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2017 (8) TMI 736 - ITAT KOLKATATDS u/s 195 - TDS liability on reimbursement of employee training expenses - whether payments made by the Assessee to Hunan and Hunan Law through ECGCL would constitute FTS within the meaning of the India China DTAA - condition precedent for taxing such receipts - Held that:- The training of engineers in China was done by Hunan for and behalf of the Assessee and for the specific purpose of execution of the onshore services and construction of steel plant in India. The Assessee was bound to make payment for such services to Hunan. The fact that ECGCL made payment one behalf of the Assessee which was subsequently repaid by the Assessee to ECGCL will not make the payment in question as pure reimbursement which did not involve any element of income in the hands of the recipient. Tribunal in the case of C. U. Inspections (I) Pvt. Ltd. Vs. DCIT [2013 (12) TMI 1044 - ITAT MUMBAI] held that if the Indian subsidiary company incurs expenses or makes purchases or avails any service from some third party abroad and the payment to such third party is routed through its holding or related company abroad, the provision for deduction of tax at source apply as if the assessee has made the payment to such independent party de hors the routing of payment through the holding company. The remission of amount to the holding or related company for finally making payment to the third person will be considered as payment to third party. It cannot be termed as reimbursement of expenses to the holding company. The Mumbai Tribunal further held that if the contention of the Assessee is accepted and the payment to third party, routed through its related concern, is considered as reimbursement of expenses to the related party then probably all the relevant provisions in this regard will become redundant. We therefore hold that the payments in question cannot be regarded as mere reimbursement of expenses by the Assessee to ECGCL which do not attract the provisions of Sec.40(a)(i) of the Act. Whether the payment by the Assessee to Hunan Law through ECGCL would constitute FTS within the meaning of the India China DTAA? - Held that:- The main purpose for which Hunan was employed was to train Chinese Engineers who were to visit India for carrying out the onshore services and construction of integrated steel plant in India, in English language, acquaint them with the Safety Standards which is to be followed by steel plants in India as per Indian law and to enable them to answe questions that may be asked before issue of Visa by Indian authorities. As in the case of Lloyds Register Industrial Services (India) Pvt. Ltd. (2009 (11) TMI 670 - ITAT MUMBAI) held that going by common sense training expenses cannot be called as "fee for technical services". The Mumbai Bench went on to hold that even highly qualified personnel might require training to carry out the job for which they are recruited and the person imparting training cannot be said to be rendering technical, managerial or consultancy service. It was held that such training was a continuous process because technology is changing very fast and one needs to keep touch with such technology and therefore, expenses incurred towards training cannot be termed as "fee for technical services". Article governing FTS identical to 12(4) of India-China DTAA or Article 14 of India-China DTAA will govern taxation of income derived from independent professional services in the context of rendering of legal services by non-resident - Held that:- In the case of Maharashtra State Electricity Board, (2003 (8) TMI 165 - ITAT BOMBAY-H), wherein it was held that the relevant Article of India-UK DTAA dealing with FTS was a general provision while the relevant Article of the India-UK DTAA dealing with fees for independent personal services was a specific Article and that the specific article in the DTAA would override the general article. Similar ruling in the context of India-USA DTAA was rendered by the Mumbai ITAT in the case of DCIT Vs. Chandbourne & Parke LLP (2005 (1) TMI 596 - ITAT MUMBAI). Thus no hesitation in holding that Article 14 would apply in so far as payments made to Hunan Law is concerned and since the condition precedent for taxing such receipts in the hands of Hunan Law in India are not satisfied, the said payment is not chargeable to tax in India in the hands of Hunan Law and therefore there was no obligation on the part of the Assessee to deduct tax at source u/s.195 of the Act. - Decided in favour of assessee.
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