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2016 (7) TMI 104 - AT - Income TaxTDS u/s 195 - FTS/FIS - fee for technical services / fees for included services - AO Passed order u/s.201(1) & 201(1A) r.w.s.195 on the basis that the assessee had made payments to non-resident parties on which he has not deducted the tax. - Article 12(4)(b) of DTAA - Held that - Payment of consideration would be regarded as fee for technical/included services only if the twin test of rendering services and making technical knowledge available at the same time is satisfied. In the present case, the non-resident renders Bio-analytical services which, no doubt, are very sophisticated in nature, but it does not reveal to the assessee as to how it conducts those tests or the inputs that have gone into it, so as to enable them to carry out those tests themselves in future. A broad description or indication of the type of test carried out to reach this conclusion does not enable the assessee to derive requisite knowledge to conduct the tests or to develop the technique by itself. Thus, the said services were not made available to the assessee and therefore, the services provided to the appellant by the non-resident parties of USA and Canada did not fall within the purview of included services under Article 12(4)(b) and hence there was no liability on the appellant to deduct TDS u/s. 195 of the I.T. Act, while making payment for such bio-analytical services rendered to it. - Decided against the revenue.
Issues Involved
1. Whether the payments made to non-residents are income deemed to accrue or arise in India under the provisions of section 9(2)(vii) as 'fees for technical services.' 2. Whether the income, even if deemed to accrue or arise in India under section 9(2)(vii), is exempt from taxation in India under the DTAA with the USA and Canada. 3. Whether tax has to be deducted under section 195 even when the income in the hands of the non-resident is not taxable. Detailed Analysis 1. Income Deemed to Accrue or Arise in India The Assessing Officer (AO) held that the payments made to non-resident entities for bio-analytical services were taxable under the Income Tax Act and the tax treaties between India-USA and India-Canada. The AO deemed the payments as 'fees for technical services' under section 9(2)(vii) and concluded that the assessee was liable for non-deduction of tax, making the assessee liable for tax and interest under sections 201(1) and 201(1A). 2. Exemption Under DTAA The Commissioner of Income Tax (Appeals) [CIT(A)] held that the services provided by the non-resident entities did not fall within the purview of 'included services' under Article 12(4)(b) of the DTAA with the USA and Canada. The CIT(A) relied on the decision of the Authority for Advance Rulings (AAR) in the case of Anapharm Inc. and the ITAT Mumbai Bench in the case of Wockhardt Ltd., concluding that the services did not 'make available' technical knowledge, experience, skill, know-how, or processes to the assessee. Therefore, there was no liability on the assessee to deduct TDS under section 195 while making payments for such bio-analytical services. 3. Tax Deduction Under Section 195 The CIT(A) also addressed whether tax should be deducted under section 195 if the income is not taxable in the hands of the non-resident. The CIT(A) referred to the Supreme Court decision in GE Technology Centre P Ltd., which held that under section 195, the payer is bound to deduct tax only if the sum payable is assessable to tax in India. Since the remittance made was not chargeable to tax in India, the provisions of section 195 were not applicable, and there was no question of recovery of tax under section 201. Conclusion The Tribunal upheld the CIT(A)'s decision, agreeing that the services provided did not 'make available' technical knowledge or skills to the assessee, and thus did not fall under 'fees for included services' as per the DTAA. Consequently, the income was not taxable in India, and the provisions of section 195 were not applicable. The appeal by the Revenue was dismissed, and the order of the CIT(A) was upheld. Final Judgment The appeal of the Revenue is dismissed, and the order pronounced in the Court on Monday, the 30th day of November, 2015 at Ahmedabad.
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