TMI Blog2012 (11) TMI 809X X X X Extracts X X X X X X X X Extracts X X X X ..... unless the view taken by the AO is unsustainable in law. Appeal decides in favour of assessee - I.T.A. NO. 2983/M/2010 - - - Dated:- 27-7-2012 - SHRI P.M. JAGTAP SHRI AMIT SHUKLA, JJ. Appellant by : Mr. Hiro Rai Respondent by : Mr. Narendra Kumar ORDER Per AMIT SHUKLA, JM: This appeal has been filed by the assessee against the order dated 30.3.2010 passed by the Director of Income Tax, Mumbai u/s 263 for the assessment year 2005-2006. 2. Brief facts relevant for the issue involved in the appeal are that assessee, M/s. Apollo Consulting Services Corporation (hereinafter referred to as ACSC) is a nonresident company incorporated in USA. It has filed its return of income for the assessment year 2005-2006 on 31.10.2005 declaring NIL income. ACSC and International Business Machines Corporation (hereinafter referred to as IBM) based in USA had entered into a Global Agreement which is also known as Base Agreement on 11.01.2002. By virtue of this agreement, ACSC agreed to provide IBM, USA and its global subsidiaries certain services. In the background of the Base Agreement, IBM India made deal with ACSC through IIC Systems Private Limited, Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation, number of hours, skill required, rate per hour, etc. Thus the assessee s activity was purely recruiting and supplying of skilled personnel to IBM India through ISPL. These technical personnel were neither the employee nor were they working under the supervision of the assessee i.e. ACSC. The recruited personnel were independent personnel contracted by the assessee by virtue of separate contracts in terms of clause 2.5 of the agreement between IBM India and ISPL and payment was made on hourly basis as per the methods agreed by the assessee with IBM. Thus, payment made was by the IBM to the assessee was for time value or the remuneration of the supplied personnel employed by the IBM s clients project outside India and it has no relationship or nexus with the work or services or software developed by the said personnel for the IBM s client. All these facts have been narrated in para no.3 of the assessment order. 4. During the course of assessment proceedings the assessee was required by the Assessing Officer to give reasons for claiming the income earned on providing technical manpower to IBM India in USA were not taxable in India. In response to this, the assessee vide let ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the ACSC was not having any permanent establishment (PE) in India. The provisions of certain standard conditions of the Base Agreement for supply of such manpower services are relevant for the purpose of an agreement between ACSC and the ISPL. Moreover, from the nature of services performed by the personnel employed by ACSC would hardly be relevant as they were not responsible to anyone either ACSC or ISPL. It was also submitted that neither u/s 9(i)(vii) nor under Article 12 of Indo US DTAA was applicable on supply of such independent personnel. 7. The Ld DIT after considering the submissions of the assessee held that the Assessing Officer has failed to appreciate the nature of services to be provided under the contract between ISPL and ACSC for AY 2005-2006 which was different from the services provided as per Base Agreement dated 11.1.2002 between IBM and ACSC. The relevant finding of the Ld DIT while setting aside the assessment order with a direction to make necessary enquiries is as under: The submissions made by the assessee have been carefully considered. On perusal of records, it is seen that the Assessing Officer has failed to appreciate that the nature of ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has to be look into what was the actual services rendered by the assessee. The assessee has purely provided recruitment services which do not fall within the meaning of FIS or FTS. The Ld DIT in her entire order has not proved that the assessee has rendered any other services besides this agreement. The most important fact which was brought to our knowledge by the learned AR was that in the case of ISPL, for the assessment year 2005-2006, similar issue had arisen with regard to deduction of TDS u/s 195, based on the same agreement and similar services have before the ITAT, Hyderabad Bench in ITA No.394 395/Hyd/2007. The Hon ble Tribunal vide its order dated 9.10.2009 has discussed this issue in detail and categorically held that primary services rendered by the ACSC (i.e. assessee here in this case) to ISPL is akin to recruitment and placement service rather than making available any technology, plan, design etc. Lastly, in support of his contention he submitted that once a possible view has been taken and there is no finding in the order u/s 263, that assessment order is erroneous in law and also prejudicial to the interest of revenue, revisionary jurisdiction u/s 263 cannot be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssessment proceedings, it is seen that the Assessing Officer has required the assessee to furnish all the relevant agreements and to give justification for the nature of services rendered. After examining this, he has accepted the contention and explanation of the assessee, though not in a very speaking and elaborate words. However, while accepting such a contention, it is not necessary that the Assessing Officer must passed a lengthy order for justifying the acceptance of the contention which are otherwise acceptable in view of documents and evidences furnished before him. In such a situation, when CIT / DIT is holding the order as erroneous and prejudicial to the interest of revenue must give reasons for his conclusion that assessment order which has been passed even though in a cryptic manner was erroneous in law and on facts and is also prejudicial to the interest of revenue. Such a condition has to be spelled out categorically from the facts on record. Here in this case, the Ld DIT has observed in the impugned order that the Assessing Officer has not examined the Base Agreement and has not examined the exact nature of the services. This observation seems to be prima facie in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovisions of the Income-tax Act, to the extent the same are beneficial to the assessee. The CIT (A) after elaborate discussion with regard to the various aspects of the matter, in the light of the contentions of the assessee, came to the conclusion that so far as DTAA between India and USA is concerned, consultancy services which are not technical in nature, cannot be treated as fee for included services . We also notice that the fact that in the instant case the agreement of the assessee with ACSC is only for manpower supply or supply of technical personnel and it is well accepted even by the assessing officer is para-2 of the impugned orders passed under sec. 201(1) r.w.s.195 of the Act. The DTAA between India and USA also clarifies that the provision of services may require technical input by a person providing the person, which does not per se means that technical knowledge or skill are made available to the person purchasing the service. Similarly, use of the product which embodies technology shall not per se be considered to make the technology available and rendering of the service must enable the payer to apply such technology. Moreover, even if there is a transfer of deve ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s rendered by the ACSC for which remittances in question have been made by the assessee are akin to those of a recruitment or placement agency, and would not come within the purview of fee for included services with the meaning of Article 12(4)(b) of the DTAA between India and USA. Even if the payments would constitute fees for technical services u/s 9(1)(vii) of the Income Tax Act, in view of sec. 90(2) of the Act, the Indian company has option to be governed by the provisions of the Tax Treaty, if the same are more beneficial to it. Accordingly, the payments so made by the assessee company to ACSC will not be chargeable to tax in India, in view of the provisions of the DTAA between India and USA. 11. Thus, the view taken by the ITAT is in fact directly contrary to the view taken by the Ld DIT and, therefore, we can safely presume that finding and view taken by the AO in accepting the assessee s explanation is a better possible view. Hon ble Supreme Court in the case of Malabar Industrial Co. Ltd. vs. CIT 243 ITR 83 (SC) and CIT vs. Max India Ltd. 295 ITR 282 (SC) has held that, on one of the two courses permissible by law has been adopted by the Assessing Officer and it has ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
