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TMI Blog2012 (9) TMI 624X X X X Extracts X X X X X X X X Extracts X X X X ..... umstances of the case, the Tribunal ought to have held that the sum payable was "Industrial or Commercial Profits" within the meaning of the Article III of the DTAA between India and Japan and was, therefore, not liable to be taxed in India, the assessee having had no permanent establishment in India ? Similar questions have been raised with respect to the Assessment Year 1982-83. (B). The Tribunal also referred a question at the instance of the Revenue. It is not clear whether the Revenue has had the Reference numbered or not and whether or not the same is pending. We will, therefore, restrict ourselves to the above questions which have been referred to this Court at the instance of the assessee. 3. In the year 1978, the manufacturing operations of the assessee had to be stopped as a result of a waste heat boiler tube bursting. The assessee, therefore, sought technical assistance from Toyo Engineering Corporation Limited (hereinafter referred to as "Toyo"). Pursuant to the assessee's request, Toyo sent three technicians to India to repair the machinery. The repairs were completed by December, 1978. 4.(A) Toyo raised an invoice dated 4th April, 1979, on the assessee, which clai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... year 1982-83. 6. Mr. Pardiwalla conceded that the receipt of the amounts by Toyo would fall within section 9(1)(vii) of the Act. He, however, contended that the assessee / Toyo were entitled to the benefit of the DTAA. 7. The relevant provisions of the DTAA read as under : "Article II.- (1) In the present agreement unless the context otherwise requires : ............ (2) In the application of the provisions of the present Agreement by either Contracting State, any term not otherwise defined in the present Agreement shall, unless the context otherwise requires, have the meaning which it has under the laws of that Contracting State relating to tax. Article III.- (1) The Industrial or commercial profits (excluding the profits derived from the operation of ships or aircraft) of an enterprise of one of the Contracting States shall not be subjected to tax in the other Contracting State unless the enterprise has a permanent establishment situated in that other Contracting State. If it has such permanent establishment, the profits attributable thereto may be subjected to tax in that other Contracting State. ............... (5) The term "industrial or commercial profits" as u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervices utilised 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; Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government. Explanation 1.- For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date. 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 does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries"." Mr. Pardiwalla relie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Toyo and Toyo has not merely provided technicians to carry out the work. The fees were, therefore, paid not merely for deputing technical experts, but for the technical services rendered by Toyo. That the services were rendered through technical experts engaged by Toyo does not detract from the fact that Toyo rendered the technical services. Technical services obviously had to be rendered, inter-alia, through technical experts. 14. "Technical services" is a composite phrase involving several activities, including rendering advice and suggestions as well as undertaking the actual physical tasks. Rendering technical services may involve one or more or all such activities. Each case must be considered on its facts to ascertain whether the real purpose was the rendition of technical services. However, technical services in most cases at least would be rendered only by the input of technical personnel. Without them, there would be no start to rendering technical services. Toyo did not merely provide the services of its personnel. It provided technical services required for undertaking the repairs to the assessees damaged machinery. The repairs were undertaken by Toyo's technica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from certain foreign enterprises.- Where the gross total income of an assessee, being an Indian company, includes any income by way of royalty, commission, fees or any similar payment received by the assessee from the government of a foreign State or a foreign enterprise in consideration for the use outside India of any patent, invention, model, design, secret formula or process, or similar property right, or information concerning industrial, commercial or scientific knowledge, experience or skill made available or provided or agreed to be made available or provided to such government or enterprise by the assessee, or in consideration of technical services rendered or agreed to be rendered outside India to such government or enterprise by the assessee, under an agreement approved by the Board in this behalf, and such income is received in convertible foreign exchange in India, or having been received in convertible foreign exchange outside India, or having been converted into convertible foreign exchange outside India, is brought into India, by or on behalf of the assessee in accordance with any law for the time being in force for regulating payments and dealings in foreign excha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical services were rendered by the assessee to the foreign government. In our opinion, the attempt of Sri Ahuja to differentiate technical services rendered to the assessee by its employees and technicians from technical services rendered by the assessee to a foreign constituent and urge contention that the latter alone can qualify for relief under Section 80-O on the ground that the project in question was a turnkey project which has succeeded before the High Court, proceeds on an unduly narrow interpretation of the section. In our view, the assessee was undoubtedly rendering services to the foreign government by executing the water supply project. These services were no doubt technical services, as they required specialised knowledge experience and skill for their proper execution. The argument seems to be that the services in the present case will not be covered by the section because there was no privity of contract between the employees of the assessee who contributed their technical skill and the foreign government. We think this argument cannot be accepted. The assessee is a company and any technical services rendered by it can only be through the medium of its employe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... only of a clarificatory nature. The expression "technical services" has a very broad connotation and it has been used elsewhere in the statute also so widely as to comprehend professional services: vide Section 9(1) (vii), referred to earlier. But we need not digress on this aspect for two reasons. Firstly, whatever may be the position regarding other "professional services", there can hardly be any doubt that services involving specialised knowledge experience and skill in the field of constructional operations are "technical services". The Board's guidelines, to which reference is made later, specifically say so. Secondly, the question whether "professional services" would be "technical services" or not has no impact on the point we are trying to make viz. that in order to say that a person is rendering such services to another, it is not necessary that the services should be rendered by the former personally and not through the medium of others. For the reasons discussed above, we have come to the conclusion that, under the contracts in question, the assessee had made available technical information to the foreign government for use outside India and had also rendered technical ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnel. Article 12(4) reads as under : "ARTICLE 12 ........... (4) The term "fees for technical services" as used in this article means payment of any amount to any person other than payments to an employee of a person making payments and to any individual for independent personal services referred to in article 14 in consideration for the services of a managerial, technical or consultancy nature including the provisions of services of technical or other personnel." 23. What we have said in relation to section 9(1)(vii) of the Act would apply equally to Article 12(4). Assuming that it applies to contracts such as these, in our opinion, the definition insofar as it includes the provision of services of technical or other personnel is merely clarificatory. 24. In view of the conclusion we have arrived at, it is not necessary to consider the question whether while interpreting the provision of the DTAA the Court ought to rely upon the definitions in the domestic law as they existed when the DTAA was entered into or whether the Court ought to take into consideration the subsequent amendments thereto. 25. The Reference is, therefore, answered in the negative, in favour of the ..... X X X X Extracts X X X X X X X X Extracts X X X X
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