Phase, the American company was to interact with the Project Consultants to review the drawings and documents. It also provided that the American company shall prepare Schematic Design Drawing necessary to detail the design intent for the water features. The American company was also to issue drawings for review as their Schematic Design Package. The deliverables by the American company in this phase included site plan, plans, sections and elevations in schematic form. 8b. In the Design Development phase the American company was to prepare the design development drawing including mechanical, electrical and lig....
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....transfer of any design or knowledge. The reading of the agreement clearly indicates that the appellant company was to execute the water features at 22 Aurangazeb Road, New Delhi in accordance with the designs, drawings and technical specifications provided by the American company and the American company was to ensure that the features executed by the contractors at the site conformed to the drawings, designs specifications provided by the American company. From the agreement between the assessee and the foreign company, it is also quite clear that the American company was not only to provide the Schematic ideas but also to provide technical designs, drawings and information on the basis of which alone the Indian company was to execute and install the Water Features. Article 12(4)(b) provides that fees for included services shall include "services which makes available technical knowledge, experience, skill, know-how or consists of development and transfer of technical plan or technical design". The Ld. A/R placed reliance on the fact that the assessee did not become the owner of the technical drawings or designs and the Intellectual Property Rights in the drawings always retained ....
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....contract between the Indian company and the U.K. company were totally different as the question was whether the amount so paid were fees for technical services. In that case although Tribunal held that services rendered were technical services; due to specific clauses of DTAA between U.K and India, income was not taxable. Moreover, since there is a specific clause included in article 12(4) of DTAA with the USA which defines the term fees for included services and further since the payment made under the agreement in the present case falls within the said definition, the assessee cannot get benefit of the decision of the Mumbai Bench which was rendered in the context of DTAA between India and U.K. As regards the decision of the Coordinate Bench of the ITAT, Calcutta in the case of CESC Ltd we find that under, the agreement the role of the foreign company was limited to review and give opinion to the Indian Resident rather than to design and direct the project. On these facts the Tribunal had found that making suggestions for corrections was only the incidental part of the agreement and it was not the substance of the agreement between the parties. On the contrary we find that the su....