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2018 (9) TMI 1758 - AT - Income TaxDisallowance u/s 40(a)(i) - technical on-call assistance charges paid by assessee to its AE - DTAA - Held that:- It is observed that assessee is providing annual maintenance in respect of equipments manufactured by AE. In respect of the same, assessee entered into an agreement with AE dated 01/04/10, whereby technical on-call advisory services are obtained from AE, in case of problems of outrage, emergency, technical support or system compromised on the basis of priority of cases. Under the agreement, AE is required to provide support services in case of critical/emergency issues to customers of assessee, through call centres remotely. Assessee in view of such services rendered made payments to AE, on which no TDS was deducted, as according to assessee, there is no requirement of withholding tax on such payments. It has also been submitted by Ld.Counsel that AE do not have a PE in India, and therefore is not taxable under India US DTAA. Provisions of India-US treaty provide for a restrictive meaning of ‘fee for included services’ vis-a-vis meaning of ‘fee for technical services’ (FTS) under the Act, in as much as, only those technical/consultancy services which are ancillary and subsidiary to application/enjoyment of right, property or information or which 'make available' technical knowledge, skill, knowhow, process etc. would be liable to tax. Thus, in accordance with MOU, technology will be considered to be 'made available' when the person acquiring the service is able to apply such technology on his own. Adverting to facts of case before us, service rendered by AE to assessee is as per agreement dated 01/04/10. According to the agreement, furnished by assessee placed at page 54-62 of paper book, services provided by AE to assessee are in nature of assistance in troubleshooting, isolating the problem and diagnosing related trouble and alarms and equipment repair services wherein the equipments will be shipped to US by assessee as and when required. It has been agreed between the parties that AE would be providing such services remotely and no on-site support services would be provided to customers of assessee. It appears from the above description of services rendered by AE that there is use of technical knowledge and/or skill, utilised by AE qualifies as “fee for technical services”, as defined under Explanation 2 to section 9(i)(vii) of the Act. As India has double taxation avoidance agreement with US, and Article 12(4) of India-USA DTAA deals with “fee for technical services”, to determine taxability of income received by AE for services rendered in India, the services rendered should satisfy the requirements under Article 12 (4), which requires technical knowledge, experience, skill etc., to be "made available" to the recipient of such services. On a careful perusal of the agreement dated 01/04/10 between AE and assessee, it appears that services rendered therein by AE does not satisfy the make available requirement as per article 12 (4) of the Act. Revenue received by AE in view of services rendered to assessee’s customer is not taxable in India as per Article 12 (4) of India US DTAA, applicability of section 195 of the Act is not possible. Therefore, we are of the considered opinion, that section 40(a) (i) disallowance is uncalled for. In the result grounds raised by assessee for the year under consideration stands allowed.
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