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2010 (7) TMI 1081 - AT - Income TaxIncome taxable in India - Remittances of conference expenses - liability to deduct tax at source - DTAA between India and USA - PE In India - HELD THAT - We are of the view that the nature of services rendered by CKP to the assessee-company is such that the same cannot be regarded as technical or consultancy services so as to fall within the definition of fees for included services as given in Article 12 of the Indo-US Tax Treaty. The payment made for the said services thus is in the nature of business profits in the hands of CSK as covered under Article 7 of the Treaty and the said party admittedly having no PE in India in the year under consideration the same was not chargeable to tax in its hand in India. Consequently the assessee-company was not liable to deduct tax at source from the said payment made to CSK and no liability could be fastened on it u/s 201/201(1A). We therefore reverse the impugned order of the ld. CIT(A) upholding the order passed by the AO on this issue u/s 201/201(1A) and allow the appeal of the assessee. TDS u/s 195 - Remittances made to the non-resident - nature of services rendered by CROs - liability u/s 201/201(1A) - assessee here is a pharmaceutical company having in-house research facility generic drugs developed by the assessee-company are therefore sent for testing at the laboratories of CROs abroad. CROs conduct test and experiments on these drugs and send back analysis report containing results of such test and experiment - HELD THAT - As rightly observed by the ld. CIT(A) the CROs thus use their own skills equipments etc. to prepare the report - what they ultimately supply to the assessee-company is the analysis report and there is no parting with their skills and know-how to the assessee-company. The services rendered by CROs thus are not technical in nature but are merely in the nature of commercial services. The fees paid for such services in our opinion therefore does not amount to fees paid for technical services or fees paid for making available any technology to the assessee-company in order to enable to apply the same for developing/inventing new drugs in future. We are of the view that the nature of services rendered by CROs to the assessee-company is such that the same cannot be regarded as technical or consultancy services so as to fall within the definition of fees for included services and the payment made for such services therefore was not chargeable to tax in India in the hands of the concerned CROs. Consequently the assessee-company was not liable to deduct tax at source from the said payment made to CROs and no liability could be fastened on it u/s 201/201(1A). We therefore uphold the impugned order of the ld. CIT(A) giving relief to the assessee on this issue and dismiss the appeal filed by the revenue.
Issues Involved:
1. Taxability of remittances of conference expenses and obligation to deduct tax at source. 2. Taxability of payments made to non-resident entities for bio-equivalence studies, analysis charges, testing charges, and sub-chronic toxicity study charges. Issue-wise Detailed Analysis: 1. Taxability of Remittances of Conference Expenses and Obligation to Deduct Tax at Source: The primary issue in ITA No. 4757/Mum./09 was whether the remittances of conference expenses by the assessee-company to M/s. C.K. Prahlad Inc. of USA were chargeable to tax in India and whether the assessee-company was liable to deduct tax at source from the said remittance. The assessee-company argued that the payment of US $80,000 to M/s. C.K. Prahlad Inc. was not taxable in India as the company did not have any permanent establishment in India and the services rendered were not technical in nature. The Assessing Officer, however, held that the payment was for managerial/technical/consultancy services and thus fell within the definition of "fees for included services" under Article 12 of the DTAA between India and the USA. Consequently, the assessee was required to deduct tax at source under section 195 of the Income-tax Act. The CIT(A) upheld this view, treating the assessee in default under section 201 and charging interest under section 201(1A). Upon appeal, the Tribunal considered the nature of services rendered by CKP Inc., which were essentially in the nature of sharing management experiences and business strategies, and not technical services. It was observed that the services did not make available any technical knowledge to the assessee-company. The Tribunal referred to various judicial precedents, including the decision in the case of Federation of Indian Chambers of Commerce & Industry (FICCI), and concluded that the services rendered by CKP Inc. were not technical or consultancy services so as to fall within the definition of "fees for included services" under Article 12 of the Indo-US Tax Treaty. Consequently, the payment was considered as business profits under Article 7 of the Treaty, and since CKP Inc. had no PE in India, the payment was not chargeable to tax in India. The Tribunal thus reversed the CIT(A)'s order and allowed the appeal of the assessee. 2. Taxability of Payments Made to Non-Resident Entities for Bio-Equivalence Studies, Analysis Charges, Testing Charges, and Sub-Chronic Toxicity Study Charges: In ITA No. 4624/Mum./09, the issue was whether the payments made by the assessee-company to various non-resident entities for bio-equivalence studies, analysis charges, testing charges, and sub-chronic toxicity study charges were taxable in India, and whether the assessee was liable to deduct tax at source from these payments. The Assessing Officer held that the payments were in the nature of fees for technical services and thus taxable in India under section 9(1)(vii) of the Income-tax Act. Consequently, the assessee was treated as in default under section 201 for not deducting tax at source. The CIT(A), however, found that the services provided by the CROs were not technical services but commercial services. The CIT(A) held that the CROs did not provide or invent any drug but merely conducted tests and provided analysis reports. The CIT(A) relied on the decision of the Bombay High Court in the case of Diamond Services International (P.) Ltd. and the ruling of the AAR in the case of Anapharma Inc., Canada, to conclude that the payments were not taxable in India under the DTAA. The Tribunal upheld the CIT(A)'s decision, noting that the services rendered by the CROs were not technical or consultancy services and did not make available any technology to the assessee. The Tribunal referred to various judicial precedents, including the decision in the case of Anapharma Inc., and concluded that the payments made to the CROs were not chargeable to tax in India. Consequently, the assessee was not liable to deduct tax at source from these payments, and no liability could be fastened on it under section 201/201(1A). Conclusion: The Tribunal allowed the appeal of the assessee in ITA No. 4757/Mum./09, holding that the remittances of conference expenses were not taxable in India and the assessee was not liable to deduct tax at source. In ITA No. 4624/Mum./09, the Tribunal dismissed the appeal of the revenue, upholding the CIT(A)'s decision that the payments made to non-resident entities for bio-equivalence studies and other charges were not taxable in India, and the assessee was not liable to deduct tax at source from these payments.
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