TMI Blog2014 (9) TMI 352X X X X Extracts X X X X X X X X Extracts X X X X ..... made available to the recipient - there are significant distinction between the definition as prescribed u/s.9 of IT Act of "fees for technical services" as compared with the definition prescribed in Article 13 of Indo-UK treaty. The provisions of DTAA overrides the provisions of IT Act in the matter of ascertainment of taxability under the Income Tax Act – also in Union of India v. Azadi Bachao Andolan [2003 (10) TMI 5 - SUPREME Court] – it has been held that there was no obligation for withholding the tax on any person making payment to a non-resident if the payment made to the non-resident is not chargeable under the provisions of IT Act - the issue is limited to the applicability of the provisions of Article 13 of DTAA between India and UK – thus, the fees for technical services was not paid for making available the technical knowledge, experience, know-how to the assessee - the payment made by the assessee to the said resident is out of the ambits of the provisions of Section 195 of IT Act – the order of the CIT(A) is upheld – Decided against revenue. - ITA No.1405/Ahd/2009, ITA No.1407/Ahd/2009 - - - Dated:- 30-5-2014 - SHRI MUKUL Kr. SHRAWAT AND SHRI ANIL CHATURVEDI, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e to the service recipient, i.e. assessee.As against that, the Assessing Officer has show-caused as to why the payment should not be treated as fees for technical services and, therefore, why the tax u/s.195 was not deducted, consequently to be recovered from the assessee in terms of section 201(1) 201(1A) of the I.T. Act. The assessee's reply was that the services provided by M/s. H.R. Wallingford Ltd., UK was not in the nature as prescribed in Article-13(4)(b) of India - UK DTAA. 2.2 The assessee has furnished an explanation in respect of the nature of work conducted by M/s. H.R. Wallingford Ltd., relevant portion is reproduced below: 2.1 Assessee vide reply dated 27.03.2008 (received on 31.03.2008) the company is developing Dholera Port located in the state of Gujarat in this context, it awarded contract for Navigation Studies Sedimentation studies to M/s. HR Wallingford Ltd, United Kingdom, covering rate of sedimentation, frequency of dredging, the impact of capital dredging work, shore protection on the hydrodynamic and morphology of the area etc. to having requisite technical knowledge and experience in the given field to assessee the viability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Adani Group 1. Introduction 1.1 Background The Adani Group is contemplating participating in developing Dholera Port which is located between Ahmedabad and Bhavnagar in the Gulf of Khambhat. The proposed developments will include a deepened and realigned approach channel, a berthing area and associated shore protection works. Initial studies to be carried out are focused on the morphological and navigational aspects of the proposed developments. Previous studies undertaken at this site have highlighted the prevailing environmental conditions, with strong tidal action (large tide range and strong tidal currents) occasional cyclone rapid coastal erosion which is likely to be lined to the configuration of the larger banks (in particular Mal Bank and Ronlo Island) and channels (in particular Malcolm Channel). A DPR study prepared by Frederick Harris in 2000 highlighted the morphological activity in the area and recommended regular surveys be undertaken to investigate this aspect further, noting that the main Dholera Channel would be subject to rapid shoaling in the event that upstream drainage channels are deviated by the bank migration. 3.3 However, the AO was not co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Article 13(4) of India UK DTAA. However, in doing so, he has ignored the fact that the appellant company was supposed to receive only a Report on the pre-existing conditions. This Report contains data and information about the morphological studies, navigation studies, etc. in relation to the Dholera Port whereby no technical knowledge, skill, know-how, etc is made available to the assessee. The Assessing Officer in reaching to this conclusion also relied on an example [reproduced on page-8 of the order] forming part of the Memorandum of Understanding appended to India US Treaty in order to borrow the meaning of the term 'make available'. In doing so, he has himself applied the India US Treaty because the Article 12 to India US DTAA is pari material with that of the Article 13(4) of India UK DTAA. The Assessing Officer has wrongly applied the said example for the reason that the US company has transferred the set of skill in the form of instructions which will assist the Indian to install the system. This individual will be in a position to render such or similar instructions to other people in India. Hence, the said services have readily been made available to the individ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l studies - Determine the rate of sedimentation and the quantity and frequency of dredging. - Agreement of channel alignment - Sedimentation and maritime dredging requirements for the berthing pocket. - Requirement and nature of any shore protection measures. - The impact of capital dredging works and shore protection on the 5.2 Learned DR has placed reliance on a judgment of Authority for Advance Ruling (Income Tax) (New Delhi) 9th day of December, 2011 ARR No.869 of 2010 in the case of Perfetti Van Melle Holding, wherein the relevant observations were as under: 2. Applicant submits that being a tax resident of the Netherlands the provision of India-Netherland Double Taxation Avoidance Convention (DTAC) will apply to the extent they are more beneficial when compared to the provisions of the Income-tax Act, 1961 (Act). Under para 5(b) of Article 12 of the DTAC, any service to qualify as fees for technical services (FTS), the service should be technical or consultancy in nature and the services should 'make available' technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The significance of the fact that such a Memorandum or a similar Memorandum of Understanding does not supplement the convention with Netherlands cannot also be lost sight of. One possible inference is that India did not want the situation arising out of the Memorandum of Understanding accompanying the India-US Double Taxation Avoidance Convention to prevail in the interpretation of its Convention with Netherlands. I am, therefore, not persuaded to accept the argument that the India-Netherlands Convention should be interpreted with the aid of the Memorandum of Understanding accompanying the India-US Convention. Article 12.5 of the Convention between India and Netherlands has to be interpreted on its terms, at best with reference to the protocol that accompanied that Convention. 2. The expression 'make available' only means that the recipient of the service should be in a position to derive an enduring benefit and be in a position to utilise the knowledge or know-how in future on his own. By making available the technical skills or know-how, the recipient of the same will get equipped with that knowledge or expertise and be able to make use of it in future, independent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the recipient and the recipient can drive enduring benefit and also can utilize the knowledge on his own in future without the aid of service provider. The technical knowledge thus is made available if the knowledge remains with the person receiving the services even after the end of contract. The service provided by HR Wallingford was namely Navigation and Manooring Assessment Ship Navigation Simulation Study, Ship Mooring Study which were not in the nature of technical knowledge transmitted to the assessee. He has placed reliance on CIT v. De Beers India Ltd. [2012] 346 ITR 467 (Kar.), DIT v. Guy Carpenter Co. Ltd. [2012] 346 ITR 504 (Delhi). 7. We have heard both the sides at length. We have also carefully perused the documents furnished in the compilation containing copy of the Memorandum of Agreement with HR Wallingford dated 13.02.2007, proposal prepared and offered by Adani Group dated 16/21 February, 2006 and accepted by the service provider. In short, the appellant had entered into an agreement with M/s. HR Wallingford for the following services: 1. Morphological Studies 2. Sedimentation Assessment 3. Navigation and Mooring Assessment. 7.1 The reason for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... racteristics of a diamond. So the payment received by GIA is not one for the right to use the experience. Few case laws, namely, Raymond Ltd, 87 ITD 791 (Mum.), NQA Quality System Register Ltd., 92 TTJ 945, CESC Ltd., 80 TTJ 808 (cal.), Mckinsey and Company, 99 ITD 549 (Mum.). Sheraton International, 106 TTJ 620 (Delhi) have laid down a common principle that if the fruits of the services remained with the service provider then out of the ambits of the term 'make available' but after the fruits of the service rendered remained with the service recipient and the service recipient is able to perform similar activity, for which the services were sought, without the help or recourse of the service rendered then the technology can be said to be transferred or made available to the recipient. In the case of Mahindra Mahindra Ltd. 122 ITD 216 (SB), the meaning of expression 'make available' has been analyzed by discussing an another decision of Intertek Testing Services India (P.) Ltd. 307 ITR 418 wherein it was said that the service should be aimed at and result in transmitting the technical knowledge, etc., so that the receiver of service could derive an enduring benefi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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