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TMI Blog2019 (9) TMI 500X X X X Extracts X X X X X X X X Extracts X X X X ..... take up the appeal for assessment year 2009-10. 4. The Revenue in ITA No.1857/PUN/2014, relating to assessment year 2009-10 has raised the following grounds of appeal:- 1. On the facts and circumstances of this case, the Ld. CIT(A) was not correct in deleting the additions made on account of payment for design services and technical consultancy charges since the assessee company could not prove whether the recipient was the beneficial owner of the royalties or fees for technical services as per Article 12 of the DTAA with Singapore and Switzerland. 2. The CIT(A) erred in not considering the fact that the payment for design services and technical consultancy charges was rightly treated by the AO as FTS under the Act as well as relevant DTAA. 3. The CIT(A) erred in law by concluding that, if the payment, made for design services and technical consultancy charges, is treated as FTS, the same will not satisfy the "make available" clause without discussing the facts as mentioned by the AO in his order. 4. The CIT(A) erred in law in concluding that sec 206AA is not applicable in case of non-residents as the DTAA overrides the Act as per section 90(2). 5. The decision of the CI ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g that the amount of Rs. 20,29,919/- was not covered under Royalties and / or fees for technical services of the DTAA between India and Singapore and that the Appellant Company was not required to withhold tax u/s. 195 on above amounts. 1.3 The learned CIT(A) ought to have appreciated that the payments made to Tetra Pak Global Information Management, Singapore was on account of reimbursement of software license fees and IT support services and since there was no income earned by the said entity, no TDS was required to be deducted on such reimbursement of expenditure. 2.1 The learned CIT(A) erred in holding that the assessee company should have deducted TDS on training charges paid of Rs. 1,12,05,118/- to various entities without appreciating that the said amount was not taxable in India and accordingly, the assessee was not required to deduct any TDS on the said payments. 2.2 The learned CIT(A) - IT / TP erred in not appreciating that the payment of Rs. 1,12,05,118/- for training was not covered under clause "fees for technical services" of the DTAA between India and the respective countries of which the payees were resident and hence the Appellant Company was not required to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee had acquired copyrighted article and hence, such payments were not taxable as royalty in India, as per DTAA between India and Singapore. He further stated that the CIT(A) in turn, had relied on the decision of Pune Bench of Tribunal in the case of Cummins Inc for assessment years 2004-05 and 2006-07 in ITA Nos.73 & 74/PN/2011, order dated 08.08.2013. The learned Authorized Representative for the assessee submitted that the said issue is squarely covered by the decision in the case of John Deere India Ltd. reported in 70 ITR (Trib) 73 (Pune) and there was no requirement to deduct tax out of such payments and hence, the assessee had not defaulted. 7. Coming to the next issue i.e. grounds of appeal No.2.1 to 2.5, the learned Authorized Representative for the assessee pointed out that the dispute was relating to deduction of tax at source out of training charges paid. The total training charges were Rs. 1.19 crores, out of which the assessee had deducted TDS of Rs. 7,72,418/-, against which the CIT(A) had granted relief and the balance amount was Rs. 1.12 crores. The learned Authorized Representative for the assessee pointing out to the order of CIT(A) at page 32 and then at pag ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mark and Germany and in the DTAAs with these countries, there is an Article providing taxability of FTS without 'make available' condition. The CIT(A) thus, observed that the provision taxing FTS under the Income Tax Act and under DTAA with these countries were same and hence, the payments made to companies located in the said countries would be taxable under the DTAA with respective countries. In this regard, the learned Authorized Representative for the assessee relied on its submissions made before the CIT(A). 9. Coming to the list of countries which are referred in para 2.5.20 at page 39 of appellate order by the CIT(A) i.e. India's DTAA with Singapore, USA, Switzerland and Sweden, wherein the case of CIT(A) was that the same was governed by make available condition. The learned Authorized Representative for the assessee here stressed that the question which arises is whether in providing training, the clause of 'make available' was satisfied. He stressed that in the absence of any technology being transferred and where it was case of general training or attending seminar, then the 'make available' condition as provided in DTAA does not get satisfied and there is no question o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duct tax or withhold the tax and as such had committed default in terms of section 201(1) and 201(1A) of the Act. The Assessing Officer tabulated the payments made by the assessee, which are annexed to the assessment order and held the assessee liable to deduct tax @ 20% and also grossing up the amount and charged interest under section 201(1A) of the Act. The CIT(A) passed consolidated order for assessment years 2007-08, 2009-10 to 2011-12. The breakup of foreign remittances made by assessee year-wise are tabulated in the appellate order and for assessment year 2009-10, which reads as under:- AY 2009-10 Particulars Amount (Rs) Software licence and IT Support services 24,64,643 Leased line charges 1,19,77,536 Payment for training 25,66,504 Inspection fees, repairs and maintenance and service charges 22,03,728 Total 1,92,12,411 14. The CIT(A) in view of retrospective amendment to section 9(1)(vi) Explanation 4 of the Act held that the payments made for use of inhouse software constitutes royalty under the Income Tax Act. Further, it was held that right to use copyright was to be taxed as royalty under the relevant Article of DTAA. In this regard, reliance was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s technical in nature, under section 9(1)(vii) of the Act. The plea of assessee that in the absence of any technical knowledge being imparted, was not accepted in the absence of details and evidences being filed in this regard. Then, he referred to various case laws i.e. Hon'ble High Court of Calcutta in the case of CIT Vs. Davya Ashmore India Ltd. (supra) and Chennai Bench of Tribunal in DCIT Vs. TVS Electronics Ltd. (supra) and also in the case of Gearbulk AG, in re (2009) 184 Taxmann.383 (AAR) and held that the payments made to companies located in different countries would be taxable under DTAA with respective countries. 17. The last issue which was decided was the payment for design services and technical consultancy services. The plea of assessee was that it was engaged in the manufacturing of packaging material and basic artwork was provided by the client and finally it was converted in polymer plates for printing, cost incurred in its process was design expenses. The plea of assessee was not accepted and the CIT(A) held that payments were services of technical in nature, which were to be taxed as FTS under section 9(1)(vii) of the Act and were also taxable under DTAA as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aken to bear taxes of non-resident payees and hence, there was no need to gross up the payments for the purpose of computing TDS liability. The CIT(A) held that in respect of foreign companies, there was nothing on record to come to conclusion that the assessee had agreed to bear the tax liability and hence, the Assessing Officer was directed to apply the provisions of section 195A of the Act. 21. The last issue which was decided by the CIT(A) was with regard to application of section 206AA of the Act i.e. charging of tax at source @ 20%. The CIT(A) held that provisions of section 206AA of the Act could not override the provisions of DTAA. The assessee could not be held to be in default, if it had deducted taxes at the rates provided in DTAA. He accordingly, deleted the demand and interest raised by the Assessing Officer only on application of section 206AA in absence of PAN of the deductees. 22. The assessee is in appeal against order of CIT(A). The Revenue is also in appeal against the relief granted by CIT(A). 23. We have already referred to the arguments of the learned Authorized Representative for the assessee and the learned Departmental Representative for the Revenue at ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unal, which needs to be rectified, wherein the Tribunal in its order had failed to consider the decision of Co-ordinate Bench in the case of Allianz SE Vs. ADIT (2012) 51 SOT 399 (Pune) and also the decision of Hon'ble High Court of Delhi in DIT Vs. Ericsson A.B. & two others (2012) 343 ITR 470 (Del). Thus, the Tribunal vide order dated 06.12.2017 has recalled its order in Cummins Inc. (supra). It may also be noted that Mumbai Bench of Tribunal in bunch of Miscellaneous Applications had also recalled its order in DIT Vs. Reliance Infocom Ltd. / Lucent Technologies Hindustan Ltd., against which the Revenue filed Writ Petition before the Hon'ble Bombay High Court, which was also dismissed by the Hon'ble High Court vide order dated 08.08.2017 and approved the decision of Tribunal in recalling its earlier order in proceeding under section 254(2) of the Act. Once both the decisions on which the CIT(A) had relied on to dismiss the plea of assessee stands recalled, then we need to re-look at the issue. 27. We find that we have elaborately discussed the aforesaid issues arising in the present bunch of appeal in the case of John Deere India Pvt. Ltd. (supra). The Tribunal in the case of J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee was liable to deduct tax at source out of such payments to its associated enterprises. In this regard, we find support from the ratio laid down by the Pune Bench of Tribunal in Sandvik Australia Pty. Ltd. Vs. DDIT (supra), by Ahmedabad Bench of Tribunal in DCIT Vs. Bombardier Transportation India (P.) Ltd. (supra) and also on the ratio laid down by Chennai Bench of Tribunal in ACIT Vs. Vishwak Solutions (P.) Ltd. (supra), wherein it has been held that payments made for data storage charges were not in the realm of "royalty‟. The Pune Bench of Tribunal in Sandvik Australia Pty. Ltd. Vs. DDIT (supra), wherein agreement existed for providing backup services and IT support services and the Non-resident company receives payment thereof, since no technical knowledge had been made available to the Indian subsidiary, then such services rendered by Non-resident company to its Indian group company were held to be not covered under para 3(g) of Article 12 of India-Australia Treaty and hence, was not taxable in India. The Tribunal had clearly elaborated upon the term "make available‟ and held as under:- "13. We are concerned with para No.3 of Article 12, which defines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ments made for purchase of software and also in respect of IT support service charges. 29. The next issue is the training fees charges paid by assessee. The details and breakup of which year-wise are available at page 32 of appellate order. The perusal of aforesaid details which are referred, reflects the payments being made to different entities in different countries. The CIT(A) in respect of assessment year 2009-10 had allowed relief in respect of TDS of Rs. 7,72,448/- as the assessee had deducted the said TDS and the balance payment for assessment year 2009-10 was Rs. 1.12 crores (approx.). The plea of assessee is that it had not received any technical services as defined in the Act and hence, there was no requirement to deduct tax at source as it did not fall within realm of Fees for Technical Services as defined in section 9(1)(vii) of the Act. In this regard, the CIT(A) has referred to DTAAs with different countries and segregated the countries as per clause/s in DTAA. So in order to adjudicate the issue, we would be referring to the relevant paras of CIT(A) in this regard. 30. The first issue which needs to be decided is whether the aforesaid payments for training fees i. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... count of the services rendered to the assessee. The inference drawn by the CIT(A) is that the services rendered by the recipient foreign concerns are taxable as "fees for technical services" u/s 9(1)(vii)(b) of the Act. In the context of the above finding of the CIT(A), we have perused the scope of work undertaken by the three recipient concerns as per the respective agreements, whose copies have been placed in the Paper Book. It is quite evident from the perusal of the agreements as also the scope of work enumerated by the CIT(A) in para 2.1 of his order that it involved provision of architectural, designs and drawings services. Factually speaking, the aforesaid finding of the CIT(A) that the services rendered by the recipient concerns to the assessee company in India fall for consideration as "fee for technical services" u/s 9(1)(vii)(b) of the Act is not in dispute, and therefore, we do not dwell at length on this aspect of the matter. In any case, we are in agreement with the above findings of the CIT(A), having regard to the scope of work envisaged in the respective agreements with the recipient concerns. 12. On the basis of the aforesaid, the CIT(A) took note of assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article prescribes for taxation of professional services only in a case where the recipient is present in India for more than 183 days or it maintains a fixed base/permanent establishment in India. In the present case, there is no material to suggest that the recipient concerns have a permanent establishment in India or that they were present in India for a period exceeding 183 days during the previous year relevant to the assessment year under consideration. In this context, learned counsel for the assessee furnished appropriate certificates from the three recipient concerns tabulating the period for which their representatives were present in India during the relevant period which show that the presence in India was for less than 183 days. Therefore, on this aspect also, we find no merit in the plea of the Revenue and the discussion made by the CIT(A) in para 3.8 of his order in this context is hereby affirmed. 15. Similarly, Revenue has raised a plea that the CIT(A) has not considered the taxability of the impugned income as "business income‟ under Article 7 of the DTAA. Article 7 of the DTAA deals with business profits to be considered for taxation. The said Article sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... In this regard reliance was placed on the decision of Hon'ble High Court of Madras in Bangkok Glass Industries Pvt. Ltd Vs ACIT (2013) 215 Taxman 116 (Mad), which was also dealing with India-Thailand Tax Treaty, which did not have FTS clause and rejected the claim of Revenue that even though the Thailand entity did not have any PE in India and for that reason this amount could not have taxed in India under Article 7, but could be taxed as other income under Article 12. The Hon'ble High Court had held that the said income does not fall as miscellaneous income and the same could not be brought under Article 12 of DTAA. 33. The Tribunal further vide para 25 held as under:- "25. To understand the scope of these treaty provisions, which are broadly in pari materia with the provisions of article 21 of UN Model Convention, we find guidance from the OECD Model Convention Commentary which states that "The Article covers income of a class not expressly dealt with in the preceding articles (e.g. an alimony or a lottery income) as well as income from sources not expressly referred to therein (e.g. a rent paid by a resident of a Contracting State for the use of immovable property situated i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'ble High Court rejected the claim of Revenue that in the absence of PE in India, where the amount could not be taxed under Article 7, then such FTS could be taxed as other income under Article 22 of DTAA. 35. The Ahmedabad Bench of Tribunal in the case of DCIT-(IT) Vs. Welspun Corporation Ltd. (supra) applying said principle elaborated on the issue in para 25, which we have extracted above. We may look at the relevant Treaty provisions, which read as under:- India Thailand tax treaty ARTICLE 22- Other income Items of income of a resident of a Contracting State, wherever arising, not expressly dealt with in the foregoing Articles may be taxed in that State. Such items of income may also be taxed in the Contracting State where the income arises. India UAE tax treaty ARTICLE 22- Other income 1. Subject to the provisions of paragraph 2, items of income of a resident of a Contracting State, wherever arising, which are not expressly dealt with in the foregoing articles of this Agreement, shall be taxable only in that Contracting State. 2. The provisions of paragraph 1 shall not apply to income, other than income from immovable property as defined in paragraph 2 of Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f income becomes irrelevant, because FTS or any other business receipt, the income embedded in such receipts gets taxed only if there is a permanent establishment or fixed base- as the case may be. The scope of business profit and independent personal service completely covers the fees for technical services as well. With FTS article or without FTS article, the income by way of fees of technical services continues to be dealt with the provisions of articles relating to business profits, independent personal services, and additionally, in the event of existence of an FTS article, with the article relating to the fees for technical services. 29. In view of the above discussions, in our considered view, even if the receipts in question are in the nature of fees for technical services in the hands of Afras UAE and GMS Thailand, these receipts are not taxable in the hands of these entities, in terms of the respective tax treaties, in India. It is only elementary that under article 90(2) where the Government has entered into a tax treaty with any tax jurisdiction, in relation to the assessee to whom such treaty applies, "the provisions of this (Income Tax) Act shall apply to the extent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he third category of cases are in category III i.e. payments being made to entities resident of tax jurisdiction with whom India has tax treaties; further in such tax treaties, there is a clause of FTS, with condition of 'make available' of any technology. With regard to such entities in countries of category III, the condition of 'make available' is to be fulfilled in order to attract the provisions of clause of FTS. In other words, there has to be transfer of technology by such entities to the recipients of other Contracting States, while providing services to them. With regard to the countries of category III, the question which needs to be satisfied that while providing training, clause of make available of technology was satisfied or not. In the absence of any technology being transferred and where it is case of providing general training or attending seminar, then such receipts are not taxable in the hands of entities based in the source States. Various Courts have decided that the condition of 'make available' as provided in DTAA if does not get satisfied, then such payments to non-resident entities are not liable for tax deduction at source. Such is the proposition laid do ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al services extended by the UK based company, the "make available‟ clause is not satisfied and, accordingly, the consideration for such services cannot be taxed under Article 13(4)(c) of India UK tax treaty. No doubt, as pointed out by the learned Assessing Officer, there can indeed be situations in which technical training is imparted resulting in transfer of technology, even consideration for rendering of training services will be covered by the definition of "fees for technical services‟ but what is really the decisive factor is not the fact of training services per se but the training services being of such a nature that it results in transfer of technology. In the present case, the training services rendered by the service provider are general in nature as the training is described as "in house training of IT staff and medical staff‟ and of "market awareness and development training‟. Clearly this training does not involve any transfer of technology. In any case, in order to successfully invoke the coverage of training fees by "make available‟ clause in the definition of fees for technical services, the onus is on the revenue authorities to demons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es available on internet and no technical knowledge was being imparted by service provider and the Revenue has failed to demonstrate that the services did involve transfer of technology and in the absence of same, it cannot be said to be payments in the nature of Fees for Technical Services. Applying the said ratio, we hold that there was no liability upon the assessee to deduct tax at source on the aforesaid payments and hence, assessee cannot be held to be in default under section 201(1) and 201(1A) of the Act. The grounds of appeal No.6 to 8 are thus, allowed." 42. Applying the said parity of reasoning, we hold that the authorities below in the present case have not come to any finding that training imparted by associated enterprises to the employees of assessee make available any technology and in the absence of the same, payments made to the entities residents of countries of category III i.e. Singapore, USA, Switzerland and Sweden are not exigible to tax deduction at source. The assessee in such circumstances cannot be held to be in default for not deducting tax out of said payments. Accordingly, we hold so. 43. Our proposition in the paras above with regard to countries in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id relief given by CIT(A). We find no merit in the grounds of appeal raised by Revenue in this regard as the beneficial provisions of DTAA would override the provisions of Income Tax Act and accordingly, there is no requirement to deduct tax at source as per provisions of section 206AA of the Act. The issue stands settled by decision of Pune Bench of Tribunal in DDIT Vs. Serum Institute of India Ltd. in ITA No.792/PUN/2013 and ITA Nos.1601 to 1604/PUN/2014, relating to assessment year 2011-12, order dated 30.03.2015. The Hon'ble Bombay High Court has dismissed the appeal filed by Revenue against the said decision of Tribunal in Income Tax Appeal No.548 of 2016 & Ors vide judgment dated 17.12.2018. The grounds of appeal No.4 to 6 raised by Revenue are thus, dismissed. 49. The last issue raised vide grounds of appeal No.7 to 9 is against grossing up of various payments. The Assessing Officer had grossed up various payments made in accordance with provisions of section 195A of the Act, while calculating the tax payable. The CIT(A) in turn, vide para 2.8.3 at page 53 had held that there was nothing on record, on the basis of which it could be concluded that the assessee had agreed to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r material purchase or machinery part charges, then there was no requirement to deduct tax at source and for such non deduction of tax at source, no disallowance can be made. We find no merit in the grounds of appeal raised by Revenue in this regard as the CIT(A) has asked the Assessing Officer to make necessary verification and decide the issue. The grounds of appeal No.1 to 3 raised by Revenue are thus, dismissed. 55. Now, coming to the next issue vide grounds of appeal No.4 to 6, which is against applicability of provisions of section 206AA of the Act. The Revenue in assessment year 2009-10 had also raised similar issue vide grounds of appeal No.4 to 6 and our decision in the paras above would apply mutatis mutandis. 56. Similarly, grounds of appeal No.7 to 9 raised by Revenue are against issue of grossing up. We have also decided similar issue of grossing up in the appeal filed by Revenue in assessment year 2009-10 vide grounds of appeal No.7 to 9. Our decision would apply mutatis mutandis to this year and the grounds of appeal No.7 to 9 raised by Revenue are dismissed. 57. Now, coming to appeal of assessee in ITA No.1866/PUN/2014, relating to assessment year 2011-12. 58. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the demand, if any, under section 201(1) and 201(1A) of the Act. The grounds of appeal No.3 to 3.4 are thus, allowed. 61. The ground of appeal No.4 raised by assessee is not pressed, hence the same is dismissed as not pressed. 62. Now, coming to Revenue's appeal in ITA No.1859/PUN/2014 relating to assessment year 2011-12. 63. The ground of appeal No.1 raised by Revenue is against deleting the addition made on account of IT support services. 64. The learned Authorized Representative for the assessee pointed out that as per agreement entered into between assessee and AB Tetra Pak, Sweden, IT support services were provided by the said associated enterprise, copy of agreement is placed at pages 91 to 107 of Paper Book. The learned Authorized Representative for the assessee stated that the aforesaid support services provided by associated enterprise do not satisfy the condition of 'make available' in DTAA between India and Sweden and hence, there was no requirement to deduct tax at source. 65. The issue stands covered by the decision of Pune Bench of Tribunal in John Deere India Pvt. Ltd. Vs DDIT (International Taxation) (supra) and applying the said ratio to the present case, we u ..... X X X X Extracts X X X X X X X X Extracts X X X X
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