DCIT, Bangalore V. M/s Rolls Royce Operations (India) Pvt. Ltd., Bangalore

ITA 192/BANG/2016

• Counselvise Citation: [2018] 126 COUNSELVISE.COM (IT) 5630 (ITAT-BANGALORE)
• Duration Of Justice: 1 year(s) 11 month(s) 8 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 24-01-2018
• Appeal Filed By: Department
• Order Result: Allowed
• Bench Allotted: A
• Next Hearing Date: 22-06-2017
• Assessment Year: 2010-2011
• Appeal Filed On: 15-02-2016
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: B R RAMESH
• Keywords: Double taxation relief

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL A BENCH : BANGALORE BEFORE SHRI ARUN KUMAR GARODIA, ACCOUNTANT MEMBER AND SHRI LALIET KUMAR, JUDICIAL MEMBER ITA NO. 192/BANG/2016 ASSESSMENT YEAR :2010 11 THE DCIT, CIRCLE 5 (1) (1), BANGALORE. VS. M/S ROLLS ROYCE OPERATIONS (INDIA) PVT. LTD., CAMPUS 2A, UNIT I, RMZ NEXT, GROUND FLOOR, WHITEFIELD ROAD, EPIP ZONE, MAHADEVA PURA, BANGALORE 560 066 PAN: AACCK5943R APPELLANT RESPONDENT ASSESSEE BY : SHRI SURESH MUTHUKRISHNAN, C. A. REVENUE BY : SHRI B. R. RAMESH, JCIT (DR) DATE OF HEARING : 21.11.2017 DATE OF PRONOUNCEMENT : 24.01.2018 O R D E R PER SHRI LALIET KUMAR, JUDICIAL MEMBER: THIS IS REVENUES APPEAL DIRECTED AGAINST THE ORDER OF CIT (A) 4, BENGALURU DATED 15.10.2015 FOR A. Y. 2010 11. 2. GROUNDS RAISED ARE AS UNDER:- ITA NOS. 192/BANG/2016 PAGE 2 OF 6 3. LEARNED DR OF THE REVENUE SUPPORTED THE ASSESSMENT ORDER AND LEARNED AR OF THE ASSESSEE SUPPORTED THE ORDER OF C IT (A). 4. WE HAVE CONSIDERED THE RIVAL SUBMISSIONS. AS PER G ROUND NO. 2, THE ISSUE INVOLVED IS THIS AS TO WHETHER TDS WAS DEDUCT IBLE OR NOT FROM THE PAYMENT MADE BY THE ASSESSEE FOR THE PURPOSE OF PROCESSING OF SALARIES PAYABLE TO EMPLOYEES IN INDIA WHICH AMOUNT S TO FEES FOR TECHNICAL SERVICES (FTS). THE ISSUE INVOLVED AS PE R GROUND NO. 3 IS REGARDING REIMBURSEMENT OF EXPENSES IN RESPECT OF H EALTH CARE WHICH IS A PART OF EMPLOYMENT CONTACT OF DECODED EMPLOYEE S AND AS PER THE AO, THIS ALSO AMOUNTS TO FTS. THE DECISION OF CIT ( A) ON BOTH THESE ISSUES IS CONTAINED IN PARAS 6, 6.1 & 6.2 AND THERE FORE, THESE PARAS ARE REPRODUCED HEREIN BELOW FOR READY REFERENCE:- 6. I HAVE CONSIDERED THE ABOVE WRITTEN SUBMISSIONS AND ALSO GONE THROUGH THE ASSESSMENT ORDER PASSED BY THE ASSESSIN G OFFICER. IN BOTH THE ASSESSMENT YEARS 2010-11 & 2011-12, THE GROUNDS OF APPEAL ARE SAME AND THEREFORE, I PROCEED IN ADJUDICATING IN THE COM MON ORDER. THE ASSESSING OFFICER HAS OBSERVED THAT THE ASSESSEE CO MPANY PAID TOWARDS PAYROLL PROCESSING FEES TO ROLLS ROYCE INTERNATIONA L LTD ESTABLISHED AT ITA NOS. 192/BANG/2016 PAGE 3 OF 6 UNITED KINGDOM FOR THE PROCESSING OF SALARIES PAYAB LE TO THE EMPLOYEES IN INDIA. SINCE THOSE EXPENSES CLAIMED UNDER THE HE AD PROFESSIONAL FEE, TDS AS PER THE PROVISION SECTION 195 OF THE INCOME TAX ACT NEEDED WAS NOT MADE ANY SUCH TDS. SINCE THEY ARE IN THE NATURE OF FEES FOR TECHNICAL SERVICES, THE ASSESSING OFFICER DISALLOWED THE ENTIRE EXPENSES U/ S 40(A)(IA). DURING THE APPELLATE PROCEEDINGS, THE APPELLANT IN ITS WRITTEN SUBMISSIONS MADE BEFORE ME SUBMITTED THAT THE ASSESSING OFFICER TREATING THE P AYROLL PROCESSIN SERVICES AS TECHNICAL SERVICE AND THEREFORE LIABLE FOR TDS U/S. 195 READ WITH THE RELEVANT PROVISIONS OF DTAA BETWEEN INDIA & UK IS NOT JUSTIF IED. THE APPELLANT FURTHER BROUGHT TO MY NOTICE THE ARTICLE 13.4 OF LNDO-UK DT AA WHEREIN, THE FEE FOR TECHNICAL SERVICES DEFINED AS MAKE AVAILABLE TECHNI CAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCESSES, OR CONSIST OF THE DEV ELOPMENT AND TRANSFER OF A TECHNICAL PLANT OR TECHNICAL DESIGN. SINCE, THE SER VICES SHOULD INVOLVE MAKING AVAILABLE THE TECHNICAL KNOWLEDGE ETC., THE PAYROLL PROCESSING DOES NOT INVOLVE ANY TRANSFER OF MAKING AVAILABLE TECHNICAL KNOWLEDGE. BUT THESE ARE ONLY MANUAL SERVICE WHICH DOES NOT REQUIRE ANY TECHNICAL SKILLS. I HAVE GONE THROUGH THE ARTICLE 13.4 AND FOUND THAT A RTICLE 13 OF THE DTAA BETWEEN INDIA & UK STATES THAT THE PRE-REQUISITE FO R CONSIDERING THE PAYMENT TOWARDS FEE FOR TECHNICAL SERVICE WOULD BE DETERMINED, WHETHER THERE IS ANY ELEMENT OF MAKING AVAILABLE OF TECHNICAL KNOWLEDGE, SKILLS,EXPERTISE ETC. AND IN THE ABSENCE OF THE SAME, IT HAS BEEN SQUARELY HELD, THE ARTICLE CANNOT BE INVOKED. THE APPELLANT RELIED ON VARIOUS CASE LAWS INCLUDING THE AUTHORITY ON ADVANC E RULING (AAR) IN THE CASE OF INTERTECH TESTING SERVICES INDIA PVT LTD 30 7 ITR 418, WHEREIN IT WAS HELD THAT IT IS WELL SETTLE D THAT THE PROVISION IN DTAA WILL PREVAIL OVER THE DOMESTIC LAW, IF IT IS MORE B ENEFICIAL TO THE ASSESSEE. 'FEE FOR TECHNICAL SERVICES (FTS) IS CONS IDERATION PAID FOR THE RENDERING OF TECHNICAL OR CONSULTANCY SERVICES, PRO VIDED THAT THOUGH SERVICES MAKE AVAILABLE TO THE OTHER PARTY, THE TEC HNICAL KNOWLEDGE, EXPERIENCE, KNOW-HOW ETC. THAT MEANS TECHNICAL OR C ONSULTANCY SERVICE RENDERED SHOULD BE OF SUCH A NATURE THAT MAKES AVAI LABLE TO THE RECIPIENT, THE TECHNICAL KNOWLEDGE, KNOW-HOW ETC. T HE SERVICE SHOULD BE AIMED AT AND RESULTING IN TRANSMITTING THE TECHNICA L KNOWLEDGE, SO THAT THE PAYER OF SERVICES COULD DERIVE AN ENDURING BENE FIT AND UTILIZE THE KNOWLEDGE OR KNOW-HOW IN FUTURE ON HIS OWN WITHOUT THE AID OF SERVICE PROVIDER. BY MAKING AVAILABLE THE TECHNICAL SKILLS OR KNOW-HOW THE RECIPIENT SERVICE WILL GET EQUIPPED WITH THAT KNOWL EDGE OR EXPERTISE AND BE ABLE TO MAKE USE OF IT IN FUTURE, INDEPENDENT OF THE SERVICE PROVIDER. SINCE, IN THE APPELLANT'S CASE THERE WAS NO TRANSFE R OF TECHNICAL KNOW- HOW, THE RECIPIENT COULD NOT HAVE INDEPENDENTLY CAR RIED OUT THE KNOW- HOW EVEN AFTER THE TERMINATION OF THE AGREEMENT. TH US, THERE WAS NO TECHNICAL KNOW-HOW MADE AVAILABLE AS PER ARTICLE 13 OF DTAA BETWEEN INDIA & UK{ ' FURTHER, IN THE APPELLANT'S CASE IT IS CLEARLY ESTA BLISHED THAT ITA NOS. 192/BANG/2016 PAGE 4 OF 6 M/S. ROLLS ROYCE INTERNATIONAL LTD DID NOT HAVE A P ERMANENT ESTABLISHMENT IN INDIA AND THEREFORE THE INCOME ACCRUING TO M/S. ROL LS ROYCE INTERNATIONAL LTD ARE WHOLLY OUTSIDE INDIA AND THEREFORE THE INCOME A CCRUING TO M/S. ROLLS ROYCE INT LTD ON ACCOUNT OF PAYROLL PROCESSING FEES IS NO T TAXABLE IN INDIA. 6.1 THE APPELLANT FURTHER RELIED ON 4ON'BLE TRIBUNA L AHMADABAD BENCH DECISION IN THE CASE OF WIDA CLINICAL RESEARCH PVT LTD, WHEREIN ON THE SAME SET OFF FACTS THE TRIBUNAL HELD THAT 'IN VIEW OF THESE DISCUSSIONS AS ALSO BEARING IN MI ND ENTIRETY OF CASE, IN OUR CONSIDERED VIEW, THE FEES FOR TRAINING SERVICES OF GENERAL NATURE, WHIQH DOES NOT SEEMS TO INVOLVE ANY TRANSFER OF TECHNOLOGY CANNOT BE BROUGHT TO TAX UNDER ARTICLE 13(4)(C) OF INDIA UK TAX TREATY.' ,'FOR THE REASON SET OUT ABOVE WE APPROVE THE CONCL USIONS ARRIVED AT BY THE CIT (APPEALS) AND DECLINE TO INTERFERE IN THE M ATTER'. EVEN AS WE DO SO, WE ARE ALIVE TO THE FACT THAT REASONING ADOPTED BY THE CIT(APPEALS) IS ALTOGETHER DIFFERENT, AND WHOLLY INCORRECT, BUT WHAT REALLY MA TTERS FOR THE PRESENT PURPOSES IS THAT HE REACHED THE RIGHT CONCLUSIONS, EVEN IF S ERENDIPITOUSLY. WE APPROVE THE SAME.' 6.2 FURTHER, RELIED ON JURISDICTIONAL HONBLE ITAT, DECISION IN THE CASE OF ABBEY BUSINESS SERVICES INDIA PVT LTD., WHILE AN SWERING THE QUESTION WHETHER, SINCE PAYMENT MADE BY ASSESSEE TO ABBEY UK WAS PURE REIMBURSEMENT OF EXPENSES WITHOUT ANY PROFIT ELEMEN T, IT COULD NOT BE REGARDED AS INCOME CHARGEABLE TO TAX IN THE HANDS O F ABBEY UK HELD IN ASSERTION. IN THE LIGHT OF THE FACTUAL AND LEGAL MA TRIX OF THE CASE I FOUND MERIT IN THE CONTENTION OF THE APPELLANT AND THEREFORE HEREB Y, ALLOW THE GROUNDS OF APPEAL ON THE ISSUE OF PAYROLL PROCESSING CHARGES. 5. FROM THE ABOVE PARA, IT IS SEEN THAT THE DECISION O N FIRST ISSUE IS ON THIS BASIS THAT AS PER ARTICLE 13.4 OF DTAA BETWEEN INDIA & UK, MAKING AVAILABLE OF TECHNICAL KNOWLEDGE, SKILLS AND EXPERTISE ETC. IS NECESSARY AND IN THE ABSENCE OF THAT, THIS ARTICLE CANNOT BE INVOKED. RULING OF AAR IN THE CASE OF INTERTECH TESTING SERV ICES INDIA PVT. LTD. IN 307 ITR 418 IS FOLLOWED WHEREIN IT WAS HELD THAT PROVISION OF DTAA WILL PREVAIL OVER DOMESTIC LAW IF IT IS MORE B ENEFICIAL TO THE ITA NOS. 192/BANG/2016 PAGE 5 OF 6 ASSESSEE. A CATEGORICAL FINDING IS GIVEN BY CIT (A) THAT THERE WAS NO TRANSFER OF TECHNICAL KNOWHOW IN THE PRESENT CASE A S A RESULT OF WHICH THE RECIPIENT COULD HAVE INDEPENDENTLY CARRIED OUT THE KNOW HOW EVEN AFTER THE TERMINATION OF THE AGREEMENT. HENCE, THE TECHNICAL KNOWHOW WAS NOT MADE AVAILABLE AS PER ARTICLE 13 OF DTAA BE TWEEN INDIA AND UK. THIS FINDING IS ALSO GIVEN THAT ROLLS ROYCE INT ERNATIONAL LTD. DID NOT HAVE PE IN INDIA. THESE FINDINGS COULD NOT BE C ONTROVERTED BY THE LEARNED DR OF THE REVENUE AND HENCE, WE FIND NO INF IRMITY IN THE ORDER OF CIT (A) ON THE FIRST ISSUE. 6. IN RESPECT OF THE SECOND ISSUE, LEARNED CIT (A) HAS FOLLOWED THE TRIBUNAL ORDER RENDERED IN THE CASE OF ABBEY BUSINE SS SERVICES INDIA PVT. LTD. 53 SOT 0401 WHEREIN IT WAS HELD THAT IN A CASE OF PURE REIMBURSEMENT OF EXPENSES WITHOUT ANY PROFIT ELEMEN T, IT COULD NOT BE REGARDED AS INCOME CHARGEABLE TO TAX IN INDIA. AS PER THE WRITTEN SUBMISSIONS OF THE ASSESSEE BEFORE CIT (A) REPRODUC ED BY HIM ON PAGE 6 OF HIS ORDER, THIS AMOUNT WAS PAID BY ROLLS ROYCE INTERNATIONAL LTD. TO INSURER IN UK AS PREMIUM TO E FFECT AND MAINTAIN INSURANCE ON THE HEALTH OF THE EMPLOYEES AND IT WAS REIMBURSED BY THE ASSESSEE. THIS IS NOT A CASE OF THE REVENUE THAT TH ERE IS ANY PROFIT ELEMENT IN THIS PAYMENT AND THIS IS NOT EXACT REIMB URSEMENT. HENCE, WE FIND NO REASON TO TAKE A CONTRARY VIEW SINCE NO DIFFERENCE IN FACTS COULD BE POINTED OUT BY THE LEARNED DR OF THE REVEN UE. ITA NOS. 192/BANG/2016 PAGE 6 OF 6 7. IN THE RESULT, THE APPEAL FILED BY THE REVENUE IS DISMISSED. ORDER PRONOUNCED IN THE OPEN COURT ON THE DATE MENT IONED ON THE CAPTION PAGE. SD/- SD/- (ARUN KUMAR GARODIA) (LALIT KUMAR) ACCOUNTANT MEMBER JUDICIAL MEMBER BANGALORE, DATED, THE 24TH JANUARY, 2018. MCN COPY TO: 1. APPELLANT 2. RESPONDENT 3. CIT 4. CIT(A) 5. DR, ITAT, BANGALORE. 6. GUARD FILE BY ORDER SENIOR PRIVATE SECRETARY, INCOME TAX APPELLATE TRIBUNAL, BANGALORE.