TMI Blog2020 (3) TMI 1075X X X X Extracts X X X X X X X X Extracts X X X X ..... rience, skill, know-how etc. No other documents have been produced by the assessee in relation to the actual services rendered. This submission of learned DR has not been disputed by the learned counsel of the assessee. In our opinion, decision arrived by the lower authorities is not based on proper appreciation of the facts required for examining of the treaty provisions applicable in the case of the assessee, and therefore we feel it appropriate to restore this issue back to the file of the AO for deciding afresh, with the direction to the assessee to furnish all the necessary documentary evidence in support of the services rendered by the assessee to the Indian entity including the correspondence in respect of the services provided so as to enable the Assessing Officer to decide the issue in dispute in accordance with law. It is needless to mention that the assessee shall be afforded adequate opportunity of being heard. The ground No. 2 of both of the appeals is accordingly allowed for statistical purposes. Corporate guarantee fee held as fee for technical services under article 13 of the India France DTAA and section 9(1)(vii) - AO held that the said corporate guarantee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ilarly worded with the provisions of the India UK DTAA, following the finding of the Tribunal in the case of BOC group Ltd. [ 2016 (1) TMI 414 - ITAT KOLKATA] we direct the Assessing Officer to delete the education cess and secondary and higher education cess levied on the Income-tax on the gross basis under the India France DTAA. The ground No. 5 in both assessment year is thus allowed. Credit of tax deducted at source by the JCD India while calculating the tax liability of the assessee - HELD THAT:- This is issue of verification of the credit of tax deducted at source by the Assessing Officer. Accordingly, we restore this issue to the file of the Assessing Officer with the direction to the assessee to produce all the necessary documentary evidence in support of its claim of credit of tax deducted at source for verification by the Assessing Officer along with the tax credit available in the database of the Income-tax department and then allow the credit in accordance with law. The ground No. six of the appeal in both the years is allowed for statistical purposes. - ITA No.1630/Del./2015 And ITA No.1552/Del/2016 - - - Dated:- 20-3-2020 - Shri Amit Shukla, Judicial Member ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ture of Royalties and reimbursements of other expenses, which was offered to tax by the Appellant on gross basis under the India - France DTAA. 6. On the facts and in the circumstances of the case and in law, the Ld. AO grossly erred in not allowing the credit of tax deducted at source by JCD India while calculating the tax liability of Appellant. 7 On the facts and in the circumstances of the case and in law, the Ld. AO erred in levying interest of ₹ 720,023 under Section 234A, 234B and 234C of the Act while calculating the tax. The above grounds of appeals are independent of, and without prejudice to each other. The appellant craves leave to add, alter, amend or vary from the above grounds of appeal on or before the time of hearing. 2.1 Identical grounds have been raised in ITA No. 1552/Del/2016 for assessment year 2012-13. 3. Briefly stated facts of the case are that the assessee is a company incorporated under the laws of France. The assessee is a holding company of JCDecaux group. During the relevant period, the assessee company was engaged in the field of outdoor advertising . The assessee is owner of all intellectual property rights i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Treatment by the Assessing officer 1 Offshore sale of IT equipments and advertising structure 1,11,05,035 7,43,242 Not taxable Not taxable 2. Royalty receivable from the JCD India for the use of trademarks and know-how 30,97,149 58,72,637 Offered to tax and royalty Taxed As royalty 3. Management fee receivable from the JCD India 13,24,838 26,50,996 Not taxable Taxed as FTS 4. Corporate guarantee fee receivable from the JCD India 42,77,989 28,52,732 Not taxable Taxed as FTS 5. Reimbursement of Social Security contribution expenses incurred on behalf of the JCD India in France 24,26,660 41,99,826 Not taxable Taxed as FTS 6. Reimburse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h October, 1993 (i.e. after 1- 9-1989)], wherein the scope of 'Fee for Technical Services' is more restricted. 5.3 The Assessee submitted that 'management fees' is not covered within the scope of Article 13 of India - UK DTAA as Article 13(4) of the India - UK DTAA specifically excludes managerial services . Thus managerial services are not intended to be covered therein. Without prejudice to the aforesaid, even if for the sake of argument it is assumed but without admitting, managerial services are covered within term technical or counseltancy services , even then such managerial services would not make available technical knowledge or skill to service receiver and, therefore, it would not be covered within the scope of Fee for technical services under Article 13(4) of the India-UK DTAA. 5.4 The assessee further submitted that the term 'make available' has not been defined under India-UK DTAA and hence reference is made to the Memorandum of Understanding to the India-USA DTAA ('MoU ) to understand the meaning of the said term. This view is inter alia supported by the decision of Mumbai ITAT in the case of Raymonds Limited v. DCIT [2003] 86 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyees of the JCD India and thus it would remain available to a large extent with them. 5.8 In assessment year 2012-13, the DRP disputed the invoking of protocol into the India France DTAA. According to the learned DRP, in bilateral treaties such as the DTAA a particular privilege granted by one party only extend with the other parties, who reciprocate the privilege at the time the treaty was negotiated. The learned DRP also referred to the decision of the AAR in the case of Steria (India) Limited AAR No. 1055/2011, wherein it is held that restriction on the rates and make available clause cannot be read in the items. Without prejudice to the above, the learned DRP, held that technical knowledge has been made available by the assessee to JCD India while providing management services, as the management tools provided by the assessee would remain with JCD India. The relevant finding of the DRP is reproduced as under: Without prejudice to the above even if it is held that the benefit of make available is admissible to the taxpayer then the nature of the services provided under the Functional and Technical Support Agreement with JCD India details of which have been enumer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or services of a managerial, technical or counseltancy nature and the nature of services provided under the Functional and Technical Support Agreement (FTSA henceforth) with JCD India is taxable as FTS under the India France treaty article 13(3) and u/s 9(1)(vii) of the Income Tax Act, 1961 without resorting to import of make available interpretations. The objections of the taxpayer are dismissed and the order of the AO is approved. 5.11 Before us, the learned Counsel of the assessee relied on the submission made before the lower authorities and filed paperbook into volumes containing pages from 1 to 171 and 172 to 290. The learned Counsel invoked India UK DTAA in view of the India France DTAA and the protocol to it and submitted that the taxability of services is to be on restricted basis, which only include technical and consultancy services. Further, the learned Counsel argued that such services do not satisfy make available clause of the DTAA. According to him, in the functional and technical support provided to JCD India , no technical knowledge, experience, skill, know-how or process has been made available so as to enable the JCD India to apply the technology c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation to support corporate management; assistance in defining and implementing strategy and development (advice, recommendations, reports etc.) -Financial and accounting matters, in particular: General financial matters; relations with financial institutions and the financial press; Reviewing financing requirements et resources; Statistic and economic information regarding trends in exchange rates and exposure; Analysis and research for setting up guarantees for customer transactions; Information and advice in matters of international accounting regulations, in particular for the customer's line of business. Controlling and internal audit, in particular: Defining controlling methods, and assisting in the definition and setting-up or reporting tools and other tools; Assisting in the closing of accounts, Assisting in relations with external auditors; Setting up and reviewing procedures aiming at ensuring control and appropriateness of transactions; Performing internal audits at the customer's request, in particular in operational and financial matters. Legal and tax matters, in particular: Revie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Such specific services shall be subject to specific compensation on a case-by -case basis and different from the compensation as specified in Article 3. 5.14 The assessee in the instant case, being a French entity, is covered by the Indo-French DTAA and in view of MFN clause, the restricted provisions of India-UK DTAA have been invoked by the assessee. The relevant article of the protocol to the treaty is reproduced as under: 7. In respect of articles 11 (Dividends), 12 (Interest) and 13 (Royalties, fees for technical services and payments for the use of equipment), if under any Convention, Agreement or Protocol signed after 1-9-1989, between India and a third State which is a member of the OECD, India limits its taxation at source on dividends, interest, royalties, fees for technical services or payments for the use of equipment to a rate Lower or a scope more restricted than the rate of scope provided for in this Convention on the said items of income, the same rate or scope as provided for in that Convention, Agreement or Protocol on the said items income shall also apply under this Convention, with effect from the date on which the present Convention or the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fixed base situated therein, and the royalties, fees for technical services or the payments for the use of equipment are effectively connected with such permanent establishment or fixed base. In such case the provisions of Article 7 or Article 15, as the case may be, shall apply. 7. Royalties, fees for technical services or payments for the use of equipment shall be deemed to arise in a Contracting State when the payer is that Contracting State itself, a political sub-division, a local authority or a resident of that Contracting State. Where, however the person paying the royalties, fees for technical services or the payments for the use of equipment, whether he is a resident of a Contracting State or not has in a Contracting State a permanent establishment or a fixed base in connection with which the contract under which the royalties, fees for technical services or the payments for the use of equipment, are paid was concluded and such royalties, fees for technical services or payments for the use of equipment, are borne by such permanent establishment or fixed base, then such royalties, fees for technical services or payments for the use of equipment shall be deemed to aris ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ary and subsidiary, as well as inextricably and essentially linked, to the sale of property, other than property described in paragraph 3(a) of this Article; (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships, or aircraft in international traffic; (c) for teaching in or by educational institutions; d) for services for the private use of the individual or individuals making the payment; or e) to an employee of the person making the payments or to any individual or partnership for professional services as defined in Article 15 (independent personal services) of this Contention. 5.17 As far as the applicability of the protocol on the DTAA is concerned, same has not been challenged before us by the parties and therefore, we are restricting our adjudication on the following three issues i. First, whether the services falls under the restrictive clause of India UK DTAA and are in the nature of technical/consultancy services and ii. Secondly, whether said services satisfy the condition of Article 13(4)(a) (b) of the India UK DTAA. i.e, services are an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as quite apparent that it provided for rendering of not only technical services for operating the hotel of the foreign enterprise but also providing for professional and other services in connection with operating of the hotel. Section 80-0 was enacted with the twin objects of encouraging the export of Indian technical know-how and augmentation of foreign exchange resources of the country. After the amendment of section 80-0 by Finance (No. 2) Act, 1991 the words 'technical or professional services' have been inserted in place of the words 'technical services'. But the Supreme Court in Continental Construction Ltd. (in fra), case took the view that the amendment was only of clarificatory nature and the term 'technical services' always included within it professional services as well. The Supreme Court had gone even to the extent that when a person consults the lawyer and seeks his opinion on certain issue the advice rendered by the lawyer would be a piece of technical service. Considering scope of agreement and width of section 80-0, it could be said that agreement provided for 'information concerning industrial, commercial or scientific knowledge, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble. 5.22 Further, as regard to the fact of the services are in the nature of the make available in view of article 13(4)(b) of the India UK, DTAA, learned DR referred to various clauses of the agreement , like article 1-general support, clauses related to financial and accounting matters, clauses related to controlling internal audit, clauses related to legal and tax matters etc and submitted that the services has made available skill and knowledge to the Indian AE. The relevant submission of Learned DR is reproduced as under: 15. As regards the fact of services in the nature of make available , it is relevant to note that the agreement provides for assistance in defining and implementing strategy and development. The relevant clause reads as under: Article 1 General Support: Management; resource optimization; recommending an organization to support corporate management; assistance in defining and implementing strategy and development (advice, recommendations, reports etc.) Comments: 16. The service which involves advice and recommendation is in the nature of consultancy service . This flows from the guidance as per MOU to India USA DTAA which desc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... maintained at group level. Agreement Clause-Controlling and internal audit, in particular: Defining controlling methods, and assisting in the definition and setting-up or reporting tools and other tools; Assisting in the dosing of accounts, Assisting in relations with external auditors; Setting up and reviewing procedures aiming at ensuring control and appropriateness of transactions; Performing internal audits at the customer's request, in particular in operational and financial matters. 19. In the aforesaid services, the element of defining , assisting and setting up are clearly indicative of make available of skill and knowledge because one cannot assist the other without imparting knowledge. Agreement Clause -Legal and tax matters, in particular: Reviewing, drafting and negotiating agreements of all kinds, in particular joint venture, procurement and contract agreements; managing and monitoring said agreements, and maintaining relations with the customer base, both public and private; and coordinating local consultants; Designing external growth projects; preparation of the legal documentation; s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... perty, information and thirdly, services make available technical knowledge, experience, skill, know-how etc. No other documents have been produced by the assessee in relation to the actual services rendered. This submission of learned DR has not been disputed by the learned counsel of the assessee. In our opinion, decision arrived by the lower authorities is not based on proper appreciation of the facts required for examining of the treaty provisions applicable in the case of the assessee, and therefore we feel it appropriate to restore this issue back to the file of the Assessing Officer for deciding afresh, with the direction to the assessee to furnish all the necessary documentary evidence in support of the services rendered by the assessee to the Indian entity including the correspondence in respect of the services provided so as to enable the Assessing Officer to decide the issue in dispute in accordance with law. It is needless to mention that the assessee shall be afforded adequate opportunity of being heard. The ground No. 2 of both of the appeals is accordingly allowed for statistical purposes. 6. The ground No. 3 in both the appeals, relates to the issue of corporat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eceived from its other AE s wherein the loan has been availed by that AE on the corporate guarantee of the assessee. Further, the assessee submitted agreements with its AEs which are not signed. This implies that this is merely a proposal made by the assessee to its AEs and the veracity of the document cannot be verified. Hence, reliance cannot be placed on such documents. Thus, as nothing is placed on record to prove that the assessee has derived any corporate guarantee fee in the same vein as that of other AEs. Therefore, since the assessee has failed to prove that it received any corporate guarantee fee from its AEs, the entire amount received as corporate guarantee fee from M/s. JCD India is treated as FTS and taxed accordingly. 6.2 In assessment year 2012-13, in the draft assessment order the Assessing Officer followed the finding of the Assessing Officer in final assessment order for AY 2011-12 and due to failure on the part of the assessee to submit duly signed agreements of corporate guarantee with other AEs, the Assessing Officer in the draft assessment order, proposed the corporate guarantee fee as fee for technical services. The learned DRP observed that corp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oward their Social Security contribution in France. In order to contribute Social Security contribution of such French employees , JCD India entered into agreement with the assessee, wherein the assessee dispersed the amount of Social Security contribution to the respective funds of the said employees and subsequently, JCD India reimbursed the said amount to the assessee (without any markup). Such Reimbursement of ₹ 24, 26, 660/-of Social Security contribution of French employees of JCD India through the assessee has been held by the AO is FTS, as according to him, it was actually received by the assessee in view of the services rendered though it has been paid in the guise of Social Security contribution. Before the learned DRP the assessee submitted that said amount represents pure reimbursement of the amount disbursed by the assessee on behalf of JCD India and same did not have any element of income embedded in it. The assessee placed reliance on various judicial pronouncements and submitted that said amount not having any component of the income, it was not taxable in India. The learned DRP however directed the Assessing Officer to verify the agreement in relation to paym ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ax on the said payments. Thus, the same cannot be taxed as salary in India. Also, the agreement as submitted by the assessee is neither signed nor dated. Hence, the contention of the assessee cannot be accepted, and the amount claimed to be received as contribution towards social security is treated as FTS and taxed accordingly. 7.3 In assessment year 2012-13, the Assessing Officer in the draft assessment order has given finding identical to the finding of the Assessing Officer in final assessment order for assessment year 2011-12. The relevant findings in the draft assessment order are reproduced as under: 8.1 Based on the above and after going through the submission of the assessee, it is settled that the reimbursement of expenses incurred on behalf of JCD India in France is nothing but the payments made in relation to the services rendered by assessee company to M/s JCD India. Therefore, as FTS is taxed on gross basis these payments also need to be clubbed with the fee received in lieu of rendering technical services. Further, the assessee has produced nothing on record to prove that the said expenses as claimed by the assessee are in the nature of reimbursement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he secondees since secondees could not sue CIOP for default in payment of salary and though CIOP was given the right to terminate the secondment, but the original and subsisting relationship with overseas entity -whose regular employees they were, could not be terminated. While CIOP may have operational control over these persons in terms of the daily work, and may be responsible (in terms of the agreement) for their failures, these limited and sparse factors cannot displace the larges and established context of employment abroad. (page 42 para 36). Though CIOP was given the right to terminate the secondment, but the original and subsisting relationship with overseas entity -whose regular employees they were, could not be terminated. The attachment of the secondees to the overseas organization is not fraudulent or even fleeting, but rather permanent, especially in comparison to CIOP, which is admittedly only their temporary home. (Page 42 para 35 ). Even the OECD commentary on Article 15 notes that the situation is different if the employee works exclusively for the Enterprise in the state of employment and was released for the period in question by the Ente ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbursements of salaries for secondment of employees are in the nature of FTS and are sums chargeable to tax . It is germane also to mention that decisions in Verizon Data Services India Pvt Ltd.[2011] 337 ITR 192(AAR), AT S India (P) Ltd. [2006] 157 TAXMAN 198 (AAR), Petroleum India International [2012] 27 taxmann.com 325 (Mum.), Shell India Markets (P.) Ltd. [2012] 342 ITR 223 (AAR-New Delhi),Target Corporation India (P) Ltd [2012] 348 ITR 61 (AAR),Food World Supermarkets Ltd v DDIT TS-629-ITAT-2015(Bang.) support the aforesaid treatment of reimbursement of salaries of seconded employees as FTS both under the Treaty and the withholding of taxes u/s 195 under the Act thereon. The reimbursements of expenses for social security fund etc of seconded employees being in the nature of FTS and taxable under section 9(l)(vii) and under Article 13(4) of the India-France Treaty has been correctly done by the Assessing Officer and the draft order is approved. 7.5 Before us the learned Counsel of the assessee relied on his submissions made before the lower authorities and submitted that the Assessing Officer in assessment year 2011-12, has not followed the directions of the learned DRP ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed strictly without any additional taxes thereon in the form of surcharge or education cess. 8.2 The learned DR, on the other hand, supported the action of the lower authorities, but could not produced any decision of the Tribunal or the court wherein such cess or surcharge on the Income-tax under the DTAA has been upheld. 8.3 We have heard the rival submission of the parties on the issue in dispute. We find that the Tribunal in the case of BOC Group Ltd. (supra) has considered various decisions on the issue in dispute and then adjudicated the issue as under: 6. We have heard the rival submissions and perused the materials available on record and the various case laws relied upon by the counsels of both the sides. We find that the assessee herein is governed by India UK Treaty wherein the relevant clauses are reproduced hereunder for the sake of convenience:- ARTICLE 2 Taxes covered-1. The taxes which are the subject of this Convention are (a) in the United Kingdom: (i) the income-tax; (ii) The corporation tax; (iii) The capital gains tax; and (iv) The petroleum revenue tax; (hereinafter referred to as United Kingdom tax ); (b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (b) In the case of royalties within paragraph 3(b) of this Article and fees for technical services defined in paragraph 4(b) of this Article, 10 per cent of the gross amount of such royalties and fees for technical services. The expression 'tax' is defined in Article 2(1) to include 'income tax'and is stated to include 'sur charge' thereon, so far as India is concerned. Article 2(2) further extends the scope of the 'tax' by laying down that it shall also cover any identical or substantially similar taxes which are imposed by either Contracting State after the date of signature of the present Agreement in addition to, or in place of, the taxes referred to in paragraph 1 . 7. We find that education cess was introduced in India by the Finance Act, 200, and Section 2(11) of the Finance Act, 2004 described it as follows: (11) The amount of income-tax as specified in sub-sections (4) to (10) and as increased by a surcharge for purposes of the Union Calculated in the manner provided therein, shall be further increased by an additional surcharge for purposes of the Union, to be called the Education Cess on income-tax , so as to fulfill the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... all have to be deemed to include surcharge and since cess is nothing but an additional surcharge, the tax prescribed under DTAA @ 15% in the instant case shall be deemed to included surcharge and education cess. Hence we hold that when the tax rate is determined under DTAA, then the tax rate prescribed thereon shall have to be followed strictly without any ITA No. 571/Kol/2013-C-AM The BOC Group Ltd 6 additional taxes thereon in the form of surcharge or education cess. Reliance in this regard is also placed on the following decisions in support of our contentions:- a) DIC Asia Pacific Pte Ltd vs Asst Director of Income Tax, International Taxation in ITA No. 1458 (kol) of 2011 dated 20.6.2012 for Asst Year 2009-10 reported in (2012) 52 SOT 447 (Kol ITAT) This was a case of treaty between India and Singapore. Issue involved was taxability of interest and royalty income under the relevant article of the treaty and the levy of surcharge and education cess to the tax prescribed under DTAA in the relevant article. It was held that :- A plain reading of Article 2, 11 and 12 of the treaty show that while interest and royalties can indeed be taxed in the source state, the tax so ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O (International Taxation) reported in (2013) 33 taxmann.com 252 (Mumbai Trib) This judgement was rendered by the Mumbai Tribunal in the context of India UAE Treaty after considering the decision of the Uttarakhand High Court in the case of CIT vs Arthusa Offshore Co reported in 216 CTR 86 which dealt with India US Treaty. It was held that :- 5. We have heard both the parties and their contentions have carefully been considered. We found that the issue raised by the assessee is covered in favour of the assessee by the aforementioned decisions of Tribunal in the case of Sunil V. Motiani (supra). c) Parke Davis and Company LLC vs ACIT reported in (2014) 41 taxmann.com 193 (Mumbai Trib) This judgement was rendered in the context of India USA treaty after considering the decision of the Uttarakhand High Court in the case of CIT vs Arthusa Offshore Co reported in 216 CTR 86 which dealt with India US Treaty. It was held that :- 2. At the outset it was submitted by Ld. AR that the only issue raised by the assess in the present appeal is that the education cess and secondary and higher secondary education cess of ₹ 50,104/- is not liable to be payable when tax is de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ribed under DTAA . Hence ITA No. 571/Kol/2013-C-AM The BOC Group Ltd 9 we do not find any infirmity in the order of the Learned CITA in this regard. Accordingly, the grounds raised by the revenue are dismissed. (Emphasis supplied externally) 8.4 We find that in the instant case in India France DTAA also the Income-tax include any surcharge thereon and tax rates have been prescribed on the FTS as under: [2. However, such royalties, fees and payments may also be taxed in the Contracting State, in which they arise and accordingy to the laws of that contracting state, but if the recipient is the beneficial owner of these categories of income, the tax so charged shall not exceed 10 per cent of the gross amount of such royalties, fees and payments] 8.5 In view of the provisions of the India France treaty on the issue being similarly worded with the provisions of the India UK DTAA, following the finding of the Tribunal in the case of BOC group Ltd.(supra), we direct the Assessing Officer to delete the education cess and secondary and higher education cess levied on the Income-tax on the gross basis under the India France DTAA. The ground No. 5 in both assessment ye ..... X X X X Extracts X X X X X X X X Extracts X X X X
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