TMI Blog2017 (4) TMI 1027X X X X Extracts X X X X X X X X Extracts X X X X ..... t of warehousing charges to Camrette Logistics Inc. USA - Held that:- Applying the definition of FIS in the Treaty to the facts of the present case in the light of the various decisions referred to above, it cannot be said that the rendering of services by the non residents to the assessee made available to the assessee, such services , for its future use or utilization on a reasonably permanent basis. Hence the payments made thereon by the assessee would not fall under the ambit of fees for technical services or fees for included services as per the treaty. The provisions of section 90(2) of the Act are very clear that the assessee is entitled to take the benefit of the treaty if the same is beneficial to it. Hence the provisions of the treaty would prevail over the Act. - Decided in favour of assessee. Disallowance made u/s 40(a)(i) in respect of payments made for professional / technical services -Held that:- We find from the nature of services rendered by TRW Automobile Japan and TRW Automobile USA , though the same fall under the ambit of Fees for Technical Services as per the provisions of the Act, but the same does not fall as such as per the respective DTAAs in view of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 26,55,949 -do- 3. Strategic Outsourcing Solutions, USA -do- 33,925 -do- The Ld. AO show caused to explain as to why the above payment made to non- residents situated outside India without the deduction of tax source should not be subjected to the provisions of section 195 of the Act and as to why the provisions of section 40(a)(i) could not be invoked there on. In response, the assessee submitted before the Ld. AO as below: Rane Madras Limited (RML) utilizes the warehouse facility of M/s. Camrett Logistics Inc., USA and S.S. Solutions, USA (non-residents). The warehouse facility is situated outside India and the services are rendered by the non-residents outside India. Camrett acts as a conduit for the goods of RML to TRW Automotive, US and renders warehousing, sorting and delivery of goods. The non-residents did not carry on any activity in India and the services are provided by the non-residents outside India. The payment for above services does not involve any managerial, technical or consultancy knowledge and hence, it would not fall within ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (vii) of the Act and held that the income would be deemed to accrue or arise in India. He also placed reliance on the explanation narrated by the Finance Act, 2010 with retrospective effect from 01.06.1976. In support of his contention and held that the subject mentioned payment deserves to be disallowed u/s. 40(a)(i) of the Act for non-deduction of tax at source and accordingly added the same to the total income of the assessee. 3.1 With regard to the payments made to Camrett Logistics Inc., USA and Strategic Outsourcing Solutions, USA, the Ld. AO observed that the assessee agreed that the payments were made towards Sorting which can be treated as Fee for Included Services (FIS). The assessee stated that since the technical skill/knowledge/experience/know-how/processes was not made available to the assessee as contemplated in article 12 of Indo-US DTAA and hence the same would not be chargeable to tax in terms of DTAA. It was argued that rendering of these services abroad do not involve transfer of any technical knowledge that can be utilised by the assessee and since the assessee has no presence at abroad, the non-resident manages the affairs of the company for smooth runn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of warehousing charges is already paid by the Appellant. 5. The Ld. AR argued that the payment of warehouse charges of ₹ 26,09,058/- to Alianza Extrategica Portuaria, Mexico for rendering following services outside India:- (a) Managing the sale affairs of the assessee company outside India by means of logistic services (b) Providing services for payment of port charges, THC charges, etc., on behalf of the assessee company. (c) Providing services for merchandise verification preview, security fee, etc., (d) Stripping container into warehouse. (e) Cleaning and washing container. (f) Delivery of empty container. (g) Stuffing cargo into truck, etc., 5.1 He argued that the aforesaid services do not by any stretch of imagination could be construed as Fee for Technical Services as they are purely logistic services which do not involve any technical skill/ expertise/ experience to render the same. He also argued that there is no transfer of any technology/enabling the assessee to use it on its own. Moreover, these services would be considered only as business income which would be taxable only if the said non-resident has got Permanent Establishment (PE) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he deduction of tax at source, the Ld. AR argued that these services may at best be termed as Fee for Including Services (FIS) and since such services do not make available technical knowledge, experience, skill, know-how or process consisting of the development and transfer of a technical plan or technical design to the advance of the assessee company as per Indo-USA DTAA. He placed reliance on the decision of Hon'ble Karnataka High Court in the case of CIT v. ORS. v. De Beers India Minerals (P.) Ltd., reported in 346 ITR 467 (2012) in this regard. Hence he argued that the assessee is not liable of deduction of tax source and hence no disallowance u/s. 40(a)(i) of the Act would apart in the instant case. In response to this Ld. DR vehemently relied on the orders of the lower authorities. 6. We have heard the rival submissions. We find from the nature of services rendered by the non-resident to the assessee, the same are only logistic services which does not involve any technical skill, expertise or transfer of technical knowledge thereon, so as to fall within the ambit of Fee for Technical Services (FTS). We also find that the nature of services rendered by non-resident w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... impossibility of performance on the part of the tax deductor. In this regard, the famous maxim would come to the rescue of the assessee (Tax deductor): Lex non Cogit ad Impossiblia, Meaning: That the law cannot compel the person to do something which is impossible to perform. We also find that the Hon'ble Supreme Court in the case of Krishnaswamy S. Pd. and Anr. v. Union of India, reported in 281 ITR 305 (SC) has also accepted and approved this legal maxim. 7. In view of these findings and respectfully following the various judicial decisions relied upon herein above, we have no hesitation in directing the Ld. AO to delete the disallowance of payment of warehouse charges for the sum of ₹ 26,09,058/- u/s. 40(a)(i). 8. With regard to payment of warehousing charges to Camrette Logistics Inc. USA amounting to ₹ 26,55,949/- and Strategic Outsourcing Solutions, USA amounting to ₹ 33,925/-, we find that the assessee had agreed before the ld AO that the payments were made to the non residents towards sorting services rendered outside India and accordingly the same would fall apparently under the ambit of FTS. We feel that what is to be seen is as to wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice. It further explains that generally speaking, 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 may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc., are made available to the person purchasing the service, within the meaning of paragraph 4(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. The Memorandum of understanding is a tool to understand as to what meaning was intended to be conveyed in the DTAA between countries. 8.1.1. The Memorandum further explains with examples as to how Article 12(4)(b) has to be understood as follows: Typical categories of services that generally involve either the development and transfer of technical plants or technical designs, or making technology available as described in paragraph 4(b), include : 1. Engineering services (including the sub-categories of bio-engineering and aeronautical, agricultural, ceramics, chemical, civil, electrical, mechanical, metallurgical, and ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acturing service. Example 5 Facts : An Indian firm owns inventory control software for use in its chain of retail outlets throughout India. It expands its sales operation by employing a team of travelling salesmen to travel around the countryside selling the companys wares. The company wants to modify its software to permit the salesmen to assess the companys central computers for information on what products are available in inventory and when they can be delivered. The Indian firm hires a U.S. computer programming firm to modify its software for this purpose. Are the fees which the Indian firm pays treated as fees for included services ? Analysis : The fees are for included services. The U.S. company clearly performs a technical service for the Indian company, and it transfers to the Indian company the technical plan (i.e., the computer programme) which it has developed. Example 6 Facts : An Indian vegetable oil manufacturing company wants to produce a cholesterol-free oil from a plant which produces oil normally containing cholesterol. An American company has developed a process for refining the cholesterol out of the oil. The Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re. After considering Article 12(4)(b) of the Indo-US DTAA (which are similar to Article 12(4) and 13(4) of the treaty between India and Singapore / UK (as the case may be)), and after referring to the Memorandum of understanding to the Indo-US DTAA, the Tribunal held as follows: Whereas section 9(1)(vii) of the Act stops with the rendering of technical services, the DTAA goes further and qualifies such rendering of services with words to the effect that the services should also make available technical knowledge, experience, skills etc. to the person utilizing the services. These words are which make available . The normal, plain and grammatical meaning of the language employed, in our understanding, is that a mere rendering of services is not roped in unless the person utilizing the services is able to make use of the technical knowledge etc. by himself in his business or for his own benefit and without recourse to the performer of the services in future. The technical knowledge, experience, skill etc. must remain with the person utilizing the services even after the rendering of the services has come to an end. A transmission of the technical knowledge, experience, skil ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... )(i) of the Act in respect of payments made for professional / technical services in the facts and circumstances of the case. 11. The brief facts of this issue is that the assessee made payments to the following parties :- TRW Automotive Japan towards professional charges - ₹ 9,99,087/- TRW Automotive USA towards Engineering rework carried out at Customer end - ₹ 2,36,106/- The assessee stated that the payments were made to these two parties in order to get the support services, since the services were rendered outside India, the same is allowable as per CBDT Circular No. 786 dated 7.2.2000. The ld AO held the abovementioned services to be technical services and invoked provisions of section 9(1)(vii) of the Act as income deemed to accrue or arise in India in the hands of the non residents and consequentially fastened TDS obligation on the assessee. He also placed reliance on the retrospective amendment in Explanation to section 9(2) by Finance Act 2010 with retrospective effect from 1.6.1976 to support his conclusion. He further held that as per Indo Japan DTAA, any consid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... out further prejudice to all the above, the CIT(A) ought to have appreciated that provisions of section 40(a)(i) of the Act is not applicable as the payment in respect of technical/engineering rework charges is already paid by the Appellant. 14. The ld AR reiterated the submissions made before the ld CITA. In response to this, the ld DR vehemently relied on the orders of the lower authorities. 15. We have heard the rival submissions. We find from the nature of services rendered by TRW Automobile Japan and TRW Automobile USA , though the same fall under the ambit of Fees for Technical Services as per the provisions of the Act, but the same does not fall as such as per the respective DTAAs in view of the fact that it cannot be said that the rendering of services by the non residents to the assessee made available to the assessee , such services , for its future use or utilization on a reasonably permanent basis. For the detailed reasoning given for the grounds 2.1 to 2.7 hereinabove on the make available theory, we hold that the subject mentioned payments made to TRW Automobile Japan and TRW Automobile USA by the assessee would not fall under the ambit of fees for technical ..... X X X X Extracts X X X X X X X X Extracts X X X X
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