Filtrex Technologies Pvt. Ltd. Vs. ACIT [2011-T11-60-ITAT-BANG-INTL] – ITAT Bangalore held that payments made under a Technology Transfer Agreement (TTA) ‘make available’ technical knowledge or experience, and hence, are taxable as Fees for Technical Services (FTS) in terms of Article 12(4)(b) of Double Taxation Avoidance Agreement (DTAA) between India and Singapore. Also, payments made for services in the nature of marketing support and other administrative services do not ‘make available’ technology, and hence, cannot be held as FTS under Article 12 of DTAA between India and Singapore.
Facts
The assessee, an Indian company, was engaged in the business of carbon blocks used in water filters for residential use. The assessee had entered into the TTA with Filtrex Holding Pte. Ltd. (“FHPL”), a foreign company, to provide a three stage gravity water purification system. Also, the assessee had entered into a Services Agreement with M/s Final Touch Grafix (“FTG”) and Filtrex International Pte. Ltd. (“FIPL”), both non-residents, for provision of various services as below:
- FTG is to provide inter alia, services in the nature of public relations activities, liaison, co-ordination and design of advertising material, etc. to assessee.
- FIPL is to render services in the nature of development of a global vision and mission, product testing assistance, public relations services, human resources and manpower planning, information technology services, etc. to assessee.
During the Assessment Years 2005-06 and 2006-07, the assessee had made payments to FHPL, FTG and FIPL in connection with the above mentioned agreements. No taxes were withheld by the assessee under section 195 of the Act, while making the payments.
The Assessing Officer (“AO”) held that the payments were in the nature of FTS in terms of Article 12(4)(b) of DTAA between India and Singapore and that tax was required to be withheld under section 195 of the Act. Since the tax was not withheld, the AO disallowed the payment under section 40(a)(i) of the Act for both the Assessment Years.
Aggrieved by the action of the AO, the assessee filed an appeal with the Commission of Income-tax (Appeals) (“CIT(A)”) against the dis allowance for both the Assessment Years.
The CIT(A) held as below: As regards payments under the TTA, the confidentially clause and the termination clause of the TTA provided that FHPL made available technology as contemplated under Article 12(4)(b) of DTAA between India and Singapore. Accordingly, the payment made to FHPL were taxable as FTS and tax was required to be withheld under section 195 of the Act. As regards payment made under the Services Agreement, the services are not in the nature of managerial, technical or consultancy services. Furthermore, it was held that the AO had not established the fact that the services made available technical know-how or skill as required under Article 12(4)(b) of DTAA between India and Singapore. Accordingly, the CIT(A) deleted the dis allowance made by the AO for both the Assessment Years.
Against the CIT(A)’s order, the assessee and the revenue filed appeals with the Tribunal.
Issues before the Tribunal: Whether the payment made to FHPL under the TTA is subject to dis allowance under section 40(a)(i) of the Act as tax was not withheld from the payment by the assessee? Whether the payment made to FTG under the Services agreement is subject to dis allowance under section 40(a)(i) of the Act as tax was not withheld from the payment by the assessee? Whether the payment made to FIPL under the Services agreement is subject to dis allowance under section 40(a)(i) of the Act as tax was not withheld from the payment by the assessee?
Assessee’s contentions
