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2024 (6) TMI 1137 - AT - Income TaxTDS u/s 195 - income of the foreign university on account of payments for examination fee made by the Appellant - Income deemed to accrue or arise in India - Permanent Establishment of the foreign university in India - Addition u/s 40(a)(ia) for non deduction of TDS - any express written contract between the Appellant and University of Cambridge ('foreign university') or not? - foreign university has granted an affiliation certificate to the Appellant - DTAA between India and United Kingdom of Great Britain and Northern Ireland(Tax Treaty) - assessee filed its reply stating that assessee company s Ryan Global School are affiliated with University of Cambridge and the students who sits in the exam has to pay exam fee to the University of Cambridge and examination fee so collected from students by the assessee was transferred to University of Cambridge. As argued University of Cambridge is not a resident of India and it does not have any control over the assessee company and it also does not have unhindered and unlimited access to assessee premises. The arrangement between Assessee Company and University of Cambridge is simple that of affiliation - HELD THAT - As decided in immediately preceding A.Y. 2011-12 on careful consideration of the arrangements between the appellant and the University of Cambridge, it is seen that the appellant was engaged by University of Cambridge for the limited purposes i.e. to conduct examination at various Indian educational institutions run by the appellant. There is no evidence on record that the said Cambridge University had any supervision or control over the appellant company, nor does it indicate that it had unlimited and unhindered access to the appellant s premises. The arrangements between the appellant and the University of Cambridge are plain and simple as the appellant was getting the examination carried out for the University of Cambridge. The appellant company s Ryan Global School, Mumbai is certified to be a Cambridge International Centre, which was eligible to conduct the examinations for University of Cambridge. However, in terms of share holding, managerial and professional control, University of Cambridge did not have any hold over the appellant company. Under the circumstances it cannot be held that there exists any PE of M/s. Cambridge University, in the form of various educational institutions owned by the appellant company. In the case of the appellant, evidently, the payment is made for getting the examination conducted based on academic system of University of Cambridge. No transfer of technical knowledge, etc. can be inferred to have been made available to the appellant. Moreover, in terms of Para 5 of Article 13, the payment by educational institutions does not get covered under the Fees for Technical Services. As the appellant is running educational institutions, evidently, payment for conduct of examination cannot be held as FTS. In view of the above, the appellant was not required to deduct TDS under Section 195 on such payments made to University of Cambridge. Principal of consistency - CIT(A) has failed to follow principal of consistency without pointing out any change in circumstances and this action of against the settled position in law that where an issue has been considered and decided consistently in a number of earlier assessment years in a particular manner, for the sake of consistency, the same view should continue to prevail in subsequent years unless there is some material change in the facts and this contention of assessee is supported by case of CIT Vs. Neo Poly Pack (P.) Ltd., 2000 (4) TMI 26 - DELHI HIGH COURT Examination fee made by the assessee to University of Cambridge does not fall under the definition of fee for technical service as defined under explanation 2 to section 9(1) of the Act and as per Article 13(5)(c) of the India-UK DTAA and therefore not taxable in the hand of recipient in India is supported by case of M/s Hyderabad Educational Institutions Pvt. Ltd. 2023 (1) TMI 355 - ITAT HYDERABAD Thus disallowance made by AO and confirmed by CIT(A), should be deleted. Appeal of the assessee is allowed.
Issues Involved:
1. Assessment of income at Rs. 7,52,40,570 against the returned income of Rs. 7,12,87,080. 2. Allegation of the assessee acting as a Permanent Establishment (PE) of the foreign university. 3. Taxability of income under the provisions of the Income-tax Act, 1961 and the Double Tax Avoidance Agreement (DTAA) between India and the United Kingdom. 4. Classification of payments made to the foreign university as fees for technical services. 5. Disallowance under Section 40(a)(ia) for non-deduction of TDS on payments made to the foreign university. 6. Levy of interest under Section 234B and initiation of penalty proceedings under Section 271. Detailed Analysis: 1. Assessment of Income: The assessee contested the assessment of income at Rs. 7,52,40,570 against the returned income of Rs. 7,12,87,080. The Tribunal noted that the disallowance of Rs. 35,02,105 was made under Section 40(a)(ia) due to non-deduction of TDS on payments to the University of Cambridge. The assessee argued that similar disallowances in previous years (A.Y. 2011-12, A.Y. 2013-14, and A.Y. 2015-16) were deleted by the CIT(A), thereby establishing a precedent. 2. Permanent Establishment (PE) Allegation: The CIT(A) held that the assessee acted as a PE of the foreign university due to the absence of a formal written contract. The Tribunal, however, found that the University of Cambridge had no control over the assessee, nor did it have unlimited access to the assessee's premises. The relationship was purely one of affiliation, and the payments were made for examination fees collected from students. Hence, the Tribunal concluded that the assessee could not be considered a PE of the foreign university. 3. Taxability under Income-tax Act and DTAA: The AO and CIT(A) asserted that the income from examination fees paid to the foreign university was taxable in India. The Tribunal referred to the Indo-UK DTAA, noting that the payments did not accrue or arise in India under Sections 5(2) and 9 of the Act. Additionally, Article 13(5)(c) of the DTAA exempts payments made by educational institutions from being classified as fees for technical services. Therefore, the payments were not taxable in India. 4. Classification of Payments: The Tribunal emphasized that the payments made by the assessee to the University of Cambridge did not fall under the definition of fees for technical services as per Explanation 2 to Section 9(1) of the Act and Article 13(5)(c) of the DTAA. The payments were for conducting examinations and did not involve the transfer of technical knowledge or skills. 5. Disallowance under Section 40(a)(ia): The AO disallowed Rs. 35,02,105 under Section 40(a)(ia) for non-deduction of TDS. The Tribunal noted that Section 40(a)(ia) applies to payments made to residents, not non-residents. Since the University of Cambridge is a non-resident entity, the disallowance was not justified. The Tribunal also pointed out that similar disallowances in previous years were deleted by the CIT(A), establishing a principle of consistency. 6. Levy of Interest and Penalty Proceedings: The Tribunal did not find merit in the levy of interest under Section 234B and the initiation of penalty proceedings under Section 271, given that the primary issue of disallowance under Section 40(a)(ia) was resolved in favor of the assessee. Conclusion: The Tribunal allowed the appeal, deleting the disallowance of Rs. 35,02,105 under Section 40(a)(ia) and holding that the payments made to the University of Cambridge were not taxable in India under the DTAA. The Tribunal emphasized the principle of consistency and the non-applicability of Section 40(a)(ia) to non-resident payments. The appeal was allowed, and the order was pronounced in the open court on 21/06/2024.
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