Latest Expert Exchange Queries
sitemapHome | Registration | Job Portal for CA's | Expert Exchange | Currency Converter | Post Matrimonial Ads | Post Property Ads
 
 
News shortcuts: From the Courts | News Headlines | VAT (Value Added Tax) | Service Tax | Sales Tax | Placements & Empanelment | Various Acts & Rules | Latest Circulars | New Forms | Forex | Auditing | Direct Tax | Customs and Excise | ICAI | Corporate Law | Markets | Students | General | Indirect Tax | Mergers and Acquisitions | Continuing Prof. Edu. | Budget Extravaganza | Transfer Pricing
 
 
 
 
Popular Search: VAT Audit :: articles on VAT and GST in India :: list of goods taxed at 4% :: due date for vat payment :: empanelment :: ACCOUNTING STANDARDS :: Central Excise rule to resale the machines to a new company :: ICAI offer Get Windows 7,Office 2010 in Rs.799 Taxes :: VAT RATES :: TDS :: TAX RATES - GOODS TAXABLE @ 4% :: ACCOUNTING STANDARD :: cpt :: ARTICLES ON INPUT TAX CREDIT IN VAT :: form 3cd
 
 
From the Courts »
  Micro Spacematrix Solution P Ltd vs. ITO (ITAT Delhi)
 Micro Spacematrix Solution P Ltd vs. ITO (ITAT Delhi)
 CIT vs. Greenfield Hotels & Estates Pvt. Ltd (Bombay High Court)
 IndiaBulls Financial Services Ltd vs. DCIT (Delhi High Court)
 Maharao Bhim Singh of Kota vs. CIT (Supreme Court)
 Ravneet Takhar Vs. Commissioner Of Income Tax Ix And Ors.
 Jaiprakash Associates Ltd. Vs. Commissioner Of Income Tax
 Formula One World Championship Limited Vs. Commissioner Of Income Tax, International Taxation-3 And Anr.
 Commissioner Of Income Tax International Taxation-3 Delhi Vs. Formula One World Championship Ltd. And Anr.
 Reliance Communications Ltd vs. DDIT (ITAT Mumbai)
  Sushila Devi vs. CIT (Delhi High Court)

Siemens Limited, 130 Pandurang Budhkar Marg, Worli, Mumbai 400018 Vs. Commissioner of Income Tax (Appeals) 11 Mumbai
February, 15th 2013
                                                    ITA No.4356 of 2010 Siemens Ltd Mumbai




          IN THE INCOME TAX APPELLATE TRIBUNAL
                     "L" Bench, Mumbai

       Before Shri B. Ramakotaiah, Accountant Member
             & Shri Amit Shukla, Judicial Member

                      ITA No.4356/Mum/2010
                          (Assessment year:)

Siemens Limited, 130                  Vs.   Commissioner of Income Tax
Pandurang Budhkar Marg,                     (Appeals) ­ 11
Worli, Mumbai 400018                        Mumbai
PAN: AAACS 0764 L
(Appellant)                                        (Respondent)

                     Assessee by:   Shri Sunil Lala, and
                                    Ms.Sheetal Jain
                     Department by: Shri Narendra Kumar, DR

                     Date of Hearing:       19/12/2012
                     Date of Pronouncement: 12/02/2013

                              ORDER

Per Amit Shukla, J.M.

      This appeal has been preferred by the assessee against order
dated 29.03.2010 passed by the CIT (A)-11, Mumbai in relation to
the order passed under section 195(2), inter alia on the following
grounds of appeal:
     "1. Based on the facts and circumstance of the case, the
     Commissioner of Income-tax (Appeals)-ll [hereinafter
     referred to as the CIT(A)] ought to have held that no tax
     is required to be deducted @ 10% from the payment to be
     made to Pehla Testing Laboratory (Pehla) towards type
     tests.
     2. The CIT (A) erred in not considering the fact that the
     payment to be made mainly for standard facility
     provided by laboratory using highly sophisticated
     equipment and is essential and core ingredient for
     carrying out the test. CIT (A) wrongly ignored this aspect
     which is going to the root of the case. Even while noting
     that Pehla carried out type test using sophisticated
     equipment without any human intervention CIT (A) failed
     to address the topic and wrongly held that consideration
     paid to Pehla is taxable in India, although Pehla does not






                                    Page 1 of 20
                                              ITA No.4356 of 2010 Siemens Ltd Mumbai




      have a Permanent Establishment in India.

      3. The CIT(A) erred in upholding the stand of the AO that
      the payment to be made to Pehla is in the nature of fees
      for technical services covered by section 9(1 )(vii) read
      with Explanation to section 9 of the Income-tax Act, 1961
      and as per DT AA between India and Germany.

      Without prejudice to the above, the CIT(A) ought to have
      held that the payment to be made to Pehla was in the
      nature of business profits and as per Article 7 of the DT
      AA between India and Germany, the payment was not
      liable to tax in India in the absence of a Permanent
      Establishment (PE) in India to which such payment could
      be attributed".

2.    Brief facts of the case are that the assessee was required to
make payment to "Pehla Testing Laboratory" (hereinafter referred to
as PTL) located at Berlin Siemensstadt 13623 Berlin, Germany for
carrying out type tests of the circuit breakers manufactured by
assessee in order to establish that the design and the product meets
the requirement of the International Standards ­ IEC 62271-100.
Pehala Lab is accredited by National Accreditation Board for Testing
& Calibration Laboratories (NABL) Germany, which carries out
various kinds of tests for circuit breakers and other electronic
devices to prove that the designs of the equipment meets the
requirements of the international standards. This is a standard
service provided by the Laboratory, which is done automatically by
machines. For the purpose of the payment for making remittance to
PTL, assessee moved an application under section 195 (2) before the
Asstt. Director (I.T.). Along with the said application assessee has
given a detailed submission and reasons justifying as to why the
remittance made to the PTL is not liable to tax in India under the
provisions of the Income Tax Act. The main contention of assessee
has been summarized by AO in the following manner:

      "i)   No income accrues or arises in India as all services
            are rendered outside India and the payment is
            made outside India.



                               Page 2 of 20
                                                   ITA No.4356 of 2010 Siemens Ltd Mumbai




       ii)    The payment is in the nature of business income of
              Pehla Laboratory and since it does not have any
              Permanent Establishment in India, the same is not
              taxable in India as per the DTAA.
       iii)   Since the service is rendered outside India, it is not
              taxable in India also as per Indian Income Tax Act.
              The Supreme Court decision in Ishikawajima-
              Harima Heavy Industries Ltd (288 ITR 408) stated
              that in order to tax the income it is necessary that
              the services have to be rendered and utilized in
              India.
       iv)    The Laboratory will use their test equipment to
              impose both high voltage and high currents on our
              circuit breakers, in line with the ratings of the
              breakers and check the performance of the circuit
              breakers and give us a report of test conducted
              indicating all the test results. It is a standard
              facility provided by the laboratory".
3.     It was further submitted that even as per the provisions of
Explanation 2 to section 9(1)(vii), the payment do not fall in the
nature and category of fees for technical services (FTS). The main
contention in this regard was that it is not a FTS but the payment
was purely for standard facility provided by the Laboratory which is
done    automatically    by   the     machines      without         any      human
intervention. In support of this contention, flyer received from PTL,
describing the nature and procedure of the testing was filed before
the AO. Reliance was also placed on the judgment of the Hon'ble
Delhi High Court in the case of CIT vs. Bharati Cellular Ltd
reported in 2009, 319 ITR 258 and Madras High Court judgment
in the case of Skycell Communications Ltd vs. DCIT reported in
2001, 251 ITR 53 (Mad.) to support that the expression "Technical
Services" involves a human element, whereas in the case of
assessee there is no involvement of human interface.

4.     AO, however, rejected the assessee's contentions on the
ground that firstly, type of the services provided by the Pehla Lab is
of highly technical in nature and the payment is definitely covered
by section 9(1)(vii) and secondly, the Explanation 2 to section 9



                                    Page 3 of 20
                                               ITA No.4356 of 2010 Siemens Ltd Mumbai




which was inserted by the Finance Act, 2007 with retrospective
effect 1.6.1976 provides that, where the income is deemed or
accrued or arise in India, such income shall be included in the total
income of the non resident, whether or not the non resident has a
residence or place of business or business connection in India.
Reference was also made to CBDT Circular No.03 of 2008 dated
12.03.2008. AO further held that the decision of the Hon'ble
Supreme Court in the case of Ishikawajima Harima Heavy
Industries Ltd Vs DIT [2007] 288 ITR 408 relied upon by assessee
will not be applicable as the same was rendered upon the provision,
prior to the amendment. Accordingly he held that payment made by
assessee would qualify as fees for technical services as per the
DTAA between India and Germany, as well as per section 9(1)(vii) of
the Income Tax Act. Thus, he directed assessee to deduct the tax @
10% on the gross amount of payment to be made to PTL.

5.    Aggrieved by this, assessee preferred an appeal before the CIT
(A), wherein it was submitted that this kind of testing certificate is
required by assessee for completing the tender formalities in India
and for this purpose it had to send circuit breakers, one of the
product manufactured by assessee to Pehla in Germany for quality
tests. The circuit breakers undergo a destructive test in the Labs
and the same are not received back in India. They are sent on
sample basis for the purpose of testing only and once it has cleared
the test in the Lab, a certificate is issued by the PTL. This test is
carried out through the use of sophisticated machines and
equipment which impose both high voltage and high current on the
circuit breakers to test the resistance. All this is done without
human intervention and report is prepared for the test conducted.
In this manner, the Pehla Lab does not offer any kind of
consultancy services or technical services. This certificate is one of
the formalities for completing the tender project in India by the
assessee, as the ultimate sale of the product, depend on fulfillment



                                Page 4 of 20
                                                ITA No.4356 of 2010 Siemens Ltd Mumbai




of other tender requirements. It was further submitted that the
word "technical services" as appearing in Explanation 2 to section
9(1)(vii) has to be read with the word "managerial and consultancy"
which requires and involvement of human element. In support of
this contention, decision of the Delhi High Court in the case of CIT
vs. Bharati Cellular Ltd reported in (2009), 319 ITR 258 and Madras
High Court judgment in the case of Skycell Communications Ltd
vs. DCIT reported in (2001), 251 ITR 53 (Mad.) was relied upon.
Further reliance was also placed on the decision of the ITAT Jaipur
Bench in the case of Jaipur Vidyut Vitaran Nigam Ltd vs. DCIT 123
TTJ 888.

6.    The learned CIT (A) first of all noted the nature of the services
for which the payment was made to PTL in the following manner:

      "3.7 The nature of services has been described in detail in
      the preceding Paras. However, to reiterate, the payments
      are to Pehla Testing Laboratory, located at Berlin,
      Germany for carrying out type tests. The type tests were
      required to be carried out on the circuit breakers
      manufactured by the appellants to prove that the design
      of the equipment meets the requirements stipulated by
      International Standards and were for the purpose of
      fulfillment of one of the Tender formalities laid down by
      the purchasers. For this purpose, the appellants had to
      send the circuit breakers (the product manufactured by
      the appellants) to Pehla Germany to obtain the type
      testing certificate. The circuit breakers undergo a
      destructive test in the laboratories. The breakers are not
      received back in India and are destroyed. Pehla carried
      out only type testing by using their sophisticated test
      equipments to impose both high voltage and high currents
      on the circuit breakers without human intervention and
      issued reports of the tests conducted".
Thereafter he come to the conclusion that PTL is carrying out
technical kind of services after observing as under:

       "3.10. Keeping this background in mind, it is now to be
      seen whether the services being provided by Pehla to the
      appellant fall in this spectrum. As per the flyer provided by
      the appellant, it is seen that by its own definition "Pehla is
      the competent authority for testing of all components






                                 Page 5 of 20
                                                ITA No.4356 of 2010 Siemens Ltd Mumbai




      relating to the transmission and distribution of high voltage
      power". It is a highly specialized `technical laboratory'
      fitted with the state of art equipment to conduct `type tests'
      on the circuit breakers manufactured by the appellants to
      prove that the design of the equipment meets the
      requirements stipulated by International Standards. Thus,
      the `type testing' services provided by Pehla can by no
      stretch of imagination be considered as non technical.
      Moreover, Pehla carried out the said type testing by using
      their sophisticated test equipments to impose both high
      voltage and high currents on the circuit breakers and
      issues reports of the tests conducted which are sent to the
      appellant in India".
7.    He further also referred to following decisions:

      i)     South West Mining Ltd. In re (2005) 148 Taxman 366
             (AAR)
      ii)    Cochin Refineries 222 ITR 354 (Ker.)
      iii)   Searle (India) Ltd v. CBDT (1983) 2 Taxman 300 (Bom.)
And held that the service rendered by Pehla is `technical services'.
Thereafter he analyzed the provisions of section 9(1)(vii) r.w.
Explanation 2 and held that firstly, fee payable to Pehla is within
the meaning of FTS and secondly, the services received by assessee
was utilized in India in the business of assessee and also for
earning income from source within India, therefore, it has to be
considered that services are rendered in India, hence taxable in
India. He further made reference to the Article-12(4) of the Indo
German DTAA and held that the definition of FTS given therein is
similar to Explanation 2 to section 9(1)(vii) of the Income Tax Act.
Regarding other contentions of assessee that testing was carried
out, outside India and the payment made to Pehla cannot be
charged to tax in India in view of the principles laid down by the
Hon'ble Supreme Court in the case of Ishikawajima Harima Heavy
Industries Ltd Vs DIT [2007] 288 ITR 408 (SC), he held that the said
decision is not applicable after the insertion of Explanation 2 to
section 9(1)(vii) with retrospective effect w.e.f. 1.6.1976. He thus
upheld the reliance placed by the AO on the CBDT circular No.03 of




                                 Page 6 of 20
                                                ITA No.4356 of 2010 Siemens Ltd Mumbai




2008. Assessee's plea that the payment made to Pehla cannot be
taxed in view of Article 7 of the DTAA as Pehla does not have a PE in
India was also rejected by the CIT (A) as per the discussion given
from Para 5.1 to 5.6. Accordingly assessee's entire contentions were
rejected.

8.      The learned Counsel appearing on behalf of the assessee after
reiterating the facts as incorporated above, submitted that, it has
been undisputed by the AO that the type testing carried out by
Pehla by use of highly sophisticated test equipment is without any
human intervention and this fact has also been admitted by the CIT
(A) in Para 3.7 of his order, wherein his decision has been recorded.
Once it is an admitted fact that no human intervention is involved
in such kind of testing, it does not amount to rendering of any
"technical services". He submitted that the word "technical service"
as appearing in Explanation 2 to section 9(1) (vii) is sandwiched
between the word "managerial" and "consultancy" and therefore the
word "technical service" has to be read along with these two words.
These words signify the involvement of human intervention as
without human involvement managerial and consultancy services
cannot be provided. A testing carried out purely by the machines
cannot be held to be providing "technical services" within the
meaning of section 9(1)(vii). In support of his contention, he has
relied upon catena decisions, some of which are cited herein below:

     a) CIT vs. Bharati Cellular Ltd (2009) 319 ITR 258 (Del.)
     b) CIT vs. Bharat Cellular Ltd (2011) 330 ITR 239 (SC)
     c) UPS SCS (Asia) Ltd v.ADIT (2012) 18 taxman.com 302 (Mum.)
     d) Jaipur Vidyut Vitran Nigam Ltd v. DCIT (2009) 123 TTJ 888
        (Jp.)
     e) Skycell Communications Ltd & ANR v. DCIT & Qrs. (2001)
        251 ITR 53 (Mad).
     f) Idea Cellular Ltd v. DCIT (2010) 123 ITD 620 (Del.)
     g) Dampskibsselskabet AF 1912 A/S Akitieselskabet v. ADIT
        (I.T) (2011) 130 ITD 59 (Mum.)



                                 Page 7 of 20
                                                ITA No.4356 of 2010 Siemens Ltd Mumbai




9.    The learned Counsel also filed a copy of flyer giving the
description of the type of testing done by the Pehla, which was filed
before the AO as well as before the CIT (A). Thus he concluded that
once payment is made for carrying out test in a Lab which is done
through sophisticated machines without any human intervention,
the same cannot be held to be "fees for technical services" as held
by various Courts in the aforesaid decisions.

10.   Per contra learned CIT (DR) submitted that the AO has not
examined whether there was any involvement of any human
element or human intervention in carrying out the test by the Pehla
or not. The learned CIT (A) has merely reproduced the contention of
assessee and has not given any categorical finding on that aspect.
Further he submitted that even carrying out the test of circuit
breakers in the machines, some technical experts are required to
observe and analyze the process and then only they certify the tests.
The laymen cannot do such kind of an exercise. He referred to Page
4 of the flyer filed by assessee, wherein he pointed out various kinds
of activities like providing test certificate and test report can only be
done through a technical expert person. Therefore, human brain is
involved in such kind of service. Apart from this, there were certain
human observers to confirm the result. This inter alia means that
human intervention is definitely there. Distinguishing the case of
the Hon'ble Delhi High Court judgment in the case of Bharati
Cellular (Supra), he submitted that in that case the issue was
diversion of calls from cell to cell through towers. This definitely was
a case of usage of machines and no human intervention is required
in such kind of transmission. Further the judgment of the Hon'ble
Delhi High Court has been set aside by the Hon'ble Supreme Court
in the case now reported as CIT vs. Bharati Cellular Ltd. (2011) 330
ITR 239 (SC). Thus the said decision cannot be relied upon. In the




                                 Page 8 of 20
                                               ITA No.4356 of 2010 Siemens Ltd Mumbai




case of Jaipur Vidyut Vitran Nigam Ltd (supra) passed by the ITAT
Jaipur Bench, the matter related to transmission of electricity
which is distinguishable from assessee's case. In support of his
contention, he gave an example of conducting of blood test, which
nowadays are done through sophisticated machines, but it is
certified by the Pathologist who analyses the report. This kind of
conducting blood test is definitely said to be done by the Pathologist
only who is human and not a service through machine. He also
relied upon the decision of the Cochin Refineries reported in (1996),
222 ITR 354 (Ker.), wherein the matter related to carrying out
certain tests conducted by a foreign company at the instance of the
Indian company and the payments made to the person of the
foreign company was treated as FTS within the meaning of section
9(1)(vii). Thus in the case of assessee also same has to be treated as
FTS. He further relied upon the decision of the ITAT in the case of
Ashapura Minichem Ltd. Vs. Assistant Director of Income-tax,
International Taxation 1(1), Mumbai, reported in (2010), 40 SOT
220. In   this case bauxite testing services conducted by Chinese
company in its Laboratories and preparing of test report was held to
be taxable under section 9(1)(vii). Strong reliance was also placed on
the decision of the Hon'ble Delhi High Court in the case of CIT vs.
Havells India Ltd in ITA Nos. 55 & 57 of 2012 dated 21.05.2012
wherein one of the issues related to deduction of tax at source of
testing fee which was held to be FTS. Thus, he submitted that the
learned CIT (A) has rightly concluded that the payment made by
assessee is in the nature of FTS and also the same is taxable in
India and TDS has to be deducted on such payment.

11.   In the rejoinder the learned Counsel stated that none of the
judgment relied upon by the learned DR has dealt with the issue of
human intervention as has been discussed and the case law relied
upon by him are entirely different from the issue involved in the
assessee's case. He submitted that the learned DR at this stage



                                Page 9 of 20
                                               ITA No.4356 of 2010 Siemens Ltd Mumbai




cannot controvert this fact that issue of human intervention has not
been examined by the AO and the CIT (A). He drew our specific
attention to the relevant paragraphs of the assessment order and
the order of the learned CIT (A). So far as the reliance of the Delhi
High Court judgment in the case of Havells India Ltd (supra), he
submitted that in that case assessee's Counsel has himself
conceded that this was the case of FTS and the issue was with
regard to the Explanation to section 9(1)(vii) and applicability of
section 40(a)(ia). Regarding other decisions relied upon by the AO he
submitted that the issues were more of accrual of income in India.
Lastly, he concluded that AO and the CIT (A) have referred to the
flyer submitted by assessee and they have not given any
interpretation that there was any kind of human intervention in the
process. The learned Counsel further clarified that he is not placing
reliance on the provisions of the treaty, but submitting his
arguments solely on the basis of section 9(1)(vii) and the meaning of
FTS given in Explanation 2 thereto.

12.   We have given our anxious consideration to the rival
contention, orders passed by the CIT (A) as well as AO and the
decisions relied upon by the parties. One of the main issue for our
adjudication which also goes to the core of the issue is, whether the
payment made to Pehla Testing Laboratories in Germany, for
carrying out certain tests on circuit breakers manufactured by
assessee for the purpose of certification, so as to meet the
international standard, falls within the meaning of fees for technical
services and is taxable within the meaning of section 9(1)(vii).
Assessee in pursuance of its tender formalities with the Gujarat
Energy Transmission Corporation Ltd and Maharashtra State
Electricity Transmission Company Ltd. was required to obtain type
testing certificate of the circuit breakers manufactured by it. For
this purpose it has sent the circuit breakers to be tested in the
Laboratory of PTL, wherein the circuit breakers undergo destructive



                               Page 10 of 20
                                                ITA No.4356 of 2010 Siemens Ltd Mumbai




tests in the Laboratories. Once it passes through the test in the
Laboratories, certificate is given by the PTL for the quality of the
product manufactured by assessee. Whether such a payment for
this kind of testing falls within the realm of fees for "technical
services". Section 9(1)(vii) provides that income by way of Fee for
Technical Services shall deemed to accrue or arise in India.
Explanation 2 defines the "fees for technical services" as under:

Section 9(1)(vii)

    "(vii) income by way of fees for technical services payable by--

      (a) the Government ; or

      (b) a person who is a resident, except where the fees are
          payable in respect of services utilized in a business or
          profession carried on by such person outside India or for
          the purposes of making or earning any income from any
          source outside India ; or

      (c) a person who is a non-resident, where the fees are
          payable in respect of services utilized in a business or
          profession carried on by such person in India or for the
          purposes of making or earning any income from any
          source in India :

    [Provided that nothing contained in this clause shall apply in
    relation to any income by way of fees for technical services
    payable in pursuance of an agreement made before the 1st day
    of April, 1976, and approved by the Central Government.]

    [Explanation 1.--For the purposes of the foregoing proviso, an
    agreement made on or after the 1st day of April, 1976, shall be
    deemed to have been made before that date if the agreement is
    made in accordance with proposals approved by the Central
    Government before that date.]

    Explanation [2].--For the purposes of this clause, "fees for
    technical services" means any consideration (including any
    lump sum consideration) for the rendering of any
    managerial, technical or consultancy services (including the
    provision of services of technical or other personnel) but does


                                Page 11 of 20
                                                   ITA No.4356 of 2010 Siemens Ltd Mumbai




      not include consideration for any construction assembly,
      mining or like project undertaken by the recipient or
      consideration which would be income of the recipient
      chargeable under the head "Salaries".]

       [Explanation.--For the removal of doubts, it is hereby
      declared that for the purposes of this section, income of a non-
      resident shall be deemed to accrue or arise in India under
      clause (v) or clause (vi) or clause (vii) of sub-section (1) and
      shall be included in the total income of the non-resident,
      whether or not,--

        (i) the non-resident has a residence or place of business or
            business connection in India; or

        (ii) the non-resident has rendered services in India".]
13.    From the above, it is seen that the expression "fees for
technical services" has been given as consideration for rendering
managerial,     technical     or   consultancy        services.         No      other
definition as such of the term technical services in the Act has been
given. The word "technical" as appearing in Explanation 2 is
preceded by the word "managerial" and succeeded by the word
"consultancy". It cannot be read in isolation as it takes colour from
the word "managerial and consultancy" between which it is
sandwiched. The Courts have held that in such a case principle of
noscitur a sociis gets attracted, which means that the meaning of
the word or expression is to be gathered from the surrounding word
i.e. from the context. Coupling of the words together shows that
they are to be understood in the same sense. The word "managerial
and consultancy" is a definite indicative of the involvement of a
human element. Managerial services and consultancy services has
to be given by human only and not by any means or equipment.
Therefore, the word "technical" has to be construed in the same
sense involving direct human involvement without that, technical
services cannot be held to be made available. Where simply an
equipment or sophisticated machine or standard facility is provided




                                   Page 12 of 20
                                                ITA No.4356 of 2010 Siemens Ltd Mumbai




albeit developed or manufactured with the usage of technology,
such a user cannot be characterized as providing technical services.
The Hon'ble Delhi High Court in the case of CIT vs. Bharati
Cellular Ltd (supra) in this regard has observed and held as under:

      "13.......

      "In the said Explanation the expression " fees for
      technical services"     means any consideration for
      rendering of any " managerial, technical or consultancy
      services" . The word " technical" is preceded by the
      word " managerial" and succeeded by the word "
      consultancy" . Since the expression " technical services"
      is in doubt and is unclear, the rule of noscitur a sociis is
      clearly applicable.

      The said rule is explained in Maxwell on                        the
      Interpretation of Statutes (Twelfth Edition) in                 the
      following words (page 289) :

      " Where two or more words which are susceptible of
      analogous meaning are coupled together, nosicutur a
      sociis, they are understood to be used in their cognate
      sense. They take, as it were, their colour from each
      other, the meaning of the more general being restricted to
      a sense analogous to that of the less general."

       This would mean that the word " technical" would take
      colour from the words " managerial" and " consultancy" ,
      between which it is sandwiched. The word " managerial"
      has been defined in the Shorter Oxford English
      Dictionary, Fifth Edition as :

       " of pertaining to, or characteristic of a manager, esp. a
      professional manager of or within an organization,
      business, establishment, etc."

      The word "manager" has been defined, inter alia, as :

       " a person whose office it is to manage an organization,
      business establishment, or public institution, or part of
      one ;a person with the primarily executive or supervisory
      function within an organization, etc., a person controlling
      the activities of a person or team in sports,
      entertainment, etc."




                                Page 13 of 20
                                         ITA No.4356 of 2010 Siemens Ltd Mumbai




It is, therefore, clear that a managerial service would be
one which pertains to or has the characteristic of a
manager. It is obvious that the expression "manager"
and consequently "managerial service" has a definite
human element attached to it. To put it bluntly, a
machine cannot be a manager.

 14. Similarly, the word "consultancy" has been defined
in the said Dictionary as the work or position of a
consultant; a department of consultants. "Consultant"
itself has been defined, inter alia, "as a person who
gives professional advice or services in a specialized
field". It is obvious that the word "consultant" is a
derivative of the word "consult" which entails
deliberations, consideration, conferring with someone,
conferring about or upon a matter. Consult has also been
defined in the said Dictionary as " ask advice for, seek
counsel or a professional opinion from; refer to (a source
of information) ; seek permission or approval from for a
proposed action" . It is obvious that the service of
consultancy also necessarily entails human intervention.
The consultant, who provides the consultancy service,
has to be a human being. A machine cannot be regarded
as a consultant.

15. From the above discussion, it is apparent that both
the words "managerial" and "consultancy" involve a
human element. And, both, managerial service and
consultancy service, are provided by humans.
Consequently, applying the rule of noscitur a sociis, the
word "technical" as appearing in Explanation 2 to section
9(1)(vii) would also have to be construed as involving a
human element. But, the facility provided by
MTNL/other companies for interconnection/port access
is one which is provided automatically by machines. It is
independently provided by the use of technology and
that too, sophisticated technology, but that does not
mean that MTNL/other companies which provide such
facilities are rendering any technical services as
contemplated in Explanation 2 to section 9(1)(vii) of the
said Act. This is so because the expression " technical
services" takes colour from the expressions " managerial
services" and " consultancy services" which necessarily
involve a human element or, what is now a days
fashionably called, human interface"




                         Page 14 of 20
                                               ITA No.4356 of 2010 Siemens Ltd Mumbai




This principle has been reiterated several times by various Courts
and the Tribunals as have been highlighted by the learned Counsel
during the course of hearing. Thus, one has to see whether any
kind of human interface or human involvement is there for
providing technical services by the PTL in this case.

14.   Now coming to the facts of the present case, whether
standard service provided at the Laboratory of PTL for the purpose
of testing the equipments is done automatically by the machines or
purely by human intervention. Assessee before the AO after drawing
his attention to the flyer received from the PTL had categorically
pointed out that the standard service provided by the PTL is without
any human intervention. This factor has not been disputed by him.
Even before the CIT (A), this contention has been deposed again by
the assessee which has been noted by him in Para 3.4 and again in
his findings in Para 3.7. None of the authorities have either rebutted
this contention of assessee, or has given any adverse remark or
findings that there was any human intervention in the process. The
learned CIT (A) as well as AO have gone merely by the fact that such
a type testing services provided by the PTL is highly sophisticated
and technical, and it cannot be considered as non technical.
Therefore, being highly technical in nature, it amounts to rendering
of technical services. From the perusal of the flyer as submitted by
the learned Counsel, it is seen that it describes various stages of
tests which have to be carried out for testing the circuit breakers in
various sophisticated machines. Such tests include switching
capacity and short circuit current carrying capacity, dielectric test,
temperature rise tests, magnetic tests, climatic tests and other kind
of tests. These tests are carried out in a Lab by the automatic
machines though under observations of technical experts.                    Once
these tests are done successfully by the machines, a certificate is
issued by the authorities of the PTL. The learned CIT (DR) had
argued that for observing the process, preparing the report,



                               Page 15 of 20
                                                  ITA No.4356 of 2010 Siemens Ltd Mumbai




issuance of certificate and for monitoring of machines, human
involvement is definitely there, therefore, it cannot be held that
there is no human intervention. In our opinion, this cannot be the
criteria   for   understanding   the   term      "technical        services"        as
contemplated in Explanation 2 to section 9(1)(vii). If any person
delivers any technical skills or services or make available any such
services through aid of any machine, equipment or any kind of
technology, then such a rendering of services can be inferred as
"technical services". In such a situation there is a constant human
endeavour and the involvement of the human interface. On the
contrary, if any technology or machine developed by human and put
to operation automatically, wherein it operates without any much of
human interface or intervention, then usage of such technology
cannot per se be held as rendering of "technical services" by human
skills. It is obvious that in such a situation some human
involvement could be there but it is not a constant endeavour of the
human in the process. Merely because certificates have been
provided by the humans after a test is carried out in a Laboratory
automatically by the machines, it cannot be held that services have
been provided through the human skills. Therefore, the contention
raised by the learned CIT (DR) does not appeal much to us.

15.   The Hon'ble Judge in the case of Skycells Communications
Ltd (Supra) while interpreting the word "fees for technical services"
as defined in Explanation 2 to section 9(1)(vii) has made a very
important observation:

      "5. In the modern day world, almost every facet of one's
      life is linked to science and technology in as much as
      numerous things used or relied upon in every day life is
      the result of scientific and technological development.
      Every instrument or gadget that is used to make life
      easier is the result of scientific invention or development
      and involves the use of technology. On that score, every
      provider of every instrument or facility used by a person
      cannot be regarded as providing technical service.




                                 Page 16 of 20
                                          ITA No.4356 of 2010 Siemens Ltd Mumbai




When a person hires a taxi to move from one place to
another, he uses a product of science and technology,
viz., an automobile. It cannot on that ground be said that
the taxi driver who controls the vehicle, and monitors its
movement is rendering a technical service to the person
who uses the automobile. Similarly, when a person
travels by train or in an aeroplane, it cannot be said that
the railways or airlines is rendering a technical service to
the passenger and, therefore, the passenger is under an
obligation to deduct tax at source on the payments made
to the railway or the airline for having used it for
travelling from one destination to another. When a person
travels by bus, it cannot be said that the undertaking
which owns the bus service is rendering technical service
to the passenger and, therefore, the passenger must
deduct tax at source on the payment made to the bus
service provider, for having used the bus. The electricity
supplied to a consumer cannot, on the ground that
generators are used to generate electricity, transmission
lines to carry the power, transformers to regulate the
flow of current, meters to measure the consumption, be
regarded as amounting to provision of technical services
to the consumer resulting in the consumer having to
deduct tax at source on the payment made for the power
consumed and remit the same to the Revenue.

Satellite television has become ubiquitous, and is
spreading its area and coverage, and covers millions of
homes. When a person receives such transmission of
television signals through the cable provided by the cable
operator, it cannot be said that the home owner who has
such a cable connection is receiving a technical service for
which he is required to deduct tax at source on the
payments made to the cable operator.

Installation and operation of sophisticated equipments
with a view to earn income by allowing customers to
avail of the benefit of the user of such equipment does
not result in the provision of technical service to the
customer for a fee.

6. When a person decides to subscribe to a cellular
telephone service in order to have the facility of being
able to communicate with others, he does not contract to
receive a technical service. What he does agree to is to
pay for the use of the airtime for which he pays a charge.
The fact that the telephone service provider has installed



                          Page 17 of 20
                                                  ITA No.4356 of 2010 Siemens Ltd Mumbai




      sophisticated technical equipment in the exchange to
      ensure connectivity to its subscriber, does not on that
      score, make it provision of a technical service to the
      subscriber. The subscriber is not concerned with the
      complexity of the equipment installed in the exchange, or
      the location of the base station. All that he wants is the
      facility of using the telephone when he wishes to, and
      being able to get connected to the person at the number to
      which he desires to be connected. What applies to cellular
      mobile telephone is also applicable in fixed telephone
      service. Neither service can be regarded as "technical ser-
      vice" for the purpose of section 194J of the Act.

      7. The use of the internet and the world wide web is
      increasing by leaps and bounds, and there are hundreds
      of thousands, if not millions, of subscribers to that
      facility. The internet is very much a product of technology,
      and without the sophisticated equipment installed by the
      internet service providers and the use of the telephone
      fixed or mobile through which the            connection is
      established, the service cannot be provided. However, on
      that score, every subscriber of the internet service
      provider cannot be regarded as having entered into a
      contract for availing of technical ser- vices from the
      provider of the internet service, and such subscriber
      regarded as being obliged to deduct tax at source on the
      payment made to the internet service provider.

Thus if a standard facility is provided through a usage of machine
or technology, it cannot be termed as rendering of technical
services. Once in this case it has not been disputed that there is not
much of the human involvement for carrying out the tests of circuit
breakers in the Laboratory and it is mostly done by machines and
is a standard facility, it cannot be held that Pehla Testing
Laboratory is rendering any kind of technical services to assessee.
In our conclusion, we thus hold that payment made by assessee to
the PTL in Germany is not in consideration for rendering of any
kind of "technical services" either in the nature of managerial or
technical or consultancy services. Therefore, it does not fall within
the ambit of section 9(1)(vii).




                                  Page 18 of 20
                                               ITA No.4356 of 2010 Siemens Ltd Mumbai




16.    The learned CIT (DR) has relied upon the decision of the Delhi
High Court in the case of Havells India Ltd (Supra) wherein the
issue was with regard to the disallowances under section 40(a)(ia).
In this case it was categorically admitted by the learned Counsel on
behalf of assessee that he has not disputed that the payment made
was within the purview of fees for technical services. This aspect of
the matter was thus not disputed. Therefore, the Hon'ble High
Court has not dealt with this issue at all. Even in the other cases as
relied upon by the learned CIT (DR) the issue mostly revolved
around whether the income were accruing in India or not. None of
the judgments relied upon are directly on the point whether the
technical services has been provided through human intervention or
not.

17.    Lastly coming to the learned DR's contentions that the
judgment of the Hon'ble Delhi High Court in the case of Bharati
Cellular Ltd (Supra) has been set aside by the Hon'ble Supreme
Court, it is however, seen that the Hon'ble Supreme Court has set
aside the matter to the Assessing Officer with regard to examination
and to establish whether technical services provided, involved any
kind of human intervention or not during the process of call
communication. The Hon'ble Supreme Court has not reversed or
adversely commented on the provisions or principles of law
discussed by the Hon'ble Delhi High Court. It was on the fact of the
case that the matter was set aside to examine the nature of the
technical services and to examine the involvement of the human in
the process.

18.    In our final conclusion we hold that the learned CIT (A) was
not correct in holding that the payment made by assessee to Pehla
Testing Lab was in any manner in the nature of "fees for technical
services" within the ambit of section 9(1)(vii) read with Explanation
2 and accordingly there was no requirement in law to deduct tax at




                               Page 19 of 20
                                                   ITA No.4356 of 2010 Siemens Ltd Mumbai




service on such payment. In the result this issue is decided in the
favour of the assessee.

19.     Now coming to the other issues in the grounds raised by
assessee, we find that same have become purely academic in view of
our findings given above. Therefore, the same are treated as
infructuous. Technically speaking the appeal of assessee is treated
as allowed.

20.     In the result appeal filed by assessee is as allowed.

        Order pronounced in the open court on 12th February, 2013



               Sd/-                                     Sd/-
         (B. Ramakotaiah)                          (Amit Shukla)
        Accountant Member                         Judicial Member


Mumbai, dated 12th February, 2013.

Vnodan/sps

Copy to:

   1.   The   Appellant
   2.   The   Respondent
   3.   The   concerned CIT(A)
   4.   The   concerned CIT
   5.   The   DR, " L" Bench, ITAT, Mumbai

                                By Order



                          Assistant Registrar
                     Income Tax Appellate Tribunal,
                       Mumbai Benches, MUMBAI




                                  Page 20 of 20
 
 
Home | About Us | Terms and Conditions | Contact Us
Copyright 2016 CAinINDIA All Right Reserved.
Designed and Developed by Binarysoft Technologies Pvt. Ltd.
Multimedia Presentations Multimedia Solutions 3D Solutions Corporate Presentations Business Presentations Multimedia Presentation India M

Transfer Pricing | International Taxation | Business Consulting | Corporate Compliance and Consulting | Assurance and Risk Advisory | Indirect Taxes | Direct Taxes | Transaction Advisory | Regular Compliance and Reporting | Tax Assessments | International Taxation Advisory | Capital Structuring | Withholding tax advisory | Expatriate Tax Reporting | Litigation | Badges | Club Badges | Seals | Military Insignias | Emblems | Family Crest | Software Development India | Software Development Company | SEO Company | Web Application Development | MLM Software | MLM Solutions