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2012 (11) TMI 675 - AT - Income TaxTechnical or Consultancy Service – Deduction of TDS u/s 195 - Whether US company, which incidentally was a subsidiary of the assessee, was rendering any technical services, which warranted a deduction of tax at source, in accordance with Section 195 of the Act – Held that:- Technical or Consultancy Service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology "making available", the technical knowledge, skills, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. In other words, payment of consideration would be regarded as "fee for technical included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied." The scope of work would show that different types of services were rendered by the subsidiary in USA. With regard to the Marketing Agreement, and Overseas Services Agreement, no part thereof was having income element which was chargeable to tax under the provisions of Income-tax Act in India in view of Article 12.4 of DTAA. Therefore, insofar as payments made against bills raised by the non-resident entity of the assessee based on these two agreements, assessee could never be fastened with liability to deduct tax at source. However, for the second agreement, namely, "Offshore Development (Facilitation) Agreement", one of the items of services rendered by the entity abroad could have an element of income chargeable to tax in India, since it could involve making available technical services to the assessee in India. If the services rendered by the entity abroad with regard to the said agreement were such that technical skills were made available to the assessee in India, then of course, Section 195 of the Act will apply. Assessee having not made any application under Section 195(2) of the Act, it could be fastened with a failure to deduct tax at source as specified under Section 195 of the Act. Then of course, rigours of Section 40(a)(i) would be attracted - Orders of authorities are set aside and remit the issue insofar as it relates to payments made by the assessee to its subsidiary abroad with regard to "Offshore Development (Facilitation) Agreement" back to the file of the A.O. for consideration afresh in the light of DTAA between India and USA, in accordance with law - In the result, appeal of Revenue is partly allowed for statistical purposes.
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