TMI Blog2016 (8) TMI 1009X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 2009-10. Since the issues raised in the present appeals are arising from same set of facts, the appeals are taken up together for adjudication and are disposed off vide this common order. 2. These appeals have been filed with the delay of 816 days. The assessee has filed an application for condonation of delay. The delay in filing of the present appeals has occurred, as earlier the assessee had filed single appeal in ITA No.1975/PN/2012 for the two assessment years. The CIT(A) had disposed of the 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 t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, Gensler would examine existing and additional data pertaining to the project goals and site development requirements of the assessee. Thereafter, Gensler would work towards the specific client objectives and would also review various aspects relating to site requirements, surroundings of the site, existing easements, 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$ 5,57,500. The assessee paid ₹ 40,60,000/- in F.Y. 2007-08 and ₹ 2,37,48,685/- in F.Y. 2008-09 without deduction of withholding tax. The AO vide order dated 31-03-2010 passed u/s.201(1) and 201(1A) r.w.s. 195 of the Act, common for the impugned assessment years held that the payments to the tune of ₹ 2,78,08,685/- made by the assessee to Gensler were in the natur ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) grossly erred in holding the aforesaid architectural services as technical services based on a judgement of the Authority for Advance Rulings (AAR), in contradiction to the judgement of Madras High Court, in the case of Skycell Communications Ltd Vs Dy.CIT [2001] 251 ITR 53 (Mad). 4.2 The ld CIT(A) erred in not appreciating the legal position that the ruling of the AAR has got only a persuasive value and the same cannot be followed in contradiction to the judgement of a High Court, particularly in 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) o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... een India and USA submitted that as per Article 5(2)(l)(i) of the DTAA, the term Permanent Establishment includes rendering of services, other than included services as defined in Article 12 (Royalties and Fees 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 total period of 5 days. Therefore, there is no question of Gensler having PE in India. 10. The Ld. Counsel for the assessee submitted that for tax treatment of the impugned payments, the provisions of Double Taxation Avoidance Agreement between India and USA have been applied, as the provisions of DTAA are more beneficial to the appellant and would override the provisions of the Income Tax Act, 1961. In support of his argument, the Ld. Authorised Representative placed reliance on the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnical knowledge, experience, skill, know-how or process, or (2) consists of development and transfer of a technical plan or technical design. In the case of the assessee, Gensler has not made available any technical knowledge or know-how or process to the assessee nor there has been any transfer of any technical plan or technical design. In support his submissions the Ld. Authorised Representative placed reliance on the following decisions : 1. Skycell Communications Ltd. Vs. Dy.CIT reported as 251 ITR 53 (Mad.) 2. Abishek Developers Vs. ITO reported as 110 TTJ 698 (Bang.) 3. Dy.CIT Vs. Finolex Pipes Ltd. reported as 106 TTJ 741 4. JCIT 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. Departmental Representative submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ven. This clearly shows that it is only the designs and the drawings which have 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 where the AO has referred to the judgment of Hon ble Karnataka High Court in the case of CIT Vs. Samsung Electronics Company Ltd. reported as 320 ITR 209. The Ld. Authorised Representative contended that the aforesaid judgment of Hon ble Karnataka High Court has been set aside by the Hon ble Supreme Court of India in the case of GE Technologies India Pvt. Ltd. Vs. CIT reported as 327 ITR 456 (SC). The Hon ble Apex Court in an unequivocal terms has held that if any payments is made to the non- resident which is not chargeable to tax, no tax has to be deducted at source on such payments. 18. The Ld. Author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... through employees or other personnel, but only if: i. activities of that nature continue within that State for a period or periods aggregating to more than 90 days within any twelve-month period; or ii. the services are performed within that State for a related enterprise (within the meaning of paragraph 1 of article 9 (Associated Enterprises)). Article 7 BUSINESS PROFITS 1. The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting 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 through that permanent establishment. Article 12 ROYALTIES AND FEES FOR INCLUDED SERVICES 1. Royalties and fees for included services ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 position that where DTAA provides for a particular mode of computation of income, the same should be followed, irrespective of the provisions of the Act. Where there is no specific provision in the agreement, the provisions of Income Tax Act will govern the taxation of income. The Hon ble Apex Court in the case of Azadi Bachao Andolan (Supra) has held that charging section 4, as well as section 5 of the Act, which deals with the principle of ascertainment of total income under the Act, are subordinate 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) ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed on to the assessee by Gensler contain drawings, designs and layouts of different buildings and facilities. It also contained the designs of interior buildings, walls, windows along with the measurements. The designs, drawings, layouts of buildings does not fall within the ambit of transfer of technical know-how or technical designs. Mere passing of project specific architectural drawings 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 other projects. A further perusal of terms and conditions of the Agreement between the assessee and Gensler show that Article 5 of the agreement clearly indicate that the drawings, specification and other documents prepared by Gensler shall remain the property of Gensler. The relevant extract of Article 5 of Internatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions, 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. 42(1) of the Indian I.T. Act, 1922, observed (p. 400): The phrase 'business connection' is different from, though doubtless not unrelated to, the word ' business' of which there is a definition in the Act. The expression business does not necessarily mean trade or manufacture only., It is being used as including within its scope professions, vocations and callings from a fairly long time. The Shorter Oxford English Dictionary defines business 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l after appreciating the facts of case and by following the decision of Hon ble Supreme Court of India in the case of Transmission Corporation of Andhra Pradesh Vs. CIT reported as 155 CTR (SC) 489 and the Mumbai Bench of Tribunal in the case of Indian Hotels Company Ltd. Vs. ITO in ITA No.553/Mum/2000 decided on 14-02-2005 concluded : .that the transaction in question is a transaction of sale and not a case of rendering technical services as contemplated under s.9(1)(vii) of the Act and even otherwise no part of the service is rendered in India and thus, the assessee cannot be held to be an assessee in default for non-deduction of tax at source. Thus, this ground the appeal of the assessee is allowed. 29. The Ld. Departmental Representative has placed reliance on the decision of Mumbai Bench of the Tribunal in the case of Sargent Lundy, LLC, USA Vs. ADCIT (IT) (Supra). We find that the facts in the said case are entirely at variance from the facts of the present case. Therefore, the ratio laid down by the Mumbai Bench of the Tribunal in the case of Sargent Lundy, LLC, USA Vs. ADCIT (IT) (Supra) would not apply in the facts of the present case. 30. Thus, from t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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