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TMI Blog2009 (9) TMI 686X X X X Extracts X X X X X X X X Extracts X X X X ..... for Technical Services'. The Commissioner of Income-tax (Appeals) ought to have appreciated that undertaking various tests related to interior-chassis-body and the whole vehicle testing through their laboratories is the business of M/s. LTC Ltd., and hence ought to have held the payments as their 'Business Profits' which are not taxable in India since M/s. LTC Ltd. does not have a permanent establishment in India." 3. In this appeal the assessee, M/s. LTC Ltd., UK, is a company incorporated in United Kingdom, and its returns of income, for assessment years 2001-02 and 2002-03, were filed by M/s. TVS Motor Company Ltd. (TVS Suzuki Ltd.) in the capacity of representative assessee within the meaning of section 160(1)(i), read with section 163(1)(c) of the Act. 4. TVS Motor Company Limited is an Indian company, engaged in the business of manufacturing motorcycles, and LTC Ltd., UK (LTC) has extensive experience of product development, including the use of experimental and analytical techniques to improve the dynamic behaviour of vehicle system. Therefore, LTC was appointed by TVS Motor for carrying out an appraisal of the motorcycles manufactured by it, reviewing certain aspects of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 7 of the DTAA, the business profits of LTC, U.K. is taxable only in UK, as LTC does not have a 'permanent establishment' in India and that the entire services were rendered in UK only. 7. Shri B. Srinivas, the learned DR supported the orders of the Assessing Officer and the CIT(A). He vehemently argued saying that the order of the CIT(A) needed to be upheld. The submissions made by the learned DR are summarized below : u that the impugned payments were covered by paragraph 4(c) of Article 13 of the DTAA between India and UK; u that LTC 'made available' to the TVS Motors, technical knowledge, experience, skill, know-how and processes, as was clear from the 'Objectives' and 'Project Scope & Technical Content' of the recitation of the agreement; u that he took us through the contents of the contract No. TS 0102 to substantiate this point. 8. We have considered the rival submissions in the light of material on record and the precedents cited. It is seen that TVS Motors appointed LTC, UK for carrying out an appraisal of the motorcycles manufactured by it, reviewing certain aspects of ride, handling, vibration etc., vide TS 0102 and TS 0105. The total amount payable in respect of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rging from this section are : (i)income-tax is to be charged at the rate fixed for the year by the annual Finance Act; (ii)This charge is on every person including those enumerated in section 2(31); (iii)The income which is to be taxed is of the previous year and not of the year of assessment; (iv)The levy is on the 'total income' of the assessee computed in accordance with and subject to the provisions of the Act. 10.2 The 'total income', referred to in section 4(1) is defined in section 2(45) as under : "2. Definitions.-In this Act, unless the context otherwise requires,- ****** (45) 'total income' means the total amount of income referred to in section 5, computed in the manner laid down in this Act;" 10.3 The scope of the 'total income', referred to in section 4 and in section 2(45) is dealt with in section 5 of the Act, which reads as under : "Scope of total income.-(1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which- (a )is received or is deemed to be received in India in such year by or on behalf of such person; or (b )accrues or arises or is deemed t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or arise to him in India (b) income which accrues or arises or is deemed to accrue or arise to him in India (c) income which accrues or arises to him outside India (c) income which accrues or arises to him outside India, only in case if it is derived from a business controlled in or a profession set up in India 10.6 The ambit of the expression 'is deemed to accrue or arise to him in India' used in section 5 has been explained and defined in section 9. The relevant part of section 9 is reproduced below : "(1) the following incomes shall be deemed to accrue or arise in India, (vii)income by way of fees for technical services payable by- (a )and (b)****** (c)a person who is a non-resident, where the fees are payable in respect of services utilized in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India: Explanation 2.-For the purposes of this clause, 'fees for technical services' means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vailable technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design." 13. It was pointed out by Shri R. Vijayaraghavan that the provisions of the DTAA, entered into by the Government of India with a foreign Government, prevail over the provisions of section 9 of the Act. In other words, he argued, for the present case the relevant definition of 'fees for technical services' is that which appears in paragraph 4 of Article 13 of the DTAA between India and UK, and not that given in section 9 of the Act. He placed stress on the expression 'make available' in clause (c) of paragraph 4 of the Article 13 of the DTAA with UK. 13.1 Shri Vijayaraghavan submitted that the motorcycles sent by TVS Motor were merely subjected to certain tests by the LTC, UK, that no technical knowledge, experience, skill, know-how or processes were 'made available' by LTC to TVS Motor, and that there was no 'development and transfer of a technical plan or technical design'. He took us through the contents of the contract No. TS 0102. 13.2 It was contended by the learned AR that the impugned payments were covered under Artic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o identify and predict the dynamic ride behaviour. 2.2 To provide training for TVS Suzuki's engineering staff in the test techniques and procedures used to create and validate the ADAMS model." 17. And, the 'Project Scope and Technical Contents' of the above document, appearing at page 16 of the paper book reads as under : "4. Project Scope & Technical Content 4.1 Based on their knowledge of the Indian Market, TVS Suzuki have identified Honda machine as the prime competitor for the ST 110 prototype machine and this will be used as the comparator for this project. 4.2 The scope of the work to be undertaken by LTC will include : 4.2.1 Data collection at LTC, U.K. - to record the dynamic response of both machines to know inputs, representing operating conditions in India and that exhibit the "unacceptable behaviour" reported on the existing prototype machine. 4.2.2 Measurement of Dynamic Properties - Measurement of dynamic properties of both machines to support the creation of a 2 dimensions ADAMS model including the tyre characteristics. 4.2.3 Creating an ADAMS model - To create the 2 dimensions ADAMS model of the existing prototype and competitor machines, compare the predic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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