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Income Tax Appellate Tribunal, ‘’D’’ BENCH, AHMEDABAD
Before: SHRI WASEEM AHMED & SHRI T.R. SENTHIL KUMAR
आदेश/O R D E R
PER WASEEM AHMED, ACCOUNTANT MEMBER:
The captioned appeal has been filed at the instance of the assessee against the order of the Learned Commissioner of Income Tax (Appeals)-13, (in short “Ld. CIT(A)”), Ahmedabad order dated 30.04.2019 passed for A.Y. 2018-19.
The assessee has raised following grounds of appeal:
“1. The learned Commissioner of Income Tax (Appeals) -13, Ahmedabad ["CIT(A)"] erred in fact and in law in holding that withholding tax u/s 195 amounting to Rs. 8,20,636 was required to be deducted on fees paid for technical services to Energy and Applied Technologies Mentor S.R.L. (''Mentor Bolivia"). 2. The learned CIT(A) erred in fact and in law in confirming the deduction of withholding tax u/s 195 despite the fact no sum was chargeable to tax in India and accordingly no tax u/s 195 was required to be deducted on the payment made to Mentor Bolivia. 3. The learned CIT(A) erred in fact and in law in not appreciating the fact that the payment made to Mentor Bolivia was for earning income from a source outside India and
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accordingly the income was not chargeable to tax in India in view of section 9(l)(vii)(b) of the Income Tax Act, 1961 ("the Act"). 4. The learned CIT(A) erred in fact and law in not appreciating that the contract executed with Yacimientos Petroliferos Fiscales Bolivianos (“YPFB") was outside India in respect of which the services of Mentor Bolivia were exclusively utilised and accordingly the source of income of Mentor Bolivia was outside India and no income was chargeable to tax in India as per section 9(1)(vii)(b) of the Act. 5. The learned CIT(A) erred in fact and in law in confirming the deduction of withholding tax u/s 195 despite the fact that source of income as well as source of receipt was outside India. 6. Your Appellant craves the right to add to or alter, amend, substitute, delete or modify all or any of the above grounds of appeal.”
The interconnected issue raised by the assessee is that the ld. CIT-A erred in holding that that the assessee was under the obligation to deduct TDS under section 195 of the Act on the payment made to M/s Mentor Bolivia.
The facts in brief are that the assessee, a private limited company, is engaged in the business of comprehensive solution in cryogenic storage, vaporization, and distribution engineering. It manufactures cryogenic storage/equipment, transportation tank, customer station, vaporizer, cylinder filling systems, vacuum jacketed piping, cryoseal liquid nitrogen containers, air separation units etc. as per the predefined standard for different industrial customers.
The assessee entered a contract with Bolvin state owned enterprise namely Yacimientos Petroliferos Fiscales Bolvianos (hereafter referred as YPFB) for providing engineering procuring, mounting and commission of ESRs and ESD services for the plants at their facility based at Bolivia. As per the contract/agreement, the assessee was required to conduct sight supervision at Bolivia to prepare/ finalize the ESRs and ESD plants design as required by YPFB to manufacture the agreed design and finally deliver the same to the designated location. Thereafter, the YPFB was to carry out the erection and installation of the plant under the guidance of the assessee. As such, the assessee was required to send its personnel for commissioning of plant and training of personnel of YPFB.
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As per the assessee, to execute the above said contract/agreement with YFPB, it was required to comply with various laws and regulations in Bolivia. It was also required to obtain various technical design approval from different authorities in Bolivia. Hence, to comply with the law/ regulation and approval from authorities, it availed the services of a firm namely M/s Mentor Bolivia, a concern expert of the local laws and regulation. The assessee on the fees paid to Mentor Bolivia for availing above stated services deducted withholding tax @ 10.30%as per the provisions of section 195A of the Act and deposited with the Government Exchequer. Subsequently, the assessee filed an appeal before the learned CIT(A) under section 248 of the Act contesting that it was indeed not required to be deduct withholding tax on payment made to M/s Mentor Bolivia and subsequently deposit with Government Exchequer. The assessee contended that the services to M/s Mentor Bolivia was taken in connection with EPC contract with YPFB which was to be executed at the site of YPFB in Bolivia. Hence, the fee paid for technical services was for business carried outside India and accordingly the same was not chargeable to tax in India as per the provision of sections of section 5 r.w.s. 9(1)(vii)(b) of the Act. As per the assessee, the nature of services availed was fee for technical services as defined under explanation 2 to section 9(1)(vii) of the Act but the same in the present case falls under the exception clause provided under section 9(1)(vii)(b) of the Act. As such, the services were utilized for carrying out business or profession outside India.
However, the learned CIT(A) rejected the appeal of the assessee by observing as under:
“…The Appellant’s company’s source of income is undoubtedly in India as manufacturing process and other establishment is situated in India only. The appellant may make exports outside India therefore, the source of receipt of the appellant can be from Outside India but the appellant has confused the same with the source of income. To fall in the exception as provided in sec.9(1)(vii)(b) of the Act it is important that the source of the income is from outside India. However, this is not the case of the Appellant. The source of receipt of income can be outside India, services can be rendered outside India, payment can be made outside India for the services to be utilized in India and where the source of income is in India. There is a distinction between the source of the income and the source of receipt of the monies. In order to fall within the second exception provided in section 9(1)(vii)(b), the
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source of the income, and not the source of receipt, should be situated outside India. It is an admitted position that the manufacturing activity of the Appellant is located in India.” XXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXXX
“To fall within the exception of Section 9(1)(vii)(b), it is required that 'Appellant should have utilized the services in a business carried on outside India or making or earning income from any source outside India. In this case the Appellant is an exporter of products in India and all the activities related to the business of the Appellant are carried out in India. The Appellant has received a contract about USD 7.9 Million from Yacimientos Petroliferos Fiscales Bolivianos - Bolivian Taxed Oil Deposits ("YPFB"), Bolivia for the supply and commissioning of Cryogenic vessel in Bolivia. Based on purchase order, it has availed services of Mentor Bolivia and made payments to it in lieu of technical services rendered by Mentor Bolivia. The business setup of the Appellant is situated in India. Mere doing the export activity from India cannot be treated as business carried outside India. Being an exporter and customers situated outside India and receiving payment against export sales, is only a source of receipt outside India but not a source of Income outside India.
After going through the aforementioned judicial pronouncements, I am persuaded to hold that the case of the Appellant does not fall within the exception of Section 9(1)(vii)(b) because the Appellant is an exporter of products in India and all the activities related to the business of the Appellant are carried out in India and source of income is within India.
The Appellant has taken the plea that the Appellant's case fall under exception of Section 9(1)(vii)(b) to escape the liability under 'fees for technical services'. It is an admitted position that engineering documentation are technical services. Therefore, the payment made by the Appellant to the Bolivian Company is in the nature of technical services taxable under Section 9(l)(vii) as fees for technical services'.
8.4 Therefore, the payment made by the Appellant to the Bolivian Company is in the nature of technical services as per section 9(1)(vii) and explanation of section 9(2) of the Income Tax Act. Therefore, TDS is applicable u/s 195 of the Act and the Appellant has correctly deducted TDS u/s 195 of IT Act, 1961 on payment made to Mentor Bolivia for technical services during F.Y. 2017-18. As a result, this ground of appeal of the appellant is dismissed.”
Being aggrieved by the order of the learned CIT(A), the assessee is in appeal before us.
The learned AR before us filed a paper book running from pages 1 to 109 contended that the services availed from Mentors Bolivia have been utilized outside India. It was also pointed out by the learned AR that the source of income was based outside India which was also taxed in Bolivia only. The assessee has just taken the benefit of double tax under the provisions of section 90/91 of the Act. The learned AR in support of his contention has filed written submission of one page supported with the ITR acknowledgement and computation of income
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for the assessment years 2019-20 and 2020-21 demonstrating that the tax on the income generated from Bolivia has already been suffered to tax outside India. Therefore, the payment in dispute cannot be made subject to the provisions of TDS.
On the other hand, the learned DR vehemently supported the order of the authorities below.
We have heard the rival contentions of both the parties and perused the materials available on record. From the preceding discussion, we note that the assessee was awarded a contract by a company based in Bolivia namely YPFB. As per the contract, the assessee was to perform certain functions as detailed below:
“12. To summarize, the Appellant shall prepare a design of plants required by YFPB by conducting site supervision at Bolivia, finalise the design after discussing it with YFPB, manufacture as per the agreed designs, deliver it to the decided location. Thereafter, YFPB shall carry out erection and installation activities for which the guidelines shall be given by the Appellant. Thereafter, the Appellant is responsible for commissioning the plant in Bolivia wherein personnel shall be present in Bolivia for commissioning of the said plants and training the personnel of YFPB.”
The assessee, in connection with the contract discussed above, has availed the services from a company namely M/s Mentor Bolivia which were undisputedly in the nature of fees for technical services. The controversy arises whether such payment to M/s Mentor Bolivia is subject to the provisions of section 195 of the Act. As per the assessee, the payment to M/s Mentor Bolivia falls under exception provided in clause (b) to section 9(1)(vii) of the Act. As such, the contention of the assessee is this that the services were utilized for the business carried out outside India as well as the source of income was also from outside India and therefore the same cannot be made subject to the provisions of TDS under section 195 of the Act. Undisputedly, the contract was awarded by the company based in Bolivia but to execute the contract, the assessee was to supply the product as per the design approved by the company (YPFB) which was being done from India. In other words, the source of income was in India and the source of receipt of such income was certainly outside India. But to fall under the exception under clause
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9(1)(vii) of the Act it is the source of income which needs to be kept in mind. Nonetheless, at the threshold, we note that the assessee has made the payment of the taxes of the income generated from the company namely(YPFB) in Bolivia which proves the contention of the assessee that the source of income was outside India. This fact can be verified from the copy of the ITR acknowledgement along with the computation of income which is placed on record. Accordingly, we hold that the assessee is not liable to deduct the TDS under section 195 of the Act. We accordingly set aside the finding of the learned CIT-Aand direct the AO to delete the addition made by him. Hence, the ground appeal of the assessee is allowed.
In the result, the appeal of the assessee is allowed.
Order pronounced in the Court on 17/05/2024 at Ahmedabad
Sd/- Sd/- (T.R. SENTHIL KUMAR) (WASEEM AHMED) JUDICIAL MEMBER ACCOUNTANT MEMBER Ahmedabad; Dated 17/05/2024 Tanmay TRUE COPY आदेशक���त�ल�प�े�षत/Copy of the Order forwarded to : 1. अपीलाथ�/ The Appellant 2. ��यथ�/ The Respondent. 3. संबं�धतआयकरआयु�त/ Concerned CIT 4. आयकरआयु�त(अपील) / The CIT(A) 5. �वभागीय��त�न�ध, आयकरअपील�यअ�धकरण/ DR, ITAT, 6. गाड�फाईल / Guard file. आदेशानुसार/BY ORDER, उप/सहायकपंजीकार (Dy./Asstt.Registrar) आयकरअपील�यअ�धकरण, अहमदाबाद / ITAT, Ahmedabad