TMI Blog2022 (7) TMI 1330X X X X Extracts X X X X X X X X Extracts X X X X ..... hat is highlighted is the incidental benefit to the assessee, which is treated as an enduring advantage. As observed in the binding judicial precedents referred to above, in order to invoke make available‟ clause, to fit into the terminology making available , the technical knowledge and skill must remain with the person receiving the services even after the particular contract comes to an end and 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 . Technology will be considered made available when the person acquiring the service is enabled to apply the technology. In our considered view, that condition is not satisfied on the facts of the present case. We, therefore, hold that that make available‟ clause in the Indo-Singapore tax treaty cannot be invoked on the facts of the present case- as no case is even made out by the revenue that as a result of rendition of these services to the Indian entity, there is any transfer of skill or technology. An incidental benefit or enrichment which may add ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment fee received by the Appellant is taxable as fees for technical services (FTS) under Income Tax Act, 1961 (the Act) as well as under India - Singapore Double Tax Avoidance Agreement (DTAA). The Learned Assessing Officer and the Hon'ble DRP failed to appreciate that as the Appellant did not make available any technical knowledge etc to Dimension Data India Private Limited (DD India') the management fee received by the Appellant could not be taxed as FTS under Article 12 of the DTAA. 1.2 On the facts and in the circumstances of the case and in law, learned Assessing Officer and the Hon'ble DRP erred in not following the order of the Hon'ble Mumbai Bench of Income Tax Appellate Tribunal in Appellant's own case for AY 2014-15 wherein after relying on its orders for earlier years, it was held that the management fee was not in the nature of fees for technical services but business profits which could not be taxed in the absence of a permanent establishment. 2. Ground No.2- Inadequate opportunity On the facts and in the circumstances of the case and in law, the Hon'ble DRP learned Assessing Officer erred in passing impugned orders in breach ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the Indian entity, does not amount to making available‟ the services so rendered, in terms of Article 12 of the Indo Singapore tax treaty, it cannot be taxed in India. The Assessing Officer was not impressed with this claim of the assessee, and the Assessing Officer required the assessee to show cause as to why this income not be taxed as fees for technical services under section 9(1) of the Income Tax Act, 1961, as also under Article 12 of the Indo Singapore tax treaty. Elaborate submissions were made by the assessee in support of the contention that as long as the provisions of the IndoSinagpore tax treaty are more favourable to the assessee, the provisions of the Income Tax Act cannot be invoked at all, and that, in terms of the requirements of Article 12(4) of the Indo Singapore tax treaty, the fees for technical services can only be taxed in the source jurisdiction only when, inter alia, these services make available technical knowledge, experience, skill, know-how or process‟. It was then submitted that the connotations of the expression make available‟ are well established in our jurisprudence, and unless the services enable the Indian entity, to underta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... issue. It may also be stated that had the input technology (information concerning technical industrial, commercial or scientific knowledge, experience or skill) been made available or transferred to the recipient, the transaction will take the character of royalty and not Fees for Included Services. What has been made available or transferred by the US firm to the recipient is the output technology by rendering services using its technical knowhow and expertise. 4.10. Technical knowledge, experience, skill, know how or processes is said to be made available to the recipient when it can apply the technical knowledge, experience, skill, know how or processes independently by itself without the aid of the service provider. 5.1. In this case, what has been offered to tax by the DD India Limited is not the question herein. The group policy is of rendering the services for the benefit of the group as a whole. It in no ways substitutes the issue of whether the services rendered should be taxed in India or not. The agreement between the assessee and the DD India Limited clearly shows that a lot of managerial, technical and consultancy services is provided by the assessee. What ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al knowledge, experience, skill, knowhow or processes, remains with the service recipient even after rendering of the services has come to an end. The service recipient is at liberty to use the technical knowledge, experience, skill, knowhow or processes in his own right. Further, in this case, none of the services are in the nature, where for every client or deal, the recipient has to depend on the assessee to finalize the deal or execute the work, but is able to enter into contracts and execute such contracts with the available technical knowledge, experience, skill, knowhow or processes by himself. 5.6. It is also noted from the records, that the DD India Limited has deducted TDS at the rate of 10% on the amount it has paid to the assessee under consideration. The assessee has also claimed the tax credit and refund of the same in the return of income without offering the same in income during the year under consideration. This clearly shows that the AE also regarded the same as income the assessee, and had as such deducted the TDS without applying for lower/Nil deduction certificates. Further, the assessee has reported in the return of income that the Rs.122,20,27,452/- as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IV. Services related to business development and business operation: Provide assistance and support in managing partner/ vendor/ client relationships: a. Assistance in managing rebates with vendors. Providing inputs on the Service Provider's service delivery considering the best practices followed by the group companies; Provide suggested inputs on costing, pricing and commercial terms in relation to Service Recipient's partners and vendors, for the Service Recipient's consideration. V. Legal support for corporate and compliance matters: Provide guidance to the teams of the Service Recipient in their efforts with new client contracts, reseller contracts/ agreements etc; Guidance on handling legal matters including legal compliance, managing intellectual property, managing litigation, general corporate legal matters including but not limited to mergers and acquisition work, dispute resolution (e.g. for HR matters) formulating policies to comply with local laws and ethics training. VI. Services related to finance and accounting: Provide assistance and support in the areas of accounting and finance activities to support corporate operations; Provide inputs in r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect of legal/ corporate compliances and business development, development of solutions, and IT related matters etc. 3.3 A plain reading of the above extract could actually be misconstrued as a description of complete corporate activities and training therein- it is so comprehensive. It is also difficult to comprehend that which of these services do not enrich the service recipient, makes him wiser to face similar challenges in future on his own and acquiring skills to deal with the issues. 3.4 It cannot be the case of the assessee that services rendered by it are in the form of providing a sort of FAQ only. If it was so, no client, in a third party situation, would have agreed to pay such a significant amount (More than Rs.122 core) to it. Similarly, by same logic, it cannot also be the argument of the assessee that problems of similar nature, requiring homogenous solutions alone, would only be referred to it as again that would not warrant such high compensation. 3.5 Consequently, it is clear that the assessee is providing managerial, technical and consultancy services to its AE in India, spanning the entire gamut of corporate management, enriching it with the kn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... article 12(4) of the Indo Singapore tax treaty. The assessee is aggrieved and is in appeal before us. 7. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 8. While on this issue, it will be useful to refer to the following observations made by a coordinate bench, in the case of Shell Global International Solutions BV Vs ITO [(2015) 64 taxmann.com 3 (Ahd)], as follows: 17. 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 v. Guy Carpenter Co Ltd. [2012] 346 ITR 504 and Hon'ble Karnataka High Court in the case of CIT v. De Beers India (P.) Ltd. [2012] 346 ITR 467/208 Taxman 406/21 taxmann.com 214 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 India (P.) Ltd. case (supra), their Lordships posed the question, as to what is meaning of 'make available' , to themselves, and proceeded to d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... alia, held that market study covering study of supply and demand analysis, domestic refining capacity, price forecast etc did not constitute fees for technical services as it did not transmit the technical knowledge. In the case of Ernst Young (P.) Ltd. In re [2010] 189 Taxman 409/323 ITR 184 (AAR), the Authority for Advance Ruling, inter alia, observed that some of the services enumerated have the flavor of managerial services but services of managerial nature are not included in Article 13 (of Indo-UK tax treaty, which is in pari materia with the treaty provision before us) unlike many other treaties . We are in considered agreement with the views so expressed by the Authority for Advance Ruling. On the same lines are various decisions of this Tribunal in the cases of ICICI Bank Limited v. Dy. CIT [2008] 20 SOT 453 (Mum.) and McKinsey Co. Inc v. Asstt. DIT [2006] 99 ITD 549 (Mum.). What essentially follows, therefore, is that as long as the services rendered by the assessee are managerial or consultancy services in nature, which do not involve or transmit the technology, the same cannot be brought to tax as fees for technical services. 9. Clearly, therefore, unless t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... condition about the transfer of skills and absorption of kill by the recipient of service, in our humble understanding, is not satisfied. Once the taxability fails in terms of the treaty provisions, there is no occasion to refer to the provisions of the Income Tax Act, 1961, as in terms of Section 90(2), where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to that assessee . The taxability of impugned receipts, under section 9, is thus wholly academic. We leave it at that. 10. In view of the above discussions, as also bearing in mind the entirety of the case, we uphold the plea of the assessee, and direct the Assessing Officer to exclude the sum of Rs 121,14,85,623 from his taxable income as fees for technical services. The assessee thus gets the relief accordingly. 11. In the result, the appeal is allowed in the terms i ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
