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2016 (8) TMI 1009 - ITAT PUNE

2016 (8) TMI 1009 - ITAT PUNE - [2016] 52 ITR (Trib) 1 - TDS u/s 195 - P.E. in India - Whether the payments made by the assessee in lieu of designs, drawings, plans made by Gensler is in the nature of royalty/fee for included services and thus the assessee was liable to deduct tax at the time of making such payments? - Held that:- As from the facts and circumstances of the case and documents on record, we hold that the payment made by assessee to Gensler, USA are not in the nature of “Royalty” o .....

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AM AND SHRI VIKAS AWASTHY, JM For The Assessee by : Shri S.K. Tyagi, Shri Ramesh Soniminde and Shri Vishwas D. Shotole For The Respondent : Shri Ravi Prakash and Shri Anil Kumar Chaware ORDER PER VIKAS AWASTHY, JM : These two appeals have been filed by the assessee against the order of Commissioner of Income Tax (Appeals)-IT/TP, Pune dated 16- 08-2012 passed u/s.201(1) and 201(1A) r.w.s. 195 of the IncomeTax Act (hereinafter referred to as the Act ) common for the Assessment Years 2008-09 and 2 .....

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appeals for A.Yrs. 2008-09 and 2009-10 vide single order dated 16-08-2012. The assessee inadvertently filed single appeal against the said order of the CIT(A). Subsequently, the assessee realised the mistake. On 07-01-2015 the assessee sought time from the Bench to file independent appeals for the impugned assessment years. Thereafter, on 14-01-2015 the assessee filed the present appeals. In the process, there was delay of 816 days in filing of the appeals. The Ld. Counsel for the assessee subm .....

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am Nath Sahu and Others reported as 2002 (3) SCC 195 has held that acceptance of explanation furnished for delay should be the rule and refusal an exception, more so when no negligence or inaction or want of bonafide can be imputed on the defaulting party. The explanation furnished should not be rejected by taking pedantic and hyper technical view of the matter when the stakes are high and/or arguable points of facts and law are involved in the case, causing enormous loss and irreparable injury .....

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facts of the case as emanating from the records are : The assessee in the present appeals is engaged in the business of development of land and construction of buildings. The assessee entered into an agreement with M/s. Gensler and Associates/International Ltd., USA (hereinafter referred to as Gensler ) on 17-04-2008 in respect of its commercial project IQ Business Park at Kharadi, Pune. The assessee intended to develop the said project as Special Economic Zone (SEZ). As per the agreement, the s .....

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accessibility of the site, open space, pedestrian and vehicular circulation etc. The second phase of Conceptual Development includes conceptual designs and drawings etc. A final site plan indicating main building, open space, parking, gateways, utilities and infrastructure support. Gensler would also provide diagrams indicating visual, scenic & landscape options etc. For the aforesaid services, it was mutually agreed between the parties that the assessee would pay total consideration of US$ .....

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; 55,61,736/- u/s.201(1) on the payments made to Gensler and further charged interest ₹ 12,03,018/- u/s.201(1A). Consequently, a demand notice for ₹ 67,64,754/- was issued to the assessee. 5. Aggrieved by the order passed u/s.201(1) and 201(1A) r.w.s. 195 of the Act, the assessee preferred appeal before the CIT(A). The CIT(A) vide impugned order confirmed the findings of the AO and held that architectural services rendered by Gensler are taxable as technical or consultancy services u .....

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2007-08, raising a demand of ₹ 9,13,500, by way of TDS and interest thereon, relating to payment of Architect fees of ₹ 40,60,000, to U.S. Company. 2. The ld CIT(A) grossly erred in placing reliance on MOUs between India and USA, which are dated much before the comprehensive DTAA entered into between India and USA, vide Notification No.GSR 990(E), dated 20.12.1990, particularly in view of the fact that the said MOUs are contrary to the relevant provisions of the comprehensive DTAA. .....

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onal High Court, viz. Bombay High Court, in the case of Diamond Services International Pvt. Ltd Vs Union of India [200B] 304 ITR 201 (Bom). 4. The ld CIT(A) grossly erred in holding that design and drawings prepared by a US company for a housing project in Pune, were not a product as held by the Bombay High Court in the aforesaid judgement, but the same were architectural services, by way of technical or consultancy services, liable to tax under section 9(1)(vii) of the Act. 4.1 The ld CIT(A) gr .....

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view of the recent judgement of the Supreme Court, in the case of Columbia Sportswear Co. Vs DIT [2012] 346 ITR 161 (SC), wherein it has been clearly held that the AAR is a Tribunal and the ruling of the AAR has to be challenged before a Division Bench of the High Court and not directly before the Supreme Court. 5. The ld CIT(A) erred in holding that the impugned architectural services were covered under Article 12(4)(b) of the DT AA between India and USA, when no technology was made available, .....

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the provisions of the Income-Tax Act, 1961, vis-a-vis the provisions of the DTAA. 7. All the aforesaid Grounds of Appeal are without prejudice to one another. 8. The appellant craves leave to add, alter, amend, modify or delete any or all the aforesaid Grounds of Appeal. Similar grounds of appeal have been raised by the assessee in both the impugned assessment years. 7. Shri S.K. Tyagi appearing on behalf of the assessee submitted that the assessee has entered into an agreement with Gensler in .....

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s provided by Gensler to the assessee would show that there is no transfer of any technology, technical know-how or technical designs. Gensler made drawings and designs of the proposed building by using Auto CAD 2004/2006 and provided the designs keeping in view the requirements of the assessee and the availability of the area. The Ld. Authorised Representative pointed that all the drawings, specifications and documents, the computer disc, electronic data or CAD files prepared by Gensler, will r .....

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es for Included Services), within a contracting state by an enterprises, through employees and other personnel but only if the activities of that nature continue within that State for a period or periods aggregating more than 90 days within any 12 months period. During the relevant period the employees of Gensler had visited India twice and their stay in India was for 3 days and 2 days respectively on those two different occasions. Thus, the stay of employees of Gensler in India was for the tota .....

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o.333, dated 02-04-1982 and the judgment of Hon ble Supreme Court of India in the case of Union of India Vs. Azadi Bachao Andolan reported as 263 ITR 706. 11. The Ld. Authorised Representative for the assessee submitted that the payments made to Gensler were in the nature of business profits . The Ld. Authorised Representative contended that the expression business includes within its scope professions and vocations. Therefore, business income includes any income for rendering professional servi .....

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ated as fee for included services within the scope of Article 12(4)(b) of the DTAA, either. No technological/ know-how, process or skill was made available to the assessee by Gensler. Therefore, the condition of make available was not fulfilled in the present case. 12. The Ld. Authorised Representative asserted that the CIT(A) has erred in holding that designs and drawings prepared by Gensler for the commercial project of the assessee were architectural services and are in the nature of technica .....

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ments made by the assessee for procuring designs, drawings and building plans are in the nature of Royalty or fees for included services . The amount paid can be treated as fees for included services , where the payment of any kind to any person is in consideration for rendering any technical or consultancy service if such service; (1) make available technical knowledge, experience, skill, know-how or process, or (2) consists of development and transfer of a technical plan or technical design. I .....

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T Vs. Harward Medical International USA reported as 13 ITR (Trib.) 503 (Mum) 5. Diamond Services International Pvt. Ltd. Vs. Union of India and others reported as 304 ITR 201 (Bom.) 6. CIT Vs. De Beers India Minerals Pvt. Ltd. reported as 346 ITR 467 (Karn.) 7. Addl. Director of Income Tax (International Taxation) Vs. W.N.S. North America Inc. 30 ITR (Trib.) 646 Mumbai 14. Per contra Shri Ravi Prakash representing the Department vehemently supported the findings of the CIT(A). The Ld. Department .....

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referred to the agreement between the assessee and Gensler and submitted that the US company has provided consultancy services. Fee for technical services is equivalent to included services . The term make available is debatable and thus no inference can be drawn from it. The Ld. Departmental Representative further referred to Article 12(4)(b)(ii) of Indo-US DTAA and submitted that in the case of the assessee, it is transfer of technical know-how, technical plans and designs, therefore, the cons .....

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is contentions, the Ld. Departmental Representative heavily relied on the decision of Mumbai Bench of the Tribunal in the case of Sargent and Lundy, LLC, USA Vs. ADCIT(IT) vide ITA No.8986/Mum/2010 for A.Y. 2007-08 decided on 24-07-2013. 16. The Ld. Authorised Representative controverting the submissions made on behalf of the department submitted that although the designs and specifications have been given to the assessee by Gensler, however, the title of those designs and drawings will remain w .....

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been received by the assessee from Gensler and there is no transfer of any technology or know-how. The Ld. Authorised Representative further submitted that the AO is not clear about the nature of payment made by the assessee to Gensler. At some places in the assessment order he refers to the payment as payment for technical services and at other places he refers the payments as royalty . 17. The Ld. Authorised Representative further referred to the observations of the AO in para 19 of the order .....

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esident which is not chargeable to tax, no tax has to be deducted at source on such payments. 18. The Ld. Authorised Representative finally submitted that the assessee before making payment to Gensler had sought opinion from the Income Tax Advisor on the issue, whether any tax was required to be deducted on the payments to be made to Gensler. The Tax Consultant vide opinion dated 10-05-2008 advised that : (i) payments for architectural services are not liable to be taxed in India under the provi .....

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rs of the authorities below. We have also taken into consideration the judgments on which rival sides have placed reliance and the documents which have been referred during the course of making of submissions. The issue that has emerged before us from the submissions made by the representatives of the rival sides and the documents on record is : Whether the payments made by the assessee in lieu of designs, drawings, plans made by Gensler is in the nature of royalty/fee for included services and .....

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. For the purposes of this Convention, the term "permanent establishment" means a fixed place of business through which the business of an enterprise is wholly or partly carried on. 2. The term "permanent establishment" includes especially: (a) xxxxxx (b) xxxxxx (c) xxxxxx (l). the furnishing of services, other than included services as defined in article 12 (Royalties and Fees for Included Services), within a Contracting State by an enterprise through employees or other pers .....

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g State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to (a) that permanent establishment; (b) sales in the other State of goods or merchandise of the same or similar kind as those sold through that permanent establishment; or (c) other business activities carried on in the other State of the same or similar kind as those effected thr .....

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he tax so charged shall not exceed: xxxxxxxx xxxxxxxx 3. The term "royalties" as used in this article means: a. payments of any kind received as consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information .....

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c) or 3 of Article 8. 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: a. are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or b. make available technical kn .....

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ld that the payment made by the assessee for architectural services rendered by Gensler-USA falls within the meaning of expression fees for included services under Article 12(4)(b) of the India-USA DTAA. 22. At the outset it would be relevant to mention here that the provisions of section 90(2) of the Act, allow a taxpayer to avail the provisions of DTAA to the extent they are more favourable than the provisions of the Act. The CBDT Circular No.333 dated 02-04-1982 has further clarified the posi .....

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te to the principle enshrined u/s.90(2) of the Act. The Mumbai Bench of the Tribunal in the case of ADIT Vs.WNS North America Inc. (Supra) has reiterated the proposition that where provisions of Article 12 (4)(b) are beneficial to the assessee in comparison with section 9(1)(vi), the provisions of Article 12 shall apply in supercession of section 9(1)(vi) of the Act. The Authorised Representative of the assessee has asserted that the payments made to Gensler-USA by the assessee should be conside .....

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present case, the total stay of employees/executives of Gensler in India was 5 days only. This fact has not been controverted by the Department. No material has been placed on record by the Department to show that the stay of the employees of Gensler, USA in India was for 90 days or more. It is not the case of Revenue that Gensler, USA has any branch, office, workshop, place of management etc. in India to be considered as the Permanent Establishment of Gensler. Thus, it can be safely concluded .....

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its particular commercial complex. The drawings & designs made by Gensler were project specific and there was no transfer of copyright in scientific work. The assessee by no means could have benefitted by commercial exploitation of the designs and drawings of the particular building. 25. Further, the payments made by assessee do not fall within the scope of expression fee for included services as defined under Article 12(4) of the DTAA. There was no transfer of any technology or technical kn .....

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ings & designs with measurements does not amount to making available technical knowledge, know-how or process. Gensler has not transferred any technical expertise, skill or knowledge alongwith the drawings & designs of the particular building to the assessee. The assessee cannot independently use the drawings & designs in any manner whatsoever for commercial purpose. Since, the drawings & designs were project specific, the assessee could not have used these designs for any of its .....

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Documents ) and any computer tapes, disks, electronic data, or CAD files (collectively Data ) prepared by Gensler are instruments of service and shall remain Gensler s property. 5.2 Upon completion of the Services and payment of all amounts due Gensler, Client may retain copies or reproducible of the Documents and/or Data for information and reference in connection with Client s use and occupancy of the completed project. 5.3 Client agrees to indemnify and hold Gensler harmless from and against .....

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rial available on record and the submissions of the rival sides are : (1) The assessee is not having any Permanent Establishment in India. (2) The services were rendered by Gensler from its office in San Francisco, USA; (3) There was no transfer of any technology or technical knowhow; (4) There is no transfer of any copyrighted scientific work; (5) The designs, drawings and layouts are project specific; (6) The ownership on the drawings, specifications and documents have not passed on to the ass .....

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under section 9 of the Act has also in an explicit manner held that Business does not necessarily mean trade or manufacturing only. It includes within its scope professions, vocations and callings. The relevant extract of the findings of Hon ble Supreme Court of India are as under : 11. In CIT v. Currimbhoy Ebrahim & Sons Ltd. [1935] 3 ITR 395, Sir George Rankin, speaking for the judicial Committee of the Privy Council, while construing the expression " business connection " in s. .....

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t; as " stated occupation, profession or trade " and " a man of business " is defined as meaning " an attorney " also. In view of the above dictionary meaning of the word " business ", it cannot be said that the definition of business given in s. 45 of the Partnership Act, 1890 (53 & 54 Vict. c. 39), was an extended definition intended for the purpose of that Act only. Section 45 of that Act says: "........... The expression 'business' inc .....

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learned judge in another case, IRC v. Marine Steam Turbine Co. Ltd. [1920] 1 KB 193, 203 (KB) held: "The word 'business ', however, is also used in another and a very different sense, as meaning an active occupation or profession continuously carried on and it is in this sense that the word is used in the Act with which we are here concerned." The word " business " is one of wide import and it means an activity carried on continuously and systematically by a person b .....

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hat it is not a case of rendering technical services u/s.9(1)(vii). In the said case the assessee was engaged in real estate development. The assessee entered into agreement with one of the overseas company based at Singapore for the development and transfer of designs & drawings in connection with real estate development. As per the agreement entire designs and drawings were transferred at Singapore. The entire work was carried outside India. The assessee made payment to overseas company wi .....

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