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2016 (10) TMI 7 - ITAT BANGALORE

2016 (10) TMI 7 - ITAT BANGALORE - TMI - TDS u/s 195 - liability of tax deduction at source (TDS) on payment made to foreign constituents - time frame for initiating action u/s. 201(1) against the non-residents - Held that:- Having carefully examined the rival submissions and the material on record, we find that the legislature has consciously used the word “resident in India”. Had it been the intention of the legislature to prescribe the time period for the non-residents, they would have comfor .....

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essee entered into agreement with the foreign constituent, i.e., MJR Consultancy Pte Ltd., a company incorporated in Singapore we find that the Consultant was required to render consultancy services on different issues by applying his technical know-how and whatever services are rendered, advisories were issued to the assessee, the Consultant shall immediately assign and transfer the rights in that consultancy services to the assessee and the assessee would be able to use that services for its e .....

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be used by the assessee for its business purposes in the succeeding years without any aid and assistance of the Consultant. Therefore, in the light of these facts, we are of the view that the consultancy services having been made available to the assessee, the Revenue has rightly held that the Singapore company as a Consultant has made available to the assessee company technical knowledge in the form of expertise in the operation of its business which was in its possession along with experience .....

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RI ABRAHAM P. GEORGE, ACCOUNTANT MEMBER For The Appellant : Shri V. Srinivasan, CA For The Respondent : Dr. P.K. Srihari, Addl. CIT(DR) ORDER Per Sunil Kumar Yadav, Judicial Member These are appeals preferred by the assessee against the common order dated 15.12.2014 of the CIT(Appeals)-12, Bangalore for the assessment years 2007-08 to 2009-10 inter alia on the common grounds and for the sake of reference, we extract hereunder the grounds raised in IT(IT)A No.11/Bang/2015 :- 1. The orders of the .....

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al interest levied. 3. Without prejudice to the above, the learned CIT [A] is not justified in holding that the payments made by the appellant to M/s. MJR CONSULTANCY PTE LTD., Singapore, was fees for Technical Services within the meaning of Section 9[1][vii] of the Act as well as Article 12 of the Double Taxation Avoidance Agreement [DTAA] between India and Singapore and therefore, the appellant was required to deduct tax at source u/s. 195 of the Act before making the payment under the facts a .....

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ndia in the hands of the said company, which is a resident of Singapore having no permanent establishment in India and therefore, there was no requirement to deduct tax at source. 3.2 Without prejudice to the above, the learned ClT [A] failed to appreciate that even if the payments made to M/s. MJR CONSULTANCY PTE LTD., Singapore, were regarded as fees for technical services, the same was not taxable in India as the payments made could. not be regarded as fees for technical services within the m .....

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201 [1] of the Act is highly excessive and the same is liable to be reduced substantially. 6. Without prejudice to the right to seek waiver with the Hon'ble CCIT/DG, the appellant denies itself liable to be charged to interest u/s. 201 [1A] of the Act amounting to ₹ 5,71,248/- on the tax payable of ₹ 5,95,050/-, which under the facts and in the circumstances of the appellant's case is unwarranted and hence, the levy deserves to be cancelled. 7. For the above and other grounds .....

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. 195 of the Income-tax Act, 1961 [ the Act ]. 3. According to the Assessing Officer, as per the provisions of section 195 of the Act, any person responsible for making payment to a nonresident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of the Act (not being the income chargeable under the head salaries) shall at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue .....

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, it was submitted that it cannot be treated as defaulter u/s. 201(1) as the payments in question are not covered under Article 7, 9 or 12. 4. The AO asked the assessee to explain as to why the above payments to M/s. MJR Consultancy Pte Ltd., Singapore towards consultancy charges for the above financial years should not be treated as fees for technical services as per the provisions of section 9(1)(vii) of the Act. It was also asked to furnish full details of payments and in response thereto, th .....

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scussion, it has been proved that the payments made by the assessee to MJR Consultancy Pte. Ltd., Singapore during the F.Y.s 2006-07, 2007-08 and 2008-09 in terms of the Consultancy Agreement entered into between the two parties constitute fees for technical services both under Sec.9(1)(vi) of the Income Tax Act, 1961, and under the Double Taxation Avoidance Agreement between India and Singapore and is chargeable to tax in India. Sec.195 of the Income Tax Act, 1961, casts an obligation on the pe .....

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default in respect of tax not deducted at source in respect of Fees for Technical Services payable to MJR Consultancy Pte Ltd., Singapore for the assessment years 2007-08, 08-09 & 09-10 as per the provisions of Sec.201(1} of the Income Tax Act, 1961. It is liable to pay the tax deductible in this regard along with the interest u/s. 201(lA) for these assessment years. 5. Aggrieved, the assessee preferred an appeal before the CIT(Appeals) and placed the consultancy agreement. It was also conte .....

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assessee has not paid fees for technical services, he was not under obligation to deduct tax at source as required by the Act. Therefore, the order of the AO holding assessee to be in default u/s. 201(1) of the act is bad in law. 6. The CIT(Appeals) examined the claim of the assessee in the light of various judicial pronouncements at page Nos. 3 to 39 of his order and has finally concluded that the Singapore company as a consultant made available to the assessee technical knowledge in the form o .....

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mp; expertise and is a professional in the concerned field. Passing on knowledge, expertise and skill in matter of strategic and operational importance as well as any other issues, connected with the business of the assessee company is certainly of technical nature. As per the agreement, it is' the duty of the consultant to use the skill and knowledge in its possession to provide professional services being technical in nature to the assessee company. Moreover such technical expertise passed .....

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a similar set of a professional services as in this case decided by AAR. The following observations of the AAR reproduced from above (Perfetti Van Melle Holding case) are directly related and can be fully applied to the case at hand :- It was held in Intertek Testing Services (India) (P.) Ltd., In Re [2008] 307 ITR 418 / 175 Taxmann 375 (AAR-New Delhi), by the Authority that the expression technical services cannot be construed in a narrow sense. It has been observed therein that the term techn .....

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group companies. The services are provided under the heads of accounting, budgeting and reporting, forex management, Global credit facility administration and co-ordination of global funding, organization of International Finance managers meetings, human resource services, support in coordination and local strategy, support in financial controlling, corporate secretarial and legal support, environment health and safety and support on risk management. ……………&hell .....

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(supra). So when the expertise in running the industry run by the group is provided to the Indian entity in the group to be applied in running the business, the employees of the Indian entity get equipped to carry on that business model or service model on their own without reference to the service provider, when the service agreement comes to an end. It is not as if for making available, the recipient must also be conveyed specifically the right to continue the practice put into effect and adop .....

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owledge, skill, experience, etc. 7. Aggrieved, the assessee has preferred appeals in all the three years before the Tribunal. Besides assailing the orders on merit, the assessee has also raised a new ground that the order passed by the AO is barred by limitation and requires to be cancelled. 8. The ld. counsel for the assessee has submitted on the point of limitation that the order u/s. 201(1) was not passed in reasonable time prescribed under the Act. In support of his contention, he has placed .....

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given. This amendment was made w.e.f. 1.10.2014 and at the relevant point of time, no time limit was specified and various authorities have held that reasonable time should be four years and thereafter no action can be taken u/s. 201(1). 9. Refuting the contention of the assessee, the ld. DR submitted that time limit has been prescribed to the resident in India and not to the nonresidents. The object behind is that payments made to residents of India can be traced or identified within a reasona .....

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o prescribe the time period for the non-residents, they would have comfortably used the word payee , but they have used the word resident in India . Therefore, the intention of the legislature is very clear that they do not want to fix the time limit for initiating action u/s. 201(1) for non-residents. In the light of these facts, we are of the view that the assessment is not barred by limitation as no time frame has been specified for initiating action u/s. 201(1) of the Act against the non-res .....

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mber 18, 2006 between The Nilgiri Dairy Farm Private Limited ("NILGIRIS"), a company incorporated in India with its registered office at 171, Brigade Road, Bangalore - 560025, India, and MJR CONSULTANCY PTE. LTD, a company incorporated in Singapore, having offices at 73A, Kheam Hock Road, Singapore 298850 ("CONSULTANT"), The above parties desire to set forth the terms and conditions upon which NILGIRIS may from time to time obtain CONSULTANT's services, and the parties ag .....

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f NILGIRIS. 2) Acceptance of the Work. Acceptance of the work ("Acceptance") shall be based on NILGIRIS' reasonable satisfaction with the Services performed. 3) Term. This Agreement shall be effective from October 1, 2006 (the "Effective Date"). This Agreement will conclude on September 30, 2009; provided, however, this Agreement may be concluded by either party by giving fifteen (15) days written notice to the other party. This Agreement may, at NILGIRIS' sole option .....

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num, for a minimum of 21 (Twenty One) days per annum, and CONSULTANT's annual fee shall be deposited in U.S. funds into the following bank account and shall be payable in equal monthly instalments: i) Bank Name: Overseas Chinese Banking Corporation Ltd, 65 Chulia Str, OCBC Centre, Singapore 049513 ii) Account Number: 621837111001 iii) SWIFT Code: OCBC SG SG The first monthly fee payment will be made to CONSULTANT in January 2007, for Services provided during the months of October - December .....

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CONSULTANT to complete the Services assigned. CONSULTANT shall also be reimbursed for travel costs to and from Singapore and India, or as otherwise designated by the Managing Director of NILGIRIS. Travel and lodging expense must have NILGIRIS' concurrence. CONSULTANT will provide copies of receipts / vouchers for all expenditures, along with an invoice / statement, when requesting reimbursement. All invoices should be sent by CONSULTANT directly to: NILGIRIS Dairy Farm Private Limited, Fina .....

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xhibit A to this Agreement; b) the payment or provision of any unemployment insurance benefits, state disability benefits, vacation, overtime or holiday pay, health, medical, dental or group insurance or any pension or profit sharing; c) obtaining any applicable business or other commercial licenses; and d) the hiring, supervising, conclusion of employment and payment of compensation or other benefits to any agent, independent contractor, employee or assistant engaged by CONSULTANT (with the app .....

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;S duties shall include, as applicable, the use of skill and knowledge in completing the Services referred to earlier herein and reasonable documentation as shall be required by NILGIRIES. 8) Intellectual Property. CONSULTANT shall immediately assign, transfer, and set over to NILGIRIS all right, title and interest of CONSULTANT in and to any product, improvement, or process which may directly or indirectly be utilized in connection herewith, which CONSULTANT may contribute to or develop during .....

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omputer software programs developed or licensed by NILGIRIS, any other information identified by NILGIRIS as proprietary or confidential, or which would reasonably be understood under the circumstances to be confidential. All Confidential Information shall remain the sole property of NILGIRIS. a) CONSULT ANT agrees that, during the time that CONSULTANT is retained by NILGIRIS, CONSULTANT will not engage in India in any business activity directly related to the business in which NILGIRIS is now i .....

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tant with respect to intellectual property has also been specified. Though assessee has contended that no technical know-how was made available to the assessee while rendering the consultancy services by the Consultant and therefore it cannot be held that fees for technical services were paid by the assessee; but the ld. DR invited our attention to various clauses with the submissions that whatever consultancy services were required under different field and whatever consultancy input was given .....

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, 280 ITR (AT) 1 (Mumbai) iv) DCIT v. Anadaman Sea Food Pvt. Ltd., ITA No.1412/Kol/2011 dated 19.6.2012. v) ACIT v. Viceroy Hotels Ltd., ITA No.401/Hyd/2007 & Ors. dated 27.05.2011. 14. In all these judgments, we find that emphasis was made on an issue as to whether technical know-how was made available to the assessee. In the case of De Beers India Minerals P. Ltd. (supra), Their Lordships have observed that in view of section 90 the definition of fees for technical services contained in th .....

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uiring the services to apply the technology contained therein. It has further been observed by the Hon'ble jurisdictional High Court in the case of De Beers India Minerals P. Ltd. (supra) that the technical or consultancy services rendered should be of such nature that it makes available to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc. so that the payer of the service could derive an enduring bene .....

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observations of the Hon'ble jurisdictional High Court are extracted hereunder:- 21. What is the meaning of "make available". The technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, knowhow and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on .....

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ovider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the mea .....

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ilar views. In the case of DCIT v. Anadaman Sea Food Pvt. Ltd. (supra) and Viceroy Hotels Ltd. (supra), the Tribunal has also held that rendering technical or consultancy services or services make available means that technical or consultancy services rendered should be of such nature that makes available to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting the technical knowledge, etc. so that the payer of services could derive a .....

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tant services are rendered and made available to the assessee or the recipient, and the assessee derives an enduring benefit and utilizes the knowledge or know-how in future on its own without the aid of the service provider. By making available technical skills or knowhow, the recipient of know-how will get equipped with the knowledge or expertise and will be able to make use of it in future independent of the service provider. The services offered may be the product of intense technological ef .....

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ituent, i.e., MJR Consultancy Pte Ltd., a company incorporated in Singapore for rendering the following services:- 1) Attending Board meetings of NILGIRIS in Bangalore and spending time with the NILGIRIS management; 2) Advising the CEO of NILGIRIS on various matters of strategic and operational importance; 3) Advising the management of NILGIRIS on any other issues in connection with the business of NILGIRIS. 4) Under the head Duties , the Consultant s duty shall include, as applicable, the use o .....

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e or at the expense of NILGIRIS and Consultant shall do all documentation necessary in this connection. 18. From a careful reading of this agreement, we find that the Consultant was required to render consultancy services on different issues by applying his technical know-how and whatever services are rendered, advisories were issued to the assessee, the Consultant shall immediately assign and transfer the rights in that consultancy services to the assessee and the assessee would be able to use .....

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