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In RE : Foster Wheeler (G.B.) Limited, C/o Foster Wheeler (G.B.) Limited – India Project Office

2016 (9) TMI 348 - AUTHORITY FOR ADVANCE RULINGS NEW DELHI

Allowability of proposal expenses - nature of Payments to third party service providers outside India for services in connection with expatriate movement to India in relation to the PO - Allowability of provisions made with respect to its obligation to pay a delay penalty (price reduction) - Held that:- The Head Office had not incurred any expenditure but some expenditure was incurred by one of the group concerns i.e. FWEL and as such, expenditure incurred by a third party cannot be allowed as a .....

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sallow such expenses as the same has been incurred for business purposes and we are of the opinion that such expenditures be allowed in the year in which it was incurred. - Payments to third party service providers outside India for services in connection with expatriate movement to India in relation to the PO - nature of Fees for Technical Services - whether such payments would be in the nature of travel costs - Held that:- As regards payments made to third parties other than FWEL, there is .....

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acquire skills of enduring benefit nature. Department’s reliance on the fact is also based on presumption that invoices have been prepared for the purpose of Services Tax Law and the description on the invoice is in the light of the definition of taxable service in Service Tax Act. However, the affidavit filed before us does not say so. We cannot go on presumption of the Department and therefore we rely on the affidavit and rule that services provided by FWEL and other third parties are not in t .....

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ation.The delay penalty (price reduction) will be deductable while computing profits on the basis of actual invoices raised, amount earned on these invoices and difference attributable to price reduction on year to year basis. - A.A.R. No 1003 of 2010 - Dated:- 10-8-2016 - Mr V.S. Sirpurkar, Mr. A.K. Tewary and Mr. R.S. Shukla, JJ. For The Applicant : Mr. Nishant Thakkar, Advocate For The Department : Mr. Nausheen J Ansari, CIT-DR(AAR), Mr. SS Negi, JCIT -DR(AAR), Mr. C.V. Pavana Kumar, Addl CIT .....

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on services (i.e. Project Management Consultancy services ( PMC ); b) Procurement services; and c) Engineering design services In order to carry out the above project, FWGB has set up a project office in India i.e. Foster Wheeler (G.B) Limited Project Office ( PO ) along with Site Offices ( SO ) at Paradip, Orissa, Gurgaon and Haryana. The PO has been set up under the automatic route as per the Reserve Bank of India s regulations in this regard. The PO has commenced raising invoices (both for se .....

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le as a deduction in computing the taxable income of the PO? 2. On the facts and in the circumstances of the case, whether the claim of deduction in relation to Head Office( HO ) expenses by FWGB can be subject to the limitation prescribed under section 44C of the Incometax Act, 1961 ( the Act ) in light of the non-discrimination clause under the India-United Kingdom Double Taxation Avoidance Agreement ( DTAA or the tax treaty )? 3. If the answer to question 2 is in the affirmative, whether the .....

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e directly identifiable to the activities of the PO? 5. On the facts and in the circumstances of the case, would there be a need to withhold taxes under the Act / India-UK DTAA by FWGB on: • Payments made to non-resident third party service-providers? Or • Payments made to FWEL under the Inter Company Agreement for Services dated 29th April, 2009? 6. On the facts and in the circumstances of the case, whether any provision made for payment of liquidated damages to IOCL under the contrac .....

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of finance, legal and engineering professionals. Expenses towards the bid comprising of time charge of FWEL staff working on the bid, travel expenses (including flight charges, hotel charges etc) and printing cost pertaining to FWGB s contract are charged to FWGB under an agreement between FWGB and FWEL. Therefore, the PO has claimed these expenses as a deduction in its return of income for AY 2009-10 under section 37 of the Income-tax Act.. Section 37 of the Act provides as follows: Any expendi .....

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applicant s projects in India and shall be allowable in the hands of the PO for the purposes of Income-tax Act. 6. The Department of Revenue has stated that the project works in India are undertaken by the Permanent Establishment of FWGB, U.K. Essentially, FWGB, U.K. (Head Office) should incur some expenditure, on account of certain works carried out in U.K., for the benefit of the project works in India, in order to qualify the expenditure as Head Office expenditure . However in this case the H .....

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FWGB and FWGB has in fact paid the same to FWEL. This shows that FWEL had incurred such expenditure for the purpose of applicant s projects in India. In view of this there is no reason to disallow such expenses as the same has been incurred for business purposes and we are of the opinion that such expenditures be allowed in the year in which it was incurred. Question No.5 7. According to the applicant FWGB has made/would make certain payments to third party service providers outside India for se .....

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h April 2009 which primarily includes time cost of various departments including processing, procurement, legal services, human resources, finance division and such expenses attributable to PO s activities are charged by FWEL to FWGB. 8. The applicant has submitted that the principle of India-UK DTAA would override the provisions of Income-tax Act and as per Article 13(4) of the DTAA fees for technical services means payment made as consideration for rendering technical or consultancy services t .....

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ip;…; or (c) Make available technical knowledge, experience, skill know-how or processes, or consist of the development and transfer of a technical plan or technical design. The applicant has mentioned that services rendered by third party service provider do not make available technical knowledge, experience, skill, knowhow etc and accordingly payments towards the same cannot be considered as fees for technical services and is not taxable in India. As regards payments made to FWGB, UK al .....

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India-UK DTAA as business income. The applicant has further mentioned that as per Article 7 of the India- UK DTAA, business income shall be taxable in India only if there is a PE in India and since FWEL does not have a PE India in relation to this service; payments made by FWGB are not taxable in the hands of FWEL. The description of services provided by FWEL under the support services agreement dated 29th April 2009 was for:- (i) Account Receivable /Payable Management (ii) Financial Reporting, .....

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to show that engineering services were provided that would satisfy the make available clause of the DTAA. The applicant s counsel Shri Nishant Thakkar submitted that though the invoices mention consulting engineering services yet the actual service provided were in the nature of support services to the project office in India in connection with the execution of IOCL project. He was then asked by us to file an affidavit explaining the nature of services provided by FWEL to the India project offic .....

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, has mentioned the following points:- (a) The affidavit described the services in very general terms and did not describe the specific nature of the services rendered by FWEL. (b) The Applicant enclosed Exhibit-A in which the Applicant listed the type of services purportedly provided by FWEL under the agreement. The list of such services are categorized as (i) Account receivable /payable Management. (ii) Finance Reporting, Banking and Treasury support Management, (iii) Human Resources and pay-r .....

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ing services . According to the Department this description of the services is for the purpose of Service Tax Law wherein taxable services are categorized under section 65(105) of the Service Tax Act. Consulting engineering service is described in clause (g) of that provision of the Service Tax Act. The said clause (g) describes such service as any service provided by a consulting engineer in relation to advice, consultancy or technical assistance in any manner in one or more disciplines of engi .....

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engineering services which are technical in nature satisfying the make available clause of the India-UK DTAA. In view of above the Department has submitted that the nature of services rendered by FWEL is technical engineering services satisfying the make available clause of the DTAA and payments made for the same are liable for withholding tax under the DTAA. 11. We have considered the arguments of both sides. We notice that: a. The affidavit given by the applicant clarifies that the reference .....

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rpose of identifying the project to which the support services relate to. Further, names of engineers appear on the annexure to the invoices as the chargeable hours worked by the engineers on the IOCL Project form the basis of charging the project for the support services. c. The services rendered by third parties and FWEL are administrative support services rendered from abroad and as explained in the Affidavit dated 15 April 2016 are in the nature of managerial services . Such services do not .....

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en explained as above and if this is true the same cannot satisfy make available clause as these are not providing services on the basis of which the recipient can be said to acquire skills of enduring benefit nature. Department s reliance on the fact is also based on presumption that invoices have been prepared for the purpose of Services Tax Law and the description on the invoice is in the light of the definition of taxable service in Service Tax Act. However, the affidavit filed before us doe .....

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