M/S MANTRI TECHNOLOGY CONSTELLATIONS PVT LTD ,BANGALORE vs. THE DEPUTY COMMISSIONER OF INCOME TAX (INTERNATIONAL TAXATION) CIRCLE-1(2), BANGALORE

IN THE INCOME TAX APPELLATE TRIBUNAL BANGALORE BENCHES “ C ” BENCH: BANGALORE BEFORE SHRI A.K. GARODIA, ACCOUNTANT MEMBER AND SHRI PAVAN KUMAR GADALE, JUDICIAL MEMBER IT(IT)A No.130/Bang/2018 (Assessment Year: 2014-15) M/s. Mantri Technology Constellations Pvt. Ltd., Mantri House, 41, Vittal Mallya Road, Bangalore-560001 ….Appellant PAN AAFCM 1653D Vs. Dy. Commissioner of Income Tax, (International Transaction), Circle 1(2), Bangalore. ……Respondent. IT(IT)A No.384/Bang/2018 (Assessment Year: 2014-15) (By Revenue) Assessee By: Shri V. Srinivasan, Advocate. Revenue By: Shri H. Anand, Addl. CIT (D.R)

Date of Hearing : 07.08.2020 Date of Pronouncement : 24.08.2020

O R D E R PER SHRI PAVAN KUMAR GADALE, JM : These are the cross appeals filed by the assessee and the revenue against the order of Commissioner of Income Tax (Appeals)-12, Bangalore passed u/s.201(1) and 201(1A) and u/s. 250 of the Income Tax Act, 1961 (the Act). For the sake of

2 IT(IT)A Nos.130 & 384/Bang/2018 convenience,we shall take up the assessee appeal in IT(IT)A No.130/Bang/2018 and facts narrated therein. 2. The assessee has raised the following grounds of appeal :

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4 IT(IT)A Nos.130 & 384/Bang/2018 the rate as prescribed in Section 206AA of the Act as the PAN was not provided by the recipients.The assessee has made interest payments to debenture holders @10% rate as per Double Taxation Avoidance Agreements (DTAA) as the recipients are residents of foreign country. Whereas in respect of payments made to M/s. Space Matrix Design Consultants Pte. Ltd., Singapore, the assessee has not deducted the TDS as services are in the nature of architectural services and the payments were made to recipient company of Singapore as per Article 12 of the India-Singapore DTAA.The assessee has submitted the details of payments and explained the reasons for non-deduction of tax by letter dt.3.9.2016 and filed the copy of agreement with M/s. Space Matrix Design Consultants Pte. Ltd., Singapore in respect of architectural services and tax residency certificate and exemptions and such payments to M/s. Space Matrix Design Consultants Pte. Ltd., Singapore are exempted from tax under the DTAA. In respect of payment of interest to non- resident debenture holders, the assessee has deducted tax at 10% as per the terms of DTAA and the provisions of Section 206AA of the Act. The Assessing Officer is of the opinion that the assessee should have deducted tax at 20% as per the provisions of the Act. Further, the Assessing Officer found as per agreement that the services rendered by the Singapore company are in the nature of Fees for Technical Services (FTS) and cannot be categorized as architectural services. The Assessing Officer observed that the agreement was entered by the assessee with M/s. Space Matrix Design Consultants Pte. Ltd., Singapore, where the services

5 IT(IT)A Nos.130 & 384/Bang/2018 rendered by the aforesaid entity are technical services within the meaning of Expln. 2 to Section 9(1)(vii) of the Act and further observed that the payments made to the Singapore entity are FTS, Which fall within the scope of clause (c) of Article 12(4) and India-Singapore DTAA. The ld. A.O. examined the payments in the context of make available clause and concluded that the provisions of designs and drawings by M/s. Space Matrix Design Consultants Pte. Ltd., Singapore would amount to make available of the technology and would be regarded as FTS under Clause 12(4)(b) of Singapore-India DTAA. Similarly, in respect of interest payments made to debenture holders, the Assessing Officer is of the opinion that the assessee should deduct the tax at 20% in terms of Section 206AA of the act as PAN is not provided, and the assessee has not furnished the Tax Residency Certificate of the debenture holders.The provisions of Section 206AA of the Act overrides the provisions of Section 90(2) of the Act and calculated the short deduction of TDS and interest and has determined the total liability payable by the assessee atRs.1,18,07,272/-including interest under Section 201(1A) of Rs.28,28,251/- and passed the order under Section 201&201(1A) of the Act Dt.29.02.2016. Aggrieved by the assessment order, the assessee has filed an appeal with the CIT (Appeals). The CIT (Appeals) considered the grounds of appeal, findings of the Assessing Officer and submissions of the assessee and DTAA provisions in respect of payments made to M/s. Space Matrix Design Consultants Pte. Ltd., Singapore, but has concurred with the action of the Assessing Officer and

6 IT(IT)A Nos.130 & 384/Bang/2018 confirmed the liability of deduction of TDS. In respect of payment of interest on debentures to the non-residents, the CIT (Appeals) find that the assessee has deducted TDS at 10% as per provisions of Section 260AA of the Act and relied on the Tribunal decision and has observed that the deduction of TDS by the assessee is in accordance with the law and partly allowed the assessee appeal. Aggrieved by order of CIT (Appeals), the assessee has filed an appeal with the Tribunal.

7 IT(IT)A Nos.130 & 384/Bang/2018 5. We heard the rival submissions of the parties and perused the material on record. The sole matrix of the issue in respect of non-deduction of TDS by the assessee on the payments made to M/s. Space Matrix Design Consultants Pte. Ltd., Singapore. The contentions of the LdAr are that the payments are not in the nature of FTS and also Memorandum of Understanding for Indo-US DTAA could not apply to the India-Singapore DTAA and there is no technical knowledge, experience, skill, knowhow and process are made available. The Assessing Officer has dealt on the clauses of the agreement, whereas the assessee has explained that M/s. Space Matrix Design Consultants Pte. Ltd., Singapore has entered into architectural design services agreement in respect of residential projects in Chennai and has developed drawings, designs and transferred the same to the assessee. Whereas, the Assessing Officer has observed that the assessee has made available technical knowledge, skill, knowhow and therefore the payments made to the non- resident company in Singapore are in the nature of Fees for Technical Services( FTS) is taxable in terms of Section 5(2) and Section 9(1)(vii) of the Act. The learned Authorized Representative emphasized that the payments made to Singapore based entity are not in the nature of payments for technical services and cannot be treated as FTS as defined in Section 9(1)(vii) of the Act. Further the learned Authorized Representative submitted that the payments made to Singapore entity are not for FTS as defined in Section 12(4)(b) of Indo-Singapore DTAA as no technical knowledge, skill, know how or process was made available.

8 IT(IT)A Nos.130 & 384/Bang/2018 Similarly, the ld. AR referred to the paper book and the reply submitted by the assessee in response to the notices issued and the explanations furnished before the Assessing Officer. We, on considering the provisions of law, information and submissions of the assessee are of the opinion that the matter required further examination of the facts in respect of services rendered by the Singapore based entity since the Assessing Officer is of the opinion that the services are in the nature of FTS. The ld. AR submitted the material evidences and the DTAA supporting that the services are out of the purview of FTS and are of architectural services.We found that there are no specific findings on the submissions. Accordingly, in the interest of justice, we restore the disputed issue to the file of Assessing Officer for limited purpose to verify and examine the specific nature of services. Further, the assessee should be provided with adequate opportunity of hearing and shall co-operate in submitting information and allow the grounds of appeal of the assessee for statistical purposes.

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10 IT(IT)A Nos.130 & 384/Bang/2018 Bench decision of Tribunal in the case of M/s. Nagarjuna Fertilisers and Chemicals Limited Vs. ACIT in ITA Nos.1187 & 1188/Bang/2014 Dt.13.02.2017.

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The learned Authorized Representative also relied on the decision in the case of

Denisco India Pvt. Ltd. Vs. Union of India & Others (supra), and the Headnote

read as under :

“ Non-resident—TDS—Rate of deduction—Beneficial provision of DTAA—Assessee in normal course of its business remitted payments to Company D which was a non-resident company, located in Singapore—Company D was not tax assessee in India—Tax relationship between two countries was regulated in terms of Indo- Singapore DTAA—Revenue held that having regard to section 206A, tax deduction at source was required to be made at 20% in absence of furnishing of PAN by recipient non-residents—Assessee’s case was that Section 206AA (i) had effect of undoing provisions of DTAA, besides being in violation of Article 265 of

16 IT(IT)A Nos.130 & 384/Bang/2018 Constitution of India—Assessee took plea that levy of 20% rate was unconstitutional—Held, in case of Azadi Bachao Andolan Vs. Union of India, (2003) 263 ITR 706 (SC) supreme court held that provisions made in DTAAs prevail over general provisions contained in the Act to extent they were beneficial to assessee—DTAAs entered into between India and other relevant countries in present context provide for scope of taxation and/or a rate of taxation which was different from the scope/rate prescribed under the Act—Thus, in so far as applicability of the scope/rate of taxation with respect to impugned payments made to non-residents was concerned, no fault could be found with rate of taxation invoked by assessee based on DTAAs which prescribed for beneficial rate of taxation—Though charging section 4 and section 5 dealing with ascertainment of total income were subordinate to principle enshrined in section 90(2) but provisions of Chapter XVII-B governing tax deduction at source were not subordinate to section 90(2)—Section 206AA was not charging section but was part of a procedural provisions dealing with collection and deduction of tax at source—Provisions of section 195 which casted duty on assessee to deduct tax at source on payments to a non-resident could not be looked upon as a charging provision—Where tax had been deducted on strength of beneficial provisions of section DTAAs, provisions of section 206AA could not be invoked by AO to insist on tax deduction @ 20%, having regard to overriding nature of provisions of section 90(2)—Provision in Section 206AA (as it existed) had to be read down to mean that where deductee i.e overseas resident business concern conducted its operation from a territory, whose Government had entered into a DTAA with India, rate of taxation would be as dictated by provisions of treaty—Assessee’s petition partly allowed.”

In the above case, the payments are made to Singapore based entity and liable for

TDS at 10%. The ld. DR could not controvert the findings of the CIT (Appeals)

with cogent material or any new information and relied on the order of AO.

Accordingly, we are not inclined to interfere with the order of the CIT (Appeals)

on this disputed issue and upheld the same and dismiss the grounds of appeal of

revenue.

allowed for statistical purposes

17 IT(IT)A Nos.130 & 384/Bang/2018 Pronounced in the open court on the date mentioned on the caption page.

Sd/- Sd/- (A.K. GARODIA) (PAVAN KUMAR GADALE) ACCOUNTANT MEMBER JUDICIAL MEMBER Dated: 24.08.2020. *Reddy GP

Copy to 1. The Appellant 2. The Respondent 3. CIT (Appeals) 4. Prin. CIT 5. DR, ITAT 6. Guard File.

By order

Assistant Registrar Income-tax Appellate Tribunal Bangalore