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In Re : Cummins Limited

Supply management service fees received - is in the nature of “Fees for Technical Services” or “royalties” within the meaning of the term in Article 13 of the India-UK double tax avoidance agreement (‘India-UK treaty’)? - concept of ‘make available’ - Held that:- The objection of the Revenue that the agreement entered into by the applicant with CTIL is a scheme for tax avoidance is without any merits. To say that the applicant has entered into contract with Indian company with the main purpose t .....

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all be free to source the component from them. It is incorrect to say that such arrangement has been done with the main purpose to avoid tax. Therefore, the objection of the Revenue on this count fails.

As regards services being royalty and covered under Article 13(3), it must be said that the nature of services related to identification of products and competitive pricing cannot qualify as royalties under the provisions of Article 13 under India-UK Tax Treaty because it is not relate .....

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of 2011 - Dated:- 12-1-2016 - Justice Mr V.S. Sirpurkar (Chairman), Mr. A.K. Tewary, Member (Revenue) and Mr. R.S. Shukla, Member(Law) For The Applicant : Mr. Rajan R Vora, CA, Mr. Ronak Sethi, CA, Mr. Arvind M Gaggar For The Department : Ms Sukhvinder Khanna,CITDR(AAR),ND, Mr. S.S Negi, JCIT-DR (AAR), ND, Mr. Satish Solanki, JCIT, Mr. Sachin Dhania, DCIT DR(AAR), ND RULING (by A.K Tewary) The applicant, Cummins Limited, UK is a company incorporated in the UK. Cummins Technologies India Limited .....

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prices from the suppliers. 2. The applicant has requested for ruling on the following questions:- 1) Based on the facts and circumstances of the case, whether the supply management service fees received by Cummins Limited, UK from Cummins Technologies India Limited (hereinafter referred to as CTIL ) pursuant to Material Suppliers Management Service Agreement dated 7 December 2010 between Cummins Limited and CTIL, is in the nature of Fees for Technical Services or royalties within the meaning of .....

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ement service fees received by the Cummins Limited from CTIL are not liable to income-tax in India, then whether the provisions of Section 92 to Section 92F of the Act relating to transfer pricing are applicable to the Applicant in respect of supply management service fees? 4) Based on the answers to Questions (1) to (2) above, and in view of the facts and circumstances of the case, whether CTIL, the payer of supply management service fees, which are not liable to income-tax in India, is require .....

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be applicable for whether the Products are supplied for original equipment or aftermarket production and sales. 4.4 CTI, UK will be responsible for getting supplier agreement revised on the basis of agreed annual cost reduction by the supplier. 4.5 CTT, India will work closely with CTT, UK to ensure market competitive pricing from suppliers. If alternative suppliers for the product(s) which offer more competitive pricing, CTT, UK will work with suppliers to match or counter the competing offer f .....

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he Supplier funds all tooling, gauging and facilities necessary for the Products, whether standard or unique for manufacturing of the Products. 5.2 CTT, UK will be responsible for carrying out the approval activities including the engineering approval for development of new/replacement tool. 4. The applicant has mentioned that it does not have a permanent establishment (PE) in India in respect of the supply management services as per the provisions of the India-UK Treaty. The applicant has furth .....

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ancillary and subsidiary of the application or enjoyment of the right, property or information for 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. Paragraph 3(a) .....

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ing, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial commercial or scientific experience; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic. 6. The applicant has explained that under the agreement it is respo .....

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s maintain strict compliance with the standards, procedures and processes and support in obtaining response from supplier to any quality control violation issue; and • Performance review of the supplier will be held by Cummins UK at least annually wherein Cummins UK will perform the regular product and process audits to check that the supplier process and controls meet the requirements. 7. According to the applicant the services rendered by them are purely managerial in nature and even if t .....

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Services India (P) Ltd (307 ITR 418) • De Beers India Minerals Private Ltd (346 ITR 467) • CESC Ltd (80 TTJ 806) • Invensys Systems Inc (317 ITR 438) • Measurement Technologies Limited (AAR No.966 of 2010) 9. The Revenue has objected to the reliance by the applicant on MOU to the India-US Treaty saying that MOU is intended to give guidance to the tax payers and tax authorities in interpretation and is not applicable in the case of the applicant where India-UK Treaty applies. .....

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TIL. In this respect the Revenue has relied on the ruling given by this authority in the case of Shell India Markets Private Limited (2012) 18 Taxman.com 46. The Revenue has analyzed services rendered as per agreement and has concluded that the technical services were made available to CTIL. The Revenue has mentioned that as per the definition of FTS in the DTAA, when imparting of suitable experience or skill possessed by the applicant to CTIL takes place it amounts to making available the FTS. .....

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Similarly, the concept of make available has been included in DTAA with country like Australia, Canada, Cyprus, Malta, Netherlands, Singapore, UK & US. According to the Revenue these provisions shows that the applicant has with an intention to take benefits of provisions of DTAA between India and UK entered into a contract with Indian Company with an intention to avoid tax. The Revenue contends that the provision of limitations of benefits as per Article 28C of the protocol in respect of DT .....

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ct entered between the applicant and the Indian entity is to obtain benefits under this convention to avoid tax incidence. 12. In its rejoinder the applicant has reiterated that the services rendered do not make available any technical knowledge to CTIL since upon termination of the agreement CTIL would not be able to make use of the specialized knowledge of the applicant by itself. As regards department s reliance on Perfetti ruling, the applicant has mentioned that in this case a writ petition .....

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s present in the said tax treaty. 13. We have carefully considered the submission of the applicant and the Revenue. The objection of the Revenue that the agreement entered into by the applicant with CTIL is a scheme for tax avoidance is without any merits. To say that the applicant has entered into contract with Indian company with the main purpose to take advantage of India-UK Treaty is factually incorrect. The facts as stated by the applicant in the application show that the applicant maintain .....

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ore, the objection of the Revenue on this count fails. 14. As regards taxability of the Supply Management Services fees as FTS, it is important to see whether the services provided under the agreement would lead to imparting of any technical knowledge and expertise to the Indian company, i.e., whether the applicant is making available any technical knowledge, experience, skill know-how or processes to the Indian company. The agreement shows that the CTIL is working with the applicant only to ens .....

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vailable was clarified in the case of De Beers India Limited by Hon ble Karnataka High Court 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, knowhow 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 .....

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parted 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 of paragraph (4)(b). Simil .....

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nt services can never be classified as technical or consulting in nature and surely are not making available any technical knowledge, experience, know-how etc. The facts of this case are also similar and there is no reason to take a different view. It is also relevant to point out that the services rendered in this case are managerial in nature and managerial services was taken out from the ambit of FTS from India-UK Treaty w.e.f. 11th February 1994 and a clause relating to make available was in .....

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w, the recipient of service will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service provider. In other words, to fit into the terminology make available , the technical knowledge, skills etc must remain with the person receiving the services even after the particular contract comes to an end. The services offered may be the product of intense technological effort and lot of technical knowledge and experience of the service provider w .....

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