Professional Charges on Sub of Euro Issue--No Tax Withholding

Amount paid to a non-resident for rendering professional services in relation to subscription of Euro Issues. No Tax withholding u/s 195, as it is regarded as "Business Income".

IN THE INCOME TAX APPELLATE TRIBUNAL
MUMBAI 'L' BENCH
ITA No. 4383/Mum/2002
A Y : 1999-2000
THE Dy DIRECTOR OF INCOME TAX
(INTERNATIONAL TAXATION)-2(1)
BHAVAN
MUMBAI 400020
Vs
M/s RELIANCE INDUSTRIES LIMITED


This appeal arises from the proceedings initiated under section 201(1) read with section 201(1A) of the Income-tax Act, 1961 ('the Act'). The only issue arising from this appeal is whether there was failure to deduct tax at source under section 195 of the Act for which the assessee could be deemed to be in default under section 201(1) of the Act and consequently the demand could be raised against the assessee along with interest u/s. 201(1A) of the Act.

2. Briefly stated, the facts are these. M/s. Reliance Industries Ltd. (RIL) brought out three Euro Issues of USD 150 million, USD 140 million & USD 300 million in May 1992, October 1993 & February 1994 respectively. For bringing out these Euro issues, RIL employed the services of some non-resident Lead Managers viz. Morgan Stanley, a US based Company for assisting it in all aspects of consultancy for preparing documents connected with bringing out the issue, dealing with various regulatory authorities in India and abroad, Due Diligence Certificate (DDC), arranging roadshows and all other such connected matters inclusive of managing and under-writing the issue. For these services the assessee made certain payments without deducting tax at source u/s. 195. The Assessing Officer initiated the proceedings u/s. 201(1) and 201(1A) of the Act since he was the view that the non-resident, M/s. Morgan Stanley, was liable to pay tax in India in respect of the payments made by the assessee. In his order it was held that services rendered by M/s. Morgan Stanley amounted to fees for technical services within the ambit of section 9(1)(vii) of the Act. It was further held that such payments amounted to fees for included services as per Article 12 of the DTAA between India and USA and consequently, the provisions of section 195 were attracted. Since there was failure to deduct tax at source, the Assessing Officer created a demand of Rs.5,68,23,814/- under section 201(1) of the Act. He has also charged interest u/s. 201(1A) of the Act.

3. The matter was carried in appeal before the CIT(A) who confirmed the view of the Assessing Officer that such payment amounted to fees for technical services within the meaning of section 9(1)(vii) of the Act. However, it was further held that such payments could not be treated as fees for included services within the meaning of Article 12 of the Indo-US Treaty and consequently the provisions of Article 7 were attracted. Since the non-resident has no PE in India, it was further held that the fees received by the non-resident could not be taxed in India. In support of this conclusion, reliance was placed on the decision of the Tribunal in the case of Raymond Ltd Vs DCIT, which is now reported in 86 ITD 791 (Mum). The appeal of the assessee was, therefore, allowed. Aggrieved by the same, the revenue is in appeal before the Tribunal.

4. After hearing both the parties we find that the issue is squarely covered by the decision of the Tribunal in the case of Raymond Ltd. (supra) in favour of the assessee wherein on similar facts, it has been held that payment for such services do not fall within the ambit of Article 12 of the Indo-US Treaty. Similar view has also been taken by the Tribunal in the case of Wockhardt Life Sciences Ltd. Vs. DCIT (ITA No. 3625/Mum/2000 dated 8.6.2005). No decision has been brought to our notice taking a different view. Therefore, following the decision of the Tribunal in the case of Raymond Ltd. (supra), it is held that payment by the assessee cannot be considered as fees for included services under Article 12(4) of the Treaty. Consequently, it has to be treated as business profits under Article 7 of the Treaty. Since, admittedly, there was no PE in India, the said sum could not be taxed in India. Accordingly, we do not find any infirmity in the order of the CIT(A). The order of the CIT(A) is, therefore, upheld.

5. In the result, the appeal filed by the Revenue is dismissed.
Order pronounced on 20.01.2009.


Regards,
Praveen Boda