TMI Blog2013 (4) TMI 643X X X X Extracts X X X X X X X X Extracts X X X X ..... ature of technical services, but is not covered in para (3)(g) to Article 12 of the India Australia Treaty and hence, the same is not taxable in India. We also hold that the amount received by the assessee cannot be treated as a Royalty even under the normal provisions of I.T. Act. But under the normal provision of the I.T. Act the same constitute consideration for rendering the technical services covered u/s.9(1)(vii) of the I.T. Act. Accordingly, Ground No. 1 is allowed and issue is decided in favour of the assessee. The assessee has taken alternative Ground by way of Ground No. 2. As we have decided the issue in favour of the assessee, the alternate Ground does not survive. In the result, the assessee's appeal is allowed. - IT Appeal No. 93 (PN) OF 2011 - - - Dated:- 31-1-2013 - R.S. PADVEKAR AND R.K. PANDA, JJ. For the Appellant Kanchan Kaushal, Dhanesh Bafna and Dinesh. For the Respondent Ajit Korde. ORDER:- R.S. Padvekar, Judicial Member - In this appeal, the assessee has questioned the action of the A.O. for treating the payment of Rs. 1,07,71,888/- received from M/s. Sandvik Asia Ltd., Pune, as taxable being royalty/FTS. The assessee has taken the followin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... k, administrative and maintenance IT support. Assessee also claimed that in view of the Treaty between India and Australia, as no technical services are made available to its group companies in India, the payment is exempt. The A.O. also referred to the agreement made between the assessee and the Sandvik Asia Ltd., date 19.12.2006, part of the same is reproduced in the draft order on pages No. 3 to 6. The A.O., therefore, concluded that as per the agreement the assessee is not only providing the basic IT services such as help desk support, by supporting Sandvik IT personnel but much more than that which is IT infrastructure to those facilities. The A.O. has also observed that the assessee is also charging payments from its affiliates for providing the infrastructure which is evident from the copy of the invoices submitted by the assessee. A.O. also referred to section 5(2) r.w.s. 9(1)(vi) and section 9(1)(vii) and concluded that the services rendered by the assessee company to its group companies in India i.e. Notes Domino Administration, SBS, Windows operations, network infrastructure, global server, and AS400 data processing are services in the nature of technical services and pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... "5. We have considered the submission of the A.R. and have also gone through the assessment order. The assessee has created Global basic infrastructure to provide the global functional services. As per the agreement dated 19.12.2006 made between the assessee and M/s. Sandvik Asia Ltd. the providing party (assessee) is prepared to transfer such knowledge to the Receiving Parties (SAL), and to provide the Receiving parties with Information Technology consultancy and data processing services. Therefore, we are of the opinion that as per this agreement the assessee has rendered IT Support Services, which are technical services and which results in the transfer of technical knowledge to its Indian Affiliate and make available technical knowledge, experience, skill and know how to its Indian affiliates. These services cannot be considered as helpdesk and user administration services, networking services and data centre services. Further it is observed that according to treaty, FTS means payments to any kind to any person in consideration for the rendering of any technical or consultancy services if such services make available technical knowledge, experience, skill, know-how or pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, skill, know-how or process to the recipients and they do not fall within the ambit of the royalties under Article 12 of the Treaty. He submits that even it is not the case of the A.O. also that the payments received by the assessee company is in the nature of the royalty though he has mentioned royalty/FTS in the draft order as well as in the final order. He submits that the Ld. Counsel referred to the agreement entered into between the assessee and Sandvik Asia Ltd. (page Nos.2 to 10 of the compilation). He took us to the entire agreement more particularly the definition clause, the service clause as well as Schedule II where the services are specified. He submits that so far as taxability of the payments received by the assessee from the Indian affiliates, the same is taxable under the normal provisions of the Act more particularly under sec.9(1)(vi)/9(1)(vii) but in view of the DTAA between India and Australia, unless and until the technical knowhow is made available the same cannot be taxed in India. He submits that the nature of the services has been elaborated in the agreement between these two parties, the assessee and Sandvik Asia Ltd. and these are as under: 1. G ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... andvik Asia Ltd is nothing but royalty. In reply the Ld. Counsel submits that agreement is to be understood after considering the operative clauses and not merely recitals. He submits that the service which is agreed between the parties has been elaborated in clause 2 read with Schedule 2 to the agreement and none of the clauses suggest that the assessee has made available any technical services to Sandvik Asia Ltd. or any affiliate. 8. We have heard the rival submissions of the parties and perused the record. The assessee is a non-resident company. The assessee is providing the IT support services to its group companies in the Asia-pacific region. So far as the issue before us is concerned, two group companies from India, i.e., Sandvik Asia Ltd. and Walter Tools India Pvt. Ltd., have made the payments to the assessee company. The DRP confirmed the action of the TPO treating the payment received by the assessee company from its Indian affiliates as taxable as royalty/FTS. The Ld. Counsel fairly conceded that so far as normal provisions of I.T. Act are concerned, i.e., more particularly section 9(1)(vii), in view of the Explanation 2 below the said section, the amount received by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... laced his emphasis in the recital of the said agreement where it is stated as under: "Providing Party is prepared to transfer such knowledge to the Receiving Party and to provide the receiving parties with information technology, consultancy and data process services." 11. Though the agreement is to be read as a whole and cannot be read into piece-meal basis but what we find as per operative clauses in respect of the contractual obligation of the assessee company nowhere it is suggested that assessee has to make available the required technical know-how for solving the problems faced by the Sandvik Asia Ltd. in their IT related problems. 12. The Assessing Officer has already reproduced Article 12 of the India Australia Treaty in his draft assessment order and he has interpreted that as per the Treaty FTS means payment of any kind to any person in consideration for the rendering of any technical or consultancy services if such services make available technical knowledge, experience, skill, know-how or process or consists of development and data of technical plan or technical design. In view of the above rendered by the assessee company to its Indian affiliates are in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ragraph (b) or any such knowledge or information as is mentioned in sub-paragraph (c); (e) the use of, or the right to use : (i) motion picture films; (ii) films or video tapes for use in connection with television; or (iii) tapes for use in connection with radio broadcasting; (f) total or partial forbearance in respect of the use or supply of any property or right referred to in sub-paragraphs (a) to (e); (g) the rendering of any services (including those of technical or other personnel), which make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or design; but that term does not include payments or credits relating to services mentioned in sub-paragraphs (d) and (g) that are made; (h) for services that are ancillary and subsidiary, and inextricably and essentially linked, to a sale of property; (i) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic; (j) for teaching i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State, but subject to the other provisions of this Agreement. 13. We are concerned with para No. 3 of Article 12, which defines the term Royalty. Under the IT Act, the term royalty and expression FTS are classified as two different connotations, i.e. 9(1)(vi) and 9(1)(vii). So far as Article 12 is concerned, FTS is included in the term "royalty" for the purpose of deciding in which contracting state the income from the same is to be taxed. Clause (g) in Article 12(3) goes to the roots of the issue. Main thrust of the argument of the Ld. Counsel is that it is not only sufficient to render the services but the same should be made available to the recipient and this particular important aspect is missed by the DRP/TPO. We find that the expression "making available" is very much important to decide in which contracting state the amount received for rendering the services relating to the technical know-how is to be taxed. The expression "make available" is used in the context of supplying or transferring technical knowledge or technology to another. It is different than the mere obligation of the person rendering the services of that persons own technical knowledge or technology in pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ees for technical services. To that extent the definition of fee for technical services found in the agreement is inconsistent with the definition of fees for technical services provided in Explanation 2 to clause (vii) of sub-section (1) of Section 9. In view of Section 90 the definition of fees for technical services contained in the agreement overrides the statutory provisions contained in the Act. In fact, the latest agreement between India and Singapore further clarifies this position, where they have explained the meaning of the word 'make available'. According to the aforesaid definition fees for technical service means payments of any kind to any person in consideration for services of technical nature if such services make available technical knowledge, experience, skill, know how or processes which enables the person acquiring the service to apply technology contained therein. Though this provision is not contained in India Netherlands Treaty, but virtue of Protocol in the agreement, Clause (iv)(2) reads as under: "If after the signature of this convention under any Convention or Agreement between India and third State which is a member of the OECD India should lim ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rovider had used. Therefore, unless the service provider makes available his technical knowledge, experience, skill, know how or process to the recipient of the technical service, in view of the Clauses in the DTAA, the liability to tax is not attracted." 15. Their Lordships also considered the decisions of the Authority for Advance Rulings (AAR) where the term 'make available' is interpreted. The relevant discussion and observations of their Lordships are as under: "22. What is the meaning of 'make available'. The technical or consultancy service rendered should be of such a nature that it 'makes available' to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology 'making available', the technical knowledge, skills, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the produc ..... X X X X Extracts X X X X X X X X Extracts X X X X
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