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2016 (11) TMI 666 - ITAT KOLKATA

2016 (11) TMI 666 - ITAT KOLKATA - TMI - Services rendered by the non-resident assessee company to Indian company - whether would fall within the ambit of ‘Fee for Technical Services (FTS)’ - DTAA - Held that:- As find from the nature of services rendered by the assessee to the Indian group company, there is no technology or technical knowhow, skills etc that were made available by the assessee in order to enable the Indian group company to function on its own without the dependence of the asses .....

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at the other services such as IT Infrastructure, IT administration (collectively referred to ‘IT Support Services’ ) also do not satisfy the ‘make available’ test as no technology , knowhow, skills etc were transferred to the recipient. We also hold that the repair and supervision services provided to few other Indian parties do not satisfy the make available test as these are routine repairs and supervisory services and there is no transfer of technology or skill or experience at the time of pr .....

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ssee are arising out of separate orders of Dispute Resolution Panel, Kolkata dated 23.12.2013 and 30.12.2014 u/s. 144C(5) r.w.s. 144C(8) of the Income-tax Act, 1961 (hereinafter referred to as the Act . Since issues are identical and facts are common, we dispose of both these appeals by this consolidated order. 2. The first issue to be decided in these appeals is as to whether the services rendered by the non-resident assessee company to Indian company would fall within the ambit of Fee for Tech .....

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mers in metals and mineral processing industries. The assessee filed a NIL return for the Asst Year 2010-11 on 28.3.2012. During the year under consideration, the assessee earned revenue from management support and other services. These services are provided to its group company Outotec India Pvt Ltd and the revenue earned was ₹ 82,22,381/-. The ld AO proposed to bring this amount to tax as Fee for Technical Services (FTS) . The assessee contended before the ld AO that the services provide .....

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services rendered by the assessee to its group company requires to be examined in order to ascertain the true nature of the services going by the essence and substance of the service to determine the character of the income. It went to examine the service agreement entered by the assessee with the Indian group company and found that the following services were required to be rendered by the assessee as per the agreement :- (i) Internal communication services (ii) External communication services .....

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dicated that services have been provided by the assessee to its group company for IT Services, setting up of IT Infra and also other services which have been simply described as service fee . The ld DRP observed that the absence of specific nature of service fee in the invoices can lead to assumption that all the nature of services have been rendered by the assessee. The wide gamut of services includes creating correspondence letters, training the group companies editors to use the publishing to .....

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tax, project tax and value added tax matters, assistance in local tax audit processes, training in tax matters, human resource services, advises in HR, legal services, making available developing and maintaining agency and marketing company network for the group companies, making market area reports for the group companies quarterly etc. It observed that the above nature of services clearly indicate that :- (a) These services fall under the category of consultancy services. (b) The services wit .....

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d accordingly upheld the action of the ld AO in taxing the same in the sums of ₹ 82,22,381/- and ₹ 1,66,45,061/- for the Asst Years 2010-11 and 2011-12 respectively. 5. Aggrieved, the assessee is in appeals before us on the following grounds:- 1. On the facts and in the circumstances of the case and in law, final assessment order passed in pursuance to the directions issued by the Learned Dispute Resolution Panel ('Ld DRP') is a vitiated order as the Ld. DRP has erred both on .....

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("FTS") under the provisions of Article 13 of the India-Finland Double Taxation Avoidance Agreement as applicable for the subject year ("DTAA") 2 (b) On the facts and in the circumstances of the case and in law, Ld. AO/ DRP failed to appreciate that the services rendered by the appellant are pre-dominantly 'managerial' in nature and that the term "managerial" has specifically been excluded from the purview of the definition of FTS under Article 13 of the DTA .....

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e DTAA cannot be drawn from the protocol to the Double Taxation Avoidance Agreement entered into between India and United States of America. 2(e) On the facts and in the circumstances of the case and in law Ld. AO/DRP erred in holding that various judgments relied on by the appellant are distinguishable on facts and thus not applicable in the case of the appellant. Similar Grounds were raised by the assessee for the Asst Year 2011-12 which are not reproduced herein for the sake of brevity. 6. Th .....

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e DTAA etc. In the amended India -Finland DTAA which has come into force w.e.f. 1.4.2011, the word managerial has been included under the definition of FTS, which itself proves that under the old DTAA , such services were not included. Secondly, the services rendered to Outotec India Pvt Ltd and other Indian parties for Asst Year 2010-11 do not make available technical know-how, skills to the recipients. The meaning of word make available has not been defined in India -Finland DTAA and hence the .....

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o India - Netherland treaty to understand the meaning of make available . The ld AR argued that this decision has been overruled by the Hon ble Delhi High Court in the same case of Perfetti Van Melle Holding B.V. vs AAR reported in (2014) 52 taxmann.com 161 (Delhi) vide order dated 30.9.2014. Accordingly, by placing reliance on this Delhi High Court decision, the ld AR argued that the meaning of make available as mentioned in Protocol to India -USA treaty could be used in India-Finland treaty. T .....

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2007 dated 7.11.2008 (b) Raymond Limited vs DCIT reported in (2003) 86 ITD 791 (Mumb ITAT) He argued that the make available test as stated in Article 13 of India -Finland DTAA is not satisfied in the instant case. He also placed reliance on the expression make available being explained by way of examples in the Protocol to India -USA DTAA which has a similar provision in support of his contentions. He also placed reliance on the decision of the co-ordinate bench of this tribunal in the case of .....

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argued that in the instant case, the services rendered by the assessee squarely falls within the ambit of FTS as per the treaty and the technology is also made available to the Indian group company as has been held by the ld DRP. He placed reliance on the decision of the Chennai Tribunal in the case of Foster Wheeler France S.A. vs DDIT reported in (2016) 67 taxmann.com 120 (Chennai Trib) dated 5.2.2016 and the decision of Cochin Tribunal in the case of US Technology Resources (P.) Ltd. v. Asst .....

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fly summarized as under:- (i) The services rendered by the assessee are technical in nature and make available technical knowledge, skill, process etc since the services are capable of being replicated by Outotec India Pvt Ltd through its own personnel (ii) The meaning of the term make available cannot be drawn from the India - US protocol as treaty with one country cannot be interpreted in the light of the treaty with another country. 8.1. We find that the services rendered by the assessee squa .....

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the same and decide the issue before us by deciding on the basis of make available clause of any technical knowledge, skill etc by applying the DTAA. We find that the ld DRP is harping on the point that the expertise of the assessee which was used in the fields of marketing services which is in its own domain of metal industry will definitely be a technical and consultancy service. This observation is made because according to ld DRP, when marketing information, web content, customized software .....

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d hereunder:- Article 13 - Royalties and Fees for Technical Services 4. For the purposes of paragraph 2 of this Article, and subject to paragraph 5, the term fees for technical services means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of technical or other personnel) which; (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payme .....

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India -Finland DTAA, not only the services should be of technical in nature but such as to result in making the technology available to the person receiving the technical services. We also agree that merely because the provision of the service may require technical input by the person providing the service, it cannot be said that technical knowledge, skills, etc are made available to the person purchasing the service. As to what are the connotations of making the technology available to the reci .....

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interpretation is permissible where language of the two treaties is similarly worded and one treaty clarifies meaning of the terms (or language) used . Reliance is placed on the following decisions in this regard:- (a) National Organic Chemicals Industries Ltd vs DCIT reported in (2006) 5 SOT 317 (Mumbai ITAT) (b) DDIT vs Preroy A.G. reported in (2010) 39 SOT 187 (Mum ITAT) (c) Intertek Testing Services India (P) ltd In re reported in (2008) 307 ITR 418 (AAR -New Delhi) dated 7.11.2008 (d) ITO .....

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ee to its foreign subsidiaries would fall under the ambit of fees for technical services as per the DTAA. We find from the Article 12 of Singapore Treaty and Article 13 of the UK Treaty defining the term fees for technical services , the consideration paid for rendering of managerial, technical or consultancy services would be covered under the said definition only if such services make available any technical knowledge, experience, knowhow, or processes. The nature of services rendered by the s .....

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to the assessee by the subsidiaries. 12.2. Article 12(4) and 13(4) of the Singapore and UK treaty respectively reproduced hereinabove is the same as Article 12(4)(b) of DTAA between India and USA. In the Memorandum of understanding to the DTAA between India and USA, a description concerning fees for included services in Article 12 and paragraph 4 (in general) have been given. Examples of services intended to be covered within the definition of included services and those intended to be excluded .....

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he category described in paragraph 4(a) because it excludes any service that does not make technology available to the person acquiring the service. It further explains that generally speaking, 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 may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc., are made available .....

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include : 1. Engineering services (including the sub-categories of bio-engineering and aeronautical, agricultural, ceramics, chemical, civil, electrical, mechanical, metallurgical, and industrial engineering) ; 2. Architectural services ; and 3. Computer software development. Under paragraph 4(b), technical and consultancy services could make technology available in a variety of settings, activities and industries. Such services may, for examples, relate to any of the following areas : 1. Bio-te .....

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of houses which is more durable than the standard products of its type. An Indian builder wishes to produce this product for its own use. It rents a plant and contracts with the U.S. company to send experts to India to show engineers in the Indian company how to produce the extra-strong wallboard. The U.S. contractors work with the technicians in the Indian firm for a few months. Are the payments to the U.S. firm considered to be payments for included services ? Analysis : The payments would be .....

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the wallboard in its plant, using advanced technology. Are the fees in this example payments for included services ? Analysis : The fees would not be for included services. Although the U.S. company is clearly performing a technical service, no technical knowledge, skill, etc., are made available to the Indian company, nor is there any development and transfer of a technical plant or design. The U.S. company is merely performing a contract manufacturing service. Example 5 Facts : An Indian firm .....

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for this purpose. Are the fees which the Indian firm pays treated as fees for included services ? Analysis : The fees are for included services. The U.S. company clearly performs a technical service for the Indian company, and it transfers to the Indian company the technical plan (i.e., the computer programme) which it has developed. Example 6 Facts : An Indian vegetable oil manufacturing company wants to produce a cholesterol-free oil from a plant which produces oil normally containing choleste .....

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any. Example 7 Facts : The Indian vegetable oil manufacturing firm has mastered the science of producing cholesterol-free oil and wishes to market the product world wide. It hires an American marketing consulting firm to do a computer simulation of the world market for such oil and to adverse it on marketing strategies. Are the fees paid to the U.S. company for included services ? Analysis : The fees would not be for included services. The American company is providing a consultancy service whic .....

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ce within the meaning of paragraph 4(b). Paragraph 5 Paragraph 5 of Article 12 describes several categories of services which are not intended to be treated as included services even if they satisfy the tests of paragraph 4. Set forth below are examples of cases where fees would be included under paragraph 4, but are excluded because of the conditions of paragraph 5. 12.2.1. The Memorandum of understanding is a tool to understand as to what meaning was intended to be conveyed in the DTAA between .....

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ng of the concerned DTAA. The Hon ble Karnataka High Court in the case of A.E.G. Telefunken v. CIT [1998] 231 ITR 129 compared the DTAA with German Democratic Republic with the DTAA with Finland towards this end. 12.2.2. The Mumbai Bench of the Tribunal in the case of Raymond Ltd. Vs. DCIT 86 ITD 791 (Mum) had to deal with a case of payment of commission by an Indian company to a non resident in connection with Public Issue of Global Depository Receipts (GDR) for services rendered outside India. .....

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nding to the Indo-US DTAA, the Tribunal held as follows: Whereas section 9(1)(vii) of the Act stops with the rendering of technical services, the DTAA goes further and qualifies such rendering of services with words to the effect that the services should also make available technical knowledge, experience, skills etc. to the person utilizing the services. These words are which make available . The normal, plain and grammatical meaning of the language employed, in our understanding, is that a mer .....

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the services to the person utilizing the same is contemplated by the article. Some sort of durability or permanency of the result of the rendering of services is envisaged which will remain at the disposal of the person utilizing the services. The fruits of the services should remain available to the person utilizing the services in some concrete shape such as technical knowledge, experience, skills etc. 12.3. Applying the definition of FTS in the Treaty to the facts of the present case in the .....

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vs De Beers India Minerals (P) Ltd reported in (2012) 346 ITR 467 (Kar) wherein it was held that :- if the assessee is able to carry on his business in future without the technical service of the service provider in respect of services rendered then, it would be said that technical knowledge is made available - Furgo has not made available the technical knowledge with which they rendered technical service - Though Furgo rendered technical services as defined under section 9(1)(vii) Explanation .....

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roup company, there is no technology or technical knowhow, skills etc that were made available by the assessee in order to enable the Indian group company to function on its own without the dependence of the assessee. It is not in dispute that the agreement entered between Outotec Oyj and Outotec India Pvt Ltd is for an indefinite period and such services are provided on recurring basis by the assessee to Outotec India Pvt Ltd. We find lot of force in the argument of the ld AR that had the techn .....

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d to few other Indian parties do not satisfy the make available test as these are routine repairs and supervisory services and there is no transfer of technology or skill or experience at the time of provision of such services by the assessee. 8.6. We find that the reliance placed by the ld DR on the decision of Chennai Tribunal in the case of Foster Wheeler France S.A. vs DDIT reported in (2016) 67 taxmann.com 120 (Chennai Trib) dated 5.2.2016 is factually distinguishable from the facts of the .....

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ontract. These specifications and procedures made available to the assessee by foreign company can very well be used by the assessee-company for execution of other projects also. Moreover, when the specifications and other procedures are made available to the assessee-company and the foreign company is reviewing and tracking the execution plans periodically, not only the execution but also the project budget and client satisfaction, it was held by the Tribunal that Foster Wheeler USA has made av .....

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with other clients. In the instant case before us, as already stated , what was rendered was only managerial services without any transfer of technology, knowhow, skills etc and it is a recurring service year after year. Hence the case relied upon by the ld DR is not applicable to the facts of the instant case. 8.7. Similarly the decision of Cochin Tribunal in the case of US Technology Resources (P.) Ltd. v. Asstt. CIT reported in (2013) 39 taxmann.com 23 (Cochin Trib) relied upon by ld DR is f .....

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