2019 (10) TMI 909 - AT - Income Tax

Income accrued in India - Additions by treating certain receipts as Fees for Technical Services / Fees for included services within the meaning of Article 12 of India-USA Double Taxation Avoidance Treaty (DTAA) - HELD THAT - The Fees for included services is defined in Article 12(4) of India-US Tax Treaty, wherein Fees for included services means payment of any kind to any person in consideration for rendering of any technical or consultancy services (including through the provision of services of technical or other personnel if services are ancillary and subsidiary to the application or enjoyment or right, property or information for which payment is received or make available technical knowledge, experience, skill no-how or process or consist of development and transfer of a technical plan or technical design. We have noted that the assessee has claimed that services rendered are ancillary and subsidiary and inextricably essentially linked with the software supplied. In our view, unless the services satisfy the make available test, the same cannot be taxed as FIS. Further, mere fact that provision of service may require technical input by the person providing services does not per se mean the technical knowledge. In our view, the receipt on account of support and maintenance services are not taxable under Article 12 as the services do not make available technical knowledge, experience, skill, know-how or process or consist of any development and transfer of any design. Levy of interest u/s 234B - HELD THAT - Assessee is a foreign company and tax resident of USA and as per section 195 of the act taxes deductible at source on all its received and accordingly the assessee was not liable to pay advance tax. Therefore we direct the assessing officer to recompute the tax by following the decision of the jurisdictional High Court in case of NGC network Asia LLC 2009 (1) TMI 174 - BOMBAY HIGH COURT

Issues Involved:
1. Assessment of income at ?7,52,34,100 against the returned income of ?44,11,290.
2. Addition of ?1,42,77,485 received as International Private Leased Circuit (IPLC) charges, classified as Fee for Technical Services (FTS) and Royalty under Section 9 and Article 12 of the India-USA Double Taxation Avoidance Agreement (DTAA).
3. Addition of ?2,20,77,105 as support and maintenance fees, classified as FIS under Article 12 of the DTAA.
4. Addition of ?3,44,68,220 as service fees, classified as FIS under Article 12 of the DTAA.
5. Levy of interest under Section 234B of the Act.
6. Proposal to initiate penalty proceedings under Section 271(1)(c) of the Act.

Detailed Analysis:

1. Assessment of Income:
The assessee contested the assessment of income at ?7,52,34,100 against the returned income of ?44,11,290. The Tribunal noted that the issues were covered by its own decision in the assessee’s case for AYs 2009-10 to 2011-12, where similar additions were made and subsequently deleted.

2. Addition of ?1,42,77,485 as IPLC Charges:
The assessee argued that the IPLC charges do not constitute FTS or Royalty under the DTAA, as no technical knowledge was made available, nor did it involve the use of any process. The Tribunal referred to its earlier decision, which held that such payments do not qualify as Royalty or FTS under the DTAA. The Tribunal cited the Delhi Tribunal's decision in Geo Connect vs. DCIT and other relevant cases, concluding that the payment for IPLC charges does not constitute FTS or Royalty under the DTAA.

3. Addition of ?2,20,77,105 as Support and Maintenance Fees:
The assessee contended that support and maintenance fees for software do not qualify as FIS under the DTAA. The Tribunal noted that the support and maintenance services were ancillary to the software supplied and not taxable as FIS under Article 12(4)(b) of the DTAA, as they did not make available technical knowledge, experience, skill, know-how, or processes. The Tribunal relied on the Karnataka High Court’s decision in CIT vs. De Beers India Minerals Ltd and other relevant cases to support this view.

4. Addition of ?3,44,68,220 as Service Fees:
The assessee argued that the service fees were not ancillary or subsidiary to the enjoyment of the software and did not make available any technical knowledge. The Tribunal held that unless the services satisfy the "make available" test, they cannot be taxed as FIS. The Tribunal concluded that the service fees did not qualify as FIS under Article 12 of the DTAA, following its earlier decision and relevant case laws.

5. Levy of Interest under Section 234B:
The assessee contested the levy of interest under Section 234B, arguing that as a foreign company, it was not liable to pay advance tax under Section 195. The Tribunal directed the AO to follow the Bombay High Court’s decision in DIT vs. NGC Network Asia LLC, which held that a foreign company is not liable to pay advance tax if taxes are deductible at source on all its receipts.

6. Proposal to Initiate Penalty Proceedings under Section 271(1)(c):
The Tribunal noted that the issue of penalty proceedings under Section 271(1)(c) was premature at this stage and did not require adjudication.

Conclusion:
The Tribunal allowed the appeal partly, deleting the additions made by the AO and directing the AO to recompute the interest under Section 234B as per the Bombay High Court’s decision. The proposal to initiate penalty proceedings was considered premature. The order was pronounced on 14th October 2019.

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