TMI Blog2004 (8) TMI 103X X X X Extracts X X X X X X X X Extracts X X X X ..... f its air-traffic management requirement, the TDA will entirely fund the cost of the study through a grant which is to be utilized as per the terms and conditions laid down by TDA. The applicant therefore entered into an Agreement with Government of United States through TDA on 22.03.2001. The TDA has agreed to provide the specified amount of funds [US$ 450,600] as a grant to the Applicant for funding a 'feasibility study' on the proposed CNS / ATM project in India . TDA will make disbursement of the grant funds directly to a "Contractor" selected to carry out the said feasibility study. The "Contractor", will be a US entity. As per clause 12 of the Grant Agreement, the grant funds shall not be used to pay any taxes, tariffs, duties, fees or other levies imposed under the laws in force in India . ii. The grant funds will be directly disbursed by TDA to the Contractor in USA. The applicant will not, at any point of time, receive any money from TDA or disburse the money to the Contractor. Further, the Applicant will not, directly or indirectly, receive any goods or services from the Contractor. The advantage to the Applicant appears to be that if the Applicant desires to set-up / u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Double Taxation Avoidance Agreement (DTAA) between India USA. It has been contended that the payments can not be termed as royalty because the same is not being made in consideration for the use of or right to use any rights or properties or any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience. It has been further stated that the payment is also not for the use or right to use any industrial, commercial or scientific equipment. It has also been contended that the payment can not be termed as fees for included services because it is neither a payment for services which could be considered as incidental to royalty nor for making available any technical knowledge and experience or skill. iii. It has also been argued that the payment to be received by the contractor cannot be termed as "business profits" as defined in Art. 7(7) of the DTAA. It has also been contended that the contractor has no permanent establishment (PE) in India. In this regard the applicant has relied upon Art.5 of the DTAA defining PE. The applicant has specifically invited attention to para 3(e) of Art.5 whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow-how from the contractor who is rendering services to the applicant. The provisions of section 9(1)(vii) are broad enough to cover such consultancy also which are subject matter of this application. As the services will be utilized in India as a result of the work done by the contractor, the same are covered under clauses (b) (c) of section 9 (1) (vii). Therefore, it has been argued that so far as the application of section 9(1)(vi) (vii) is concerned, the present case is covered. vi. It has also been argued that the payments to the contractor are also covered under Art.12 (3) and 12(4) of the DTAA. The feasibility report to be submitted by the contractor falls under this category for information concerning industrial, commercial or scientific experience. The contractor is making available technical knowledge and skill in the field assigned to it by the applicant. It has been pointed that the Memorandum of Understanding attached with the DTAA clarifies that para-4 (b) of Article 12 refers to technical or consultancy services which consider the development and transfer of a technical plan or technical design. The feasibility report to be submitted by the Contractor actually ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1) of the Act need not be discussed. The jurisdictional commissioner has pleaded that the payments to Innovative Solutions are income under section 9(1)(vi) or 9 (1) (vii) of the Act because the payments, though made through TDA, are made on behalf of the Applicant who is a person resident in India . The language of both the clauses is similar in the sense that income by way of royalty or by way of fees for technical services is deemed to accrue or arise in India, if it is payable by - • the Government; or • a person who is resident, except where the benefit of right, property or information is used or services are utilized for the purposes of a business or profession carried on by such person outside India or for earning any income from source outside India; or • a person who is a non-resident, where the benefit of right, property or information is used or services are utilized for the purposes of 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 . 6. The first question for consideration, therefore, is that the royalty or fees for technical services is 'payable' by whom? The jurisdicti ..... X X X X Extracts X X X X X X X X Extracts X X X X
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