TMI Blog2012 (7) TMI 220X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the business of 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 time of 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. Thus, the entire nature of services and activities carried out by the assessee comes within the realm of 'professional services' and not within the meaning of 'FTS' as provided in the Article 12(4) and Section 9(1)(vii). Consequently income cannot be determined by applying the provision of Section 44D. It has to be computed in view of the Article 7(1) and resultantly as per Section 28 to 43 of I tax Act - Decided in favor of assessee. Interest u/s 234B - Held that:- When a duty is cast on the payer to pay the tax at source, on failure, no interest can be imposed on the assessee. - IT APPEAL NOs. 4944 (MUM.) OF 2002 and 7588 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the CIT(A) be directed to delete the interest based on the relief sought in the above grounds of appeal" The aforesaid ground being purely a legal ground, which does not acquire any investigation of facts, hence, they are being admitted for adjudication. 3. At the outset, learned counsel for the assessee submitted that the issue raised in additional ground is covered by the decision of ITAT's order in the case of assessee for the assessment year 2000-2001, passed in ITA No.7575/Mum/2004. Learned Senior DR fairly admitted that this issue is covered by the decision of the aforesaid order. 4. After carefully considering the submissions of the parties and also going through the Tribunal's order, we find that this issue has already been decided in favour of the assessee after observing and holding as under :- "6. We have carefully considered the submissions of the rival parties and perused the material available on record. We find that there is no dispute that in terms of sec.195 of the Act the entire income of the assessee is subject to deduction of tax at source. Accordingly, the assessee was not liable to pay advance tax. Recently the Hon'ble jurisdictional High Court i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uditor in every six months to make sure that the company is complying with the system as per the pre-assessment audit and certification audit. After expiry of three years validity of the certificate, the auditors visit the clients place once again the same process. 5.1 The Assessing Officer required the assessee to explain as to why such services and nature of activities should not be taxed as "fees for technical services" given in Article 12 of Indo-German DTAA, instead of "business profit" as has been requested by the assessee. Before the Assessing Officer, it was submitted that the services rendered do not come under "FTS" within the Article 12 of Indo-German DTAA and, therefore, its business income is to be computed in view of the Article 7 (1) as business was carried out through PE and the profit of the said PE can be taxed as is attributable to that PE. 5.2 The Assessing Officer rejected the contention of the assessee that its computation of business profit is to be made under section 28 to 44C and held that since the services rendered by the assessee is within the purview of FTS, hence, in view of Article 12(5), the income of the assessee has to be computed in view o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al nor technical, nor consultancy services within the meaning of Section 9(1)(vii) read with Explanation and Article 12 of the Indo-German DTAA. The certification income is purely an audit work which comes within the definition of professional services and, therefore, its income has to be computed as under Article 7(1) wherein the profits or the income attributable to the PE in India has to be computed as normal business income under Section 28 to 43 and accordingly 44D will not apply. He drew our attention to the provisions of section 194J, read with Explanation thereto which envisages a distinction between the 'professional fee' and 'technical fee'. Further, placed a copy of the 'Guidance documents' issued by the International Accreditation Forum, INC on application of ISO. He specifically made reference to para G.2.1.35, therein which provides as under :- "G.2.1.35 An auditor shall explain the audit findings and/or clarify the requirements of the assessment standard during the audit and/or at the closing meeting but shall not given prescriptive advice or consultancy as part of an assessment." and also para G.2.1.24, which reads as under :- "G.2.1.24 Certification/registr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d print out, he pointed out that several types of services provided by the assessee are clearly in the nature of managerial and consultancy services. In absence of any agreement, the nature of services given in the profile of the company in the website has to be taken on the face of it. Once, the activities mentioned in the website is taken into consideration then definitely it is a case of pure consultancy, which comes within the purview of, not only under Section 9(1)(vii) but also under Article 12. Hence, the services rendered by the assessee has to be considered as FTS under Article 12 and, therefore, in view of the provisions of Article 12(b), article 7(3) will apply and consequently section 44D of IT Act. He also relied upon the catena of case laws and various tribunal's decision. Copy of which have been placed before us. Heavy reliance was placed on the decision of DDIT v. Pipeline Engineering , reported in [2009] 125 TTJ (Mum) 534, in support of proposition of Article 7(3) Section 44D. He further submitted that judgment of jurisdictional High Court in the case of Diamond Service International Private Limited ( supra ), will not be applicable as the issue there was on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Certificate after reviewing the report for compliance. Audits are carried out in various stages. Pre-assessment Audit A Pre-assessment audit is conducted to evaluate the feasibility of a successful certification audit. The company is informed whether or not they are ready for a Certification audit. Certification Audit The certification audit is conducted to assess the clients' conformity to an International Standard. A report is prepared and sent to Germany for review issue of the Certificate. Surveillance Audit The above certificate is valid for 3 years. Audits are carried out every 6 months (or 12 months) to assess if the company is continuing to meet the International standard. Reports of the audit are sent to the "Certification Body" in Germany for review their decision to allow the certificate validity to continue. Certification Fees. The certificate is issued to the client by the "Certification Body" from Germany after reviewing the Auditor's report. The Fee is charged at a flat rate to compensate the Certification Body for it's activity of reviewing the reports, including the competence of the auditor, the parameters checked by him, and if all requir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this article means payments of any amount in consideration for the services of managerial, technical or consultancy nature, including the provision of services by technical or other personnel, but does not include payments for services mentioned in Article 15 of this Agreement. (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 service 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 case, the provisions of Article 7 or Article 14, as the case may be, shall apply." 10.2 The assessee's case does not in any manner comes within the meaning of 'royalties', as there is no right to use of any other items described therein. Here, we are concerned with the meaning of term "fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g Officer nor by the CIT(A). Both the authorities have simply observed that even the audit work and certification work comes within the realm of FTS. From the print out of the website, it is also not very clear as to whether these kind of services were also rendered in the year 1997-1998. On the contrary in the IAF guidance note provided by the learned AR, it has been clearly prohibited that the auditor will not give any prescriptive advise or consultancy as a part of an assessment, which has been noted by us in the foregoing paragraphs. This goes to prove the assessee's contention that it was not engaged in any kind of consultancy services. Thus, the entire nature of services and activities carried out by the assessee comes within the realm of 'professional services' and not within the meaning of 'FTS' as provided in the Article 12(4) and Section 9(1)(vii). Accordingly, we hold that services rendered by the assessee company are not covered under 'fees for technical services' under Article 12 of Indo-German DTAA. 11. Once we have held that it is not a case of an FTS, neither Article 12(5) nor Article 7(3) would be applicable and consequently income cannot be determined by apply ..... X X X X Extracts X X X X X X X X Extracts X X X X
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