2018 (6) TMI 965 - AT - Income Tax

Income accrued in India - Fees for technical services - amount received by the assessee from its Indian customers - DTAA between India and United Kingdom - services made available to the Indian parties - Held that - Assessee is foreign company resident of UK and is tax resident of UK - customers of the assessee in India appoints the assessee on a principal to principal basis to provide inspection and testing services - as per Article 13 of Double Taxation Avoidance Agreement the fees for technical services can be chargeable to tax in India only if such services are made available to the receipt of such services - according to us, the assessee has not at all made available any such services to the Indian entity but has merely provided the services in the ordinary course of its business - revenue has not brought on any material to show that subsequently the recipient of those services have performed these services on their own without the help of the assessee or any other similar service provider. Inspection and survey of imported/exported cargo and certifying in relation to the quality and price, provision of such services does not make available technical knowledge, experience, skill, know-how or processes to the recipient of the service - as per Article 13(4)(c) of the DTAA these services are not made available to the Indian parties - thus we held that ₹ 18772897/- received by the assessee is not chargeable to tax in India - Decided in favor of assessee. Initiation of penalty u/s 271(1)(c) - Held that - Assessee is providing the services of technical nature - assessee is resident of UK and therefore, is eligible for benefit contained therein - assessee claim that services of the assessee are not made available to the Indian entities has been rejected - in AY 2014-15 that such services does not satisfy make available test under Article 13(4)(c) of the DTAA - hence it is said that it is merely the rejection of the claim of the assessee. It is not the case of the revenue that assessee has made any false claim - thus in view of the decision in case of CIT Vs Reliance Petro Products Ltd 2010 (3) TMI 80 - SUPREME COURT it cannot be said that the submission or claim of the assessee is not accurate - hence we reverse the finding of the lower authorities and direct the AO to delete the penalty u/s 271(1)(c) - Decided in favor of assessee.

Issues Involved:

1. Taxability of ?18,772,897 received by the assessee from Indian customers as Fees for Technical Services (FTS) under the India-UK Double Taxation Avoidance Agreement (DTAA).
2. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act, 1961.
3. Levy of interest under Sections 234B and 234C of the Income Tax Act, 1961.
4. Confirmation of penalty imposed under Section 271(1)(c) for the Assessment Year 2010-11.

Issue-wise Detailed Analysis:

1. Taxability of ?18,772,897 as Fees for Technical Services (FTS):

The core issue was whether the amount of ?18,772,897 received by the assessee from its Indian customers is chargeable to tax as FTS under the India-UK DTAA. The assessee, a UK resident company, provided inspection and testing services to Indian customers, primarily conducted outside India. The Assessing Officer (AO) contended that these services qualify as FTS under Article 13 of the DTAA, asserting that the services "make available" technical knowledge, enabling the Indian customers to utilize this knowledge independently in the future.

The Dispute Resolution Panel (DRP) upheld the AO's view, emphasizing that the services rendered equipped the recipients to carry on the business model independently, thus falling within the scope of "make available" technical knowledge under the DTAA.

The Tribunal, however, disagreed, noting that the services provided did not "make available" technical knowledge, experience, skill, know-how, or processes to the Indian entities. The Tribunal highlighted that the services were provided in the ordinary course of business without transferring the capability to perform these services independently. Consequently, the Tribunal ruled that the amount received by the assessee is not chargeable to tax in India under Article 13(4)(c) of the DTAA, allowing grounds 1 to 3 of the appeal.

2. Initiation of Penalty Proceedings under Section 271(1)(c):

The AO initiated penalty proceedings under Section 271(1)(c) for alleged concealment of income or furnishing inaccurate particulars of income. Given the Tribunal's decision that the amount received is not chargeable to tax in India, the initiation of penalty proceedings became academic. Thus, this ground was not adjudicated and was dismissed.

3. Levy of Interest under Sections 234B and 234C:

The levy of interest under Sections 234B and 234C was also rendered academic due to the primary issue's resolution in favor of the assessee. Therefore, this ground was not adjudicated and was dismissed.

4. Confirmation of Penalty Imposed under Section 271(1)(c) for AY 2010-11:

For AY 2010-11, the AO had levied a penalty of ?1,715,113 under Section 271(1)(c), contending that the assessee furnished inaccurate particulars by not offering the receipts as FTS. The CIT(A) confirmed the penalty, stating that the assessee had concealed particulars of income by not filing copies of agreements with clients.

The Tribunal, however, observed that the nature of services provided in AY 2010-11 was similar to those in AY 2014-15. It reiterated that the services did not "make available" technical knowledge under Article 13(4)(c) of the DTAA. The Tribunal referred to the Supreme Court's decision in CIT vs. Reliance Petro Products Ltd, which held that making a claim that is not accepted does not amount to furnishing inaccurate particulars. Consequently, the Tribunal directed the AO to delete the penalty, allowing the appeal for AY 2010-11.

Conclusion:

The Tribunal concluded that the ?18,772,897 received by the assessee was not chargeable to tax in India under the DTAA. The initiation of penalty proceedings and levy of interest were rendered academic and dismissed. The penalty imposed for AY 2010-11 was deleted, as the Tribunal found no concealment of income or furnishing of inaccurate particulars by the assessee.

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