TMI Blog2017 (7) TMI 692X X X X Extracts X X X X X X X X Extracts X X X X ..... bmission that as per Article 24(3) of the treaty disallowance on account of non–deduction of tax should be restricted to 30% of the amount paid, which is the quantum of disallowance applicable to domestic transactions as per section 40(a)(ia). It is submitted, the amendment to section 40(a)(ia) restricting disallowance to 30% of the amount paid should be made applicable retrospectively, since, it is clarificatory in nature. We are afraid, the contention of the assessee cannot be accepted. In our considered opinion, the amendment to section 40(a)(ia) brought by Finance Act, 2014, restricting the disallowance to 30% of the amount paid is substantive and not clarificatory, hence, will have no retrospective operation. Disallowing assessee’s claim to be taxed at lower rate on the dividend distribution tax (DDT) - Held that:- Keeping in perspective the provisions contained under section 115O vis–a–vis Article–10 of DTAA it needs to be examined whether the benefit of tax treaty can be extended to the DDT paid / payable by the assessee. We have noted, the various proposition advanced by the assessee claiming benefit under Article–10 of India Switzerland DTAA as contained in the written ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... paid before the due date of filing of return deleted the addition. The same view was again expressed by the Tribunal in assessee’s own case for assessment year 2006–07. Since the learned Commissioner (Appeals) has deleted the addition following the consistent view of the Tribunal in assessee’s own case, we do not find any reason to interfere with the order of the learned Commissioner (Appeals). - ITA no. 6974/Mum./2014 - - - Dated:- 12-4-2017 - SHRI RAJENDRA, ACCOUNTANT MEMBER AND SHRI SAKTIJIT DEY, JUDICIAL MEMBER For The Assessee : Shri Paras Savla For The Revenue : Shri Shiddaramappa K ORDER PER SAKTIJIT DEY, J.M. These cross appeals are directed against the order dated 15th September 2014, passed by the learned Commissioner (Appeals) II, Mumbai, for the assessment year 2008 09. ITA no.6974/Mum./2014 Assessee s Appeal 2. Grounds no.1 to 4, relate to disallowance under section 40(a)(i) of the Income Tax Act, 1961 (for short the Act ) for various payments made by the assessee without deducting tax at source. 3. Brief facts are, the assessee company, a 100% subsidiary of SGS, Switzerland, is engaged in the business of providing serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per section 9(1)(vii)(b). The Assessing Officer opined that as per Explanation to section 9(2), service rendered outside India will also be treated as income accruing or arising in India. Accordingly, the Assessing Officer being of the view that the assessee was required to deduct tax while making such payment to the non resident, which it failed to do disallowed the amount of ` 63,95,106 under section 40(a)(i) of the Act. Being aggrieved of the disallowance made, assessee preferred appeal before the first appellate authority. 4. The learned Commissioner (Appeals), after considering the submissions of the assessee rejected assessee s contention that by virtue of a subsequent amendment to section 9(1)(vii), assessee could not have deducted tax at source in anticipation. The learned Commissioner (Appeals) observed, even as per the pre existing provisions applicable to the period under consideration, FTS paid to non resident entities would have been taxable in India, hence, TDS provisions were applicable to such payments. In this context, the learned Commissioner (Appeals) referred to the decision of the AAR in assessee s own case. The learned Commissioner (Appeals) also negated t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iv) New Bombay Park Hotel Pvt. Ltd. v/s ITO, [2014] 41 taxmann.com 36 (Mum.); v) United Helicharters Pvt. Ltd. v/s ACIT, 37 taxmann.com 343 (Mum.); vi) Rich Gravis Products Pvt. Ltd. v/s ACIT, [2014] 49 taxmann.com 531 (Mum.). 6. As far as payment made towards reimbursement of cost, learned Authorised Representative submitted that out of the total payment of ` 2,35,28,174, an amount of ` 1,26,37,110 is for Wide Area Network (WAN). Further explaining, it was submitted a group affiliate viz. SGS, Geneva, has entered into an agreement with Reliance Globalcom on 1st July 2004, for availing of services in relation to WAN and Global Internal Securities for SGS Group entities across the world including the assessee. He submitted, these WAN services are provided using internet leased line and multiprotocol level switching circuits for enabling smooth transaction of data and information between SGS Affiliates. It was submitted, Reliance Globalcom raises a consolidated invoice on SGS, Geneva, for the provisions of WAN services. The costs are allocated amongst all group entities without any mark up. The amount recovered from each entity is based on the actual cost of each local si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 7. Learned Departmental Representative on the other hand relying upon the observations of the Assessing Officer submitted that the nature of services provided by the non residents are akin to technical service, hence, the payment made are in the nature of fees for technical services, therefore, the assessee is required to deduct tax at source under section 195 of the Act. The assessee having failed to do so, payment made is liable for disallowance under section 40(a)(i). 8. We have heard rival contentions and perused the material available on record. As could be seen, the Assessing Officer has disallowed various payments under section 40(a)(i) on the reasoning that such payments are in the nature of FTS as per the definition of FTS in the relevant tax treaties as well as under section 9(1)(vii) of the Act. However, as far as payment made towards WAN services is concerned as could be seen from the order of the AAR in case of SGS, Geneva, in AAR no.912 of 2013, dated 14th May 2015, it has been held that such services are not in the nature of technical services or royalty. The AAR has held that since such payments are not in the nature of royalty or FTS they are not chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee urged an additional ground raising the issue of taxability of DDT at 10%. It was submitted by the assessee that as per Article 10 of the India Switzerland DTAA, the tax on dividend distributed should have been restricted to maximum of 10% instead of the rate prescribed under section 115O of the Act. It was submitted by the assessee that as a wholly owned subsidiary of SGS, Switzerland, it had declared dividend of ` 35.93 crore during the year and has deducted tax as per the rate prescribed under section 115O. It was submitted, since the provisions of DTAA are more beneficial to the assessee in terms of section 90 of the Act, the provisions of DTAA will be applicable. 11. The learned Commissioner (Appeals) after considering the submissions of the assessee and analysing the provisions of the DTAA as well as section 90 of the Act, observed that DDT is a tax imposed under the domestic law on a domestic company on a transaction arising within the territorial jurisdiction of India. Therefore, the DTAA would not apply to such transactions. The learned Commissioner (Appeals) observed, Article 10(2) of DTAA relates to tax on dividend income and not relating to tax on distributi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he applicable rate of DDT. In the course of hearing before the first appellate authority, the assessee had raised an additional ground claiming that the DDT paid under section 115O is excess of the amount actually payable by the assessee on the dividend declared in terms of Article 10 of the India Switzerland DTAA. As could be seen from the submissions of the assessee, the premises on which such claim has been made is DDT is nothing but a tax on dividend, therefore, the provisions contained under Article 10 of India Switzerland DTAA would apply. It is the contention of the assessee that since as per the Article 10(2) of the DTAA, on dividend is chargeable at the maximum rate of 10% of the dividend income, the assessee should get benefit of the DTAA in terms of section 90 of the Act. Before we proceed to examine the validity of assessee s claim, it is necessary to observe that section 115O, provides that if a domestic company in any assessment year declares dividend or pays any amount by way of dividend out of current or accumulated profits, then, in such case in addition to income tax chargeable in respect of the income of the domestic company, an additional income tax computed @ 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iz. SGS on 26th September 2000. As per the terms of the agreement, assessee was required to pay a lump sum amount spread into equal quarterly installments. During the relevant previous year, assessee paid technical service fee of ` 4,66,45,546, to its A.E. In the transfer pricing study report the assessee on the basis of a global study commissioned by the A.E., internal CUP analysis showed an inter quartile range of fees between 2.5% to 3%, whereas, external CUP analysis showed an internal quartile range of fee between 2.2% to 8.5%. Thus, on the basis of such study, the license fee of 3% paid to A.E. was found to be at arm s length. The Transfer Pricing Officer, however, did not accept the price paid by the assessee to be at arm s length and determined the arm's length price of the technical service fee at nil and accordingly proposed adjustment of ` 4,66,45,546. The assessee challenged the addition made by the Assessing Officer on account of transfer pricing adjustment before the learned Commissioner (Appeals). 18. The learned Commissioner (Appeals) noticing that the Tribunal in assessee s own case in preceding assessment years has allowed technical service fee paid to the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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