9911796707
TMI Blog2019 (5) TMI 458X X X X Extracts X X X X X X X X Extracts X X X X ..... ue in the appeal relates to non-deduction of tax at source on the payment to non-residents amounting to Rs. 1,26,63,364/- which was disallowed u/s 40(a)(i) of the Act. 3. It is the second round of appeal. ITAT in the first round of appeal in ITA No. 3103/AHD/2011 remitted the issue to the file of AO to decide afresh vide order dated 17/10/2014 as assessee filed additional evidence in the form of a note on duties of consultant and plant superintendent, a copy of consultancy agreement, etc. which were not placed before the lower authorities. 4. Subsequently, the AO issued the notice and accordingly the assessee in response to the notice of AO files the party wise breakup of expenses as detailed under: A Fees for Technical Services to Anderson Kill & Click Paid of Rs. 1,78,922 B Consulting charges paid to Mr.W.H. Waugh (USA) Rs. 51,24,214 Consulting charges paid to Mr.Luis Spelzinl Rs. 3,73,060 Re-imbursement exps. Paid to Mr. Luis Spelzini Rs. 70,983 Total Rs. 55,68,257 C Foreign Technician Supervision charges paid to Mr. Kenneth Harmston (UK) Rs. 31,58,605 Foreign Technician Supervision charges paid to Mr. Hunt Waugh J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de India to Nonresidents for the services rendered outside India. Therefore, the same is not chargeable to tax in India under section 4, 5 and 9 of the Act. Accordingly, there is no question of deducting the tax at source u/s 195 of the Act. The assessee in support of its contention relied on Apex court in case of GE India technology Cen. P. Ltd. Vs. CIT (193 Taxmann 234). 9 Without prejudice, the assessee also contended that the fees for technical services in India are taxable in India only when these services are utilized in India and also rendered in India as held by the Hon'ble Apex Court in the case of Ishikawajma Harima heavy industries Ltd (288 ITR 408). The assessee also contended that the same decision was followed by the Bombay high court in case of Clifford Chance (318 ITR 237). 9.1 The assessee also relied on the decision of ITAT Agra in case of Virola international (147 ITD 419) wherein it was held that the position for the fees of technical services cannot be taxed in India unless it is rendered in India, has been changed by Finance Act 2010 w.e.f. 08.05.2010 with retrospective effect. 9.2 It was held in this case (supra) that although this amendment was retrosp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eth Harmston and Hunt Waugh Jr. for imparting their services and knowledge at our project site carried out at abroad and these facts have not been disputed by the then AO. Thus, such technical services rendered by these persons are similar like services rendered by persons who were paid fees in regard to issuance of GDR in cases of 1] Raymond Ltd. and 2] Mahindra and Mahindra Ltd. [Supra] and such services were performed at the abroad project site by Payees and nothing was made available by way of such service related technology being transferred in India to our company. Such fact can be verified from the duties of Consultants and Plant Superintendent submitted hereinabove under para -1 being the requirement met with para-4 of your present notice.'' 9.5 The assessee also relied on several case laws and contended that these services could be held taxable only when services fall under the category of "make available, and the recipient was enabled to apply the technology," but in the present case, nothing was made available to it. 10. After considering the submission of the assessee, the AO after due verification accepted the contention of the assessee in respect of Mr. Luis Spelz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erefore, the services have been rendered in India and the amount has been shown in the accounts. 10.5 The AO also countered the case laws relied upon by the assessee and differentiated them with the present facts of the case as detailed under: 1. In the case of G. E. India technology (supra) issue related to taxability was Royalty whereas in instant case it is related to "fees for technical services." 2. In the case of Ishikawajma Harima Heavy Industries Ltd (supra) assessee has relied only on the catch note without going into the details of judgment. In this case, the Hon'ble Apex court held that section 9(1)(vii) read with the memo, cannot be given a wide meaning to held that amendment was only to include the income of nonresident taxpayers received by them outside India for services rendered outside India. In the instant case, the services of consultants were utilized in India, and the "live- link" was established which is very much evident from the copy of agreements. 3. Reliance placed by the assessee on ITAT Agra in case of Virola International (supra) is not correct as the assessee has entered into two agreement for consultancy services with Mr. Luis Spelzini and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Mahindra Ltd (supra). In the view of above, AO finally held that appellant is clearly covered in sub-clause (c) of clause 4 of article 13 of UK DTAA and article 2 of USA DTAA. Accordingly, the AO disallowed the expenses as discussed above due to non-deduction of TDS under section 40(a)(i) of the Act and added to the total income of the assessee. 11. Aggrieved assessee preferred an appeal to ld. CIT-A wherein it submitted as under: 1. There are two types of agreement, i.e., retainer ship agreement & consultancy agreement. The retainer ship agreement was entered with Mr. Kenneth Harmstone (UK) and Mr. W. hunt Waugh Jr. (USA) both on 01.04.2007. The consultancy agreement was entered with Mr. Whitney Waugh (USA) and with Mr. Luis Spelzini (Argentina) on 01.04.2007. 2. Even if agreement is almost the same but in the case of Mr. Luis Spelzini (Argentina) services were provided in India as evident from invoices issued by him and in case of Mr. Whitney Waugh (USA) services were provided at the plant site of the client which is outside India as evident from the copy of invoices submitted. 3. Charging service tax cannot establish that the services were taxable in India, it was ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... was made available by the appellant. Accordingly, no question of attributing the income to the fixed base arise. Further, stay of Mr. W.H. Waugh does not exceed 90 days in India, therefore, as per Article 15 of DTAA income for rendering professional services would be taxable in the country in which the person is resident. CIT-A also relied on the judgment of GE India (193 taxman 234) Mr. Hunt Waugh Jr.(USA) Rs. 37,33,847/- As per the note, Mr. Hunt Waugh Jr. was present in India for 63 days. However, the stay of Mr. Hunt does not exceed 90 days. There was also no factual finding regarding fixed base of Mr. Hunt in India of the AO. Mr. Kenneth Harmston (UK) Rs. 31,58,605/- Similarly, Mr. Kenneth Harmston was in India for 73 days which is less than 90 days. There was also no factual finding regarding fixed base of Mr. Hunt in India of the AO. 12.1 Similarly the ld. CIT-A also deleted the addition for the reimbursement of the expenses to Mr. Hunt Waugh Jr. (USA) Rs. 8,994/- and Mr. Kenneth Harmston (UK) Rs. 14739.00. 13. Being aggrieved by the order of ld. CIT-A, the Revenue is in appeal before us. The learned DR before us vehemently supported the order of the AO. On ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... after the expiry of event. The Ld.Senior Counsel relied upon the decision of the Coordinate Bench in DCIT vs. Virola International (2014) 42 taxmann.com 286 (Agra-Trib.) and Ashok Piramal Management Corporation Ltd. vs. ACIT (2016) 74 taxmann.com 111 (Mumbai-Trib.) to buttress this aforesaid proposition. The Ld.Senior Counsel contended that the assessee cannot be expected to implement a retrospective amendment carried out at a later point of time after the event of payment/credit in favour of the non-resident. The Ld.Senior Counsel also contended on merits with reference to various clauses of DTAA to demonstrate that the payee non-residents are not chargeable to tax in India under the provisions of DTAA and therefore obligation to deduct TDS under s.195 of the Act does not arise. 13. The Ld.DR relied upon the order of the AO to fasten the obligation under s.195 of the Act on the assessee and extensively relied upon the agreement executed by the assessee with the non-residents for availing their services qua the provisions of DTAA. The Ld.DR submitted that the aforesaid services availed from the nonresidents cannot be covered as independent personal services but are in the nature ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p. 444): 'Sec. 9(1)(vii)(c) of the Act states that 'a person who is a non-resident, where the fees are payable in respect of services utilized in a business or profession carried on by such person in India, or for the purposes of making or earning any income from any source of India'.' Reading the provision in its plain sense, as per the apex Court it requires two conditions to be met-the services which are the source of the income that is sought to be taxed, has to be rendered in India, as well as utilized in India, to be taxable in India. Both the above conditions have to be satisfied simultaneously. Thus for a non-resident to be taxed on income for services, such a service needs to be rendered within India, and has to be part of a business or profession carried on by such person in India. In the above judgment, the apex Court observed that (p. 444) : 'Sec. 9(1)(vii) of the Act must be read with s. 5 thereof, which takes within its purview the territorial nexus on the basis whereof tax is required to be levied, namely, (a) resident; and (b) receipt of accrual of income'. According to the apex Court, the global income of a resident although is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India. In the present case, both these conditions have not been satisfied simultaneously." 7. The law laid down by Hon'ble Supreme Court, in the case of Ishikawajma- Harima Heavy Industries Ltd. (supra) , binds everyone under Article 141 of the Constitution of India. The legal position thus was that unless the services are rendered in India, the same cannot be brought to tax as 'fees for technical services' under Section 9. However, this legal position did undergo a change when Finance Act 2010 received assent of the President of India on 8th May 2010. Explaining the scope of this amendment, a coordinate bench of this Tribunal, in the case of Ashapura Minichem Ltd. v. Asstt. DIT [2010] 40 SOT 220 (Mum.), has explained thus: "......(this legal position)does no longer hold good in view of retrospective amendment w.e.f. 1st June, 1976 in s. 9 brought out by the Finance Act, 2010. Under the amended Explanation to s. 9(1), as it exists on the statute now, it is specifically stated that the income of the non-resident shall be deemed to accrue or arise in India under cl. (v) or cl. (vi) or cl. (vii) of s. 9(1), and shall be included in his total income, whether or no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... de to non-residents, which are taxable in India, but for the payments on which tax was deductible at source but tax has not been deducted, and such deductibility of tax at source, as we have discussed above, has to be in the light of the legal position as it stood at the point of time when payment was made or credited- whichever is earlier. Clearly, therefore, the disallowance under section 40(a)(i) can come into play only when the assessee had an obligation to deduct tax at source from payments to non-residents, and the assessee fails to comply with such an obligation. In view of these discussions, so far as payments made before 8th May 2010 are concerned, the assessee did not have any tax withholding liabilities from foreign remittances for fees for technical services unless such services were rendered in India, and a fortiori no disallowance can be made under section 40(a)(i) for assessee's failure to deduct tax at source from such payments. 9. In the case before us, there is no material whatsoever to demonstrate and establish that the design and development services, for which impugned payments were made, were rendered in India. Therefore, the assessee did not have any l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial year. On these facts, it is clearly a case where such services stands excluded from the purview of preamended S.9(1)(vi)/(viii) of the Act. Prior to the amendment, it was well settled that services provided offshore or outside India could not be taxed in India. The amendment to Explanation-9(2) brought in by Finance Act, 2010 has sought to amend this position whereby only requirement for taxing such income shall be the utilization of services in India and not place of rendering services. Thus, at the time of occurance of event of obligation to apply providing S.195, the preamended provisions towards chargeability of income was in place, where income from services outside India were outside tax net. 14.4. Hence, for the parity of reasons noted in the aforesaid decisions, we find merit in the legal contention raised on behalf of the assessee. 14.5. In view thereof, we are not inclined to deal with the merits of chargeability of tax on payments made to the non-residents or otherwise as contemplated in terms of various Articles of the DTAA with respective countries. On perusal of the above order, there remains no ambiguity that the assessee was not liable to deduct the TD ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s AO was of the view that since assessee is engaged in the business of leasing; therefore, additional depreciation is not available to the assessee. Accordingly, the AO issued show cause notice to the assessee. 21. In response to the notice, the assessee submitted that it has rightly claimed additional depreciation at the rate of 10% since it was used for less than 180 days. As per the provision of section 32(iia) of Act assessee is required to be engaged in the business of manufacture or production of any article or thing and it is not necessary whether new machinery is used for the business of manufacture or production. 22. Further, it is also important to note that assessee is engaged in manufacture or production and on this account also assessee is eligible for the additional depreciation. 23. The assets have been used in the business of leasing the assets of the assessee. Accordingly, the assessee is eligible for additional depreciation. 24. However, AO disregarded the contention of the assessee by holding that the assets were used in the business of leasing and not in the business of manufacture. Thus the assessee is not entitled to the additional depreciation. 24.1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... distribution of power, the assessee shall not be entitled to deduction under Section 32(1)(iia) of the Income-tax Act of Rs. 1,17,98,030/-. The said addition has been deleted by the CIT(A) relying upon the decisions of the Madras High Court in the case of VTM Ltd (Supra) and in the case of Hi Tech Arai Ltd. (Supra). In both the aforesaid decisions, the Madras High Court had an occasion to consider the similar issue and it is held that while claiming the deduction under Section 32(1)(iia) of the Income-tax Act setting up wind-mill has nothing to do with the power industry and what is required to be satisfied in order to claim additional depreciation is that the setting up of new machinery or plant should have been acquired and installed by an assessee, who was already engaged in the business of manufacture or production of any article or thing. Considering the aforesaid facts and circumstances and considering the relevant provisions of Section 32(1)(iia) of the Incometax Act, which was prevailing at the relevant time, i.e. during the year under consideration, it cannot be said that the ITAT by applying the ratio of decision of the Madras High Court in the case of VTM Ltd. (Supra) a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
