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TMI Blog2024 (1) TMI 846X X X X Extracts X X X X X X X X Extracts X X X X ..... ears. Therefore, for the sake of brevity, grounds of appeal filed for assessment year 2016-17 are reproduced as under: "1. The order of the CIT(A) is contrary to law, facts and circumstances of the case. 2. Whether the Ld. CIT(A) erred in deleting the disallowances made u/s 40(a)(i) of the IT Act without appreciating the fact that the services rendered by ASUS and ASFZE fall within the ambit of provisions of Section 9(1)(vii) of Act and are also subject to explanation of Sec. 9(2) of Act? 3. Whether the Ld. CIT(A) erred in deleting the disallowances made u/s 40(a)(i) of the IT Act without appreciating the fact that the outsourcing charges paid by the assessee company for availing those services falls under the definition of 'fees for included services' as per clause 4 of article 12 of India-USA DTAA? 4. Whether the Ld. CIT(A) erred in deleting the disallowances made u/s 40(a)(i) of the IT Act without appreciating the fact that the fees for technical services received by the ASUS and ASFZE was deemed to accrue or arise in India and the assessee is liable for deduction of tax on the said payments u/s 195 of the Act? 5. Whether the Ld. CIT(A) erred in ignoring the le ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... harges/consultancy charges to ASUS and Aspire Systems FZE for rendering installation and testing services to assessee's clients at USA and said payment has been made without deducting applicable TDS as per the provisions of section 195 of the Income-tax Act, 1961 (hereinafter referred to as "the Act"). 5. The assessee has filed its return of income u/s. 139(1) of the Act. The cases were selected for scrutiny and during the course of assessment proceedings, the Assessing Officer noticed that outsourcing charges paid by the assessee to non-resident service providers is in the nature of 'fee for technical services' (FTS) as defined u/s. 9(1)(vii) of the Act and thus, called upon the assessee to explain as to why payment made to non-residents without deducting tax at source u/s. 195 of the Act cannot be disallowed u/s. 40(a)(i) of the Act. In response, the assessee submitted that outsourcing charges paid to non-residents for rendering installation and testing services are in the nature of support services without any technical knowledge and thus, cannot be considered as fees for technical services within the ambit of provisions of section 9(1)(vii) of the Act. Since, payment made to n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reement entered into by the assessee with Aspire Systems Inc,. USA (ASUS). A few of the paragraphs in the said Agreement are produced as under. Contract Thursday, 1st April 2011 No.: ASUS\10-1 1\01 This contract for rendering of services is made effective as of 1st April, 2011 By and between Aspire Systems (India) Private Limited ("ASI"), of 1/D-1, SIPCOTNT Park, Siruseri, Tamil Nadu- 603103 JNDIA and Aspire Systems, Inc., ("ASUS") 1735 Technology Drive, Suite 260, Scan Jose CA-95110,USA shall be valid for a period of One year. PERFORMANCE OF SERVICES AND USE OF FACILITIES: 1.1 Time to time, ASUS will subcontract part of the work to ASI that it has entered into with its customers. When the main contract is between ASUS 85% of the billing amount (Billing Amount is the amount invoiced to the customer, excluding billing that is relevant to ASUS). Exception to Clause (1) In view of our long-term customer relationship and criticality of ASUS in the customer relationship, for Auto Viktron Group ("AVG"), for which contract entered by ASUS and the work is purely rendered by ASI, ASI will bill ASUS only for 50% of the customer Invoice Amount. 1.2 Time to time, ASI will sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al and professional. AS per the agreement between the assessee and the ASUS, some of these professional services are required to be sub-contracted to ASUS. The payments are also as per the time lines of deliverables. Therefore, unless Aspire US (ASUS) makes available the reports of the work done by it to the assessee, takes a feedback from the assessee and the client regarding the services, the work done by ASUS cannot form part of the weekly progress report of the assessee to be given to the client. Clearly it shows that, the services rendered by ASUS are made available to the assessee. Hence, even by the relevant DTAA between India and US, the payments made towards these services are chargeable to tax in India. 5.2.5. The nature of services is such that, there should be frequent interaction between the assessee and ASUS and integrated services will be delivered to the client to meet the timelines of the deliverables. Hence, it can be clearly concluded that, the services rendered by ASUS are through the assessee company located in India. Therefore, these services fall within the ambit of provisions of Section 9(1)(vi) of Act and are also subject to explanation of Sec.9(2) of Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , "fees for technical services" 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 or consideration which would be income of the recipient chargeable under the head "Salaries"] (2) Notwithstanding anything contained in sub-section (1), any pension payable outside India to a person residing permanently outside India shall not be deemed to accrue or arise in India, if the pension is payable to a person referred to in article 314 of the Constitution or to a person who, having been appointed before the 15 day of August, 1947, to be a Judge of the Federal Court or of a High Court within the meaning of the Government of India Act, 1935, continues to serve on or after the commencement of the Constitution as a Judge in India. [Explanation - For the removal of doubts, it is hereby declared that for the purposes of this section, income of a non-resident shall be deemed to accrue or arise in India under clause (v) or clause ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 5.3.4. In absence of branch or PE outside India and since the payments were made to the non-residents from India, the business cannot be said to be carried on outside India. Therefore, the transactions fall outside the ambit of the exceptions provided in section 9 (1)(i)5 of the Act. Therefore, the payments made to non residents are liable to be taxed in India in hands of the non- residents. 5.3.5. In view of the above facts and discussions, the payment made by the assessee definitely fall within the provisions of Section 9(1)(vi) of the Act. Therefore, keeping in view of the provisions of Section 9(1)(vi) of the Act and Explanation to Section 9(2) of Act, the services rendered by ASUS and ASFZE are chargeable to tax in India. 5.4. TAXABILITY AS PER THE DTAA: 5.4.1. The assessee vide their letter dated 05.12.2019 submitted as follows: As per the DTAA entered between India and USA, the subcontracting charges for the aforementioned services will fall under Article 7: Business income of the DTAA, according to which tax needs to be deduced at source only when the entity i.e. ASUS in the contracting state has a Permanent Establishment in India. Thus, in the absence of a Perm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , skill, know-how, or Process, or Consist of development and transfer of a technical plan or technical design. If any of above three conditions as, set out is met it can be said that the FTS is made available. Payments made for consulting services (as per the invoices submitted by the assessee) are technical in nature and also make available technical knowledge, experience and thus taxable under FTS, Make available means recipient of the service should be in a position to derive an enduring benefit-and should be in a position to utilize this knowledge in future on his own. If fee received from the third party satisfies and is covered by Explanation 2 to section 9(1)(vi) it is fee for technical services. It will be immaterial whether the assessee had acquired or gained the said technical information because of business or trading activity or after conducting tests, mapping etc. DIT Vs Rio Tinto Technical Services (2012) 340 ITR 507. 5.4.3. Further, it is pertinent to note that the assessee has not submitted material evidences which proves that the services provided by the concerns has not made available services to the assessee company. It is noted that the assessee has ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... consultancy charges to ASUS in USA for rendering services to appellant clients at USA, said payment is made outside India and for rendering services outside India. The assessee had also taken support from Article 12 of India- USA DTAA and argued that unless make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or technical design, any payment made to service provider cannot be treated as fees for technical services. 8. The ld. CIT(A), after considering relevant submissions of the assessee and also taken note of various judicial precedents, held that payment made by the assessee to ASUS and Aspire Systems FZE falls under the exception to section 9(1)(vii)(b) of the Act, wherein the payments made by the appellant to the non-resident company is for rendering services outside India and thus, same is not deemed to accrue or arisen in India and is not liable for TDS u/s. 195 of the Act. The ld. CIT(A) further observed that payments made by the appellant to non-resident service providers are directly related to services rendered to the customers outside India and income earned from such customers, in t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A) without appreciating relevant facts simply deleted additions made by the Assessing Officer. 10. The ld. DR, further referring to the decision of Hon'ble Supreme Court in the case of Transmission Corporation of Andhra Pradesh Ltd vs CIT [1999] 239 ITR 587, submitted that, if at all the assessee claims that payments made to non-residents are not liable for TDS, then the assessee should have filed application as per the provisions of section 197 r.w.s. 195(2) of the Act. The assessee without complying relevant provisions simply claimed that payment made to non-residents is not fees for technical services and provisions of section 195 of the Act is not applicable and consequently, disallowance cannot be made u/s. 40(a)(i) of the Act. In this regard, he has filed detailed written submissions on the issue which reads as under: "During the course of the appellate proceedings before the Hon'ble ITAT, 'B' Bench, Chennai on 8/8/2023 and 10/8/2023, the Hon'ble ITAT has directed the appellant to furnish a copy of agreement entered by the appellant company (Aspire Systems India P Ltd.) with its ultimate customers for the purpose of software development. In response to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Resource Working form Offshore: If the Company requires any of the permanent (long term) onsite resources to work with the Consultant's Offshore team and approves such travels, Company will pay the consultant the Onsite rates applicable for such permanent onsite resource. Also, any associated travel, boarding & lodging expenses will also be paid by the company for such duration of stay at Offshore." In view of the above, it is clear that the ultimate customers of the appellant company engage the off-shore team for the final execution of software developed by the appellant. 5. It has been submitted during the course of the hearing before the Hon'ble 'B' Bench that the appellant did not provide the financials of the subsidiary Companies in USA & UAE (ASUS & AS-UAE). Further, it has submitted during the course of the hearing that the appellant's activity squarely falls under the category of "fee for technical services" as per the decision of Hon'ble Delhi High Court in the case of CIT Vs Havells India Ltd. In 352 ITR 376 (Delhi) and the decision of Hon'ble ITAT, 'D' Bench, Chennai, in the case of DCIT VS Alstom T & D India Ltd. (2016) in 68 Ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 22." 11. The Ld. Counsel for the assessee, supporting the order of the ld. CIT(A) submitted that, if he go by the nature of work rendered by non-resident service providers, it is purely in the nature of support service, which cannot be considered as fees for technical services as per the provisions of section 9(1)(vii) of the Act. The services are rendered outside India and for making or earning income from a source outside India. Further, the service provider does not make available technical knowledge or processes to the appellant. In order to consider payment to non-residents within the ambit of section 9(1)(vii) r.w.s. 9(2) of the Act and Explanation thereto, said payments should be in the nature of fees for technical services as per the Income-tax Act or as per Article 12 of DTAA between India and USA. Since, Article 12 provides for make available clause, unless said clause is satisfied, payment made to non-resident for technical services cannot be considered as fees for included services. The AR, further submitted that assuming for a moment, payment made to non-resident is in the nature of fees for technical services, but said payment falls under exception to section 9(1)(vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. Therefore, in our considered view it falls under the category of services utilized for a business or profession carried on by such person outside India. Further, the second aspect of exception as per Clause (b) to section 9(1)(vii) of the Act is that services utilized for the purpose of making income from any source outside India. In the instant case, services were carried on outside India by non-residents for offshore customers, because the customers of the appellant are situated outside India and services were utilized for earning income from source outside India. Therefore, in our considered view, the second part of exception as per section 9(1)(vii)(b) of the Act is also satisfied. Thus, from the above it is undoubtedly clear that the services were not rendered in India, the person to whom the payment was made is a non-resident and finally an amount paid is a business income to the recipient who does not have any permanent establishment in India. Therefore, in our considered view payment made to non-residents towards services rendered in connection with installation and testing services was not chargeable to tax in India as it is covered under exception to section 9(1)(vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chnical knowledge, skills etc are made available to the person purchasing the service, if it is performing a technical service does not amount to make available technical knowledge, skill etc. This fact has been explained by the Hon'ble High Court of Karnataka in the case of CIT & ITO vs De Beers India Minerals (P) Ltd [2012] 72 DTR 82 (Kar). Therefore, in our considered view payment made by the assessee to non-resident service providers cannot be brought under Article 12 of India-USA DTAA. 15. The Assessing Officer had also raised another contention in light of provisions of section 197 r.w.s. 195(2) of the Act in light of decision of Hon'ble Supreme Court in the case of Transmission Corporation of Andhra Pradesh Ltd vs CIT (Supra). We have gone through the decision of Hon'ble Supreme Court in the case of Transmission Corporation of Andhra Pradesh Ltd vs CIT (Supra) and find that said case law is not applicable for the simple reason that, it was a case of deduction of lower TDS on payment made to non-resident in light of composite contract entered into between non-resident and resident entities. The said composite contract was not only for supply of plant and machinery and equipm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... /s. 195 of the Act, to the file of the CIT(A) for fresh adjudication. The Tribunal while deciding to set aside the issue has followed its earlier decision in assessee's own case for assessment year 2009-10. We find that for assessment year 2009-10, the issue has been remitted back to the file of the ld. CIT(A), after considering certain new evidences filed by the assessee which were not before the Assessing Officer or the CIT(A). But, for the impugned assessment years, the CIT(A) has considered all evidences filed by the assessee while adjudicating the issue of disallowance u/s. 40(a)(i) of the Act and thus, in our considered view, the issue need not to be set aside to the file of the CIT(A) for fresh adjudication. 18. In this view of the matter and considering facts and circumstances of this case, we are of the considered view that payments made by the assessee to non-residents for rendering installation and testing services fall under the provisions of section 9(1)(vii)(b) of the Act and thus, not liable to tax in India. Since, income of non-resident is not taxable in India, the assessee need not to deduct TDS u/s. 195 of the Act on payment made to non-resident service providers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... indings of the ld. CIT(A) and reject ground taken by the revenue. 21. The next issue that came up for our consideration from appeal filed by the assessee for assessment years 2012-13 and 2013-14 is disallowance of provision for expenses. The assessee company debited provisions for expenses under professional charges. The Assessing Officer, called upon the assessee to file necessary details with regard to the provisions made for expenses. According to the Assessing Officer, provision made for expenses is not ascertained liability and contingent in nature and thus, cannot be allowed as deduction. On appeal, the ld. CIT(A) sustained additions made by the Assessing Officer. 22. We have heard both the parties, perused materials available on record and gone through orders of the authorities below. If a liability is arising in a particular accounting year, deduction should be allowed although the liability may have to be qualified and discharged at a future date. In the present case, the assessee could not file any evidences to prove that the liability has arisen for the impugned assessment year for services availed in the course of business of the assessee. Since, assessee could not fi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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