TMI Blog2018 (3) TMI 1992X X X X Extracts X X X X X X X X Extracts X X X X ..... S outside India, that the assessee was not enabled to independently perform such functions and had only consumed the services of FS, that the expertise and knowledge would still remain with FS. Assessee was only reaping the rewards of the functions carried out by FS and was making payment for availing such services and not towards the skill of business development or marketing as such skills had not been made available to the assessee by the non-resident entity. So, we hold that payment made by it to FS was business income of FS, that FS did not have PE in India, that services were rendered outside India, that payment received by the FS was not taxable in India. We further hold that as per the law prevailing at the time in force no income was arising in India by virtue of these services, so, the provisions of Section 195 for withholding of taxes on such remittance were not applicable. In the case of Virola International [ 2014 (2) TMI 653 - ITAT AGRA] Tribunal has held that a retrospective amendment in law would not change the tax withholding liabilities with a retrospective effect, that the withholding obligations from payments made to non-residents would depend on the law ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed jurisdictional issue i. e. justification of issue of notice u/s. 148 of the Act and the consequent completion of reassessment proceedings. It has also challenged the order on merits. 2. During the year under consideration, the assessee engaged Fractal Singapore(FS), its wholly owned subsidiary, for providing marketing and business development services to it. The AO found that the assessee had entered in to an agreement with FS for providing Customer Coordination Services on its behalf, that the Singapore entity did not have the authority to conclude any agreements or make any commitments on behalf of the assessee. He called for further details in that regard and held that income had escaped assessment, that the provisions of Section 9(1)(vii) of the Act were applicable in the instant case, that payments made to FS were taxable under the head Fees for Technical Services(FTS), that it was consideration for the services in the nature of managerial, technical, or consultancy, and that same would be subject to tax under India-Singapore tax treaty provisions. 3. Aggrieved by the order of the AO, the assessee preferred an appeal before the First Appellate Authorith(FAA)and made e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rating the business of the assessee in any manner, that any portion of rendering of marketing and support services by FS did not involve the application of industrial or other services, that the assessee did not seek any sort of advice from FS, 4.2. With regard to the Explanation inserted by Finance Act 2007 w. r. e. f 1. 06. 1976, he contended that it would have no impact on the taxability of the disputed amount, that the Explanation covered only such income of non-resident which was earned by rendering services in India irrespective of whether such non-resident had a residence or place of business connection in India, that it did not cover the income of non-resident where the services were rendered by such non-resident outside India, that an amendment made retrospectively was to be regarded as in existence from the specified date, that in judging the consequences of disallowances position as actually existed at the relevant time had to be considered, that holding a bonafide tax payer in default-for his inability to adhere to provisions when such provisions did not exist at the time when payment was made-would akin to expecting the impossible from an assessee, that withholding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (321 ITR 31); Sun Microsystems India Pvt. Ltd. (125 ITD 196); Virola International (147 ITD 519) and Ishikawajima -Harima Heavy Industries Ltd. (158 Taxman 259). 4.4. The DR heavily relied upon the cases of the FAA and stated that no regular assessment was passed, that the AO had issued intimation u/s. 143(1)of the Act, that reassessment proceedings were initiated as per the provisions of the Act, that reasons for reopening were recorded, that the services availed by the assessee were FTS. 5. We have heard the rival submissions and perused the material before us. We find that basic issue to be decided is as to whether the services rendered by FS and availed by the assessee would fall under the category FTS. As per the agreement (Pg. 97-98 of the PB)FS had agreed to provide FI various services to the assessee namely providing general market information;conducting market studies and research, preparing market reports;providing assistance to FI in identifying the potential customers and establishing communication with them, assisting FI in developing marketing collateral such as brochures, CDs, presentations for potential customers, conducing meeting and holding discussions w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable of services in the nature of managerial, technical or consultancy-was not satisfied. For a service to be made available, the service recipient should be able to make use of the knowledge, by itself in its business for its benefit and without the recourse to the service provider in future and for this purpose a transmission of the skill from the service provider to the service recipient is necessary. We find that in the case before us, the services availed by the assessee were in the nature of marketing, business development and customer co-ordination support services provided by FS and those services were rendered by employees of FS outside India, that the assessee was not enabled to independently perform such functions and had only consumed the services of FS, that the expertise and knowledge would still remain with FS. So, it can safely be said that the assessee was only reaping the rewards of the functions carried out by FS and was making payment for availing such services and not towards the skill of business development or marketing as such skills had not been made available to the assessee by the non-resident entity. So, we hold that payment made by it to FS was busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the income of FS was not taxable in India, that no tax was required to be deducted on the payment made by the assessee. He relied upon the case of Armayesh Global (51 SOT 564) and Angelique International Ltd. (219 Taxman 104). The DR left issue to the discretion of the bench. 6.2. We find that identical issue was deliberated upon and decided by the honorable Delhi High Court in the case of Angelique International Ltd. (supra) wherein it was held that withdrawal of the circular and 2009 could not be held to be retrospective and could not be classified as explaining or clarifying the earlier circular issued in 1969, that the circular was in force till it was withdrawn. Respectfully following the above judgment, we decide GOA 3 in favour of the assessee. 7. Last ground of appeal, dealing with levy of interest under section 234 D is not arising out of the order of the FAA, so, we are not adjudicating it. 8. As we have decided the issue on merits in favour of the assessee, so, we are adjudicating the jurisdictional issue i. e. validity of reassessment proceedings. As a result, appeal filed by the assessee stands allowed. Order pronounced in the open court on 1st March, 20 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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