2022 (12) TMI 175 - AT - Income Tax

TDS u/s 195 - Remittances made towards general training services treated as Fees or Technical Services (FTS) - taxability in India remittances made to the nonresident SCB, Singapore - clause of 'make available' - whether the assessee could be held as assessee-in-default for want of tax deduction at source (TDS) on certain payments? - HELD THAT - It is admitted position that the services are availed by the assessee for its employees to improve their soft skill in the areas of leadership and general management which is not specific to functions being performed by the employees. This training may improve the skills of the employees but it does not involve transfer of any technology which is made available to the assessee for its future use. In terms of Article-12 of DTAA, fees for technical services include managerial, technical or consultancy services if such services are ancillary and subsidiary to the application or enjoyment of the right, property or information or it make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein or it consist of the development and transfer of a technical plan or technical design but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. We find that the services as availed by the assessee is covered in none of these clauses. Therefore, the assessee could not be obligated to deduct TDS on the same. The cited decision of Ahmedabad Tribunal rendered on similar factual matrix squarely supports the case of the assessee. Accordingly, the impugned demand could not be sustained. We order so. No other ground has been urged before us. Assessee appeal allowed.

Summary

Issues:
1. Whether the assessee could be held as 'assessee-in-default' for not deducting TDS on certain payments.

Analysis:
1. The appeal pertains to the Assessment Year 2014-15 and questions the order of the Commissioner of Income Tax (Appeals) dated 01-06-2017, regarding an order by the Assessing Officer under sections 201(1) and 1(A) of the Act on 28-06-2016. The primary issue revolves around the treatment of remittances made towards general training services as Fees for Technical Services (FTS).

2. The appellant contests the CIT(A)'s decision to treat them as 'assessee in default' under section 201 of the Act for remittances made to a non-resident entity, arguing that the payments were not taxable in India due to the absence of Permanent Establishment (PE) in India. The appellant asserts that the training provided, focusing on soft skills like leadership and general communication, does not qualify as technical services under the Act.

3. The Assessing Officer held that the services rendered were technical, necessitating TDS under section 195. The appellant, however, relied on the GE India Technology case, emphasizing that tax withholding is only applicable if the payment is taxable in India. The appellant argued that the training did not fall under managerial, technical, or consultancy services, citing precedents from Tribunal decisions.

4. The CIT(A) upheld the demand, deeming the services as 'fees for technical services' taxable under the Double Taxation Avoidance Agreement (DTAA) and section 9(1)(vii) Explanation-2. The CIT(A) concluded that the acquired skills were technical and applicable to the employees' daily roles, justifying taxation under the DTAA and the Act.

5. The Tribunal found that the training aimed to enhance soft skills in leadership and general management, not specific to job functions, and did not involve technology transfer for future use. Referring to Article-12 of the DTAA, the Tribunal determined that the services did not fall under the criteria for 'fees for technical services,' as outlined in the agreement. Relying on a similar case from the Ahmedabad Tribunal, the Tribunal ruled in favor of the appellant, stating no obligation for TDS deduction existed. The appeal was allowed, and the demand was set aside.