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TMI Blog2023 (5) TMI 157X X X X Extracts X X X X X X X X Extracts X X X X ..... he amount paid give rise to any income taxable in India. Thus, in view of the aforesaid findings, we deem it appropriate to remand the matter to the file of the AO to decide whether the payment made by the assessee to the aforesaid non-resident entities is taxable in India. It is only thereafter the issue of deduction of tax at source under section 195 of the Act and disallowance under section 40(a)(i) of the Act arises. Decided in favour of assessee for statistical purposes. Short grant of credit of TDS - This issue is restored to the file of the AO with the direction to grant TDS credit, in accordance with the law, after conducting the necessary verification - ITA no.2133/Mum./2022 - - - Dated:- 27-4-2023 - Shri S. Rifaur Rahman, Accountant Member And Shri Sandeep Singh Karhail, Judicial Member For the Assessee : Shri Harsh Kothari For the Revenue : Shri Soumendu Kumar Dash ORDER PER SANDEEP SINGH KARHAIL, J.M. The present appeal has been filed by the assessee challenging the impugned final assessment order dated 28/06/2022, passed under section 143(3) r/w section 144C(13) of the Income Tax Act, 1961 ( the Act ), pursuant to the directions dated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax in India so that tax withholding be required under section 195 of the Act. 5.1. The Ld. AO and Ld. DRP without any evidence or material on record to show that the sums paid by the Appellant were chargeable to tax in India in the hands of the non- resident payees erred in ignoring the Appellant's submission and the documentary evidence that the sum is not chargeable to tax in India in view of beneficial provisions of the DTAA between India and countries to which the payee belong. 6. The Ld. Ld. Panel basis own surmises and conjectures has grossly erred in adjudicating that payees have business connection in India. 7. The Ld. Panel has grossly erred in adjudicating that the Appellant is under an obligation to undertake permanent establishment analysis considering the total business carried out by the non-resident in India, and not limited to the business with the Appellant, without taking into consideration the documents submitted by the Appellant in this regard. 8. The Ld. AO has grossly erred in placing reliance on tax audit report without application of own mind to independently analyse the payments in question and undertake independent analysis to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . However, in this case, the assessee has not filed any such application. The AO also referred to the qualification in the Tax Audit Report. Accordingly, the AO disallowed an amount of Rs.4,86,45,310 under section 40(a)(i) of the Act and added the same to the total income of the assessee. 5. The assessee filed detailed objections before the learned DRP against the addition made by the AO. Vide directions dated 30/05/2022, issued under section 144C(5) of the Act, the learned DRP rejected the objections filed by the assessee and held that the services provided by the non-residents were received and utilised by the assessee in connection with its business operations in India. The learned DRP further held that there is a direct nexus between the services provided/utilised in India and the payments made to the service providers. Therefore, the payment made by the assessee was chargeable to tax in India under the provisions of the Act. In conformity with the directions issued by the learned DRP, the AO passed the impugned final assessment order under section 143(3) r/w section 144C(13) of the Act. Being aggrieved, the assessee is in appeal before us. 6. During the hearing, the lear ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15.11.2016 46,60,868 DHL Global Forwarding 24.01.2017 4,77,699 The Avectra Group 24.01.2017 14,58,306 Garda World 4,86,45,310 9. As per the assessee, these payments are not chargeable to tax in India and therefore no TDS under section 195 of the Act was deducted, despite the auditor s qualification in the Tax Audit Report. During the assessment proceedings, the assessee submitted the following party-wise analysis of transactions:- Oversight Securities Management Consulting LLC - the nature of services availed by the Indian PO are security consulting, monitoring and other related services. The party is a tax resident of USA and therefore eligible to claim the tax treaty benefits entered between India and USA u/s 90 of the Income-tax Act, 1961. The DTAA between India and US has a restricted scope for definition of FTS/FIS. Under the restricted scope, the Tax Treaties have a narrow scope of FTS by way of insertion of 'make available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered must remain with the person utilizing the services even after the rendition of the services has come to an end. As is evident from above, in order to qualify as 'make available', the services should be aimed at and result in transmitting technical knowledge, skills, etc., so that the recipient of service could derive an enduring benefit and utilise the knowledge or know-how in future on his own without the aid of the service provider. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in future, without depending upon the provider. Accordingly, the nature of services provided in the instant case viz. security consulting, monitoring and other related services is such that the provider of services cannot 'make available' the services rendered to the Indian PO. Accordingly, the services rendered would not qualify to fall under the purview of FTS/FIS under the India US DTAA and such income would not be taxable in India. Refer Annexure 2 for Form 10F and Annexure 3 for No PE declaration as provided by Oversight Securities Management Consulti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ong Kong, was engaged in business of provision of supply chain management, including provision of freight and forwarding and logistics services It entered into a Regional Transportation Services Agreement with 'M', an Indian company, for providing freight and logistics services to each other-As per terms of agreement, assessee rendered services in nature of freight and logistics services such as transport, procurement, custom clearance, sorting, delivery, warehousing and picking up services, outside India in respect of export consignments of 'M'. The present appeal is concerned with the International services provided by the assessee to 'M' outside India. These services comprise of transport, procurement, customs clearance, sorting, warehousing and pick up services on the cargo exported by 'M' on behalf of its customers. Having noted the nature of services provided by the assessee outside India, for which 'M' India made the payment, it is necessary to consider if these can be described as managerial or technical or consultancy services. Adverting to the facts of the instant case it is observed that the assessee performed freight a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... US DTAA and such income would not be taxable in India in the absence of PE of The Avectra Group, LLC in India. DHL Global Forwarding - DHL is providing logistics services to the Indian P0 in respect of equipment for Helicopter. DHL is a tax resident of US and has no PE in India. Also, as discussed above, the logistics services would not qualify to be the services in the nature of managerial, technical or consultancy and accordingly, no taxes are to be withheld on such payments. Also, these services do not make available any technical knowledge, knowhow, etc. 10. The AO disagreed with the submission of the assessee and held that if the assessee had considered that the sum would not be taxable in India, then it should have made an application for determination of the appropriate proportion so chargeable/not chargeable and upon such determination, tax should be deducted or not deducted under section 195 of the Act. However, the assessee has not done so. We find that while deciding the issue whether the moment there is a remittance to the non-resident abroad the obligation to deduct tax at source arises under section 195 of the Act, Hon ble Supreme Court in GE India Te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-taxability of the payment in India on the basis of benefit under the respective tax treaties. 12. Therefore, even though there is no merits in the finding of the AO that for a sum to be not taxable in India there should be an application by the assessee under section 195(2) of the Act for the determination of appropriate proportion so chargeable/not chargeable and the tax thereon, however, at the same time we are of the considered opinion that for disallowance under section 40(a)(i) of the Act the AO has to establish that the sums remitted outside India come within the purview of interest, Royalty, Fees for Technical Services or other sums chargeable under this Act, which exercise in the present case has not been undertaken by the any of the lower authorities. We find that in the aforesaid decision in GE India Technology Centre Private Ltd (supra), the Hon ble Supreme Court remitted the case to the Hon ble High Court for de novo consideration on merits and fresh adjudication on the issue of whether the amount paid give rise to any income taxable in India. Thus, in view of the aforesaid findings, we deem it appropriate to remand the matter to the file of the AO to decide whe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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