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TMI Blog2012 (7) TMI 118X X X X Extracts X X X X X X X X Extracts X X X X ..... on the business of project and construction management. On 1.7.2001, the assessee entered into a management services agreement (herein after referred to as "MSA" for short) with M/ S Lend Lease Asia Holdings Private Limited, Singapore (herein after referred to as "LLAH"). The purpose of the agreement was to get the benefit of LLAH's or its associates' expertise and experience in management service, administrative services, personnel services, legal services, financial services, marketing services, business operational services, information technology services based on knowledge and expertise gained by the LLAH or its associates' during its operations of similar business world-wide. In accordance with the terms of the MSA agreement, the LLAH was to provide services like administration, personnel, legal, finance and accounting information, marketing support, insurance matters, treasury management and information technology to the assessee. As per Article 3 of the MSA, the LLAH after providing the services shall submit a statement of service charges to the assessee and the claim has to be settled within 30 days from the time the invoice is tendered. Accordingly, the LLAH, after provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ' expertise and experience in management services, administrative service etc., and the intention of LLAH was to provide such services. The consideration was paid for such services. The name which the parties give to the transaction which is the source of receipt and characterization of the receipt by them are of little moment, and the true nature and character of the transaction have to be ascertained from the covenants of the contract in the light of the surrounding circumstances. The covenants of the contract and surrounding circumstances clearly establish the fact that the amounts in question on the payments is for consideration for the services rendered by LLAH to the assessee. Therefore, these amounts cannot be called as reimbursement of expenses. The reimbursement of actual expenditure is also subject to tax deduction under provisions of Section 195 of the Act. The use of the term 'reimbursement' will be determinative on the question of payments. He also further held the services which were rendered by LLAH involved training which would clearly 'make available technical knowledge expertise, skill, know haw' for purposes of the assessee and hence, they fall into the category ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Therefore, LLAH is also making available the skill and expertise of the recipient. Therefore, the authorities below were justified in holding that the said consideration paid by the assessee to LLAH attracts tax liability and the assessee ought to have deducted the TDS before making such payment. As the Tribunal recorded a finding that the assessee was not required to deduct tax at source under Section 195of the Act and consequently the assessee cannot be treated as an assessee in default, it was held that no interest is leviable under Section 201 (1A). Therefore, the appeal came to be allowed. 7. The revenue has preferred these appeals challenging the findings of the Tribunal that the assessee was not required to deduct tax at source under Section 195 of the Act and consequently was not liable to pay interest under Section 201 (1A) The assessee in turn has preferred cross appeals in these appeals challenging the findings recorded by all the three authorities that the management services rendered by LLAH did not involve "make available their expertise, skill and know how" and therefore no tax is liable to be paid on the said consideration. They are also challenging the findi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , primarily there is no liability to pay tax at all and the authorities have not properly interpreted the terms of the agreement as well as the concept of 'make available' in the light of the terms contained in the DTAA and therefore, he submits that, the said finding also requires to be set aside. 11. The learned Additional Solicitor General supports the impugned order. 12. These appeals were admitted to consider the following substantial questions of law: "( i ) Whether the Tribunal was correct in holding that the technical services rendered under a contract between the assessee and its counter part abroad was not liable to deduction of tax at source under Section 195 of the Act, in view of the judgment of this Hon'ble Court in Jindal Thermal Power Company v. DCIT and the judgment of the Apex Court in Ishikawajma Harima Heavy Industries Limited v. Dy. CIT 286 ITR 408? ( ii ) Whether the Tribunal was correct in ignoring the findings recorded by the Assessing Officer and Appellate Commissioner that the contract entered into between the assessee and its group company M/s. Lend Lease Asia Holding's Private Limited, Singapore, was a management services agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e appropriate portion of such sum so chargeable and upon such determination, tax shall be deducted under Sub-Section (l) only on that proportion of the sum which is so chargeable. However, if the assessing authority is of the view that no tax is chargeable, a certificate to that effect could be issued to the person responsible for making payment. Once a certificate is issued, the liability of the person responsible for paying under the aforesaid provision ceases and without any deduction he may make payment to the non-resident. Insofar as Section 197 is concerned it provides for a similar application being made by the recipient of the income. On such an application being made under Section 197 (1), the assessing officer can give to him such certificate as may be appropriate. If such certificates states no tax is deductible, until such certificate is cancelled by the assessing officer, the person responsible for paying the income is under "No obligation" to deduct tax while making payment. In fact the language employed is "Shall". Therefore, it is mandatory in nature. What is the effect of such a certificate was the subject matter of interpretation. 13. The Delhi High Court in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the JVC and that the said shares were owned by AT T USA and not by AT T Mauritius. Consequently, on sales of the shares, capital gains accrued to AT T USA (now NCWS) could be recovered form Indian Rayon as agent of NCWS. Since the proceedings under Sections 163 and 195 operate in different fields and in the present case, there is no material on record to suggest that the Certificate under Section 195(2) was issued after considering the applicability of Section 163, in our opinion, initiation of proceedings under Section 163 of the Act cannot be faulted." Therefore, it is clear that both the payer and the recipient of the payment can approach the Assessing Authority under the Act seeking for a certificate providing for exemption from payment of tax, i.e. exemption from deducting tax at source. Once such a certificate is issued, there is no obligation on the part of the payer to pay tax. In view of the fact that the word used is "shall", if the recipient were to obtain such a certificate and make it available to the payer, then, the payer shall not deduct tax at source. 15. Under the aforesaid provision, there is no obligation on the part of the payer to pay tax as long ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d expenditure. In fact, the Assessing Authority accepted the case of the assessee that the said consideration represents reimbursement of the actual expenditure and granted the said benefit. The jurisdictional Commissioner did not initiate any revisional proceedings to interfere with the said order. It is in that context the Tribunal was justified in holding that the left hand does not know what the right hand is doing. Therefore, in the facts of the case, the authorities were estopped from initiating proceedings under Section 201 of the Act. Therefore, the substantial questions of law are answered in favour of the assessee and against the revenue. 18. Insofar as the subject matter of the cross appeal on merits is concerned, if the assessee was not required to deduct tax at source and could not be declared as an assessee in default, the question whether the payment was in the nature of a fee for managerial services or in the nature of reimbursement for the expenses incurred or whether Double Taxation Avoidance Agreement overrides the provisions of the Act and whether the expertise were made available for consideration could not be gone into. Therefore, the said findings, which ..... X X X X Extracts X X X X X X X X Extracts X X X X
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