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Income Tax Appellate Tribunal, “B” BENCH : BANGALORE
Before: SHRI N V VASUDEVAN & Ms. PADMAVATHY S
Per Padmavathy S., Accountant Member This appeal is at the instance of assessee directed against the order of the CIT(Appeals)-12, Bengaluru dated 14.09.2015 for the assessment year 2016-17 on the following grounds:-
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“1.0 Exception to section 9(l)(vi)(b) / 9(l)(vii)(b) not examined by CIT(A) 1.1 The learned CIT(A) 12, Bangalore has erred in not appreciating that the payments to non residents were in respect of right, property or information used or services utilized in a business or profession carried on by the appellant outside India or for the purposes of making or earning any income from any source outside India. 1.2 The learned CIT(A) 12, Bangalore has erred in not appreciating that the payments to non residents were not deemed to accrue to arise in India u/s 9(1)(vi)/(vii) in view of the above exception and consequently not liable for TDS u/s 195. 2.0 Payments to non residents were not chargeable to tax under the DTAA 2.1 The learned CIT(A) 12, Bangalore has erred in treating entire payment made to non resident as towards training services and further erred in not appreciating that the payment was also made for online subscription for esginature or digital signature and support charges. 2.2 The learned CIT(A) 12, Bangalore has erred in not appreciating that the payments to non residents were not chargeable to tax under the DTAA and consequently not liable for TDS u/s 195. 3.0 Rate of 20% u/s 206AA is not applicable for grossing up u/s. 195A 3.1 The learned CIT(A) 12, Bangalore has erred in not appreciating that the rate of 20% as per section 206AA is not applicable for the purposes of grossing up of income and payment of TDS under section 195A. 3.2 The learned CIT(A) 12, Bangalore has erred in not appreciating that the grossing up under section 195A is required to be made at 'rates in force' and not at the rate of 20% as per section 206AA.
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3.3 The learned CIT(A) 12, Bangalore has erred in not appreciating that section 206AA is not applicable in the context of section 195A as grossing up u/s 195A does not involve deduction of tax at source from the amount payable to the payer. 4.0 Grant of interest on refund 4.1 The learned CIT(A) 12, Bangalore has erred in not allowing interest on refund of TDS paid by the appellant out of its own funds. 4.2 The learned CIT(A) 12, Bangalore has erred in not appreciating that interest on refund of TDS is to be allowed as per CBDT Circular No. II of 2016 dated 26.4.2016 read with the decision of the Supreme Court in the case of UOI v TATA Chemicals Ltd (2014)43 taxmann.com 240 (SC).”
The brief facts of the case are that the assessee is an Indian company engaged in the business of providing business process outsourcing services. The following payments were made by the assessee to non-residents after grossing up the invoice amount and TDS thereon in accordance with the provisions of section 195A of the Income-tax Act, 1961 [the Act]:-
Vendor Country Vendor Tax Grossed- TDS Rate Challan Nature Name PAN Residency up date of Invoice expenses Docusiign USA Not No 380,248 39166 10.30 6.7.2015 Training available fees Docusiign USA Not No 347,755 35819 10.30 6.7.2015 Training available fees
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According to the assessee, the payment of TDS after grossing up had been made out of the assessee’s own funds and under protest and TDS Certificates will not be issued to the non-residents.
The assessee filed an application before the CIT(Appeals) u/s. 248 of the Act for a declaration that payments made to non-residents were not chargeable to tax under the provisions of the Act and Double Taxation Avoidance Agreements (DTAA) and consequently no tax was deductible on the said payments u/s. 195 of the Act.
The CIT(Appeals) observed that as per the provisions of section 248 of the Act, a person who makes a payment of any income other than interest and pays tax deductible u/s. 195 to the credit of the Central Government and claims that tax was not required to be deduction on such income, appeal may be filed before the Commissioner (Appeals) for a declaration that no tax was deductible on such income. In such cases, any order is not required to be passed by the Assessing Officer for filing the appeal before the CIT(Appeals) as held in Jindal Thermal Power Co. Ltd. v. DCIT [2009] 182 Taxman 282 (Kar), DIT v. CGI Information Systems and Management (ITA No.531 of 2008, High Court of Karnataka) and Kotak Mahindra Ltd. v. ACIT [2010-TII- ITAT-Mum-INTL.). With these observations, the CIT(Appeals) admitted the appeal for adjudication.
The assessee sought a declaration from the CIT(Appeals) stating that the payment made to non-resident, Docusiign, is training fees and hence no TDS was liable to be deducted at source by the assessee.
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However, the CIT(Appeals) held that income arising due to payments for the services mentioned would come under the ambit of “fees for technical services” as described in section 9(1)(vii) of the Act. The nature of remittance as per Form 15CB is ‘training charges’. According to him, the amount paid for training services relating to technical matters in the field of e-signature and digital signature. Therefore, the payments made to non-residents in this case is chargeable to tax in India as per the provisions of the Act and dismissed the ground of the assessee.
Another plea of the assessee before the CIT(Appeals) was that the payments made to non-residents were not chargeable to tax in India under the DTAA. The CIT(Appeals) rejected this plea of the assessee on the ground that the payee is stated to be Docusiign Inc. of USA, however tax residency certificate was not submitted. He observed that as per section 90 of the Act, the benefit of a DTAA between two countries is available to a non-resident by way of relief either in respect of income on which income-tax has been paid in both the countries or income-tax chargeable under the Income-tax Act and under the corresponding law of the other country only when that person to whom the agreement applies, obtains a certificate of being a resident from the Government of that country. In the absence of such a residency certificate, the benefit is not available to the payee. In the present case, the assessee has in the capacity of deductor, paid the taxes due on the payment of income under agreement or arrangement and claimed that no tax was required to be deducted on such income. The CIT(A) noted
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that this claim of the assessee regarding non-chargeability of income paid could be examined in light of the DTAA, only when the tax residency certificate is submitted in respect of payee. Otherwise, it would amount to contravention of section 90(4) of the Act. Hence, in the absence of tax residency certificate of the payee, the assessee’s claim was rejected by the CIT(Appeals).
Next issue on which the assessee sought declaration from the CIT(A) that tax deducted at higher rate under section 206AA was not applicable when the payments were made to non-residents in the absence of Permanent Account Number. On this, the CIT(A) relied on the decision of the coordinate bench of the Tribunal in the case of Bosch Ltd v ITO (2012) 28 Taxmann.com 228 (Bang Trib) and held that the non-resident payees to whom payments of income chargeable to tax in India were made were required to obtain PAN. The CIT(A) also distinguished the issue in this case with the decision of the coordinate bench of the Tribunal in assessee’s own case (IT(IT)A no. 9/Bang/2014 & CO 84/Bang/2014) where it was held that that section 206AA for charging tax at higher rate under section 206AA was not permissible when the benefit of DTAA was available to the non- resident payee. In this regard the CIT(A) stated that the benefit of DTAA is available only when the certificate of tax residency is submitted in terms of section 90(4) of the Act and since the assessee had not submitted the residency certificate from the Government of the other country the decision of the Hon’ble Tribunal in assessee’s own case is not applicable. Therefore the CIT(A) rejected the ground.
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The assessee also sought declaration that assessee was entitled to refund of TDS under section 195A along with interest under section 244A of the Act. The CIT(A) rejected this stating that the payments made by the assessee were chargeable to tax in India as per Income Tax Act and that the benefit of DTAA is not available to the assessee in the absence of certificate of residency. The CIT(A) further stated that there is no provision under section 214 and 244A of the Act for interest in an appeal made under section 248 of the Act. The CIT(A) rejected this ground submitted by the assessee seeking declaration
Aggrieved, the assessee is in appeal before the Tribunal. The Ld AR submitted additional evidence in the form of certificate of residency of the payee Docusign Inc and prayed for the admission of the additional evidence. With regard to taxability of the payments made to Docusign Inc in India, the additional evidences now produced goes to the root of the issue and the core reason for not giving the declaration sought by the assessee u/s.248 for the same by the CIT(A). For a proper adjudication of the issue and for substantial cause, the additional evidence is admitted and taken on record.
The ld. AR submitted that the fees paid by the assessee to Docusign Inc is towards online subscription for e-signature / digital signature and that the digital signature process is used whereby the legal documents are send to the respective signatory for their signature. The payments thus made would include support and training charges also. Therefore the ld.AR submitted that the payment does not fall
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under the purview of ‘fees for technical services’ under Article 12 of the DTAA between India and USA as there is no technical knowledge made available by the payee to the assessee
On the other hand, the ld. DR relied on the order of the CIT(Appeals).
We have heard the rival submissions and perused the material on record. Before we go into whether the fees paid by the assessee towards training is tax deductible, we will look at the relevant provisions of section 9(1)(vii) which is as follows:-
Definition of Fees for Technical Services as per section 9(1)(vii) “(vii) income by way of fees for technical services 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 person97 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 *****
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
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any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries".]”
We notice that the CIT(A) has considered the payments made to Docusign as ‘Training Charges’ based on Form No.15CB and has not gone into the merits to analyse the actual nature of the payment. From the invoices submitted by the ld.AR (page 2-4 of paper book) it is evident that the payment is made mainly towards the subscription to e- signature / digital signature and the invoice also shows that the subscription is for a specific period. The Training and support charges paid are also in connection with subscription as can be inferred from the same invoices. Hence the arguments of revenue was that the services provided were in the nature of 'fees for technical services' as defined in Explanation 2 to section 9(1)(vii) is not tenable.
The additional evidence submitted substantiates the residential status of the payee (Docusign) and hence the whole contention of the revenue that the benefit of DTAA between India and USA is not applicable to the assessee no longer holds good. Once the payment comes into the ambit of DTAA then the taxability of the same under Article 12(4) needs to examined. The relevant extract of Article of DTAA between India and USA is as follows -
Article 12(4) of DTAA between India and USA “For purposes of this Article, "fees for included services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including
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through the provision of services of technical or other personnel) if such services :
(a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received ; or (b) make available technical knowledge, experience, skill, know- how, or processes, or consist of the development and transfer of a technical plan or technical design.” 16. The law is settled so far as the connotations of 'make available' clause in the definition of fees for technical services in the contemporary tax treaties are concerned. It is held to be a condition precedent for invoking this clause that the services should enable the person acquiring the services to apply technology contained therein. This proposition is supported by the decision of the Hon’ble Karnataka High Court in the case of CIT v. De Beers India (P.) Ltd. [2012] 346 ITR 467/208 Taxman 406/21 taxmann.com 214. In the given case the payment made by the assessee to Docusign is a subscription fees and it is very clear that there is no transfer of technology involved in services provided by the Docusign. Accordingly the 'make available' clause is not satisfied and, therefore the consideration for such services cannot be taxed under article 12(4) of the India USA Treaty.
The next issue for consideration is the deduction of tax at source at higher rate under section 206AA in the absence of Permanent Account Number not being applicable to payments made to non- residents by the assessee. We notice that the CIT(A) himself has quoted
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the relevant extract of the decision of the coordinate bench of the Tribunal in assessee’s own case where the Tribunal has held that
“Thus the provisions of TDS has to be read alongwith the machinery provision of computing the tax liability on the sum in question. Following the decisions of the coordinate benches supra, as well as the judgement of the Hon’ble jurisdictional High Court in the case of M/s.Bharti Airtel Ltd supra, we do not find any error or illegality in the order of the CIT(A) that there is no scope for deduction of tax at the rate of 20% as provided under the provisions of section 206AA of the IT Act when the benefit of DTAA is available” 18. After the admission of the certificate of tax residency, we have already examined the taxability of the payment made to Docusign under DTAA the benefit of DTAA is available to the assessee. In view of the same, the decision of the coordinate bench in assessee’s own case (supra) is applicable for the year under consideration and hence we hold that the deduction of higher rate of tax under section 206AA is not applicable on the payments made by the assessee to non-residents.
On the issue of interest on refund of tax deposited under section 195 of the Act, it is submitted that the coordinate bench of the Tribunal in assessee’s own case (IT(IT)A Nos.986 & 990/Bang/2017) has held that the assessee is entitled for interest on refund of tax deposited under section 195 of the Act. The Hon’ble Tribunal has held that –
“It is submitted that Hon’ble Supreme Court in case of UOI vs Tata Chemicals Ltd., reported in (2014) 43 taxman.com 240 held that, deductee is entitled for interest on refund tax deposited under section 195. The Ld.AR placed reliance on CBDT Circular No.11/2016
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allowing interest on refund under section 244A on excess TDS deposited under section 195 of the Act. Nothing contrary has been brought on record by the Ld.CIT DR. Respectfully following the decision of Hon’ble Supreme Court, we hold that the deductee is entitled to interest on refund of tax deposited under section 195 of the Act.”
Respectfully following the aforesaid decision of the coordinate bench of the Tribunal in assessee’s own case, we hold that the assessee is entitled to interest on the refund of tax deposited under section 195.
In the result, the appeal is allowed in favour of the assessee.
Pronounced in the open court on this 17th day of May, 2022.
Sd/- Sd/- ( N V VASUDEVAN ) ( PADMAVATHY S. ) VICE PRESIDENT ACCOUNTANT MEMBER
Bangalore, Dated, the 17th May, 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.