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TMI Blog2019 (1) TMI 2057X X X X Extracts X X X X X X X X Extracts X X X X ..... rival submissions and various case laws, we find that in the present case before us the payments were made to non residents for rendering services outside India and the recipients were not having any PE in India and thus income does not accrue or arise in India as there was no business transactions in India. Since the recipients do not have any PE in India and under Article of Business Profit of Double Taxation Avoidance Agreement such payments are not chargeable to tax in India unless the services were made available to the assessee in India. Article 12(4) of DTAA between India and USA, such fee is chargeable to tax in India if such services make available , technical knowledge, experience, skill, knowhow and a process or transfer of technical plans or designs. However, all these certification agencies and professional firms have not made available such services to the assessee such as knowhow. Therefore, service rendered by them outside India is not chargeable to tax in India and the provisions of section 195 of the Act are not applicable and consequently the assessee is not liable to deduct TDS at source. Therefore disallowance under section 40(a)(i) of the Act is not correct. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... non-resident certification agency as services as referred to in Article 12(4)(a) of Indo-US DTAA liable for withholding tax. 4. The Learned Assessing Officer erred in treating certification services rendered by non-resident certification agency as a services as referred in Article 12(4)(b) of Indo-US DTAA in the nature of 'make available'. 5. Appellant company prays that, a. Delete the addition of Rs. 32,25,963 made on account of disallowance of expenditure. b. Grant any other relief deemed necessary. 3. The only issue raised in the various grounds of appeal is against the confirmation of disallowance of Rs.32,25,963/- by Ld. CIT(A) as made by the AO in respect of legal and personal charges under section 40(a)(i) read with section 195 of the Act by ignoring the fact that the services were rendered by the non resident certification agencies outside India and therefore not chargeable to tax. 4. The facts in brief are that assessee is engaged in the business of manufacturing of switch mode power supplies and other computer peripherals in its factory located in SEEPZ and the products were being mainly exported to US and European countries. During the year the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bmissions made by the appellant. The ground of appeal is decided herein as under. During the year, the appellant company had paid Rs. 32,25,963 to various entities as mentioned above in USA for getting product certification services of switch mode power supplies and other computer peripherals manufactured by the appellant. The foreign entities were assigned this job since it had a specialized knowledge and facility for the requisite testing and certification. The AO was of the view that the said testing and certification was required to be utilized in the manufacturing activity of the assessee company. The appellant, while making the payment to the foreign entities, had not deducted TDS. On query by the AO, the appellant submitted before the AO that the payment had been made to the foreign entities for testing of their products and since the testing was done by a foreign company outside India, no income had accrued or arisen in India due to which, no TDS was deducted. The AO, however, was of divergent opinion and taken the opinion that the payments made by the appellant is liable to TDS. Accordingly, the AO has made the disallowance to the income of the appellant u/s 4o(a)(i) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and would fall for coverage in the definition of "fees for technical services", within the provisions of section 9(i)(vii) of the Act; that since the payment made by the appellant as fees for technical services was utilized in business in India, it would lead to income being deemed to accrue or arise in India; that since fees had been paid for obtaining technical services for the purposes of the appellant's business and it had also been utilized for the purpose of manufacture and sale of products in the business of the assessee, the provisions of section 195 of the Act were applicable to such payment and that therefore, the AO was correct in holding that deduction under u/s 40 (a) (i) was not allowable." 7. The Ld. A.R. vehemently submitted before us that the Ld . CIT(A) has grossly erred in upholding the order of AO. The Ld. A.R. stated that the services are rendered outside India and payments were made to non resident certification agencies outside India. It was stated that certification charges were paid to as stated hereinabove in this order to the parties who have rendered services of certification to assessee and are in the nature of certifying the products s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... penses can not be disallowed which were accepted by the department in the earlier and succeeding years. The Ld. A.R. relied strongly on the decision of Jurisdictional High Court in the case of Pr. CIT vs. Quest Investment Advisors Pvt. Ltd. in ITA No.280 of 2016 dated 28.06.2018 Bombay High Court. Similarly, the Ld. A.R. argued that the professional charges paid to JRT International Rs.60,968/- and FM approval LLC Rs.3,38,240/- as stated above in the table for the services rendered in USA with regard to the compilation of the documents at USA for the purpose of transfer pricing requirement in India. The said services were rendered outside India for which no income accrues and arises in India and accordingly does not qualify for withholding tax. The Ld. A.R. argued that the payments made for documentation and other procedural requirement services rendered would not fall within the term consultancy services and consequently remittance made to foreign parties would not come within the ambit of phrase 'fees for technical services' u/s 9(1)(vii) of the Act. The Ld. A.R. relied on the following decisions: 1. DIT vs. TUV Bayren India Ltd. (2015) 234 Taxman 388 Bom 2. CIT vs. Grup Ism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sallowed. Having considered the rival submissions and various case laws, we find that in the present case before us the payments were made to non residents for rendering services outside India and the recipients were not having any PE in India and thus income does not accrue or arise in India as there was no business transactions in India. Since the recipients do not have any PE in India and under Article of "Business Profit" of Double Taxation Avoidance Agreement such payments are not chargeable to tax in India unless the services were made available to the assessee in India. Article 12(4) of DTAA between India and USA, such fee is chargeable to tax in India if such services "make available", technical knowledge, experience, skill, knowhow and a process or transfer of technical plans or designs. However, all these certification agencies and professional firms have not made available such services to the assessee such as knowhow. Therefore, service rendered by them outside India is not chargeable to tax in India and the provisions of section 195 of the Act are not applicable and consequently the assessee is not liable to deduct TDS at source. Therefore disallowance under section 40 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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