TMI Blog2018 (3) TMI 580X X X X Extracts X X X X X X X X Extracts X X X X ..... ) XXII, New Delhi dated 12.12.2010, 12.12.2010. First we take up ITA No. 480/CHD/2011 to assessment year 2000-01. 2. The revenue has raised following grounds of appeal :_ On the facts and in the circumstances of the case, Ld. CIT(A) has erred in holding that the assessee was not liable to deduct TDS u/s 195, without appreciating that the TDS provisions are applicable not only to the expenses incurred by the PE in India but also by the Head Office or any other branch of the assessee in any country, if such expenses are debited to the P L accounts of the PE in India. 3. Briefly stated the facts are that the assessing officer passed an order u/s 201 of the Income Tax Act, 1961 (hereinafter referred to as the Act ) thereby the assessing officer observed that the assessee was obliged under the Act to deduct tax at the source on certain payments made to the non-resident persons. It is noted by the assessing officer that the assessee is a Foreign Company deriving income from consultancy services for the Hydel Project with NHPC for design, supervision of installation and commissioning of Electro- Mechanical equipments etc. for Chamera Hydro-Electric Power Project. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . Moreover, the entire payment for execution of the contract - relating to the work done by the head office of the appellant in the F.Y. 1999-2000 was made by NHPC directly to the head office, after deduction of tax at source. In the absence of a P.E. in this year, it cannot be deemed that the expenditures were incurred by or for the P.E. or that the head office was rendering any services to the P.E. NHPC had already withheld the taxes on the contract consideration, however there was no reimbursement of expenses by NHPC, as such expenses were incurred for earning contract proceeds. It is also evident that the head office has rendered services only to NHPC, and not to a P.E. Therefore, the said amounts, i.e., the expenditure covered by work-in-progress of ₹ 1,84,30,838/- cannot be held to be in the nature of fees for technical services paid by the P.E. to the head office. The appellant has also correctly argued that even if payments had been made by a P.E. to a head office, these would have amounted to payment to self, which cannot be subjected to TDS. The Special Bench of the ITAT, Kolkata, held in the case of ABN Amro Bank at 280 ITR 117 that the branch/PE is not a s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 95 of the Act. On the contrary, ld. Counsel for the assessee reiterated the submissions as made before the ld. CIT(A). Ld. Counsel for the assessee took us through the Double Taxation Avoidance Agreement between India and Canada to buttress the argument that the assessee was not liable to deduct tax. He further placed reliance on decision rendered in the case of ABN Amro Bank vs. ADIT 280 ITR 117, Mashreq Bank PSC vs. DDIT 108 TTJ 554. Ld. Counsel for the assessee submitted in the quantum proceedings against the finding of the tribunal, the assessee has preferred the appeal before the Hon ble High Court of Delhi which is pending adjudication. 10. We have heard the rival contention perused the material on record, the ld. CIT(A) has decided the issue which reads as under : - 4. I have carefully considered the above submissions. Firstly, it is seen that the assessing officer has held that the appellant was liable to deduct tax at source on reimbursement of expenses by the permanent establishment (P.E.) in India to the head office in Canada. It is evident that the P.E. has neither incurred the said expenses nor made any payment to the head office. The accounts of the head off ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e requirement of withholding taxes is not applicable in case of expenditures which have not been claimed by the appellant against its taxable income in India. As per section 195, the tax should have been deducted at source from payment to a non-resident only if the amount payable is chargeable to tax in India. Even if there had been payment by the P.E. to the head office, of salaries, travelling expenses, and computer repair and maintenance, these payments are not in the nature of fees for technical services as technical knowledge, skill or knowhow has not been made available to the P.E. The appellant has placed reliance on Article 12(4) of the DTAA with Canada, the definition of made available as per the Memorandum to the India-USA treaty, and the judgment of the Mumbai Tribunal in the case of Raymond Ltd. (80 TTJ 120). The settled law in this respect is that the recipient of the services must be enabled to apply the technology on his own. Since in this case the P.E. has not got equipped by the head office to apply any technology, the expenditure is clearly not of the nature of fees for technical services or included services . 6. The appellant has further argued th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the India- Canada DTAA defines royalty as payment for the use of, or the right to use any copyright, patent, trademark, design, etc. The Special Bench of the Delhi Tribunal in the cases reported at 95 ITD 269 (2005), held that payment for a copyright is royalty, but payment for a copyrighted article is only the purchase price of the article, and not royalty under the Act, or under the DTAA. As in this case, the expenditure relates to purchase of offthe- shelf computer software, and computer hire charges, there is evidently no case for treating the payments as royalty. 9. It is also observed that in subsequent years i.e. the F.Y. 2001- 02 corresponding to A.Y. 2002-03 onwards, the assessing officer has not invoked the provisions of section 195 to hold that the appellant should have deducted tax from reimbursement of expenses incurred by the head office, though the appellant had a P.E. in India from August 2000 until the completion of the project. 10. The appellant has also pointed out that the assessing officer has levied the withholding tax rate of 100% on the expenses on computer repairs and maintenance, whereas the maximum rate that could have been applied is 20% ..... X X X X Extracts X X X X X X X X Extracts X X X X
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