HSBC BANK PLC, MUMBAI V. DCIT (IT) 2(2)(2), MUMBAI

ITA 7386/MUM/2016

• Counselvise Citation: [2019] 116 COUNSELVISE.COM (IT) 8090 (ITAT-MUMBAI)
• Duration Of Justice: 2 year(s) 7 month(s) 1 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 16-07-2019
• Appeal Filed By: Assessee
• Order Result: Allowed
• Bench Allotted: I
• Assessment Year: 2011-2012
• Appeal Filed On: 15-12-2016
• Result in Favour of: Assessee
• Court: TRIBUNAL
• Assessee Lawyers: RAUNAK SHAH
• Keywords: Double taxation relief; Deemed to accrue or arise in india; Corroborative evidences
• Section: 143(3); 5(2); 234B

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCH I, MUMBAI BEFORE SHRI G.S. PANNU, VICE PRESIDENT AND SHRI RAM LAL NEGI , JUDICIAL MEMBER ITA NO. 7386 /MUM/201 6 : A.Y : 201 1 - 1 2 HSBC BANK PLC C/O SRBC & ASSOCIATES LLP 14 TH FLOOR, THE RUBY, 29, SENAPATI BAPAT ROAD, DADAR (W), MUMBAI 400 028. PAN : AA BCH3252P (APPELLANT) VS. DCIT (IT) - 2 ( 2 )( 2 ), MUMBAI. (RESPONDENT) APPELLANT BY : SHRI FARROKH IRANI & SHRI RAUNAK SHAH RESPONDENT BY : SHRI S. ANBUSELVAN & SHRI V.K. CHATURVEDI DATE OF HEARING : 28 /0 6 /2019 DATE OF PRONOUNCEMENT : 16 /0 7 /2019 O R D E R PER G.S. PANNU , VICE PRESIDENT THE CAPTIONED APPEAL BY THE ASSESSEE IS DIRECTED AGAINST THE ORDER OF CIT(A) - 15, MUMBAI DATED 31.08.2016 , PERTAINING TO THE ASSESSMENT YEAR 20 11 - 12 , WHICH IN TURN HAS ARISEN FROM THE ORDER DATED 29.05.2015 PASSED BY THE ASSESSING OFFICER, MUMBAI UNDER S ECTION 143(3) R.W.S 144C(3) OF THE INCOME - TAX ACT, 1961 (IN SHORT 'THE ACT') . 2 . IN THIS APPEAL, ASSESSEE HAS RAISED THE FOLLOWING GROUNDS OF APPEAL : - 2 HSBC BANK PLC ITA NO. 7386/MUM/2016 1. THE LEARNED CIT(A) ERRED IN TREATING THE REIMBURSEMENT OF EXPENSES AMOUNTING TO RS.1,41,81,052 INCURRED BY THE APPELLANT ON BEHALF OF HSBC ELECTRONIC DATA PROCESSING INDIA PRIVATE LIMITED (HDP) AS TAXABLE IN THE HANDS OF THE APPELLANT. WITHOUT PREJUDICE TO THE ABOVE, THE LEARNED CIT(A) ERRED IN CONFIRMING THE ADDITION BY CONCLUDING THAT THE AFORESAID RECEIPT OF RS.1,41,81,052 PERTAINS TO THE IT RELATED SERVICES BEING RENDERED BY THE APPELLANT TO HDPI DURING THE YEAR (IN ADDITION TO RS.1,65,58,16 3 ALREADY OFFERED TO TAX BY THE APPELLANT AS FEES FOR TECHNICAL SERVICES FROM HDPI TOWARDS IT RELATED SERVICES) 2. THE LEARNED CIT(A) ERRED IN TREATING THE FEE FOR THE CORPORATE FINANCE AND ADVISORY SERVICES I.E. REFERRAL FEE OF RS.3,12,93,500 RECEIVED BY THE APPELLANT FROM HSBC SECURITIES AND CAPITAL (INDIA) PRIVATE LIMITED (HSCI) AS TAXABLE IN THE HANDS OF THE APPELLANT. 3. THE LEARNED CIT(A) ERRED IN TREATING THE PROTECTION FEES OF RS.1,33,36,290 RECEIVED BY THE APPELLANT FROM HSBC ASSET MANAGEMENT INDIA PRIVATE LIMITED (AMIN) AS TAXABLE IN THE HANDS OF THE APPELLANT. 4. THE LEARNED CIT(A) ERRED IN LEVYING THE CONSEQUENTIAL INTEREST UNDER SECTION 234B OF THE ACT. 3. BRIEFLY PUT, THE RELEVANT FACTS ARE THAT THE APPELLANT ASSESSEE IS A COMPANY INCOR PORATED IN THE UK AND IS ENGAGED IN THE BUSINESS OF PROVIDING BANKING AND FINANCIAL SERVICES TO INDIVIDUALS AND COMMERCIAL ORGANIZATIONS ACROSS THE WORLD. THE ASSESSEE ALSO PROVIDES SUPPORT SERVICES SUCH AS INFORMATION TECHNOLOGY (IT), RESEARCH SUPPORT, GLOBAL PRODUCT MANAGEMENT, ETC . , TO ITS GROUP ENTITIES AND , IT DOES NOT HAVE ANY OFFICE OR PLACE OF BUSINESS IN INDIA. DURING THE A SSESSMENT PROCEEDINGS, T HE ASSESSING OFFICER HELD THAT CERTAIN PAYMENTS RECEIVED , VIZ. ( A) R EIMBURSEMENT OF EXPENSES ; ( B) REFERRAL FEE ; AND , ( C) PROTECTION FEES FROM THE INDIAN ENTITY AS F EES FOR T ECHNI CAL S ERVICES UNDER THE ACT AS WELL AS UNDER PROVISIONS OF INDIA - UK DOUBLE TAXATION AVOIDANCE AGREEMENT (DTAA) . THE STAND OF THE ASSESSEE WAS THAT NONE OF THE 3 HSBC BANK PLC ITA NO. 7386/MUM/2016 PAYMENTS ARE COVERED BY THE DEFINITION OF FEES FOR TECHNICAL SERVICES AND THAT SINCE THE ASSESSEE DID NOT HAVE A PERMANENT E STABLISHMENT (PE) IN INDIA, HENCE, SUCH RECEIPTS ARE NOT TAXABLE IN INDIA . THIS IS THE PRECISE AREA OF DIFFERENCE BETWEEN THE ASSESSEE AND THE REVENUE, WHICH IS MANIFESTED IN THE GROUND S OF APPEAL ENUMERATED ABOVE. 4. GROUND OF APPEAL N O. 1 PERTAINS TO THE ACTION OF ASSESSING OFFICER AS WELL AS CIT(A) IN TREATING THE REIMBURSEMENT OF EXPENSES INCURRED BY THE ASSESSEE ON BEHALF OF HSBC ELECTRONIC DATA PROCESSING INDIA PRIVATE LIMITED (HDPI) AS TAXABLE IN THE HANDS OF THE ASSESSEE . THE ASSESSEE HAS SUBMITTED THAT THE PAYMENT RECEIVED BY IT FROM HDPI IS MERE COST REIMBURSEMENT TOWARDS PAYM ENTS MADE BY THE A SSESSEE. THE SA ME DO NOT REPRESENT THE A SSESSEES INCOME AND HAS NO NEXUS TO THE IT ENABLED SERVICES BEING PR OVIDED BY THE A SSESSEE TO HDPI. IN ORDER TO SUPPORT ITS CLAIM, THE A SSESSEE FILED SAMPLE COPIES OF THE INVOI CES RAISED BY THE A SSESSEE ON HDPIS UK BRANCH WHICH PERTAINS TO COST REIMBURSEMENTS (I.E. REIMBURSEMENT OF PAYROLL , RENT, OTHER MISCELLANEOUS EXPENSES) AND INVOICES RAISED BY THE A SSESSEE ON HDPI FOR SOCIAL SECURITY RELATED PAYMENTS OF THE SECONDED EMPLOYEE. SUCH REIMBURSEMENT OF EXPENSES HA S NO NEXUS WITH THE IT RELATED SERVICES RENDERED BY THE ASSESSEE TO HDPI , WHICH HA S BEEN TAXED IN THE HANDS OF THE A SSESSEE . 5. BEFORE US, LEARNED REPRESENTATIVE FOR THE ASSESSEE REFERRED TO THE DOCUMENTATION IN RESPECT OF REIMBURSEMENT OF EXPENSES, AND ALSO PRODUCED BEFORE US SAMPLES OF SUPPORTING EVIDENCES IN RESPECT OF EACH CLAIM OF REIMBURSEMENT OF EXPENSES. HE URGE D US TO DELETE THE DISALLOWANCE MADE BY THE LOWER AUTHORITIES BY NOTING THAT T HE REIMBURSEMENT OF EXPENSES RECEIVED BY THE ASSESSEE, PARTICULARLY ON THE FACTS OF THE CASE, CANNOT BE TREATED AS 4 HSBC BANK PLC ITA NO. 7386/MUM/2016 INCOME IN THE HANDS OF THE ASSESSEE. IN SUPPORT OF HIS CONTENTION S, THE LEARNED REPRESENTATIVE RELIED ON THE FOLLOWING JUDGMENTS : I) DIT (IT) V. A P MOLLER MAERSK AS , 392 ITR 186 (SC) II) C IT V. SIEMENS AKTIONGESELSCHAFT, 310 ITR 320 (BOM ) 6. THE LD. DR APPEARING FOR THE REVENUE , ON THE OTHER HAND, RELIE D UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMIT TED THAT THE ONUS IS ON THE ASSESSEE TO PRODUCE ALL THE EVIDENCES OF EXPENDITURE AND THAT THIS ONUS IS CLEARLY NOT DISCHARGED BY THE ASSESSEE . 7. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS AND PERUSED THE MATERIAL ON RECORD . W E ARE INCLINED TO UPHOL D THE GRIEVANCE OF THE ASSESSEE. THE REIMBURSEMENT RECEIVED BY THE ASSESSEE ARE IN RESPECT OF SPECIFIC AND ACTUAL EXPENSES INCURRED BY THE ASSESSEE AN D DO NOT INVOLVE ANY MARK - UP AND THE ASSESSEE HAS FURNISHED SUFFICIENT EVIDENCE TO DEMONSTRATE THE INCURRI NG OF SAID EXPENSES. THERE IS THUS , NO GOOD REASON TO MAKE ANY ADDITION TO THE INCOME IN RESPECT OF THE REIMBURSEMENT OF EXPENSES. THE ACTION OF THE CIT(A), AS THE LEARNED REPRESENTATIVE RIGHTLY CONTENDS, IS BASED ON PURE SURMISES AND CONJECTURES. 8. HERE, WE WOULD ALSO LIKE TO REFER TO THE JUDGMENT OF A P MOLLER MAERSK AS (SUPRA). IN THAT CASE, ISSUE RELATED TO A FOREIGN COMPANY ENGAGED IN SHIPPING BUSINESS , WHICH WAS A TAX RESIDENT OF DENMARK ; THAT IT HAD AGENTS WORKING FOR IT WHO BOOKED CARGO AND ACTED AS CLEARING AGENTS FOR THE ASSESSEE ; AND, THAT IN ORDER TO HELP ALL ITS AGENTS ACROSS THE GLOBE, THE ASSESSEE HAD SET UP AND MAINTAINED A GLOBAL TELECOMMUNICATION FACILITY CALLED MAERSK NET SYSTEM WHICH WAS A VERTICALLY INTEGRATED COMMUNICATION SYSTE M. THE AGENTS WOULD PAY FOR 5 HSBC BANK PLC ITA NO. 7386/MUM/2016 THE USAGE OF SYSTEM ON A PRO - RATA BASIS. ACCORDING TO THE ASSESSEE, IT WAS MERELY A SYSTEM OF COST SHARING AND THE PAYMENTS RECEIVED BY THE ASSESSEE FROM ITS AGENTS IN INDIA WERE IN THE NATURE OF REIMBURSEMENT OF EXPENSES. THE ASSESSING OFFICER , HOWEVER, DID NOT ACCEPT THIS CONTENTION AND HELD THAT THE AMOUNTS PAID BY THE THREE AGENTS TO THE ASSESSEE WERE IN THE NATURE OF FEES FOR TECHNICAL SERVICES LIABLE TO TAX IN INDIA UNDER ARTICLE 13(4) OF THE DOUBLE TAXATION AVOIDANCE AGREEMENT BETWEEN INDIA AND DENMARK; AND , ACCORDINGLY TAXED IT AT 20% AS PER SECTION 115A OF THE ACT. THE TRIBUNAL ACCEPTED THE PLEA OF THE ASSESSEE AND T HE HON'BLE HIGH COURT DISMISSED THE DEPARTMENT'S APPEAL HOLDING THAT THE TRIBUNAL HAD RIGHTLY OBSERVE D THAT THE MAERSK - NET - COMMUNICATION - SYSTEM WAS AN AUTOMATED SOFTWARE BASED COMMUNICATION SYSTEM WHICH DID NOT REQUIRE THE ASSESSEE TO RENDER ANY TECHNICAL SERVICES ; THAT IT WAS MERELY A COST SHARING ARRANGEMENT BETWEEN THE ASSESSEE AND ITS AGENTS TO EFFICI ENTLY CONDUCT ITS SHIPPING BUSINESS ; AND, THAT IT WAS A PART OF THE SHIPPING BUSINESS AND COULD NOT BE CAPTURED UNDER ANY OTHER PROVISIONS EXCEPT UNDER THE DTAA. THE HON'BLE HIGH COURT, DISMISSING THE APPEAL OF THE DEPARTMENT, HELD AS UNDER: '. THE FACT S THAT THE ASSESSEE HAD ITS INFORMATION TECHNOLOGY SYSTEM, THAT THE ASSESSEE HAD APPOINTED AGENTS IN VARIOUS COUNTRIES FOR BOOKING OF CARGO AND SERVICING CUSTOMERS IN THOSE COUNTRIES, PREPARING DOCUMENTATION, ETC., THROUGH THESE AGENTS, THAT FOR THE SAKE O F CONVENIENCE OF ALL THESE AGENTS, A CENTRALISED SYSTEM WAS MAINTAINED TO AVOID UNNECESSARY COST, THAT THE SYSTEM COMPRISED BOOKING AND COMMUNICATION SOFTWARE, HARDWARE AND A DATA COMMUNICATIONS NETWORK AND WAS, THUS, AN INTEGRAL PART OF THE INTERNATIONAL SHIPPING BUSINESS OF THE ASSESSEE AND RAN ON A COMBINATION OF MAINFRAME AND NON - MAINFRAME SERVERS LOCATED IN DENMARK, THAT THE EXPENDITURE INCURRED FOR RUNNING THIS BUSINESS WAS SHARED BY ALL THE AGENTS AND THAT THE SYSTEMS ENABLED THE AGENTS TO CO - ORDINAT E CARGOS AND PORTS OF CALL FOR ITS FLEET WERE FINDINGS OF FACT. ONCE THESE WERE ACCEPTED, BY NO STRETCH OF IMAGINATION, COULD THE PAYMENTS MADE BY THE AGENTS BE TREATED AS FEES FOR TECHNICAL SERVICES. 6 HSBC BANK PLC ITA NO. 7386/MUM/2016 THE PAYMENTS WERE IN THE NATURE OF REIMBURSEMENT OF COS T WHEREBY THE THREE AGENTS PAID THEIR PROPORTIONATE SHARE OF THE EXPENSES INCURRED ON THESE SAID SYSTEMS AND FOR MAINTAINING THOSE SYSTEMS. NEITHER THE ASSESSING OFFICER NOR THE COMMISSIONER (APPEALS) HAD STATED THAT THERE WAS ANY PROFIT ELEMENT EMBEDDED I N THE PAYMENTS RECEIVED BY THE ASSESSEE FROM ITS AGENTS IN INDIA. ONCE THE CHARACTER OF THE PAYMENT WAS IN THE NATURE OF REIMBURSEMENT OF THE EXPENSES, IT COULD NOT BE INCOME CHARGEABLE TO TAX. MOREOVER, FREIGHT INCOME GENERATED BY THE ASSESSEE IN THE ASSE SSMENT YEARS IN QUESTION WAS ACCEPTED AS NOT CHARGEABLE TO TAX AS IT AROSE FROM THE OPERATION OF SHIPS IN INTERNATIONAL WATERS IN TERMS OF ARTICLE 9 OF THE DTAA. ONCE THAT WAS ACCEPTED AND IT WAS ALSO FOUND THAT THE MAERSK NET SYSTEM WAS AN INTEGRAL PART O F THE SHIPPING BUSINESS WHICH WAS ALLOWED TO BE USED BY THE AGENTS OF THE ASSESSEE AS WELL IN ORDER TO ENABLE THEM TO DISCHARGE THEIR ROLE MORE EFFECTIVELY AS AGENTS, AND THE BUSINESS COULD NOT BE CONDUCTED WITHOUT IT, IT COULD NOT BE TREATED AS ANY TECHNI CAL SERVICES PROVIDED TO THE AGENTS.' 9. QUITE CLEARLY, PAYMENTS BY WAY OF REIMBURSEMENT OF EXPENSES INCURRED ON BEHALF OF THE PAYER CANNOT BE CONSTRUED AS INCOME CHARGEABLE TO TAX IN THE HANDS OF THE PAYEE, A PROPOSITION WHICH IS APPROVED BY THE HON'BLE BOMBAY HIGH COURT IN THE CASE OF SIEMENS A KTIONGESELLSCHAFT (SUPRA). IN VIEW OF THE ABOVE DISCUSSION, WE DIRECT THE ASSESSING OFFICER TO DELETE THE DISALLOWANCE OF EXPENSES SUSTAINED BY THE CIT(A) AND HOLD THAT NO PART OF REIMBURSEMENT OF EXPENSES RECEIVED BY THE ASSE SSEE ON THE FACTS OF THIS CASE BE TREATED AS INCOME OF THE ASSESSEE. THE ASSESSEE SUCCEEDS ACCORDINGLY ON THIS G ROUND OF APPEAL . 10. GROUND OF APPEAL N O. 2 PERTAINS TO THE ACTION OF ASSESSING OFFICER IN TREATING THE FEE FOR CORPORATE FINANCE AND ADVISORY SERVICES , I.E. REFERRAL FEE OF ` 3,12,93,500 / - RECEIVED BY THE ASSESSEE FROM HSBC SECURITIES AND CAPITAL (INDIA) PRIVATE LTD (HSCI) AS FEES FOR TECHNICAL SERVICES . THIS ACTION HAS ALSO BEEN AFFIRMED BY THE CIT(A). 7 HSBC BANK PLC ITA NO. 7386/MUM/2016 11. BEFORE US, THE LEARNED REPRESENTATIVE FOR THE ASSESSEE HAS EXPLAINED THAT THE ASSESSEE HAS EARNED THIS INCOME ON ACCOUNT O F REFERRING ITS CLIENT TO HSCI FOR THE POTENTIAL RENDERING OF SERVICES BY HSCI TO THE PROSPECTIVE CLIENT SO REFERRED. IN THE ACTIVITY CARRIED OUT BY THE A SSESSEE, THERE IS NO ELEMENT OF MANAGER IAL, TECHNICAL OR CONSULTANCY FUNCTION DISCHARGED BY THE A SSESSEE TO BE CONSTRUED AS FEES FOR TECHNICAL SERVICES AS CANVASSED BY THE ASSESSING OFFICER . IN SUPPORT OF I TS CONTENTION ABOUT THE ISSUE IN HAND , THE LEARNED REPRESENTATIVE RELIED ON THE FOLLOWING JUDGMENTS : I) CLSA LTD. V . ITO(IT) 2(1) [2013] 31 TAXMANN.COM 5 II) CUSHMAN & WAKEFIELD (S) PTE LTD, IN RE 305 ITR 208 (AAR) III) REAL RESOURCING LTD IN RE 322 ITR 558 (AAR) 12. THE LD. DR , ON THE OTHER HAND, RELIE D UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THIS INCOME IS IN THE NATURE OF FEES FOR TECHNICAL SERVICES AS PER THE DEFINITION PROVIDED UNDER THE ACT AND THE DTAA. 13. WE HAVE CAREFULLY CONSIDERED THE RIVAL SUBMISSIONS , PERUSED THE RELEVANT MATERIAL, INCLUDING THE ORDERS OF THE LOWER AUTHORITIES A S WELL AS THE CASE LAWS REFERRED AT THE TIME OF HEARING. DURING THE YEAR UNDER CONSIDERATION, THE A SSESSEE HAD RECEIVED A SUM OF ` 3,12,93,500 / - AS CONSIDERATION FOR INTRODUCING ABB SWITZERLAND (CLIENT OF ASSESSEE) TO HSCI. IN OTHER WORDS, HSCI HAD PAID A REFERRAL FEE TO ASSESSEE FOR INTRODUCING ABB TO HSCI. BRIEFLY, ABB SWITZERLAND WANTED TO INCREASE ITS EQUITY STAKE IN ABB LTD . INDIA THROUGH A VOLUNTARY OFFER AND HENCE NEEDED THE SERVICES OF A MERCHANT BANKER IN INDIA. AS PER S ECTION 9 OF THE ACT, INCOME EARNED BY A NON - RESIDENT IS TAXABLE IN INDIA IF, INTER - ALIA , THE NON - RESIDENT HAS A BUSINESS CONNECTION IN INDIA AND THE INCOME ARISES THROUGH OR FROM THE BUSINESS CONNECTION; OR IT IS IN THE NATURE OF ROYALTY OR FEES FOR TECHNICAL SERVICES . FACTUALLY SPEAKING , IN 8 HSBC BANK PLC ITA NO. 7386/MUM/2016 RELATION TO EARNING OF THE SA I D REFERRAL FEES, THE A SSESSEE DID NOT CARRY ANY ACTIVITY IN INDIA . 14. THE AAR IN THE CASE OF CUSHMAN & WAKEF IELD (S) PTE LTD. , IN RE (SUPRA ) WHICH WAS SUBSEQUENTLY RELIED UPON IN REAL RESOURCING LTD. (SUPRA) , IT HAS BEEN HELD THAT THE REFERRAL FEE DID NOT AMOUNT TO ' ROYALTY ' WITHIN THE MEANING OF EXPLANATION 2 TO SECTION 9(1)(VI) OF THE ACT AS THE RE WAS N O IMPARTING OF INFORMATION REGARDING COMMERCIAL KNOWLEDGE OR EXPERIENCE. CONSIDERATION FOR INFORMATION CONCERNING INDUSTRIAL, COMMERCIAL AND SCIENTIFIC EXPERIENCE COULD BE REGARDED AS ' ROYALTY ' ONLY IF IT WAS RECEIVED FOR IMPARTING KNOW - HOW AND THE LIKE. THE REFERRAL FEE RECEIVED BY THE APPLICANT FROM THE INDIAN AFFILIATE FOR INTRODUCING C USTOMERS WAS NOT ROYALTY INCOME, N OR WAS THERE ANY INT ELLECTUAL PROPERTY INVOLVED AS THERE WAS NO SHARING OF COMMERCIAL EXPERIENCE OR SKILL WITH THE INDIA N AFFILIA TE. 15. OUR COORDINATE BENCH IN THE CASE OF CLSA LTD . (SUPRA) HAS EXAMINED A SIMILAR ISSUE . IN THE SAID CASE, THE ASSESSING OFFICER HELD THAT REFERRAL FEES W AS IN THE NATURE OF FEES FOR TECHNICAL SERVICES RECEIVED BY THE ASSESSEE AND, THEREFORE, THE SAME WAS CHARGEABLE TO TAX IN INDIA. THE REVENUE THEREIN, RELIED ON S ECTION 5(2) READ WITH S ECTION 9(1) OF THE ACT TO CONTEND THAT THE SOURCE OF THE REFERRAL FEES BEING THE EXECUTION OF TRANSACTIONS IN INDIA THROUGH INDIAN ENTITY ON BEHALF OF THE REFE RRED CLIENTS, THE RIGHT TO RECEIVE THE REFERR AL FEES AROSE IN INDIA ONLY AND, THEREFORE, THE INCOME ON ACCOUNT OF THE REFERRAL FEES WAS CHARGEABLE TO TAX IN INDIA IN THE HANDS OF THE ASSESSEE AS PER THE SPECIFIC PROVISIONS CONTAINED IN S ECTION 5(2)(B) READ WITH S ECTION 9(1)(I) OF THE ACT BEING THE INCOME DEEMED TO ACCRUE OR ARISE IN INDIA. THE TRIBUNAL HELD THAT R EFERRAL FEES RECEIVED BY ASSESSEE FROM INDIAN COMPANY FOR REFERRING 9 HSBC BANK PLC ITA NO. 7386/MUM/2016 INTERNATIONAL CLIENTS COULD NOT BE TREATED AS FEES FOR TECHNICAL SERVICES UN DER S ECTION 9(1)(VII) OF THE ACT AND WOULD NOT BE TAXABLE IN INDIA . 16. IN THE PRESENT CASE AS WELL, REFERRAL FEES HA S BEEN RECEIVED BY THE A SSESSEE ON ACCOUNT OF THE REFERRAL MADE BY A SSESSEE FOR THE POTENTIAL RENDERING OF SERVICES BY HSCI TO THE PROSPECTIVE CLIENT SO REFERRED. IN THE ACTIVITY CARRIED OUT BY ASSESSEE (FOR WHICH IT HAS EARNED REFERRAL FEE FR O M HSCI) , THERE IS NO ELEMENT OF MANAGERIAL, TECHNICAL OR CONSULTANCY FUNCTION DISCHARGED BY ASSESSEE . IN FACT, T HE SE RVICES ARE NOTHING BUT CO MMERCIAL SERVICES. ACCORDINGLY, THE REFERRAL FEES RECEIVED FROM HSCI CANNOT BE CONSTRUED AS FEES FOR TECHNICAL SERVICES UNDER EXPLANATION 2 TO S ECTION 9(1)(VII) OF THE ACT AND , THEREFORE , NOT SUBJECT TO TAX UNDER S ECTION 9(1)(VII) OF THE ACT. S INCE NEIT HER S ECTION 9(1)( I ) OR S ECTION S 9(1)(VI) AND 9(1 ) (VII) OF THE ACT BRING THIS INCOME WITHIN THE SCOPE OF THE TAXING PROVISIONS, THE REFERRAL FEES RECEIVED BY THE ASSESSEE FROM HSCI CANNOT BE DEEMED TO ACCRUE OR ARISE IN IND I A UNDER S ECTION 9 OF THE ACT. HE NCE, SUCH INCOME IS NOT TAXAB LE WITHIN THE PROVISIONS OF THE DTAA IN LIGHT OF THE INTERPRETATION GIVEN AS PER MEMORANDUM OF UNDERSTANDING CONCERNING FEES FOR TECHNICAL SERVICES IN ARTICLE 12 OF INDIA - USA DTAA. IN VIEW OF THE ABOVE DISCUSSION, WE DIRECT THE ASSESSING OFFICER TO DELETE THE SAID ADDITION SUSTAINED BY THE CIT(A) , AND ASSESSEE SUCCEEDS ON THIS G ROUND OF APPEAL. 17. GROUND OF APPEAL N O. 3 RELATES TO PROTECTION FEE AMOUNTING TO ` 1,33,36,290 / - RECEIVED FROM HSBC ASSET MANAGEMENT INDIA PVT LTD (AMIN) AS FEES FOR TECHNICAL SERVICES . 18. BEF O RE U S, LEARNED REPRESENTATIVE F O R T H E ASSE S SEE H AS EXPLAINED THAT 10 HSBC BANK PLC ITA NO. 7386/MUM/2016 AMIN PROVIDES PORTFOLIO MANAGEMENT AND OTHER SERVICES TO ITS CLIENTS. THE SERVICES BY AMIN TO ITS CUSTOMERS AIM TO PROVIDE PERSONALIZED PORTFOLIO MANAGEMENT SERVICES TO SELECT CLIENTELE DEPENDING ON THE INVESTORS RISK APPETITE, GROWTH EXPECTATIONS AND PERSONAL INVESTMENT REQUIREMENTS. IN AUGUST 2007, AMIN LAUNCHED A CLOSE - E NDED CAPITAL GUARANTEED PRODUCT IN INDIA FROM HSBC. IN CONNECTION WITH THIS, AMIN APPOINTED THE A SSESSEE TO PROVIDE SERVICES RELATING TO PROVISION, MAINTENANCE, CALCULATION AND PUBLICATION OF THE DYNAMIC PORTFOLIO METHODOLOGY ON EACH VALUATION DAY. IN SUPP ORT OF ITS CONTENTION ABOUT THE ISSUE IN HAND , THE LEARNED REPRESENTATIVE RELIED ON THE FOLLOWING JUDGMENTS : I) CIT V. DE BEERS INDIA MINERAL PVT . LTD . (2012) 21 TAXMANN.COM 214 (KAR . ) II) DDIT V. BAJAJ ALLIANZ GENERAL INSURANCE CO LTD (2015) 55 TAXMANN.COM 305 19. THE LD. DR , ON THE OTHER HAND, RELIE D UPON THE ORDERS OF THE AUTHORITIES BELOW AND SUBMITTED THAT THIS INCOME IS IN THE NATURE OF FEES FOR TECHNICAL SERVICES AS PER THE DEFINITION PROVIDED UNDER THE ACT AND THE DTAA. 20. WE HAVE CA REFULLY CONSIDERED THE RIVAL SUBMISSIONS, PERUSED THE RELEVANT MATERIAL, INCLUDING THE ORDERS OF THE AUTHORITIES BELOW AS WELL AS THE CASE LAWS REFERRED AT THE TIME OF HEARING. DURING THE YEAR UNDER CONSIDERATION, THE A SSESSEE HAD RECEIVED A SUM OF ` 3,12,93,500 / - AS CONSIDERATION FOR PROVIDING SERVICES, AS A PROTECTION FEE FOR GU ARANTEED PORTFOLIO PERFORMANCE. FROM THE DISCUSSION IN THE ORDERS OF THE LOWER AUTHORITIES, THE MATERIAL ON RECORD AND THE EXPLANATIONS OF THE LEARNED REPRESENTATIVE, IT IS N OTED THAT AMIN PROVIDES PORTFOLIO MANAGEMENT AND OTHER SERVICES TO ITS CLIENTS IN CONNECTION WITH THE HSBC CAPITAL GUARD PORTFOLIO, A SCHEME, WHICH TARGETS TO PROVIDE PRINCIPAL PROTECTION TO THE 11 HSBC BANK PLC ITA NO. 7386/MUM/2016 INVESTORS THROUGH, INTER - ALIA , A DYNAMIC PORTFOLIO METHODOLOG Y WITH CALCULATED EXPOSURE TO PERFORMANCE ASSETS, SAFE ASSETS AND EXIT ASSETS. THE SCHEME SEEKS TO GENERATE CAPITAL APPRECIATION BY INVESTING IN EQUITY/EQUITY RELATED SECURITIES WHILE ENDEAVOURING TO PROTECT THE DOWNSIDE BY INVESTING IN DEBT/MONEY MARKET I NSTRUMENTS/FUNDS. IN ORDER TO ACHIEVE THIS OBJECTIVE, THE EXPOSURE TO DEBT IS DYNAMICALLY REBALANCED IN AN ATTEMPT TO PROVIDE DOWNSIDE PROTECTION WHILE AT THE SAME TIME MAXIM I ZING THE EQUITY EXPOSURE WITHIN A DEFINED PROTECTION LEVEL. IN CONNECTION WITH T HE ABOVE SCHEME, AMIN HAD APPOINTED THE A SSESSEE TO PROVIDE SERVICES RELATING TO PROVISION, MAINTENANCE, CALCULATION AND PUBLICATION OF THE DYNAMIC PORTFOLIO METHODOLOGY ON EACH VALUATION DAY. BASED ON THE DATA AND INFORMATION PROVIDED BY AMIN, A SSESSEE C REATES A MODEL PORTFOLIO USING THE DYNAMIC PORTFOLIO METHODOLOGY AND COMPUTES THE VALUE OF THE PERFORMANCE ASSET, THE SAFE ASSET AND THE EXIT ASSET ON THE VALUATION DAY. FURTHER, THE A SSESSEE PROVIDES REBALANCING DATA (ASSUMING THE NOTIONAL AMOUNT OF SECU RITI ES THAT CAN BE BOUGHT AND SOLD) WHICH COULD BE USED BY AMIN FOR MANA GING THE SCHEME BASED ON THE DY NAMIC PORTFOLIO METHODOLOGY. IT IS NOT POSSIBLE FOR AMIN TO INDEPENDENTLY APPLY THE METHODOLOGY USED BY THE A SSESSEE FOR PROVIDING THE AFORESAID SERVICE S. ADDITIONALLY, THE A SSESSEE COULD BE LIABLE TO PAY AMIN AN AMOUNT EQUAL TO THE GAP RISK (AS DEFINED IN THE AGREEMENT) IF AT ANY TIME BEFORE THE FINAL VALUATION DAY, THE SYNTHETIC PORTFOL I O LEVEL IS LESS THAN THE REFERENCE LEVEL. 21. IN THIS CONTEXT, WE THINK IT APPROPRIATE TO REFER TO THE DECISION RENDERED IN THE CASE OF DE BEERS INDIA MINERALS PVT . LTD . (SUPRA) . IN THE SAID CASE, THE DUTCH COMPANY PERFORMED SERV I CES USING TECHNICAL KNOWLE D GE AND EXPERTISE AND IT HAD GIVEN DATA, PHOTOGRAPHS AND MAPS TO ASSESSEE BUT THEY DID NOT MA K E AVAILABLE TECHNICAL EXPERTISE, SKILL OR KNOWLEDGE IN RESPECT OF COLLECTION 12 HSBC BANK PLC ITA NO. 7386/MUM/2016 OR PROCESSING OF DATA TO ASSESSEE, WHICH ASSESSEE COULD APPLY INDEPENDENTLY WITHOUT AS SISTANCE AND UNDERTAKE SUCH SURVEY INDEPENDENTLY TO THE EXCLUSION OF DUTCH COMPANY IN FUTURE . THE HON'BLE HIGH COURT HELD THAT PAYMENT MADE FOR SERVICES IN QUESTION COULD NOT BE TERMED AS FEES FOR TECHNICAL SERVICES . IN FACT, THE HON'BLE KARNATAKA HIGH COURT IN THE CASE OF DE BEER INDIA MINERALS PVT . LTD . (SUPRA) HAS SUCCINCTLY ADUMBRATED THE POSITION IN THE FOLLOWING DISCUSSION : - 22. WHAT IS THE MEANING OF 'MAKE AVAILABLE'. THE TECHNICAL OR CONSULTANCY SERVICE RENDERED SHOULD BE OF SUCH A NATURE THAT IT 'MAKES AVAILABLE' TO THE RECIPIENT TECHNICAL KNOWLEDGE, KNOW - HOW AND THE LIKE. THE SERVICE SHOULD BE AIMED AT AND RESULT IN TRANSMITTING TECHNICAL KNOWLEDGE, ETC., SO THAT THE PAYER OF THE SERVICE COULD DERIVE AN ENDURING BENEFIT AND UTILIZE THE KN OWLEDGE OR KNOW - HOW ON HIS OWN IN FUTURE WITHOUT THE AID OF THE SERVICE PROVIDER. IN OTHER WORDS, TO FIT INTO THE TERMINOLOGY 'MAKING AVAILABLE', THE TECHNICAL KNOWLEDGE, SKILL?, ETC., MUST REMAIN WITH THE PERSON RECEIVING THE SERVICES EVEN AFTER THE PARTI CULAR CONTRACT COMES TO AN END. IT IS NOT ENOUGH THAT THE SERVICES OFFERED ARE THE PRODUCT OF INTENSE TECHNOLOGICAL EFFORT AND A LOT OF TECHNICAL KNOWLEDGE AND EXPERIENCE OF THE SERVICE PROVIDER HAVE GONE INTO IT. THE TECHNICAL KNOWLEDGE OR SKILLS OF THE P ROVIDER SHOULD BE IMPARTED TO AND ABSORBED BY THE RECEIVER SO THAT THE RECEIVER CAN DEPLOY SIMILAR TECHNOLOGY OR TECHNIQUES IN THE FUTURE WITHOUT DEPENDING UPON THE PROVIDER. TECHNOLOGY WILL BE CONSIDERED 'MADE AVAILABLE' WHEN THE PERSON ACQUIRING THE SERV ICE IS ENABLED TO APPLY THE TECHNOLOGY. THE FACT THAT THE PROVISION OF THE SERVICE THAT MAY REQUIRE TECHNICAL KNOWLEDGE, SKILLS, ETC., DOES NOT MEAN THAT TECHNOLOGY IS MADE AVAILABLE TO THE PERSON PURCHASING THE SERVICE, WITHIN THE MEANING OF PARAGRAPH (4) (B). SIMILARLY, THE USE OF A PRODUCT WHICH EMBODIES TECHNOLOGY SHALL NOT PER SE BE CONSIDERED TO MAKE THE TECHNOLOGY AVAILABLE. IN OTHER WORDS, PAYMENT OF CONSIDERATION WOULD BE REGARDED AS 'FEE FOR TECHNICAL/INCLUDED SERVICES' ONLY IF THE TWIN TEST OF REN DERING SERVICES AND MAKING TECHNICAL KNOWLEDGE AVAILABLE AT THE SAME TIME IS SATISFIED. 2 2. IN LIGHT OF THE ABOVE LEGAL POSITION , WE FIND THAT SERVICES PROVIDED BY THE A SSESSEE DO NOT MAKE AVAILABLE ANY TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL 13 HSBC BANK PLC ITA NO. 7386/MUM/2016 KNOW - HOW OR PROCESSES TO AMIN WITHIN THE MEANING OF ARTICLE 13 OF THE DTAA . ACCORDINGLY, THE SAME WOULD NOT QUALIFY AS FEES FOR TECHNICAL SERVICES UNDER ARTICLE 13 OF THE DTAA . FURTHER, GIVEN THAT THE SERVICES HAVE BEEN PROVIDED BY THE A SSESSEE IN CONNE CTION WITH THE BUSINESS CARRIED ON BY THE A SSESSEE IN UK, THE SAME ARE TO BE TREATED IN THE NATURE OF BUSINESS PROFITS. IN THIS REGARD, ARTICLE 7 OF THE DTAA PROVIDES THAT BUSINESS PROFITS EARNED BY AN ENTERPRISE OF UK ARE TAXABLE IN INDIA, ONLY IF SUCH EN TERPRISE HAS A PE IN INDIA AS DEFINED IN ARTICLE 5 O F THE DTAA . IN THE PRESENT CASE, SINCE THE A SSESSEE DOES NOT HAVE A PE IN LNDIA, THE PROTECTION FEE RECEIVED BY THE A SSESSEE FROM AMIN IS NOT TAXABLE IN INDIA AS PER THE PROVISIONS OF ARTICLE 7 OF THE DTA A. HENCE, WE DIRECT THE ASSESSING OFFICER TO DELETE THE SAID ADDITION AS SUSTAINED BY THE CIT(A). A CCORDINGLY , ON THIS G ROUND OF APPEAL ALSO, ASSESSEE SUCCEEDS . 2 3. INSOFAR AS GROUND OF APPEAL NO. 4 IS CONCERNED, IT RELATES TO CHARGING OF INTEREST UNDER SECTION 234B OF THE ACT WHICH IS CONSEQUENTIAL IN NATURE AND DOES NOT REQUIRE ANY SPECIFIC ADJUDICATION. 2 4. I N THE RESUL T , T H E A PP EAL OF T H E ASSESSEE IS ALL O WE D , AS A B OVE. ORDER PRONOUNCED IN THE OPEN COURT ON 1 6 T H JULY, 2019. SD/ - SD/ - ( RAM LAL NEGI ) JUDICIAL MEMBER (G.S. PANNU) VICE PRESIDENT MUMBAI, DATE : 1 6 T H JULY, 201 9 *SSL* 14 HSBC BANK PLC ITA NO. 7386/MUM/2016 COPY TO : 1) THE APPELLANT 2) THE RESPONDENT 3) THE CIT(A) CONCERNED 4) THE CIT CONCERNED 5) THE D.R, I BENCH, MUMBAI 6) GUARD FILE BY ORDER DY./ASSTT. REGISTRAR I.T.A.T, MUMBAI