2017 (4) TMI 352 - AT - Income Tax

Royalty/fees for technical services u/s. 9 (1) (vi)/9 (1)(vii) - Held that - As decided in assessee s own case for previous AYs assessee is also providing similar services to other clients like Hong Kong Government and other big MNEs and there is nothing special or exclusive about the services which are being rendered to SCB. In view of the entire gamut of facts as discussed above, we are of the opinion that the payment made by SCB to assessee company does not fall within the realm of fees for technical services‟ as contained in Sec. 9(1)(vii), albeit the assessee has only provided a standard facility for data processing without any human intervention. Accordingly, we hold that the said payment is not taxable in India as fees for technical services‟ in terms of Sec. 9(1)(vii) of the Act. - Decided in favour of assessee Short credit of TDS - Held that - The AO is directed to verify the claim made by the assessee and allow the credit, if due. Charging of interest u/s. 234A/B - Held that - It is admitted that this issue is covered in favour of assessee in view of the decision of Hon ble Bombay High Court in the case of NGC Network Asia LLC(2009 (1) TMI 174 - BOMBAY HIGH COURT) wherein held that when a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the payee-assessee.

Issues Involved:
1. Classification of payments as royalty/fees for technical services under Section 9(1)(vi)/9(1)(vii) of the Income Tax Act.
2. Denial of the benefit of the rate prescribed under Section 115A of the Income Tax Act.
3. Granting short credit of TDS.
4. Charging of interest under Sections 234A, 234B, and 234C of the Income Tax Act.
5. Initiation of penalty proceedings under Section 271(1)(c) of the Income Tax Act.

Issue-wise Detailed Analysis:

1. Classification of Payments as Royalty/Fees for Technical Services:
The primary issue was whether the payments made by Standard Chartered Bank India (SCB) to the assessee were in the nature of "royalty" under Section 9(1)(vi) or "fees for technical services" under Section 9(1)(vii) of the Income Tax Act. The Tribunal referenced earlier judgments (ITA.s/237-240/Mumbai/2016) and concluded that the payments did not constitute "royalty" as there was no transfer of technology or right to use any process. The Tribunal emphasized that the assessee provided data processing services through its own infrastructure without transferring any technology to SCB. Additionally, the Tribunal determined that the payments did not qualify as "fees for technical services" because the data processing services were automated with minimal human intervention, aligning with the precedent set by the Hon'ble Supreme Court in the case of M/s. Kotak Securities Ltd.

2. Denial of the Benefit of the Rate Prescribed Under Section 115A:
The assessee contended that the applicable tax rate should be determined based on the date of the agreement, which would result in a lower tax rate. The Tribunal agreed with the assessee's contention but noted that the issue became academic since the payments were not taxable in India as royalty or fees for technical services. Thus, the grounds related to the tax rate under Section 115A were rendered infructuous.

3. Granting Short Credit of TDS:
The assessee claimed that the Assessing Officer (AO) had not granted full credit for TDS amounting to ?9.54 lakhs. The Tribunal directed the AO to verify the claim and allow the credit if due, following the precedent set in the Tribunal's earlier order dated 09/02/2017.

4. Charging of Interest Under Sections 234A, 234B, and 234C:
The Tribunal referenced the Hon'ble Bombay High Court's decision in NGC Network Asia LLC, which held that interest under Section 234B is not chargeable when taxes are deductible at source. Following this precedent, the Tribunal directed the AO to delete the interest charged under Sections 234B and 234C and to recompute the interest under Section 234A as per the provisions of the law.

5. Initiation of Penalty Proceedings Under Section 271(1)(c):
The Tribunal treated the ground related to the initiation of penalty proceedings as premature and dismissed it accordingly.

Separate Judgments for Different Assessment Years:

Assessment Year 2009-10:
The Tribunal followed the earlier orders and decided in favor of the assessee on the classification of payments and TDS credit. The grounds related to the tax rate under Section 115A were rendered infructuous. Interest under Sections 234A/B was directed to be deleted, and the initiation of penalty proceedings was dismissed as premature.

Assessment Year 2010-11:
The Tribunal followed the earlier order, deciding in favor of the assessee on the classification of payments and TDS credit. Grounds related to the tax rate under Section 115A were rendered infructuous. Interest under Sections 234B and 234C was directed to be deleted, and the initiation of penalty proceedings was dismissed as premature.

Assessment Year 2011-12:
The Tribunal followed the earlier orders, deciding in favor of the assessee on the classification of payments and TDS credit. Grounds related to the tax rate under Section 115A were rendered infructuous. Interest under Section 234B was directed to be deleted, and the initiation of penalty proceedings was dismissed as premature.

Conclusion:
The appeals filed by the assessee for all three assessment years were partly allowed, with the Tribunal consistently ruling in favor of the assessee on the main issues while dismissing the grounds related to penalty proceedings as premature.

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