TMI Blog2007 (7) TMI 440X X X X Extracts X X X X X X X X Extracts X X X X ..... l India Coal Company Ltd. ( CICCO for short) for the Feasibility Study Report for developing coal mines for Lohara West Mine Project. For this the assessee received payment of Rs. 55,32,000 from CICCO. As per the agreement, tax payable in India is to be borne by Indian party, as such CICCO paid 20 per cent tax on the said amount. The Feasibility Report is to remain as the property of CICCO in accordance with the agreement. As per Article 1 of the agreement, assessee was to sell the Feasibility Report on outright sale. The report was required to be prepared on the basis of technical data and other information supplied by CICCO in respect of Lohara West Mine. Assessee has no right, title, interest in the Project Report prepared. CICCO was required to furnish the information, technical data and geological information in respect of Lohara West Mine Project to the assessee for the purpose of preparing the report after feasibility study. This information was furnished by CICCO in France to the assessee. According to the assessee, assessee-company is not having any establishment whatsoever in India where from information given by CICCO could be processed. Preparation and finalization of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to tax accrued in India in terms of the said agreement. Assessee contended that assessee s case is covered by the said decision. Article 3 of the old DTAA corresponds to Article 7 of the new DTAA entered into between India and France, which according to the assessee clearly provides for taxation of business profit only in the country where the business is actually carried on through a permanent establishment, in India. It was a case of outright sale of Feasibility Report and not a case of transfer of technical know-how, wherein only the right to use the same is granted to the transferee. Hence, it was contended that the assessee was not liable to be taxed in India. For the above proposition, assessee relied upon the following decisions: (1) Christiani Nielsen Copenhagan v. First ITO [1991] 39 ITD 355 (Bom.), Held : Work done for preparing the Feasibility Study Report - not technical know-how - not liable to tax in India. (2) D.C.M. Ltd. v. ITO [1990] 35 ITD 35 (Delhi) (TM), Held : Work done in Japan is not liable to tax in India. (3) ITO v. Sriram Bearings Ltd. [1997] 224 ITR 724 (SC), Held : Trade secrets sold in Japan not liable to tax in India. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the basic design of the mine, CDF will carry out the complementary technical studies as per Article 1. CDF will complete and finalize the technical part of the feasibility study with incorporation of part carried out by CICCO. CDF will prepare and send the final report to CICCO." 5. Assessing Officer held, from the above it is clear that the assessee is providing technical services to CICCO. Basic data were to be provided by CICCO, on the basis of which certain technical services are to be provided by the assessee. Assessing Officer rejected assessee s contention that the assessee will sell the Feasibility report on outright basis. He held, this is a far-fetched contention. Assessee is providing managerial/technical and consultancy services to CICCO on the basis of data provided by CICCO. The property in the form of report never belonged to the assessee. Hence, there is no question of any outright sale of the same by the assessee to CICCO. It is only technical services delivered in the form of Report, for which CICCO is paying the impugned amount of Rs. 55,32,000 as total consideration. This is a fee for Feasibility Study Report. Once the Report is delivered to CICCO, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ork for preparing and finalising the feasibility report was done by persons of Charbonnages De France International SA ( CDF for short) in France. CDF persons visited the site in India for 2 to 3 days and even if it is considered that part of the work was done in India, it cannot be ignored that such work in India constituted an insignificant part of the total work done by the assessee and therefore it cannot be inferred from this that the work in relation to preparation and finalisation of the feasibility report was not actually done in France. The study consisted drawing by CDF of the general layout of the mine and based on this CDF was required to give the basic design and related documents for the operation of mine in India. The Indian company implemented the feasibility report received from CDF in India. It was Indian company that had approached CDF for the feasibility study report, perhaps for the reason that conducting of such study was not found feasible in India. Hence, the payment received by CDF in consideration of the services rendered outside India, i.e., in France, cannot be taxed here in India. 8. For the above proposition, assessee relied upon the decision of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erprise shall be deemed to arise in India by virtue of Article 13(7) of DTAA. 10. Another contention of the assessee s representative was that the fee received by the assessee is entitled to be treated as business profit under Article 7 of the DTAA inasmuch as the services rendered by them were part of business profits. For the above proposition, assessee relied upon the decision of the Tribunal in the case of Christiani Nielsen Copenhagan v. First ITO [1991] 39 ITD 355 (Bom.). This was a case wherein the assessee, a company registered in Denmark entered into an agreement with an Indian company for conducting preliminary studies, calculation and assimilation of data and finally preparing a feasibility report with regard to trans-harbour communication link between island city and main land and the issue was whether even if the assessee had no permanent establishment in India, the provisions of Article III could be applied to it. Tribunal approved this view. The second question was whether it could be said that the fees received by the assessee in consideration was within the meaning of Article III(3) and thus the provisions of section 9(1)( vii ) were not applicable. Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice, gasoline pumps of the type made by it on a consideration of 5 per cent of the sale price of the pumps and spare parts. It was held that the supply of know-how to the Indian company on a licence basis can be regarded as a method of carrying on business. The agreement in that case showed that the assessee had not parted with any capital asset. Therefore, the income returned by the assessee was liable to be taxed as business income under section 28 of the Income-tax Act. However, coming to the instant case of the assessee, the CIT(A) distinguished the decision and agreed with the Assessing Officer for the reason that it was not a case of any outright sale of an asset as the sale involves transfer of an asset. CIT(A) agreed with Assessing Officer s finding that "assessee s argument that it has sold the feasibility report on outright basis to the Indian company is far fetched inasmuch as the property in the form of report never belonged to it." He held, even if it is assumed that it was a case of outright sale by CDF to the Indian company, then it cannot be said that it was a payment made to CDF for information concerning industrial, commercial or scientific experience in the fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... id not constitute royalty income in the hands of Italian company within the meaning of Article 13 of DTAA. 14. The CIT(A) confirmed the order of the Assessing Officer vide Paras 11.1, 12 and 13 of his order, observing as under: "11.1 A careful reading of the above decision clearly shows that the present case is not one of sale. As stated earlier, the payment received by the appellant falls within the meaning fees for technical services in Article 13(4) of the DTAA and not as business profits. 12. Article 13(1) of the DTAA outlines the basic rule that the fees for technical services is liable to tax in the country of which the recipient is a resident. However, Article 13(2) entitles the State of source to tax the income only to a limited extent of withholding some percentage of the gross amount of fees for technical services as tax and Article 13(7) leaves no scope for doubt that the source country shall be deemed to have the jurisdiction to tax such fees as it recognizes the principle of taxation at source. This principle is also recognized in the Income-tax Act, 1961, as section 9(1)( vii ) contains a clear cut source rule specifying the criteria on the basis of whi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... onal category i.e., for the purpose of mining and hence, not liable to tax in India." 16. The assessee further filed additional ground of appeal, which reads as follows: "Without prejudice to the above ground Nos. 1 to 3; on the facts and circumstances of the case the learned Assessing Officer and CIT(A) erred in holding that rate of tax payable on fees is 20 per cent instead of 15 per cent." 17. There is a delay of more than five months for filing of the appeal. A petition for condonation of delay has been filed along with the affidavit from one of the employees; explaining the reasons for delay. 18. After perusing the affidavit as well as the application for condonation of delay and on hearing both the parties, we are of the considered opinion that the delay is to be condoned. By not filing appeal, assessee does not gain any advantage. The explanation that the defaultant employee remembered the receipt of the CIT(A) s order on receipt of penalty notice is plausible explanation. We condone the delay. 19. Shri R.R. Vora repeated the contentions made before the revenue authorities. The sum and substance of his submissions are: ( a )the fee paid is business in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Ltd. [2002] 82 ITD 239 (Kol.). That the services in question and the scope of taxability thereon, is to be viewed by applying the same scope as in the Indian DTAAs with United Kingdom, United States of America and Switzerland. When such an interpretation is given, the services in question cannot be held to be payment for including services. He relied on the following case laws : (1) National Organic Chemical Industries Ltd. v. Dy. CIT [2005] 96 TTJ (Mum.) 765; (2) Hindalco Industries Ltd. v. ITO [2005] 96 TTJ (Mum.) 1009; (3) CESC Ltd. v. Dy. CIT [2003] 87 ITD 653 (Kol.) (TM). 20. He repeated the alternative submission raised by way of additional ground that the rate of tax applicable should be 10 per cent as per Indo-German and Indo-Swiss Treaty and not 20 per cent as levied by the Assessing Officer. 21. Shri T. Shivkumar arguing on behalf of the revenue, vehemently controverted the submissions of learned counsel for the assessee and submitted that the French company had rendered technical services in India, in pursuance of an agreement entered into, with an Indian company. He took this Bench to the agreement entered into by CICCO and Charbonnages De France ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ies Article 4: Specifies the obligations of CDF on the following lines: "CDF guarantees that they will perform all work and services in good workman like manner to an end and see that the work will be completed properly and as expeditiously as possible." Article 5: Specifies the obligations of CICCO to provide necessary information, personnel and equipment and also ensure good implementation of the feasibility study. The other articles are not germane to the issue and not discussed. A plain reading of the above agreement, discounts the theory of the assessee that he has sold a feasibility report to CICCO. Thus, we agree with the finding of the revenue authorities on this issue. 23. The other undisputed facts are that the assessee has no establishment in India and that the entire preparation and finalization of feasibility report was carried outside India. The entire information etc., was provided by CICCO. Under these facts and circumstances, the issue that is to be seen, is whether section 5(2) and section 9(1)( vii ) are attracted. Once we reach the conclusion that section 5, sub-section (2), section 9(1)( vii ) of Act apply, then only recourse should be taken to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... per agreement. The Hon ble Supreme Court in the case of ITO v. Sriram Bearings Ltd. [1997] 224 ITR 724, relied upon by the assessee, was considering the sale of trade secrets in Japan. In that case there is no transfer. The consideration paid for technical services is taxable in India. Thus, this case is of no help to the assessee. The decision in the case of Christiani Nielsen Copenhagan v. First ITO [1991] 39 ITD 355 (Bom.), relied upon by the assessee, the facts of the case are similar. The assessee-company was registered in Denmark and had an agreement with the Indian company for conducting preliminary studies, collection and assimilation of data and to finally prepare a feasibility report with regard to trans-harbour communication link between island city and main land. The Bench took a view that the fees received by the assessee in consideration for the aforesaid services was in nature of industrial and commercial profits within the meaning of Article III(3) and, thus, provisions of section 9(1)( vii ) were not applicable and as the assessee has no permanent establishment in India, in view of the Double Taxation Avoidance Agreement, the payment cannot be taxed ..... X X X X Extracts X X X X X X X X Extracts X X X X
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