9911796707
TMI Blog2016 (10) TMI 7X X X X Extracts X X X X X X X X Extracts X X X X ..... circumstances of the appellant's case and therefore, the learned CIT [A] ought to have cancelled the tax and consequential interest levied. 3. Without prejudice to the above, the learned CIT [A] is not justified in holding that the payments made by the appellant to M/s. MJR CONSULTANCY PTE LTD., Singapore, was fees for Technical Services within the meaning of Section 9[1][vii] of the Act as well as Article 12 of the Double Taxation Avoidance Agreement [DTAA] between India and Singapore and therefore, the appellant was required to deduct tax at source u/s. 195 of the Act before making the payment under the facts and in the circumstances of the appellant's case. 3.1 The learned ClT [A] failed to appreciate that the payments made by the appellant to M/s. MJR CONSULTANCY PTE LTD., Singapore, was not in the nature of fees for technical services since, there was no technical service rendered by the said company and the payments so made by the appellant could only be regarded as business profits of the said company in terms of Article 7 of the DTAA since, there was no such income was chargeable to tax in India in the hands of the said company, which is a resident of Singapore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. Further, as per the provisions of section 201(1) of the Act, if any person fails to deduct tax as required by or under the Act, he shall be deemed to be an assessee in default in respect of the tax. 3. Since the assessee has not complied with the provisions of section 195 of the Act, proceedings u/s. 201(1) were initiated against the assessee and in response to the show cause notice, it was submitted that it cannot be treated as defaulter u/s. 201(1) as the payments in question are not covered under Article 7, 9 or 12. 4. The AO asked the assessee to explain as to why the above payments to M/s. MJR Consultancy Pte Ltd., Singapore towards consultancy charges for the above financial years should not be treated as fees for technical services as per the provisions of section 9(1)(vii) of the Act. It was also asked to furnish full details of payments and in response thereto, the assessee has filed the complete details. Having examined the details furnished by the assessee and the Singapore treaty, the AO was not convinced with the contentions of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bligation to deduct tax at source as required by the Act. Therefore, the order of the AO holding assessee to be in default u/s. 201(1) of the act is bad in law. 6. The CIT(Appeals) examined the claim of the assessee in the light of various judicial pronouncements at page Nos. 3 to 39 of his order and has finally concluded that the Singapore company as a consultant made available to the assessee technical knowledge in the form of expertise and operation of business which was in its possession along with experience, skill and know-how. Thus, the assessee was under obligation to deduct tax at source as it made the payment for technical services. The relevant observations of the CIT(Appeals) is extracted hereunder for the sake of reference:- "6. I have considered the facts and circumstances of the case, it is clear from the agreement that the services rendered are in the capacity of a consultant who has skill, knowledge & expertise and is a professional in the concerned field. Passing on knowledge, expertise and skill in matter of strategic and operational importance as well as any other issues, connected with the business of the assessee company is certainly of technical nature. As ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... edge or know-how in future on his own. "By making available the technical skills or knowhow, the recipient of the service will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service provider." See Intertek Testing Services India (P) Ltd. In re (supra). So when the expertise in running the industry run by the group is provided to the Indian entity in the group to be applied in running the business, the employees of the Indian entity get equipped to carry on that business model or service model on their own without reference to the service provider, when the service agreement comes to an end. It is not as if for making available, the recipient must also be conveyed specifically the right to continue the practice put into effect and adopted under the service agreement on its expiry." 6.1 Thus, it is held that the Singapore company as a consultant made available to the assessee company technical knowledge in the form of expertise in operation of business which was in its possession along with experience, skill and know-how. In the agreement, this has been classified as professional services. It is not open to the assessee to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or non-residents. In the light of these facts, we are of the view that the assessment is not barred by limitation as no time frame has been specified for initiating action u/s. 201(1) of the Act against the non-residents. 11. So far as the merits of the case is concerned, we have carefully examined the order of the authorities below and agreement executed between the assessee and foreign constituent i.e., MJR Consultancy Pte Ltd., Singapore. Copy of the agreement is available at pages 9 to 11 of the compilation of the assessee. Since certain clauses of the agreement are relevant in order to adjudicate the controversy raised before us, we extract the consultancy agreement as under:- "AGREEMENT executed December 18, 2006 between The Nilgiri Dairy Farm Private Limited ("NILGIRIS"), a company incorporated in India with its registered office at 171, Brigade Road, Bangalore - 560025, India, and MJR CONSULTANCY PTE. LTD, a company incorporated in Singapore, having offices at 73A, Kheam Hock Road, Singapore 298850 ("CONSULTANT"), The above parties desire to set forth the terms and conditions upon which NILGIRIS may from time to time obtain CONSULTANT's services, and the parties ag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y expenses, including office supplies and reasonable phone expenses that are required in order for CONSULTANT to complete the Services assigned. CONSULTANT shall also be reimbursed for travel costs to and from Singapore and India, or as otherwise designated by the Managing Director of NILGIRIS. Travel and lodging expense must have NILGIRIS' concurrence. CONSULTANT will provide copies of receipts / vouchers for all expenditures, along with an invoice / statement, when requesting reimbursement. All invoices should be sent by CONSULTANT directly to: NILGIRIS Dairy Farm Private Limited, Finance Department, 171, Brigade Road, Bangalore - 560 025. Such reimbursements will be settled within 30 (thirty) days of receipt by NILGIRIS. c) CONSULTANT agrees that no compensation will be due from NILGIRIS beyond what has been expressly outlined herein. 5. Taxes, Benefits and Licenses. CONSULTANT agrees that CONSULTANT is solely responsible for the following: a) the payment of all federal, state, and local taxes and all appropriate deductions or withholdings, unless otherwise provided for in Exhibit A to this Agreement; b) the payment or provision of any unemployment insurance benefits ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... S is now involved or becomes involved, if such agreement would in any manner negatively impact NILGIRIS. CONSULTANT also agrees that he will not issue a press release or other public statement regarding CONSULTANT's relationship with NILGIRIS or this Agreement without clearance of NILGIRIS. b) This Agreement shall be governed by and interpreted under the laws of India." 12. In this agreement, the nature of services and duties of the Consultant have been specified. The responsibility of the Consultant with respect to intellectual property has also been specified. Though assessee has contended that no technical know-how was made available to the assessee while rendering the consultancy services by the Consultant and therefore it cannot be held that fees for technical services were paid by the assessee; but the ld. DR invited our attention to various clauses with the submissions that whatever consultancy services were required under different field and whatever consultancy input was given to the assessee, it was used by the assessee even after the termination of the contract and assessee has the privity of all the information, consultancy or opinions received in respect of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r:- "21. What is the meaning of "make available". The technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, knowhow and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology "making available", the technical knowledge, skills, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r can deploy similar technology or techniques in future without depending on the provider. 17. In light of this proposition, if we examine the facts of the case in hand, we would find from the consultancy agreement that the assessee entered into agreement with the foreign constituent, i.e., MJR Consultancy Pte Ltd., a company incorporated in Singapore for rendering the following services:- 1) Attending Board meetings of NILGIRIS in Bangalore and spending time with the NILGIRIS management; 2) Advising the CEO of NILGIRIS on various matters of strategic and operational importance; 3) Advising the management of NILGIRIS on any other issues in connection with the business of NILGIRIS. 4) Under the head 'Duties', the Consultant's duty shall include, as applicable, the use of skill and knowledge in completing the services referred to earlier and reasonable documentation as shall be required by NILGIRIS. 5) Under the head 'Intellectual Property', the Consultant shall immediately assign, transfer and set over to NILGIRIS all right, title and interest of Consultant in and to any product, improvement, or process which may directly or indirectly be utilized in connection therewith, ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
