2019 (3) TMI 330 - AT - Income Tax

TDS u/s 195 - default u/s 201/201(1A) - execution of works in Srilanka - services of technical personnel are used in the Installation of Wind turbines - payments made for repair service to Non Resident of Germany - income accrued in India - India-Germany DTAA - neither the Srilankan nor the German entity has any PE in India - The situs/ source of income generating activity - HELD THAT - Services of technical personnel are used in the Installation of Wind turbines and hence the services rendered by Wind Force Pvt. Ltd. to Regen Power tech for its projects in Srilanka are in the nature of Fee for Technical Services and the payments made to M/s Windforce Private Limited, Srilanka for erection and commission services rendered to customers outside India are also in the nature of Royalty as it involves the payment for the right to use industrial, commercial, or scientific equipment, as the present payment is towards hiring of cranes and hence in the nature of right to use Industrial and as per clause (2) of Article 12 of DTAA, the payments made towards the services rendered by WFPL, Srilanka are liable to withholding tax at 10%. Similarly, on the payments made for repair service to Non Resident of Germany, the Ld CIT(A), inter alia, held, that it is in the nature of FTS, rightly treated as income chargeable to tax in India and hence liable to TDS. Therefore, the AO has rightly levied tax and interest u/s 201(1) & u/s 201(1A) of the Act. Since the assessee provided full turnkey installations for wind power projects for the customers outside India and thus the assessee has fulfilled /rendered its turnkey projects outside India by availing the impugned services. Therefore, its business is not carried out entirely outside India. In the facts and circumstances, we do not find any reason to interfere with the order of the ld CIT(A). The corresponding grounds of the assessee are dismissed. Payment made for purchase of software - royalty as per explanation 4 to section 9(1)(vi) of the Act and as per Article 13(3) of the Indo Denmak DTAA r.w.s 90 - HELD THAT - The impugned consideration is paid for the purchase of software, it is paid for right to use software and hence such consideration is not royalty. Therefore, we direct the A.O not to treat the assessee in default u/s 201/201(1A) and delete the taxes and interest levied u/s 201 (1A) on this issue. The corresponding grounds of the assessee are allowed. TDS u/s 195 - remittance to M/s Ernst and Young, UAE in connection with a market study for Wind Energy rendered by Ernst and Young in UAE - Indo-UAE DTAA - assessee in default - HELD THAT - After examination of the definition of market study and provisions of section 9 (1) (vii), the Indo UAE DTAA, the Ld CIT(A) has, inter alia, held, supra, that the market study being in the nature of Technical Services, is in the nature of information concerning commercial experience and hence Royalty. Therefore, the impugned remittances are treated as FTS income in the hands of E & Y and is liable to TDS. Since, the assessee has not placed any material to dislodge the findings recorded by the Ld CIT(A), we do not find any reason to interfere with his order. The corresponding grounds of the assessee fails.

Summary

Issues Involved:
1. Taxability of payments made to M/s Windforce Private Limited, Sri Lanka for erection and commissioning services.
2. Taxability of payments made to M/s Wingtec Rotor Service, Germany for repair services.
3. Taxability of payments made for the purchase of software from EMD International A/s, Denmark.
4. Taxability of payments made to M/s Ernst & Young, UAE for market study services.

Detailed Analysis:

1. Taxability of Payments to M/s Windforce Private Limited, Sri Lanka:
The assessee engaged M/s Windforce Private Limited, Sri Lanka for erection and commissioning services and paid ?1,19,47,013/-. The Assessing Officer (AO) classified these services as "technical services" taxable under section 9(1)(vii) of the Income Tax Act. The AO also held that under the Double Taxation Avoidance Agreement (DTAA) with Sri Lanka, the fee for technical services payable to a non-resident is taxable in India at 10%. The assessee argued that these services were utilized for business outside India, thus not taxable in India, citing CIT V. Faizan Shoes (P.) Ltd. and other cases. However, the Commissioner of Income Tax (Appeals) [CIT(A)] upheld the AO's decision, stating that the services involved significant technical expertise and were not merely construction or assembly work. The CIT(A) also noted that the payments could be considered royalty for the use of industrial equipment (cranes). Consequently, the payments were liable to a 10% withholding tax, and the assessee was in default for not deducting TDS.

2. Taxability of Payments to M/s Wingtec Rotor Service, Germany:
The assessee paid ?3,34,414/- to M/s Wingtec Rotor Service, Germany for repair services. The AO classified these payments as fees for technical services (FTS) under section 9(1)(vii) and Article 12 of the India-Germany DTAA, subject to 10% TDS. The CIT(A) upheld this classification, noting that the repairs required sophisticated techniques and were not mundane. Therefore, the payments were rightly treated as income chargeable to tax in India, and the assessee was in default for not deducting TDS.

3. Taxability of Payments for Software Purchase from EMD International A/s, Denmark:
The assessee purchased software called 'windpro' from EMD International A/s, Denmark, for ?5,23,545/-. The AO treated this payment as royalty under explanation 4 to section 9(1)(vi) of the Act and Article 13(3) of the Indo-Denmark DTAA, subject to tax in India. The assessee argued that the DTAA definition of royalty did not include payments for software, citing various cases where domestic law amendments were not read into the DTAA. The Tribunal found force in the assessee's submissions, holding that the payment for software was not royalty. Therefore, the AO was directed not to treat the assessee in default under section 201/201(1A) and to delete the taxes and interest levied.

4. Taxability of Payments to M/s Ernst & Young, UAE for Market Study:
The assessee paid ?12,01,000/- to M/s Ernst & Young, UAE for a market study. The AO classified this payment as royalty under the Indo-UAE DTAA, arguing that it was for information concerning commercial experience. The assessee contended that the market study was for business outside India, thus not taxable under section 9(1)(vii)(b). The CIT(A) upheld the AO's decision, stating that the market study constituted technical services and was in the nature of royalty. The Tribunal found no reason to interfere with this finding, as the assessee did not provide material to dislodge the CIT(A)'s conclusions.

Conclusion:
The Tribunal upheld the CIT(A)'s decision on the taxability of payments to M/s Windforce Private Limited, Sri Lanka, and M/s Wingtec Rotor Service, Germany, as well as the payments to M/s Ernst & Young, UAE. However, it ruled in favor of the assessee regarding the payment for software purchase from EMD International A/s, Denmark, directing the AO to delete the taxes and interest levied. The assessee's appeal was partly allowed.