TMI Blog2015 (7) TMI 678X X X X Extracts X X X X X X X X Extracts X X X X ..... factor, so far taxability of its consideration in the Indo US tax treaty is concerned, is not the fact of training services per se but the position that training services being of such a nature that it results in transfer of technology. That is not the case here. It is not even suggestion of the Assessing Officer that there was a transfer of technology in this case so as to bring the services within the ambit of services which "make available" technical knowledge, experience, skill and know how etc. In our opinion considering the judgment, if the correct arm's length price is applied and paid then nothing further would be left to be taxed in the hands of the foreign enterprise. As, in the light of the settled legal position as set out above, even if there is a DAPE on the facts of this case, it will have no taxable profits to be taxed in the hands of the assessee in the absence of the finding that the DAPE has been paid a remuneration less than arm's length remuneration. We, therefore, see no need to examine the aspect regarding existence of the DAPE. That aspect of the matter will be wholly academic. We are inclined to uphold the grievances of the assessee and delete the impug ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rvices Limited to constitute a dependant PE of ABB Inc in India. (c) Without prejudice to the aforesaid, on the facts and in the circumstances of the case, the learned AO has erred in law and facts in taxing the entire turnover of ABB Global Industries and Services Limited from sale of Harmony products in the hands of aforesaid PE of the appellant in India. (d) Without prejudice to the aforesaid, on the facts and in the circumstances of the case, the learned AO has erred in law and facts in not considering the fact that the entire turnover earned by ABB Global Industries and Services Limited from sale and distribution of Harmony products has been offered to tax by ABB Global Industries and Services Limited and appropriate taxes have been paid on the same. 3. Taxing twice- as Fees for included services and as PE (a) Without prejudice to the aforesaid grounds, on the facts and in the circumstances of the case, the AO erred in law and facts in levying tax twice on the appellant - once as fees for included services on gross basis and also as business income. 3. To adjudicate on these grievances, only a few material facts need to be taken note of. The assessee before us i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd 17th November 2011. What remains to be seen is whether the services rendered by ABB Inc, as mentioned in the agreement, make available any technical knowledge, experience, skill etc to ABB Ltd and AGISL. 4. The Assessing Officer than analysed the nature of services and concluded that the services are mainly in the nature of sales and marketing, pricing, product development strategy and are mostly covered by consultancy services . As for the contentions of the assessee on make available clause, he finally rejected assessee's plea by observing that a person, without the technical knowledge, cannot provide these services and hence, the assessee is providing technical services to its associated enterprises and also makes available technical knowledge to the service recipients . The Assessing Officer then proceeded to discuss judicial precedents on the connotations of technical services, but, for the reasons we will set out in a short while, it is not really necessary to deal with those judicial precedents. The assessee raised the objections, against the stand so taken by the Assessing Officer, before the Dispute Resolution Panel. However, not only that the DRP confir ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 7. The law is by now settled so far as the connotations of 'make available' clause in the definition of fees for technical services in the contemporary tax treaties are concerned. It is held to be a condition precedent for invoking this clause that the services should enable the person acquiring the services to apply technology contained therein. Hon'ble Karnataka High Court in the case of CIT v. De Beers India (P.) Ltd. [2012] 346 ITR 467 approves this school of thought. Their Lordships have, inter alia, posed a question to themselves that what is the meaning of 'make available' and then proceeded to answer it as follows: 22. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nnotations, as held by Hon'ble jurisdictional High Court in the case of De Beers (supra), and, in the light of the law so laid down, the consideration for these services cannot be brought to tax under Article 12(4)(b) of Indo US tax treaty as these services donot involve enable the recipient of the services to utilize the knowledge or know-how on his own in future without the aid of the service provider. The matter, however, does not end here. The DRP has held that without prejudice to this line of argument, the assessee is to be treated as having a dependent agency permanent establishment in its Indian AEs, and, therefore, the fees paid by the Indian company to the assessee company has to be treated as profit and gains of the business and has to be taxed as business income . In effect, thus, the recipient of the service has been held to be the DAPE and the fees earned for these services is held to be attributable to the DEAPE. It is difficult to understand, much less approve, this logic. The DAPE has been justified on the ground that its Indian affiliates, to which the services were rendered, were involved purchase and sale of 'Harmony' products of the assessee compa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ions, data processing and support centre to MSCo. On 5th May, 2005 MSCo filed its advance ruling application. The basic question related to the transaction between the MSCo and MSAS. The advance ruling was sought on two counts (i) whether the applicant was having PE in India under art. 5(1) of the DTAA on account of the services rendered by MSAS under the services agreement dt. 14th April, 2005 and if so (ii) the amount of income attributable to such PE. It was ruled that MSAS should be regarded as constituting a service PE under art. 5(2)(1). On the second question the AAR ruled that the transactional net margin method (TNMM) was the most appropriate method for the determination of the arm's length price in respect of the service agreement dt. 14th April, 2005 and it meets the test of arm's length as prescribed under s. 92C of the 1961 Act, and no further income was attributable in the hands of MSAS in India. The said ruling of AAR on the question of income attributable to the PE was the subject-matter of challenge by the Department. Insofar as the issue of PE is concerned the Supreme Court was pleased to hold that it agreed with the ruling of the AAR that stewardship acti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nal enterprise. In such a case nothing further would be left to attribute to the PE. The situation would be different if the transfer of pricing analysis does not adequately reflect the functions performed and the risks assumed by the enterprise. In such a case, there would be need to attribute profits to the PE for those functions/risks that have not been considered. The entire exercise ultimately is to ascertain whether the service charges payable or paid to the service provider (MSAS in this case) fully represent the value of the profit attributable to his service. In this connection, the Department has also to examine whether the PE has obtained services from the multinational enterprise at lower than the arm's length cost. In our opinion considering the judgment, if the correct arm's length price is applied and paid then nothing further would be left to be taxed in the hands of the foreign enterprise. 9. As, in the light of the settled legal position as set out above, even if there is a DAPE on the facts of this case, it will have no taxable profits to be taxed in the hands of the assessee in the absence of the finding that the DAPE has been paid a remuneration ..... X X X X Extracts X X X X X X X X Extracts X X X X
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