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TMI Blog2009 (10) TMI 80X X X X Extracts X X X X X X X X Extracts X X X X ..... s Apollo Consulting Services Corporation, USA (ACSC) for producing (sic-procuring) software personnel in USA for the projects of IBM in USA. As per the arrangement, whenever IBM, Bangalore issued work authorization/purchase order, the assessee in turn issued a work order/purchase order on ACSC, USA who procured the required personnel and deployed them on the projects of IBM, USA. For the services rendered, ACSC used to raise an invoice on the assessee on monthly basis and in turn the assessee raised invoice on IBM. The payments due to ACSC, USA is remitted in US dollars. However, such remittances have been made without deduction of tax at source. The AO was of the view that since the remittances to ACSC were made for supply of software professionals for executing the onsite work in USA in connection with the contract between the assessee and IBM Global Services (India) (P) Ltd., the amounts credited to the account of or remitted to ACSC, are in the nature of fees for technical services covered under s. 9(1)(vii)(b) of the Act. Accordingly, the AO issued a show-cause notice to the assessee proposing to treat it as an 'assessee in default' for non-deduction of tax on the remittances ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee in default as per s. 201(1) in respect of tax which it has failed to deduct. Accordingly, a demand of Rs. 1,97,97,968 and Rs. 2,23,07,041 was raised under s. 201(1) for asst. yrs. 2005-06 and 2006-07 respectively. Similarly, demand of Rs. 30,47,003 and Rs. 14,91,755 under s. 201(1A) was raised for asst. yrs. 2005-06 and 2006-07 respectively, vide orders of the AO dt. 31st March, 2006 and dt. 6th April, 2006 respectively passed for those years. 3. On appeal, the CIT(A), after elaborate consideration of the matter concluded that the payments made by the assessee to ACSC, USA would not be chargeable to tax in India in view of the provisions of DTAA between India and USA, and consequently holding that the assessee company cannot be fastened with the liability for deduction of tax at source under s. 195 of the Act, annulled the orders of the AO, and directed the demands raised under ss. 201(1) and 201(1A) to be deleted. 4. Aggrieved by the order of the CIT(A), Revenue preferred the present appeals before us. 5. The learned Departmental Representative submitted that the remittances made by the assessee company to ACSC comes under the ambit of 'fees for included services' as d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for such services is with the assessee company, It is also submitted that Mr. Babu Rao Mandava is the chairman for assessee and the President for ACSC. Referring the page No. 97 of the paper book filed by the assessee, it is submitted that the scope of work mentioned in the technical services. agreement between IBM Global and the assessee includes software development. Referring to the appellate order of the first appellate authority dt. 27th Dec., 2007 passed in the case of ACSC, Mumbai for the asst. yr. 2004-05 which is placed at the pp. 116 to 121 in the paper book of the assessee, it is submitted that ACSC supplied the manpower to IBM India in USA in terms of the base agreement and as a sub-contractor of the assessee under the contractual arrangement arising out of the agreement between IBM and the assessee and agreement between the assessee and the ACSC. It is also submitted that the first appellate authority in that case observed that as per the scope of work between the IBM and the assessee herein, the assessee will provide software support development activities including software development, testing etc. He also produced a copy of a write-up downloaded from an internet we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es rendered by those employees become the services of the assessee to the clients of IBM and not the services of the ACSC to the assessee. The agreement between the assessee and the ACSC and agreement between the assessee and IBM do not define the product to be developed. The cl. 12 of the agreements of the assessee company with ACSC/IBM refer to supply of personnel only. All the purchase order, work order, invoice, etc. indicate only supply of personnel. In support of this contention, he took us through the copies of the work order, invoice, purchase order, etc. placed in the paper book. The orders of the AO, he submitted, do not speak anything about the software developed and made available to the IBM. No technology or skill or design were made available by the ACSC or assessee company, so as to invoke art. 12(4)(b) of the DTAA. The services of the ACSC for which the payment has been made by the assessee company is only for the placement and recruitment services and not by way of fees for 'included services' falling under art. 12(4)(b) of the DTAA. Hence payments made to ACSC are not chargeable in view of DTAA and consequently, the provisions of s. 195 of the Act are not applicab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deduct tax at source. Explanation to s. 9(1), which defines the scope of the term 'technical services' has provided for two exceptions. The first exception relates to the fees for technical services payable for services utilised in a business carried on by the payer outside India and the second exception relates to fees for technical services payable for earning any income from any source outside India. It is true, as observed by the CIT(A) that in the case under consideration the payer is a resident in India and the payment is being made in connection with earning of income by the assessee company from a source inside India and to this extent, the exceptions provided in s. 9(1) do not apply to the case of the assessee. Since the payments are made by a person, who is a resident for, the purposes of making or earning income from a source inside India, the remittances can come within the ambit of fee for technical services. However, in terms of DTAA between India and USA, it needs to be examined whether the said remittances are payments made by the assessee company to the ACSC falling within the definition of 'fee for included services' as per art. 12(4) of the DTAA, since the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lows from the agreement between the assessee and ACSC and not from the agreement between the assessee and IBM. In our considered view, the primary services rendered by the ACSC to the assessee is akin to recruitment and placement service rather than making available any technology, plan, design, etc. One important aspect we noticed is that the final product or result on account of deployment of technical personnel by the assessee through the ACSC is not predetermined by the ACSC or the assessee. The Department has not brought anything on record to show that any product was developed by the assessee company and transferred to IBM. No specific project or product is defined before hand, for which services of personnel have been provided by the assessee through ACSC. The CIT(A) has also gone through a number of copies of the purchase order, work order, invoice etc, before, coming to the conclusion that what is ordered through the purchase order is certain amount of manpower at a specified unit price per hour. No detail as to what work is to be done is mentioned even in the work order issued by the assessee. Thus, neither the agreement nor the invoice refer to any technical services ren ..... X X X X Extracts X X X X X X X X Extracts X X X X
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