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Income Tax Appellate Tribunal, ‘ D’ BENCH : CHENNAI
Before: SHRI GEORGE MATHAN & SHRI S.JAYARAMAN
आदेश / O R D E R PER GEORGE MATHAN, JUDICIAL MEMBER
This is an appeal filed by the assessee against the order of the Commissioner of Income-tax (Appeals)-13, Chennai in dated 29.11.2016 for the assessment year 2012-13.
Mr.B.Ramana Kumar represented on behalf of the Assessee, and Mr.Srinivasa Rao represented on behalf of the Revenue.
The assessee has raised substantial grounds, which are subsequently revised, and concise grounds filed which are as follows:-
“1. For that the order of the Commissioner of Income Tax (Appeals) “CIT (A)” is contrary to the Law, facts and circumstances of the case and is opposed to the principal of equity, natural justice and fair play.
2. The CIT(A) erred in not considering that the foreign entity was an educational institution and the payments made to it by the Applicant is exempt as there is no make available made under Article 13 clause 4(c) and 5(c) of the DTAA between India and the UK “DTAA”
3. The CIT (A) further erred in assuming the existence of Permanent Establishment for TWI UK under article 5 of the DTAA.
4. The CIT(A) erred in upholding the disallowance of the lecturer cost amounting to a total of Rs. 1,04,51,762/- for non deduction of TDS u/s.40(a)(i) of the Act.
5. The CIT failed to appreciate that Article 5 of the DTAA is not applicable and that the duration of the independent courses cannot be aggregated, but to be calculated independently, and as such even if applied, are well within the threshold as per Article 5 of the DTAA.
6. The CIT(A) erred in upholding the disallowance of the exam marking of Rs.44,81,161 and certification fees of Rs.45,70,784/- as the same is exempt from tax as per Article 13 of DTAA, and both are carried on only in the UK and has no nexus with lecturer visit to India.
7. The CIT(A) erred in upholding the disallowance of travelling expenses of Rs.15,55,613/- as the same is in the nature of reimbursement of travel expenses with no transfer or attribution of taxable income in India.
8. The CIT(A) erred in upholding the disallowance of management fees amounting to Rs. 27,26,182/- as the same is an allocation of costs incurred by TWI UK to all its subsidiaries and the same is not taxable as per Article 13(4)(c) of DTAA with UK and does not constitute as fees for technical services, as there is no “make available” in the same.
9. The CIT(A) erred in upholding the disallowance of amount made to TQ services Rs.1,82,89,061/- and Blastline Institute of Surface Preparation and Paining Rs.19,50,526/- without appreciating that this was revenue sharing arrangements where two contracting parties act on principal to principal basis and no TDS u/s 194H would arise.
10. Without prejudice to the above, the CLT(A) erred in considering that Sec 201 is not retrospective section and is not applicable on the Appellant as there are case laws stating that it is curative in nature and can be considered retrospectively. Further, the CIT(A) failed to appreciate that the entities had offered the amount received from the appellant for tax and has filed return of income for the AY: 2012- 13. Therefore cannot be held as assessee In default as per sec 40(a)(ia) r.w.s Section 201(1) of the Income Tax Act.
11. For these grounds and such other grounds that may be adduced before or during the hearing of the appeal, it is prayed that the Hon’ble Tribunal maybe pleased to pass such other orders as the Hon’ble Tribunal deem fit.”
Before us, ld.A.R submitted that two issues are involved in the assessee’s appeal. It was a submission that grounds Nos.2 to 8 of the assessee’s appeal was against the action of Ld.CIT(A) not considering the fact that there was no Permanent Establishment (PE) of the foreign company entity in India and the second issue raised in ground Nos 9 & 10, was that transactions between the assessee and the foreign entity were on principal to principal basis and consequently, there was no liability to deduct TDS u/s.194H of the Act.
It was submitted by ld.A.R in respect of grounds Nos 2 to 8 that the assessee is a subsidiary of TWI (The Welding Institute), UK. It was a submission that the assessee had entered into an agreement with M/s.TQ Services, Hyderabad for providing training, examination and certification programmes in its field of expertise being welding.
Consequent to the said agreement, the assessee used to get trainers from various countries to visit various places in India for providing necessary training. The ld.A.R drew our attention to page Nos.46 & 47 of paper book, which is a copy of letter dated 06.02.2015 addressed to ld. Assessing Officer. It was submitted that in the said letter, it was clearly mentioned that eleven (11) lecturers had provided training in India and the details of the country of origin was also specified. It was a submission that total number of days stayed by the said eleven trainers in India were 127 days as has been specified by the ld. Assessing Officer in his assessment order in para 2.1. It was a submission that 127 days was in relation to the eleven trainers, who had been deputed by M/s. TWI UK at the behest of the assessee. It was a submission that none of the trainers stayed in India for more than 90 days. It was a further submission that on the ground that the trainers from M/s.TWI, UK was in India for more than 90 days, more specifically 127 days cumulatively, the ld. Assessing Officer had held that the Associated Enterprises (AE) of M/s.TWI, UK existed in India and the services rendered by the trainers were technical services, the fees paid to M/s.TWI, UK was ‘fees for technical services’ and consequently, TDS was liable to be made u/s.195 of the Act and the same having not been done, the payment was disallowed by invoking the provisions of the section 40(a)(ia) of the Act. It was a submission that the trainings given were not in the nature of ‘technical services’ and none of the trainers were in India for more than 90 days during the relevant assessment year.
In reply, ld.D.R submitted that no evidence has been produced to show that none of the trainers were in India for 90 days during the relevant assessment year. It was a submission that the training given was in nature of technical services. It was a submission that the ld.D.R had no objection, if the issue was restored to the file of the AO for verification as to whether any of the trainers were in India for more than 90 days during the relevant year.
We have considered the rival submissions. A perusal of Training and Examination Services Agreement shows that the agreement is for providing training, examination and certification programmes. In short, this is in nature of providing educational training to the students in respect of welding activities. A perusal of the assessment order at para 2.1, prima facie does not show of any of the trainers being in India for more than 90 days. However, the exact number of days has not been produced by the ld.A.R to establish that the number of days each specific trainer has been in India. Further, perusal of the agreement between the assessee and its parent organization has also not been placed before us to know whether any technical services have actually been provided and whether the same has passed ‘Make Available Test”. This being so, in the interest of justice, this issue is restored to the file of ld. Assessing Officer for re- adjudication. The assessee shall be at liberty to prove before the ld. Assessing Officer that the days the trainers were in India were less than 90 days and that what has been provided is not fees for technical services. Consequently, grounds Nos.2 to 8 of the assessee’s appeal are partly allowed for statistical purposes.
In regard to Grounds Nos.9 & 10, it was submitted by ld.A.R that assessee had entered into an agreement with M/s.TQ Services, Hyderabad on First, April, 2011. It was a submission that as per the said agreement, the assessee was to pay M/s.TQ Services, share of income in accordance with the agreement, which was shown in Schedule-A, the percentages. It was a submission that the assessee was not paying any commission to M/s.TQ Services, but was only paying its share of profits as is determined in the agreement between the assessee and M/s.TQ Services. It was a submission that the ld. Assessing Officer had disallowed the payment made to M/s.TQ Services on the ground that TDS u/s.194H has not been made. It was a submission that Sec.194H specified the payment by way of commission. It was a submission that commission of brokerage was provided for in Explantion-2(i) to Sec.194H to be payment received, or receivable, directly or indirectly, by a person acting on behalf of another person for services rendered. It was a submission that perusal of agreement clearly showed that no services were being rendered by M/s.TQ Services to the assessee and the agreement between the assessee and M/s.TQ Services was clearly between two principles for doing a business and for sharing the profits. It was the prayer that the disallowance made by the ld. Assessing Officer and confirmed by Ld.CIT(A) may be deleted.
In reply, the ld.D.R vehemently supported the orders of the ld. Assessing Officer and the Ld.CIT(A).
We have considered the rival submissions. A perusal of the agreement between the assessee and M/s.TQ Services, Hyderabad, at pages 35 to 45 of the paper book, it was clearly shown that clause 6.6 shows the Methodology of demarcation of the fees collected by M/s.TQ Services. The assessee is to issue invoices to M/s.TQ Services for sharing of income, which is provided in Schedule-A. Thus, clearly the payments made by the assessee to M/s.TQ Services is in no way commission payment, but is in fact, the share of profit with M/s.TQ Services and consequently, the provisions of the section 194H does not apply. Consequently, the disallowance made by ld. Assessing Officer stands deleted. Consequently, Ground Nos.9 & 10 of assessee’s appeal stands allowed.
In the result, the appeal of the assessee is partly allowed for statistical purposes.
Order pronounced in the open court after conclusion of hearing on 29th May, 2018, at Chennai.