2022 (7) TMI 76 - AT - Income Tax

Income accrued in India - sum received for advisory assistance for design and construction of hotel - Indo-US tax treaty - AO was of the view that the amount so received by the assessee is taxable in the hands of the assessee as fees of included services under article 12 of the US Tax Treaty and also as fees for technical services u/s. 9(1)(vii) - HELD THAT - Amounts in question are not taxable in terms of the provisions of the applicable tax treaty and the findings of the co-ordinate bench still hold good in law we have no reasons to take any other view of the matter than the view so taken by the coordinate bench - CIT(A) was quite justified in the following a binding judicial precedent and no specific reasons have been pointed out to us either for the said judicial precedent which is binding on us as well must be deviated from. In view of these discussions and bearing in mind entirety of the case we uphold the relief granted by the learned CIT(A) and decline to interfere in the matter. The grievance raised by the Assessing Officer does not meet our approval. Appeal filed by the Assessing Officer is thus dismissed.

Summary

Issues Involved:
1. Taxability of the amount received by the assessee under the Indo-US DTAA.
2. Nature of services provided by the assessee and their classification as "fees for included services" under Article 12 of the Indo-US Tax Treaty.
3. Applicability of Section 195 and Sections 201(1) and 201(1A) of the Income Tax Act, 1961.
4. Binding judicial precedent and its applicability.

Detailed Analysis:

1. Taxability of the Amount Received by the Assessee under the Indo-US DTAA:
The primary issue raised by the Assessing Officer (AO) was whether the amount received by the assessee, a US-domiciled company, for advisory services related to the design and construction of a hotel is taxable under the Indo-US Double Taxation Avoidance Agreement (DTAA). The AO contended that the amount should be classified as "fees for included services" under Article 12 of the Indo-US DTAA and as "fees for technical services" under Section 9(1)(vii) of the Income Tax Act, 1961.

2. Nature of Services Provided by the Assessee and Their Classification as "Fees for Included Services" under Article 12 of the Indo-US Tax Treaty:
The Tribunal examined whether the services provided by the assessee fall under the definition of "fees for included services" as per Article 12(4) of the Indo-US DTAA. Article 12(4) defines "fees for included services" as payments for technical or consultancy services that are ancillary and subsidiary to the application or enjoyment of any right, property, or information, or that make available technical knowledge, experience, skill, know-how, or processes.

The Tribunal referred to a previous decision in the case of Viceroy Hotels Ltd., where it was held that similar services provided by the assessee did not involve technical expertise or make available any technical know-how, and thus did not fall under the definition of "fees for included services." The services were primarily advisory, involving inspection, review, and suggestions for improvement, without transferring any technical knowledge or skills to the recipient.

3. Applicability of Section 195 and Sections 201(1) and 201(1A) of the Income Tax Act, 1961:
The Tribunal also considered whether the provisions of Section 195, which deals with tax deduction at source for payments to non-residents, and Sections 201(1) and 201(1A), which deal with consequences of failure to deduct tax, were applicable. The Tribunal, following the precedent set in the Viceroy Hotels Ltd. case, concluded that since the services did not qualify as "fees for included services," the provisions of Section 195 were not applicable. Consequently, there was no question of applying Sections 201(1) and 201(1A).

4. Binding Judicial Precedent and Its Applicability:
The Tribunal emphasized the importance of following binding judicial precedents. Since a coordinate bench had already ruled in the assessee's favor in an identical case, the Tribunal found no reason to deviate from that decision. The Tribunal upheld the CIT(A)'s decision, which had granted relief to the assessee based on the earlier precedent.

Conclusion:
The Tribunal dismissed the appeal filed by the Assessing Officer, affirming that the amounts received by the assessee were not taxable under the provisions of the Indo-US DTAA. The Tribunal also dismissed the cross-objection filed by the assessee, as it was not pursued. The decision was pronounced in the open court on June 22, 2022.