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TMI Blog2023 (4) TMI 1105X X X X Extracts X X X X X X X X Extracts X X X X ..... the expenses remain unsubstantiated without appreciating the fact that all the documents/evidence were duly filed before the Ld. AO/DRP. 4. The Ld. AO grossly erred on facts and in law in making disallowance of Rs. 6,51,57,000/- (detailed below) u/s 40(a)(i) on account of the payments made to AEs by exceeding jurisdiction and not following the directions given by the Ld. DRP. Name of AE Nature of Expenses Amount (Rs.) Euroestudios India Pvt. Ltd. Professional Fee 2,01,34,000 TPF Getinsa Euroestudios SL Spain Professional Fee 2,31,57,000 TPF Getinsa Euroestudios SL Spain Salary to Expatriates 2,18,66,000 Total 6,51,57,000 5. The Ld. AO grossly erred on facts and in law in making the disallowance of Rs. 6,51,57,000/- without providing an opportunity of being heard as directed by the Ld. DRP. Without Prejudice 6. The Ld. AO grossly erred on facts and in law in making the disallowance of Rs. 6,51,57,000/- without considering the reply filed by the appellant on 30-08- 2022 even though no opportunity of being heard was provided to the appellant. 7. The Ld. AO grossly erred on facts and in law in making the disallowance of Rs.2,01,34,000/- (inclu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y established project office in India. During the year under assessment, the Project Office of the Foreign Company was engaged in providing infrastructure consultancy services to National Highway Authority of India (NHAI). Ad-hoc Disallowance @ 10% 5. The assessee is a Project Office of a foreign company set up in India to provide engineering consultancy services and incurred expenses like rent, professional fee, travelling and conveyance etc during the course of business. During the course of assessment proceedings, the AO raised queries with respect to details of aforesaid various expenses. The assessee had duly furnished the ledger account of all the expenses during the course of assessment proceedings. During the course of assessment proceedings, no specific query raised by AO to furnish vouchers. After receipt of the draft Assessment Order disallowing 10% of the expenses on ad-hoc basis, the evidences of expenses have been furnished before the ld. DRP under Rule 4 of the DRP Rules, 2009. The ld. DRP after calling the remand report confirmed the action of the AO. 6. We find that the assessee provided the project wise ledger of professional fees and copy of agreement along w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on purpose and at times for meetings by the Indian Subsidiary, the management had decided to share rent and maintenance cost vide Internal Memorandum of understanding (IMOU) and this sharing of rent was based on turnover and was recovered from the subsidiary each month through issuances of debit notes. The amount of rent recovered from subsidiary is verifiable from the audited financials at note no. 14 under "Other Income". During the year under consideration, the assessee recovered a total amount of Rs. 3,78,691/- from rent, maintenance and ancillary expenses from its Indian Subsidiary and returned the same as Other Income. 9. With regard to other expenses, the revenue held that there was no name of the assessee on the invoices furnished by the assessee. The assessee furnished the summary of "Other expenses" incurred during the year along with sample supporting invoices and the name of the assessee clearly mentioned in the invoices as 'Euroestudios SL' , also in the Tax invoice furnished by the assessee PAN of the assessee was also mentioned along with GSTIN. The name 'Euroestudios S.L.' appearing on the invoice, it is submitted that TPF Getinsa Euroestudios S.L., formerly known ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he case and the judgments, the appeal of the assessee on this ground is allowed. 12. The details of disallowance u/s 40(a)(i) owing to defaulting deduction of tax u/s 195 are as under: Professional Fee Payment-40(a)(i): a. Professional Fee to Eurostudios India Private Limited The assesses, during the year under review, had paid Professional Fee to Eurostudios India Private Limited amounting to Rs.1,86,33,632/- as against Rs.2,01,34,000/- as pointed out by the Assessing Officer. This difference was also pointed out during the scrutiny assessment proceedings and the Ledger relating to this expense along with supporting invoices were filed with the e-filing portal. The assessee had also deducted and deposited TDS on the entire expenditure and TDS return of the assessee was also filed to support the same. It was contended that these expenses were made vide agreement between the two entities which was provided. b. Professional Fee to TPF Gentinsa Eurostudios S.L. Spain amoutnign to Rs.2,31,56,815/-: The assessee, during the year under review, had paid Professional Fee to TPF Gentinsa Eurostudios S.L. Spain amounting to Rs.2,31,56,815/-. The ledger and corresponding invoice ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Spain, the assessee vide notice dated 06.05.2022, was requested to provide copies of MoU/Agreement, details of services received project wise etc. The internal MoU filed had no reference to MoUs signed with Segmental Consulting and Infrastructure Advisory Pvt. Ltd. and infrasys Consulting and Advisory Pvt. Ltd. on the basis of which invoices have been raised on the project office. c. As regards, salary of expatriates paid to HO, the assessee filed copy of ledger account of expats salary and also submitted two invoices. A perusal of invoices revealed that no basis has been given for raising the invoice. No details have been provided as to how many hours/days were put in for work of PO. No log books or other records which could justify allocation of expats salary to Indian operations have been filed. Thus, in absence of any basis which could be relied upon to compute cost of services rendered by expatriates for Indian PO, such expense cannot be allowed. d. The assessee has not filed complete copies of invoices raised by Banks on the HO and corresponding invoice raised by HO on the Indian PO. The assessee merely fi led two invoices. A perusal of such invoices reveal that one of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Segmental, at negotiated percentage of fee received by the Indian Service Provider/Segmental from NHAI. * The aforesaid management fee was paid by Segmental to the assessee, after due deduction of tax at source, which was in turn paid back on, as it is basis, to TPF Spain. The aforesaid receipts, aggregated to Rs. 2,30,88,569/-, which were credited to profit and loss account and included under the head of 'other income' at Note 14 of the audited financial statements, at page 17 of the paper book. The corresponding payment aggregating to Rs. 2,31,57,000/- (minor difference on account of currency exchange) was debited to the profit and loss account. 19. Since the aforesaid amount was only receipt from Indian service provider and further payment to head-office, whereby the entire receipts, received after deduction of tax at source, has been fully reflected as income on the receipt side, the forwarding payment to head-office deserved to be allowed as deduction. The nature of said payment is reflected by the MOUs between head-office and Indian service provider, like Segmental, attached at pages 496-526 of the paper book, as also invoices in relation to the same raised by head-office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... invoices raised by head-office, etc. * The DRP sent the matter to the AO for remand report. In the remand proceedings, the assessing officer raised certain further queries, which were replied by the assessee alongwith the details required. In the remand report, the assessing officer, without correctly appreciating the documents submitted, reiterated request for disallowance attributing failure on the assessee to furnish complete documentation, which was contrary to record. * The DRP in its order accepted the remand report of the assessing officer, that the assessee should have furnished the complete details and directed the AO to take decision on the basis of evidences on record. * The AO, in the final assessment order made the disallowance, including for want of TDS, which has been challenged in the present appeal. 24. The ld. AR argued that pursuant to the agreement dated 29th April, 2017 with the head-office, the head- office had agreed to provide management/engineering services to the assessee, which were mainly required for execution of contracts entered by the assessee with NHAI in relation to engineering consultancy services. In pursuance of the agreement, as and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e which is a Member of the OECD, which enters into force after 1-1-1990, India limits its taxation at source on royalties or fees for technical services to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said items of incomes, the same rate or scope as provided for in that Convent ion or Agreement on the said items of income shall also apply under this Convent ion with effect from the date on which the present Convent ion comes into force or the relevant Indian Convent ion or Agreement , whichever enters into force later." m) Your goodself would humbly appreciate that the India-Spain DTAA contains a Most-Favoured Nat ion (MFN) clause, which forms an integral part of the DTAA and essentially states that if India enters into any other DTAA with any OECD member country and agrees on either a restricting scope of Article 13 or a lower rate of taxation with the other OECD member country then the same scope or rate of tax shall be imported into the India-Spain DTAA. n) It is humbly submitted that India, inter alia, has entered into DTAAs with the following OECD member countries, which provide a restrictive scope of definition of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Co. Ltd.: 346 ITR 504 (Del .) * CIT vs. DeBeers India Minerals (P.) Ltd.: 346 ITR 467 (Kar.) 16. Reliance in particular, is placed on the decision of the Hon'ble Mumbai Bench of the tribunal in the case of Buro Happold Limited versus DCIT, ITA no. 1296/Mum./2017 wherein, the Hon'ble Tribunal in view of the India-UK DTAA held that technical design/ drawing/ plans which are project specific and cannot be utilized by the recipient in future cannot be said to have made available any technical knowledge / experience / skill / knowhow or processes. The relevant extract of the said decision is mentioned hereunder: "19. Undisputedly, in the present case, the amount received by the assessee, which has been treated as fees for technical services is towards supply of technical drawings/designs/plans. On a careful reading of Article-13(4)(c) of the India-UK tax treaty it becomes clear that the words "or consists of the development and transfer of a technical plan or technical design", appearing in the second limb has to be read in conjunct ion with "make available technical knowledge, experience, skill , knowhow or processes". The reasoning of the Assessing Officer that the second ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tioning, while deciding a dispute of identical nature concerning fees for technical services as per India-USA tax treaty under which definition of fess for included services as per Article-12(4) (b) is identically worded like Article 13(4)(c) of the India-UK tax treaty, the Tribunal , Pune Bench, in Gera Developments Pvt . Ltd. v/s DCIT, [2016] 160 ITD 439 (Pune), has held that mere passing off project specific architectural , drawings and designs with measurements does not amount to making available technical knowledge, experience, skill , knowhow or processes. The Tribunal held that unless there is transfer of technical expertise skill or knowledge along with drawings and designs and if the assessee cannot independently use the drawings and designs in any manner whatsoever for commercial purpose, the payment received cannot be treated as fees for technical sendees. Though, we have taken note of other decisions cited by the learned Authorized Representative we do not intend to deliberate further on them. As regards the decisions ci ted by the learned Departmental Representative, we find them to factually distinguishable, hence, not applicable to the present appeal . In any case of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chnical knowledge, experience, skill , knowhow etc. independently in exclusion of the owner of such technical knowledge, experience, skill , knowhow etc. In the facts of the present appeal , admittedly, except some general observations of the Departmental Authorities that the assessee has made available technical knowledge, skill , experience, knowhow, etc. there is no material on record to demonstrate such fact . Therefore, in our view, the make available condition of Article 13(42) (c) of India-UK tax treaty has not been satisfied. In any case of the matter, attribution of 50% of the receipts to the alleged consultancy services is purely on estimate and without any reasonable basis. In view of the aforesaid, we are inclined to delete the addition sustained by learned Commissioner (Appeals) ." [Emphasis supplied] t) Reference can be made to a judgment of Hon'ble ITAT Pune Bench in the case of GRI Renewable Industries S.L. v. ACIT(IT) [2022] 140 taxmann.com 448 (Pune - Trib.) dated 15.02.2022 wherein it was held that the provisions of Article 12 of India - Portugal DTAA can be imported into the provisions of Article 13 of India - Spain DTAA read with the protocol contained in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ries of sect ion 90(1) of the Act , cannot bind the Tribunal . 13. Notwithstanding the above, it can be seen that the CBDT has panned out a fresh requirement of separate notification to be issued for India importing the benefits of the DTAA from second State to the DTAA with the first . State by virtue of its Circular, relying on such requirement as supposedly contained in section 90(1) of the Act . In our considered opinion, the requirement contained in the CBDT circular No. 03/2022 cannot primarily be applied to the period anterior to the date of its issuance as it is in the nature of an additional detrimental stipulation mandated for taking benefit conferred by the DTAA. It is a settled legal position that a piece of legislation which imposes a new obligation or attaches a new disability is considered prospective unless the legislative intent is clearly to give it a retrospective effect . We are confronted with a circular, much less an amendment to the enactment , which at taches a new disability of a separate notification for importing the benefits of an Agreement with the second State into the treaty with first State. Obviously, such a Circular cannot operate retrospectivel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntered into between TPF Spain and the Assessee. 30. The ld. DR relied on the orders of the ld. DRP. 31. We have gone through the orders of the Revenue and the order of the ld. DRP on the issue of salary expenses to expatriates and circular no. 3/2022 of CBDT dated 03.02.2022. In this case, the AO made addition of Rs. 2,18,66,000/- on account of the salary of Expatriates paid to M/s. TPF Getinsa Euro studios SL Spain and the same was pure cost to cost reimbursement of the expenses incurred by TPF Spain and hence, did not warrant any tax deduction at source. As per agreement dated 19.04.2017 between TPF Spain and the assessee, TPF Spain provides the services such as Planning of projects, institutional capacity building, feasibility studies, detailed designs of the project, construction supervision and comprehensive project management in relation to Civil Construction and Engineering work in India. In consideration to the aforesaid services, as evident from Article 4 of the agreement, TPF Spain invoices the internal costs as well as reimbursable costs (i.e. the salary costs of the expats deployed in India) on a cost to cost basis without any profit element. 32. Therefore, in the in ..... X X X X Extracts X X X X X X X X Extracts X X X X
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