TMI Blog2019 (9) TMI 500X X X X Extracts X X X X X X X X Extracts X X X X ..... d Saudi Arabia. The CIT(A) had relied on three decision while deciding this issue. The assessee while making payments to the entities based in countries falling in category one is thus, not required to deduct tax at source out of payments made to them, since the said amounts received by such entities were not taxable in their hands. Second category of cases i.e. payments to residents of tax jurisdiction with which India has tax treaties and where there is FTS clause, but without make available clause. Then receipts on account of FTS to entities based in such countries get taxed in their hands even in the absence of PE or the fixed base. The list of such countries i.e. category II include China, Denmark, Italy and Germany (i.e. the entities of such countries with whom assessee before us had dealings). Since such receipts are taxable in the hands of recipients, there was obligation on assessee to deduct tax or withhold tax out of such payments. The assessee having not deducted tax at source out of such payments or having not withheld the tax, thus had defaulted and is liable to the demand raised under section 201(1) of the Act and interest charged under section 201(1A) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r decision in the paras above in respect of countries in category No.II. TDS on design services to entities in Switzerland and Singapore - Payments made for design services, do not satisfy make available clause, where no technical service had been made available to the assessee, there is no question of same being exigible to tax. The learned Departmental Representative for the Revenue has failed to controvert the findings of CIT(A). The recipients are residents of countries of category III and out of such payments, there is no requirement to deduct tax in the absence of satisfying make available condition. Applicability of provisions of section 206AA - No merit in the grounds of appeal raised by Revenue in this regard as the beneficial provisions of DTAA would override the provisions of Income Tax Act and accordingly, there is no requirement to deduct tax at source as per provisions of section 206AA - See SERUM INSTITUTE OF INDIA LIMITED [ 2015 (6) TMI 26 - ITAT PUNE] confirmed by HC [ 2018 (12) TMI 1341 - BOMBAY HIGH COURT] Applicability of provisions of section 195A - AO grossed up various payments made in accordance with provisions of section 195A of the Ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for the sake of convenience. 3. In all these appeals, the issue which arises is against order passed under section 201(1) and 201(1A) of the Act i.e. demand raised and interest charged on failure of assessee to deduct tax at source on different items. So, first we take up the appeal for assessment year 2009-10. 4. The Revenue in ITA No.1857/PUN/2014, relating to assessment year 2009-10 has raised the following grounds of appeal:- 1. On the facts and circumstances of this case, the Ld. CIT(A) was not correct in deleting the additions made on account of payment for design services and technical consultancy charges since the assessee company could not prove whether the recipient was the beneficial owner of the royalties or fees for technical services as per Article 12 of the DTAA with Singapore and Switzerland. 2. The CIT(A) erred in not considering the fact that the payment for design services and technical consultancy charges was rightly treated by the AO as FTS under the Act as well as relevant DTAA. 3. The CIT(A) erred in law by concluding that, if the payment, made for design services and t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rounds are taken without prejudice to each other. On the facts and in law, 1.1 The learned CIT(A) - IT / TP erred in holding that the assessee company should have deducted TDS on the payments made to Tetra Pak Global Information Management, Singapore of ₹ 20,29,919/- on account of software license fees and IT support services on the ground that the same was taxable under the Income Tax Act as well as under the DTAA as Royalty. 1.2 The learned CIT(A) erred in not appreciating that the amount of ₹ 20,29,919/- was not covered under Royalties and / or fees for technical services of the DTAA between India and Singapore and that the Appellant Company was not required to withhold tax u/s. 195 on above amounts. 1.3 The learned CIT(A) ought to have appreciated that the payments made to Tetra Pak Global Information Management, Singapore was on account of reimbursement of software license fees and IT support services and since there was no income earned by the said entity, no TDS was required to be deducted on such reimbursement of expenditure. 2.1 The learned CIT(A) erred in holding that the assessee comp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y was not required to withhold tax u/s. 195 on above amounts. 6. The learned Authorized Representative for the assessee at the outset pointed out that majority of the issues raised in the present appeals stands covered by the order of Tribunal in the case of John Deere India Pvt. Ltd. (2019) 70 ITR (Trib) 73 (Pune). Referring to grounds of appeal No.1.1 to 1.3 raised in assessment year 2009-10, the learned Authorized Representative for the assessee pointed out that the issue raised was against non deduction of tax on payment for software licenses and IT support services. The assessee had made the aforesaid payments for the acquisition of software licenses, wherein the assessee had acquired copyrighted article and hence, such payments were not taxable as royalty in India, as per DTAA between India and Singapore. He further stated that the CIT(A) in turn, had relied on the decision of Pune Bench of Tribunal in the case of Cummins Inc for assessment years 2004-05 and 2006-07 in ITA Nos.73 74/PN/2011, order dated 08.08.2013. The learned Authorized Representative for the assessee submitted that the said issue is squarely covered by the decision in the case of John De ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a which was connected was that in case there was no Article on FTS, then whether the receipts could be taxed under Article 22 of DTAA, which was the proposition raised by Assessing Officer and CIT(A). In this regard, he again referred to the decision of Ahmedabad Bench of Tribunal in the case of DCIT-(IT) Vs. Welspun Corporation Ltd. (supra) and pointed out that in the said decision, it was also held that Article 22 of DTAA would not apply. He also pointed out that CIT(A) had relied on the decision of Hon ble High Court of Calcutta and this issue was not there before the Hon ble High Court. 8. Coming to para 2.5.19 at page 39 of appellate order, wherein the CIT(A) refers to the payments made to companies located in Italy, China, Denmark and Germany and in the DTAAs with these countries, there is an Article providing taxability of FTS without make available condition. The CIT(A) thus, observed that the provision taxing FTS under the Income Tax Act and under DTAA with these countries were same and hence, the payments made to companies located in the said countries would be taxable under the DTAA with respective countries. In this regard, the learned Authorized Repr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee had failed to submit any details before the Assessing Officer as evident from paras 46 and 50 of assessment order and all these details were filed before the CIT(A). He placed reliance on the order of Assessing Officer / CIT(A). 13. We have heard the rival contentions and perused the record. The assessee is in appeal before us against order passed under section 201(1) r.w.s. 201(1A) of the Act. The assessee during the year under consideration had made certain payments to the non-resident / foreign companies. The Assessing Officer was of the view that provisions of section 195 of the Act were squarely applicable to the payments made by the assessee to non-resident suppliers / foreign companies and the assessee was bound by law to deduct tax before remitting the money to non-residents. However, the assessee had failed to deduct tax or withhold the tax and as such had committed default in terms of section 201(1) and 201(1A) of the Act. The Assessing Officer tabulated the payments made by the assessee, which are annexed to the assessment order and held the assessee liable to deduct tax @ 20% and also grossing up the amount and charged interest under section 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e receipt to have characterization of royalty under the domestic law and also under DTAA, the assessee was liable to deduct tax at source. 15. Coming to the next item i.e. payment towards leased line charges, the plea of assessee was that the aforesaid payments could not be taxed as royalty under Article 12 of India-Sweden DTAA as it could not be taxed as payment for use of equipment nor it taxed as payment for the use of secret process. Reliance on various decisions was not accepted. The CIT(A) referred to the retrospective amendment to section 9(1)(iva), Explanation 6 of the Act, which was inserted by the Finance Act, 2012 and held that leasing out the computer and use of server was undoubtedly, constituted use of equipment; hence, the entire payment was taxable as royalty both under the Income Tax Act and DTAA. 16. The next item was the payment for training, wherein the assessee had made the aforesaid payment to different entities in different countries, which are tabulated at page 32 of the appellate order. The CIT(A) was of the view that the aforesaid payments were on account of reimbursement of airfare, hotel and other actual ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ere governed by FTS Article with make available condition. Since no services were made available to the assessee, the CIT(A) deleted the demand of tax and interest relatable to the said payments made to the companies in the said countries. With respect to DTAAs with China, Denmark and Germany, it held that since the Article on FTS in DTAA had no make available condition, its taxability of technical services in the DTAA were same under the Income Tax Act and he confirmed the demand of tax and interest relatable to the payments made to the companies in such countries. 19. Coming to the next list of payments made to the companies located in Indonesia and Philippines, wherein there is no Article in the DTAA with such countries. The CIT(A) held that the taxability under the Income Tax Act would prevail and thus, he held the payments were taxable. The payments which were made by assessee towards material purchase, freight charges and machinery parts and repair charges, the CIT(A) directed the Assessing Officer to verify the assessee s contention in not to tax the said payments. 20. Now, coming to last issue of grossing up of the amount as the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the issue raised in all the years is similar / common. The first issue which has come up for adjudication is whether the assessee is liable to deduct tax at source on the purchase of software, which has admittedly, is copyrighted article purchased by assessee and the assessee has not acquired any copyright in the said article. The linked issue is the payment made for IT support charges which are connected to the software purchased by assessee. The case of Revenue in this regard is that because of retrospective amendment by the Finance Act, 2012 to section 9(1)(vi) of the Act, the aforesaid payments fall in the realm of term royalty and thus are liable for tax deduction at source. In respect of DTAA also, the authorities below have held the assessee to be in default as under the terms of DTAA with the respective countries the assessee was liable to deduct tax at source and for such non deduction, the assessee is in default. 26. The CIT(A) has mainly relied on the ratio laid down by the Tribunal in Cummins Inc (supra) and also the decision of Mumbai Bench of Tribunal in the case of DDIT Vs. Reliance Infocom/Luscent Technologies (s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hus, purchase of copyrighted article does not fall in realm of royalty‟. We also hold that since the provisions of DTAA overrides the provisions of Income Tax Act and are more beneficial and the definition of royalty‟ having not undergone any amendment in DTAA, the assessee was not liable to deduct tax for payments made for purchase of software. In such scenario, the assessee cannot be held to be in default and the demand created under section 201(1) and interest charged under section 201(1A) of the Act is thus, cancelled. 91. Now, coming to second part of grounds of appeal No.1 to 3, wherein the payment made by the assessee with regard to provision of IT support charges i.e. internet charges, use of e-mail charges, backup support services, etc. was held to be royalty‟, in view of the ratio laid down by the Pune Bench of Tribunal in the case of Cummins Inc (supra). The said decision has been recalled by the Tribunal in Miscellaneous Application filed and hence, the said proposition was not applicable. In the facts of the case, the main server of the group was established in USA and that server was used for storing data, which was admittedly n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r rendering the services relating to the technical know-how is to be taxed. The expression make available is used in the context of supplying or transferring technical knowledge or technology to another. It is different than the mere obligation of the person rendering the services of that persons own technical knowledge or technology in performance of the services. The technology will be considered as made available when the person receiving the services is able to apply the technology by himself. 28. Applying the said parity of reasoning to the facts of present case, we hold that the payment made for the use of copyrighted article was not royalty. The definition of royalty under DTAA had not been amended though there is retrospective amendment to section 9(1)(vi) of the Act but since the provisions which are more beneficial to the assessee are to be applied, then as per un amended provisions of royalty under DTAA, the assessee having purchased copyrighted article and not having purchased copyright in the article cannot be said in default for non deduction of tax at source out of such payments made to different entities in different countries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s had PE in India. In the absence of any PE, no business income could be added in the hands of assessee as Article 7 to DTAA would not be attracted. In this regard, reliance was placed in Bramhacorp Hotels Resorts Ltd. Vs. DDIT-(IT) (supra), wherein it was held that in case the DTAA did not provide for taxability of technical services, then beneficial provisions of DTAA shall prevail having regard to the definition of PE provided in the Article 5 of India-Thailand DTAA. It could not be said that where recipient concern had no PE in India, so as to bring impugned income to tax as business profits in India as per Article 7 of DTAA. The relevant para 13 reads as under:- 13. In Ground Nos. 2 to 6 of the appeal, the Revenue has assailed the findings of Commissioner of Income Tax (Appeals) is holding that the payments made to KTGY Inter Associates Ltd. and P49 Deesign and Associate Co. Ltd., Thailand are not taxable in India. The ld. AR of the assessee has placed on record a copy of order of Co-ordinate Bench of the Tribunal in the case of Dy. Director of Income Tax (I.T.) Vs. Sparsh Infratech (supra), where identical grounds were raised by the Revenue. We observe th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ection 90(2) provides that where Central Government has entered into an agreement with the Government of any country outside India 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, the provisions of the Act shall apply to the extent they are more beneficial to that assessee. Since the Indo-Thailand DTAA does not provide for taxability of fee for technical services in the case of the three recipients, who are residents of Thailand, the beneficial provisions of the DTAA shall prevail. In-fact, before us this aspect of the matter is also not in dispute. 13. However, Revenue has contended that the CIT(A) erred in considering that there is no separate Article in the DTAA to deal with fee for technical services . As per the Revenue, CIT(A) ought to have considered Article 22 of the DTAA which was a residual clause and that such clause covered the taxability of the impugned sums. In our considered opinion, the aforesaid plea of the Revenue is not justified. In situations like the present, it cannot be said that the impugned income is a miscellaneous income so as to justify ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to have any PE in India so as to bring the impugned income to tax as business profits in India as per Article 7 of the DTAA. Therefore, on this count also we find no reason to interfere with the conclusion of the CIT(A) to the effect that assessee was not required to deduct tax on the impugned payments to the three recipient concerns. 16. In the result, the order of the CIT(A) is hereby affirmed and accordingly, Revenue fails in the captioned appeals. 32. We may also refer to the decision of Ahmedabad Bench of Tribunal in DCIT-(IT) Vs. Welspun Corporation Ltd. (supra), wherein also similar issue of payments to the residents of the tax jurisdictions with which Indian has tax treaties but these treaties have no specific article dealing with taxability of fees for technical services, arose. It was held by the Tribunal that in the absence of any specific provision for taxation of fees for technical services in India Thailand Tax Treaty and India-UAE Tax Treaty and also where entities to whom the payment was made, did not have any PE in India, the income in the hands of recipient could neither be taxed as business income or under the head fees for technical service ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provides that the income of resident of a contracting state, from carrying on business in the other contracting state, cannot be taxed in the source state unless such a resident has a permanent establishment in the other contracting state, i.e. source state, it cannot be open to the tax administration of source state to contend that even if it cannot be taxed as business income, it can be taxed as other income‟ nevertheless. It is important to bear in mind the import of expression not expressly dealt with in the foregoing articles‟. Similarly, if independent personal services cannot be taxed in the source state as minimum threshold limit of fixed base is not satisfied, such a treaty concession cannot be nullified by invoking article 21. When a particular nature of income is dealt with in the treaty provisions, and its taxability fails because of the conditions precedent to such taxability and as specified in that provision are not satisfied, that is the end of the road for taxability in the source state. 34. So far as first category of cases are concerned i.e. payments to residents of tax jurisdiction with which India has tax treaties, but there is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply 36. The Ahmedabad Bench of Tribunal while referring to the said Treaty provisions, had elaborated and held as under:- 28. As we hold so, we are alive to the fact that there is no specific taxability provision, under India Thailand tax treaty or, for that purpose, under India UAE tax treaty, with respect to taxability of fees for technical services. Profits earned by rendering fees for technical services are only a species of business profits just as the profits any other economic activity. However, without the character of such receipts in the nature of business receipts being altered, the fee for technical services is dealt with separately in some treaties for the reason because, under those treaties the related contracting states proceed on the basis that even in the absence of the permanent establishment or fixed base requirements, the receipts of this nature can be taxed, on gross basis, at the agreed tax rate, and, to that extent, such receipts does not fall in line with th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons are more beneficial to the entities based in such countries, with which India has tax treaty, but such tax treaty do not have FTS clause, then there is no question of taxability of such receipts under the Income Tax Act, either as business income or other income. In the facts of present case, the assessee has received the services from entities based in different countries and details are enlisted at page 32 of order of CIT(A). The countries falling in category one in the present case are Malaysia, Thailand, Indonesia, UAE and Saudi Arabia. The CIT(A) had relied on three decision while deciding this issue. The decision of Chennai Tribunal in DCIT Vs. TVS Electronics Ltd. (supra) has been overruled by the Hon ble jurisdictional Madras High Court. The AAR decision relied upon by CIT(A) is to be applied to the facts of that case. Further, the reliance on decision of Hon ble High Court of Calcutta in the case of CIT Vs. Davya Ashmore India Ltd. (supra) is misplaced. 38. The assessee while making payments to the entities based in countries falling in category one is thus, not required to deduct tax at source out of payments made to them, since the said amounts recei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 019) 70 ITR (Trib) 73 (Pune) have applied the said proposition and held as under:- 103. The case of Revenue in all these grounds of appeal starting from grounds of appeal No.6 to 12 is that the payments made by assessee were fees for technical services and hence, it was the obligation of assessee to deduct tax at source. It may be pointed out herein itself that the fees for technical would arose in cases where the technical services are provided by provider to the recipient. In the absence of providing any technical services, it cannot be held to be case of fees for technical services and the assessee is not liable to deduct tax at source. 104. Now, first coming to training fees paid by the assessee, wherein various modules were available on web and training could be obtained by the personnel of assessee on web itself. It was not case of interactive session and it was akin to reading an article or book and even if the person availing services had a query, there was no facility to answer the same on web. The question which arises in such circumstances, is whether there was any liability to deduct tax at source. 105. In this re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... essing Officer, or even by the learned Departmental Representative. In the written submissions filed before us, main thrust of the arguments is that the services provided were in the nature of fees for technical services‟ as defined in Explanation 2 to Section 9(1)(vii) of the Income Tax Act , that the AO has finally held that the service provider has provided or made accessible the services of its technical knowledge and experience to the assessee company and, therefore, the payment was covered by the definition of fess for technical services‟ as per Article 13 of tax treaty between India and United Kingdom , and that, therefore, the aforesaid payments were held taxable by virtue of both the provisions of the Income Tax Act and (the applicable) tax treaty .. . These submissions overlook the fundamental position that the provisions of the Income Tax Act apply in a treaty situation only to the extent they are more favourable, vis- -vis the provisions of tax treaties, to the assessee. Accordingly, when case of the revenue authorities fails on the tests of the treaty provisions, there is no occasion at all for their leaning upon the provisions of the Income Tax Act. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which are covered both by grounds of appeal No.2.1 to 2.5 and also with regard to payments for design expenses raised vide ground of appeal No.3 by the assessee. 44. Now coming to the last issue which is raised vide ground of appeal No.4 by the assessee i.e. payment made on account of repairs and maintenance, the details of said payments are available at page 46 of the order of CIT(A). Out of total payments of ₹ 22,03,728/-, the CIT(A) has confirmed the order of Assessing Officer in respect of payments to two concerns. The assessee has fairly pointed out that payments made to Tetra Philippines Inc is not taxable as there is no Article in FTS in DTAA and hence, there is no requirement to deduct tax out of such payments. The said concern Tetra Philippines Inc falls in category No.I and hence, we hold that the payments made to such an entity is not exigible to tax deduction at source in line with our deliberations on the issue in paras above. 45. As far as payments to an entity in China is concerned which falls in category No.II, we hold that the said amount is exigible to tax at source in line with our decision in the paras above in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d be concluded that the assessee had agreed to bear tax liability of the foreign companies, hence the provisions of section 195A of the Act should not have been applied. The learned Departmental Representative for the Revenue has failed to controvert the same and accordingly, we find no merit in grounds of appeal No.7 to 9 raised by Revenue. 50. Now, coming to the appeal of assessee in ITA No.1865/PUN/2014 relating to assessment year 2010-11. 51. The grounds of appeal No.1.1 to 1.5 raised by assessee in respect of training charges paid to various Tetra group companies totaling ₹ 1,30,61,142/-. The details of payments are available at page 33 of CIT(A) s order. The Assessing Officer was of the view that the assessee has failed to deduct tax out of such payments and hence, the assessee was held to be liable and demand was raised under section 201(1) of the Act and interest was charged under section 201(1A) of the Act. The said issue is similar to the issue raised vide grounds of appeal No.2.1 to 2.5 in assessment year 2009-10 and our decision in the paras above would apply mutatis mutandis. The Assessing Officer is thus, direct ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ear and the grounds of appeal No.7 to 9 raised by Revenue are dismissed. 57. Now, coming to appeal of assessee in ITA No.1866/PUN/2014, relating to assessment year 2011-12. 58. The grounds of appeal No.1.1 to 1.5 are against disallowance of payments made to AB Tetra Pak, Sweden, which are in respect of purchase of copyrighted software. The Assessing Officer was of the view that the aforesaid payments were in the nature of royalty and for non deduction of tax at source, the assessee was held to be liable and demand was raised under section 201(1) of the Act and interest was charged under section 201(1A) of the Act. We have already decided this issue in assessment year 2009-10 with regard to grounds of appeal No.1.1 to 1.3 raised by assessee. Our decision in the said paras would apply mutatis mutandis and the grounds of appeal No.1.1 to 1.5 raised by assessee stands allowed. 59. Similarly, the issue raised vide ground of appeal No.2 is against payments made for software licenses purchased from other associated enterprise entities and the Assessing Officer and CIT(A) had held the assessee in default for non deduction ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the condition of make available in DTAA between India and Sweden and hence, there was no requirement to deduct tax at source. 65. The issue stands covered by the decision of Pune Bench of Tribunal in John Deere India Pvt. Ltd. Vs DDIT (International Taxation) (supra) and applying the said ratio to the present case, we uphold the order of CIT(A) in holding that there was no requirement to deduct tax at source as the said support services do not make available any technology to the assessee. The DTAA is between India and Sweden and we have in the paras above already referred to the provisions of DTAA between two countries and it falls in category No.III. In the absence of satisfying the condition of make available , there was no requirement to deduct tax at source. Accordingly, we dismiss the ground of appeal No.1 raised by Revenue. 66. The second issue raised by Revenue is against order of CIT(A) in allowing relief on account of training charges. The learned Authorized Representative for the assessee pointed out that this ground of appeal is infructuous as no such relief has been given by the CIT(A). On perusal of records, we find merit in the pl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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