TMI Blog2009 (8) TMI 6X X X X Extracts X X X X X X X X Extracts X X X X ..... i (Chairman) Present for the applicant : Dr. Anitha Sumanth, Advocate Mr. Swathanth, R., Analyst Present for the Department : - - RULING [By Hon'ble Chairman] - The applicant is a Company based in United States of America which is engaged in the business of manufacture of process control instruments, engineering and research and technology based services, cooperative or consortium services etc. The applicant entered into an Agreement titled as Cost Allocation Agreement with Invensys India (P) Ltd. (for short "IIPL"), which is part of the Invensys Group. This Company was incorporated in India on 19/12/96. The applicant incurs expenditure in relation to the functions enumerated in Schedule I to the said Agreement for the benefit of the Group as a whole. Pursuant to the Agreement the applicant raises invoice on IIPL for the amounts worked out on the basis of the formula in the Agreement. It is stated that none of the personnel of the applicant visited nor would in the future visit India for providing the centralized assistance to IIPL. 2. On these facts stated in the application, the applicant seeks advance ruling on the following two questions: " ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 11: Support in relation to management accounting and reporting; s.no.12: Assistance in treasury management; s.no.13: Assistance in internal audit function on a global basis covering financial audits, operational audits (to improve efficiencies), and internal control evaluation; s.no.19: Assistance in global tax strategies including transfer pricing, and coordinating/collating status on tax filings, litigation, etc; E.Corporate secretarial and legal support s.no.9: Centralised Assistance in relation to coordinating and collating status on litigation matters, assistance with commercial contract format, etc; s.no.10: Guidelines in relation to governance policies, group's authorization and delegation policies; s.no.18: Support in relation to contract review and assistance in business risk evaluation. 3.1. In the chart furnished by the applicant's counsel, the nature of various services have been further elaborated under the head "Description of Services". 4. We may refer briefly to the relevant clauses in the Cost Allocation Agreement dated 01.04.2007 entered into between Invensys Systems Inc. the applicant, (referred to as 'Assistance Provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n clause (b) Article 12.4 is not satisfied because the applicant by rendering such services does not "make available" technical knowledge, skill, know-how and the like. Reference has been made to the decisions/rulings interpreting the expression 'make available'. It is submitted that the provisions of the DTAA relating to 'fees for included services' (including technical services) being more beneficial than the provisions in the Income-tax Act, 1961, the applicant is entitled to invoke the benefit under the treaty provisions in accordance with the settled law on the subject. It is further contended on the basis of the Supreme Court's decision in the case of Ishikawajima Harima Heavy Industries (2007) 288 ITR 408 that the entirety of services/assistance having been rendered from outside India, the amount received by the applicant cannot be subjected to tax under the provisions of section 9(1) or section 5 of the Income-tax Act, 1961 inasmuch as the services are not rendered in India. Relying on the observations in that judgment in which section 9(1)(vii) was interpreted, the learned counsel submits that it is not sufficient that the services are utilized in India but they must a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ity observed: "First, about the connotation of the term "managerial". The adjective "managerial" relates to manager or management. Manager is a person who manages an industry or business or who deals with administration or a person who organizes other people's activity. As pointed out by the Supreme Court in R. Dalmia vs. CIT [1977] 106 ITR 895, "management" includes the act of managing by direction, or regulation or superintendence. Thus, managerial service essentially involves controlling, directing or administering the business." In some DTAAs, apart from the terms 'technical' and 'consultancy', 'managerial' is also included within the FTS clause. 8.1. The contention of the learned counsel for the applicant is that almost all the services to be carried out by the applicant under the Agreement are not technical but are managerial nature and therefore they are out of purview of FTS provision. Learned counsel submits that the purpose of the activities undertaken under the Agreement is to give direction or guidance to the group companies as a whole so that they will adopt or follow standard procedures or templates in various matters. By virtue of such managerial inte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ineering services." The view expressed by the High Court in that case that narrow meaning has to be placed on the expression "technical service" has to be confined to the context in which the observation was made. Otherwise, it may conflict with the view taken by the Supreme Court in various decisions referred to in Intertek. The reason for giving restricted meaning to the word "technical" was the purpose and object of Section 80-O of the I.T.Act. 9. Assuming that some of the services/functions can be brought within the definition of technical or consultancy services, yet the other ingredient in clause (b) of Art. 12.4. of DTAA viz. "make available" is not satisfied in the instant case. The expression "make available" was construed in Intertek (supra) and Worley Parson (AAR/748/2007) (2009) 313 ITR 74. In understanding that expression, this Authority observed that the MOU appended to the India-USA DTAA succinctly explains the scope of the phrase "make available". It was explained in the MOU: "Generally speaking, technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ose tests or the inputs that have gone into it , so as to enable them to carry out those tests themselves in future. A broad description or indication of the type of test carried out to reach this conclusion does not enable the applicant's client to derive requisite knowledge to conduct the tests or to develop the technique by itself. The mere fact that the tests in question are highly technical in nature will not make a difference. ……………….. From the perusal of the relevant agreements, we have not found any provision which would entitle Sandoz /Ranbxy to know the details of the analytical methods and procedures employed by the applicant in carrying out the bioequivalence tests." 9.3. Applying the above test, we can hardly find any service which makes available the technical knowledge, experience or skills possessed by the provider of service to the recipient. Against Sr. No. 15, research and development of new products and services offerings is found in the Chart submitted by the applicant's counsel. However, it was explained that this involves communicating the result of the research and development efforts and does not involve any transfer of technical designs, or know-how. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ided or whether the activities are of such nature that a group member (the parent or other holding company) performs them solely because of its ownership interest as shareholder has been the subject matter of debate in the context of transfer pricing provisions. There is an illuminating discussion on this subject in Chapter VII of the OECD Transfer Pricing Guidelines published in March, 1995. For instance, it is specifically stated in para 7.10 that the costs relating to reporting requirements of the parent company including the consolidation of reports will constitute shareholder activities. 11.1. There is no need to pursue the discussion further on this aspect. Assuming that some of the activities are not really services but they are more in the nature of stewardship/shareholder activities, for that reason, the amounts received by the applicant from IIPL in terms of the invoices raised by it cannot be taxed in India in the absence of permanent establishment of the applicant. 12. In view of Art.7.1 of the DTAA, if at all it will only have bearing on the computation of income of IIPL. Nothing in this ruling shall be construed to be an expression of opinion on the tax impl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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