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TMI Blog2017 (1) TMI 780X X X X Extracts X X X X X X X X Extracts X X X X ..... e of the assessee is concerned, the relevant material facts are like this. The assessee before us is a wholly owned subsidiary of Bombardier Transportation (Holdings) Singapore Pte Ltd, a part of Bombardier Group, and is engaged in the business of manufacturing and supply of rail transportation system, which includes traction, auxiliary converters, vacuum circuit breakers, control electronics, signaling equipment, coaches and bogies for metro trains. During the course of scrutiny of TDS returns, the Assessing Officer noticed that the assessee has made payments, aggregating to Rs. 9,19,96,649 to Bombardier Transportation Canada Inc (BTCI, in short). The details of these payments are as follows:- Service Units Text (USD) (INR) TDS Nature of service Finance System - Maneja 48,711 2,647,306 NO ERP application used at Maneja site of the company by employees in Finance department to do accounting and reporting of all financial transactions HR Connect 45,321 2,463,072 NO Common standard HR platform used throughout BT, which enables employees and managers to modify their personnel data through employee self-service (ESS) and manager self-service (MSS). It is the sole HR IT d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, employees working in project management function of the mainline division have to record and enter the details of that claim in this database. Maximo - DB MAXPPC 28,511 1,549,481 NO It is a Enterprise Asset Managem ent solution that has unique industry solutions for various business processes. This flexible solution provides a single platform to deliver asset lifecycle and maintenance management from end-to-end across the enterprise.. Consisting of six core modules -- Materials, Procurement, Asset, Work, Service and Contract, Maximo Asset Management-provides a comprehensive answer for asset management Other global adjustments 40 2,154 PPC Serialisation 54 2,940 Bar Coding application used to check and control the inventory PPRS 25,955 1,410,564 NO Project Management application, used to keep and archieve all records and database separately for each customer project/ contract pertaining to all divisions of the company other than RCS. All records and documents relating to each project viz. customer agreement, financial information, all customer correspondences, customer claims/ disputes, minutes of the meetings, etc. are archieved and kept ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of all Indian employees PRO BT Global 22,773 1,237,637 NO MS Project Server 2010 and project professional managed by GPM MS Project Server 2010 and project professional Visual Factory India 21,624 1,175,186 NO Tool to supervise manufacturing operations at Savli Site Office Support 2,244 121,931 NO Office support viz. PDF writer etc. EB PPC Vaesteras 10,059 546,661 NO Database for Mainline division of the company used for storing engineering related documents between the divisions Depreciation - 2011- 8947 Segregation of 477 25,929 NO Depreciation of Project management application Depreciation - 2012- 4062 EPPM Template F 55 3,002 NO Depreciation of Project management application PDM Metaphase 11,603 630,593 NO * Product Data Management (PDM) tool PDM enhancements & bug fixing for PDM LAE division Project Scope; Fit Gap and Blueprint for PDM stabilization / optimisation Deployment of template functionalities as agreed between Business and IS Change management for the adaptation to the template processes Template localization based on legal or contractual requirements Data migration from legacy applications to PDM (if applicable) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er a detailed analysis of the payments, was of the view that a major portion of the payment is for the use or right to use industrial, commercial or scientific equipment, while remaining cover the use of various processes for which access has been granted by the assessee company". He thus held that the assesse ought to have withheld tax at source @10% from these payments. Accordingly, a demand under section 201(1) r.w.s. 195 was raised on the assessee. Aggrieved, assessee carried the matter in appeal before the CIT(A) who upheld the plea of the assessee and deleted the impugned tax withholding demand. While doing so, in a very well reasoned order, learned CIT(A), inter alia, observed as follows: 2.10.13 I have carefully considered the facts of the case, the submissions of the appellant and the impugned order of the AO. The fundamental submission of the appellant is that the IT support services are not in the nature of 'Royalties' as no right to use of any equipment/secret process is conferred upon the appellant. The relevant provisions under the Act relating to taxation of income from royalty income are as follows: Section 9(1)(vi) income by way of royalty payable by- ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ingent on the productivity, use, or disposition thereof; 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 payments derived by an enterprise described in paragraph 1 of Article 8 from activities described in paragraph 3(c) or 4 of Article 8. The software application/services such as e-mail database, control tools, bar coding solutions, HR Payroll System, finance reporting, applications for recording time & attendance etc. used by the appellant are primarily in the nature of applications for data processing or warehousing wherein the appellant does not get control/power of use/disposal of hardware or server involved. No use or right to use of any equipment or process is conferred upon the appellant. The appellant is merely granted a facility and the consideration for the same cannot be construed as royalty. Therefore, going by the principles as elucidated by the Technical Advisory Group of the OECD and the commentaries of renowned authors as well as the judicial precedents relied upon by the assesses, as referred to above, it is apparent that the provision of software servi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ation in terms of reproduction, sub-lisence etc. only would tantamount to royalties. Further, none of the payments have also been made towards use of any industrial, commercial, or scientific equipment. In view of discussion above, I am of the considered view that the payment made by the Appellant for the provision of IT support services cannot be taxed as 'Royalties' under the beneficial provisions of Article 12 of the India- Canada DTAA. Further, as stated in the earlier ground of appeal in the light of the Apex Court decision in GE India Technology Centre Pvt. Ltd. [2010] 327 ITR 456 (SC) wherein it has been held that payment made to a non- resident will be subject to withholding of tax u/s. 195(1) of the Act only if the sum payable is 'chargeable to tax ' in India in the hands of non-resident, the appellant was not per se obliged to deduct any tax at source u/s 195 of the Act in the absence of any component of income involved. Thus, there existed no liability of the appellant to deduct any TDS u/s 195 (1) of the I.T. Act. This ground of appeal is allowed accordingly. 6. Aggrieved by the relief so granted by the CIT(A), the Assessing Officer is in appeal befor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ter is integral to the data processing but what is important to bear in mind is the fact that the payment is not for the use of mainframe computer per se, that the Indian company does not have any control over the mainframe computer or physical access to the mainframe computer, and that the payment is for act of specialized data processing by the Australian company. Use of mainframe computer in the course of processing of data is one of the important aspects of the whole activity but that is not the purpose of, and consideration for, the impugned payment being made to Australian company. The payment, as we have observed earlier, is for the activity of specialized data processing. It is neither practicable, nor permissible, to assign monetary value to each of the segment of this economic activity and consider that amount in isolation, for the purpose of deciding character of that amount. Therefore, neither the impugned payment can be said to be towards use of, or right to use of, the mainframe computer, nor is it permissible to allocate a part of the impugned payment, as attributable to use of, or right to use of, mainframe computer. Accordingly, the provisions of art. 12(3)(b) cann ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the assessee which gets hit by the mischief of definition of fees for technical services in the DTAA". The Assessing Officer was also of the view that "the service of technical input, advice, expertise etc rendered by the non resident company are technical in nature as provided for definition in the DTAA and not merely a standard service". All along in the discussions, the Assessing Officer emphasized on the technical inputs and benefits to the assessee which leads to the services being technical in nature and making available benefits of these services to the assessee. It was thus held, without giving any findings to the effect that there was a transfer of technology inasmuch as the assessee was enabled to perform the same services in future without recourse to the service provider, that the fees for these services is covered by the definition of 'fees for technical services' in the Indo Canadian tax treaty. Accordingly, the assessee was held to have committed a default in not deduction tax at sources from these payments, @ 15%, under section 195 of the Act. The resultant demand under section 201 r.w.s. 195 was, therefore, raised by the Assessing Officer. Aggrieved, assessee c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... apply this technology in their routine business operations. The case laws referred by the appellant buttress the argument put forward by the appellant that the services rendered by BT-Canada are in effect towards the proper functioning of the appellant's business operations and alignment with the Bombardier group's global best practices. Such arrangements are not uncommon among various multi-national enterprises and have also been favourably considered by the following decisions: * Bharti AXA General Insurance Co. Ltd (234 CTR 62) * Bovis Lend Lease (India) Pvt. Ltd. vs. ITO [2010] 127 TTJ 25 (Bang.) * Invensys Systems Inv. V. DCIT 317 ITR 438 (AAR) Furthermore, recently the Ahmedabad Tribunal in the case of Shell Global Solutions International BV vs. Income Tax Officer in I.T.A. No.1283/Ahd/2010 dated November 10, 2015 held that consideration received by Shell Global for rendering services to an Indian co. under the Basic Refinery Package i.e. services in the nature of best practice manuals, guidelines, newsletters, etc. developed by assessee based on its expertise/ experience in running refineries and services like undertaking site inspection, technical/organizati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... axman 121/20 taxmann.com 807 and Karnataka High Court in the case of CIT v. De Beers India (P.) Ltd. [2012] 346 ITR 467/208 Taxman 406/21taxmann.com 214 in support of this proposition, and there is no contrary decision by the jurisdictional High Court or by the Supreme Court. Therefore, unless there is a transfer of technology involved in technical services extended by the UK based company, the 'make available' clause is not satisfied and, accordingly, the consideration for such services cannot be taxed under article 13 (4) (c) of India-UK tax treaty. In view of discussion above and respectfully following the above stated decisions of the jurisdictional Tribunal and plethora of rulings from various Courts & Tribunals, I am of the considered opinion that the impugned payment for support services does not warrant to be characterized as 'fee for technical services' under India-Canada DTAA. Further, in view of the decision of the Apex Court in the case of GE India Technology Centre Pvt. Ltd. [2010] 327 ITR 456 (SC) wherein it has been held that payment made to a non-resident will be subject to withholding of tax u/s. 195(1) of the Act only if the sum payable is 'chargeabl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... a) it is necessary that such services should "make available" technical knowledge, experience, skill, know-how, or processes or consist of the development and transfer of a technical plan or technical design The services provided by BT Canada were simply management support or consultancy services which did not involve any transfer of technology. It is not even the case of the Assessing Officer that the services were such that the recipient of service was enabled to perform these services on its own without any further recourse to the service provider. It is in this context that we have to examine the scope of expression 'make available'. 16. As for the connotations of make available clause in the treaty, this issue is no longer res integra. There are at least two non-jurisdictional High Court decisions, namely Hon'ble Delhi High Court in the case of DIT Vs Guy Carpenter & Co Ltd ([(2012) 346 ITR 504 (Del)] and Hon'ble Karnataka High Court in the case of CIT Vs De Beers India Pvt. Ltd [(2012) 346 ITR 467 (Kar)] in favour of the assessee, and there is no contrary decision by Hon'ble jurisdictional High Court or by Hon'ble Supreme Court. In De Beers case (supra), Their Lordships pose ..... X X X X Extracts X X X X X X X X Extracts X X X X
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