TMI Blog2018 (7) TMI 2214X X X X Extracts X X X X X X X X Extracts X X X X ..... n. An incidental benefit, by way of enrichment of experience, to the recipient of a consultancy service or supervision service does not amount to making available technical knowledge, skills or experience. The payment is not for incidental enrichment of experience of the assessee, even if that be so, but for receipt of services by way of review, supervision and consultancy. The consideration for the payments in question is the review, supervision and consultancy services and not for such an incidental enrichment, even if that be, of experience. These services donot make available technical knowledge, experience, skill, know-how or processes. Departmental Representative has not brought on record any material to demonstrate that there was any transfer of the skills of service provider to the recipient of services. The arguments raised by the appellant are based on sweeping generalizations and are not supported by any specific evidences in support of the same. Objection against admission of additional evidence, one has to bear in mind the fact that every evidence produced in an appeal against 248, when it is not in the backdrop of a specific order under section 195, is a new ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... contract period of 5 years. 5. The ld. CIT(A) has erred in law and on facts in holding that Aditya Acquisition Company Limited, Israel merely provided supervisory and managerial services whereas terms of Agreement clearly reflect sharing of technical knowledge and permanent benefit to the Assessee. Scope of appeal under Section 248 2. These are somewhat unique cases in the sense that the assessee was not actually called upon to withhold taxes in respect of income embedded in certain payments to the nonresident entities made by the assessee, and yet the assessee was in appeal before the CIT(A) for a declaration that no tax was deductible on such income . Before making the payments, the assessee approached a firm of chartered accountants for certification under section 195 and the said firm confirmed, for the detailed reasons set out in Annexure to the certificate, that the assessee is not required to withhold any taxes. Yet, the assessee has made the payment of taxes, apparently as a measure of abundant caution, and proceeded to file an appeal before the CIT(A) on the following ground: 1.1. The Appellant seeks declaration from your Honour u/s. 248 that no tax is de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax deductor, the assessee can file an appeal against the said certificate, on the ground of denying liability to deduct tax at source , under s. 248 of the Act. The office of the AO is thus completely bypassed. Sec. 248 of the Act does provide that, any person, having in accordance with the provisions of ss. 195 and 200, deducted and paid tax in respect of any sum chargeable under this Act, other than interest who denies his liability to make such deduction, may appeal to the CIT(A) to be declared not liable to make such deduction , but to deny a legal liability, there has to be a legal liability first. The legal remedies cannot be sought in vacuum or on the basis of an opinion held by a person other than the authority concerned. If X is someone s AO (TDS), it is X s opinion about that person s withholding tax liability, which alone can give rise to a cause of action for appeal. 6. Let us, in this light, revert to the facts of this case in the light of the legal position as it exists now. Interestingly, Section 248, as it existed prior to 1st June 2007 provided that (a)ny person having in accordance with the provisions of sections 195 and 200 deducted and paid tax in respec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arlier reference to the person making payment having, in accordance with the provisions of ss. 195 and 200, deducted and paid tax in respect of any sum chargeable under this Act . What was earlier thus the condition precedent for invoking Section 248 is that the person making payment to the non-resident entities complies with the provisions of, inter alia, Section 195- which, in turn, required the assessee to approach the Assessing Officer for determination of tax liability. That precondition is no longer relevant. Therefore, as long as a person making payment has the obligation to bear the tax liability and such a person pays tax to the credit of the Central Government, such a person has the statutory right to approach the Commissioner (Appeals) for a declaration that no tax was deductible on such income . There is, thus, a clear departure from the earlier legal provision, and, to this extent, the decision of the coordinate bench in the case of Mahindra Mahindra Ltd (supra) does not hold good in law. 9. Of course, it is a somewhat unique situation in which the assessee has no cause of action at all, and it is only to pre-empt the possible tax demands under section 201 r.w.s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s that will eventually decide outcome of the appeal. The nature of payments: 11. The assessee before us is a large pharmaceutical company. The assessee has made payments to an Israel based entity, i.e. Aditya Acquisitions Company Ltd (AACL, in Short) on account of API (active pharmaceutical ingredient) and formulation services. As regards the API services, the AACL renders the following services: Review, guide, direct and facilitate engineering services of all API manufacturing sites and its operations and marketing and sales thereof Review the selection of the products for future development, manufacturing and commercialization, working together with Business Development To achieve appropriate manufacturing, improvement in capacity utilization and cost objectives while ensuring compliance with all regulatory issues Planning manufacturing for regular, campaign, new products and launch products Monitor procurement of Raw material by keeping quality, inventory and price under check by interfacing with Commercial (Purchase); achieve cost leadership; reduce cost of API by yield improvement and elimination of inefficiencies Environment Compliance ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onnected 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. 5. Fees for technical services shall be deemed to arise in a Contracting State when the services are rendered in that State and the payer is that State itself, a political subdivision, a local authority or a resident of that State. Where, however, the person paying the fees for technical services, 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 liability to pay the fees for technical services was incurred, and such fees for technical services are borne by such permanent establishment or fixed base, then such fees for technical services shall be deemed to arise in the State in which the permanent establishment or fixed base is situated. 6. Where, by reason of special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of fees for technical services paid exceeds the amount which would have been paid in the absence of such relationship, the provisions of this Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for included services may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the royalties and fees for included services is a resident of the other Contracting State, the tax so charged shall not exceed 10 per cent of the gross amount. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limitation. 3. The term royalties as used in this Article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films or tapes or any other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial, or scientific experience. 4. For the purposes of this Article, fees for included servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at in the event of India entering into any tax treaty, after 1st January 1995, India restricts its source taxation of, inter alia, fees for technical services to a rate lower or a scope more restricted than the rate or scope provided for in the Indo Israel tax treaty, the same rate or scope as provided for in the said treaty shall also apply under Indo Israel tax treaty with effect from the date on which the Indo Israel or such other tax treaty comes into forcewhichever is later. It is also important to bear in mind the fact that the MFN clause set out in the protocol to Indo Israel tax treaty does not require anything more than such a more favourable tax treaty coming into force. While on this aspect of the matter, we may refer to the observations made by Hon ble Delhi High Court, in the case of Steria India Ltd Vs DCIT [(2016) 386 ITR 390 (Del)], wherein approving the stand of a coordinate bench, Their Lordships have observed that, .decision of the ITAT in DCIT v. ITC Ltd. (2002) 82 ITD 239 (ITAT Kolkata), where the Protocol separately executed between the India and France which formed part of the DTAA between the two countries was interpreted. It was held by the ITAT, and i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... processes or consist of the development and transfer of a technical plan or technical design which enables the person acquiring the services to apply the technology contained therein . This is a typical make available clause with respect to the fees for technical services in the tax treaties. As for the connotations of make available clause in the treaty, this issue is no longer res integra. There are at least two non-jurisdictional High Court decisions, namely Honble Delhi High Court in the case of DIT Vs Guy Carpenter Co Ltd ([(2012) 346 ITR 504 (Del)] and Honble Karnataka High Court in the case of CIT Vs De Beers India Pvt Ltd [(2012) 346 ITR 467 (Kar)] in favour of the assessee, and there is no contrary decision by Honble jurisdictional High Court or by Honble Supreme Cosurt. In De Beers case (supra), Their Lordships posed the question, as to what is meaning of make available , to themselves, and proceeded to deal with it as follows: The technical or consultancy service rendered should be of such a nature that it makes available to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... herently of such nature that theses cannot be said to be covered by the make available clause in the tax treaties for the simple reason that while these services, on facts of a particular case, may require technical inputs, mere rendition of these services does not, by itself, result in transfer of such technical knowledge, skills or experience. An incidental benefit, by way of enrichment of experience, to the recipient of a consultancy service or supervision service does not amount to making available technical knowledge, skills or experience. The payment is not for incidental enrichment of experience of the assessee, even if that be so, but for receipt of services by way of review, supervision and consultancy. The consideration for the payments in question is the review, supervision and consultancy services and not for such an incidental enrichment, even if that be, of experience. These services donot make available technical knowledge, experience, skill, know-how or processes Learned Departmental Representative, in any case, has not brought on record any material to etc in the sense of transfer of suck knowledge, experience, skill, know how or process etc. In any case, learned ..... X X X X Extracts X X X X X X X X Extracts X X X X
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