2018 (7) TMI 2213 - AT - Income Tax

Scope of appeal u/s 248 - Ascertainment of tax withholding liability from three foreign remittances made by the assessee - Appeal by person denying liability to deduct tax in certain cases - Whether CIT(A) has erred in issuing the direction U/s.248 of the Act that there is no liability to withhold tax under Sec.195 of the Act on the foreign remittances made? - HELD THAT - The payment is not for incidental enrichment of experience of the assessee, even if that be so, but for receipt of services by way of review, supervision and consultancy. The consideration for the payments in question is the review, supervision and consultancy services and not for such an incidental enrichment, even if that be, of experience. These services donot make available technical knowledge, experience, skill, know-how or processes. DR in any case, has not brought on record any material to etc in the sense of transfer of suck knowledge, experience, skill, know how or process etc. In any case, learned Departmental Representative has not brought on record any material to demonstrate that there was any transfer of the skills of service provider to the recipient of services. The arguments raised by the appellant are based on sweeping generalizations and are not supported by any specific evidences in support of the same. Objection against admission of additional evidence, one has to bear in mind the fact that every evidence produced in an appeal against 248, when it is not in the backdrop of a specific order under section 195, is a new evidence in the sense that such appellate proceedings are the original proceedings in that extent. When no objections are raised by the Assessing Officer to the admission of these appeal by the CIT(A) under section 248, without a specific order passed under section 195, grievances raised against the admission of additional evidence by the CIT(A) are devoid of legally sustainable merits - no infirmity in the impugned order passed by the CIT(A) - Appeal dismissed.

Summary

Issues Involved:
1. Liability to withhold tax under Section 195 of the Income Tax Act.
2. Admissibility of the appeal under Section 248 of the Income Tax Act.
3. Opportunity of being heard to the Assessing Officer and admission of additional evidence.
4. Nature of services provided and whether they imparted technological skill or know-how.
5. Classification of services as supervisory and managerial versus technical knowledge sharing.

Issue-wise Detailed Analysis:

1. Liability to withhold tax under Section 195 of the Income Tax Act:
The main grievance was whether there was a liability to withhold tax on foreign remittances to an Israeli entity under a 'Manufacturing Services Agreement.' The CIT(A) directed that there was no liability to withhold tax under Section 195. The Tribunal upheld this direction, noting that the payments were for supervisory and consultancy services which did not "make available" technical knowledge, experience, skill, know-how, or processes to the assessee.

2. Admissibility of the appeal under Section 248 of the Income Tax Act:
The Tribunal addressed whether the appeal was maintainable under Section 248, given that the assessee had not deducted tax at source nor paid any taxes to the Government Account. The Tribunal noted that the assessee had paid taxes as a measure of abundant caution and sought a declaration that no tax was deductible. The Tribunal found that the appeal was admissible under Section 248, as the assessee bore the tax liability under an agreement and had paid the tax to the credit of the Central Government.

3. Opportunity of being heard to the Assessing Officer and admission of additional evidence:
The Tribunal examined whether the CIT(A) erred in deciding the appeal without providing an opportunity of being heard to the Assessing Officer and in admitting additional evidence contrary to Rule 46A(3) of the I.T. Rules, 1962. The Tribunal noted that in appeals under Section 248, where there is no specific order under Section 195, the appellate proceedings are original, and thus, the admission of additional evidence was justified. The Tribunal rejected the objections against the admission of additional evidence.

4. Nature of services provided and whether they imparted technological skill or know-how:
The Tribunal analyzed whether the services rendered by the Israeli entity resulted in imparting and making available technological skill, know-how, or processes. It was concluded that the services were supervisory and consultancy in nature and did not transfer any technical knowledge or skills that would enable the assessee to perform these services independently in the future. The Tribunal emphasized that supervisory and consultancy services do not fall under the "make available" clause in tax treaties.

5. Classification of services as supervisory and managerial versus technical knowledge sharing:
The Tribunal examined whether the services provided were merely supervisory and managerial or involved sharing of technical knowledge and permanent benefit to the assessee. It was determined that the services were supervisory and managerial, as the agreement's terms did not reflect sharing of technical knowledge or permanent benefit. The Tribunal found that the services did not "make available" technical knowledge, experience, skill, know-how, or processes to the assessee.

Conclusion:
The Tribunal dismissed the appeals, upholding the CIT(A)'s order that there was no liability to withhold tax on the foreign remittances, the appeal under Section 248 was maintainable, and the services provided did not result in the transfer of technological skill or know-how. The Tribunal found no legally sustainable merits in the grievances raised by the appellant.