TMI Blog2015 (4) TMI 503X X X X Extracts X X X X X X X X Extracts X X X X ..... irety of the payment cannot be considered as one falling for consideration under art. 12. Further, taking note of the fact that the assessee company was also involved in training Indian personnel in India and abroad and taking note of the clauses in the agreement as regards the payment and the additional payment depending on the period of training, over and above what was to be paid under the agreement for the duration specified therein, the CIT(A) rightly came to the conclusion that the component of technical services in India included the extra months of training, so too the training abroad. In computing the said amount, rightly the CIT(A) arrived at a finding that a sum of 1,12,500 USD and 69,750 USD would be the amount which would be treated as received for technical services rendered by the assessee and the amount of 4,79,640 USD relates to royalty payment, assessable as per art. 12. As far as the order in art. 22 is concerned, we do not find any justifiable ground to uphold this portion of the order after the discussion on the extent of income falling for consideration under royalty as defined under art. 12 and the amount paid as towards technical services falling for cons ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y of Thailand. It entered into technical assistance know-how agreement on 19th March, 1990 with M/s Mohan Breweries Distilleries Ltd. (MBDL). A reading of the agreement dt. 19th March, 1990 shows that M/s MBDL decided to establish a container glass plant in the Union Territory of Pondicherry in India, and accordingly MBDL entered into an agreement with the assessee herein for transfer of glass technology know-how. Thus, the agreement herein speaks about transfer of know-how relating to engineering, design equipment procurement, operating and manufacturing technology for facilities for the manufacture of glass packing materials and containers. Article I of the agreement states that the assessee agreed to transfer the know-how to the Indian company during the layout planning and erection stage and the assessee company will teach such know-how to MBDL in such manner so as to assist MBDL in successfully operating its future facilities in India in the field of glass packing materials and containers. 5. Article II of the agreement deals with technical advice in transferring all its present methods of manufacture relating to packing materials and containers as follows : (a) BCI sh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erization. 7. Article IV touches on technical training on the following terms : BCI is prepared to train people of MBDL within its training possibilities in its training centre as well as in production practice. According to the qualification of the trainer BCI will undertake training in following items : - tank operation - sorting - machine operation - mould design and maintenance - elements of batch calculation - laboratory (chemistry, physics and microscopy) - maintenance systems and spare parts organisation - computerization. 8. In terms of the agreement thus entered into, the assessee was paid technical know-how fees for five years. The assessee contended that the technical know-how fees are not liable to tax as per art. 12 of the DTAA between India and Thailand. The Revenue, however, rejected the said contention and referred to the definition of royalty under art. 12 to take the view that the definition of royalty under art. 12 means the consideration for transferring the know-how. Since what had been transferred was sharing of knowledge, the consideration received was not covered by the definition of royalty , as available under art. 12 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... be treated as fee for technical services received by the assessee company, which would have to be considered for taxation under art. 7, subject to the condition that the assessee had a PE in India. The CIT(A) pointed out that the DTAA with Thailand providing for consultancy over 183 days would require the existence of a PE. When the technical services such as consultancy had been dealt with under the DTAA and such receipts forming part of the business profits of the assessee, subject to an enquiry as to the existence of a PE as required under art. 7, such receipt would have to be considered for taxation under the DTAA. Thus, the CIT(A) pointed out that the assessee denied the existence of a PE in India. 10. For the asst. yr. 1991-92, the assessee filed the return of income and it was asked to file evidence for having calculated tax at 15 per cent. The assessee contended that the income receivable under art. 12 was royalty taxable at 15 per cent. On the notice issued under s. 148, the assessee reiterated the stand as per the return originally filed. The position is so for the asst. yrs. 1992-93, 1993-94, 1994-95 and 1995-96 and the assessee claimed refund of the tax paid. For th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... income not covered under any of the provisions of DTAA. Thus holding that royalty and fee for technical services contemplated under the agreement were taxable under art. 12 and art. 7 respectively, the Tribunal held that art. 22 could not be invoked. Having stated so, surprisingly, in para 9 of the order, the Tribunal once again considered art. 22 only to hold that the portion of fee for technical services arising in India was to be taxed in accordance with section 115(1)(b). Referring to section 9(1)(vii)(b) of the Act, which deals with income by way of technical services payable by a person who is a resident in India, it held that the portion of fee for technical services arising in India has to be taxed de hors any business connection. In the result, dismissing the assessee's appeals on other issues and allowing the assessee's appeal on this issue alone, it allowed the Revenue's appeal in part. Aggrieved by this, both the Revenue as well as the assessee are on appeal before us. 12. We had already extracted in the preceding paras, the clauses under the agreement between the parties. As far as the provisions under the DTAA are concerned, we need to note art. 5, art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ign or model, plan, secret formula or process, or for the use of, or the right to use industrial, commercial or scientific equipment, or for information concerning industrial, commercial or scientific experience. Sub-art. (4) to art. 12 states that where the assessee being resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise, through a PE situated therein, or performs in that other State independent personal services from a fixed base situated therein, the provisions of art. 7 or art. 15, as the case may be, would apply. 17. As already seen from the extract of the definition of PE as given under art. 5, sub-art. (2)(j) includes rendering of services including consultancy services, by a resident of one of the Contracting States through employees or other personnel within the other Contracting State for a period or periods aggregating to more than 183 days while the same will qualify for consideration under the definition of PE . As far as this aspect is concerned, learned counsel appearing for the assessee as well as learned standing counsel appearing for the Revenue pointed out that after the remand order of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow to fall for consideration under the head of royalty , hence, the entire payment has to be treated as falling for consideration between payment of royalty and payment of rendering technical advice. On going through arts. 2 and 3 of the agreement between the assessee and the Indian company, we agree with the view of the CIT(A) that the entirety of the payment cannot be considered as one falling for consideration under art. 12. Further, taking note of the fact that the assessee company was also involved in training Indian personnel in India and abroad and taking note of the clauses in the agreement as regards the payment and the additional payment depending on the period of training, over and above what was to be paid under the agreement for the duration specified therein, the CIT(A) rightly came to the conclusion that the component of technical services in India included the extra months of training, so too the training abroad. In computing the said amount, rightly the CIT(A) arrived at a finding that a sum of 1,12,500 USD and 69,750 USD would be the amount which would be treated as received for technical services rendered by the assessee and the amount of 4,79,640 USD relates to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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