TMI Blog2017 (8) TMI 736X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh its holding or related company abroad, the provision for deduction of tax at source apply as if the assessee has made the payment to such independent party de hors the routing of payment through the holding company. The remission of amount to the holding or related company for finally making payment to the third person will be considered as payment to third party. It cannot be termed as reimbursement of expenses to the holding company. The Mumbai Tribunal further held that if the contention of the Assessee is accepted and the payment to third party, routed through its related concern, is considered as reimbursement of expenses to the related party then probably all the relevant provisions in this regard will become redundant. We therefore hold that the payments in question cannot be regarded as mere reimbursement of expenses by the Assessee to ECGCL which do not attract the provisions of Sec.40(a)(i) of the Act. Whether the payment by the Assessee to Hunan Law through ECGCL would constitute FTS within the meaning of the India China DTAA? - Held that:- The main purpose for which Hunan was employed was to train Chinese Engineers who were to visit India for carrying out the ons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, CA For The Revenue : Shri G.Mallikarjuna, CIT DR ORDER Per Dr. Arjun Lal Saini, AM: The captioned appeal filed by the Assessee, pertaining to Assessment Year 2010-11, is directed against the fair order of assessment dated 26.5.2015 passed by the Deputy Commissioner of Income-Tax, Circle 11(1), Kolkata u/s.144C(13) read with Sec.143(3) of the Income Tax Act, 1961, (hereinafter referred to as the Act ), which incorporates the directions of the Dispute Resolution Panel (DRP), Kolkata, dated 30.12.2014. 2. The Assessee is a company. It was incorporated on 3.10.2008 under the Companies Act, 1956 for the purpose of carrying on construction of integrated steel plant. The Assessee is a wholly owned subsidiary of Ershishanye Construction Group Co. Ltd. (ECGCL), which is a company incorporated under the laws of China and a tax resident of People s Republic of China. ECGCL entered into an Agreements dated 1st July, 2008, 28.7.2008 with Electrosteel Integrated Limited with respect to onshore services and construction contract for construction of an integrated steel plant project, at Bokaro, Jharkhand. By tripartite agreements all dated 31.10.2008 between the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the sums ECGCL had paid to Hunan. 4. Apart from the above, the Assessee under an Agreement dated 24.06.2009 engaged the services of Hunan Junwei law Firm (hereinafter referred to as Hunan Law ), an entity in China having its registered office at 75 Wuyi Road, Changsha City, Hunan, China. The purpose of this agreement was to ensure that the onshore construction contract between the Assessee and M/s. Electrosteel Integrated Ltd., is performed in accordance with the laws of India. The nature of services to be rendered by Hunan Law as per this agreement is as follows :- 1. Party B's Service Scope 1.1 Legally advise and design for Party's decisive issue about production, management and operation and make legally feasible study. 1.2 Provide legal guidance to Party A for incorporating company in India. 1.3 Guide and train India labor laws and polices. 1.4 Guide and train India tax laws and polices. 1.5 Assist in Party A to make out internal management rules arid standardize Party A's internal organization and management. 1.6 Assist in Party A to manage economy contract and other contracts and also supervise the performance and exe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id provisions that the said provision is attracted when the payment made by any person towards interest, royalty, fees for technical services or other sum is chargeable under this Act, which is payable outside India on which tax is required to be deducted at the time of payment under Chapter XVIIB of the Act. Both the AO and the DRP held that the payments in question was in the nature of Fees for Technical Services (FTS) and therefore the Assessee was under an obligation to deduct tax at source and since, the Assessee failed to deduct tax at source the sums in question could not be allowed as deduction in computing Income from Business as provided under the provisions of Sec.40(a)(i) of the Act. The directions of the DRP in this regard were incorporated by the AO in his fair order of assessment wherein the aforesaid amounts were disallowed and added to the total income of the Assessee. Aggrieved by the aforesaid additions made in the fair order of assessment by the AO, the Assessee has preferred the present appeal before the Tribunal. 8. Before proceeding to discuss the contentions put forth by the Assessee before us, it is necessary to notice that the obligation to deduct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere is no TDS obligation because Hunan, admittedly does not have Permanent Establishment (PE) in India and as per Article 7(1) of India China DTA, the business profit is taxable in the other state only if the enterprise of contracting state carries on business through PE in India. iii) Whether, as per India- China DTA, the Fees for Technical Services (FTS) can be charged to tax in India, only if the services are rendered in India. iv) What is the effect of amendment to Section 9(1)(vii) by the Finance Act 2010 with retrospective effect from 1st June, 1976 in the contex of Section 40(a)(ia) of the Act. 11. So far as issue No.( i) is concerned, the payment in question cannot be regarded as purely reimbursement of expenses incurred by ECGCL for and on behalf of the Assessee so as to take the payment in question out of the rigors of the provisions of Sec.40(a)(i) of the Act. The undisputed facts are that the training of engineers in China was done by Hunan for and behalf of the Assessee and for the specific purpose of execution of the onshore services and construction of steel plant in India. The Assessee was bound to make payment for such services to Hunan. The fact t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Contracting State in which they arise, and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties or fees for technical services. 3. xxxxx 4. The term fees for technical services as used in this Article means any payment for the provision of services of managerial, technical or consultancy nature by a resident of a Contracting State in the other Contracting State, but does not include payment for activities mentioned in paragraph 2( k ) of Article 5 and Article 15 of the Agreement. 5. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise, through a permanent establishment situated therein, or performs in that other Contracting State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nses would constitute FTS was considered by the Tribunal Mumbai in the case of Lloyds Register Industrial Services (India) Pvt. Ltd. (2010) 36 SOT 293 (Mumbai). The Mumbai Bench held that going by common sense training expenses cannot be called as fee for technical services . The Mumbai Bench went on to hold that even highly qualified personnel might require training to carry out the job for which they are recruited and the person imparting training cannot be said to be rendering technical, managerial or consultancy service. It was held that such training was a continuous process because technology is changing very fast and one needs to keep touch with such technology and therefore, expenses incurred towards training cannot be termed as fee for technical services . In the case of Cosmic Global Ltd., 48 taxmann.com 365 (Chennai. Trib), the question for consideration was as to whether an Assessee who got translation of the text from one language to another could be said to be rendering Technical service. The Chennai Bench of the Tribunal held that ■ The expression technical services has not been defined anywhere in the Act. However, fees for technical services has b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e addition of ₹ 4,20,09,163/-. 16. Since we have come to the conclusion that the payment of ₹ 4,20,09,163/- is not in the nature of FTS, the other two issues whether services are required to be performed in India to attract the provisions of Article 12(4) of the India-China DTAA and the question as to what is the effect of amendment to Section 9(1)(vii) by the Finance Act 2010 with retrospective effect from 1st June, 1976 in the contex of Section 40(a)(ia) of the Act, does not require any adjudication. 17. We shall now take up Gr. No.2 for consideration which is with regard to the payment of ₹ 14,00,000/- by the Assessee through ECGCL to Hunan Law. The learned DR relied on the order of the AO/DRP and the learned counsel for the Assessee reiterated submission made before the revenue authorities. 18. The nature of services rendered by Hunan Law which is already set out in the earlier part of this order would show that it is in the nature of consultancy services and thus would fall within the purview of Article 12(4) of the DTAA. It is not disputed that Hunan Law is a tax resident of People s Republic of China and carries on profession of rendering legal ser ..... X X X X Extracts X X X X X X X X Extracts X X X X
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