Sum paid to NR professional for preparation of scheme for raising finance and tie up for loans was 'FTS'

Facts:

a)The assessee-company intended to set up a gas based power project to generate and sell electricity. Itentered into an agreement with Swiss company to utilize the expert services of qualified and experienced professionals who could prepare a scheme for raising the required finance and tie up the required loan.

b)Pursuant to the aforesaid exercises carried out by the Swiss company, the assessee was successful in availing loan/financial assistance from India and outside India. In this backdrop, "success fee" was paid to the Swiss company.

c)Assessee approached AO for issuance of 'NOC' to remit the said sum with the contention that since Swiss company had rendered no technical services, thus, Section 9(1)(vii) was not attracted.

d)The non-success in revision petition compelled the assessee to approach the High Court. The High Court held that success fee" would come within the scope of technical service under Section 9(1)(vii)(b). The aggrieved assessee filed the instant appeal.

The Supreme Court held in favour of revenue as under:

1)Swiss company was very actively associated not only in arranging loan but also in providing various services which fall within the ambit of both managerial as well as consultancy services. Swiss company acted as a consultant andit had the skill, acumen and knowledge in the specialized field, i.e., preparation of a scheme for required finances and to tie-up required loans.

2)Nature of service rendered by the Swiss company would come within the ambit and sweep of the term 'consultancy service' and, therefore, tax at source should have been deducted as the amount paid as “Success Fess” would be taxable as 'fee for technical service'.

3)Once the tax was payable/paid, the grant of 'NOC' was not legally permissible.The order passed by the High Court was absolutely impregnable. - GVK Industries Ltd. v. ITO - [2015] 54 taxmann.com 347 (SC)

Payments to non-resident for his translation services shall not be deemed as 'fees for technical services'

Translation services involving translation of text from one language to another were not technical services and, therefore, payment made by assessee to non-resident translators would not fall within scope of 'fees for technical services’.

Facts:

a)The assessee-company was engaged in the business of providing translation services through Web. During assessment, the AO noted that assessee had not deducted tax at source in respect of payments made to overseas translators.

b)The A.O. held that translation services were technical in nature and the assessee was liable to deduct tax at source on impugned payments. He, accordingly, disallowed such payments made to non-resident translators.

c)On appeal, the CIT(A) upheld the findings of the AO and confirmed the disallowance made under Section 40(a)(i). The aggrieved assessee filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)In the instant case, the assessee was getting the translation of the text from one language to another. The only requirement for translation was the proficiency of the translators in both the languages, i.e., the language from which the text was to be translated and the language in which text was to be translated.

2)The translator was not contributing anything more to the text, which was to be translated. He was not supposed to explain or elaborate upon the meaning of the text. Apart from the knowledge of the language, the translator was not expected to have the knowledge of applied science or the craft or the techniques in respect of the text, which was to be translated.

3)A bare perusal of Explanation 2 to Section 9(1)(vii), which explains "fees for technical service" and the dictionary meaning of the word "technical" made it clear that translation services were not technical services. Therefore, the payment made by the assessee to the non-resident translators would not fall within the scope of "fees for technical services”. Thus, the disallowance made under Section 40(a)(i) was to be deleted. - COSMIC GLOBAL LTD. V. ASSTT. CIT [2014] 48 taxmann.com 365 (Chennai - Trib.)

Sum paid to foreign co. for production of 2D and 3D animated films wasn’t fees for technical service

No element of any technical services was involved in production of animation films, thus, provisions of section 9(1)(vii), would not apply to payments made by assessee to foreign sub-contractors for production of animated films.

Facts:

a)The assessee was engaged in production of 2D and 3D animation films. It had outsourced part of its project on sub-contract to foreign sub-contractors.

b)The assessee had made payments to foreign companies as per agreement, named as 'Outsourcing Facilities Agreement'. The Assessing Officer (‘AO’) held that the payments made to foreign companies were 'fees for technical services' and, thus, said payments were taxable in India.

c)Since the assessee had not made TDS before making aforesaid payments, it was to be treated as assessee-in-default under section 201 and 201(1A). On appeal, the CIT(A), set aside the order of AO. The aggrieved-revenue filed the instant appeal.

The Tribunal held in favour of assessee:

1)There was no element of any technical services involved in the production of animation films to attract the provision of section 9(1)(vii), read with section 5(2)(b).

2)It is possible that job undertaken by one party for the other party' of supply of any goods or services may involve utilization of the knowledge, information and expertise of the party undertaking the said job.

3)However, just because such expertise, knowledge, technology and experience are possessed by the said party and the same have been utilized for rendering the services, it cannot be said that the services so rendered are in the nature of technical and consultancy services without making any technology available to the other party.

4)Thus, the impugned payment made by the assessee could not be treated as 'fees for technical services'.

5)The foreign parties had not done any activity in India nor they had any permanent establishment in India. As there was no liability to deduct tax on the impugned payments under section 195, the AO was not justified in raising demand on assessee. Thus, the appeal of revenue was to be dismissed.- ADIT (INTERNATIONAL TAXATION) V. DQ ENTERTAINMENT (INTERNATIONAL) (P.) LTD [2014] 45 taxmann.com 17 (Hyderabad - Trib.)