TMI Blog2018 (1) TMI 944X X X X Extracts X X X X X X X X Extracts X X X X ..... r its events during the Common Wealth Games, and the consideration was paid for the same. Hence, we have to agree that the consideration received by the Applicant for the technical services rendered could not be considered to be in the nature of fees for technical services as referred to in the India Belgium DTAC and the Protocol thereto, as read with the DTAC between India and the Portuguese Republic, which would have otherwise been taxable under Article 12 and Article 7, as the Applicant has a PE in India. Since it has been held that the Applicant has a PE in India, within the meaning of paragraph 1 of Article 5 of the DTAC between India and Belgium, and further that the same was not in the nature of Royalty or Fees for included services, the consideration received by the Applicant for rendering lighting and searchlight services to Delhi 2010, can only be held to be taxable in India as Business Profits, as per the provisions of Article 7, as also under section 9(1)(i) of the Income tax Act 1961, having accrued and arisen from its business connection and source in India. Question number 1: Yes. The payments received by the Applicant for rendering lighting and searchlight ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alth Games 2010, Delhi (hereinafter referred to as CCG ) under the Agreement dated 9th July, 2010 would be taxable in India under the provisions of the Income tax Act, 1961 ( the Act ) ? 2. If the payments received by the Applicant for rendering lighting and searchlight services to OCCG, are taxable in India under the provisions of the Act, whether the same would not be taxable in India in view of the Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to Taxes on Income between the Government of India and the Government of Belgium read with the Protocol between the Government of India and Kingdom of Belgium ( the India-Belgium Tax Treaty ) read together with the Agreement for Avoidance of Double Taxation and Prevention of fiscal between the Government of Portuguese Republic ( the India-Portugal Tax Treaty )? 3. The Applicant craves leave to add, modify or withdraw any questions after admission of the application or at the time of hearing and each of the questions raised are independent and without prejudice to one another. 5. With regard to its interpretation on each of the questions posed before us, it is submitted with respect t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the DTAA between India and Belgium, bereft of the protocol, broadly has the same definition of fees for technical services as the Act. The applicant relies upon the submissions made by it in the context of the Act to contend that the said payments are not Fees for Technical Services . 5.6 However, the protocol, which is part of the DTAA, provides that if India enters into a Convention or Agreement with a third State, being a member of the OECD, which enters into force after 1.1.1990, under which India limits taxation on royalties or fees for technical services to a rate lower or a scope more restricted than the rate or scope provided in the present agreement on the said items of income, the same rate or scope shall also apply under the present agreement with effect from the date from which the present agreement or the said convention or agreement is effective, whichever date is later. India has executed a DTAA with Portugal, an OECD member on 11.9.1998, which has entered into force with effect from 30 April 2000, wherein Article 12 confines the domain of fees for technical services to cases where the service is made available to the recipient to enable the latter to apply th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in transmitting the technical knowledge, etc. so that the payer could derive an enduring benefit and utilise the knowledge or know-how in future on his own without the aid and assistance of the giver. IntertechTesting Services India Pvt. Ltd. (2008)307 ITR 418 (AAR) has been referred to. In this case, the lighting and searchlight services are not imparted to and absorbed by the OCCG so that it could deploy the same in future, independent of PRG. No technical knowledge, experience, skill or processes are made available or imparted by the applicant to OCCG which would enable OCCG to apply the same on its own. Indeed the equipment, wherewithal, know-how and paraphernalia necessary to provide the turnkey service have not been transferred by the applicant and continue to be owned by it. In that view of the matter, the services under consideration are not hit by Article 12 of the DTAA. 5.11 The said payments, not being fees for technical services under Article 12, can only be business profits under Article 7 of the treaty. Business profits of the applicant can be taxed in India only if the applicant can be regarded as having a Permanent Establishment, PE , in India and carryi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s of the Applicant do not vindicate a finding that there is a PE. As such, the said payments would not be taxable in India under Article 7 of the DTAA. It is submitted that the said payments are completely saved from Indian taxation by virtue of the provisions of the DTAA. Hence, by virtue of Section 90(2) of the Act, even if it is assumed, while denying, that the said payments are taxable under the provisions of the Act, they will not be liable to Indian taxation by virtue of the more beneficial provisions of the DTAA. 6. The Revenue has opposed the above contentions of the Applicant. In an earlier report, Revenue had contended that the services are taxable under the Act as well as under the Indo Belgium DTAA, as fees for technical services. However, in a subsequent detailed report, the Revenue has stated that the claim and contentions of the applicant are not correct. It has a PE and its income is also assessable as Royalty . 6.1 It is submitted that the Applicant installed its equipments at various sites in the JawaharLal Nehru Stadium, including laying of cables, erecting structures for the opening ceremony, the various victory ceremonies throughout the tournament, and c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ar that the applicant is responsible for supplying mains distribution, and mains cabling from Delhi 2010 power supply locations to the equipment supplied along with appropriate wiring or connection points to the fixtures and fittings. It can be construed that the applicant provided the services through its personnel from 09.07.2010 to 30.10.2010. 6.5 It is submitted that as per Schedule 2 of the said agreement, para(c) General considerations: Facilities An allowance has been made for limited space and on-site space for the Service Provider. Environmental considerations Delhi 2010 is responsible for providing a suitable cover at the workplace to repair fixtures, and an empty key storage area as agreed between the Delhi 2010 and the service provider. Service, Support and Ongoing Maintenance The service provider shall provide an ongoing maintenance presence in Delhi that can service, rectify or repair any supplied item. This presence shall be available and/or on call at any given time from the supply to the final removal of the services. These personnel shall be backed up by a full-service support team to assist if required in any complications that require a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ration. 7. Revenue has further submitted that as per clause 3 (a) of Article 12 of the DTAA between India and Belgium, the term Royalties means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trademark, design or model, plant, secret formula or process or for information concerning industrial, commercial or scientific experience. 7.1 The applicant has entered into a Services Agreement with Delhi 2010 and the duration of agreement is from 9.7.2010 to 30.10.2010 that is for a period of around114 days. The main work of the vendor/applicant is to provide lighting and searchlight services for the Commonwealth Games 2010. The technical scope of work includes installation, maintenance, dismantling and removal. The agreement, specifically Schedule2, contains the details of the work to be provided by the applicant and the equipment to be used and the details of various skilled personnel that are to be employed. The applicant shall provide lighting design services by using hardware and specific software. It is seen that the entire work is highly tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clause reads as under: 4. Intellectual property You acknowledged that Delhi 2010 shall own all existing and future intellectual property rights in any material created, generated or contributed by you. You will waive all moral rights in respect of any existing or future intellectual property created by you or with others in the course of providing the service. Thus the applicant company has created an intellectual property which has been provided to Delhi 2010. Therefore this impugned transaction is clearly covered under the definition of royalty . 7.6 As seen from the definition of Royalty in the context of the agreement between the applicant company and Delhi 2010, the applicant company has charged USD 3.5 million from Delhi 2010 as a consideration for the use of or the right to use of its design or model or plan or process. The applicant company has also passed on all intellectual rights created, generated or contributed by its personnel to Delhi 2010. 7.6.1 There is not an iota of doubt that the consideration received by the Applicant, is certainly covered under the head Royalty as per Article 12(3) of the India Belgium DTAA and hence is to be taxed in th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as done on a turnkey basis for a short duration only, and hence no PE was established on the premises of the Delhi 2010. 9. We have considered the submissions of the applicant, the objections raised by the Revenue, as well as the details and agreements submitted with the application. 9.1 While the Applicant denies and the Revenue insists, that it has a PE in India, let us examine whether the conditions required for a PE are indeed met, keeping in mind the Agreement entered into and the activities undertaken by the Applicant. The decision in the case of Formula One World Championship Ltd. (FOWC) delivered by the Hon ble Apex court provides a good basis for making this evaluation, and has been referred to by both the Applicant as well as Revenue. The case of Visakhapatnam Port Trust has been cited by the Applicant to make out a case that none of the characteristics are present in the instant case. This case has also been considered by the Hon ble Supreme Court. Klaus Vogel in his commentary on Double taxation Conventions also gives a detailed and illustrative account on what factors should be taken into account. 9.2 First and foremost it has to be understood that the scheme ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... its disposal with exclusive right to access and under the control of the Applicant. The general Conditions also reveal that Delhi 2010 shall provide the Applicant empty workplace and covered area. The word empty implies being placed at the disposal and exclusive access and control of the Applicant. Also, in the very nature of things in this case, the business had to be carried out on site, and as Klaus Vogel says, it is immaterial that the place of business is located in the business facilities of another enterprise who may be the owner. 9.4.1 Thus, as long as there is a space placed at its disposal with exclusive right of access, controlled by it and used for its business, it would form a PE. The degree of control need not exceed the level of what is required for this specific business. The Applicant s plea that it had no place where it could otherwise enter and make use of in the premises of Delhi 2010 and have control over, is not found to be correct. 9.5 The above facilities provided to the Applicant show that there was a clear link between the place of business and an identifiable geographical point, from where its business would be done. In fact, coupled with the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and closing services is incorrect. All these services were an integral part of the project, and covered a much longer period. In fact the project continued to a much later date, when all the facilities were either handed over or shipped. Besides, Sch. 2, in the General Conditions also requires the Applicant to provide ongoing maintenance presence that can service, rectify or repair any supplied item. This presence shall be available on call at any time from the supply to the final removal of the goods. It is also seen from Sch. 1, that Insurance was taken by it for the period from the date of signing the Agreement till 31 December 2010, that is the entire project was spread over a sufficiently long period of time comprised in the preliminary, preparatory, actual display, and winding up operations. 9.8 There are some other clauses in the Agreements also, which indicate that the Applicant had a PE in India. One is that the Applicant subcontracted some of its activities. In our view this is clearly indicative of the fact that the Applicant had an address, an office, from which it could call for and award subcontracts. It is difficult to assume that without any premises under its co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e above income is also covered within the meaning of section 9(1)(i) of the Income tax Act 1961, since the same has arisen and accrued from a business connection, which is wider in scope than a PE, and from a source in India. 10. Since we have held above that the income of the Applicant is taxable in India having been earned through a PE, as also under the Income tax Act, yet, it is important to know, whether the same would be taxable in India as Business Profits, or as Royalty and FTS earned through that PE. The same is dealt with in answer to the averments of both the Applicant and the revenue, as put forth in their written submissions and during the course of these proceedings. 10.1 The term royalties as used in clause (a) of paragraph 3 of Article 12 of the India Belgium DTAA, means payments of any kind received as a consideration for the use of, or the right to use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trademark, design or model, plan, secret formula or process, or scientific equipment or for information concerning industrial, commercial, or scientific experience. Referring to Model Conventions, Klaus Vogel i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plicant agrees to disclose all the Works and provide the same to Delhi 2010, as also transfer the title to the same to Delhi 2010. 10.4 Thus what has been assigned are the rights to use the final product, the Works, ie. providing equipment and services, including lighting, sound, video and LED etc., for use of the Delhi 2010, and for which the consideration has been received by the Applicant. There is no assignment of any right to use the knowhow, technical experience, skill, processes and methodology, or even the copyright, patent, trade mark, design or model, or any intellectual input comprised therein. These have only been used by the Applicant itself in creating the final product, the equipment and services. Delhi 2010 cannot and does not get to know how they were designed or developed, or acquires any knowledge of any intellectual input, nor is it enabled or empowered to do that work by itself in future. It may be mentioned that in events of this nature, it is usual to assign the exclusive rights to the client to use the equipment and services, to keep intact the element of uniqueness and novelty in experiencing the lighting display. But how this experience was created rema ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e imported into the India Belgium Treaty, and the definition of fees for technical services needs to be re-examined in this light. 11.2 In view of the above, we have to agree with the contention of the Applicant. Taking a restricted view of the term, it cannot be said that the Applicant had made available technical knowledge, experience, skill, know-how or processes, which enable the development and transfer of a technical plan or technical design, and which enable the person acquiring the services to apply the technology contained therein. The services were not made available to Delhi 2010, in a manner that it acquired the knowhow or the ability to use it, or that the service rendered enabled or empowered it to carry out the task in future all by itself. Make available connotes that it should result in transmitting the technical knowledge such that the recipient could derive an enduring benefit and utilise the same in future on his own without the aid and assistance of the provider. In this case Delhi 2010 only utilised the services for its events during the Common Wealth Games, and the consideration was paid for the same. 11.3 Hence, we have to agree that the consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X
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