RANE ENGINE VALVE LIMITED,CHENNAI vs. DCIT CORPORATE CIRCLE 5 (1), CHENNAI

आदेश /O R D E R PER MAHAVIR SINGH, VICE PRESIDENT: These appeals by the assessee are arising out of different orders of the Commissioner of Income Tax (Appeals)-3, Chennai in 53/2015-16/CIT(A)-3, 47/16-17/A-3, 195/16-17/A-3 & 107/CIT(A)-3/2017-18 dated 28.02.2017, 27.10.2017, 29.09.2017 & 17.03.2020 respectively. The assessments were framed by the Joint

5. I state that, while the statutory auditors of the Petitioner Company were reviewing the contingent liability status for the financial year ended 31st March, 2018, it was noticed that there was no action taken by the Petitioner Company after receipt of the CIT(A) order for the subject AY 2013-14. Our tax consultants were contacted immediately on 26th April 2018 to seek their advice on action to be taken pursuant to the order of the CIT(A). Our consultants have perused the CIT(A) order and advised that an appeal should be filed before the Hon’ble Tribunal. Accordingly, we are now filing an appeal against the order of the CIT(A) before this Hon’ble Tribunal.

On the other hand, the ld.Senior DR opposed condonation of delay.

2.1 After hearing rival contentions and going through the reasons stated in the petition and arguments made by ld.counsel, we are inclined to accept the cause as reasonable and hence, condone the delay and admit the appeal.

- 4 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 days. The assessee has filed condonation petition for condoning the delay along with affidavit. The assessee has stated that the period is falling under the pandemic period of Covid-19 and the Hon’ble Supreme Court in Miscellaneous Application No.665 of 2021 vide order dated 23.03.2020 has given directions that the delay are to be condoned during this period 15.03.2020 to 14.03.2021 and they have condoned the delay up to 28.02.2022 in Miscellaneous Application No.21 of 2022 vide order dated 10.01.2022. Since the Hon’ble Supreme Court has condoned the delay during said period, respectfully following the same, we condone the delay and admit the appeal.

4. The first common issue in these five appeals of assessee is as regards to the order of CIT(A) confirming the action of the AO in making disallowance of professional fee paid to EVA Delith, Germany without deduction of TDS u/s.195 of the Act and thereby invoking the provisions of section 40(a)(i) of the Act. The ld.counsel for the assessee as well as the ld. Senior DR agreed that facts and circumstances are exactly identical in all the five years and grounds raised are also identical. Hence, we will take the facts and grounds from assessment year 2011-12 in and will decide the issue. The relevant grounds raised in assessment year 2011-12 reads as under:-

- 5 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 2.1 Disallowance of Professional Fees paid to Eva Delith: 2.1.1 The CIT(A) erred in confirming the disallowance of professional fees amounting to Rs.43,18,481 made by the AO in relation to marketing support services rendered by Ms.Eva M Delith ('Ms.Eva'), an Independent Consultant outside India. 2.1.2 The CIT(A) ought to have appreciated that the support services rendered by the Ms.Eva are only facilitation in nature not involving managerial, technical or consultancy knowledge and hence does not fall within the meaning of "fee for technical service" as per explanation 2 to section 9(1)(vii) of the Act. 2.1.3 Without prejudice to the above, even if the above services are considered as technical in nature, the CIT(A) ought to have appreciated that since the services are rendered by an individual Non-Resident the same is covered under Article 14 of India-Germany Double Taxation Avoidance Agreement (DTAA) as Independent Personal Services' and as the same is not taxable in India by virtue of the specific exclusion contemplated under Article 12(4) of the India-Germany DTAA. 2.1.4 The CIT(A) ought to have appreciated that Ms.Eva neither has a fixed base in India nor has she stayed in India for a period exceeding 120 days in the previous year and as such the income of the consultant is not taxable in India under Article 14 of the India-Germany DTAA. 2.1.5 The CIT(A) ought to have appreciated that the professional fee is not chargeable to tax in India as the services were rendered outside India. 2.1.6 Without further prejudice to the above, the CIT(A) ought to have appreciated that even if the payment is treated as fee for technical services, it is not chargeable to tax in India under section 9(1)(vii)(b) of the Act, as it relates to services utilized for the purpose of making or earning income from any source of income outside India by the Appellant.

4.1 The brief facts are that the AO on perusal of books of accounts of the assessee noted that the assessee has made payment to Ms. Eva M Delith and the following are the details:- Details of payments made to Eva M Delith Nature of Expense FCY Amount in FCY Amount in INR Retainership Fee EUR 66000 3968334 Reimburse of expenses EUR 5487 350147 Total 43,18,481

- 6 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 The AO asked the assessee to explain why this payment is made without deduction of TDS u/s.195 of the Act, be not disallowed u/s.40(a)(i) of the Act. The assessee replied that the company has entered into a retainer arrangement with Ms.Eva M Delith in connection with providing customer support to European customers which includes visit to warehouse, to take stock position and providing an interface with clients, communicating to the company on the clients requirements, claims etc. It was submitted by the company that Ms. Eva M Delith merely acted as an interface or an agent between the company and the customers. The facilities and services rendered were merely marketing services to promote the product of assessee in Germany and these services does not involve any managerial, technical or consultancy knowledge so as to fall within the meaning of ‘fee for technical services (FTS)’. But the AO was of the view that in view of section 195 of the Act, the assessee company has to approach the Income-tax Department u/s.195(2) of the Act before remitting the payments to a non-resident but the assessee did not file the prescribed undertaking along with certificate from an accountant while remitting these payments and the source of income emanates principally on account of business activities conducted in India and hence, the payments made are liable to be disallowed u/s.40(a)(i) of the Act. Accordingly, he disallowed these payments and added back to - 7 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 the income of the assessee. Aggrieved, assessee preferred appeal before CIT(A).

4.2 The CIT(A) following the earlier order i.e., for assessment year 2008-09 in dated 31.01.2017 confirmed the disallowance made by AO. Aggrieved, assessee came in appeal before the Tribunal.

4.3 Before us, the ld.counsel for the assessee argued that the assessee company has employed Ms. Eva M Delith, Germany, a marketing specialist in German market. Her services were meeting and soliciting customers in Germany, periodic visit to warehouse, report stock levels and interacting with the customers and attend to quality and warranty claims etc. It was stated that all the activities of Ms.Eva M. Delith was carried out in Germany and any interaction of Ms.Eva with the company was only through the video conferencing, e- mails or phone calls. She never visited India during the relevant assessment year and to this fact, assessee has already filed certificate from the company which is enclosed in assessee’s paper-book filed on 18.10.2023 at page 1 certifying that her services were utilized in entirety in Germany. The ld.counsel took us through page 1 of assessee’s paper-book. In lieu of that, he argued that payments

- 8 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 made to Ms.Eva falls under the category of independent personnel services in DTAA between India and Germany. He referred to Article 14 of DTAA dealing with independent personnel services provided that income by an individual resident in a contracting state and performing professional services or other independent activity shall be taxable only in that state unless he has fixed base in the other state or his stay in other state for a period exceeding 120 days. He explained that Ms.Eva M Delith does not have fixed base in India nor she visited India at all during any period relevant to this assessment year or any years under appeals. Hence, according to ld.counsel, her income is taxable only in Germany and once her income is not taxable in India, there is no need to deduct TDS out of the remittances made to her.

4.4 On the other hand, the ld.Senior DR filed written submissions stating that the facts, as filed by assessee now before the Bench were not before the AO, such as a) that the resident does not have a fixed base in India nor she stayed for a period exceeding 120 days. b) Applicability of Article 14 of DTAA between India and Germany c) Taxability of receipts in Germany. The ld.Senior DR also pointed out that the CIT(A) in his appellate order has also observed that the assessee failed to adduce evidence in - 9 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 support of its claim and hence, this issue for all the five years can be remitted back to the file of the AO.

4.5 We have heard rival contentions and gone through facts and circumstances of the case. We noted that the assessee has filed evidence in the shape of certificate that Ms.Eva M Delith did not visited India during the relevant five assessment years, to which the Revenue could not negate. Further, the ld.counsel for the assessee took us through the relevant DTAA between India and Germany, wherein Article 14 deals with independent professional services, as claimed by assessee, the payment to Ms.Eva M Delith falls under the category of independent professional services, which deals with the income of an individual resident in contracting state and performing professional services or other independent activities and income for the same shall be taxable only in that state unless she has fixed base in India nor did she visited India at all for any period during the relevant previous years falling in the above five assessment years under appeals and hence, her income is taxable only in Germany. As pointed out by ld.counsel, this issue is covered by the Co-ordinate Delhi Bench of this Tribunal wherein Article 14 of DTAA of India and Germany was considered in the case of DCIT vs. Mira Exim Ltd., in & CO No.256/DEL/2014, order dated 24.04.2017

- 10 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 and vide para 6.4 has held that since the income itself was not chargeable to tax in India, therefore, there was no liability for assessee to deduct TDS u/s.195 of the Act. Consequently, no disallowance u/s.40(a)(i) of the Act can be made. The Tribunal has held in para 6.4 as under:- 6.4 The assessee further submitted that the services involved were rendered outside India in the course of business of the payee for which the payments were made outside India. No technology is involved in the said business support services and moreover no technical knowledge or knowhow was made available to the assessee. Services being rendered in the course of business of the payee in its home country are in the nature of business profit covered under Article 7 of the DTAA and there being no PE in India of the payee, the subject payments are not taxable in India. The payment involved relates to services provided by the payee for arranging business meetings outside India with foreign buyers with the assessee. The services towards arranging business meetings with foreign buyers are only marketing services like services provided by foreign agents for procuring export orders for which export commission or retainer is paid. The payments involved are purely business profits covered under Article-7 of the DTAA with Germany. The assessee placed reliance on judicial pronouncement as below :-

"In the case of CIT vs. Toshoka Ltd. 125 ITR 525 (SC) and Spahi Projects P. Ltd., In re 315 ITR 374 (AAR) , it has been held that amount of commission earned by nonresident foreign payees for rendering service outside India in connection with procuring export orders could not be deemed to be income arising in India."

In the case of Cushman & Wakefield (2008) 305 ITR 208, it was held that there was no expertise or know-how which was made available to CWI by reason of rendering service of a managerial, technical or consultancy nature. Some sort of durability or permanency of result of rendering of services was envisaged. The referral fee paid by the Indian company was not "fee for technical services" under section 9(1)(vii) as well as Article 12(4)(b) of the DTAA. The assessee argued that the payment is made to an individual. Thus if not covered by Article 7 then without prejudice, payment is against independent personal service covered by Article 14 of DTAA with Germany in - 11 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 accordance with which income derived by an individual from independent activities is only liable for tax in Germany. Reliance is placed on the ruling of AAR in the case of Dieter Eberhard Gustav v. CIT, 235 ITR 0698 wherein the services rendered by the applicant as "an engineer by way of technical and marketing consultancy services were held to be covered under Article-14 of the DTAA between India and Germany. In this case it was held that the expression "professional services" in article 14 of the Agreement for Avoidance of Double Taxation between Germany and India is wide enough to include services, if any, rendered by the applicant as an engineer and marketing consultancy services rendered by the applicant were in the nature of professional services falling under article 14 of the Double Taxation Avoidance Agreement between India and the Federal Republic of Germany. The conditions mentioned in the said article were clearly satisfied, as there was no permanent establishment in India in the facts and circumstances of the case. The professional fees and fee for independent personal services receivable by the applicant were not taxable in India. Where an individual (who is not a salaried employee) renders independent, personal services in the foreign state, then such independent personal services are covered by Article- 14 whereby they would only be taxable in the foreign state where the independent individual is resident. So in this case, the payee who an individual is rendering such professional or independent personal services is only taxable under Article-14 in Germany where he is resident. The payment has been made to foreign payee abroad for the services rendered outside India. Since income itself was not chargeable to tax in India, therefore, there was no liability of the assessee to deduct tax u/s 195(1) of the I.T. Act and hence section 40(a)(ia) is not applicable. The assessee thus get relief of Rs.7,27,532/- As the issue is squarely covered and even facts clearly demonstrates that Ms.Eva M.Delith does not has fixed base in India nor she did visited India at all for the period during the previous year relevant to the assessment years under appeals and hence, her income is taxable only in Germany. Hence, there is no need to deduct TDS out of the remittances made to her. Therefore, the disallowance made by - 12 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 invoking the provisions of section 40(a)(i) of the Act is not warranted and the same is deleted.

4.6 Since the facts are identical in other four assessment years i.e., 2012-13 to 2015-16 also, taking a consistent view, the disallowance made by invoking the provisions of section 40(a)(i) of the Act towards payments made to Ms. Eva M.Delith is not warranted and the same is deleted. Accordingly, this issue raised by the assessee in all these five assessment years is allowed.

- 13 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 2.2.1 The CIT(A) erred in confirming the disallowance of professional fees amounting to Rs.4,30,932 made by the AO in relation to professional fees paid to BDO Deutsche Warentreuhand, Germany towards local VAT compliance support services rendered outside India under section 40(a)) of the Act. 2.2.2 The CIT(A) failed to appreciate that the payment is only in the nature of business receipt to the non-resident and in the absence of any Permanent Establishment (PE) for the non-resident in India, the same is not chargeable to tax in India. 2.2.3 The CIT(A) ought to have appreciated that the professional fee is not chargeable to tax in India as the services were rendered outside India. 2.2.4 Without prejudice to the above, the CIT(A) ought to have appreciated that the payment is not chargeable to tax in India under Section 9(1)(vii)(b) of the Act, as it relates to services utilized for the purpose of making or earning income from any source of income outside India.

5.1 The brief facts of the issue are that the AO during the course of assessment proceedings noted that the assessee has made payment of fee to BDO, Deutsche Warentreuhand, Germany without deduction of TDS on foreign payments made under this head as under:- Vendor Name Nature of FCY Amount Amount in Expenses in FCY INR BDO Deutsche German VAT EUR 7120 430932 Warentreuhand Consultant The AO issued show-cause notice requiring the assessee as to why the above payment be not disallowed u/s.40(a)(i) of the Act, as the payment is made to foreign party without deduction of TDS. The assessee explained that the company has engaged BDO to provide tax consultancy services which relates to filing of VAT returns in Germany,

- 14 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 examining tax assessment notices, participate in appeals and tax field audits in the context of VAT return filed. It was claimed that the fee is not taxable in India as it relates to earning of a source of income and taxable as per section 9(1)(vii) of the Act. According to assessee, this is not a fee for technical services and even if considered as fee for technical services, since export income is a sourced outside India, it is not taxed in India. Further, fee is taxable in India only when the firm has a permanent establishment in India and not otherwise. But the AO was of the view that in view of section 195 of the Act, the assessee company has to approach the Income-tax Department u/s.195(2) of the Act before remitting the payments to a non-resident but the assessee did not file the prescribed undertaking along with certificate from an accountant while remitting these payments and the source of income emanates principally on account of business activities conducted in India and hence, the payment made is liable to be disallowed u/s.40(a)(i) of the Act. Accordingly, he disallowed this payment and added back to the income of the assessee. Aggrieved, assessee preferred appeal before CIT(A).

5.2 The CIT(A) noted that firstly the payment made to a non- resident is taxable or not, will depend on facts of each case and assessee should not assume the role of ITO with regard to taxability of - 15 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 a receipt relating to non-resident. If the assessee is of the opinion that no taxability arises on account of payment made to non-resident, then it should approach the ITO for a certificate for ‘Nil’ deduction of TDS or lower deduction of TDS. Further, it was noted by the CIT(A) that it does not matter as to whether the non-resident has permanent establishment or business connection or any presence in India insofar as TDS provisions are concerned especially in view of the amendment of Section 195, Explanation 2 of the Act. Therefore, he confirmed the disallowance. Aggrieved, assessee is in appeal before the Tribunal.

5.3 Before us, the ld.counsel for the assessee argued that non- resident was providing professional services in respect of filing VAT returns and compliance services in Germany. These are professional services and non-resident does not have a permanent establishment in India and hence, no part of it is taxable in India. The ld.counsel for the assessee drew our attention to pages 23 to 25 of assessee’s paper-book, wherein agreement with the foreign parties in enclosed. The ld.counsel for the assessee also relied on the decision of this Tribunal, Mumbai Bench in the case of ACIT vs. BSR & Co, in order dated 06.05.2016 for this proposition.

- 16 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 5.4 On the other hand, the ld.Senior DR heavily relied on the assessment order and that of the CIT(A) and argued that this issue may be decided on merits.

5.5 We have heard rival contentions and gone through facts and circumstances of the case. Admittedly, the party BDO Deutsche Warentreuhand, Germany is a foreign party providing professional services in making VAT return and compliance services in Germany. This issue now stands covered in favour of assessee by the decision of Co-ordinate Mumbai Bench of this Tribunal in the case of BSR & Co., supra, wherein the Tribunal held as under:- 5.1 In so far as payments to KPMG LLP, UK and KPMG USMCG Lid. UK are concerned, herein also the said entities do not have permanent establishment in India. The CIT(Appeals) has found that such entities are eligible for the benefit of Article-15 of Indo-US Double Taxation Avoidance Agreement dealing with independent personal services and hence, payments are not chargeable to tax in India so as to require deduction of tax at source. The aforesaid findings have not been disputed before us on the basis of any cogent material and, therefore, we hereby affirm the same. Consequently, invoking of section 40(a)(i) in the context of aforesaid payments is also not justified.

5.2 In the context of payments made to KPMG Tax Services Pvt. Ltd., Singapore, KPMG LLP., Singapore and KPMG Tax Advisor, Belgium, the CIT(Appeals) noted that they are companies registered in the respective countries, who have rendered services outside India. Such services related to assistance in audit, taxation, information technology services, conducing background checks, etc. Considering the nature of the services rendered, which is not disputed by the Revenue, in our view, the CIT(Appeals) made no mistake in holding that the payments are not 'fee for technical services'. Theafore said services have been rightly held to be outside the purview of Article-12 and/or Article-13 of the respective tax treaties, and instead such - 17 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 income falls within the scope of Article-7 thereof i.e. in the nature of 'business profits'. It has also not been disputed that such entities do not have a permanent establishment in India, therefore, such incomes are not chargeable to tax in India so as to require deduction of tax at source. On this aspect also, we affirm the stand of the CIT(Appeals) that such payments are not liable for disallowance under section 40(a)(i) of the Act.

5.3 With regard to the payments to KPMG, Mauritius, KPMG Hazen Hassan, Egypt, KPMG Dubai, UAE and KPMG, Sri Lanka are concerned, the CIT(Appeals) has noticed that the tax treaties with the respective countries do not have any Article defining 'fee for technical services'; and that the services were being rendered in relation to taxation matters. In this back ground, the CIT(Appeals) held that the payments for such services fall within the scope of article 14/15 of the respective treaties dealing with independent personal services and in the absence of any fixed place of business of the recipient in India, income from such services was not chargeable to tax in India. Therefore, there was no requirement to deduct tax at source and accordingly the invoking of section 40(a)(i) of the Act has been set-aside by the CIT(Appeals). The aforesaid factual matrix brought out by the CIT(Appeals) has not been assailed by the Revenue before us on the basis of any cogent material and, thus, the same is hereby affirmed.”

As the issue is covered, the different types of professional services rendered to an Indian company by overseas companies outside India in relation to audit, taxation, transfer pricing, information technology, background checks etc., would be independent personnel services and since these professional overseas companies had not fixed base or PE in India, the payments made to them would not be chargeable to tax in India and consequently, no TDS is to be deducted. Consequently, no disallowance under 40(a)(i) of the Act can be made. Hence this issue of assessee’s appeal is allowed.

- 18 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 5.6 Since the facts are identical in other four assessment years i.e., 2012-13 to 2015-16 also, taking a consistent view, no disallowance can be made by invoking the provisions of section 40(a)(i) of the Act towards payment made to BDO Deutsche Warentreuhand. Accordingly, this issue raised by the assessee in all these five assessment years is allowed.

6. The next common issue in these five appeals of assessee is as regards to the order of CIT(A) confirming the action of the AO in making disallowance of segregation charges paid to non-residents towards warehousing, unpacking, repacking of goods and supplying to customers in Germany u/s.40(a)(i) of the Act. Assessment year Segregation Charges paid to Amount 2011-12 1. Ceva Logistics GMBH (TNT), Rs.41,69,645/- Germany 2. Hqm Mess Pruund Weksoffen, Germany 3. Hormann Serwis Polska, Germany 2012-13 1. Ceva Logistics GMBH (TNT), Rs.37,02,592/- Germany 2. Hqm Mess Pruund Weksoffen, Germany 3. Hormann Serwis Polska, Germany 2013-14 1. Ceva Logistics GMBH (TNT), Rs.41,79,601/- Germany 2. Hqm Mess Pruund Weksoffen, Germany

- 19 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 3. Voith International 4. Panopa Logistics Plaska SP, Germany 5. Trigo Imagement, Hungary Rs.22,89,796/- 2014-15 1. Ceva Logistics GMBH (TNT), Rs.25,72,651/- Germany 2. Hqm Mess Pruund Weksoffen, Rs.14,93,578/- Germany 2015-16 Rs.44,60,305/- The ld.counsel for the assessee as well as the ld. Senior DR agreed that facts and circumstances are exactly identical in all the five years and grounds raised are also identical. Hence, we will take the facts and ground from assessment year 2011-12 in and will decide the issue. The relevant ground raised in assessment year 2011-12 reads as under:- 2.3 Disallowance of Segregation Charges: 2.3.1 The CIT(A) erred in confirming the disallowance of segregation charges amounting to Rs.41,69,645 paid to nonresidents towards warehousing, unpacking, repacking of goods and supplying to customers in Germany under section 40(a)(i) of the Act. 2.3.2 The CIT(A) ought to have appreciated the fact that the non-residents assisted in warehousing, sorting, unpacking bulk quantities into small quantities and delivering the same to customers in Germany and such services cannot betreated as managerial, technical and consultancy services to fall within the meaning of "fee for technical services" as per explanation 2 to section 9(1)(vii)of the Act. 2.3.3 The CIT(A) failed to appreciate that the payment is only in the nature of business receipt to the non-residents and in the absence of any Permanent Establishment (PE) for the non-residents in India, the charges are not chargeable to tax in India.

- 20 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 2.3.4 The CIT(A) ought to have appreciated that the question of obtaining a certificate under section 195(2) arises only when the income of the non- resident is chargeable to tax in India and not otherwise. 2.3.5 Without prejudice to the above claim, the CIT(A) ought to have appreciated the fact that when the facilities have been utilized for the purpose of making or earning source of income outside India, the charges are not deemed to accrue in India as fees for technical services under section 9(1)(vii)(b) of the Act.

6.1 The brief facts are that the AO on perusal of books of accounts noted that the assessee company has made payment in foreign currency to non-resident on account of segregation charges paid. The details are as under:- Vendor Name FCY Amount in FCY Amount in INR Ceva Logistics GMBH EUR 36728 2223200 Hqm Mess Pruf and EUR 26495 1596647 weksoffzen HORMANN Serwis Polska EUR 8967 72190 The AO issued show-cause notice dated 20.03.2014 asking the assessee as to why the above mentioned amounts paid without deduction of TDS be not disallowed by invoking the provisions of section 40(a)(i) of the Act. The assessee replied that the assessee company has entered into an agreement with the above mentioned non-residents, according to which it would be sending its export goods valves, guides and tappets in bulk quantities to the non-residents and they will repack the goods in smaller quantities for supplying to its customers at Germany. These non-residents merely act as a conduit

- 21 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 for the goods of the company and renders warehousing, sorting and delivery of goods to its customers at Germany. The payment for warehousing and repacking charges does not involve any managerial, technical or consultancy knowledge and services and hence it would not fall within the meaning of ‘fee for technical service’ as defined under the Act. The assessee further stated that the payment for warehousing and repacking will not be deemed to accrue or arise in India, as the services are rendered outside India and utilized by it for its export business outside India. Hence, the payment is not chargeable to tax in India under the Act. But the AO was not convinced with the reply of the assessee and he noted that the assessee failed to deduct TDS on the above payment as per section 195 of the Act and even with the introduction of Explanation 2 to section 195 of the Act, introduced by Finance Act, 2012 w.e.f. 01.04.1962, whether or not the non-resident has a place of business or business connection or any other present in India, the assessee is liable for TDS failing with non-deduction of TDS, disallowance u/s.40(a)(i) of the Act will attract. Further, he noted that once TDS is not deducted, the assessee should have approached the Income-tax Department by filing the prescribed undertaking along with the certificate from Chartered Accountant making remittances and should have obtained the certificate from the Department of ‘nil’ deduction of - 22 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 tax or lower deduction of tax. Hence the AO invoking the provisions of section 40(a)(i) of the Act added back these amounts to the taxable income of the assessee. Aggrieved, assessee preferred appeal before CIT(A).

6.2 The CIT(A) noted that firstly the payment made to a non- resident is taxable or not, will depend on facts of each case and assessee should not assume the role of ITO with regard to taxability of a receipt relating to non-resident. If the assessee is of the opinion that no taxability arises on account of payment made to non-resident, then it should approach the ITO for a certificate for ‘Nil’ deduction of TDS or lower deduction of TDS. Further, it was noted by the CIT(A) that it does not matter as to whether the non-resident has permanent establishment or business connection or any presence in India insofar as TDS provisions are concerned especially in view of the amendment of Section 195, Explanation 2 of the Act. Therefore, he confirmed the disallowance. Aggrieved, assessee is in appeal before the Tribunal.

6.3 Before us, the ld.counsel for the assessee stated that the company is exporting their products, being automobile components, to the clients at Germany mostly to M/s. Volkswagen. The client has several factories in Germany. The client is insisting that the assessee

- 23 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 supplies their products to various factories of the client as and when required by the respective factory of the client. In view of the delay in transporting and delivering components from India to Germany through shipping or Air Transport, the assessee found it necessary to ship component in advance. However, client was not prepared to receive large stock of components in advance and keep it in their inventory. As a result, the company had to engage the services of various agents who will receive components from the assessee, store it in their warehouse and deliver it to the client as and when required and at the required lots. The agents have to store the components which are shipped in bulk from India, unpack it and repack at the required lots and deliver it to the client's factory. On such delivery, the assessee will raise invoices for the components delivered on the client from India. Therefore, the services rendered by the agents are only storing, unpacking, segregation and repacking to be delivered to the client. These are purely contract of labour and are not in the nature of technical services. For these services the agents are paid remuneration. As the payments will constitute Business profits of the Agents and they do not have a PE in India, remuneration is not taxable in India. Hence, tax was not deducted from such payments. For this purpose, the assessee had employed the following agents and paid

- 24 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 charges for the logistics viz., warehousing, segregation, repacking and delivering:- a) CEVA Logistics GMBH (earlier known as TNT Logistics)-Agreement with the company is enclosed at pages 46 to 55 of assessee’s paper-book. b) Hgm Mess-Pruf-und Werkstoffzentrum – Agreement with the company is enclosed at pages 69, 71 & 77 of assessee’s paper-book c) Hormann Serwis Polska – Agreement with the company is enclosed at pages 81 & 85 of assessee’s paper-book. d) Voith Industrial Services (Previously known as Hormann) – Agreement with the company is enclosed at pages 81 to 85 of assessee’s paper-book. e) Trigo Imagement, Hungary - Agreement with the company is enclosed at pages 153 & 157 of assessee’s paper-book f) Panopa Logistics polska – Pages 177 & 183 of assessee’s paper-book In view of the above, the ld.counsel for the assessee relied on the Co- ordinate Bench of Chennai Tribunal in the case of Turbo Energy Ltd., vs. DCIT in and 316 & 317/Mds/2014, order dated 03.05.2017, wherein it is held that in the case of M/s. Sonima Logistics, Germany which are carrying out similar logistics for the assessee has held that the services rendered by non-resident do not fall under the category of technical and managerial services. The services will be rendered outside India and there is no permanent establishment or business connection with the non-resident in India. Hence, providing of the services outside India cannot be taxed in India unless a non-resident has permanent establishment in India. Once taxability of these payments are not there, the disallowance cannot be made by invoking the provisions of section 40(a)(i) of the Act.

- 25 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 6.4 On the other hand, the ld. Senior DR only stated that the CIT(A) has not adjudicated the issue and hence, matter can be remitted back to the file of the CIT(A). Rest, he relied on the assessment order.

6.5 We have heard rival contentions and gone through facts and circumstances of the case. We noted that the assessee company is exporting their products being automobile components to their clients at Germany mostly to M/s. Volkswagen. As its client is having several factories in Germany and client is insisting for supplying of their products to various factories as per their requirement and hence, there are segregation charges as the agent has to store the component in their warehouses hired by assessee and store the components as and when they are shipped in bulk from India and pack it and repack it at the required lots and deliver it to the clients factory. Hence, these payments are made to non-resident and from the very nature of services, these cannot be called as technical services and even there is no permanent establishment of the payee. Once there is no PE in India of either the agents or the supplier company i.e., Volkswagen, no TDS is to be deducted for the same in view of the decision of the Co- ordinate Bench of Chennai Tribunal in the case of Turbo Energy Ltd., supra. Hence, we hold that the services rendered by the non-resident do not fall under the category of technical and managerial services and - 26 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 even these services were rendered outside India and there is no permanent establishment or business connection with the non-resident in India. Accordingly, we are of the view that providing of the services outside India cannot be taxed in India as the non-resident has no permanent establishment in India. Hence, we delete the disallowance made by the AO by invoking the provisions of section 40(a)(i) of the Act. This issue of assessee’s appeal is allowed.

6.6 Since the facts are identical in other four assessment years i.e., 2012-13 to 2015-16 also, taking a consistent view, no disallowance can be made by invoking the provisions of section 40(a)(i) of the Act towards segregation charges paid to non-residents. Accordingly, this issue raised by the assessee in all these five assessment years is allowed.

7.2 The brief facts are that the AO noticed that the assessee has made payment towards contribution to 60th Anniversary deming prize to Union of Japanese Scientists and Engineers (JUSE) amounting as under:- Sl.No. Vendor Name Nature of Foreign Amount in Amt. in FCY Expenses Currency FC 1 Union of Japanese In JPY 210000 114597 Scientists and connection 60th Engineers (JUSE) with Anniversary Deming Prize The AO noted that the assessee has made payment to JUSE in lieu of revenue expenses for which TDS was deducted at 10%. But on the main payment as given in the above chart, assessee has not deducted TDS. Therefore, the AO required the assessee to explain as to why the amount should not be disallowed by invoking the provisions of section 40(a)(i) of the Act as no TDS deducted on the above payment. The assessee replied that during the year the assessee company has contributed to JUSE in connection with 60th Anniversary deming prize conducted by JUSE. The contribution is made for publication and - 28 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 advertisement in Japan and it is not for any service. Hence, it is not in the nature of fee for technical services and since the activity is of publication, which happened outside India, the subject payment was made without TDS. The AO was not convinced and hence, he disallowed a sum of Rs.1,14,597/-. Aggrieved, assessee preferred appeal before CIT(A). The CIT(A) also confirmed the action of the AO. Aggrieved, assessee is in appeal before the Tribunal.

7.3 We have heard rival contentions and gone through facts and circumstances of the case. We noted that the assessee has applied for and has won deming award from Japanese Scientists and Engineers (JUSE) and for that purpose, the assessee has advertised in the deming prize advertisement towards 60th anniversary. This payment is not in the nature of technical services but this will fall under business income and that also out of India. As pointed out by ld.counsel that this issue is squarely covered by the decision of Co- ordinate Bench of Delhi Tribunal in the case of ITO vs. Brahmos Aerospace Pvt. Ltd., in order dated 14.09.2016 wherein the Co-ordinate Bench of this Tribunal held as under:- “7.1 After going through the findings of the Ld.CIT(A), as aforesaid, I find from the details of payments and TDS as furnished by the assessee that the taxes have been withheld by the assessee after grossing up and taxes so withheld have been deposited into credit of central government. Therefore, pre-conditions as mentioned in section 248 of the Act are satisfied. Further,

- 29 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 it is seen that payments made to foreign entities are in nature of rent, advertisement and exhibition expenses and therefore are in the nature of business receipts in hands of payee. Such business receipts are taxable in India only if payee had 'PE' in India within meaning of relevant DTAA. From the facts, it has been observed that foreign entities did not have PE in India and therefore payments were not chargeable to tax in India. Accordingly, the assessee was under no obligation to deduct taxes at source while making these payments. Accordingly, Ld. CIT(A) has rightly held that the taxes were not required to be withheld u/s. 195(1) of the Act on the impugned payments made by the assessee and allow the issue in dispute in favour of the assessee which in my considered opinion, does not need any interference on my part, hence, I uphold the order of the Ld. CIT(A) on the issue in dispute and reject the grounds raised by the raised by the Revenue.”

Since the issue is covered and payment is not in the nature of fee for technical services rather falls under the head business income and not earned in India rather earned outside India, it will not be taxable in India. Hence the disallowance made by AO and confirmed by CIT(A) is deleted.

- 30 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 4.Disallowance of Corporate Social Responsibility expenditure 4.1The CIT(A) erred in confirming the disallowance of Rs.4,50,000 incurred towards corporate social responsibility. 4.2The CIT(A) ought to have appreciated that the above expenditure has benefitted the society at large and should be allowed as business expenditure. 4.3Without prejudice to the above, the CIT(A) ought to have appreciated that disallowance of CSR expenses as per explanation 2 to under section 37(1) of the Act was inserted only with effect from 01.04.2015 and cannot be applied retrospectively for the subject AY.

8.1 The brief facts are that the assessee company has incurred expenditure for the welfare of community under the head ‘corporate social responsibility’ for financial year 2010-11 to 2012-13 relevant to assessment years 2011-12 to 2013-14 as under:- Asst. Year Amount 2011-12 Rs.4,50,500 2012-13 Rs.5,72,222 2013-14 Rs.94,080 Let’s take facts from assessment year 2011-12. The detailed expenditure are given in assessment year i.e., construction of bus shelter near the Mechal factory, provision of traffic signal at road intersection near Alandur factory, providing meals to children in Anganwadi centre near Alandur and Ponneri factories on special occasions, upgrading infrastructure in needy schools in Alandur, construction of entrance arch at Sittannavasal Caves in Pudukkottai District, donation of dress and books to school and sapling plantation

- 31 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 in rural areas nearby the plants and the total expenditure incurred is Rs.4,50,500/-. The ld.counsel for the assessee stated that all these expenditures were disallowed by AO and confirmed by CIT(A) but these expenditures are allowable upto assessment year 2014-15 but are not allowable in view of the amendment carried out by the Finance Act, 2014 w.e.f. 01.04.2015. The ld.counsel stated that these expenditures are allowable by the decision of Hon’ble Madras High Court in the case of CIT vs. Madras Refineries Ltd., reported in 266 ITR 170 (Mad), being expenditure for welfare of community and allowable as revenue expenditure. This was not confronted by ld.Senior DR.

8.2 After hearing rival contentions and going through the nature of business, we are of the view that these expenditures are in the nature of revenue because all these expenditures are for the welfare of the community and from the very nature mentioned above, we are convinced that these expenditures are allowable as revenue. Even the amendment blocking these expenditures is from 01.04.2015 relevant to assessment year 2015-16. The issue before us is for assessment years 2011-12 to 2013-14 and hence, we direct the AO to allow these expenses. Accordingly, this issue of assessee’s appeal is allowed in all the three assessment years i.e., 2011-12, 2012-13 & 2013-14.

- 32 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 9. The next issue raised by the assessee is as regards to the order of CIT(A) confirming the action of the AO for assessment years 2011- 12 & 2012-13 in regard to disallowance of interest free advances given to Rane Foundation after taking loan on interest from bank. The facts and circumstances are exactly identical in both the years and grounds raised are also identical, we will take the facts and ground from assessment year 2011-12 in ITA No.1497/CHNY/2017 and will decide the issue. The relevant ground raised in assessment year 2011- 12 reads as under:- 5.Disallowance of Interest free advance: 5.1 The CIT(A) erred in confirming the disallowance of a notional amount of Rs.2,62,500 as expenditure attributable to the advance given to Rane Foundation under section 37(1) of the Act. 5.2The CIT(A) ought to have appreciated that the Appellant had made interest free advance out of surplus funds available. 5.3The CIT(A) failed to consider that the Appellant had reserves of Rs.84.97 crores which is more than sufficient for giving the interest free loan of Rs.25 lakhs to Rane Foundation. 5.4 The CIT(A) ought to have appreciated that the loans borrowed were used for specific purpose like purchase of plant & machinery etc. which can be utilized only for the purpose it was granted.

9.1 The brief facts relating to the above issue are that the AO noticed on perusal of books of accounts of the assessee that the assessee has given a sum of Rs.50,00,000/- as interest free loans to M/s. Rane Foundation. The AO accordingly issued a show-cause notice as to why proportionate interest attributable to the interest free advance be not - 33 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 disallowed from the interest expenditure claimed from the profit & loss account. The assessee explained before the AO that M/s. Rane Foundation is a charitable organization managed by its Directors and it proposed to start an Engineering Polytechnic College in Trichy, which will run two disciplines namely Mechanical Engineering and Civil Engineering. Hence, for the purpose of set-up of Polytechnic College, Rane Foundation required funds and hence, company had given interest free loans to Rane Foundation out of the surplus funds available with it. But the AO disallowed a proportionate interest amounting to Rs.2,62,500/- in assessment year 2011-12. Consequently, in assessment year 2012-13 also disallowed on identical reasoning. Aggrieved, assessee preferred appeal before CIT(A).

9.2 The CIT(A) also confirmed the action of the AO by observing in para 13.3 as under:- 13.3 I have considered the submissions of the ld. AR and findings of theAO. On consideration of facts. I find a logic in the AO's stand that noprudent business man will give advances without charging interest when thebusiness man himself is paying interest on borrowed funds. In view of theabove, I do not find any substance in the arguments of the ld. AR.Therefore, I confirm the addition made by the A0 in A.Ys. 2011-12 &2012-13 and the grounds are dismissed. Aggrieved, assessee is in appeal before the Tribunal.

- 34 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 9.3 We have heard rival contentions and gone through facts and circumstances of the case. The only plea of assessee before us was that the assessee has sufficient interest free funds available and hence, no interest apportioning can be disallowed on the ground that interest free advance was given to Rane Foundation. The ld.counsel for the assessee filed copies of balance sheet for the year ended 31.03.2012 and 31.03.2011 in assessee’s paper-book. At this stage, the Bench pointed out that let the AO verifies the availability of funds and in case, the interest free funds available are more than the interest free advances, the AO will not make any disallowance. The ld. Senior DR also agreed for this. This issue is squarely covered by the decision of Hon’ble Bombay High Court in the case of CIT vs. Reliance Utilities and Power Ltd., reported in 313 ITR 340 and the Hon’ble Bombay High Court in the case of CIT vs. HDFC Bank Ltd., reported in [2014] 366 ITR 505. Hence, we remit this issue back to the file of the AO for verification purpose and he will verify whether the interest free funds are available with the assessee, which is more than the interest free advances given to Rane Foundation. In term of the above, this issue is allowed in both the assessment years 2011-12 & 2012-13 subject to verification by the AO.

- 35 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 10. The next issue in the appeal of assessee for assessment year 2012-13 in ITA No.1498/CHNY/2017 is as regards to the order of CIT(A) confirming the disallowance of claim u/s.80G of the Act made by the AO. For this, assessee has raised the following grounds:- 5.Disallowance of donation under section 80G of the Act 5.1 The CIT(A) erred in confirming the disallowance of deduction claimed under section 80G amounting to Rs.20,60,000. 5.2 The CIT(A) ought to have appreciated that the AO has denied the claim of deduction under section 80G of the Act without adducing any reasons or providing an opportunity to the Appellant.

10.1 At the outset, the ld.counsel for the assessee stated that the AO while computing income has disallowed the claim of deduction claimed by assessee u/s.80G of the Act amounting to Rs.20.60 lakhs. The ld.counsel stated that the AO has not discussed this issue in the body of order but only in computation, he has disallowed. Further, he stated that the claim was reiterated before the CIT(A) and the CIT(A) simpliciter confirmed the addition by observing that no evidence was adduced before the AO. The CIT(A) confirmed by observing in para 14.2 as under:- “14.2 I have considered the submissions of the ld.AR. On perusal, I find that the ld.AR could not substantiate the deduction made u/s.80G. Further, no evidence has been adduced as to why the donation has been made u/s.80G and for what purpose. In the circumstances, I hold that AO has rightly disallowed the donation claimed by the appellant u/s.80G. The grounds are dismissed.”

Aggrieved, now assessee is in appeal before the Tribunal.

- 36 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 10.2 Before us, the ld.counsel for the assessee stated that the assessee has filed certificate in assessee’s paper-book-1 at page 13, wherein donation is made and Rane Foundation is a registered trust u/s.12A of the Act and also approval is granted by Department u/s.80G of the Act also. When these was pointed out to ld. Senior DR, he stated that let the issue be remanded back to the file of the AO for verification purpose and in case, certificate is produced and proved, donation can be allowed as deduction by the AO.

10.3 After hearing rival contentions and going through the facts of the case, we find force in the arguments of ld.counsel and as agreed by ld. Senior DR, the matter is restored back to the file of the AO and AO is directed to verify the certificate given by Rane Foundation, wherein assessee has contributed Rs.40 lakhs. Accordingly, this issue is allowed for statistical purposes.

- 37 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 11.1 The assessee has raised this ground regarding claim of market research and development expenses paid in USA disallowed by AO for non-deduction of TDS by invoking the provisions of section 40(a)(i) of the Act, as additional ground for assessment year 2012-13. The CIT(A) has not adjudicated this issue in assessment year 2012-13 and 2014-15. However this issue has been adjudicated by CIT(A) in assessment years 2013-14 & 2015-16. Hence, we will take the facts and issue from assessment year 2013-14 and grounds raised by assessee in assessment year 2013-14. The relevant grounds read as under:- 2.6 Market Research and development expenses: 2.6.1 The CIT(A) erred in holding the disallowance amounting to Rs.21,35,648 paid to Rane Holdings America Inc., USA (RHAI) towards market research and development services rendered outside India under section 40(a)(1) of the Act. 2.6.2 The CIT(A) ought to have appreciated that the non-resident agent rendered marketing support outside India to sell the products of the Appellant outside India and the services rendered is not in the nature of technical services under section 9(1)(vii) of the Act. 2.6.3 The CIT(A) ought to have appreciated that the fee has accrued and earned outside India in terms of section 5 and section 9 of the Act and hence chargeable to tax in India under section 195 of the Act. 2.6.4 The CIT(A) erred in misinterpreting the provisions of explanation 2 to section 195 of the Act which clarified that deduction of tax at source under 195(1) is applicable whether or not the non-resident has a place of business of business connection or any other presence in India without appreciating that the said provision would be applicable only if the payment is chargeable to tax in India. 2.6.5 Without further prejudice to the above, the payment would not fall under the definition of “Fees for Technical Services” even as per the India-

- 38 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 UK DTAA and India-USA DTAA as the non-residents have not ‘made available’ any technical knowledge, experience or skill to the Appellant.

11.2 Brief facts are that the AO noted that the assessee has made payment of expenses towards market research and development amounting to Rs.21,35,648/- to Rane Holdings America Inc, (RHAI) without deduction of TDS and hence, invoking the provisions of section 40(a)(i) of the Act, the AO disallowed this amount. The relevant details in assessment order reads as under:- S.No. Vendor Name Nature of Foreign Amount Amt. in Expenses Currency in FC FCY 1 Rane Holdings Towards market USD 38,871 21,35,648 America Inc. research and (RHAI) development The AO was of the view that as per Section 195, Explanation 2 as introduced by the Finance Act, 2012, the assessee making payment has to deduct TDS whether resident or non-resident has a business or business connection or any other presence in India. Therefore, invoking the provisions of section 40(a)(i) of the Act, the AO disallowed the amount paid by assessee towards market research and development. Aggrieved, assessee preferred appeal before CIT(A).

11.3 The CIT(A) discussing the provisions of India-USA DTAA and discussing the term ‘make available’ considered the plea raised by assessee and reproduced the plea in para 4.8.11 as under:-

- 39 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 “4.8.11 The term ‘make available’ has not been defined in the DTAA. However, the Memorandum of Understanding (MOU) in the DTAA between India and the USA discussed this concept of ‘make available’. The MOU states that technology will be considered ‘make available’ when the person acquiring the services is enabled to apply the technology / skills involved in rendering the service. It therefore provides that mere provision of technical services is not enough but the service provider should also furnish his technical knowledge, experience, skill, know-how to the recipient such that the recipient can independently perform the technical function himself in the future without the assistance of the service provider.”

The CIT(A) finally stated that in view of Explanation 2 to Section 195 of the Act, the assessee should have deducted TDS or he should have obtained ‘nil’ deduction or lower deduction certificate from the ITO and hence, the CIT(A) confirmed the disallowance by observing in para 4.11 as under:- “4.11 Therefore, in my considered opinion, appellant has failed to deduct tax at source on payments made to non-residents. In the circumstances, I hold that AO has rightly invoked Sec.40(a)(ia) and disallowed the expenditure debited in P&L a/c relating to payments to non-residents. Hence, I confirm the above addition made by the AO for A.Y. 2013-14.” Aggrieved, assessee came in appeal before the Tribunal.

11.4 Before us, the ld.counsel for the assessee argued that the disallowance of marketing expenses by the AO and confirmed by the CIT(A), factually the authorities below have erred in disallowing the same for the reason that the assessee has engaged Rane Holdings America Inc, America, a non-resident agent, to provide business development and support services in respect of its potential customers

- 40 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 located in US and other North America Countries. The ld.counsel vehemently argued that as the services were rendered outside India, liability to deduct tax on such services does not arise. He also argued that even if the payment ought to be treated as professional/consultancy services, it is not chargeable to tax in India u/s.9(1)(vii)(b) of the Act and that even under the provision of the India-USA tax treaty, the said marketing fee is not taxable in India. The ld.counsel for the assessee stated that there is no provision for making available any technical knowledge by the non-resident and therefore, the payment will constitute business profit as it will not constitute ‘fee for technical services’ under the DTAA between USA and India under Article 12(4)(b) of DTAA. The ld.counsel drew our attention to Article 12(4)(b), which is enclosed in assessee’s paper- book at page 12, as under:- “4. For purpose of this Article, “fees for included services” means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received or b) make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or technical design.”

- 41 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 11.5 We have gone through the DTAA between India-USA and Article 12(4)(b) of the DTAA and noted that the Hon’ble Karnataka High Court in the case of CIT vs. De Beers India Minerals (P) Ltd., reported in [2012] 21 taxmann.com 214 (Kar) has considered identical issue although in term of DTAA between India and Netherland but these are identical to the clauses India-Us DTAA. The Hon’ble Karnataka High Court discussed this issue ‘make available’ as under:- “22. What is the meaning of "make available". The technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology "'making available", the technical knowledge, skill?, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as "fee for technical/included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied.” and finally held in para 27 that these are not ‘fee for technical services’ as under:-

- 42 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 “27. In the background of the aforesaid principles and facts of this case, it is clear that assessees acknowledge the services of Fugro for conducting aerial survey, taking photographs and providing data information and maps. That is the technical services which the Fugro has rendered to the assessees. The technology adopted by Fugro in rendering that technical services is not made available to the assessees. The survey report is very clear. Unless that technology is also made available, the assessees are unable to undertake the very same survey independently excluding Fugro in future. Therefore that technical services which is rendered by Fugro is not of enduring in nature. It is a case specific. That information pertains to 8 blocks. The assessees can make use of the data supplied by way of technical services and put its experience in identifying the locations where the diamonds are found and carrying on its business. But the technical services which is provided by Fugro will not enable the assesses to independently undertake any survey either in the very same area Fugro conducted the survey or in any other area They did not get any enduring benefit from the aforesaid survey. In that view of the matter, though Fugro rendered technical services as defined under Section 9(1)(vi) Explanation 2, it does satisfy the requirement of technical services as contained in DTAA. Therefore the liability to tax is not attracted. Accordingly the first substantial question of law is answered in favour of the assessees and against the Revenue.”

11.6 In our view, in the present case also the company has entered into an agreement with Rane Holdings America Inc., for carrying out market survey for its company product in USA and the scope of services is to provide market related information and research but there is no provision for making available any technical knowledge by the non-resident. Therefore, in our view, the payment will constitute business profit as it will not constitute ‘fee for technical services’ under DTAA between India-USA under Article 12(4)(b) of the DTAA and hence, no disallowance can be made.

- 43 - 1498/Chny/2017, 1477 & 2815/CHNY/2018 & 885/CHNY/2020 11.7 Since the facts are identical in other assessment years i.e., 2012- 13, 2014-15 & 2015-16 also, taking a consistent view, no disallowance can be made by invoking the provisions of section 40(a)(i) of the Act towards market research and development expenses paid to Rane Holdings America Inc. Accordingly, this issue raised by the assessee in all these four assessment years i.e., AYs 2012-13 to 2015-16 is allowed.

Order pronounced in the open court on 3rd July, 2024 at Chennai.