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2023 (1) TMI 1325 - AT - Income TaxIncome taxable in India - Taxing of reimbursements treated as royalties and fees for technical services - Taxed at rate of 15 per cent., instead of 10.455 per cent. being the beneficial rate u/s 115A - whether the reimbursement of expenses by the assessee to its UK-associated enterprise is "fees for technical services" or not, has held that the payment made by the assessee falls within the ambit of "royalty" under section 9(1)(vii) and article 13(3)? - second round of proceedings - HELD THAT:- As the mandate of the AO was to follow the directions of the Tribunal whereby the matter was set aside to the AO for specific adjudication. The scope of set aside was circumscribed to see, whether the payment made for reimbursement falls within the ambit and scope of fees for technical services under article 13(4)(c) which stipulates that fees for technical services means payment of any kind to any person in consultation of rendering of any technical consultancy certificates which make available technical knowledge, experience, skill, know-how or process or development and transfer of a technical plan or design. Now the AO instead of following the direction of the Tribunal has proceeded to treat the payment in the nature of royalty which cannot be sustained at the threshold. CIT (A) though has accepted this fact, but having a co-terminus power with the AO, he has chosen not to decide the issue albeit has set aside the issue to the file of the AO - On this fact alone, the entire assessment order as well as the order of the CIT(A) is unsustainable and deserves to be quashed. In any case as explained, the lotus note which was a kind of facility given to the group of companies with a view to smoothen the day-to-day work increase the overall efficiency level. It has been sated that a Foseco group companies have taken lotus note which is a software purchase from IBM for the use of entire establishment for co-ordinated activity/administration for the benefit of all the facilities too subsidiaries of the assessee-company. The cost of services have been recovered and raised by Foseco group without any markup. Nowhere can it be said there is any kind of "make available" of any kind of technology or a terms mentioned in article 13(3)(c). Thus, it cannot be treated in the nature or fees for technical services under the Indo-UK Double Taxation Avoidance Agreement. Accordingly, on merits also, the reimbursement of lotus note for fees for technical services is allowed. In so far as other expenses, the same are purely marketing expenses and professional which cannot be again treated as fees for technical services under clause of article 13(3)(c). Accordingly, the additions made by the AO and sustained by CIT (Appeals) is deleted. Appeals filed by the assessee stands allowed.
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