2016 (5) TMI 1171 - AT - Income Tax

TDS u/s 195 - assessee in default - withholding of tax - A.O in treating the assessee as an assessee in default for not deducting tax at source on remittances made to M/s. RPS Energy Ltd., U.K. - India-UK DTAA - Activity of carrying out the 3D Seismic interpretation including basin modeling, culminating in prospect generate along with GRV calculations, play fairway mapping and risking of prospects for exploratory drilling. The A.O further observed that the non-resident is furnishing the report which consists development and transfer of a technical plan and technical design which enables the assessee to take decision of exploration in the Block MB-OSN-20-5/2. The A.O further observed that the report contains number of Maps, designs, Seismic Data charts and figures. Held that - For the sake of completeness, there are significant distinction between the definition as prescribed u/s. 9 of the Act of fees for technical services as compared with the definition prescribed in Article 13 of Indo-UK treaty. But the settled law is that the provisions of DTAA overrides the provisions of IT Act in the matter of ascertainment of taxability under the Income Tax Act. At this juncture, it is worth to mention the decision of the Hon ble Supreme Court in the case of GE India Technology Centre Pvt. Ltd. 2010 (9) TMI 7 - SUPREME COURT OF INDIA wherein the Hon ble Apex Court has decided that there was no obligation for withholding tax on any person making payment to a non-resident, if the payment made to non-resident is not chargeable under the provisions of the I.T. Act. After considering the totality of the facts of the case in hand, in our considered opinion, the revenue could not prove that there was transfer of Technology by M/s. RPS Energy Ltd to the assessee nor it has been proved that the impugned transactions have made available technical expertise skill or knowledge by processing the data provided by the assessee. Nor it has been proved that the assessee can apply independently and without assistance and undertake such survey independently excluding RPS Energy Ltd. in future. Assuming that M/s. RPS Energy Ltd., rendered services as defined u/s. 9(1)(vii) Explanation 2 of the Act, yet it does not satisfy the requirement of technical services as contained in India-UK DTAA. We set aside the findings of the ld. CIT(A) and direct the A.O to delete the impugned addition. - Decided in favour of assessee.

Summary

Issues Involved:
1. Treatment of remittances to RPS Energy Ltd., U.K. as Fees for Technical Services.
2. Obligation to deduct tax at source under Section 195 of the Income Tax Act.
3. Applicability of Article 13 of the India-UK DTAA.
4. Interpretation of technical services under Section 9(1)(vii) of the Income Tax Act and the India-UK DTAA.
5. Whether the services rendered by RPS Energy Ltd. made available technical knowledge to the assessee.

Detailed Analysis:

1. Treatment of Remittances as Fees for Technical Services:
The core issue revolves around whether the remittances made by the assessee to RPS Energy Ltd., U.K. should be classified as Fees for Technical Services (FTS). The Assessing Officer (A.O) and the Commissioner of Income Tax (Appeals) [CIT(A)] both held that the remittances were indeed FTS, as they were payments for 3D Seismic Data Interpretation Services used in India. The A.O. asserted that these services were technical in nature, involving the interpretation of seismic data to aid in oil exploration.

2. Obligation to Deduct Tax at Source under Section 195:
The A.O. observed that the assessee failed to deduct tax at source on the remittances made to RPS Energy Ltd., U.K., as required under Section 195 of the Income Tax Act. Consequently, the A.O. treated the assessee as an assessee in default under Section 201(1) and calculated the tax liability and interest under Section 201(1A).

3. Applicability of Article 13 of the India-UK DTAA:
The assessee contended that the services provided by RPS Energy Ltd. did not qualify as FTS under Article 13 of the India-UK Double Taxation Avoidance Agreement (DTAA). Specifically, the assessee argued that RPS Energy Ltd. did not make available technical knowledge, skill, or know-how to the assessee, which is a requirement under the DTAA for the services to be considered as FTS.

4. Interpretation of Technical Services under Section 9(1)(vii) of the Income Tax Act and the India-UK DTAA:
The A.O. relied on Section 9(1)(vii) and Explanation 2 of the Income Tax Act, which broadly defines FTS. However, the Tribunal emphasized that the definition under the DTAA overrides the domestic law. The Tribunal referenced the Karnataka High Court's decision in the case of De Beers India Minerals Pvt. Ltd., which held that for services to be considered as FTS under the DTAA, the technical knowledge must be made available to the recipient in a manner that enables them to utilize it independently in the future.

5. Whether the Services Rendered Made Available Technical Knowledge to the Assessee:
The Tribunal examined the agreement between the assessee and RPS Energy Ltd., noting that the latter provided interpretation services based on data supplied by the assessee. The Tribunal concluded that RPS Energy Ltd. did not transfer any technical knowledge or skill that would enable the assessee to perform similar services independently in the future. The Tribunal highlighted that the maps and designs provided by RPS Energy Ltd. were merely interpretations of the data and not technical plans or designs developed by RPS Energy Ltd.

Conclusion:
The Tribunal held that the services rendered by RPS Energy Ltd. did not constitute FTS under the India-UK DTAA, as there was no transfer of technical knowledge or skill. Consequently, the assessee was not obligated to deduct tax at source under Section 195. The Tribunal set aside the findings of the CIT(A) and directed the A.O. to delete the impugned addition. The appeal filed by the assessee was allowed.

Order Pronounced:
The order was pronounced in open court on 04-05-2016.