9911796707
TMI Blog2024 (8) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... five assessment years is allowed. Disallowance of professional fee paid to BDO Deutsche Warentreuhand, Germany towards local VAT compliance support services rendered outside India u/s. 40(a)(i) - HELD THAT:- Admittedly, the party BDO Deutsche Warentreuhand, Germany is a foreign party providing professional services in making VAT return and compliance services in Germany. This issue now stands covered in favour of assessee by the decision of Co-ordinate Mumbai Bench of this Tribunal in the case of BSR Co. [ 2016 (5) TMI 356 - ITAT MUMBAI] held that the different types of professional services rendered to an Indian company by overseas companies outside India in relation to audit, taxation, transfer pricing, information technology, background checks etc., would be independent personnel services and since these professional overseas companies had not fixed base or PE in India, the payments made to them would not be chargeable to tax in India and consequently, no TDS is to be deducted. Consequently, no disallowance under 40(a)(i) of the Act can be made. Hence this issue of assessee s appeal is allowed. Disallowance of segregation charges paid to non-residents towards warehousing, unpack ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India only if payee had 'PE' in India within meaning of relevant DTAA. From the facts, it has been observed that foreign entities did not have PE in India and therefore payments were not chargeable to tax in India. Accordingly, the assessee was under no obligation to deduct taxes at source while making these payments. Disallowance made by AO towards corporate social responsibility - HELD THAT:- We are of the view that these expenditures are in the nature of revenue because all these expenditures are for the welfare of the community and from the very nature mentioned above, we are convinced that these expenditures are allowable as revenue. Even the amendment blocking these expenditures is from 01.04.2015 relevant to assessment year 2015-16. The issue before us is for assessment years 2011-12 to 2013-14 and hence, we direct the AO to allow these expenses. Disallowance of interest free advances given to Rane Foundation after taking loan on interest from bank - only plea of assessee before us was that the assessee has sufficient interest free funds available and hence, no interest apportioning can be disallowed on the ground that interest free advance was given to Rane Foundat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peals by the assessee are arising out of different orders of the Commissioner of Income Tax (Appeals)-3, Chennai in ITA Nos.67/2014-15, 53/2015-16/CIT(A)-3, 47/16-17/A-3, 195/16-17/A-3 107/CIT(A)-3/2017-18 dated 28.02.2017, 27.10.2017, 29.09.2017 17.03.2020 respectively. The assessments were framed by the Joint / Deputy Commissioner of Income Tax, Company Range V / Corporate Circle 5(1), Chennai for the assessment years 2011-12 to 2015- 16 u/s. 143(3)of the Income Tax Act, 1961 (hereinafter the Act ) vide orders dated 29.03.2014, 18.03.2015, 14.03.2016, 28.12.2016 29.12.2017 respectively. Since, the issues raised and the facts and circumstances in all these five years are exactly identical and admitted by ld.counsel for the assessee as well as ld.Senior DR, these appeals are heard together and are disposed off by this common order. 2. At the outset, it is noticed that the appeal by assessee in ITA 1477/CHNY/2018 is barred by limitation by 99 days. It is noticed from Form 36 that the order of CIT(A) dated 27.10.2017 was received by assessee on 24.11.2017. The appeal has to be filed on or before 23.01.2018 but it was actually filed on 02.05.2018 with a delay of 99 days. The assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cellaneous Application No.665 of 2021 vide order dated 23.03.2020 has given directions that the delay are to be condoned during this period 15.03.2020 to 14.03.2021 and they have condoned the delay up to 28.02.2022 in Miscellaneous Application No.21 of 2022 vide order dated 10.01.2022. Since the Hon ble Supreme Court has condoned the delay during said period, respectfully following the same, we condone the delay and admit the appeal. 4. The first common issue in these five appeals of assessee is as regards to the order of CIT(A) confirming the action of the AO in making disallowance of professional fee paid to EVA Delith, Germany without deduction of TDS u/s. 195 of the Act and thereby invoking the provisions of section 40(a)(i) of the Act. The ld.counsel for the assessee as well as the ld. Senior DR agreed that facts and circumstances are exactly identical in all the five years and grounds raised are also identical. Hence, we will take the facts and grounds from assessment year 2011-12 in ITA No.1497/CHNY/2017 and will decide the issue. The relevant grounds raised in assessment year 2011-12 reads as under:- 2.1 Disallowance of Professional Fees paid to Eva Delith: 2.1.1 The CIT(A) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt with Ms.Eva M Delith in connection with providing customer support to European customers which includes visit to warehouse, to take stock position and providing an interface with clients, communicating to the company on the clients requirements, claims etc. It was submitted by the company that Ms. Eva M Delith merely acted as an interface or an agent between the company and the customers. The facilities and services rendered were merely marketing services to promote the product of assessee in Germany and these services does not involve any managerial, technical or consultancy knowledge so as to fall within the meaning of fee for technical services (FTS) . But the AO was of the view that in view of section 195 of the Act, the assessee company has to approach the Income-tax Department u/s. 195(2) of the Act before remitting the payments to a non-resident but the assessee did not file the prescribed undertaking along with certificate from an accountant while remitting these payments and the source of income emanates principally on account of business activities conducted in India and hence, the payments made are liable to be disallowed u/s. 40(a)(i) of the Act. Accordingly, he disa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween India and Germany c) Taxability of receipts in Germany. The ld.Senior DR also pointed out that the CIT(A) in his appellate order has also observed that the assessee failed to adduce evidence in support of its claim and hence, this issue for all the five years can be remitted back to the file of the AO. 4.5 We have heard rival contentions and gone through facts and circumstances of the case. We noted that the assessee has filed evidence in the shape of certificate that Ms.Eva M Delith did not visited India during the relevant five assessment years, to which the Revenue could not negate. Further, the ld.counsel for the assessee took us through the relevant DTAA between India and Germany, wherein Article 14 deals with independent professional services, as claimed by assessee, the payment to Ms.Eva M Delith falls under the category of independent professional services, which deals with the income of an individual resident in contracting state and performing professional services or other independent activities and income for the same shall be taxable only in that state unless she has fixed base in India nor did she visited India at all for any period during the relevant previous ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eferral fee paid by the Indian company was not fee for technical services under section 9(1)(vii) as well as Article 12(4)(b) of the DTAA. The assessee argued that the payment is made to an individual. Thus if not covered by Article 7 then without prejudice, payment is against independent personal service covered by Article 14 of DTAA with Germany in accordance with which income derived by an individual from independent activities is only liable for tax in Germany. Reliance is placed on the ruling of AAR in the case of Dieter Eberhard Gustav v. CIT, 235 ITR 0698 wherein the services rendered by the applicant as an engineer by way of technical and marketing consultancy services were held to be covered under Article-14 of the DTAA between India and Germany. In this case it was held that the expression professional services in article 14 of the Agreement for Avoidance of Double Taxation between Germany and India is wide enough to include services, if any, rendered by the applicant as an engineer and marketing consultancy services rendered by the applicant were in the nature of professional services falling under article 14 of the Double Taxation Avoidance Agreement between India and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in all the five years and grounds raised are also identical. Hence, we will take the facts and ground from assessment year 2011-12 in ITA No.1497/CHNY/2017 and will decide the issue. The relevant ground raised in assessment year 2011- 12 reads as under:- 2.2 Disallowance of fees paid to BDO Deutsche Warentreuhand, Germany: 2.2.1 The CIT(A) erred in confirming the disallowance of professional fees amounting to Rs. 4,30,932 made by the AO in relation to professional fees paid to BDO Deutsche Warentreuhand, Germany towards local VAT compliance support services rendered outside India under section 40(a)) of the Act. 2.2.2 The CIT(A) failed to appreciate that the payment is only in the nature of business receipt to the non-resident and in the absence of any Permanent Establishment (PE) for the non-resident in India, the same is not chargeable to tax in India. 2.2.3 The CIT(A) ought to have appreciated that the professional fee is not chargeable to tax in India as the services were rendered outside India. 2.2.4 Without prejudice to the above, the CIT(A) ought to have appreciated that the payment is not chargeable to tax in India under Section 9(1)(vii)(b) of the Act, as it relates to se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e ITO for a certificate for Nil deduction of TDS or lower deduction of TDS. Further, it was noted by the CIT(A) that it does not matter as to whether the non-resident has permanent establishment or business connection or any presence in India insofar as TDS provisions are concerned especially in view of the amendment of Section 195, Explanation 2 of the Act. Therefore, he confirmed the disallowance. Aggrieved, assessee is in appeal before the Tribunal. 5.3 Before us, the ld.counsel for the assessee argued that non-resident was providing professional services in respect of filing VAT returns and compliance services in Germany. These are professional services and non-resident does not have a permanent establishment in India and hence, no part of it is taxable in India. The ld.counsel for the assessee drew our attention to pages 23 to 25 of assessee s paper-book, wherein agreement with the foreign parties in enclosed. The ld.counsel for the assessee also relied on the decision of this Tribunal, Mumbai Bench in the case of ACIT vs. BSR Co, in ITA No.1917/MUM/2017, order dated 06.05.2016 for this proposition. 5.4 On the other hand, the ld.Senior DR heavily relied on the assessment order ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he payments to KPMG, Mauritius, KPMG Hazen Hassan, Egypt, KPMG Dubai, UAE and KPMG, Sri Lanka are concerned, the CIT(Appeals) has noticed that the tax treaties with the respective countries do not have any Article defining 'fee for technical services'; and that the services were being rendered in relation to taxation matters. In this back ground, the CIT(Appeals) held that the payments for such services fall within the scope of article 14/15 of the respective treaties dealing with independent personal services and in the absence of any fixed place of business of the recipient in India, income from such services was not chargeable to tax in India. Therefore, there was no requirement to deduct tax at source and accordingly the invoking of section 40(a)(i) of the Act has been set-aside by the CIT(Appeals). The aforesaid factual matrix brought out by the CIT(Appeals) has not been assailed by the Revenue before us on the basis of any cogent material and, thus, the same is hereby affirmed. As the issue is covered, the different types of professional services rendered to an Indian company by overseas companies outside India in relation to audit, taxation, transfer pricing, informa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) ought to have appreciated the fact that the non-residents assisted in warehousing, sorting, unpacking bulk quantities into small quantities and delivering the same to customers in Germany and such services cannot betreated as managerial, technical and consultancy services to fall within the meaning of fee for technical services as per explanation 2 to section 9(1)(vii)of the Act. 2.3.3 The CIT(A) failed to appreciate that the payment is only in the nature of business receipt to the non-residents and in the absence of any Permanent Establishment (PE) for the non-residents in India, the charges are not chargeable to tax in India. 2.3.4 The CIT(A) ought to have appreciated that the question of obtaining a certificate under section 195(2) arises only when the income of the non-resident is chargeable to tax in India and not otherwise. 2.3.5 Without prejudice to the above claim, the CIT(A) ought to have appreciated the fact that when the facilities have been utilized for the purpose of making or earning source of income outside India, the charges are not deemed to accrue in India as fees for technical services under section 9(1)(vii)(b) of the Act. 6.1 The brief facts are that the AO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax or lower deduction of tax. Hence the AO invoking the provisions of section 40(a)(i) of the Act added back these amounts to the taxable income of the assessee. Aggrieved, assessee preferred appeal before CIT(A). 6.2 The CIT(A) noted that firstly the payment made to a non-resident is taxable or not, will depend on facts of each case and assessee should not assume the role of ITO with regard to taxability of a receipt relating to non-resident. If the assessee is of the opinion that no taxability arises on account of payment made to non-resident, then it should approach the ITO for a certificate for Nil deduction of TDS or lower deduction of TDS. Further, it was noted by the CIT(A) that it does not matter as to whether the non-resident has permanent establishment or business connection or any presence in India insofar as TDS provisions are concerned especially in view of the amendment of Section 195, Explanation 2 of the Act. Therefore, he confirmed the disallowance. Aggrieved, assessee is in appeal before the Tribunal. 6.3 Before us, the ld.counsel for the assessee stated that the company is exporting their products, being automobile components, to the clients at Germany mostly t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Chennai Tribunal in the case of Turbo Energy Ltd., vs. DCIT in ITA No.351/Mds/2013 and 316 317/Mds/2014, order dated 03.05.2017, wherein it is held that in the case of M/s. Sonima Logistics, Germany which are carrying out similar logistics for the assessee has held that the services rendered by non-resident do not fall under the category of technical and managerial services. The services will be rendered outside India and there is no permanent establishment or business connection with the non-resident in India. Hence, providing of the services outside India cannot be taxed in India unless a non-resident has permanent establishment in India. Once taxability of these payments are not there, the disallowance cannot be made by invoking the provisions of section 40(a)(i) of the Act. 6.4 On the other hand, the ld. Senior DR only stated that the CIT(A) has not adjudicated the issue and hence, matter can be remitted back to the file of the CIT(A). Rest, he relied on the assessment order. 6.5 We have heard rival contentions and gone through facts and circumstances of the case. We noted that the assessee company is exporting their products being automobile components to their clients at Germ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ersary Deming Prize for non-deduction of tax under section 40(a) (i) of the Act. 2.5.2 The CIT(A) ought to have appreciated that the payment is for the publication in advertisement journals and not for any service rendered and as such the same is not taxable in India. 7.2 The brief facts are that the AO noticed that the assessee has made payment towards contribution to 60th Anniversary deming prize to Union of Japanese Scientists and Engineers (JUSE) amounting as under:- Sl.No. Vendor Name Nature of Expenses Foreign Currency Amount in FC Amt. in FCY 1 Union of Japanese Scientists and Engineers (JUSE) In connection with 60 th Anniversary Deming Prize JPY 210000 114597 The AO noted that the assessee has made payment to JUSE in lieu of revenue expenses for which TDS was deducted at 10%. But on the main payment as given in the above chart, assessee has not deducted TDS. Therefore, the AO required the assessee to explain as to why the amount should not be disallowed by invoking the provisions of section 40(a)(i) of the Act as no TDS deducted on the above payment. The assessee replied that during the year the assessee company has contributed to JUSE in connection with 60th Anniversary de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n my considered opinion, does not need any interference on my part, hence, I uphold the order of the Ld. CIT(A) on the issue in dispute and reject the grounds raised by the raised by the Revenue. Since the issue is covered and payment is not in the nature of fee for technical services rather falls under the head business income and not earned in India rather earned outside India, it will not be taxable in India. Hence the disallowance made by AO and confirmed by CIT(A) is deleted. 8. The next issue of the assessee s appeals in assessment years 2011-12, 2012-13 2013-14 is as regards to the order of CIT(A) confirming the disallowance made by AO towards corporate social responsibility. Since, facts and circumstances are exactly identical in all the three years and grounds raised are also identical, we will take the facts and ground from assessment year 2011-12 in ITA No.1497/CHNY/2017 and will decide the issue. The relevant ground raised in assessment year 2011-12 reads as under:- 4. Disallowance of Corporate Social Responsibility expenditure 4.1 The CIT(A) erred in confirming the disallowance of Rs. 4,50,000 incurred towards corporate social responsibility. 4.2 The CIT(A) ought to ha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 to 2013-14 and hence, we direct the AO to allow these expenses. Accordingly, this issue of assessee s appeal is allowed in all the three assessment years i.e., 2011-12, 2012-13 2013-14. 9. The next issue raised by the assessee is as regards to the order of CIT(A) confirming the action of the AO for assessment years 2011- 12 2012-13 in regard to disallowance of interest free advances given to Rane Foundation after taking loan on interest from bank. The facts and circumstances are exactly identical in both the years and grounds raised are also identical, we will take the facts and ground from assessment year 2011-12 in ITA No.1497/CHNY/2017 and will decide the issue. The relevant ground raised in assessment year 2011- 12 reads as under:- 5. Disallowance of Interest free advance: 5.1 The CIT(A) erred in confirming the disallowance of a notional amount of Rs. 2,62,500 as expenditure attributable to the advance given to Rane Foundation under section 37(1) of the Act. 5.2 The CIT(A) ought to have appreciated that the Appellant had made interest free advance out of surplus funds available. 5.3 The CIT(A) failed to consider that the Appellant had reserves of Rs. 84.97 crores which is mo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce sheet for the year ended 31.03.2012 and 31.03.2011 in assessee s paper-book. At this stage, the Bench pointed out that let the AO verifies the availability of funds and in case, the interest free funds available are more than the interest free advances, the AO will not make any disallowance. The ld. Senior DR also agreed for this. This issue is squarely covered by the decision of Hon ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd., reported in 313 ITR 340 and the Hon ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd., reported in [2014] 366 ITR 505. Hence, we remit this issue back to the file of the AO for verification purpose and he will verify whether the interest free funds are available with the assessee, which is more than the interest free advances given to Rane Foundation. In term of the above, this issue is allowed in both the assessment years 2011-12 2012-13 subject to verification by the AO. 10. The next issue in the appeal of assessee for assessment year 2012-13 in ITA No.1498/CHNY/2017 is as regards to the order of CIT(A) confirming the disallowance of claim u/s. 80G of the Act made by the AO. For this, assessee has raised the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 15 2015-16 is as regards to the disallowance of claim of market research and development expenses paid in USA by non-deduction of TDS and invoking the provisions of section 40(a)(i) of the Act by the AO and confirmed by CIT(A). 11.1 The assessee has raised this ground regarding claim of market research and development expenses paid in USA disallowed by AO for non-deduction of TDS by invoking the provisions of section 40(a)(i) of the Act, as additional ground for assessment year 2012-13. The CIT(A) has not adjudicated this issue in assessment year 2012-13 and 2014-15. However this issue has been adjudicated by CIT(A) in assessment years 2013-14 2015-16. Hence, we will take the facts and issue from assessment year 2013-14 and grounds raised by assessee in assessment year 2013-14. The relevant grounds read as under:- 2.6 Market Research and development expenses: 2.6.1 The CIT(A) erred in holding the disallowance amounting to Rs. 21,35,648 paid to Rane Holdings America Inc., USA (RHAI) towards market research and development services rendered outside India under section 40(a)(1) of the Act. 2.6.2 The CIT(A) ought to have appreciated that the non-resident agent rendered marketing suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the USA discussed this concept of make available . The MOU states that technology will be considered make available when the person acquiring the services is enabled to apply the technology / skills involved in rendering the service. It therefore provides that mere provision of technical services is not enough but the service provider should also furnish his technical knowledge, experience, skill, know-how to the recipient such that the recipient can independently perform the technical function himself in the future without the assistance of the service provider. The CIT(A) finally stated that in view of Explanation 2 to Section 195 of the Act, the assessee should have deducted TDS or he should have obtained nil deduction or lower deduction certificate from the ITO and hence, the CIT(A) confirmed the disallowance by observing in para 4.11 as under:- 4.11 Therefore, in my considered opinion, appellant has failed to deduct tax at source on payments made to non-residents. In the circumstances, I hold that AO has rightly invoked Sec.40(a)(ia) and disallowed the expenditure debited in P L a/c relating to payments to non-residents. Hence, I confirm the above addition made by the AO for A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lable as under:- 22. What is the meaning of make available . The technical or consultancy service rendered should be of such a nature that it makes available to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology 'making available , the technical knowledge, skill?, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. 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 the future without depending upon the provider. Technology will be considered made available when the person acquiring the service is enabled to apply the technology. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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