TMI Blog2015 (7) TMI 476X X X X Extracts X X X X X X X X Extracts X X X X ..... provided to a customer in India are liable to taxation in India. In the instant case, admittedly Olof Granlund did not have any office/ place of business in India. Further, the services were performed by Olof Granlund primarily from outside India and its employees made intermittent visits to India only for the purpose of attending meetings with the respondent.Accordingly, Olof Granlund Oy did not have a PE in India under the provisions of Article 5 of the India-Finland tax treaty during the subject period. Certificate obtained by the respondent from Olof Granlund in this regard is on record. In light of the above, we are of the considered opinion that the payments received by Olof Granlund from the respondent for provision of services are not liable to taxation in India under the narrower provisions of the India-Finland tax treaty. Following the ratio laid down In Transmission Corporation’s case [1999 (8) TMI 2 - SUPREME Court] we hold that the question of deduction of tax at source on the impugned payments does not arise. The CIT(A) on the same parity of reasoning allowed the appeal. Therefore, we dismiss the grounds of appeal filed by the revenue - Decided in favour of as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing been negotiated and entered in to at a political level and has several considerations at their base. 6. Whether on the facts and circumstances of the case the order of the CIT(A) is perverse and liable to be quashed. 7. The appellant prays for leave to add, amend, modify or alter any grounds of appeal at the time or before the hearing of the appeal. 2. Briefly stated the facts of the case are as under :- The respondent-assessee company i.e Nokia India Private Ltd. is a wholly owned subsidiary of Nokia Corporation. It is a company incorporated under the provisions of the Companies Act, 1956. During the year under consideration, it is in the process of setting up a manufacturing facility at Chennai. For this purpose, the contract for design, manufacturing and completion for the manufacturing facilities 3 was given to Leighton Contractors India Pvt. Ltd.. Olof Granlund Oy is a company incorporated in Finland and is engaged in the business of providing consulting services in relation to HVAC, electrical and fire protection systems and this company was engaged by the respondentassessee company for the purpose of reviewing the design, construction plans prepared by the Lei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ol and quality control services. It is pertinent to outline the technical position as regards taxability of Finnish enterprises in India. As per the provisions of section 90(2) of the Act, a foreign comp[nay has the option of being taxed in India under the provisions of the Act or the provisions of the Agreement for Avoidance of Double Taxation between India and the country of residence of such foreign company, whichever is more 5 beneficial. Taxability of payments made to Olof Granlund Qy (being a tax resident of Finland) has therefore been determined under the beneficial provisions of the India-Finland tax treaty ( tax treaty ). Under the provisions of Article 13(4)(c) of the India-Finland tax treaty, the term fees for technical services ( FTS ) has been defined to include payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including the provision of services 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 technical design. The term make available has not been defined under ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd therefore the services rendered does not qualify as FTS for technical services under the India Finland Tax Treaty and it was further submitted that the 7 services were rendered from outside India and the payments are in the nature of business receipts and are not liable to taxable in India in the absence of permanent establishment of Olof Granlund Oy and this fact had not been disputed by the TDS Officer. In view of these, it was submitted that the subject payments are not liable to tax in India and therefore there was no liability for deduction of tax at source under provision of section 195 of the Act. In support of the above contention and for the purpose of definition of the term make available the reliance was placed on the decision of Raymond Limited vs. DCIT in 80 TTJ 120 (Mum) . The Ld. CIT(A) after considering the submissions made on behalf of the assessee- respondent company allowed the appeal vide para 5.2 to 5.4 of his order by holding as under :- ~5.2 As per provisions of section 195, if a person pays to a non-resident any sum chargeable under provisions of IT Act, then payer has to deduct tax at source as per prescribed rates. Therefore, the trigger for appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, skill etc .must remain with the person utilizing the services even after the rendering of the services has come to an end. A transmission of the technical knowledge, experience, skills etc from the person rendering the services to the person utilizing the same is contemplated by the article ... 9 5.3 Therefore, unless the person receiving services is in a position to use that technological knowledge in future on its own without resorting to the initial service provider, it can not be said that the services have been made available. In present case under consideration, Olof Granlund Oy has provided mainly design review services. The AO has not established that this technical knowledge, experience, skill, know-how or processes has been transmitted to the appellant and the appellant is now equipped to use it in future without resorting to the non-resident service provider. In the absence of this key element, the services provided by the nonresident do not fall within meaning of the first limb of artlcle 13(4)(c). Therefore, it is held that services provided by Olof Granlund Oy to the appellant can not be characterized as technical services and hence payments made by the appell ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding 11 the provision of services of technical or other personnel) which : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in sub-paragraph (a) of paragraph 3 is received: or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in sub-paragraph (b) of paragraph 3 is received : or (c) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. In the present case, clause (a) (b) would not be applicable given that Olof Granlund is providing consultancy services independent of supply of any property, right or information in respect of which consideration had been received by Olof Granlund. In order to determine whether payments made to Olof Granlund fall under Article 13(4)(c), it is imperative to determine whether these services make available any technical knowledge, experience, skill, etc. to the recipient of the service or involves development and transfer of technical plan or design to the recipient of services. The India-Finla ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er of a technical plan (i.e., computer software) which the US company has developed and made available to the Indian company. The fees are chargeable. These examples affirm the position taken by the assessee-company before us as to the interpretation of the words make available . In fact, it has been held by various courts that the principle of parallel treaty interpretation is permissible where language of the two treaties is similarly worded and one treaty clarifies meaning of the terms (or 14 language) used. The above view has been affirmed by the subsequent pronouncements in the following cases: (a) National Organic Chemicals Industries Ltd vs DCIT (96 TTJ 765) (Mumbai IT AT) (b) CESC vs CIT(80 TTJ 806) (Calcutta ITAT). (c) DDIT v Preroy A.G. (2010) 39 SOT 187 (Mum) (d) Intertek Testing Services India (P) Ltd., In re (2008) 307 ITR 418 (AAR) MEANING OF THE TERM 'MAKE AVAILABLE' Under the MoU to India-US tax treaty, it has been clarified that: Generally speaking, technology will be considered made available when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service may require techni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h, inter alia, makes available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. According to the Tribunal this make available condition has not been satisfied inasmuch as no technical knowledge, experience, skill, know-how, processes, have been made available by the assessee to the insurance companies operating in India. It also does not consist of the development and transfer of any technical plan or technical design. 10. The Tribunal examined the evidence available on record in order to return a finding on the issue as to whether the payments received by the assessee from the insurance companies operating in India would fall within the expression 'fees for technical services' as appearing in article 13(4)(c) of the DTAA read with section 9(1)(vii) of the said Act. While doing so the Tribunal, inter alia, found that the assessee company was an international re insurance intermediary (broker) and was a tax resident of United Kingdom. Further, that it was a recognized broker by the financial service authority of United Kingdom. It was also an admitted position that the as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... J.B. Boda, in turn, would contact one or more international firm(s) of re insurance broker(s) like the assessee for competitive proposals from the international reinsurer. Then, the international reinsurance brokers like the assessee would contact other primary brokers and various syndicates in the Lloyds market for competitive proposals. Based on the various offers or proposals given by the international reinsurance brokers, like the assessee, to J.B. Boda, the latter would present various options to the originating insurer in India, which would take a final decision in the matter. Based on the decision of the originating insurer in India, the policy terms would then be 18 agreed upon and the risk would be placed with the international reinsurer. It was also pointed out that as per the normal industry practice, the reinsurance premium net of brokerage of 10% as per the policy contract is remitted to the assessee, i.e., reinsurance brokers, for onward transmission to international reinsurers. The intermediation fee which is another word for brokerage is paid separately by the originating insurance in India to J.B. Boda, the international re insurance brokers like the assessee and o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge skills, etc. does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as fee for technical/included services only if the twin test of rendering services and making technical knowledge available at the same time is satisfied. In view of the above, it can be concluded that rendering of technical services leads to transfer/ imparting of technical knowledge, experience, skill, know-how, or processes to the recipient which enables the recipient to apply the same on his own. In other words, the recipient acquires a means to an end, i.e he acquires the technical knowledge, experience, skills, know-how or processes from the provider which acts as a means and enables him to use the same for achieving a further end. In a service which does not qualify as technical services, the services itself serves as a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d 'made available' when the person acquiring the service is enabled to apply the technology and various Benches of the Tribunal have consistently taken that view of the matter. ..... When a patient visits a doctor and doctor advices him to undergo various tests. The patient does so. In the course of performing the scan tests, the scan centre used certain equipment. The scan centre actually provided the service. The patient, is interested in the end result i. e. report of the test 22 and not in technical know-how that is used in the scan report. Such technical knowledge is not passed on to the patient. If the patient requires the scan report again, he would require to get the report done once again and he cannot do it by himself. Technical skill, knowledge, know-how or experience is not passed on, though it is utilized in preparing the report. The above propositions have been reiterated in the following cases also :- CESC Ltd Vs DCIT reported in 275 ITR 15 (Cal); Raymond Ltd Vs DCIT reported in 86 ITD 761 (Mumbai); Deputy Commissioner of Income Tax vs Boston Consulting Group Pte Limited (93 TTJ 293), Mumbai ITAT; JCIT vs Essar Oil Limited (7 SO ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofGranlund are restricted o the review of design, drawings, cost estimates etc prepared! developed by the contractor of the assessee, to check whether the same are as per Nokia group's standard. Olof Granlund 'as not responsible for preparation of any design, diagram etc for the appellant and accordingly the services provided by it does not involve development and transfer of technical plan or design. Accordingly, we hold that the payments made by the respondent to Olof Granlund do not qualify as FTS under the provisions of India- Finland tax treaty. Further, as per the provisions of India-Finland tax treaty, where the service do not qualify as FTS, Article 13 would not be applicable to the 25 Finnish enterprise and its taxability would need to be examined as per Article 7 (read with Article 5) of the India-Finland tax treaty. As per Article 7( 1) of the tax treaty, 'Business Profits' earned by a Finnish Enterprise is taxable in India only if that Finnish enterprise carries on business in India through a PE in India. The term PE has been defined in Article 5 of the India-Finland tax treaty to include a branch, office, factory, workshop, etc of the Finnish e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... one finds use of different expressions, however, the expression sum chargeable under the provisions of the Act is used only in section 195. For example, section 194C casts an obligation to deduct TAS in respect of any sum paid to any resident . Similarly, sections 194EE and 194F, inter alia, provide for deduction of tax in respect of any amount referred to in the specified provisions. In none of the provisions we find the expression sum chargeable under the provisions of the Act , which as stated above, is an expression used only in section 195(1). Therefore this court is required to give meaning and effect to the said expression. It follows, therefore, that the obligation to deduct TAS arises only when there is a sum chargeable under the Act. Section 195(2) is not merely a provision to provide information to the Income tax Officer (TDS). It is a provision requiring tax to be deducted at source to be paid to the Revenue by the payer who makes payment to a non-resident. Therefore, section 195 has to be read in conformity with the charging provisions, i.e section 4,5 and 9. This reasoning flows from the words sum chargeable under the provisions of the Act in section 195 ( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld be that the Department would be entitled to appropriate the moneys deposited by the payer even if the sum paid is not chargeable to tax because there is no provision in the Income-tax Act by which a payer can obtain refund. Section 237 read with section 199 implies that only the recipient of the sum i.e. the payee could seek a refund. It must therefore follow, if the Department is right, that the law requires tax to be deducted on all payments, the payer, therefore, has to deduct and pay tax, even if the so-called deduction comes out of his own pocket and he has no remedy whatsoever, even where the sum paid by him is not a sum chargeable under the Act. The interpretation of the Department, therefore, not only requires the words chargeable under the provisions of the Act to be omitted, it also leads to an absurd consequence. The interpretation placed by the Department would result in a situation where even when the income has no territorial nexus with India or is not chargeable in India, the Government would nonetheless collect tax. In our view, section 195(2) provides a remedy by which a person may seek a determination of the appropriate proportion of such sum so chargeable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an assessee he will definitely claim deduction under the Income-tax Act for such remittance and on inquiry if the Assessing Officer finds that the sums remitted outside India come within the definition of royalty or fees for technical service or other sums chargeable under the Income-tax Act then it would be open to the Assessing Officer to disallow such claim for deduction. Similarly, vide the Finance Act, 2008, with effect from April 1, 2008, sub-section (6) has been inserted in section 195 which requires the payer to furnish information relating to payment of any sum in such form and manner as may be prescribed by the Board. This provision is brought into force only from April 1, 2008. It will only apply for the period with which we are concerned in these cases before us. Therefore, in our view, there are adequate safeguards in the Act which would prevent revenue leakage. Applicability of the judgment in the case of Transmission Corporation (supra) In Transmission Corporation s case (1999) 239 ITR 587(SC) a nonresident had entered into a composite contract with the resident party 30 making the payments. The said composite contract not only comprised supply of plant, machi ..... X X X X Extracts X X X X X X X X Extracts X X X X
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