TMI Blog2012 (12) TMI 694X X X X Extracts X X X X X X X X Extracts X X X X ..... ted Supra) the payments to the recipients in Germany do not come within the purview of fees for technical services. This, therefore, cannot be treated as FTS but is business income of the nonresident company. As per the law in force, business income of a nonresident recipient is chargeable to tax in India only if it is arising or accruing or deemed to arise or accrue in India provided that they have permanent establishment in India. As it is not disputed that the non-resident recipients of the remittances have no PE in India, their business income is not chargeable to tax in India. Since the very nature of income has been decided to be business income and not fees for technical services, the payments do not require withholding of tax at source u/s 195. In the result, the assessee is not under an obligation to withhold tax leave alone @ 20% u/s 206AA and the issue of grossing up would not arise. Assistance in analyzing and solving technical problem and disfunctions - providing telephonic advice analysis and assistance to the operator - Held that:- The services are not mere repairs but are towards preventive maintenance which clearly show that the recipients are providing tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d as none of the non-residents have PE in India and the payments are not chargeable to tax in India. However, out of abundant caution, the assessee deducted the tax before making the payments to the foreign entities as per the provisions of sec. 195 r.w.s 206AA and paid it to the Govt. account. However, denying its liability to deduct tax at source, the assessee has filed appeals before the CIT(A) u/s 248 of the I.T Act. 3. It was submitted before the CIT(A) that - (a) The sum received by the non-resdients is their business profit arising in Germany and is not laible to be taxed in India as they have no PE in India; and (b) The amounts paid by the assessee is not 'Fees for Technical Services' (FTS) as per Article 12(4) of the DTAA between India and Germany or u/s 9(1)(vii) of the IT Act. 4. The CIT(A) after considering the assessee's contentions at length, came to the conclusion that the payments made by the assessee to the non-residents towards repairs and AMC are not their business profits but are 'fees for technical services' (in brief FTS). He held that as far as 'FTS' is concerned, it is chargeable to tax in India irrespective of whether the services are rendered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rates in force for relevant assessment year was 10.5575%, while under DTAA it was 10% and u/s 206AA, it was 20% and the benefit of grossing up at the rates in force or at the rate of 10% under DTAA should be adopted and not @ 20%. The CIT(A), however held that as the assessee was liable to withhold tax @ 20%, the grossing up also is to be done with reference to the same rate of tax. He accordingly dismissed assessee's appeals. 6. Aggrieved, assessee is in appeal before us. 7. The learned senior counsel for the assessee, Shri Pardiwala, while reiterating the assessee's submissions before the CIT(A), submitted that the income of a non-resident is taxable in India if it is its business income arising or accruing in India or deemed to arise or accrue in India provided they have a PE in India. He submitted that the services of repairs of machinery are all rendered outside India, i.e. in Germany, and, therefore, the business income has not arisen or accrued or deemed to arise or accrue to the non-residents in India particularly since they do not have a PE in India. Thus, according to him, when the business income of the non-resident is not chargeable to tax in India, the assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ee submitted that sec. 195A speaks only of the rates in force for the financial year in which such income is payable and does not refer to the rate applicable u/s 206AA of the Act. Thus, according to him the rates in force during the relevant financial year being 10.5575% or the rate as per the DTAA being 10%, whichever is beneficial only is to be applied and not 20% as held by the CIT(A). 11. The learned DR, on the other hand, supported the orders of the CIT(A) and submitted that as per the form 15CB furnished by the assessee, the payments for repairs have been treated as 'FTS' and the rate of tax is mentioned as 20%. Thus, according to him, this certificate issued by the assessee's own auditors is binding on the assessee and the assessee has rightly deducted tax @ 20% as provided u/s 206AA of the Act. 12. As regards the requirement of the non-residents to apply and obtain the PAN No., the learned DR submitted that the CBDT in its press note dated 20.01.2010 has clearly stated that the procedure of obtaining PAN No. is easy and inexpensive and that even nonresidents are required to obtain the same. He submitted that sec. 206AA has overriding effect on all other provisions of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nue authorities to decide the issue in accordance with law and, therefore, we hold that the form No.15CB alone would not determine the nature of the transaction. 16. Coming to other issues raised in this appeal, we find that undisputed facts of the case are that the assessee has entered into contracts of repairs for its imported machinery with the foreign suppliers of the machinery. The repairs are carried out outside India i.e. in Germany. For any income of a non- resident to be chargeable to tax in India, it has to arise or accrue in India is should be deemed to arise or accrued in India u/s 9 of the I.T Act. For determining the question as to whether any income is chargeable to tax in India, it has to arise or accrue in India, the nature of the income is to be determined first. Therefore, the first question to be considered by us is the nature of the services, rendered by the non-resident company to the assessee, whether it is 'mere repairs' or 'technical services'. For appreciating and determining the nature of the services, it is necessary to consider the exact services to be rendered out by the non-residents. From the copy of the purchase order and the invoices, we find tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r technical services' as given in the DTAA between India and Germany also contains similar language. Whether services rendered by the recipients repairing the machinery of the assessee would fall within the scope of definition of 'fees for technical services' under the Act or under the DTAA is to be examined. The learned counsel for the assessee had relied upon the decision of the 'A' Bench of the Hyderabad Tribunal in the case of BHEL-GE-Gas Turbine Servicing Pvt. Ltd., in support of his contention that the repairs of machinery would not fall within the scope of technical services. In the case before Hyderabad Bench of the Tribunal, the non-resident recipients were hired to repair and refurbish machinery and no tax was deducted at source. The Tribunal considered the meaning of the term 'technical services' and after considering the decision of the Delhi Bench of the Tribunal in the case of Lufthansa Air Cargo reported in 274 ITR 820 held that technical repairs are different from technical services and every consideration made for rendering of services do not constitute income within the meaning of sec.9(1)(vii) of the Act and for considering the same first of all, the said conside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g telephonic advice, analysis and assistance to the operator and for preventive maintenance. These services clearly fall within the purview of definition of 'fees for technical services'. In these cases, the services are not mere repairs but are towards preventive maintenance which clearly show that the recipients are providing technical assistantce and services to the assessee in India. Therefore the assessee is liable to withhold tax from the payment of fees for technical services. In view of explanation 2 to clause (vii) of sec. 9(1), the 'fees for technical services' is chargeable to tax in India and the assessee is liable to deduct tax at source. Now, having held that the services rendered by the nonresidents are technical services, we will have to examine the applicability of sec. 206AA of the Income-tax Act. The assessee's contention has been that the assessee being a non resident is not required to apply for and obtain PAN No. by virtue of Rule 114(C)(b) of Income-tax Rules read with sec. 139A(8)(d) of the Income-tax Act. We cannot agree with this contention of the assessee. The provisions of sec. 206AA clearly overrides the other provisions of the Act. Therefore, a non r ..... X X X X Extracts X X X X X X X X Extracts X X X X
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