TMI Blog2016 (5) TMI 167X X X X Extracts X X X X X X X X Extracts X X X X ..... edge or skills of the provider should be imparted to and absorbed by the receiver of service so that the receiver can deploy the similar technology or techniques in future without depending upon the provider. Therefore, the assessee stands exonerated from its obligation to deduct withholding tax in view of non-application of Article 12 of the beneficial provisions of DTAA. The Hon’ble Supreme Court in the case of Union of India vs. Azadi Bachao Andolan (2003 (10) TMI 5 - SUPREME Court) relied upon by the assessee has upheld the proposition that the provisions made under the DTAA will prevail over the general provision contained in the Income-tax Act to the extent that they are beneficial to the assessee. We also refer to section 90(2) which provides that the provisions of DTAA would override the provisions of Domestic Act in cases where the provisions of DTAA are more beneficial to the assessee. Therefore, we find that the assessee was not under any legal obligation to deduct withholding tax on the impugned remittance. Therefore, we decline to interfere with the order of the CIT(A) and dismiss the appeal of the Revenue. - Decided in favour of assessee - ITA No.1171/PN/2013 - - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provider. 6. The appellant craves leave to add to or modify any of the grounds of appeal. 3. The short question involved in the present appeal is whether the assessee while making remittance towards group cost recharge to its associated enterprise(AE) in Singapore was liable to TDS withholding tax in terms of section 195 of the Act or not. 4. The brief facts concerning the issue involved are that the assessee company is part of the Global professional services group engaged in providing engineering and design services, product life cycle management, and enterprise solution and plant automation. The Assessee co. as a part of INCAT entities entered into a cost recharge mechanism with a view to share the group costs attributable to it as per Group Cost Recharge Agreement . Singapore entity namely Tata Technologies Pte Ltd. (TTPL) acts as conduit for allocation of group cost between INCAT co.. deriving benefit from such services of other INCAT cos. As per the arrangement, the Assessee has remitted its share of group cost recharge to the credit of Singapore company albeit without deducting tax at source. The Assessing officer took objection to such remittance witho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s regard. 4.4 Thereafter, the Assessing Officer embarked upon the proceedings under S. 201 / 201(1A) and passed an elaborate order holding the Assessee in default for breach of S. 195 which is subject matter of present appeal. The AO in the impugned order came to the conclusion that the payment made by the assessee was taxable as FTS under the provisions of the Act as well as under Article 12 of the India-Singapore DTAA and therefore attracts obligations cast under S. 195 of the Act. He did not accept the contention of the assessee that the remittance was not taxable because services rendered by other INCAT entities availed by the Assessee for its benefit did not make available the technical knowledge per se to the assessee which condition simultaneously co-exist along with rendition of technical, managerial or consultancy services etc. to fall within the scope of Article 12 for the taxability under the DTAA. 4.5 The assessee inter alia made out a case before the Assessing Officer that the group costs incurred by the INCAT entities were to be merely reimbursed by the assessee according to the agreement. The nature of the group cost areas broadly comprises of :- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t services Assistance and advice relating of issue arising in connection with temporary and permanent transfer of personnel and global polices applicable thereto. Legal and Company secretarial services. Company secretarial services, legal compliance services, review of contracts and arrangement, managing of ESOPS supervision of external and/ or internal contractual relationship and General support in legal matters. Quality initiative services. Services in relation compliance and adherence of the group quality initiative. Finance and treasury management services. Services in relation to fund management, global treasury operations financing management, contract monitoring, drawings and payments transactions. Clearing and credit management, sureties, assumption of guaranties, bank reporting and project financing. 4.7 The assessee (TTL) contended before the AO (TDS) that firstly Singapore entity (TTPL) has merely pooled the group costs to be recharged to the INCAT entities based on certain key ratios and has merely recharged and allocated the costs to the respective entities availing benefits of such costs as per Group Cost Recharge Agreement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement of expenses which is not chargeable to tax under the Act. The assessee next submitted that having regard to S. 90(2) of the Act, tax liability of non residents in India is required to be determined in accordance with the provisions of the Act or Double Tax Avoidance Agreement ( DTAA ) between India and relevant country whichever is more beneficial to the assessee. The assessee contended that provisions of tax treaty between India and Singapore being more beneficial to the assessee should be applied to determine its tax obligations. 4.10 In the context of applicability of DTAA, the assessee submitted that TTPL is a tax resident of Singapore and would accordingly be entitled to avail benefits of India Singapore treaty. It was the case of the assessee that the taxability of such payment is to be examined with reference to Article 12 of the Treaty which defines Fees for technical services to mean payment of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services make available technical knowledge, experience skill, know-how or pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch services make available technical knowledge, skill, processes, etc. which enables the person so availing the services to apply the technical services contained therein. The Assessing Officer observed that the expression make available used in the treaty suggests that these services in the nature of technical knowledge, experience, skill, etc. were to be offered or made accessible to other party and it never meant that other party should be trained or made expert in such knowledge, etc.. Article 12 of the Treaty lays its focus in a manner that a person acquiring the services should be enabled to apply the technology and it does not concern transfer of the technology. 4.13 The AO accordingly brushed aside various contentions of the assessee and observed that payment towards group cost recharge has been made to Singapore company for availing services of technical, managerial nature etc. for which Assessee was liable for deducting or withholding the tax in terms of section 195 of the Act having regard to the provisions of the Act read with treaty. As a result, the AO came a conclusion that the assessee company having failed to deduct withholding tax has committed a default ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted enterprise(AE) namely TTPL domiciled and tax resident of Singapore. The Ld. AR for the assessee reiterated the facts noted supra and adverted our attention to Group Cost Recharge Agreement entered into between Assessee co. and other INCAT entities for mutual benefit with a view to share group costs which is incurred by any of the group entity for the benefit of others. As per the agreement, the Singapore company acts a conduit who is authorised to recharge and allocate the group costs to other beneficiary entities forming part of the agreement. The learned AR submitted with vehemence that the Singapore company merely gives effect to the entire cost recharge mechanism and allocates the costs to various INCAT entities as per the impugned agreement. He noted that the group cost which is subject to allocation do not include costs incurred for the benefit of its own business operation by the respective INCAT entities. 8.1 The Ld. AR laid special emphasis to the fact that all the group costs incurred by INCAT entities are reimbursed by TTPL at costs without any mark-up thereon and this cost is recovered from other beneficiary companies of the group. Thus, the remittance towards ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the decision of ITAT, Mumbai in the case of Raymond Limited vs. CIT, (2003) 86 ITD 791 to understand the expression make available used in the treaty. In the instant case, Singapore entity has only re-charged the group costs for the services provided by the INCAT companies where the technical knowledge, experience, skill, knowhow or processes, etc. embedded in rendering such technical services were not made available to the assessee in consideration of the impugned payments. He thus submitted that the provisions of DTAA would prevail over S. 9(1)(vii) of the Act concerning taxability of FTS. Article 12 governing scope and ambit of Fee for technical service does not include a situation where services were rendered without technical knowledge etc. being made available to the recipient of service. Therefore, the impugned remittance does not fall within the definition of fee for technical services under the beneficial treaty and as a corollary, the remittance (FTS) is not chargeable to tax in India . 9. We have carefully considered the rival submissions. In the present appeal, the assessee has denied taxability of payment made by it to a Singapore entity under the Income- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shall delineate the first plank of argument on behalf of the Assessee that the payment is in the nature of reimbursement and therefore not chargeable to tax. We find that the stand of the assessee that the payment to Singapore entity is merely in the nature of reimbursement of group costs allocated to it and other beneficiaries of services without any mark-up i.e. without any element of profit embedded in such reimbursement has remained un-controverted. The contention of the assessee that TTPL has merely administered the costs recharge mechanism and has merely pooled the group costs to be re-charged to INCAT entities without any mark-up in the group costs has not been discredited by the Assessing Officer while addressing the point as can be seen from para 12.3 of the order under section 201(1) of the Act. In para 12.10 of its order, the Assessing Officer has only questioned the basis of allocation which is qua the economic benefit of such expenses. The CIT(A) has also not disputed the case of the assessee that in reality no services were rendered by the Singapore company, which has merely acted as a conduit to recover group costs as an agent for all other services provider entiti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sum chargeable under the provisions of the Income-tax Act. In the light of above discussion, We are of the considered view that mere allocation of group charge on the basis of certain key ratios or some other basis will not vitiate the fact that it is mere reimbursement of actual expenditure by various group entities towards group costs. As observed, the INCAT entities who have rendered group services and collected the same through Singapore company has not made any resultant profit against cost incurred and were merely reimbursed towards the cost albeit in a different proportion by various group entities based on parameters fixed in the group cost recharge agreement. On this premise, in the absence of its chargeability in the hands of recipients, We are of the view that section 195 of the Act does not come into play at all. 10. There is another aspect raised by the assessee which is argued in great length. The assessee has taken a plea that in view of the beneficial of provisions of DTAA, the impugned payment to Singapore entity does not fall within the scope and ambit of fee for technical services . 10.1 For considering the taxability under DTAA, it is pertinent to peru ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g paragraph 4, fees for technical services does not include payments: (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in paragraph 3(a); (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic; (c) for teaching in or by educational institutions; (d) for services for the personal use of the individual or individuals making the payment; (e) to an employee of the person making the payments or to any individual or firm of individuals (other than a company) for professional services as defined in Article 14; (e) for services rendered in connection with an installation or structure used for the exploration or exploitation of natural resources referred to in paragraph 2(j) of Article 5; (g) for services referred to in paragraphs 4 and 5 of Article 5. 6. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chnical input by the person providing the service does not per se mean that technical knowledge, skills, etc. were made available . The expression make available is used in the sense that one person supplying or transferring technical knowledge or technology to the recipient of service. Further, service recipient should be able to make use of technical knowledge, skill, etc. by himself in his business or for his own benefit without taking recourse to the performer of the services in future. Technical knowledge, experience, skill, etc. must remains with the person using the service even after rendering of services has come to an end. Such is not the case here. The assessee has admittedly not acquired any such technical inputs for its own use from the TTPL. Thus, payment under Group recharge agreement to Singapore entity cannot be taxed under the Article 12 of India Singapore DTAA. 11. To conclude, we are of the considered view that the impugned services rendered by INCAT group companies for which the payment was collected by Singapore entity through cost recharge mechanism is not assessable as fee for technical services under Article 12 of India Singapore DTAA when it ..... X X X X Extracts X X X X X X X X Extracts X X X X
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