CIT v GRUP ISM P. LTD. (ITA 325/2014 dated 29.05.2015) Delhi High Court Background: The assessee Company made payment of Rs 56,54,963/- to M/s. CGS International, UAE (“CGS International”) and Rs 37,76,863/- to M/s. Marble Arts & Crafts LLC, UAE (“Marble Arts & Crafts”) (aggregating to Rs 94,31,826/-). The AO noted that no TDS had been deducted by the assessee while making the payment to the said two foreign concerns and asked the assessee to justify the same. The assessee stated that the payments were made towards commission and that neither of these concerns had any business in India and therefore, it was not required to deduct TDS. However, the AO disallowed the amounts stating that the payment made was towards consultancy services and therefore, liable to TDS. On appeal before the CIT(A), the CIT(A) held that the payment made by the assessee to the two UAE entities would not come within the purview of “technical services‟, as defined in Explanation 2 to Section 9(1)(vii) of the Act and consequently, the provisions of Section 9(1)(vii) were not attracted in the assessee’s case. The CIT(A) also held that Article 14 of the DTAA with UAE is applicable in the facts of the case and that the AO could not have denied the applicability of the said Article on the sole premise that the two UAE entities are companies. Accordingly, since the remittances to such non-resident entities are liable to be taxed in the UAE, no TDS was required to be deducted. The ITAT dismissed Revenue’s appeal and confirmed CIT(A)’s order.
S.9(1)(vii)
GVK Industries Ltd vs. ITO (Supreme Court) The assessee paid fees to a non-resident (NRC). The obligation of the NRC was to: (i) Develop comprehensive financial model to tie-up the rupee and foreign currency loan requirements of the project.(ii) Assist expert credit agencies world-wide and obtain commercial bank support on the most competitive terms. (iii) Assist the appellant company in loan negotiations and documentation with the lenders. The assessee claimed that as the fees were paid for services rendered outside India, the same were not chargeable to tax in India and that the assessee was under no obligation to deduct TDS u/s 195. However, the AO and CIT rejected the claim of the assessee. The High Court (228 ITR 564) held that the said payment was not assessable u/s 9(1)(i) but that it was assessable u/s 9(1)(vii). The assessee claimed that s. 9(1)(vii) was constitutionally invalid as it taxed extra-territorial transactions. However, this claim was rejected by the Constitution Bench of the Supreme Court in 332 ITR 130. On merits, the matter was remanded to the Division Bench of the Supreme Court. HELD by the Division Bench dismissing the appeal:
Expression “fees for technical services” in s. 9(1)(vii) explained with reference to “consultancy” services – ...
OXFORD UNIVERSITY PRESS (AAR No.1110 of 2011) Background The assessee (applicant) is engaged in publishing, printing and reprinting of educational books for schools, Universities, Professional and other educational institutions or scholarly books. The applicant has appointed Ms Geetha Kumararaja, a resident of Colombo, Sri Lanka as a marketing executive that involves promotion of sale of books published by the applicant. The question before the AAR was whether the remuneration received by Ms Geetha was chargeable to tax in India and consequently, whether the payment should be subjected to tax deduction under the income tax Act.
Sales promotion and marketing activity cannot be construed as ‘fees for technical service’ – AAR
eBay International AG v DDIT [IT APPEAL NO. 8907 (MUM.) OF 2010 dated 11.09.13] Mumbai ITAT Background: The Assessee is a company incorporated under law of Switzerland and is a tax resident of Switzerland. The assessee operated India specific websites (www.ebay.in and www.b2motors.ebay.in) that provides an online platform for facilitating the purchase and sale of goods and services to users based in India. The assessee has entered into marketing support agreements with eBay India and eBay Motors which are eBay group companies, for availing certain support services in connection with its Indian specific websites. Assessee earned revenues amounting to Rs. 12,00,39,045/- from the operations of these websites during the year. The assessee contended that these revenues are taxable as business profits in India as per the provisions of Article 7 of the Treaty only if the assessee has a permanent establishment (‘PE’) in India as per provisions of Article 5 of the Treaty i.e. DTAA. The assessee contended that did not have any PE in India and as such no amount would be taxable in respect of the consideration received from the operations of the above mentioned websites.
Distinction between ‘Dependant Agents’ & ‘Dependant Agent PEs’ brought out in eBay case – Mum ...
ADIT v WNS North America Inc [ITA No 2944/Mum/2012 (Mum ITAT) dated 31.07.2013] Background: The assessee is a foreign company and tax resident of United State of America. The assessee is inter alia engaged in the business of rendering marketing and management services to WNS Global Services Pvt. Ltd. which is its associated enterprise in India. The assessee has entered into marketing and management services agreementwith WNS India. During the year under consideration the assessee has received an amount of Rs.68,15,11,339 towards marketing and management services rendered by it to WNS India. Since the assessee’s employees visited India for providing managerial services, therefore WNS India constitutes service PE under Article 5(2)(1) of Indo-USA DTAA. Accordingly an amount of Rs.6,52,13,074/- has been attributable to such service PE for managerial service rendered in India and which has been declared by the assessee in its return of income for the year under consideration.
Management & marketing services do not make available technical services & therefore, not taxable – ...
SARGENT & LUNDY v ADIT [ITA No.8986/Mum/2010 (Mum ITAT)] dtd 24.07.2013 Background: The assessee is tax resident of USA. It is a consulting firm engaged in providing services to the power industry by providing engineering based services. The assessee received a sum of Rs.2,22,16,154/- from L&T Limited for rendering consulting and engineering services in relation to Ultra Mega Power projects. The assessee entered into agreement to provide ‘consulting and engineering services’ required by L&T “in the preparation of technical designs” for Ultra Mega Power Projects. L&T was to bid for setting up power projects. It engaged the services of the assessee for technical evaluation and preparation of necessary designs and documents. The assessee did not offer this income in the return on the pretext that such sum was not taxable as the services do not make available technical knowledge, experience, skill or know how within the meaning of FIS as per Article 12(4) of the DTAA between India & USA. However, the AO held that the services rendered were in the nature of ‘consulting and engineering services in preparation of the technical designs basis in the form of review of designs for Ultra Mega Power Projects and therefore was covered u/s 9(i)(vii) of the Act as well as includible in the scope of ‘Fees for included services’ under Article 12 of the DTAA.
FTS: Services for future use can be regarded as ‘made available’ under Article 12 of ...
CLSA Ltd v ITO (Intl Taxation) [ITA No. 2010 (MUM.) OF 2008 dtd 18.01.2013] (Mum ITAT) Background: Assessee is a Company incorporated in Hongkong and belongs to the CLSA Group of companies. During the year, CLSA India (CLSAI) paid an amount of Rs. 7,73,58,162 to the assessee-company as “Referral Fees”. Before the AO, it was explained that it has business relationship with various financial institutions outside India which required services of a broker in relation to the investment activities carried out by such Institution in Indian capital market. It was submitted that the assessee referred such overseas institutional clients to CLSAI acting as India stock broker for which it received referral fees from CLSAI. The AO held that the fees was in the nature of fees for technical services received by the assessee and the same, therefore, was chargeable to tax in its hands in India.
Referral fees is equivalent to export commission & therefore, cannot be regarded as FTS – ...
Siemens Limited v CIT(A) IT APPEAL NO. 4356 (MUM.) OF 2010 Dtd 12.02.2013 – Mumbai ITAT Background: Assessee hired “Pehla Testing Laboratory” (PTL) of Germany for carrying out “type tests” of the circuit breakers manufactured by assessee in order to establish that the design and the product meets the requirement of the International Standards. Pehala Lab is accredited by National Accreditation Board for Testing & Calibration Laboratories (NABL) Germany, which carries out various kinds of tests for circuit breakers and other electronic devices to prove that the designs of the equipment meets the requirements of the international standards. This is a standard service provided by the Laboratory, which is done automatically by machines. It was submitted by the assessee during the course of assessment proceedings that the payment was purely for standard facility provided by the Laboratory which is done automatically by the machines without any human intervention. Further, the payment is in the nature of business income of PTL and since it does not have any Permanent Establishment in India, the same is not taxable in India as per the DTAA. However, the AO rejected the assessee’s contentions on the ground that the type of the services provided by the Pehla Lab is of highly technical in nature covered by section 9(1)(vii).
Services provided by machines without human intervention cannot be construed as FTS – Mum ITAT
Apollo Consulting Services Corporation v DIT [ITA No: 2983 (Mum) of 2010 dtd 27 July 2012] Mumbai ITAT Background: M/s. Apollo Consulting Services Corporation (hereinafter referred to as ACSC) is a non-resident company incorporated in USA. ACSC and IBM (based in USA) had entered into a Global Agreement which is also known as ‘Base Agreement’ on 11.01.2002. By virtue of this agreement, ACSC agreed to provide IBM, USA and its global subsidiaries certain services. In the background of the Base Agreement, IBM India made deal with ACSC through IIC Systems Private Limited, India (hereinafter referred to as ISPL) for the services to be performed in the USA. During the previous year, as per the agreement between IBM India and ISPL, ACSC provided technical manpower to IBM in USA according to its requirements. Thus, the link between the three entities was that, purchase orders are issued by IBM to ISPL who in turn passed that to ACSC. The entire arrangement was for providing skilled manpower in USA.