2022 (3) TMI 833 - AT - Income Tax

Income accrued in India - TDS u/s 195 - Default u/s 201(1) - fees for included services (FTS) - USA DTAA - make available clause - default u/s 201(1) on the basis of details on the Form-15CA/15CB about the remittance by taking view that testing related work has been carried out at GIA Laboratory at Hong Kong set up under the company GIA Hong Kong - HELD THAT - CIT(A) held that there is no parting of information concerning industrial, commercial or scientific experience by GIA when it issues the grading certificate. GIA Inc USA has the experience of grading and report certificate and there is no imparting of its experience in favour of assessee. The assessee has only receives report of certification. This activity of issuing certificate cannot be said to be imparting of information by the person who possesses such information. On considering the definition of ' fee for included services' under Article 12, it was observed that there is no parting of rendering of technical services either of military, technical consultancy services or industrial commercial or scientific experience. The grading report are not make available for the reasons that assessee, whose utilising the services will not be able to make use of technical knowledge, by itself in its business without recourse to GIA INC USA in future. The technical knowledge, experience skill etc will not remain with the assessee after rendering the services has come to an end. We find that coordinate bench of Delhi Tribunal in a recent decision Delhi Tribunal in GE Energy Management Services Inc. 2021 (11) TMI 1033 - ITAT DELHI while considering term make available and the Article 12 of India US DTAA held that when the assessee-foreign company entered into an agreement to provide offshore maintenance and support services to Power Grid Corporation of India Ltd. (PGCIL) - assessee's offshore maintenance and support services to PGCIL were not geared towards making available any technical knowledge, experience, skills, know-how, or processes to PGCIL. Further, the term of the agreement was for five years and services provided by the assessee were repetitive and ongoing. It means that PGCIL could not apply the technical or skills used by the assessee for rendering such service. Given the repetitive nature of the services, it would be factually incorrect to allege that the services make available any technical knowledge, expertise, skill, know-how or processes to PGCIL. Consequently, the PGCIL would not apply technology on its own. It would continue to depend on the assessee for provision of software and hardware maintenance and support services in the future. Thus, keeping in view of the facts and circumstances of the case, receipts from PGCIL do not qualify as 'fees for included services 'under articles 12(4)(a) and 12(4)(b) of India - US DTAA. In view of the aforesaid factual and legal discussion, we do not find any infirmity or illegality in the order passed by ld. CIT(A), which we affirm. No contrary facts or law was brought to our notice to take other view. In the result, the grounds of appeal raised by the revenue are dismissed.

Summary

Issues Involved:
1. Entitlement to the benefit of the Double Taxation Avoidance Agreement (DTAA) between India and the USA.
2. Determination of the actual service provider and the rightful recipient of the payment.
3. Classification of services rendered as "fees for technical services" under Section 9(1)(vii) of the Income Tax Act.
4. Application of the "make available" clause under Article 12 of the India-USA DTAA.
5. Clerical errors in Form-15CA/15CB and their impact on tax liability.

Issue-wise Detailed Analysis:

1. Entitlement to the benefit of the Double Taxation Avoidance Agreement (DTAA) between India and the USA:
The Revenue contended that the benefit of the DTAA between India and the USA was not applicable because the services were rendered by GIA Hong Kong Laboratory Ltd., not GIA Inc. USA. However, the CIT(A) and the Tribunal concluded that GIA Inc. USA was the rightful recipient of the payments, supported by the tax residency certificate (TRC) and Form-10F. The Tribunal upheld that the assessee is entitled to the benefits of the DTAA between India and the USA, as GIA Inc. USA is a resident of the USA.

2. Determination of the actual service provider and the rightful recipient of the payment:
The Revenue argued that the services were rendered by GIA Hong Kong Laboratory Ltd., and payments were routed through GIA Inc. USA. The assessee clarified that the payments were made to GIA Inc. USA's offshore bank account in Hong Kong, and the invoices were raised by GIA Inc. USA. The CIT(A) and the Tribunal accepted the assessee's explanation, supported by HSBC Bank's confirmation and the customer services agreement, which indicated that GIA Inc. USA was the rightful owner of the payments.

3. Classification of services rendered as "fees for technical services" under Section 9(1)(vii) of the Income Tax Act:
The AO classified the payments as "fees for technical services" under Section 9(1)(vii) of the Income Tax Act, arguing that the services were rendered outside India but were taxable in India. The CIT(A) and the Tribunal disagreed, stating that the services provided by GIA Inc. USA did not qualify as "fees for technical services" under the DTAA, as there was no "make available" of technical knowledge or know-how to the assessee.

4. Application of the "make available" clause under Article 12 of the India-USA DTAA:
The CIT(A) and the Tribunal analyzed whether the services rendered by GIA Inc. USA made available technical knowledge, experience, skill, know-how, or processes to the assessee. They concluded that the services did not meet the "make available" criteria, as the assessee could not independently use the technical knowledge or skills without GIA Inc. USA's assistance in the future. The Tribunal cited relevant case laws, including the Delhi Tribunal's decision in GE Energy Management Services Inc. and the Karnataka High Court's decision in CIT Vs De Beers Minerals (P) Ltd., to support this conclusion.

5. Clerical errors in Form-15CA/15CB and their impact on tax liability:
The assessee admitted to clerical errors in Form-15CA/15CB, where the beneficiary was incorrectly mentioned as GIA Hong Kong Laboratory Ltd. instead of GIA Inc. USA. The CIT(A) and the Tribunal accepted this explanation, supported by documentary evidence, including invoices and bank statements. They concluded that the errors did not affect the applicability of the DTAA benefits.

Conclusion:
The Tribunal affirmed the CIT(A)'s order, holding that the assessee was entitled to the benefits of the DTAA between India and the USA. The services rendered by GIA Inc. USA did not qualify as "fees for technical services" under the DTAA, and the clerical errors in Form-15CA/15CB did not impact the tax liability. The appeal filed by the Revenue was dismissed.