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2015 (8) TMI 136 - AUTHORITY FOR ADVANCE RULINGS

2015 (8) TMI 136 - AUTHORITY FOR ADVANCE RULINGS - [2015] 376 ITR 461 (AAR) - India-UK DTAA - Compensation received for providing “Management Services” - Whether is not in the nature of Fees for Technical Services (FTS) under Article 13 of India-UK Tax Treaty? - According to the Revenue the applicant is providing management consultancy through the analysis of existing organizational problems and development of plans for improvement - Held that:- The services under agreement No.1 relate to review .....

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, quality and design reviews etc. These are routine managerial activities and cannot be classified as technical or consultancy services. This authority had ruled in the case of Invensys Systems (2009 (8) TMI 6 - AUTHORITY FOR ADVANCE RULINGS ) that even though some of the services may have the trappings of technical or consultancy service, looking at the nature and the predominant nature of the services, they primarily fall under the category of managerial services. Similar is the case in respec .....

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of services can never be classified as technical or consultancy in nature and surely are not making available any technical knowledge, experience, know-how etc. The reliance of the Revenue on the rulings in the case of Intertek Testing Services (2008 (11) TMI 9 - AUTHORITY FOR ADVANCE RULINGS) and GVK Industries (supra) is misconceived and out of place.

As regards PE the Revenue has not offered any comments in the absence of facts but the applicant has stated that GD has never visite .....

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re of commercial experience which involved confidential information or experience from commerce, business, science or industry because services provided under both agreements are general and routine in nature and do not create any intellectual property. It cannot even be imagined that rendering of such services would qualify as ‘Royalties’ as per the provisions of Article 13 of the India-UK Treaty.

Thus the amount received by the applicant for services rendered as per agreement No.1 i .....

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R(AAR) , Shri Kanv Bali, Dy CIT- Circle, Gurgaon, RULING (by A. K. Tewary) Measurement Technology Ltd (the applicant) is a company incorporated in UK and engaged in the development and supply of intrinsic safety explosion protection devices, field bus and Industrial networks, lightning and surge protection and gas analysis equipment. It is a wholly owned subsidiary of MTL Instruments Group Ltd., UK. 2. MTL Instruments Private Limited ( MTL India ) is an Indian company, incorporated under the Com .....

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ceivable by Measurement Technology Limited (hereinafter referred to as Applicant or MTL UK from MTL Instruments Private Limited ( MTL India ), for services rendered, as per Schedule 2 to MTL Instruments Intra-Group Agreement for Products and Services effective April 1, 2005 [subsequently substituted by MTL Instruments Intra-Group Agreement for Products and Services effective April 1, 2005 (hereinafter collectively referred to as Agreement#1 ), is chargeable to tax in India as per the provisions .....

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ercompany Service Agreement effective March 16, 2009 (hereinafter referred to as Agreement#2 ), is chargeable to tax in India as per the provisions of UK Treaty? (4) In case the Ruling of the Hon ble Authority for Advance Ruling ( Authority ) to Question (3) above is yes, what is the rate of tax applicable for computing the amount of incometax chargeable in manner and respect of aforesaid amount received/receivable the Applicant? 3. The first agreement between the applicant and MTL India is MTL .....

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61623; Any other services related to the above. 4. The above mentioned services are provided through one of the employees of the applicant based in UK and designated as Group Operations Director (GD) by means of telephone calls, e-mails, occasional visits to India for review of operations of MTL India and giving general guidance. As part of such services, GD provides general guidance as regards the business of MTL India. While sitting in the UK, he monitors financial and operational progress of .....

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TL UK recovers only 50% of cost of GD plus 5% as consideration for providing Management Services to MTL India as per Agreement No.1. 5. The second agreement is called Intercompany Services Agreement (Procurement Services) for providing procurement services with a view to reduce cost and to avoid duplication of procurement efforts within MTL Group. As per the agreement, the applicant has constituted a procurement team in the UK to look into the global sourcing requirements of raw materials within .....

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chase requirements and their efforts result in cost savings on material purchases to the individual entities in the MTL Group. MTL UK is compensated for the aforesaid Procurement Services on cost to cost basis (without any mark-up) and for this purpose only 30% of cost of the procurement term is allocated to MTL India. Therefore, MTL UK is compensated for providing Procurement Services at 30% of the cost of procurement team only. 6. The stand of the applicant in respect of agreement No.1 is that .....

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f the right, property or information of which a payment described in paragraph 3(a) of this article is received; or b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received; or c) make available technical knowledge, experience, skill knowhow or processes, or consist of the development and transfer of a technical plan or technical design. The applicant has argued that as per Article 13 of the Treaty FTS does not i .....

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ncluded with the definition of FTS. The Article 13(4) of the Pre-amendment Treaty reads as under:- Article 13(4). The term fees for technical services as used in this Article means payments of any kind to any person, other than payments to an employee of the person making the payments and to any individual for independent personal services mentioned in Article 15 (Independent personal services), in consideration for services of a managerial, technical or consultancy nature, including the provisi .....

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e than 90 days in case the service recipient is unrelated and more than 30 days in case the service recipient is a related concern. 8. It has been explained by the applicant that under agreement No.1, the applicant provides day to day managerial services through GD from the UK to MTL India through either telephone or e-mails and such services include review and general guidance, monitoring, financial and operational progress, human resource matters including hiring new personnel, setting up indi .....

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e role of GD it has been contended that such services cannot be considered as technical or consultancy services. The applicant has relied upon the rulings of this Authority in the case of Intertek Testing Services India Pvt Ltd (307 ITR 418) and Invensys Systems Inc., In re[2009]183 Taxman81. The applicant has admitted that the services provided by the GD are in the nature of Managerial Services but do not meet the criteria to make available and, therefore, such services was not chargeable to ta .....

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he case CIT vs De Beers India Mineral (Private) Limited [2012] 346 ITR 467. Para 22 of the judgment is reproduced as under:- 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 .....

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the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. 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 that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning .....

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ter & Co Ltd 346 ITR 504 (Der)  Endemol India Private Limited [2014] 361 ITR 340 (AAR - New Delhi)  Worley Parsons Services Pvt Ltd 313 ITR 74 (AAR)  Shell Technology India Private Limited [(2012) 345 ITR 206(AAR)]  DIT vs WNS Global Services (UK) Ltd [ITA No. 1130 of 2012, Mumbai HC]  Wokhardt Ltd vs ACIT [(2011) 10 Taxmann.com 208 (Mum ITAT)]  Sandvik Australia Pty Ltd vs DDCIT [ITA No.93/PNB/2011 (Pune ITAT)]  RR Donnelley India Outs .....

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he best available prices. Such services do not provide any enduring benefit to MTL India or make available any technical knowledge, experience, skills, know-how and processes etc. 11. As regards PE, the applicant has mentioned that it does not have any fixed place of business in India. As per Article 5(2)(k) of the India- UK Tax Treaty a services PE of a non-resident is constituted where managerial or other services not covered under Article 13 (Royalty and FTS) are furnished in India through it .....

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sessment proceedings ascertain the facts and determine the applicability of service PE under Article 5(2)(k) of India-UK Tax Treaty. 12. As regards royalty, the applicant has mentioned that the services provided under two agreements mentioned above are routine in nature and do not lead to creation of an intellectual property and, therefore, does not fall within the purview of information concerning industrial, commercial or scientific experience in order to qualify as royalty as per the provisio .....

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Revenue is of the view that such professional services imbued with expertise would be regarded as technical service. Revenue has relied on the ruling given in Intertek Testing Services, in Re (2008) (307 ITR 418) where it was held that the term technical ought not to be confined only to technology relating to engineering, manufacturing or other applied sciences. Revenue has further relied upon GVK Industries (228 ITR 564) wherein it was held that the advice given by financial consultancy firm on .....

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ng the course of assessment proceedings. 15. Without prejudice of the stand taken in respect of FTS as mentioned above, the Revenue has also mentioned that the strategy developed by the applicant and implemented by MTL India also partakes the character of royalties under Article 12(3)(a) being payment for the use of plan, or for information concerning industrial, commercial or scientific experience. According to the Revenue the information provided by the applicant (like accounting policies, HRD .....

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e that India-UK Tax Treaty dated 11th November, 1981 was amended w.e.f. 11th February, 1994. Under Article 13(4) of the Treaty dated 11th November, 1981 the FTS meant payments of any kind to any person, other than payments to an employee of the person making the payments and to any individual for independent personnel services mentioned in Article 15 (Independent Personnel Services), in consideration for services of a managerial, technical or consultancy in nature, including the provision of ser .....

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vices are not covered in the definition of FTS and even the technical or consultancy services, if they do not meet the criteria of make available , cannot be treated as FTS. In this case the services provided by both agreements are managerial in nature only. The services under agreement No.1 relate to review by GD and general guidance given by him on financial, operational, human resource, setting up targets and performance appraisal related matters. GD is providing these services from the UK ma .....

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ms (supra) that even though some of the services may have the trappings of technical or consultancy service, looking at the nature and the predominant nature of the services, they primarily fall under the category of managerial services. Similar is the case in respect of services provided by GD. Moreover, by providing such services he is not making available any technical knowledge of enduring benefit in nature which would enable employees of MTL India to apply them on their own in future. 17. W .....

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