DEPUTY DIRECTOR OF INCOME TAX (INTERNATIONAL TAXATION) Vs. IATA BSP INDIA
LAWS(IT)-2014-6-27
INCOME TAX APPELLATE TRIBUNAL
Decided on June 11,2014

Appellant
VERSUS
Respondents

JUDGEMENT

P.M.Jagtap, Member (A) - (1.) THIS appeal is preferred by the Revenue against the order of learned CIT(A) -10, Mumbai dt. 18th Nov., 2009 and in the solitary ground raised therein, the Revenue has challenged the decision of the learned CIT(A) holding that the amount paid by the assessee to IATA, Canada, is not taxable in India being not in the nature of fees for technical services and the assessee therefore is not required to deduct tax at source from the payment of the said amount. The assessee in the present case is a company which is a branch office of IATA, Canada. The said branch office is established in India as per the permission given by the RBI vide letter dt. 25th Nov., 1995 for the purpose of undertaking certain commercial activities on no profit basis. In pursuance of an agreement entered into by IATA Canada through its administrative office in Geneva, Switzerland, ADP -GSI, a corporation incorporated in France developed the system as per the specific need of the airlines and agents. The said system called BSP link is the one whereby the manual operations such as issue of debit notes/credit notes, issue of refund, billing statement and all the information relating to tickets are carried out electronically for agents as well as airlines who participate in the BSP link. These BSP link services were provided among others to the agents and airlines operating in India for which invoices were initially raised by ADP -GSI on Geneva office of IATA, Canada who in turn raised the invoices on IATA, India. The payment against the said invoices thus was liable to be made by the assessee company to Geneva office of IATA, Canada. An application under s. 195(2) therefore was filed by the assessee before the AO seeking permission to remit the said amounts to Geneva office of IATA, Canada without deduction of tax at source on the ground that the Geneva office of IATA, Canada was not rendering any service to IATA, India and it was only collecting the funds from various IATA offices including IATA, India for making payments to ADP -GSI. It was also claimed that the provisions of s. 195 of the Act are not applicable to the payments made by IATA, India to IATA, Geneva as the said provisions dealing with the deduction of tax at source presuppose the existence of two distinct and separate entities which were absent in the case of the assessee. The stand taken by the assessee was not found acceptable by the AO. According to him, the actual beneficiaries of DSP link services were airlines and agents in India and it was a case where the service provider namely ADP -GSI was paid by these entities through IATA, India and IATA, Canada. He held that these transactions therefore involved, in substance, the payments made by airlines and agents in India on account of DSP link services provided by a company in France and since the said services were technical in nature, the amount paid for the said services was in the nature of fees for technical services chargeable to tax in India @ 10 per cent as provided in art. 13 of the DTAA between India and France. Accordingly, he directed the assessee company to deduct tax at source @ 10 per cent from the remittances made to Geneva office of IATA, Canada, vide an order dt. 12th Jan., 2006 passed under s. 195(2) of the Act.
(2.) AGAINST the order passed by the AO under s. 195(2) of the Act, appeal was preferred by the assessee before the learned CIT(A) contending that Geneva office of IATA, Canada was not rendering any service in connection with the DSP link. It was also contended that the provisions of s. 195 dealing with the deduction of tax at source pre -suppose the existence of two distinct and separate entities which was absent in the case of the assessee. It was argued that the arrangement was similar to the cost sharing arrangement whereby Geneva office of IATA, Canada was only recovering its cost through the assessee company. Without prejudice, a new argument was also raised on behalf of the assessee before the learned CIT(A) by submitting that the amount in question paid by the assessee was not in the nature of fee for technical services as envisaged in art. 13 of the DTAA between India and France read with cl. 7 of the Protocol thereto. It was contended that as per the said cl. 7 of the Protocol, which is an integral part of the treaty, either the services should make available technical knowledge, experience, skill, know -how or processes or there should be development and transfer of a technical plant or a technical design so as to constitute the said services as "fees for included services". It was contended that the services can be considered as "made available" only when the person acquiring the services will enable to apply the technology contained therein. It was contended that the BSP link services provided by ADP -GSI did not make available to airlines/agents any technical knowledge, skill, experience. know -how or processes which would enable the airlines/agents to apply technology contained therein and therefore the amount paid for the said services could not constitute "fees for technical services" as envisaged in art. 13 of the DTAA between India and France read with cl. 7 of the Protocol thereto. After considering the submissions made on behalf of the assessee as well as material available on record, the learned CIT(A) rejected the contention of the assessee that in absence of two distinct and separate entities involved in the impugned transactions, the provisions of s. 195 were not applicable. In this regard, he relied on the CBDT Circular No. , dt. 17th April, 1996 ((1996) 132 CTR (St) 5), wherein it was clarified that the branch of a foreign company/concern in India is separate entity for the purpose of taxation. The learned CIT(A) also agreed with the AO that the impugned payments made by the assessee were, in substance, the payments made on behalf of the airlines and agents in India to ADP -GSI France for providing BSP link services. He however, accepted the alternative contention of the assessee raised before him that the impugned amount payable for DSP link services provided by the ADP -GSI France was not in the nature of fees for included services within the meaning of art. 12(4)(b) of India US treaty read with art. 13 of Indo -French DTAA and cl. 7 of Protocol thereto. The reasons given by the learned CIT(A) to come to this conclusion as contained in paras. 3 and 3.1 of his impugned order are reproduced hereunder: Para. 3, 3.1 CIT(A) order "3.0 I have gone through the submission of the Authorised Representative. It is seen that in pursuance of the agreement entered into by I.T.A. Canada and GSI Transport Tourism, SA France, (ADP -GSI) has developed a system as per specific needs of the airlines and agents and provides BSP link services. BSP link is a system, wherein the manual operations such as issue of debit notes/credit notes, issue of refund, billing statement and all the information relating to tickets are carried out electronically by BSP link system for agents as well as for airlines who have participated in the BSP link. Therefore, the services rendered by the ADP -GSI France to the airlines and agents are in the nature of fees for technical services. 3.1 However, the learned Authorised Representative has also submitted that as per art of DTAA between India and France read with cl. 7 of protocol tax treaty dt. 19th Sept., 1989 the restricted definition of fees for technical services would be applicable as provided in OECD countries like USA and UK. As per article 12.4(b) of tax treaty with India and USA fees for included services means payment of any kind to any person in consideration for the rendering of any technical or consultancy services (including the provision of services of technical or other personnel) if such services made available technical knowledge, experience, skill, know -how or processes or consist of the development and transfer of a technical plan or technical design. Therefore, the payment under consideration would be examined if it falls under art. 13 read with Protocol dt. 17th Sept., 1989 of India France treaty. It is seen that ADP -GSI has provided BSP link services to carry out manual operations such as issue of debit notes/credit notes, issue of refund, billing statement relating to tickets and information relating to tickets carried out electronically by BSP link system for agents as well as for airlines who have participated in the BSP Link. But this BSP link services do not make available the technology to the airlines and agents to enable them to make use of their own. It may toe seen that these beneficiaries could not have experience technical know -how and are not able to use in future as their own. As per memorandum the services as per can be considered as 'made available' only when the person acquiring the services enable to apply the technology contained therein. Therefore the payment -made to ADP -GSI does not amount to be fees for included services. Within the meaning of art. 12(4)(b) of India -US tax treaty read with art. 13 of Protocol of India -France tax treaty. The case law cited by assessee also support his view."
(3.) FOR the reasons given above, the learned CIT(A) held that the amount in question paid by the assessee company to Geneva office of IATA, Canada was not taxable in India being not in the nature of fees for included services and the assessee therefore was not liable to deduct tax at source from the payment of the said amount. Aggrieved by the order of the learned CIT(A), the Revenue has preferred this appeal before the Tribunal.;


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