INTRADO EC INDIA PRIVATE LIMITED,BENGALURU vs. DCIT-CIRCLE-3(1)(1), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL “A” BENCH : BANGALORE BEFORE SMT. BEENA PILLAI, JUDICIAL MEMBER AND Ms. PADMAVATHY S, ACCOUNTANT MEMBER

IT(TP)A No.239/Bang/2021 Assessment year : 2016-17

Intrado EC India Private Ltd. Vs. The Deputy (formerly West Unified Commissioner of Income Communications India Pvt. Ltd.], Tax, # 135, 1st Floor, RMZ Titanium, Circle 3(1)(1), Old Airport Road, Kodihalli, Bengaluru. Bengaluru – 560 017. PAN: AAACI 6707K APPELLANT RESPONDENT

Appellant by : Shri T. Suryanarayana, Advocate Respondent by : Shri K. Sankar Ganesh, Jt. CIT(DR)(ITAT), Bengaluru.

Date of hearing : 02.11.2022 Date of Pronouncement : 09.11.2022

O R D E R Per Padmavathy S., Accountant Member This appeal is against the final order of assessment passed by the Assessing Officer, National e-assessment Centre, Delhi, dated 16.4.2021 u/s. 143(3) r.w.s. 144C(13) of the Income-tax Act, 1961 [the Act] for the assessment year 2016-17.

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“The Hon’ble DRP/Ld. AO erred in law in upholding the transfer pricing adjustments proposed in the invalid order dated 31 October 2020 and time barred order dated 1 November 2020 issued under section 92CA of the Act by the ld. TPO.” 5. The ld. AR submitted that the TPO passed two assessment orders dated 31.10.2019 and 1.11.2019. The order dated 31.10.2019 is a manual order without containing a Documentation Identification Number (DIN) and the order dated 1.11.2019 is an order with a DIN. The ld AR submitted that the order u/s.92CA is in violation of the CBDT Circular No.19 of 2019 dated 14.8.2019 and the draft assessment order was passed pursuant to the TP order dated 31.10.2019 which is bad in law. The ld AR also submitted that in terms of clause 4 of the said circular, any communication which is not in conformity with the above shall be treated as invalid and shall be deemed to have never been issued. The ld AR placed reliance on the decision of the Kolkata Bench of the Tribunal in the case of Tata Medical Centre Trust v. CIT(E) [2022] 140 taxmann.com 431.

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bench of the Tribunal in the case of Sap Lab India Pvt Ltd vs DCIT (order dated 28.07.2022 in IT(TP)A No.561/Bang/2015). The ld AR summarized by submitting that both the orders of the TPO are not valid and hence the TP adjustment is liable to be deleted.

“CIRCULAR NO. 19/ 2019

Government of India Ministry of Finance Department of Revenue Central Board of Direct Taxes New Delhi, dated the 14th August, 2019. Subject: Generation/Allotment/Quoting of Document Identification Number in Notice/Order/Summons/letter/ correspondence issued by the Income Tax Department – reg. With the launch of various e-governance initiatives, Income-tax Department is moving toward total computerization of its work. This has led to a significant improvement in delivery of services and has also brought greater transparency in the functioning of the tax- administration. Presently, almost all notices and orders are being generated electronically on the Income Tax Business Application (ITBA) platform. However, it has been brought to the notice of the Central Board of Direct Taxes (the Board) that there have been some instances in which the notice, order, summons, letter and any correspondence (hereinafter referred to as "communication") were found to have been issued manually, without maintaining a proper audit trail of such communication.

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Circular No ...dated (strike off those which are not applicable) and with the approval of the Chief Commissioner/Director General of Income Tax vide number .... dated .... 4. Any communication which is not in conformity with Para-2 and Para-3 above, shall be treated as invalid and shall be deemed to have never been issued. 5. The communication issued manually in the three situations specified in para 3- (i), (ii) or (iii) above shall have to be regularised within 15 working days of its issuance, by — i. uploading the manual communication on the System. ii. compulsorily generating the DIN on the System; iii. communicating the DIN so generated to the assessee/any other person as per electronically generated pro-forma available on the System. 6. An intimation of issuance of manual communication for the reasons mentioned in para 3(v) shall be sent to the Principal Director General of Income-tax (Systems) within seven days from the date of its issuance. 7. Further, in all pending assessment proceedings, where notices were issued manually, prior to issuance of this Circular, the Income-tax authorities shall identify such cases and shall upload the notices in these cases on the Systems by 31th October, 2019.” Sd/- (Sarita Kumari) Director (ITA.II)CBDT.” 8. From the plain reading of the circular it is clear that the effective 1st October 2019, no communication shall be issued unless a DIN is allotted and is quoted in the body of the letter except under exceptional circumstances as mentioned in Para 3 which also lays down certain procedures to be followed for issue of manual order under certain circumstances. Accordingly the manual communication should mention the fact that the communication is issued manually without a

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DIN and the date of obtaining of the written approval of the Chief Commissioner/ Director General of Income-tax for issue of manual communication in a specific format. Para 4 of the circular states that the communication issued manually not in conformity with Para-2 and Para-3 of the circular, shall be treated as invalid and shall be deemed to have never been issued.

“13. From the above submissions and arguments, we note that it is an undisputed fact that the impugned order u/s. 263 of the Act has been issued manually which does not bear the signature of the authority passing the order. Further, from the perusal of the entire order, in its body, there is no reference to the fact of this order issued manually without a DIN for which the written approval of Chief Commissioner/Director General of Income-tax was required to be obtained in the prescribed format in terms of the CBDT circular. We also note that in terms of para 4 of the CBDT circular, such a lapse renders this impugned order as invalid and deemed to have never been issued. 13.1 It is also important to note about the binding nature of CBDT circular on the Income-tax Authorities for which gainful guidance is taken from the decision of Hon'ble Supreme Court in the case of CIT v. Hero Cycles (P.) Ltd. [1997] 94 Taxman 271/228 ITR 463 wherein it was held that circulars bind the ITO but will not bind the appellate authority or the Tribunal or the Court or even the assessee. 13.2 In the case of UCO Bank v. CIT [1999] 104 Taxman 547/237 ITR 889 (SC), Hon'ble Supreme Court while dealing with the legal status of such circulars, observed thus (page 896): "Such instructions may be by way of relaxation of any of the provisions of the sections specified there or otherwise. The Board

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thus has power, inter alia, to tone down the rigour of the law and ensure a fair enforcement of its provisions, by issuing circulars in exercise of its statutory powers under section 119 of the Income-tax Act, which are binding on the authorities in the administration of the Act. Under section 119(2)(a) , however, the circulars as contemplated therein cannot be adverse to the assessee. Thus, the authority which wields the power for its own advantage under the Act is given the right to forgo the advantage when required to wield it in a manner it considers just by relaxing the rigour of the law or in other permissible manners as laid down in section 119. The power is given for the purpose of just, proper and efficient management of the work of assessment and in public interest. It is a beneficial power given to the Board for proper administration of fiscal law so that undue hardship may not be caused to the assessee and the fiscal laws may be correctly applied. Hard cases which can be properly categorized as belonging to a class, can thus be given the benefit of relaxation of law by issuing circulars binding on the taxing authorities."

13.3 In the matter of CIT v. Smt. Nayana P. Dedhia [2004] 141 Taxman 603/270 ITR 572 (AP), the Hon'ble Andhra Pradesh High Court held that the guidelines issued by the Board in exercise of powers in terms of section 119 of the Act relaxing the rigours of law are binding on all the officers responsible for implementation of the Act and, therefore, bound to follow and observe any such orders, instructions and directions of the Board. 13.4 In the decision of Dy. CIT v. Sunita Finlease Ltd. [2011] 11 taxmann.com 241/330 ITR 491 (Chattisgarh) it was held by the Hon'ble High Court of Chhattisgarh in para 16 that the administrative Instruction No. 9/2004 issued by the Central Board of Direct Taxes is binding on administrative officer in view of the statutory provision contained in section 143(2), which provides for limitation of 12 months for issuance of notice under section 143(2). While giving its finding, the Hon'ble High Court of Chhattisgarh placed reliance on the decisions in the case of UCO Bank (supra) and Nayana P. Dedhia (supra). 13.5 Hon'ble jurisdictional High Court of Calcutta in the case of Amal Kumar Ghosh v. Asstt. CIT [2014] 45 taxmann.com 482/225 Taxman

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229 (Mag.)/361 ITR 458 dealt with the issue relating to CBDT circular which according to the Department cannot defeat the provisions of law. While giving its observations and finding on the issue, the Hon'ble Court referred to the decision of Hon'ble Chhattisgarh High Court in the case of Sunita Finlease Ltd. (supra), which are as under: 7. We have considered the rival submissions advanced by the learned Advocates. Even assuming that the intention of CBDT was to restrict the time for selection of the cases for scrutiny within a period of three months, it cannot be said that the selection in this case was made within the aforesaid period. Admittedly, the return was filed on 29th October, 2004 and the case was selected for scrutiny on 6th July, 2005. It may be pointed out that Mrs. Gutgutia was, in fact, reiterating the views taken by the learned Tribunal which we also quoted above. By any process of reasoning, it was not open for the learned Tribunal to come to a finding that the department acted within the four corners of Circulars No. 9 and 10 issued by CBDT. The circulars were evidently violated. The circulars are binding upon the department under section 119 of the I.T. Act. 8. Mrs. Gutgutia, learned Advocate submitted that the circulars are not meant for the purpose of permitting the unscrupulous assessees from evading tax. Even assuming, that to be so, it cannot be said that the department, which is State, can be permitted to selectively apply the standards set by themselves for their own conduct. If this type of deviation is permitted, the consequences will be that floodgate of corruption will be opened which it is not desirable to encourage. When the department has set down a standard for itself, the department is bound by that standard and cannot act with discrimination. In case, it does that, the act of the department is bound to be struck down under article 14 of the Constitution. In the facts of the case, it is not necessary for us to decide whether the intention of CBDT was to restrict the period of issuance of notice from the date of filing the return laid down under section 143(2) of the I.T. Act. [emphasis supplied by us by underline] 14. Considering the facts on record, perusal of the impugned order, submissions made by the Ld. Counsel and the department, CBDT circular and the judicial precedents including that of Hon'ble Supreme Court and the jurisdictional High Court of Calcutta, we are inclined to adjudicate on the additional ground in favour of the assessee by holding that the order passed by the Ld. CIT(E) is invalid and deemed to have

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never been issued as it fails to mention DIN in its body by adhering to the CBDT circular no. 19 of 2019. Accordingly, additional ground taken by the assessee is allowed. Having so held on the legal issue raised by the assessee in the additional ground, the grounds relating to the merits of the case requires no adjudication. Accordingly, the appeal of the assessee is allowed in terms of above observations and findings.” 10. We further notice that a similar view is being taken by the Delhi Bench of the ITAT in the case M/s. Brandix Mauritius Holdings Ltd., vs DCIT (ITA No.1542/Del/2020 dated 19.09.2022).

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I. Date of filing of return of income – 30.11.2016 II. 143(2) issued on – 02.08.2017 III. Time period within which 143(3) is to be passed as per sec.153(1) – 31.12.2019 (twenty-one months from the end of the assessment year in which the income was first assessable) IV. Date by which order u/s. 92CA(3) was to be passed – 31.10.2019 (60 days prior to the date on which the period of limitation prescribed u/s.153 expires)

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V. Date of passing the order u/s. 92CA(3) – 01.11.2019 14. Considering the facts of the case tabulated above and placing reliance on the coordinate bench, we hold that the order date 01.11.2019 is passed beyond the period of limitation and therefore the adjustment proposed by way of transfer pricing order u/s. 92CA(3), therefore needs to be quashed. It is ordered accordingly

Disallowance u/s. 40(a)(ia) – Ground No.15 & 16 15. During the year under consideration, the assessee made the following payments under the head ‘management fees’.

Name of the party Relation Nature of Amount of transaction payment (Rs.) West Unified Fellow Management 39,46,914 Communications Services subsidiary Fee Inc. (Formerly Intercall Inc.) West UC Asia Pte. Ltd. Holding Management 21,63,67,296 (formerly Intercall Asia company Fee Pacific Holdings Pte Ltd.) Total 22,03,14,210

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services related to finance, accounting and treasury management, human resources and pay roll administration in relation to the assessee. The assessee also submitted that the payments are made by the assessee year on year and that there is no technical knowledge, experience, skill, know-how or processes which are being made available to the assessee which is a condition precedent for a consideration to be fees for technical services under the Double Taxation Avoidance Agreement (DTAA). The assessee therefore submitted that the impugned payments by the assessee fail the test of “make available” under the Indo-USA and India-Singapore DTAA and therefore no tax needs to be deducted at source.

“As per both the DTAA, a 'Fee for Technical Services'(FTS) can be said to be paid for services of a managerial, technical or consultancy nature only if any of the conditions as laid out is satisfied. In the case of the assessee, a careful perusal of the 'Master Services Agreement' as referenced in the preceding paragraphs makes it clear that that the service provider 'makes available' technical knowledge, experience, skill, know-how or processes, which enables the assessee to apply such knowledge on its own. The relevant portions of the assessee's 'Master Services Agreement' with West Unified Communication Services Inc. (Formerly Intercall Inc.) and West UC Asia Pte Ltd (Formerly InterCall Asia Pacific Holdings Pte. Ltd) for receipt of services, are reproduced below. (Note: The relevant text of agreements with both the parties is the same and hence the discussion below is applicable for payments to both Related parties.)

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ARTICLE 4 SERVICES The Service Provider will render to the Service Recipient some or all of the Services defined in Exhibit 1, which are adequate for the needs, benefit and interest of the Service Recipient. As needed, the service may include, in particular but not limited to, business advisory services, coaching and operational support for example in treasury and finance, business development, legal, human resources, sales and marketing as well as information technology and other services as agreed. Thus, the Service providers being the Related parties as discussed supra, impart knowledge to the assessee company (Service recipient), apart from providing of services. Moreover, the Service Recipient, meaning, the assessee, has direct access to knowledge of confidential information of the Service provider. The relevant portion of this part of the agreement is reproduced below. ARTICLE 11 CONFIDENTIALITY Rosh Parties hereby acknowledge that by virtue of this Agreement they shall have direct or indirect access and acquire knowledge of confidential information of the other Parry (hereinafter referred to as the "Information"). This means the Service providers being the Related parties as discussed supra have made available their knowledge to the assessee (Service Recipient) in such a way that the assessee can apply the same on its own, in addition to services provided in the form of managerial and technical services as defined in 'Fee for Technical Services'. 6.5.2 Clearly, the make-available clause of both DTAA applies to the assessee and hence the test of DTAAs and the test of Section 90 of the IT Act is passed. 6.5.3 In the judgment given by the jurisdictional High Court in the case of De Beers India Minerals (P.) Ltd (TS-312-HC-2012(Kar)), it has been held that, in order to fit into the terminology of 'making available', the technical knowledge or skills of the service provider should be imparted to and absorbed by the service receiver so that the latter can deploy similar technology in the future without depending upon the provider. The technical knowledge, skills, etc. must remain with the

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person receiving the services even after the particular contract comes to an end. Similar stand has been taken by the Authority of Advance Rulings ('AAR') in case of Akamai Technologies Inc. (A.A.R.No 1107 of 2011). Even these judgements apply squarely in the case of the assessee as provided by its 'Master Services Agreement'. The relevant extract is placed below. ARTICLE 11 CONYIDENTTALITY Both Parties hereby acknowledge that by virtue of this Agreement they shall have direct or indirect access and acquire knowledge of confidential information of the other Party (hereinafter referred to as the "Information”). Both Parties undertake hereby to hold in stria confidence all and any information and not to use, disclose, reproduce or dispose of any Information in any manner other than that expressly provided for in this Agreement. Furthermore, both Parties hereby guarantee that any person related to them which might have access or obtain knowledge of the Information, including but not limited to its personnel. employees, consultants or agents, shall be bound by this Article 11. The obligations of both Parties under this Article 1I shall survive in arty case the termination of this Agreement, being irrelevant the reasons of such a termination. The technical knowledge, skills, etc. remains with the person receiving the services, being the assessee Company, even after the contract comes to an end. 6.5.4 With this, the assessee's case has passed all the tests required, in respect of necessity of deduction of taxes as required by Section 195, section 5, section 9, section 90 and the relevant section (Article-12) of both DTAAs. The assessee's case is also covered by the judicial pronouncements as explained above. As such, the payments made by the assessee to its Related parties, are not in the nature of their business

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income as claimed by the assessee and the applicability of 'Permanent Establishment' test does not arise. 6.5.5 The Hon’ble Supreme Court in case of GE India Technology Cen. (P.) Ltd. Vs CIT ([2010] 193 Taxman 234 (SC)) held that the most important expression in Section195(1) of the Act are the words 'chargeable under the provisions of the Act'. Any person paying interest or any other sum to a non-resident is not liable to deduct tax if such sum is not chargeable to tax under the Act. However, the payer is bound to deduct TDS if the income is assessable in India. 6.6 As discussed supra, in this case, the payment in the nature of Fee for Technical services has qualified all the tests needed, for the deduction of TDS to be made by the assessee. 6.7 However, the assessee has not deducted TDS on payment of such 'Management fee' in AY 2016-17. This attracts the applicability of Section 40(a)(i) of the IT Act. For ease of reference, the same is reproduced below: Amounts not deductible. 40. Notwithstanding anything to the contrary in sections 30 to 38, the following amounts shall not be deducted in computing the income chargeable under the head "Profits and gains of business or profession"— (a) in the case of any assessee— (i) any interest (not being interest on a loan issued for public subscription before the 1st day of April, 1938), royalty, fees for technical services or other sum chargeable under this Act, which is payable,— (A) outside India; or (B) in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted or, after deduction, has not been paid on or before the due date specified in sub-section (1) of section 139 :

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The assessee has paid fees for technical services chargeable under this Act, which is paid outside India to a non-resident, on which tax is deductible at source under Chapter XVII-B and such tax has not been deducted. The quantum of such payment is INR 22,03,14,210. The same is hence disallowed from the Computation of income of the assessee u/s 40(a)(i) of the IT Act, 1961.” 18. On objections raised the DRP confirmed the disallowance. Aggrieved the assessee is in appeal before us.

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CIT(Appeals) vide order dated 28.06.2019 held that the payments are not liable for tax deduction at source in India. It is therefore contended that the revenue cannot take a different stand for the same payment in the year under consideration.

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“ARTICLE 4 SERVICES The Service Provider will render to the Service Recipient some or all of the Services defined it Exhibit 1, which are adequate for the needs, benefit and interest of the Service Recipient. As needed, the Services may include, in particular but not limited to, business advisory services. coaching and operational support for example in treasury and finance, business development. legal, human resources, sales and marketing as well as information technology and other services as agreed. The Services, which the Service Recipient has requested the Service Provider to provide, as well as the activities to be carried out, are listed in Exhibit 1 to this Agreement, which shall be considered as an integral part of this Agreement. All the information included in Exhibit 1 shall be reviewed periodically and be aligned with actual circumstances, which may change over the duration of this Agreement. The Parties shall mutually agree on any changes to such information.” Exhibit - 1 “Reseller Services • Service Provider may solicit sales within the Territory and other selected country customers within the guidelines provided by Service Recipient. Service Recipient retain,. the right of approval on all sales. • Service Recipient will make all strategic decisions with regard to the execution of its conferencing business in the Territory and will be the significant risk taker with regard to the conferencing, event, and other services resold by Service Provider. • Service Provider will perform or assist in marketing activities required to develop its sales market. • The parties will decide whether Service Provider or Service Recipient will prepare and issue customer invoices and make collections from customers. • Service Provider will retain ownership of the customer relationships.

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• Service Recipient will assume the risk of bad debts, quality claims, and currency risk related to sales solicited by Service Provider.” Conferencing Ops / Telecom • Service Provider may provide conferencing operational and / or telecom services to Service Recipient. To conduct this service, Service Provider will own or lease facilities, employ the appropriate personnel, and own and operate / maintain conferencing hardware equipment, as needed. • In order for Service Provider to provide this service, Service Recipient will sub-license the conferencing or other platforms to Service Provider on a royalty-free basis. • Service Provider's conferencing bridges may carry calls for both Service Recipient as well as other West Group companies. Service Provider may invoice the other West Group companies, or at the request of Service Recipient, will provide Service Recipient with sufficient data to invoice the other West Group companies. • Service Provider may also provide services with regard to the origination / procurement of telecom in the region to Service Recipient. Event Services • Service Provider may provide event services to Service Recipient within guidelines provided by Service Recipient. • To conduct this service, Service Provider will own or lease facilities, employ the appropriate personnel, and own and operate / maintain computer hardware, as needed. • Service Recipient either owns or licenses the event platforms on which the events will be executed and will assume all quality risks associated with the events. Call Center Services • Service Provider may provide call center services to Service Recipient within guidelines provided by Service Recipient.

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• To conduct this service, Service Provider will own or lease facilities, employ the appropriate personnel, and own and operate / maintain computer hardware, as needed. • Service Recipient either owns or licenses the platforms used to monitor customer calls and data. Administrative Services • Service Provider may provide administrative services to Service Recipient. • To conduct this service, Service Provider will own or lease facilities, and employ the appropriate personnel, and execute whatever other legal or administrative steps needed to provide such Services. • The administrative services which may be provided (not all- inclusive), are: - Finance, Accounting, and Treasury - Invoicing and collections - Legal - Human Resources and Payroll administration - Information Technology - Marketing - Other Contract Research & Development • Service Provider may provide contract research and development services to Service Recipient. • To conduct this service, Service Provider will own or lease facilities, employ the appropriate personnel, and operate / maintain computer hardware, as needed. • Service Provider will have no ownership right to the software developed or upgraded and Service Recipient will retain all rights and ownership to the software. • Service Provider's programmers may perform development work for both Service Recipient as well as other West Group companies

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that will contract with Service Provider. Service Provider will maintain records to segregate time and expense to separately invoice the other West Group companies.” 22. From the Article 12 of the DTAA between India and US and India and Singapore as extracted in the earlier part of this order, it is clear that the technical knowledge, experience, skill know-how or processes which enables the person acquiring the services to apply the technology contained therein. The Hon'ble Karnataka High Court in the case of CIT vs. De Beers India Minerals Pvt. Limited (2012): 346 ITR 467 (Kar) while considering a similar issue has held that –

“To be said to “make available”, the service should be aimed at and result in transmitting technical knowledge etc so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into terminology “making available”, the technical knowledge, skills” etc must remain with the person receiving the service even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider has gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. On facts, while the Dutch company performed the surveys using substantial technical skills, it has not made available the technical expertise in respect of such collection or processing of data to the assessees, which the assessee can apply independently and without assistance and undertake such survey independently. Consequently, the consideration is not assessable as “fees for technical services”. 23. On perusal of the Service clause in the MSA, it is noticed that the service provider is providing regular management services relating to the business administration of the company and in our considered view there is no technical knowledge was imparted to the assessee. In view of the above and placing reliance on the decision of the

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jurisdictional High Court in the case of De Beers (supra) we hold that the services rendered by the related parties to the assessee are not liable to tax deduction at source since there is no technology or technical knowledge is made available to the assessee.

Pronounced in the open court on this 9th day of November, 2022.

Sd/- Sd/- ( BEENA PILLAI ) ( PADMAVATHY S. ) JUDICIAL MEMBER ACCOUNTANT MEMBER Bangalore, Dated, the 9th November, 2022.

/Desai S Murthy / Copy to: 1. Appellant 2. Respondent 3. CIT 4. CIT(A) 5. DR, ITAT, Bangalore. By order

Assistant Registrar ITAT, Bangalore.