TMI Blog2015 (7) TMI 475X X X X Extracts X X X X X X X X Extracts X X X X ..... what remains to be examined is such five residents of Finland on individual basis. The amounts payable to each of such five persons satisfying the duration test on individual basis would enable the ultimate triggering of Article 15 of the DTAA. Only those Finland residents out of such five persons who independently and individually satisfy the condition about their presence in India for a period of 90 days or more in the relevant fiscal year or having a fixed place regularly available to them in India for the purpose of performing the supervisory functions, can be brought within the purview of Article 15. If, however, this condition is found wanting qua some individuals, then the amount payable to such individual residents of Finland, would cease to be chargeable to tax in terms of Article 15 of the DTAA notwithstanding its taxability under section 9(1)(vii) read with section 5 of the Act. Since the relevant information for ascertaining the duration of stay of such residents of Finland in India is not available on record and, further, it is not clear whether they had a fixed base regularly available to them in India for performing such services, we cannot forthwith ascertain w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvisory services was deemed income accruing or arising in India to the resident of Finland and, hence, was chargeable to tax. In the absence of the assessee deducting tax at source u/s 195 of the Act, the AO held that the provisions of section 40(a)(i) were attracted. He, therefore, made an addition for the said sum of ₹ 1.92 crore. The assessee reiterated similar submissions before the ld. first appellate authority in support of the contention that such expenses incurred by it were not chargeable to tax in India as income in the hands of IPS in terms of Article 13 of the DTAA. The ld. CIT(A) examined the Agreement dated 21.11.2008 between the assessee and M/s Sterlite, pursuant to which the assessee was to render supervisory services for erection, commissioning and training for the Dore metal plant of Sterlite in Tuticorin. He required the assessee to produce the Agreement dated 1.11.2008 with IPS under which the services required to be rendered to Sterlite were outsourced from IPS for a consideration of ₹ 1.92 crore. The ld. CIT(A) went through the Agreement between the assessee and Sterlite and noted the scope of services to be provided. He also took into considerati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iding the supervisory services. The ld. CIT(A) wondered as to how an Agreement between the assessee and IPS could be made much in advance on 1.11.2008 for outsourcing the services which were to be rendered in pursuance of Agreement with Sterlite, which itself was dated 21.11.2008. Under such circumstances, he refused to accept the genuineness of the Agreement with IPS and treated it as a camouflage. The contention of the assessee that the invoices were raised by IPS and hence the assessee was absolved from discharging the burden cast upon it to establish that the services were rendered by IPS, was also held to be of no substance. Considering the totality of the facts, it was held that a copy of the so-called Agreement between the assessee and IPS was not genuine and it was simply a make-believe arrangement aimed at defrauding the Revenue. During the course of hearing before the ld. CIT(A), the assessee submitted a copy of the Certificate issued by IPS containing names of five engineers who were claimed to have been sent by it to Sterlite for rendering supervisory services. This certificate, again undated, was held to be self serving and hence unreliable. In the backdrop of such fac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... allowed to an assessee in the computation of income under the head Profits and gains of business or profession in respect of interest, royalty, fees for technical services or other sum chargeable under this Act, which is payable outside India or in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or after deduction, has not been paid during the previous year or in the subsequent year before the expiry of the time prescribed u/s 200(1) of the Act. Clause (B) of the Explanation to this provision states that: Fees for technical services shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9. The crux of this provision is that if any interest, royalty, fees for technical services or any other sum chargeable under this Act is payable outside India or in India to a non-resident on which tax has not been deducted at source, etc., then, no deduction for such expenditure shall be allowed in the computation of Business income of the payer. 6. Section 195(1) provides that: `Any person responsible for paying to a non-resident, not bei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head Salaries . 8. On circumspection of Explanation 2 to section 9(1)(vii), it transpires that fees for technical services means any consideration for the rendering of any managerial, technical or consultancy services. When we consider the nature of services provided to Sterlite by the nonresident, being the supervisory services for erection, commissioning and training for setting up a plant of M/s Sterlite Industries, it becomes patent that such services fall within the ambit of Explanation 2 to section 9(1)(vii), thereby making the payment of ₹ 1.92 crore as fees for technical services covered u/s 9(1)(vii) of the Act. Once an Indian enterprise pays fees for technical services to a non-resident, the amount so paid becomes chargeable to tax in the hands of such non-resident a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vis its counterpart in the Act, then the assessee shall be entitled to be ruled by the provisions of the Treaty. 10. Now, the question arises as to whether the fees for technical services payable by the assessee to the resident of Finland is chargeable to tax under the DTAA? Article 13 of the DTAA deals with Royalties and fees for technical services. The relevant part of the Article is reproduced hereunder:- `ARTICLE 13 Royalties and fees for technical services 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that State, but the tax so charged shall not exceed....... 3. ...... 4. For the purposes of paragraph 2, and subject to paragraph 5, the term fees for technical services means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including the provision of services of technical or other personnel) which: (a) are ancillary and s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lise the knowledge or know-how in future on his own. By making available the technical skills or know- how, the recipient of the same will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service provider . . From the above enunciation of law by the Hon ble Karnataka High Court, it is palpable that the technical knowledge will be considered as `made available when the person acquiring such knowledge is possessed of the same enabling him to apply it in future at his own. If the services are consumed in the provision without leaving anything tangible with the payer for use in future, then it will not be characterized as `making available of the technical services, notwithstanding the fact that its benefit flowed directly and solely to the payer of the services,. The Special bench of the tribunal in Mahindra Mahindra Ltd. VS. DCIT (2009) 122 TTJ (MUM)(SB) 577 has discussed the concept of `make available . In that case, the lead managers had rendered technical, managerial or consultancy services in the GDR issue, which services were not made available to the assessee inasmuch as the payer only derived the benefit from the t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is noticed that when the matter was carried by the assessee in appeal before the ld. CIT(A), the latter opined that there was no genuine agreement between the assessee and the IPS Finland. In view of the fact that the assessee did incur ₹ 1.92 crore to certain persons which was duly confirmed by M/s Sterlite, the ld. CIT(A) attributed the amount to the five engineers of Finland, covered under Article 15 of the DTAA. 15. In principle, we do not find any infirmity in the order of the ld. CIT(A) in examining the genuineness of the Agreement with IPS Finland and then finally holding the amount payable by the assessee to the five engineers as covered under Article 15 of the DTAA, thereby changing the point of the view of the AO on the same issue. It goes without saying that the powers of the CIT(A) are co-terminus with that of the AO inasmuch as he, while hearing an appeal against the assessment order, has all the powers which vest with the AO on the issue before him. The Hon ble Summit Court in Jute Corp. of India Ltd. Vs. CIT (1991) 187 ITR 688 (SC) has held so. Even otherwise, section 251 dealing with the powers of the CIT(A) provides through sub-section (1) that : ` In dis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... form of letters or e-mails was available. We are at loss to appreciate as to how is it possible that a party to whom the assessee was to allegedly pay a sum of ₹ 1.92 crore, did not correspond at all on any aspect of the work assigned or to ascertain the progress of the work on a periodic basis. There is another interesting aspect of the matter. The assessee entered into Agreement with M/s Sterlite for providing supervisory services for erection and commissioning of their plant. There is no reference whatsoever in this Agreement with Sterlite that the services to be provided by the assessee could be sub-contracted or outsourced from some third party. If such services in erection and commissioning of plant were actually to be provided by IPS to Sterlite, then, there should have been some tripartite agreement amongst the assessee, Sterlite and IPS, which is actually not the case. There is one more aspect. The socalled four-paged Agreement between the assessee and IPS is dated 1.11.2008. We are at loss to comprehend as to how the assessee could enter into agreement with IPS for rendering supervisory services on 1.11.2008, when the agreement with Sterlite was itself signed, much ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... character. The term `professional services , inter alia, includes independent activities of engineers. Five engineers from Finland rendered engineering services in the erection and commissioning of the plant of Sterlite. Such services fall within the domain of the `Professional services of Article 15 of the DTAA. 19. The ld. AR contended that since the services contracted for the by the assessee with non-residents fall within the meaning of Article 13 but get excluded because of not `making available any technical knowledge etc., then such services cannot be once again considered under Article 15. This argument was countered by the ld. DR by contending that the amount in question directly falls under Article 15 and hence the same should be retained here alone. 20. The argument of the ld. AR though looks attractive at the first blush but falls to the ground on a closer examination. The precise question is that which of the two Articles, namely, 13 or 15, should have primacy in the facts and circumstances as are instantly prevailing? In our considered opinion, the answer to this question is not too far to seek. Relevant part of Para 5 of Article 13, as reproduced above, unamb ..... X X X X Extracts X X X X X X X X Extracts X X X X
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