2015 (7) TMI 1440 - AT - Income Tax

TDS u/s 195 - Payment to foreign entities - whether the services rendered come within the purview of Article 13(4)(c) of the DTAA between India and UK as technical service? - determination of PE in India - HELD THAT - Services can be said to make available technical knowledge etc, where such technical knowledge is transferred to the person utilizing the service that is the assessee in the present case and such person is able to make use of the technical knowledge etc by himself in his business or for his own benefits and without recourse to the performer of service in the future. We find that on the second set of services M/s. Appledore International Ltd., has merely provided services for global market survey to determine demand for repairs, conversions, new builds and to determine the short/medium/long term business prospects at Pipavav. These services by M/s. Appledore International Ltd., were not given towards imparting any technical knowledge or experience to the assessee that could be used by the assessee independently in its business and without recourse to M/s. Appledore International Ltd. These services were neither geared to nor did they make available any technical knowledge, skill or experience to the assessee or consisted of development and transfer of a technical man or technical design to the assessee. See Nokia India Pvt. Ltd. 2015 (7) TMI 476 - ITAT DELHI M/s. Appledore International Ltd., in the second set of services is not responsible for preparation of any design, diagram etc. for the assessee and accordingly on the second set of services provided by M/s. Appledore International Ltd., does not involve development and transfer of a technical man or technical design to the assessee. Accordingly, we hold that the payments made by the assessee to M/s. Appledore International Ltd., on the second set of services for which payment has been made GBP 88950 do not qualify as FTS under the provisions of Indo-UK Tax treaty. As per the provisions of Indo-UK Tax Treaty where the services do not qualify as FTS, Article 13 would not be applicable to M/s. Appledore International Ltd. and its taxability would need to be examined as per Article-7 read with Article-5 of the Indo-UK tax treaty. Business profits earned by M/s. Appledore International Ltd., is taxable in India only if that enterprise carries on business in India through PE in India. Moreover, this is not the issue before us therefore, we decline to interfere with the findings of the Ld. CIT(A). All these appeals by the Revenue are accordingly dismissed

Summary

Issues Involved:
1. Non-deduction of tax at source on remittance to a foreign entity.
2. Classification of services as "fees for technical services" (FTS) under the India-UK DTAA.
3. Applicability of Article 13 and Article 7 of the India-UK DTAA.
4. Determination of Permanent Establishment (PE) status.

Issue-wise Detailed Analysis:

1. Non-deduction of tax at source on remittance to a foreign entity:
The Assessing Officer (AO) noted that the assessee remitted GBP 88,950 to M/s. Appledore International Ltd. without deducting tax at source. The AO issued a show cause notice to the assessee to explain the non-deduction of tax at source, which the assessee responded to by explaining the nature of the agreement and the services provided.

2. Classification of services as "fees for technical services" (FTS) under the India-UK DTAA:
The assessee argued that the services rendered by M/s. Appledore International Ltd. did not constitute FTS as per Article 13(4) of the India-UK DTAA. The AO, however, believed that the services provided, especially those under the additional corrigendum, fell under the category of FTS as they involved technical knowledge and plans or designs.

3. Applicability of Article 13 and Article 7 of the India-UK DTAA:
The assessee contended that the services provided by M/s. Appledore International Ltd. were commercial in nature and did not make available technical knowledge, skill, etc., to the assessee, thus not falling under Article 13(4)(c) of the DTAA. The CIT(A) supported this view, drawing from the ruling in Intertek Testing Services India Pvt. Ltd. and concluded that the services did not qualify as FTS and were therefore not subject to withholding tax.

4. Determination of Permanent Establishment (PE) status:
The assessee also argued that since M/s. Appledore International Ltd. did not have a PE in India as per Article 7 of the DTAA, the payments made did not attract tax liability in India. The CIT(A) agreed with this argument, noting that the services provided did not involve the transfer of technical knowledge that could be used independently by the assessee without further recourse to M/s. Appledore International Ltd.

Conclusion:
The Tribunal upheld the CIT(A)'s decision, agreeing that the services provided by M/s. Appledore International Ltd. did not qualify as FTS under Article 13(4)(c) of the India-UK DTAA. Consequently, the payments made were not subject to withholding tax. Additionally, since M/s. Appledore International Ltd. did not have a PE in India, the payments were not taxable under Article 7 of the DTAA. Thus, the appeals filed by the Revenue were dismissed.