M/S. YOKOGAWA ELECTRIC CORPORATION ,JAPAN vs. THE DEPUTY COMMISSIONER OF INCOME-TAX, INTERNATIONAL TAXATION, CIRCLE-2(2), BANGALORE

PER CHANDRA POOJARI, ACCOUNTANT MEMBER:

This appeal by assessee is directed against order passed u/s 143(3) r.w.s. 144C(13) of the Income-tax Act,1961 ['the Act' for short] dated 10.7.2023. The first ground for our consideration is as follows: 4. Reimbursement receipts of the salary of employees seconded to group entities are considered as fee for technical services (“FTS”)

4.1 The Ld. AO/ DRP has erred in adding a sum of INR 2,94,40,381 under sec 9(1)(vii) of the Act and under the India-Japan Double Taxation Avoidance Agreement (“DTAA” or “Tax Treaty”)

4.2 The Ld. AO/ DRP has erred, in law and on facts, by adding the amount paid by Yokogawa India Limited (“YIL”) and Yokogawa IA Technologies India Private Limited (“YTI”), together known as (“Indian subsidiaries”) in relation to reimbursement of salary and related costs of the employee, to the taxable income of the assessee as FTS

IT(IT)A No.665/Bang/2023 Yokogawa Electric Corporation, Bangalore Page 2 of 16

4.3 The Ld. AO/ DRP has erred, in law and on facts, in making the said addition to the taxable income, without appreciating the fact that: (i) The employee was working under the direct supervision, control and management of the Indian subsidiaries and the Indian subsidiaries were the real and economic employers of the seconded employees (ii) No services were provided by seconded employees on behalf of Appellant to the Indian Subsidiaries (iii) While evaluating the real and economic employer of the employee, only the period of secondment is required to be considered (iv) The Indian subsidiaries are entitled to deal with the seconded employees in terms of disciplinary issues including termination similar to its other employees. Hence, the Indian subsidiaries are the real employer of the seconded employees. (v) The payment of salary to the employee was merely routed through Appellant for administrative convenience and the actual liability of payment of the salary was of the Indian subsidiaries. Hence, the said amount was ultimately received as reimbursement from Indian subsidiaries. (vi) The salaries are borne by the Indian Subsidiaries since they are the economic employer of the seconded employees. (vii) The Indian subsidiaries withheld taxes under section 192 of the Act on the salaries of the employees and therefore, has already been taxed in India. (viii) The amount remitted by the Indian subsidiaries were only reimbursement of salary on a cost-to-cost basis without any mark up and therefore, there was no income that was chargeable to tax 4.4 The Ld. AO/ DRP has erred, in law and in facts by relying on the decision of the Supreme Court in the case of Morgan Stanley & Co. Inc 2006 (284) ITR 260 without considering that it does not apply to the facts of the Appellant. Further, Ld. AO/ DRP has erred in not considering the decision of the Hon’ble Bangalore Tribunal in the case of Goldman Sachs Services Private Limited [TS-341-ITAT-2022(Bang)] which has also discussed the case of Morgan Stanley (supra) and allowed the appeal in the favour of the assessee. 4.5 The Ld. AO/DRP has erred, in law by not following the decisions by the Hon’ble Karnataka High Court in the case of Abbey Business Services India Private Limited [2020] 122 taxmann.com 174 and Flipkart Internet Private Limited [2020] TS-503-HC-2022, Hon’ble Bangalore Tribunal in the case of Goldman Sachs Services Private Limited [TS-341-ITAT-2022(Bang)] and

IT(IT)A No.665/Bang/2023 Yokogawa Electric Corporation, Bangalore Page 3 of 16 Google LLC [TS-73-ITAT-2023(Bang)] and therefore, has erred by not following the judicial hierarchy. 4.6 Without prejudice to the above, the Ld. AO/ DRP has erred, in law and in facts, by considering that the Indian entity and the Assessee has conveniently avoided payment of tax deducted at source (“TDS”) on something that is in the nature of FTS which has resulted in revenue loss, without considering the fact that TDS is not an obligation of the Appellant.

2.1 He submitted that the Indian Subsidiaries were responsible for payment of salaries as well as the with-holding tax related compliances and therefore, the Indian subsidiaries deducted taxes under section 192 of the Act on payment of salaries to the seconded employees. The Indian Subsidiaries have a right to terminate the employment of the seconded employees during the period of secondment. The salaries are paid by the Assessee to the overseas bank accounts of the seconded employees only for the purpose of administrative convenience. The Assessee has been reimbursed on a cost-to-cost basis (without any markup) by the Indian subsidiaries.

IT(IT)A No.665/Bang/2023 Yokogawa Electric Corporation, Bangalore Page 4 of 16 AO’s contentions

2.2 The Indian subsidiaries were not the real employers of the employees but the Assessee would be the real and legal employer. There is no employer-employee relationship between the seconded employees and the Indian subsidiaries as the actual liability of their salary payment and rights of termination lies with Assessee. Seconded employees are providing technical services to the India subsidiaries on behalf of the Assessee Assessee’s contentions

2.3 The ld. A.R. submitted that the Seconded employees were working in India under the supervision and direction of the Indian subsidiaries. During the period of secondment, the Indian subsidiaries are the economic employers of the seconded employees having complete control over their work, including having the right of termination. Seconded employees have worked under the employer-employee relationship with Indian subsidiaries and therefore, services are not provided to the Assessee in the nature of FTS. The liability of salary payment lies with the Indian subsidiaries and the Assessee transfers the same to the overseas bank accounts of the seconded employees only for administrative convenience, which is reimbursed by the Indian subsidiaries. It is a cost-to-cost reimbursement and therefore, there is no income that is chargeable to tax in India.

DRP Directions

2.4 The ld. DRP held that there is no real employer-employee relationship between Indian subsidiaries and the seconded employees and therefore, the services provided by the seconded employees are taxable as in the hands of the Assessee as FTS.

IT(IT)A No.665/Bang/2023 Yokogawa Electric Corporation, Bangalore Page 5 of 16 3. The ld. D.R. relied on the order of lower authorities. 4. We have heard the rival submissions and perused the materials available on record. Similar issue came for consideration before Hon’ble Karnataka High Court in the case of Abbey Business Services India Pvt. Ltd. in ITA No.214 of 2014 dated 1.12.2020, wherein held as under:

“9. We have considered the submissions made by learned counsel for the parties and have perused the record. Before proceeding further, it is apposite to take note of Section 9(i)(vii) and Section 195(1) of the Act, which is reproduced below for the facility of reference:

9(i)(vii) income by way of fees for technical services13 payable by--

(a) the Government ; or

(b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or

(c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India :

Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.

Explanation 1.--For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date.

Explanation 2.--For the purposes of this clause, "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 construction16, assembly, mining or like project undertaken by the recipient16 or consideration which would be income of the recipient chargeable under the head "Salaries".

195(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest (not being interest referred to in section 194LB or section 194LC) or section 194LD or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall,

IT(IT)A No.665/Bang/2023 Yokogawa Electric Corporation, Bangalore Page 6 of 16 at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force :

IT(IT)A No.665/Bang/2023 Yokogawa Electric Corporation, Bangalore Page 7 of 16 overseas entities fall within Article 12 of India, Canada and Article 13 of India, UK DTAAs, which embody the concept of service permanent establishment. In the instant case, the issue of permanent establishment is not involved. Therefore, the aforesaid decision is not applicable to the fact situation of the case.

In view of preceding analysis, the substantial questions of law framed by a bench of this court are answered against the revenue and in favour of the assessee.”

4.1 Further, Hon’ble Karnataka High Court in the case of Flipkart Internet Pvt. Ltd. in {TS-503-HC-2000 (Kar.)} held as under: “Karnataka HC allows Flipkart's writ petition challenging rejection of its application under Section 195(2) for 'NIL' TDS on payment to Walmart Inc. for reimbursement of salaries to seconded employees; Directs Revenue to grant 'Nil' TDS certificate; HC observes that finding under Section 195 is tentative and even if Revenue orders that no deduction of tax be made, the question of taxability of recipient still remains to be decided; Thus, the question of prejudice to Revenue at the stage of Section 195 is unavailable to it; Elaborately distinguishes Delhi HC ruling in Centrica India Offshore relied upon by the Revenue and also holds that the Revenue missed the Karnataka HC Division Bench's dicta in Abbey Services that "secondment agreement constitutes an independent contract of services in respect of employment" and proceeded to decide that secondment falls under Fees for Included Services (FIS):HC KAR”.

4.2. These judgements are consistently followed by the coordinate bench and in the case of Tesco Bengaluru Private Limited in IT(TP)A No.2898/Bang/2018 & IT(TP)A No.2387/Bang/2019 vide order dated 4.8.2022 for the AYs 2014-15 & 2015-16, it was held as under: “6.7 We have heard the rival submissions and perused the material available on record. After hearing both the parties, we are of the opinion that similar issue came for consideration before this Tribunal in the case of Abbey Bus Services Pvt. Ltd. reported in 122 Taxmann.com 174 (Karn) wherein held as under:- “From perusal of the relevant clauses of the agreement as well as the nature of services provided by the assessee under the agreement, it is evident that the assessee had entered into a secondment agreement for securing services to assist it in its business. The expenses incurred by the seconded employees which were reimbursed by the assessee is not liable to deduction to tax at source and the aforesaid amount could not be considered as 'fees for technical services'. It is also pertinent to note that secondment agreement constitutes an independent contract of services in respect

IT(IT)A No.665/Bang/2023 Yokogawa Electric Corporation, Bangalore Page 8 of 16 of employment with assessee. From the perusal of the key features of the agreement, it is evident that the seconded employees have to work at such place as the assessee may instruct and the employees have to function under the control, direction and supervision of the assessee and in accordance with the policies, rules and guidelines applicable to the employees of the assessee. The employees in their capacity as employees of the assessee had to control and supervise the activities of another company. Therefore, the assessee for all practical purposes has to be treated as employer of the seconded employees and expenses incurred by the seconded employees which were reimbursed by the assessee is not liable to deduction to tax at source. There is no obligation in law for deduction of tax at source on payments made for reimbursement of costs incurred by a non- resident enterprise and therefore, the amount paid by the assessee was not to suffer tax deduction at source under section 195. Thus, substantial question of law is answered against revenue. [para 11]”

4.3. Further, in the case of Goldman Sachs Services Pvt. Ltd. in ITA No.362 to 369 & 338 to 345/Bang/2020 for the assessment years 2011-12 to 2014-15 & 2015-16 to 2018-19 vide order dated 29.4.2022, wherein they considered the order of the Tribunal in the case of Toyota Boshoku Automotive India Pvt. Ltd. vs. ACIT in IT(TP)A No.1646/Bang/2017 & 2586/Bang/2019 for AYs 2013-14 & 2015- 16 dated 13.4.2022 wherein held as under:

“At the outset it would be useful to understand the concept of Assignment or secondment. Multi-national companies with a view to utilize skill within the group companies has global mobility policy of assignment or secondment. Secondment is deputing or sending one employee in one entity of the multi-national company in one country to another entity of the same multi-national company in another country. For reasons like continued pensionary benefits and other similar reasons the employee would want to retain his contract of employment with the original employer rather than with the seconded employer. In such agreement there are usually three parties, the employer deputing or seconding his employee, the employee and the employer to whom the employee is seconded or deputed. Such arrangements are also referred to as “International hiring out of labor”. Sec.9(1)(ii) of the Act lays down that Income in the form of salaries is deemed to accrue or arise in India and is deemed to have been earned in India if is received for services rendered in India. Under the Act, irrespective of the residential status of the employee, salary would be taxable in India, if it is for services rendered in India which is deemed to have been earned in India. In the case of seconded employee, if they are tax residents of a country with whom India has a Treaty for avoidance of double

IT(IT)A No.665/Bang/2023 Yokogawa Electric Corporation, Bangalore Page 9 of 16 taxation, Indian tax authorities right to tax salary income would depend on the terms of such treat.

OECD Model Commentary, (which is adopted in many of the DTAA (treaties) provides for right of taxation in so far as salaries are concerned, between the source state and the residence state. Article 15 of the Model Commentary reads thus:

Article 15: INCOME FROM EMPLOYMENT 1. Subject to the provisions of Articles 16, 18 and 19, salaries, wages and other similar remuneration derived by a resident of a Contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other Contracting State. If the employment is so exercised, such remuneration as is derived there from may be taxed in that other State. 2. Notwithstanding the provisions of paragraph 1, remuneration derived by a resident of a Contracting State in respect of an employment exercised in the other Contracting State shall be taxable only in the first- mentioned State if:

a) the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year concerned, and (b) the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and

(c) the remuneration is not borne by a permanent establishment which the employer has in the other State. 3. Notwithstanding the preceding provisions of this Article, remuneration derived in respect of an employment exercised aboard a ship or aircraft operated in international traffic, or aboard a boat engaged in inland waterways transport, may be taxed in the Contracting State in which the place of effective management of the enterprise is situated.”

Article 15(1) of OECD Model Convention lays down the rule of taxation of income earned by the seconded employee by giving the right to tax by the State where employment is exercised. The term “Employment is exercised” means, the place where the employee is physically present when performing the activities for which the employment income is paid. Article 15(2) of OECD Model Convention carves out exception to the rule in Article 15(1) by facilitating short term secondment without the burden of having to pay tax in the country where the employment is exercised subject to the following three conditions:

IT(IT)A No.665/Bang/2023 Yokogawa Electric Corporation, Bangalore Page 10 of 16 (a) If the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any 12 month period commencing or ending in the fiscal year concerned. and; (b) if the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State; and,

(c)if the remuneration is not borne by a permanent establishment or a fixed base which the employer has in the other State. The Second Condition –the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State. The meaning of the term ‘employer’ is critical as there are occasions when seconded employees are on the rolls of a non-resident employer, but in essence, work as per the directions and under the supervision of an enterprise to whom he has been seconded and yet claims short stay exemption. Since the right of the state of the temporary employment to tax employment income was limited by the provisions and conditions of Article 15, the tax administrations were not happy to notice that non-resident labor was easily entering their boundaries and easily avoiding source country taxation.

As a possible contribution to solving problems of abuse, recent OECD guidelines lay down guidelines to resolve interpretation issues concerning the concept of "employer" for purposes of paragraph 2 of Article 15. In determining the employer, the guidelines attaches importance to the nature of the services rendered, in order to determine, whether the services rendered by the individual constitute an integral part of the business of the enterprise to which these services are provided. In cases where the nature of the services rendered point to an employment relationship different than the one of the formal employer, the guidelines suggests objective criteria to determine the employer, namely:- − who has the authority to instruct the individual regarding the manner in which the work has to be performed; − who controls and has responsibility for the place at which the work is performed; − the remuneration of the individual is directly charged by the formal employer to the enterprise to which the services are provided; − who puts the tools and materials necessary for the work at the individual’s disposal; − who determines the number and qualifications of the individuals performing the work.

As a consequence, instead of being regarded as nonresident employee of a non-resident employer rendering services on a temporary basis, individuals may, if certain objective criteria are met, be deemed to be the employees of the service recipient in the other country (i.e. source country), and therefore, taxable in the source country where they are performing their services. Thus

IT(IT)A No.665/Bang/2023 Yokogawa Electric Corporation, Bangalore Page 11 of 16 where the control is exercised by the entity to whom the services are rendered, such an entity shall be construed to be the employer for the purpose of Article 15(2)(b).”

4.4 In view of the above order of the Tribunal, in the interest of justice, we remit the issue to the file of ld. AO for fresh consideration to decide the same in the light of above decisions. 5. Next ground for our consideration in ground Nos.5 to 5.5 are reproduced as under: 5. Consideration received towards license fee has been considered as income from “royalty” 5.1 The Ld. AO/ DRP erred in adding a sum of INR 57,65,284 and treating the same as royalty under section 9(1)(vi) of the Act read with Indian-Japan DTAA. 5.2 The Ld. AO/ DRP has erred in considering that the amount paid by YIL is in relation to a “copyright” and not copyrighted article. 5.3 The Ld. AO/ DRP has erred, in law and on facts, by adding the amount paid by YIL in relation to consideration for license fee without considering the ruling by the Apex Court in the case of Engineering Analysis(supra) 5.4 The Ld. AO/DRP has erred, in considering that royalty income accrues or arises in India or deemed to accrue or arise in India in the hands of the Appellant. In the absence of Permanent Establishment in India, the receipts received by the Appellant, being in the nature of business income, are not chargeable to tax in the hands of the Appellant as per India-Japan DTAA. 5.5 Without prejudice to the above, the Ld. AO/ DRP, has erred in law and in facts by not considering that the amount remitted by the Indian subsidiaries is only an allocation of the total cost borne by Appellant that is paid to SAP and is therefore, reimbursement in nature

5.1 The ld. A.R. submitted that the Assessee, being a non-resident, has purchased PRISM, a copyrighted article, from SAP and has limited rights and is required to make a payment to SAP based on the number of users in bundle basis for its use as well as for the use of its Affiliates. The license provided is in relation to right to use an online software (“PRISM”), i.e., an HR portal which is used for employees performance appraisal, annual goals, etc. During the said

IT(IT)A No.665/Bang/2023 Yokogawa Electric Corporation, Bangalore Page 12 of 16 year, the Assessee has received a reimbursement towards the same from Yokogawa India Limited (“YIL”) amounting to INR 57,65,284. The ld. A.R. has relied on the Hon’ble Supreme Court ruling in the case of Engineering Analysis [TS-106-SC-2021] and has contended that the consideration is not in the nature of ‘royalty’ under the India- Japan Tax Treaty. AO’s contentions 5.2 The learned AO has considered that there is no software which is being transferred but there is only a right to use an application and hence the Assessee’s case does not fall within the ambit of the Supreme Court’s verdict. With respect to distinction between “copyright” and “copyrighted article”, the learned AO has considered that there is no “article” involved in the transaction. The learned AO has considered that the consideration received from YIL falls within the scope of “right to use the process or information” and therefore constitutes royalty under Article 12(3) of India-Japan Tax Treaty. Assessee’s contentions 5.3 The ld. A.R. has relied on the Hon’ble Supreme Court’s ruling in the case of Engineering Analysis [TS-106-SC-2021] and has contended that the payment is towards a ‘copyrighted article’ and not a ‘copyright’ and therefore, is not in the nature of ‘royalty’. DRP Directions 5.4 The ld. DRP has upheld the arguments of the learned AO on the basis that there is no sale or resale of software from one party to another and therefore, the Supreme Court’s ruling does not apply. A copyrighted article is something that is physically tangible and since, there is no ‘article’ transferred, it is deemed to be copyrights of the software.

IT(IT)A No.665/Bang/2023 Yokogawa Electric Corporation, Bangalore Page 13 of 16 7. We have heard the rival submissions and perused the materials available on record. This issue is required to be examined in the light of judgement of Hon’ble Supreme Court in the case of Engineering Analysis Centre of Excellence Pvt. Ltd. Vs. CIT reported in (2021) 432 ITR 471 wherein held as under:

“12. We have carefully considered the rival contentions and perused the records. 13. Undisputed fact of the case are, Assessee is an ILD license holder and responsible for providing connectivity to calls originating/terminating outside India. Assessee has entered into an agreement with NTOs for international carriage and connectivity services. According to the assessee, payment made to NTOs is towards inter-connectivity charges. 14. Assessee has also entered into a CTA with a Belgium entity Belgacom. Belgacom had certain arrangement with the Omantel for utilisation of bandwidth. Omantel transferred certain portion of its capacity to Belgacom and Belgacom had in turn transferred a portion of its capacity to the assessee. 15. Admittedly the equipments and the submarine cables are situated overseas. To provide ILD calls, assessee had availed certain services from NTOs. It is also not in dispute that Belgacom, a Belgium entity with whom assessee has entered into an agreement does not have any ‘permanent establishment’ in India. 16. Shri. Pardiwala contended that the payments made by assessee cannot be treated as either Royalty or FTS34 or business profits as no part of the activity was carried out in India. Revenue’s reply to his contention is that, the income belongs to the payee. If, in the opinion of assessee, tax was not deductible, he ought to have approached the AO for the nil deduction certificate. It is also the further case of the Revenue that the agreement between assessee and the payee did not specify that income was not taxable. 17. The first question is whether the ITAT was correct in holding that DTAA cannot be considered under Section 201 of the Act. It was argued by Shri. Percy Pardiwala that this issue is covered by the decision in GE Technolgy. We may record that a DTAA is a sovereign document between two countries. In GE Technology, the Apex Court has held as follows:

IT(IT)A No.665/Bang/2023 Yokogawa Electric Corporation, Bangalore Page 14 of 16 “7. ...While deciding the scope of Section 195(2) it is important to note that the tax which is required to be deducted at source is deductible only out of the chargeable sum. This is the underlying principle of Section 195. Hence, apart from Section 9(1), Sections 4, 5, 9, 90, 91 as well as the provisions of DTAA are also relevant, while applying tax deduction at source provisions.” (Emphasis supplied) 18. The above passage has been noted and extracted in Engineering Analysis. Thus it is clear that an assessee is entitled to take the benefit under a DTAA between two countries. Hence, the ITAT’s view that DTAA cannot be considered in proceedings under Section 201 of the Act is tenable. 19. The second question for consideration is whether the ITAT was correct in holding that the amendment to provisions of Section 9(1)(vi) inserting the Explanations will result in amendment of DTAA. The answer to this question must be in the negative because in Engineering Analysis, the Apex Court has held that Explanation 4 to Section 9(1)(vi) of the Act is not clarificatory of the position as on 01.06.1976 and in fact expands that position to include what is stated therein vide Finance Act, 2012. 20. The Explanation 5 and 6 to Section 9(1)(vi) of the Act has been inserted with effect from 01.06.1976. This aspect has also been considered in Engineering Analysis holding that the question has been answered by two Latin Maxims, lex no cogit ad impossibilia i.e. the law does not demand the impossible, and impotentia excusat legem i.e. when there is disability that makes it impossible to obey the law, the alleged disobedience of law is excused and it is held in Engineering Analysis as follows:

“85. It is thus clear that the “person” mentioned in section 195 of the income Tax Act cannot be expected to do the impossible, namely, to apply the expanded definition of “royalty” inserted by explanation 4 to section 9(1)(vi) of the Income Tax Act, for the assessment years in question, at a time when such explanation was not actually and factually in the statute.”

“100. Also, any ruling on the more expansive language contained in the explanations to section 9(1)(vi) of the Income Tax Act would have to be ignored if it is wider and less beneficial to the assessee than the definition contained in the DTAA, as per section 90(2) of the Income Tax Act read with explanation 4 thereof, and Article 3(2) of the DTAA ”

IT(IT)A No.665/Bang/2023 Yokogawa Electric Corporation, Bangalore Page 15 of 16 21. The third question is, whether the payments made to NTOS for providing interconnect services and transfer of capacity in foreign countries is chargeable to tax as royalty. It was argued by Shri. Pardiwala, that for subsequent years in assessee’s own case, the ITAT has held that tax is not deductable when payment is made to non-resident telecom operator. This factual aspect is not refuted. Thus the Revenue has reviewed its earlier stand for the subsequent assessment years placing reliance on Viacom etc35, rendered by the ITAT. In that view of the matter this question also needs to be answered against the Revenue. 22. The fourth question is whether the Income Tax Authorities have jurisdiction to bring to tax income arising from extra- territorial source. Admittedly, the NTOs have no presence in India. Assessee’s contract is with Belgacom, a Belgium entity which had made certain arrangement with Omantel for utilisation of bandwidth. In substance, Belgacom has permitted utilisation of a portion of the bandwidth which it has acquired from Omantel. It is also not in dispute that the facilities are situated outside India and the agreement is with a Belgium entity which does not have any presence in India. Therefore, the Tax authorities in India shall have no jurisdiction to bring to tax the income arising from extra- territorial source. 23. The fifth question is whether the Revenue is right in holding that withholding tax liability should be levied at a higher rate. It was contended by Shri. Pardiwala that this issue is covered in assessee’s favour in CIT Vs. M/s. Wipro36 and the same is not disputed. Hence, this question also needs to be answered against the Revenue. 24. The sixth question is whether assessee can be held liable for non-reduction of tax at source for payments made for the A.Ys. on the basis of amendment to Section 9(1)(vi) of the Act. This aspect has been considered by us while answering question No.2. It is held in Engineering Analysis that an assessee is not obliged to do the impossible. Admittedly, the A.Y.s under consideration are 2008-09 to 2012-13 and the Explanation has been inserted by Finance Act, 2012. In addition, we have also held that assessee is entitled for the benefits under DTAA.”

7.1 Accordingly, this issue is remitted to the file of ld. AO for fresh consideration after giving an opportunity of hearing to the assessee.

IT(IT)A No.665/Bang/2023 Yokogawa Electric Corporation, Bangalore Page 16 of 16

Order pronounced in the open court on 26th Oct, 2023

Sd/- Sd/- (Beena Pillai) (Chandra Poojari) Judicial Member Accountant Member

Bangalore, Dated 26th Oct, 2023. VG/SPS

Copy to:

Asst. Registrar, ITAT, Bangalore.