TMI Blog2023 (8) TMI 296X X X X Extracts X X X X X X X X Extracts X X X X ..... y as FTS . For the reasons as aforesaid no substantial questions of law is framed. - HONOURABLE MR. JUSTICE BIREN VAISHNAV AND HONOURABLE MR. JUSTICE DEVAN M. DESAI Appearance: For The Appellant(S) No. 1 : Mr. Varun K. Patel, Senior Standing Counsel For The Opponent(S) No. 1 : Mr B S Soparkar(6851) ORAL ORDER (PER : HONOURABLE MR. JUSTICE BIREN VAISHNAV) 1. Draft Amendment adding substantial questions of law granted. 2. This Tax Appeal at the hands of the Revenue has been filed challenging the orders dated 31.8.2018 passed by the Commissioner Of Income Tax (Appeals) and the order dated 28.02.2022 passed by the Income Tax Appellate Tribunal, Surat Bench in I.T.A Nos. 725/SRT/2018 for the Assessment Year 2015-2016. 3. The Tax Appeal at the hands of the Revenue raises the following substantial questions of law: (a) Whether in the facts and circumstances of the case, the learned ITAT has erred in law and on facts in holding that in view of the Tax Residency Certificate (TRC) and Form No. 10F furnished by M/s GIA Inc. USA from the tax authority of USA for the relevant year under consideration, the assessee is entitled to the bene ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... No. 15CA (self declaration) and 15CB (CA Certificate) under Rule 37BB of the Income Tax Rules, 1962 and also in instructions for payment issued by the assessee to the Banker and payment advices issued by the Bank without any supporting evidence or without there being anything to show the corrections are made or intended to be made in those statutory Forms and payment instructions / advices? 4. Facts in brief are as under: 4.1 The assesee is a partnership firm and engaged in the business of cutting and polishing diamonds and export of diamonds. 4.2 On specific requirements by buyers, diamonds are sent for certification by Gemmological Institute of America (GIA for short). The assessee entered into a customer services agreement with the GIA Inc USA which clearly describes a condition as under: With respect to client shipments or deliveries of articles to GIA s take in window inDubai and GIA s laboratories in Hong Kong and Israel,this agreement shall be between the client and GIA USA and not with GIA s local business entity established in such countries.Any and all disputes,suits,cations,claims related to or arising out of this agreement shall be resolved exclusivel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Laboratory. 5.3 The inevitable conclusion therefore in the submission of the learned Senior Standing Counsel for the Revenue was that the diamonds had been shipped to Hong Kong for certification and such testing related work was carried out at Hong Kong Laboratory and the payments were made in Hong Kong. All the services were therefore rendered by GIA Hong Kong and the payments were merely routed through GIA USA and therefore the AO was right in his findings that the it was evident that obtaining the benefit of India US DTAA and circumventing the application of domestic law was the only purpose for which the payments were routed through the books of account of GIA USA. The assessing officer was therefore right in holding that the assessee cannot claim the benefit of the USA DTAA agreement as the rightful owner of the fee for technical services was GIA Hong Kong and since there was no DTAA with Hong Kong, the tax liability on the remittances made towards the diamond testing and certification charges have to be determined in accordance with the Income Tax Act, 1961. 6. Mr. B.S. Soparkar, learned Counsel appearing on Caveat for the respondent assessee would make the following su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sued by the GIA USA. 2. The remittance was in the offshore Bank account of GIA USA and the cheques were deposited in the account of the USA entity and GIA Hong Kong had no relationship as far as the account in which the remittances were made. 3. That there was a clerical error in naming the Hong Kong agency whereas from the Bank details it is evident that the remittances in fact have been made in the accounts of the GIA USA. 4. The form evidently shows that the accounts reflected payment received in HKD in offshore bank account of GIA USA. 7.1 The appellant has submitted an affidavit which reads as under: 1. The appellant had entered into an agreement with the Gemological Institute of of America Inc., USA (hereinafter referred to as GIA USA ) for the issuance of diamond grading certificates of the polished diamonds belonging to the appellant. 2. GIA USA is a prominent gen testing laboratory in the world and the diamond grading certificates issued by GIA USA stating the properties such as shape, carat, colour, clarity, cut, etc., of polished diamonds are considered as the standard benchmark and quality certificates by the trade as well as the consu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... CIT(A) in her order as well as relied by Id Senior Counsel for the assessee. We have also perused all the documentary evidence filed by the assessee before Tribunal. The assessing officer treated the assessee in default under section 201(1) on the basis of details on the Form-15CA / 15CB about the remittance by taking view that testing related work has been carried out at GIA Laboratory at Hong Kong set up under the company GIA Hong Kong. The testing services were rendered by Hong Kong Laboratory. The payments were made in bank account located in Hong Kong as per condition of payment, since there exist no branch of GIA, Inc in Hong Kong; it is controvertible that the testing and certification related services rendered by GIA Hong Kong. The payments were merely made to GIA, INC, America. The state of source is not obliged to give up the taxing rights over the passive income in the nature of Fees for Technical Services (FTS) merely because the income was paid direct to recipient of a state which with the state of source had concluded / executed DTAA. As recorded above that before the Id CIT (A) the assessee filed detailed written synopsis and relied on certain case laws. It was also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onsideration, the assessee is entitled to the benefits of DTAA between India and USA. 17. On the specific submission made by the assessee that activity of grading of certification is merely the application of knowledge and experience in a professional team particular diamond / set of diamonds which are offered for certification or for grading. The learned CIT(A) held that there is no parting of information concerning industrial, commercial or scientific experience by GIA when it issues the grading certificate. GIA Inc USA has the experience of grading and report certificate and there is no imparting of its experience in favour of assessee. The assessee has only receives report of certification. This activity of issuing certificate cannot be said to be imparting of information by the person who possesses such information. On considering the definition of fee for included services under Article 12, it was observed that ther is no parting of rendering of technical services either of military, technical consultancy services or industrial commercial or scientific experience. The grading report are not make available for the reasons that assessee, whose utilising the services w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the following tests to determine whether a substantial question of law is involved. The tests are: (1) whether directly or indirectly it affects substantial rights of the parties, or (2) the question is of general public importance, or (3) whether it is an open question in the sense that issue is not settled by pronouncement of this Court or Privy Council or by the Federal Court, or (4) the issue is not free from difficulty, and (5) it calls for a discussion for alternative view. There is no scope for interference by the High Court with a finding recorded when such finding could be treated to be a finding of fact. 12. Again the Supreme Court in case of Vijay Kumar Talwar versus Commissioner of Income Tax in (2011) 330 ITR 1 considered the issue of substantial question in context of Section 260A of the IT Act and observed as under: 18. It is manifest from a bare reading of the Section that an appeal to the High Court from a decision of the Tribunal lies only when a substantial question of law is involved, and where the High Court comes to the conclusion that a substantial question of law arises from the said order, it is mandatory that such question(s) must be formula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... balance between the indispensable obligation to do justice at all stages and impelling necessity of avoiding prolongation in the life of any lis. 20. In Hero Vinoth (Minor) Vs. Seshammal (2006) 5 SCC 545, 556 , this Court has observed that: The general rule is that High Court will not interfere with the concurrent findings of the courts below. But it is not an absolute rule. Some of the well recognized exceptions are where (i) the courts below have ignored material evidence or acted on no evidence; (ii) the courts have drawn wrong inferences from proved facts by applying the law erroneously; or (iii) the courts have wrongly cast the burden of proof. When we refer to decision based on no evidence , it not only refers to cases where there is a total dearth of evidence, but also refers to any case, where the evidence, taken as a whole, is not reasonably capable of supporting the finding. 21. A finding of fact may give rise to a substantial question of law, inter alia, in the event the findings are based on no evidence and/or while arriving at the said finding, relevant admissible evidence has not been taken into consideration or inadmissible ev ..... X X X X Extracts X X X X X X X X Extracts X X X X
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