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TMI Blog2012 (3) TMI 630X X X X Extracts X X X X X X X X Extracts X X X X ..... treat the same as Business Profit under Article-7 read with Article-5 of the India-USA Tax Treaty and tax accordingly. 3. On the facts and in the circumstances of the case and in law, the Id. CIT(Appeals) erred in directing the Assessing Officer not to tax the balance receipt of ₹ 28,23,28,534/- being the fee for provision of marketing and management services outside India as the same are not subjected to tax in lndia (under Article 13(4)(c) of the India- USA DTAA) nor same are attributable to service PE in India. 3. The assessee is a company incorporated in the USA and is a tax resident of USA entitled to claim benefits under the India-US Double Taxation Avoidance Agreement ( India-USA DTAA ). The assessee is engaged in the business of providing marketing, account handling and sales support services for WNS Global Services (P) Ltd., hereinafter referred to as WNS India an Indian company, predominantly in the North American Region. WNS India is engaged in providing Information Technology (IT ) enabled Business Process Outsourcing ( BPO ) services such as data processing, accounts reconciliation, call centre etc. Such activities are performed by WNS India for clien ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provide managerial services to WNS India as may be requested by WNS India in relation to the business including, providing assistance in developing business strategy, provide any other similar/allied/incidental service in the territory. 5. As consideration for the above services, the assessee is entitled to receive a mark up of 6 percent in addition to the costs incurred by the assessee. Accordingly during the year under appeal the received fees amounting to ₹ 3 1,30,60,351, the break up of which is as under: Provision of marketing and management services outside India ₹ 28,23,28,534 Provision of marketing and management services in India ₹ 3,07,31,817 Total ₹ 31,30,60,351 6. For providing the marketing and management services to WNS India in India, the employee of the assessee visited India during the assessment year under consideration. As per Article 5(2) (I) of the India- USA DTAA the existence of the employee constituted a Service PE In India. Accordingly, Marketing and management fees of ₹ 3,07,31,817 attributabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he assessee of ₹ 31,30,60,351/- for rendering marketing and management services cannot be treated as FIS under the India-USA DTAA. The CIT(A) relied on the decision of Mumbai Tribunal in Raymond Ltd (2003)(86 1TD791(Mum) wherein it was held that the normal, plain and grammatical meaning of the language employed in our understanding, is that a mere rendering of services is not roped in unless the person utilizing the services is, able to make use of technical knowledge by himself in his business and or for his own benefit and without recourse to the performer of services, in future. The CIT(A) held that the services rendered by the assessee did not take the character of FIS under Article I 2(4)(b) of the India-USA DTAA as neither the services provided by the assessee were technical or consultancy services nor do they make available any knowledge, skill or experience, etc. to WNS India. 10. The CIT(A) also held that out of the consideration received by the assessee from WNS India of ₹ 31,30,60,351 towards marketing and management fees, a sum of ₹ 28,23,28,534 was received for rendering marketing and management services outside India and marketing and management f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd management fee received by the assessee for services rendered outside India, the Tribunal held that the same is not in the nature of fees for included services under Article 12(4) (b) of the Indo US DTAA and that the said payment is also not attributable to the service PE in India. Following were the relevant finding of the Tribunal: 9. We have considered the rival submissions and also perused the relevant material on record. The assessee in the present case is a U.S. Company which entered into an agreement with WNS India for providing marketing, management and sale support services on 13-01-2004. As per the said agreement, the assessee company received fees of ₹ 22.29 crores for the services rendered during the year under consideration to WNS India and the issue before us is relating to the taxability of the said amount in the hands of the assessee in India. The AO held that by rendering the services as per the agreement dated 13-01-2004, the assessee company had made available its expertise and technical knowledge required for conducting business to WNS India and the fees received by the assessee from WNS India for such services was in the nature of fees for included ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bitions as may be determined by WNS India; 4.3 provide assistance to WNS India in (a) developing marketing strategy, i.e., setting the strategy with regard to which clients to target, how much to spend on marketing activities, how to develop WNS India s brand and build brand awareness, (b) marketing strategy implementation, (c) website content development, (d) developing any promotional materials for WNS India to increase awareness of WNS India s services and to assist the sales staff; 4.4 discuss and negotiate business proposals and contracts (or re-negotiate the same, as the case may be) on the basis of inputs received from WNS India and its own industry experience, but not conclude any contract until the receipt of prior written authorisation from WNS India; 4.5 enter into contracts with clients (or re-enter into new contracts with the said clients) in the name of WNS U.K. and without disclosing that WNS UK is acting on behalf of WNS India. However, WNS UK may intimate to the client to the client that it is acting for an undisclosed principal or a disclosed principal, as the case may be, only if the same is so required to be intimated to the client under any law or regu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rd services and before the words make available not only describes or defines more clearly the antecedent noun ( services ) but also gives additional information about the same in the sense that it requires that the services should result in making available to the user technical knowledge, experience, skill, etc. Thus, the normal, plain and grammatical meaning of the language employed, in our understanding, is that a mere rendering of services is not roped in unless the person utilising the services is able to make use of the technical knowledge, etc. by himself in his business or for his own benefit and without recourse to the performer of the services in future. The technical knowledge, experience, skill, etc. must remain with the person utilising the services even after the rendering of the services has come to an end. A transmission of the technical knowledge, experience, skills, etc. from the person rendering the services to the person utilising the same is contemplated by the article. Some sort of durability or permanency of the result of the rendering of services is envisaged which will remain at the disposal of the person utilising the services. The fruits of the ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... her the CIT(Appeals) was correct in directing the AO to consider TDS on payments made by WNS India to WNS UK for marketing and management services by treating the same as covered by Article 7 of Indo- UK DTAA and not under Article 13(4)(c) of the Treaty as held by the AO. Since the nature of services rendered by the assessee is similar to the nature of services rendered by WNS UK and even the provisions of the relevant articles of treaties are similar, we are of the view that the issue involved in the case of WNS India as well as all material facts relevant thereto are similar to that of the present case and the decision of the Tribunal rendered in that case has a direct application in the present case. 11. The learned DR has also made an attempt to support the case of the Revenue on this issue by relying on the provisions of section 9 and the amendment made therein by inserting Explanation with retrospective effect. He has also cited certain judicial pronouncements which are in relation to the provisions of section 9. It is, however, observed that the issue in the present case has been decided by the learned CIT(Appeals) with reference to the relevant provisions of DTAA and as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lows: 4. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in holding that the re-imbursement of lease line charges amounting to ₹ 4,27,29,227/- do not qualify as Royalty under Article-13 of the India-USA DTAA. 16. We have already seen that WNS India provide software and IT enabled services to clients outside India. To transmit the voice, data and software outside India, WNS India utilises the services of international telecom service providers. The data gets transferred from WNS India s unit to Service providers based in India for transmission outside India. At the end of the India portion, the transmission of data is taken over by international telecom Service providers based outside India and then transferred to the customers located outside India. The reverse process is used for transmission of data from the customers site to WNS India. The international telecom service providers raise an invoice on on the assessee. 17. During the relevant A.Y, the assessee has recovered charges from WNS India for international telecom connectivity charges paid by the assessee to international telecom companies on behalf of WNS India. The as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... did not result in any equipment being placed at the disposal of assessee so as to give it a right to use the same. Also, the equipment is not used by the Appellant. Merely because some equipment owned by the International telecom operator is used WNS India in providing international connectivity facility, it does not mean that the payments are in respect of usage of such equipments and assessable as Royalty under the India UK Treaty. The CIT(A) therefore, held that the payments would not constitute royalty under Article 12(3)(a) of the India-USA DTAA. The amounts receivable by the Appellant (for making payments to international telecom companies) is a consideration for arranging / facilitating a standard communication link and is not for the use of any intellectual property or any information. Further, such providers do not impart any information concerning industrial, commercial or scientific experience to WNS India. The CIT(A) also held that the facts of the case were similar to the ruling of the Authority of Advance Ruling in the case of Dell International Services (2008 TIOL 08) (10 DTR 249) and the decision of the Bangalore Tribunal in the case of Wipro Ltd ( 80 TTJ 191)(Ba ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cts and in the circumstances of the case and in law, whether the Id. CIT (Appeals) was correct in holding that when duty is cast on the prayer to pay tax at source, no interest u/s 234B and 234C can be imposed on the payee assessee ignoring the fact that it is the liability of the payee to pay advance tax even on the amount which had not been deducted at source under sect 195 of the Income Tax Act, 1961. 22. The claim claim of the assessee was that it is a foreign company and its entire income is liable for deduction of tax at source under Section 195 of the Act. Therefore, the assessee is not liable to pay advance tax accordingly, not liable to pay interest under Section 234B and 234C of the Act. In this regard, the Appellant has relied on the following decisions: - Motorola Inc. 95 ITD 269 (Delhi Tribunal - Special Bench) - DDIT vs. SET Satellite (Singapore) PTE Ltd. 106 ITD 175 (Mumbai Tribunal) -Fisons PLC vs. DCIT 272 ITR 60 (Mumbai Tribunal) -JCIT v. M/s. Booz Allen Hamilton Inc., USA 13 SOT 10 (Mumbai Tribunal) - Sedco Forex international Drilling inc vs. DCJT 72 ITD 415 (Delhi Tribunal),. 23. The CIT(A) found that the entire income of assessee was li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... business income attributable to Service PE in India and accordingly, taxing 10% of ₹ 14,65,085, i.e. ₹ 1,46,508 as business income liable to tax in India. 26. Facts as far as Ground No.1 2 are as follows: During the relevant year, the assessee had incurred various expenses on behalf of WNS India. The said amounts were mainly on account of the expenses incurred on the employees of WNS India on their foreign visits abroad. The expenses included lodging, boarding, local travelling on their foreign visit etc. which were initially borne by the assessee were reimbursed by WNS India. Accordingly the assessee has recovered the said amounts from WNS India. According to the assessee the aforesaid amounts paid by WNS India to the assessee were in the nature of pure reimbursement of costs, without any mark up. Therefore, it was submitted that these amounts do not in any way constitute income in the hands of the assessee. The assessee, therefore, claimed that the said reimbursements does not fall under the description of FIS under Article 12 (4) of the India US DTAA/ Act and accordingly not liable for taxation. 27. The AO has assessed the said sums as F1S under Article 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alf of WNS India and this position was not disputed by the AO. He contended that the learned CIT(Appeals), however, disputed the same by observing that the exact nature of expenses and services was not ascertainable in the absence of relevant details filed by the assessee. However, as rightly pointed out by the learned DR from the relevant portion of the assessment order, submission made by the assessee during the course of assessment proceedings was merely discussed by the AO in his order without giving any specific finding on the exact nature of expenses and the services for which the amount in question was claimed to be received by the assessee as reimbursement. In our opinion, it is necessary to ascertain the exact nature of expenses incurred by the assessee and services rendered, for which the amount in question is claimed to be received as reimbursement in order to decide the issue relating to its taxability in India in the light of various judicial pronouncement on the point and the relevant provisions of the Treaty. We, therefore, consider it fair and proper to remand this issue to the file of the learned CIT(Appeals) for deciding the same afresh after verifying the relevan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reaty and tax accordingly. 3. On the facts and in the circumstances of the case and in law, the Id. CIT(Appeals) erred in directing the Assessing Officer not to tax the balance receipt of ₹ 2,56,24,507/- being the fee for provision of marketing and management services outside India as the same are not subjected to tax in lndia (under Article 13(4)(c) of the India- UK DTAA) nor same are attributable to service PE in India. 4. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in holding that the re-imbursement of lease line charges amounting to ₹ 4,75,04,440/- do not qualify as Royalty under Article-13 of the India-UK DTAA. 5. On the facts and in the circumstances of the case and in law, whether the Id. CIT (Appeals) was correct in holding that when duty is cast on the prayer to pay tax at source, no interest u/s 234B and 234C can be imposed on the payee assessee ignoring the fact that it is the liability of the payee to pay advance tax even on the amount which had not been deducted at source under sect 195 of the Income Tax Act, 1961. 36. The above grounds of appeal are identical to the grounds raised by the revenue in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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