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2024 Supreme(Del) 836
IN THE HIGH COURT OF DELHI AT NEW DELHI
VIBHU BAKHRU, SWARANA KANTA SHARMA, JJ.
Pr. Commissioner Of Income Tax- 2 – Appellant
Versus
CIENA Communications India Pvt. Ltd. – Respondent
ITA 627 Of 2019, ITA 628 Of 2019, ITA 629 Of 2019
Decided On : 13-11-2024
For the Appellant : Mr. Vipul Agarwal, Adv.
For the Respondent: Mr. Vishal Kalra, Mr. S.S. Tomar, Mr. Ankit Sahani, Advs.
IMPORTANT POINT
Payments for services rendered did not qualify as fees for technical services under the Income Tax Act and DTAA, as they did not make available technology or expertise to the Assessee.
Headnote:
(A) Income Tax Act, 1961 - Section 40(a)(i) - Double Taxation Avoidance Agreement (DTAA) - The Revenue challenged the ITAT's order which deleted the addition for non-deduction of TDS on payments made to a foreign entity for technical services - The ITAT found that the services did not make available technology or expertise to the Assessee, thus not qualifying as fees for technical services under the Act and DTAA - The court upheld the ITAT's findings, dismissing the appeals. (Paras 10, 18, 19)
(B) Tax Deduction at Source - Obligation to deduct TDS under Section 195 of the Act - The court noted that the Revenue's appeal was based on the assumption of the Assessee's obligation to withhold tax, which was not supported by the ITAT's findings regarding the nature of services rendered. (Paras 10, 12)
JUDGMENT :
(Vibhu Bakhru, J.)
1. The Revenue has filed the present appeals impugning a common order passed by the learned Income Tax Appellate Tribunal (hereafter the ITAT) dated 27.09.2018 (hereafter the impugned common order) which is the subject matter of the present appeals. The impugned common order was passed in ITA 3561/Del/2018 in respect of Assessment Year (AY) 2012-13; ITA No. 3562/Del/2018 in respect of AY 2013-14; and ITA No. 3563/Del/2018 in respect of AY 2014-15.
2. The controversy in the said appeals relates to whether the payments made by the respondent (hereafter the Assessee), during the respective Financial Year (FY), to an overseas associated enterprise (Ciena Communications Inc., a company incorporated in Delaware, having its principal place of business in Maryland – hereafter referred to as Ciena, US) was liable to be disallowed by virtue of Section 40(a)(i) of the Income Tax Act, 1961 (hereafter the Act), on the ground that the Assessee had not deducted tax at source on the payments made to Ciena, US. These payments (Rs.8,09,63,299/- in FY 2011-12, Rs.3,92,82,982/- in FY 2012-13 and Rs.3,99,09,962/- in FY 2014-15) were accordingly added to the declared income of the Assessee for the previous years relevant to the Assessment Years in question. The said addition was premised on the assumption that the payments made to Ciena, US were chargeable to tax, under Section 9(vii) of the Act, being fees for technical services. The Assessing Officer (hereafter the AO) also proceeded on the basis that the benefit of Article 12 of the India-USA Double-Taxation Avoidance Treaty Agreement (the DTAA) would not be available, as the services rendered, for which the aforesaid payments were made, included the element of “make available” of technology to the Assessee.
3. For the purpose of considering the present appeals, we consider it apposite to refer to the facts and the proceedings, in respect of AY 2012-13 (ITA 629/2019).
4. The reasoning of the learned AO for its conclusion as set out in its order dated 16.12.2016, is reproduced below:
“3.4 Thus, from the submissions of the assessee it is gathered that as per the assessee the services received will qualify as technical services only they make available technology, know-how, skill, processes, experience etc to the service recipient. The make available clause is there in the India USA Treaty but the assessee is trying to take benefit of the India USA treaty. In this regard it has been found that the services received by the assessee do make available knowledge, experience, know - how to the recipient and this clearly visible when one examines the nature of the services rendered and the consequential enduring benefits obtained by the recipient. Any technical service can be provided only when the provider possesses the expertise, skill, knowledge or know how etc., in the relevant field and once it is so, the further act of providing such services to the recipient enables the recipient in many ways including enabling it to apply such technology on its own. Having established the facts of this case as above, it will be appropriate if further analysis of the scope of phrase "technical services" and "Make Available" is made keeping in view the explanations offered by the assessee on these phrases in its replies.
"Technical Services"
It was held in Intertek Testing Services, in (2008) (307 ITR 418) by Authority of Advance Ruling (AAR) that the expression "technical services" cannot be construed in narrow sense. It has been observed therein that the term "technical" ought not to be confined only to technology relating to engineering, manufacturing or other applied sciences. Professional service imbued with expertise could be regarded as technical service.
'Similarly In &. V.K, Industries (22$ ITR 564), it was held that advice given by a financial consultancy firm on the modalities of procuring loans shall be regarded as technical and consultancy service
Hon'ble Supreme Court in the case o
