By Geeta Jani, Dhishat B. Mehta, Chartered Accountants
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New Page 15 ICICI Bank Ltd. v.
DCIT (20 SOT 453) (Mum.)
A.Y. : 1997-98. Dated : 9-10-2007
India-USA Treaty.
Amount remitted to credit rating agency for the purpose of
obtaining rating in respect of issue of Floating Rate Euro Notes (FRENs) is not
fees for included services in terms of Article 12(4) of India-US treaty and is
therefore not chargeable to tax in India.
Facts :
The assessee bank appointed Moody’s Investor Services (MIS),
a credit rating agency of the USA, for the purpose of obtaining rating in
respect of one of its FRENs issues. MIS rendered rating services outside India.
The assessee remitted fees towards such services without deducting tax at
source. The contention of the assessee was that the amount represented charges
towards commercial services chargeable as business income and since the services
were rendered outside India, the same was not chargeable to tax in India.
The AO held that the amount was chargeable to tax in India,
as the same represented fees for technical services covered by S. 9(1)(vii)(b)
of the Act. The AO also concluded that services were covered by Article 12 of
the DTAA and hence payment was subject to withholding tax obligation in India.
Before the Tribunal, the assessee submitted that rating is
required to be done as per international practice for the benefit of investors
and no technical skill or process was transferred to the assessee. The assessee
relied on the following decisions to support its contention that payments for
rating services were not fees for included services and hence were not liable to
taxation in India :
1. Raymond Ltd. v. DCIT, (86 ITD 791) (Mum.)
2. Wockhardt Life Science Ltd. [IT Appeal No. 3625 (Mum.)
of 2000]
3. Gujarat Ambuja Cements Ltd. v. DCIT, (2 SOT 784)
(Mum.)
4. Bajaj Auto v. DCIT, [IT Appeal Nos. 2662 and 2663
(Mum.) of 2000]
5. Wipro Ltd. v. ITO, (1 SOT 758) (Bang.)
6. Mc Kinsey & Co. Inc (Philippines) v. ADIT, (99
ITD 549) (Mum.)
The assessee also relied on Memorandum of Understanding to
India-US DTAA on the scope for fees for included services as also on example VII
given in the said protocol to support the contention that commercial services
were not fees for included services and were not covered by Article 12 of the
treaty.
Held :
l
The Tribunal observed that the rating services were commercial services. In
view of the Tribunal, though skill, expertise, know-how were used by the
service provider for rendering services, the service was not technical in
nature. Also, skill, expertise or know how was not made available to the
assessee, so as to get covered by the scope of fees for included services.
l
The Tribunal referred to and relied on decision of Mumbai Tribunal in the case
of Raymonds and that in case of McKinsey to support that the concept of ‘make
available’ requires that the person acquiring the service is enabled to apply
the technology in his own right to the exclusion of the service provider.
l
Since the amount was not chargeable to tax in India, the assessee had no
obligation to deduct tax at source u/s.195 of the Act.
