TMI Blog2022 (8) TMI 296X X X X Extracts X X X X X X X X Extracts X X X X ..... fter rendering of such technical services by the service provider, whether the recipient is enabled to use the technology which the service provider had used - unless the service provider makes available his technical knowledge, experience, skill, know-how or process to the recipient of the technical service, in view of the clauses in the DTAA, the liability to tax is not attracted. It is clear that test is whether the recipient of the service is equipped to carry on his business without reference to the service provider. If he 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. We have referred the agreement between the assessee and University of Texas at Austin, USA, defining the scope of work and note that there was neither any patent/copyright used by the assessee against which the royalty was paid nor there was any technical know-how which was made available to the assessee. Thus in such facts and circumstances there is no liability on the assessee to deduct the TDS in pursuance to the Article 12 of India-USA DTAA. There remai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elopment of suitable chemical Enhanced Oil Recovery (EOR) formulations for its 5 reservoirs. The assessee agreed to pay to the University of Texas at Austin for the services to be availed as per the agreement for a sum of USD 0.99 million for each reservoirs which comes to USD 4.95 million in aggregate. 4.1 The assessee in view of the fact that the University of Texas at Austin, USA was a tax resident of USA and did not had permanent establishment in India applied for an order u/s 195(2) of the Act dated 18-06-2018 to the ITO Int. Tax, to determine the proportion of sums chargeable to tax on which tax is required to be deducted. 5. The ITO Int. Tax observed that the payments to be made to University of Texas at Austin, USA is in the nature of royalties/fees for technical services. Therefore, the AO directed the assessee to deduct the TDS @ 10% (excluding education cess/surcharge) on gross payments to be made to the University of Texas at Austin, USA vide an order dated 19-07-2018. 6. Aggrieved, with the order of the ITO Int. Tax, the assessee filed the appeal before the Ld. CIT-A. The assessee before the Ld. CIT-A submitted that the payments made to the University of Texas ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the non-resident from the appellant under India-USA Double Taxation Avoidance Agreement (DTAA). The authorized representatives of the appellant contended that the receipts of the non-resident from ONGC are not taxable in India under the provisions of India-USA DTAA and, hence, the same were not subject to TDS. 5.2 It was further contended that since there is no transfer of any copyright or patent under the aforesaid agreement, the income of the nonresident is not covered within the definition of royalty under India-USA DTAA and cannot be charged to tax as such. 5.3 As regards the contention that the income of the non-resident is also not taxable as fees for included services under Article 12 of India-USA DTAA, the appellant's argument is based on the premise that as a result of rendering services to ONGC there is no transfer of technology from the nonresident to ONGC and, hence, make available clause appearing in the definition of fees for included services is not satisfied. The extracts of the relevant written submissions are reproduced below Further, since as a result of carrying out seruices of developing chemical EOR formulations, ONGC has not bee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technology from the nonresident to ONGC and, hence, make available clause appearing in the definition of fees for included services is not satisfied, The extracts of the relevant written submissions are reproduced below- Further, since as a result of carrying out services of developing chemical EOR formulations, ONGC has not been enabled to carry out similar services (i.e., developing a suitable chemical EOR formulations! on its own without recourse to the non-resident, no technical knowledge, experience, skill, know-how etc., as envisaged in the, definition of fees for technical service , can be said to have been made available to the appellant . The aforesaid argument is completely misplaced and out of the context. For understanding the meaning and scope of make available phrase appearing in the definition of fees for included services , it is relevant to refer to the Memorandum of Understanding (MoU) dated 15-05-1989 between the Governments of India and USA. The relevant part of the said MoU is as under- Paragraph 4{b) of Article 12 refers to technical or consultancy services! that make. available to the person acquiring the services, technical knowledg ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is being enabled to apply such technology as well as transfer of certain rights to patents technology for commercialization of such patents and technology for benefits of ONGC. Therefore, the income of the nonresidents is covered within the definition of Royalty under India-USA Treaty. Also as per the MOU to India - USA tax treaty transfer of technical plants or technical designs is Make Technology Available for the purpose of Article 12 paragraph 4(b). 5.7 Further, it is seen from the plain reading of the May 15, 1989 U.S. - INDIA TAX TREATY Memorandum of understanding concerning fees for included services in Article 12 Paragraph is as follows: Typical categories of services that generally involve either the development and transfer of technical plants or technical designs, or making technology available as described in paragraph 4(b), 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... atter as the same are distinguishable on the facts of the matter. Accordingly, this ground is dismissed. 6. In the result, appeal of the Appellant is Dismissed. 8. Being aggrieved by the order of the Ld. CIT-A, the assessee is in appeal before us. 9. The Ld. AR for the assessee filed a paper book running from pages 1 to 102 and contended that the payment made by the assessee neither represents against the royalty nor acquisition of any technical knowledge/know-how. Thus the assessee is not liable for the TDS under Article 12 of India-USA DTAA. 10. On the other hand, the Ld. DR strongly relied on the order of authorities below. 11. We have heard the rival contentions of both the parties and perused the materials available on record. The important issue before us relates whether the services rendered by non-resident University of Texas at Austin, USA to carry out research programme for development of suitable chemical Enhanced Oil Recovery (EOR) formulations in collaboration with the assessee is covered under royalties/fees for technical services or not. 11.1 Admittedly, the assesse is engaged in the extraction and production of mineral oil and natural gas. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l in nature. Therefore, it is liable to tax. But this liability arises under the Double Taxation Avoidance Agreement. Section 90 which deals with the Double Taxation relief provides that the provisions of the DTAA override the provisions of the Income-tax Act in the matter of ascertainment of chargeability to Income-tax and ascertainment of total Income-tax. 11.5 Under the Act if the consideration paid for rendering technical services constitutes income by way of fees for technical services, it is taxable. However, Article 12 of the India USA Treaty defines fees for technical services. As per Article 12 of DTAA also fees for technical services means the payment of any amount to any person in consideration for rendering of any technical services only, if such services make available technical knowledge, expertise, skill, know-how or processes. If the technical knowledge expertise, skill, know how or process is not made available by the service provider, who has rendered technical service for the purpose of Article 12 of DTAA it would not constitute fees for technical services. To that extent the definition of fee for technical services found in the agreement is inconsistent with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice provider, it does not follow that he is making use of the technology which the service provider utilizes for rendering technical services. The crux of the matter is after rendering of such technical services by the service provider, whether the recipient is enabled to use the technology which the service provider had used. Therefore, unless the service provider makes available his technical knowledge, experience, skill, know-how or process to the recipient of the technical service, in view of the clauses in the DTAA, the liability to tax is not attracted. 11.7 From the aforesaid discussion it is clear that test is whether the recipient of the service is equipped to carry on his business without reference to the service provider. If he 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. 11.8 It is in this background one has to look at the facts of this case, in order to find out whether the service provider has made available the technical knowledge to the assessee so as to fasten the liability of payment of tax. In this connectio ..... X X X X Extracts X X X X X X X X Extracts X X X X
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