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TMI Blog2012 (11) TMI 809X X X X Extracts X X X X X X X X Extracts X X X X ..... e background of the Base Agreement, IBM India made deal with ACSC through IIC Systems Private Limited, India (hereinafter referred to as ISPL) for the services to be performed in the USA. For these purposes, contract was entered into by ACSC and ISPL on 2.1.2004 for procuring software personnel in USA for the projects of IBM in USA and ISPL and IBM India had also entered into a contract w.e.f. 1.1.2004 in this regard. Thus, whenever, IBM require software personnel for the projects outside India, IBM enters into statements of work agreement with ISPL, detailing the scope of work, description of services required, skill required for software personnel etc. which is then passes over the statement of work to ACSC. During the previous year, as per the agreement between IBM India and ISPL, ACSC provided technical manpower to IBM in USA according to its requirements. Thus, the link between the three entities was that, purchase orders are issued by IBM to ISPL who in turn passed that to ACSC. The entire arrangement was for providing skilled manpower in USA. It is also relevant to mention herein that ISPL and ACSC are affiliates and are subsidiaries of Indotronix International Corporation, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nical manpower to IBM India in USA were not taxable in India. In response to this, the assessee vide letter dated 14.11.2007, gave detailed submission regarding the nature of services provided by the assessee company and that the payment received is neither Fees for Technical Services (FTS) within the meaning of section 9(i)(vii) nor under Fees for Included Services (FIS) as per Article 12(4)(b) of Indo Us DTAA. The submission of the assessee has been incorporated from pages 3 to 5 of the assessment order. After carefully considering the submissions and the agreement submitted by the assessee, the Assessing Officer accepted the contention of the assessee that the payment received were neither in the nature of Fees for Technical Services nor Fees for Included Services. He, thus, accepted the return of income of the assessee at "NIL" in the order passed u/s 143(3) vide order dated 28.12.2007. 5. Learned DIT called for the assessment records and on perusing the same she was of the view that as per the Base Agreement dated 11.1.2002 between IBM and ACSC (i.e. assessee), it was required to provide the Deliverable and Services described in 'Statement Of Work' issued under the Base Agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perusal of records, it is seen that the Assessing Officer has failed to appreciate that the nature of services to be provided under the contract between ISPL and Apollo for AY 2005-06 was different from the services provided as per base agreement dated 11.1.2002 between IBM and Apollo. There was no reference to the base agreement in the other two agreements produced before the AO. Further, the AO has not called for the agreement between IBM India and ISPLnor has he verified the exact nature of services rendered to IBM and ISPL by Apollo. On verification of contract of Apollo with ISPL, it is seen that Apollo is required to screen the personnel for procuring them in the required discipline using its own appropriate independent skill and judgment. Therefore, the assessee has made available its technical knowledge and expert skill in rendering these services and accordingly payments for the same prima-facie constitute "Fees for Included Services" within the meaning of Article 12 of the India-US DTAA. The AO has also not examined what is the agreement between ISPL and its other clients in India. The AO has failed to verify the exact nature of services rendered by the personnel who wer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ous in law and also prejudicial to the interest of revenue, revisionary jurisdiction u/s 263 cannot be invoked. In support of his contention, he relied upon the following case laws. (i). 203 ITR 108 (Bom) CIT vs. Gabriel India (ii). 295 ITR 282 (SC) CIT vs. Max India Ltd. (iii). 243 ITR 83 (SC) Malabar Industrial Co. Ltd. vs. CIT (iv). 321 ITR 92 (Bom) Grasim Industries Ltd. vs. CIT (v). 328 ITR 148 (Bom) Ranka Jewellers vs. Addl. CIT (vi). 323 ITR 206 (Bom) CIT vs. Development Credit Bank Ltd. 9. Per contra, learned CIT-DR submitted that the AO has not applied his mind at all which is evident from the fact that he has just incorporated assessee's reply and has drawn conclusion in just two lines. The Assessing Officer was required to give detail reasons as to why he has accepted the assessee's explanation. The Assessing Officer had failed to carry out any enquiry or examination and has passed very cryptic order and, therefore, the view taken by the DIT in the impugned order is justified. In support of his contention he has also relied upon the decision of Hon'ble High Court of Himachal Pradesh in the case of CIT vs. Himachal Pradesh Financial Corporation reported in (2010) 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has not examined the exact nature of the services. This observation seems to be prima facie incorrect as the AO has himself mentioned about the nature of services in para nos. 2 & 3 and also considered the detailed explanation given by the assessee which has also been elaborated by us in foregoing paragraphs. Based on these documents, the Assessing Officer has taken a possible view that it was not in the nature of FTS or FIS. The Ld DIT has set aside the entire matter to re-examine this issue from the angle where the assessee has made available any technical knowledge and expert skill in rendering these services. The DIT has even gone further by stating that assessee has, in fact, made available the technical knowledge and skill and therefore the payments for the same is FIS within the meaning of Article 12 of Indo-US DTAA. Such an observation or finding is not wholly borne out from the agreements or records. One or two terms in an agreement will not per se lead to any conclusion of providing any technical services, unless something is found in terms of actual work order, bills and payment received for services rendered. The entire substance of the agreement is to be seen. From t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... st enable the payer to apply such technology. Moreover, even if there is a transfer of developed work, software etc., it is not the ACSC but the assessee who transfers the right. It appears that neither the assessee company nor the ACSC are engaged in computer programming activity, which is evident from paragraph 1 and 2 of the orders of the assessing officer and even the developed work never belonged to the assessee company or the ACSC as referred by the assessing officer in his orders. In the circumstances, as correctly held by the CIT (A), the question of treating the payments as 'fees for included service' would not arise at all. The orders of the assessing officer fastening the liability to TDS on the assessee are based on the agreement between the assessee and the IBM in order to determine the nature of the services rendered by the ACSC to the assessee. We agree with the CIT (A) that what was required to be looked into is whether there is an element of technical services in the agreement between the assessee and the ACSC, which gives rise to income that can be brought to tax in India. It is because the payments remitted by the assessee to ACSC flows from the agreement betwee ..... X X X X Extracts X X X X X X X X Extracts X X X X
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