9911796707
TMI Blog2018 (5) TMI 1644X X X X Extracts X X X X X X X X Extracts X X X X ..... ign entities towards marketing and sale support services were not chargeable to tax in India and in that view of the matter the assessee was right in law in not deducting any tax thereon under sec. 195 - Decided in favour of assessee Addition on account of employee’s contribution to PF by invoking provision of section 36(1)(va) - contribution to PF after the due date of the relevant Act - held that:- Deduction claimed should be allowed as the employee’s contribution to PF 2,72,482/- and loss of 8,18,562/- derived by the assessee on sale of fixed assets in the P 5,46,200/- in the computation of income. Therefore, the Ld. CIT(A) held the finding of AO to be factually erroneous and hence, deleted the impugned disallowance holding it to be a double addition. . DR appearing on behalf of the revenue was unable to controvert this fact and could not point out any infirmity in the order of the Ld. CIT(A) - Decided in favour of assessee Disallowance of deduction claimed u/s. 35DD in respect of travelling expenses - Held that:- There is no precondition set out in the above section mandating any certification from the auditor. We note that the tax auditor indeed did not report this claim u/s. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 the services of foreign marketing companies to whom market support fees of ₹ 2,96,05,045/- was paid. The party wise break-up is as follows: a) BNKe solutions Inc. ₹ 2,10,18,533/- b) National Services Alliances ₹ 26,52,160/- c) Armstrong Associates ₹ 31,96,273/- d) M/s. Kirk Halsted ₹ 24,03,804/- e) Fe Building Intelligence Ltd. ₹ 3,34,275/- Total : Rs.2,96,05,045/- From the foregoing details as were filed before the AO, he noted that such fees were paid without deduction of tax u/s. 195 of the Act and, therefore, he show caused the assessee as to why expenditure should not be disallowed in terms of sec. 40(a)(i) of the Act. It was submitted by the assessee that the fees were paid for marketing service rendered outside India and hence, did not become chargeable to tax in India requiring tax deduction u/s. 195 of the Act. The assessee's submissions were rejected and the AO held that since the orders were executed in India, inc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions 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 acknowledges that all rights, title and interest in the confidential information and IPRs vested in the assessee company in India which was the 'entrepreneur' and US subsidiary was described to be 'service provider", which we note from page 43 of the paper book. The said US subsidiary was to provide marketing and support service and to whom the IPRs belonging to the Indian Company were granted on non-transferable and non-exclusion basis to enable it to grant BPO services of the Indian holding company i.e. the assessee. In consideration for rendering marketing and support services, the assessee paid arms length remuneration which was calculated @ actual cost plus mark up of 5%. The assessee had similar agreements with other service providers who were also being paid fees or remuneration either on fixed/monthly basis or performance based service fees for securing orders from the foreign customers. With reference to these documents, the Ld. AR submitted that the AO was unjustif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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, claims processing and part returns, contract compliance, supplier recovery, and warranty analytics. The company also provides logistics services, such as order management, carrier set up, loan management, and coordination between plant and field locations; dispatch, track and trace and POD; and accounting, freight." 6. However, as per page 30 of the impugned order, the Ld. CIT(A) has recorded a contradictory and contrary finding that the assessee was in the business of developing and providing computer software analytic packages. The Ld. CIT(A)'s relevant finding is as under: "The appellant, "OnProcess Technology India P. Ltd." (now BNKe Solutions), which works only a a service Provider/BPO i.e. developing automated computer analytics solution packages for clients, which include all "business solutions" developed by the Indian subsidiary coy"…….. Thus, the only products/services available with the appellant coy are the in-house developed process automati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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. DR further submitted that the assessee being the payer cannot place reliance on the DTAA between India and USA and in this regard relied on decision rendered by the Bangalore Tribunal in the case of Vodafone South Ltd. 53 gtaxman.com 441. He further drew our attention to Article 24 - "Limitation and Benefits" of the DTAA between India and USA. Referring to the said article, the ld. DR submitted that since the assessee had not demonstrated before the lower authorities that the treaty benefits were indeed available to the payees, the assessee could not claim application of the beneficial clauses contained in Article 12 of the DTAA. 9. We have considered the submissions and the documents on record and the contentions put forth by both the parties and judicial precedence relied on. The documents and facts on record go on to prove that the assessee company operated Call Centre at Kolkata which only provided BPO service in the field of supply chain optimization c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 established that services of NSA were engaged only for rendering market support services and not to provide processed technology solutions as stated by the Ld. CIT(A). We, therefore, find that the scope of agreement with each of the service provider and to whom fees aggregating to ₹ 2,96,05,045/- were paid during the relevant year clearly demonstrate that the contractual services were confined only to market assessee's BPO service amongst US customers and to provide market support to such foreign customers. Since such services were performed outside India and such services not being in the nature of 'technical service', making available to the assessee as technical knowledge or know how, the payment of fees did not come within the taxing provisions of sec. 9(1)(vii) of the Act or the DTAA between India and USA. We are, therefore, of the considered opinion that the authorities below were incorrect in holding that the assessee had an obligation to deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 nor the services performed were technical in nature. We are, therefore, of the opinion that no part of the income embedded in such payment was chargeable to tax in India so as to require deduction of tax u/s. 195 of the Act. Our finding in this regard gets support from the decision of the Hon'ble Delhi High Court in the case of CIT Vs. Eon Technology Pvt. Ltd. 15 taxman.com 391 and of the Hon'ble Madras High Court in the case of CIT Vs. Faiezan Shoes pvt. Ltd. 48 taxman.com 48. We, therefore, hold that the fees of ₹ 2,96,05,045/- paid by the assessee to US entitles for rendering marketing and sale support services was not chargeable to tax in terms of sec. 9(1)(i) of the Act. 13. From the impugned order of the Ld. CIT(A) , we note that he suo moto considered the taxability of the fees received by the foreign payees by way of 'fees for technical services' in term of taxing law provisions of sec. 9(1)(vii) as well as Article 12(4) of the DTAA b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d; 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 owner of the royalties or fees for included services, being a resident of a Contracting State, carries on business in the other Contracting State, in which the royalties or fees for included services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the royalties or fees for included services are attributable to such permanent establishment or fixed base. In such case the provisions of Article 7 (Business Profits) or Article 15 (Independent Personal Services), as the case may be shall apply." A plain reading of 12(4) of DTAA makes it clear that only such technical and consultancy service are covered which is either (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information referred to in article 12(3) or (b) 'make available' technical knowledge, experience, skill, know-how etc. We ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow-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 have already set out the nature of services rendered by the foreign companies to the assessee. The scope of work as entailed in the agreements clearly goes on to show that the foreign entities were providing marketing and sale support services. Nothing is made available to assessee by the foreign entities as to whether or not giving marketing services can be considered to be 'making available' included services. Example no. 7 given in MOU between India and USA on the DTAA shows more light on the understanding of the subject which example is as follows: "Example 7 Facts: The Indian vegetable oil manufacturing firm has mastered the science of producing cholesterol-free oil and wishes to market the product worldwide. It hires an American marketing consulting firm to do a computer simulation of the world market for such oil and to adverse it on marketing strategies. Are the fees paid to the U.S. company for included services? Analy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 into the terminology "fees for included services" the technical knowledge and skills etc. must remain with the person receiving services even after the principal contract comes to an end and the receiver should be able to deploy similar technology or techniques in future without depending on the provider. Referring to the MOU between India and USA the coordinate bench held that the provisions of consultancy or marketing services which did not 'make available' any technical know how, knowledge, design or skill to the payer was not liable to tax as "fees for included services" under article 12 of DTAA between India and USA. Following the ratio laid down in this decision, we find merit in the assessee's submission that the payments made by the assessee to foreign companies for receiving marketing and support service shall come within the ambit of "fees for technical services" as defined in DTAA and hence not taxable in India. 19. Before ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed 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 prescribed in Article 24(1). On the contrary, we find that almost 70% of the total payment was made by the assessee to its wholly owned subsidiary M/s. BNKe Solutions Inc., USA which company was incorporated in USA and the assessee itself directly owned 100% of its issued equity capital. It is not in dispute that the assessee which is incorporated in India is an Indian Tax Resident. Article 24(1)(a) provides that in order to avail the benefit of tax treaty more than 50% of the number of shares of a company should be owned directly or indirectly by one or more individual resident of one of the contracting states i.e. either in India or USA. In assessee's case, the shares of M/s. BNKe Solutions Inc., USA incorporated in USA were 100% owned by the Indian Tax Resident and, therefore, conditions of Article 24(1)(a) were clearly fulfilled. In the said circumstances, therefore, we do not find merit in the objection raised by the ld. DR at this s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 taken the view that employee's contribution to PF paid on or before the due date of filing of return of income u/s. 139(1) of the Act should be allowed as deduction. In this regard, the decision of Hon'ble Calcutta High Court in the case of M/s. Akzo Nobel India Ltd. Vs. CIT in ITA No. 110 of 2011 dated 14.06.2016 and in the case of CIT Vs. Vijayshree Ltd. of the Hon'ble Calcutta High Court in GA No. 2607 of 2011 dated 06.09.2011 was filed before us. In the order in the case of Vijayshree Ltd. (supra) the Hon'ble Calcutta High Court held as follows: "The only issue involved in this appeal is as to whether the deletion of the addition by the Assessing Officer on account of Employees 'Contribution to ESI and PF by invoking the provision of Section 36(1 )(va) read with Section 2(24 )(x) of the Act was correct or not. It appears that the Tribunal below, in View of the decision of the Supreme Court in the case of Commissioner of I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 controvert the finding of the Ld. CIT(A). The Ld. AR drew our attention to the fact that subsequent to the judgment of Hon'ble Supreme Court in the case of TRF Ltd. (supra), the CBDT has also issued a circular no. 12/2016 dated 30.05.2016 wherein the Board have clarified that it is no longer necessary for the assessee to prove irrecoverability of debts and once the debts are written off in the books of account, then the assessee is legally entitled to claim bad debts u/s. 36(1)(vii) of the Act subject to satisfying condition of section 36(2) of the Act. In view of the foregoing, therefore, we hold that this ground raised by the revenue has no merit and, therefore, stands dismissed. 28. Ground no. 3 is against the disallowance of loss of sale of fixed assets not added back in the computation of income. Briefly stated facts of the case are that the assessee had sold certain fixed assets during the year from which derived profit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rger 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 of the Act. Aggrieved by the action of the AO, the assessee preferred an appeal before the Ld. CIT(A). In the appellate proceeding, the assessee reiterated his claim for deduction u/s. 35DD of the Act and alternatively claimed that if the deduction u/s. 35DD of the Act was not allowed then the entire amount of travelling expenses be allowed u/s. 37(1) of the Act since the fact that the expenses were incurred in the course of business was not in dispute. The Ld. CIT(A) found merit in the original claim of the assessee and allowed the deduction u/s. 35DD of the Act being 1/5th of the travelling expenses of ₹ 3,05,916/-. Aggrieved, the revenue is before us. 31. We have heard rival submissions and gone through the facts and circumstances of the case. Sec. 35DD(1) reads as under: "Where an assessee, being an Indian company, incurs any expenditure, on or after the 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
