Case Law Details
IN THE ITAT MUMBAI BENCH ‘L’
Deputy Director of Income-tax, (International Taxation)
Versus
Reuters Television Ltd.
IT APPEAL NO. 4034 (MUM.) OF 2005
[ASSESSMENT YEAR 2001-02]
OCTOBER 30, 2012
ORDER
Vijay Pal Rao, Judicial Member
This appeal by the revenue is directed against the order dated 16.4.2004 of the Commissioner of Income Tax (Appeals) for the Assessment Year 2001-02.
2. The revenue has raised the following grounds:
1. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that the “locational special revenues” of Rs. 12,7 1,822/-is not in the nature of fees for technical services as per Article 13 of the DTAA between India and UK.”
2. “On the facts and in the circumstances of the case and in law, the Ld. CIT(A) erred in holding that no liability u/s 234B and 234C arise, ignoring the fact:
(i) that since the tax deducted at source was not adequate to meet the entire tax liability, it was obligation on the part of the assessee to make the deficit good by making the payments towards the advance tax;
(ii) that since the assessee failed to pay the advance tax, the Assessing Officer was right in charging interest u/s 234B and 234C of the I.T. Act, 1961.”
3. Ground no.1 is regarding the fee for technical services.
3.1 The assessee is a company incorporated under the laws of England and is tax resident of United Kingdom. The assessee is in the business of providing television news services including audio-visual feed together with textural scripting information, desktop library services etc. to customers in India. The Assessing Officer noted that the assessee has received an amount of Rs. 12,71,822/- for rendering ‘locational special’ a service to a customers in India.
3.2 The Assessing Officer asked the assessee as to why the payment for rendering these services should not be treated as ‘fees for technical services’ as per sec. 9(1)(vii) of the I T Act and accordingly taxed as per Article 13 of the Indo-UK DTAA.
3.3 In response, the assessee submitted that the ‘location Special’ is a service wherein a customer asks the assessee to film a particular event, meeting, etc., Accordingly, the payment is for the services for making and producing the television film. The assessee contended that the revenue earned by the assessee by rendering ‘location special’ services to its customers does not quality as royalty or fees for technical services under Article 13 of the Indo-UK treaty. It was further submitted that as per Article 7 of the Indo-UK treaty, business profits of a United Kingdom tax resident company are taxable in India, only if it has a Permanent Establishment (PE) and in such a case, only to the extent of the profits are attributable to the PE in India. Since for the year ended 31st March 2001, the assessee did not have PE in India as contemplated by Article 5 of the Indo-UK Treaty; therefore, the revenues earned by the assessee for rendering ‘location special’ services are not liable to tax in India as per the treaty. The assessee has also contended that as per the definitions provided under Article 13 of Indo-UK Treaty, the term ‘fee for technical services’ means as per para 4(c) of Article 13 of Indo-UK treaty, the payment in consideration for rendering technical or consultancy services which make available technical knowledge, experience, skill, know-how or process, or consist of the development and transfer of a technical plan or technical design.
3.3.1 Thus, it was contended that the assessee does not provide technical or managerial or consultancy services. What the assessee does is to produce a particular event, meeting etc. as required by the client and sell the film/programme as a product to the customer. Thus, the activity undertaken by the assessee is in the nature of production and the final product is made available to the client.
3.4 The Assessing Officer did not accept the contention of the assessee and observed that the assessee was asked to furnish the copies of the invoices, agreement, letters etc., with respect to the work done for the various customers; but, the assessee did not furnish any such details. Accordingly, the Assessing Officer was of the view that in the absence of any documentary evidence, one has to assume that the assessee is rendering the service of shooting a film for its customers and therefore, the said service is covered as ‘fees for technical services’ u/s 9(1)(vii)(b) r.w. Explanation 2 . Consequently, the Assessing Officer held that the payment of Rs. 12,71,822/- received by the assessee is for providing ‘locational services’ is in the nature of ‘fees for technical services’ and is taxation @ 15% as per Article 13 of the DTAA between India & UK.
4. On appeal, the Commissioner of Income Tax(Appeals), though has concurred with the view of the Assessing Officer to the extent that these services qualify to be treated as fee for technical services under the provisions of Sec. 9(1)(vii)(b) r.w Explanation 2. However, the Commissioner of Income Tax (Appeals) was of the view that the payment could not fall under the definition of fee for technical services as per Article 13 of the DTAA. Accordingly, the Commissioner of Income Tax (Appeals) held that the amount received by the assessee for making and producing the television film and not for making available any technical know-how, skill etc. Hence, in view of the Commissioner of Income Tax (Appeals), such receipts definitely constitute business income and in the absence of PE not taxable in India.
5. Before us, the ld DR has submitted that the assessee has not produced any details, agreement, bills/invoices/letters in respect of the work done for various customers to show the real nature of the services rendered by the assessee. In the absence of the relevant documents, it cannot be said that the assessee has merely produced a film for its customer. He has referred the assessment order and submitted that the Assessing Officer has decided the issue in the absence of any record to show that the payment received by the assessee is other than the fee for technical services. He has further submitted that the assessee has also not produced any records before the Commissioner of Income Tax(Appeals). The Commissioner of Income Tax(Appeals) has also concurred with the view of the Assessing Officer that the payment received by the assessee is in the nature of fee for technical services as per sec 9(1)(ivii)(b) r.w Expl. 2. However, the Commissioner of Income Tax(Appeals) has granted relief to the assessee by holding that the amount received by the assessee is for making production of television film are not for technical know how as per Article 13 of Indo-UK treaty. The ld DR has submitted that this finding of the Commissioner of Income Tax(Appeals) is contrary to the finding that these services will qualify to be treated for fee for technical services under the provisions of sec. 9(1)(vii)(b) r.w Expl. 2. He has relied upon the order of the Assessing Officer and submitted that in the absence of relevant record and particularly agreement and invoices, how it can be held that technical services was not made available.
5.1 On the other the hand, the ld Sr counsel Shri P J Pardiwalla has submitted that ‘Location Special’ is service wherein a customer asks the assessee to film a particular event, meeting, etc. Accordingly, the payment is for the services of making and producing the television film. The ld Sr counsel has submitted that for the financial year ended March 31, 2001 the assessee earned Rs. 1,271,822 from rendering ‘Location Specials’ service. Further, it is submitted that the revenues earned by the assessee by rendering ‘Location Special’ services to its customers does not qualify as Royalty or Fees for Technical Services (Article 13) under the Treaty. Further, ld Sr counsel has submitted that as per Article 7 of the Treat the business Profits of a United Kingdom tax resident company are taxable in India, only if it has a Permanent Establishment (‘PE’) in India and in such case, only to the extent the profits are attributable to the PE in India. For the year ended March 31, 2001, the assessee did not have PE in India as contemplated by Article 5 of the Treaty. Therefore the revenues earned by the assessee from rendering ‘Location Special’ services are not liable to tax in India, as per the Treaty.
5.2 The ld Sr counsel has submitted that the assessee has explained before the Commissioner of Income Tax(Appeals) in paras 4.3 as to why the revenues cannot be treated as “Fees for Technical Services” under Article 13 of the India – UK Treaty is inter alia defined as under:
Payments of any kind in consideration for the rendering of any technical or consultancy services (including the provisions of technical or other personnel) which;
a. are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this Article is received.
b. are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received
c. make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design.
The term ‘fees for technical services” have been generally defined in the DTAs as meaning consideration for the services of a managerial, technical or consultancy nature, including the provision of services of technical or other personnel.
1. Technical services mean services requiring expertise in a technology, Consultancy services mean advisory services.
2. Consultancy Services could also be advisory services relating to managerial or technical matters.
3. Managerial services mean services requiring expertise in industrial or business management techniques. Thus, managerial services mean services by persons having knowledge and experience, industrial or business management techniques.
Therefore, to qualify as fees for technical services the amount received should be in the nature of fees for consultancy/advisory services of managerial or technical nature. It will involve providing of managerial or technical expertise based on which the actual execution of work will be carried out by the recipient of the services.
Reuters Television does not provide any technical, managerial or citaervice.iaTP7 does is to produce a particular event, meeting, etc. as required by the client and sell the film/program as a product to the customer. The material required to make the films like the raw stock, etc. belongs to Reuters Television Limited and a final product is made available to the client.
Thus the activity undertaken by RTV is in the nature of production and a final product is made available to the client.
To conclude, the “Location Special Revenue” received by Reuters Television Limited is in the nature of business income of Reuters Television and does not constitute fees for technical services.
5.3 He has relied upon the decision of the Tribunal in the case of Raymond Ltd. v. Dy. CIT [2003] 86 ITD 791 (Mum.) and submitted that the Tribunal has elaborately discussed and dealt with the aspect of fee for technical services for making available as per Indo-UK DTAA wherein it has been held that the making available is something more than a mere rendering of services. The ld Sr counsel has referred the finding of the Tribunal and submitted that the meaning of word ‘make available’ as used in Article 13 of Indo-UK treaty refers that the person utilising the services is able to make use of the technical knowledge etc., by himself in his business or for his own benefit and without recourse to the performer of services in future. The technical knowledge, expertise, skill etc., must remain with the person utilising the services even after the rendering of the services has come to an end. Thus, the ld Sr counsel has submitted that the services rendered by the assessee is merely a production of film and not making available any technical services, expertise, knowledge etc., to its customers. He has also referred the decision of the Hon’ble Delhi High Court in the case of DIT v. Guy Carpenter & Co Ltd [2012] 207 Taxman 121 and submitted that the Hon’ble High Court has upheld the decision of the Tribunal in the case of Raymond Ltd. (supra). Thus, the ld Sr counsel has submitted that the assessee has provided only a product by utilising the technical expertise and not the technical services.
6. We have considered the rival submissions as well as the relevant material on record. There is no dispute as far as the issue is settled on legal principal by the decision of the Tribunal in the case of Raymond Ltd (supra). However, the law cannot be applied in vacuum; but it has to be applied on undisputed facts of the case. In the case in hand, it is not clear from the record as what is the actual nature of services rendered by the assessee to the customers. To ascertain the real nature of services rendered by the assessee one has to examine the relevant record i.e. agreement between the parties and the terms and conditions and respective obligation and rights of the parties. The invoices and the correspondences between the parties in respect of the services rendered or the work carried out by the assessee is also relevant to determine the real nature of the services rendered by the assessee. The Assessing Officer has specifically asked the assessee to furnish all the invoices, agreement, letters etc., in respect of the work done for various customers. But the assessee failed to furnish any details or relevant documents. The relevant part of the assessment order in para 4 is as under:
“4. The assessee was asked vide order sheet noting dated 16.1.2004 to furnish copies of invoices/agreements/letters etc. In respect of the works done for the various customers, but the assessee did not furnish any such details. Non furnishing of such details amounts to concealment of certain facts from the department which could be used against the submissions made by the assessee. But for this, there was no reason why the assessee did not furnish such documents when the same were specifically called for by the undersigned. With this background of the assessee, let us now understand the nature of work of done by it. ‘Locational; Service’ is service wherein the customer asks the assessee to film a particular event, meeting etc. In absence of any documentary evidence as to what are the various aspects of the understanding between the assessee and its customers, one has to assume that the assessee is rendering the service of shooting a film for its customers. The said service is covered as ‘fees for technical services’ u/s 9(1)(vii)(b) read with explanation 2.”
6.1 On appeal, the Commissioner of Income Tax(Appeals), though concurred with the view of the Assessing Officer to the extent of services provided by the assessee will qualify to be treated as fee for technical services under the provisions of sec. 9(a)(ivii)(b) r.w explanation 2 in paa 4.4.2 as under.
“4.4.2 In so far as the I.T. Act is concerned, there cannot be any doubt that these services will qualify to be treated as fees for technical services under the provisions of sec. 9(a)(vii)(b) read with Explanation 2. To that extent, reliance on the decisions of GVK Industries and Oberoi Hotels is also justified. However, coming to the taxability under the provisions of Article 13 of the Indo-UK DTAA, which deals with fees for technical services; it is a different ball game. Under Article 13 of the DTAA, fees for technical services means a payment for rendering of technical or consultancy service which make available technical knowledge, experience, skill, know-how or processes, or consists of development and transfer of a technical plan or technical design. Therefore, the point which needs to be satisfied for taxability under the DTAA is whether the appellant is making available technical knowledge, experience etc. to the customers for and on whose behalf location special services are rendered.”
6.2 However, the Commissioner of Income Tax(Appeals) has finally held that the amount received by the assessee is for making and producing the television film and not for making any technical know-how, skill etc in para 4.4.4 as under:
4.4.4 Now in the backdrop of this understanding of the term “make available” under the Indo-UK DTAA and looking to the facts of the case, I am unable to hold that in carrying out location special services, the appellant was making available technical knowledge, experience, skill etc. The amount received by the appellant in this regard is for making and producing the television film and not for making available any technical know-how, skill etc. I, therefore, hold that the impugned amount of Rs. 12,71,822/- received towards location special services by the appellant cannot be brought to tax as “fees for technical services” under the Indo-UK DTAA. Such receipts definitely constitute business income. However, the same will not be liable to tax in India for the reason that the appellant does not have a PE to whom such activities can be attributed in India. The ground of appeal is decided in favour of the appellant.”
6.3 As far as the finding of the Commissioner of Income Tax (Appeals) to the extent of treating the amount for fee for technical services under the provisions of sec. 9(a)(vii)(b) r.w explanation 2 and further the finding that the amount received by the assessee is for making available television film and not for any technical know-how, skill etc., are contrary to each other at least on the point of fee for technical services. Further, the Commissioner of Income Tax(Appeals) has given a finding on the basis of submissions of the assessee without examination of any relevant record as the same was not produced by the assessee. Even before us, the assessee has not produced any documents.
6.4 Since the nature of services has to be ascertained only after examination of the relevant record and the legal point, which has been settled by the various decisions is only on the point of ‘making available’ of technical know-how, knowledge, expertise etc. which is again to be seen from the facts that whether any technical service is made available or not. Thus, in the absence of relevant material and particularly agreement between the parties under which the assessee has rendered the services and received the payment, it is not possible to determine the real nature of the activity carried out/services rendered by the assessee. Accordingly, in the facts and circumstances of the case and in the interest of justice, we set aside the order of the Commissioner of Income Tax (Appeals) and remit the issue to his file for deciding the same afresh after considering the relevant material in support of the facts whether the services rendered by the assessee falls under the category of ‘technical services’ and further making available the same as contemplated under Article 13 of the Indo-UN treaty.
7. Ground no.2 is regarding levy of interest u/s 234B/234C.
8. We have heard the ld DR as well as the ld Sr counsel and considered the relevant material on record. At the outset, we note that this issue is covered by the decision if the Hon’ble jurisdictional High Court in the case of DIT (International Taxation) v. NGC Network Asia LLC [2009] 313 ITR 187 (Bom.). Accordingly, this issue is decided in favour of the assessee and against the revenue.
10. In the result, the appeal filed by the revenue is partly allowed for statistical purpose.
