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2016 (5) TMI 167 - AT - Income TaxTDS u/s 195 - remittance towards group cost recharge to its associated enterprise(AE) in Singapore was liable to TDS withholding tax - make available - provisions made under the DTAA prevaling over the general provision contained in the Income-tax Act - Held that - The impugned services rendered by INCAT group companies for which the payment was collected by Singapore entity through cost recharge mechanism is not assessable as fee for technical services under Article 12 of India Singapore DTAA when it does not make available any technical knowledge, skill, experience, etc. To fit into terminology make available , the technical knowledge, skill, etc. must remain with the person receiving the services even after the particular contract comes to an end. The technical managerial services etc. offered may be the product of technology and technical knowledge, experience of the service provider would have gone into it but this is not enough to fall within the description of services which make available to technical knowledge, etc.. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver of service so that the receiver can deploy the similar technology or techniques in future without depending upon the provider. Therefore, the assessee stands exonerated from its obligation to deduct withholding tax in view of non-application of Article 12 of the beneficial provisions of DTAA. The Hon ble Supreme Court in the case of Union of India vs. Azadi Bachao Andolan (2003 (10) TMI 5 - SUPREME Court) relied upon by the assessee has upheld the proposition that the provisions made under the DTAA will prevail over the general provision contained in the Income-tax Act to the extent that they are beneficial to the assessee. We also refer to section 90(2) which provides that the provisions of DTAA would override the provisions of Domestic Act in cases where the provisions of DTAA are more beneficial to the assessee. Therefore, we find that the assessee was not under any legal obligation to deduct withholding tax on the impugned remittance. Therefore, we decline to interfere with the order of the CIT(A) and dismiss the appeal of the Revenue. - Decided in favour of assessee
Issues Involved:
1. Nature of services provided by Tata Technologies Pte Limited (TTPL) and their classification as managerial, consultancy, or technical services. 2. Whether TTPL acted as an agent for other service providers. 3. Taxability of payments to TTPL under Article 12(4)(b) of the Double Taxation Avoidance Agreement (DTAA) between India and Singapore. 4. Interpretation of the term "make available" in the context of the DTAA. 5. Whether the assessee acquired technical inputs from TTPL for its own use. Detailed Analysis: Issue 1: Nature of Services Provided by TTPL The Revenue contended that the payments made to TTPL were for availing consultancy or technical services. The Assessing Officer (AO) held that the payments were for technical services and, therefore, the assessee should have deducted tax at source under section 195 of the Income-tax Act, 1961. The CIT(A) concluded that the services were managerial or consultancy in nature and not taxable as "fee for technical services" under the DTAA. Issue 2: TTPL Acting as an Agent The AO argued that TTPL incurred costs for providing services to the assessee, implying that TTPL was not merely an agent. The CIT(A) found that TTPL acted as a conduit for allocating group costs among INCAT entities without any mark-up, thus not rendering services directly. Issue 3: Taxability Under Article 12(4)(b) of DTAA The AO held that the payments were taxable under Article 12 of the DTAA as "fee for technical services" (FTS). The CIT(A) disagreed, stating that the payments did not meet the "make available" criterion required under Article 12(4)(b) of the DTAA. The CIT(A) concluded that the payments were not taxable in India under the DTAA, which was more beneficial to the assessee. Issue 4: Interpretation of "Make Available" The AO interpreted "make available" to mean that the recipient should be enabled to apply the technology. The CIT(A) and the Tribunal found that the services did not make available any technical knowledge, experience, skill, or processes to the assessee, which would enable it to apply the technology independently. Issue 5: Acquisition of Technical Inputs The AO argued that the assessee acquired technical inputs from TTPL, which were utilized continuously. The CIT(A) and the Tribunal found that the assessee did not acquire any technical inputs for its own use from TTPL. Judgment Summary: The Tribunal upheld the CIT(A)'s decision, concluding that the payments made to TTPL were not taxable as "fee for technical services" under Article 12 of the DTAA between India and Singapore. The Tribunal emphasized that the services did not "make available" any technical knowledge, experience, skill, or processes to the assessee, which is a requirement under the DTAA for such payments to be taxable. Consequently, the assessee was not obligated to deduct tax at source under section 195 of the Income-tax Act. The appeal by the Revenue was dismissed.
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