TMI Blog2018 (9) TMI 1758X X X X Extracts X X X X X X X X Extracts X X X X ..... technical services’ (FTS) under the Act, in as much as, only those technical/consultancy services which are ancillary and subsidiary to application/enjoyment of right, property or information or which 'make available' technical knowledge, skill, knowhow, process etc. would be liable to tax. Thus, in accordance with MOU, technology will be considered to be 'made available' when the person acquiring the service is able to apply such technology on his own. Adverting to facts of case before us, service rendered by AE to assessee is as per agreement dated 01/04/10. According to the agreement, furnished by assessee placed at page 54-62 of paper book, services provided by AE to assessee are in nature of assistance in troubleshooting, isolating the problem and diagnosing related trouble and alarms and equipment repair services wherein the equipments will be shipped to US by assessee as and when required. It has been agreed between the parties that AE would be providing such services remotely and no on-site support services would be provided to customers of assessee. It appears from the above description of services rendered by AE that there is use of technical knowledge and/or ski ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the case and in law, the CIT(A) has grossly erred in upholding the disallowance of technical on-call assistance charges amounting to INR 8,09,63,299 paid by the Appellant invoking provisions of section 40(a)(i) of the Act by holding the same to be fee for technical services and alleging that tax at source was liable to be deducted from such payments. 2.1. That on facts and in circumstances of the case and in law, the CIT(A) has erred in upholding that the charges paid by the Appellant were on account of services which were 'technical' in nature. 2.2 That on facts and in circumstances of the case and in law, the CIT(A) has erred in upholding that the charges paid by the Appellant were on account of services which 'made available' technical knowledge, experience, skill, know-how or processes. 3. Notwithstanding and without prejudice, the disallowance relating to TAC charges should have been restricted to 30% of the sum payable in view of the amendment to section 40(a)(ia) of the Act, read with 'Article 26 - Non- Discrimination' of India-US Double Taxation Avoidance Agreement. 4. That on facts and in circumstances of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the Act. That the above grounds of appeal are without prejudice to each other. That the Appellant craves leave to add, alter, amend or withdraw any ground of appeal either before or at the time of hearing of this appeal. ITA no. 3563/ Del/2018 (Asst Yr: 2014-15) Appeal under section 253(1)(a) of the Income Tax Act, 1961 against the order dated 8 December 2017 (received on 22 March 2018) passed under section 250(6) of the Income Tax Act, 1961 ('the Act') by the Commissioner of Income Tax (Appeals) - II, New Delhi (hereinafter referred to as 'CIT(A)'). 1. That on facts and circumstances of the case and in law, the Assessing Officer ( AO ) erred in completing the assessment of the Appellant at an income of INR 10,64,81,412 as against returned income of INR 6,65,71,450. The CIT(A) has further erred in arbitrarily confirming the addition made in the assessment order by the AO. 2. That on facts and in circumstances of the case and in law, the CIT(A) has grossly erred in upholding the disallowance of technical on-call assistance (TAC) charges amounting to INR 3,99,09,962 paid by the Appellant invoking provisions of section 40(a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nsfer Pricing Officer (TPO). Ld.TPO did not make any adverse inference in respect of international transaction undertaken by assessee for year under consideration and no additions on account of adjustment to Arm s Length Price of international transaction was made. 2.2 . On perusal of balance sheet, it was observed that assessee made several payments to foreign companies, on which no TDS was deducted. Assessee was show caused vide notice dated 12/02/16, to check withholding tax compliance in respect of payments made to foreign entities. Vide reply dated 09/03/16 assessee submitted that foreign payments include travel expenses, salary expenses, reference fees and technical on-call assistance charges. Assessee submitted that wherever applicable, TDS has been deducted and deposited. Ld.AO from details filed observed that, no TDS was deducted on technical on-call assistance charges paid to AE for technical on-call assistance support received. 2.3 . Ld.AO made disallowance of ₹ 8,09,63,299/- for nondeduction of TDS under section 195 read with section 40 (a) (i) of the Act, on payment made towards technical on-call assistance charges to AE. 2.4. Aggrieved by order of L ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Act is not attracted, since US AE, on remote on-call support services, directly provided to customers in India, and there is no technical know-how or knowledge, that is transmitted to assessee in any manner. He thus submitted that such services cannot be regarded as managerial, technical or consultancy services under section 9 (1) (vii) of the Act, and accordingly falls outside purview of the Act. He placed reliance upon following decisions in support of his arguments: * Decision of Hon ble Supreme Court in the case of CIT vs. Calcutta Export Company reported in (2018) 93 Taxmann.com 51; * Decision of Hon ble Delhi High Court in the case of CIT vs. Guy Carpenter and Co. Ltd., reported in (2012) 20 taxman.com 807; * Decision of Hon ble Delhi High Court in the case of CIT vs. Herbalife International India Pvt. Ltd., reported in (2016) 59 Taxmann.com 205; * Decision of Hon ble Karnataka High Court in the case of CIT vs. Sun Microsystems India Pvt. Ltd., reported in (2014) 48 Taxmann.com 93; * Decision of Hon ble Karnataka High Court in the case of CIT vs. D Beers India Minerals Pvt.Ltd., reported in (2012) 21 Taxmann.com 214 * Decision of Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding annual maintenance in respect of equipments manufactured by AE. In respect of the same, assessee entered into an agreement with AE dated 01/04/10, whereby technical on-call advisory services are obtained from AE, in case of problems of outrage, emergency, technical support or system compromised on the basis of priority of cases. Under the agreement, AE is required to provide support services in case of critical/emergency issues to customers of assessee, through call centres remotely. Assessee in view of such services rendered made payments to AE, on which no TDS was deducted, as according to assessee, there is no requirement of withholding tax on such payments. It has also been submitted by Ld.Counsel that AE do not have a PE in India, and therefore is not taxable under India US DTAA. 7.2. Ld. AO made addition in view of amendment to section 40 (a) (i) of the Act read with Article 26 of India US - DTAA. Ld.AO also held that the services rendered by non-resident AE made available technical knowledge, experience or skill and know-how of the process. 8. Before dwelling into the analysis of facts in hand, it would be necessary to understand application of section 40 (a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... -US DTAA, fee for included services means, any consideration received in connection with rendering of technical or consultancy services: which are ancillary and subsidiary to application or enjoyment of right in any patent, trademark, design or model, plan or secret formula or process or on any information concerning industrial, commercial or scientific experience; or which make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or design. 8.6. It is our considered opinion that provisions of India- US treaty provide for a restrictive meaning of fee for included services vis-a-vis meaning of fee for technical services (FTS) under the Act, in as much as, only those technical/consultancy services which are ancillary and subsidiary to application/enjoyment of right, property or information or which 'make available' technical knowledge, skill, knowhow, process etc. would be liable to tax. 8.7 . The Memorandum of Understanding ( MOU ), concerning fee for included services in Article 12 to the India - US treaty provides as follows: Paragraph 4(b) of Article 12 refers to techni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... use of technical knowledge and/or skill, utilised by AE qualifies as fee for technical services , as defined under Explanation 2 to section 9(i)(vii) of the Act. 9.2 . As India has double taxation avoidance agreement with US, and Article 12(4) of India-USA DTAA deals with fee for technical services , to determine taxability of income received by AE for services rendered in India, the services rendered should satisfy the requirements under Article 12 (4), which requires technical knowledge, experience, skill etc., to be made available to the recipient of such services. 9.3. On a careful perusal of the agreement dated 01/04/10 between AE and assessee, it appears that services rendered therein by AE does not satisfy the make available requirement as per article 12 (4) of the Act. Ld. DR placed reliance upon decision of this Tribunal in case of Go daddy.com LLC versus ACIT (supra) . We have carefully perused the said decision and has observed that issue therein was regarding payment on account of domain registration services, was treated as royalty within the ambit of Explanation 2 to section 9 (1) (vi) of the Act. Whereas, in the facts of present case issue is, whet ..... X X X X Extracts X X X X X X X X Extracts X X X X
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