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TMI Blog2016 (9) TMI 348X X X X Extracts X X X X X X X X Extracts X X X X ..... s as the same has been incurred for business purposes and we are of the opinion that such expenditures be allowed in the year in which it was incurred. Payments to third party service providers outside India for services in connection with expatriate movement to India in relation to the PO - nature of Fees for Technical Services - whether such payments would be in the nature of travel costs - Held that:- As regards payments made to third parties other than FWEL, there is no dispute. In respect of FWEL, the applicant has filed an affidavit explaining the nature of services and according to this detailed affidavit services are not in the nature of Fees for Technical Services as they do not satisfy the ‘make available’ clause. The mention of ‘engineering services’ on the invoice has also been explained as above and if this is true the same cannot satisfy ‘make available’ clause as these are not providing services on the basis of which the recipient can be said to acquire skills of enduring benefit nature. Department’s reliance on the fact is also based on presumption that invoices have been prepared for the purpose of Services Tax Law and the description on the invoice is in the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is in terms of the contract subsequently executed on April 24, 2009. 2. The applicant has raised the following questions:- 1. On the facts and in the circumstances of the case, would the proposal costs incurred by Foster Wheeler Energy Limited, UK ( FWEL ) a Group Company, primarily including time charge of UK staff working on the bid, travel expenses, miscellaneous expenses like printing charges to FWGB, be available as a deduction in computing the taxable income of the PO? 2. On the facts and in the circumstances of the case, whether the claim of deduction in relation to Head Office( HO ) expenses by FWGB can be subject to the limitation prescribed under section 44C of the Incometax Act, 1961 ( the Act ) in light of the non-discrimination clause under the India-United Kingdom Double Taxation Avoidance Agreement ( DTAA or the tax treaty )? 3. If the answer to question 2 is in the affirmative, whether the said section 44C of the Act shall apply in the following cases: Where FWGB incurs losses during the first year of operations. Where in a given assessment year and the previous years preceding the relevant assessment year (referred to in Expla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The Department of Revenue has stated that the project works in India are undertaken by the Permanent Establishment of FWGB, U.K. Essentially, FWGB, U.K. (Head Office) should incur some expenditure, on account of certain works carried out in U.K., for the benefit of the project works in India, in order to qualify the expenditure as Head Office expenditure . However in this case the Head Office had not incurred any expenditure but some expenditure was incurred by one of the group concerns i.e. FWEL and as such, expenditure incurred by a third party cannot be allowed as a deduction, in computing the income of the project. The Revenue was asked by us to verify the genuineness of the expenditure. The Revenue in its report dated 20 November 2015 has after verification conceded that FWGB s share of proposal costs [i.e. ₹ 4,79,33,690 (i.e. GBP 6,58,828)] has been charged to FWGB and FWGB has in fact paid the same to FWEL. This shows that FWEL had incurred such expenditure for the purpose of applicant s projects in India. In view of this there is no reason to disallow such expenses as the same has been incurred for business purposes and we are of the opinion that such expenditures ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s like administration, finance, human resources etc and the services rendered by FWEL do not fall under Article 13 of the India UK DTAA, i.e. technical or consultancy services, as the same would be managerial in nature and, accordingly, taxability of such income is subject to provisions of Article 7 of the India-UK DTAA as business income. The applicant has further mentioned that as per Article 7 of the India- UK DTAA, business income shall be taxable in India only if there is a PE in India and since FWEL does not have a PE India in relation to this service; payments made by FWGB are not taxable in the hands of FWEL. The description of services provided by FWEL under the support services agreement dated 29th April 2009 was for:- (i) Account Receivable /Payable Management (ii) Financial Reporting, Banking and Treasury Management (iii) Human Resources and Payroll Management (iv) Administrative support (v) Tax support (vi) Legal and company secretarial support 9. Department of Revenue took the stand that the payments for FWEL services are in the nature of fees for technical services. Relying on invoices issued to FWEL which describe the category of services as c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) of that provision of the Service Tax Act. The said clause (g) describes such service as any service provided by a consulting engineer in relation to advice, consultancy or technical assistance in any manner in one or more disciplines of engineering . The Department has submitted that the description in the invoice of the Applicant is in the light of this definition of taxable services in the Service Tax Act and indicates Category of Taxable Service as Consulting engineering services . (c) The Department has further pointed out that it is admitted by the Applicant that the persons whose names appear in the timesheets are in fact engineers which further buttresses the Department s stand that the services rendered are in the nature of engineering services which are technical in nature satisfying the make available clause of the India-UK DTAA. In view of above the Department has submitted that the nature of services rendered by FWEL is technical engineering services satisfying the make available clause of the DTAA and payments made for the same are liable for withholding tax under the DTAA. 11. We have considered the arguments of both sides. We notice that: a. The a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of the applicant on year to year basis starting from Assessment Year 2010-11 (Financial year 2009-10) with respect to its obligation to pay a delay penalty (price reduction) as a result of not meeting the project schedule. As per clause 8.9 of the agreement between FWGB and IOCL, FWGB would be liable to a price reduction to IOCL for non satisfaction in terms of contract with respect to the time for completion. 14. The Department of Revenue in its comments had earlier taken a stand that the nature of this expenditure is penal in nature and the same was not allowable to the applicant. However, during the course of hearing the representative of the Department agreed that this was not a penalty and may be allowed subject to the condition that it should be allowed in the year in which such invoices had been raised actually. The applicant filed a statement containing year wise details of amounts invoiced which show gross invoice amount, amount earned on these invoices and difference attributable to price reduction (delay penalty). The difference attributable to price reduction financial year wise is as under: 2009-10 ₹ 8,61,27,398/- ..... X X X X Extracts X X X X X X X X Extracts X X X X
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