2014 (1) TMI 886 - AT - Income Tax

Obligation to deduct TDS u/s 201 r.w. 195 of the Act Payments made for providing in-house training and market awareness and development training to employees Held that - The decision in of DIT v. Guy Carpenter & Co Ltd 2012 (5) TMI 31 - DELHI HIGH COURT and CIT v. De Beers India Pvt. Ltd 2012 (5) TMI 191 - KARNATAKA HIGH COURT followed - the training services rendered by the service provider are general in nature as the training is described as in house training of IT staff and medical staff and of market awareness and development training - this training does not involve any transfer of technology - in order to successfully invoke the coverage of training fees by make available clause in the definition of fees for technical services, the onus is on the revenue authorities to demonstrate that these services do involve transfer of technology - That onus in not at all discharged by the Assessing Officer, or even by the learned Departmental Representative. When case of the revenue authorities fails on the tests of the treaty provisions, there is no occasion at all for their leaning upon the provisions of the Income Tax Act - The case of the revenue authorities does not succeed on the provisions of the tax treaty as there is nothing to establish that there is any transfer of technology thus, the fees for training services of general nature, which does not seem to involve any transfer of technology, cannot be brought to tax under section 13(4)(c) of India UK tax treaty - the conclusions arrived at by the CIT(A) upheld Decided against Revenue.

Summary

Issues Involved:
Whether the assessee had an obligation to deduct tax at source under section 195 for payments made to foreign entities for training services.

Analysis:
The central issue in this case was whether the assessee was required to deduct tax at source under section 195 for payments made to foreign entities for training services. The payments in question were made for in-house training of IT and medical staff, as well as market awareness and development training. The Assessing Officer contended that the training fees were taxable in India under Article 13(4)(b) of the India UK Double Taxation Avoidance Agreement. The Assessing Officer argued that the expression 'make available' in the agreement included cases where technical services were offered or made accessible to the recipient, even if the recipient was not trained or made an expert in such technical knowledge. However, the CIT(A) disagreed with this interpretation, stating that the services provided did not fall under Article 13(4)(b) of the agreement, and thus, the demands raised under section 201 were cancelled.

The Appellate Tribunal examined the connotations of the 'make available' clause in the definition of fees for technical services in tax treaties. It was established that for this clause to apply, the services provided must enable the recipient to apply the technology contained therein. The Tribunal cited relevant High Court decisions supporting this interpretation. It was emphasized that unless there is a transfer of technology involved in the technical services provided by the foreign company, the 'make available' clause is not satisfied, and the consideration for such services cannot be taxed under the tax treaty. In this case, the training services were deemed general in nature and did not involve any transfer of technology. The Tribunal held that the revenue authorities failed to demonstrate that the services provided involved a transfer of technology, and thus, the training fees could not be taxed under the tax treaty.

Ultimately, the Tribunal approved the conclusions reached by the CIT(A) and declined to interfere in the matter. Despite acknowledging that the reasoning adopted by the CIT(A) was incorrect, the Tribunal found that the right conclusions were reached. The appeal was dismissed, affirming the decision to cancel the demands raised under section 201. The judgment was pronounced on June 28, 2013, upholding the position that the training services, lacking a transfer of technology, were not subject to taxation under the India UK tax treaty.