TMI Blog2010 (3) TMI 108X X X X Extracts X X X X X X X X Extracts X X X X ..... icant under the Agreement are not liable to be taxed under the Income Tax Act as fee for ‘included services’ or as business profits, having regard to the provisions of DTAA between India and UK. However, the Income-tax authorities are not precluded from making inquiry into the question whether the cost contribution is fixed on arm’s length basis and such determination can be made in the assessment proceeding of the applicant. What all is provided by EMEIA is informations on various business and commercial matters, guidelines, templates, best practices and strategies that could be adopted in various spheres of their business which ultimately lead to protection of EY image and client relations. Dissemination of informations, furnishing guidelines and suggesting plans of action aimed at uniformity and seamless quality in business dealings of participating group entities do not per se amount to making available to them technical knowledge and experience possessed by EMEIA to a substantial extent. There is no transfer of technical know-how in that process nor can it be said that the recipient of these coordinated/centralized services has been enabled to apply the technology which EME ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat EMEIA does not earn any income from providing access to centralized Ernst Young resources, facilities and services. The cost allocation is done in accordance with agreed formula. The applicant states that the payment is made by way of reimbursement of the cost incurred on behalf of the applicant company by EMEIA. 4. The following questions (as revised) are raised by the applicant for the purpose of advance ruling: (1) Whether the amount payable by the applicant in accordance with the agreement entered into with Ernst Young (EMEIA) Services Limited is chargeable to tax in India under the provisions of the Income-tax Act, 1961 ('the Act') and Double Taxation Avoidance Agreement between India and UK? (2) Whether the amount receivable by Ernst Young (EMEIA) Services Limited from Ernst Young (P) Ltd., inter alia, on account of Area Services, Market Development Support Services and Global Services as detailed in the Schedule to the Area Services and Market Development Agreement is chargeable to tax in India as "fees for technical services" under section 9(1)(vii) of the Income-tax Act, 1961. 5. The applicant contends that the amount received by EMEIA for Services rend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in the implementation and monitoring of common standards, policies and tools, Assistance in Recruitment and training and retention of operating Global methodologies and applications and procuring on a centralized basis goods and services. 8. In the course of arguments, the learned counsel for the applicant while reiterating the above contentions of the applicant, submitted that EMEIA does not create any system or technology nor does it make its contribution by refining or improving on it. It merely gathers and collates the information from the systems already available and place them before the members entities who have entered into agreement for their guidance and implementation. The idea is to maintain uniformity in practices and approaches in business among the E Y Group entities by providing the requisite templates, power points, accounting practices etc. EMEIA serves as a common platform for globalizing the standards and ensuring uniformity in practices and systems. The total expenditure will be shared by all the entities. The nature of services listed in the Agreement would clearly indicate that no technical knowledge, experience, skills or know-how is being made availabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t the list of services enumerated in the Agreement, it appears to us that the criterion laid down in para 4(c) of Article 13 (of UK Treaty) is not satisfied. The Agreement contains an elaborate preamble explaining the underlying objective of the Agreement. There are two types of services categorized in the schedule; they are area services and global services. Both of them almost overlap. Global services are more relevant for the purposes of this case. The applicant's counsel has taken us through the global services and broadly explained the scope of each service. The learned counsel at the outset pointed out some inaccuracy in the definition of 'global services' because it refers to the services set out in the EYGSLLP Management Services Agreement. The learned counsel has stated that the global services are enumerated in a self-contained Schedule to the relevant agreement i.e. Area Services and Market Development Agreement and, therefore, the reference to some other earlier agreement is not appropriate. In any case, the learned counsel has clarified that practically, there is no difference between the services mentioned in both these agreements and if at all the enumeration in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ons programs and materials to support EY people in their client-facing activities. 6. Public Relations Protecting and enhancing brand and reputation of the Member Firms of Ernst Young Global in collaboration with EYG leaders, Global Industry and Service Line Leaders and with execution through and by Area/country PR teams. Managing communication around sensitive media issues, including developing messages etc. 7. Public Policy Working with regulators across multiple jurisdiction to ensure the EY network is able to contribute to important decisions affecting the way the profession is governed. 8. Quality and Risk Management Development and supervision of common standards and policies for the EY network, including strategies and programmes to embed quality and risk management throughout the EY Global network, such as independence infrastructure, quality review programmes and client and engagement acceptance and continuance policies and tools. Providing practice manuals and other reference materials and otherwise assisting in the adoption and consistent application of common standards and policies. 9. People Developing and overseeing common programmes a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... unts: para 2.1 * An overall key account framework and plan from EY Global, * Visits by Global account leaders to India subsidiaries and affiliates, * Templates/frameworks on accounts planning and development. Best practices in approaching these large MNCs as a Global firm. Re: Industries and Business Development: Para 2.2 Global formulates plans for achieving higher profitability and thought leadership, while Area works in liaison with the member firm to get the plans implemented. The various services rendered are as under: * Relationship, knowledge and Credentials support in pursuits/proposals to large clients, * Service frameworks pertaining to the focus sectors. Re: Assessment of Service Quality (ASQ) - para 2.3 This contemplates provision of common methodologies and framework for quality services to be provided to the clients and Area, in liaison with the member firms. The same gets implemented at Area level. Written questionnaires and interviews are used for this exercise. The support received from Global is in terms of a Global policy that drives the survey process including questionnaires, assessment templates to be used. ASQ is a Global frame ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... adopted in various spheres of their business which ultimately lead to protection of EY image and client relations. Dissemination of informations, furnishing guidelines and suggesting plans of action aimed at uniformity and seamless quality in business dealings of participating group entities do not per se amount to making available to them technical knowledge and experience possessed by EMEIA to a substantial extent. There is no transfer of technical know-how in that process nor can it be said that the recipient of these coordinated/centralized services has been enabled to apply the technology which EMEIA is possessed of. In fact, EMEIA has not developed any technology of its own nor does it innovate anything. 16. In the light of above discussion, the questions are answered as follows: Both the questions are answered in the negative and it is ruled that the amounts receivable by Ernst and Young EMEIA Services Ltd. from the applicant under the Agreement are not liable to be taxed under the Income Tax Act as fee for 'included services' or as business profits, having regard to the provisions of DTAA between India and UK. However, the Income-tax authorities are not precluded from ..... X X X X Extracts X X X X X X X X Extracts X X X X
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