2014 (7) TMI 765 - AT - Income Tax

Nature of payment made for BSP link services rendered by ADP-GSI France Requirement to deduct TDS on fees paid to technical services Held that - The payment made to ADP-GSI France for providing BSP link services to the Agents/Air lines was treated by the AO as in the nature of fees for technical services as per Article 13 of the treaty between India and France chargeable to tax in India @10% - As per Article 13(1), Royalty, fees for technical services and payments for lease of equipments arising in India and paid to resident of France may be taxed in France - royalty fees and payments may also be taxed in India at the maximum rate of 10% of the gross amount of such royalty, fees and payments the contention of the assessee is accepted that there is nothing to show that the services provided by BSP link services provided by ADP-GSI France actually made available to the agents/Air lines any technical knowledge, experience, skill, know-how or processes so as to enable them to apply the technology thus, there was no infirmity in the order of the CIT(A) holding that the payment made for BSP link services rendered by ADP-GSI France is not in the nature of fees for included services chargeable to tax in India Decided against Revenue.

Issues Involved:
1. Taxability of payments made by the assessee to IATA, Canada.
2. Applicability of provisions of Section 195 of the Income Tax Act.
3. Nature of payments as "fees for technical services" under Article 13 of the DTAA between India and France.
4. Interpretation of "fees for included services" under the DTAA and relevant protocols.
5. Consideration of new plea by the Revenue regarding the nature of payment as royalty.

Detailed Analysis:

1. Taxability of Payments Made by the Assessee to IATA, Canada:
The Revenue challenged the decision of the CIT(A) holding that the amount paid by the assessee to IATA, Canada is not taxable in India as it is not in the nature of fees for technical services. The assessee, a branch office of IATA, Canada, argued that the payments were merely cost recoveries and not for any services rendered. The CIT(A) accepted the assessee's contention that the payments did not constitute fees for technical services under Article 13 of the DTAA between India and France.

2. Applicability of Provisions of Section 195 of the Income Tax Act:
The Assessing Officer (A.O.) directed the assessee to deduct tax at source under Section 195 of the Income Tax Act, arguing that the payments were for technical services provided by ADP-GSI, a French company. The CIT(A) rejected the assessee's contention that Section 195 was not applicable due to the absence of two distinct entities, relying on CBDT Circular No. 740 which clarifies that a branch of a foreign company in India is a separate entity for taxation purposes.

3. Nature of Payments as "Fees for Technical Services" under Article 13 of the DTAA between India and France:
The A.O. considered the payments as fees for technical services under Article 13 of the DTAA between India and France, which are taxable in India at 10%. However, the CIT(A) concluded that the services provided by ADP-GSI did not make available any technical knowledge, experience, skill, know-how, or processes to the airlines and agents in India, and thus, the payments did not constitute "fees for included services" under Article 13 read with clause 7 of the Protocol.

4. Interpretation of "Fees for Included Services" under the DTAA and Relevant Protocols:
The CIT(A) referred to Article 12(4)(b) of the DTAA between India and the USA, which restricts the definition of fees for included services to those that make available technical knowledge, experience, skill, know-how, or processes. The CIT(A) concluded that the BSP link services provided by ADP-GSI did not meet this criterion, as the technology was not made available to the airlines and agents in a manner that would enable them to apply it independently.

5. Consideration of New Plea by the Revenue Regarding the Nature of Payment as Royalty:
The Revenue introduced a new argument that the payments should be considered as royalty. However, the Tribunal noted that this was not the case of the A.O., and the ground raised by the Revenue in the appeal pertained to fees for technical services, not royalty. The Tribunal found no basis to entertain this new plea.

Conclusion:
The Tribunal upheld the CIT(A)'s decision that the payments made by the assessee to IATA, Canada were not taxable in India as they did not constitute fees for included services under the DTAA between India and France. The appeal filed by the Revenue was dismissed. The Tribunal emphasized that the services provided did not make available any technical knowledge or processes to the airlines and agents, and thus, the payments were not chargeable to tax in India. The Tribunal also dismissed the Revenue's new plea regarding the nature of the payment as royalty, as it was not raised at the assessment stage.

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