2020 (3) TMI 1438 - AT - Income Tax

TDS u/s 195 - payments made by the Appellant to its subsidiary (AMSI) - Treatment of Payment as Royalty (Composite Payment) - fees for included services - HELD THAT - As per the above details about the nature of services received by the assessee from its US-AE, it comes out that the US-AE provides services regarding finding of customers for the assessee company to whom the assessee can render various services. It is seen that in the present case, no information as such is provided by US-AE of the assessee company and such technical data or other data are used by the AE of the assessee company itself to generate customer leads and after having negotiations with such potential customers, US-AE of the assesssee helped the assessee company in getting orders from various customers abroad. In our considered opinion, in the facts of the present case, this Tribunal order relied upon by the ld. DR in TNT Express Worldwide (UK) 2016 (6) TMI 547 - ITAT BANGALORE is not applicable to the present case. No other argument was advanced by the ld. DR of the revenue in this regard as to how the payment in question is a payment for royalty. Payment in question is payment for Commercial Experience provided by US AE of the assessee company to the assessee company - from various e-mails it cannot be said that any information was provided by Mr.Todd Brownrout or Mr.Colin Wheeler to the assessee company which can be said to be providing information about the commercial experience. Fees for included services - Any services to be considered as included service, it is essential that the services provider makes available experience, skill, know-how or process or transfer of assets, transfer of development and technical design etc. In the present case, as per the scope of work noted above and as noted by the AO in para-17 of the assessment order, the marketing team of the service provider i.e. US-AE used to generate customer leads using/subscribing customer data base, market research and analysis and online research data and hence, it is seen that the service provider has not made available any technical knowledge, experience, know-how, process or develop and transfer technical plan on technical design. Hence, the impugned payment is not hit by Article-12(4) of the Indo-US DTAA i.e. fees for included services. As per above discussion, we find that in the present case, the impugned payment cannot be said to be on account of royalty or fees for included services. At this juncture, we feel it proper to discuss and examine the applicability of the judgments cited by ld. AR of the assessee as noted above. We first discuss and examine the applicability of the Tribunal order rendered in the case of M/s Adidas Sourcing Ltd. vs Asst. DIT( 2013 (1) TMI 106 - ITAT DELHI In this case, it was held that to characterize a particular stream of income as fees for technical services, it is necessary that some sort of managerial, technical and consultancy services should have been rendered in consideration and the services rendered under the buying agencies we find the agreement are not technical services, but routine services offered in procurement of assistance. In the present case, the agreement in question is not procurement but for supply of services by the assessee company to an overseas customer but this tribunal order is applicable because the entire service rendered by the US AE is similar in connection with the sale of services of the assessee abroad and this Tribunal order supports the view taken by us in the above para. As per the above discussion, we have seen that in the facts of the present case, the services received by the assessee company cannot be considered as royalty or fees for included services and the assessee was not under obligation to deduct TDS on this payment and as a consequence, the demand raised by the AO u/s 201(1) 201(1A) of the Act cannot survive and the same is deleted. Appeal of assessee allowed.

Summary

Issues Involved:
1. Whether the orders of assessment passed under Section 201 & 201(1A) are barred by limitation.
2. Whether the payments made by the Appellant to its subsidiary (AMSI) are subject to withholding of tax under Section 195 of the Act read with India-US DTAA.

Issue-wise Detailed Analysis:

1. Limitation of Orders under Section 201 & 201(1A):

The assessee argued that the orders passed under Section 201(1) and 201(1A) for the financial year 2010-11 relevant to the assessment year 2011-12 are barred by limitation, relying on the Tribunal's decision in Wipro Limited Vs. Addl. CIT, which held that the period of limitation for initiation of proceedings for both residents and non-residents under Section 201(1) should be six years from the end of the financial year. The Tribunal accepted this argument, noting that the orders for FY 2010-11 were passed after the expiry of six years from the end of the financial year. However, for the remaining years (2012-13 to 2014-15), the Tribunal found that the orders were passed within the six-year limitation period and thus were not time-barred.

2. Withholding Tax under Section 195 and India-US DTAA:

a. Nature of Services and Royalty:

The assessee contended that the payments made to AMSI, USA, were for marketing services and should not be considered as fees for technical services (FTS) or royalty under Section 9(i)(vi) & (vii) of the IT Act, 1961, read with Article 12 of the India-USA DTAA. The Tribunal examined the nature of services provided by AMSI, which included generating customer leads, market research, and facilitating contracts between the assessee and its clients. The Tribunal found that these services did not involve the transfer of any technical knowledge, experience, skill, or know-how to the assessee, nor did they constitute royalty as defined under the DTAA.

b. Make Available Clause:

The Tribunal also addressed the "make available" clause under Article 12(4)(b) of the DTAA, which requires that the service provider must make available technical knowledge, experience, skill, know-how, or processes to the payer. The Tribunal found that AMSI did not make available any such technical knowledge or skills to the assessee, as AMSI only provided end-use information without revealing the methodology or sources used to obtain the information. Therefore, the payments did not qualify as fees for included services under the DTAA.

c. Exception under Section 9(1)(vii)(b):

The assessee argued that the payments fell under the exception provided in Section 9(1)(vii)(b) of the Act, as the services were utilized for earning income from sources outside India. The Tribunal noted that the services provided by AMSI were indeed for the purpose of earning income from clients located outside India, thus bringing the case within the scope of the exception under Section 9(1)(vii)(b).

d. CIT(A)'s Findings on Royalty and Composite Payments:

The Tribunal rejected the CIT(A)'s findings that the payments were in the nature of royalty or composite payments. It noted that the CIT(A) did not issue a show-cause notice to the assessee before making this determination, which violated the principles of natural justice. The Tribunal also found that the CIT(A)'s conclusion was not supported by any evidence or reasoning.

Conclusion:

The Tribunal concluded that the payments made by the assessee to AMSI were not subject to withholding tax under Section 195, as they did not constitute royalty or fees for included services under the India-US DTAA. Consequently, the demands raised by the AO under Sections 201(1) and 201(1A) were deleted, and all 14 appeals filed by the assessee were allowed.