Appeal details
Counselvise Citation
[2020] 110 COUNSELVISE.COM (IT) 6608 (ITAT-INDORE)
Assessee PAN
Bench
Appeal Number
Duration Of Justice
1 year(s) 5 month(s) 7 day(s)
Appellant
Respondent
Appeal Type
Income Tax Appeal
Pronouncement Date
16-09-2020
Appeal Filed By
Assessee
Order Result
Allowed
Bench Allotted
DB
Next Hearing Date
25-03-2020
Assessment Year
2016-2017
Appeal Filed On
09-04-2019
Judgement Text
, , IN THE INCOME TAX APPELLATE TRIBUNAL, INDORE BENCH, INDORE BEFORE SHRI KUL BHARAT, JUDICIAL MEMBER AND SHRI MANISH BORAD, ACCOUNTANT MEMBER ITA NO.448 & 449/IND/2019 ASSESSMENT YEARS: 2015-16 & 2016-17 APPELLANT BY SHRI S.S. DESHPANDE, C.A REVENUE BY SHRI ASHISH PORWAL , SR. DR DATE OF HEARING 07 .0 7 .2020 DATE OF PRONOUNCEMENT 16 .0 9 .2020 O R D E R PER MANISH BORAD, AM. THE ABOVE CAPTIONED APPEALS FILED AT THE INSTANCE O F ASSESSEE PERTAINING TO ASSESSMENT YEAR 2015-16 AND 2016-17 A RE DIRECTED AGAINST THE ORDERS OF LD. COMMISSIONER OF INCOME TA X (APPEALS)13 (IN SHORT LD.CIT], AHMEDABAD DATED 15.02.2019 WHI CH IS ARISING M/S. SNAP COMPUTER SYSTEMS PVT. LTD, 49, KANADIA ROAD, MANBHAVAN NAGAR, INODRE VS. ITO (IT & TP), BHOPAL (APPELLANT) (REVENUE ) PAN A A KCS6389R ITANO.448 & 449/IND/2019 SANP COMPUTER SYSTEMS PVT. LTD 2 OUT OF THE ORDER U/S 201 OF THE INCOME TAX ACT 1961 (IN SHORT THE ACT) DATED 26.07.2016 FRAMED BY ITO (INTL. TAXN.) , BHOPAL. 2. ASSESSEE HAS RAISED FOLLOWING GROUNDS OF APPEAL; ITA NO.448/IND/2019 A.Y.2015-16 01. THAT THE LEARNED CIT(A)-13 ERRED IN MAINTAINING THE ORDER OF THE LD. ITO(IT&TP) BHOPAL IN RESPECT OF APPLICABILITY OF SE CTION 195/201 OF THE INCOME TAX ACT. 02. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD. ITO BY HO LDING THAT SERVICES PROVIDED BY SYSTEM INTEGRATION INC. USA ARE COVERED AS FEES UNDER THE INDIA-USA DOUBLE TAXATIONS AVOIDANCE AGREEMENT (DTAA) AND HENCE TAXABLE UNDER ARTICLE 12 OF DTAA. 03. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADD ITION OF LD. ITO (TDS) THAT THE SERVICES PROVIDED IN USA AND PAYMENT S MADE IN USA ARE COVERED U/S 195/201 OF THE I.T. ACT. 04. THAT THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE S ERVICES PROVIDED BY SYSTEMS INTEGRATIONS IN USA IS CONSIDERED AS MAKING TECHNOLOGY AVAILABLE AS PER THE SERVICE AGREEMENT. 05. THE CLAIM OF THE APPELLANT ABOUT NON DEDUCTIBILITY OF TDS BE ALLOWED AND THE ORDER OF THE LD. CIT(A) BE QUASHED. 06. THE APPELLANT CRAVES TO ADD, ALTER, DELETE AND AMEND ANY OF THE GROUNDS OF APPEALS. ITA NO.449/IND/2019 A.Y.2016-17 01. THAT THE LEARNED CIT(A)-13 ERRED IN MAINTAINING THE ORDER OF THE LD. ITO(IT&TP) BHOPAL IN RESPECT OF APPLICABILITY OF SE CTION 195/201 OF THE INCOME TAX ACT. ITANO.448 & 449/IND/2019 SANP COMPUTER SYSTEMS PVT. LTD 3 02. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ACTION OF THE LD. ITO BY HO LDING THAT SERVICES PROVIDED BY SYSTEM INTEGRATION INC. USA ARE COVERED AS FEES UNDER THE INDIA-USA DOUBLE TAXATIONS AVOIDANCE AGREEMENT (DTAA) AND HENCE TAXABLE UNDER ARTICLE 12 OF DTAA. 03. THAT THE LD. CIT(A) HAS ERRED IN CONFIRMING THE ADD ITION OF LD. ITO (TDS) THAT THE SERVICES PROVIDED IN USA AND PAYMENT S MADE IN USA ARE COVERED U/S 195/201 OF THE I.T. ACT. 04. THAT THE LD. CIT(A) HAS ERRED IN HOLDING THAT THE S ERVICES PROVIDED BY SYSTEMS INTEGRATIONS IN USA IS CONSIDERED AS MAKING TECHNOLOGY AVAILABLE AS PER THE SERVICE AGREEMENT. 05. THE CLAIM OF THE APPELLANT ABOUT NON DEDUCTIBILITY OF TDS BE ALLOWED AND THE ORDER OF THE LD. CIT(A) BE QUASHED. 06. THE APPELLANT CRAVES TO ADD, ALTER, DELETE AND AMEND ANY OF THE GROUNDS OF APPEALS. 3. AS THE ISSUES RAISED IN THESE APPEALS ARE COMMON AND RELATES TO THE SAME ASSESSEE, THESE WERE TAKEN TOGETHER AND ARE BEING DISPOSED OFF BY THIS COMMON ORDER FOR THE SAKE OF C ONVENIENCE AND BREVITY. 4. BRIEF FACTS OF THE CASE AS CULLED OUT FROM THE R ECORDS AND NARRATED BY THE LD. COUNSEL FOR THE ASSESSEE ARE TH AT THE ASSESSEE IS A PRIVATE LIMITED COMPANY ENGAGED IN THE BUSINES S OF EXPORT OF SOFTWARE SERVICES. THE ASSESSEE IS RESPONSIBLE FOR DEDUCTING TAX AT SOURCE UNDER CHAPTER XVII OF THE INCOME TAX ACT. TH E ASSESSEE ITANO.448 & 449/IND/2019 SANP COMPUTER SYSTEMS PVT. LTD 4 MADE PAYMENTS OF RS.17,98,000/- AND RS.42,14,000/- TO NON RESIDENT COMPANY NAMELY M/S SYSTEM INTEGRATION INC, USA (IN SHORT SII) DURING FINANCIAL YEAR 2014-15 AND FINANC IAL YEAR 2015- 16 RESPECTIVELY. THE PAYMENTS WERE MADE WITHOUT DE DUCTING TAX AT SOURCE U/S 195 OF THE ACT TREATING THE AMOUNT AS NO T ELIGIBLE FOR DEDUCTION OF TAX AT SOURCE. LD. A.O SUBSEQUENTLY O N GOING THROUGH THE FORM 15CB ISSUED BY THE CHARTERED ACCOUNTANT WH EREIN IT WAS MENTIONED THAT THE PAYMENTS WERE MADE TOWARDS CONS ULTANCY SERVICES AND ALSO ON PERUSAL OF THE INVOICES RAISE D BY THE NON RESIDENT COMPANY FOR THE SERVICES RENDERED, CAME TO THE CONCLUSION THAT THE ALLEGED AMOUNT IS TOWARDS PAYMENT OF FEES FOR TECHNICAL SERVICES. LD. A.O FURTHER APPLYING THE PROVISIONS OF SECTION 9 OF THE I.T. ACT FRAMED ORDER U/S 201(1)/201(1A) R.W.S. 195 OF THE ACT TREATING THE ASSESSEE IN DEFAULT FOR NOT DEDUCTING THE TAX AT SOURCE AND COMPUTED THE DEFAULT OF TDS AT RS.6,17,313/- AN D RS.14,46,807/- ALONG WITH LEVYING INTEREST U/S 201( 1A) OF THE ACT AT RS.1,11,858/- AND RS.1,28,063/- FOR FINANCIAL YEAR 2014-15 AND FINANCIAL YEAR 2015-16 RESPECTIVELY. THE DETAILED WORKING OF THE COMPUTATION OF TDS AND INTEREST IS MENTIONED BELOW: - ITANO.448 & 449/IND/2019 SANP COMPUTER SYSTEMS PVT. LTD 5 FINANCIAL YEAR 2014-15 S.NO. NAME OF RECIPIENT TOTAL AMOUNT REMITTED IN RS. DATE OF REMITTANCE GROSS UP AMOUNT AS PER SECTION 195A OF THE ACT DEFAULT OF TDS @25.75% INCL. CESS INTEREST THEREON U/S 201(1A) TILL DATE 1 SYSTEMS INTEGRATIONS INC, USA. 15,82,000/- 27.02.15 21,09,333/- 5,43,153/- 97,768/ - 2 SYSTEMS INTEGRATIONS INC, USA. 2,16,000/- 24.01.15 2,88,000/- 74,160/- 14,090/- TOTAL 17,98,000/- 23,97,333/- 6,17,313/- 1,11,858 FINANCIAL YEAR 2015-16 S.NO. NAME OF RECIPIENT TOTAL AMOUNT REMITTED IN RS. DATE OF REMITTANCE GROSS UP AMOUNT AS PER SECTION 195A OF THE ACT DEFAULT OF TDS @25.75% INCL. CESS INTEREST THEREON U/S 201(1A) TILL DATE 1 SYSTEMS INTEGRATIONS INC, USA. 24,20,000/- 22.12.15 32,26,667/- 8,30,867/- 66,469/ - 2 SYSTEMS INTEGRATIONS INC, USA. 17,94,000/- 12.10.15 23,92,000/- 6,15,940/- 61594/- TOTAL 42,14,000/- 56,18,667/- 14,46,807/- 1,28,063/- 5. AGGRIEVED ASSESSEE PREFERRED APPEAL BEFORE LD. C IT(A) BUT FAILED TO SUCCEED. THOUGH ASSESSEE MADE NECESSARY S UBMISSION THAT THE NATURE OF SERVICES ARE NOT IN NATURE OF T ECHNICAL SERVICES BUT IS THE PAYMENT FOR PROCUREMENT OF ORDERS. ONCE THE ORDERS ARE PROCURED THEN THE ASSESSEE PROVIDES NECESSARY SERVI CES TO THE CLIENT. THE NON RESIDENT COMPANY I.E. SYSTEMS INTE GRATIONS INC (IN SHORT SII) HAS NO OTHER ROLE TO PLAY EXCEPT OF PR OCURING ORDERS AND REFER THEM TO THE ASSESSEE COMPANY. HOWEVER LD. CI T(A) DID NOT ITANO.448 & 449/IND/2019 SANP COMPUTER SYSTEMS PVT. LTD 6 FIND ANY MERIT IN THE SUBMISSIONS AND HE AFTER REFE RRING TO THE RELEVANT CLAUSES OF THE AGREEMENT AS WELL AS THE AR TICLE 12(4)(B) OF THE TAX TREATY BETWEEN INDIA AND USA CONFIRMED THE FINDING OF LD. A.O AND DISMISSED THE ASSESSEES APPEAL. 6. NOW THE ASSESSEE IS IN APPEAL BEFORE THE TRIBUNA L CHALLENGING THE FINDING OF LD. CIT(A) CONFIRMING THE ACTION O F LD. A.O FOR TREATING ASSESSEE IN DEFAULT FOR NON DEDUCTION OF T AX AT SOURCE U/S 195 OF THE ACT ON THE PAYMENTS MADE TO SII, USA DUR ING FINANCIAL YEAR 2014-15 AND FINANCIAL YEAR 2015-16. 7. LD. COUNSEL FOR THE ASSESSEE BY REFERRING TO THE PAPER BOOK DATED 29.01.2020 RUNNING FROM PAGE 1 TO 55, SUBMIS SION DATED 17.02.2020 AND ALSO STRONGLY SUPPORTING THE LETTER ISSUED BY THE NON RESIDENT COMPANY NAMELY SII, USA DATED 19.2.202 0 TO THE REGISTRAR, INCOME TAX APPELLATE TRIBUNAL, INDORE SU BMITTED THAT SII HAS CERTIFIED THAT THEIR COMPANY HAS ACTED AS A LIAISON AND PROCUREMENT AGENT BETWEEN THE ASSESSEE COMPANY NAME LY SNAP COMPUTER PVT. LTD AND CLIENT BASED IN USA AND FURTH ER CERTIFIED THAT SII HAS NOT PROVIDED ANY TECHNICAL OR MANAGE RIAL SERVICES. HE FURTHER SUBMITTED THAT NON RESIDENT COMPANY SII WAS ONLY WORKING ITANO.448 & 449/IND/2019 SANP COMPUTER SYSTEMS PVT. LTD 7 AS INTERFACE TO GET THE ORDER AND ALL THE WORK WAS DONE BY THE ASSESSEES TEAM BY CONNECTING TO THE CLIENTS NET WO RK USING VIRTUAL PRIVATE NET WORK (VPN) AND VIRTUAL DESKTOP IMAGE (V DI). LD. COUNSEL FOR THE ASSESSEE ALSO SUBMITTED THAT THOUGH IN THE AGREEMENT BETWEEN THE ASSESSEE AND NON RESIDENT COM PANY SII THERE APPEARS THE WORDS CONSULTING SERVICES, PROJE CT WORK AND PROCUREMENT AND ANY OTHER TASK BUT THAT SHOULD NOT BE GIVEN MUCH IMPORTANCE OVER AND ABOVE THE ACTUAL WORK UNDE R TAKEN BY THE NON RESIDENT COMPANY. SINCE NO TECHNICAL SERVI CES HAVE BEEN PROVIDED AND THE PAYMENT WAS JUST IN THE NATURE OF COMMISSION FOR PROCUREMENT OF ORDERS ASSESSEE SHOULD NOT HAVE BEEN TREATED AS ASSESSEE IN DEFAULT FOR NON DEDUCTING TAX ON SERVIC ES ON PAYMENT OF TECHNICAL SERVICES. RELIANCE WAS PLACED ON FOLLOWIN G TWO DECISIONS; (I) DR. REDDY LABORATORIES LTD (2016) 73 TAXMANN. COM 144/ 243 TAXMAN 127/289 CTR 24 (AAR NEW DELHI) (II) CIT V/S BHARTI CELLULAR LTD (2009) 319 ITR 1 39 (DELHI) 8. PER CONTRA LD. DEPARTMENTAL REPRESENTATIVE VEHEM ENTLY ARGUED SUPPORTING THE ORDERS OF BOTH THE LOWER AUTH ORITIES. ITANO.448 & 449/IND/2019 SANP COMPUTER SYSTEMS PVT. LTD 8 9. WE HAVE HEARD RIVAL CONTENTIONS, PERUSED THE REC ORDS PLACED BEFORE US AND CAREFULLY GONE THROUGH THE DECISIONS REFERRED AND RELIED BY THE ASSESSEE. IN THE INSTANT APPEAL FOR ASSESSMENT YEAR 2015-16 AND ASSESSMENT YEAR 2016-17 THOUGH THE ASSE SSEE HAS RAISED VARIOUS GROUNDS OF APPEAL BUT THE SOLE ISSUE FOR ADJUDICATION IS THAT WHETHER THE LD. CIT(A) ERRED IN CONFIRMING THE ACTION OF THE LD. A.O BY HOLDING THAT THE PAYMENTS MADE FOR SERVI CES PROVIDED BY SII, USA WERE IN THE NATURE OF TECHNICAL SERVICES L IABLE FOR DEDUCTION OF TAX AT SOURCE U/S 195 OF THE ACT. 10. THE ASSESSEE COMPANY IS ENGAGED IN THE BUSINESS OF EXPORT OF SOFTWARE SERVICES. IT HAS ENTERED INTO AN AGREEMEN T WITH THE U.S.A BASED COMPANY M/S. SYSTEM INTEGRATION INC (SII) WHI CH AGREED FOR PROVIDING OF CONSULTING SERVICES, PROCUREMENT OF OR DERS AND OTHER TASKS GIVEN. THIS FACT IS NOT IN DISPUTE THAT THE N ON RESIDENT COMPANY DO NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA NOR HAVING ANY BUSINESS CONNECTION IN INDIA AND THE INC OME OF SUCH NON RESIDENT COMPANY I.E. SII CAN BE DEEMED TO ACCR UED OR ARISE IN INDIA ONLY IF THE PAYMENTS ARE OF THE NATURE PROVID ED U/S 9 OF THE I.T. ACT. ITANO.448 & 449/IND/2019 SANP COMPUTER SYSTEMS PVT. LTD 9 11. IT IS FURTHER AGREED BY BOTH THE PARTIES THAT T HE ISSUE WHICH FINALLY NEEDS TO BE ADJUDICATED IS WHETHER THE PAYM ENT MADE TO THE SII WAS FOR PROVIDING TECHNICAL SERVICES OR WAS I T FOR THE PROCUREMENT OF ORDERS. 12. AS FAR AS SERVICE AGREEMENT DATED 1.2.2015 IS C ONCERNED WHICH IS AT PAGE 24 TO 30 OF THE PAPER BOOK, REFERENCE IS MADE TO EXHIBIT-1 OF THE SERVICE AGREEMENT. FOR BETTER UNDERSTANDING THIS EXHIBIT-1 IS REPRODUCED BELOW:- ATTACHMENT I TO THE SERVICES AGREEMENT BY AND BETWEEN SYSTEMS INTEGRATIONS INC. AND SNAP COMPUTER SYSTEM PVT. LTD. DATED 01/02/2015 1. DUTIES OF !NTEGRATOR -IN GENERAL SYSTEMS INTEGRA TIONS INC. CONSULTING SERVICES, PROJECT WORK PROCUREMENT AND ANY OTHER TASK GIVEN TO CONSULTANT BY SNAP COMPUTER SYSTEMS PVT. LTD. 2. COMPENSATION AND EXPENSES A. FOR TILE PERFORMANCE OF ITS DUTIES AND SERVICES HEREUNDER, INTEGRATOR SHALL BE PAID BASED UPON ACTUAL TIME A ND MATERIALS USED IN THE PERFORMANCE OF ITS DUTIES H EREUNDER. CHARGES FOR SERVICES PERFORMED WITHIN THE SCOPE OF THE AGREEMENT ARE AS FOLLOWS: VAISHALI PARANJPE $. 48/HOUR (01/02/2015) ITANO.448 & 449/IND/2019 SANP COMPUTER SYSTEMS PVT. LTD 10 3. DURATION OF AGREEMENT A. EITHER PARTY MAY TERMINATE THIS AGREEMENT UPON GIVING ONE MONTH PRIOR WRITTEN NOTICE: TO THE OTHER. TERMINA TION OF THIS AGREEMENT DOES NOT RELIEVE EITHER PARTY OF RESPON SIBILITIES OR INDEBTEDNESS INCURRED WHILE THE CONTRACT WAS IN F ORCE. B. 13. IN THE ABOVE EXHIBIT NATURE OF WORK TO BE PERFO RMED BY SII IS MENTIONED AND IN ONE LINE IT CAN BE SUMMARISED AS CONSULTING SERVICES, PROJECT WORK PROCUREMENT AND ANY OTHER TA SK. WE ALSO NEED TO UNDERSTAND THE ACTUAL WORK PERFORMED BY TH E NON RESIDENT COMPANY. FOR LOOKING INTO THE SAME WE FIRST NEED T O GO THROUGH THE DESCRIPTION OF SERVICES SHOWN IN THE INVOICES RAISE D BY SII. IN ONE OF THE INVOICE DATED 14.3.16 PLACED AT PAGE-50 OF THE PAPER BOOK UNDER THE HEAD DESCRIPTION IT IS MENTIONED ONSITE PROJECT MANAGEMENT AND PROCUREMENT. SIMILAR DESCRIPTION I S GIVEN IN ALL OTHER INVOICES. IT HAS BEEN SUBMITTED BY LD. COUNS EL FOR THE ASSESSEE THAT THE PAYMENT MADE TO SII WAS ONLY FOR PROCUREMENT OF ORDERS AND NO OTHER SERVICES OF TECHNICAL IN NATURE WERE RECEIVED. THIS SUBMISSION OF THE LD. COUNSEL FOR THE ASSESSEE FURTHER GETS STRENGTHENED BY THE CERTIFICATE ISSUED BY SII, USA DATED 19.2.2020 WHICH READS AS FOLLOWS:- ITANO.448 & 449/IND/2019 SANP COMPUTER SYSTEMS PVT. LTD 11 SYSTEMS INTEGRATIONS INC. 4213 PEAKVIEW CT, FAIRFAX VA 22033 (609)-662-0145 FEBRUARY 19 TH 2020 TO-WHOM-IT--MAY CONCERN - THIS IS TO CERTIFY THAT WE, SYSTEMS INTEGRATIONS IN C. HAVE ACTED AS A LIAISON AND PROCUREMENT AGENT BETWEEN SNAP COMPUTER SYSTEMS PVT LTD AND CLIENTS BASED IN USA. WE HAVE NOT PROVIDED ANY TECHNICAL OR MANAGERIAL SE RVICES. WE WERE ONLY WORKING AS AN INTERFACE TO GET ORDER. ALL THE WORK WAS DONE BY THE SNAP SYSTEMS TEAM BY CONNECTING TO THE CLIEN TS' NETWORK USING VPN (VIRTUAL PRIVATE NETWORK) AND VDI (VIRTUAL DESKTOP IMAGE). 14. THE ABOVE CERTIFICATE MAKES THE PICTURE VERY CL EAR THAT SII HAS ONLY HAVE ACTED AS A LIAISON AND PROCUREMENT AG ENT BETWEEN ASSESSEE AND CLIENTS BASED IN USA. SII WAS WORKING ONLY AS AN INTERFACE TO PROCURE ORDERS AND HAND OVER THE SAME TO THE ASSESSEE WHO IN TURN WAS TO CARRY OUT THE WORK THROUGH ITS T EAM BY CONNECTING TO THE CLIENTS NETWORK USING VIRTUAL PRI VATE NETWORK AND VIRTUAL DESKTOP IMAGE. THERE REMAINS NO DISPUTE TO THE FACT THAT APART FROM THE WORK OF PROCUREMENT ORDERS FOR THE A SSESSEE NO OTHER SERVICES WERE RENDERED BY SII. SOFTWARE SER VICES WERE RENDERED BY THE ASSESSEE DIRECTLY TO THE CUSTOMERS BY LOGGING IN DIRECTLY WITH THE CLIENTS NETWORK. THOUGH IN THE A GREEMENT THE ITANO.448 & 449/IND/2019 SANP COMPUTER SYSTEMS PVT. LTD 12 PAYMENT IS NOMENCLATED AS CONSULTING SERVICES BUT I T IS ONLY PAID AS A COMMISSION FOR PROCURING ORDERS FROM THE CUSTOMER S. SII HAS NOT RENDERED ANY SERVICE EXCEPT DIRECTING THE CUSTO MERS TO THE ASSESSEE FOR SUPPLY OF SOFTWARE SERVICES. SII DO NOT HAVE ANY INTERFACE IN SUPPLYING SUCH SERVICES. THERE IS NO EVIDENCE TO SHOW THAT SII WAS HAVING ANY ROLE OF PROVIDING TECHNICAL SERVICES IN THE WORK PERFORMED BETWEEN ASSESSEE AND ITS CLIENTS. F OR GETTING THE ORDERS THE AGENT NORMALLY GETS COMMISSION AND REIMB URSEMENT OF EXPENSES ON THE BASIS OF ACTUAL TIME SPENT. IN SHOR T SII SIMPLY OBTAINS THE ORDERS ON THE BASIS OF NATURE OF SERVIC ES TO BE PROVIDED BY THE ASSESSEE AND NATURE OF SERVICES REQUIRED BY THE CLIENT. ONCE BOTH THESE THINGS ARE MATCHED THE ORDERS ARE PROCUR ED AND COMMUNICATED TO THE ASSESSEE WHO THEREAFTER DEVELOP S THE SOFTWARE IN INDIA AS PER THE NEED OF THE CLIENT. IN VIEW O F THE ABOVE DISCUSSIONS WE ARE OF THE CONSIDERED VIEW THAT NON RESIDENT COMPANY M/S SYSTEM INTEGRATION INC. HAS NOT PROVIDE D ANY TECHNICAL SERVICES TO THE ASSESSEE AND THE ALLEGED AMOUNT RECEIVED BY IT WERE ONLY FOR THE COMMISSION AND INCIDENTAL E XPENSES FOR LIAISON WORK AND PROCUREMENT ORDER. ITANO.448 & 449/IND/2019 SANP COMPUTER SYSTEMS PVT. LTD 13 15. AS FAR AS PROVISION OF SECTION 9 OF THE ACT ARE CONCERNED WHICH IN THE INSTANT CASE HAS BEEN APPLIED BY BOTH THE LO WER AUTHORITIES. MOST SPECIFICALLY SECTION 9(1)(VII) WHICH READS AS FOLLOWS:- (VII) INCOME BY WAY OF FEES FOR TECHNICAL SERVICES PAYAB LE BY- (A) THE GOVERNMENT; OR (B) A PERSON WHO IS A RESIDENT, EXCEPT WHERE THE FEES ARE PAYABLE IN RESPECT OF SERVICES UTILISED IN A BUSINESS OR PROF ESSION CARRIED ON BY SUCH PERSON OUTSIDE INDIA OR FOR THE PURPOSES OF M AKING OR EARNING ANY INCOME FROM ANY SOURCE OUTSIDE INDIA; OR (C) A PERSON WHO IS A NON- RESIDENT, WHERE THE FEES A RE PAYABLE IN RESPECT OF SERVICES UTILISED IN A BUSINESS OR PROF ESSION CARRIED ON BY SUCH PERSON IN INDIA OR FOR THE PURPOSES OF MAKING OR EARNING ANY INCOME FROM ANY SOURCE IN INDIA: EXPLANATION (2) TO SECTION 9(1).- FOR THE PURPOSES OF THIS CLAUSE, FEES FOR TECHNI CAL SERVICES MEANS ANY CONSIDERATION (INCLUDING ANY LUMP SUM CONSI DERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULT ANCY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TECHNICA L OR OTHER PERSONNEL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTR UCTION, ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIEN T OR CONSIDERATION WHICH WOULD BE INCOME OF THE RECIPIENT CHARGEABL E UNDER THE HEAD SALARIES EXPLANATION AFTER SEC. 9(2) FOR THE REMOVAL OF DOUBTS, IT IS HEREBY DECLARED THAT FOR THE PURPOSE OF THIS SECTION, INCOME OF A NON-RESIDENT SHALL B E DEEMED TO ACCRUE OR ARISE IN INDIA UNDER CLAUSE (V) OR CLAUSE (VI) OR CLAUSE (VII) OF SUB- SECTION(1) AND SHALL BE INCLUDED IN THE TOTAL INC OME OF THE NON- RESIDENT, WHETHER OR NOT (I) THE NON-RESIDENT HAS A RESIDENCE OR PLACE OF BUSINE SS CONNECTION IN INDIA; OR (II) THE NON-RESIDENT HAS RENDERED SERVICES IN INDIA.] A. 16. SECTION 9(1)(VII) PROVIDES FOR ACCRUAL OF INCOM E ONLY FOR THE FEE FOR TECHNICAL SERVICES WHICH INCLUDES SPECIALIZED SERVICES LIKE ITANO.448 & 449/IND/2019 SANP COMPUTER SYSTEMS PVT. LTD 14 MANAGERIAL, TECHNICAL AND CONSULTANCY. BUT IN THE INSTANT CASE SII HAS NOT RENDERED ANY TECHNICAL OR MANAGERIAL SERVICES TO THE ASSESSEE BUT IS MERELY PROJECT WORK PROCUREMENT AGE NT. IN THE CASE OF DR. REDDY LABORATORIES LTD (SUPRA) IT HAS BEEN HELD THAT SERVICE FEES PAYABLE BY THE APPLICANT TO DRL RUSSIA UNDER T HE AGREEMENT FOR PROMOTION OF GOODS CANNOT BE REGARDED AS FEES F OR TECHNICAL SERVICES UNDER SECTION 9(1)(VII) OR UNDER ARTICLE 1 2 OF THE INDIA- RUSSIA TREATY. 17. IN LIGHT OF ABOVE DISCUSSION AND IN THE GIVEN F ACTS AND CIRCUMSTANCES OF THE CASE WE ARE OF THE CONSIDERED VIEW THAT THE ALLEGED PAYMENT MADE BY THE ASSESSEE TO NON RESIDEN T COMPANY SII IS NOT FOR ANY FEE FOR TECHNICAL SERVICES AND THE PAYMENT WAS ONLY TOWARDS COMMISSION FOR PROCUREMENT OF ORDERS AND RE IMBURSEMENT OF INCIDENTAL CHARGES INCURRED. SINCE THE PAYMENT W AS NOT FOR FEES FOR TECHNICAL SERVICES AND FURTHER THE PAYMENT WAS MADE TO THE NON RESIDENTIAL COMPANY HAVING NO PERMANENT ESTABLI SHMENT OR BUSINESS CONNECTION IN INDIA, THE ALLEGED PAYMENT F OR PROCUREMENT OF ORDERS ARE NOT SUBJECT TO DEDUCTION OF TAX AT SO URCE U/S 195 OF THE ACT. THUS LD. CIT(A) ERRED IN CONFIRMING THE A CTION OF THE LD. ITANO.448 & 449/IND/2019 SANP COMPUTER SYSTEMS PVT. LTD 15 A.O. WE SET ASIDE THE FINDING OF LD. CIT(A) AND AL LOW THE GROUNDS RAISED BY THE ASSESSEE BY HOLDING THAT THE ALLEGED PAYMENTS OF RS.17,98,000/- AND RS.42,14,000/- TO SII IN USA DUR ING FINANCIAL YEAR 2014-15 AND 2015-16 RESPECTIVELY ARE ONLY TOWA RDS THE CHARGES FOR PROCUREMENT OR ORDERS AND REIMBURSEMENT OF EXPENSES AND ARE NOT IN THE NATURE OF FEES FOR TECHNICAL SE RVICES AND THUS DO NOT FALL IN THE AMBIT OF SECTION 9 OF THE ACT AN D THUS SECTION 195 OF THE ACT IS NOT APPLICABLE IN THESE PAYMENTS. RE VENUE IS THUS DIRECTED TO DELETE THE DEMAND FOR DEFAULT OF TDS AN D INTEREST LEVIED U/S 201(1A) OF THE ACT. 18. IN THE RESULT BOTH THE APPEALS ITA NO.448 & 44 9/IND/2019 OF THE ASSESSEE ARE ALLOWED. THE ORDER PRONOUNCED IN THE OPEN COURT ON 16.09.20 20 SD/- SD/- ( KUL BHARAT) (MANISH BORAD) JUDICIAL MEMBER ACCOUNTANT MEMBER / DATED : 16 SEPTEMBER, 2020 /DEV COPY TO: THE APPELLANT/RESPONDENT/CIT CONCERNED/CIT (A) CONCERNED/ DR, ITAT, INDORE/GUARD FILE. BY ORDER, ITANO.448 & 449/IND/2019 SANP COMPUTER SYSTEMS PVT. LTD 16 ASSTT.REGISTRAR, I.T.A.T., INDORE
