TMI Blog2019 (5) TMI 1535X X X X Extracts X X X X X X X X Extracts X X X X ..... al in the case of the assessee itself for assessment year 2009-10 - Decided in favour of assessee for statistical purposes. - ITA No. 4511/Del/2015 - - - Dated:- 27-3-2019 - Sh. Bhavnesh Saini, Judicial Member And Sh. N. S. Saini, Accountant Member For The Assessee : Sh. G. C. Srivastava, Adv. And Sh. Suvinay Kumar Dash, Adv. For The Revenue : Sh. Surender Pal, Sr. DR ORDER Per N. S. Saini, Accountant Member: This is an appeal filed by the assessee against the order of ld. Commissioner of Income Tax (Appeals)-7, Delhi dated 30.04.2015. 2. The assessee has raised following grounds of appeal: 1.0 That in the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) [hereinafter referred to as Ld. CIT(A)] erred in upholding the action of Ld. Deputy Commissioner of Income Tax [hereinafter referred to as Ld. AO] in making disallowance u/s 40(a)(i) of the Income Tax Act, 1961 ( Act ) amounting to ₹ 2 95,95,363/- representing payment of management service fees to Outotec Oyj. 1.1 That in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessment proceedings, it was observed that the assessee has paid an amount of ₹ 95,95,363/- to Outotec Oyj as service fees to company. Further the assessee company has made payments to International Projects Services OY and Outotech Research OY amounting to ₹ 6,89,025/- and ₹ 4,81,308/- respectively and booked the above expenses under consultancy charges. The assessee was required to show whether tax was deducted at source on such payment. In response to this the assessee submitted in its reply dated 19th March 2013 that Tax was not deducted on these payments. Further in the same letter the assessee company also filed a detailed submission providing reasons for non deduction of tax. The relevant portion of the submissions are reproduced as under: I have considered the arguments and submission of the assessee and they are not acceptable on following grounds:- a. The assessee's contention that the service rendered by Outotec OyJ, is not taxable in India as the services did not satisfy the definition of fees for technical services as per Article 13 of India Finland Treaty is not acceptable because the services provided by Outo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are hereby invoked,. So the aforesaid expenditure is disallowed under the provision of section 40a(i) read with section 9 and 5 section 195 and added back to the income of the assessee. 4. On appeal, before the Commissioner of Income Tax (Appeals), the assessee submitted as under: Ground No. 1 (a), (b), (c) These grounds are directed against disallowance of Service Fees paid amounting to ₹ 95,95,363/- u/s 40(a)(i). 3.0 Our Submission 3.1 The allegations of the AO may be rebutted as under: 3.2 The appellant company was set up in the financial year 2007-08, for the purpose of providing supervisory services to various Indian parties. The management of the company felt that the company should adopt the global practices and standards in its business operations. With such an aim the appellant company entered into an agreement with Outotec Oyj effective from July 1, 2009. As per the terms of the agreement, Outotec Oyj will provide assistance to the appellant company in areas that include communications; finance and treasury, tax, accounting, human resource, legal, business dev ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... previsions of the India-Finland DTAA before examining the provisions of the Act. 3.8 Needless to say, if the income of the nonresident is not taxable under the provisions of the tax treaty, there would be no requirement to 7 examine the taxability of such payments under the provisions of the Act. Similarly, if the income is taxable, then the provisions under the Act would be required to be examined, where the payments would be considered as fees for technical services and hence be liable to tax withholding. 4.0 Taxability under the India-Finland DTAA 4.1 The appellant humbly wishes to submit that the DTAA between India and Finland was first notified vide Notification No. G.S.R. 786(E) dated November 20, 1984 reported in 152 ITR 57 (Statutes). Copy of the notification is enclosed herewith and marked as Annexure 1. This DTAA was then amended vide Notification No. G.S.R. 495(E), dated 13th August, 1998, where certain clauses including the clause relating to Article 13 - Royalties and fees for technical services was amended. Thereafter, this DTAA was revised vide Notification No. 36/2010, dated 20-5-2010where again there were ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... conditions need to be satisfied (a) the services should be of a technical nature and (b) such services should make available technology to the person acquiring the services. 4.2 From a perusal of the Service Agreement, it can also be noted that majority of the services rendered by the appellant are primarily managerial in nature including but not limited to providing: a. Internal, external and marketing communication services: drafting and publishing internal announcements / press releases globally, collecting customer feedback, preparing marketing presentations marketing material; b. Financial and treasury functions: consulting group companies in their financial risks, assistance in evaluation of funding alternatives, hedging and other transaction services etc.; c. Tax and Accounting Services; assistance in local tax audit processes / in tax matters, accounting services including book keeping, accounts receivables and payables; d. Human resource arid Legal services: establishment of global recruitment process, conduct employee satisfaction and other surveys, assistance and coordinatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices mentioned in Article IS, in consideration for services of a managerial, technical or consultancy nature. .. (Emphasis Supplied) India-Singapore DTAA ARTICLE 12 : ROYALTIES AND FEES FOR TECHNICAL SERVICES - 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2 3 4. The term fees for technical services as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein; or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rection, or regulation or superintendence. Thus, managerial service essentially involves controlling, directing or administering the business. In some DTAAs, apart from the terms 'technical' and 'consultancy', 'managerial' is also included within the FTS clause. 8.1. The contention of the learned counsel for the applicant is that almost all the services to be carried out by the applicant under the Agreement are not technical but are managerial nature and therefore they are out of purview of FTS provision. Learned counsel submits that the purpose of the activities undertaken under the Agreement is to give direction or guidance to the group companies as a whole so that they will adopt or follow standard procedures or templates in various matters. By virtue of such managerial intervention, common benefit accrues to 13 the affiliated companies and their level of performance will consequently improve. 8.2. I find force in the contention of the learned counsel that the services are not really technical or consultancy services. No doubt, the expression technical services cannot be construed in a narrow sense ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... when the person acquiring the same is enabled to apply the technology. The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc, are made available to the person purchasing the service within the meaning of paragraph 4(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. 4.10 Therefore, some of the important rules laid out in the interpretation of make available as evident from Protocol to the India-USA DTAA are as under: Usually technology will be considered to be made available when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc., are made available to the person purchasing the service. Mere rendering of services does not make available the technology unless the person utilizing the services is able to make use of the technical knowledge, etc. by himself in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich embodies technology shall not per se be considered to make the technology available. 4.14 it is respectfully submitted that the issue was also examined by the Authority for Advance Rulings ( AAR ) In the case of Intertek Testing Services India Pvt. Ltd. (175 Taxman 375). The AAR was examining the scope and meaning of the definition of the term FTS as contained in Article 12 of the DTAA between India and UK. While examining the issue the AAR held as follows- Rendering technical or consultancy service is followed by a relative pronoun which and it has the effect of qualifying the services. That means the technical or consultancy service rendered should be of such a nature that makes available to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting the technical knowledge, etc. so that the payer of service could derive an enduring benefit and utilize the knowledge or know-how in future on his own without the aid of service provider. By making available the technical skills or know-how, the recipient of service will get equipped with that knowledge or expertise and be able to m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Delhi Tribunal that make available condition has not been satisfied in as much as no technical knowledge, experience, skill, know-how, processes, have been made available by Assessee to the insurance companies operating in India. 4.17 The Hon'ble Delhi Tribunal in the case of NQA Quality Systems Registrar Ltd. v. Dy. CIT reported in 2 SOT 249 (Del) while discussing the clause make available held that when the said term is used, if technology is transferred through the technical service then alone it is taxable. Using technical input In order to provide consultancy service will not to making available technical knowledge, skill, expertise or know-how. The Hon'ble at Para 15 of the judgment also held that- In construing the provisions of India-UK DTAA, it Is possible to make a reference to provisions of the analogous provisions in the India-US DTAA and this is a permissible aid to interpretation of treaties as held by the Hon'ble Mumbai Tribunal in the case of Raymond Ltd v DOT [2003] 86 ITD 791. 4.18 The Hon ble Delhi Tribunal in case of Romer Labs Singapore Pte. Ltd. (ITA No. 3883/Del/2009 dated 24.01.2013) h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith. The assessing officer has objected the reference made to India US DTAA by the appellant company stating that the meaning assigned to the word make-available in the India-US DTAA-cannot be used to used to interpret the meaning of make available in India Finland Treaty. 5.2 The appellant would like to submit that none of the services received from Outotec OYJ under the Services Agreement make available any technology, know-how, process etc., since, Outotec India will not 20 be able to perform these services without recourse to the Outotec Oyj. The objective of the Agreement Is only to render services to Outotec India to adopt the standard practices with the object of achieving global standardization for the group as a whole and thus, it is submitted that the Outotec Oyj has not transferred any such technical knowledge etc to the recipient during the course of provision of these services. 5.3 The Assessing Officer has alleged that the meaning of the term make available cannot be imported from India-US Treaty as each treaty Is country specific. In this connection reference may be made to the Special Bench decision of the Hon'ble Kolkat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... words make available . The portions of the MoU explaining para 4(b) of the relevant article, which we have extracted earlier in our order while adverting to the contentions of the assessee, fully support its interpretation. Example (4) given in the MoU also supports it This is of a US company manufacturing wallboard for the assessee using assessee's raw material but using its own plant. No technical knowledge, experience, skills, plan or design is held to have been made available in such a case. However, in contrast, example (5) is of a US company rendering certain services In connection with modifying the software used by the Indian company to suit a particular purpose. A modified computer software programme is supplied by the US company to the Indian company. It is therefore held that there Is a transfer of a technical plan (i.e., computer software) which the US company has developed and made available to the Indian company. The fees are chargeable. These examples affirm the position taken by the assessee- company before us as to the interpretation of the words make available 95. Article 12.4(b ) of the DTA with Singapore was relied on by both sides - by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... above, the contention of the AO that the concept of make available is limited to the USA DTAA and cannot be used to interpret other DTAAs is not tenable. Ground No. 2(a), (b), (c) These grounds are directed against disallowance of Consultancy Charges amounting to ₹ 6,89,025 and ₹ 4,81,308 paid to International Projects OY and Outotec Research Oy respectively. 6.2 Submission 6.3 In this connection it is submitted that the appellant company was set up in the financial year 2007-08, for the purpose of providing supervisory services to various Indian parties. However in the initial stage, it did not have enough technical expertise to supervise and undertake such large scale supervision as it was in the process of recruiting the experts from India. Accordingly it was slowly building its market presence in India and hence did not want to risk in such a big project which could tamper the image, if something went wrong. Therefore keeping in mind these commercial benefits and to better its brand Image in India, the project supervisory assignment was sub-contracted to IPS and ORY, residents of Finla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9 So in view of the above discussion and also the judicial precedence deliberated above it is humbly submitted that the payment made by the appellant company to IPS and ORY being not taxable in India, there was no liability on the part of the appellant to deduct tax from such payments and accordingly the same cannot be disallowed u/s 40(a)(i) of the Act. 7.0 On going through the submission of the appellant, it is amply clear that the concept of make available would be applicable under the treaty provisions not requiring the appellant to withhold tax. Hence, the appellant humbly prays that the additions made by the AO be deleted. 5. The Commissioner of Income Tax (Appeals) confirmed the order of the Assessing Officer by observing as under: 5. Ground No. 1 2 are in respect of addition of ₹ 1,07,65,696/-. This amount was in respect of consultancy/management expenses claimed by the appellant. The AO had applied 40(a)(ia) stating that no TDS was deducted u/s 195 on these payments and therefore the appellant could not claim these as a deduction. 5.1. During the year the appellant was engaged in the business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 10. Information Technology services- IT Infrastructure services - Wide Area Network - Outotec Active Directory - Anti Virus Control - Mail Lotus Notes - Internet Access - Remote Access - Dial-up and Wireless service - Push Mail - Partner Virtual Private Network (VPN) - PC support for the Finish group companies located at Espoo campus IT Infrastructure special services - Disk space for Outotec Minerals Oy - Wide Area Network (WAN) acceleration systems for the group companies - Client administration system (CMS) service - Virtual private network hardware site connection (VN HW site connection) IT Application services - SAP and SAP related services including licences for the use of SAP server hosting and maintenance obtained from a third party - Project data administration systems including document administration and project ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng Technology Awards rewarding for the group companies 12. After Sales services - Developing new and long-term service concepts and solutions for the group companies - Increasing share of after-sales services sold globally - Training of after-sales personnel - Developing common global processes and tools, such as customer relationship administration (CRM), product data administration (PDM) and ecatalog 5.7. There is no doubt that the service provider is making available technical know-how. From a perusal of the services to be rendered by Outotec OY, I am of the view that they are covered by clause 4 (c) of Article 13 of the India Finland DTAA. A perusal of services to be rendered makes it very clear that technical knowledge has been made available to the appellant. 5.8. Some services rendered are quite clearly in the nature of technical services and technical knowledge made available for use by the recipients. As can be seen, the service provider was to develop maintain intranet platform . This certainty cannot be termed as management or consultancy service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consultancy service is that such services can be covered under FTS when the service is provided in the context of running and management of client s business. 5.18. In the case of CIT vs. De Beers India Minerals (P) Ltd., the Hon'ble High Court of Karnataka observed as under: 22 What is the meaning of make available . The technical or consultancy service rendered should be of such a nature that it make available to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology making available , the technical knowledge, skill?, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the service offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in the Indo-U5 DTAA and this is a permissible aid to interpretation of treaties as held by the Hon'ble Mumbai Bench in the case of Raymond Ltd. v Dy. CIT : (2003) 86 ITD 791 ... 5.21. In case of Worley Parsons Services Pty. Ltd., the Hon'ble Court observed as under: 5 The relevant clause is clause (g). It has no application in the present case in as much as no technical knowledge, experience, skill or know-how is 'made available' to GAIL on account of rendering the services. Mere rendering of services is not sufficient to attract clause (g), but those services should result in technical knowledge, etc. being made available to the other contracting party. 5.22. It is clear from the above decisions that the person to whom fees for technical services are paid make available not only technical knowledge but also skills, experience, process, know-how. 5.23. I shall now discuss Section 5 of the I. T. Act which talks of what the total income of a person who is a resident and non-resident is:- (1) Subject to the provisions of this Act, the total income of any previous year of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at the rates in force. Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the 35 time of payment thereof in cash or by the issue of a cheque or draft or by any other mode. Provided further that no such deduction shall be made in respect of any dividends referred to in section 115-O. Explanation.-For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called Interest payable account or Suspense account or by any other name, in the books of account of the person liable, to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. (2) Where the person responsible for paying any such sum chargeable under this Act **(other than salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t made by the appellant is for technical services made available to it and is covered by Article 13 of the DTAA. 5.29 The appellant was required to deduct TDS on the payments, which was not done. The addition made by the AO by invoking section 40(a)(ia) is confirmed. The grounds of appeal are thus ruled against the appellant. 6. Before us, the Authorized Representative of the assessee submitted that the issue is covered in favour of the assessee by the decision of Delhi E Bench of the Tribunal in the case of the assessee itself for assessment year 2009-10 reported in (2015) 41 ITR(T) 449 (Del.) and by the decision of Kolkata Bech C of the Tribunal in the case of Outotec Oyj Vs DCIT(IT)-2(1), Kolkata reported in 162 ITD 541 (Kolkata-Trib). 7. The Departmental Representative relied on the orders of the lower authorities. 8. We find that in the assessment year 2009-10, the Tribunal held as under: 2. The only issue raised in this appeal is against the confirmation of disallowance made by the Assessing Officer (AO) for non-deduction of tax at source in terms of section 195 of the Income-tax Act, 19 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Agreement dated 1.11.2008 with IPS under which the services required to be rendered to Sterlite were outsourced from IPS for a consideration of ₹ 1.92 crore. The ld. CIT(A) went through the Agreement between the assessee and Sterlite and noted the scope of services to be provided. He also took into consideration a copy of the so-called Agreement dated 1.11.2008 between the assessee and IPS, under which the assessee claimed to have outsourced such services from IPS to be provided to Sterlite. A copy of such four-page document claimed as Agreement, produced before the ld. CIT(A), had first two pages which did not bear any signature, stamp or seal of the parties. He required the assessee to produce the original Agreement, which the assessee failed to comply with. The ld. CIT(A) observed that the main terms and conditions of the Agreement were appearing on the first two pages, which were unsigned plain papers without any page number, date, seal or stamp. He, therefore, refused to accept the authenticity and genuineness of such Agreement. The assessee was called upon to furnish the weekly time sheets in respect of the services rendered by IPS, Finlay, which was supposed to be appr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore the ld. CIT(A), the assessee submitted a copy of the Certificate issued by IPS containing names of five engineers who were claimed to have been sent by it to Sterlite for rendering supervisory services. This certificate, again undated, was held to be self serving and hence unreliable. In the backdrop of such facts, the ld. CIT(A) reached a conclusion that no services were provided by IPS. However, from the weekly time sheets issued by the assessee and approved by Sterlite and the invoices raised by the assessee on Sterlite, he observed that the services were rendered by these five engineers, residents of Finland, from 24.11.2008 to 24.04.2009. The factum of rendering of actual supervisory services by the above five engineers from Finland and the absence of any services given by IPS, led the ld. CIT(A) to conclude that the services given by five engineers from Finland were in the nature of 'Independent personal services' covered under Article 15 of the DTAA. As the services were performed by these engineers in India by remaining present from 24.11.2008 to 24.04.2009, being a period of more than 90 days, the ld. CIT(A) held that such income was chargeable to tax in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical services or any other sum chargeable under this Act is payable outside India or in India to a non-resident on which tax has not been deducted at source, etc., then, no deduction for such expenditure shall be allowed in the computation of Business income of the payer. 6. Section 195(1) provides that: 'Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest .. or any other sum chargeable under the provisions of this Act (not being income chargeable under the head Salaries ) shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force .'. A conjoint reading of sections 40(a)(i) and 195 brings to the fore that it is a duty of the person responsible for paying, to deduct income-tax at source from any amount paid/payable to a non-resident or a foreign company which is 'chargeable under the provisions of this Act.' If the person responsible fails to deduct tax at source on any such amount paid/payable to a nonresid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he non-resident, being the 'supervisory services for erection, commissioning and training' for setting up a plant of M/s Sterlite Industries, it becomes patent that such services fall within the ambit of Explanation 2 to section 9(1)(vii), thereby making the payment of ₹ 1.92 crore as 'fees for technical services' covered u/s 9(1)(vii) of the Act. Once an Indian enterprise pays fees for technical services to a non-resident, the amount so paid becomes chargeable to tax in the hands of such nonresident and the failure to withhold tax from such payment magnetizes the disallowance u/s 40(a)(i) of the Act. The ld. AR was fair enough to candidly concede that the amount payable by the assessee to the non-resident is in the nature of 'fees for technical services' as per section 9(1)(vii) of the Act. He, however, contended that there was no liability of the assessee to deduct tax at source from such amount because of the applicability of DTAA which immunes from tax the amount towards fees for technical services as paid in the present circumstances to the non-resident. 9. Sub-section (1) of section 90 of the Act provides that the Central Govern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that State, but the tax so charged shall not exceed........ 3. ** ** ** 4. For the purposes of paragraph 2, and subject to paragraph 5, the term fees for technical services means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including the provision of services of technical or other personnel) which: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in sub-paragraph (a) of paragraph 3 is received; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in subparagraph (b) of paragraph 3 is received; or (c) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available the technical skills or know- how, the recipient of the same will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service provider . . From the above enunciation of law by the Hon'ble Karnataka High Court, it is palpable that the technical knowledge will be considered as 'made available' when the person acquiring such knowledge is possessed of the same enabling him to apply it in future at his own. If the services are consumed in the provision without leaving anything tangible with the payer for use in future, then it will not be characterized as 'making available' of the technical services, notwithstanding the fact that its benefit flowed directly and solely to the payer of the services,. The Special bench of the tribunal in Mahindra Mahindra Ltd. v. Dy. CIT [2009] 122 TTJ 577 (Mum.) has discussed the concept of 'make available'. In that case, the lead managers had rendered technical, managerial or consultancy services in the GDR issue, which services were not made available to the assessee inasmuch as the payer only derived the benefit from the technical services provided by the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 14. It is noticed that when the matter was carried by the assessee in appeal before the ld. CIT(A), the latter opined that there was no genuine agreement between the assessee and the IPS Finland. In view of the fact that the assessee did incur ₹ 1.92 crore to certain persons which was duly confirmed by M/s Sterlite, the ld. CIT(A) attributed the amount to the five engineers of Finland, covered under Article 15 of the DTAA. 15. In principle, we do not find any infirmity in the order of the ld. CIT(A) in examining the genuineness of the Agreement with IPS Finland and then finally holding the amount payable by the assessee to the five engineers as covered under Article 15 of the DTAA, thereby changing the point of the view of the AO on the same issue. It goes without saying that the powers of the CIT(A) are co-terminus with that of the AO inasmuch as he, while hearing an appeal against the assessment order, has all the powers which vest with the AO on the issue before him. The Hon'ble Summit Court in Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688/[1990] 53 Taxman 85 (SC) has held so. Even otherwise, section 251 dealing with the powe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essee admitted before the ld. CIT(A) that no such correspondence in the form of letters or e-mails was available. We are at loss to appreciate as to how is it possible that a party to whom the assessee was to allegedly pay a sum of ₹ 1.92 crore, did not correspond at all on any aspect of the work assigned or to ascertain the progress of the work on a periodic basis. There is another interesting aspect of the matter. The assessee entered into Agreement with M/s Sterlite for providing supervisory services for erection and commissioning of their plant. There is no reference whatsoever in this Agreement with Sterlite that the services to be provided by the assessee could be subcontracted or outsourced from some third party. If such services in erection and commissioning of plant were actually to be provided by IPS to Sterlite, then, there should have been some tripartite agreement amongst the assessee, Sterlite and IPS, which is actually not the case. There is one more aspect. The so-called fourpaged Agreement between the assessee and IPS is dated 1.11.2008. We are at loss to comprehend as to how the assessee could enter into agreement with IPS for rendering supervisory services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... neers, architects, dentists and accountants.' 18. On going through the mandate of Article 15 of the DTAA, it can be seen that it covers professional services or other independent activities of similar character. The term 'professional services', inter alia, includes independent activities of engineers. Five engineers from Finland rendered engineering services in the erection and commissioning of the plant of Sterlite. Such services fall within the domain of the 'Professional services' of Article 15 of the DTAA. 19. The ld. AR contended that since the services contracted for the by the assessee with non-residents fall within the meaning of Article 13 but get excluded because of not 'making available' any technical knowledge etc., then such services cannot be once again considered under Article 15. This argument was countered by the ld. DR by contending that the amount in question directly falls under Article 15 and hence the same should be retained here alone. 20. The argument of the ld. AR though looks attractive at the first blush but falls to the ground on a closer examination. The precise question ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this condition is found wanting qua some individuals, then the amount payable to such individual residents of Finland, would cease to be chargeable to tax in terms of Article 15 of the DTAA notwithstanding its taxability under section 9(1)(vii) read with section 5 of the Act. Since the relevant information for ascertaining the duration of stay of such residents of Finland in India is not available on record and, further, it is not clear whether they had a fixed base regularly available to them in India for performing such services, we cannot forthwith ascertain whether or not such a pre-requisite condition is fulfilled. Under such circumstances, we set aside the impugned order and remit the matter to the file of the ld. CIT(A) for deciding this aspect of the matter and, thereafter, determining the question of disallowance u/s 40(a)(i) of the Act. Needless to say, the assessee would be allowed a reasonable opportunity of hearing in such proceedings. 9. Facts being identical, respectfully following the precedent, we set aside the orders of the lower authorities and remand the matter back to the file of the Assessing Officer for adjudicating the same afresh in the l ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
