TMI Blog2021 (10) TMI 1005X X X X Extracts X X X X X X X X Extracts X X X X ..... IT Act. Foreign AE (service provider) has neither employed any technical or skilled person to provide managerial or technical service nor there was direct interaction between the assessee and the foreign AE. Thus, where the entire process resulting in provisioning of service is fully automated process with no human intervention, charges paid for provision of such services cannot be classified as FTS for the purpose of the IT Act. The invoices raised by Hitachi Limited, Japan and Hitachi Asia Limited, Singapore to the Assessee in lieu of the services received by the latter make it clear that services provided by foreign AEs were not technical in nature but were standard intranet, broadband and link services. Payment of network charges does not take the character of FTS due to absence of human intervention: Hence, the services received by the assessee can be said to be not in the nature of FTS as defined under Explanation 2 to Section 9(1)(vii) of the IT Act. To treat any consideration as FTS, such consideration must be paid for rendering of managerial, technical or consultancy services. Disallowance of amount includes amounts accrued towards link charges payable to Airte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... trative support charges are characterized as FTS under section 9(1)(vii) of the Act and therefore the appellant is liable to deduct tax at source under section 195 of the Act. 5. Ld. CIT(A)/AO have erred in law and on facts of the case by not considering all materials/submissions filed during the course of assessment/appellate proceedings. 6. Ld. AO has erred by alleging that the Assessee has furnished inaccurate particulars of income, thereby proposing to initiate penalty proceedings under Section 271(1)(c) of the Act. 3. The assessee company is engaged in the business of designing and manufacturing of cores and other amorphous metal or nanocrystalline soft magnetic metal used in transmission and distribution equipment and in electronic and computer products and other related products. 4. The assessee filed return of income on 29.11.2011 declaring income of ₹ 17,48,94,464/-. During the year under consideration, the assessee has undertaken international transaction with its Associated Enterprises (AE) and the matter was referred to the TPO in accordance with the Section 92CA of the Income Tax Act, 1961. The TPO passed an order u/s. 92CA(3) of the Act dated 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the services availed should be treated as Fee for Technical Services u/s. 9(1)(vii). 11. Heard the arguments of both the parties and perused the material available on record. 12. The Sections referred by the ld. CIT(A) pertaining to the Master Service agreement between the assessee and Hitachi Ltd. are as under: SECTION 4 INFORMATION AND ACCESS Each of HAS and Service Recipient may have in its possession or under its control (or the control of persons or firms which have rendered services to or otherwise done business with it) books, records, Contracts, instruments, data and other information (collectively, Information ) which may be necessary or desirable to the other in connection with the performance of this Agreement. Worn- lotion shall include, without limitation, information required for purposes of audit, accounting, claims litigation and tax as well as for purposes of fulfilling disclosure and reporting obligations under any applicable laws. Accordingly: (i) HAS agrees an provide to Service Recipient and Service Recipient agrees to provide to HAS upon the others written request at all reasonable times full and complete access to (including, access t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... licable law or legal process, HAS and Service Recipient agree to maintain as confidential and not to disclose to any third party any and all Confidential information provided by one party to the other or otherwise obtained by one party from the other party in the performance of this Agreement. Confidential information shall mean the non-public information of each party, but shall not include information that: (a) at the time of disclosure is published or is otherwise in the public domain; (b) after disclosure becomes part of the public domain other than through a breach of this clause by the receiving party; (c) was known to the receiving party prior to receipt from the disclosing party provided such prior knowledge can be adequately sustained by documentary evidence dated prior to the disclosed (d) is disclosed by a third party who, in making such information available to the receiving party is not in violation of any obligation of confidentiality to the other party hereto; or (e) has been disclosed by the disclosing party to a non- party on an unrestricted basis. 13. Further, we have gone through the Section 1 pertaining to Scope of Work (SOW) as mentioned in para 1.1 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nation 2 to section 9(1)(vii) of the IT Act (para 9). 17. In the ruling of CIT vs. Media World Wide (P.) Ltd. 120 taxmann.com 423, the Hon'ble Calcutta High Court observed that mere collection of a 'fee' for use of a standard facility which is available to everybody against payment of a fee, does not amount to the provider of the facility receiving fee for technical services. 18. In the ruling of CIT vs. ESTEL Communication (P.) Ltd. 318 ITR 185, Hon'ble Delhi High Court held that the taxpayer in that case was merely paying for an internet bandwidth to the deductee and then selling it to its customers. It observed that the use of internet facility may require sophisticated equipment but that does not mean that technical services were being rendered by the deductee to the taxpayer in that case. It was a simple case of purchase of internet bandwidth by the taxpayer from the deductee. The High Court held that the provisions of Section 9(1)(vii) of the IT Act did not apply. 19. The invoices raised by Hitachi Limited, Japan and Hitachi Asia Limited, Singapore to the Assessee in lieu of the services received by the latter make it clear that services provided by f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he words together shows that they are to be understood in the same sense. The word managerial and consultancy is a definite indicative of the involvement of a human element. Managerial services and consultancy services must be given by human only and not by any means or equipment. Therefore, the word technical must be construed in the same sense involving direct human involvement, and without that, the services provided cannot be held to be technical services under Explanation 2 to Section 9 (1)(vii) of the IT Act. Following the ratio laid down in Bharti Cellular (supra), various co-ordinate Benches of the Tribunal have held that to treat any payment as FTS, element of human involvement is mandatory: * CIT v. Vodafone South Ltd. [2016] 290 CTR 436 (Karnataka) * DCIT v. Vodafone Essar Digilink Ltd. [2018] 64 ITR(T) 392 (Delhi - Trib.) * ITO v. Primenet Global Ltd.: [2016] 48 ITR(T) 451 (Delhi -Trib.) * DCIT v. Velti India (P.) Ltd. [2015] 153 ITD 244 (Chennai -Trib.) (Para 8); * Bharti Hexacom Ltd. v. ITO [2015] 42 ITR(T) 686 (Jaipur -Trib.) * Elsevier Information Systems GmbH v. DCIT [2019] 106 taxmann.com 401 (Mumbai - Trib.) 24. We have also g ..... X X X X Extracts X X X X X X X X Extracts X X X X
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