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Income Tax Appellate Tribunal, ‘A’ BENCH, PUNE
ORDER PER S.S. GODARA, JM : These assessee’s and revenue’s cross appeals for A.Y. 2014-15 arise against the CIT(A)-4 Pune’s order dated 31-05-2017 passed in case No. PN/CIT(A)-4/DCIT.Cir. 6, Pune/317/2016-17/315 involving proceedings u/s 143(3) of the Income-tax Act, 1961, in short “the Act”.
Heard both the parties. Case files perused.
It emerges at the outset that the assessee’s sole and the Revenue’s first and foremost grievance raise the common issue of section 40(a)(i) disallowance of Rs.1,55,48,459/- made in the course of assessment dated 29- 11-2016 and restricted to the tune of Rs. 94,83,661/- is the CIT(A) as per the detailed discussions in his order. The assessee pleads that the balance component also deserves to be deleted in entirety whereas the Revenue’s endeavour is to get the same revived in toto.
We next find that the assessee had paid professional charges of Rs. 1,55,49,459/- followed by its corresponding expenditure deduction claim. The Assessing Officer invoked section 195 r.w.s. 40(a)(i) of the Act to disallow the same on account of non-deduction of TDS thereupon. The CIT(A) has granted part relief to the assessee as follows:
5·3 DECISIQN; 1 have perused the assessment order and the submission made by the appellant as above carefully. I find from the assessment order that the AO added an amount of Rs. 3,05,18,310/- for disallowance u/s 40(a)(ia) of the Act. The AO found that payments were made on account of foreign expenses towards professional fees of Rs. 1,55,48,459/-, salaries of Rs. 1,11,22,205/- and others of Rs.38.47,646/-, totaling to Rs. 3.05,18,31O/-. The AO issued show cause notice as to why the addition should not be made of the said amount u/s. 4o(a)(ia) of the Act. 5·3.1 The appellant, in reply to such query raised, submitted that TDS was not deducted as the payment was made to a person I company who was non- residence working abroad having no permanent establishment in India. It was also contended that the services were rendered outside India and the professional fees paid to them acquired to the assessee outside India. The AO, did not agree to the above explanation and citing the provisions of section 195 of the Act contended that while paying the amounts 10 a Foreign Company or a non-resident tax has to be deducted. The payments as above made though outside India, the services were rendered in India and utilized in India. Further the above payments attracted the TDS provisions. The AO, therefore, disallowed the aforesaid amount of Rs.3,,05,18,31O/. The appellant, during assessment proceedings submitted that it was engaged in LT. enabled financial and business research activities and provided end-to-end customized research. business consulting, forecasting, market research and data analytics. The client being spread world over, the services were exported to various client companies as detailed in the submission, who belonged to different countries and they were the 'Respondents'. For rendering the above services, the appellant company had engaged various consultant companies mostly from UK. Sweden and Singapore find the total professional fees given were Rs. 1,55,48,459/-. A chart was also furnished in Annexure -1, along with sample copies of Invoices in Annexure-a. It was contended that most of the professional fees were paid to beneficiaries in Sweden, Singapore and UK and India had entered into tax treaties with these countries and in all these countries the scope of fees for-technical services was restricted. The appellant also quoted the Article 13 pertaining to 'Royalties & Fees for technical services', as defined in Article-rg with UK of such tax treaties and further referring the same for Sweden & Singapore vide various Articles in respect of dividends, interest and Royalties and Fees for technical services contended that if under convention, Agreement of Protocol between India and third state which is a member of the OECD, India limits its taxation at source on the aforesaid payments and services to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said items of income. The same r ate or scope as provided for in that Convention, Agreement or Protocol on the said items of income shall also apply under this Convention. Contending so, the appellant further submitted that as per the provisions of tax treaty between India and Netherlands {whkl1 is an OECD country) the restricted scope of fees for technical services also becomes applicable to payments made by Indian Companies to Swedish Tax Residents. Further contended that the services rendered as above to the appellant company did not make available "my technical knowledge or skill or did not result development 01' transfer of any technical plan or design and. therefore, none of the above payments were liable to tax in India and hence the company was not liable to deduct tax. on the same, The appellant also submitted that the payment of professional fees to individual consultants is governed by the Article or independence personal services as referred to in Article i4 of the Tax Treaty between India &. Korea referring to the same, the appellant contended that the Tax Treaty between India & Singapore as well as India & UAE have similar provisions. All the services were rendered by the consultants from their respective country, These consultants did not visit India for rendering the above services and do not have any fixed base here. It was, therefore, contended that the fees paid to such individual consultants were not taxable in India and hence not liable to any withholding taxes in India. 5.3.1.1 The appellant further referring to Article -15 of the Tax Treaty between India and Switzerland regarding 'Dependent Personal Services' and citing the relevant provisions contended that since the employment of one Mr. Ahmed Hakki was based in Switzerland and exercised in the said country; the salary paid to Mr. Hakki was not taxable to India and, therefore, the company had not deducted any tax paid for payment of salary to him of Rs.l,l1,22,205/-. 5,3,1.2 In respect of payment of subscription charges of RS.38,47,646/- for accessing data base and reports available in public domain, the appellant had furnished the party-wise details in Annexure-4 and relevant bills in Annexure-5 contending that the AO had incorrectly considered the above amount paid under foreign remittance and had disallowed the same had 40(a)(ia). It was contended that subscription fees was neither use of any copyright involved nor transfer of all or any rights thereto. The same was access to data base available in public domain and hence there was 110 payment for imparting any information concerning technical, industrial, commercial or scientific knowledge, experience or skilled. The same had also not fallen within the definition of Royalty as defined in various Tax Treaties as well as section 9(1)(vi) of the Act. The appellant referred to Article 13 of the Tax Treaty between India & UK wherein Royalty has been defined. The appellant also cited the decisions in the case of Director of Income Tax vs. Dun Brad Street Information Services India (P) Ltd. (supra), Dy. CIT Vs. Welspun Corporation Ltd. (supra) and ITO vs. Cadila Healthcare Ltd. (Supra) ann submit ted that no withholding taxes were deductible from the foreign remittances of RS.3,OS,18,310/- and hence AO be directed to delete the addition. 5.3·1.3 Without prejudice to above, the appellant also contended that the AO disallowed the aforesaid expenses incurred in foreign currency which also included expenses pertaining to SEZ unit of Rs. 60,64,798/- and consequently deduction u/s. 10AA should have been gone up to such extent. The appellant contended that the AO had erred in not increasing the amount of deduction u/s. 10AA by the amount of disallowance u/s 40(a)(ia). The appellant had also referred to the CBDT Circular no. 37/2016 dated 2/11/2016 in the context of enhancement of amount of deduction due to disallowance u/s. 32, 40(a)(ia), 43B etc. of the Act and referring to the decision of the Bombay High, Court in the case of err Vs. Gem Plus Jewellery India Ltd. (Supra) contended that the AO should have increased the deduction u/s. 10AA to the extent of Rs.60,64,798/-, which was related to SEZ Unit of the Company. 5-3.2. I find merit in the submission and contention of the appellant to the extent of the payment made to salaries and others of Rs. 1,11,22,205/- and Rs. 38,47,646/- respectively. However, from the' plain reading of the provisions of the 195(1) as quoted by the AO in para 5.1 of the assessment order it is seen that "any other sum chargeable under the provisions of this Act (not being income chargeable under the head 'Salaries '', if paid to non- resident, non being a company, or to a foreign company, the appellant was required to deduct TDS at the time of credit of such income to the account of the payee OJ' at the time of payment thereof in cash or by issue of a cheque or draft or by any other mode. It is a settled law 'that if any interpretation of the statute is apparent and clear, no meaning could be assigned either by the tax authority or the assessee or by the Courts. Various decisions have made. clear the aforesaid proposition. 'It is clearly stated in the aforesaid provision of sec. 195(1) that which payment deserved deduction of TDS. In my opinion, in a plain reading; of the said provisions, the payments made towards Professional Fees of RS. 1,55,48,459/- had attracted the TDS provisions and as the appellant failed to deduct TDS on the same, the AO had rightly disallowed the same u/s 40(a)(ia) of the Act. However, I am inclined to accept the contention of the appellant that the aforesaid disallowance also had included an amount of Rs.60,64,798/- incurred in foreign currency which pertains to SEZ Unit and therefore the appellant was entitled to deduction u/s 10AA to the extent of the aforesaid amount. Therefore, the benefit of deduction u/s. 10AA is required to be allowed of RS.60,64,798/- out of the total professional fees paid of Rs. 1,55,48,459/- . The addition on account of disallowance of professional fees paid of Rs. 94,83,661/- is hereby confirmed for the reason as stated above. The appellant gets relief on account of Professional Fees of Rs. 60,64.798/- as the same qualified for deduction u/s 10AA. The submission made by the appellant referring to various Tax Treaties and also citing the case laws are not applicable in the case of the appellant for the plain interpretation of the provision of sec. 195(1) of the Act, which required the appellant to deduct TDS on the professional fees paid to the non-resident For the detailed reasons given by the appellant in the case of disallowance u/s 40(a)(ia) of salaries and other expenses, and in view of the facts given in the submission, I hold that the AO was not justified in disallowing the same under the aforesaid provisions and, hence, the additions made on account of "Salaries" of Rs. 1,11,22,205/- and "Others" of Rs. 38,47,646/- are hereby deleted. Ground nos. 1 & 2 raised by the appellant are accordingly partly allowed.”
The assessee’s paper at page 73 of paper book contains the list of 82 overseas payees turning out to be the residents of Sweden, U.K., Singapore, UAE, Switzerland, China, Malaysia, Japan, South Korea. Another issue between the parties before us is that India has entered into double taxation avoidance agreement (DTAAs) with Singapore, U.K. contains the corresponding articles 12(4)(b), 12(5)(b) and 13(4)(c); as the case may be, dealing with fee for technical services to include “make available” clause. Mr. Walimbe could hardly dispute that such double taxation avoidance agreement “DTAAs” apply to the extent they are more beneficial to an assessee u/s 90(2) of the Act. Faced with this situation, we quote Dy. Director of Income-tax (International Taxation)-II Pune Vs. Tetra Pak India (P) Ltd. (2019) 111 taxmann.com 205 (Pune –Trib), Sandvik AB Vs. Dy. CIT (International Taxation) Circle 2, Pune (2021) 123 taxmann.com 160 (Pune – Trib), Dy. CIT (International Taxation) Ahmedabad Vs. Welspun Corporation Ltd. (2017) 77 taxmann.com 165 (Ahmedabad – Trib) and CIT & Ors. Vs. De Beers India Minerals (P) Ltd. (2012) 346 ITR 467 (Karnatka) to hold that in absence of the corresponding technical services being “made available” to the assessee herein it was under no obligation to deduct TDS on these professional charges payments. The impugned disallowance pertaining to the assessee’s payments made to Singapore, Dutch and U.K. based payees stands deleted therefore.
We further find that Indo Swedish double taxation avoidance agreement contains the following protocol:-
In respect of Articles 10 (Dividend), 11 (interest) and 12 (Royalties and fees for technical services if under any Convention, Agreement or Protocol between India and a third State which is a member of the OECD, India limit is tis taxation at source on dividends, interest, royalties, or fees for technical services to a rate lower or a scope more restricted than the rate or scope provided for in this convention on the said items of income, the same rate or scope as provided for in that Convention, Agreement or Protocol on the said items of income shall also apply under this Convention.
6. The assessee quotes Sandvik AB (supra) to contend that once India Portugal DTAA has included “make available” clause, the very benefit deserves to be applied qua Indo Swedish DTAA as well. . We therefore, accept assessee’s instant clinching argument and delete the impugned disallowance pertaining to its payments made to swedish payee in issue.
We further note that the assessee has made payments to the “individuals” based in Singapore, UAE and South Korea. Records suggest Articles 14(1)(b) of the corresponding DTAAs providing for the taxation of the Independent Personal Services” in the source state only in case of stay of 90 days in first and 183 days in the relevant previous year in the latter twin instances, respectively. There is no material indicating the assessee’s payees herein to satisfy these clinching conditions. We therefore, delete the impugned disallowance qua these payees’ as well.
Coming to the assessee’s payments made to its swiss payee, learned counsel could not rebut the CIT(A)’s findings that the same are in the nature of fee for technical services only not covered under the corresponding DTAA’s article (B). We accordingly confirm the impugned disallowance. It is further made clear that the assessing authority’s A.O consequently computation shall consider the CBDT circular dated 2-11-2016 as well as hon’ble jurisdictional high court’s decision (supra) regarding assessee’s allowability of section 10AA deduction claim. We order accordingly. The assessee’s appeal in Revenue’s first and foremost substantive grievance in its cross appeal is rejected in the light of above CBDT circular (supra) that once the assessee is eligible for sec. 10AA deduction, the impugned disallowance shall only result in enhancement of business profits exigible for taxation benefit only.
Coming to Revenue’s latter grievance of salary and “other expenses” dislallowance of Rs. 1,11,22,205/- and Rs. 38,47,464/- respectively, we find that the legislature has itself excluded the former head u/s 195(1) of the Act. So far the latter head of other expenditure is concerned, the same pertained to sec. 10AA eligible unit only covered under CBDT’s circular (supra). Rejected accordingly.
No other ground has been pressed before us.
The assessee’s appeal in Revenue’s cross appeal in is dismissed in above terms. A copy of this common order be placed in the respective case files.
Order pronounced in the open Court on this 08th day of June 2022.