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TMI Blog2015 (6) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... y the assessee would not come within the scope of the phrase “fees for technical services” as employed in Section 9(1)(vii) of the Act. - Decided in favour of the assesse. Whether the services provided by the UAE entities are in the nature of “independent personal services” defined in Article 14 of the DTAA? - Held that:- The two requirements for the applicability of Article 14, as applied in this case, are: a) income must be of a resident of the Contracting State (herein, UAE); and b) income must be in respect of professional services or other independent activities of a similar character. Article 4(1)(b) of the DTAA defines “resident of a contracting state” in the context of UAE to mean any person who under the laws of that State is liable to tax therein. Article 3(e) defines “person” to include a company. Therefore, the CIT(A) rightly rejected the revenue”s contention that Article 14 is inapplicable for the reason that the services in question were provided by companies, as opposed to individuals - Decided in favour of the assessee - ITA 325/2014 - - - Dated:- 29-5-2015 - Hon'ble Mr. Justice S. Ravindra bhat And Hon'ble Mr. Justice R. K. Gauba,JJ. For the App ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fee. As regards Marble Arts Crafts, the services included guiding the assessee about the procedural aspect of obtaining payment, checking the format and documentation of invoice and other papers to be submitted for approval to the Works Department, Abu Dhabi; checking invoices submission of invoices to respective authorities and obtaining their approval, follow up with Works Department, Finance Department, Banks and other authorities for approval of invoices, and obtain staff approval and letters of credits. Marble Arts Crafts was to be paid a fee of 5% of gross amount paid by Works Department to the appellant. In addition, the assessee agreed to pay one time fee of US$ 50000 to Marble Arts Crafts for identification and selection of UAE national as a partner for the appellant in connection with supply of marble to the Works Department in UAE. As regards CGS International, the services included soliciting business for the assessee in various parts of the world except India, identifying, introducing and providing details of industries, companies, individuals and investors etc. CGS International was to be paid in terms of the agreement a fee equivalent to 15% of the gross value ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and Marble Art Crafts were paid for liaison services in Abu Dhabi . Before the CIT (A), when the assessee produced copies of the agreements with the UAE companies, the AO objected. However, the CIT (A) was of the opinion that such documents had to be examined, because they would be decisive in verifying whether the payments shown in the ledger of the assessee and other books were in accordance with the arrangement with the foreign concerns. It was further held that in respect of CGS International, @ 15% as per agreement, the assessee accounted for a total payment of ₹ 45,31,044/-. In respect of Marble Arts Crafts, remuneration for the liaison services at 5% of the invoices realized, the appellant incurred an expense of ₹ 15,12,613/- and a further amount of ₹ 22,64,240/- by way of charges for identifying a UAE national as its partner. The agreement dated 5.4.2003 between the assessee and Marble Arts Crafts contemplated 5% of the gross payments received from the Works Department in terms of an agreement dated 12-1-2003. The linkage between the payment and the amounts received from the foreign client therefore was established. The records also showed that an a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... see s business also cannot be established. 7. The revenue further submits that the assessee failed to establish the authenticity and genuineness of the agreements on which reliance has been placed by the CIT(A) and ITAT. The learned counsel heavily relies on the fact that CGS International had independently confirmed that it received consultancy charges from the assessee during the year under consideration, as well as the assessee s treatment of these charges as such. Lastly, it is submitted that the CIT(A) and ITAT erred in applying Article 14 of the DTAA, and endorsed the AO s determination on this issue. 8. Mr. Kanan Kapoor, the assessee's counsel, submits that the findings of CIT(A), confirmed by the ITAT, cannot be faulted with, and are justified in the facts and circumstances of the case. The CIT(A), it is contended, thoroughly examined the issues at hand and on an analysis of the assessee s agreements with the two UAE entities as well as its contract with the Abu Dhabi Works Department, rightly rejected the AO s finding that the remittances made by the assessee were in respect of consultancy charges , attracting the provisions of Section 9(1)(vii) of the Act. Thus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head Salaries . 12. The revenue contends that the remittances in question, made by the assessee (a resident) to the two UAE entities (non-residents), come within the scope of Section 9(1)(vii)(b).It is not in dispute that the two exceptions to the applicability of Section 9(1)(vii)(b), enumerated in the said sub-clause itself, do not apply in this case. The only dispute between the assessee and revenue concerns the interpretation of the phrase fees for technical services , as defined in Explanation 2 to Section 9(1)(vii). 13. Explanation 2 defines fees for technical services to mean managerial, technical or consultancy services. Revenue contends that the services for which the assessee remitted the sums to CGS International and Marble Arts Crafts classify as consultancy services . This Court does not accept the revenue s submissions, an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... validity of such agreements. Facts on record show that the agreement with CGS International dated 25.11.02 was prior to the agreement dated 12.01.03 entered into by the appellant with the Works Department, Abu Dhabi. The agreement with Marble Arts Crafts dated 05.04.03 were subsequent to the agreement with the Works Department, Abu Dhabi. Both the agreements with CGS International and Marble Arts Crafts concerned the appellant s contract with the Works Department, Abu Dhabi. For making the remittances outward to CGS International or Marble Arts Crafts, the appellant has indicated to the bankers remitting the amount, the respective agreements governing the payments to those parties. In effect, both the agreements, entirely commercial in character, have been acted upon by the parties to the agreements i.e. by delivering services and receiving payment thereof. Rights and liabilities have accrued and acknowledged by the parties to the agreements. The question of legal enforceability of the agreements will not have as much implication for deciding the revenue implications of the payments made as much as a finding that the parties to the agreements did not render the service menti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ne, conferring about or upon a matter. Consult has also been defined in the said Dictionary as ask advice for, seek counsel or a professional opinion from; refer to (a source of information); seek permission or approval from for a proposed action . It is obvious that the service of consultancy also necessarily entails human intervention. The consultant, who provides the consultancy service, has to be a human being. A machine cannot be regarded as a consultant. The AAR in the case of In Re: P.No. 28 of 1999, reported as [1999] 242 ITR 208 had observed:- By technical services, we mean in this context services requiring expertise in technology. By consultancy services, we mean in this context advisory services. The category of technical and consultancy services are to some extent overlapping because a consultancy service could also be technical service. However, the category of consultancy services also includes an advisory service, whether or not expertise in technology is required to perform it. 21. The word 'consultant' refers to a person, who is consulted and who advises or from whom information is sought. In Black's Law Dictionary, Eighth Edition, the wor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s raised by the appellant In so far as CGS International is concerned, the agreement dated 25.11.2002 between the appellant and CGS International provided for a consideration payable by the appellant for liaison or solicitation charges. On its part, CGS International will identify, introduce and provide details of industries, companies and individuals, where the appellant can utilize its expertise in the field of architecture, material procurement project management etc. In short, CGS International as per agreement would market the appellant and solicit project management and architectural work in UAE and also, in various parts of the world except India. The consideration is a fee equivalent to 15% of the gross value of the contract to be received from each client, who CGS International has solicited and has rendered services to procure the contract. The appellant has made the payment of ₹ 45,31,044/- to CGS International being 15% of a total receipt of $665195 from the Works Department Abu Dhabi. Payments to CGS International are in terms of an earlier agreement entered into with the appellant. 19. It is evident that in the transaction between the assessee and Marble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to individuals. As to whether Article 14 applies to the nature of services provided by CGS International and Marble Arts Crafts, the CIT(A) observed as follows: In the DTAA with UAE, there are Article (sic) to consider assessability of income from immovable property (Article 6), business profit (Article 7), shipping (Article 8), associated enterprise (Article 9), dividends (Article 10), interest (Article 11), royalties (Article 12), capital gains (Article 13), Independent personal services (Article 14), dependent personal services (Article 15) etc. There is no clause or Article governing payment for the so called technical services as in other DTAAs i.e. Article 13 of DTAA with UK or Article 12 of DTAA with Singapore. In view of the fact that the non residents do not have any permanent establishment within the meaning of Article 5 of DTAA in India, the remittances to them could only have been considered under Article 14 or Article 22 of DTAA. Under Article 14 of DTAA, the consideration paid to the non-resident is liable to be taxed in the contracting state i.e. UAE. In case remittances are considered as other income under Article 22 of the DTAA, it would also be taxable in t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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