2018 (1) TMI 1537 - AT - Income Tax

TDS u/s 195 - payments under the head Consulting Services to M/s. UST Global Inc., USA, a non-resident company incorporated in the United States of America, without deducting tax at source - HELD THAT - The Authority for Advance Ruling considered the DTAA between India and UK and found that rendering of service and making use of service go together. It was found that rendering of service and making use of the service are two sides of the same coin. After considering the word which the Authority for Advance Ruling found that rendering technical or consultancy service is followed by relative pronoun which and it has the effect of qualifying the services. The service offered may be the product of intense technological effort and lot of technical knowledge and the experience of the service provider would have gone into it. Authority for Advance Ruling found that the technical knowledge and the experience of the service provider should be imparted to and absorbed by the receiver, so that the receiver can deploy similar technology or techniques in future without depending on the provider. In this case also, the information, expertise and training provided by the USA company was absorbed by the assessee company in their decision making process and it was utilized for the purpose of business. The USA company made available all the technical data, information, expertise to the assessee company which was absorbed and made use of by the assessee company in their managerial and financial decision making process and other decision in the development of the business. Therefore, the expertise and technology which was made available by the USA company is technical service within the meaning of Article 12(4)(b) of the DTAA between India and USA. Hence, this ruling of the Authority for Advance Ruling may not of any assistance to the assessee. We do not find any infirmity in the order of the lower authority. Accordingly the same is confirmed - we are inclined to uphold the orders of the CIT(A) and sustain the additions on account of non deduction of TDS on account of management fees for the relevant assessment years. - Decided against assessee Amount remains unpaid in AY 2012-13 - Even if the assessee credited the amount to the recipient account, the provisions of sec. 195(1) is applicable.

Summary

Issues Involved:
1. Non-deduction of TDS on payments made for consulting services.
2. Taxability of management fees under the India-US DTAA.
3. Applicability of Section 195(1) for unpaid amounts credited to the recipient's account.

Issue-Wise Detailed Analysis:

1. Non-deduction of TDS on Payments Made for Consulting Services:
The primary issue revolves around the non-deduction of tax at source (TDS) by the assessee on payments made to M/s. UST Global Inc., USA, for consulting services. The Assessing Officer disallowed these payments under section 201(1)/201(1A) of the Income Tax Act, citing a violation of section 195.

The Tribunal examined whether the payments made by the assessee to the USA company were taxable in India, which would necessitate TDS under section 195. The Tribunal referred to a prior decision in the assessee’s own case for AY 2007-08, where it was held that the managerial consultancy services provided by the USA company were not explicitly covered under Article 12 of the DTAA between India and USA. However, the Tribunal concluded that the services rendered were technical in nature, thus falling under the definition of "fees for technical services" as per section 9(1)(vii) of the Income Tax Act.

2. Taxability of Management Fees Under the India-US DTAA:
The Tribunal analyzed Article 12 of the DTAA between India and USA, which deals with "fees for included services." It was clarified that technical or consultancy services that make available technical knowledge, experience, skill, know-how, or processes are considered included services. The Tribunal noted that the managerial advice provided by the USA company involved technical expertise, which the assessee used in decision-making processes related to management, financial, and risk management.

The Tribunal referenced the Memorandum of Understanding (MoU) between India and USA, which specifies that only technical consultancy services are included under Article 12. The services provided by the USA company were deemed technical, as they involved advice and support in management, financial decision-making, and risk management, which were used by the assessee for business decisions.

3. Applicability of Section 195(1) for Unpaid Amounts Credited to the Recipient's Account:
The assessee contended that tax liability under section 195 should arise only upon actual payment, not on mere crediting of the amount to the recipient's account. The Tribunal dismissed this argument, stating that section 195(1) applies even if the amount is credited to the recipient's account, thus upholding the tax liability.

Conclusion:
The Tribunal upheld the orders of the CIT(A), confirming the additions on account of non-deduction of TDS on management fees for the relevant assessment years. The Tribunal also dismissed the assessee’s argument regarding the applicability of section 195(1) for unpaid amounts and rejected the stay petitions as infructuous. All appeals and stay petitions filed by the assessee were dismissed.