TMI Blog2018 (6) TMI 1276X X X X Extracts X X X X X X X X Extracts X X X X ..... e directions. As the matter is being remitted to the file of the CIT(A) for fresh adjudication, inter alia, on the fundamental aspect of treaty entitlement, it would not be appropriate for us to deal with other questions with respect to the treaty provisions which seem to academic as on this stage. We cannot address ourselves to such academic issues. - ITA Nos. 478 and 479/Ahd/2018 - - - Dated:- 21-6-2018 - Pramod Kumar AM And Madhumita Roy JM For The Applicant : S N Soparkar and Parin Shah For The Respondent : V K Singh ORDER Per Pramod Kumar, AM: 1. The hearing of these appeals was concluded on 9th May 2018. However, during the course of finalizing the draft order, it was considered necessary to hear the parties again- this time with respect to a facet of Section 90(4) of the Income Tax Act, 1961. Accordingly, the matter was refixed for hearing on 14th June, 2018 and learned counsel for the assessee taxdeductor was heard on that aspect of the matter. With a view to give some time to enable the learned Departmental Representative to make a well considered response to thought provoking arguments of the learned counsel, the hearing continued o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) there was no transfer of technology or technology being made available ; and (c) the entire installation charges were capitalized . As regards the installation and commissioning services being inextricably linked to the purchase of equipment, the Assessing Officer was of the view that the transaction of purchasing the equipment and availing the installation and commissioning services were not interdependent transactions in the sense that these were from different vendors, that these were separate commercial transactions and that the services rendered by TEI went well beyond the scope of installation and commissioning activity. It was thus concluded that the services provided by Teems Electric Co Inc were not at all linked to the sale of the property . As regards the plea of the assessee that these services donot, in any event, satisfy the make available test in Article 12(4)(b) of the India US Double Taxation Avoidance Agreement, the Assessing Officer rejected this plea on the ground that TEI is the only source of obtaining such high degree of technical expertise that irrespective of (who supplies the plant) materials supply, only it has the desired level of expertis ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , and, therefore, the TEI had an installation PE under article 5(2)(k) of Indo US tax treaty; (c) that the installation and commissioning services cannot be said to be purchase of equipment, and thus covered by exclusion clause in Article 12(5)(a) of treaty, as the vendors for service and equipment are different; (d) that the services rendered by the TEI apparently included training of employees of the tax-deductor company as also development of documentation and that the work involved being highly technical, the services rendered by the TEI amount to making available knowledge, skill, technical know how and process, and, such, covered by the definition of fees for included services under article 12(4); and (e) that since the TEI has a PE in India, the fees earned by TEI in India will be taxable in India on net basis and under section 44DA of the Act. The assessee tax-deductor was thus held to be liable to deduct tax at source. The action of the Assessing Officer was thus not only confirmed but further fortified by the learned CIT(A). The assessee is aggrieved and is in appeal before us. 5. We have heard the rival contentions, perused the material on record and duly considered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... territory, as the case may be, to promote mutual economic relations, trade and investment, or ( b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that country or specified territory, as the case may be, or ( c) for exchange of information for the prevention of evasion or avoidance of income-tax chargeable under this Act or under the corresponding law in force in that country or specified territory, as the case may be, or investigation of cases of such evasion or avoidance, or ( d) for recovery of income-tax under this Act and under the corresponding law in force in that country or specified territory, as the case may be, and may, by notification in the Official Gazette, make such provisions as may be necessary for implementing the agreement. ( 2) Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not defined in the said agreement, but defined in the Act, it shall have the same meaning as assigned to it in the Act and if any, explanation given to it by the Central Government. . 7. A plain look at the above provisions would show that Section 90(2) is somewhat unique in providing an unqualified, what is, in India, often termed as, treaty override in the sense that no matter what be the provisions of the Income Tax Act, 1961, in respect of a person to whom an agreement entered into under section 90(1) applies, the provisions of this Act shall apply (only) to the extent they are more beneficial to that assessee . Going by the plain words of the statute, the provisions of the Act, in a situation covered by the tax treaty, cannot put the assessee to any greater burden than the burden placed by the provisions of applicable tax treaty. The only limitation placed on this unqualified, rather almost unqualified- post insertion of sub section 2(A), is that ( n)otwithstanding anything contained in sub-section (2), the provisions of Chapter X-A (dealing with the General Anti Avoidance Rules) of the Act shall apply to the assessee even if such provisions are not ben ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Pvt Ltd Vs Authority for Advance Ruling [(2015) 379 ITR 256 (P H)], has observed as follows: 32. (Learned counsel s) reliance in this regard upon the proposed amendment to section 90 of the Act is well founded. It sets at rest the doubt, if any, in this regard. ( A) Section 90(4) of the Act as is stood at the relevant time i.e. in respect of the assessment year 2010-11 reads as under:- 90 (4) An assessee, not being a resident, to whom an agreement referred to in sub-section (1) applies, shall not be entitled to claim any relief under such agreement unless [a certificate of his being a resident] in any country outside India or specified territory outside India, as the case may be, is obtained by him from the Government of that country or specified territory. ( B) The Finance Bill, 2013 as introduced in the Lok Sabha on 28.02.2013 was to give effect to the financial proposals of the Central Government for the financial year 2013- 14. Clause 21 of the bill proposed the following amendment:- 21. In section 90 of the Income Tax Act,- ( a) to (b)** ** ** ( c) after sub-section (4) and before Explanation 1, the following sub-section shal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mean that the Tax Residency Certificate produced by a resident of a contracting state could be questioned by the Income Tax Authorities in India . The government wishes to make it clear that that is not the intention of the proposed sub-section (5) of section 90 . The Tax Residency Certificate produced by a resident of a contracting state will be accepted as evidence that he is a resident of that contracting state and the Income Tax Authorities in India will not go behind the TRC and question his resident status. In the case of Mauritius, circular no. 789 dated 13.4.2000 continues to be in force, pending ongoing discussions between India and Mauritius. However, since a concern has been expressed about the language of sub-section (5) of section 90, this concern will be addressed suitably when the Finance Bill is taken up for consideration. (Emphasis supplied) 33. Sub-section (4) merely requires a certificate of being resident. The newly added sub section (5) requires the person to also provide such other documents and information as may be prescribed. Nothing has been prescribed to date. 34. The entire sequence of events namely the Finance Bill, 2013, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the peculiar facts of this case, give a finding whether the US entity was entitled to the treaty protection, and that would only be possible when there is some material to come to the conclusion that the US entity was required to be treated as a resident of United States under the provisions of the Indo US tax treaty. Having held that an eligible assessee cannot be declined treaty protection under section 90(2) simplicitor on the ground that he has not complied with the provisions of Section 90(4), it is also important to bear in mind the fact that de hors the statutory provision under Section 90(4), the assessee has to satisfy his eligibility for treaty protection nevertheless and the onus of satisfying the same by any other mode, i.e. other than a TRC, appears to be much more demanding than furnishing of a TRC. To be entitled for Indo US tax treaty benefits in India, a foreign enterprise has to establish that it is a resident of the other contracting state, i.e. the United States. While on this issue, it will be useful to take a look at Article 4(1) of the Indo US tax treaty, which provides as follows: ARTICLE 4-RESIDENCE 1. For the purposes of this Convention, t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cape from substantiating the status of the US entity as a person resident of the United States, in terms of Article 4(1) of the Indo US tax treaty, in order to claim the benefits of the said tax treaty. Let us, in this light, turn to the evidence, in support of his eligibility for Indo US tax treaty protection, furnished by the US entity. So far as the assessment stage is concerned, the assessee applicant did not furnish any evidence in support of the treaty entitlements of the US entity but then, in all fairness, the Assessing Officer did not doubt the treaty entitlements either. Therefore, once we hold that Section 90(4) does not act as a bar for treaty entitlement in the sense it can not be seen as a limitation of superiority of treaty provisions vis- -vis the domestic law provisions, as we have indeed held earlier this order, the mere non-furnishing of TRC cannot per se be treated as a trigger to disentitlement to the treaty benefits. At the first appellate stage, however, learned CIT(A) did specifically ask for the TRC and all that the assessee furnished was a form W 9 which is meant for use in the context of domestic tax withholding requirements in the United States. It has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oes state that the US entity is a C corporation - an expression which is, in US taxation context, used to distinguish this type of company from transparent entities, as its profits are taxed separately from its owners under subchapter C of the Internal Revenue Code , and but then what it does not state is whether the said company is fiscally domiciled in the United States or not. Similarly, the statement made in W9 is that it is not a single member LLC or S corporation so as to have a pass-through status could only be relevant when it is a company fiscally domiciled, for tax purposes, in United States. In any event, W9 is just a statement made by the US entity and it is not supported by any evidences in support of the contents of form W9. In any event, as learned CIT(A) rightly points out, the information pertains to a later year and there is nothing to even indicate, leave aside establish, that this will hold good for the relevant period as well. a change in those facts for different years. Keeping Section 90(4) aside for a minute, even on merits, there is nothing to establish the treaty entitlement of the US entity. 16. It is difficult to comprehend the conceptual justificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntatives of the US entity worked in India, and that aspect has a vital bearing on determination of question as to whether the US entity had a PE in India or not. Learned senior counsel s submission is that there are certain other clear factual and legal mistakes, with respect to application of Indo US tax treaty provisions, which, on the face of it, are so fundamental in nature that these mistakes may indeed end up vitiating the conclusions arrived at by the learned CIT(A), but, for the reasons we will set out in a short while, it will not really be appropriate for us to deal with these alleged mistakes at this stage. 19. In the light of these discussions, we are of the considered view that the matter should be remitted to the file of the CIT(A) for fresh adjudication, inter alia, after (i) giving the assessee a fresh opportunity of furnishing evidences not limited to, but including, the tax residency certificate under section 90(4), in support of US entity s entitlement to the benefits of Indo US tax treaty benefits; (ii) taking into account the information furnished by the assessee with respect to the time spent by the representatives of the US entity and all such other info ..... X X X X Extracts X X X X X X X X Extracts X X X X
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