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TMI Blog2024 (8) TMI 426X X X X Extracts X X X X X X X X Extracts X X X X ..... the CIT(A) u/s 40(a)(i) of the Act is unwarranted and liable to be deleted. Decided in favour of assessee. Payments to Carnegie Mellon University and Call Centre School LLC - HELD THAT:- The transaction entered into by the assessee nowhere falls within the definition of Fee for Technical Services. Therefore, the addition made by the AO by holding such amount as Fee for Technical Services is absurd and without any basis and is thus liable to be deleted. In the present case, trademarks have been used for imparting trainings to the employees of assessee s clients outside India and for the purpose of earning an income from a source outside India. No defect or discrepancy has been pointed out by the AO or the ld. CIT(A) in the chart furnished by the assessee. It is also not the case of the AO or the ld. CIT(A) that the details mentioned in the chart are vague or arbitrary. Thus, the income was even otherwise not taxable in the hands of the recipient in view of the specific exclusionary provisions of Section 9(1) (vi)(b) of the Act - Thus disallowance made by the AO and the ld. CIT(A) u/s 40(a)(i) of the Act is unwarranted and liable to be deleted. Payments to the APM Group for purchase ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CA For the Revenue : Sh. Saurabh Anand, Sr. DR ORDER PER DR. B. R. R. KUMAR, ACCOUNTANT MEMBER: The present appeals have been filed by the assessee against the orders of ld. CIT(A)-7, New Delhi dated 28.03.2017. 2. In ITA No. 3998/Del/2017 for A.Y. 2011-12, the assessee has filed following concise grounds of appeal: 1. On the facts and circumstances of the case, the order passed by the Commissioner of Income Tax (Appeals) [CIT(A)] is bad, both in the eye of law and on the facts. 2. (i) On the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and in law in giving part relief and setting aside the issue of payment made to following parties to AO for verification despite the fact such disallowance made by AO is wholly untenable in the eyes of law as these payments are not liable for deduction of tax at source: a. Intertec Systems LLC : Rs. 53,73,994/-. b. Invico Capital Corporation AG : Rs. 86,88,215/- (ii) That the aforesaid act of the CIT(A) is in violation of the provision of Section 251(1)(a) of the Act and therefore bad in law. 3. On the facts and circumstances of the case, the Ld. CIT(A) has erred both on facts and in law, having held that the payments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h on facts and in law, in disregarding the assessee's contention that the amount payable outside India in respect of services utilized in earning any income from any source outside India is not subject to tax in India in view of the exception carved in Section 9(1)(vii)(b) of the Act. 3.(i) On the facts and circumstances of the case, the Id. CIT(A) has erred, both on facts and in law, in confirming the disallowance of Rs. 134.22 Lacs made by the Id. AO by invoking the provisions of Section 40(a)(i) read with Section 195 of the Act. (ii) On the facts and circumstances of the case, the Id. CIT(A) has erred, both on facts and in law, in assessing the aforementioned sum to tax in India despite of the sum is covered by the exception to Section 9(1)(vii)(b) of the Act. 4. (i) On the facts and circumstances of the case, the Id. CIT(A) has erred, both on facts and in law, in confirming the disallowance of Rs. 26.80 Lacs on account of payment made to Carnegie Mellon University, USA and The Call Centre School, LLC, invoking the provisions of Section 40(a)(i) of the Act. (ii) On the facts and circumstances of the case, the Id. CIT(A) has erred, both on facts and in law, in construing the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e payment is being covered by the exception to Section 9(1)(vi)(b) of the Act, hence the provisions of Section 40(a)(i) are not applicable on the same. 8 (i) On the facts and circumstances of the case, the Id. CIT(A) has erred, both on facts and in law, in confirming the actions of the Id. AO in disallowing a sum of Rs. 2.57 Lacs paid to Mr. Tajinder Pal Singh for training and/or consultancy services. (ii) On the facts and circumstances of the case, the Id. CIT(A) has erred, both on facts and in law, in confirming the aforesaid despite the fact that the payment is being covered by the exception to Section 9(1)(vii)(b) of the Act, hence the provisions of Section 40(a)(i) are not applicable on the same. 9 (i) On the facts and circumstances of the case, the Id. CIT(A) has erred both on facts and in law, in confirming the actions of the Id. AO in disallowing a sum of Rs. 5.98 Lacs paid to AFA Project Management and The APM Group Ltd on account of purchase of course material and examination fee. (ii) On the facts and circumstances of the case, the Id. CIT(A) has erred, both on facts and in law, in confirming the aforesaid despite the fact that the payment is being covered by the excepti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ompanies to the employees of the assessee working abroad was subsequently reimbursed to these companies on receipt of invoices therefor. A copy of such invoices raised by Intertec System LLC, Dubai and Invico Capital Corporation AG, Zurich are available at PB 116-149 depicting the salary portion being claimed as reimbursement from the assessee. 11. Therefore, it is hereby held that the payment made by the assessee to Intertec System LLC, Dubai and Invico Capital Corporation AG, Zurich constitutes pure reimbursement of expenses and can in no manner be construed as income of the recipient. Therefore, no TDS is liable to be deducted u/s 195 of the Act on reimbursement of expenses. 12. Reliance is placed on the following judicial pronouncements in this regard: Ge India Technology Centre Private Ltd. Vs. CIT, 2010 (9) TMI 7 - Supreme Court Dated 9-9-2010 Abbey Business Services (India) (P.) Ltd. Vs. DCIT, 2012 (7) TMI 702 - ITAT Bangalore Dated 18-7-2012. Tata Iron Steel Co. Ltd. Vs. Union of India, Supreme Court order dated 30-11-2000 13. Considering the facts of the case, above mentioned provisions of the Act and case laws relied upon by the assessee, the disallowance made by the AO a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... roach in the present case. Aqua Omega Services (P.) Ltd. Vs. ACIT, 2013 (10) TMI 748 - ITAT Chennai Dated: 15-1-2013 17. It is clear from the above that the payments made by the assessee to non-resident consultants, were directly related to the Nigerian projects of the assessee. Assessee being engaged in consultancy business, the fees paid to such consultants on its projects abroad has to be considered as fees paid for services utilized in the business of the assessee outside India. Therefore, clearly Section 9(1)(vii)(b) of the Act applied and the income earned by such non-residents cannot be deemed to accrue or arising in India. Therefore, assessee had every reason to hold a bonafide belief that no part of the payment had any element of income which was chargeable to tax in India. When the assessee held such a bonafide belief, it is clearly covered by the decision of Hon'ble Apex Court in GE India Technology Centre Pvt. Ltd. (supra) and decision of Special Bench of this Tribunal in Prasad Productions Ltd. (supra). This being so, assessee could not be put in a position where it can be visited with the rigours associated with non-deduction of tax at source. It cannot be fastene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Call Centre School LLC in the course of imparting licensed trainings conducted by the assessee through its certified employees to each of the employees of assessee s customers, against which royalty was paid by the assessee. 23. The assessed has duly furnished the details of rendering of such trainings. It is evident from such details that none of the trainings were rendered in India. The assessee has also furnished copy of invoices issued by both of these universities. 24. The AO has misinterpreted the nature of above mentioned transactions by holding it as a Fee for Technical Services. It is relevant to note the definition of Fee for Technical Services as enumerated in Explanation 2 to Section 9(1)(vii) of the Act which is also reproduced below for the sake of ready reference: 9. (1) The following incomes shall be deemed to accrue or arise in India: (vii) income by way of fees for technical services payable by . Explanation 2. For the purposes of this clause, fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services, of technical or oth ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... so exempt under section 9(1)(vi). Though the royalty was paid by a resident in India, it cannot be said that it was deemed to have accrued or arisen in India as the royalty was paid out of the export sales and hence, the source for royalty is the sales outside India. Since the source for royalty is from the source situate outside India, the royalty paid on export sales is not taxable. The Appellate Tribunal was therefore correct in holding that the royalty on export sales is not taxable within the meaning of section 9(1)(vi). 9. Accordingly, we answer the question of law referred to us in the affirmative, in favour of the assessee and against the revenue. No costs. 28. Considering the facts of the case, above mentioned provisions of the Act and case laws relied upon by the assessee, the disallowance made by the AO and the ld. CIT(A) u/s 40(a)(i) of the Act is unwarranted and liable to be deleted. ITA No. 3998/Del/2017: A.Y. 2011-12 ITA No. 3999/Del/2017: A.Y. 2012-13 Payments to the APM Group: 29. This disallowance made by the AO and confirmed by the ld. CIT(A) u/s 40(a)(i) is regarding the amount of Rs. 23,02,094/- paid to The APM Group on account of purchase of course material. 3 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... than a sale described in paragraph 3(a); (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic; (c) for teaching in or by educational institutions; (d) for services for the personal use of the individual or individuals making the payments; or (e) to an employee of the person making the payments or to any individual or firm of individuals (other than a company) for professional services as defined in Article 15 (Independent Personal Services). 35. From a plain reading of the above mentioned provisions of the Act as well as DTAA, it is clear that the transaction entered into by the assessee do not postulate any kind of services in the nature of technical, managerial or consultancy. As per DTAA, simple rendering of services is not sufficient for a service to qualify as Fee for Technical Service when the expression Make Available is used within the definition of Fee for Technical Services. Rather, the provision of services should enable the recipient to make use of the technical knowledge etc. by himself without taking help from the provider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of the services, that cannot be characterized as the making available of the technical services to the recipient. Bovis Lend Lease (India) (P.) Ltd. Vs. ITO, International Taxation, Ward - 19 (1), Bangalore 2009 (8) TMI 853 - ITAT Bangalore Dated 28-8-2009 57. The term make available has a distinct meaning under the Treaty. It postulates a concept wherein the recipient of the services is not only benefited by the services but there is also a transfer of the technology, processes, skill, etc., to the recipient in a manner which will enable the latter to apply the technology, processes, skill, etc., in future without recourse to the service provider. The term make available encompasses some sort of durability and stability with reference to the transfer of technology, processes and skill etc., so that the same is not regarded as transient or ephemeral. Intertek Testing Services India Pvt. Ltd. 2008 (11) TMI 9 - Authority for Advance Rulings Dated 5-11-2008 10.5. Let us now analyse clause (c) of Article 13.4 and then explore the meaning of the crucial phrase make available . There are three ingredients or requirements in clause (c). The first requirement is that the payment is made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d steps have been taken to tax the same. If the receipts are not taxable in the hands of recipient then payee is not required to deduct tax at source as per provisions of section 195 of the Income-tax Act. 41. Considering the facts of the case, above mentioned provisions of the Act and case laws relied upon by the assessee, the disallowance made by the AO and the ld. CIT(A) u/s 40(a)(i) of the Act is unwarranted and liable to be deleted. Payments to Mr. Tejinder Pal Singh: 42. This disallowance made by the AO and confirmed by the ld. CIT(A) u/s 40(a)(i) is regarding the amount of Rs. 2,56,585/- paid to Mr. Tejinder Pal Singh in relation to services rendered for earning income from outside India which specifically falls under the exclusionary provision of Section 9(1)(vii)(b) of the Act. 43. It is relevant to note here that the assessee had utilized the services of Mr. Tejinder Pal Singh, a person resident of USA for provision of services, in terms of agreement dated 15.10.2011. Therefore, the services rendered by Mr. Tejinder Pal Singh have been utilized outside India and the payment which has been made to Mr. Tejinder Pal Singh is for the purpose of earning income from a source ou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yment made to individuals for professional services which are governed by Article 15 of DTAA from the definition of Fee for Included Services. 47. Article 15 of the DTAA with USA are reproduced hereunder for the sake of ready reference: ARTICLE 15 INDEPENDENT PERSONAL SERVICES 1. Income derived by a person who is an individual or firm of individuals (other than a company) who is a resident of a Contracting State from the performance in the other Contracting State of professional services or other independent activities of a similar character shall be taxable only in the first-mentioned State except in the following circumstances when such income may also be taxed in the other Contracting State: (a) if such person has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other State; or (b) if the person's stay in the other Contracting State is for a period or periods amounting to j or exceeding in the aggregate 90 days in the relevant taxable year. 48. Thus, from a plain reading of the above mentioned provisions it is ..... X X X X Extracts X X X X X X X X Extracts X X X X
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