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TMI Blog2012 (7) TMI 220X X X X Extracts X X X X X X X X Extracts X X X X ..... Commissioner of Income-tax(Appeals) erred in taking Rs. 1,79,38,651/- as certification income and as fees for technical services when in fact certification income is Rs. 1,00,45,871/- and the balance of Rs. 66,99,114/- is the reimbursement of expenses. 2.3 The learned Commissioner of Income-tax(Appeals) erred in taking Rs. 66,99,114/-,being reimbursement of expenses, as fees for technical services. 3. The learned Commissioner of Income-tax(Appeals) erred in holding that the provisions of section 44D are applicable in the instant case. 4. Rate of Tax : 4.1 The learned Commissioner of Income-tax(Appeals) erred in holding that the rate of tax applicable is 20% and not 10%. 4.2 The learned Commissioner of Income-tax(Appeals) failed to appreciate that in view of Article 12(2) of the DTAA the maximum rate of tax that the learned Assessing Officer would have applied is 10%." 2. Besides this, the assessee has also taken additional ground on levy of interest under Section 234B, reading as under :- "The learned Commissioner of Income-tax(Appeals) erred in levying interest under Sections 234B of the Act. The CIT(A) failed to appreciate that as the Appellant was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted." Respectfully following the aforesaid order, we hold that no interest under Section 234B can be levied in the case of the assessee and, accordingly, we direct the Assessing Officer to delete the interest so charged. In the result, additional ground taken by the assessee is allowed. 5. Now, coming to the main issue, wherein the assessee's income from 'ISO 9000 Certification', is income from 'fees for technical services' under Article 12 or business income under Article 7 of Indo-German DTAA. The brief facts relevant for the issue involved are that the assessee is a company incorporated in Germany having a branch in India. The Indian branch is engaged in the business of audit and procedure of norms for ISO 9000 Certification. The services offered by the Indian branch are ISO 9000 quality system certification, wherien quality system auditor of the assessee company visits the company wanting to go in for ISO 9000 standard and certification. They carry out a pre-assessment audit after which a certification audit is conducted. A report is then prepared which is checked and verified by the assessee company in Germany and on receiving the reply from Germany, whether the company is f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, being part of gross receipts and accordingly provisions of 44D will be applicable on whole of the gross receipts. 7. Learned counsel appearing on behalf of the assessee, at the outset submitted that out of Rs. 1,79,38,651/-, the certification income amounted to Rs. 1,00,45,871/- only and other receipts were mostly reimbursement of expenses. The break up of Rs. 1,79,38,651/- was given as under :- Fees & Reimbursements Amount(Rs.) (i) Seminar Income 1,07,500 (ii) Inspection Income 1,57,805 (iii) Interest Income 21,775 (iv) Administrative Charges 1,40,000 (v) Certification Income 1,00,45,871 (vi) Homoloyation Income 1,86,00 (vii) Reimbursed of Expenses (from Client) 66,99,114 (viii) Training Income 4,79,500 (ix) Other Income 1,085 Total 1,79,38,651 He pleaded that out of the aforesaid receipts, only income which is relevant for consideration is Rs. 1,00,45,871/- under the head "certification income" and the balance sum is either reimbursement or minor income which cannot be the subject mater of FTS. 7.1 Regarding certification income, he submitted that it is neither in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oposition, he relied upon the decision of the Hon'ble Bombay High Court in the case of CIT v. Siemens Aktiongesellschaft, reported in [2009] 310 ITR 320 and specifically drew our attention to page 340 of the said judgment. Regarding applicability of the rate of tax of 20% as provided in the provision of Section 115A, he submitted that same will not be applicable in the assessee's case as none of the condition mentioned in the section is satisfied in the assessee's case. Instead rate of 10% should be applied if at all provisions of section 44D is applied. 8. Per Contra, learned Senior DR submitted that the assessee has not submitted any agreement either before the authorities below or before the Tribunal to ascertain the nature of work and services rendered by the assessee in connection with ISO certification. He filed a copy of website print out of the assessee about the nature of services rendered by it, wherein it has been mentioned that it has been providing host of services to various types of client which also included formulation of various strategic approach of policies, plans and actions to enable the clients' business to set up an integrated management system. From the sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the meaning of section 9(1)(vii) or Article 12. 10. We have carefully considered the rival submissions and also perused the material placed on record. First of all, let us examine the nature of services and activities carried out by the assessee and the income derived by through its PE in India. The nature of assessee's activities in India have been elaborated in Annexure-2 of the reply dated 27-2-2003, filed before the Assessing Officer, which is not in dispute, has been explained in the following manner :- Quality System Audits : Quality System Audits are conducted by TUV Auditors. A Quality System Audit is conducted at the Clients site where the TUV Auditor evaluates the Clients Quality System (or Environmental System) against a prescribed International Standard (ISO 9001/2, ISO 14001, QS 9000, etc.). The Auditor only assesses whether or not the clients manufacturing practices meet the International Requirements or not. The Auditor is not permitted to provide any technical assistance or advice to the company. Based on his findings, the auditor prepares a report stating compliance for the "Certification Body" in Munich. The Certification body issues the Certificate after re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Annual Administration Charges This charge is for the preparation of documents and sending to Germany. Reimbursement of Expenses This covers the actual expenditure incurred by the auditors for travelling, Lodging and Boarding and such other expenses." 10.1 In the light of the above mentioned services rendered, let us examine Article 12(3), 12(4) & 12(5), which define the term royalties and 'fees for technical services' in the following manner :- ARTICLE 12 - Royalties and Fees for Technical Services (1) and (2)** ** ** (3) The term "royalties" as used in this article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work, including cinematograph films or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience. (4) The term "fees for technical services" as used in this article means payments of any amount in consideration for the service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the client, which herein this case, there is no management of client's business, but evaluation of standards as per international guidelines. Consultancy is to be understood as advisory services wherein necessary advise and consultation is given to its clients for the purpose of client's business. In an audit work there may be some incidence of advise at the timeof evaluation but certainly it cannot be termed as pure consultancy services as in the audit work the auditor has to only evaluate the quality system and environmental system. 10.3 Now, coming to the print out of the website of the assessee, provided by the Learned Senior DR, it is seen that the first kind of services mentioned therein, relates purely to audit work of ISO certification. Besides this, there are host of other services mentioned, which upto some extent can be considered to be in the nature of consultancy services. However, whether the assessee has been carrying out other services as mentioned therein besides audit for certification of ISO, is not borne out from the records as the same has neither been examined by the Assessing Officer nor by the CIT(A). Both the authorities have simply observed that even th ..... X X X X Extracts X X X X X X X X Extracts X X X X
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