TMI Blog2011 (12) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... ented by: Present for the applicant Mr. N.Venkatraman, Sr.Advocate Mr. Prashant Khatore, C.A. Mr. Amit Joshi, C.A. Mr. P.Venkatesan, Advocate Present the Department Md.Tarique Kalim, Addl.DIT R-2, New Delhi RULING V.K. Shridhar, Member - Applicant submits that it is a company based in Netherlands and is in the business of manufacture and sale of sugar confectionary and gum. It also provides operational and other support services for the benefit of companies of Perfetti Van Melle Group (Perfetti Group) situated in various countries. It has entered into a Service Agreement with its group company, Perfetti Van Melle India Pvt. Ltd. (Perfetti India), which is effective from 1.4.2010. Under the agreement, the Applicant will incur cost in providing various operational and other support services for the benefit of group companies by drawing its own resources as well as on those available from other Group Companies or third parties and will invoice the cost incurred for providing such services on cost to cost basis without charging any mark up. The employees and other personnel engaged by the Applicant for providing these services will not visit India. 2. Applicant su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts to be made by Perfetti India towards the cost to be allocated by the Applicant? 4. Assuming that the Applicant has no other taxable income in India, on the facts and circumstances of the case; a. Whether the Applicant will be absolved from filing a tax return under the provisions of the Act; and b. Whether the transfer pricing provisions of section 92 to section 92F will be applicable to the Applicant in respect of the payment to be made by Perfetti India? 4. Applicant submits that under the Service Agreement, the functions in respect of which costs will be allocated are managerial and not technical or consultancy in nature and Perfetti India will not get equipped with the knowledge or expertise and would not be able to apply it in future without the Applicant. Being managerial services, these are outside the purview of Article 12. In the absence of a specific clause of service PE in the DTAC, the question of service PE for the services to be rendered by the Applicant does not arise. 5. Referring to the description of the services rendered by the Applicant, the Revenue argued that these services equip Perfetti India to manage its services efficiently based on the repo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ering of any "technical or consultancy services" if such services: (a) make available technical knowledge, experience, skill, know-how or processes, or (b) consist of the development and transfer of a technical plan or technical design. 7. It is submitted by the Applicant that no tax is payable under Article 12.5 of the DTAC. The argument of the Applicant is two-fold, namely: i. The services under the Agreement are not technical or consultancy in nature and ii. The services are not made available to the Applicant. Let us examine the nature of the services being rendered under the Service Agreement. The services under the Services Agreement are in the nature of support services being provided by a holding company to a group entity. They are specific to the confectionary industry and are not general in nature. The focus of the services is to extend the benefit of the global experience of the group companies to Perfetti India. It was held in Intertek Testing Services, in re [2008] (307 ITR 418), by this Authority that the expression "technical services" cannot be construed in a narrow sense. It has been observed therein that the term "technical" ought not to be confine ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt to independently apply the knowledge/skill that is provided. The word "enable" is used in the sense that the services should be such that they make the recipient able or wiser in the subject matter. This is even more evident from the fact that it is the recipient who applies the knowledge and skill and the provider only supports the recipient with knowledge and skill. The services in this scenario are continuous to ensure that the knowledge provided and applied by the recipient can be reviewed and continuous experience that is being gained globally can be supplied to the recipient for further enabling it to perform its tasks better. In Raymond Ltd. (86 ITD 791), relied upon by the Applicant it is stated: "Some sort of durability or permanency of the result of the "rendering of services" is envisaged which will remain at the disposal of the person utilizing the services. The fruits of the services should remain available to the person utilizing the services in some concrete shape such as technical knowledge, experience, skills, etc." The Applicant submits that Perfetti India "will not get equipped with the knowledge or expertise and would not be able to apply it in future ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... attached to a treaty between two countries to find the meaning of an expression used in the treaty, but to refer to a treaty to which two countries are not parties, would not be appropriate. We are of the opinion that no inference/conclusion/support as to the meaning of 'make available' can be drawn from the MOU attached to India-US DTAC. 9. In this context it is pointed out that in the statement of facts having bearing on the questions raised in the application, there is no mention of Trademark Technology and Know-how License Agreement (TTLA) through which the applicant is getting paid on account of royalty. Why the applicant desires to provide support services is not separately stated. Obviously these are not intended to be provided on standalone basis. In the preamble of the Service Agreement, it is stated that the applicant and the receiver of the support services are a part of a Multi-National Group of Enterprises active in the confectionary industry and are renowned manufacturers, distributors and marketers of several high quality products. It was then agreed to provide specified services, rendering of which require use of proprietary knowledge and processes belonging to Pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht or information, a support system has been put in place in terms of the Service Agreement which is effective from the same date. The Service Agreement specifically recognizes the existence of proprietary knowledge, processes belonging to PVM group which include the two Netherlands companies. It also recognizes that Specified Services are required to be rendered to use such proprietary knowledge and processes on a continuous basis. The specified services are drawn from the experienced personnel under their employment as well as of the group companies or third parties. All such services are required in connection with the Trademarks, Technology and Know-how License Agreement through which the consideration in the form of royalty is flowing. More the efficiency in application in the manufacturing, quality control, costing, working capital control availability of finance, manpower and HR policies, advertisement of the products, IP protection to the trademark, legal support, developing strategies to enhance sales, etc. larger is the enjoyment of the rights conferred through TTLA. Thus one agreement gives the right to manufacture and the other agreement brings the efficiency in such ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto by two sovereign States relating to rights and duties of subjects or citizens of the respective States in one another's possessions (see Ramanatha Aiyar - Law Lexicon). A treaty is negotiated and entered into at political level and have several considerations as their base (See Azadi Bachao Andolan- 263 ITR 706). A treaty is unique for the two nations that are parties to it. So, how can a treaty with one country, be interpreted in the light of the treaty with another country, subject of a bargain and mutual give and take with reference to the relationship with that particular country. If so, how can a Memorandum of Understanding accompanying a treaty with another country, be used as an aid to interpret the treaty with a different country. I am of the view that the use of the Memorandum of Understanding accompanying or supplementing the India-US Tax Convention cannot be used as an aid to understand the terms of the India-Netherlands treaty. The significance of the fact that such a Memorandum or a similar Memorandum of Understanding does not supplement the convention with Netherlands cannot also be lost sight of. One possible inference is that India did not want the situation ari ..... X X X X Extracts X X X X X X X X Extracts X X X X
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