TMI Blog2007 (2) TMI 577X X X X Extracts X X X X X X X X Extracts X X X X ..... hus we concur with the findings of the first appellate authority and answer the first sub-question in favour of the assessee and against the Revenue by holding that the payment made for fees for technical services does not fall within the ken of article 12(5)(b) of the Double Taxation Avoidance Agreement between India and Netherlands, for the reason that Fugro has not made available technical knowledge, experience, skill, know-how or process to De Beers while providing the service. Thus, this question is answered in the negative in favour of the assessee and against the Revenue. In the present case Fugro compiles the data and process them for error correction and deliver it to De Beers in a computer readable media. Using the raw input data provided by Fugro , the recipient assessee i.e. De Beers using further process in software technology (which are not owned or provided by Fugro ) generates a report to determine probable targets. Thus the payments to Fugro cannot be considered to the payments for technical, plan and design much less, for the development and transfer of them. Fugro is engaged in providing services relating to collection and processing of data whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of ways, depending upon the location and the type of diamond deposit sought. Exploration over a large area can be carried out by sampling the streams or loam sampling the surface soils looking for indicator minerals or by geophysical methods where surface sampling would not be effective exploration tool or would be too expensive. 6. Regional diamond exploration entails the search over hundreds of square kilometers (or miles) seeking an economic diamond deposit. The manner in which this exploration is carried out depends upon the surface geology and topography of the area to be explored. Where there is good stream development, usually in hilly or undulating terrain, the main exploration method has been by sampling the stream sediments for kimberlitic indicator minerals (KIM). These KIM are special minerals that occur in kimberlite and lamprolite and due to their high specific gravity, tend to be concentrated in trap sites along with other heavy minerals (e.g. gold, tin, sapphires). Stream sampling can yield a larger array of KIM including pyrope garnet, picrolimenite, chrome diopside and chromite. Diamond is rarely recovered during the regional exploration sampling of an area ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ocon B.V. Netherlands (hereinafter referred to as Fugro ). Fugro had a team of experts who specialised in performing airborne geophysical services for clients, process the data acquired during the survey and provide necessary reports. The services are engaged to conduct the airborne survey for providing high quality, high resolution, geophysical data suitable for selecting probable kimberlite targets. The important points that emerge from the agreement are as follows : (i) Fugro conducted the airborne survey using its specialised equipment. (ii) The helicopter for the survey was hired by De Beers . (iii) All the logistics of the survey, such as flight schedule, re-flights survey lines, control lines, positioning etc. were set by Fugro . (iv) Fugro deputed technical personnel for conducting the survey and (v) The data collected from the survey was provided to De Beers in a particular format which is called the acquisition and processing report. 14. The Assessing Officer treated the consideration paid to Fugro under the agreement as falling within the definition of fees for technical services under article 12 of the Indo-Netherlands Double Taxation A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... held that maps cannot be described as plan or designs. In this regard reliance is placed on a decision of the Supreme Court reported in [2002] 253 ITR 274 in the case of Commissioner of Customs v. Parasrampuria Synthetics Ltd. The learned Commissioner of Income-tax (Appeals) erred in holding that the non-resident company has supplied only raw data. The Commissioner of Income-tax (Appeals) failed to appreciate the objective of the agreement which is to get suitable data', as per the agreement. Further, the specially developed equipment is meant to collect and process the data towards a particular end. 17. Shri B. Chattaraj, learned Departmental representative argued on behalf of the Revenue and Shri K. R. Shekar, learned counsel represented the assessee. Mr. Chattaraj supported the order of the Assessing Officer whereas Mr. K. R. Shekar relied on the order of the Commissioner of Income-tax (Appeals). The assessee filed a paper book consisting of annexures 1 to 13. Shri B. Chattaraj submitted that, the nature of services rendered are professional services under article 12 of the Indo-Netherlands Double Taxation Avoidance Agreement and alternatively it was for the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Double Taxation Avoidance Agreement signed between the parties, states that the memorandum of understanding between India and USA would apply mutatis mutandis to article 12 of the Indo-Netherlands Double Taxation Avoidance Agreement (Ref. Notification No. S. O. 693(E) dated August 30, 1999). 21. On these facts and circumstances of the case, we formulate the following question for consideration : (a) Whether, on the facts and circumstances of the case, the payments made by the assessee-company De Beers to Fugro , for services rendered by them can be said to be a payment for fees for technical services within the meaning of article 12(5)(b) of the Double Taxation Avoidance Agreement between India and Netherlands ? 22. The main question can be, for convenience sub-divided as follows : (a) Whether Fugro has made available technical knowledge, experience, skill, know-how or process to De Beers . (b) Whether payment to Fugro was for the development and trans fer of a technical plan or technical design to De Beers . 23. The legal position on the first sub-question is by now well-settled. In the case of C.E.S.C. Ltd. v. Deputy CIT [2003] 87 ITD 653 (Kolkat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Deputy CIT [2003] 80 TTJ 120 (Mum) (a) it was held that mere rendering a service is not included unless the person utilising the service is able to make use of technical knowledge, etc., by himself in his business or for his own benefit and without recourse to the performer by the services, in future. (b) There should be a transmission of technical knowledge, experience, skill, etc. from the person rendering the services to the person utilising the same. 26. In the case of Nqa Quality Systems Registrar Ltd. v. Deputy CIT [2005] 92 TTJ 946 (Delhi), the Tribunal discussed the clause make available and held that when the same is used, if technology is transferred through the technical service then alone it is taxable. Using technical input in order to provide consultancy service will not amount to making available technical knowledge, skill, expertise or know-how. 27. In the case of Mckinsey and Co. Inc. (Philippines) v. Asst. Director of Income-tax (International Taxation) [2006] 284 ITR (AT) 227 (Mum), it was held that when there was no material to suggest that the payment was for any services which enable the recipients of those services to apply the technology itse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... quirements etc.) is the responsibility of the contractor unless expressly stated otherwise in this contract. The client will provide logistical support where applicable and when mutually agreed upon in writing with the contractor (either within the contract or as an addendum to it). III. Final products : Within 30 days following delivery of preliminary products the following products will be made available to the client : Final products Media Quantity All analog flight records Paper 1 Flight logs (flight to be included in digital form along with final report) Digital 1 Final data archive as specified in appendix 12.2 Digital 5 Black and white contour maps of magnetics as specified in appendix 12.3 Paper 5 Black and white contour maps of themed frequency co-planner resistively as specified in appendix 12.3 Paper 5 Final report (includes as appen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... greement. Fugro has surveyed, collected and processed the data on behalf of De Beers. There is no doubt that Fugro performed the services using substantial knowledge and expertise but such technical experience, skill or knowledge has not been made available to De Beers . 31. As already stated, as per the protocol signed between India and Netherlands, the memorandum of understanding entered into between India and USA would apply mutatis mutandis to article 12 of Indo- Netherlands Double Taxation Avoidance Agreement. Example 7 given in the memorandum of understanding between India and USA is relevant and is extracted below for ready reference : Example 7 Facts : The Indian vegetable oil manufacturing firm has mastered the science of producing cholesterol-free oil and wishes to market the product world wide. It hires an American marketing consulting firm to do a computer stimulation of the world market for such oil and to advice it on marketing strategies. Are the fees paid to the US company for included services ? Analysis : The fees would not be for included services. The American company is providing a consultancy service which involves the use of substantia ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing, as of a building or machinery. Its synonyms are draft', delineation', sketch' and design' . Design : The term design mean features of shape, configuration, pattern or ornament applied to any article and appealing to and not dictated solely by the function the article has to perform, copyright may be obtained on registration for new and original designs Great Encyclopedic Dictionary, Vol. III page 1168. 36. The Supreme Court in the case of Commissioner of Customs v. Parasrampuria Synthetics Ltd. [2002] 253 ITR 274, has analysed the meaning of plan and design as follows (page 276) : Let us first analyse as to the true grammatical meaning of the words included in serial No. 15 to wit : plan, drawings and designs', plan' in common acceptation means a drawing or diagram made by projections on horizontal plane' . The Law Lexicon attributes it to be a design or a sketch and is a draft or form of representation and its synonyms are sketch and design. Corpus Juris Secundum (vol. 70) attributes a meaning in similar vein as a draft or form or representation of a horizontal section of anything, as of machinery ; a map . . . a scheme ; ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing further process in software technology (which are not owned or provided by Fugro ) generates a report to determine probable targets. Thus the payments to Fugro cannot be considered to the payments for technical, plan and design much less, for the development and transfer of them. Fugro is engaged in providing services relating to collection and processing of data which always belonged to De Beers . The purpose of agreement is, for provision of services and not for supply or transfer of technical plan or design. The reports and maps are only an additional mode of report of data and cannot be construed as technical plan or technical design. 41. The payments made to Fugro cannot be considered as fees for technical services as such payments are not in consideration for the development and transfer of technical plan and technical design. 42. Meanings of the words development and transfer 43. The term development has been defined in the Advanced Law Lexicon to mean : The act, process or result of developing or growing or causing to grow ; the state of being developed happening. The word transfer' means the passage of a right from one individual ..... X X X X Extracts X X X X X X X X Extracts X X X X
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