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TMI Blog2020 (3) TMI 971X X X X Extracts X X X X X X X X Extracts X X X X ..... t company, with regard to the proposed acquisition of an Indonesian Insurance company, by M/s.Shriram Capital Limited. is in the nature of "consultancy services". M/s.Shriram capital limited is not having any business activity in Indonesia, and hence the proposed payments are not for the purpose of generation of any income from abroad by M/s. Shriram Capital Limited.. Hence the service rendered by the non-resident company are ultimately utilized by the resident company only. "Consultancy services" rendered by the Nonresident company will fall under the category "Fees for Technical Services" and fees payable for such Technical services, though rendered outside India will be deemed as accruing or arising in India as per Sec.9(1)(vii)(b) of the Income-tax Act., read with Explanation to Sec.9(1) (vii), substituted by Finance Act 2010 with effect from 1.6.1976. "Sec.9(1) : The following income shall be deemed to accrue or arise in India- (vii): Income by way of fees for technical services payable by- (b) : A person, who is resident, except where the fees are payable in respect of services utilized in a business or profession carried on by such person outside India, or for the pu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose of earning any income from outside India event on a future date, though the Income-Tax Act does not specify creation of a business or generation of Income outside India at future date. In such a situation also, the utilization of the services rendered by the Non-resident company is wholly in India. In both the above possible circumstances, the services are deemed to have been rendered in India, in terms of Section 9(1) (vii) (b) of the I.T.Act. 4.The learned counsel for the petitioner would submit that to deduct tax at source under Section 194 of Income Tax Act, 1961, such incomes should be either by received in India by the recipient or deemed to have accrued or arise in India within the meaning of Section 5(2) of the Income Tax Act, 1961. He further submits that the question deduction of tax at source for payment would arise only in the circumstances, specifically mentioned in the Section 5 of the Income Tax Act, 1961, which reads as under:- Scope of total income. 5. (1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which- (a) is received or is deemed to be rec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g any income from any source outside India; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried 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 1st 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].-For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... b) of the Double Taxation Agreement dated 16.03.2016 of the Government of India, in other words, thus the petitioner at best non-residential taxable at 10% and not 20%. 14. The learned counsel for the petitioner relied on the following decisions:- i. Evolv Cloathing Co. (P.) Ltd., Vs. Assistant Commissioner of Income Tax, Company Circle - II(1), Chennai, order dated 14.06.2018 passed by this Court in T.C.(A).No.572 of 2013. ii. Director of Income Tax Vs. Lufthansa Cargo India, 2015 SCC OnLine Del 9760. iii. Commissioner of Income Tax Vs. Toshoku Ltd., 1980 Supp SCC 614. iv. Commissioner of Income Tax Vs. Faizan Shoes (P.) Ltd., order dated 22.07.2014 passed by this Court in T.C.(A).No.789 of 2013. v. Principal Commissioner of Income Tax-2 Vs. Motif India Infotech (P) Ltd., order dated 16.10.2018 passed by the Hon'ble Gujarat High Court in T.A.No.1177 of 2018. vi. Clifford Chance Vs. Deputy Commissioner of Income Tax, Circle 2(6), Mumbai, (2009) 318 ITR 237. vii. Commissioner of Income Tax (International Taxation) Vs. Indusind Bank Ltd., (2019) 415 ITR 115 (Bom). viii. Jindal Thermal Power Company Limited Vs. Deputy Commissioner of Income Tax (TDS), (2010) 321 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply because the payment was not made for earning any income in Indonesia. It was only for the acquisition of an Indonesian company, which is part of the investment of the petitioner company. Hence, the payment does not have any nexus with any income earned abroad but only for an investment, which is part of the business of the petitioner operated from India. 20. I have considered the arguments advanced by the learned counsel for the petitioner and the respondents. 21.Section 195 of the Income Tax Act, 1961 reads as under:- Other sums. 195. (1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) or section 194LD or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force : Provided that in the case of interest payable by the Government or a public secto ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment of such interest or other sum without deducting tax thereon under sub-section (1). (4) A certificate granted under sub-section (3) shall remain in force till the expiry of the period specified therein or, if it is cancelled by the Assessing Officer before the expiry of such period, till such cancellation. (5) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith. (6) The person responsible for paying to a nonresident, not being a company, or to a foreign company, any sum, whether or not chargeable under the provisions of this Act, shall furnish the information relating to payment of such sum, in such form and manner, as may be prescribed. (7) Notwithstanding anything contained in subsection (1) and sub-section (2), the Board may, by notification in the Official Gazette, specify a class of persons or cases, where the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , what follows is intended to speak exhaustively. When the word "means" is used in the definition, to borrow the words of Lord Esher, M.R. in Gough v. Gough, (1891) 2 QB 665, it is a "hard-and-fast" definition and no meaning other than that which is put in the definition can be assigned to the same. 25. The expression "Managerial", "Technical" or "Consultancy Service" have not defined. The expression "Management" has been defined in Oxford Advanced Learner's Dictionary, New 9th Edition published by the Oxford University Press reads as follows:- Management: 1. the act of running and controlling a business or similar organization: a carrier in management, hotel/project management, a management training course. The report blames bad management. 2. the people who run and control a business or similar organization: The management is/are considering closing the factory. The shop is now under new management, junior/middle/senior management, a management decision/job. My role is to act as a mediator between employees and management. Most managements are keen to avoid strikes. 3. the act or skill of dealing with people or situations in a successful way: classroom management, tim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... esian law firm was for managerial, technical or consultancy service or provision of technical or other personnel, the petitioner would be liable to deduct tax at source under Section 195 of the Act, 1961. 32. The service provided by the Indonesian law firm is for the following:- (a) Share Purchase Agreement (SPA) with appropriate warranties and indemnities; (b) Notarial share transfer deed; (c) Assist in obtaining all necessary regulatory approvals for the acquisition including, but not limited to approval from the Ministry of Finance / Indonesian Insurance regulators. The scope of assistance will include advising on all legal aspects of the approval application and process, preparation / vetting of all related papers / documents and accompanying your representative / representing you before the regulatory authorities as and when required; (d) Power of Attorneys (as may be required); (e) Public announcements in respect of the acquisition (as required by the Indonesian company law); (f) Form in respect of shares transfers (e.g. Shares certificates, shareholders register); and (g) Amended Articles of Association of the Target Company. 33. From the scope of work unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on the strength of the beneficial provisions of section DTAAs, the provisions of section 206AA of the Act cannot be invoked by the Assessing Officer to insist on the tax deduction @ 20%, having regard to the overriding nature of the provisions of section 90(2) of the Act. The CIT(A), in our view, correctly inferred that section 206AA of the Act does not override the provisions of section 90(2) of the Act and that in the impugned cases of payments made to non-residents, assessee correctly applied the rate of tax prescribed under the DTAAs and not as per section 206AA of the Act because the provisions of the DTAAs was more beneficial. Thus, we hereby affirm the ultimate conclusion of the CIT(A) in deleting the tax demand relatable to difference between 20% and the actual tax rate on which tax was deducted by the assessee in terms of the relevant DTAAs. As a consequence, Revenue fails in its appeals. 10.Having regard to the position of law explained in Azadi Bachao Andolan(supra) and later followed in numerous decisions that a Double Taxation Avoidance Agreement acquires primacy in such cases, where reciprocating states mutually agree upon acceptable principles for tax treatment, t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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