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TMI Blog2017 (11) TMI 1543X X X X Extracts X X X X X X X X Extracts X X X X ..... of the I.T. Act regarding payments amounting to USD 1,577,000 to be made to The MITRE Corporation, USA. The Assessing Officer observed that Airports Authority of India has entered into an Agreement with MITRE on 16.09.2011 whereby MITRE is to provide technical support in relation to certification of GAGAN, an India Satellite based navigation system in consideration for contract payment amounting to USD 1,577,000. According to the Assessing Officer, the above services prima facie is in the nature of Fee for Technical Services (FTS). On being confronted by the Assessing Officer, it was submitted by the assessee that in view of 'make available clause' in the India USA Double Taxation Avoidance Agreement, the services in the present case will not fall within the ambit of FTS. 3.1 However, the Assessing Officer was not satisfied with the above explanation given by the assessee. According to him, within the limited framework of a provisional order u/s 195(2), in the light of the information as furnished by the assessee, may not be possible to ascertain with certainty as to whether the services would fall outside the ambit of FTS. According to him, the whole of the sum of USD 1,577,000 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... test results. Payout for this task shall be USD 630,8001-, 4. Task 4 'Operational Testing & Evaluation', under this task MITRE shall review the test procedures developed by AAI and will develop a high level schedule for the same. The task value in USD 157,700/-. 5. It is clear from the aforesaid details that in pursuance of the agreement entered into by the assessee with MITRE, MITRE shall assist AAI in the development of a complete certification package for GAGAN. 5.1 The assessee submitted that the taxability of the services received by AAI from MITRE will be subject to the provisions of Double Taxation Avoidance Agreement ('DTAA') entered between India and USA or the normal tax provisions whichever is more beneficial to the assessee. Referring to the order of the TPO at para 4 of his order wherein he has alleged that it may not be possible to ascertain whether the services would fall outside the ambit of FTS and, therefore, the amount of USD 1,577,000/- to be paid by AAI to MITRE shall be chargeable to tax as FTS, it was submitted that the terms of the agreement clearly specify the nature of the services to be performed by MITRE in execution of the contract ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to make technology available." 5.5 It was accordingly argued that in order to be covered by this provision, it is a necessary condition that the service provided should make available the technology which enables the person acquiring the service to apply the technology. 5.6 The assessee submitted that MITRE does not make available any technical knowledge or skill to AAI which could be treated as fees for included services as contemplated under Paragraph 4 of Article 12 of the Indo-US DTAA. Hence, the services provided cannot be charged to tax under Article 12 of the DTAA. Therefore, it cannot be concluded that the first limb of Article 12(4)(b) does not apply in the instant case. 5.7 So far as the second limb of the clause is concerned, it was argued that this clause provides that if services consist of the development and transfer of a technical plan or technical design, then payment for such services shall be treated as fees for included services. It is was submitted that under the terms of the agreement MITRE shall be performing certification services for GAGAN. 5.8 Referring to the decision of the Delhi Bench of the Tribunal in the case of Romer Labs Singapore Pte Ltd. vs. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s also not satisfied with the explanation given by the assessee. Relying on various decisions including the decision of the Hon'ble Supreme Court in the case of GE India Technology Centre Pvt. Ltd. vs. CIT reported in 327 ITR 456, he held that as per the provisions of section 195(1), liability to deduct tax at source arises when sum payable to a nonresident is chargeable to tax in India in the hands of the non-resident. Thereafter, he proceeded to examine as to whether the payment made by the assessee to the non-resident MITRE are chargeable to tax in India in the hands of MITRE in the light of provisions of section 5(2) of the I.T. Act. Since it is not the case of the Assessing Officer that payments made by the assessee are received or deemed to be received by the non-resident MITRE in India, he held that the provisions of section 5(2)(a) is not applicable. Further, it has also not been established that the non-resident has business connection in PE in India. He further went through the various clauses to the agreement and the decision relied on before him and after distinguishing the decision cited, he held that the entire payments made by the assessee to MITRE are in nature of F ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... em (TRT) which will include participation from DGCA, AAI, and ISRO. Raytheon will provide input to team as required by its contract with ISRO. Deliverable : Reports summarizing MITRE input to TRT and TRT meetings, including comments on Raytheon's safety related analysis and documents unique to GAGAN, high level OT&E tool requirements, high level OT&E plans and comments on OT&E test procedures and test results. Task 4 : Operation testing and evaluation MITRE will provide support for OT&E of GAGAN. Deliverable : OT&E test plans and a final report summarizing OT&E. Clause 3.4 of Annex 1 is regarding deliverables products and schedule thereof. It is reproduced as here under : Milestones Delivery Integrity Monitor Algorithm results Review and Recommendations Four months after contract signing Draft Certification Plan for GAGAN Seven months after contract signing Draft / Final Summary Reports of Technical Review Team meetings Draft report two weeks after each TRT meeting / Final report two weeks after receipt of comments from TRT members Operational test and Evaluation Plans Twelve months after contract signing Final Summary Report of OT&E Twenty-Four m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iew of second limb, then there is no requirement of 'make available' 5.5 Analysis of various clauses of agreement and its annex 1 shows that MITRE is required to deliver a technical plan to AAI/DGCA for certification of GAGAN. This means that case of the appellant fall within purview of second limb of clause (b) of Article 12(4) of DTAA and therefore there is no requirement of 'make available' as discussed supra. A copy of report as furnished by MITRE has been furnished by the appellant. Perusal of this report clearly reveals that it is highly technical plan regarding certification of GAGAN supplied by Raytheon. In this plan, certain defects in GAGAN have been pointed out and recommendations have been made how to fix the problems. On the basis of this technical plan, DGCA shall be certifying GAGAN for use in civil aviation." 8. Aggrieved with such order of the ld. CIT(A), the assessee is in appeal before the Tribunal. 9. Ld. counsel for the assessee submitted that M/s The Raytheon Corporation, USA (prime contractor) has developed GAGAN software. GAGAN needs certification from DGCA (Director General of Civil Aviation) for use in civil aviation. MITRE is uniquely qualified to h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (i) Develop a list of activities necessary for the certification and commissioning of GAGAN. (ii) Facilitate the assignment of responsibility for these activities to various Indian organizations (i.e. DGCA, AAI, ISRO etc.). (iii) Develop a draft GAGAN certification plan for AAI. He submitted that these activities and timelines in the list above will encompass certification and implementation of navigation services to be provided by GAGAN and should serve as the basis for a final integrated certification plan and schedule to be published by AAI. Main task is to list out the activities necessary for the certification of GAGAN which will be used in the preparation of draft certification plan. 15. Similarly, referring to Task 3 : Participation in GAGAN Technical Review Team at page 17 of the Paper Book, ld. counsel for the assessee submitted that MITRE will participate in GAGAN technical review team (TRT) which will include participation from DGCA, AAI and ISRO. The TRT will provide its observations and make recommendations to DGCA regarding the certification of GAGAN. MITRE will review the necessary documents and algorithms, MITRE will provide a report summarizing on the review ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ource. 19. Ld. DR on the other hand heavily relied on the order of the Assessing Officer. He referred to the decisions reported in 190 taxmann.com 22 and 201 taxmann.com 23. He further referred to para 5 and 6 of the assessment order and submitted that the Assessing Officer has given reasons as to why the assessee is liable to deduct tax from the payments made to MITRE. Referring to page 5 of the Paper Book, ld. DR drew the attention of the Bench to the following :- "Withholding Tax : If the Customer is required by law to deduct or withhold and amount from any payment made to Contractor on account of any Tax so that Contractor would not receive the full amount of the payment for its own benefit on the due date for the payment. On the basis of tax paid by Customer, Contractor shall seek in USA a rebate/credit by utilizing the income tax paid in India under this Agreement and shall pass such rebate-credit to Customer within one month from the date of getting the rebate/credit. Contractor shall use its best efforts to assure that such credit/reduction is properly claimed and defended. Likewise, if any refund (including interest if any) is obtained in India, the same shall also b ..... X X X X Extracts X X X X X X X X Extracts X X X X
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