9911796707
TMI Blog2023 (1) TMI 1246X X X X Extracts X X X X X X X X Extracts X X X X ..... s towards Architectural Design consultancy services, Wind Engineering Consultancy services and Landscape Architectural Consultancy Services as consultancy services when the services provided are make available in nature and come in the purview of Fees for Technical Services as per India Singapore DTAA. 2. Whether, on the fact and circumstances of the case and in law, the Ld. CIT(A) erred in treating the remittance made to LDL UK Ltd. towards marketing services for projects of the assessee company as consultancy services when the services provided come in purview of Fees for Technical Services as per India UK DTAA." 3. Whether, on the fact and circumstances of the case and in law, the Ld. CIT(A) erred in treating the remittance made to various non resident entities towards. brokerage for sale of projects in India as consultancy services ignoring the fact that the income of the non resident has accrued in India." 4. Whether, on the fact and circumstances of the case and in law, the Ld. CIT(A) erred in treating the remittance made to various non resident entities for reimbursement of expenses as consultancy services when reimbursement were for services rendered by vendors ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o not meet 'make available' criteria. Annexure B 3. Sitetectonix Pte. Ltd. Singapore Landscape Architectural Consultancy Services. Such services are not taxable as 'Fees for Technical Services' since the services do not meet 'make available' criteria. Annexure C 4. Lodha Developer UK Ltd. UK Marketing Consultancy Services. Such services are not taxable as 'Fees for Technical Services' since the services do not meet 'make available' criteria. Annexure D 6. The assessee submitted that such services did not meet 'make available' criteria, therefore, the same were not taxable in India pursuant to beneficial provision of respective DTAA. However, the assessing officer after referring provision of Sec. 195(1), section 5 (2) and Section 9(1)(vii) and the document submitted by the assessee come to the conclusion that the payment to non-resident were taxable and assessee failed to deduct tax on such remittance, therefore he held that assessee was in default as per provision of Sec.201(1) of the Act and Sec. 201(1A) of the Act. 7. Aggrieved the assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has allowed the appeal of the assesse. The relevant operating part of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services from three non- resident entities located in Singapore. For availing such services, the assessee has pav certain amount to the non-resident entities. The short issue arising for consideration before us is, whether the payment made by the non-resident entities can be termed as FTS under Article 12(4) of India Singapore Tax Treaty For better appreciation, Article 12(4) of the tax treaty is reproduced hereunder:- "4. The term fees for technical services as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services: (a) are ancillary...... (b) make available technical knowledge, experience, skill, knowhow or processes, which enables the person acquiring the services to apply the technology contained therein, or (c) consist of the development and transfer of a technical plan or technical design but excludes any service that does not enable the person acquiring the service to apply the technology contained therein." 9. A reading of Article 12(4) of the tax treaty would make it clear that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and conditions in respect of Web Structures Pte. Ltd another non-resident entity 11. Thus from the nature of services provided by the non-resident entities and the tem and conditions under which it was provided, it is clear that whatever services were provided are project specific and cannot be used for any other project by the assessee Further while providing such services neither any technical knowledge, skill, etc. is made available to the assessee for utilizing them in future, independently nor any developed drawing or design have been provided to the assessee which can be applied by the assessee independently. Thus, it is very much clear, the conditions of Article 12(4) of the tax treaty are not fulfilled 12. Though the assessing officer has generally observed that in course of providing services to the assessee , the non-resident entities have made available technical knowledge, know-how, processes to the assessee However, no substantive material has been brought on record by him to back such conclusion Even, before us, learned departmental representative has not brought any material to demonstrate that conditions of Article 12(4) have been fulfil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sultancy services to Woha Design Pte. Ltd, comprising copies of work order, note on payment made to Woha Design Pte. Ltd, copy of invoices, Form No. 15CA and 15CB along with other relevant documents placed in the paper book. The nature of payment was pertained to consultancy services for master planning of the specific project namely Wadala TT, Mumbai. As per clause 14 of the agreement, the design prepared by the design consultant was solely for the purpose of the above referred project. Woha design consultant is a tax resident of Singapore and Article 12 of the India Singapore DTAA deals with the taxability of income from Royalties & FTS. It provides that services will be considered as FTS only if such vendor is making available the technical knowledge, experience, skill, knowhow or process which enable the person acquiring the services to apply the technological contained therein. The relevant part of the Article 12 of the Royalties and Fees for Technical Services of the India Singapore DTAA is reproduced as under: "ARTICLE 12 ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erused the various judicial pronouncements referred by the ld. Counsel: "1. ITAT Mumbai in the case of Forum Homes (P) Ltd. [2021] 132 taxmann.com 223 2. ITAT Pune in the case of Gera Development (P) Ltd. [2016] 72 taxmann.com 238 3. ITAT Mumbai in the case of Buro Happold Limited [TS-76-ITAT-2019 (Mum)] 4. Hon'ble Karnataka High Court in the case of De Beers India Minerals (P) Ltd. [2012] 21 taxmann.com 214 5. ITAT Mumba in the case of SCA Hygiene Products AB [2021] 123 taxmann.com 152" In the case of Forum Homes (P) Ltd. [2021] 132 taxmann.com 223 the head note is reproduced as under: Section 9 of the Income-tax Act, 1961, read with article 12 of DTAA between India and Singapore Income Deemed to accrue or arise in India (Royalties/Fees for technical services Make available) - Assessment year 2015-16 assessee company was developing a residential project and had availed technical/consultancy services from three non-resident entities against certain fee - Assessing Officer held that fee paid to non-resident entities would qualify as FTS under section 9(1)(vii) and also under article 12(4) Terms of agreement showed that design, drawing, et,, would remain intellectu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15. On query the assessee explained that foreign parties were carrying out there business operations in the territory outside India in their respective countries and they do not have any business operations or any business in India. The commission was paid merely for referring customers to the company who have expressed interest in buying properties in the projects which were developed by the company in India. There was no technical knowledge or special skills which was required for providing such services nor the services were managerial in nature. Therefore, the such payment cannot be treated as FTS under the provisions of the Act. The assessee further submitted that it has also relied on 'No PE Declaration' and Tax Residency certificate (CTR) provided by such parties to whom commission payment were made. Therefore, the subject payment cannot be attributed to tax, therefore, no tax was withheld u/s 195 of the Act. However, A.O has not agreed with the submission of the assesse. The A.O stated that all the payments made by the assessee as brokerage to foreign vendors shall fall under the ambit of Sec.5(2) as the income from such payments to foreign vendors has aro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, the question of deduction of tax at source u's 195 of the Act does not arise. The ld representative has placed has reliance on the judgment of the Apex Court in V. Lakshmanan v. BR Mangalagiri & Ors [1995 Supp (2) SCC33] and submitted that the nomenclature or label given in the agreement cannot be a decisive factor. According to the ld representative, the substance of the agreement should be taken into consideration. Referring to another judgment of the Supreme Court in the case of Assam Small Scale Ind Dev Corp Ltd and JD Pharmaceuticals and Anr [2005 13 SCC [9] the ld representative submitted that the expression in the agreement cannot be a decisive factor. The nature transaction is required to be determined on the basis of the substance and not by the nomenclature. Therefore, merely because it was mentioned as consultancy charges in the agreement, the real substance of marketing the product cannot be ignored. The Id representative has also placed his reliance on the judgment of the Kerala High Court in the case of Joe Joseph & Ors v KC Moideen reported in 1996 (1) KLJ 656 3. The Id representative further submitted that new sub sections (3) and (4) were inserted in section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssing officer passed the imped order before 3103-2011. Proviso to section 20113) of the Ad enables assessing officer to pass order before 31-03-2011 in respect of financial year commencing on or before 04-2007 Therefore, the order passed by the assessing officer is within the period provided in section 201(3) of the Act. Therefore, there is no question of any impossibility as claimed by the assessee " Hon"ble ITAT's findings "5. We have considered the rival submissions on either side and also perused the material available on record. We have also carefully gone through the copy of the agreement said to be entered into between the assessee and the foreign party The CIT(A) also has reproduced copy of the agreement on pages 24 and 25 of the impugned order. As rightly submitted by the ld DR the work of the foreign party is to identify the potential customer and file a report regarding the market strategy and developmental studies. Agreement does not enable the foreign party to market the product of the assessee in South East Asian countries. The foreign party only has to do survey and file a report so that the assessee could market their product after conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... m 391) 2011 (Delhi HC). For ready reference, the finding of Hon'ble Delhi High Court is reproduced below. "2. The respondent assessee EON Technology Pvt. Ltd is a private limited company engaged in business of development and export of software. During the relevant assessment year 2007-08, the assessee had paid commission of Rs. 33,36,068/ to its parent/holding company EON Technologies, U.K., (ETUK, for short) on the sales and amounts realized on export contracts procured by ETUK for the respondent assessee . There is no dispute about the nature and on what account commission has been paid. The quantum etc. and the fact that ETUK was entitled to said payment is not doubted or disputed 3. The contention and question raised by the Revenue is that the commission income of Rs 33,36,068/ earned by ETUK had accrued in India or was deemed to accrued in India and, therefore, the respondent assessee was liable to deduct tax at source and as there was failure, the said expenditure should be disallowed under Section. 40(a)(ia) of the Act. The relevont portion of the assessment order reads:- "There are express provisions of the IT Act that provide for taxation of an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... connection in Indio, ETUK has earned the right to receive this income "deemed to accrue" and thereby becoming liable to be taxed in India of the portion that accrues or arises in India." (emphasis supplied) 4. The reasoning of the Assessing Officer is confusing, laconic and not clear. In the first paragraph of the assessment order quoted above it has been held that the right to receive income by ETUK had situs or origin in India. It is stated that the place of accrual of income was in India as payment was made from India and, therefore, it is deemed to be received in India. In the first paragraph towards the end, the Assessing Officer has held that that the source of income by way of commission earned by ETUK has business connection with the respondent- assessee in India i.e. the source was situated wholly and completely within the territory of India. The second paragraph refers to business connection and principle of deemed accrual. 5. Thus, on one hand, it was held that the commission income paid to ETUK had accrued or arisen in India and the said ETUK had right to receive income in India, since the situs/origin is in India but it is also averred that ETUK had busine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ulates and states when income is deemed to arise in India. The Assessing Officer has not mentioned any specific provision of Section 9 but it appears that he had invoked Section 9(1)(1) of the Act which for the sake of convenience is reproduced below:- "9. Income deemed to accrue or arise in India-(1) The following incomes shall be deemed to accrue or arise in India-() all income accruing or arising, whether directly or indirectly, through or from any business connection in Indio, or through or from any property in India, or through or from any asset or source of income in India, or through the transfer of o capital asset situate in India. Explanation 1-For the purposes of this clause- (a) in the case of a business of which all the operations are not carried out in India, the income of the business deemed under this clause to accrue or arise in India shall be only such part of the income as is reasonably attributable to the operations carried out in India, (b) in the case of a non-resident, no income shall be deemed to accrue or arise in India to him through or from operations which are confined to the purchase of goods in Indio for the purpose of export; (c) in the case of a non-r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e a broker, general commission agent or an agent of an independent status 10. For the said provision to apply, the Assessing Officer was required to examine whether the said commission income is accruing or arising directly or indirectly from any business connection in India. The Assessing Officer has not dealt with or examined the said aspect but has merely recorded that the payment made to ETUK was taxable in India because of its "business connection". The Assessing Officer did not elaborate or has not discussed on what basis he had come to the conclusion that "business connection" as envisaged under Section 9(1)(i) existed On this aspect, we may note that the respondent assessee had submitted that ETUK was a non resident company and did not have any permanent establishment in India. ETUK was not rendering any service or performing any activity in India itself. These facts are not and cannot be disputed. Explanation 2 has not been invoked or relied upon by the Revenue Factual matrix in respect of Explanation 2 has not been referred to or examined by the Assessing Officer and is not on record. 11 Commissioner of Income Tax (Appeals) relied upon two circulars issued by th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... th the statutory agent were credited, since a credit balance, without more, only represents a debt and a mere book entry in the debtor's own books does not constitute payment which will secure discharge from the debt. They cannot, therefore, be charged to tax on the basis of receipt of income actual or constructive in the taxable territories during the relevant accounting period XXX In the instant case, the non-resident assessee s did not carry on any business operations in the taxable territories. They acted as selling agents outside India. The receipt in India of the sale proceeds of tobacco remitted or caused to be remitted by the purchasers from abroad does not amount to an operation carried out by the ossessees in India as contemplated by cl. (o) of the Explanation to s. 9(1)(i) of the Act. The commission amounts which were earned the non-resident assessee s for services rendered outside India cannot, therefore, be deemed be incomes which have either accrued or arisen in India. The High Court was, therefore, right in answering the question against the department." 13. The aforesaid decision is a complete answer to the contention raised by the Revenue and as mentioned in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis for holding that there was business connection and, therefore, Section 9(1)(1) of the Act is applicable. Appellate authorities; on the basis of material on record, have rightly held that "business connection" is not established. 15. The scope and ambit of Section 195 of the Act has been explained by the Supreme Court in GE India Techonology Centre (P) Ltd. vs. CIT (2010) 327 ITR 456. In the said case the expression "any other sum chargeable under the provisions of the Act" in Section 195 of the Act was elucidated and explained. It was held that if payment is made in respect of the amount which is not chargeable to tax under the provisions of Act, tax at source (TDS, for short) is not liable to be deducted. Decision of Supreme Court in Transmission Corporation of Andhra Pradesh vs. CIT, (1999) 239 ITR 587 (SC), operates and is applicable when the sum or payment is chargeable to tax under the provisions of the Act. In such cases, TDS has to be deducted on the gross amount of payment made and not merely on the taxable income included in the grass amount. The said decision would not apply in case payment is made but the said sum in entirety is not chargeable or exigible to tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tation provisions cannot apply at all, it is evident that such a case was not intended to fall within the charging section." We may add that the 1961 Act is an integrated code and, as stated hereinabove, Section 9(1) integrates the charging section, the computation provisions as well as the machinery provisions. (See Section 9(1)() read with Sections 160, 161, 162 and 163) 74. In the present case, it has been vehemently urged that TDS provisions being machinery provisions are independent of the charging provisions whereas as held by this Court in B C. Srinivasa Setty, the 1961 Act is on integrated code. 75. To answer the contention herein we need to examine briefly the scheme of the 1961 Act. Section 4 is the charging section. Under Section 4(1), total income for the previous year is chargeable to tax. Section 4(2) inter alia provides that in respect of income chargeable under sub-section (1), income tax shall be deducted at source whether it is so deductible under any provision of the 1961 Act which inter alia brings in the TDS provisions contained in Chapter XVII 8 In fact, if a particular income falls outside Section 4(1) then TDS provisions cannot come in. 76. Under Section 5, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... where the sum paid by him is not a sum chargeable under the Act. The interpretation of the Department, therefore, not only requires the words "chargeable under the provisions of the Act" to be omitted, it also leads to an absurd consequence. The interpretation placed by the Department would result in a situation where even when the income has no territorial nexus with India or is not chargeable in Indio, the Government would nonetheless collect tax. In our view, Section 195(2) provides a remedy by which a person may seek a determination of the "appropriate proportion of such sum so chargeable" where a proportion of the sum so chargeable is liable to tax 18. In view of the aforesaid discussions, it has to be held that there is no error in the findings recorded by the Commissioner of Income Tax (Appeals) which have been in the impugned order by the ITAT. We do not find any merit in the present appeal and the same is dismissed." 5.5.10 In this judgment, the Hon'ble Delhi High Court has with the issue of deduction of tax on commission payment to a foreign party, and all the aspects related to this issue were analysed in detail by the Hon'ble High Court 5.5.11 Respectfully f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ant accounting period as they neither received nor could be deemed to have received sums in question when their accounts with Indian exporter were credited - Held, yes" 18. Heard both the sides and perused the material on record. The assessee has made payment of brokerage to non-resident brokers for assistance on sale of flats to non-resident in the project developed by the assessee in India. The entire work by the broker was carried out outside India and the brokerage payment were made by the assessee in the bank account of foreign parties outside India. The brokers has not carried out any operation in India. Therefore, the AO has not proved that how the provisions of Sec. 5(2) and provisions of Sec.9(1)(i) of the Act are attracted in the case of the assesse. Regarding applicability of provision of Sec.9(1)(vii) by way of treating the payment as fees for technical services the A.O has not proved that how such payment made in the context of 'make available' clause. From the perusal of material on record it is observed that there is no element of technical knowledge, experience, skill knowhow or process in the rendering of brokerage services. No such technical knowledge etc. is mad ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reimbursement made for the services were in the nature of FTS taxable both as per the act as well as DTAA. The AO also stated that the expenses met out by the service recipient were nothing but the expenses of the service provider in providing the services. Since expenses cannot be allowed while taxing the fees for included services, the amount of reimbursement also should be added with the fees for included services. 20. Aggrieved, the assessee filed the appeal before the ld. CIT(A). The ld. CIT(A) has deleted the addition made by the Assessing Officer. The relevant part of the decision of CIT(A) is reproduced as under: "7. Reimbursement of Expenses :- 5.7.1 In my opinion, reimbursement of expenses will take the same colour which the original transaction (to which it relate) had. In other words, if the reimbursement of expenses is related to FTS then it will take the colour of FTS. If the reimbursement of expenses is related to brokerage, then it will take the colour of brokerage. 5.7.2 It is therefore, held that taxability of reimbursement of expenses will depend on the taxability of the original transaction to which it relate. 5.7.3 As in the present appeal, I ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... obal telecommunication facility which was a vertically integrated communication system - According to assessee , it was merely a system of cost sharing and payments received by assessee from its agents were in nature of reimbursement of expenses Assessing Officer did not accept said contention and held that amounts paid by agents to assessee was fees for technical services taxable in India under article 13(4) of DTAA - Tribunal opined that by setting up communication system in question assessee did not render any technical services and, thus, amount in question was not taxable as fee for technical services. High Court upheld order passed by Tribunal - Whether since communication system in question was an integral part of shipping business, which was allowed to be used by agents in order to enable them to discharge their role more effectively, it could not be treated as any technical services provided to agents Held, yes Whether, therefore, High Court rightly concluded that amount received by assessee from its agents could not be brought to tax as fee for technical services Held, yes [Para 12] [In favour of assessee ] The Hon'ble Bombay High Court in the cas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TA No.499/Mum/2022 Ground No. 1 to 5: 29. As the facts and the issue involved in this ground are the same as supra ground No. 1 & 2 of ITA No. 497/Mum/2022 therefore, applying the same findings mutatis mutandis, all the grounds of appeal of the revenue are dismissed. Ground No. 6: 30. As the facts and the issue involved in this ground is the same as supra ground No. 3 of ITA No. 497/Mum/2022 therefore, applying the same findings mutatis mutandis, this ground of appeal of the revenue is dismissed. Ground No. 7: 31. As the facts and the issue involved in this ground are the same as supra ground No. 4 of ITA No. 497/Mum/2022 therefore, applying the same findings mutatis mutandis, both these ground of appeal of the revenue are dismissed. Ground No. 8: 32. During the year under consideration the assessee made remittance of Rs. 30,464/- to Ideascape Marketing N. Communication F2C for purchases. As per DTAA with UAE (Article 7), payment to an entity in UAE can be brought to tax in India only when such entity has a permanent establishment in India. The AO has not brought any material on record to prove contrary, therefore we don't find any merit in this ground of appeal of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
