2018 (7) TMI 2214 - AT - Income Tax

Scope of appeal under Section 248 - Ascertainment of tax withholding liability from foreign remittances made by the assessee - Appeal by person denying liability to deduct tax in certain cases - whether the assessee can be said have received any services which makes available any technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or technical design which enables the person acquiring the services to apply the technology contained therein in the sense that there is a transfer of technology? - HELD THAT - It is an ongoing contract that the assessee has entered into with the service provider, i.e. Israeli entity, and the thrust of the arrangement is essentially for supervisory and consultancy services. These services cannot, by any stretch of logic, be considered to have transferred the technology in the sense that the recipient of service can be said to have been enabled to perform these services, without recourse to the service provider, on its own. An incidental benefit, by way of enrichment of experience, to the recipient of a consultancy service or supervision service does not amount to making available technical knowledge, skills or experience. 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. 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. We reject the same.

Issues Involved:
1. Whether there is a liability to withhold tax under Section 195 of the Income Tax Act on foreign remittances made to Aditya Acquisition Company Limited, Israel.
2. Whether the appeal under Section 248 of the Act was maintainable despite the assessee not deducting tax at source or paying any taxes to the Government Account.
3. 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 in contravention of Rule 46A(3) of the I.T. Rules, 1962.
4. Whether the services provided by Aditya Acquisition Company Limited, Israel, resulted in imparting and making available technological skill and know-how to the assessee.
5. Whether the CIT(A) correctly held that Aditya Acquisition Company Limited, Israel, merely provided supervisory and managerial services.

Issue-wise Detailed Analysis:

1. Liability to Withhold Tax:
The appeals question the tax withholding liability under Section 195 of the Income Tax Act for payments made to Aditya Acquisition Company Limited, Israel, under a 'Manufacturing Services Agreement'. The CIT(A) directed that there was no liability to withhold tax on these foreign remittances, a direction which the appellant contends is erroneous.

2. Maintainability of Appeal under Section 248:
The appellant argued that the appeal under Section 248 was not maintainable as the assessee neither deducted tax at source nor paid any taxes to the Government Account. However, the Tribunal noted that Section 248 allows an appeal for a declaration that no tax was deductible if the tax was borne by the payer under an agreement and paid to the Central Government. The Tribunal found that the appellant had the obligation to bear the tax liability under the agreement and had paid the taxes, thus making the appeal maintainable.

3. Opportunity for Assessing Officer and Admission of Additional Evidence:
The appellant contended that the CIT(A) decided the appeal without providing an opportunity for the Assessing Officer to be heard and admitted additional evidence in contravention of Rule 46A(3). The Tribunal observed that in appeals under Section 248, where there is no specific order under Section 195, the proceedings are original, and thus, the admission of new evidence is permissible. The Tribunal rejected the appellant's grievances on this point.

4. Nature of Services Provided:
The CIT(A) accepted the assessee's contention that the services provided by Aditya Acquisition Company Limited, Israel, did not result in imparting and making available technological skill or know-how. The Tribunal agreed with this view, noting that the services were supervisory and consultancy in nature and did not transfer technical knowledge enabling the assessee to perform these services independently.

5. Supervisory and Managerial Services:
The CIT(A) held that the services provided were supervisory and managerial, not involving the transfer of technical knowledge. The Tribunal upheld this finding, stating that the services were for review, supervision, and consultancy, and did not make available technical knowledge, experience, skill, or processes to the assessee.

Conclusion:
The Tribunal found no infirmity in the CIT(A)'s order and dismissed the appeals, concluding that the grievances raised lacked legally sustainable merits. The Tribunal's decision was pronounced in the open court on July 11, 2019.

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