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2013 (1) TMI 421 - AT - Income TaxIndia-USA DTAA - non deduction of TDS on payments/remittances - proceedings under section 201(1) - assessee contested that the services rendered were not in the nature of royalty as contemplated in the provisions of section 9(1)(vi) also not in relation to development or transfer of any technical plan or technical design or Technical Services - Held that - From a perusal of the order of assessment it is found that all the submissions of the assessee before the AO and his findings thereon are only in respect of whether the payment made by the assessee to the consultant M/s. IBM Corporation USA was or was not taxable in India as royalty under Article 12(3) of the India-USA DTAA or as Fees for included services under Article 12(4) of the India-USA DTAA. There was no submission by the assessee or examination by the AO as to whether or not the payment made to the consultant M/s. IBM Corporation USA for services rendered to the assessee pursuant to their agreement dt.20.3.2006 are not in the nature of royalty as contemplated by the provisions of section 9(1)(vii) is exigible to tax in India as per domestic law thereby attracting the provisions of TDs under section 195. In this factual matrix the fundamental issue of whether the said payments to M/s. IBM corporation USA by the assessee for services rendered are in the nature of royalty as per the provisions of section 9(1)(vii) and exigible to tax there under in India requires to be examined and therefore remit the same issue to the file of the AO for examination and finding thereon after affording the assessee adequate opportunity of being heard in the matter - in favour of assessee for statistical purposes.
Issues Involved:
1. Whether the payment made by the assessee to IBM Corporation, USA, constitutes Fees for Technical Services (FTS) under section 9(1)(vii) of the Income Tax Act, 1961. 2. Whether the payment qualifies as Fees for Included Services (FIS) under Article 12(4)(b) of the India-USA Double Taxation Avoidance Agreement (DTAA). 3. Whether the assessee is liable to deduct tax at source under section 195 of the Act on the payment to IBM Corporation, USA. 4. Whether the assessee is an assessee in default under section 201(1) of the Act for non-deduction of tax at source. 5. Whether the interest charged under section 201(1A) of the Act is justified. Issue-wise Detailed Analysis: 1. Whether the payment made by the assessee to IBM Corporation, USA, constitutes Fees for Technical Services (FTS) under section 9(1)(vii) of the Income Tax Act, 1961: The assessee contended that the services rendered by IBM Corporation, USA, were not in the nature of royalty or technical services as per section 9(1)(vii) of the Act. The assessee argued that the services did not make available any technology, know-how, knowledge, skills, etc., and were not related to the development or transfer of any technical plan or design. The Assessing Officer, however, held that the services rendered by IBM constituted FTS as they involved technical specifications, program code, and unit test results, thereby making available technology, knowledge, and skills. The Tribunal noted that the fundamental issue of whether the payment is taxable under section 9(1)(vii) of the Act was not examined by the authorities below and remitted the issue back to the Assessing Officer for examination. 2. Whether the payment qualifies as Fees for Included Services (FIS) under Article 12(4)(b) of the India-USA Double Taxation Avoidance Agreement (DTAA): The assessee argued that the payment did not constitute FIS under Article 12(4)(b) of the DTAA as the services did not make available technical knowledge, skills, or processes to enable the assessee to apply the technology. The Assessing Officer, however, concluded that the services fulfilled the conditions of Article 12(4) of the DTAA and were therefore taxable in India. The Tribunal noted the assessee's reliance on various judicial precedents and the MoU attached to the DTAA, which clarified that technology is considered "made available" only when the recipient is enabled to apply it. The Tribunal remitted this issue back to the Assessing Officer for examination in light of the submissions and judicial precedents. 3. Whether the assessee is liable to deduct tax at source under section 195 of the Act on the payment to IBM Corporation, USA: The assessee contended that since the payment was not taxable under the Act or the DTAA, there was no requirement for TDS under section 195 of the Act. The Assessing Officer held that the assessee was obliged to deduct tax at source under section 195 as the payment constituted FTS under the Act and FIS under the DTAA. The Tribunal remitted this issue back to the Assessing Officer for a fresh examination in light of the findings on the nature of the payment under section 9(1)(vii) of the Act and Article 12(4) of the DTAA. 4. Whether the assessee is an assessee in default under section 201(1) of the Act for non-deduction of tax at source: The Assessing Officer treated the assessee as an assessee in default under section 201(1) of the Act for not deducting tax at source on the payment to IBM Corporation, USA. The CIT(A) upheld this view. The Tribunal, however, remitted the issue back to the Assessing Officer for a fresh examination in light of the findings on the nature of the payment under section 9(1)(vii) of the Act and Article 12(4) of the DTAA. 5. Whether the interest charged under section 201(1A) of the Act is justified: The Assessing Officer charged interest under section 201(1A) of the Act for the non-deduction of tax at source. The CIT(A) upheld this view. The Tribunal remitted the issue back to the Assessing Officer for a fresh examination in light of the findings on the nature of the payment under section 9(1)(vii) of the Act and Article 12(4) of the DTAA. Conclusion: The Tribunal remitted the issues back to the Assessing Officer for a fresh examination and findings on whether the payment made by the assessee to IBM Corporation, USA, constitutes FTS under section 9(1)(vii) of the Act and FIS under Article 12(4)(b) of the DTAA, and consequently, whether the assessee is liable to deduct tax at source under section 195 of the Act and is an assessee in default under section 201(1) of the Act. The appeals were allowed for statistical purposes.
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