2022 (5) TMI 770 - AT - Income Tax

TDS u/s 195 - payments made to the foreign firms and non-residents - services provided by the foreign firm to the assessee in respect of student recruitment/admission falls under the category of Fees for Technical Services u/s 9(1)(vii) - As per AO payment in respect of Ph.D Thesis Evaluation is concerned, the AO held that Ph.D Thesis Evaluation involves expertise of the evaluator to examine the thesis of the student and clearly falls under the head Fee for Technical Services u/s 9(1)(vii) and payments for Faculty Development charge faculty development program is a technical service because it is not merely in the nature of a discussion or advice but specific programs not only to increase the technical knowhow but also other skills of any faculty - HELD THAT - We find the assessee in the instant case is a Trust registered under section 12A of the I.T. Act, 1961 and is also approved under section 10(23)(vi) We find merit in the arguments of Assessee that the nomenclature given in the agreement as consultants will not conclude that these persons were rendering consultancy services to the assessee. For deciding whether these persons were rendering any technical services as provided under section 9(1)(vii) of the I.T. Act, 1961, one has to look into the terms and conditions of the agreement. We find in the case of M/s. Super Poly Fabrics Ltd. 2008 (4) TMI 31 - SUPREME COURT the Hon ble Supreme Court has held that there cannot be any doubt whatsoever at a document has to be read as a whole. The purport and object with which the parties thereto entered into a contract ought to be ascertained only from the terms and conditions thereof. Neither the nomenclature of the document nor any particular activity undertaken by the parties to the contract would be decisive. We are of the considered opinion that the intention of the agreement and the nature of the services rendered by these agents have to be looked into rather than just wording of the MOU terming the agents as consultants. A perusal of the terms and conditions shows that these persons have to market the assessee s educational courses. The sole purpose for rendering the services was attracting and motivating the international students for taking admission in assessee s university which is nothing but marketing of the educational courses run by the assessee university among the international students. In our opinion it cannot be regarded as consultancy services provided to the assessee. On a pointed query raised by the Bench, the Learned Counsel for the Assessee stated and not controverted by the Ld. D.R. that these agents do not have any role ultimately in admitting the students. We find as per Clause-9 of the MOU, it is apparent that the right of admission of the students in assessee s university is surely and purely based on the discretion of the assessee s central admission cell. The working of the agent is limited to collect the required documents, attest the same and sent a scanned copy of these documents to the assessee. After receiving these documents from the agents, the university admission cell checks the documents and evaluate the same for the eligibility of the admission of the applicants. Once the non-resident student takes admission in the university and pay full fee, the agent who referred that particular applicant is entitled for commission. Similarly as per clauses 10 and 11 of the MOU the agent is entitled to commission only after the student is enrolled. In case of refund the agent is not entitled to any commission. The agent has no role to direct the assessee how they should admit the students. The work of the agent, in our opinion, is only relating to the marketing of the assessee s educational courses. It is also not disputed that these persons are not having any permanent establishment in India. Even the remittance was made outside India. A perusal of the provisions of Section 195 of the I.T. Act, 1961 shows that under this Section a person shall be liable to deduct tax at source out of the payment or remittance made to a non-resident if such sum is chargeable to tax. We find there is no dispute to the fact that these agents have not received the consideration in respect of their services in India or deemed to be received in India on their behalf as they do not have any PE or agent in India. The amount has been remitted directly to them outside India by the assessee. Therefore, provisions of section 5(a) is not applicable. So far as the applicability of sub-clause (b) of Section 5(2) is concerned, it is also not disputed that these agents have not rendered any services in India. Since the services have been rendered by them outside India, therefore, it cannot be held that the income for the services rendered by them accrues or arise in India in the case of the non-resident. So far as the applicability of provisions of Section 9(1)(vii) of the I.T. Act, 1961 is concerned, we are of the considered opinion that the same is also not applicable. The contention of the Revenue that these agents have been paid fees for technical services rendered by them which is deemed to arise or accrue in India are not correct especially when these agents have not rendered any technical services and the payment made by the assessee to them in our opinion are not fee for technical services. Services rendered by these agents cannot be regarded to be the managerial, technical or consultancy services. These agents are not managing the affairs of the assessee university. They are not giving any technical advise to the assessee. They are also not having any technical or special skill in this regard and no such material was brought to our notice to substantiate the same that these agents are either managing the affairs of the assessee or are giving any technical advise to the assessee. Further they are also not having any technical special skill in this regard. The services rendered by them are also not the consultancy services as they are not giving any consultancy to the assessee. For a consultancy services, the services must be rendered in the form of an advise or consultation given by the non-resident to the Indian resident. However, in the instant case, these agents are only marketing the educational course of the assessee among the intended non-resident students for which commission was paid for motivating and attracting the students or making them aware of about the utility of the various educational courses run y the assessee university. Such type of services, in our opinion, cannot be called as consultancy services. Remittances made by the assessee outside India to these agents as per the terms and conditions of the MOU cannot be deemed to be accrue or arise in India and, therefore, will not be chargeable to tax in India. Since such remittances is not chargeable to tax in India, the assessee was not under an obligation to deduct tax at source. We, therefore, hold that the assessee cannot be treated as an assessee in default in respect of non-deduction of tax under the provisions of Section 201 of the I.T. Act, 1961 in respect of commission on student recruitment/admission. Accordingly, we set aside the order of the Ld. CIT(A) and direct the A.O. to delete the demand of TDS made under section 201 as well as levy of interest under section 201(1A). Ph.D Thesis Evaluation - Evaluation of the Ph.d Thesis for which they have received the commission cannot be treated as fees for technical services. By evaluating Ph.d thesis paper, they have not provided to the assessee any technical services but merely applied their skill for evaluating Ph.d Thesis. Therefore, we are of the considered opinion that no technical services were rendered to the assessee by the Ph.d thesis evaluators and the assessee has also not asked for any technical services. We, therefore, are of the considered opinion that the Ld. CIT(A) was not justified in holding the assessee to be an assessee in default for not deducting the TDS from the remittance made to the Ph.d Thesis evaluators under section 201 of the I.T. Act, 1961 and consequently interest charged under section 201(1A) of the I.T. Act, 1961. Therefore, the ground relating to this issue in both the A.Ys. 2016-17 and 2017-18 are allowed. Faculty Development Expenses - We find as per Article 12(5) of DTAA between India and Singapore the services rendered by Singapore party for educating the faculty and staff so that their professional and technical knowledge be upgraded/updated cannot be regarded to be the fee for technical services. Further as per provisions of Section Article 7 of DTAA which is applicable in the instant case, the amount paid to Singapore party shall be liable to tax in India only if that party has PE in India. As mentioned earlier, it is an undisputed fact that the non-resident does not have any PE in India. Therefore, the income so earned by the non-resident cannot be said to be chargeable to tax in India. We, therefore, are of the considered opinion that the assessee was not liable to deduct tax at source under section 195 - we set aside the order of the Ld. CIT(A) and hold that the assessee has not made any default in not deducting the tax and, therefore, assessee is not an assessee in default under section 201 of the I.T. Act, 1961 and consequently the interest under section 201(1A) of the I.T. Act, 1961. The A.O. is accordingly directed to delete the addition and ground raised by the assessee on this issue is allowed. Rate of deduction of tax in case income of the non-resident is chargeable to tax - A.O. was of the view that tax has to be deducted @ 20% which has been upheld - HELD THAT - As we have already held that assessee cannot be deemed to be an assessee in default in respect of non-deduction of tax on the remittances made to the non-residents - Therefore, ground of appeal in our opinion, does not require any adjudication being academic in nature.

Summary

Issues Involved:
1. Validity of survey proceedings under section 133A on a charitable trust.
2. Opportunity of representation and hearing before the Assessing Officer.
3. Liability to deduct tax at source on payments made to non-resident parties.
4. Classification of payments as "fees for technical services" under section 9(1)(vii) of the I.T. Act, 1961.
5. Applicability of DTAA provisions.
6. Rate of TDS under section 206AA.
7. Interest and penalty for non-deduction of TDS under sections 201(1) and 201(1A).

Detailed Analysis:

1. Validity of Survey Proceedings under Section 133A:
The assessee argued that the survey proceedings under section 133A were invalid as they were conducted on a charitable trust. The tribunal dismissed this ground as not pressed by the assessee.

2. Opportunity of Representation and Hearing:
The assessee claimed that proper and reasonable opportunity was not provided by the Assessing Officer. This ground was also dismissed as not pressed.

3. Liability to Deduct Tax at Source on Payments to Non-Resident Parties:
Commission on Student Recruitment/Admission:
The tribunal held that the services rendered by the agents were marketing services and not consultancy services. The agents were engaged to market the university's educational courses to international students, which does not fall under "fees for technical services" as defined under section 9(1)(vii). Therefore, the income was not deemed to accrue or arise in India, and the assessee was not liable to deduct tax under section 195.

Ph.D. Thesis Evaluation:
The tribunal found that the evaluation of Ph.D. theses by experts does not constitute "technical services" to the assessee. The evaluators applied their technical knowledge to evaluate the theses but did not provide technical services to the assessee. Hence, the payments were not subject to TDS under section 195.

Faculty Development Expenses:
The payments made for faculty development were for training and educating the staff in the field of education, which does not qualify as "technical services." The tribunal referred to Article 12(5) of the DTAA between India and Singapore, which excludes teaching services from "fees for technical services." Therefore, the assessee was not liable to deduct tax at source.

Professional Expenses:
The tribunal noted that these expenses were wrongly classified as professional expenses but were actually advertisement expenses on which tax was already deducted. Hence, the assessee was not in default.

4. Classification of Payments as "Fees for Technical Services":
The tribunal emphasized that the nature of services rendered by the agents, Ph.D. evaluators, and faculty development trainers did not fall under "managerial, technical, or consultancy services" as defined under section 9(1)(vii). The services were either marketing, educational, or advisory without any technical element.

5. Applicability of DTAA Provisions:
The tribunal upheld that the DTAA provisions were correctly applied by the Assessing Officer. However, in cases where the DTAA excluded certain services (e.g., teaching services under the India-Singapore DTAA), the payments were not taxable in India.

6. Rate of TDS under Section 206AA:
The tribunal found that the higher rate of TDS @ 20% was not applicable for the relevant assessment years as the provisions of Rule 37BC, which provide relaxation, came into force only from 24th June 2016. However, since the tribunal held that the payments were not subject to TDS, this issue became academic.

7. Interest and Penalty for Non-Deduction of TDS:
Since the tribunal held that the payments were not subject to TDS, the assessee was not deemed to be in default under section 201, and consequently, no interest under section 201(1A) or penalty under section 271C was applicable.

Conclusion:
The tribunal allowed the appeals partly, holding that the assessee was not liable to deduct tax at source on the payments made to non-resident parties for student recruitment, Ph.D. thesis evaluation, and faculty development expenses. The tribunal directed the deletion of the demand of TDS and interest under sections 201 and 201(1A).