TMI Blog2016 (9) TMI 503X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of this case. While dealing with the scope of services which are covered by article 15, it is important to bear in mind the fact that there could indeed be overlapping effect of the scope of services covered by the other articles but as long as the services are rendered by an individual or group of individuals, generally rendition of such services is covered by article 15. The exclusion clause set out in article 12(5)(e) typically exemplifies this approach. The applicability of article 15, therefore, is also substantially influenced by the status of the recipient- i.e. whether he is an individual or whether he is a corporate entity. In the light of all these discussions, in our considered view, the services rendered by the assessee are in the nature of professional services but then since the conditions set out in article 15(1) are admittedly not satisfied on the facts of this case, the taxability under article 15 does not arise. As a corollary to our finding that the services in question are in the nature of professional services, and by the virtue of exclusion clause in article 12(5)(e), which provides that the income from professional services rendered by an individual or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... responsible for the works that include database architecture design and implementation, virtual server management, SDN supports, website development, video technology ingestion, and continuous improvement and sites maintenance. 3. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that while the assessee has received a sums aggregating to ₹ 2,23,96,667 for the services rendered to FMPL, the assessee has not paid any taxes in India in respect of the same. The claim of the assessee, as noted by the Assessing Officer, was that the provisions of the India US Double Taxation Avoidance Agreement [(1991) 187 ITR (Stat) 102; Indo-US tax treaty, in short] will override the provisions of the Income Tax Act in this case, since the provisions of the treaty are more favourable to the assessee and in view of the specific provision to that effect under section 90(2) of the Act. It was then pointed out that the income earned by the assessee in India is in the nature of business income taxable under article 7 of the treaty, which, in the absence of a permanent establishment in India- as provided under article 5 of the treaty, cannot be brought to tax in Ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns of article 15 would prevail over article 12 , that it is also apparent from the facts of this case that the appellant has rendered engineering services to its customer, namely FMPL and that therefore, in my view, the provisions of Article 15 would be applicable . He thus reversed finding of the Assessing Officer in this regard, and held that since article 15 applies on the facts of this case and since the conditions of article 15, with regard to availability of fixed base in India or stay in India for a period of more than 90 days in the relevant previous year, are not satisfied on the facts of this case, the income cannot be brought to tax in India under article 15. As for the contentions of the assessee, with respect to make available clause not being satisfied on the facts of this case, learned CIT(A) held the same to be infructuous. The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us. 4. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 5. There is no dispute that the assessee before has the protection of Indo-US t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (ii) during the subsequent years, 15 per cent of the gross amount of royalties or fees for included services; and (b) in the case of royalties referred to in sub-paragraph (b) of paragraph 3 and fees for included services as defined in this Article that are ancillary and subsidiary to the enjoyment of the property for which payment is received under paragraph 3(b) of this Article, 10 per cent of the gross amount of the royalties or fees for included services. 3. The term royalties' as used in this Article means : (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof; and (b) payment of any kind received as consideration for the use of, or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority, or a resident of that State. Where, however, the person paying the royalties or fees for included services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for included services was incurred, and such royalties or fees for included services are borne by such permanent establishment or fixed base, then such royalties or fees for included services shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated. (b) Where under sub-paragraph (a) royalties or fees for included services do not arise in one of the Contracting States, and the royalties relate to the use of, or the right to use, the right or property, or the fees for included services relate to services performed, in one of the Contracting States, the royalties or fees for included services shall be deemed to arise in that Contracting State. 8. Where, by reason of a special relationship between the payer and the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an employee of the person making the payments or to any individual or firm of individuals (other than a company) for professional services as defined in Article 15 (Independent personal services) , once an amount is found to be of such a nature as can be covered, in an appropriate case, by article 15, the same shall stand excluded from the ambit of article 12. As we take note of this treaty provision, we may mention that the learned CIT(A) has referred to article 12(6) in support of this proposition, and to that extent he is not right because article 12(6) refers to a situation in which the services are rendered through the fixed base or through the permanent establishment, and the consequent taxability arises under article 15 or article 7 respectively. The dispute, in such a situation, is essentially confined to the taxability on under article 12, on one hand, or under article 15 or article 7, on the other hand. That is not an issue which is relevant in the present context. Learned CIT(A) s reliance on article 12(6) is, therefore, certainly incorrect but his conclusions are correct because of the impact of article 12(5)(e). 7. The crucial question, therefore, is as to what co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rging from these deliberations is that, broadly speaking, a profession will imply any vocation carried on by an individual, or group of individuals, requiring predominantly intellectual skills, dependent on individual characteristics of the person(s) pursing that vocation, requiring specialized and advanced education or expertise . [Emphasis, by underlining, supplied by us now] 8. There is no change in the legal position; nothing contrary to the decision so rendered has been brought to our notice. Viewed in the light, software development service rendered by an individual, which essentially requires predominantly intellectual skill, dependent on individual characteristics of the person pursuing software development, and based on specialized and advanced education and expertise, is also a professional service. As regards the objection of the Assessing Officer that software development is not specifically covered by article 15(2), as evident from the opening words of this provision to the effect the term professional services' includes ( emphasis, by underlining, supplied by us ) , the specific professions set out therein are only illustrative and not exhaustive. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Convention Commentary. We are thus of the considered view that, in a situation like the one that we are in seisin of, i.e. in which specific provisions for professional services or independent personal services or included services exist under art. 15, when services are rendered by the enterprise, art. 5(2)(k) will come into play, and when services are rendered by an individual, art. 15 will find application . 9. The applicability of article 15, therefore, is also substantially influenced by the status of the recipient- i.e. whether he is an individual or whether he is a corporate entity. In the light of all these discussions, in our considered view, the services rendered by the assessee are in the nature of professional services but then since the conditions set out in article 15(1) are admittedly not satisfied on the facts of this case, the taxability under article 15 does not arise. As a corollary to our finding that the services in question are in the nature of professional services, and by the virtue of exclusion clause in article 12(5)(e), which provides that the income from professional services rendered by an individual or group of individuals (other than a company) ..... X X X X Extracts X X X X X X X X Extracts X X X X
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