Ershisanye Construction Group India Pvt. Ltd., Kolkata V. DCIT, CIR-11(1), KOLKATA, Kolkata

ITA 756/KOL/2015

• Counselvise Citation: [2017] 128 COUNSELVISE.COM (IT) 1853 (ITAT-KOLKATA)
• Duration Of Justice: 1 year(s) 10 month(s) 15 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 12-04-2017
• Appeal Filed By: Assessee
• Bench Allotted: C
• Next Hearing Date: 24-08-2016
• Assessment Year: 2010-2011
• Appeal Filed On: 28-05-2015
• Court: TRIBUNAL
• Department Lawyers: G MALLIKARJUNA
• Assessee Lawyers: PRITAM CHOWDHURY
• Keywords: Double taxation relief; Retrospective amendment; Permanent establishment

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL C, BENC H KOLKATA BEFORE SHRI N.V.VASUDEVAN, JM & DR. A.L.SAINI, AM ./ ITA NO.756/KOL/2015 ( / ASSESSMENT YEAR:2010-2011) ERSHISANYE CONSTRUCTION GROUP INDIA PRIVATE LIMITED, ROOM NO.734, 7 TH FLOOR, 33/1, NETAJI SUBHAS ROAD, KOLKATA-700001 VS. DCIT, CIRCLE-11(1), AAYAKAR BHAWAN, P-7, CHOWRINGHEE SQUARE, KOLKATA-700069 ./ ./PAN/GIR NO.: AACCE 0687 Q ( /APPELLANT ) .. ( / RESPONDENT ) ASSESSEE BY : SHRI PRITAM CHOWDHURY, CA REVENUE BY : SHRI G.MALLIKARJUNA, CIT DR / DATE OF HEARING : 08/03/2017 /DATE OF PRONOUNCEMENT 12/04/2017 / O R D E R PER DR. ARJUN LAL SAINI, AM: THE CAPTIONED APPEAL FILED BY THE ASSESSEE, PERTAIN ING TO ASSESSMENT YEAR 2010-11, IS DIRECTED AGAINST THE FAIR ORDER OF ASSESSMENT DATED 26.5.2015 PASSED BY THE DEPUTY COMMISSIONER OF INCOME-TAX, CI RCLE 11(1), KOLKATA U/S.144C(13) READ WITH SEC.143(3) OF THE INCOME TAX ACT, 1961, (HEREINAFTER REFERRED TO AS THE ACT), WHICH INCORPORATES THE DIRECTIONS OF THE DISPUTE RESOLUTION PANEL (DRP), KOLKATA, DATED 30.12.2014. 2. THE ASSESSEE IS A COMPANY. IT WAS INCORPORATE D ON 3.10.2008 UNDER THE COMPANIES ACT, 1956 FOR THE PURPOSE OF CARRYING ON CONSTRUCTION OF INTEGRATED STEEL PLANT. THE ASSESSEE IS A WHOLLY OWNED SUBSID IARY OF ERSHISHANYE CONSTRUCTION GROUP CO. LTD. (ECGCL), WHICH IS A COM PANY INCORPORATED UNDER THE LAWS OF CHINA AND A TAX RESIDENT OF PEOPLES RE PUBLIC OF CHINA. ECGCL ENTERED INTO AN AGREEMENTS DATED 1ST JULY, 2008, & 28.7.2008 WITH ELECTROSTEEL INTEGRATED LIMITED WITH RESPECT TO ONSHORE SERVICES AND CONSTRUCTION CONTRACT FOR CONSTRUCTION OF AN INTEGRATED STEEL PLANT PROJECT, AT BOKARO, JHARKHAND. BY TRIPARTITE AGREEMENTS ALL DATED 31.10.2008 BETWEEN THE ASSESSEE, ECGCL AND ELECTROSTEEL INTEGRATED LTD., IT WAS AGREED THAT TH E ONSHORE SERVICES AND CONSTRUCTION CONTRACT WOULD BE CARRIED OUT IN INDIA BY THE ASSESSEE INSTEAD OF ECGCL. ITA NO.756/15 ERSHISANYE CONSTRUCTION GROUP INDIA PVT. LTD. 2 3. FOR THE PURPOSE OF STEEL PLANTS, THE ASSESSEE W ANTED TO USE SERVICES OF ENGINEERS FROM CHINA. THE CHINESE ENGINEERS HAD TO BE TRAINED IN ENGLISH LANGUAGE, SAFETY STANDARDS WHICH IS TO BE FOLLOWED BY STEEL PLANTS IN INDIA AS PER INDIAN LAW AND TO ATTEND VISA INTERVIEW. HUNAN PROVINCE OVERSEAS WORKING TRAINING CENTRE (HEREINAFTER REFERRED TO AS HUNAN ), AN ENTITY IN CHINA IS ENGAGED IN PROVIDING SERVICES WITH REGARD TO TRAINI NG FOR THE PURPOSE OF COMMUNICATING IN ENGLISH LANGUAGE, SAFETY STANDARDS TO BE FOLLOWED FOR CONSTRUCTION OF STEEL PLANT, ANSWERING QUESTIONS TH AT MAY BE ASKED BEFORE ISSUE OF VISA BY OTHER COUNTRIES. THE ASSESSEE ENGAGED T HE SERVICES OF HUNAN FOR THE PURPOSE OF TRAINING ENGINEERS IN CHINA CONVERSA NT IN THE SETTING UP OF STEEL PLANTS. AN AGREEMENT DATED 12.10.2008 WAS ENTERED INTO BETWEEN THE ASSESSEE AND HUNAN. THE NATURE OF SERVICES TO BE R ENDERED BY HUNAN UNDER THE AFORESAID AGREEMENT IS SET OUT IN SCHEDULE 1 TO THE SAID AGREEMENT WHICH IS AS FOLLOWS: SCHEDULE 1 TO AGREEMENT DATED 12 TH OCTOBER, 2008 1. THE SECOND PARTY SHALL TRAIN THE PERSONS ENGLISH LANGUAGE TO FACILITATE COMMUNICATION IN INDIA. 2. THE SECOND PARTY SHALL TRAIN THE PERSONS INDIA S AFETY RULES REQUIRED TO BE FOLLOWED FOR WORKING IN INDIA IN CON STRUCTION OF STEEL PLANT. 3. THE SECOND PARTY SHALL PROVIDE THE PERSONS BROAD SPECIFICATION REQUIREMENTS AND WORK OPERATING ESSENTIALS AS PER T HE INDIAN STANDARDS FOR WORKING IN INDIA IN CONSTRUCTION OF S TEEL PLANT. 4. THE SECOND PARTY SHALL TRAIN THE PERSONS TO APPE AR FOR VISA INTERVIEW AND CARRY OUT MOCK VISA INTERVIEW. 5. THE SECOND PARTY SHALL ON COMPLETION OF THE TRAI NING CONDUCT TESTS AND ISSUE TRAINING CERTIFICATE TO QUALIFYING PERSONS AS PER LOCAL LAWS OF CHINA FOR EMPLOYMENT VISA. THE CONSIDERATION FOR RENDERING OF THE AFORESAID SE RVICES PAYABLE TO HUNAN OF RS.4,20,09,163/- WAS PAID BY ECGCL. THERE WAS AN A GREEMENT BETWEEN THE ASSESSEE AND ECGCL DATED 10.5.2009 WHEREBY ECGCL AG REED TO MAKE PAYMENT OF CERTAIN EXPENSES OF THE ASSESSEE WHICH T HE ASSESSEE AGREED TO REIMBURSE ECGCL. IT IS NOT IN DISPUTE THAT THE CON SIDERATION PAYABLE TO HUNAN WAS PAID BY ECGCL AND THE ASSESSEE IN TURN PAID ECG CL THE SUMS ECGCL HAD PAID TO HUNAN. ITA NO.756/15 ERSHISANYE CONSTRUCTION GROUP INDIA PVT. LTD. 3 4. APART FROM THE ABOVE, THE ASSESSEE UNDER AN AGR EEMENT DATED 24.06.2009 ENGAGED THE SERVICES OF HUNAN JUNWEI LAW FIRM (HERE INAFTER REFERRED TO AS HUNAN LAW), AN ENTITY IN CHINA HAVING ITS REGISTE RED OFFICE AT 75 WUYI ROAD, CHANGSHA CITY, HUNAN, CHINA. THE PURPOSE OF THIS AG REEMENT WAS TO ENSURE THAT THE ONSHORE CONSTRUCTION CONTRACT BETWEEN THE ASSESSEE AND M/S.ELECTROSTEEL INTEGRATED LTD., IS PERFORMED IN A CCORDANCE WITH THE LAWS OF INDIA. THE NATURE OF SERVICES TO BE RENDERED BY HU NAN LAW AS PER THIS AGREEMENT IS AS FOLLOWS :- 1. PARTY B'S SERVICE SCOPE 1.1 LEGALLY ADVISE AND DESIGN FOR PARTY'S DECISIVE ISSUE ABOUT PRODUCTION, MANAGEMENT AND OPERATION AND MAKE LEGAL LY FEASIBLE STUDY. 1.2 PROVIDE LEGAL GUIDANCE TO PARTY A FOR INCORPOR ATING COMPANY IN INDIA. 1.3 GUIDE AND TRAIN INDIA LABOR LAWS AND POLICES. 1.4 GUIDE AND TRAIN INDIA TAX LAWS AND POLICES. 1.5 ASSIST IN PARTY A TO MAKE OUT INTERNAL MANAGEM ENT RULES ARID STANDARDIZE PARTY A'S INTERNAL ORGANIZATION AND MAN AGEMENT. 1.6 ASSIST IN PARTY A TO MANAGE ECONOMY CONTRACT A ND OTHER CONTRACTS AND ALSO SUPERVISE THE PERFORMANCE AND EX ECUTION. 1.7 PROVIDE LAW TRAINING TO PARTY A'S STAFF TO POR TEND LAW RISK. 1.8 ISSUE THE LAWYER'S LETTER TO CONCERNING COMPAN Y OR INDIVIDUAL AS TO PROTECT PARTY A'S LEGITIMATE RIGHTS AND INTEREST S. 1.9 OTHER LEGAL SERVICE REQUIRED BY PARTY A. 2. LEGAL SERVICE COMMISSIONED BY PARTY B 2.1 AS DEFENDER OR ATTORNEY IN CONCERNING CRIMINAL PROCEEDINGS. 2.2 AS ATTORNEY IN CIVIL, ECONOMIC, ADMINISTRATIVE PROCEEDINGS OR ARBITRATION PROCEEDING INVOLVED BY PARTY A. 5. THE CONSIDERATION FOR RENDERING OF THE AFORESAI D SERVICES PAYABLE TO HUNAN LAW OF RS.14,00,000/- WAS PAID BY ECGCL AS PER THE AGREEMENT BETWEEN THE ASSESSEE AND ECGCL DATED 10.5.2009 WHEREBY ECGCL AG REED TO MAKE PAYMENT OF CERTAIN EXPENSES OF THE ASSESSEE WHICH T HE ASSESSEE AGREED TO REIMBURSE ECGCL. IT IS NOT IN DISPUTE THAT THE CON SIDERATION PAYABLE TO HUNAN LAW WAS PAID BY ECGCL AND THE ASSESSEE IN TURN PAID ECGCL THE SUMS ECGCL HAD PAID TO HUNAN LAW. ITA NO.756/15 ERSHISANYE CONSTRUCTION GROUP INDIA PVT. LTD. 4 6. THE ASSESSEE DID NOT DEDUCT TAX AT SOURCE AT TH E TIME OF MAKING PAYMENT OF THE AFORESAID SUMS TO ECGCL. THE QUESTION BEFORE T HE AO WAS AS TO WHETHER THERE WAS AN OBLIGATION TO DEDUCT TAX AT SOURCE AT THE TIME OF MAKING PAYMENT BY THE ASSESSEE TO ECGCL AND CONSEQUENTLY, THE SAID AMOUNT COULD NOT BE ALLOWED AS A DEDUCTION IN COMPUTING INCOME FROM BU SINESS, FOR THE FAILURE OF THE ASSESSEE TO DEDUCT TAX AT SOURCE BY INVOKING TH E PROVISIONS OF SEC.40(A)(I) OF THE ACT. SEC.40(A)(I) OF THE ACT WHICH READS THUS: 40. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN SECTIO NS 30 TO 38, THE FOLLOWING AMOUNTS SHALL NOT BE DEDUCTED IN COMPUTIN G THE INCOME CHARGEABLE UNDER THE HEAD 'PROFITS AND GAINS OF BUS INESS OR PROFESSION', ( A) IN THE CASE OF ANY ASSESSEE ( I) ANY INTEREST (NOT BEING INTEREST ON A LOAN I SSUED FOR PUBLIC SUBSCRIPTION BEFORE THE 1ST DAY OF APRIL, 1938), RO YALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUM CHARGEABLE UNDER TH IS ACT, WHICH IS PAYABLE, (A) OUTSIDE INDIA; OR (B) IN INDIA TO A NON-RESIDENT, NOT BEING A C OMPANY OR TO A FOREIGN COMPANY, ON WHICH TAX IS DEDUCTIBLE AT SOURCE UNDER CHAPTER XVII-B AND SUCH TAX HAS NOT BEEN DEDUCTED OR, AFTER DEDUCTION, HAS NOT BEEN PAID DURING THE PREVIOUS YEAR, OR IN THE SUBSEQUENT YEAR BEFORE THE EXPIRY OF THE TIME PRESCRIBED UNDER SUB-SECTION (1) OF SEC TION 200: 7. IT CAN BE SEEN FROM THE AFORESAID PROVISIONS TH AT THE SAID PROVISION IS ATTRACTED WHEN THE PAYMENT MADE BY ANY PERSON TOWAR DS INTEREST, ROYALTY, FEES FOR TECHNICAL SERVICES OR OTHER SUM IS CHARGEABLE UNDER THIS ACT, WHICH IS PAYABLE OUTSIDE INDIA ON WHICH TAX IS REQUIRED TO B E DEDUCTED AT THE TIME OF PAYMENT UNDER CHAPTER XVIIB OF THE ACT. BOTH THE A O AND THE DRP HELD THAT THE PAYMENTS IN QUESTION WAS IN THE NATURE OF FEES FOR TECHNICAL SERVICES (FTS) AND THEREFORE THE ASSESSEE WAS UNDER AN OBLIG ATION TO DEDUCT TAX AT SOURCE AND SINCE, THE ASSESSEE FAILED TO DEDUCT TAX AT SOURCE THE SUMS IN QUESTION COULD NOT BE ALLOWED AS DEDUCTION IN COMPU TING INCOME FROM BUSINESS AS PROVIDED UNDER THE PROVISIONS OF SEC.4 0(A)(I) OF THE ACT. THE DIRECTIONS OF THE DRP IN THIS REGARD WERE INCORPORA TED BY THE AO IN HIS FAIR ORDER OF ASSESSMENT WHEREIN THE AFORESAID AMOUNTS WERE DI SALLOWED AND ADDED TO THE TOTAL INCOME OF THE ASSESSEE. AGGRIEVED BY THE AFO RESAID ADDITIONS MADE IN THE ITA NO.756/15 ERSHISANYE CONSTRUCTION GROUP INDIA PVT. LTD. 5 FAIR ORDER OF ASSESSMENT BY THE AO, THE ASSESSEE HA S PREFERRED THE PRESENT APPEAL BEFORE THE TRIBUNAL. 8. BEFORE PROCEEDING TO DISCUSS THE CONTENTIONS PU T FORTH BY THE ASSESSEE BEFORE US, IT IS NECESSARY TO NOTICE THAT THE OBLIG ATION TO DEDUCT TAX AT SOURCE ON THE PART OF THE ASSESSEE WILL ARISE ONLY IF THE PAY MENT IN QUESTION IS CONSIDERED AS A PAYMENT MADE BY THE ASSESSEE TO HUNAN AND HUNA N LAW AND NOT AS A MERE REIMBURSEMENT BY THE ASSESSEE TO ECGCL. FURTH ER THE SUMS PAID TO HUNAN AND HUNAN LAW SHOULD BE CHARGEABLE TO TAX IN THE HANDS OF HUNAN AND HUNAN LAW RESPECTIVELY IN INDIA UNDER THE ACT. SIN CE HUNAN AND HUNAN LAW ARE NON-RESIDENTS IN INDIA AND TAX RESIDENTS OF THE PEOPLES REPUBLIC OF CHINA, THE SUMS IN QUESTION WILL BE CHARGEABLE TO TAX IN T HEIR HANDS IN INDIA ONLY IF THE SUMS ARE CONSIDERED AS PAYMENT MADE TOWARDS FTS UND ER THE INDIA-CHINA DTAA. THEREFORE THE MAIN ISSUE TO BE DECIDED IN T HIS APPEAL WILL BE AS TO WHETHER THE PAYMENTS MADE BY THE ASSESSEE TO HUNAN AND HUNAN LAW THROUGH ECGCL WOULD CONSTITUTE FTS WITHIN THE MEANING OF TH E INDIA CHINA DTAA. WE WILL NOW DEAL WITH THE GROUNDS OF APPEAL AND THE AR GUMENTS ADVANCED BEFORE US. 9. THE GROUNDS OF APPEAL RAISED BY THE ASSESSEE BE FORE THE TRIBUNAL READS THUS: 1. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE , THE LEARNED DISPUTE RESOLUTION PANEL AND THE LEARNED ASSESSING OFFICER ERRED IN DISALLOWING REIMBURSEMENT OF EMPLOYEE TRAINING E XPENSES OF RS.42,009,163/- UNDER SECTION 40(A)(IA) OF THE ACT, WITHOUT CONSIDERING THE FACT THAT THE SAME IS ALLOWABLE AS PER THE ACT AND THE INDIA-CHINA DOUBLE TAXATION AVOIDANCE AGREEMENT . 2. THAT ON THE FACTS AND CIRCUMSTANCES OF THE CASE, THE LEARNED DISPUTE RESOLUTION PANEL AND THE LEARNED AS SESSING OFFICER ERRED IN LAW IN DISALLOWING REIMBURSEMENT O F LEGAL & CONSULTANCY EXPENSES OF RS.1,400,000/- UNDER SECTIO N 40(A)(IA) OF THE ACT, WITHOUT CONSIDERING THE FACT THAT THE SAME IS ALLOWABLE AS PER THE ACT AND THE INDIA-CHINA DOUBLE TAXATION AVO IDANCE AGREEMENT. 3. THAT THE APPELLANT CRAVES LEAVE TO ADD, ALTER AN D AMEND THE GROUNDS OF APPEAL DURING THE COURSE OF HEARING. ITA NO.756/15 ERSHISANYE CONSTRUCTION GROUP INDIA PVT. LTD. 6 10. WE SHALL FIRST TAKE UP FOR CONSIDERATION GR.NO .1 WITH REGARD TO PAYMENT MADE TO HUNAN. THE ISSUES THAT NEED TO BE ANALYZED WITH REGARD TO THE AFORESAID GROUND OF APPEAL ARE AS FOLLOWS:- I) WHETHER THE PAYMENT BY ASSESSEE TO ECGCL HOLDING COMPANY IN CHINA IS PURELY REIMBURSEMENT WHICH DO NOT ATTRA CT TDS PROVISIONS? II) WHETHER THE PAYMENT IN QUESTION CONSTITUTES FTS OR BUSINESS PROFIT IN THE HANDS OF HUNAN? IF IT IS HELD TO BE N OT FTS AND WAS IN THE NATURE OF BUSINESS PROFIT THEN THERE IS NO T DS OBLIGATION BECAUSE HUNAN, ADMITTEDLY DOES NOT HAVE PERMANENT ESTABLISHMENT (PE) IN INDIA AND AS PER ARTICLE 7(1) OF INDIA CHINA DTA, THE BUSINESS PROFIT IS TAXABLE IN THE OTHER ST ATE ONLY IF THE ENTERPRISE OF CONTRACTING STATE CARRIES ON BUSINESS THROUGH PE IN INDIA. III) WHETHER, AS PER INDIA- CHINA DTA, THE FEES FOR TECHNICAL SERVICES (FTS) CAN BE CHARGED TO TAX IN INDIA, ONLY IF THE SERVICES ARE RENDERED IN INDIA. IV) WHAT IS THE EFFECT OF AMENDMENT TO SECTION 9 (1)(VII) BY THE FINANCE ACT 2010 WITH RETROSPECTIVE EFFECT FROM 1 ST JUNE, 1976 IN THE CONTEX OF SECTION 40(A)(IA) OF THE ACT. 11. SO FAR AS ISSUE NO.( I) IS CONCERNED, THE PAYME NT IN QUESTION CANNOT BE REGARDED AS PURELY REIMBURSEMENT OF EXPENSES INCURR ED BY ECGCL FOR AND ON BEHALF OF THE ASSESSEE SO AS TO TAKE THE PAYMENT IN QUESTION OUT OF THE RIGORS OF THE PROVISIONS OF SEC.40(A)(I) OF THE ACT. THE U NDISPUTED FACTS ARE THAT THE TRAINING OF ENGINEERS IN CHINA WAS DONE BY HUNAN FO R AND BEHALF OF THE ASSESSEE AND FOR THE SPECIFIC PURPOSE OF EXECUTION OF THE ONSHORE SERVICES AND CONSTRUCTION OF STEEL PLANT IN INDIA. THE ASSESSEE WAS BOUND TO MAKE PAYMENT FOR SUCH SERVICES TO HUNAN. THE FACT THAT ECGCL MA DE PAYMENT ONE BEHALF OF THE ASSESSEE WHICH WAS SUBSEQUENTLY REPAID BY THE A SSESSEE TO ECGCL WILL NOT MAKE THE PAYMENT IN QUESTION AS PURE REIMBURSEM ENT WHICH DID NOT INVOLVE ANY ELEMENT OF INCOME IN THE HANDS OF THE RECIPIENT . IN FACT ON IDENTICAL FACTS THE MUMBAI L BENCH OF THE TRIBUNAL IN THE CASE OF C.U .INSPECTIONS (I) PVT. LTD. VS. ITA NO.756/15 ERSHISANYE CONSTRUCTION GROUP INDIA PVT. LTD. 7 DCIT ITA NO. 577/MUM/2011 ORDER DATED 6.3.2013 HELD THAT IF THE INDIAN SUBSIDIARY COMPANY INCURS EXPENSES OR MAKES PURCHAS ES OR AVAILS ANY SERVICE FROM SOME THIRD PARTY ABROAD AND THE PAYMENT TO SUC H THIRD PARTY IS ROUTED THROUGH ITS HOLDING OR RELATED COMPANY ABROAD, THE PROVISION FOR DEDUCTION OF TAX AT SOURCE APPLY AS IF THE ASSESSEE HAS MADE THE PAY MENT TO SUCH INDEPENDENT PARTY DE HORS THE ROUTING OF PAYMENT THROUGH THE HO LDING COMPANY. THE REMISSION OF AMOUNT TO THE HOLDING OR RELATED COMPA NY FOR FINALLY MAKING PAYMENT TO THE THIRD PERSON WILL BE CONSIDERED AS P AYMENT TO THIRD PARTY. IT CANNOT BE TERMED AS REIMBURSEMENT OF EXPENSES TO TH E HOLDING COMPANY. THE MUMBAI TRIBUNAL FURTHER HELD THAT IF THE CONTENTION OF THE ASSESSEE IS ACCEPTED AND THE PAYMENT TO THIRD PARTY, ROUTED THROUGH ITS RELATED CONCERN, IS CONSIDERED AS REIMBURSEMENT OF EXPENSES TO THE RELATED PARTY T HEN PROBABLY ALL THE RELEVANT PROVISIONS IN THIS REGARD WILL BECOME REDUNDANT. W E ARE OF THE VIEW THAT THE DECISION RENDERED BY THE MUMBAI BENCH WOULD APPLY T O THE FACTS OF THE PRESENT CASE. WE THEREFORE HOLD THAT THE PAYMENTS IN QUEST ION CANNOT BE REGARDED AS MERE REIMBURSEMENT OF EXPENSES BY THE ASSESSEE TO E CGCL WHICH DO NOT ATTRACT THE PROVISIONS OF SEC.40(A)(I) OF THE ACT. 12. AS FAR AS ISSUE NO.(II) IS CONCERNED, THE QUES TION FOR CONSIDERATION IS AS TO WHETHER THE PAYMENT BY THE ASSESSEE TO HUNAN LAW TH ROUGH ECGCL WOULD CONSTITUTE FTS WITHIN THE MEANING OF THE INDIA CHIN A DTAA. THE LEARNED DR RELIED ON THE ORDER OF THE AO/DRP AND THE LEARNED C OUNSEL FOR THE ASSESSEE REITERATED SUBMISSION MADE BEFORE THE REVENUE AUTHO RITIES. 13. ARTICLE 12 OF THE INDIA-CHINA DTAA DEALS WITH FTS AND ITS TAXABILITY AND IT READS THUS: ITA NO.756/15 ERSHISANYE CONSTRUCTION GROUP INDIA PVT. LTD. 8 ARTICLE 12 ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. ROYALTIES OR FEES FOR TECHNICAL SERVICES ARISING I N A CONTRACTING STATE AND PAID TO A RESIDENT OF THE OTHER CONTRACTING STA TE MAY BE TAXED IN THAT OTHER CONTRACTING STATE. 2. HOWEVER, SUCH ROYALTIES OR FEES FOR TECHNICAL SERV ICES MAY ALSO BE TAXED IN THE CONTRACTING STATE IN WHICH THEY ARISE, AND ACCORDING TO THE LAWS OF THAT CONTRACTING STATE, BUT IF THE RECIPIEN T IS THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR TECHNICAL SERVIC ES, THE TAX SO CHARGED SHALL NOT EXCEED 10 PER CENT OF THE GROSS AMOUNT OF THE ROYALTIES OR FEES FOR TECHNICAL SERVICES. 3. XXXXX 4. THE TERM 'FEES FOR TECHNICAL SERVICES' AS USED IN THIS ARTICLE MEANS ANY PAYMENT FOR THE PROVISION OF SERVICES OF MANAGE RIAL, TECHNICAL OR CONSULTANCY NATURE BY A RESIDENT OF A CONTRACTING S TATE IN THE OTHER CONTRACTING STATE, BUT DOES NOT INCLUDE PAYMENT FOR ACTIVITIES MENTIONED IN PARAGRAPH 2( K ) OF ARTICLE 5 AND ARTICLE 15 OF THE AGREEMENT. 5. THE PROVISIONS OF PARAGRAPHS 1 AND 2 SHALL NOT APP LY IF THE BENEFICIAL OWNER OF THE ROYALTIES OR FEES FOR TECHNICAL SERVIC ES, BEING A RESIDENT OF A CONTRACTING STATE, CARRIES ON BUSINESS IN THE OTHER CONTRACTING STATE IN WHICH THE ROYALTIES OR FEES FOR TECHNICAL SERVICES ARISE, THROUGH A PERMANENT ESTABLISHMENT SITUATED THEREIN, OR PERFOR MS IN THAT OTHER CONTRACTING STATE INDEPENDENT PERSONAL SERVICES FRO M A FIXED BASE SITUATED THEREIN, AND THE RIGHT, PROPERTY OR CONTRA CT IN RESPECT OF WHICH THE ROYALTIES OR FEES FOR THE TECHNICAL SERVICES AR E PAID IS EFFECTIVELY CONNECTED WITH SUCH PERMANENT ESTABLISHMENT OR FIXE D BASE. IN SUCH CASE THE PROVISIONS OF ARTICLE 7 OR ARTICLE 14, AS THE CASE MAY BE, SHALL APPLY. 6. ROYALTIES OR FEES FOR TECHNICAL SERVICES SHALL BE DEEMED TO ARISE IN A CONTRACTING STATE WHEN THE PAYER IS THE GOVERNMENT OF THAT CONTRACTING STATE, A POLITICAL SUB-DIVISION, A LOCAL AUTHORITY THEREOF OR A RESIDENT OF THAT CONTRACTING STATE. WHERE, HOWEVER, THE PERSON PAYING THE ROYALTIES OR FEES FOR TECHNICAL SERVICES, WHETH ER HE IS A RESIDENT OF A CONTRACTING STATE OR NOT, HAS IN A CONTRACTING STAT E A PERMANENT ESTABLISHMENT OR A FIXED BASE IN CONNECTION WITH WH ICH THE LIABILITY TO PAY THE ROYALTIES OR FEES FOR TECHNICAL SERVICES WAS IN CURRED, AND SUCH ROYALTIES OR FEES FOR TECHNICAL SERVICES ARE BORNE BY SUCH PERMANENT ESTABLISHMENT OR FIXED BASE, THEN SUCH ROYALTIES OR FEES FOR TECHNICAL SERVICES SHALL BE DEEMED TO ARISE IN THE CONTRACTIN G STATE IN WHICH THE PERMANENT ESTABLISHMENT OR FIXED BASE IS SITUATED. 7. XXXXX ITA NO.756/15 ERSHISANYE CONSTRUCTION GROUP INDIA PVT. LTD. 9 EXPLANATION 2 TO SEC.9(1)(VII) OF THE ACT DEFINES FTS FOR THE PURPOSE OF THE ACT TO MEAN ANY CONSIDERATION (INCLUDING ANY LUMP SUM C ONSIDERATION) FOR THE RENDERING OF ANY MANAGERIAL, TECHNICAL OR CONSULTAN CY SERVICES (INCLUDING THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONN EL) BUT DOES NOT INCLUDE CONSIDERATION FOR ANY CONSTRUCTION , ASSEMBLY, MINING OR LIKE PROJECT UNDERTAKEN BY THE RECIPIENT OR CONSIDERATION WHICH WOULD BE IN COME OF THE RECIPIENT CHARGEABLE UNDER THE HEAD 'SALARIES'. THEREFORE TH E DEFINITION OF FTS UNDER THE ACT AND INDIA-CHINA DTAA ARE ONE AND THE SAME I.E., THE PAYMENT SHOULD BE ONE FOR RENDERING SERVICES WHICH ARE IN THE NATURE OF MANAGERIAL, TECHNICAL OR CONSULTANCY. 14. WE HAVE ALREADY SET OUT THE NATURE OF SERVICES RENDERED BY HUNAN BY REFERRING TO THE SCHEDULE TO THE AGREEMENT FOR REND ERING TRAINING, IN THE EARLIER PART OF THIS ORDER. THE MAIN PURPOSE FOR WHICH HUN AN WAS EMPLOYED WAS TO TRAIN CHINESE ENGINEERS WHO WERE TO VISIT INDIA FOR CARRYING OUT THE ONSHORE SERVICES AND CONSTRUCTION OF INTEGRATED STEEL PLANT IN INDIA, IN ENGLISH LANGUAGE, ACQUAINT THEM WITH THE SAFETY STANDARDS WHICH IS TO BE FOLLOWED BY STEEL PLANTS IN INDIA AS PER INDIAN LAW AND TO ENABLE THEM TO AN SWE QUESTIONS THAT MAY BE ASKED BEFORE ISSUE OF VISA BY INDIAN AUTHORITIES. 15. THE QUESTION WHETHER TRAINING EXPENSES WOULD C ONSTITUTE FTS WAS CONSIDERED BY THE TRIBUNAL MUMBAI IN THE CASE OF LL OYDS REGISTER INDUSTRIAL SERVICES (INDIA) PVT.LTD. (2010) 36 SOT 293 (MUMBAI ). THE MUMBAI BENCH HELD THAT GOING BY COMMON SENSE TRAINING EXPENSES CANNOT BE CALLED AS 'FEE FOR TECHNICAL SERVICES'. THE MUMBAI BENCH WENT ON TO H OLD THAT EVEN HIGHLY QUALIFIED PERSONNEL MIGHT REQUIRE TRAINING TO CARRY OUT THE JOB FOR WHICH THEY ARE ITA NO.756/15 ERSHISANYE CONSTRUCTION GROUP INDIA PVT. LTD. 10 RECRUITED AND THE PERSON IMPARTING TRAINING CANNOT BE SAID TO BE RENDERING TECHNICAL, MANAGERIAL OR CONSULTANCY SERVICE. IT W AS HELD THAT SUCH TRAINING WAS A CONTINUOUS PROCESS BECAUSE TECHNOLOGY IS CHANGING VERY FAST AND ONE NEEDS TO KEEP TOUCH WITH SUCH TECHNOLOGY AND THEREFORE, E XPENSES INCURRED TOWARDS TRAINING CANNOT BE TERMED AS 'FEE FOR TECHNICAL SER VICES'. IN THE CASE OF COSMIC GLOBAL LTD., 48 TAXMANN.COM 365 (CHENNAI.TRIB), THE QUESTION FOR CONSIDERATION WAS AS TO WHETHER AN ASSESSEE WHO GOT TRANSLATION OF THE TEXT FROM ONE LANGUAGE TO ANOTHER COULD BE SAID TO BE RE NDERING TECHNICAL SERVICE. THE CHENNAI BENCH OF THE TRIBUNAL HELD THAT THE EXPRESSION 'TECHNICAL SERVICES' HAS NOT BEEN DE FINED ANYWHERE IN THE ACT. HOWEVER, 'FEES FOR TECHNICAL S ERVICES' HAS BEEN DEFINED IN EXPLANATION 2 TO SECTION 9(1)(VII). [PARA 7] IN THE PRESENT CASE, THE ASSESSEE IS GETTING THE TR ANSLATION OF THE TEXT FROM ONE LANGUAGE TO ANOTHER. THE ONLY REQUIRE MENT FOR TRANSLATION FROM ONE LANGUAGE TO OTHER IS, THE PROF ICIENCY OF THE TRANSLATORS IN BOTH THE LANGUAGES, I.E. THE LANGUAG E FROM WHICH THE TEXT IS TO BE TRANSLATED, TO THE LANGUAGE IN WH ICH IT IS TO BE TRANSLATED. THE TRANSLATOR IS NOT CONTRIBUTING ANYT HING MORE TO THE TEXT WHICH IS TO BE TRANSLATED. HE IS NOT SUPPOSED TO EXPLAIN OR ELABORATE THE MEANING OF THE TEXT. APART FROM THE K NOWLEDGE OF THE LANGUAGE, THE TRANSLATOR IS NOT EXPECTED TO HAV E THE KNOWLEDGE OF APPLIED SCIENCE OR THE CRAFT OR THE TE CHNIQUES IN RESPECT OF THE TEXT WHICH IS TO BE TRANSLATED. A BARE PERUSAL OF EXPLANATION 2 TO SECTION 9(1)(VII ), WHICH EXPLAINS 'FEES FOR TECHNICAL SERVICE' AND THE DICTI ONARY MEANING OF THE WORD 'TECHNICAL' MAKES IT UNAMBIGUOUSLY CLEA R THAT TRANSLATION SERVICES RENDERED BY THE ASSESSEE ARE N OT TECHNICAL SERVICES. THEREFORE, THE PAYMENT MADE BY THE ASSESS EE TO THE NON-RESIDENT TRANSLATORS WOULD NOT FALL WITHIN THE SCOPE OF 'FEES FOR TECHNICAL, MANAGERIAL OR CONSULTANCY SERVICE' A S MENTIONED IN EXPLANATION 2 TO SECTION 9(1)(VII). THE COMMISSI ONER (APPEALS) HAS TRAVELLED BEYOND THE DEFINITION OF 'FEES FOR TE CHNICAL SERVICE' TO BRING THE TRANSLATION SERVICES WITHIN THE COMPAS S OF THE TERM 'FEES FOR TECHNICAL SERVICES'. [PARA 8] THUS, THE PAYMENTS MADE BY THE ASSESSEE TO NON-RESI DENTS ON ACCOUNT OF TRANSLATION SERVICES DO NOT ATTRACT THE PROVISIONS OF SECTION 194J. THE DISALLOWANCE MADE UNDER SECTION 4 0(A)(I) IS DELETED. THIS GROUND OF APPEAL OF THE ASSESSEE IS A LLOWED. [PARA 9] ITA NO.756/15 ERSHISANYE CONSTRUCTION GROUP INDIA PVT. LTD. 11 WE ARE OF THE VIEW THAT THE FACTS OF THE ASSESSEES CASE ARE IDENTICAL TO THE FACTS OF THE CASE DECIDED BY THE CHENNAI BENCH OF I TAT IN AS MUCH AS THE IMPARTING TRAINING IN LANGUAGE WAS THE MAIN NATURE OF SERVICE IN BOTH THE CASES. THEREFORE, CONSIDERING THE FACTUAL POSITION AND PRE CEDENTS CITED ABOVE, THE PAYMENT OF RS. 42,009,163/- CANNOT BE SAID TO BE FT S AND WAS THEREFORE NOT CHARGEABLE TO TAX UNDER THE ACT IN THE HANDS OF HUN AN AND CONSEQUENTLY DOES NOT REQUIRE TDS TO BE DEDUCTED UNDER SECTION 195 OF THE ACT. THE SAID TRAINING EXPENSES DISALLOWED BY THE AO U/S 40(A) (IA) OF THE ACT, AND CONFIRMED BY THE LD.CIT(A), NEEDS TO BE DELETED. ACCORDINGLY, WE DEL ETE THE ADDITION OF RS. 4,20,09,163/-. 16. SINCE WE HAVE COME TO THE CONCLUSION THAT THE PAYMENT OF RS.4,20,09,163/- IS NOT IN THE NATURE OF FTS, THE OTHER TWO ISSUES W HETHER SERVICES ARE REQUIRED TO BE PERFORMED IN INDIA TO ATTRACT THE PROVISIONS OF ARTICLE 12(4) OF THE INDIA-CHINA DTAA AND THE QUESTION AS TO WHAT IS THE EFFECT OF A MENDMENT TO SECTION 9(1)(VII) BY THE FINANCE ACT 2010 WITH RETROSPECTIV E EFFECT FROM 1 ST JUNE, 1976 IN THE CONTEX OF SECTION 40(A)(IA) OF THE ACT, DOES NO T REQUIRE ANY ADJUDICATION. 17. WE SHALL NOW TAKE UP GR.NO.2 FOR CONSIDERATIO N WHICH IS WITH REGARD TO THE PAYMENT OF RS.14,00,000/- BY THE ASSESSEE THROUGH E CGCL TO HUNAN LAW. THE LEARNED DR RELIED ON THE ORDER OF THE AO/DRP AN D THE LEARNED COUNSEL FOR THE ASSESSEE REITERATED SUBMISSION MADE BEFORE THE REVENUE AUTHORITIES . 18. THE NATURE OF SERVICES RENDERED BY HUNAN LAW W HICH IS ALREADY SET OUT IN THE EARLIER PART OF THIS ORDER WOULD SHOW THAT IT I S IN THE NATURE OF CONSULTANCY SERVICES AND THUS WOULD FALL WITHIN THE PURVIEW OF ARTICLE 12(4) OF THE DTAA. IT IS NOT DISPUTED THAT HUNAN LAW IS A TAX RESIDENT OF PE OPLES REPUBLIC OF CHINA AND CARRIES ON PROFESSION OF RENDERING LEGAL SERVICES. IT DOES NOT HAVE A FIXED BASE REGULARLY AVAILABLE TO IT IN INDIA FOR THE PURPOSE OF PERFORMING ITS ACTIVITIES. THEY DID NOT HAVE PHYSICAL PRESENCE FOR MORE THAN 183 DA YS DURING THE PREVIOUS YEAR. ITA NO.756/15 ERSHISANYE CONSTRUCTION GROUP INDIA PVT. LTD. 12 THE QUESTION FOR CONSIDERATION IS WHETHER THE PAYME NT WILL FALL WITHIN THE ARTICLE 12(4) OF INDIA CHINA DTA AND ARTICLE 14 OF INDIA CH INA DTA. IF INCOME FALLS WITHIN ARTICLE 14, THEN ONLY PEOPLES REPUBLIC OF C HINA HAS RIGHT TO LEVY TAX ON THE SAID INCOME AND NOT INDIA. ARTICLE 14 OF THE I NDIA-CHINA DTAA READS AS FOLLOWS: ARTICLE 14 INDEPENDENT PERSONAL SERVICES 1. INCOME DERIVED BY A RESIDENT OF A CONTRACTING ST ATE IN RESPECT OF PROFESSIONAL SERVICES OR OTHER ACTIVITIES OF AN IND EPENDENT CHARACTER SHALL BE TAXABLE ONLY IN THAT CONTRACTING STATE EXC EPT IN ONE OF THE FOLLOWING CIRCUMSTANCES, WHEN SUCH INCOME MAY ALSO BE TAXED IN THE OTHER CONTRACTING STATE : A) I F HE HAS A FIXED BASE REGULARLY AVAILABLE TO HIM IN THE OTHER CONTRACTING STATE FOR THE PURPOSE OF PERFORMING HIS ACTIVITIES; IN THAT CASE, ONLY SO MUCH OF THE INCOME AS IS ATTRIBU TABLE TO THAT FIXED BASE MAY BE TAXED IN THAT OTHER CONTRACTING S TATE; B) IF HIS STAY IN THE OTHER CONTRACTING STATE IS FOR A PERIOD OR PERIODS EXCEEDING IN THE AGGREGATE 183 DAYS IN THE TAXABLE YEAR CONCERNED; IN THAT CASE, ONLY SO MUCH OF THE INCOME AS IS DERIVED FROM HIS ACTIVITIES PERFORMED IN THAT OTHER CONTRAC TING STATE MAY BE TAXED IN THAT OTHER CONTRACTING STATE. 2. THE TERM 'PROFESSIONAL SERVICES' INCLUDES ESPECI ALLY INDEPENDENT SCIENTIFIC, LITERARY, ARTISTIC, EDUCATIONAL OR TEAC HING ACTIVITIES AS WELL AS THE INDEPENDENT ACTIVITIES OF PHYSICIANS, LAWYERS, ENGINEERS, ARCHITECTS, DENTISTS AND ACCOUNTANTS. 19. IDENTICAL QUESTION AS TO WHETHER ARTICLE GOVER NING FTS IDENTICAL TO 12(4) OF INDIA-CHINA DTAA OR ARTICLE 14 OF INDIA-CHINA DTAA WILL GOVERN TAXATION OF INCOME DERIVED FROM INDEPENDENT PROFESSIONAL SERVIC ES IN THE CONTEXT OF RENDERING OF LEGAL SERVICES BY NON-RESIDENT CAME UP FOR CONSIDERATION BEFORE THE ITAT, MUMBAI, IN THE CASE OF MAHARASHTRA STATE ELEC TRICITY BOARD, 90 ITD 793 (MUM), WHEREIN IT WAS HELD THAT THE RELEVANT ARTICL E OF INDIA-UK DTAA DEALING WITH FTS WAS A GENERAL PROVISION WHILE THE RELEVANT ARTICLE OF THE INDIA-UK DTAA DEALING WITH FEES FOR INDEPENDENT PERSONAL SER VICES WAS A SPECIFIC ARTICLE AND THAT THE SPECIFIC ARTICLE IN THE DTAA WOULD OVE RRIDE THE GENERAL ARTICLE. SIMILAR RULING IN THE CONTEXT OF INDIA-USA DTAA WAS RENDERED BY THE MUMBAI ITA NO.756/15 ERSHISANYE CONSTRUCTION GROUP INDIA PVT. LTD. 13 ITAT IN THE CASE OF DCIT VS. CHANDBOURNE & PARKE LL P (2005) 2 SOT 434 (MUM). IN THE LIGHT OF THE AFORESAID DECISIONS, WE HAVE NO HESITATION IN HOLDING THAT ARTICLE 14 WOULD APPLY IN SO FAR AS PAYMENTS M ADE TO HUNAN LAW IS CONCERNED AND SINCE THE CONDITION PRECEDENT FOR TAX ING SUCH RECEIPTS IN THE HANDS OF HUNAN LAW IN INDIA ARE NOT SATISFIED, THE SAID PAYMENT IS NOT CHARGEABLE TO TAX IN INDIA IN THE HANDS OF HUNAN LA W AND THEREFORE THERE WAS NO OBLIGATION ON THE PART OF THE ASSESSEE TO DEDUCT TA X AT SOURCE U/S.195 OF THE ACT. THE CONSEQUENT DISALLOWANCE MADE U/S.40(A)(I) OF TH E ACT IS DIRECTED TO BE DELETED AND GROUND NO. 2, IS ALLOWED. 20. IN THE RESULT, THE APPEAL BY THE ASSESSEE IS A LLOWED. ORDER PRONOUNCED IN THE OPEN COURT ON THIS 12/04/ 2017. SD/- (N.V.VASUDEVAN) SD/- (DR. A.L.SAINI) / JUDICIAL MEMBER / ACCOUNTANT MEMBER /KOLKATA; ! DATED 12/04/2017 ' #$% /PRAKASH MISHRA,SR.PS. / COPY OF THE ORDER FORWARDED TO : / BY ORDER, (ASSTT. REGISTRAR) # $ , / ITAT, KOLKATA 1. / THE APPELLANT-ERSHISANYE CONSTRUCTION GROUP INDIA PVT. LTD. 2. / THE RESPONDENT.- DCIT, CIRCLE-11(1), KOLKATA 3. & ( ) / THE CIT(A), KOLKATA. 4. & / CIT 5. '( ) **+, , +, , / DR, ITAT, KOLKATA 6. ) -. / GUARD FILE. ' * //TRUE COPY//