TMI Blog2012 (3) TMI 242X X X X Extracts X X X X X X X X Extracts X X X X ..... t has tax presence in India, X India / Indian customers are required to withhold taxes u/s 195 at the rate in force mentioned in the Finance Act for the relevant year. Requirement of filing of return u/s 139 – Held that:- As the applicant has taxable income in India, it is required to file tax return under the provision of section 139. - A.A.R. No.928 of 2010 - - - Dated:- 13-3-2012 - Justice Mr. P.K.Balasubramanyan, Mr. V.K. Shridhar, JJ. Present for the applicant Mr.G and others Present for the Department Mr. Mahesh Shah, Addl. Director of Income-tax (Intl.Taxn.) Range-2,Mumbai. Mr. Ashish Heliwal, DDIT (Intl.Taxn.)-2(1), Mumbai. RULING (by Mr. V.K.Shridhar) Applicant, a tax resident of Hong Kong, belongs to X group of companies. The parent company ABC is having its headquarters in A Country. The group entities are engaged in the business of Inspection, Verification, Testing and Certification (IVTC) services to various customers. The X Trademark is owned by ABC, who had entered into a Trademark License and Support Services Agreement (Support Services Agreement) on 16.12.2005 with all its group entities, separately, including the applicant. The agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing costs incurred / proposed to be incurred for and on behalf of X India, are chargeable to tax in India under the provisions of the Act? a) Procurement of goods / services (Refer para B.4.1.1 of Annex.1); b) Reimbursement of out of pocket expenses incurred by the applicant for and on behalf of X India during the course of provision of services (Refer para B.4.1.2 of Annexure I); and c) Reimbursement of other expenses (Refer para B.4.1.3 of Annexure I). 3) Whether, on the facts and circumstances of the case, recovery of reasonable administrative cost incurred for and on behalf of X India as outlined in Para B.4.2 of Annexure I, be chargeable to tax in India under the Act? 4) Whether, on the facts and circumstances of the case, in case the applicant is not taxable in India for the services provided / proposed to be provided as outlined in Annexure I, would X India / Indian customers be required to withhold taxes under section 195 of the Act on payments made / proposed to be made to the applicant in connection with the transactions as mentioned in above questions and if yes, at what rate the taxes should be withheld? 5) Assuming that the applicant has no other taxable in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5(2) read with section 9(1)(i) of the Act. 5.1 It is argued by the learned counsel that the expenses recovered by the applicant from X India are on account of procurement of goods, cost of air tickets, freight, courier charges and travelling expenditure incurred in connection with the provision of services for and on behalf of X India. No element of income is involved while these expenses are reimbursed and hence there is no obligation to withhold tax under section 195 of the Act. 6. Revenue submits that ABC, the parent company, is in the business since 1878. It has presence everywhere in the world through its 45 affiliates. The website of ABC shows its expertise in 10 verticals focusing on quality and productivity. The affiliates are given territorial licenses by its parent company through the Support Services Agreement (mentioned supra). The affiliates depend on each others for the services; only players (affiliates) change as per the location of the services. The contract for services is subject to Swiss jurisdiction. The affiliates have to compulsorily follow the norms, as a robot, which are standardized to conduct the services. None of the affiliates is taxed in Switzerland ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubcontracts the services in India. Therefore, the exception under section 9(1)(vii)(b) would not apply. When ISO accreditation applies to all 10 verticals and is from start to finish, it cannot be said that source of income is outside India. 6.3 Regarding reimbursements, it is stated that expenses like software cost is incurred by the parent company and given to the affiliates. It is not being reimbursed but payment of royalty. Similarly courier charges are for sending the reports. The nature of expenditure has to be seen and cannot be labeled in general as administrative expenses. It is Revenue‟s contention that the payments are in the nature of FTS; alternatively, as Royalty. Exception under section 9(1)(vii)(b) does not apply. Reimbursements and administrative expenses are taxable. The issue of PE may be kept open. 7. Section 9(1)(vii)(b) of the Act reads as under: 9. Income deemed to accrue or arise in India. (1) The following incomes shall be deemed to accrue or arise in India:- xxx xxx xxx (vii) income by way of fees for technical services payable by (a) xxx xxx xxx (b) A person who is a resident, except where the fees are payable in respect of services utili ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g of inspection fee with the supplier/receiver. Upon finalization, a surveyor/inspector is appointed depending on the nature of the product / activity. The Inspection is carried out and a report is prepared. When the cargo is a petroleum product, the certificate of quality tests carried out are in respect of density, gravity, flashpoint, distillation, sulpher and water contents, viscosity, cetane index, salt contents, sediments, ash content, carbon residue etc. The density, gravity, relative density at various temperatures is measured. The tests carried out in accordance with API-MPMS standard or any other standard is mentioned. Samples are drawn, sealed, delivered on board for receivers, shipmaster and retained for a specific period. At the time of loading, if the person carrying out the inspection is unable to enter the vessel for the reason that the tanks are not clean or gas free and therefore unsafe to enter, then the inspection is limited to a visual inspection from the deck level via tank hatches and manually sounding residues on tank bottoms to form the opinion that the tanks were well drained of previous cargo. The X Inspector reports on the history of cargo loaded, calcul ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration . With the description of services before us it is not difficult to come to the conclusion that the services which the applicant is rendering for a fee is a technical service rendered by carrying out tests and certifying that the goods imported / exported conformed to certain specifications. Inspection and survey of imported / exported cargo and certifying in relation to quality and price Overseas Merchandise Inspection Company India(P)Ltd. (2002) 80 ITD 176; laboratory testing Searle(India)Ltd. (1984), 145 ITR 673; certification services for assuring quality NQA Quality Systems Registrar Ltd. 2004 TTJ 946 ; testing of samples Cochin Refineries (2001) 222 ITR 354; Union Carbide Corpn. 50 ITD 437; rendering technical assistance in preparation of project reports Central Mine Planning Design Institute Ltd. (1998) 67 ITD 195 are held to be technical services [Law and Practice of Tax Treaties-Rajesh Kadakia, Nilesh Modi]. We notice that reports are produced by experienced surveyors, coordinators, chemists and inspectors. The reports are highly ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... purpose of this ruling the applicant‟s stated position that it does not have a business connection in India. The Revenue‟s assertion that the applicant with other X affiliates forms an association of persons under the Act is a subject matter which is not covered by the questions posed for a ruling by this authority and hence is not pronounced upon. It is open to the Revenue to pursue it. We answer the questions as under: Que.No.1 The payment received / receivable by the applicant in connection with IVTC Services are taxable as FTS under section 9(1)(vii) of the Act. The exception provided under section 9(1)(vii)(b) of the Act is not available to the applicant. Que.No.2 3 The payments received / receivable in connection with the cost incurred and recovery of administrative cost for and on behalf of X India are chargeable to tax as FTS under section 9(1)(vii) of the Act. Que.No.4 As the applicant has tax presence in India, X India / Indian customers are required to withhold taxes under section 195 of the Act at the rate in force mentioned in the Finance Act for the relevant year on the payment made / proposed to be made to the applicant. Que.No.5 As the applicant has ..... X X X X Extracts X X X X X X X X Extracts X X X X
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