2011 (1) TMI 911 - AT - Income Tax

Fee for technical services - DTAA between India and Singapore - Payments made under section 40(a)(ia) to Final Touch Grafix,Singapore - The nature of services rendered by FTG being public relations activities, liaison, co-ordination and also design of advertising material like power-point presentation materials, leaf-lets etc., we are of the considered view that they did not represent of rendering any managerial, technical or consultancy services as advocated by the Assessing Officers in their impugned orders - Further, the Assessing Officers have not brought any clinching evidence before us to substantiate their conclusions that the services rendered by FTG to the assessee for promoting their businesses which were covered under the managerial services as defined as FTS in the Act - Since, the Assessing Officer have not established with any discreet proof that technical skill or expertise made available to the assessee were in the nature of managerial services, we are declined to agree with the Assessing Officers perceptions, but, fully in agreement with the ld. CIT(A) s finding - Decided in favour of assessee. Payments made under section 40(a)(ia) to Filtrex International Pte. Ltd., Singapore - With regard to FIPL also, find that the ld. CIT(A) had analyzed the issue in a well judged manner and found fault with the Assessing Officers in the sense that when the Assessing Officers have held that the services made available by FIPL were for promoting their businesses and, thus, fell within the ambit of managerial services as defined in the Income-tax Act, but, they have miserably failed to come up with any clinching proof to strengthen their half-baked conclusions - Thus, the revenue had failed to nail the assessee with any corroborative evidence that the services rendered actually were within the sphere of either managerial or consultancy services - Decided in favour of assessee.

Issues Involved:
1. Jurisdiction of the Assessing Officer.
2. Disallowance of fees for technical services paid to Filtrex Holdings Pte. Ltd., Singapore under section 40(a)(ia) of the Act.
3. Disallowance of payments made to Final Touch Grafix, Singapore under section 40(a)(i) of the Act.
4. Disallowance of payments made to Filtrex International Pte. Ltd., Singapore under section 40(a)(i) of the Act.
5. Charging of interest under sections 234B and 234D of the Act.

Detailed Analysis:

1. Jurisdiction of the Assessing Officer:
The assessee contended that the Assessing Officer's order was without jurisdiction. However, no substantial arguments were provided to support this claim. Consequently, this ground was dismissed as not substantiated.

2. Disallowance of Fees for Technical Services Paid to Filtrex Holdings Pte. Ltd., Singapore:
For both assessment years 2005-06 and 2006-07, the primary issue was the disallowance of fees for technical services paid to Filtrex Holdings Pte. Ltd., Singapore, under section 40(a)(ia) of the Act. The CIT(A) upheld the disallowance, concluding that the technology was made available to the assessee, which could use it even after the agreement's termination. The assessee's argument that the technology was not made available was rejected. The Tribunal found that the expertise, knowledge, and skill to manufacture carbon blocks using the technology were available to the assessee on a seemingly permanent basis. Thus, the conditions laid down in the DTAA between India and Singapore were fulfilled, and the payments fell under the category of 'fees for technical services' as per Article 12(4)(b) of the DTAA. The Tribunal upheld the disallowance under section 40(a)(ia) for both years.

3. Disallowance of Payments Made to Final Touch Grafix, Singapore:
For the assessment years 2005-06 and 2006-07, the revenue appealed against the CIT(A)'s decision to delete the disallowance of payments made to Final Touch Grafix, Singapore. The CIT(A) concluded that the services rendered by Final Touch Grafix, such as public relations activities and designing advertising material, did not constitute managerial, technical, or consultancy services. The Tribunal agreed, noting that the Assessing Officer failed to provide evidence that the services were managerial or technical. Thus, the Tribunal upheld the CIT(A)'s decision to delete the disallowance.

4. Disallowance of Payments Made to Filtrex International Pte. Ltd., Singapore:
For the assessment year 2006-07, the revenue contested the CIT(A)'s deletion of the disallowance of payments made to Filtrex International Pte. Ltd., Singapore. The CIT(A) found that the services provided, such as developing a global vision, public relations, and human resource planning, were largely marketing and support functions and did not fall under managerial, technical, or consultancy services. The Tribunal upheld the CIT(A)'s decision, agreeing that the Assessing Officer failed to establish that the services were managerial or technical.

5. Charging of Interest Under Sections 234B and 234D of the Act:
The assessee objected to the charging of interest under sections 234B and 234D of the Act for the assessment year 2006-07. The Tribunal noted that charging of interest under section 234B is mandatory and consequential, and therefore, this ground was not maintainable. Regarding section 234D, the Tribunal pointed out that the levy of interest is purely a legal ground and is chargeable from the assessment year 2004-05, as per the findings of the Hon'ble Delhi E Special Bench in the case of ITO v. Ekta Promoters (P.) Ltd.

Conclusion:
The Tribunal dismissed the appeals of both the assessee and the revenue for the assessment years 2005-06 and 2006-07, upholding the disallowances made by the Assessing Officers and the decisions of the CIT(A) where applicable.

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