TMI Blog2018 (11) TMI 1604X X X X Extracts X X X X X X X X Extracts X X X X ..... Hon’ble High Court further held that Technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. In other words, payment of consideration would be regarded as "fee for technical/included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied. In the present assessee company’s case, the services provided by the assessee company are that of IT support services which are merely in the nature of routine IT support services and availing such services in no manner has given any benefit to MIPL with technical knowledge, skill or expertise to be able to apply it in future to perform the functions independent of the assessee company. Thus, the twin test is not fulfilled in the present case. Therefore, the Assessing Officer was not justified in making additions in this aspect. Surcharge and cess on the gross treaty rate of 10% applicable on fees for technical services - HELD THAT:- AR relied upon the decision of Elektrobit Automotive GmbH vs. DCIT [2018 (5) TMI 1861 - ITAT DELHI] wherein the Tribunal held that education cess is only a surcharge as clarified ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erred in computing interest under section 234A the Act. 7. That on the facts and circumstances of the case, DRP has erred in not examining the validity of such initiation of penalty proceedings u/s 271(1)(c) of the Act. 3. The Ld. AR submitted that there is delay of 2 days in filing of the present appeal. The Ld. AR submitted that all the Directors of the assessee company are resident of Belgium and the directors authorized to sign and verify the appeal were travelling out of Belgium for official work, therefore, there is delay of 2 days in filing the present appeal. The Director of the assessee company has filed affidavit along with the application for condonation of delay. We have gone through the application along with the affidavit. The delay is condoned as the reason for delay is explained by the assessee company. 4. Assessee filed its return of income on 20-03-2013 declaring NIL income. The case was selected for scrutiny and notice under section 143(2) was issued on 12-08-2013 and was duly served on assessee. In response to notices and questionnaire, C.A. and counsel appeared and submitted details, information and explanations. SOREGAM SA is a tax resident of Belgiu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 was issued on August 12, 2013. The Assessing Officer proposed an addition amounting to INR 1,78,10,592 holding that the amount received by the assessee company from its AE in consideration for provision of IT support services is in the nature of fee for technical services ( FTS ) and therefore, taxable in India in view of the Act read with the India-Belgium Double Taxation Avoidance Agreement ( DTAA ). The assessee company filed objections in Form 35A against the draft assessment order before the Dispute Resolution Panel ( DRP ) on April 3, 2014. The DRP vide directions dated August 27, 2014 held that in view of the protocol to India-Belgium DTAA, definition of FTS as given in Article 12 of India- Portugal shall apply. The DRP further held that the assessee company satisfies the make-available requirement and therefore, the amount received is taxable as FTS in India. The Assessing Officer, pursuant to the directions of the DRP, completed the assessment vide order dated October 27, 2014 assessing the income at INR 1,78,10,592 and demand payable was determined at INR 53,24,213. 7. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hey satisfy the make available condition. In other words, the amounts received as consideration for provision of IT support services may not be taxed under Article 12 of the DTAA if the IT services do not 'make available' technology, skill, know-how etc. to its AE. The Ld. AR further submitted that the term make available has not been defined in the DTAA. However, reference was made to the Memorandum of Understanding (MoU ) executed between India and US by the Ld. AR which reads as under: 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 to the person purchasing the service, within the meaning of paragraph 4(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available The Ld. AR relied upon the decision of Raymond Ltd. vs. DCIT [2003] 86 ITD 791 (Mum) wherein the Tribunal interpreted the meaning of the term make-available . The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... implementation, maintenance and technical support of internally developed and commercial software applications and services, hardware, ERP system, infrastructure and data telecommunication. The Ld. AR submitted that IT support services are merely in the nature of routine IT support services and availing such services in no manner will equip MIPL with technical knowledge, skill or expertise to be able to apply it in future to perform the functions independent of the assessee company. The Ld. AR relied upon the decision in case of Sandvik Australia Pty. Ltd. vs. DDIT [2013] 141 ITD 598 (Pune) wherein the assesse was engaged in providing the IT support services to its group companies in the Asia-pacific region In view of the India- Australia DTAA, it was claimed that the amount received on provision of services was not taxable as the services do not make-available services to its group entities in India. The Ld. AR further submitted that the Tribunal held that the assessee has only provided the back-up services and IT support services for solving IT related problems to its Indian subsidiary. Hence, unless and until the services are made available, same cannot be taxable in India. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MIPL could have utilized the experience gained by them. Thus, there was no evidence on record that the services rendered by the assessee qualify the test of make-available . In this regard, the Ld. AR relied upon the decision of Linklaters LLP vs. DCIT [2017] 185 TTJ 525 (Mumbai) wherein it is held that the view taken by the Revenue was not a plausible one since they were not able to point out as to how there was transfer of technical knowledge, skill, experience or know-how, etc., in such manner that the recipients were able to utilize and perform these tasks again on their own without falling back on the assesse for its assistance. It was held similarly in the following cases that since it has not been established by the Department that while rendering the services, technical knowledge, knowhow, skill etc. has been made available so as to enable the recipient to apply them independently, the services cannot be held taxable as fees for technical services: -Endemol India (P.) Ltd. [2014] 361 ITR 340 (AAR) -Exxon Mobil Company India (P.) Ltd. vs. ACIT ITA No. 6708 (Mum) of 2011 In view of the above, the Ld. AR submitted that these services do not make available any know-h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and in accordance with the IT Policy of the group). II. Services to Set-up guidelines - Once a policy has been formulated, it follows that a set of guidelines/instructions/dos and don'ts are devised and setup for the successful implementation and compliance of such policy. It is towards this end that the assessee provided the service recipient with necessary Recommendations and direction in the field of information and communication ( ICT ) . iii. Services to ensure data integrity and system availability - This include services such as purchase, implementation, maintenance and technical support of internally developed software applications (Data Warehouse, Quote Manager etc.) and services as well as commercial ones (e.g. operating systems, productivity applications, server/network, antivirus, corporate website), hardware e.g. Desktops, laptops, servers, data center, network and disaster recovery) ERP system,(BaaN), Infrastructure and data telecommunication (e.g. Lotus Notes, telephone, fax internet, website phones.). 16. The Ld. DR pointed out that all the above 3 services are interconnected and cannot be implemented independent of each other. The Ld. DR submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... same in future. It can itself procure/purchase/assemble the specified hardware or commercial software and develop/configure or modify the internally developed software or other infrastructural requirements. To sum up, the Ld. DR submitted that once the service have been rendered by the assessee, the recipient Indian AE is armed and has been enabled with both the policy , guidelines and the IT System necessary for the implementation of such policy. The Indian AE is thus, no longer dependent upon the assessee for availing such services relating to the formulation and implementation of the policy , guidelines and the IT System . In other words, the technical and consultancy services have been made available by the assessee to its Indian AE in lieu of which the consideration was received. Accordingly, the AO and DRP are justified in holding the receipts by the assessee to be in the nature of fees for technical services . In support of the above, the Ld. DR relied upon the decision of Hon'ble Karnataka High Court in the case of De Beers India Minerals (P) Ltd. (2012) (346 ITR 467) where it was held as under:- 22. What is the meaning of make available . The technica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TAA between India-Portugal (an OECD member country), entered into on April 30, 2000, under Article 12 provides for a restricted scope for taxation of amounts as FTS by laying down the make-available condition. The IT support services rendered by the assessee company to its AE may qualify as FTS only if they satisfy the make available condition. In other words, the amounts received as consideration for provision of IT support services may not be taxed under Article 12 of the DTAA if the IT services do not 'make available' technology, skill, know-how etc. to its AE. The term make available has not been defined in the DTAA. However, reference was made to the Memorandum of Understanding (MoU ) executed between India and US by the Ld. AR. The Ld. AR relied upon the decision of Raymond Ltd. vs. DCIT [2003] 86 ITD 791 (Mum) wherein the Tribunal interpreted the meaning of the term make-available . The Ld. AR also relied upon the following case laws: i. CIT vs. De Beers India Minerals (P.) Ltd. [2012] 346 ITR 467 (Kar) ii. ACIT vs. Petronet LNG Ltd. ITA No. 865/Del/2011 The explanation in the MIPL to the India-US tax treaty along with the observations of the various Cour ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ithin the ambit of FTS as defined in Article 12 of the India-Belgium DTAA read with India-Portugal DTAA. The submissions of the Ld. DR that the assessee company is providing make available services and the services are interlinked has not been supported by any documentary evidence which was produced by the assessee company during the assessment proceedings. The Hon ble Karnataka High Court held that the technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. The Hon ble High Court further held that Technology will be considered made available when the person acquiring the service is enabled to apply the technology. In other words, payment of consideration would be regarded as fee for technical/included services only if the twin test of rendering services and making technical knowledge available at the same time is satisfied. In the present assessee company s case, the services provided by the assessee company are that of IT support services which are merely in the nature of routine IT support services and availing such serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y the Hon ble Apex Court in case of CIT vs. K. Srinivasan [1972] 83 ITR 346 (SC), therefore, education cess or any other surcharge should not be added separately to the tax rate as per the DTAA. The Tribunal relied on the coordinate Bench decision in the case of Osram India Pvt. Ltd. vs DCIT (ITA No. 4052/Del/2015) to come to this conclusion. The Ld. AR also relied upon the following decisions: i. DIC Asia Pacific Pte. Ltd. vs. ADIT [2012] 52 SOT 447 (Kolkata) ii. DDIT vs. BOC Group Ltd. [2016] 156 ITD 402 (Kolkata) iii. Capgemini SA vs. DCIT [2016] 160 ITD 13 (Mumbai) iv. Sunil V, Motiani vs. ITO [2013] 59 SOT 37 (Mumbai) v. Parke Davis and Company LLC vs. ACIT [2014] 62 SOT 282 (Mumbai) In view of the above, the Ld. AR submitted that tax rate mentioned in Article 12 of the India-Belgium DTAA is a gross rate of tax inclusive of surcharge and therefore, since education cess is a form of additional surcharge, education cess or any other surcharge cannot be applied additionally to increase the tax rate mentioned in the DTAA i.e 10%. 20. The Ld. DR relied upon the Assessment Order. 21. We have heard both the parties and perused all the relevant material availab ..... X X X X Extracts X X X X X X X X Extracts X X X X
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