Amit Shukla, Member (J) -
(1.) THE present appeal has been preferred by the assessee, challenging the impugned final assessment order dated 14th October 2010, passed by the learned Dy. Director of Income Tax (International Taxation) [for short "the learned DDIT(I.T.)"], Mumbai, in pursuance of the direction given by the Dispute Resolution Panel -I (DRP), Mumbai, for the assessment year 207 -08. The assessee has raised following grounds of appeal: -
"1. The Assessing Officer and the DRP erred in determining the income of the assessee at Rs. 3,83,62,648, as against NIL income returned by the assessee and thereby erred in determining the tax liability at Rs. 2,27,50,035.
(2.) ON the facts and in the circumstances of the case and in law the learned Assessing Officer erred in confirming the proposed addition of Rs. 3,83,62,648, being the amount received by the appellant for services rendered under the Master Service Agreement, 2005 to GE Money Financial Services Ltd. as being in the nature of royalty income and hence, taxable in India.
On the facts and in the circumstances of the case and in law the learned Assessing Officer erred in initiating and the DRP has erred in upholding the initiation of penalty proceedings under section 274 r/w section 271(1)(c) of the Act."
2. Facts in brief: - The assessee is a non -resident company incorporated in Thailand and is a tax resident of Thailand. Accordingly, it has claimed treaty benefit under the India -Thailand DTAA. The assessee company is engaged in the business of providing services to meet the needs of various G.E. Group companies. It has entered into Master Agreement, 2005 with the G.E. Countrywide Consumer Financial Services Ltd. (GEMFSL), wherein the assessee is required to provide following Services: -
• Accounting and Finance Support Services
• Human Resources Services
• Legal and Compliance Services
• Risk Management Services
• Quality Consultation and Training
• Sales and Marketing
• Information Technology and System Support
• Strategic Management Assistance
During the year, the assessee has received an amount of Rs. 3.84 crores from GEMFSL under the Master Service Agreement for providing the aforesaid services. In the return of income filed for the assessment year 2007 -08, the assessee had shown its income at "nil" on the ground that the income accrued to the assessee qualifies as business income and the same cannot be taxed under Article -7 as the assessee has no Permanent Establishment (P.E.) in India as defined in Article -5 of India -Thailand DTAA. In the draft assessment order, the Assessing Officer held that consideration received by the assessee from the provisions of services from outside India to GEMFSL is on account of business connection in India and, hence, taxable under the domestic law i.e., Indian Income Tax Act. He also held that services rendered by the assessee would also fall within the definition of "fees for technical services" as envisaged under section 9(1)(vii) of the Act and, hence, the same is taxable in India. Alternatively, he held that the services rendered by the assessee would also fall within the definition of "royalty" under the Article -12(3) of the treaty and, hence, would be taxable in India. Against the said draft assessment order, the assessee filed its objection before the DRP and also the copy of tax residency certificate issued by the Thailand tax authorities. The DRP directed the Assessing Officer to tax the receipts from the services rendered by the assessee as "royalty" under Article -12(3) of the DTAA, without giving any opinion or direction on non taxability as business connection in India or Fees for Technical Services (for short "FTS"). The DRP quoted the conclusion of the Assessing Officer in the following manner: -
"From the above definition it can be seen that the term Royalty includes not only the right to use any copyright payments, trademark, design or any industrial, commercial or scientific equipments. The definition specifically includes any payment for information concerning the industrial, commercial or scientific experience. The use of word experience indicates that the intention of the legislature is to cover any fees paid to any consultant for providing any advice based on his experience, i.e., the knowledge, knowhow and expertise that he has gained over the years. In the assessee's as per Schedule -4 of the Master Service Agreement 2005, clearly indicates that the payments made to the assessee are for consultancy services provided by the Chief Executive Officer, CIO, Legal Service Team, Group Risk Team, Finance Team, etc. In other words one can say that the payments made to the assessee company is for the information/advice given by the aforesaid people/team. These people/team are specialists in their subject matter and have years of experience in the industrial, commercial or scientific fields. Therefore, it is held that the payments made to the assessee company are for providing industrial, commercial or scientific experience and, hence, the receipts are taxed as Royalty in the assessee's hands."
(3.) THEREAFTER , the DRP confirmed the aforesaid conclusion of the Assessing Officer and directed the Assessing Officer to tax such payment as royalty after giving following directions: -
"The assessee has also claimed the benefit of Indo -Thailand DTAA and has submitted a copy of TRC placed in the paper book -I, is seen that the arguments of the A.O. shall be applicable even in the case of the definition as given in article 12(3) of Indo -Thailand DTAA. The ground of objection, therefore, deserve to be dismissed."
The A.O. is therefore directed to examine the Tax Residence Certificate and in case the assessee is liable to tax in Thailand the beneficial rate as Indo -Thailand DTAA shall be applicable.";