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2022 (7) TMI 1593 - AT - Income TaxIncome deemed to accrue or arise in India - receipts as fees for technical services under article 12(4) of the Indo Singapore tax treaty - Scope of make available clause - HELD THAT - As in order to invoke make available clause to fit into the terminology making available the technical knowledge and skill must remain with the person receiving the services even after the particular contract comes to an end and 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 . Technology will be considered made available when the person acquiring the service is enabled to apply the technology. In our considered view that condition is not satisfied on the facts of the present case. We therefore hold that that make available clause in the Indo-Singapore tax treaty cannot be invoked on the facts of the present case- as no case is even made out by the revenue that as a result of rendition of these services to the Indian entity there is any transfer of skill or technology. Once the taxability fails in terms of the treaty provisions there is no occasion to refer to the provisions of the Income Tax Act 1961 as in terms of Section 90(2) where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India as the case may be under sub-section (1) for granting relief of tax or as the case may be avoidance of double taxation then in relation to the assessee to whom such agreement applies the provisions of this Act shall apply to the extent they are more beneficial to that assessee . The taxability of impugned receipts under section 9 is thus wholly academic. We leave it at that. We direct the AO to exclude the sum from his taxable income as fees for technical services. Appeal of assessee allowed.
1. ISSUES PRESENTED and CONSIDERED
The core legal questions considered by the Tribunal are: (a) Whether the amount of INR 3,06,12,630 received by the assessee from its Indian associated enterprise constitutes 'Fees for Technical Services' (FTS) under Article 12 of the India-Singapore Double Taxation Avoidance Agreement (DTAA), specifically whether the services rendered "make available" technical knowledge, experience, skill, know-how, or processes to the Indian entity, thereby attracting tax in India. (b) Whether the Assessing Officer erred in denying credit for Tax Deducted at Source (TDS) on interest on income tax refund amounting to Rs 19,102. (c) Whether the initiation of penalty proceedings under section 270A of the Income Tax Act, 1961, was justified given the facts of the case. 2. ISSUE-WISE DETAILED ANALYSIS Issue (a): Taxability of the amount as Fees for Technical Services under Article 12 of the India-Singapore DTAA Relevant legal framework and precedents: The taxability of fees for technical services under Article 12(4) of the India-Singapore DTAA hinges on the "make available" clause. The provision stipulates that fees for technical services are taxable only if the services rendered "make available" technical knowledge, experience, skill, know-how, or processes to the recipient, enabling the recipient to apply such knowledge independently in the future without recourse to the service provider. Key judicial precedents include:
Court's interpretation and reasoning: The Assessing Officer and the Dispute Resolution Panel (DRP) took the view that the services rendered by the assessee-comprising business support services such as management support, administrative support, finance, learning and development, marketing, and referral fees-constituted technical services that "make available" technical knowledge and skills to the Indian associated enterprise (AE). They reasoned that these services provided an enduring benefit and were customized to local needs, enabling the AE to use them for future business purposes. The DRP specifically highlighted that services like developing local business strategies, preparing budgets and forecasts, assisting in publicity and marketing, and implementing group HR policies were not mere day-to-day support but involved active consultations that enriched the AE's capabilities. However, the Tribunal disagreed with this interpretation. It held that the essence of the "make available" clause requires a transfer of technical knowledge or skill such that the recipient can independently apply the technology or know-how post-service without depending on the provider. The Tribunal found that the services rendered were managerial or consultancy in nature and did not involve or transmit technology or technical knowledge. The Tribunal emphasized that incidental benefits or enduring advantages do not satisfy the "make available" test. It relied on the binding precedents to conclude that the services did not enable the Indian AE to provide the same services independently. Key evidence and findings: The assessee provided detailed descriptions of the services, emphasizing that there was no transfer of technology or know-how. The Assessing Officer noted that the assessee had previously offered similar income to tax as FTS in preceding assessment years, suggesting inconsistency in the assessee's stance. The DRP noted the lack of proper documentation from the assessee to substantiate its claim that the "make available" condition was not satisfied. The Tribunal observed that the mere fact of prior taxability in earlier years does not preclude the assessee from asserting a lawful claim of non-taxability in the current year. The Tribunal also noted that the revenue did not allege any transfer of technology, which is a sine qua non for invoking the "make available" clause. Application of law to facts: The Tribunal applied the legal principles from the precedents and the treaty to the facts, finding that the services rendered were managerial and consultancy in nature and did not involve imparting technical knowledge or skill that would enable independent use by the Indian AE. The "make available" clause was thus not satisfied, and the receipts could not be taxed as FTS under Article 12 of the DTAA. Treatment of competing arguments: The Assessing Officer and DRP relied on the nature of services and the enduring benefit to the AE to treat the amount as FTS. The assessee argued that the services did not transfer technical knowledge or skill and thus did not satisfy the "make available" requirement. The Tribunal accepted the assessee's argument, relying on authoritative judicial pronouncements and the absence of any claim or evidence of technology transfer by the revenue. Conclusions: The Tribunal concluded that the amount of Rs 3,06,12,630 does not constitute fees for technical services under Article 12 of the India-Singapore DTAA and directed the Assessing Officer to exclude this sum from taxable income. Issue (b): Credit for Tax Deducted at Source (TDS) on interest on income tax refund This issue was raised by the assessee but rendered academic by the Tribunal's decision on the primary issue of taxability. The Tribunal did not specifically adjudicate on this point given the main relief granted. Issue (c): Initiation of penalty proceedings under section 270A of the Income Tax Act, 1961 Similarly, the Tribunal found the penalty proceedings initiated by the Assessing Officer to be without merit in light of the primary issue being decided in favour of the assessee. Since the income was not taxable as FTS, the allegation of under-reporting did not stand, and penalty proceedings were unwarranted. 3. SIGNIFICANT HOLDINGS The Tribunal's key legal reasoning is preserved in the following verbatim excerpts:
Core principles established:
Final determinations on each issue: (a) The amount of Rs 3,06,12,630 received by the assessee does not constitute fees for technical services under Article 12 of the India-Singapore DTAA and is not taxable in India. (b) Credit for TDS on interest on income tax refund issue is rendered academic and not adjudicated. (c) Penalty proceedings under section 270A are not justified and are set aside.
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