TMI Blog2010 (11) TMI 193X X X X Extracts X X X X X X X X Extracts X X X X ..... appellant to deduct tax at source before making payment to GTA. - ITA NOS. 7526, 7527, 767 4& 7675 (MUM.) OF 2007 - - - Dated:- 30-11-2010 - N.V. VASUDEVAN, JUDICIAL MEMBER J. AND PRAMOD KUMAR, ACCOUNTANT MEMBER J. Yogesh A. Thar for the Appellant. Sanjay Agarwal for the Respondent. ORDER Per N.V. Vasudevan, JM. Appeal in ITA No. 7674/Mum/2007 is an appeal by M/s. Aditya Birla Nuvo Ltd., (formerly known as M/s. Indian Rayon and Industries Ltd.,) hereinafter called the appellant , while ITA No. 7527/Mum/07 is an appeal by the Revenue. Both the appeals are directed against the order dated 14.09.2007 of the Commissioner of Income-tax (Appeals)-XXXIII, Mumbai, relating to the assessment year 2006-07. 2. The appellant is a company engaged in the business of viscose filament yarn (VFY), carbon Black, branded garments, fertilizers, textiles and insulators. It had Textile Unit called Jaya Shree Textiles. M/s. Gualchierani Textiles Automation SpA,Italy ( GTA ), a company registered under the laws ofItaly, carries on business as manufacturer and a intervention service provider for Textile Automation and Baling Presses. GTA had supplied and installed a machi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... days advance notice. 3. It is not in dispute that pursuant to the aforesaid agreement GTA had deputed its technicians and those technicians had worked for the assessee inIndia for the following periods: Mr. Burat from 13/6 to7/7/2005Erection cards No. 10726-7-8-9 Mr. Rini from 13/6 to1/7/2006Erection cards No. 31841-2-3 4. The appellant had to make payment to GTA for the above services rendered. The appellant had by letter dated 26.3.2005 applied to the ADIT (International Taxation)3(l), Mumbai, (in short A.O. ) for a no-objection certificate for remitting the money to GTA without deduction of tax at source. The application was made under the provisions of section 195(2) of the Income-tax Act. The stand taken by the appellant was that the payments that it made to GTA are not taxable in India and therefore a certificate not to deduct any tax at source before making payment to GTA should be issued by the AO. The following were the reasons given by the Appellant: 1. The Appellant pointed out that the payment in question is not a payment of Fees for technical services rendered because, the payment in question was specifically excluded from the definition of fees for t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from the purview of technical services because the nature of the activities is more like activities of a business establishment which requires presence in India. According to him GTA did not undertake any erection of plant. It has agreed only to supply technical personnel to provide technical services for the payment of fees. Hence he held that the services provided by the personnel of the GTA will not be exempt from the definition of the technical services. On applicability of Article 15(2) of the DTAA, the CIT(A) held that in Article 15(2), the word Independent is to be noted. The professional services referred are the scientific, literary, artistic, educational or teaching activities. The professionals mentioned are physicians, surgeons and lawyers, engineers, architects, dentists and Accountants. According to CIT(A), Article 15(2) emphasis that the professionals individually or jointly has to carry out the activities on their own and not on behalf of the organization in which they are working and hence the services in question were not covered under Article 15. 7. Before the CIT(A) the assessee had raised objection that part of the payment made to the non-resident includ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent: Euro 10,000,00 as down payment at the moment of the order; balance against receipt of your invoice to be issued upon completion of the works. All the lifting facilities, the equipment and tools necessary for dismantling as well as the local workers for dismantling are at your complete charge. The date of Gualchierani technician intervention will be agreed together but we need a 30 days advance notice. 11. The services were rendered by two technicians of GTA. The details of which were as follows: Mr. Magnolfi from 7 to29/9/2005Erection cards No. 10628-9-30 Mr. Pecchioli from 7/9 to7/10/05Erection cards No. 10546-7-8-9. 12. In respect of this agreement, the appellant had made an application dated 19.11.2005 to the A.O. for making remittance to the non-resident without deducting tax at source. The application was made under section 195(2) of the Act. The reasons given were identical as in the earlier case. The reasons for rejecting the application of the appellant given by the A.O. are identical. The plea of the appellant before CIT(A) and his conclusions were also similar as in the earlier case, except that in respect of these applications, the assessee had take ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... constitute a project , the assessee should undertake a series of activities which by itself should complete a desired task. According to him in the present case, the assessee was merely supervising the activities and therefore, it cannot be said that there was any project. His further submission was that the decisions of AAR are not binding. Alternatively, he submitted that on the facts of the case before the AAR, it was clear that the activity carried on was a project. It was also submitted that once a payment is considered FTS, it is not possible to consider the same under Article 5(2)(j) or as a business profit. 17. On the applicability of Article 15, it was submitted that the same applies only to individuals. It was pointed out that the technicians who came to India were individuals but they came to India on behalf of GTA which was a company. He also relied on the decision of the CIT(A) wherein the CIT(A) has referred to the observation of Mr. Philip Baker. It was submitted that Article 15 uses the expression he which also goes to suggest that such article will apply only to individuals and not to companies. 18. On the issue of reimbursement expenses, the learned De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re the revenue authorities, a somewhat similar issue had come for consideration. The Tribunal on the facts of the case before it for the relevant assessment year found that there was a composite contract for supply of machinery and erection and in those circumstances held that the payment in question was not in the nature of FTS . It is significant to mention that in that case, there was a reference to an earlier year s decision in the case of the Assessee in that case, where the issue arose in the context of independent contracts for supply of machinery and for erection. The question was whether the consideration paid for erection of machinery was to be treated as Fees for Technical services rendered . The Hon ble Bench observed as follows: We found that the expression in connection with is not found in Explanation to section 9(l)(vii). We hold that the Explanation under section 9(l)(vii) merely grants exemption for consideration received for any construction, assembling mining or like product undertaken by the recipient. In other words, in order to come under the exemption, the NR should have entered into a contract for the construction, assembly or mining. We are concerne ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n clause therein would apply would have some force. For applicability of Expln.-2 to section 9(l)(vii) of the Act, the technical services must be for providing managerial, technical or consultancy services and these managerial, technical or consultancy services should not be for construction, assembly etc. According to the contract it is clear that the technicians were in India only for supervising the erection of machines. As already stated two technicians who came to India by themselves did not erect the machines. As we have already seen the appellant had to depute local workers for dismantling machines. The erection of machines was thus work of many local workers. The two technicians only supervised the erection and giving technical advice in connection with the erection. We agree with the learned DR in that case that technical fee is for technical advice in connection with erection and the actual erection was done by others. The payment of fee is only for giving technical advice in connection with the erection and not for undertaking the erection. We therefore hold that the payment in question cannot be said to be a payment for assembly of machines. Thus the payment in question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erial, technical or consultancy nature, including the provisions of services of technical or other personnel. 5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such a case the royalties or fees for technical services shall be taxable in that other Contracting State according to its own law. 22. A perusal of the definition of Fees for Technical Services according to Article 15(4) of the DTAA shows that it includes a payment in consideration for the services of a managerial, technical or consultancy nature. We have already seen that the nature of services rendered by GTA was technical being supervisory in nature. Art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on paid for a project involving installation assembly or the like would be the price paid for such project and could not be termed a fee for technical services . On an application before the AAR by the French company, the AAR held as follows: That article 13(4) of the DTAA between India and France defines fees for technical services as meaning payments of any kind to any person -other than payments to an employee of the person making the payments and to any individual for independent personal services mentioned in article 15-in consideration for services of a managerial, technical or consultancy nature. Considered in isolation, this definition is very comprehensive and covers all cases where such services are rendered by one of the parties to a contract and payments in consideration there for made by the other. A limitation of some kind or the other has to be read into the terms of what otherwise would be a very wide definition. Paragraph 6 of article 13 excludes the application of the rule of taxability outlined in paragraphs 1 and 2 of the article to cases that would be normally and more appropriately be assessable under other specific articles such as article 7 or article ..... X X X X Extracts X X X X X X X X Extracts X X X X
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