Income Tax Appellate Tribunal - Ahmedabad
B.A. Research India Pvt.Ltd., ... vs Department Of Income Tax on 30 November, 2015
आयकर अपील
य अ धकरण, अहमदाबाद यायपीठ 'सी', अहमदाबाद ।
IN THE INCOME TAX APPELLATE TRIBUNAL
" C " BENCH, AHMEDABAD
ी जी.डी.अ वाल,उपा य (अहम. े ) एवं ी कुल भारत, या यक सद य के सम ।
BEFORE SHRI G.D. AGARWAL,VICE PRESIDENT (AZ) And
SHRI KUL BHARAT, JUDICIAL MEMBER
आयकर अपील सं./I.T.A. No.3106/Ahd/2011
( नधा रण वष / Assessment Year : 2010-11)
The Income Tax Officer बनाम/ B.A. Research India
International Taxation-II Vs. Pvt.Ltd.
Ahmedabad Judges Bungalows Road
Ahmedabad
थायी ले खा सं . /जीआइआर सं . / PAN/GIR No. : AACCB 4535 A
(अपीलाथ( /Appellant) .. ()*यथ( / Respondent)
अपीलाथ( ओर से /Appellant by : Shri Rakesh Jha, Sr.DR
)*यथ( क, ओर से/Respondent by : Shri Jigar M. Patel
ु वाई क, तार/ख /
सन Date of Hearing 29/09/2015
घोषणा क, तार/ख /Date of Pronounce ment 30/11/2015
आदे श / O R D E R
PER SHRI KUL BHARAT, JUDICIAL MEMBER :
This appeal by the Revenue is directed against the order of the Ld.Commissioner of Income Tax(Appeals)-Gandhinagar ['CIT(A)' in short] dated 02/09/2011 pertaining to Assessment Year (AY) 2010-11. The Revenue has raised the following grounds of appeal:-
1. The Ld.CIT(A) has erred in law and on facts in holding that the services were not made available, in the light of the provisions of article 12(4)(a) and 12(4)(b) of DTAA as well as the protocol to the ITA No.3106/Ahd/2011 The ITO vs. B.A. Research India Ltd.
Asst.Year - 2010-11 -2- DTAA which specifically includes such services under article 12(4)(b).
2. The Ld.CIT(A) has erred in law and on facts while placing reliance in the case of Mahindra & Mahindra Ltd, even though the facts of the case and the assessee are different.
3. On the facts and circumstances of the case, the Ld.CIT(A) ought to have upheld the Order of the Assessing Officer.
4. It is, therefore, prayed that the order of the CIT(A) may be cancelled and that of the Assessing Officer may be restored to the above extent.
5. Any other ground that may be urged at the time of hearing.
2. Briefly stated facts are that the Assessing Officer (AO in short) passed order u/s.201(1) & 201(1A) r.w.s.195 of the Income Tax Act,1961 (hereinafter referred to as "the Act") vide order dated 31/03/2010 on the basis that the assessee had made payments to non-resident parties on which he has not deducted the tax. The assessee before the AO submitted that the payments were not subjected to tax, therefore the assessee was not liable to deduct tax on such payments. However, the AO did not accept the contention of the assessee and proceeded to hold the assessee as assessee in default for non-deduction of tax and made the assessee liable for tax a sum of Rs.7,96,325/- and interest thereon u/s.201(1A) of the Act of Rs.33,845/-. The AO held that the payments made to B.A. Research International (USA), Allied Research International Inc. (Canada) and MDS Pharma Services Inc. (USA) are taxable both as per provision of the Income Tax Act, and the tax treaty between India and USA and India-Canada. The assessee being aggrieved ITA No.3106/Ahd/2011 The ITO vs. B.A. Research India Ltd.
Asst.Year - 2010-11 -3- by the order, preferred an appeal before the ld.CIT(A), who after considering the submissions of the assessee partly allowed the appeal. While partly allowing the appeal, the ld.CIT(A) held that the services provided to the assessee by the non-resident parties of USA and Canada did not fall within the purview of 'included services' under Article 12(4)(b) and, hence, there was no liability on the assessee to deduct TDS u/s.195 of the Act, while making payment for such bio-analytical services rendered to it. The ld.CIT(A) while reaching to this conclusion relied upon the decision of the Authority for Advance Rulings (Income- tax), New Delhi rendered in the case of Anapharm Inc., reported at [2008] 305 ITR 394 (AAR). The ld.CIT(A) also followed the decision of the Coordinate Bench (ITAT Mumbai Bench 'L') rendered in the case of Wockhardt Ltd. vs. Asst.CIT reported at [2010] 10 Taxmann.com 208 (Mum.). Aggrieved by the order of the ld.CIT(A), now the Revenue is in appeal before us.
3. The only effective ground in this appeal is against in holding that the service were not made available, in light of the provisions of article 12(4)(a) and 12(4)(b) of DTAA as well as the protocol to the DTAA which specifically includes such services under article 12(4)(b). The ld.Sr.DR vehemently argued that the ld.CIT(A) was not justified in deleting the addition. He submitted that the assessee was liable to deduct the tax on the payments made in consideration of the technical services ITA No.3106/Ahd/2011 The ITO vs. B.A. Research India Ltd.
Asst.Year - 2010-11 -4- rendered to the assessee and such technical services are liable to tax as per the provisions of Income Tax Act.
3.1. On the contrary, ld.counsel for the assessee submitted that the issue is squarely covered by the judgements/decisions of various judicial pronouncements. The ld.counsel for the assessee relied upon the following decisions:-
(i) Decision of ITAT Ahmedabad Bench 'D'
-in the case of ITO (Intnl.Taxation), vs. Denial Measurement Solutions (P.) Ltd. reported at [2014] 52 Taxmann.com 443 (Ahmedabad - Trib.).
(ii) Decision of ITAT Hyderabad Bench 'B'
-in the case of Dy.CIT vs. Dr.Reddy's Laboratories Ltd. reported at [2013] 35 taxmann.com 339 (Hyderabad-Trib.)
(iii) Decision of Authority for Advance Rulings (IT), New Delhi
-in the case of Anapharm Inc., In re reported at [2008] 305 ITR 394 (AAR)
(iv) Decision of ITAT Mumbai Bench 'L'
-in the case of Wockhardt Ltd. vs. ACIT reported at [2011] 10 taxmann.com 208 (Mumbai)
(v) Decision of Hon'ble High Court of Karnataka
-in the case of CIT vs. De Beers India Minerals (P.) Ltd. reported at [2012] 21 taxmann.com 214 (Kar.)
(vi) Decision of ITAT Delhi Bench 'A' in the case of Dy.CITvs.Pan AmSat International Systems Inc. reported at [2006] 9 SIT 100 (Delhi).
4. We have heard the rival submissions, perused the material available on record and gone through the orders of the authorities below as well as the judgements/decisions relied upon by the assessee. There is ITA No.3106/Ahd/2011 The ITO vs. B.A. Research India Ltd.
Asst.Year - 2010-11 -5- no dispute with regard to the fact that under the contract, the non-resident entity has carried out bio-analytical services on the sample supplied by the sponsor and submitted its report on the bio-analysis of the tablets studies. The said services have been performed outside India. The non- entities have no permanent establishment in India. It is the contention of the assessee that the services so rendered are not made available to the assessee. In this background, the ld.CIT(A) has decided the issue in favour of assessee by observing as under:-
"5. I have gone through the order of the AO and the submissions of the assessee. The ground of appeal against demand raised u/s.201(l) requires consideration of the following 3 issues:
a) Whether the payments made to the non residents are income deemed to accrue or arise in India under the provisions of section 9(2)(vii) as being 'fees for technical services'.
b) Whether the income even if deemed to accrue or arise in India under section 9(2)(vii) is of the nature which is exempt from taxation in India under the DTA Agreements with the USA and Canada respectively.
c) Whether the tax has to be deducted u/s.195 even when the income in the hand of non-resident is not taxable.
The undisputed facts of the case are that the assessee has made payments to concerns to (i) B.A. Research International (USA), (ii) Allied Research International Inc. (Canada) and (iii) MDS Pharma Services Inc. (USA), who are residents of USA and Canada for providing analytical services and testing charges. The non-resident companies had no PE in India. These services were undisputedly provided outside India, but were utilized for earning income from ITA No.3106/Ahd/2011 The ITO vs. B.A. Research India Ltd.
Asst.Year - 2010-11 -6- source in India which is manufacturing of drugs in India and subsequent sales.
Now, coming to the first issue, i.e. whether the payments made to the non residents are income deemed to accrue or arise in India under the provisions of section 9(2)(vii) as being 'fees for technical services'. The services are definitely of the nature of technical services and as the services are utilized for earning income from source in India, these are not exempted u/s.9(2)(vii)(b). The appellant has pleaded that even after the introduction of the Explanation to Sec. 9(2) inserted by the Finance Act 2007 w.e.f. 1.6.1976, the ratio of the Supreme Court decision in the case of 'Ishikawajima-Harima Heavy Industries Ltd. v/s. DIT, 158 Taxman 259 (SC)' is applicable. The appellant had placed reliance on the decision of "Jindal Thermal Power Company Limited v. DOT [2009] 225 CTR 220f, wherein it has been clearly held "that the criteria of rendering service in India and the utilization of service in India laid down by the Supreme Court in Ishikawajima's case (Supra) to attract tax liability u/s. 9(l)(vii) remains untouched and unaffected by Explanation to Sec. 9(2).
It is seen that the appellant has not noted the fact that the explanation to section 9 has been again substituted by the Finance Act, 2010 with retrospective effect from 1/6/1976. Now, the income is to be included in the total income of the non-resident, whether or not the non-resident has rendered services in India. The decision in the case of 'Jindal Thermal Power Company Limited v. DOT [2009] 225 CTR 220', on the issue therefore is no longer good law. After the amendment with retrospective effect, the payments made by the appellant are definitely falling under the definition of fees for technical services' and the income is deemed to accrue or arise in India under the provisions of section 9(2)(vii).
The next issue to be decided is whether the income which has been decided to be deemed to accrue or arise in India under section 9(2)(vii) is of the nature which is exempt from taxation in India under the DTA Agreements with the USA and Canada respectively. As there is no PE in ITA No.3106/Ahd/2011 The ITO vs. B.A. Research India Ltd.
Asst.Year - 2010-11 -7- India it would have to be seen whether, in which country and how the 'fees for technical services' are taxable as per the DTA agreements. The appellant's contention is that Article 12(4)(b) of the DTAA between India and USA/Canada is not applicable since the non-resident parties did not 'make available' any technical knowledge, experience, skill, know-how or processes. In this case the concerns in USA and Canada were conducting tests on the drugs which were already researched and after analyzing the drugs on the required parameters final reports were submitted to the assessee. I have perused the submissions made by the Appellant as well as the order passed by the AO. On perusal of the decisions cited by the Appellant it can be concluded that service, which is technical in nature can be said to be "fees for included services" only when it "make available" technical knowledge or skills to the recipient of services ie only when recipient of services can apply the same on his own. In this connection observations made by the Authority for Advance Ruling (AAR) as laid down in the case of Anapharm Inc. (2008) 305 JTR 394 squarely applies to the facts of the appellant's case, since it related to rendering of Bio-Analytical services by the non-resident applicant and under the framework of the same language of Article 12(4)(b) of the Canada-India DTAA, which is pari-materia with the U.S.-India DTAA as well:
"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. In the present case, the applicant renders Bio-analytical services which, no doubt, are very sophisticated in nature, but the applicant does not reveal to its clients as to how it conducts those tests or the inputs that have gone into it, so as to enable them to carry out those tests themselves in future. A broad description or indication of the type of test carried out to reach this conclusion does not enable the applicant's client to derive requisite knowledge to conduct the tests or to develop the technique by itself."ITA No.3106/Ahd/2011
The ITO vs. B.A. Research India Ltd.
Asst.Year - 2010-11 -8- Therefore, the services provided to the appellant by the non-resident parties of USA and Canada did not fall within the purview of 'included services' under Article 12(4)(b) and hence there was no liability on the appellant to deduct TDS u/s. 195 of the I.T. Act, while making payment for such bio-analytical services rendered to it.
Further the ratio Mumbai ITAT decision in the case of Wockhardt Ltd. v. ACIT (2010) 10 taxmann.com 208 (Mum.), also squarely applies to the facts of the appellant's case.
The same view has been followed in various decisions including decision of Mumbai Special Bench in the case of Mahindra & Mahindra Limited (313 UR 263). In view of the provisions of Article 12 of DTAA read with above referred judicial precedents, I am inclined to agree with the submissions that services cannot be categorised as "fees for included services" under the DTA Agreements with USA and Canada and therefore are not taxable in India as the more favourable DTA A provisions are to be applied. Therefore, it is held that the income of the non-resident concern in the facts and circumstances of the case are not taxable in India.
The next issue to be decided is whether the tax has to be deducted u/s. 195 even when the income in the hand of non-resident is not taxable. As the remittance made is not chargeable to tax in India, I am of the view that, in the given case provisions of Section 195 are also not applicable. The Hon'ble Supreme Court has decided the very issue in GE Technology Centre P Ltd 327 ITR 456.lt has held that u/s. s 195 payer is bound to deduct tax only if the sum payable is assessable to tax in India. Further, as provisions of Section 195 of the Act are not applicable there is no question of recovery of tax in accordance with provisions of Section 201 of the Act. Reliance placed by the AO on the decision of Transmission Corporation of India 239 ITR 587 is misplaced. Therefore, the appellant succeeds on the issue of chargeability of tax under the provisions of sec.201(l).
ITA No.3106/Ahd/2011The ITO vs. B.A. Research India Ltd.
Asst.Year - 2010-11 -9-
6. Next ground is against the charging of interest u/s. 201(1A). This ground is consequential to the raising of demand u/s. 201(1) and is decided accordingly.
4.1. From the above, it is evident that the ld.CIT(A) have given a finding on fact that the service which is technical in nature can be said to be "fees for included services" only when it has "made available"
technical knowledge or skills to the recipient of services, i.e. recipient of services can apply the same on his own. We are in full agreement of the above view of the ld.CIT(A). In the present case, the assessee had sent samples to the experts outside India and those experts submitted their report. There is nothing on record suggesting that the services rendered to the assessee were made available to the assessee and also the assessee was able to apply the same of his own. In the absence of the same, such service would not false within the ambit of the included service in the light of decision of the Authority for Advance Rulings (Income-tax), New Delhi in the case of Anapharm Inc., In re(supra), the decision of the Coordinate Bench in the case of Wockhardt Ltd. vs. ACIT(supra) and the decision of Hon'ble High Court of Karnataka in the case of CIT vs. De Bers India Minerals (P.) Ltd.(supra). The Revenue has not placed any material on record to rebut the findings of the ld.CIT(A) that the services were actually made available to the assessee and would be taxable. Under these facts, we do not see any reason to interfere with the findings ITA No.3106/Ahd/2011 The ITO vs. B.A. Research India Ltd.
Asst.Year - 2010-11
- 10 -
of the ld.CIT(A), same is hereby upheld. Thus, ground raised by the Revenue is rejected.
5. In the result, appeal of the Revenue is dismissed.
Order pronounced in the Court on Monday, the 30th day of November, 2015 at Ahmedabad.
Sd/- Sd/-
(जी.डी.अ वाल) (कुल भारत)
उपा य (अहम. े ) या यक सद य
( G.D. AGARWAL ) ( KUL BHARAT )
VICE PRESIDENT (AZ) JUDICIAL MEMBER
Ahmedabad; Dated / 11 /2015
ट/.सी.नायर, व. न.स./T.C. NAIR, Sr. PS
आदे श क" # त%ल&प अ'े&षत/Copy of the Order forwarded to :
1. अपीलाथ( / The Appellant
2. )*यथ( / The Respondent.
3. संब8ं धत आयकर आय:
ु त / Concerned CIT
4. आयकर आय:
ु त(अपील) / The CIT(A)-Gandhinagar
5. ;वभागीय ) त न8ध, आयकर अपील/य अ8धकरण, अहमदाबाद / DR, ITAT, Ahmedabad
6. गाड= फाईल / Guard file.
आदे शानुसार/ BY ORDER, स*या;पत ) त //True Copy// उप/सहायक पंजीकार (Dy./Asstt.Registrar) आयकर अपील य अ धकरण, अहमदाबाद / ITAT, Ahmedabad
1. Date of dictation .. 9.xi.15 (dictation-pad 9- pages attached at the end of this File)
2. Date on which the typed draft is placed before the Dictating Member ..9.xi.15
3. Other Member...
4. Date on which the approved draft comes to the Sr.P.S./P.S.................
5. Date on which the fair order is placed before the Dictating Member for pronouncement......
6. Date on which the fair order comes back to the Sr.P.S./P.S....... 30.11.15
7. Date on which the file goes to the Bench Clerk.....................30.11.15
8. Date on which the file goes to the Head Clerk..........................................
9. The date on which the file goes to the Assistant Registrar for signature on the order..........................
10. Date of Despatch of the Order..................