2011 (7) TMI 1108 - AT - Income Tax

Income accrued in India - Remittances of conferanace Expenses paid to Non - Resident - Tax Deducted at Source u/s 195 - Consequences of failure to pay u/s 201/201A- Consultancy services - technical nature - Article 12 of Indo-US Tax Treaty - AO observed that before making payment to non-resident, the assessee-company had not deducted tax at source as required by section 195 - HELD THAT - Nature of services rendered by non resident company to the assessee-company is such that the same cannot be regarded as technical or consultancy services so as to fall within the definition of fees for included services as given in Article 12 of the Indo-US Tax Treaty. The payment made for the said services, thus, is in the nature of business profits in the hands of non resident company as covered under Article 7 of the Treaty and the said party admittedly having no PE in India in the year under consideration, the same was not chargeable to tax in its hand in India. Consequently, the assessee-company was not liable to deduct tax at source from the said payment made to non resident company and no liability could be fastened on it under section 201/201(1A). We, therefore, reverse the impugned order of the ld. CIT(A) upholding the order passed by the Assessing Officer on this issue under section 201/201(1A) and allow the appeal of the assessee - Decision in favour of Assessee. Fees for included services under Article 12(4) of the DTAA - Remittances made to the CROs - Assessee paid fees to CROs (Non- resident entities) in respect of bio-equivalence studies, clinical/analytical charge - HELD THAT - In the case of ANAPHARM INC., IN RE 2008 (9) TMI 27 - AUTHORITY FOR ADVANCE RULINGS , a similar issue had come up wherein the non-resident assessee had received similar payments from Indian pharma companies for providing services of CROs and the question was whether the said payments are taxable in India AND held services rendered by the non-resident assessee as CROs were not for fees for included services as they did not make available any technology to the recipient. Therefore, we are in the view that the nature of services rendered by CROs to the assessee-company is such that the same cannot be regarded as technical or consultancy services so as to fall within the definition of fees for included services and the payment made for such services, therefore, was not chargeable to tax in India in the hands of the concerned CROs. Consequently, the assessee-company was not liable to deduct tax at source from the said payment made to CROs and no liability could be fastened on it under section 201/201(1A) - dismiss the appeal filed by the revenue.

Summary

Issues Involved:
1. Taxability of remittances for conference expenses and obligation to deduct tax at source.
2. Taxability of payments made to non-resident entities for bio-equivalence study, analysis charges, testing charges, and sub-chronic toxicity study charges.

Detailed Analysis:

Issue 1: Taxability of Remittances for Conference Expenses and Obligation to Deduct Tax at Source

The primary issue in the assessee's appeal was whether the remittances of conference expenses paid to M/s. C.K. Prahlad Inc. of USA were chargeable to tax in India, and whether the assessee was liable to deduct tax at source from the said remittance.

The assessee-company argued that the payment was not taxable in India as M/s. C.K. Prahlad Inc. did not have a permanent establishment in India and did not make available any technical knowledge. The Assessing Officer, however, held that the payment was for managerial/technical/consultancy services and thus fell within the definition of 'fees for included services' under Article 12 of the DTAA between India and USA. Consequently, the assessee was required to deduct tax at source under section 195.

The CIT(A) upheld the Assessing Officer's decision, stating that the services rendered by Mr. C.K. Prahlad were managerial and technical in nature, and the payment was taxable in India. The Tribunal, however, disagreed, stating that the services rendered were essentially in the nature of sharing management experiences and business strategies, which did not make available any technical knowledge to the assessee. Consequently, the payment was not taxable in India under Article 12 of the Indo-US Tax Treaty, and the assessee was not liable to deduct tax at source.

Issue 2: Taxability of Payments Made to Non-Resident Entities for Bio-Equivalence Study, Analysis Charges, Testing Charges, and Sub-Chronic Toxicity Study Charges

The revenue's appeal involved the taxability of payments made by the assessee to various non-resident entities for bio-equivalence studies, clinical/analytical charges, etc. The Assessing Officer held that these payments were in the nature of fees for technical services and were taxable in India. Consequently, the assessee was required to deduct tax at source under section 195.

The CIT(A) partially allowed the assessee's appeal, holding that the services rendered by the CROs were not technical in nature but commercial, and did not make available any technology to the assessee. Therefore, the payments made to entities in the USA, UK, Canada, Netherlands, France, and Australia were not taxable in India. However, payments made to entities in other countries were held to be taxable.

The Tribunal upheld the CIT(A)'s decision, stating that the services rendered by the CROs were commercial and did not involve the transfer of any technical knowledge or experience. Therefore, the payments were not chargeable to tax in India, and the assessee was not liable to deduct tax at source.

Conclusion:
The Tribunal allowed the assessee's appeal regarding the conference expenses, holding that the payment was not taxable in India and the assessee was not liable to deduct tax at source. The Tribunal dismissed the revenue's appeal regarding the payments made to non-resident entities for bio-equivalence studies, upholding the CIT(A)'s decision that the payments were not taxable in India and the assessee was not liable to deduct tax at source.