TMI Blog2012 (6) TMI 18X X X X Extracts X X X X X X X X Extracts X X X X ..... butable to the services rendered in modifications and replacement of parts covered by engineering, designs, data and specifications delivered to ONGC in terms of the contract, are taxable as included services in India under Article 12 of the DTAC between India and USA as provided for therein. Therefore, payments are not taxable under the Income-tax Act, but only under the DTAC between India and USA. Also, tax has to be withheld u/s 195 on that part of the apportioned payment. - A.A.R. No.931 of 2010 - - - Dated:- 30-5-2012 - Justice Mr. P.K.Balasubramanyan, J. Present for the applicant Mr. Girish Dave, Advocate Ms Roopa Thomas, CA Present for the Department Mr. Mayank Kumar, ADIT(IT), Dehradun RULING The applicant is a company located in San Diego and incorporated under the laws of the United States of America (USA). It has a branch office in Singapore. It is a fully owned subsidiary of Solar Turbines Incorporated, USA. 2. The applicant is a manufacturer of industrial gas turbines which play an important role in the development of oil, natural gas and power generation projects. The applicant had supplied turbines to the Oil and Natural Gas Corporation (O ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical plan or technical design in terms of Indo-US DTAA? (3) Whether the consideration receivable by the applicant be liable to withholding taxes in India under section 195 of the Act? 4. The scope of work as given in Annexure I to the contract includes the inspection and boroscoping periodically or as and when needed by the applicant to ascertain the health of the installed parts of the gas turbines installed. If any defect is noticed, the particular gas turbine has to be taken out from service for rectification of the defect. Those services are to be charged at solar field daily rates applicable at the time of service. Turbine taken out for service is to be transported by ONGC and delivered at Dallas Air Port, USA. From that air-port, the applicant is to remove the turbine to its site at Desoto in USA. The dismantling, stripping and inspection of the components is to be carried out by the applicant at its work site and a report of the result furnished to ONGC. Latest modifications are to be incorporated by the applicant and the details of such modifications are to be furnished by the applicant to ONGC. After completion of the overhauling work, the turbine is to be preserved ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rendered by it under the agreement, is not taxable in India as fees for included services since the applicant is not making available any technical knowledge, experience, skill, know-how or processes or of the development and transfer of a technical plan or technical design. Understood in the context of the Memorandum of Understanding attached to the DTAC between the two countries, the test of making available would not be satisfied and consequently, the amount received by the applicant would not be taxable in India. It is emphasized on behalf of the applicant that it was only attending to overhauling of the turbines in its work place in Desoto in USA, after the turbine is delivered at Dallas, USA. After overhaul, the delivery is taken by ONGC itself at the work place of the applicant in Desoto. Consequently, no part of the work is done by the applicant in India. 6. On behalf of the Revenue, it is submitted that an attempt has been made to split up the contract for supply, installation, commissioning, trouble shooting and maintenance of the turbines artificially. Such an attempt should be discountenced. It was a part of the package. The applicant has the obligation not only to in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the equipment. 8. It is seen that but for the element relating to inspecting and boroscoping of the equipment in India, all other activities take place in the Unites States of America. The contract is executed in India and the payment has to be made through an irrevocable letter of credit. The entire work of overhauling is done in USA on delivery of the machinery in USA by ONGC. Thus, a major part of the work is done in USA. The question in the context of paragraph 4 read with paragraph 2 of Article 12 of the DTAC is whether services rendered by the applicant which are technical services even on its own showing, is made available to ONGC so as to qualify as included services within the meaning of Article 12. Normally, a contract for overhauling a turbine which has been supplied to a consumer for its use, cannot involve making available of any technical knowledge, experience, skill, know-how or process which would enable the receiver of the services capable of using that knowledge or design. When machinery is overhauled and given back to the owner so as to resume its business, it cannot be said to involve making available any knowledge or information within the meaning of paragr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... included services under paragraph 4(a) read with paragraph 3 of Article 12 of the DTAC. This could also be said to be making available technical knowledge or information to ONGC which ONGC can use on its own for its benefit. A part of the payment ascribed to this part of the activity, would be liable to be taxed in India in terms of paragraph 2 of Article 12 read with paragraphs 3 and 4 thereof. If so, on Question No.2 the ruling has to be that those parts of the receipts attributable to inspection and boroscoping activity carried on at the site in Mumbai though arise in India are not taxable as included services under Article 12 of the DTAC, but if the applicant is found to have a permanent establishment in India, taxable as its business income, but that part of the receipts attributable to the services rendered in modifications and replacement of parts covered by engineering, designs, data and specifications delivered to ONGC in terms of clause 38 of the contract, are taxable as included services in India under Article 12 of the DTAC between India and USA as provided for therein. On Question No.1 the ruling has to be that the payments are not taxable under the Income-tax Act, but ..... X X X X Extracts X X X X X X X X Extracts X X X X
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