TMI Blog2003 (1) TMI 261X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to raise a loan in the international market and for that purpose, it was required that the appellant had to get an independent assessment of its project done by a reputed consultant. The appellant chose M/s Jaakko Poyry Pte. Ltd. Singapore to make independent assessment of the project and to prepare a bankable report. For the purpose of carrying out the survey and preparation of the report, the appellant had to pay a fixed fee of US$ 60,000 to the consultant in 3 instalments, i.e., 20 per cent at the inception and 40 per cent on completion of the final report. The payment had to be made net and free of all taxes, duties, etc. Accordingly, the assessee moved an application dt. 1st Feb., 1995, requesting for authorization to remit a sum of US$ 23,400 (net of taxes) being in the nature of fee for preparing feasibility report to M/s Jaakko Poyry (Asia Pacific) (P) Ltd. 1 Scatts Road 19-06, Show Centre Singapore-0922. As per the assessee s letters dt.18th Jan., 1995and25th Jan., 1995, addressed to the ITO, Special Ward 30(1),New Delhi, it was claimed by the assessee that no tax is chargeable on the amount sought to be remitted as it is a business profit to the recipient and is covere ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ITO, Special Ward 30(1),New Delhi, vide his order dt.3rd Feb., 1995, made an identical order with respect to the payment to M/s Jaakko Poyry (Asia Pacific) Pte. Ltd., Singapore of 21,600 US$ and yet again on8th Feb., 1995, an identical order was passed with respect to payment of 24,000 US$ net of taxes to M/s Jaakko Poyry (Asia Pacific) Pte. Ltd. 9. In appeal before the first appellate authority, it was submitted on behalf of the assessee that the orders under s. 195(4)(1) are erroneous on facts and in law. It was stated that the fact that the fee paid to the consultant was business profit in its hands and in the absence of any permanent establishment inIndia, it was not taxable inIndia. Accordingly, the ITO was not correct in holding that the payment in question was fee for technical services and in directing that the deduction of tax at source at the rate of 17.65 per cent on amount of remittances to be made to Singapore. It was also stated that the services rendered by the consultant were technical in nature but no technical skill, knowledge, experience, know-how or process, etc., was provided to the assessee-company by the non-resident consultant. Accordingly, the fee was not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ct or feasibility report as described by the ITO, was provided with the technical knowledge, experience, skill, know-how or processes or any such services, knowledge, skill, know-how or processes through technical or other personnels as observed and interpreted by the ITO. Perusal of the report in question, which is essentially a study and an assessment of various factors for the proposed project to be set up by the appellant the project was neither set up nor any production, etc., was done. It was merely at a preliminary stage. In view of the matter, though the fee is essentially a fee for professional services, within the definition of art. 12(4)(b) of the relevant DTAA it could not be construed to be a fee for technical services as held by the ITO. Since this fee is a professional fees in the hand of the consultant, the contention of the appellant that it is the business profit of the consultant must be accepted as correct. As the business profit of the non-resident consultant is not taxable in India as it does not have any permanent establishment in India as required under the relevant DTAA, other issues like deductibility or otherwise of tax at source after grossing up etc., b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 7 paras (1) and (7) of the same, art. 12 para 2(b), para (4), para (5) and para (7) was referred to at length. Our attention was also invited to art. 14 para (1) and (2) of the same. On the analysis of the various articles and paras of the DTAA and looking at the exclusionary clause provided in art. 12 and art. 7 para 7, the learned Departmental Representative contended that the Dy. CIT(A) was not justified on the facts of the case after holding that the nature of the payments to be professional services within the definition of art. 12(4)(b) at p. 4 of the impugned order to decide the issue in favour of the assessee. It was vehemently contended that after coming to the said conclusion, there was no reason or basis for him to hold that it could not be construed as fee for technical services as held by the ITO since this fee is a professional fee in the hands of the recipient. Thus, the argument was that the Dy. CIT(A), on the facts, deciding the issue against the assessee was not justified in law to grant relief to the assessee. It was further contended by him that after holding that the nature of the payment to be professional services within the definition of Art. 12(4)(b), ther ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n obtained by the assessee from the services rendered and it was purely a feasibility report. It was further stated that had the payment been made under s. 9(1)(vi) of the Act read along with the explanation, the said amount could have resulted in a situation where the assessee would have been liable to deduct tax. However, since in the facts of the case it was an admitted fact that the provisions of DTAA were applicable and further the foreign concern did not have a permanent establishment inIndia, the payment made was a business profit in the recipient s hands. Thus, no TDS could be deducted thereon. Accordingly, the Dy. CIT(A) was justified in the facts of the case to allow the appeal of the assessee. Reliance was also placed upon the project report prepared by the said concern to show that it was purely a bankable feasibility report. Various pages in the paper book were referred to in order to drive home the point that it was simply a report aimed at foreign investors and the assessee already had in its possession a project report for the said project. 19. Learned Departmental Representative, in reply, submitted that looking at the project report prepared by the said concern, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for its pulp production, the Group is planning to build a world-scalegreenfieldcoated wood free and board mill inIndiabased mostly on the captive pulp formIndonesia. The company has conducted a feasibility study on the project, which indicates acceptable financial returns. To market the project to the financial community, Sinar Mas Pulp Paper (India) Ltd. (later the Client) has invited Jaakko Poyry Pte Ltd. (later the Consultant) to make an independent assessment of the project and to prepare "bankable" report, which describes the project concept and its feasibility to potential financial parties." 22. The said document further comments upon the objectives of the said report which have been enumerated as under: "The primary objectives of the report will be to vet the existing study by the Indian consultant and to prepare an executive summary which will give a clear, independent and understandable overview of the project to the banking community with no prior knowledge of the project. This will be achieved by addressing the following areas of the project: 1. Market prospects and pricing of the grades to be produced 2. Fiber supply 3. Technology and environment 4. Mill ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12 of the Treaty." 27. At p. 6 of the said submissions, the following contention has been raised: "It may kindly be appreciated that the Consultant is engaged in the business of rendering services of the nature of survey and appraisal and preparation of the project report, feasibility report, etc. Any payment received by it for rendering services in these areas activities will therefore be of the nature of business income in the consultant s hands. As per cl. (1) of Art. 7 of the DTAA, business profits arising to theSingaporeenterprise can be taxed inIndiaonly if that enterprise has a permanent establishment inIndiaand to the extent such profits are attributable to that permanent establishment." 28. Having given our utmost consideration to the entire gamut of arguments, facts and submissions as well as the provisions of DTAA we are of the view that no doubt M/s Jaakko Poyry does not have any permanent establishment in India but this fact by itself will not result in a situation that any and every payment made to a Consultant would be exempt under the DTAA. 29. It would be appropriate to first consider the relevant provisions of the DTAA entered into betweenIndiaandSingapore ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information; (b) any industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities described in paras 4(b) or 4(c) of art. 8. 4. The term "fees for technical services" as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in para 3 is received; or (b) make available technical knowledge, experience skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein; or (c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. For the purposes of (b) and (c) above, the person ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l services and the issue has to be decided purely on the basis of art. 12 of the DTAA. 33. A perusal of art. 12 of DTAA which we have reproduced above further shows that according to para 1, fees for technical services arising in a contracting State and paid to a resident of other contracting State may be taxed in that other State. Sub-para (2) of Art. 12 lays down that such fees for technical services may also be taxed in the contracting State in which they arise and according to laws of that State but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed the specified amount. Para (3) deals with royalties with which we are not concerned in the present appeal. The term "fees for technical services" which is relevant to the issue at hand has been defined in para (4) of art. 12 which lays down that payments of any kind made to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services (a) are ancillary and subsidiary to the application or enjoyment of the right, property or informatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , experience and skill has been made available to the assessee for which payments have been made. Accordingly, the action of the AO was fully justified in facts and circumstances of the case and the CIT(A) was not justified in the facts of the case to hold that TDS on the said payment was not required to be deducted. After holding that the nature of the payment was essentially of the nature of fees for professional services according to art. 12(4)(b) of the DTAA, there was no basis for him to conclude that TDS provisions were not attracted. 35. Before concluding, we would again like to observe that in the course of the hearing, the learned Authorized Representative appearing on behalf of the assessee was specifically put to notice whether the finding of fact arrived at by the CIT(A) that the provisions of art. 12(4)(b) were applicable have been contested by the assessee, learned Authorized Representative submitted that he has accepted the finding and has not come in cross-objection against the said finding and, in fact, was confident in defending the appeal on the basis of the fact that the project report was a bankable report obtained by the assessee. Heavy emphasis was laid on ..... X X X X Extracts X X X X X X X X Extracts X X X X
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