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Income Tax Appellate Tribunal, SURAT BENCH, SURAT
Before: SHRI SANDEEP GOSAIN & SHRI O.P.MEENA
J.Korin Spinning Pvt. Ltd., Vs. ITO, (International Taxation), Surat/ITA No.2734/AHD/2016 for A.Y. 2015-16 Page 1 of 13
आयकरअपील�यअ�धकरण,सुरत�यायपीठ,सुरत IN THE INCOME TAX APPELLATE TRIBUNAL SURAT BENCH, SURAT BEFORE SHRI SANDEEP GOSAIN, JUDICIAL MEMBER AND SHRI O.P.MEENA, ACCOUNTANT MEMBER आ.अ.सं./I.T.A No.2734/AHD/2016 �नधा�रण वष�/Assessment Year: 2015-16 J.Korin Spinning Pvt. Ltd., V The Income Tax Officer, Office No.502, 5th Floor, Union s (International Taxation), Surat. Trade Centre, Udhna Darwaja, . Ring Road, Surat – 395 002. [PAN: AABCJ 9649 N] अपीलाथ� / Appellant ��यथ�/Respondent �नधा�रतीक�ओरसे /Assessee by Shri H.R.Vepari – A.R. राज�वक�ओरसे /Revenue by Smt. Anupama Singla – Sr.DR
सुनवाईकीतारीख/ Date of hearing: 10.12.2019 उ�घोषणाक�तार�ख/Pronouncement on: 13.12.2019 आदेश /O R D E R PER SANDEEP GOSAIN, JM: 1. This appeal by the Assessee is directed against the order of Ld.Commissioner of Income Tax(Appeals)-13, Ahmedabad dated 09.09.2016 for the assessment year 2015-16.
Grounds raised by the assessee read as under: “(1) The learned Commissioner of Income-tax (Appeals) erred in confirming the order of the Assessing Officer by holding appellant as “assessee in default” in terms of provisions of section 201(1) particularly when the appellant was not obliged to deduct tax in terms of Article 15 of the Double Taxation Avoidance Agreement between India and Korea. (2) The appellant submits that the learned Commissioner of Income-tax (Appeals) misconstrued the relevant provisions in confirming the order of the Assessing Officer.
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(3) The appellant craves leave to add, alter or vary any of the grounds of appeal.” 3. Brief facts of the case are that the during the under consideration the assessee had made remittance of Rs.12.7 lakhs to Mr.Lee Kyo Kee, a resident of South Korea on account of fees for technical services rendered. The ld.Assessing Officer(AO) was of the view that TDS u/s.195 was not deducted as the sum paid was chargeable to tax u/s.9(1)(vii) read with corresponding article 13 of the DTAA. The AO analyzed the copy of agreement between Mr.Lee Kyo Kee and the appellant and observed that the services have been rendered in respect to certain aspects of production process. The AO further pointed that the agreement referred Mr.Lee Kyo Kee as a Technical Advisor and as per the agreement no Independent Professional services were rendered by him.
Aggrieved by the order of the AO, the assessee preferred the appeal before the ld.CIT(A) and the ld.CIT(A) after considering the case of both the parties, dismissed the appeal filed by the assessee.
Aggrieved by the order of the ld.CIT(A), the assessee filed this appeal before this Tribunal. The only ground raised by the assessee relates to challenging the order of ld.CIT(A) in confirming the order of AO by holding assessee as “assessee in default” in terms of provisions of section 201(1) of the Income Tax Act.
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The ld.Authorised Representative (AR) appearing on behalf of the assessee and reiterated the same as there raised before the ld.CIT(A) and have also relied upon the written submissions which are contained in para 4 of the order of ld.CIT(A) and the same is reproduced below: “4. During the course of appellate proceedings, written submissions were made, the relevant portion of which is reproduced herein as under: - “ b. Article 13 of the DTAA The Article-13 of the DTAA with KOREA: "ARTICLE 13 - ROYALTIES AND FEES FOR TECHNICAL 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for technical services may also be taxed in that Contracting State in which they arise and according to the laws of that Stale, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 15 per cent of the gross amount of the royalties or fees for technical services. 3. The term "royalties" as used in this article means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, or films or tapes used for radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for the use of, or the right to use, industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience. 4. The term "fees for technical services" as used in this article means payments of any kind to any person, other than payments to an employee of the person making the payments and to any individual for independent personal services mentioned in article 15, in consideration for services of a managerial, technical or consultative nature, including the' provision of services of technical or other personnel. 5. The provisions of paragraphs (1) and (2) of this article shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise through a permanent establishment situated therein, or perform in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services and paid is effectively connected with such permanent
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establishment or fixed base. In such cases the provisions of article 7 or article 15, as the case may be., shall apply. 6. Royalties and fees for technical services shall be deemed to arise in a Contracting State when the payer is that State itself, a political subdivision, a local authority> or a resident of that State. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not has in a Contracting State a permanent establishment of a fixed base in connection with which the obligation to make the payments was incurred and the payments are borne by the permanent establishment or fixed base, then the royalties or fees for technical services shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated. 7. Where, owing to a special 'relationship between- the payer and fixe beneficial owner or between both of them and some other person, the amount of the royalties or fees for technical services paid, having regard to the use, right or information for which they are paid, exceeds the amount which would have been agreed upon by the payer and the recipient in the absence of such relationship, the provisions of this article shall apply only to the last-mentioned amount. In such cases, the excess part of the payments shall remain taxable according to the law of each Contracting Stale due agreed being had to the other provisions of this Convention. c. Article 15 of the DTAA "ARTICLE 15 - INDEPENDENT PERSONAL SERVICES 1. Income derived by an individual who is a resident of a Contracting State from the performance of professional services or other independent activities of a similar character shall be taxable only in that State unless he has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities. If he has such a fixed base, the income may be taxed in the other Contracting State but only so much of it as is attributable to that fixed base. 2 " Copy of agreement by the appellant with Mr. KYO KEE LEE d. (5) Now, as far as Article 13 is concerned, it deals with royalties and fees for technical services. Clause 2 of the Article prescribes that one is required to deduct lax at 15% while making payment for fees for technical services. (6) Clause -I of the Article 13 reproduced in paragraph 4(b) above, has one of the specific exclusions, which include payments to any individual for independent personal services mentioned in Article 15 of the DTAA, in consideration for services of a managerial, technical or consultative nature, including the provision of services of technical or other personnel from the ambit of "Fees for technical services". It means that if an individual has rendered services which are technical in nature, the explicit exclusion provided in Clause"4 of Article 13 takes it to Article 15 of the DTAA.
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(7) Department's view alongwith appellant's reply: (8) e. Department's view comes to be discussed in clauses (i) to (v) of paragraph 3.7 of the penalty order. The crux of the argument of the department alongwith appellant's reply is as under: Mr. KYO KEE LEE is a technical advisor (i) Appellant's reply: It has. no relevance because providing services of technical nature is specified as one of the exclusions in paragraph 4 of the Article 13 of the DTAA when such services fall under Article 15 as independent personal services. There is no specific task given to Mr. KYO KEE LEE nor there is any (ii) specific payment mentioned. Appellant's reply: The agreement entered into between Mr. KYO KEE LEE and the appellant clearly states that Mr. KYO KEE LEE shall provide business services relating to textile and monofilament yam production (Please refer Page No.I to 3). Paragraph 4 of the agreement specifies the manner in which the payment would be made to Mr. KYO KEE LEE. Therefore, this particular statement of the Assessing Officer is without examination of facts on records. (iii) This clause simply analyzes the agreement. Appellant's reply: No comments (iv) The Assessing Officer is of the view that services provided by Mr. KYO KEE. LEE is in the nature of industrial activity because it relates to setting up of appellant's factory in India with the provision of technical personnel as also spare parts. Therefore, he is of the view that the activity of Mr. KYO KEE LEE being industrial cannot be categorized as independent personal services. Appellant's reply: By reaching to the conclusion that services provided by Mr. KYO KEE LEE is of industrial in nature, one thing is clear that the Department also slates that the services are also not technical in nature so as to get classified under Article 13 of the DTAA. Therefore, the very case of the department falters and does not stand to survive in terms of application of Article 13 of the DTAA. It may be appreciated that Article 13 of the DTAA is a narrow compass which deals with only royalties and fees for technical services. Fees for technical services are defined in paragraph 4 of the Article 13 of the DTAA as under: 4. The term "fees for technical services" as used in this article means payments of any kind to any person, other than payments to an employee of the person making the payments and to any individual for independent personal services mentioned in article 15, in consideration for services of a managerial, technical or consultative nature, including the provision of services of technical or other personnel.
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When one looks at the definition, it is restrictive in nature because the definition starts with "the term "fees for. technical services" as used in this Article means payments of any kind in consideration for services of a managerial, technical or consultative in 'nature, including the provision of services of technical or other personnel." The term "means" constricts the definition of fees for technical services to only three elements viz. managerial, technical or consultative. Therefore, when the Assessing Officer, as he says, establishes the services rendered by Mr. KYO KEE LEE as industrial in nature and not technical in nature, he removes services rendered by Mr. KYO KEE LEE out of the bracket of Article 13 of the DTAA. Somewhere in paragraph 3.8 of his order by stating "technical services (industrial services)", he is unsure where the services rendered by Mr. KYO KEE LEE would get classified. Therefore, he puts bracket to some how fittwhat he believes to be services of industrial in nature into technical nature so as to some how bring Article 13 into play. In conclusion, it may please be noted that the point that the Assessing Officer is making by classifying services rendered by Mr. KYO KEE LEE as industrial services, does not lead him anywhere. (v) In this clause, the Assessing Officer attempts to state that Mr. KYO KEE LEE is bound .by the contract and that he cannot shun away from rendering the services. Appellant's reply: No comments (8) The argument of the Assessing Officer is on the fragile fooling when he says that independent personal services would mean that only Mr. KYO KEE LEE must provide services and that interpretation of independent personal services would mean that a freelancer is not allowed to hire outside staff. Therefore, he attempts to illustrate services rendered by surgeons, lawyers, physicians so as to say that they are the class which can said to be providing independent services. In the process, the Assessing Officer loses sight of the matter that lawyers do have support staff when he renders services as individual proprietor, surgeons do have anesthetists to support them when they undertake surgery. The logic of the Assessing Officer is ill-founded. An independent personal service provider would naturally hire necessary staff that would support him. By hiring staff or team that supports an individual would not declassify an individual from the status of independent personal consultant. In fact, definition "professional services" as reproduced out of Article 15 of the DTAA on page No.9 of the order u/s.201(l), includes services of engineers. Admittedly, Mr. KYO KEE LEE is a Korean National and an engineer having expertise to commission the plant. He provided services as individual. The underlying contract with him is in individual capacity. Services fall within the exclusions of paragraph 4 of Article J 3 of the DTAA so as to fall within Article 15 of the DTAA. Article DTAA, in no unclear terms, provide that services so rendered by Mr. KYO KEE LEE is taxable in Korea unless Mr. KYO KEE LEE has a fixed base regularly available to him in India. Admittedly, these facts are not disputed. Therefore, given the facts, agreement and provisions of section 9(l)(vii)fb) of the Act read with paragraph 4 of Article 13 of the DTAA alongwith Article 15 of the DTAA, services rendered by Mr. KYO KEE LEE gets to be taxed only in Korea, and not in India. Therefore, the appellant has correctly not withheld tax since it was not required or obliged to do so. It is pleaded to kindly set aside the order passed by the Assessing Officer u/s.201(1) as also delete the interest charged
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u/s.20I(IAj of the Act. All the relevant documents are attached as per the index for you to verify the facts as well as relevant provisions. The appellant also relies on the submission made to the Assessing Officer vide letter No. TX- 209 of29-04-2015 (Page No. 19 to 28). " 7. On the other hand, the ld.DR relied upon the orders passed by the Revenue Authorities.
We have heard the Counsels for both the parties and we have also perused the material placed on record, judgments cited by the parties and the orders passed by the Revenue Authorities. Before we decide the merits of this ground, it is necessary to evaluate the order passed by the ld.CIT(A) while dealing with this ground. The operative portion of order of the ld.CIT(A) is contained para no.5 of its order and the same is reproduced below: “5. I have perused the order of the A.O. and the written submissions made in this regard. 1 am in agreement with the view taken by the A.O. that the services rendered by Mr. Kee were purely technical in nature and he did not come within the purview as Independent Professional contemplated in Article 15. The perusal of the agreement enclosed, m3terteslhat the range of technical services relating to textile and Mono Filament yarn production were assigned to him. Such services were rendered by Mr. Kee and his team, were competent to render such services. The A.O. is correct in holding that such services would not form a part of Independent Professional services. It is noticeable that para-1 of the agreement envisaged the provision of expert technical services relating to factories located at Vanz, Surat in Gujarat and at any other location where such factories could be relocated. In fact, Clause 2 states that appointment of all technical teams. engineers and other experts from time to time could be made by Mr. Kee without frequent reference to the appellant. Considering the above. I am in agreement with the view taken by the A.O. that such payments squarely fall within the section 9(l)(vii) with the corresponding Article 13 of DTAA. The grounds raised by the appellant are therefore, dismissed.” 9. After having gone through the material placed on record and having heard Counsels of both parties at length, we found from the records that the Revenue Authorities after appreciating the agreement
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between assessee and Mr.Lee Kyo Kee had concluded that the services rendered by Mr.Lee Kyo Kee were purely technical in nature and he did not come within the purview of independent professional as contemplated in Article 15 of DTAA.
Our attention was drawn by the assessee on page no.15 of the paper book, which is Form No.15CA wherein the details of remittances to said Mr.Lee Kyo Kee was made and it was submitted that the said remittances was given to an individual as per Article 15 DTAA between India and Korea, whereas the Department is of the view that the payment made to the said Mr.Lee Kyo Kee falls under Article 13 of DTAA of the Act. After perusal of the agreement, which is at page no 12 of PB executed between the parties, we found that Mr.Lee Kyo Kee is a Korea National and is a Technical Expert in certain fields of textile nature and the said agreement was engaged into parties w.e.f. 01.04.2014 wherein the said Mr.Lee Kyo Kee was required to provide the technical advice related to certain aspects of the production to the assessee and in turn was required to pay the amount as per the agreement. According to the assessee, the said Mr.Lee Kyo Kee had rendered independent personal services as contemplated under Article 15, therefore Article 13(4) of India/Korea DTAA executing services in the nature of independent personal services. Therefore, payment received from such services cannot be included under Article 13 as fee for technical services. The
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agreement also refers the said Mr.Lee Kyo Kee as a “Technical Advisor” and admittedly the said Mr.Lee Kyo Kee and his team does not have a fixed base in India and is thus, not liable to tax in India. We have also examined the provisions of section “9I(vii)b of the Act, Article 13 and Article 15 of DTAA copy of agreement executed between the assessee and Mr.Lee Kyo Kee. And we have also gone through the judgments cited and relied upon by the assessee which are reproduced below: “1. 90-TD-793 (Mumbai) of Maharashtra State Electricity Board. 2. 97-taxmann.com-643 (Delhi) of Poddar Pigment Ltd. 3. ITD-384 (Kolkata) of Graphite India Ltd. 4. 2-SOT-434 (Mumbai) of Chadbourne & Park LLP 5. 70-taxmann.com-69 (Mumbai) of BSR & Co. 6. 72-taxmann.com-12 (Mumbai) of BSR & Company” 11. As per the judgment of Maharashtra State Electricity Board Vs. DCIT wherein it was held by the Co-ordinate Bench of ITAT held as “Expression ‘chargeable under the provisions of this Act’ in section 195 cannot include an income, which, in terms of specific provisions of applicable Double Taxation Avoidance Agreement, is not exigible to tax in India.
Section 195 of the Income-tax Act, 1961, read with articles 13 and 15 of the Double Taxation Avoidance Agreement between India and UK - Deduction of tax at source - Payments to non-resident - Assessment 1994- 95 - Whether expression 'resident of a contracting State', as defined in Article 4 of DTAA, is not confine to individual residents but also extends its scope to non-individuals, such as firms, companies and other entities - Held, yes - Whether expression 'professional services' will imply any
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services rendered in course of a vocation carried on by an individual, or group of individuals, requiring predominantly intellectual skills, dependent on individual characteristics of person(s) pursuing that vocation as well as specialized and advanced education or expertise - Held, yes - Whether legal consultancy services are distinctly in nature of professional services - Held, yes - Whether since in view of article 15 of DTAA payment of fees for legal consultancy services to UK-based firm of solicitors was taxable only in United Kingdom and was not exigible to tax in India, assessee (tax deductor) did not have any liability to deduct tax at source from payments made to UK-based firm of solicitors on account of legal consultancy charges because for invoking section 195(2) it is a sine qua non that sum being paid to non-resident is 'chargeable under provisions of this Act', whether fully or partly, i.e., entire sum or income hidden or embedded therein - Held, yes
Section 90 of the Income-tax Act, 1961, read with article 15 of Double Taxation Avoidance Agreement between India and UK - Double Taxation relief - Where agreement exists - Assessment year 1994-95 - Whether multiple counting of days would go against object of article 15(l)(a) of DTAA between India and UK which is to provide criterion for substantial and permanent presence in a contracting State, as opposed to a transient and fleeting one - Held, yes
Words and phrases - Expression 'resident of a contracting State', as appearing in articles 4 and 5 of Double Taxation Avoidance Agreement
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between India and UK; Expression 'chargeable under provisions of this Act' occurring in section 195 of the Income-tax Act, 1961
Further, in the case of ACIT Vs. B.S.R. & Co it was held as “IT/ILT: Different types of professional services rendered to an Indian company overseas companies outside India in relation to audit, taxation, transfer pricing, Information technology, background checks, etc would be independent personal services; since these overseas companies had no fixed base or PE in India, payment made to them would not be chargeable to tax in India.
IT/ILT : Taxability of a sum in hands of recipient on account of a subsequent retrospective amendment cannot expose assessee-payer to an impossible situation of requiring deduction of tax at source on date of payment; assessee cannot be held to be in default for not deducting tax at source so as to trigger disallowance under section 40(a)(i)”
After appreciating the facts, we also noticed that the page no.36 of the paper book, we found that Mr. KYO KEE LEE is an individual. He is not a resident Indian. He is of Korean national. The resident certificate in this regard is attached as "'Annexure D'. The fact that he is "a Korean National is also not under dispute as paragraph 2 of the Show Cause Notice itself provides assertion for the same. The agreement entered into between the Assessee and Mr. KYO KEE LEE (Refer 'Annexure A' to this
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reply) itself provides that the agreement is entered into with Mr.KYO KEE LEE and not with any 'firm' of 'company'. Further, Mr. KYO KEE LEE would be a Technical Advisor' for the agreement. These clauses of the agreement clearly indicate that the services which are intended to be received by the assessee (and also actually received by the assessee) from Mr. KYO KEE LEE are purely independent services in terms of Article 15 of the DTAA. Referring to point no. 9 of the Form 15CA filed by the assessee - annexed here as "Annexure B'. The point relates to the relief claimed by; the assessee, if any, with respect to the DTAA. The assesse has referred the relief claim in terms of Article 15 of the DTAA, while filing the form 15CA. Another important clause of the Agreement between the assessee Kyo Kee Lee is paragraph (2) of the Agreement, which is reproduced below; "(2) The first -part shall be responsible for appointment of all their technical teams, engineers, another expert from time to' time without an: — reference to the Second Part. The First Part shall observe all Visa and entry in this country and make all compliances formalities in his country with respect to the visits of his technical :. the location of the Second Part at their own expense. Some local'. and travelling may be arranged by the Second Party if so requested by the First Part” The clause states that every so often, Mr. Kyo Kee Lee wants to give services to the company, he and his technical team will be required to fly to India on need basis. That also means that neither Mr.Kyo Kee Lee nor any of his enginers or team members has any fixed base in India.
Therefore, we conclude that Mr.Lee Kyo Kee is an individual national from Korea and does not have any fixed establishment in India
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and he provided technical services which would certainly fall under Article 15 of the treaty. Since it falls within the exclution of Article 13 and thus, his income becomes taxable only in Korea with Indian party having no obligation to withhold tax. Thus, we allow this ground of appeal of the assessee.
In the result, appeal of the assessee is allowed.
Order pronounced in the open court on 13-12-2019.
Sd/- Sd/- (O.P.MEENA) (SANDEEP GOSAIN) (लेखा सद�यतथा/ACCOUNTANT MEMBER) (�याियक सद�यकेसम� /JUDICIAL MEMBER) सुरत/ Surat, �दनांक Dated: 13th December, 2019/S.Gangadhara Rao, Sr.PS Copy of order sent to- Assessee/AO/Pr. CIT/ CIT (A)/ ITAT (DR)/Guard file of ITAT. By order / / TRUE COPY / / Assistant Registrar, Surat