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2019 (9) TMI 500 - AT - Income TaxTDS u/s 195 - payment of Royalty/Fees for technical services - satisfying the condition of ‘make available’ - DTAA - whether the aforesaid payments for training fees i.e. on account of reimbursement of cost of air tickets travel, imparting training is to be treated as Fees for Technical Services or managerial services as provided in section 9(1)(vii) of the Act? - payment made to entities residents of countries of category III i.e. Singapore, USA, Switzerland and Sweden HELD THAT:- Since DTAA provisions are more beneficial to the entities based in such countries, with which India has tax treaty, but such tax treaty do not have FTS clause, then there is no question of taxability of such receipts under the Income Tax Act, either as business income or other income. In the facts of present case, the assessee has received the services from entities based in different countries and details are enlisted at page 32 of order of CIT(A). The countries falling in category one in the present case are Malaysia, Thailand, Indonesia, UAE and Saudi Arabia. The CIT(A) had relied on three decision while deciding this issue. The assessee while making payments to the entities based in countries falling in category one is thus, not required to deduct tax at source out of payments made to them, since the said amounts received by such entities were not taxable in their hands. Second category of cases i.e. payments to residents of tax jurisdiction with which India has tax treaties and where there is FTS clause, but without make available clause. Then receipts on account of FTS to entities based in such countries get taxed in their hands even in the absence of PE or the fixed base. The list of such countries i.e. category II include China, Denmark, Italy and Germany (i.e. the entities of such countries with whom assessee before us had dealings). Since such receipts are taxable in the hands of recipients, there was obligation on assessee to deduct tax or withhold tax out of such payments. The assessee having not deducted tax at source out of such payments or having not withheld the tax, thus had defaulted and is liable to the demand raised under section 201(1) of the Act and interest charged under section 201(1A) of the Act. The third category of cases are in category III i.e. payments being made to entities resident of tax jurisdiction with whom India has tax treaties; further in such tax treaties, there is a clause of FTS, with condition of ‘make available’ of any technology. With regard to such entities in countries of category III, the condition of ‘make available’ is to be fulfilled in order to attract the provisions of clause of FTS. In other words, there has to be transfer of technology by such entities to the recipients of other Contracting States, while providing services to them. With regard to the countries of category III, the question which needs to be satisfied that while providing training, clause of make available of technology was satisfied or not. In the absence of any technology being transferred and where it is case of providing general training or attending seminar, then such receipts are not taxable in the hands of entities based in the source States. Various Courts have decided that the condition of ‘make available’ as provided in DTAA if does not get satisfied, then such payments to non-resident entities are not liable for tax deduction at source. Authorities below in the present case have not come to any finding that training imparted by associated enterprises to the employees of assessee make available any technology and in the absence of the same, payments made to the entities residents of countries of category III i.e. Singapore, USA, Switzerland and Sweden are not exigible to tax deduction at source. The assessee in such circumstances cannot be held to be in default for not deducting tax out of said payments. Payment made on account of repairs and maintenance - HELD THAT:- CIT(A) has confirmed the order of Assessing Officer in respect of payments to two concerns. The assessee has fairly pointed out that payments made to Tetra Philippines Inc is not taxable as there is no Article in FTS in DTAA and hence, there is no requirement to deduct tax out of such payments. The said concern Tetra Philippines Inc falls in category No.I and hence, we hold that the payments made to such an entity is not exigible to tax deduction at source in line with our deliberations on the issue in paras above. Payments to an entity in China is concerned which falls in category No.II, we hold that the said amount is exigible to tax at source in line with our decision in the paras above in respect of countries in category No.II. TDS on design services to entities in Switzerland and Singapore - Payments made for design services, do not satisfy make available clause, where no technical service had been made available to the assessee, there is no question of same being exigible to tax. The learned Departmental Representative for the Revenue has failed to controvert the findings of CIT(A). The recipients are residents of countries of category III and out of such payments, there is no requirement to deduct tax in the absence of satisfying ‘make available’ condition. Applicability of provisions of section 206AA - No merit in the grounds of appeal raised by Revenue in this regard as the beneficial provisions of DTAA would override the provisions of Income Tax Act and accordingly, there is no requirement to deduct tax at source as per provisions of section 206AA - See SERUM INSTITUTE OF INDIA LIMITED [2015 (6) TMI 26 - ITAT PUNE] confirmed by HC [2018 (12) TMI 1341 - BOMBAY HIGH COURT] Applicability of provisions of section 195A - AO grossed up various payments made in accordance with provisions of section 195A of the Act, while calculating the tax payable - HELD THAT:- CIT-A held that there was nothing on record, on the basis of which it could be concluded that the assessee had agreed to bear tax liability of the foreign companies, hence the provisions of section 195A of the Act should not have been applied. The learned Departmental Representative for the Revenue has failed to controvert the same Payments made towards repairs and maintenance and other services - whether tax was deductible? - HELD THAT:- CIT(A) has directed the Assessing Officer to verify the claim of assessee and if the payments were made for material purchase or machinery part charges, then there was no requirement to deduct tax at source and for such non deduction of tax at source, no disallowance can be made. We find no merit in the grounds of appeal raised by Revenue in this regard as the CIT(A) has asked the Assessing Officer to make necessary verification and decide the issue. Payments made for software licenses purchased from other associated enterprise entities - AO and CIT(A) held the assessee in default for non deduction of tax at source on the ground that the said payments were in the realm of royalty - HELD THAT:- We place reliance on earlier decision of Pune Bench of Tribunal in John Deere India Pvt. Ltd. Vs DDIT (International Taxation) [2019 (3) TMI 458 - ITAT PUNE] wherein it was held that no TDS is required to be deducted on purchases of copyrighted software licenses. Accordingly, there was no requirement to deduct any tax out of such payments.
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