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Income Tax Appellate Tribunal, ‘C’ BENCH, BENGALURU
Before: SHRI B.R. BASKARAN & SHRI PAVAN KUMAR GADALE
O R D E R
Per PAVAN KUMAR GADALE, JM :
The assessee has filed the appeal against the order of the Deputy Commissioner of Income-tax (International Taxation), Circle 1(1), Bengaluru, passed u/s 143(3) r.w.s. 144C(5) of the Income-tax Act,1961 ['the Act' for short] in pursuance of the directions of the Dispute Resolution Panel (DRP) dated 28/09/2016.
The assessee has raised the following grounds of appeal:
IT(IT)A No.2101/Bang/2016 Page 2 of 9 “The grounds stated hereunder are independent of and without prejudice to one another. The Appellant submits as under: 1. Holding that where there is no specific Article for taxability of particular payment in the Double Taxation Avoidance Agreement (`DTAA'), the provisions of the Income Tax Act, 1961 (`the Act') would be applicable a) On the facts and in the circumstances of the case, the learned Assessing Officer (`AO') erred in law in holding and the learned Dispute Resolution Panel (`DRP') erred in law in confirming that where there is no specific Article for taxability of a particular payment in the DTAA, the provisions of the Act would be applicable. b) On the facts and in the circumstances of the case, the learned AO erred in law in holding that the fees received (i.e. fees for technical services (`FTS')) as taxable under the Act, irrespective of there being no Article in the DTAA for taxation of FTS.
2. Penalty proceedings under section 271 The learned AO has erred in initiating penalty proceedings under section 271(1)(c) of the Act.
3. Relief a) The appellant prays that directions be given to grant all such relief arising from the above grounds and also all relief consequential thereto. b) The appellant craves leave to add to or alter, by deletion, substitution, modification or otherwise, the above grounds of appeal, either before or during the hearing of the appeal. c) Further, the appellant prays that all the above adjustments/additions /disallowances made by the learned AO and upheld by the learned DRP are bad in law and liable to be deleted.”
IT(IT)A No.2101/Bang/2016 Page 3 of 9 2. Brief facts of the case are that the assessee is a non- resident company incorporated in United Arab Emirates and is engaged in providing management services including the areas of general management, strategic marketing and sales, business development, financial management and controlling and providing of industry specific content etc., as per para.2 of the assessment order. The assessee has filed the Return of income on 30/03/2015 with total income ‘nil’. Subsequently, the case was selected for scrutiny under CASS and notices u/s 143(2) and 142(1) of the Income-tax Act,1961 ['the Act' for short] calling for details were served. In compliance, the learned AR appeared from time to time and filed details. The Assessing Officer (AO), on perusal of the financial statements found that the assessee- company has received payments towards managerial/ technical services aggregating to Rs.2,68,96,805/- from M/s.ABB India Ltd.,
3. Whereas the assessee has claimed as exempt as the same is not taxable in India as per India-United Arab Emirates (UAE) Treaty and the DTAA between India and UAE as it does not have a clause for ‘Fee for Technical Services’ (FTS). Hence, not taxable in India. and in the absence of an Article clause of FTS in Tax Treaty, such payment is classifiable as business profit under Article 7 of the relevant Tax Treaty and does not have any IT(IT)A No.2101/Bang/2016 Page 4 of 9 Permanent Establishment (PE) in India in terms of Article 5 of the Tax Treaty and therefore, it is not liable to tax in India.
The Assessing Officer, considered the submissions of the assessee-company in respect of India and UAE, DTAA and FTS and dealt on the provisions of section 90 of the Act and the judicial decisions on taxability of such income in India referred at para.6 of the order and also perused the service agreement between ABB Industries and UAE in respect of services to be rendered. Finally, the ld.AO is of the firm opinion that the services rendered by the assessee-company are in the nature of the managerial, technical, consultancy services and the amounts received by the assessee-company for such services shall attract provisions of section 9(1)(vii) of the Act read with Explanation 2. Accordingly, such payments are taxable in India and made addition to the Returned income and passed the Draft assessment order u/s 143(3) r.w.s 144C(5) of the Act, dated 26/02/2016.
Aggrieved by the draft assessment order, the assessee filed objections in Form No.35A to the DRP. The DRP, after considering the objections and the findings of the AO in the draft assessment order and the submissions made in the DRP proceedings, has confirmed the action of the AO and passed the order u/s 144C(5) of the Act dated 28/09/2016. Subsequently
IT(IT)A No.2101/Bang/2016 Page 5 of 9 the AO passed final assessment order dated 25/10/2016 u/s 143(3) r.w.s. 144C(5) of the Act in pursuance of the directions of the DRP determining the total income at Rs.2,68,96,805/-.
4. Aggrieved by the order, the assessee has filed the appeal before the Tribunal. The learned AR submitted that the AO erred in applying the provisions of section 9(1)(vii) and Explanation 2 in respect of amounts received from ABB India treating it as FTS. The learned AR emphasized that in group companies’ case, the similar matter was dealt and relied on decision of M/s.ABB FZ- LLC vs. DCIT (166 ITD 329)(Bang) wherein the payments are held as royalty under Article 12 of the DTAA. The learned AR also supported his submissions the payments are not taxable in India as there is no clause for FTS in Indo-UAE treaty with judicial decision in the case of GECF Asia Ltd. vs. DCIT (2014)(165 TTJ 696), Bangkok Glass Industry Co. Ltd., vs. Asst.CIT (2013)34 taxmann.com 77 (Mad), Booz & Company (ME) FZ-LLC vs. Deputy Director of Income-tax (International Taxation) (90 taxmann.com 49) and prayed that the assessee’s income has to be treated as business profit and is not taxable in India and allow the appeal. Contra, the learned DR objected to the submissions of the learned AR and supported the orders of the lower authorities.
IT(IT)A No.2101/Bang/2016 Page 6 of 9 5. We heard rival submissions and perused material on record. The sole crux of the disputed issue is with reference to the consideration received from M/s.ABB India by the assessee as per the service agreement. The learned AR vehemently argued that the AO has erred in treating it as FTS whereas the same is in the nature of managerial and technical services from M/s.ABB India Ltd., As the assessee-company is a non-resident company incorporated in UAE and as per India-UAE Tax Treaty, the assessee has claimed such payments as not taxable because of DTAA between India and UAE does not have a clause for FTS. Therefore, not subject to tax and it is classifiable as business profit under Article 7 of the Tax Treaty.
When a query was raised to the learned AR whether the payee has any Permanent Establishment in India. The explanations of the learned AR are not satisfactory and could not substantiate with any evidence that there is no permanent establishment in India. We found the decisions relied by the learned AR in respect of Booz & Company (ME) FZ-LLC (supra) where the amount received by the UAE group company is business income as per DTAA between India and UAE in the absence of any Permanent establishment of said company in India and such business income is no taxable in India.
IT(IT)A No.2101/Bang/2016 Page 7 of 9 7. Similarly, in the case of GECF Asia Ltd. (supra), it was considered that where a non-resident company renders services relating to industrial, commercial or scientific experience, in such a case, if those services do not involve imparting of know-how or transfer of any knowledge, experience or skill, then payment received in respect of same cannot be taxed as ‘royalty’ within ambit of article 12 of India-Thailand DTAA. Though the learned AR has vehemently submitted that the amounts received from M/s.ABB India are in the nature of business profit could not establish in the course of hearing that there is no permanent establishment in India. Whereas in the above discussed cases permanent establishment has been considered for taking a decision on non-taxability of business profit. We found the co- ordinate bench of this Tribunal in the case of M/s.ABB FZ-LLC vs. ITO in IT(IT)A No.188/Bang/2016 dated 28/10/2016 has very specifically observed in page 29 of the order which reads as under: “It is clear that the Tribunal has given the finding after considering the decision of the co-ordinate bench as well as decision of Hon'ble Madras High Court in the case of Bangkok Glass Industry Co. Ltd. Vs. ACIT (supra). In view of the above discussion and by following the decision of the co-ordinate bench in the case of IBM India Pvt. Ltd. Vs. DDIT (I.T) (supra), we are of the considered opinion that in the absence of the provision in the DTAA to tax Fees for Technical Services the same would be taxed as per the Article 7 of the DTAA applicable for business profit and in the absence of PE in India, the said income is not chargeable to tax in India. Accordingly, we set aside the orders of the IT(IT)A No.2101/Bang/2016 Page 8 of 9 authorities below and delete the addition made by the Assessing Officer.”
We, on applying the provisions and DTAA treaty and the judicial decision, find the assessee no doubt as per DTAA and Tax Treaty, there is no specific clause in respect of FTS and same has to be considered as business profit in the absence of such clause and permanent establishment in India, whereas the learned AR supported his arguments on non-taxability of amount but could not establish that there is no existence of Permanent Establishment in India. Therefore, as prayed by the learned AR, the disputed matter is restored to the file of the AO for the limited purpose to examine and inquiry whether there is any permanent establishment in India. In case if it is found with supporting evidence and documentation and also the assessee proves that there is no permanent establishment in India, then the assessee be granted the benefit of non-taxability. Accordingly, we set aside the order of the CIT(A) and restore the entire disputed issue to the file of the AO to adjudicate afresh and the assessee shall co-operate in submitting information for early disposal of the case and we allow grounds of appeal of assessee for statistical purposes.
IT(IT)A No.2101/Bang/2016 Page 9 of 9 7. In the result, the assessee’s appeal is allowed for statistical purposes.