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TMI Blog2018 (1) TMI 1537X X X X Extracts X X X X X X X X Extracts X X X X ..... efore, the Assessing Officer issued notice u/s. 201 r.w.s. 195 and passed order under section 201(1)/201(1A) of the I.T. Act on 30/03/2015, disallowing the said payments. 3. The first common ground in all the appeals is with regard to the action of the CIT(A) in upholding the tax levied by the Assessing Officer u/s. 201(1) and 201(1A) of the I.T. Act on account of consulting services as there is no deduction of TDS in terms of sec. 40a(ia) of the Act. 4. After hearing both the parties, we find that a similar issue came up for consideration before this Tribunal in assessee's own case in I.T.A. No. 222/Coch/2013 for the AY 2007-08. The Tribunal vide order dated 29/07/2017 held as under: "16. We have considered the rival submissions on either side and also perused the material available on record. Admittedly, the assessee, a resident company, entered into management service agreement with a company, viz. US Technology Resources LLC, a company incorporated in USA and a tax resident in USA. As per this management service agreement, the USA company agreed to provide assistance, advice and support to assessee company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on by such person in India or for the purposes of making or earning any income from any source in India: Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government) [Explanation 1.- For the purposes of the foregoing proviso, an agreement made on or after the 1s: day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.]" Explanation 2 to section 9(1)(vii) which was introduced by Finance Act, 1977 with effect from 01-04-1977 clearly says that fees for technical service means any consideration for rendering any managerial, technical or consultancy services. 18. We have also carefully gone through the provisions of DTAA between India and USA as notified by the Government of India in Notification No.GSR 990(E), dated 20-12-1990. Article 12 of DTAA between India and USA deals with royalties and fees for included service. Fee for included service is defined in cla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Memorandum of Understanding said to be executed between India and USA on 15th May, 1989: "Under paragraph 4, technical and consultancy services are considered included services only to the following extent: (1) as described in paragraph 4(a), if they are ancillary and subsidiary to the application or enjoyment of a right, property or information for which are royalty payment is made; or (2) as described in paragraph 4(b), if they make available technical knowledge, experience, skill, know-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." 21. From this Memorandum of Understanding, it is obvious that as provided in clause 4(b) of Article 12 of the DTAA between India and USA, if the technical or consultancy services made available are technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design are considered to be technical or consultancy services. It is also clarified that consultancy services not of tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reinafter contained, the parties hereto agree as follows: I. GENERAL DESCRIPTION OF OBJECTIVES AND SCOPE OF DELIVERY 1. During the term of this agreement the role of each company in this partnership is as follows: a) USTRPL employs USTR to provide management services. The knowledge and experience of USTR will be used to support USTRPL in managing its business and in training its employees. b) USTR is responsible for recruiting, training and deploying adequate resources to provide the services. II. ROLE OF USTRPL 1. The USTRPL designated Person will operate as the main interface between USTR and USTRPL. He will ensure that USTRPL's personnel coordinates and interfaces with USTR's personnel in a manner satisfactory to USTR. 2. Depending upon the requirements, USTRPL will send its personnel from time to time to USTR office in US or 23 ITA No.222/Coch/2013 Overseas to study and analyse the requirements. USTRPL will bear all the expenses including travel, lodging, training expenses associated either directly or indirectly with the said assignments." 23. It is not in dispute that the assessee has received the above s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the management process. As per the management service agreement, the managerial advice rendered by the USA company was used in the decision making process of management, financial and risk management etc. Science is fact based, critically tested, systematized body of knowledge pertaining to specific field. The knowledge is accumulated through study, experience and experimentation. The scientific knowledge produces impersonal results and it can be empirically tested and universally applied. Therefore, the knowledge which was accumulated through study, experience and experimentation with regard to management, finance, risk, etc. of a particular business is nothing but a technical knowledge. In the era of technology transformation, the information / experience gathered by US resident company relating to financial risk management of business is technical knowledge. 26. We now move on to see what is meant by 'decision making'. The term 'decision making' is not defined either in the Income-tax Act or in the DTAA. Therefore, one has to go by the meaning understood in the management. Shri Harold Koontez and Keinz Weihrach, experts in the management define 'decision making ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh experience and experiment was tested at various stages and process and further it was made available to the assessee so as to enable the assessee to apply / use the same in its decision making process. 29. Apart from that financial and risk decision making process is a highly complicated and technical one. Unless the assessee gets a technical input and advice from financial and risk management experts it may be difficult to select a right process for the growth of the company. It is not the case of the assessee that in a given set of facts / problem, the USA company gave its solution or advice. The solution or decision is admittedly taken by the assessee company on the basis of the advice, service rendered by the USA company. Therefore, it is obvious that the technical knowledge, experience, skill possessed by the USA company with regard to financial and risk management was made available in the form of advice or service which was made use by the assessee company in the decision making process not only in management but also in financial matters. Another aspect is risk management service. Risk management service is a highly complicated one in the financial sector ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent company had no permanent establishment in India and all services were rendered from outside India. The Incometax Officer refused to issue the certificate. On a writ petition before the High Court it was found that the scope of service / work undertaken by the non resident company was merely to draw up a scheme, advise on the terms and methods of negotiation and for documentation with the lender, evaluate the pros and cons of various lending alternatives, both for local and the foreign borrowings, prepare a preliminary information memorandum to be used as the basis for placing the foreign and local debt, and that the responsibility of entering into correspondence as per the advice of the non resident company and pursuing the matter was that of the assessee company itself, and not that of the non resident company. Therefore, the office of the assessee company could not be treated as the place of business of the non-resident company. In those facts and circumstances, the Andhra Pradesh High Court found that the business connection between the assessee company and non resident company had not been established. However, it was found that the "success fee" would fall within the defin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessee to the Netherlands company was not covered by Article 12(5) of the DTAA between India and 33 ITA No.222/Coch/2013 Netherlands. He also found that the Netherlands company has not imported any technology to the assessee and they have just used the technology and have gone back with the same. The CIT(A) further found that no technology has been made available to the assessee by the Netherlands company, therefore, the consideration paid does not fall within the definition of Article 12(5) between India and Netherlands. On further appeal by the revenue before the Tribunal it was held that the payment in question for services rendered would not fall within the definition of "fee for technical services" under Article 12(5) of the DTAA between India and Netherlands. The Tribunal found that Netherlands company has surveyed, collected and processed the data on behalf of the assessee. There is no doubt that Netherlands company performed the service using the technical knowledge and expertise, but such technical expertise, skill and knowledge has not been made available to the assessee. On those facts, the Karnataka High Court found that the assessee was not being possessed with techni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ad managers and the managers. However, no tax was deducted by the assessee company form the payment made to them. The assessing officer found that there was violation of the provisions of section 195(1) of the Act holding that the amounts paid to lead managers and managers were chargeable to tax in India as fees for technical services within the meaning of section 9(1)(vii) of the Act. The Appellate Commissioner also upheld the order of the assessing officer. On further appeal before the Mumbai Bench of this Tribunal, the Tribunal found that the services rendered by the lead managers and managers are managerial or consultancy services within the meaning of section 9(1)(vii) r.w.s. Explanation 2 of the Act and therefore the payment made to managers are income by way of fees for technical services deemed to accrue or arise in India. Referring to the DTAA between India and UK, the Tribunal found that no technical knowledge, experience, skill, know how or process, etc. was made available to the assessee company by the non resident managers to the Global Depository Receipts. However, considering the services rendered by the UK company, the Mumbai bench of this Tribunal found that the ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the assessee has to make available required technical know how for solving the problem in the I.T. related problems. In the case before us, the USA company has to provide all expertise to the assesee company which would be utilized in the decision making process related to management, financial and risk management. Therefore, this decision of the Pune Bench of this Tribunal may also not be applicable to the facts of the present case. 36. We have also carefully gone through the decision of the Mumbai Bench of this Tribunal in the case of Wokhardt Ltd (supra). In the case before the Mumbai Bench of this Tribunal, the assessee company was incorporated in USA and as per the agreement, the said company sent one of its professionals to India for a period of two days to address conference on future strategy of the company. The assessee company paid US$ 80,000 for the services rendered by the USA company and no tax was deducted. The Tribunal found that the presentation made by the professional was essential in the nature of sharing management, experience and business strategy. Therefore, the Tribunal found that the services rendered by US company could not be termed as technical services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of Article 12(4)(b) of the DTAA between India and USA. Hence, this ruling of the Authority for Advance Ruling may not of any assistance to the assessee. 37. In view of the above, we do not find any infirmity in the order of the lower authority. Accordingly the same is confirmed. 38. In the result, the appeal of the assessee is dismissed." 5. In view of the above decision of the Tribunal, we are inclined to uphold the orders of the CIT(A) and sustain the additions on account of non deduction of TDS on account of management fees for the relevant assessment years. 6. Without prejudice to the other grounds in I.T.A. Nos. 103&104/Coch/2017, the assessee has raised Ground 5.1 which reads as follows: 5.1 Without prejudice, the learned CIT(A) and ACIT have erred in facts by proposing tax on the entire INR 8,12,12,725 u/s. 201(1), because out of such amount, an amount of INR 4,06,06,362 remains unpaid in AY 2012-13. The ACIT and CIT(A) have failed to consider the fact that under the India-US DTAA, any FIS would be taxable in India only on cash basis. Consequently, the liability of the appellant to deduct tax u/s. 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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