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TMI Blog2022 (8) TMI 1556X X X X Extracts X X X X X X X X Extracts X X X X ..... that the expenditure cannot be allowed in the assessment year under consideration. Assessee made alternative argument that the provision was reversed in the next year in its books of accounts and same was offered to tax and disallowance of this assessment year amounts to double taxation in this assessment year as well as in the next subsequent assessment years. We find force in the argument of the assessee s counsel. We direct the AO that if the provisions has been disallowed in the assessment year 2014-15, and the reversal of the same in the next assessment year, the same cannot be taxed to that extent on reversal of provisions. Being so, we direct the AO to take note of this in AY 2015-16 in which the assessee made reversal of the provisions. This ground of assessee is disposed of as above. Disallowance of professional consultancy charges paid to Homeplus Company Ltd. - disallowance u/s 40(a)(ia) of the Act by merely holding that the submissions made by the Assessee is not satisfactory - HELD THAT:- In this case, AO treated the payment of professional charges to Home Plus Company Ltd. as fees for technical services. In the present case, the payment has been made towards training ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... AT:-After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in the case of Abbey Bus Services Pvt. Ltd. [ 2020 (12) TMI 570 - KARNATAKA HIGH COURT] held that it is evident that the seconded employees have to work at such place as the assessee may instruct and the employees have to function under the control, direction and supervision of the assessee and in accordance with the policies, rules and guidelines applicable to the employees of the assessee. The employees in their capacity as employees of the assessee had to control and supervise the activities of another company. Therefore, the assessee for all practical purposes has to be treated as employer of the seconded employees and expenses incurred by the seconded employees which were reimbursed by the assessee is not liable to deduction to tax at source. There is no obligation in law for deduction of tax at source on payments made for reimbursement of costs incurred by a nonresident enterprise and therefore, the amount paid by the assessee was not to suffer tax deduction at source under section 195. Thus, substantial question of law is answered against revenue. Re-compu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f setting up of new project, which said to be Abdon project. If the project was not taken up and it was incurred for the conducting feasibility of that project and that expenditure to be allowed as a revenue expenditure as the assessee has not derived any enduring benefit on incurring of this expenditure. Accordingly, this issue is remitted to the file of AO to verify whether a project has been taken up or not and if it is not taken up, this expenditure to be allowed as revenue expenditure. Disallowance of sub-contract expenditure - As decided earlier if no deduction has been made on this payment, this expenditure cannot be allowed in this assessment year under consideration. However, we make it clear that if it is reversed in the next assessment year, it cannot be treated as income on reversal. Grant of foreign tax credit - After hearing both the parties, we remit this issue to the file of AO to grant foreign tax credit in accordance with law. - SHRI CHANDRA POOJARI, ACCOUNTANT MEMBER AND SMT. BEENA PILLAI, JUDICIAL MEMBER For the Appellant : Shri T. Suryanarayana, Sr. A.R. For the Respondent : Shri Sumer Singh Meena, D.R. ORDER PER CHANDRA POOJARI, ACCOUNTANT MEMBER: These two ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 4 However, assessee made alternative argument that the provision was reversed in the next year in its books of accounts and same was offered to tax and disallowance of this assessment year amounts to double taxation in this assessment year as well as in the next subsequent assessment years. We find force in the argument of the assessee s counsel. We direct the AO that if the provisions has been disallowed in the assessment year 2014-15, and the reversal of the same in the next assessment year, the same cannot be taxed to that extent on reversal of provisions. Being so, we direct the AO to take note of this in AY 2015-16 in which the assessee made reversal of the provisions. This ground of assessee is disposed of as above. 4. Next ground No.9 is with regard to disallowance of professional consultancy charges paid to Homeplus Company Ltd. 4.1 Ld. A.R. submitted that during the year under consideration, the assessee had paid Rs. 1,34,46,918/- to Homeplus Co. Ltd. ( Homeplus ), in consideration for the said entity providing training for the assessee s incumbent directors and candidates. Since no income chargeable to tax in India accrued/arose to Homeplus in India, the assessee did not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ame time, common sense would tell us that training expenses cannot be called as fee for technical services . For example, a student passes his examination of LLB, it does not mean he becomes fully equipped to deal with the cases in various fields. He needs further training under a Senior Lawyer in the chosen field say for example - taxation, service matters, civil matters or criminal matters, etc. In the modern days even these categories can be further sub-divided, for example - in the case of taxation, it can be direct taxes and indirect taxes and with further specialization, for example - say International taxation etc. Similarly, civil matters can be divided into various fields say property matters, family matters etc. What we mean to say is that a person is highly qualified by his law degree but still requires training for rendering practical aspects. Similarly, in the case before us surveyors were highly technically qualified but such persons, may need to learn practical aspects of examining various electrical and other equipments. Such training in our view is a continuous process because technology is changing very fast and one needs to keep touch with such technology and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the lower authorities. 5.4. We have heard the rival submissions and perused the materials available on record. In our opinion, this issue squarely covered by the judgement of Hon ble Karnataka High Court in the case of CIT Vs. De Beers India Minerals Pvt. Ltd. 21 Taxmann.com 214 (Karn) wherein held that:- From the statutory provisions of section 9 and relevant clauses of article 12 in the DTAA it is clear that there is marked distinction between royalty and fees for technical services. Explanation (2) to clause (vi) of sub-section (1) of section 9 defines royalty for the purpose of the said clause. It amounts to consideration for transfer of or any rights or imparting of information concerning the working of, or the use of a patent, invention, model, design, secret formula or process or trade mark or similar property. It also includes imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill. Further, the use or right to use any industrial, commercial or scientific equipment and transfer of all or any other rights and the intellectual properties mentioned therein or rendering of any services in connection with the acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... explained the meaning of the word apos; make available apos;. According to the aforesaid definition fees for technical service means payments of any kind to any person in consideration for services of technical nature if such services make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the service to apply technology contained therein. [Para 13] Therefore the clause in Singapore agreement which explicitly makes clear the meaning of the word apos; make available apos;, the said clause has to be applied, and to be read into this agreement also. Therefore, it follows that for attracting the liability to pay tax not only the services should be of technical in nature, but it should be made available to the person receiving the technical services. The technology will be considered apos; made available apos; when the person who received service is enabled to apply the technology. The service provider in order to render technical services uses technical knowledge, experience, skill, know-how or processes. To attract the tax liability, that technical knowledge, experience, skill, know-how or process which is used by service provid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology apos; making available apos;, the technical knowledge, skills, 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 apos; made available apos; when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b ). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out on a daily basis. Data quality was verified by the assessees representatives in the field on a daily basis. Photographs are taken. Tests and Calibrations report are also furnished. Text file indicating survey information co-ordinating system, processing techniques and equipment specifications are also provided. [Para 24] From the aforesaid material it is clear that Fugro conducted air borne survey using its specialized equipments. Helicopter for the survey was hired by the assessee. All the logistics of the survey such as flight schedule, re-flights survey lines, controls lines, positioning, etc., were set up by Fugro. Fugro deputed technical personnel for conducting the survey and the data collected from the survey was provided to the assessees in a particular format. The consideration paid under the agreement with Fugro was essentially for providing specific data for which Fugro was required to conduct the airborne survey. Fugro undertook all the operations, test and calibrations in order to provide the assessees with the highest possible data quality. Fugro has performed the surveys using substantial technical skills, knowledge and expertise. [Para 25] Thus, in terms of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... logy adopted by Fugro in rendering that technical services is not made available to the assessee. The survey report is very clear. Unless that technology is also made available, the assessee is unable to undertake the very same survey independently excluding Fugro in future. Therefore, that technical services which is rendered by Fugro is not of enduring in nature. It is a case specific. That information pertains to 8 blocks. The assessee can make use of the data supplied by way of technical services and put its experience in identifying the locations where the diamonds are found and carrying on its business. But the technical services which is provided by Fugro will not enable the assessees to independently undertake any survey either in the very same area Fugro conducted the survey or in any other area. They did not get any enduring benefit from the aforesaid survey. In that view of the matter, though Fugro rendered technical services as defined under section 9(/)(vii ) Explanation 2, it does not satisfy the requirement of technical services as contained in DTAA and, therefore, the liability to tax is not attracted. [Para 27] Fugro is engaged in providing services relating to col ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [Para 28] Rule 16 of Mineral Concession Rules, 1960 provides that licensee shall submit to the State Government a six monthly report of the work done by him stating that number of persons engaged and disclosing in full the geological, geophysical or other valuable data collected by him during the period. Further sub-rule (3) makes it clearly obligatory that while submitting the report under sub-rule (1) or (2), the licensee may specify that the whole or any part of the report or data submitted by him shall be kept confidential and the State Government shall thereupon, keep the specified portions as confidential for a period of two years from the expiry of the licence or abandonment of operations or termination of the licencee, whichever is earlier. [Para 29] It is because of the statutory obligation imposed on the licencee in the contract entered into between the assessee and Fugro, it is specifically provided in clause (15) that all information and data relating to any site on which any work or services are performed under the agreement shall belong exclusively to the assessee and its assigns and the contractor shall keep such information strictly confidential. All information re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ipa Kitle and Tesco Polska S P Z O O. The seconded employees were performing duties for the Appellant. The secondees were under direct supervision of the Appellant and reported to the management of the Appellant. The Appellant was ultimately responsible for remunerating and bearing costs of the personnel during the assignment. For convenience purposes, the aforesaid entities which seconded the employees to the Appellant made payment of the salary, which the Appellant reimbursed to them on a cost to cost basis, without any profit element being involved in the transaction. Pertinently, taxes were deducted under Section 192 of the Act. Since there was no income chargeable to tax arising in the hands of the aforesaid entities, the Appellant did not deduct tax at source. 6.2 Ld. A.R. further submitted that the Assessing Officer held that the payments made partake the character of fees for technical services in terms of explanation 2 to Section 9(1)(vii) of the Act, and therefore in the absence of tax deduction at source, a disallowance under Section 40(a)(ia) is warranted. 6.3 The DRP affirmed the disallowance (Please see pages 56-61 of the DRP s directions). In this regard, it is submi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt contract of services in respect of employment with assessee. From the perusal of the key features of the agreement, it is evident that the seconded employees have to work at such place as the assessee may instruct and the employees have to function under the control, direction and supervision of the assessee and in accordance with the policies, rules and guidelines applicable to the employees of the assessee. The employees in their capacity as employees of the assessee had to control and supervise the activities of another company. Therefore, the assessee for all practical purposes has to be treated as employer of the seconded employees and expenses incurred by the seconded employees which were reimbursed by the assessee is not liable to deduction to tax at source. There is no obligation in law for deduction of tax at source on payments made for reimbursement of costs incurred by a nonresident enterprise and therefore, the amount paid by the assessee was not to suffer tax deduction at source under section 195. Thus, substantial question of law is answered against revenue. [para 11] 6.8 Following the above decision of the Tribunal, we allow the ground taken by the assessee. 7. Gr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se the expenses as well. Therefore, out of the consideration received, the portion representing reimbursement of expenditure has to be excluded. Total turnover has been defined in sections 80HHC and 80HHE only to exclude additional items given under section. But for this additional exclusion, there was no need to define total turnover . Export turnover is a component of total turnover. If the entire turnover represents export proceeds, then the export turnover and the total turnover are identical. It is clear that any exclusion in the export turnover in the numerator will automatically imply exclusion in the denominator as well because export turnover is always a component of total turnover. 7.4 In view of the above decision of Hon ble Supreme Court, we allow the ground taken by the assessee. 8. Ground No.13 is with regard to non-grant of set off of accumulated Minimum Accumulated Tax ( MAT ) credit. In this regard, assessee wants the direction to AO to grant accumulated MAT credit claimed in the return of income. We accede to the request of the assessee s counsel. Ordered accordingly. 9. Ground No.14 is with regard to levy of interest u/s 234A of the Act. Ld. A.R. stated that levy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Appellant. Therefore, since the depreciation on the assets is considered as a part of the operating expense for computing the operating profit margin arising from the transaction, the income from which is offered to tax, no addition under Section 28(iv) of the Act is warranted. It is submitted that since the item has already suffered tax pursuant to the APA, a separate addition would result in double taxation, which is unsustainable. In view of the above, the other contentions are not argued at the present stage and the Appellant reserves liberty to argue the same at a future stage, if required. 11.3. The Ld. D.R. relied on the order of lower authorities. 11.4 We have heard the rival submissions and perused the materials available on record. We find force in the arguments of the assessee s counsel. If the depreciation on assets is considered as part of operating profit margin arising from the transaction, and the income from which it is offered to tax, no addition u/s 28(iv) of the Act is warranted, which is already subject to tax pursuant to APA and no further addition is necessary, otherwise it amounts to double taxation. Accordingly, we allow this ground taken by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d, Ld. A.R. submitted that the expense claimed in this year is reversed in the subsequent year and offered to tax, and therefore no disallowance is warranted in the year under consideration. 13.3 Without prejudice, if a disallowance is to be made, the same ought to be restricted to 30%, wherever applicable. Without prejudice, should the amount be disallowed in the current year, the same should be excluded/ reduced from total income in the subsequent year when the provision is reversed. Further, any amount disallowed in previous year (i.e. year ended 31 March 2014) should be excluded/ reduced from total income of the current year (i.e. year ended 31st March 2015) when the provision is reversed. 13.4 The Ld. D.R. relied on the orders of the lower authorities. 13.5 We have heard the rival submissions and perused the materials available on record. As discussed in earlier year in ground No.8, if no deduction has been made on this payment, this expenditure cannot be allowed in this assessment year under consideration. However, we make it clear that if it is reversed in the next assessment year, it cannot be treated as income on reversal. Ordered accordingly. 14. Ground No.5 is with regar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ties. 15.2 We have heard the rival submissions and perused the materials available on record. After hearing both the partis, same issue came for consideration in this case in earlier AY 2014-15 as discussed in para 5.4 5.5 of this order, this issue is decided in favour of the assessee. 16. Ground No.8 is with regard to grant of foreign tax credit. 16.1 Ld. A.R. submitted that the Assessing Officer denied foreign tax credit claimed by the Appellant in respect of its units eligible for deduction under Section 10AA of the Act, on the ground that the effective tax payable in respect of the said unit being Nil , credit of foreign taxes cannot be claimed. Ld. A.R. submitted that in view of the decision of the Hon ble High Court of Karnataka in the case of Wipro Ltd. v. DCIT ([2015] 62 taxmann.com 26 (Karnataka) (para 52), the foreign tax credit claimed ought to be allowed. 16.2 Further any enhancement to total income, in so far as it relates to the income of the eligible unit, should be eligible for deduction under Section 10AA of the Act (refer decision of the Hon ble High Court of Karnataka in CIT and Anr. v. Mpact Technology Services Pvt. Ltd. (Order dated 11.07.2018 passed in ITA No. ..... X X X X Extracts X X X X X X X X Extracts X X X X
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