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TMI Blog2018 (12) TMI 57X X X X Extracts X X X X X X X X Extracts X X X X ..... ch provides “6. An enterprise shall be deemed to have a permanent establishment in a Contracting State if it furnishes services, other than services referred to in paragraphs 4 and 5 of this Article and technical services as defined in Article 12.” Accordingly, we are of the view that under the provisions of Article 12(2) of the DTAA, the Service Fee would be chargeable to tax at the rate of 10 percent. AO erred in treating the gross receipts of INR 30,18,10,059/- as the profit attributable to the Service PE and ought to have determined the profit clement in the said receipt at 10 percent of the costs or 10 / 110 of the gross receipts of 30,18,10,059/- i.e. INR 2,74,37,278. The assessee filed the Agreement wherein it is specified in Pans 4 and 5 that DDIL shall pay the assessee management fee calculated based on 110% of all direct and indirect costs incurred by the assessee in rendering of the management services" and that all direct and indirect costs incurred for the provision of the services shall be allocated to the Company 'DDIL, based on a formula. We are of the view that the above contention of the assessee needs verification of facts by the AO. Hence, we direct the AO to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... raised in both the years is as under: - For AY 2012-13 Ground No. I Appellant Considered to Constitute a Permanent Establishment ('PE') in India 1.1 On the facts and in the circumstances of the case and in law, the learned Assessing Officer and the Honorable DRP without appreciating the evidence and submissions filed, erred in holding that the Appellant has a Service PE in India under Article 5(6) of India Singapore Tax Treaty. 1.2 On the facts and in the circumstances of the case and in law, the learned Assessing Officer and the Honorable DRP without appreciating the evidence and submissions filed, erred in holding that the Appellant has a Service PE in India under Article 5(6) of India Singapore Tax Treaty as regards Service fee income. 1.3 The learned Assessing Officer and the Honorable DRP failed to appreciate that the technical service resulting in the Service Fee income would be covered by Article 12 of India Singapore Tax Treaty and hence would not result into in a Service PE in India. 1.4 On the facts and in the circumstances of the case and in law, the learned Assessing Officer and the Honorable DRP without appreciating the evi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement Fee income. 1.6 The learned Assessing Officer and the Honorable DRP failed to appreciate that the Appellant's employees had visited India for 26 days in connection with the Service Fee income and the same could not he considered for determination of Service PE under Article 5(6) of the India Singapore Tax Treaty since it was less than the threshold limit of 30 days and also the same could not be aggregated with 64 days for which the Appellant's employees had visited India for an activity which was distinct and separate from Service Fee activity. 3. At the outset, the learned Counsel for the assessee stated that the DRP has simply followed its own order in assessee s own case for AY 2011-12 and has not adjudicated the issue independently. The learned Counsel for the assessee drew our attention to the findings recorded by the DRP in both the assessment years i.e. AY 2012-13 and 2013-14 and the relevant finding as recorded in AY 2012-13 reads as under: - 2.2 As the facts obtaining in this year are in pari material, with the facts in A.Y. 2011-12, respectfully following the above decision, the grounds of objections are rejected. 3. The Assessing Off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o an eligible assessee such as the petitioner. Therefore, it cannot be ignored by passing an final order under Section 144(13) of the Act without preceding it with a Draft Assessment order as required therein. 8. The contention of the Revenue that the requirement of passing a draft Assessment Order under Section 144C of the Act would only extend to the orders passed in the first round of proceedings or in respect of an order passed by the Assessing Officer in remand proceedings by the Tribunal which has entirely set aside the original assessment order. This distinction which is sought to be drawn by the Revenue is not borne out by Section 144C of the Act. In fact, the Delhi High Court in JCB (India) Ltd. (supra) held that, even in partial remand proceedings from the Tribunal, the Assessing Officer is obliged to pass a draft assessment order under Section 144C(1) of the Act. According to us, the Assessing Officer, is obliged to, in terms of Section 144C of the Act to pass a Draft Assessment Order in all cases where he proposes to assess the Foreign Company under the Act by making a variation in the returned income. In this case, the impugned order dated 31st January, 2018 has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der Section 144C(1) of the Act is mandatory and has to be complied with, which has not been done. 11. In the above view, the impugned order is without jurisdiction. Thus, the plea of alternate remedy advanced by the Revenue so as to not entertain this petition, does not merit acceptance in the present facts. 12. In the above view, the impugned order dated 31st January, 2018 has been passed without complying with the mandatory requirements of Section 144C of the Act which is applicable to a Foreign Company such as the petitioner. Therefore, the impugned order is quashed and set aside. Needless to state, this order would not, in any way, stop the Revenue from taking such steps as are available to it in law and the petitioner also from contesting the action of the Revenue in accordance with law, if it so desires. 5. The learned Counsel for the assessee clearly admitted that there Is no adjudication on merits and facts in AY 2011-12. Hence, independent of finding of AO and DRP and of Tribunal, we are considering the facts as mentioned in AY 2012-13 and 2013-14. The facts in AY 2012-13 in ITA No. 1645/Mum/2017 are as under. 6. The assessee is a Private Limited Compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wed the adhoc deduction of 10% of expenditure and thereby treated the balance amount of ₹ 18,83,06,075/- as the taxable income in India i.e. as business profit. The AO taxed the same at the rate of 40%. Aggrieved, now assessee came in appeal before us. 8. The learned Counsel for the assessee also explained that the number of days, for which the assessee s employees were sent to India for the said services during the AY 2013-14 and the amount earned has been tabulated as under: - Sr. No. Particulars Amount (in INR)-AO/5 Number of solar days. 1. Management fee 30,18,10,059/- 64 days 2. Service fee 1,45,18,591/- 26 days Total 31,63,28,650/- 90 days 9. Before us, the learned Counsel for the assessee argued that the service fee can be considered for Fee for Technical Services (FTS) under section 97 of the Act but argued that the management fees are not taxable in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2), the assessee is entitled to claim benefits of the Double Tax Avoidance Agreement to the extent the same are more beneficial as compared to the provisions of the Act. While doing so, in cases of multiple sources of income, an assessee is entitled to adopt the provisions of the Act for one source while applying the provisions of the DTA for the other. This view of ours is supported by the order of this ITAT Bangalore Bench in the case of IBM world Trade Corporation v ADIT (IT) (2015) 58 taxmann.com 132 (Bang) and IMB World Trade Corpn v DDIT (IT) (2012) 20 taxmann.com 728 (Bang). We find from the facts of this case as regards the management fee, the assessee opted to be governed by the India-Singapore DTAA. In fact, both the assessee and the AO are of the view that the Management fee income is business income under Article 7 of the India-Singapore DTAA which would be taxable only if the assessee had a Permanent Establishment in India under Article 5 of the DTAA. As per Article 5(6)(b) of the India-Singapore DTAA, An enterprise shall be deemed to have a permanent establishment in a Contracting State if it furnishes services, other than services referred to in paragraphs 4 and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the view that in this assessment year the provisions of the Act, both receipts viz, the Service Fee and the Management fee, falls under the purview of Section 9(1)(vii) read with Explanation 2 thereto which defines fees for technical services which include .. any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services. According to us, in view of the above provision, the maximum possible taxability in the hands of the assessee on each of the sources of income would be @10 percent under Section 115A(1)(b) of the Act. Accordingly, vis- -vis the Service Fee the assessee agreed to offer the said receipt to tax as fees for technical services under Section 9(1)(vii) of the Act. Alternatively, also, even under the provisions of the India-Singapore DTAA, the Service Fee would he taxable as fees for technical services under Article 12(4)(b) as the assessee makes available technical knowledge, experience, skill etc. to DDIL. Since DDIL did not have qualified technical experts with experience in setting up of IDCs on request, the assessee sent its employees who were experts in the field of IDCs to assist and provide guida ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice fee is taxable as fee for technical services in both the years i.e. AY 2012-13 and 2013-14. ii. The management fee for AY 2012-13, being in the nature of business profit under the India-Singapore DTAA is not taxable in India as the assessee does not have a service PE because the condition of article 5(6)(b) of the DTAA is not satisfied for the reason that the no. of days of stay of employees is 2 days only. iii. As regards to AY 20113-14, the management fee earned by assessee, the profit attribute to management service PE as per article 7(1) of India Singapore DTAA can be considered. 15. Both the issues in these appeals of assessee are set aside to the file of the AO to decide in term of the above direction after carrying out verification of facts. 16. The next issue in these appeals of assessee is as regards to charging of interest 234(b) of the Act. 17. We find that the assessee is a non-resident and the liability of payment of advance tax is not on the assessee for the reason that the payer has to deduct tax at source under section 195 of the Act at the time of payment. This issue is covered by the decision of Hon ble Bombay High Court in the case of DIT (Inte ..... X X X X Extracts X X X X X X X X Extracts X X X X
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