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Income Tax Appellate Tribunal, “A” BENCH : BANGALORE
Before: SHRI ARUN KUMAR GARODIA & SHRI LALIET KUMAR
Assessment Year :2010 – 11 M/s Rolls Royce Operations (India) Pvt. Ltd., Campus 2A, Unit – I, RMZ Next, The DCIT, Ground Floor, Whitefield Road, EPIP vs. Circle – 5 (1) (1), Zone, Mahadeva Pura, Bangalore. Bangalore – 560 066 PAN: AACCK5943R APPELLANT RESPONDENT Assessee by : Shri Suresh Muthukrishnan, C. A. Revenue by : Shri B. R. Ramesh, JCIT (DR) Date of hearing : 21.11.2017 Date of Pronouncement : 24.01.2018 O R D E R Per Shri LALIET KUMAR, Judicial Member:
This is revenue’s appeal directed against the order of CIT (A) – 4, Bengaluru dated 15.10.2015 for A. Y. 2010 – 11.
Grounds raised are as under:-
Learned DR of the revenue supported the assessment order and learned AR of the assessee supported the order of CIT (A).
We have considered the rival submissions. As per Ground No. 2, the issue involved is this as to whether TDS was deductible or not from the payment made by the assessee for the purpose of processing of Salaries payable to employees in India which amounts to ‘Fees for Technical Services” (FTS). The issue involved as per Ground No. 3 is regarding reimbursement of expenses in respect of health care which is a part of employment contact of decoded employees and as per the AO, this also amounts to FTS. The decision of CIT (A) on both these issues is contained in Paras 6, 6.1 & 6.2 and therefore, these paras are reproduced herein below for ready reference:-
6. I have considered the above written submissions and also gone through the assessment order passed by the Assessing Officer. In both the assessment years 2010-11 & 2011-12, the grounds of appeal are same and therefore, I proceed in adjudicating in the common order. The Assessing Officer has observed that the assessee company paid towards payroll processing fees to Rolls Royce International Ltd established at Page 3 of 6 United Kingdom for the processing of salaries payable to the employees in India. Since those expenses claimed under the head professional fee, TDS as per the provision section 195 of the Income Tax Act needed was not made any such TDS. Since they are in the nature of fees for technical services, the Assessing Officer disallowed the entire expenses u/s 40(a)(ia). During the appellate proceedings, the appellant in its written submissions made before me submitted that the Assessing Officer treating the payroll processin services as technical service and therefore liable for TDS u/s.195 read with the relevant provisions of DTAA between India & UK is not justified. The appellant further brought to my notice the Article 13.4 of lndo-UK DTAA wherein, the fee for technical services defined as make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plant or technical design. Since, the services should involve making available the technical knowledge etc., the payroll processing does not involve any transfer of making available technical knowledge. But these are only manual service which does not require any technical skills. I have gone through the Article 13.4 and found that Article 13 of the DTAA between India & UK states that the pre-requisite for considering the payment towards fee for technical service would be determined, whether there is any element of making available of technical knowledge, skills,expertise etc. and in the absence of the same, it has been squarely held, the article cannot be invoked. The appellant relied on various case laws including the Authority on Advance Ruling (AAR) in the case of Intertech Testing Services India Pvt Ltd 307 ITR 418, wherein it was held that it is well settled that the provision in DTAA will prevail over the domestic law, if it is more beneficial to the assessee. 'fee for technical services (FTS) is consideration paid for the rendering of technical or consultancy services, provided that though services make available to the other party, the technical knowledge, experience, know-how etc. That means technical or consultancy service rendered should be of such a nature that makes available to the recipient, the technical knowledge, know-how etc. The service should be aimed at and resulting in transmitting the technical knowledge, so that the payer of services could derive an enduring benefit and utilize the knowledge or know-how in future on his own without the aid of service provider. By making available the technical skills or know-how the recipient service will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service provider. Since, in the appellant's case there was no transfer of technical know- how, the recipient could not have independently carried out the know- how even after the termination of the agreement. Thus, there was no technical know-how made available as per article 13 of DTAA between India & UK{'Further, in the appellant's case it is clearly established that Page 4 of 6 M/s. Rolls Royce International Ltd did not have a permanent establishment in India and therefore the income accruing to M/s. Rolls Royce International Ltd are wholly outside India and therefore the income accruing to M/s. Rolls Royce Int Ltd on account of payroll processing fees is not taxable in India.
6.1 The appellant further relied on 4on'ble Tribunal Ahmadabad bench decision in the case of Wida Clinical Research Pvt Ltd, wherein on the same set off facts the Tribunal held that "in view of these discussions as also bearing in mind entirety of case, in our considered view, the fees for training services of general nature, whiqh does not seems to involve any transfer of technology cannot be brought to tax under article 13(4)(c) of India UK Tax treaty." ,"For the reason set out above we approve the conclusions arrived at by the CIT (Appeals) and decline to interfere in the matter". Even as we do so, we are alive to the fact that reasoning adopted by the CIT(Appeals) is altogether different, and wholly incorrect, but what really matters for the present purposes is that he reached the right conclusions, even if serendipitously. We approve the same." 6.2 Further, relied on jurisdictional Honble ITAT, decision in the case of Abbey Business Services India Pvt Ltd., while answering the question whether, since payment made by assessee to Abbey UK was pure reimbursement of expenses without any profit element, it could not be regarded as income chargeable to tax in the hands of Abbey UK held in assertion. In the light of the factual and legal matrix of the case I found merit in the contention of the appellant and therefore hereby, allow the grounds of appeal on the issue of payroll processing charges.
From the above Para, it is seen that the decision on first issue is on this basis that as per Article 13.4 of DTAA between India & UK, making available of technical knowledge, skills and expertise etc. is necessary and in the absence of that, this Article cannot be invoked. Ruling of AAR in the case of Intertech Testing Services India Pvt. Ltd. in 307 ITR 418 is followed wherein it was held that provision of DTAA will prevail over domestic law if it is more beneficial to the Page 5 of 6 assessee. A categorical finding is given by CIT (A) that there was no transfer of technical knowhow in the present case as a result of which the recipient could have independently carried out the know how even after the termination of the agreement. Hence, the technical knowhow was not made available as per article 13 of DTAA between India and UK. This finding is also given that Rolls Royce International ltd. did not have PE in India. These findings could not be controverted by the learned DR of the revenue and hence, we find no infirmity in the order of CIT (A) on the first issue.
In respect of the second issue, learned CIT (A) has followed the tribunal order rendered in the case of Abbey Business Services India Pvt. Ltd. 53 SOT 0401 wherein it was held that in a case of pure reimbursement of expenses without any profit element, it could not be regarded as income chargeable to tax in India. As per the written submissions of the assessee before CIT (A) reproduced by him on page 6 of his order, this amount was paid by Rolls Royce International Ltd. to insurer in UK as premium to effect and maintain insurance on the health of the employees and it was reimbursed by the assessee. This is not a case of the revenue that there is any profit element in this payment and this is not exact reimbursement. Hence, we find no reason to take a contrary view since no difference in facts could be pointed out by the learned DR of the revenue.