2012 (12) TMI 731 - AT - Income Tax

Locational special revenues - whether in the nature of fees for technical services as per Article 13 of the DTAA between India and UK - Held that - The nature of services has to be ascertained only after examination of the relevant record and the legal point, which has been settled by the various decisions is only on the point of making available of technical know-how, knowledge, expertise etc. which is again to be seen from the facts that whether any technical service is made available or not. As in the absence of relevant material and particularly agreement between the parties under which the assessee has rendered the services and received the payment, it is not possible to determine the real nature of the activity carried out/services rendered by the assessee - remit the issue to file of CIT(A) for deciding the same afresh after considering the relevant material in support of the facts. Levy of interest u/s 234B/234C - Held that - As decided in DIRECTOR OF INCOME-TAX (INTERNATIONAL TAXATION) Versus NGC NETWORK ASIA LLC 2009 (1) TMI 174 - BOMBAY HIGH COURT when a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the assessee - in favour of assessee.

Issues Involved:
1. Whether the "locational special revenues" of Rs. 12,71,822/- are fees for technical services under Article 13 of the DTAA between India and the UK.
2. Whether there is a liability under Sections 234B and 234C for interest due to inadequate tax deducted at source.

Detailed Analysis:

1. Fees for Technical Services:

Background:
The assessee, a UK tax resident company, provided television news services to customers in India and received Rs. 12,71,822/- for "locational special" services. The Assessing Officer (AO) considered this amount as fees for technical services under Section 9(1)(vii) of the IT Act and Article 13 of the Indo-UK DTAA, and thus taxable.

Assessee's Argument:
The assessee contended that "locational special" services involved filming specific events for customers, which did not qualify as fees for technical services or royalty under Article 13 of the Indo-UK DTAA. The assessee argued that under Article 7, business profits of a UK company are taxable in India only if it has a Permanent Establishment (PE) in India, which it did not have for the relevant year.

Assessing Officer's View:
The AO rejected the assessee's argument, noting the absence of documentary evidence like invoices and agreements. The AO assumed the services rendered were technical in nature and taxed the amount at 15% as per Article 13 of the DTAA.

Commissioner of Income Tax (Appeals) [CIT(A)] Decision:
The CIT(A) agreed with the AO that the services qualified as fees for technical services under Section 9(1)(vii) but held that they did not meet the definition under Article 13 of the DTAA. The CIT(A) concluded that the amount received was for producing television films, not for making available technical knowledge, and thus constituted business income not taxable in India due to the absence of a PE.

Revenue's Argument:
The revenue argued that without relevant documents, it was incorrect to conclude that the services were not technical. The CIT(A)'s finding was contradictory because it recognized the services as technical under domestic law but not under the DTAA.

Tribunal's Analysis:
The Tribunal noted the legal principle established in the Raymond Ltd. case that "making available" technical services means the recipient can use the technical knowledge independently. The Tribunal found that the nature of services rendered by the assessee was unclear due to the lack of documentary evidence. It remitted the issue back to the CIT(A) to re-examine the relevant materials and determine whether the services rendered fell under "technical services" as defined in Article 13 of the DTAA.

2. Levy of Interest under Sections 234B and 234C:

Background:
The AO charged interest under Sections 234B and 234C due to inadequate tax deducted at source.

Tribunal's Analysis:
The Tribunal referred to the jurisdictional High Court's decision in DIT (International Taxation) v. NGC Network Asia LLC, which held that interest under Sections 234B and 234C is not applicable when the tax is deducted at source. Consequently, this issue was decided in favor of the assessee.

Conclusion:
The appeal was partly allowed for statistical purposes. The issue of whether the "locational special revenues" constituted fees for technical services was remitted back to the CIT(A) for fresh consideration, while the levy of interest under Sections 234B and 234C was decided in favor of the assessee.

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