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TMI Blog2023 (1) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... istration of the company and in our considered view there is no technical knowledge was imparted to the assessee. In view of the above and placing reliance on the decision of De Beers [ 2012 (5) TMI 191 - KARNATAKA HIGH COURT] we hold that the services rendered by the related parties to the assessee are not liable to tax deduction at source since there is no technology or technical knowledge is made available to the assessee. Appeal of the assessee is allowed. X X X X Extracts X X X X X X X X Extracts X X X X ..... er dated 31.10.2019, the TPO passed an order dated 01.11.2019 by affixing a DIN and that this order is barred by limitation. It is submitted that in terms of section 2CA(3A), the TPO ought to pass the order 60 days prior to the date on which the period of limitation prescribed u/s.153 of the Act expires and in the given case for AY 2016-17 it expires on 31.10.2019. Therefore the ld AR contended that the second order dated 01.11.2019 of the TPO is barred by limitation and hence not valid. Reliance in this regard is placed on the decision of the coordinate bench of the Tribunal in the case of Sap Lab India Pvt Ltd vs DCIT (order dated 28.07.2022 in IT(TP)A No.561/Bang/2015). The ld AR summarized by submitting that both the orders of the TPO are not valid and hence the TP adjustment is liable to be deleted. 7. We have heard the rival submissions and perused the material on record. Before proceeding further we will look at the contents of the CBDT circular No.19/2019 dated 14.08.2019 which is reproduced below - "CIRCULAR NO. 19/ 2019 Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi, dated the 14th August, 2019. Subject: Gene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ly after recording reasons in writing in the file and with prior written approval of the Chief Commissioner/Director General of income-tax. In cases where manual communication is required to be issued due to delay in PAN migration, the proposal seeking approval for issuance of manual communication shall include the reason for delay in PAN migration. The communication issued under aforesaid circumstances shall state the fact that the communication is issued manually without a DIN and the date of obtaining of the written approval of the Chief Commissioner/ Director General of Income-tax for issue of manual communication in the following format- " .. This communication issues manually without a DIN on account of reason/reasons given in para 3(i) / 3(ii) /3(iii) / 3(iv) / 3(v) of the CBDT Circular No ...dated (strike off those which are not applicable) and with the approval of the Chief Commissioner/Director General of Income Tax vide number .... dated .... 4. Any communication which is not in conformity with Para-2 and Para-3 above, shall be treated as invalid and shall be deemed to have never been issued. 5. The communication issued manually in the three situations specifi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CBDT circular. We also note that in terms of para 4 of the CBDT circular, such a lapse renders this impugned order as invalid and deemed to have never been issued. 13.1 It is also important to note about the binding nature of CBDT circular on the Income-tax Authorities for which gainful guidance is taken from the decision of Hon'ble Supreme Court in the case of CIT v. Hero Cycles (P.) Ltd. [1997] 94 Taxman 271/228 ITR 463 wherein it was held that circulars bind the ITO but will not bind the appellate authority or the Tribunal or the Court or even the assessee. 13.2 In the case of UCO Bank v. CIT [1999] 104 Taxman 547/237 ITR 889 (SC), Hon'ble Supreme Court while dealing with the legal status of such circulars, observed thus (page 896): "Such instructions may be by way of relaxation of any of the provisions of the sections specified there or otherwise. The Board thus has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under section 119 of the Income-tax Act, which are binding on the authorities in the administration of the Act. Under section 119(2)(a) , ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der: 7. We have considered the rival submissions advanced by the learned Advocates. Even assuming that the intention of CBDT was to restrict the time for selection of the cases for scrutiny within a period of three months, it cannot be said that the selection in this case was made within the aforesaid period. Admittedly, the return was filed on 29th October, 2004 and the case was selected for scrutiny on 6th July, 2005. It may be pointed out that Mrs. Gutgutia was, in fact, reiterating the views taken by the learned Tribunal which we also quoted above. By any process of reasoning, it was not open for the learned Tribunal to come to a finding that the department acted within the four corners of Circulars No. 9 and 10 issued by CBDT. The circulars were evidently violated. The circulars are binding upon the department under section 119 of the I.T. Act. 8. Mrs. Gutgutia, learned Advocate submitted that the circulars are not meant for the purpose of permitting the unscrupulous assessees from evading tax. Even assuming, that to be so, it cannot be said that the department, which is State, can be permitted to selectively apply the standards set by themselves for their own conduct. If ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in conformity with Para 2 and Para 3 of the CBDT circular. In view of these discussions and respectfully following the decision of the Kolkata and Delhi Benches of the Tribunal, we hold that the orders passed u/s.92CA dated 31.10.2019 is invalid and shall be deemed to have never been issued as per Para 4 of the CBDT circular as the order is not conformity with Para 2 and Para 3. Accordingly the TP adjustment made through an invalid order is also rendered invalid and deleted. 12. We notice that the DRP has held that the order dated 31.10.2019 which was issued without DIN is made good by the order dated 01.11.2019 which is issued without DIN since the contents of both the orders are same. We are unable to appreciate this decision of the DRP, since there is no provision in the Act to issue two order u/s.92CA and the order issued subsequent cannot be taken to substitute the earlier order. If the order dated 1.11.2019 is taken as the valid order for subsequent proceedings since it is issued with a DIN, then the issue of the order being barred by limitation should be considered. In this regard we notice that the coordinate bench of the Tribunal in the case of Sap Labs (supra) has consi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treasury management, human resources and pay roll administration in relation to the assessee. The assessee also submitted that the payments are made by the assessee year on year and that there is no technical knowledge, experience, skill, know-how or processes which are being made available to the assessee which is a condition precedent for a consideration to be fees for technical services under the Double Taxation Avoidance Agreement (DTAA). The assessee therefore submitted that the impugned payments by the assessee fail the test of "make available" under the Indo-USA and India-Singapore DTAA and therefore no tax needs to be deducted at source. 17. The AO did not accept the contentions of the assessee and held that- "As per both the DTAA, a 'Fee for Technical Services'(FTS) can be said to be paid for services of a managerial, technical or consultancy nature only if any of the conditions as laid out is satisfied. In the case of the assessee, a careful perusal of the 'Master Services Agreement' as referenced in the preceding paragraphs makes it clear that that the service provider 'makes available' technical knowledge, experience, skill, know-how or proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical knowledge or skills of the service provider should be imparted to and absorbed by the service receiver so that the latter can deploy similar technology in the future without depending upon the provider. The technical knowledge, skills, etc. must remain with the person receiving the services even after the particular contract comes to an end. Similar stand has been taken by the Authority of Advance Rulings ('AAR') in case of Akamai Technologies Inc. (A.A.R.No 1107 of 2011). Even these judgements apply squarely in the case of the assessee as provided by its 'Master Services Agreement'. The relevant extract is placed below. ARTICLE 11 CONYIDENTTALITY Both Parties hereby acknowledge that by virtue of this Agreement they shall have direct or indirect access and acquire knowledge of confidential information of the other Party (hereinafter referred to as the "Information"). Both Parties undertake hereby to hold in stria confidence all and any information and not to use, disclose, reproduce or dispose of any Information in any manner other than that expressly provided for in this Agreement. Furthermore, both Parties hereby guarantee that any perso ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r sum chargeable under this Act, which is payable,- (A) outside India; or (B) in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139 : The assessee has paid fees for technical services chargeable under this Act, which is paid outside India to a non-resident, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted. The quantum of such payment is INR 22,03,14,210. The same is hence disallowed from the Computation of income of the assessee u/s 40(a)(i) of the IT Act, 1961." 18. On objections raised the DRP confirmed the disallowance. Aggrieved the assessee is in appeal before us. 19. The ld AR submitted that it is a settled position that the technology will be considered 'made available' when the person who received the service is enabled to apply the technology independent of the service provider and in the present case no such technology is made available to the assessee. The ld. AR drew our attention to the services agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he services clause are extracted as below:- "ARTICLE 4 SERVICES The Service Provider will render to the Service Recipient some or all of the Services defined it Exhibit 1, which are adequate for the needs, benefit and interest of the Service Recipient. As needed, the Services may include, in particular but not limited to, business advisory services. coaching and operational support for example in treasury and finance, business development. legal, human resources, sales and marketing as well as information technology and other services as agreed. The Services, which the Service Recipient has requested the Service Provider to provide, as well as the activities to be carried out, are listed in Exhibit 1 to this Agreement, which shall be considered as an integral part of this Agreement. All the information included in Exhibit 1 shall be reviewed periodically and be aligned with actual circumstances, which may change over the duration of this Agreement. The Parties shall mutually agree on any changes to such information." Exhibit - 1 "Reseller Services • Service Provider may solicit sales within the Territory and other selected country customers within the guidelines ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce Recipient within guidelines provided by Service Recipient. • To conduct this service, Service Provider will own or lease facilities, employ the appropriate personnel, and own and operate / maintain computer hardware, as needed. • Service Recipient either owns or licenses the platforms used to monitor customer calls and data. Administrative Services • Service Provider may provide administrative services to Service Recipient. • To conduct this service, Service Provider will own or lease facilities, and employ the appropriate personnel, and execute whatever other legal or administrative steps needed to provide such Services. • The administrative services which may be provided (not allinclusive), are: - Finance, Accounting, and Treasury - Invoicing and collections - Legal - Human Resources and Payroll administration - Information Technology - Marketing - Other Contract Research & Development • Service Provider may provide contract research and development services to Service Recipient. • To conduct this service, Service Provider will own or lease facilities, employ the appropriate personnel, and operate / maintain co ..... X X X X Extracts X X X X X X X X Extracts X X X X
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