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TMI Blog2018 (9) TMI 1758X X X X Extracts X X X X X X X X Extracts X X X X ..... a-US treaty provide for a restrictive meaning of ‘fee for included services’ vis-a-vis meaning of ‘fee for technical services’ (FTS) under the Act, in as much as, only those technical/consultancy services which are ancillary and subsidiary to application/enjoyment of right, property or information or which 'make available' technical knowledge, skill, knowhow, process etc. would be liable to tax. Thus, in accordance with MOU, technology will be considered to be 'made available' when the person acquiring the service is able to apply such technology on his own. Adverting to facts of case before us, service rendered by AE to assessee is as per agreement dated 01/04/10. According to the agreement, furnished by assessee placed at page 54-62 of paper book, services provided by AE to assessee are in nature of assistance in troubleshooting, isolating the problem and diagnosing related trouble and alarms and equipment repair services wherein the equipments will be shipped to US by assessee as and when required. It has been agreed between the parties that AE would be providing such services remotely and no on-site support services would be provided to customers of assessee. It appears from th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aw, the CIT(A) has grossly erred in upholding the disallowance of technical on-call assistance charges amounting to INR 8,09,63,299 paid by the Appellant invoking provisions of section 40(a)(i) of the Act by holding the same to be fee for technical services and alleging that tax at source was liable to be deducted from such payments. 2.1. That on facts and in circumstances of the case and in law, the CIT(A) has erred in upholding that the charges paid by the Appellant were on account of services which were 'technical' in nature. 2.2 That on facts and in circumstances of the case and in law, the CIT(A) has erred in upholding that the charges paid by the Appellant were on account of services which 'made available' technical knowledge, experience, skill, know-how or processes. 3. Notwithstanding and without prejudice, the disallowance relating to TAC charges should have been restricted to 30% of the sum payable in view of the amendment to section 40(a)(ia) of the Act, read with 'Article 26 - Non- Discrimination' of India-US Double Taxation Avoidance Agreement. 4. That on facts and in circumstances of the case and in law the AO has erred in charging ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Appellant craves leave to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing of this appeal." ITA no. 3563/ Del/2018 (Asst Yr: 2014-15) "Appeal under section 253(1)(a) of the Income Tax Act, 1961 against the order dated 8 December 2017 (received on 22 March 2018) passed under section 250(6) of the Income Tax Act, 1961 ('the Act') by the Commissioner of Income Tax (Appeals) - II, New Delhi (hereinafter referred to as 'CIT(A)'). 1. That on facts and circumstances of the case and in law, the Assessing Officer ("AO") erred in completing the assessment of the Appellant at an income of INR 10,64,81,412 as against returned income of INR 6,65,71,450. The CIT(A) has further erred in arbitrarily confirming the addition made in the assessment order by the AO. 2. That on facts and in circumstances of the case and in law, the CIT(A) has grossly erred in upholding the disallowance of technical on-call assistance (TAC) charges amounting to INR 3,99,09,962 paid by the Appellant invoking provisions of section 40(a)(i) of the Act by holding the same to be fee for technical services and alleging that tax at source was liab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd no additions on account of adjustment to Arm's Length Price of international transaction was made. 2.2. On perusal of balance sheet, it was observed that assessee made several payments to foreign companies, on which no TDS was deducted. Assessee was show caused vide notice dated 12/02/16, to check withholding tax compliance in respect of payments made to foreign entities. Vide reply dated 09/03/16 assessee submitted that foreign payments include travel expenses, salary expenses, reference fees and technical on-call assistance charges. Assessee submitted that wherever applicable, TDS has been deducted and deposited. Ld.AO from details filed observed that, no TDS was deducted on technical on-call assistance charges paid to AE for technical on-call assistance support received. 2.3. Ld.AO made disallowance of ₹ 8,09,63,299/- for nondeduction of TDS under section 195 read with section 40 (a) (i) of the Act, on payment made towards technical on-call assistance charges to AE. 2.4. Aggrieved by order of Ld.AO, assessee preferred appeal before Ld.CIT (A), who upheld addition made by Ld.AO. 3. Aggrieved by order of Ld.CIT (A), assessee is in appeal before us now. 4. Ld.Counsel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... manner. He thus submitted that such services cannot be regarded as managerial, technical or consultancy services under section 9 (1) (vii) of the Act, and accordingly falls outside purview of the Act. He placed reliance upon following decisions in support of his arguments: * Decision of Hon'ble Supreme Court in the case of CIT vs. Calcutta Export Company reported in (2018) 93 Taxmann.com 51; * Decision of Hon'ble Delhi High Court in the case of CIT vs. Guy Carpenter and Co. Ltd., reported in (2012) 20 taxman.com 807; * Decision of Hon'ble Delhi High Court in the case of CIT vs. Herbalife International India Pvt. Ltd., reported in (2016) 59 Taxmann.com 205; * Decision of Hon'ble Karnataka High Court in the case of CIT vs. Sun Microsystems India Pvt. Ltd., reported in (2014) 48 Taxmann.com 93; * Decision of Hon'ble Karnataka High Court in the case of CIT vs. D Beers India Minerals Pvt.Ltd., reported in (2012) 21 Taxmann.com 214 * Decision of Hon'ble Madras High Court in the case of Skycell Communications Ltd vs. DCIT reported in (2001) 251 ITR 53; * Decision of Pune ITAT bench in the case of Sandvik Australia Pty. Ltd., vs. DDIT reported in (2013) 31 Taxmann.com 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnical support or system compromised on the basis of priority of cases. Under the agreement, AE is required to provide support services in case of critical/emergency issues to customers of assessee, through call centres remotely. Assessee in view of such services rendered made payments to AE, on which no TDS was deducted, as according to assessee, there is no requirement of withholding tax on such payments. It has also been submitted by Ld.Counsel that AE do not have a PE in India, and therefore is not taxable under India US DTAA. 7.2. Ld. AO made addition in view of amendment to section 40 (a) (i) of the Act read with Article 26 of India US - DTAA. Ld.AO also held that the services rendered by non-resident AE made available technical knowledge, experience or skill and know-how of the process. 8. Before dwelling into the analysis of facts in hand, it would be necessary to understand application of section 40 (a) (i) of the Act, which reads as under: "Section 40(a)(i) [any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable outside I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ormation concerning industrial, commercial or scientific experience; or which make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or design. 8.6. It is our considered opinion that provisions of India- US treaty provide for a restrictive meaning of 'fee for included services' vis-a-vis meaning of 'fee for technical services' (FTS) under the Act, in as much as, only those technical/consultancy services which are ancillary and subsidiary to application/enjoyment of right, property or information or which 'make available' technical knowledge, skill, knowhow, process etc. would be liable to tax. 8.7. The Memorandum of Understanding ("MOU"), concerning fee for included services in Article 12 to the India - US treaty provides as follows: "Paragraph 4(b) of Article 12 refers to technical or consultancy services that make available to the person acquiring the services, technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plant or technical design to such person. (For this purpose, the person acquiring the serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , to determine taxability of income received by AE for services rendered in India, the services rendered should satisfy the requirements under Article 12 (4), which requires technical knowledge, experience, skill etc., to be "made available" to the recipient of such services. 9.3. On a careful perusal of the agreement dated 01/04/10 between AE and assessee, it appears that services rendered therein by AE does not satisfy the make available requirement as per article 12 (4) of the Act. Ld. DR placed reliance upon decision of this Tribunal in case of Go daddy.com LLC versus ACIT (supra). We have carefully perused the said decision and has observed that issue therein was regarding payment on account of domain registration services, was treated as royalty within the ambit of Explanation 2 to section 9 (1) (vi) of the Act. Whereas, in the facts of present case issue is, whether, services rendered by AE, on call, from remote place would amount to providing technical services, to cover it within the ambit of Explanation 2 to section 9 (1) (vii) of the Act. 9.4. To our mind, facts in both these cases are not at all similar and therefore ratio laid down by this Tribunal in case ..... X X X X Extracts X X X X X X X X Extracts X X X X
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