Income Tax Appellate Tribunal - Mumbai
Wns Global Services (Uk) Ltd, Mumbai vs Assessee on 27 February, 2012
IN THE INCOME TAX APPELLATE TRIBUNAL, MUMBAI BENCH "L",
MUMBAI
BEFORE SHRI N.V.VASUDEVAN(J.M) & SHRI N.K.BILLAIYA (A.M)
ITA NO. ASSTT.YEAR APPELLANT RESPONDENT
1214/M/10 2005-06 The ADIT (IT) 2(2), M/s. WNS North America
R.No.116, 1st Floor, Inc., C/o. RSM & Co.,
Scindia House, Ambit House,
Ballard Estate, 449, Senapati Bapat Marg,
N.M.Road, Lower Parel, Mumbai -13
Mumbai - 38. PAN: AAACW 5493Q
628/M/10 2005-06 M/s. WNS North The ADIT (IT) 2(2),
America Inc., C/o. R.No.116, 1st Floor,
RSM & Co., Ambit Scindia House,
House, Ballard Estate,
449, Senapati Bapat N.M.Road,
Marg, Lower Parel, Mumbai - 38.
Mumbai -13
PAN: AAACW 5493Q
1215/M/10 2005-06 The ADIT (IT) 2(2), M/s. WNS Global Services
R.No.116, 1st Floor, (UK) Ltd. C/o. RSM & Co.,
Scindia House, Ambit House, 449,
Ballard Estate, Senapati Bapat Marg,
N.M.Road, Lower Parel, Mumbai -13
Mumbai - 38. PAN: AAACW 5544Q
627/M/10 2005-06 M/s. WNS Global The ADIT (IT) 2(2),
Services (UK) Ltd. R.No.116, 1st Floor,
C/o. RSM & Co., Scindia House,
Ambit House, 449, Ballard Estate,
Senapati Bapat N.M.Road,
Marg, Lower Parel, Mumbai - 38.
Mumbai -13
PAN: AAACW 5544Q
Revenue by : Shri Mahesh Kumar
Assessee by : Shri A.V.Sonde
Date of hearing : 27/02/2012
Date of pronouncement : 14/03/2012
2 M/s. WNS North America&
M/s. WNS Global Services (UK) Ltd.
ORDER
PER N.V.VASUDEVAN, J.M
ITA No.1214/M/10 is an appeal by the revenue while ITA No.628/M/10 is
an appeal by the assessee. Both these appeals are directed against the order dated 30/11/2009 of CIT(A)-2, Mumbai relating to A.Y 2005-06.
ITA No.1214/M/2010-REVENUES'S APPEAL:2. Ground No. 1 to 3 raised by the revenue read as follows:
"1. On the facts and in the circumstances of the case and in law, the Id. CIT (A) erred in directing that the assessee is having service Permanent Establishment (PE) in India under Article-5(2)((k) of India- USA Treaty.
2, On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in directing the assessing officer not to consider the marketing and management fee of Rs. 3,07,31,817/- as "Fees for Technical Services under Article 13(4)(c) of the India-USA DTAA, but treat the same as 'Business Profit' under Article-7 read with Article-5 of the India-USA Tax Treaty and tax accordingly.
3. On the facts and in the circumstances of the case and in law, the Id. CIT(Appeals) erred in directing the Assessing Officer not to tax the balance receipt of Rs.28,23,28,534/- being the fee for provision of marketing and management services outside India as the same are not subjected to tax in lndia (under Article 13(4)(c) of the India- USA DTAA) nor same are attributable to service PE in India."
3. The assessee is a company incorporated in the USA and is a tax resident of USA entitled to claim benefits under the India-US Double Taxation Avoidance Agreement ('India-USA DTAA'). The assessee is engaged in the business of providing marketing, account handling and sales support services for WNS Global Services (P) Ltd., hereinafter referred to as "WNS India" an Indian 3 M/s. WNS North America& M/s. WNS Global Services (UK) Ltd.
company, predominantly in the North American Region. WNS India is engaged in providing Information Technology (IT') enabled Business Process Outsourcing ('BPO') services such as data processing, accounts reconciliation, call centre etc. Such activities are performed by WNS India for clients located in United States and Europe. American and European companies are the primary target customers for the WNS India. Hence, it becomes absolutely imperative for WNS India to have marketing activities in the American and European market to meet the existing and target clients. This tremendously supports the WNS India's business strategy to grow its revenues and be in the market where its customers exist.
4. WNS India entered into a Marketing and Management Services Agreement with the assessee under which the assessee rendered the following services to WNS India:
• carry out marketing and sales promotion activities on behalf of WNS India, promote the business of WNS India by, inter alia, identifying customers and establishing contact; soliciting inquiries from the customers (including prospective clients), meeting with such customers and market the business of WNS India;
• appoint advertising agencies to prepare, plan, direct and execute all the advertising of WNS India's business in newspapers, magazines, journals or exhibitions as may be determined by WNS India;
• provide consultancy services to WNS India in:
- developing marketing strategy:
- marketing strategy implementation:
- website content development; and
- developing any promotional materials for WNS India to increase awareness of WNS India's services and to assist the sales staff.
• discuss and negotiate business proposals and contracts (or re-negotiate the same as the case may be) on the basis of inputs received from WNS India and its own industry experience, but not conclude any contract until the receipt of prior written authorization from WNS India;
4 M/s. WNS North America& M/s. WNS Global Services (UK) Ltd.
• enter into contracts with the customers in the name of the assessee on behalf of WNS India;
• perform administrative, sales support and account handling services to WNS India including:
- order processing, customer credit review, invoicing and accounts receivable processing/collection (for onward remittance to WNS India);
- providing technical input in a sales pursuit with regard to the systems that the client and WNS India use, providing assistance in project scoping:
- facilitating communication between WNS India and customers or prospective customers, acting as a first point of contact for any queries: highlighting any additional opportunities for the customers to outsource its processes.
• provide managerial services to WNS India as may be requested by WNS India in relation to the business including, providing assistance in developing business strategy, • provide any other similar/allied/incidental service in the territory.
5. As consideration for the above services, the assessee is entitled to receive a mark up of 6 percent in addition to the costs incurred by the assessee. Accordingly during the year under appeal the received fees amounting to Rs. 3 1,30,60,351, the break up of which is as under:
Provision of marketing and management services Rs. 28,23,28,534 outside India Provision of marketing and management services in Rs. 3,07,31,817 India Total Rs. 31,30,60,351
6. For providing the marketing and management services to WNS India in India, the employee of the assessee visited India during the assessment year under consideration. As per Article 5(2) (I) of the India- USA DTAA the existence of the employee constituted a Service PE In India. Accordingly, Marketing and management fees of Rs 3,07,31,817 attributable to the Service PE in India, was offered for tax in the return of income under Article 7 read with Article 5 of the 5 M/s. WNS North America& M/s. WNS Global Services (UK) Ltd.
India- US DTAA on net basis. The taxable income of the Service PE while filing the return of income by the assessee for the year under appeal has been computed at a loss of Rs. 1,00,80,360/-
7. The AO has while passing the assessment order held that the services rendered by the assessee had made available its expertise, technical knowledge and techniques to WNS India for conducting the business. Further the learned AO, held that since the management and marketing fees is subject to tax as per Article 12(4)(b) of the India USA DTAA the claim of the Assessee for Service PE was not applicable as provided in Article 5(2)(l) of the India US DTAA was not acceptable. Accordingly the AO considered the entire marketing and management fees received by the assessee from WNS India amounting to Rs 31,30,60,358s Fees for Included Service (FIS) liable to tax as per Article 12 of the India USA DTAA
8. On appeal by the assessee the CIT(A) found that Article 12(4) of the India USA DTAA provided that for the purposes of Article 12(4), 'fees for technical services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a 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.
9. The CIT(A) was of the view that in terms of Article 12(4) of the India USA DTAA FIS means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including the provision of 6 M/s. WNS North America& M/s. WNS Global Services (UK) Ltd.
services of a technical or other personnel) which make available technical knowledge, experience, skill know-how or processes, or consist of the development and transfer of a technical plan or technical design. He was of the view that the assessee provide services to WNS India like marketing, sales, sales support, contract pricing and negotiation and managerial support. He, therefore, held that the consideration received by the assessee of Rs 31,30,60,351/- for rendering marketing and management services cannot be treated as FIS under the India-USA DTAA. The CIT(A) relied on the decision of Mumbai Tribunal in Raymond Ltd (2003)(86 1TD791(Mum) wherein it was held that the normal, plain and grammatical meaning of the language employed in our understanding, is that a mere rendering of services is not roped in unless the person utilizing the services is, able to make use of technical knowledge by himself in his business and or for his own benefit and without recourse to the performer of services, in future. The CIT(A) held that the services rendered by the assessee did not take the character of FIS under Article I 2(4)(b) of the India-USA DTAA as neither the services provided by the assessee were technical or consultancy services nor do they make available any knowledge, skill or experience, etc. to WNS India.
10. The CIT(A) also held that out of the consideration received by the assessee from WNS India of Rs.31,30,60,351 towards marketing and management fees, a sum of Rs.28,23,28,534 was received for rendering marketing and management services outside India and marketing and management fees amounting to Rs. 3,07,31,817/- was received for services rendered in India. For providing services to WNS India in India, the employees of WNS USA visited India during the year under consideration. As per Article 5(2)(l) of the India- USA DTAA the existence of the employees constitutes a Service Permanent Establishment (PE) in India. In respect of services rendered in India, the CIT(A) held that by rendering such services the assessee did not make available its expertise and technical knowledge, technique for conducting business of WNS India. In view of this, such fees received by WNS USA were not in the nature of FIS, liable for taxation 7 M/s. WNS North America& M/s. WNS Global Services (UK) Ltd.
in India. Since employee of the assessee visited India in terms of Article 5(2)(1) of the India- US DTAA for the required number of days the CIT(A) held that a service PE of the assessee was created in India and accordingly, the income attributable to such PE should qualify as business profit under Article 7 of the India US DTAA.
11. In the light of above, the AO was directed not to consider the provision of marketing and management receipt of Rs. 3,07,31,817/- as FIS under Article l2(4)(b) of India-USA DTAA. The A.O. was also directed not to tax the receipts of Rs. 28,23,28,534/- being receipts for provision for marketing and management services rendered outside India as the same are not subjected to tax in India nor same are attributable to Service PE in India.
12. Aggrieved by the order of the CIT(A) revenue has raised ground No.1 to 3 before the Tribunal.
13. At the time of hearing of the appeal both the parties agreed that identical issue came up before the Tribunal for consideration in assessee's own case and this Tribunal vide order dated 25/11/2011 in ITA No.1913 to1914/M/09 & 2366/M/09 & 2569/M/09 for A.Y 2003-04 and 2004-05 respectively, held that the marketing and management fee received by the assessee was not in the nature of fees for included services within the meaning of Article 12 of the India US DTAA. The Tribunal further held that as far as marketing and management fee for services rendered in India are concerned assessee had a service PE in India under Article 5(2)(l) of the India USA DTAA and that the marketing management fees for services rendered in India is attributable to the service PE and should be charged to tax on net basis. In respect of the marketing of the marketing and management fee received by the assessee for services rendered outside India, the Tribunal held that the same is not in the nature of fees for included services under Article 12(4) (b) of the Indo US DTAA and that the said payment is also 8 M/s. WNS North America& M/s. WNS Global Services (UK) Ltd.
not attributable to the service PE in India. Following were the relevant finding of the Tribunal:
"9. We have considered the rival submissions and also perused the relevant material on record. The assessee in the present case is a U.S. Company which entered into an agreement with WNS India for providing marketing, management and sale support services on 13-01-2004. As per the said agreement, the assessee company received fees of Rs.22.29 crores for the services rendered during the year under consideration to WNS India and the issue before us is relating to the taxability of the said amount in the hands of the assessee in India. The AO held that by rendering the services as per the agreement dated 13-01-2004, the assessee company had made available its expertise and technical knowledge required for conducting business to WNS India and the fees received by the assessee from WNS India for such services was in the nature of fees for included services as per Article 12 of the Indo-US Treaty. The learned CIT(Appeals), on the other hand, accepted the stand of the assessee that fees payable by WNS India was not covered by Article 12 of the Treaty since neither the services provided by the assessee were in the nature of technical or consultancy services nor did they make available any knowledge, skill or experience to WNS India. For this conclusion, the learned CIT(Appeals) relied on the order of his predecessor dated 26th May, 2005 passed in the case of WNS India. At the time of hearing before us, the learned counsel for the assessee has submitted that the said order of the learned CIT(Appeals) dated 26-05-2005 passed in the case of WNS India has been upheld by the Tribunal vide its order dated 25-11-2009. A copy of the order of the Tribunal is also placed on record by him and a perusal of the same shows that WNS India had paid similar fees as paid to the assessee in the present case to WNS UK and the subject matter of the appeal filed before the Tribunal was relating to ascertainment of taxability in the context of section 195. The learned CIT(Appeals) had directed the AO to consider TDS on payments made by WNS India to WNS UK for marketing and management services by treating the same as business profit covered by Article 7 of Indo-UK DTAA and not by Article 13(4)(c) as held by the AO. In order to ascertain the exact nature of services rendered by WNS UK to WNS India, the Tribunal examined the agreement between the said parties and extracted the relevant portion of the said agreement in its order which enumerated the exact services rendered by WNS UK as under :
"WNS, UK, has been and shall continue to, and WNS India has authorised WNS UK to:
4.1 carry out marketing and sales promotion activities on behalf of WNS India, promote the business of WNS India 9 M/s. WNS North America& M/s. WNS Global Services (UK) Ltd.
by inter-alia, identifying customers and establishing contracts; soliciting inquiries from clients (including prospective clients)l meeting with such clients to discuss current costs incurred in their back office functions, areas that exhibit inefficiencies, functions that can be outsourced; and rendering such services as may be required to present and market the business of WNS India;
4.2 appoint advertising agencies to prepare, plan, direct and execute all the advertising of WNS India's business in newspapers, magazines, journals, or exhibitions as may be determined by WNS India;
4.3 provide assistance to WNS India in (a) developing marketing strategy, i.e., setting the strategy with regard to which clients to target, how much to spend on marketing activities, how to develop WNS India's brand and build brand awareness, (b) marketing strategy implementation,
(c) website content development, (d) developing any promotional materials for WNS India to increase awareness of WNS India's services and to assist the sales staff;
4.4 discuss and negotiate business proposals and contracts (or re-negotiate the same, as the case may be) on the basis of inputs received from WNS India and its own industry experience, but not conclude any contract until the receipt of prior written authorisation from WNS India;
4.5 enter into contracts with clients (or re-enter into new contracts with the said clients) in the name of WNS U.K. and without disclosing that WNS UK is acting on behalf of WNS India. However, WNS UK may intimate to the client to the client that it is acting for an undisclosed principal or a disclosed principal, as the case may be, only if the same is so required to be intimated to the client under any law or regulation applicable in the territory;
4.6 perform administrative, sales support and account handling services to WNS India including, but not limited to:
order processing, customer credit review, invoicing and account receivable processing / collection (for onward remittance to WNS India);
10 M/s. WNS North America& M/s. WNS Global Services (UK) Ltd.
providing technical input in a sales pursuit with regard to the systems that the client and WNS India use, providing assistance in project scoping; facilitating communication between WNS India and clients or prospective clients, keeping clients, updated on the status of the work relying on the status reports provided by WNS India; ensuring that clients are satisfied with the work that is being performed on their behalf, acting as a first point of client contact for any queries; highlighting any additional opportunities for the client to outsource its processes;
4.7 provide managerial services to WNS India as may be requested by WNS India in relating to the Business including, but not limited to, providing assistance in developing business strategy, coordinating the operations of WNS India, exercising oversight over the operations, etc."
After taking into consideration the exact nature of services rendered by WNS UK to WNS India as well as the submissions of both the sides, the Tribunal decided the issue in paragraph No. 7 to 9 of its order which read as under :
"7. Having heard the rival contentions and being perused the material on record, we see no reason to interfere in the conclusion arrived at by the Ld. CIT(A). As Shri Pardiwalla, rightly pointed out the scope of events for technical services under Article 12 of Indo U.K. tax treaty is confined to payment of any kind to any person in consideration for making available technical knowledge, etc. Generally speaking, technical services are treated as having been 'made available' when recipient of such technical services is enabled to perform such services without recourse to the service provider. As to what are the connotations of "make available", a reference may be made to the decision of this Tribunal in the case of Raymond Ltd Vs DCIT, 86 ITD
791. In the said case, a co-ordinate bench has made following observations with which we are in most respectful agreement and which aptly sum up the prevailing legal position in this regard:-
"We hold that the word "which" occurring in the article after the word "services" and before the words "make available" not only describes or defines more clearly the antecedent noun ("services") but also gives additional information about the same in the sense that it requires that the services should result in 11 M/s. WNS North America& M/s. WNS Global Services (UK) Ltd.
making available to the user technical knowledge, experience, skill, etc. Thus, the normal, plain and grammatical meaning of the language employed, in our understanding, is that a mere rendering of services is not roped in unless the person utilising the services is able to make use of the technical knowledge, etc. by himself in his business or for his own benefit and without recourse to the performer of the services in future. The technical knowledge, experience, skill, etc. must remain with the person utilising the services even after the rendering of the services has come to an end. A transmission of the technical knowledge, experience, skills, etc. from the person rendering the services to the person utilising the same is contemplated by the article. Some sort of durability or permanency of the result of the "rendering of services" is envisaged which will remain at the disposal of the person utilising the services. The fruits of the services should remain available to the person utilising the services in some concrete shape such as technical knowledge, experience, skills, etc."
8. On the facts of the case before us, it is an undisputed position that the payment for technical services, which is sought to be brought to tax in the hands of the assessee, is in the nature of reimbursement of technical expenses to the head office.
9. In view of the above, it is clear that Article 13(4)(c) of the Indo UK tax treaty will only cover such a rendering of technical consulting service which result in receipt of such services being unable to perform such services in future without re-course to the service provider. It is not even the case of the Revenue that the services rendered by WNS, U.K. meet this test. Under these circumstances, the Ld. CIT(A) was quite justified in holding that the impugned receipts could not be taxed as fees for technical services. As regards the question of taxability under Article 7, we have noted that the Ld. CIT(A) has merely restored the file to the A.O. for verification no facts. We see no infirmity in this direction either. The A.O. is at liberty to verify the figure given by the assessee regarding actual rate of income embedded in these payments and decide the tax withholding rates in the light of his findings. For the reasons set out above, we uphold the order of the Ld. CIT(A) and decline to interfere in the matter."
12 M/s. WNS North America& M/s. WNS Global Services (UK) Ltd.
10. The Tribunal thus held that Article 13(4)(c) of the Indo-UK Tax Treaty is not applicable and the said article does not cover the services rendered by WNS UK to WNS India We find that the nature of services rendered by the assessee in the present case to WNS India is exactly similar to the services rendered by WNS UK. Even Article 13(4)(c) of Indo-UK Tax Treaty is similar to Article 12 of Indo-UK Tax Treaty. The decision of the Tribunal rendered in the case of M/s WSN Global Services P. Ltd. (supra), in our opinion, thus is squarely applicable to the issue involved in the present case. The learned DR has contended in this context that the issue involved in the case of WNS India was in the context of ascertainment of tax deductible at source u/s 195 and the same, therefore, cannot be applied in the present case involving different issue. However, as already discussed by us, the issue involved in the case of WNS India before the Tribunal was whether the CIT(Appeals) was correct in directing the AO to consider TDS on payments made by WNS India to WNS UK for marketing and management services by treating the same as covered by Article 7 of Indo- UK DTAA and not under Article 13(4)(c) of the Treaty as held by the AO. Since the nature of services rendered by the assessee is similar to the nature of services rendered by WNS UK and even the provisions of the relevant articles of treaties are similar, we are of the view that the issue involved in the case of WNS India as well as all material facts relevant thereto are similar to that of the present case and the decision of the Tribunal rendered in that case has a direct application in the present case.
11. The learned DR has also made an attempt to support the case of the Revenue on this issue by relying on the provisions of section 9 and the amendment made therein by inserting Explanation with retrospective effect. He has also cited certain judicial pronouncements which are in relation to the provisions of section 9. It is, however, observed that the issue in the present case has been decided by the learned CIT(Appeals) with reference to the relevant provisions of DTAA and as already discussed by us, similar issue has already been decided by the Tribunal in the case of WSN India in favour of the assessee with reference to the relevant provisions of the DTAA. As rightly submitted by the learned counsel for the assessee, the provisions of DTAA override the provisions of the Income-tax Act and once the assessee is held to be entitled to any benefit or exemption under DTAA, there is no need to refer to the provisions of the Act. The reliance of the learned DR on the provisions of section 9 for seeking withdrawal of benefit or exemption which is available to the assessee under the Treaty thus is clearly misplaced. As such, considering all the facts of the case, we are of the view that this issue is squarely covered by the decision of the Tribunal rendered in the case of WSN Global Services P. Ltd. (supra) and respectfully following the said decision of the coordinate bench of this Tribunal, we uphold the impugned order of the learned CIT(Appeals) to treat the amount of Rs.19,09,85,116/- being the fee for provision of marketing and management services rendered outside India as not subjected to tax in India holding that the same constituted business profit 13 M/s. WNS North America& M/s. WNS Global Services (UK) Ltd.
not attributable to PE in India. We also uphold his impugned order directing the AO to consider the fees of Rs.3,19,91,133/- received by the assessee for provision of marketing and management services rendered in India as business profit under Article 7 read with Article 5 of Indo-US DTAA for the purpose of taxation in India being attributable to PE in India. Ground Nos. 1 to 3 of the Revenue's appeal are accordingly dismissed."
14. In the light of the aforesaid decision we are of the view that there is no merit in Ground No. 1 to 3 raised by the revenue. We also find that in respect of the marketing and management fee amounting to Rs. 3,07,31,617/- received by the assessee for services rendered in India the assessee claimed that it had service PE in India and that has also been upheld by the Tribunal in the decision referred to above. Facts and circumstances in the present assessment year being identical to the facts and circumstances as it prevailed in A.Y 2003-04 and 2004-05, respectfully following the decision of the Tribunal we uphold the order of the CIT(A) and dismiss Ground No. 1 to 3 raised by the revenue.
15. Ground No.4 raised by the revenue reads as follows:
"4. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in holding that the re-imbursement of lease line charges amounting to Rs. 4,27,29,227/- do not qualify as ' Royalty' under Article-13 of the India-USA DTAA."
16. We have already seen that WNS India provide software and IT enabled services to clients outside India. To transmit the voice, data and software outside India, WNS India utilises the services of international telecom service providers. The data gets transferred from WNS India's unit to Service providers based in India for transmission outside India. At the end of the India portion, the transmission of data is taken over by international telecom Service providers based outside India and then transferred to the customers located outside India. The reverse process is used for transmission of data from the customers' site to WNS India. The international telecom service providers raise an invoice on on the assessee.
14 M/s. WNS North America& M/s. WNS Global Services (UK) Ltd.
17. During the relevant A.Y, the assessee has recovered charges from WNS India for international telecom connectivity charges paid by the assessee to international telecom companies on behalf of WNS India. The assessee submitted that these recoveries represent reimbursements, at cost, of expenses incurred by the assessee for and on behalf of WNS India without any mark up.
18. The assessee claimed that the reimbursement of international telecom connectivity charges cannot be considered to be taxable in India. The assessee submitted that the term 'Reimbursement has not been defined in the Income- tax Act, 1961 ('Act') as well as the India-US DTAA and hence, it should be understood in the light of its meaning in common parlance. As per Black's Law Dictionary, the term 'reimburse' means to pay back, to make restoration, to repay that expended, to indemnify or make whole. As per the Concise Oxford Dictionary, the term 'reimburse' means repay (a person who has expended money) or repays (a person's expenses). In view of the above definitions, the payment by WNS India being reimbursement of actual cost, there is no 'income' element embedded in such payments and is merely in the nature of reimbursements.
19. The A.O held that the said receipt was in the nature of Royalty and taxable under Article 13 of the India-USA DTAA. The CIT(A) on the above issue held that the service provider is not the assessee but M/s MCI a US Company, who has contracted with the assessee in UK for providing dedicated Internet service. The CIT(A) on perusal of the with the said service provider found that the assessee only allowed to facilitate the internet connectivity to its various companies. No process, or equipment was made available to the assessee by M/s MCI. The bills were raised by M/s. MCI on the assessee on the basis of leased line usage As the said internet connectivity was being used by WNS India, these amounts were first paid by the assessee to M/s MCI US and collected as reimbursement from the Indian company as the payment to MCI is made for the usage of internet 15 M/s. WNS North America& M/s. WNS Global Services (UK) Ltd.
connectivity by the Indian company. Considering the same, the CIT(A) held that payment of international telecom connectivity charges/ lease line charges were not taxable as 'royalty' in India under Section 9(1)(vi) of the Act and cannot be taxed as such. The CIT(A) held that the arrangement for international lease line connectivity charges does not allow the use of, or the right to use, any industrial, commercial or scientific equipment. All that the arrangement provided was a telecommunications facility. The arrangement did not result in any equipment being placed at the disposal of assessee so as to give it a right to use the same. Also, the equipment is not used by the Appellant. Merely because some equipment owned by the International telecom operator is used WNS India in providing international connectivity facility, it does not mean that the payments are in respect of usage of such equipments and assessable as Royalty under the India UK Treaty. The CIT(A) therefore, held that the payments would not constitute "royalty" under Article 12(3)(a) of the India-USA DTAA. The amounts receivable by the Appellant (for making payments to international telecom companies) is a consideration for arranging / facilitating a standard communication link and is not for the use of any intellectual property or any information. Further, such providers do not impart any information concerning industrial, commercial or scientific experience to WNS India. The CIT(A) also held that the facts of the case were similar to the ruling of the Authority of Advance Ruling in the case of Dell International Services (2008 TIOL 08) (10 DTR 249) and the decision of the Bangalore Tribunal in the case of Wipro Ltd ( 80 TTJ
191)(Bang). Therefore the CIT(A) held that the payment cannot be treated as Royalty under Article 12 of the India USA DTAA.
20. Aggrieved by the order of the CIT(A), the revenue has raised Ground No.4 before the Tribunal. On the above issue raised by the revenue in Ground No.4 the Tribunal has already considered identical issue in the case of the assessee 16 M/s. WNS North America& M/s. WNS Global Services (UK) Ltd.
for A.Y 2003-04 and 2004-05. The Tribunal in ITA No.1913 to1914/M/09 & 2366/M/09 & 2569/M/09 held as follows:
"17. We have considered the rival submissions and also perused the relevant material on record. As rightly held by the learned CIT(Appeals), the arrangement for international lease line connectivity charges did not allow WNS India the use of, or the right to use, any industrial, commercial or scientific equipment and the payment made for lease line charges thus was not in the nature of royalty as held inter alia, by the Authority for Advance Ruling in the case of ESRO Satellite Centre (ISAC) 307 ITR 59 as well as by the Bangalore Bench of ITAT in the case of Wipro Ltd. 80 TTJ 191. The arrangement involving payment of lease line charges did not result in any equipment being placed at the disposal of WNS India and merely because some equipment owned by international telecom operator was used by them in providing international connectivity to WNS India, it did not mean that the payment of lease line charges were in respect of use of such equipment so as to call them in the nature of royalty. The said arrangement also did not involve imparting of any information concerning industrial, commercial or scientific experience to WNS India. Moreover, it was a case of reimbursement of lease line charges by WNS India to the assessee which did not include any mark up or profit and such reimbursement of actual expenditure, in our opinion, cannot be treated as income of the assessee chargeable to tax. We, therefore, find no infirmity in the impugned order of the learned CIT(Appeals) holding that the reimbursement of lease line charges received by the assessee from WNS India was not chargeable to tax in India and upholding the same on this issue, we dismiss ground No. 4 of the Revenue's appeal".
Respectfully following the decision of the Tribunal referred to above we uphold the order of CIT(A) and dismiss ground No.4 raised by the revenue.
21. Ground No.5 raised by the revenue reads as follows:
"5. On the facts and in the circumstances of the case and in law, whether the Id. CIT (Appeals) was correct in holding that when duty is cast on the prayer to pay tax at source, no interest u/s 234B and 234C can be imposed on the payee assessee ignoring the fact that it is the liability of the payee to pay advance tax even on the amount which had not been deducted at source under sect 195 of the Income Tax Act, 1961."
17 M/s. WNS North America& M/s. WNS Global Services (UK) Ltd.
22. The claim claim of the assessee was that it is a foreign company and its entire income is liable for deduction of tax at source under Section 195 of the Act. Therefore, the assessee is not liable to pay advance tax accordingly, not liable to pay interest under Section 234B and 234C of the Act. In this regard, the Appellant has relied on the following decisions:
- Motorola Inc. 95 ITD 269 (Delhi Tribunal - Special Bench)
- DDIT vs. SET Satellite (Singapore) PTE Ltd. 106 ITD 175 (Mumbai Tribunal)
-Fisons PLC vs. DCIT 272 ITR 60 (Mumbai Tribunal)
-JCIT v. M/s. Booz Allen & Hamilton Inc., USA 13 SOT 10 (Mumbai Tribunal)
- Sedco Forex international Drilling inc vs. DCJT 72 ITD 415 (Delhi Tribunal),.
23. The CIT(A) found that the entire income of assessee was liable for deduction of tax at source under Section 195 of the Act. He held that under Section 208 of the Act and 209(1 )(d) of the Act advance tax liability has to be computed after reducing the estimated tax liability by the amount of tax deductible at source on income which is included in computing the estimated tax liability. Since, in the case of the assessee which is a non-resident tax is deductible on the entire income, no advance tax was payable and consequently, the interest under Section 234B could not be charged.
24. At the time of hearing it was brought to our notice that similar issue was considered by the Tribunal in assessee's own case in ITA No.1913 to1914/M/09 & 2366/M/09 & 2569/M/09 and this tribunal held as follows:
18. As regards ground No.5, it is observed that the issue involved therein relating to charging of interest u/s 234B and 234C is squarely covered in favour of the assessee by the decision of Hon'ble Bombay High Court in the case of Director of Income-tax (International Taxation) vs. NGC Network Asia LLC 313 ITR 187 wherein it was held that when tax is deductible at 18 M/s. WNS North America& M/s. WNS Global Services (UK) Ltd.
source from the entire income received by the non resident assessee, there is no liability to pay advance tax and there is no question of charging interest u/s 234B and 234C. Respectfully following the said decision of Hon'ble jurisdictional High Court, we uphold the impugned order of the learned CIT(Appeals) deleting the interest charged by the AO u/s 234B and 234C and dismiss ground No. 5 of the Revenue's appeal.
Respectfully following the aforesaid decision Ground No.5 raised by the revenue is dismissed.
ITA No.628/M/2010- Assessee's Appeal:25. Ground No.1 & 2 raised by the assessee read as follows:
"1. Based on the facts, and in the circumstances of the case, and in law, the learned Commissioner of Income-tax (Appeals) ["CIT(A)"] has legally erred in upholding the action of learned Assessing Officer ('AO') of treating the reimbursement of expenses amounting to Rs.1 ,05,51 ,507 to be in the nature of Fees for Included Services taxable in India.
2. Based on the facts, and in the circumstances of the case, and in law, the learned CIT(A) has legally erred in confirming the action of the AO by holding that reimbursement of expenses of Rs.14,65,085 for acquisition of assets on behalf of WNS Global Services Pvt. Ltd. is in the nature of business income attributable to Service PE in India and accordingly, taxing 10% of Rs. 14,65,085, i.e. Rs 1,46,508 as business income liable to tax in India."
26. Facts as far as Ground No.1 & 2 are as follows:
During the relevant year, the assessee had incurred various expenses on behalf of WNS India. The said amounts were mainly on account of the expenses incurred on the employees of WNS India on their foreign visits abroad. The expenses included lodging, boarding, local travelling on their foreign visit etc. which were initially borne by the assessee were reimbursed by WNS India. Accordingly the assessee has recovered the said amounts from WNS India. According to the assessee the aforesaid amounts paid by WNS India to the assessee were in the nature of pure reimbursement of costs, without any mark 19 M/s. WNS North America& M/s. WNS Global Services (UK) Ltd.
up. Therefore, it was submitted that these amounts do not in any way constitute income in the hands of the assessee. The assessee, therefore, claimed that the said reimbursements does not fall under the description of FIS under Article 12 (4) of the India US DTAA/ Act and accordingly not liable for taxation.
27. The AO has assessed the said sums as F1S under Article 12 (4) of the India USA DTAA, on the ground that by making the payments on behalf of WNS India the assessee has made available services or facility to WNS India.
28. Apart from the above sums, the assessee also incurred expenses on behalf of WNS India. The said amounts were mainly on account of the expenses incurred on the purchase of assets like routers etc. on behalf of WNS India. These expenses which were initially borne by the assessee were reimbursed by WNS India. Accordingly the assessee recovered the said amounts from WNS India. According to the assessee the aforesaid amounts paid by WNS India to the appellant were in the nature of pure reimbursement of costs, without any mark up. Therefore, it was submitted that these amounts do not in any way constitute income in the hands of the assessee. However the AO was of the view that since, the assessee had Service PE in India and the probability of the aforesaid payments being attributable to Service PE in India cannot be ruled out, 10% of the above receipt received from WNS India is considered as business income attributable to the PE and was assessable to tax as per the Article 7 of the India US DTAA.
29. The CIT(A) upheld the order of the AO on the above issues by following order of predecessor CIT(A) vide its order dated January 28, 2009 in assessee's own case for AY 2004 2005 whereby the CIT(A) had decided against the assessee and held that reimbursement expenses of the assessee's receipts is 'Fees for Included / Technical Services' as the exact nature of expenditure and services rendered by the employees of Indian entity was not available. The CIT(A) also 20 M/s. WNS North America& M/s. WNS Global Services (UK) Ltd.
held that the attribution made by the AO i.e. 10% of the reimbursement amount was proper.
30. Aggrieved by the order of the CIT(A), the assessee has raised Ground No. 1 & 2 before the Tribunal.
31. At the time of hearing both the parties agreed that identical issue was considered by this Tribunal in assessee's own case for A.Y 2003-04 and 2004-05 in ITA No.1913 to1914/M/09 & 2366/M/09 & 2569/M/09 and the Tribunal on the above issue held as follows:
"22. We have heard the arguments of both the sides on this issue and also perused the relevant material on record. The learned counsel for the assessee has submitted that the amount in question was received by the assessee on account of reimbursement of expenses actually incurred by it on behalf of WNS India and this position was not disputed by the AO. He contended that the learned CIT(Appeals), however, disputed the same by observing that the exact nature of expenses and services was not ascertainable in the absence of relevant details filed by the assessee. However, as rightly pointed out by the learned DR from the relevant portion of the assessment order, submission made by the assessee during the course of assessment proceedings was merely discussed by the AO in his order without giving any specific finding on the exact nature of expenses and the services for which the amount in question was claimed to be received by the assessee as reimbursement. In our opinion, it is necessary to ascertain the exact nature of expenses incurred by the assessee and services rendered, for which the amount in question is claimed to be received as reimbursement in order to decide the issue relating to its taxability in India in the light of various judicial pronouncement on the point and the relevant provisions of the Treaty. We, therefore, consider it fair and proper to remand this issue to the file of the learned CIT(Appeals) for deciding the same afresh after verifying the relevant details which the assessee is directed to furnish. Ground No. 1 of the assessee's appeal is accordingly treated as allowed for statistical purposes.
23. As regards the issue raised in ground No. 2 of the assessee's appeal relating to taxability of reimbursement of expenses amounting to Rs.56,18,116/- for acquisition of assets and the issue raised in ground No. 3 relating to its alternative claim in respect of the issue raised in ground No.2, the learned counsel for the assessee has submitted that both these issues have not been adjudicated upon by the learned CIT(Appeals) in his 21 M/s. WNS North America& M/s. WNS Global Services (UK) Ltd.
impugned order despite the fact that the same were specifically raised in grounds taken by the assessee in the appeal filed before him and this position has not been disputed even by the learned DR. We, therefore, remand this issue to the file of the learned CIT(Appeals) for deciding the same on merits in accordance with law after giving the assessee an opportunity of being heard. Ground Nos. 2 and 3 are accordingly treated as allowed for statistical purposes."
32. Respectfully following the decision of the Tribunal referred to above we set aside the order of CIT(A) on the above issue and remand the same for fresh consideration by the AO in the light of the directions given by the Tribunal in A.Y 2003-04 & 2004-05.
33. In the result, the appeal by the revenue is dismissed while appeal by the assessee is treated as allowed for statistical purposes. ITA NO.1215/MUM/10-REVENUE'S APPEAL:
34. ITA No.1215/M/10 is an appeal by the revenue while ITA No.627/M/10 is an appeal by the assessee. Both these appeals are directed against the order dated 27/11/2009 of CIT(A)-11, Mumbai relating to the assessment year 2005-
06.
35.. The grounds of appeal raised by the revenue read as follows:
"1. On the facts and in the circumstances of the case and in law, the Id. CIT (A) erred in directing that the assessee is having service Permanent Establishment (PE) in India under Article-5(2)((k) of India- UK Treaty.
2, On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in directing the assessing officer not to consider the marketing and management fee of Rs. 97,87,501/- as "Fees for Technical Services under Article 13(4)(c) of the India-UK DTAA, but treat the same as 'Business Profit' under Article-7 read with Article-5 of the India-UK Tax Treaty and tax accordingly.
3. On the facts and in the circumstances of the case and in law, the Id. CIT(Appeals) erred in directing the Assessing Officer not to tax the balance receipt of Rs.2,56,24,507/- being the fee for provision of marketing and 22 M/s. WNS North America& M/s. WNS Global Services (UK) Ltd.
management services outside India as the same are not subjected to tax in lndia (under Article 13(4)(c) of the India- UK DTAA) nor same are attributable to service PE in India."
"4. On the facts and in the circumstances of the case and in law, the Id. CIT(A) erred in holding that the re-imbursement of lease line charges amounting to Rs. 4,75,04,440/- do not qualify as ' Royalty' under Article-13 of the India-UK DTAA."
"5. On the facts and in the circumstances of the case and in law, whether the Id. CIT (Appeals) was correct in holding that when duty is cast on the prayer to pay tax at source, no interest u/s 234B and 234C can be imposed on the payee assessee ignoring the fact that it is the liability of the payee to pay advance tax even on the amount which had not been deducted at source under sect 195 of the Income Tax Act, 1961."
36. The above grounds of appeal are identical to the grounds raised by the revenue in ITA No.1214/M/10. Both parties agreed that the decision rendered by the Tribunal in the aforesaid case will mutatis - mutandis apply to this appeal also. The assessee in this appeal is a tax resident of UK and the provisions of Indo UK DTAA will be applicable. The provisions of India UK DTAA are identical to the provisions of Indo US DTAA, which was considered while deciding the case of WNS North America in ITA No.1214/M/10. In view of the above and for the reasons given while deciding ITA No.1214/M/10 we dismiss all the grounds of appeal raised by the revenue.
ITA NO.627/MUM/2010- ASSESSEE'S APPEAL:
37. The grounds of appeal raised by the assessee are as follows:
"1. Based on the facts, and in the circumstances of the case, and in law, the learned Commissioner of Income-tax (Appeals) ["CIT(A)"] has legally erred in upholding the action of learned Assessing Officer ('AO') of treating the reimbursement of expenses amounting to Rs.96,43,502/- to be in the nature of Fees for Included Services taxable in India.
2. Based on the facts, and in the circumstances of the case, and in law, the learned CIT(A) has legally erred in confirming the action of the AO by holding that reimbursement of expenses of Rs.15,67,118 for acquisition of 23 M/s. WNS North America& M/s. WNS Global Services (UK) Ltd.
assets on behalf of WNS Global Services Pvt. Ltd. is in the nature of business income attributable to Service PE in India and accordingly, taxing 10% of Rs. 15,67,118, i.e. Rs 1,56,712 as business income liable to tax in India."
38. The grounds raised by the assessee are identical to the grounds raised by the assessee in ITA No.628/Mum/10. For the reasons stated while deciding aforesaid appeal, we set aside the order of CIT(A) and remand the issue raised by the assessee in its appeal for fresh consideration by the AO in the light of the directions given by the Tribunal referred to in ITA No.628/M/10.
39 In the result, the appeal by the revenue is dismissed while appeal by the assessee is treated as allowed for statistical purposes.
40. In the result, appeals by the revenue are dismissed while the appeals by the assessee are allowed for statistical purposes.
Order pronounced in the open court on the 14th day of Mar.2012 Sd/- Sd/-
(N.K.BILLAIYA) (N.V.VASUDEVAN) ACCOUNTANT MEMBER JUDICIAL MEMBER Mumbai, Dated. 14th Mar. 2012
Copy to: 1. The Appellant 2. The Respondent 3. The CIT City -concerned
4. The CIT(A)- concerned 5. The D.R"L" Bench.
(True copy) By Order
Asst. Registrar, ITAT, Mumbai Benches
MUMBAI.
Vm.