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The Income Tax Officer, International Taxation-II, Ahmedabad Versus B.A. Research India Pvt. Ltd.

2016 (7) TMI 104 - ITAT AHMEDABAD

TDS u/s 195 - FTS/FIS - fee for technical services / fees for included services - AO Passed order u/s.201(1) & 201(1A) r.w.s.195 on the basis that the assessee had made payments to non-resident parties on which he has not deducted the tax. - Article 12(4)(b) of DTAA - Held that:- Payment of consideration would be regarded as 'fee for technical/included services' only if the twin test of rendering services and making technical knowledge available at the same time is satisfied. In the present case .....

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hus, the said services were not made available to the assessee and therefore, the services provided to the appellant by the non-resident parties of USA and Canada did not fall within the purview of 'included services' under Article 12(4)(b) and hence there was no liability on the appellant to deduct TDS u/s. 195 of the I.T. Act, while making payment for such bio-analytical services rendered to it. - Decided against the revenue. - I.T.A. No.3106/Ahd/2011 - Dated:- 30-11-2015 - SHRI G.D. AGARWAL,V .....

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the services were not made available, in the light of the provisions of article 12(4)(a) and 12(4)(b) of DTAA as well as the protocol to the DTAA which specifically includes such services under article 12(4)(b). 2. The Ld.CIT(A) has erred in law and on facts while placing reliance in the case of Mahindra & Mahindra Ltd, even though the facts of the case and the assessee are different. 3. On the facts and circumstances of the case, the Ld.CIT(A) ought to have upheld the Order of the Assessing .....

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on which he has not deducted the tax. The assessee before the AO submitted that the payments were not subjected to tax, therefore the assessee was not liable to deduct tax on such payments. However, the AO did not accept the contention of the assessee and proceeded to hold the assessee as assessee in default for non-deduction of tax and made the assessee liable for tax a sum of ₹ 7,96,325/- and interest thereon u/s.201(1A) of the Act of ₹ 33,845/-. The AO held that the payments made .....

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e non-resident parties of USA and Canada did not fall within the purview of included services under Article 12(4)(b) and, hence, there was no liability on the assessee to deduct TDS u/s.195 of the Act, while making payment for such bio-analytical services rendered to it. The ld.CIT(A) while reaching to this conclusion relied upon the decision of the Authority for Advance Rulings (Incometax), New Delhi rendered in the case of Anapharm Inc., reported at [2008] 305 ITR 394 (AAR). The ld.CIT(A) also .....

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es under article 12(4)(b). The ld.Sr.DR vehemently argued that the ld.CIT(A) was not justified in deleting the addition. He submitted that the assessee was liable to deduct the tax on the payments made in consideration of the technical services rendered to the assessee and such technical services are liable to tax as per the provisions of Income Tax Act. 3.1. On the contrary, ld.counsel for the assessee submitted that the issue is squarely covered by the judgements/decisions of various judicial .....

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pharm Inc., In re reported at [2008] 305 ITR 394 (AAR) (iv) Decision of ITAT Mumbai Bench L -in the case of Wockhardt Ltd. vs. ACIT reported at [2011] 10 taxmann.com 208 (Mumbai) (v) Decision of Hon ble High Court of Karnataka -in the case of CIT vs. De Beers India Minerals (P.) Ltd. reported at [2012] 21 taxmann.com 214 (Kar.) (vi) Decision of ITAT Delhi Bench A in the case of Dy.CITvs.Pan AmSat International Systems Inc. reported at [2006] 9 SIT 100 (Delhi). 4. We have heard the rival submissi .....

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ment in India. It is the contention of the assessee that the services so rendered are not made available to the assessee. In this background, the ld.CIT(A) has decided the issue in favour of assessee by observing as under:- 5. I have gone through the order of the AO and the submissions of the assessee. The ground of appeal against demand raised u/s.201(l) requires consideration of the following 3 issues: a) Whether the payments made to the non residents are income deemed to accrue or arise in In .....

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(i) B.A. Research International (USA), (ii) Allied Research International Inc. (Canada) and (iii) MDS Pharma Services Inc. (USA), who are residents of USA and Canada for providing analytical services and testing charges. The non-resident companies had no PE in India. These services were undisputedly provided outside India, but were utilized for earning income from source in India which is manufacturing of drugs in India and subsequent sales. Now, coming to the first issue, i.e. whether the paym .....

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the Supreme Court decision in the case of 'Ishikawajima-Harima Heavy Industries Ltd. v/s. DIT, 158 Taxman 259 (SC)' is applicable. The appellant had placed reliance on the decision of "Jindal Thermal Power Company Limited v. DOT [2009] 225 CTR 220f, wherein it has been clearly held "that the criteria of rendering service in India and the utilization of service in India laid down by the Supreme Court in Ishikawajima's case (Supra) to attract tax liability u/s. 9(l)(vii) rema .....

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e is no longer good law. After the amendment with retrospective effect, the payments made by the appellant are definitely falling under the definition of fees for technical services' and the income is deemed to accrue or arise in India under the provisions of section 9(2)(vii). The next issue to be decided is whether the income which has been decided to be deemed to accrue or arise in India under section 9(2)(vii) is of the nature which is exempt from taxation in India under the DTA Agreemen .....

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re conducting tests on the drugs which were already researched and after analyzing the drugs on the required parameters final reports were submitted to the assessee. I have perused the submissions made by the Appellant as well as the order passed by the AO. On perusal of the decisions cited by the Appellant it can be concluded that service, which is technical in nature can be said to be "fees for included services" only when it "make available" technical knowledge or skills t .....

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e U.S.-India DTAA as well: "Payment of consideration would be regarded as 'fee for technical/included services' only if the twin test of rendering services and making technical knowledge available at the same time is satisfied. In the present case, the applicant renders Bio-analytical services which, no doubt, are very sophisticated in nature, but the applicant does not reveal to its clients as to how it conducts those tests or the inputs that have gone into it, so as to enable them .....

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appellant to deduct TDS u/s. 195 of the I.T. Act, while making payment for such bio-analytical services rendered to it. Further the ratio Mumbai ITAT decision in the case of Wockhardt Ltd. v. ACIT (2010) 10 taxmann.com 208 (Mum.), also squarely applies to the facts of the appellant's case. The same view has been followed in various decisions including decision of Mumbai Special Bench in the case of Mahindra & Mahindra Limited (313 UR 263). In view of the provisions of Article 12 of DTAA .....

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be deducted u/s. 195 even when the income in the hand of non-resident is not taxable. As the remittance made is not chargeable to tax in India, I am of the view that, in the given case provisions of Section 195 are also not applicable. The Hon'ble Supreme Court has decided the very issue in GE Technology Centre P Ltd 327 ITR 456.lt has held that u/s. s 195 payer is bound to deduct tax only if the sum payable is assessable to tax in India. Further, as provisions of Section 195 of the Act are .....

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