TMI Blog2016 (3) TMI 722X X X X Extracts X X X X X X X X Extracts X X X X ..... years 2008-09 and 2009-10. Since common issue arises for consideration in both the appeals, we heard these appeals together and disposing of the same by this common order. 2. Sh. B. Ramakrishnan, the Ld. representative for the assessee, submitted that the assessee is a non-resident company incorporated in France. According to the Ld. representative, the assessee-company entered into an agreement for providing technical and engineering services in India. During the assessment years 2008-09 and 2009-10, the employees of the assessee worked more than 180 days. The Ld. representative further submitted that the assessee entered into an agreement with Reliance Petroleum Limited for providing technical and engineering services with regard to delayed Coker Unit of Reliance Petroleum Limited. According to the Ld. representative, the entire services rendered at the premises of Reliance Petroleum Limited. For providing technical and engineering services to Reliance Petroleum Limited, the assessee in turn entered into another agreement with Foster Wheeler USA to monitor and review the work done by the assessee s employees on an agreed consideration. The Ld. representative further submitted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the assessee, then the payment made by the assessee is not fee for technical services. 3. The Ld. representative further submitted that the services are said to be made available to the assessee only when the person acquiring the technical service is able to independently apply such knowledge without any further reference to the service provider. Referring to the word enable used in Double Taxation Avoidance Agreement, the Ld. representative submitted that the technical service received by the assessee should make the assessee master in the subject. The Ld. representative further submitted that when the assessee does not get equipped with knowledge or expertise, it cannot be said that the knowledge or expertise was made available to the assessee by the service provider. In such a case it cannot be said that technical service was made available to the assessee. 4. The Ld. representative for the assessee placed his reliance on the judgment of Karnataka High Court in CIT v. Dee Beers India Minerals (P) Ltd. (346 ITR 467) and submitted that Karnataka High Court interpreted the word make available . The Ld. representative submitted that if the technical knowledge is not made av ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve to be deducted at source, there is no requirement to pay advance tax. Hence interest under Sections 234A and 234B cannot be levied. The Ld. representative placed his reliance on the judgment of Madras High Court in CIT v. Madras Fertilizers Limited (149 ITR 703). 7. On the contrary, Sh. Pathlavath Peerya, the Ld. Departmental Representative, submitted that fee for technical service is defined in Indian Income-tax Act and in Double Taxation Avoidance Agreement between India and USA. The assessee can take advantage of Double Taxation Avoidance Agreement in case it is beneficial to it. Double Taxation Avoidance Agreement admittedly clarifies that the technical knowledge or expertise shall be made available to the assessee for considering payment as fee for technical service. The question arises for consideration is whether the payment made by the assessee to Foster Wheeler France USA is taxable in India or not? Referring to Explanation 2 to Section 9(1)(vii) of the Act, the Ld. D.R. submitted that when the assessee paid fee for technical service for utilizing service in the business or profession carried on in India for the purpose of earning income, then it is deemed that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing Officer has rightly disallowed under Section 40(a)(i) of the Act and levied interest under Sections 234A and 234B of the Act. 9. We have considered the rival submissions on either side and perused the relevant material on record. The assessee, a nonresident company incorporated in France, entered into an agreement with Reliance Petroleum Limited for providing technical, engineering services in the premises of Reliance Petroleum Limited in relation to delayed Coker Unit. For providing such services, the assessee-company has entered into another agreement with Foster Wheeler USA, an associate of the assessee-company. The assessee paid ₹ 3,34,99,151/- for the assessment year 2008-09 and ₹ 14,94,99,978/- for the assessment year 2009-10 with regard to services rendered by Foster Wheeler USA, the associate concern of the assessee. The Assessing Officer referred the matter to the Transfer Pricing Officer under Section 92CA(1) of the Act to determine Arm's Length Price of the transaction between the assessee and Foster Wheeler USA. The Transfer Pricing Officer reported that no adjustment is considered necessary to the value of the international transaction entered in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oved by the Central Government. Explanation - 1. For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date. Explanation - 2. For the purposes of this clause, fees for technical services means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recepient or consideration which would be income of the recipient chargeable under the head Salaries . We have also carefully gone through Explanation 2 to Section 9(1) of the Act, which reads as follows:- Explanation - For the removal of doubts, it is hereby declared that business connection shall include any business activity carried out through a person who, acting on behalf of the nonresident,- (a) has and habitually exercises in India, an authority to conclude contracts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ngineering services in the form of written practices, procedures, forms, specifications and details. Review of information regarding technical reports, technical standards and quality management standards. Review and provide systems for meeting the project budget and client satisfaction. Review the work process and provide timely input for planned execution. Review of standards and job specifications indicating technical content. (2) Information Technology (IT) Services in the nature of computer software, hardware, help desk, support services for email and engineering software applications, Remote Infrastructure Management, Application maintenance, Custom application development, Systems Integration, package software implementation and support, IT Management consulting. 14. It is an admitted position that the assessee-company also engaged in the business of engineering and construction contract, engineering equipment and power equipment supplier. For the purpose of carrying out the business in India, the assessee received the above services from Foster Wheeler USA. In fact, the assessee has received execution plans with schedules, specifications, etc. Foster Wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d business goal. Therefore, it may not be correct to say that what was received by the assessee is only a managerial advice and not technical advice. The technological input acquired by the US company through experience and experiment was tested at various stages and process and further it was made available to the assessee so as to enable the assessee to apply / use the same in its decision making process. 29. Apart from that financial and risk decision making process is a highly complicated and technical one. Unless the assessee gets a technical input and advice from financial and risk management experts it may be difficult to select a right process for the growth of the company. It is not the case of the assessee that in a given set of facts / problem, the USA company gave its solution or advice. The solution or decision is admittedly taken by the assessee company on the basis of the advice, service rendered by the USA company. Therefore, it is obvious that the technical knowledge, experience, skill possessed by the USA company with regard to financial and risk management was made available in the form of advice or service which was made use by the assessee company in the dec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... .5.4 crores). The assessee company approached the income-tax authorities in India for issuing a no objection certificate to remit the said amount claiming that the non resident company had no permanent establishment in India and all services were rendered from outside India. The Income-tax Officer refused to issue the certificate. On a writ petition before the High Court it was found that the scope of service / work undertaken by the non resident company was merely to draw up a scheme, advise on the terms and methods of negotiation and for documentation with the lender, evaluate the pros and cons of various lending alternatives, both for local and the foreign borrowings, prepare a preliminary information memorandum to be used as the basis for placing the foreign and local debt, and that the responsibility of entering into correspondence as per the advice of the non resident company and pursuing the matter was that of the assessee company itself, and not that of the non resident company. Therefore, the office of the assessee company could not be treated as the place of business of the non-resident company. In those facts and circumstances, the Andhra Pradesh High Court found that th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fore, the assessee has to deduct tax on payments made to Netherlands company. However, the Commissioner (Appeals) found that the payment made by the assessee to the Netherlands company was not covered by Article 12(5) of the DTAA between India and Netherlands. He also found that the Netherlands company has not imported any technology to the assessee and they have just used the technology and have gone back with the same. The CIT(A) further found that no technology has been made available to the assessee by the Netherlands company, therefore, the consideration paid does not fall within the definition of Article 12(5) between India and Netherlands. On further appeal by the revenue before the Tribunal it was held that the payment in question for services rendered would not fall within the definition of fee for technical services under Article 12(5) of the DTAA between India and Netherlands. The Tribunal found that Netherlands company has surveyed, collected and processed the data on behalf of the assessee. There is no doubt that Netherlands company performed the service using the technical knowledge and expertise, but such technical expertise, skill and knowledge has not been made a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as lead managers to the issue. The assessee paid necessary charges for the services rendered by the lead managers and the managers. However, no tax was deducted by the assessee company form the payment made to them. The assessing officer found that there was violation of the provisions of section 195(1) of the Act holding that the amounts paid to lead managers and managers were chargeable to tax in India as fees for technical services within the meaning of section 9(1)(vii) of the Act. The Appellate Commissioner also upheld the order of the assessing officer. On further appeal before the Mumbai Bench of this Tribunal, the Tribunal found that the services rendered by the lead managers and managers are managerial or consultancy services within the meaning of section 9(1)(vii) r.w.s. Explanation 2 of the Act and therefore the payment made to managers are income by way of fees for technical services deemed to accrue or arise in India. Referring to the DTAA between India and UK, the Tribunal found that no technical knowledge, experience, skill, know how or process, etc. was made available to the assessee company by the non resident managers to the Global Depository Receipts. However, co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d problems in Indian subsidiary. The agreement with Sandvik Asia Ltd nowhere suggested that the assessee has to make available required technical know how for solving the problem in the I.T. related problems. In the case before us, the USA company has to provide all expertise to the assesee company which would be utilized in the decision making process related to management, financial and risk management. Therefore, this decision of the Pune Bench of this Tribunal may also not be applicable to the facts of the present case. 36. We have also carefully gone through the decision of the Mumbai Bench of this Tribunal in the case of Wokhardt Ltd (supra). In the case before the Mumbai Bench of this Tribunal, the assessee company was incorporated in USA and as per the agreement, the said company sent one of its professionals to India for a period of two days to address conference on future strategy of the company. The assessee company paid US$ 80,000 for the services rendered by the USA company and no tax was deducted. The Tribunal found that the presentation made by the professional was essential in the nature of sharing management, experience and business strategy. Therefore, the Trib ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which was made available by the USA company is technical service within the meaning of Article 12(4)(b) of the DTAA between India and USA. Hence, this ruling of the Authority for Advance Ruling may not of any assistance to the assessee. 16. We have also carefully gone through the judgment of the Karnataka High Court in Dee Beers India Minerals (P) Ltd. (supra). In fact, this judgment was also considered by the Cochin Bench of this Tribunal in the case of US Technology Resources Pvt. Ltd. In the case of Dee Beers India Minerals (P) Ltd. (supra), the assessee engaged in the business of mining for diamonds and other minerals. In the course of its business activity, the assessee before Karnataka High Court entered into an agreement with Nethrland company to engage its services in airborne survey for high quality, high resolution, geophysical data suitable for selecting the available minerals. The Netherland company gave data, maps and photographs by air borne survey and located the exact area for mining. On the basis of survey made by Netherland company, the assessee excavated the mines. In the case before Karnataka High Court, the technology of locating the diamonds by air borne su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nternational reinsurance intermediary broker and was a tax resident of United Kingdom. The assessee before the Delhi High Court received commission from various insurance companies operating in India. The Assessing Officer found that the receipt of commission is fee for technical services. While illustrating the transaction, the High Court extracted the observation made by the Tribunal at para 11 of its order. As per the illustrative transaction, New India Insurance Co. Ltd. has entered into an agreement to reinsure on an excess loss basis he catastrophe risk arising from its primary insurance cover in conjunction with J.B. Boda and Alsford Page and gems Ltd. The assessee will act as a claim administrator and will submit claims advices to relevant market systems. For the services rendered, the assessee along with other reinsurance brokers acting as an intermediary in the reinsurance process for New India Assurance Co. will be entitled to 10% brokerage. The assesseecompany was rendering only an intermediary service while acting as a facilitator in getting the reinsurance cover for New India Insurance Co. The assessee is not doing any other work other than acting as an intermediary i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement entered into by the assessee-company and Sandvik Asia Ltd. is not supporting the case of the Revenue. The Tribunal found that the assessee has provided only IT back-up service for solving IT related problems to its Indian subsidiary and not such services are available to the Indian companies. In the case before us, what was provided by Foster Wheeler USA is the service in the nature of tracking execution plans, schedules with emphasis on key milestones, written practices, procedures, specifications and details in execution of the project, furnished review of information regarding technical reports, technical standards and quality management standards, provided systems for meeting project budget and client satisfaction. On the basis of the technical knowledge, information provided by Foster Wheeler USA, the assessee-company can implement the same in the project while executing the project with Reliance Petroleum Limited. Unless the assessee-company acquires the knowledge, expertise, technical standards, quality management, etc. provided by Foster Wheeler USA, the same cannot be adopted or implemented while executing the project with Reliance Petroleum Limited When the assesse ..... X X X X Extracts X X X X X X X X Extracts X X X X
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