2022 (11) TMI 1313 - AT - Income Tax

Income accrued or arose in India - Income taxable in India - assessee provided fee for technical services FTS - India-USA DTAA - scope of make available clause - whether AO had rightly invoked deeming fiction of income u/s. 9(1)(vii) read with Sec. 9(2) Explanation that mere absence of payee/assessee s permanent establishment PE in India would not be fatal to the Revenue s cause? - HELD THAT - Assessee herein a USA based entity had entered into a service agreement with the payer M/s. Wipro Ltd.(Indian Company) providing the impugned services through the latter s group company in USA to M/s. McDonald s Corporation(USA) in USA only regarding the four folded services i.e. Cloud Infrastructure Managed Private Cloud, Colocation, Mainframe and Data Recovery services. Revenue could hardly dispute that the even if we agree to Revenue s arguments under section 9(1)(vii) r.w.s. 9 (2) Explanation that the above services give rise to application of Sec.9 s applicability the assessee is found very well entitled for the benefit of India USA double taxation avoidance agreement DTAA u/s 90(2) of the act wherein Article 12 (4) (b) stipulates taxability of the income arising therefrom only if the services concerned make available technical knowledge to the recipient/payer Revenue could not refer to any material in the case file satisfying the forgoing make available condition in assessee s services. This tribunals recently in M/s. Faurecia Automotive Holding 2019 (7) TMI 402 - ITAT PUNE holds in light of CIT V/s. De Beers India Minerals Pvt. Ltd. 2012 (5) TMI 191 - KARNATAKA HIGH COURT that such make available condition stipulates that the payer concerned is independently able to make use of the technical know-how etc. coming from the service provider s side . We thus affirm the CIT(A) s findings reversing the Assessing Officer s action holding the amount in issue as taxable in India. The Revenue s instant sole substantive grievance fails accordingly.

Summary

Issues:
1. Taxability of amount received for services rendered outside India.
2. Interpretation of provisions under Section 9(1)(vi) of the Income Tax Act and Article 12(4) of India-USA DTAA.

Analysis:

Issue 1: Taxability of amount received for services rendered outside India
The appeal for the assessment year 2017-18 was brought against the CIT(A)-Pune-13's decision regarding the taxability of an amount of Rs. 68,72,39,090 received by the assessee for services rendered outside India. The Revenue contended that the CIT(A) erred in treating the amount as non-taxable in India, arguing that the conditions under Section 9(1)(vi) of the Income Tax Act were not fulfilled. The CIT(A) detailed that the services were provided by the appellant to Infosys in the USA, and the income accrued outside India as per the exceptions provided under Section 9(1)(vii) of the Act. The CIT(A) further explained that under Article 12(4) of the India-USA DTAA, the services provided did not make available technical knowledge or know-how to Infosys, thereby supporting the non-taxability of the income in India. The tribunal affirmed the CIT(A)'s decision, dismissing the Revenue's appeal.

Issue 2: Interpretation of provisions under Section 9(1)(vi) of the Income Tax Act and Article 12(4) of India-USA DTAA
The Revenue argued that the services provided by the assessee to Wipro Ltd. in the USA should be taxable in India under Section 9(1)(vii) of the Income Tax Act. However, the tribunal found that the services were rendered in the USA to McDonald's Corporation through Wipro Ltd.'s group company, and the income did not accrue in India. Additionally, the tribunal noted that even if Section 9 applied, the assessee was entitled to the benefit of the India-USA DTAA under Article 12(4)(b) since the services did not make available technical knowledge to the recipient. Citing relevant case law and the "make available" condition, the tribunal upheld the CIT(A)'s decision, ruling that the amount in question was not taxable in India. The Revenue's appeal was dismissed based on these findings.

In conclusion, the tribunal's judgment clarified the taxability of income received for services rendered outside India and provided a detailed analysis of the provisions under the Income Tax Act and the India-USA DTAA. The decision emphasized the importance of considering the location of service provision and the criteria for determining tax liability under international agreements.