TMI Blog2009 (8) TMI 130X X X X Extracts X X X X X X X X Extracts X X X X ..... fee for technical services within the meaning of s. 9(1)(vii) and art. 13 of DTAA between India and France as the same were paid in consideration for services of technical nature. HELD THAT:- We find that it is an unambiguous legal position that by the virtue of s. 90(2) of the Act, where the Central Government has entered into an agreement with the Government of any country outside India under sub-s. (1) for granting relief to 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 only to the extent they are more beneficial to that assessee. Thus, provisions of such DTAAs override the provisions of the IT Act, 1961 to the extent these agreements are more favourable to the assessee. It may be noted that art. 13(4) of DTAA between India and France excludes payment to an employee of the person making the payment and to any individual for independent personal services mentioned in art.15. On the other hand Expln. 2 to s. 9(1)(vii), excludes the consideration for any construction assembly, mining or like project undertaken by the recipient or consideration which would be i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts binding force is equal to that of the principal treaty. The provisions of the aforesaid DTAA are, therefore, required to be read with the protocol clauses and are subject to the provisions contained in such protocol. Examined in the light of DTAAs between India and UK, USA and Switzerland, we find that in the case before us the assessee had not purchased any property from UTAC France. Therefore, none of the fees i.e., impact testing fees or fee paid for test reports is ancillary and subsidiary as well as inextricably and essentially linked to the sale of a property. The impact tests to be conducted by UTAC were purely technical in nature. After carrying out the impact tests in above manner testing reports were submitted to assessee which were utilised for the purposes of modification of the products. This in our considered opinion will amount to rendering of technical services/information in the form of impact testing reports by UTAC France to the assessee. Accordingly, the amounts paid by the assessee to UTAC would be in nature of technical or consultancy services. The contention of assessee that testing reports are similar to blood reports prepared by a pathological ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ii) of the Income-tax Act and directing the assessee to deduct tax at source at the rate of 10 per cent. The assessee made applications, under Section 195 of the Act before the Assessing Officer requesting him to permit the assessee to remit the amount payable to M/s. UTAC France without deducting tax at source as the payments were not in the nature of technical services. It was stated by the assessee in the application that there was no enrichment or gaining of technical knowledge or expertise by Maruti Udyog Ltd. M/s. UTAC had merely performed their business in France by conducting the impact tests on cars sent by the assessee. It was also stated that since UTAC was not transferring any knowledge or method by which the required testing could be carried out and, further since those tests were required for obtaining regulatory approval only, the payments would not be in the nature of technical services as defined under Section 9(1)(vii) of the Act. However, the Assessing Officer was of the view that UTAC had the expertise and the skill to perform the tests which are required to be made as per Section 9(1)(vii) of the Act. Fees for technical services meant any consideration for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pecifications of various charts of the cars, which were very useful to the assessee-company for product development and modifications. The ld. CIT (Appeals) on the basis of the above held that testing charges paid were fee for technical services within the meaning of Section 9(1)(vii) of the Act and Article 13 of DTAA between India and France as the same were paid in consideration for services of technical nature. 4. In this case these appeals were heard on 22-5-2009. Thereafter the appeals were again fixed for hearing for the purpose of clarification whether orders passed under Section 195(2) were appealable or not. It was explained by the ld. AR of the assessee that Section 248 of the Income-tax Act, 1961 gives right to assessee to appeal before the ld. CIT (Appeals) against order passed by the Assessing Officer under Section 195(2) of the Act. It was also informed that the assessee has deducted tax at source and paid the same to the credit of the Central Government, but TDS certificate had not been issued. The appeals were filed before the ld. CIT (Appeals) for declaration that no such tax was deductible on such income. After considering the submissions made by the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [2001] 251 ITR 53 : 119 Taxman 496 to support his contention. He also placed reliance on the following decisions: (i) C.E.S.C. Ltd. v. Dy. CIT [2003] 87 ITD 653 (Kol.) (TM); {ii) NQA Quality Systems Registrar Ltd. v. Dy. CIT [2005] 2 SOT 249 (Delhi); (iii) National Organic Chemical Industries Ltd. v. Dy. CIT [2005] 96 TTJ (Mum.) 765; (iv) Dy. CIT v. Boston Consultancy Group (P.) Ltd. [2005] 94 ITD 31 (Mum.). 7. On the other hand Ld. Sr. DR submitted that the representatives of assessee were present at the time of carrying of testing by the France party. Therefore, assessee had been able to acquire techniques of impact testing which has helped the assessee in product development. M/s. UTAC has given report of each impact test carried out by them. The impact testing reports have been used in India, Hence, there is transfer of technical know-how to assessee. Accordingly, the payments were made for technical services rendered by the UTAC France. She supported the orders of authorities below. 8.1 We have heard both the parties and gone through the material available on record. We find that it is an unambiguous legal position that by the virtue of Section 90(2) of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion fee for technical Services under provisions of Article 13(4) of the Indo French treaty as well as Explanation 2 to Section 9(1)(vii) of the Act, would mean the payment made to any person in consideration of a managerial, technical or consultancy services. 9. The contention of the Ld. AR of the assessee that in view of the protocol paragraph 7 of Indo French DTAA the scope of expression 'fees for technical services' under Article 13(4) of the treaty cannot be wider than the scope of most restrictive DTAA that India has entered into with any OECD member after 1-9-1989. In this context, it has been pointed out to us that, after the cut-off date of 1-9-1989 referred to in paragraph 7 of protocol attached to and forming part of Indo French DTAA, India have signed DTAAs with at least three OECD member countries which have narrower scope of the expression 'fees for technical services'. In all these DTAAs, fees for technical services does not include the fees received for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of a property. These agreements are as follows: Name of country ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s as defined in Article 15 (Independent personal services) of this Convention. ['Article 3(a) refers to payments of any kind received as consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, including cinematograph films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience.] 9.2 In India United States Double Taxation Avoidance Agreement 187 ITR St. 102, Article 12 (4) and (5) provides as follows: Article 12(4) For the purposes of this Article, fees for included services means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph (3) is received; or (b) make available technical knowledge, experience, sk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in sub-paragraph (a) of paragraph 3 is received; or (ii) make available technical knowledge, experience, skill, know- how or processes, or consist of the development and transfer of a technical plan or technical design. Article 12(5) Notwithstanding paragraph 4, fees for included services does not include amounts paid: (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property; (b) for teaching in or by educational institutions; (c) for services for the personal use of the individual or individuals making the payment; (d) to an employee of the person making the payments or to any individual or firm of individuals (other than a company) for professional services falling under Article 14. [*Article 12(3)(a) refers to payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rein, as protocol is an integral part of the treaty and its binding force is equal to that of the principal treaty. The provisions of the aforesaid DTAA are, therefore, required to be read with the protocol clauses and are subject to the provisions contained in such protocol. Examined in the light of DTAAs between India and U.K., USA, and Switzerland, we find that in the case before us the assessee had not purchased any property from UTAC France. Therefore, none of the fees i.e., impact testing fees or fee paid for test reports are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of a property. Therefore, the decision of the ITAT, Calcutta Bench in the case of ITC Ltd. (supra) relied upon by the assessee is not applicable to the facts of the case. In this case the assessee had purchased machines from U.K. and payments were made to foreign party for installation and commissioning of the machines. The foreign party did not have any permanent establishment in India to which such income could be attributed. In this view of the matter it was held that the payment made to foreign party for installation and commissioning of the machines were related to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... parts as well as exterior parts. Definitely his presence at the time of impact testing would have enriched his knowledge in field of design development and testing of parts. Sh. M.V. Rao had also participated in impact testing reports. UTAC France in letter dated 20-12-2003 addressed to Sh. Sanjay Gupta informed the assessee as under: Dear Mr. Sanjay Gupta, I, confirm we have experience regarding this test and we can perform your request. To evaluate the head impact test, we need: to determine the energy absorption area using the apparatus specified in annexure A; to perform energy dissipation tests as defined in annexure B (80g.3rns. maximum and no aggressive parts) If we perform the full control and tests, we need a vehicle frame forward, the B pillar, driver and passenger seats, steering wheel and column, dashboard and its interior components.... 11.4 From plain reading of above letter one may find that the impact test to be conducted by UTAC were purely technical in nature. After carrying out the impact tests in above manner testing reports were submitted to assessee which were utilised for the purposes of modification of the products. This in our considered ..... X X X X Extracts X X X X X X X X Extracts X X X X
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