TMI Blog2012 (4) TMI 74X X X X Extracts X X X X X X X X Extracts X X X X ..... icle on “Royalties and fees for technical services” under the respective DTAAs or when the said Article is read with the MFN clause, which has to be taken as part of the Convention In the absence of a provision on FTS, the amount received by the applicants would be taxable as business income under Article 7 of the DTAA. As the applicants do not have a PE in India, the amount received would not be taxable as business income - FTS shall be governed by Article 22 of the Tax Treaty and not as per Article 7 of the Tax Treaty that deals with taxation of business profits - Rulings are given - A.A.R. Nos. 886 to 911, 913 to 924, 927,929 and 930 of 2010 - - - Dated:- 19-3-2012 - Mr. Justice P.K. Balasubramanyan, Mr. V.K.Shridhar, JJ. Present for the applicant : Mr.G and others Present for the Department : Mr. Mahesh Shah, Addl. Director of Income-tax (Intl.Taxn.) Range-2,Mumbai. Mr. Ashish Heliwal, DDIT (Intl.Taxn.)-2(1), Mumbai. RULINGS These applications are by affiliates of X group of companies. ABC, the parent company is incorporated in A country. X group of companies is engaged in the business of Inspection, Verification, Testing and Certification ( IVTC ) serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in India as fees for technical services (FTS) or royalty under the provisions of Article of the Double Taxation Avoidance Agreement (DTAA) between India and the Country of the Applicant in absence of Permanent Establishment (PE) in India? (a)Inspection and Verification services (Refer para A.2.1 of Annexure I) (b) Testing/Analysis services (Refer A.2.2 of Annexure-I; and ( c) Certification services (Refer A.2.3 of Annexure-I) 2. Whether, on the facts and circumstances of the case, the payments received / receivable by the applicant in connection with transactions undertaken / proposed to be undertaken in relation training services as outline in para B.2.4 of Annexure I are chargeable to tax in India as FTS or royalty under the provisions of Article of the DTAA between India and the Country of the Applicant in absence of PE in India? 3. Whether, on the facts and circumstances of the case, the payments received/receivable by the applicant in connection with transactions undertaken/proposed to be undertaken in relation to following services provided are chargeable to tax in India as FTS under section 9(1)(vii)(b) of the Act? a. Inspection and Verification services ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axable as FTS under section 9(1)(vii) of the Income-tax Act and that the exception provided in section 9(1)(vii)(b) is not available to the applicants. We have also held that the payments received in connection with the costs incurred and recovery of administrative cost on behalf of the X India is chargeable to tax as FTS. We have also ruled that since the applicants have a tax presence in India, X India/Indian Customers are required to withhold tax under section 195 of the Act. 4. That Ruling was given in the case of an applicant, a resident of a country with whom India did not have a Tax Treaty and hence the applicant was not entitled to the benefits under section 90(2) of the Act. But, here the applicants have opted for and are entitled to avail the beneficial provision of the DTAA entered into by India with the respective countries of their residences. Hence the question remained to be answered in these applications is: In the light of the Article on Royalties and fees for technical services under the respective DTAAs, whether the consideration received by the applicants would attract any tax liability in India on the applicants? We answer the question as follows. In A.A.R. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uture on its own. Here, X India / customers have to repeatedly seek IVTC services from the affiliates even if the product is the same. X Affiliate is not involved in supporting a system which is put in place or is already in place by X India / Indian customers. The affiliates are not getting X India / Indian customers equipped to carry on IVTC services independent of X Affiliates. The utility of the services available in the form of a report, though highly technical in nature, comes to an end, little thereafter, if not immediately, after its rendition. The reports/samples may have to be kept for a while to claim demurrage / insurance or for valuation, etc. We see that the elements of make available is absent in the present services in as much as even for the said reports, the customers have to continuously refer to the applicants and the same is not freely made available to the customers. Thus, we are of the view that technical services rendered by the affiliates do not make available technical knowledge, experience, skill, know-how or process while preparing these reports for their clients, X India / Indian customers. In A.A.R. Nos. 893 to 898, 904, 907 to 910 ,921 of 2010 6. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 9(1)(vii) of the Act, but not under the provisions of Article on Royalties and fees for technical services under the respective DTAAs or when the said Article is read with the MFN clause, which has to be taken as part of the Convention. Que.No.6 As the applicants do not have a tax presence in India, X India / Indian customers are not required to withhold taxes under section 195 of the Act. Que.No.7 Since the applicants would have been taxable in India under section 9(1)(vii) of the Act but for the intervention of the respective DTAA, the applicants are bound to file returns in India under section 139 of the Act. A.A.R. Nos. 913 to 920 of 2010 7. It is contended on behalf of the applicants that there is no specific provision governing the taxability of FTS in the Tax Treaty with the countries of which the applicants are residents. In the absence of a provision on FTS, the amount received by the applicants would be taxable as business income under Article 7 of the DTAA. As the applicants do not have a PE in India, the amount received would not be taxable as business income. In the case of Lanka Hydraulic Institute Limited (A.A.R. No.874 of 2010), this Authority has taken th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e term fees for technical services as used in this Article means payments of any kind received as a consideration for the rendering of any managerial, technical or consultancy services including the provision of services by technical or other personnel but does not include payments for services .. Explanation 2 to section 9(1)(vii) of the Act reads as under: 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 does not include consideration . The two definitions are identically worded. The term fees for technical services carry the same meaning and has same application. We have ruled that IVTC services are in the nature of fee for technical services . The Article under Royalties and fees for technical services of the respective DTAAs provide that fees for technical services may be taxed in the contracting state in which they arise. It further provides that fees for technical services shall be deemed to arise in a contracting state when the payer ..... X X X X Extracts X X X X X X X X Extracts X X X X
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