TMI Blog2011 (10) TMI 617X X X X Extracts X X X X X X X X Extracts X X X X ..... is only for the services rendered on a foreign soil. In lieu of consideration paid, the foreign company has not made available any technical knowledge to the assessee nor any technical knowledge is transferred to the assessee and therefore, the income derived out of rendering technical services is not liable to tax. If there is no liability to pay tax by a non-resident, there is no obligation cast on the assessee to deduct tax at source. - IT Appeal Nos. 532 to 534 and 1114 to 1123 of 2008; 152 to 161 of 2009 and 416 to 429 of 2010 - - - Dated:- 28-10-2011 - N. Kumar and Ravi Malimath, JJ For the Appellant : M.V. Seshachala and K.V. Aravind For the Respondent : V. Chandrashekar, A. Shankar and M. Lava Judgement As common questions are involved in all these appeals they are taken up for consideration together and disposed off by this common order. 2. the assessee ISRo Satellite Centre, Government of India, Department of space is in the business of manufacture of satellites in called INSAT 3A-3E. To place these satellites in Geostationary Transfer Orbit in the space, it required the services of Arianespace, a French Company. Accordingly, on 30.11.2000, an agr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ision of services of technical or other personnel) (b) make available technical knowledge, experience,skill, know-how, or process, or consist of the development and transfer of a technical plan or technical design. 4. Interpreting the aforesaid clause, the Assessing Authority held that Intelsat has made available technical knowledge/know-how/skill/experience to the assessee in respect of tracking, telemetry and command support of the satellite launched by the assessee. Hence, such services would squarely fall within the definition of ancillary services as definrd in the DTAA between India and USA. 5. As the assessee had not deducted the taxes at the appropriate rates, the assessee was held to be an assessee in default as per the provisions of Section 201(1) of the Act for not deducting the taxes from remittance made abroad. Thereafter, he calculated the tax payable, interest chargeable for non payment of tax and levied the tax and interest on the assessee. Aggrieved by the said order, the assessee preferred an appeal to the Commissioner of Income Tax (Appeals). The commissioner on reappreciation of the entire material on record and also taking note of the circulars hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssful launch, it may need to keep itself abreast of the technical advancements. All these that are necessary are related only to use of the launch medium and with these activities, the assessee is not concerned with. The assessee is concerned with the use of launch medium for the launch and all those activities that are associated with the use of the launch medium only. Therefore, it held it is not in the nature of technical services and therefore, the provisions of tax deduction at source do not apply. In so far as Intelsat is concerned, all that it provides is tracking the movement of the satellites in space till it is taken over by the Indian Company. It is nothing but providing information to the assessee about the movement of the satellites in the space and therefore, the provision of such information does not amount to providing any technical services and therefore allowed the appeal, The impugned orders were ser aside and it was held that the assessee was not liable to deduct any tax at source. Aggreived by the said order, the revenue has preferred the appeals in ITA Nos.532/2008 and connected matters. 6. After the Tribunal set aside the order passed by the Appellate com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as ITA Nos.419/2010, 420/2010,421/2010, 425/2010, 426/2010, 427/2010, 428/2010 and 429/2010. These appeals are filed by assessee for period other than the period covered by the revenue appeals. 8. The learned councel for the revenue assailing the impugned order contended that though no part of service is rendered in India by the non-resident assessee, in view of the explanation to section 9 by Finance Act, 2010 giving a retrospective effect from 01.06.1976, whether a non-resident rendered services in India or not,the income by way of technical services payable to a non-resident, the payee i.e., the assessee should have deducted tax at source. The Tribunal was in error in holding that the service rendered is not a technical service but it is only hire charge which is contrary to the terms of the contract and material on record and therefore, he submits that the said order requires to be set aside. 9. Per contra, the learned Counsel for the assessee submitted that in the first place the services rendered by a non-resident Indian do not fall within the mischief of the word technical services . Even otherwise, as understood prior to the aforesaid amendment, unless the said serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... equipment), if under any Convention, agreement or protocol signed after 1 st September 1989, between India and a third state which is a member of the OECD, India limits its taxation at source on dividends, interest, royalties fees for technical services or payments for the use of equipment to a rate lower or a scope more restricted than the rate of scope as provided for in this convention on the said items of income, the same rate or scope as provided for in that Convention, Agreement or protocol enters into force, whichever enters into force later. 15. The Double Taxation Avoidance Agreement with USA at clause 4 of article 12 read as under:- 4. For purposes of this article, fees for included services means payments of any kind to any person in consideration for the rendering of any technical or consultancy services(including through the provision of services of technical or other personnel) if such services: Are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3is received; or Make available technical knowledge, experience, skill, know-how, or processes, or consist of the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 2 to clause 7 of section 9(1) makes it clear that fees for technical services means any consideration including a lump sum consideration for 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. Admittedly the services rendered by the non-resident do not involve any assembly, mining or like work. The services rendered are purely technical in nature. Therefore, the income by way of fees for technical in nature. Therefore the income by eay of fees for technical services payable by a person who is a resident in FTS=Fees for technical services utilized in a business or profession carried on by such person outside India or for the purpose of making or earning any income from any source outside India as per Section 9(1)(viii)(b). In view of the decisions rendered by the courts holding that to attract the aforesaid provision, the technical services should have been rendered in India, the parliament inserted clear. The explanation inserted by the Finance Act 2010 in substitution of the provis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The provision of section 4 and 5 of the Act are expressly made Subject to the provisions of this Act , which would include section 90 of the Act. As to what would happen in the event of a conflict between the provision of the Income tax Act and a notification issued under section 90, is no longer res integra. A survey of the aforesaid cases makes it clear that the judicial consensus in India has been that section 90 is specially intended to enable and empower the central Government to issue a notification for implementation of the terms of a double taxation avoidance agreement. When that happens, the provisionsof such an agreement with respect to cases to which where they apply, would operate even if inconsistent with the provisions of the Income-Tax Act. We approve of the reasoning in the decisions which we have noticed. If it was not the intention of the legislature to make a departure from the general principles of chargeability to tax under section 4 and the general principle of ascertainment of total income under section 5 of the Act, then there was no purpose in making thois e sections subject to the provisions of the Act. The very object of grafting the said two sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imits its taxation at source of fees for technical services to a rate lower or a scope more restricted than the rate of scope provided for in the Convention on the said items of income. Whatever benefit conferred on a third State under an agreement which comes into force later, the said benefit is extended to third State in respect of an agreement entered into earlier though such a favourable clause is not there in the earlier agreement. Therefore, by virtue of cl. 7 of the Protocol, even though such a benefit is not available under DTAA with France the beneficial clause in the DTAA entered into by India with the USA applies in respect to the DTAA with France. Therefore, unless the technical knowledge, experience, skill, know-how or processes are transferred to the assessee, the liability to tax does not arise. The said favourable clauses in the DTAA read with protocol override the provisions of the IT Act in the matter of ascertainment of chargeability to income-tax and ascertainment of total income to the extent of inconsistency with the terms of DTAC. 23. In the instant case, it is not in dispute that the remuneration is only for the services rendered on a foreign soil. In li ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sofar as the assessees' appeals are concerned, the CIT(A) committed a serious error in dismissing six of the appeals filed by the assessee on the ground of delay of five years ignoring the fact that the appeal filed by the assessee challenging the liability itself was set aside. As these pertain to additional levy of interest in respect of the orders passed which are subject-matter of Revenue appeal in this batch. In view of finding in the Revenue appeal the additional levy of interest will not survive and the appeals are accordingly allowed. 29. In respect of eight other appeals, the issue is only the condonation of delay and the orders are for different periods (other than the period covered by the Revenue appeals). In these eight appeals we are satisfied with the cause shown and we condone the delay and remit the matter back to the CIT(A) who shall pass orders in accordance with the directions contained in the connected appeals disposed of above 30. In view of the above, we pass the following order:- (a) The appeals filed by the Revenue in IT Appeal Nos. 532 of 2008, 533 of 2008, 534 of 2008, 1114 of 2008 to 1123 of 2008, 152 of 2009 to 161 of 2009 are dismissed. ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
