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If services rendered outside India by NR aren’t attributable to PE in India they are not taxable in India

August 26, 2016[2013] 32 taxmann.com 54 (Bombay)/[2013] 214 Taxman 317 (Bombay)
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IT/ILT : Fees received by assessee for providing marketing and management services outside India could not be subjected to tax in India, as same was not attributable to Permanent Establishment (PE) in India

IT/ILT : Reimbursement of lease line charges would not classify as royalty

IT/ILT : Entire income of assessee-non-resident being subjected to TDS it was not liable to pay interest under sections 234B and 234C

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[2013] 32 taxmann.com 54 (Bombay)

HIGH COURT OF BOMBAY

Director of Income-tax, (IT) - 1

v.

WNS Global Services (UK) Ltd.*

J.P. Devadhar AND M.S. SANKLECHA, JJ.

IT Appeal (L) NO. 1130 OF 2012

FEBRUARY  13, 2013 

I. Section 9 of the Income-tax Act, 1961, read with article 5 of the DTAA between India and UK - Income - Deemed to accrue or arise in India [Permanent establishment] - Assessment year 2004-05 - Lower authorities held that fees received by assessee for providing marketing and management services outside India could not be subjected to tax in India, as same was not attributable to Permanent Establishment (PE) in India - Revenue held that income-in-question was attributable to a Permanent Establishment-in-India by virtue of force of attraction rules - Whether since revenue had not canvassed force of attraction rules before authorities and decision of lower authorities being based on finding of fact, it did not warrant any interference - Held, yes [Para 4(ii)] [In favour of assessee]

II. Section 9 of the Income-tax Act, 1961, read with article 12 of the DTAA between India and UK - Income - Deemed to accrue or arise in India [Royalty] - Assessee had obtained from an international telecom operator lease line on payment of charges - For this purpose, assessee recovered international telecommunication operator charges from WNS India - Tribunal held that amount in question was received by assessee as reimbursement of lease line charges and would not classify either as royalty or as income attributed to a permanent establishment in India - On above finding of fact, Tribunal concluded that there was no income earned by assessee which could be subjected to tax - Whether decision of Tribunal, being based on finding of fact, it needed no interference - Held, yes [Para 5] [In favour of assessee]

III. Section 234B, read with section 195, of the Income-tax Act, 1961 - Interest, chargeable as - Assessment year 2004-05 - Whether in view of decision of High Court in matter of DIT (International Taxation) v. NGC Network Asia LLC [2000] 313 ITR 187 (Bom.) Tribunal was justified in holding that assessee being non-resident and entire income of assessee was subjected to TDS under section 195 hence, it was not liable to pay interest under sections 234B and 234C - Held, yes [Para 6] [In favour of assessee]

CASE REVIEW

 

WNS Global Services (UK) Ltd. v. Asstt. DIT (International Taxation) [2012] 52 SOT 121 (Mum.)(URO)/22 taxmann.com 65 (para 6) affirmed.

CASES REFERRED TO

 

DIT (International Taxation) v. NGC Network Asia LLC [2009] 313 ITR 187 (Bom.) (para 6).

Tejveer Singh for the Appellant. P.J. Pardiwalla and A.K. Jasani for the Respondent.

ORDER

 

1. Office objections waived.

2. In this Appeal by the Revenue for the Assessment Year 2004-05, following questions have been raised for our consideration:

(1)   Whether on the facts and circumstances of the case, the Tribunal was correct in holding that amount of Rs. 87,53,248/- received from WNS India for marketing and management services in India, is not fees for technical services as per Article 13 of India UK Treaty?
(2)   Whether on the facts and circumstances of the case, the Tribunal was correct in holding that amount of Rs. 24,33,62,066/- received from WNS India for marketing and management services outside India is not fees for technical services as per Article 13 of India UK Treaty?
(3)   Whether on the facts and circumstances of the case, the Tribunal was correct in holding that amount of Rs. 24,33,62,066/- received from WNS India for marketing and management services outside India is not attributable to PE in India ignoring the force of attraction rule embedded in India UK Treaty?
(4)   Whether on the facts and circumstances of the case, the Tribunal was correct in holding that amount of Rs. 2,93,29,869/- received on account of reimbursement of lease line charges does not qualify as Royalty under Article 12 of India UK Treaty?
(5)   Whether on the facts and circumstances of the case, the Tribunal was correct in holding that amount of Rs. 2,93,29,869/- received from WNS India on account of reimbursement of lease line charges is not attributable to PE in India ignoring the force of attraction rule embedded in India UK Treaty?
(6)   Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the assessee being non-resident and the entire income of the assessee subject to TDS u/s. 195 of the Act and hence no liability arises u/s. 234B and 234C of the Act?
(7)   Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the reimbursement of various expenses amount to Rs. 1,61,52,807/- by WNS India does not qualify as Fees for Technical services under Article 13(4) of India UK DTAA?
(8)   Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that the reimbursement of various expenses amount to Rs. 1,61,52,807/- by WNS India is not attributable to PE in India ignoring the force of attraction rule embedded in India UK Treaty?
(9)   Whether on the facts and in the circumstances of the case and in law, the Tribunal was justified in holding that an amount of Rs. 1,40,57,752/- received on account of sale of contract is not chargeable to tax in India?

3. So far as Questions (1) & (2) are concerned, Mr. Tejveer Singh, Counsel appearing for the Appellant states that the same is not being pressed by him. This is for the reason that the Tribunal by the impugned order has followed its decision dated 25th November, 2009 in the matter of WSN Global Services Pvt. Ltd., wherein it has in the context of the tax deduction at source provisions held that the fees for Marketing & Management Services are not fees for technical services. In view of the above Questions (1) & (2) are not being considered, as they are not pressed.

4. (i) So far as Question (3) is concerned, the Tribunal by its impugned order has upheld the finding of the CIT(A) that the fees received for providing marketing and management services out side India cannot be subjected to tax in India, as the same is not attributable to the Permanent Establishment (PE) in India.

(ii) The Revenue is aggrieved by the aforesaid finding of the Tribunal on the ground that the same is attributed to permanent establishment in India. The contention of Mr. Singh, Counsel appearing for the Revenue is that the Tribunal has completely ignored the force of attraction rules while construing the India UK Treaty. We did not find the aforesaid arguments of force of attraction Rule being canvassed before any of the authorities under the Act, from the records placed before us. When specifically asked, Mr. Singh draws our attention to Article 7(i) of the India UK Double Taxation Avoidance Agreement (India UK DTAA) would give rise to force of attraction Rule. This according to him was also a point urged in their memo of appeal at ground 3 thereof. The relevant ground 3 taken in the memo of appeal filed by the Revenue before the Tribunal reads as under:

"On the facts and in the circumstance of the case and in law, the ld. CIT(Appeals) erred in directing the Assessing Officer not to tax the balance receipt of Rs. 24,33,62,066/- being the fee for provision of marketing and management services outside India as the same are not subjected to tax in India (under Article 13(4)(c) of the India UK DTAA) nor same are attributable to service PE in India".

On the above basis, Mr. Singh, Counsel appearing for the Revenue urged that amount of Rs. 24.33 Crores is attributable to a Permanent Establishment in India by virtue of force of attraction Rules.

(iii) The CIT(A) and the Tribunal had come to finding of fact that the amount of Rs. 24.33 Crores received by the Respondent-Assessee was not attributed to any Permanent Establishment in India. This decision of the Tribunal being based on a finding of fact, does not warrant any interference by this Court. Besides it must be pointed out that the Revenue has not specifically urged the force of attraction rules before the Authorities. Consequently, the question as framed does not arise from the order of Tribunal. In these circumstances, we see no reason to entertain Question (3).

5. So far as Questions (4) & (5) are concerned, the Tribunal by the impugned order followed its order in the matter of WNS North America Inc rendered on 25th November, 2011. The Tribunal while upholding the order of the CIT(A) held that the amount of Rs. 2.93 Crores was received by the Respondent-Assessee as reimbursement of lease line charges and would not classify either as royalty or as income attributed to a Permanent Establishment in India. The Respondent-Assessee has obtained from an International Telecom Operator lease line on payment of charges. These lease line facility in turn is provided to WNS India on cost to cost basis so as to have international connectivity. For this purpose, the international telecommunication operator charges the Respondent-Assessee and the Respondent-Assessee recovers the same from WNS India. The Tribunal has come to finding of fact that the reimbursement of lease line charges received by the Respondent-Assessee is the actual amount which is incurred by it on making payment to the international telecom operator. Thus, on the above finding of fact, the Tribunal concluded that there is no income earned by Respondent-Assessee which is subject to tax but is only a reimbursement of lease line charges paid by it to international telecom operator. Accordingly, as the decision of the Tribunal is based on finding of fact, we see no reason to entertain Questions (4) and (5).

6. So far as Question (6) is concerned, the Counsel for the parties state that the issue raised therein stands covered in favour of the Respondent-Assessee and against the Revenue by the decision of this Court in the matter of DIT (International Taxation) v. NGC Network Asia LLC [2009] 313 ITR 187 (Bom.). Since the Tribunal in the impugned order has followed the decision of this Court in the matter of NGC Network Asia LLC (supra) in granting relief to the Respondent-Assessee, we see no reason to entertain Question (6).

7. So far as Questions (7) & (8) are concerned, we find that by the impugned order, the Tribunal has remanded the issue to the Assessing Officer for afresh decision. In these circumstances, we do not see any reason to entertain Question (7) & (8).

8. Appeal is admitted on Question (9).

Nitu

*In favour of assessee.

Arising out of order of Tribunal in WNS Global Services (UK) Ltd. v. Asstt. DIT (International Taxation) [2012] 52 SOT 121 (Mum.)(URO)/22 taxmann.com 65

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