TMI Blog2022 (1) TMI 1032X X X X Extracts X X X X X X X X Extracts X X X X ..... e, experience, skill or know-how etc. Taxability of an income under Article 12(4)(b), not only the payment should be in consideration for rendering of technical or consultancy services, but in addition to the payment being consideration for rendering of technical services., the services so rendered should also be such that 'make available' technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. Hon'ble Mumbai Tribunal in Raymond's case [ 2002 (4) TMI 891 - ITAT MUMBAI] also held that rendering of technical services cannot be equated with making available the technical services. We are of the view that, nothing is made available by non resident Assessee to MTR Foods in India. Accordingly the services rendered by the non resident assessee to MTR Foods are not taxable as per India Singapore DTAA. Since the non resident assessee do not have a permanent establishment in India, the income so arising cannot be taxed under Article 7 as 'business profits' either. - Decided in favour of assessee. - ITA No. 193/Bang/2019 - - - Dated:- 30-12-2021 - B.R. Baskaran, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eciating that, the receipts from professional services earned by the Appellant from MTR Foods Pvt. Ltd. is not taxable in India. The Hon'ble DRP has erred in comparing the sales and marketing services offered by the Appellant to a secondment arrangement and therefore erred in holding the receipts as Fees for Technical Services. The learned AO and Hon'ble DRP has failed to appreciate that the sum of INR 72,68,226 includes re-imbursements of expenses amounting to INR 147,057 which ought not to be characterized as Fees for Technical services. 3. Addition to total income on account of foreign exchange The learned AO has erred making an addition to the total income amounting to INR 53,995 on account of difference in conversion rate. 4. Incorrect total income considered in the computation of income The learned AO has erred in considering the amount of professional charges received by the Appellant amounting to INR 1,39,34,515 instead of INR 72,68,226 (gross of reimbursements as per the draft order of assessment) or INR. 71,21,169 (net of re-imbursements as contended by the Appellant). 5. Incorrect rate of tax on income earned on account of FFS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ugh experienced personnel. 2.2. Assessee for the year under consideration while it return of income on 20/12/2015 declaring taxable income as nil . The case were selected for scrutiny under CASS. During the course of scrutiny proceedings it was noticed that the company received following receipts from MTR: Professional charges: ₹ 72,68,226/- Reimbursement of expenses: ₹ 1,47,057/- 2.3. It has been stated that MTR Foods Pvt. Ltd., Bangalore is 100% subsidiary of the assessee and that we non-resident assessee had entered into a service agreement with its Indian subsidiary in the year 2010 by which it renders marketing services for the benefit of the Indian company in Southeast Asian country. It has been observed by the Ld. AO that as per the terms of the agreement, MTR Foods Pvt. Ltd. would reimburse 50% of wonderful time position employee provide sales and marketing services for the benefit of MTR Foods Pvt. Ltd. and also at the request of MTR Foods Pvt. Ltd. It is also agreed that MTR Foods Pvt. Ltd. may also request to assessee to render additional special services the remuneration of which would be agreed on a case to case basis. The corresponding terms o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ubsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; (b) make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. 3.3 However, it has to be seen whether the amounts received by the assessee company (OAP) from MTR Foods Pvt. Ltd., falls within the meaning of FTS as defined in Explanation 2 thereof to of section 9, which means any consideration including any lump sum consideration for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient of consideration which would be income of the recipient chargeable under the head 'Salaries'. The exceptions to the definition of FTS are admittedly not attracted in this case. The short question, therefore, would be whether payments received by the assessee-company (OAP) are for rendering of any managerial, technical or consultancy services. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ata Trib) Lufthansa Cargo India (P) Ltd. vs. DCIT (2004) 91 ITD 133 DIT Vs. Lufthansa Cargo India (2015) 60 taxmann.com 187 (Delhi) Titan Industries Ltd. Vs. ITO [2007] (11 SOT 206) (Bangalore Trib.) WNS North America Inc vs. ADIT (Intl Taxn)-2(2), Mumbai (2012) 28 taxmann.com 173 (Mumbai Trib) 2.1.3 The Authorized Representative are of the opinion that since the corresponding technical knowledge possessed by Shri Mithun Sachdeva is not made available, as per Article 12 of India Singapore DIM, the same cannot be categorized as FTS, so the AR pleaded that the receipt of moneys by OAP from MTR is exempt. 2.1.4 The contention of the AR and the case laws relied upon have been carefully considered. The professional qualification and the experience of Shri Mithun Sachdeva, as submitted by the assessee proves that he is technically competent, highly qualified and a skilled person. The services rendered are in the nature of consultancy in the field of sales and marketing at South East Asian Region. Even the contents of the service agreement requires providing of one full time position experienced personnel to provide market research, product launch, pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng initial years of its operation - Whether on facts, amounts reimbursed by assessee to overseas companies in terms of secondment agreement amounted to 'fee for technical services' liable to tax in India and, thus, assessee was required to deduct tax at source while making said payments - Held, yes [In favour of revenue] We note that the contents of Paras 4, 5, 6, 7 8 of Article 12 of India Singapore DTAA and the contents of Paras 4, 5, 6, 7 8 of Article 13 of India UK DTAA are essentially the same and hence the above case law is squarely applicable to the case of the Assessee. 2.1.6 Additional reliance is placed on the decision of the 'A' Bench of Bangalore ITAT in the case of Food World Supermarkets Ltd. Vs. Deputy Director of Income-tax (International Taxation), Circle-I(1), Bangalore reported in [2015] 63 taxmann.com 43 (Bangalore - Trib.) wherein under identical circumstances it was held that once it was found that secondees were rendering managerial and highly expertise services to assessee, payment for such services fell within ambit of FTS defined in explanation 2 to section 9(1)(vii) . In the case under consideration, since the professional ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Scp-14 11096 537814 7 Oct-14 12079 576207 8 Nov-14 15678 747351 9 Dec-14 9450 455678 10 an-15 12643 533904 11 Feb-15 14523 665046 12 Mar-15 10257 465220 Total 151115 71211 8.2. The Ld. AR submitted that since the technical knowledge possessed by Shri Mithun Sachdeva is not made available, as per Article 12 of the India Singapore DTAA, the same cannot be categorised as FTS. He also emphasised that the payments made to Shri Mithun Sachdeva cannot be categorised as secondment charges as he was never employed with assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at by providing the back office services referred in the earlier paragraph, nothing is made available to the recipient of services from the assessee. The Ld. AR relied on the following decisions. Raymond Ltd. reported in [2003] 86 ITD 791 (MUM.) ABB Inc. reported in [2015] 59 taxmann.com 159 (Bangalore - Trib.) Koninklijke Philips Electronics N.V. reported in [2018] 99 taxmann.com 23 (Kolkata - Trib.) Guy Carpenter Co. Ltd. reported in [2012] 20 taxmann.com 807 (Delhi) Qlik Tech International AB in IT(IT)A No. 173/Bang/2021 8.5. On the contrary, the Ld. CIT DR relied in the written submission that reads as under: May it please Your Honours In the present case filed by the assessee, the Grounds of Appeal as raised by the assessee has been broadly categorised into the following headings for A.Y. 2015-16 and D.R. submissions thereon. (1) The Ld. A.O., Hon'ble DRP erred in not recognizing that payments received by the appellant fell within the purview of the exclusionary clause of Section 9(1)(vii)(b) of the Act and were not, therefore, chargeable to tax in India under the provisions of the Act. The Ld. AO and Hon'ble D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature and they are automatic and they are as per specific provisions of the Act and the same may be retained. Levy of cess is as per the tax determined and the same may be retained. Conclusion: In view of the submissions made above, examination of submissions made by the assessee, the order of the Ld. A.O. and Hon'ble DRP Bangalore are not erroneous and not bad in law. The assessee's appeal may be dismissed. Prayer: In the wake of the above submissions, it is humbly prayed to dismiss the appeal of the assessee/appellant and any other order as may please your honours. Respectfully submitted. We have perused the submissions advanced by both sides in the light of records placed before us. 9. The relevant agreement based on which amount has been held to be taxable as FTS in the hands of the assessee is necessary to be analysed at this juncture. 4. In order to understand this, it is relevant to understand the agreement between the assessee-company (OAP) and MTR Foods Pvt. Ltd., The assessee company has produced the copy of the services agreement entered into with MTR dated 12th October 2010. As per the terms, the agreement was for a period ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in market research, product launch, price negotiations, etc Assist MTR on any sales or marketing matters that may arise Article 5 REMUNERATION FOR SERVICES RENDERED 11. MTR will pay for 50% of Jasmine's regular working hours during the term of this contract, Any additional use of services each year will be invoiced by hour. The costs payable by jasmine for services rendered by or through OAR ( service fee ) shall be calculated according to a cost plus principle. 12. Mark-up. To ensure compliance with the arm's length principle, a mark-up (profit element) of 3 (three) per cent on the costs payable by MT R except for costs representing out-of-pocket expenses and externally purchased services, 13. Withholding taxes. If the service fee is subject to withholding taxes, such amounts shall be withheld and paid by MTR to Indian tax authorities, at the applicable rates from time to time. Proof of such withholding taxes paid shall be provided by MTR to OAP by way of appropriate certificates. 14. VAT If the service fee is subject to VAT or similar levies, such amounts shall be paid by MTR. However, the Parties agree to use all reasonable endeavours ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd sequentially there was a change in the person was providing services and we know that one Mithun Sachdeva who rendered services on behalf of assessee from April 2014. Assessee has also provided the certificate of residents therein categorically states that assessee is a resident in Singapore for income tax purposes for assessment year 2015. We therefore agree with the argument advanced by the Ld. AR that this cannot be considered similar to the case of secondment of employee as the employee of assessee on behalf of assessee is rendering the relevant services to MTR foods Private Limited who is located outside India. It is also pertinent to note that the services are rendered by assessee outside India. Based on the above facts it has to be analysed whether section 9(1)(vii) of the Act is applicable. Section 9(1)(vii) reads as under: (1) The following incomes shall be deemed to accrue or arise in India:- (vii) income by way of fees for technical services payable by- (a) the Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ention of ld. AR is that, all the services were rendered by the non-resident assessee outside India and therefore the statutory provisions under the Act cannot be attracted. Hon'ble Delhi Tribunal in case of Lufthansa Cargo India Pvt. Ltd., vs. DCIT reported in (2004) 91 ITD 133, while deciding a similar issue held that income can be said to have been earned from a source of income outside India if source from which income is derived is situated outside India and in context of an international transaction source can be said to be outside India if- (i). It is a non-resident, or (ii), or (iii) activity yielding income takes place outside India. Further Coordinate Bench of this Tribunal in case of Titan industries Ltd. vs. ITO reported in (2007) 11 SLT 206 held that, as the source of earning income was outside India the amount paid will be covered in exception provided under section 9(1)(vii)(b). Hon'ble Supreme Court in case of GVK Industries Ltd. vs. ITO reported in (2015) 371 ITR 453 while dealing with the exception under section 9(1)(vii)(b) of the Act, observed that, such exception applies to a situation when fee is payable in respect of services utilised for business ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 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 (c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. For the purposes of (b) and (c) above, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person. 5. Notwithstanding paragraph 4, fees for technical services does not include payments: (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in paragraph 3(a); (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 personal use of the individual or individuals making the payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntracting State, due regard being had to the other provisions of this Agreement. A plain reading of above clause makes it clear that only such technical and consultancy services are covered by Article 12(4) as either (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information referred to in Article 12(3), or (b) 'make available' technical knowledge, experience, skill know-how etc. In the present case, only clause 12(4)(b) is applicable because there was no right, property or information that was transferred. The case of the Revenue therefore hinges on the applicability of Article 12(4)(b) which applies to rendering of only such technical or consultancy services as 'make available' technical knowledge, experience, skill or know-how etc. In other words, in order to attract the taxability of an income under Article 12(4)(b), not only the payment should be in consideration for rendering of technical or consultancy services, but in addition to the payment being consideration for rendering of technical services., the services so rendered should also be such that 'make available' technical knowledge, experience, skill, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nerals (P.) Ltd. I reported in (2012) 21 taxmann.com 214 dealt with identical issue of FTS being made available. In that case, the assessee therein was a domestic company, engaged in the business of prospecting and mining for diamonds and other minerals. For the purpose of carrying out geophysical survey, etc, assessee entered into an agreement with Furgo, a company based in Netherlands. Furgo had a team of experts who were specialized in performing geophysical survey, etc. The said experts provided technical services to assessee under the said agreement. The Ld. AO therein treated the consideration paid to Furgo under the aforesaid agreement as falling within the definition of fees for technical services under India -- Netherlands Tax Treaty. Hon'ble Karnataka High Court held that as per the Article 12 of the India Netherlands Tax Treaty, fees for technical services means the payment of any amount to any person in consideration for rendering of any technical services only; if such services make available technical knowledge, expertise, skill, know-how, etc. If the technical knowledge, expertise, skill, know-how, etc. is not made available by the service provider, who renders t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... c., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services 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 the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered made available when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is 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. In other words, payment of consideration would be regarded as fee for technical/included services only if the twin lest of rendering services and making technical knowledge available at the same lime is satisfied.' Whil ..... X X X X Extracts X X X X X X X X Extracts X X X X
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