Bosch Limited, Bangalore V. ITO, Bangalore

ITA 553/BANG/2011

• Counselvise Citation: 55321114 RSA 2011
• Duration Of Justice: 1 year(s) 5 month(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 11-10-2012
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: B
• Assessment Year: 2011-2012
• Appeal Filed On: 11-05-2011
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Department Lawyers: ETWA MUNDA
• Assessee Lawyers: P J PARDIWALA
• Keywords: Business income; Residential status; Double taxation relief; Permanent establishment
• Section: 206AA

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL, BANGALORE BENCH C BEFORE SMT. P MADHAVI DEVI, JUDICIAL MEMBER AND SHRI JASON P BOAZ, ACCOUNTANT MEMBER ITA NO.552 TO 558/BANG/2011 (ASST. YEAR - 2011-12) M/S BOSCH LTD., HOSUR ROAD, ADUGODI, BANGALORE-560 030. . APPELLANT PAN NO.AAACM 9840 P. VS. THE INCOME-TAX OFFICER, INTERNATIONAL TAXATION, BANGALORE. . RESPONDENT APPELLANT BY : SHRI P.J PARDIWALA, SR. ADVOCAT E RESPONDENT BY : SHRI ETWA MUNDA, CIT DATE OF HEARING : 28-08-2012 DATE OF PRONOUNCEMENT : 11-10-2012 O R D E R PER BENCH : THESE APPEALS ARE FILED BY THE ASSESSEE. THE RELEVA NT ASSESSMENT YEAR IS 2011-12. THE APPEALS ARE DIRECTED AGAINST THE ORDER OF THE COMMISSIONER OF INCOME-TAX - (APPEALS) IV AT BANGA LORE DATED ITA NO.552 TO 55 8/B/11 2 23.02.2011 REJECTING THE APPEALS OF THE ASSESSEE F ILED U/S 248 OF THE INCOME-TAX ACT, 1961. ITA NO.552/BANG/2011 2. THE BRIEF FACTS OF THE CASE ARE THAT THE ASSESSE E IS A MANUFACTURING COMPANY WITH BOTH IMPORTED AND INDIGE NOUS PLANT AND MACHINERY. FOR PREVENTIVE MAINTENANCE & REPAIRS, A NNUAL MAINTENANCE CONTRACTS WERE ENTRUSTED TO FOREIGN SUP PLIERS OF MACHINERY AND EQUIPMENT. LIKEWISE, REPAIR CONTRACT S ARE ALSO ENTRUSTED TO THE FOREIGN SUPPLIERS WHO ARE RESIDENT S OF GERMANY. ALL THESE PAYMENTS TO NON-RESIDENTS WHICH ARE CHARGEABL E TO TAX IN INDIA ARE SUBJECT TO DEDUCTION OF TAX AT SOURCE (TDS) U/S 195 OF THE INDIAN INCOME-TAX ACT. HOWEVER, ACCORDING TO THE ASSESSEE , THE PAYMENTS REPRESENTED BUSINESS RECEIPTS AND AS NONE OF THE NO N-RESIDENTS HAVE PE IN INDIA AND THE PAYMENTS ARE NOT CHARGEABLE TO TAX IN INDIA. HOWEVER, OUT OF ABUNDANT CAUTION, THE ASSESSEE DEDU CTED THE TAX BEFORE MAKING THE PAYMENTS TO THE FOREIGN ENTITIES AS PER THE PROVISIONS OF SEC. 195 R.W.S 206AA AND PAID IT TO T HE GOVT. ACCOUNT. HOWEVER, DENYING ITS LIABILITY TO DEDUCT TAX AT SOU RCE, THE ASSESSEE HAS FILED APPEALS BEFORE THE CIT(A) U/S 248 OF THE I.T ACT. ITA NO.552 TO 55 8/B/11 3 3. IT WAS SUBMITTED BEFORE THE CIT(A) THAT (A) THE SUM RECEIVED BY THE NON-RESDIENTS IS THEIR BUSI NESS PROFIT ARISING IN GERMANY AND IS NOT LAIBLE TO BE T AXED IN INDIA AS THEY HAVE NO PE IN INDIA; AND (B) THE AMOUNTS PAID BY THE ASSESSEE IS NOT FEES FOR T ECHNICAL SERVICES (FTS) AS PER ARTICLE 12(4) OF THE DTAA BE TWEEN INDIA AND GERMANY OR U/S 9(1)(VII) OF THE IT ACT.\ 4. THE CIT(A) AFTER CONSIDERING THE ASSESSEES CONT ENTIONS AT LENGTH, CAME TO THE CONCLUSION THAT THE PAYMENTS MA DE BY THE ASSESSEE TO THE NON-RESIDENTS TOWARDS REPAIRS AND A MC ARE NOT THEIR BUSINESS PROFITS BUT ARE FEES FOR TECHNICAL SERVIC ES (IN BRIEF FTS). HE HELD THAT AS FAR AS FTS IS CONCERNED, IT IS CHARG EABLE TO TAX IN INDIA IRRESPECTIVE OF WHETHER THE SERVICES ARE RENDERED I N INDIA OR NOT AND WHETHER THE NON-RESIDENTS HAVE ANY BUSINESS CONNECT ION IN INDIA OR NOT. HE OBSERVED THAT THIS IS THE POSITION IN VIEW OF THE EXPLANATION TO SUB-SEC. (2) OF SEC. 9 SUBSTITUTED BY THE FINANCE A CT 2010 W.E.F 1.6.76. ITA NO.552 TO 55 8/B/11 4 THEREAFTER, HE PROCEEDED TO CONSIDER THE A SSESSEES OBJECTION TO THE RATE OF TAX AT WHICH THE TAX IS TO BE DEDUCTED FROM THE PAYMENTS. THE ASSESSEE OBJECTED TO THE APPLICATION OF THE PRO VISION OF SEC. 206AA OF THE ACT AND THE ADOPTION OF THE RATE OF TA X @ 20% OF THE PAYMENT ON THE GROUND THAT THE NON-RESIDENTS HAVE N OT OBTAINED THE PAN NO. AND FURNISHED THE SAME TO THE ASSESSEE. AC CORDING TO ASSESSEE, U/S 139A(8)(D), R.W.RULE 114(1)(B) OF I.T RULES, THE NON RESIDENTS ARE NOT REQUIRED TO APPLY FOR AND OBTAIN PAN NO. AND, THEREFORE, THE PROVISIONS OF SEC. 206AA ARE NOT APP LICABLE. THE ASSESSEE ALSO SUBMITTED THAT A DTAA OVERRIDES THE I T ACT AND AS PROVIDED UNDER THE DTAA BETWEEN INDIA AND GERMANY, THE RATE OF TAX AT WHICH TAX IS TO BE DEDUCTED AT SOURCE ON FTS IS 10% AND THIS RATE ONLY IS TO BE APPLIED IN THE ASSESSEES CASE. TH E CIT(A), AFTER CONSIDERING THE ABOVE OBJECTIONS, CONCLUDED THAT SE C. 206AA OVERRIDES ALL OTHER PROVISIONS OF THE ACT AS IT STA RTS WITH THE NON- ABSANTE CLAUSE NOTWITHSTANDING ANYTHING CONTAINED IN THE OTHER PROVISIONS OF THE ACT. AS REGARDS THE NON-REQUIR EMENT OF THE NON- RESIDENTS TO APPLY FOR AND OBTAIN A PAN NO., HE HE LD THAT THE PRESS RELEASE OF THE CBDT DATED 20.01.2010 CLARIFIES THAT THE REQUIREMENT OF OBTAINING PAN NO. WILL APPLY TO ALL NON-RESIDENT S IN RESPECT OF PAYMENTS/REMITTANCES LIABLE TO TDS. HE ALSO OBSERV ED THAT THE ITA NO.552 TO 55 8/B/11 5 HONBLE SUPREME COURT IN THE CASE OF G.E INDIA TECH NOLOGY CENTRE PVT. LTD. IN CIVIL APPEAL NOS.7541-7542 OF 2010, DA TED 9.9.2010 HAS HELD THAT WHEN THE CHARGEABILITY IS CONFIRMED AS PE R ITS DECISION IN THE CASE OF A.P TRANSMISSION CORPORATION REPORTED IN 23 9 ITR 587 (SC), THE ASSESSEES ARE LIABLE TO DEDUCT TAX AT SOURCE. THUS HE HELD THAT THE PROVISIONS OF SEC. 206AA ARE SPECIFIC AND SHALL OVE R RIDE SEC. 139(A)(8)(D) OF THE ACT AND AS THE NON-RESIDENT REC IPIENTS FAILED TO OBTAIN PAN, THE CONSEQUENCES ARE THAT THE HIGHER OF THE THREE AMOUNTS BEING RATES SPECIFIED IN THE ACT, RATE OR RATES IN FORCE, OR AT 20% WHICHEVER IS HIGHER HAS TO BE WITHHELD. 5. THE CIT(A) ALSO CONSIDERED THE ASSESSEES OBJECT ION TO THE GROSSING UP U/S 195A OF THE ACT. THE ASSESSEES CO NTENTION WAS THAT THE RATES IN FORCE FOR RELEVANT ASSESSMENT YEAR WAS 10.5575%, WHILE UNDER DTAA IT WAS 10% AND U/S 206AA, IT WAS 20% AND THE BENEFIT OF GROSSING UP AT THE RATES IN FORCE OR AT THE RATE OF 10% UNDER DTAA SHOULD BE ADOPTED AND NOT @ 20%. THE CIT(A), HOWEV ER HELD THAT AS THE ASSESSEE WAS LIABLE TO WITHHOLD TAX @ 20%, T HE GROSSING UP ALSO IS TO BE DONE WITH REFERENCE TO THE SAME RATE OF TAX. HE ACCORDINGLY DISMISSED ASSESSEES APPEALS. 6. AGGRIEVED, ASSESSEE IS IN APPEAL BEFORE US. ITA NO.552 TO 55 8/B/11 6 7. THE LEARNED SENIOR COUNSEL FOR THE ASSESSEE, SHR I PARDIWALA, WHILE REITERATING THE ASSESSEES SUBMISSIONS BEFORE THE CIT(A), SUBMITTED THAT THE INCOME OF A NON-RESIDENT IS TAXA BLE IN INDIA IF IT IS ITS BUSINESS INCOME ARISING OR ACCRUING IN INDIA OR DEEMED TO ARISE OR ACCRUE IN INDIA PROVIDED THEY HAVE A PE IN INDIA. HE SUBMITTED THAT THE SERVICES OF REPAIRS OF MACHINERY ARE ALL RENDER ED OUTSIDE INDIA, I.E IN GERMANY, AND, THEREFORE, THE BUSINESS INCOME HAS NOT ARISEN OR ACCRUED OR DEEMED TO ARISE OR ACCRUE TO THE NON-RES IDENTS IN INDIA PARTICULARLY SINCE THEY DO NOT HAVE A PE IN INDIA. THUS, ACCORDING TO HIM, WHEN THE BUSINESS INCOME OF THE NON-RESIDENT I S NOT CHARGEABLE TO TAX IN INDIA, THE ASSESSEE IS NOT LIABLE TO DEDU CT TAX AT SOURCE U/S 195 OF THE IT ACT. 8. THE NEXT ARGUMENT OF THE LEARNED COUNSEL FOR THE ASSESSEE IS THAT THE NATURE OF THE SERVICES HAS TO BE CONSIDERE D BEFORE CONCLUDING THAT THE PAYMENT IS FEES FOR TECHNICAL SERVICES. HE SUBMITTED THAT AS PER THE PURCHASE ORDER AND INVOICES, IT IS CLEAR TH AT THE SERVICES ARE IN THE NATURE OF REPAIRS ONLY AND NOT TECHNICAL, CONSU LTATION OR MANAGERIAL SERVICES ARE RENDERED BY THE NON-RESIDEN TS TO THE ASSESSEE COMPANY FOR REPAIRING THE MACHINERY. HE HAS DRAWN OUR ATTENTION TO THE COPIES OF THE PURCHASE ORDER AND INVOICES RAISE D BY ASSESSEE AND ITA NO.552 TO 55 8/B/11 7 M/S WERKZEUBAU SIEGFRIED HOFMANN GMBH, GERMANY RESP ECTIVELY TO DEMONSTRATE THIS POINT. HE SUBMITTED THAT THE HYDE RABAD BENCH OF THE TRIBUNAL IN THE CASE OF M/S BHEL-GE-GAS TURBINE SERVICING (P) LTD. IN ITA NO.976/HYD/2011, DATED 31.7.2012, HAS C ONSIDERED THE QUESTION AS TO WHETHER REPAIRS WOULD FALL UNDER THE CATEGORY OF TECHNICAL SERVICES AS DEFINED BOTH UNDER THE INCOME -TAX ACT AND THE DTAA BETWEEN INDIA AND OTHER COUNTRIES AND HAS HELD THAT REPAIRS CANNOT BE CONSIDERED AS TECHNICAL SERVICES EVEN IF THEY REQUIRE SPECIFIC AND TECHNICAL EXPERTISE TO PERFORM THE WOR K ORDER. ACCORDING TO HIM, THIS DECISION IS APPLICABLE TO THE FACTS OF THE CASE BEFORE US AND, THEREFORE, THE ASSESSEE IS NOT LIABLE TO WITHH OLD TAX BEFORE MAKING THE REMITTANCES. HE SUBMITTED THAT IT IS ONLY OUT OF ABUNDANT CAUTION THAT THE ASSESSEE HAS MADE THE TDS AT 20% AND PAID IT TO THE GOVT. ACCOUNT, BUT DENIES ITS LIABILITY TO DO SO. 9. AS REGARDS THE APPLICABILITY OF THE RATE OF 20% U/S 206AA, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED U/S 139A (8)(D) R.W.RULE 114C(B), THE NON-RESIDENTS ARE NOT REQUIRED TO APPL Y AND OBTAIN A PAN U/S 139A. HE SUBMITTED THAT THE RELIANCE OF THE CI T(A) ON THE PRESS NOTE DATED 20.01.2010 IS MISPLACED, AS ACCORDING TO HIM, THE PRESS NOTE CANNOT OVERRIDE THE PROVISIONS OF LAW. HE SUB MITTED THAT THE ITA NO.552 TO 55 8/B/11 8 PROVISIONS OF SEC. 206AA ARE APPLICABLE ONLY WHERE THE RECIPIENTS ARE REQUIRED UNDER THE LAW TO OBTAIN THE PAN AND NOT OT HERWISE. IN SUPPORT OF THIS CONTENTION, HE PLACED RELIANCE UPON THE JUDGMENT OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF SMT . A KOWSALYA BAI AND OTHERS VS. UNION OF INDIA REPORTED IN 346 I TR 156 (KAR). 10. THE NEXT ARGUMENT OF THE ASSESSEE IS ON THE GRO SSING UP FOR WITHHOLDING OF TAX U/S 195A OF THE ACT. THE LEARNE D COUNSEL FOR THE ASSESSEE SUBMITTED THAT SEC. 195A SPEAKS ONLY OF TH E RATES IN FORCE FOR THE FINANCIAL YEAR IN WHICH SUCH INCOME IS PAYABLE AND DOES NOT REFER TO THE RATE APPLICABLE U/S 206AA OF THE ACT. THUS, ACCORDING TO HIM THE RATES IN FORCE DURING THE RELEVANT FINANCIAL YE AR BEING 10.5575% OR THE RATE AS PER THE DTAA BEING 10%, WHICHEVER IS BE NEFICIAL ONLY IS TO BE APPLIED AND NOT 20% AS HELD BY THE CIT(A). 11. THE LEARNED DR, ON THE OTHER HAND, SUPPORTED TH E ORDERS OF THE CIT(A) AND SUBMITTED THAT AS PER THE FORM 15CB FURN ISHED BY THE ASSESSEE, THE PAYMENTS FOR REPAIRS HAVE BEEN TREATE D AS FTS AND THE RATE OF TAX IS MENTIONED AS 20%. THUS, ACCORDING T O HIM, THIS CERTIFICATE ISSUED BY THE ASSESSEES OWN AUDITORS I S BINDING ON THE ITA NO.552 TO 55 8/B/11 9 ASSESSEE AND THE ASSESSEE HAS RIGHTLY DEDUCTED TAX @ 20% AS PROVIDED U/S 206AA OF THE ACT. 12. AS REGARDS THE REQUIREMENT OF THE NON-RESIDENTS TO APPLY AND OBTAIN THE PAN NO., THE LEARNED DR SUBMITTED THAT T HE CBDT IN ITS PRESS NOTE DATED 20.01.2010 HAS CLEARLY STATED THAT THE PROCEDURE OF OBTAINING PAN NO. IS EASY AND INEXPENSIVE AND THAT EVEN NON- RESIDENTS ARE REQUIRED TO OBTAIN THE SAME. HE SUBM ITTED THAT SEC. 206AA HAS OVERRIDING EFFECT ON ALL OTHER PROVISIONS OF THE ACT AND, THEREFORE, WHENEVER THERE IS TAXABLE INCOME, THE NO N-RESIDENTS ARE REQUIRED TO FURNISH THEIR PAN NO. TO THE DEDUCTORS FAILING WHICH THE RATE SPECIFIED U/S 206AA HAS TO BE APPLIED. AS REG ARDS THE DECISION OF THE HONBLE KARNATAKA HIGH COURT, IN THE CASE OF SM T. KOWSALYA BAI & OTHERS, RELIED UPON BY THE LEARNED COUNSEL FOR TH E ASSESSEE, HE SUBMITTED THAT THE SAID DECISION IS DISTINGUISHABLE ON FACTS. HE SUBMITTED THAT IN THAT CASE, THE ASSESSEES THEREIN , WHOSE INCOME WAS BELOW THE TAXABLE LIMIT ARE RESIDENTS, WHILE IN THE CASE BEFORE US, THE RECIPIENTS OF THE REMITTANCES ARE NON-RESIDENTS HAV ING INCOME ABOVE THE TAXABLE LIMIT AND THE INCOME BEING TAXABLE IN I NDIA BEING FTS, ARE REQUIRED TO OBTAIN PAN NO. FAILING WHICH THE RATE U /S 206AA IS APPLICABLE. ITA NO.552 TO 55 8/B/11 10 13. AS REGARDS THE RATE TO BE ADOPTED FOR THE PURPO SE OF GROSSING UP, U/S 195A OF THE ACT, HE RELIED UPON THE ORDER OF TH E CIT(A). 14. IN THE REJOINDER, THE LEARNED COUNSEL FOR THE ASSESSEE SUBMITTED THAT THE FORM 15CB IS PREPARED BY THE AUDITOR/C.A O F ASSESSEE COMPANY BUT IT WOULD ONLY REFLECT THE OPINION OR V IEW OF THE AUDITOR/ C.A AND CANNOT BE CONSIDERED AS THE ADMISSION OF TH E ASSESSEE. HE SUBMITTED THAT THE ASSESSEE HAD THE RIGHT TO DENY I TS LIABILITY TO DEDUCT TAX AT SOURCE AND IT HAS TO BE DECIDED IN ACCORDANC E WITH LAW AND NOT ON THE BASIS OF THE OPINION OF THE CHARTERED ACCOUN TANT OR THE AUTHORIZED REPRESENTATIVE OF THE ASSESSEE. 15. HAVING HEARD BOTH THE PARTIES AND HAVING CONSID ERED THEIR RIVAL CONTENTIONS, WE DEAL WITH THE ISSUE OF FORM NO.15CB AND ITS BINDING NATURE ON THE ASSESSEE. THE ARGUMENT OF THE LEARNE D DR THAT THE ASSESSEE BY FURNISHING FORM NO.15CB HAS ADMITTED TH AT THE PAYMENT IS FEE FOR TECHNICAL SERVICES CANNOT BE ACCEPTED BECAUSE FORM NO.15CB IS A CERTIFICATE ISSUED BY AN ACCOUNTANT (O THER THAN AN EMPLOYEE) AND, THEREFORE, IT IS THE OPINION OR VIEW OF THE ACCOUNTANT AND CANNOT BE SAID TO BE BINDING ON THE ASSESSEE. EVERY TRANSACTION BETWEEN THE ASSESSEE AND THE NON-RESIDENTS HAS TO B E CONSIDERED IN ITS ITA NO.552 TO 55 8/B/11 11 OWN RIGHT AND ITS NATURE IS TO BE DECIDED IN ACCOR DANCE WITH THE INTENTION OF THE PARTIES AND IN ACCORDANCE WITH LAW . EVEN IF IT IS TO BE CONSIDERED AS AN ADMISSION BY THE ASSESEE, THE SAME CANNOT BE ACCEPTED TO BE GOSPEL TRUTH AND HAS TO BE VERIFIED BY THE AO. THE ASSESSEE HAS EVERY RIGHT TO CHALLENGE THE OPINION G IVEN BY ITS OWN AUDITOR OR CA AND IT IS FOR THE REVENUE AUTHORITIES TO DECIDE THE ISSUE IN ACCORDANCE WITH LAW AND, THEREFORE, WE HOLD THAT THE FORM NO.15CB ALONE WOULD NOT DETERMINE THE NATURE OF THE TRANSACTION. 16. COMING TO OTHER ISSUES RAISED IN THIS APPEAL, W E FIND THAT UNDISPUTED FACTS OF THE CASE ARE THAT THE ASSESSEE HAS ENTERED INTO CONTRACTS OF REPAIRS FOR ITS IMPORTED MACHINERY WIT H THE FOREIGN SUPPLIERS OF THE MACHINERY. THE REPAIRS ARE CARRIE D OUT OUTSIDE INDIA I.E IN GERMANY. FOR ANY INCOME OF A NON- RESIDENT TO BE CHARGEABLE TO TAX IN INDIA, IT HAS TO ARISE OR ACCRUE IN INDIA I S SHOULD BE DEEMED TO ARISE OR ACCRUED IN INDIA U/S 9 OF THE I.T ACT. FO R DETERMINING THE QUESTION AS TO WHETHER ANY INCOME IS CHARGEABLE TO TAX IN INDIA, IT HAS TO ARISE OR ACCRUE IN INDIA, THE NATURE OF THE INC OME IS TO BE DETERMINED FIRST. THEREFORE, THE FIRST QUESTION T O BE CONSIDERED BY US IS THE NATURE OF THE SERVICES, RENDERED BY THE NON- RESIDENT COMPANY TO THE ASSESSEE, WHETHER IT IS MERE REPAIRS OR TECH NICAL SERVICES. FOR ITA NO.552 TO 55 8/B/11 12 APPRECIATING AND DETERMINING THE NATURE OF THE SERV ICES, IT IS NECESSARY TO CONSIDER THE EXACT SERVICES TO BE RENDERED OUT B Y THE NON-RESIDENTS. FROM THE COPY OF THE PURCHASE ORDER AND THE INVOICE S, WE FIND THAT THE GERMANY COMPANY IS REQUIRED TO CARRY OUT THE FOLLOW ING SERVICES. 1 PIECE REPAIR OF MOULDING TOOL TS61W5 NAP NO. 2& PACKAGING OF MOULDING TOOL TS61W5 ACCORDING TO OUR OFFER 15489_1 OF 24.02.2010. - YOUR ITEM : 00001 - REPAIR AREA OF MOULDING TOOL TS61W5 NO.2; 2.846,090 EURO COMPLETION DATE : APPROXIMATELY 2 WORKING WEEKS AFTER RECEIVE OF THE ABOVE MENTIONED MOULD - PACKING OF MOULDING TOOL TS61W5 NO. 2: 1,280,00 EURO PACKING DATE : APPROXIMATELY 4 WORKING DAYS AFTER COMPLETION OF REPAIR OF THE ABOVE MENTIONED MOULD 17. FROM A PLAIN READING OF THE ABOVE, IT APPEARS T HAT THE MACHINERY HAS TO BE REPAIRED AND NOT TO BE MODIFIED OR IMPRO VED. AS OBSERVED BY THE CIT(A), EVERY REPAIR NEEDS A TECHNICAL SKILL OR EXPERTISE. BUT ITA NO.552 TO 55 8/B/11 13 CAN ANY AND EVERY ACTIVITY WHICH INVOLVES SKILL AND EXPERTISE BE CALLED AS TECHNICAL SERVICES. AS PER THE CAMBRIDGE DICTIO NARY, THE WORD REPAIR MEANS TO PUT SOMETHING, DAMAGED, BROKEN OR NOT WORKING CORRECTLY BACK INTO CONDITION OR MAKE IT WORK AGAI N. THIS DEFINITION PRE-SUPPOSES THAT THERE IS A MACHINERY OR A TOOL WH ICH IS DAMAGED AND WHICH HAS TO BE BROUGHT BACK TO ITS ORIGINAL WORKIN G CONDITIONS. THIS CANNOT BE DONE WITHOUT THE KNOWLEDGE ABOUT THE MACH INERY AND THE SKILL TO BRING IT BACK TO ITS ORIGINAL WORKING OR T O WORKABLE CONDITION. THE WORD SERVICES DENOTES THAT IT IS AN ACTIVITY TO HELP ACHIEVE SOMETHING OR RESULT IN SOMETHING USEFUL OR PURPOSEF UL. EXPLANATION 2 TO CLAUSE (VII) OF SUB. SEC. (1) OF SEC. 9 DEFINES FEES FOR TECHNICAL SERVICES AS ANY CONSIDERATION FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THE PR OVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) BUT DOES NOT INCLU DE CONSIDERATION FOR ANY CONSTRUCTION, ASSEMBLY, MINING OR LIKE PROJECTS UNDERTAKEN BY THE RECIPIENTS OR CONSIDERATION WHICH WOULD BE INCOME O F THE RECIPIENTS CHARGEABLE UNDER THE HEAD SALARIES. THUS, IT CAN BE SEEN THAT THE DEFINITION NOT ONLY CONTAINS THE POSITIVE CONSTITUE NTS OF THE SERVICES BEING MANAGERIAL TECHNICAL OR CONSULTANCY SERVICES BUT ALSO ENUMERATES THE SERVICES WHICH ARE NOT INCLUDED IN T HE TECHNICAL SERVICES. THE POSITIVE CONSTITUENTS OF THE DEFIN ITION ARE THAT THEY ITA NO.552 TO 55 8/B/11 14 SHOULD BE MANAGERIAL, TECHNICAL OR CONSULTANCY SERV ICES. THESE TERMS ARE VERY WIDE AND NEEDS TO BE CONSIDERED WITH AN EX HAUSTIVE MEANING ATTRIBUTABLE TO THEM. WE FIND THAT THE DEFINITION OF FEES FOR TECHNICAL SERVICES AS GIVEN IN THE DTAA BETWEEN INDIA AND GE RMANY ALSO CONTAINS SIMILAR LANGUAGE. WHETHER SERVICES RENDER ED BY THE RECIPIENTS REPAIRING THE MACHINERY OF THE ASSESSEE WOULD FALL WITHIN THE SCOPE OF DEFINITION OF FEES FOR TECHNICAL SER VICES UNDER THE ACT OR UNDER THE DTAA IS TO BE EXAMINED. THE LEARNED C OUNSEL FOR THE ASSESSEE HAD RELIED UPON THE DECISION OF THE A BE NCH OF THE HYDERABAD TRIBUNAL IN THE CASE OF BHEL-GE-GAS TURBI NE SERVICING PVT. LTD., IN SUPPORT OF HIS CONTENTION THAT THE RE PAIRS OF MACHINERY WOULD NOT FALL WITHIN THE SCOPE OF TECHNICAL SERVIC ES. IN THE CASE BEFORE HYDERABAD BENCH OF THE TRIBUNAL, THE NON-RES IDENT RECIPIENTS WERE HIRED TO REPAIR AND REFURBISH MACHINERY AND NO TAX WAS DEDUCTED AT SOURCE. THE TRIBUNAL CONSIDERED THE MEANING OF THE TERM TECHNICAL SERVICES AND AFTER CONSIDERING THE DECISION OF THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF LUFTHANSA AIR CARGO REPORTE D IN 274 ITR 820 HELD THAT TECHNICAL REPAIRS ARE DIFFERENT FROM TECH NICAL SERVICES AND EVERY CONSIDERATION MADE FOR RENDERING OF SERVICES DO NOT CONSTITUTE INCOME WITHIN THE MEANING OF SEC.9(1)(VII) OF THE A CT AND FOR CONSIDERING THE SAME FIRST OF ALL, THE SAID CONSIDE RATION SHOULD BE FOR ITA NO.552 TO 55 8/B/11 15 THE FTS. WE FIND THAT IN THE CASE OF LUFTHANSA AIR CARGO (CITED SUPRA), THE DELHI BENCH OF THE TRIBUNAL HAS CONSIDE RED WHETHER REPAIR WORK CARRIED OUT IN THE NORMAL COURSE OF ITS BUSINE SS IN GERMANY WITHOUT ANY INVOLVEMENT OR PARTICIPATION OF THE ASS ESSEES PERSONNEL CAN BE SAID TO BE OF ANY MANAGERIAL OR TECHNICAL OR CONSULTANCY SERVICES AND IT WAS HELD THAT THE PAYMENTS MADE BY THE ASSESSEE TO THE NON-RESIDENT WORKSHOPS OUTSIDE INDIA DO NOT CONSTIT UTE PAYMENT OF FEES FOR MANAGERIAL, CONSULTANCY OR TECHNICAL SERVI CES AS DEFINED IN EXPLANATION 2 TO SEC. 9(1)(VII) OF THE ACT. AS FACT S OF THE CASE BEFORE US ARE VERY MUCH SIMILAR TO THE FACTS OF THE CASE B EFORE THE DELHI BENCH OF THE TRIBUNAL IN THE CASE OF LUFTHANSA AIR CARGO (CITED SUPRA), WE HOLD THAT THE PAYMENTS TO THE RECIPIENTS IN GERMANY DO NOT COME WITHIN THE PURVIEW OF FEES FOR TECHNICAL SERVI CES. THIS, THEREFORE, CANNOT BE TREATED AS FTS BUT IS BUSINESS INCOME OF THE NON- RESIDENT COMPANY. AS PER THE LAW IN FORCE, BUSINES S INCOME OF A NON- RESIDENT RECIPIENT IS CHARGEABLE TO TAX IN INDIA ON LY IF IT IS ARISING OR ACCRUING OR DEEMED TO ARISE OR ACCRUE IN INDIA PROV IDED THAT THEY HAVE PERMANENT ESTABLISHMENT IN INDIA. AS IT IS NO T DISPUTED THAT THE NON-RESIDENT RECIPIENTS OF THE REMITTANCES HAVE NO PE IN INDIA, THEIR BUSINESS INCOME IS NOT CHARGEABLE TO TAX IN INDIA. SINCE THE VERY NATURE OF INCOME HAS BEEN DECIDED TO BE BUSINESS IN COME AND NOT FEES ITA NO.552 TO 55 8/B/11 16 FOR TECHNICAL SERVICES, THE PAYMENTS DO NOT REQUIRE WITHHOLDING OF TAX AT SOURCE U/S 195 OF THE INCOME-TAX ACT. 18. IN THE RESULT, THE ASSESSEE IS NOT UNDER AN OBL IGATION TO WITHHOLD TAX LEAVE ALONE @ 20% U/S 206AA OF THE INCOME-TAX A CT AND THE ISSUE OF GROSSING UP WOULD NOT ARISE. 19. IN THE RESULT, THE APPEAL OF THE ASSESSEE IN IT A NO.552 IS ALLOWED. ITA NOS.553, 554 & 555/BANG/2011 20. IN THESE CASES ALSO THE SERVICES RENDERED BY TH E NON-RESIDENTS ARE TOWARDS REPAIRS OF ASSESSEES MACHINERY CARRIE D OUT IN GERMANY. AS THE FACTS AND CIRCUMSTANCES ARE SIMILAR TO THE F ACTS OF THE CASE IN ITA NO.552 OF 2011, THESE APPEALS OF THE ASSESSEE ARE ALSO ALLOWED. ITA NOS.556, 557 & 558/BANG/2011 21. AS REGARDS THESE APPEALS, WE FIND THAT THE SERV ICES OF REPAIRS BY THE NON-RESIDENTS RENDERED INCLUDE ITS ASSISTANCE I N ANALYZING AND ITA NO.552 TO 55 8/B/11 17 SOLVING TECHNICAL PROBLEM AND DISFUNCTIONS BY LOCAT ING AND MENDING THE CAUSE OF THE DISFUNCTION BY PROVIDING TELEPHONI C ADVICE, ANALYSIS AND ASSISTANCE TO THE OPERATOR AND FOR PREVENTIVE M AINTENANCE. THESE SERVICES CLEARLY FALL WITHIN THE PURVIEW OF DEFINIT ION OF FEES FOR TECHNICAL SERVICES. IN THESE CASES, THE SERVICES ARE NOT MERE REPAIRS BUT ARE TOWARDS PREVENTIVE MAINTENANCE WHICH CLEARL Y SHOW THAT THE RECIPIENTS ARE PROVIDING TECHNICAL ASSISTANTCE AND SERVICES TO THE ASSESSEE IN INDIA. THEREFORE THE ASSESSEE IS LIABL E TO WITHHOLD TAX FROM THE PAYMENT OF FEES FOR TECHNICAL SERVICES. I N VIEW OF EXPLANATION 2 TO CLAUSE (VII) OF SEC. 9(1), THE FE ES FOR TECHNICAL SERVICES IS CHARGEABLE TO TAX IN INDIA AND THE ASS ESSEE IS LIABLE TO DEDUCT TAX AT SOURCE. NOW, HAVING HELD THAT THE SERVICES RENDERED BY THE NON- RESIDENTS ARE TECHNICAL SERVICES, WE WILL HAVE TO E XAMINE THE APPLICABILITY OF SEC. 206AA OF THE INCOME-TAX ACT. THE ASSESSEES CONTENTION HAS BEEN THAT THE ASSESSEE BEING A NON R ESIDENT IS NOT REQUIRED TO APPLY FOR AND OBTAIN PAN NO. BY VIRTUE OF RULE 114(C)(B) OF INCOME-TAX RULES READ WITH SEC. 139A(8)(D) OF TH E INCOME-TAX ACT. WE CANNOT AGREE WITH THIS CONTENTION OF THE ASSESSE E. THE PROVISIONS OF SEC. 206AA CLEARLY OVERRIDES THE OTHER PROVISION S OF THE ACT. ITA NO.552 TO 55 8/B/11 18 THEREFORE, A NON RECIPIENT WHOSE INCOME IS CHARGEAB LE TO TAX IN INDIA HAS TO OBTAIN PAN NO. AND PROVIDE THE SAME TO THE ASSESSEE DEDUCTOR. THE ONLY EXEMPTION GIVEN IS THAT NON-RESIDENT WHOSE INCOME IS NOT CHARGEABLE TO TAX IN INDIA ARE NOT REQUIRED TO APPL Y AND OBTAIN PAN NO. HOWEVER, WHERE THE INCOME IS CHARGEABLE TO TA X IRRESPECTIVE OF THE RESIDENTIAL STATUS OF THE RECEIPEINTS, EVERY AS SESSEE IS REQUIRED TO OBTAIN THE PAN NO. AND THIS PROVISION IS BROUGHT IN TO ENSURE THAT THERE IS NO EVASION OF TAX BY THE FOREIGN ENTITIES. THE ASSESSEES RELIANCE UPON THE DECISION OF THE HONBLE KARNATAKA HIGH COURT IN THE CASE OF KOWSALYABAI (CITED SUPRA), IN OUR OPINION, IS MISPLACED AND DISTINGUISHABLE ON FACTS FROM THE FACTS OF THE CASE BEFORE US. IN THE CASE OF KOWSALYABAI AND OTHERS, THE RECIPIENTS OF T HE INTEREST WERE RESIDENTS OF INDIA AND THEIR TOTAL INCOME WAS LESS THAN THE TAXABLE LIMIT PRESCRIBED BY THE RELEVANT FINANCE ACT. IT W AS IN THESE FACATS AND CIRCUMSTANCES THAT THE HONBLE HIGH COURT HAS H ELD THAT WHERE THE RECIPIENTS OF THE INTEREST INCOME WERE NOT HA VING INCOME EXCEEDING TAXABLE LIMITS, IT WAS NOT REQUIRED TO O BTAIN THE PAN NO. BUT IN THE CASE BEFORE US, THE ASSESSEES ARE NON- RESIDENTS AND ADMITTEDLY THE INCOME EXCEEDS THE TAXABLE LIMIT PRE SCRIBED BY THE RELEVANT FINANCE ACT. IN THE CIRCUMSTANCES, THE RE CIPIENTS ARE BOUND AND ARE UNDER AN OBLIGATION TO OBTAIN THE PAN NO. A ND FURNISH THE ITA NO.552 TO 55 8/B/11 19 SAME TO THE ASSESSEE. FOR FAILURE TO DO SO, THE AS SESSEE IS LIABLE TO WITHHOLD TAX AT THE HIGHER OF RATES PRESCRIBED U/S 206AA OF THE INCOME-TAX ACT I.E 20% AND THE CIT(A) HAS RIGHTLY H ELD THAT THE PROVISION OF SEC. 206AA ARE APPLICABLE TO THE ASSES SEE. 22. AS REGARDS THE GROSSING UP U/S 195A OF THE INC OME-TAX ACT IS CONCERNED, WE FIND THAT THE PROVISION READS AS UNDE R : [IN A CASE OTHER THAN THAT REFERRED TO IN SUB- SECTION (1A) OF SEC. 192, WHERE UNDER AN AGREEMENT] OR OTHER ARRANGEMENT, THE TAX CHARGEABLE ON ANY INCOME REFERRED TO IN THE FOREGOING PROVISIONS OF THIS CHA PTER IS TO BE BORNE BY THE PERSON BY WHOM THE INCOME IS PAY ABLE, THEN, FOR THE PURPOSES OF DEDUCTION OF TAX UNDER TH OSE PROVISIONS SUCH INCOME SHALL BE INCREASED TO SUCH AMOUNT AS WOULD, AFTER DEDUCTION OF TAX THEREON AT THE RATES IN FORCE FOR THE FINANCIAL YEAR IN WHICH SUCH INCOME IS PAYABLE, BE EQUAL TO THE NET AMOUNT PAYABLE UNDE R SUCH AGREEMENT OR ARRANGEMENT. 23. THUS, IT CAN BE SEEN THAT THE INCOME SHALL BE INCREASED TO SUCH AMOUNT AS WOULD AFTER DEDUCTION OF TAX THERETO AT T HE RATE IN FORCE FOR THE FINANCIAL YEAR IN WHICH SUCH INCOME IS PAYABLE, BE EQUAL TO THE NET AMOUNT PAYABLE UNDER SUCH AGREEMENT OR ARRANGEMENT. A LITERAL ITA NO.552 TO 55 8/B/11 20 READING OF SEC. IMPLIES THAT THE INCOME SHOULD BE I NCREASED AT THE RATES IN FORCE FOR THE FINANCIAL YEARS AND NOT THE RATES AT WHICH THE TAX IS TO BE WITHHELD BY THE ASSESSEE. THE HONBLE APEX COUR T IN THE CASE OF GE INDIA TECHNOLOGY (CITED SUPRA) HAS HELD THAT THE MEANING AND EFFECT HAS TO BE GIVEN TO THE EXPRESSION USED IN TH E SECTION AND WHILE INTERPRETING A SECTION, ONE HAS TO GIVE WEIGHTAGE T O EVERY WORD USED IN THAT SECTION. IN VIEW OF THE SAME, WE ARE OF TH E OPINION THAT THE GROSSING UP OF THE AMOUNT IS TO BE DONE AT THE RATE S IN FORCE FOR THE FINANCIAL YEAR IN WHICH SUCH INCOME IS PAYABLE AND NOT AT 20% AS SPECIFIED U/S 206AA OF THE ACT. 24. IN THE RESULT, THIS GROUND OF APPEAL IS ALLOWE D AND ASSESSEES APPEALS ARE PARTLY ALLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON 11TH OCT, 2012. SD/- SD/- (JASON P BOAZ) (MADHAVI DEVI) ACCOUNTANT MEMBER JUDICIAL MEMBER VMS. BANGALORE DATED : 11/10/2012 ITA NO.552 TO 55 8/B/11 21 COPY TO : 1. THE ASSESSEE 2. THE REVENUE 3.THE CIT CONCERNED. 4.THE CIT(A) CONCERNED. 5.DR 6.GF BY ORDER SR. PRIVATE SECRETA RY, ITAT, BANGALORE.