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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 ..... on this account. Payment to TPF Getinsa Eurostudios S.L. Spain on account of professional fee expenses - 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 entire receipt from Indian Service Provider, is included under the head other income / Management Fee at Note 14 of the audited financial statements - disallowance of said expenditure, which is otherwise correspondingly included in other income, deserves to be allowed as deduction. TDS, the aforesaid management fee did not involve any provision of technical knowledge / knowhow of TPF Spain to Segmental much less to assessee, who was only collecting the said fee from Segmental for further remittances to Head Office/ TPF Spain - the income in the nature of fee for technical services is not taxable in India if the same did not make available technical knowledge or knowhow of such non-resident recipient, as per the provisions of Article-13 of INDO-SPAIN DTAA read ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Rs. 28,07,203/-. 3. That the Ld. AO/DRP grossly erred on facts and in law in making disallowance of Rs. 96,89,231/- on ad hoc basis being 10% of certain expenses by holding that the appellant failed to substantiate its claim and 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Fees for technical services (FTS), and therefore, did not warrant any tax deduction at source. 3. The assessee filed return of income on 23.11.2018 declaring total income of Rs.28,07,203/- and claiming a refund of Rs.1,42,97,170/-. The case was selected for limited scrutiny and statutory notice u/s 143(2) of the Income Tax Act, 1961 was issued and duly served upon the assessee. 4. TPF Getinsa Eurostudios S.L. formerly known as Getinsa- Payma S.L is a company incorporated in Spain having a place of business in India. The company 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 acc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... argued that the premises were shared with other concerns and the cost was recovered in proportion to turnover of the concern, however, such allocation was not backed by any documentary evidence. It is submitted that the Foreign Head office of the assessee had a fully owned Indian Subsidiary Company by the name of Euroestudios India Pvt. Ltd. The Subsidiary shared the same office address along with assessee and had much lesser business compared to the Foreign Branch office, and there were no employees of the subsidiary. Since this address was used for communication 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew, there is merit in the submissions so made by the Ld. A.R. In case of companies, which are having large volume of transactions, it would he practically difficult to bring all the evidences in one go. Hence the ledger account copies are furnished to the tax authorities and normally they are verified on a test check basis. In the instant case, the assessee has furnished copies of invoices and vouchers on a sample basis and it is stated that the assessing officer did not find any defects therein after carrying out examination. 11. Hence, keeping in view the facts of the 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. 14. In the remand report sent to the ld. DRP, the Assessing Officer commented as under: a. Vide notice dated 06.05.2022, the assessee was asked to provide copy of agreement with Eurostudios India Pvt. Ltd. , details of goods/services received from the said concern, details of professional services prefect wise and complete invoice received from the above concern. The assessee did not provide copy of contract with the said concern and no copy of invoice was produced though it was specifically requested to provide complete invoices from the above concern. b. With respect to payment to M/s TPF Getinsa EuroStudios SL 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed in paper book at pages 496-526. In terms of the aforesaid agreement, the fee to be received from NHAI was separately identified for the functions performed by both the parties. However, as per the terms of the Master Contract entered with NHAI, TPF Spain was to be considered as the lead member and was to provide insurances for each contract. The said aspect was noted in Clause -12 of the Agreement entered between TPF and India service-provider. In view of the aforesaid clause, since certain expenses/costs were incurred by TPF Spain for the entire contract, the same was to be reimbursed/compensated by other Indian service-provider / 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. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 04.2017 entered with head- office. In relation thereto, the head-office sends its employees on deputation, on request of the assessee, who render engineering services to NHAI. Akin to the action of disallowance of payment to Eurostudios discussed supra, the captioned amount of Rs.2,18,66,000/- was also disallowed, in the draft assessment order, for want of details of said expenditure and requirement of TDS, which were otherwise part of assessment record. In the proceedings before DRP, the assessee furnished evidences, including additional evidences, like, agreement with Head-office, nature of engineering services, name of engineers, ledger account, 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 r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services of a technical or consultancy nature, including the provision of services of technical or other personnel . 28. The arguments of the ld. AR in writing are as under: 1) It is pertinent to refer to the protocol of the India - Spain DTAA which also forms part of the DTAA. The relevant extract from the protocol is reproduced herein below for your goodself s ready reference - 7. The competent authorities shall initiate the appropriate procedures to review the provisions of Article 13 (Royalties and fees for technical services) after a period of five years from the date of its entry into force. However, if under any Convent ion or Agreement between India and a third State 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mitted that in order to come under the ambit of FTS as per the definition of Article 13 of India - UK DTAA, the provision of services should enable the recipient to make use of the technical knowledge, etc. by itself i.e. without taking help from the provider of the services. This is not the case in the instant case. Therefore, the current services could not be considered as FTS and thus, the same is not taxable in India in the hands of TPF Spain. Considering the reasons mentioned above, no withholding of tax is warranted in the instant case. 15. Reliance is placed on the following decisions, where the legal position with respect to the test/condition of make available has been settled: DIT vs. Guy Carpenter 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 canno ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical desigti/drazvings/plans supplied by the assessee to the Indian entity are project specific, hence, cannot be used by the Indian entity in any other project in future. Therefore, the claim of the assessee that it has not made available any technical knowledge, experience, skill , knowhow or processes while developing and supplying the technical drawings/designs/plans has to be accepted. If the Department is of the view that through development and supply of technical designs/drawings/plans the assessee has made available technical knowledge, experience, skill , knowhow or processes, it is for the Department to establish such fact through proper evidence. The assessee certainly cannot be asked to prove the negative. It is worth mentioning, 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er India-UK DTAA, under which, the meaning of FTS is more restrictive than what is provided under India-Belgium tax treaty. As discussed earlier, Article 13(4)(c) of India-UK tax treaty says that if in course of rendering services the service provider makes available technical , knowledge, experience, skill , knowhow, or processes etc then it can be regards as FTS. The expression 'make available' has not been defined either under the treaty provisions or under the Act . However, the expression 'make available' has been judicially interpreted in various decisions. As per the rat io laid down 'make available' would mean imparting of technical knowledge, skill , knowhow, etc. which enables the recipient of service to apply such technical 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 vie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that It is a trite law that a circular issued by the CBDT is binding on the Assessing Officer and not on the Assessee or the Tribunal or other appellate authorities; Circular cannot operate retrospectively to the transact ions taking: place in any period anterior to its issuance. For your goodself s ready reference, relevant extracts of the ruling are as follows 12. It is trite law that a circular issued by the CBDT is binding on the AO and not on the assessee or the Tribunal or other appellate authorities. It has been held so authoritatively in CIT v. Hero Cycles (P.) Ltd. [1997] 94 Taxman 271/228 ITR 463 (SC) as reiterated in CCE v. Ratan Melting Wire Industries 2008 taxmann, com 1649 (SC) . Ex consequenti , the Circular transgressing the boundaries 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 2015] 55 taxmann.com 305 (Pune - Trib.); DCIT v. Ford India Ltd. [2017] 78 taxmann.com 5 (Chennai - Trib.); Rajinder Kumar Aggarwal (HUF) v. DCIT [2021] 131 taxmann.com 252 (Delhi -Trib.) ; Magotteaux International SA [TS-91-ITAT-2022(Del)]; Therefore, considering the judicial decisions and the content ions raised herein above by the Appellant , there was no requirement to deduct the tax at source in the instant case. 29. Further, the ld. AR argued that the AO made addition on account of the salary of Expatriates paid to M/s. TPF Getinsa Eurostudios SL Spain without appreciating the fact that 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 in accordance with the Management Support Services Agreement entered 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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