was engaged in the business of manufacturing electrical products including
switchgears, electric fans, cables and wires. It paid to US-based company (USCO),
a specialist in product testing and certification for electrical products, for
getting its products tested and getting certification. This certification was
necessary for enabling ICO to export its products to the USA and European Union
No tax was
deducted at source on the ground that since testing of products was done in a
laboratory outside India, no income had accrued or arisen to USCO in India.
Further the payment was not in the nature of fees for included services in terms
of India-USA DTAA. The Assessing Officer took the view that as the testing and
certification of ICO’s products was required to be utilised in the manufacturing
activity of ICO, the payment was covered by source rule of section 9(1)(vii) as
‘fees for technical services’ (FTS) and) the services and payments would also be
covered under ‘fees for included services’, in terms of Article 12(4)(b) of the
DTAA. The expenditure was disallowed u/s. 40(a)(i).
contended that the service was rendered and utilised outside India. The
certification was required to enable ICO to export its products to the USA and
EU and such certification was not required for sale of goods in India and the
source rule exception u/s. 9(1)(vii)(b) would come into play.
Officer rejected these contentions and the order of the AO was confirmed by the
CIT(A). On appeal to the Tribunal.
To seek exemption
u/s.9(1)(vii)(b), onus was on ICO to prove that the services were utilised
either in a business carried on outside India or for the purposes of making or
earning any income from any source outside India.
The AO has not
been able to bring anything on record to prove that the services have not been
utilised outside India. He has not been able to rebut the representation of the
taxpayer that certificates were required only for purposes of export. and that
such certificates were utilised for export; and that they were not utilised for
its business activities in India. Hence, onus which lies on the assessee was
discharged. No tax withholding was required and disallowance u/s. 40(a)(i) was