Income Tax Appellate Tribunal - Mumbai
Bharat Petroleum Corpn. Ltd. vs Joint Director Of It (International ... on 1 March, 2007
Equivalent citations: (2007)111TTJ(MUM)375
ORDER
Sunil Kumar Yadav, Judicial Member
1. These appeals are preferred on behalf of the assessee against the respective orders of the Commissioner (Appeals). Since common issues are involved in these appeals, these were heard together and are being disposed off by this single consolidated order.
2. On scrutiny the Office has raised an objection that these appeals are time-barred by three days. During the course of hearing, the learned Counsel for the assessee has explained the delay in filing of the appeals and being convinced with the explanation of the assessee, we condoned the delay and admitted these appeals for hearing. In these appeals the assessee has assailed the order of the Commissioner (Appeals) on following common grounds.
Grounds in ITA. Nos. 8323 & 8324/Mum./2003:
1. In the facts and circumstances of the case and in law, the learned Commissioner (Appeals) erred in rejecting the plea that remittance of US $ 65000 in favour of M/s. Purvin & Gertz Inc., Singapore (P&G) was towards rendition of commercial services and did not constitute fees for technical services within the meaning of article 12(4)() Indo-Singapore treaty obliging the appellant to remit tax under Section 195 of the Act.
2. In the facts and circumstances of the case and in law, the learned Commissioner (Appeals) ought to have accepted the contention of the appellant that the reimbursement of actual expenses did not constitute payment towards income and hence such payments did not constitute payment towards income and hence such payments did not constitute income chargeable to tax.
3. In the facts and circumstances of the case and in law, the learned Commissioner (Appeals) ought to have accepted contention of the appellant that reimbursement of actual expenses did not constitute payment towards income and hence such payments did not constitute income chargeable to tax.
4. The appellant prays that its claim for interest under Section 244A be accepted in the event of refund becoming due to it.
5. The appellant craves leave to add to, amend, alter, delete and/or modify the above grounds of appeal on or before the final date of hearing.
3. The facts borne out from the record are that assessee is a Public Sector Undertaking under the administrative control of Ministry of Petroleum and Natural Gas, Government of India. It is engaged in the business of refining of crude oil and marketing of petroleum products. It engaged M/s. Purvin and Gertz Inc., Singapore (P&G) International Energy Consultants for carrying out market study for updating their assessment of the out look for domestic refining capacity throughout India. In 1998 Bharat Oman Refinery Limited (BORL), being a joint venture company between BPCL and Oman Oil Company Ltd., got a market study con- ducted from P&G in respect of Bina Refinery Project proposed to be set up in Central India. The market study covered study of supply and demand analysis, domestic refining capacity, price forecast etc., further in 2000 P&G were engaged by BPCL i.e., the assessee, to make a study updation. Again in the year 2002, there were further updation carried out by P & G, which is the subject-matter of the present appeals. Consultants were engaged to carry out the study since the over all supply/demand balance would dramatically influence the profitability of new as well as existing refineries. The scope of the market study, inter alia, covered assessment of the out look for domestic refining capacity in India, supply demand analysis, product price forecasts, developing cash flow projections and presentations and reporting of the results of the analysis. The consideration agreed for the study was USD 65,000. In addition to this, USD 6,500 (approximately) towards actual travel/lodging and boarding expenses, to be reimbursed to the parties. The assessee applied for issue of No-Objection Certificate (NOC) for making the above remittance to the party based on the proposal agreed upon by the assessee. In the application for NOC, the assessee contended that the scope of services rendered by the party fell out side the ambit of article 12 of the Double Taxation Avoidance Agreements (DTAA) between India and Singapore. Ignoring the contention of the assessee, the assessing officer issued NOC and order under Section 195(2) of the Income Tax Act, authorizing the assessee to make the payment to P & G, Singapore after deduction of income-tax at source @ 15% (with applicable grossing up).
4. Aggrieved, the assessee preferred appeals before the Commissioner (Appeals). The assessee, however, paid only a sum of USD 25,000 for the financial year 2001-02 on which tax was deducted and deposited on 29-10-2002 and 1-2-2002. The balance amount of USD 40,000 and USD 4,340 towards reimbursement of expenses was paid on 3-7-2002, after deducting tax at source. The appeals emanated from both the payments were decided by the Commissioner (Appeals) in the light of provisions of article 12 of DTAA between India and Singapore. While adjudicating these appeals, the Commissioner (Appeals) took a note of the payments made by Bharat Oman Refineries Ltd. and the assessee to P & G for similar type of services, rendered, in earlier years in which the BORL and the assessee itself has deducted the TDS and deposited the same with the Government, and was not convinced with the explanation of the assessee that the fees for services rendered by the P & G, Singapore do not fall within the definition of fee for technical services defined in Clause 4 of article 12 of DTAA between India and Singapore. Relying upon the order of his predecessor passed in the assessee's own case and the decision of the Authority for the Advanced Rulings in Advance Ruling Petition No. P-6/95 (1998) 100 Taxman 206 (AAR), the Commissioner (Appeals) disallowed the claim of the assessee and has held that the consultancy fees paid by the assessee to P & G, is chargeable to tax in India, as per the provisions of Section 9 of Indian Income Tax Act and as well as for the provision of article 12 of the DTAA between India and Singapore. Since refund was not allowed by the Commissioner (Appeals), he turned down the request of grant of interest under Section 244A on the refund.
5. Now the assessee is preferred appeals before the Tribunal with the submissions that when payment is made not for supply of any knowledge or information, but only processing of information, the payment for these services cannot be treated as fees for technical services as per provisions of article 12 of DTAA. In support of this contention he has placed a reliance upon the order of the Tribunal in the case of Kotak Mahindra Primus Ltd. v. Dy. DIT (2007) 11 SOT 578 (Mum.). He has also placed a reliance upon the another order of the Tribunal in the case of Dy. CIT v. Boston Consulting Group Pvt. Ltd. (2005) 94 ITD 31 (Mum.) in support of his plea that the scope of fees for technical services under article 12(4)(b) of DTAA between India and Singapore does not cover consultancy services unless these services are technical in nature. Similar is the position with regard to the definition of fee for included services under article 12(4) of Indo-Swiss Tax Treaty. A reliance was placed upon the order of the Tribunal in the case of National Organic Chemical Industries Ltd. v. Dy. CIT (2006) 5 SOT 317 (Mum.) in which it has been held that the payments made by the assessee-company to Swiss Company for preparation of 22 MSDS (i.e., Material Safety Data Sheets) in EU format in English, which contained information required as per norms of European Union Regulations, was not covered by scope of expression "fee for included services" under article 12(4) of Indo-Swiss Tax Treaty. Likewise payment to NQA, U.K. for providing ISO Certification are neither royalty nor fees for technical services within the meaning of article 13(3) of India -U.K. Treaty. These services do not result in making available any technical knowledge experience skills, know-how or process to the assessee as held in the case of NQA Quality Systems Registrar Ltd. v. Dy. CIT (2005) 2 SOT 249 (Delhi).
6. The learned Counsel for the assessee further contended that in the case of Wipro Ltd. v. Income Tax Officer (2005) 94 ITD 9 (Bang.), the Tribunal has again held that payment made by the assessee Indian Company to US. Company for providing access to information available in data base maintained by it, was not royalty within the meaning of article 12(3)(a) of DTAA between India and USA and was not taxable in India. Hence, no tax deductible under Section 195. The phrase making available used in article 12(4)(b) was examined by the Tribunal in the case of Raymond Ltd. v. Dy. CIT (2003) 86 ITD 791 (Mum.) and C.E.S.C. Ltd. v. Dy. CIT (2003) 87 ITD 653 (Cal.) (TM) and it was examined that the phrase 'making available' has been understood to be rendering of services under the circumstances where the person availing the services is enabled to apply the services availed in his own right without recourse to the person providing the services. Such has been the clarification in the Protocol of India-USA Treaty. The learned Counsel for the assessee further invited our attention to the language used in Clause 4 of article 12 of DTAA between India and Singapore and has submitted that though in the opening part of Clause 4, the term 'fees for technical services' is defined to be the payments of any kind to any person in consideration for services of managerial technical or consultancy in nature. But, it was subject to the other conditions which was envisaged in Sub-clauses (a), (b) and (c). As per Sub-clause (b) such services make available technical knowledge, experience, skill, know-how or process which enables the person acquiring the services to apply the technology contained therein. Meaning thereby whatever services are rendered, it must be of technical in nature and be made available to the persons acquiring these services and enabling him to apply the technology contained therein. The consultancy services which does not have any element of technology does not fall within the ambit of definition of technical services envisaged in Clause 4 of article 12 of DTAA. The learned Counsel for the assessee further contended that in the instant case P & G was engaged to carry out a market study for up-dating their assessment of outlook for domestic refining capacity throughout India and this market study covers study of supply and demand analysis, domestic refining capacities, price forecast etc., on the basis of various datas. No technology was involved in preparing or up-dating the report earlier submitted by P & G. In the absence of any element of technology in preparation of report, the consultancy services provided by P & G cannot be termed to be the technical services as defined in Clause 4 of article 12 of DTAA. As such, the remittance made by the assessee in lieu of services rendered by P & G cannot be termed to be the fee for technical services as envisaged in Clause 4 of article 12 and as such is not taxable in India and no deduction of TDS is called for. Hence, the assessee is entitled for the refund of the TDS deposited along with the interest under Section 244A of the Income Tax Act.
7. The learned DR vehemently refuted the contention of the assessee and has submitted that in the earlier years, similar type of services were rendered by P & G for the assessee and on its remittance of fees, assessee has deducted the TDS and deposited with the Government. In the immediately preceding year when the assessee objected to the applicability of article 12, the matter travelled to the Commissioner (Appeals) and Commissioner (Appeals) decided the issue against the assessee by holding that consultancy fees paid by the assessee to P & G, is chargeable to tax in India as per provisions of Section 9 of Indian Income Tax Act as well as the provision of article 12 of the DTAA between India and Singapore and this order of the Commissioner (Appeals) was accepted by the assessee as no second appeal was preferred before the Tribunal. Though principles of res judicata are not applicable in the Income-tax Proceedings, but rule of Consistency must be followed. Since similar type of payments were charged to tax in India in earlier years and the assessee has accepted its taxability in India, he has no right to challenge the same payment in the impugned assessment year. In the light of these facts, the order of the Commissioner (Appeals), deserves to be sustained as he has decided the issue in the light of the order of his predecessor and the Advance Ruling Petition No. P-6 of 1995, In re (1998) 100 Taxman 206 (AAR - New Delhi).
8. In rejoinder, the learned Counsel for the assessee has submitted that every assessment year is an independent assessment year and the legal issues are required to be adjudicated in the light of legal provisions and not by following the rule of Consistency. No doubt, the assessee did not challenged the order of the Commissioner (Appeals) in earlier year, but, it does not mean he has forgiven his right for ever though he is legally entitled for a claim. As such, the impugned issue should be adjudicated in the light of legal provisions and various Orders of the Tribunal passed on this subject.
9. Having heard the rival submissions and from careful perusal of the Orders of the lower authorities and the various Orders of the Tribunal, we find that earlier years similar type of services were sought by the assessee and its JVC i.e., BORL and on all remittances of the fees, TDS were deducted and paid. Last time i.e., in the year 2000 when P & G were engaged by the assessee to make study updation. At the time of payment of fees, TDS was deducted, but, the order of the assessing officer passed under Section 195 was challenged before the Commissioner (Appeals) and the Commissioner (Appeals) relying upon the decision of the Advanced Rulings (1998) 100 Taxman 206 has held that consultancy fees paid by the assessee to P & G is chargeable to tax in India as per the provisions of Section 9 of the Indian Income Tax Act as well as the provision of article 12 of DTAA between India and Singapore. This order of the Commissioner (Appeals) was not challenged and was accepted by the assessee. The Commissioner (Appeals) order was passed on 10-1-2001 and at that time, the other orders of the Tribunal in which the identical issue was examined, were not available either with the assessee or the Commissioner (Appeals). Thereafter, in the year 2002, the assessee again asked the P & G for further updation and also applied for NOC for making the above remittance of the fees to the assessing officer and the assessing officer vide its order dated 30-1-2002 passed under Section 195(2) asked the assessee to deduct TDS at 15% as the amount payable for the services rendered by P & G is treated as fees for technical service. This order was challenged before the Commissioner (Appeals) and the Commissioner (Appeals) confirmed the order of the assessing officer vide his order dated 19th August, 2003 following his predecessor's order dated 10-1-2001 by that time only few Orders of the Tribunal on this subject were rendered but were not even referred to the Commissioner (Appeals). In the light of these facts, we are of the view that since the issue in dispute is quite complex and by now number of orders of the Tribunal are passed on the subject, this issue requires a fresh adjudication in the light of legal proposition laid down by the Tribunal through various orders. The principle of rule of consistency cannot be applied in this type of situation. Generally, a view taken in the earlier year should be followed in succeeding years, but, whenever the legal position is changed or re-interpreted, the legal issues should be decided afresh in the light of current interpretations of law. We, therefore, do not find any force in the arguments of the revenue that following the rule of consistency, the order of the Commissioner (Appeals), deserves to be confirmed.
10. In the case of Kotak Mahindra Primus Ltd. (supra), the Tribunal has examined the provisions of article 12(3)(c) of the India-Australia Tax Treaty and the Ruling of the Authority for Advanced Rulings with regard to the definition of 'Royalty' and the Tribunal has held that once payment is made not for supply of any knowledge or information, but, for processing of the information, the services cannot be treated as fees for technical services, as per provisions of article 12 DTAA between the India and Australia. The relevant observation of the Tribunal in paras 16 and 17 is extracted hereunder:
16. We now come to the provisions of article 12(3)(c) of the India- Australia Tax Treaty. It provides that 'where the payment is for the supply of scientific, technical, industrial or commercial knowledge or information', the same shall be considered as 'royalty' for the purpose of article 12 of the treaty. By no stretch of logic, it could be said that the payment is made to the Australian company for the supply of any knowledge or information or any nature whatsoever. Learned departmental Representative could not point out any legally sustainable reasons on the basis of which the payment can be said to be covered by article 12(3)(c). We have also carefully considered factual matrix of the case and are of the considered view that the payment in question cannot be said to be for the supply or any knowledge or information. The information is in fact furnished by the Indian Company, the same is processed in Australia and transmitted back to the Indian company. This activity only involves processing and not supply of information. Accordingly, the provisions of article 12(3)(c) will also not have any application in the matter.
17. It is not also the case of the revenue that remaining parts of Article 12(3) ie., article 12(3)(d) to article 12(3)( 1), will have any application in the matter. No specific arguments are advanced in this regard in any event, we have also carefully considered these provisions as also the facts of the case before us and we are of the considered view that these provisions also have no application in the present situation. The impugned payment cannot be said to be for consultancy services, in terms of the provisions of article 12(3)(d). This payment cannot also be said to be for making available any technical knowledge, experience, skill, know-how or processes etc. in the sense that recipient of services, i.e., Indian company is not enabled to make use of technical knowledge on its own without recourse to the provider of service, which is sine qua non for making available technical knowledge, experience, skill, know-how etc. in terms of provisions of article 12(3)(g). It is also not covered by any other clause of the article 12 either. As regards learned departmental Representative's reliance on the ruling given by the Hon'ble Authority for Advanced Ruling in the case of ABC In re {supra), in the light of the detailed reasons set out above, we see no need to deal with the same separately. The assessing officer had adopted the reasoning approved by the Hon'ble Authority for Advance Ruling and we have dealt with the same in the course of our consideration to the matter. The prescription of Section 245S is unambiguous. Section 245S of the Act provides that the Advance Ruling pronounced by the Authority under Section 245R will be binding only on the applicant who had sought it, in respect to the transaction in relation to which the ruling had been sought, on the Commissioner and the income-tax authorities subordinate to him, in respect to the applicant and the said transaction. It is, therefore, obvious that, apart from whatever its persuasive value, it would be of no help to us. We are not inclined to disturb our conclusions merely because the conclusions arrived at above, and in the light of detailed reasons set out earlier in the order, are at variance with the conclusions arrived at in the said ruling. We have carefully perused the esteemed views of the Hon'ble Authority for Advance Ruling and with respect but without hesitation, we are not persuaded.
11. In the case of Boston Consulting Group Pvt. Ltd. {supra) the Tribunal has examined the DTAA between the India and the Singapore and its Clause 12{4){b) and has observed that the nature of the assessee's activities was being engaged in the business of strategy consulting. Their consultancy services are non-technical in nature inasmuch as these services are in the nature of strategy and business consulting which are intended to improve the performance of its clients by focusing on fundamental business. The provisions of article 12(4)(fe) of the instant Tax Treaty i.e., between India and Singapore are to a limited extent, in pari materia with the provisions of which the definition of 'fees for included services' under article \2{4){b) of Indo-US DTAA. Therefore, in case, non-technical services cannot be covered by the scope of article 12(4)(b) of the India-US Tax Treaty, those services could not be covered by the scope of article 12(4)(b) of the Indo-Singapore Tax Treaty of the either. So far as the provisions of Indo-Singapore Tax Treaty as also provisions of India-U.S. Tax Treaty are concerned, payment for services which are non-technical in nature or in other words, payment of services not containing any technology, are required to be treated as out side the scope of fees for technical services. The Tribunal further held that the scope of fees of technical services under article 12(4)(c) does not cover the consultancy services unless those services are technical in nature.
12. The word 'making available' is also explained by the Tribunal in the case of National Organic Chemical Industries Ltd. (supra), in which the Tribunal has held that the ambit of article 12(4) of the Indo-Swiss Tax Treaty covers only such services as 'make available' technical knowledge, experience, skill or know-how. In that case, there was not even a whisper about the finding with regard to transfer of technologies about making MSDS. It was never the case of the revenue that as a result of acquiring the services from RCC, the assessee could be in a position to use the technology of making of MSDS on its own. All that the assessee gets a product and not the technology itself. This kind of payment for preparation of MSDS cannot be considered to be the payment for 'making available' the services. Therefore, the payment cannot be said to be covered by the scope of article 12(4) of the Indo-Swiss Tax Treaty. As such, it cannot be taxed in India. In the case of NQA Quality Systems Registrar Ltd. (supra), the Tribunal has held that the payments made to NQA, U.K. for providing ISO Certification and to one 'P' for U.K. for certification, at final audit are neither a royalty nor fees for technical services within the meaning of article 13(3) of Indo-U.K. DTAA inasmuch as these services do not result in making available any technical knowledge, experience, skill, know-how or process to the assessee. This was essential before it could be said that the payments made by the assessee to the non-residents were fees for technical services rendered as the services involved making assessment survivalance for the purpose of ISO Certification, hence, not taxable in India. Likewise, in the case of Wipro Ltd. (supra) Tribunal has held that annual subscription paid to non-resident, an American Company for providing access to information available in data base located outside India through web to an Indian Company, is not covered by royalties under article 12(3)(a) of the DTAA between India and USA, since the information made available is copy-righted information in the form of publications and consequently the said payments are not amenable to taxation in India. It was further examined in the case of CESC Ltd. (supra) by the Tribunal in the light of Memorandum of Understanding concerning 'fees for included services' in article 12 appended to DTAA between India and USA and the Tribunal has observed that it is abundantly clear that the technology would be considered made available when the person acquiring the services is enabled to apply the technology. The mere fact that the provision of services may require technical input by the person providing the services does not per se mean that technical knowledge, skill etc., are made available to the person purchasing the services, within the meaning of article 12, para 4(b) between India and USA which is pari materia with article 13(4)(c) between India and U.K.
13. Having examined the facts of the case in the light of legal position explained by the Tribunal through various orders, we find that in the instant case, assessee has engaged the P&G to make study updation on the basis of the available datas. The market study, covers study of supply and demand analysis, domestic refining capacity, price forecast etc. It has been repeatedly contended by the assessee that P&G has to submit a report after processing the datas or information available with it and no technology is involved in the preparation of a report. In Clause (4) of article 12 of the DTAA between India and Singapore, the fees for technical services, has been defined and according to this clause, fees for technical services means, payment of any kind to any person in consideration for services of managerial, technical or consultancy nature (including the provisions of such services through technical or other personal) if such services make available technical knowledge, experience, skill, know-how or process, which enabled the person acquiring the services to apply the technology contained therein). For the sake of reference, we re-produce the Clause (4) of article 12 as under:
4. The term 'fees for technical services' as used in this article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provisions of such services through 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, which enables the person acquiring the services to apply the technology contained therein; or
(c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein.
For the purposes of (b) and (c) above, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person.
14. Though the payment for consultancy services falls within the definition of fee for technical services in opening para, but, it would be subject to certain conditions enumerated in Sub-clauses (a), (b) and (c). Since the relevant clause is (b) with regard to issue in dispute, we confine ourselves with interpretation of this clause and according to this sub-clause, the consultancy services shall make available technical knowledge, experience, skill, know-how or process, which enabled the person acquiring the services to apply the technology contained therein. Meaning thereby, the consultancy services must have the element of technology which can be applied by the persons acquiring the services. If the consultancy services does not have any technical knowledge, the fees paid for it does not fall within the definition of 'fee for technical services' as per Clause (4) of article 12 of DTAA. The same legal position was also explained by the Tribunal through various orders, aforementioned. In the instant case, nothing had been brought out by the revenue that the consultancy services or the report submitted by the P&G to the assessee, contains an element of technical knowledge or any technology which could have been applied by the assessee. In the absence of an element of technology in the consultancy services, the remunerations paid for it, does not fall within the definition of fees for technical services, as such, the provisions of article 12(4) cannot be attracted to tax the payment of consultancy charges to P&G. Since the assessee is not liable for any payment of taxes, he is entitled for the refund of the TDS deducted and paid. We, therefore, set aside the order of the Commissioner (Appeals) and direct the revenue to refund the TDS deposited by the assessee along with the interest under Section 244A of the Income Tax Act.
15. In the result, appeals of the assessee are allowed.