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2020 (10) TMI 1205 - AT - Income TaxTaxation of intermediary services - taxable as fees for technical services - appellant company is registered and incorporated under the laws of Sweden and is a non-resident and tax resident of Sweden - CIT-A observed that the said intermediary services rendered by the appellant to BTIN does not satisfy the Make Available clause and does not amount to FTS - HELD THAT - Technical or consultancy services rendered should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. Technology will be considered 'made available' when the person acquiring the service is enabled to apply the technology. Provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service. In our considered view, 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. For this, we derive support from the decision of De Beers India Minerals Private Limited 2012 (5) TMI 191 - KARNATAKA HIGH COURT Intermediary services rendered by the appellant do not make available any technical knowledge, skill etc to BTIN and BTIN is not a equipped to apply technology contained in services rendered by the appellant. Therefore, the intermediary services provided by the appellant to BTIN do not tantamount to FTS and accordingly, shall not be taxable in India. Accordingly, Ground Nos. is 4 to 6 taken together, are allowed. Existence of Permanent Establishment PE - DRP has enhanced the income of the appellant on account of PE in India - HELD THAT - The undisputed fact is that the supplies made under the BS-02 agreement were off shore supplies - In the case of Ishikawajima Harima Heavy Industries Ltd 2007 (1) TMI 91 - SUPREME COURT has categorically held that only such part of the income as is attributable to the operations carried out in India can be taxed in India. Same view was taken in the case of Nortel Networks India International Inc Ors 2016 (5) TMI 373 - DELHI HIGH COURT . Appellant does not have any place of business in India and all business activities with respect to offshore supplies are carried outside India. The equipment supply has been manufactured at overseas manufacturing facility of the appellant and sale of equipment has occurred outside India and payment has also been received by the appellant and outside India. DRP was misdirected in considering the contract RS 02. This contract is between BTIN Bombardier Transportation, Germany and DMRC and for this contract, Bombardier Transportation Germany has raised invoices on BTIN for offshore manufacture and supply of equipment whereas the contract under consideration is between DMRC and Consortium the appellant and BTIN towards offshore supply train control and signalling equipment - Entire findings of the DRP are based on erroneous appreciation of wrong facts and on such erroneous appreciation of wrong facts, the DRP held that BTIN is the PE of the appellant in India without appreciating the true facts that the appellant has no place of disposal in India in the office of BTIN from where the appellant could have conducted its business in India. Once the return of income is selected for scrutiny assessment the Assessing Officer calls for hard copy of the return along with computation of income - no AO could proceed in another assessment proceeding without looking into the returned income qua its computation. As TPO has examined the international transactions and has accepted the same to be at ALP, we do not find any merit the additions made by the DRP. We accordingly, direct the Assessing Officer to delete the addition of income attributable to PE - Decided in favour of assessee.
Issues Involved:
1. Existence of Association of Persons. 2. Taxation of intermediary services. 3. Existence of Permanent Establishment (PE). Issue-wise Detailed Analysis: 1. Existence of Association of Persons: - The assessee's counsel mentioned that this ground is academic in nature. Consequently, the tribunal dismissed this ground without further adjudication. 2. Taxation of Intermediary Services: - The assessee challenged the treatment of ?1,16,81,407/- received for intermediary services as taxable 'fees for technical services' (FTS). - The appellant, a non-resident company incorporated in Sweden, provided intermediary services to Bombardier Transportation India Ltd (BTIN) and received fees amounting to ?1,16,81,407/-. - The appellant claimed that the services rendered do not qualify as FTS under Article 12 of the India-Sweden Double Taxation Avoidance Agreement (DTAA) and relied on Protocol 7 of the treaty and the 'Make Available' clause from the Portuguese Treaty. - The Assessing Officer (AO) disagreed, asserting that the services provided were technical and thus taxable as FTS under the Act. - The tribunal noted that similar intermediary services in previous assessment years (2010-11 and 2012-13) were not considered FTS by the CIT(A) and that the revenue did not appeal these decisions. - The tribunal concluded that the intermediary services did not make available any technical knowledge, skill, etc., to BTIN and thus did not qualify as FTS. Consequently, these services were not taxable in India. Grounds Nos. 4 to 6 were allowed. 3. Existence of Permanent Establishment (PE): - The DRP had enhanced the appellant's income on account of PE in India, attributing income from offshore supply of goods and equipment to the PE on a gross basis. - The DRP concluded that BTIN acted as the appellant's PE in India, based on various clauses from the agreement with DMRC and the consortium agreement. - The assessee argued that the supplies made under the BS-02 Agreement were offshore supplies and not taxable in India. The counsel emphasized that the DRP's findings were based on incorrect facts and that the appellant had no place of disposal in India. - The tribunal noted that the supplies under the BS-02 agreement were indeed offshore supplies, and the appellant did not have a place of business in India. The tribunal also found errors in the DRP's findings, including misidentification of contracts and employees. - The tribunal concluded that the appellant did not have a PE in India, and the addition of income attributable to PE amounting to ?60,99,630/- was not justified. Grounds Nos. 7 to 14 were allowed. Conclusion: - The appeal filed by the assessee was allowed, and the tribunal directed the deletion of the additions made by the DRP. The order was pronounced in the open court on 29.10.2020.
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