Sum paid to Swiss Resident Professional for preparation of scheme for raising finance held to be FTS by Hon'ble Supreme Court of India!
a) The assessee-company intended to set up a gas based power project to generate and sell electricity. It entered 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 and it 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'.
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.
My View: In this case, surprisingly, DTAA between India and Switzerland was not invoked by the appellant. If the relevant articles of DTAA had been invoked and got analyzed by the appellant, Hon'ble SC might have come out with different decision as DTAA restricts the meaning of FTS giving lesser scope of taxation for Source State. Further there is a separate clause for professional services of these nature.
This decision might cause a major headache in coming days for all taxpayers as consultancy services of professional nature are generally considered under separate clause of Independent Personnel Services and not under the clause relating to FTS. However by not invoking Indo-Swiss DTAA, the appellant has allowed the Pandora's Box of litigation to open.