2010 (3) TMI 115 - AAR - Income Tax

Administration of a program DTAA with USA - services being provided by FICCI fee for technical services - Federation of Indian Chambers of Commerce and Industry ( FICCI ) is a company registered under the Companies Act 1956 - a job contract for administering DST-Lockheed Martin India Innovation Growth Programme 2009 ( IIGP for short) - The objective of this programme is to identify award and accelerate innovative new Indian technologies into the market space. IIGP will help Indian innovators to find markets globally. The participants of the programme will receive professional business development assistance to facilitate access to US Indian and global markets. Held that - Institute of University of Texas USA is located in USA and it is liable to pay tax by reason of place of incorporation and the place of management the said Institute has to be treated as resident of USA within the meaning of Article 4 of DTAA - On a consideration and analysis of the various services and assistance rendered by UT we are unable to reach the conclusion that the payment received by UT under the Agreement would amount to fee for included services within the meaning of para 4(b) of Art.12. Earlier we have explained the true scope and meaning of the expression make available occurring in para 4(b). Most of the services no doubt answer the description of technical and consultancy services. Few of them are managerial in nature. But none of the technical/consultancy services and related activities undertaken by UT would amount to making available the technical knowledge experience skill know-how or processes possessed by UT. - UT s services and the consideration received therefore cannot therefore be brought within the ambit of Art.12.4 of DTAA. - Orientation towards business and inculcation of entrepreneurial outlook does not really amount to making available the technical knowledge experience or skills of the experts of IC Institute - no income-tax is liable to be paid by UT (IC 2008 (11) TMI 9 - AUTHORITY FOR ADVANCE RULINGS) Institute on the payments received by it from FICCI - FICCI is not required to deduct tax at source.

Summary

Issues Involved:
1. Applicability of Double Taxation Avoidance Agreement (DTAA) between India and USA to the University of Texas (UT IC[307 ITR 418]).
2. Liability of UT IC[307 ITR 418] to pay income tax in India on payments received from FICCI.
3. Obligation of FICCI to deduct tax under Section 195 of the Income-tax Act, 1961.
4. Taxable amounts and applicable tax rates if UT IC[307 ITR 418] is liable to pay tax.

Issue-wise Detailed Analysis:

1. Applicability of DTAA between India and USA to UT IC[307 ITR 418]:
The judgment establishes that the University of Texas, being located and managed in the USA, qualifies as a resident of the USA under Article 4 of the DTAA. The University's exemption from tax under the Internal Revenue Code of the USA does not alter its residential status. The certificate provided indicates that the University is liable for tax on certain unrelated business taxable income, confirming no general immunity from taxation. Thus, there is no dispute regarding the applicability of the DTAA.

2. Liability of UT IC[307 ITR 418] to Pay Income Tax in India:
The primary issue is whether the payments made by FICCI to UT IC[307 ITR 418] qualify as 'fees for technical services' (FTS) under Article 12.4 of the India-USA DTAA. According to Article 12.4, FTS includes payments for rendering technical or consultancy services that either:
- Are ancillary and subsidiary to the application or enjoyment of the right, property, or information.
- Make available technical knowledge, experience, skill, know-how, or processes.

The judgment references previous interpretations, including the MOU to the India-USA DTAA, which clarifies that technology is 'made available' when the recipient can apply it independently in the future. The AAR concluded that the services provided by UT IC[307 ITR 418] did not 'make available' technical knowledge or skills to the participants. The entrepreneurial workshops and other activities were deemed general and educational, not imparting specific technical know-how or skills that participants could independently use later.

3. Obligation of FICCI to Deduct Tax under Section 195:
Given the conclusion that the payments do not qualify as FTS, UT IC[307 ITR 418] is not liable to pay income tax in India. Consequently, FICCI is not required to deduct tax at source under Section 195 of the Income-tax Act, 1961, for payments made to UT IC[307 ITR 418].

4. Taxable Amounts and Applicable Tax Rates:
Since the second and third questions were answered in the negative, there is no need to address the fourth question regarding taxable amounts and applicable tax rates.

Conclusion:
The Authority for Advance Rulings concluded that UT IC[307 ITR 418] is not liable to pay income tax in India on payments received from FICCI under the DTAA between India and the USA. Consequently, FICCI is not required to deduct tax at source for these payments. The ruling was pronounced on March 5, 2010.