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TMI Blog2018 (5) TMI 1644X X X X Extracts X X X X X X X X Extracts X X X X ..... ad established wholly owned subsidiary at USA by the name M/s. BNKe Solutions Inc. USA to provide marketing support services to the Indian assessee for securing orders abroad. Apart from the US subsidiary, it also availed market support services from other entities. Under a scheme of arrangement affirmed by the Hon'ble Calcutta High Court, M/s. BSPL transferred by way of demerger its BPO business to M/s. BNKe Software Services Pvt. Ltd. (M/s. BNKSSPL) w.e.f. 01.04.2011. The said resultant company M/s. BNKe Software Service Pvt. Ltd. (M/s. BNKSSPL) was taken over by M/s. On Process Technology Inc. of USA in the month of December, 2011 and consequently M/s. BNKSSPL i.e. the resultant company was renamed as M/s. On Process Technology India Pvt. Ltd., i.e. the present assessee before us. Thereafter, the assessee continued to carry on its BPO business from its office located at Sector V, Salt Lake, Kolkata. It was primarily catering to its clients based in USA, UK and Australia. The BPO services were primarily rendered in the field of supply chain optimisation and customer experience management services. To secure orders and solicit business from foreign customers, the assessee engaged ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... espective educational qualifications indicated that the assessee was performing functions of 'Call Centre'. The assessee also furnished copies of few agreements with its customers and few sample copies of invoices to substantiate its contention that the assessee was primarily performing the task of tracking calls, tracing shipments, conducting follow ups and performing customer care activities. With reference to its documents, the Ld. AR submitted that the assessee primarily rendered BPO services to its foreign clients and the service fees were paid on the number of hours called by the employees on attending to the customer calls. The Ld. AR submitted that in order to procure new customers and also to service the existing customers in foreign countries, the assessee had engaged the services of companies incorporated in USA. Referring to the list of payments, the Ld. AR pointed out that more than 75% of the fees were paid to the wholly owned subsidiary M/s. BNKe solutions Inc. USA which was engaged in promoting sale of BPO services to clients based in USA. Drawing our attention to the agreement with the wholly owned subsidiary, the Ld. AR pointed out that the said agreement acknowle ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r section 9(1)(i) of the Act and in that view of the matter the income of the payees were chargeable to tax which is to attract sec. 195 of the Act as erroneously held by the AO. The ld. AR further submitted that the order passed by the Ld. CIT(A) was full of contradictions and suffered from many factual infirmities because either he did not correctly understand the facts of the case or he collected the facts out of context leading to totally incorrect legal and factual affairs. The Ld. AR drew our attention to page 29 of the impugned order of the Ld. CIT(A) wherein he has recorded the following admitting that the assessee was rendering BPO services which did not involve rendering of any technical or software development service. He in his own words what has stated which is reproduced as under: "BNKe Solutions Pvt. Ltd. was acquired by Onprocess Technology, Inc. BNKe Solutions Pvt. Ltd. provides business process outsourcing services. The company offers field service management services, which include field service dispatch, parts dispatch, parts planning and management, customer service, and tech support; and warranty administration services including policy administration, claim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the Ld. AR, since the facts of the case clearly established that the foreign subsidiary and other entities were rendering only the marketing and market support services and not any 'technical' services, no income chargeable to tax accrued to any of the foreign payees in India. He therefore, submitted that both under the provisions of domestic tax laws of India and under the provisions of DTAA between India and USA, the fees received by the foreign entitles were not taxable in India so as to require tax withholding u/s. 195 of the Act. He, therefore, prayed that the orders of the lower authorities be reversed and disallowances may be deleted. 8. On the other hand, the Ld. DR appearing on behalf of the revenue supported the order of the Ld. CIT(A). The Ld. DR submitted that the consultancy service was embedded in the marketing services described in the agreement between the assessee and the foreign companies and following the principle of ejusdem generis the marketing service was covered under the phrase 'technical consultancy' used in sec. 9(1)(vii) of the Act. The Ld. DR, therefore, claimed the payment made by the assessee was taxable under the provisions of the Act. The Ld. D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rformance of servies under this agreement." 10. From the sample copies of the invoices placed in the paper book, we find that such services were confined to rendering marketing of assessee's BPO service on cost plus mark up basis and no part of the marketing services were rendered or performed in India. We further note that the nature of services contractual performed by the M/s BNKe solutions Inc., USA did not involve rendering or providing or making available to the assessee any technical service or technical knowledge so as to attract the provisions of sec. 9(1)(vii) of the Act or Article 12 of the DTAA between India and USAR. Similar are the facts with regard to the agreement with other service provider to whom the marketing fees were paid by the assessee. We note that in respect of the agreement with National Service Alliance (NSA) (page 34 to 38 of paper book) the Ld. CIT(A) observed that the assessee had understanding for joint development to arrive at combined business solutions and thereby NSA was to provide proposed technology solutions. We, however, find that the agreement required NSA to provide marketing of 'combined business solutions' schedule A to the agreement es ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct making available to the non-resident company technology, know-how and service in connection with business carried on in India. However, in the present case, the Ld. CIT(A) did not bring on record any material which can in any manner prove that any of the foreign service providers rendered any technical service or made available any technological know-how to the assessee in India in connection with BPO business carried on in India. We also note that the Ld. CIT(A) in the impugned order erroneously found similarities of assessee's case with the facts of the Foster Wheeler, France, USA, supra and we note at many places straight away lifted the facts and finding recorded in that decision, which have been pasted in the impugned order and this action of Ld. CIT(A) we do not understand, and cannot be countenanced. 12. From the foregoing discussion, we find that in the present case, the foreign payees to whom marketing support fees totaling Rs. 2,96,05,045/- was paid were engaged only in rendering services for promoting and marketing of assessee's BPO service in USA. Save and except canvassing for customers in the foreign territories, these entities did not render any service in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any technical knowhow, drawings and designs were made available by them to the assessee in India to enable it to carry on its BPO business. We also note that in the present case the payments were made to the entities based in USA and, therefore, the provisions of DTAA between India and USA came into play deciding as to whether the assessee had liability to deduct tax at source or not. 15. Article 12 (4) of the Indo USA DTAA deals with "fees for included services" and relevant articles reads as follows: "4. For purposes of this Article, "fees for included services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer ora technical plan or technical design. 6. The provisions of paragraphs 1 and 2 shall not apply if the beneficial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed as under: "Article 12 includes only certain technical and consultancy services. But technical services, we mean in this context services requiring expertise in a technology. By consultancy services, we mean in this context advisory services. The categories of technical and consultancy services are to some extent overlapping because a consultancy service could also be a technical service. However, the category of consultancy services also includes an advisory service, whether or not expertise in a technology is required to perform it. Under paragraph 4, technical and consultancy services are considered included services only to the following extent: (1) as described in paragraph 4(a), if they are ancillary and subsidiary to the application or enjoyment of a right, property or information for which are royalty payment is made; or (2) as described in paragraph 4(b), if they make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. Thus, under paragraph 4(b), consultancy services which are not of a technical nature cannot be included services" 16. In the present case we ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... decision of the coordinate bench of this Tribunal at Cochin and Mumbai in the case of US Technology Research Pvt. Ltd. ITA No. 222/Coch/2013 dated 27.09.2013 and Foster Wheeler France SA (supra) was clearly untenable and erroneous. 18. On the other hand, reliance placed by the Ld. AR on the decision of the Hon'ble Delhi high Court in the case of DIT Vs. Guy Carpenter & Co. Ltd. (2012) 346 ITR 504 (Del) and Hon'ble Karnataka High Court in the case of CIT Vs. De Beers India Minerals Pvt. Ltd. (2012) 346 ITR 467 (Kar) appear more appropriate on the facts of the case. We also note that the Coordinate bench of this Tribunal at Kolkata in the case of ADIT Vs. Timken Co. in ITA Nos. 387 & 398/Kol/2010 dated 29.11.2017 considered the said Article 12(4) of the Indo-USA DTAA while deciding the issue of taxability of intra group service, inter alia, including managerial, marketing and coordination services. In the said case also the revenue had claimed that the services rendered by the US companies to its Indian subsidiary was liable to taxes in India under article 12(4) and, therefore, withholding of tax was considered necessary. In deciding the issue, the coordinate bench held that to fit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng to Ld. DR, the onus was on the assessee to prove that the foreign entities to which payments were made were eligible to claim benefit of the provision of the Tax Treaty and for that purpose it was for the assessee to prove that conditions prescribed in Article 24(1) were satisfied by the parties. In the absence of any material brought on record which proves that the parties were eligible to claim the benefit of DTAA it was not open to the assessee to claim the protection provided by DTAA between India and USA. We find that the revenue has raised this objection for the first time before the Tribunal without bringing on record any cogent material in its support. We find from the orders of the authorities below that it was the Ld. CIT(A)'s case that even under the Treaty provisions the market support fees paid by the assessee came within the charging provisions of Article 12(4) of the DTAA requiring tax withholding at the rate prescribed in Article 12. In these circumstances, we do not find force in the Ld. DR's altogether new arguments that the assessee had failed to prove that the foreign payees did not qualify to claim Treaty benefit for failure to comply with the conditions pre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from their salaries. As per sec. 36(1)(va) of the Act, employees contribution to PF & ESI withheld by the employer could not be allowed to be deducted if not paid on or before the due dates provided under the relevant laws governing PF & ESI. Before the AO, the assessee pleaded that the employees' contribution to PF & ESI has been paid by the assessee on or before the due date of filing the return of income for the relevant assessment year u/s. 139(1) of the Act and, therefore, deduction claimed should be allowed as provided under the proviso to sec. 43B of the Act. The said plea was rejected by the AO for the reason that proviso to sec. 43B of the Act cannot be read into the provision of sec. 36(1)(va) of the Act. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who deleted the addition made by the AO holding that employees shares of contribution to PF & ESI should be allowed as deduction which is paid on or before the due date of filing the return of income u/s. 139(1) of the Act. Aggrieved, the Revenue is before us. 24. We have heard rival submissions and gone through the material available on record. We note that the Hon'ble Calcutta High Court has also take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... evenue is against the action of the Ld. CIT(A) which relates to disallowance of bad debts of Rs. 35,58,342/- u/s. 36(1)(vii) of the Act. Briefly stated the facts of the case are that the assessee had written off unrealized bad debts to the extent of Rs. 35,58,342/-. According to AO, the assessee could not establish the said debts have actually become bad and were incidental to the business which according to him was the basic condition for claiming deduction u/s. 36(1)(vii) of the Act and he, therefore, disallowed the aforesaid claim. Aggrieved, the assessee preferred an appeal before the Ld. CIT(A) who deleted the impugned disallowance in view of the decision of the Hon'ble Supreme Court in the case of TRF Ltd. Vs. CIT 323 ITR 397 wherein the Hon'ble Supreme Court held that it is not necessary for the assessee to establish that the debts written off had actually become bad and to allow the claim it is sufficient that the debts are written off in the books of account. Aggrieved by the order of the Ld. CIT(A) the revenue is in appeal before us. 27. We have heard rival submissions and gone through the facts and circumstances of the case. We note that the Ld. DR was unable to controv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdingly, this ground of appeal of revenue is dismissed. 30. Ground no. 4 of revenue relates to the disallowance of deduction claimed u/s. 35DD of the Act in respect of travelling expenses of Rs. 15,29,581/-. Briefly stated the facts of the case are that the assessee company was the resultant company under the scheme of de merger which was approved by the Hon'ble Calcutta High Court during the year. In relation to the scheme of demerger, the assessee had incurred travelling expenses of the legal advisors to the extent of Rs. 15,29,581/- of which 1/5th was claimed as deduction u/s. 35DD of the Act. The AO required the assessee to explain as to why the said claim should be allowed in the absence of any certification by the auditor. In response the assessee furnished the details of expenses from which it was evident that expenses were incurred n relation to scheme of demerger and hence, claimed that no adverse view could be taken in respect of the claim made u/s. 35DD of the Act. The AO, however, rejected the claim of and held that the travelling expenses were not incurred in relation to scheme of the demerger and, therefore, disallowed the deduction of 1/5th amount claimed u/s. 35DD ..... X X X X Extracts X X X X X X X X Extracts X X X X
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