9911796707
TMI Blog2015 (6) TMI 10X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee Company made payment of Rs. 56,54,963/- to M/s. CGS International, UAE ("CGS International") and Rs. 37,76,863/- to M/s. Marble Arts & Crafts LLC, UAE ("Marble Arts & Crafts") (aggregating to Rs. 94,31,826/-). The AO noted that no TDS had been deducted by the assessee while making the payment to the said two foreign concerns. Accordingly, AO required the assesse to show cause why the said expenditure should not be disallowed under Section 40(a)(i) of the Act. The assessee contended that the payments were made towards commission and that neither of these concerns had any business in India nor had they filed any Income Tax Return in India. The copies of accounts of these two concerns filed by the assessee revealed that the payment was made on account of consultancy charges and it had debited the said sum under the head "consultancy charges". Independent confirmation of CGS International also stated that it had received the payment towards consultancy services. The assessee further referred to Article 14 of Double Taxation Avoidance Agreement (DTAA) and contended that in view of such stipulation it was not required to deduct TDS. The AO rejected the assessee"s contentions; h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d undertake supervision of the cutting of the blocks at the site of Shaekh Zayad mosque. The assessee would supervise and evaluate the proposals of marble suppliers and shortlist and identify potential mines, and also supervise block quarrying and selection of blocks. Moreover it was required to supervise the loading of the blocks into containers, sealing of the containers and transporting the containers to the project site at Abu Dhabi. As regards the Abu Dhabi component of the agreement with the Works Department, the assessee was to act as consultant for procurement of marble, its processing, cutting etc. The CIT held that "In short, the contract was for organizing procurement of Makrana marble from India and supervising its processing at Abu Dhabi. The first part of the contract was procurement of marble from India and the second was processing the marbles i.e. conversion thereof to the desired specification at Abu Dhabi." It was further held that consultancy charges in terms of the assessee"s accounts were paid in all to 54 parties for services such as landscape design, architectural design, conservation services, engineering services, soil engineering work, quality server, ele ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) held that Article 14 of the DTAA with UAE, dated 18.11.1993, is applicable in the facts of the case and that the AO could not have denied the applicability of the said on the sole premise that the two UAE entities are companies. Accordingly, since the remittances to such non-resident entities are liable to be taxed in the UAE, no TDS was required to be deducted. 5. The Income Tax Appellate Tribunal (hereafter referred to as "ITAT") dismissed the revenue"s appeal and affirmed the CIT(A)"s order. Hence, the revenue has preferred the instant appeal. Submissions of Parties 6. Mr. Rohit Madan, learned counsel for the revenue submits that the CIT(A) and the ITAT erred in their analysis of the payments made to the two UAE entities, and that the services provided by these entities clearly and unequivocally qualify as "technical services" as defined in Explanation 2 to Section 9(1)(vii) of the Act. Learned counsel states that the agreements dated 25.11.2002 and 05.04.2003, entered into with CGS International and Marble Arts & Crafts respectively, cannot establish that services were in fact rendered by the two foreign concerns to the assessee whereas the CIT(A) and the ITAT have p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le Arts & Crafts -which, admittedly, do not have a permanent establishment in India. Thus, for these non-residents, the provisions of Section 5(2) would be applicable, which provides that the total income of a non-resident includes, inter alia, income that is deemed to accrue or arise in India. Section 9 enumerates several instances where income shall be deemed to accrue or arise in India. 10. The revenue had sought to bring this sum to tax under Section 9(1)(vii)(b) of the Act, and contended that the provisions of the India-UAE DTAA do not come to the assessee"s rescue. To succeed in this appeal, the revenue must succeed on both these counts (framed as the two questions of law in this appeal). This Court proceeds to examine them both below. Question No. 1: 11. At the outset, it would be apt to quote the relevant parts of Section 9(1)(vii), which read as follows: "9. (1) The following incomes shall be deemed to accrue or arise in India:- ... (vii) income by way of fees for technical services payable by- ... (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reading of the appellant's agreement with the Works Department, Abu Dhabi - and further agreements with CGS International and Marble Arts & Crafts, it cannot be said that payments have not been made to the latter two concerns in connection with the contract entered into by the appellant with the Works Department, Abu Dhabi. Whereas Marble Art & Craft was paid $50000 for identifying the suitable partner for the project at Abu Dhabi, and a consideration at 5% of the gross remittances receivable from the Works Department, Abu Dhabi for assisting the appellant in the day to day work towards checking the documentation and formats for invoices etc., CGS International was paid 15% of the sum received by the appellant from the Works Department, Abu Dhabi towards soliciting business for the appellant. There is nothing in the agreements or the related documents thereof to indicate that the payments to the concerned two parties have not been incurred wholly or exclusively for the appellant's business at Abu Dhabi, or that the payments to the non-residents are in excess of the agreements entered into with them or that the payments are not in conformity with the regulations governing remittanc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , this Court does not find any merit in the revenue"s contention that the ITAT"s and CIT(A)"s sole reliance on the two agreements to establish the authenticity of the transaction was erroneous. The CIT(A), while relying on the two agreements, looked at the entire conspectus of facts and the materials placed on record by the assessee, all of which supported the assessee"s case. Nature of services rendered by the UAE Entities 16. This Court, in its recent ruling in Director of Income Tax v. Panalfa Autoelektrik Ltd., (2014) 272 CTR 117 discussed the meaning of the phrase "consultancy services" as employed in Explanation 2 to Section 9(1)(vii). The Court noted as follows: "20. The moot question and issue is whether the non-resident was providing consultancy services. In other words, what do you mean by the term "consultancy services"? This Court in Bharti Cellular Limited and Others (supra) had referred to the term "consultancy services" in the following words:- "14. Similarly, the word "consultancy" has been defined in the said Dictionary as "the work or position of a consultant; a department of consultants." "Consultant" itself has been defined, inter alia, as "a person who give ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the transaction between them, or where the non-resident is directly soliciting business for the resident and generating income out of such solicitation. Indeed, as held by this Court in Panalfa Autoelektrik (supra), since Section 9 is a deeming provision, the interpretation cannot be overly broad in nature. 18. In the case at hand, at the outset, this Court clarifies that the mere fact that CGS International confirmed that it received consultancy charges from the assessee would not be determinative of the issue. The actual nature of services rendered by CGS International and Marble Arts & Crafts needs to be examined for this purpose. It would be appropriate to note the details of services provided by the two entities, which were highlighted by the CIT(A): "The agreement dated 5.4.2003 between the appellant and Marble Arts & Crafts provides that the latter will render guidance to the appellant about the procedural aspect of obtaining the payment and check the format and documents of the invoices that are to be submitted for approval to the Works Departments, Abu Dhabi, to receive and periodically check the invoices of the appellant, to submit the invoices to the respective authori ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... estion No. 2 20. This question involves a determination of whether the services provided by the UAE entities are in the nature of "independent personal services" defined in Article 14 of the DTAA. Article 14, to the extent relevant here, reads as follows: "1. Income derived by a resident of a Contracting State in respect of professional services or other independent activities of a similar character shall be taxable only in that State... 2. The term "professional services" includes independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants." 21. The two requirements for the applicability of Article 14, as applied in this case, are: a) income must be of a resident of the Contracting State (herein, UAE); and b) income must be in respect of professional services or other independent activities of a similar character. Article 4(1)(b) of the DTAA defines "resident of a contracting state" in the context of UAE to mean any person who under the laws of that State is liable to tax therein. Article 3(e) defines "person" to include a company. Therefor ..... X X X X Extracts X X X X X X X X Extracts X X X X
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