TMI Blog2023 (1) TMI 42X X X X Extracts X X X X X X X X Extracts X X X X ..... considered to be of enduring advantage. In order to invoke make available clauses, 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. As relying on GUY CARPENTER CO. LTD. [ 2012 (5) TMI 31 - DELHI HIGH COURT] and DE BEERS INDIA MINERALS (P.) LTD. [ 2012 (5) TMI 191 - KARNATAKA HIGH COURT] we are of the considered view that the service recipient of the assessee is unable to make use of the said technology only by itself in its business or for its own benefit without recourse to the assessee year after year. We find that the Assessing Officer has referred to various decision which are based upon the decision of the Authority for Advance Rulings in the case of Perfetti Van Melle Holding B.V. [ 2011 (12) TMI 17 - AUTHORITY FOR ADVANCE RULINGS] which has subsequently been reversed by the Hon'ble High Court of Delhi [ 2015 (1) TMI 239 - DELHI HIGH COURT] and hence is no l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s. Such services were rendered pursuant to the General Services and Cost Allocation Agreement entered into between the members of the Bio-Rad Group. 6. In both the years under consideration, the Assessing Officer concluded by holding that the services in the nature of managerial services provided by the assessee to its Indian AE and such technical knowledge, experience, skill, know-how etc. were made available by the assessee to the Indian affiliate and, therefore, they are in the nature of FTS being taxable @ 10% under the provisions of the DTAA. 7. Objections were raised before the DRP but were of no avail and in line with the DRP directions. 8. Before us, the ld. counsel for the assessee vehemently stated that the assessee had rendered information technology and certain other administrative services to its Indian affiliate pursuant to the Service Agreement. The ld. counsel for the assessee submitted that the Bio-Rad Group operates globally and has a number of manufacturing and trading companies in various countries and in order to provide certain general administrative services to the group and its affiliates, it has set up two tier service level companies (a) a company ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, sell or support the products. 15. The description of the services are as under: 1. Information Technology Services. Services related to the provision of information technology, including without limitation the provision of networks. nelpdesk, information technology education; data center operations; assessment of computer and other automated data processing system requirements, their acquisition, and the proper functioning of such systems; and other information technology services. 2. Marketing Services. Services related to sales of products, including without limitation the provision of warranty, and non-warranty service, assistance with the development of local business plans, sales promotion planning, providing sales promotion materials, package design, advice concerning advertising production costs, and advertising research. 3. Finance and Accounting Services. Services related to finance and accounting, including without limitation the provision of business management systems; assistance in creating procedures and policies for accounting purposes; assistance in budgeting, financial forecasting and planning, general accounting, cost control and other si ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ative and other services snail include any services not otherwise specified in this Agreement. 16. Article 12(4) of the DTAA reads as under: 4. Fees for included services as used in this Article means payments of any kind to any person in consideration for rendering of any technical or consultancy services (including through the provision of such services of technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill knowhow or processes, which enables the person acquiring the services to apply the technology contained therein; Notwithstanding paragraph 4, fees for included services does not include amounts paid : (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in paragraph 3(a); (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the oper ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ry described in paragraph 4(a) because it excludes any service that does not make technology available to the person acquiring the service. 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. 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 bioengineering and aeronautical, agricultural, ceramics, chemical, civil, electrical, mechanical, metallurgical, and industrial engineering) ; 2. Architectural services; and 3. Computer software development Under paragraph 4(b), technica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmulas. Are the fees paid by the Indian company for included services ? Analysis: The fees are for included services. The services are technical, and the technical knowledge is made available to the Indian company. Facts :An Indian firm owns inventory control software for use in its chain of retail outlets throughout India. It expands its sales operation by employing a team of travelling salesmen to travel. In view of the above position the provision of services by the assessee to its affiliate in India are in the nature of FIS under India-US DTAA and are liable to taxation in India 19. We find that the Hon'ble High Court of Kerala in the case of US Technology Resources Pvt Ltd 407 ITR 327 had the occasion to consider the fees for included services as defined under clause (iv) of Article 12 as per the DTAA. The relevant findings read as under: 11. The fees for included services is defined under Clause 4 of Article 12 as per the DTAA, which is extracted hereunder: '4. For purposes of this article, fees for included services means payments of any kind to any person ir consideration for the rendering of any technical or consulta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s is related to the application or enjoyment would be determined by reference to the facts and circumstances of each case. Paragraph 4(b) was agreed to be narrower than the category described in paragraph 4(a), since it excludes any service that does not make technology available to the person acquiring this service. Technology would be considered to be 'made available' only when the person acquiring the service is enabled to apply the technology. So there should clearly be a transfer of technology with the transferee applying it to its business. The mere fact that the provision of a service may require technical input by the service provider does not per se mean that the technical knowledge, skills, etc. are made available to the person availing such services. 14. The typical category of services were also specifically referred to as: 1. engineering services (including the sub-categories of bioengineering 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 consulta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case of De Beers India Minerals (P.) Ltd. (supra), where the non-resident hailed from Netherlands. However, on facts we are of the opinion that when the definition clause in DTAA read along with the MOU specifically refers to transfer of technologies, the facts as available in the Karnataka decision are more similar to the present facts. Herein also there is no technology transfer; nor is there a plan or strategy relating to management, finance, legal, public relations or risk management transferred to the appellant. The services promised by the non-resident Company is only advise on such aspects as are specifically referred to in the agreement. The non-resident Company only assists the Indian Company in making the correct decisions on such aspects as is specifically referred to in the agreement, as and when such advise is required. There is no transfer of technology or knowhow, even on managerial, financial, legal or risk management aspects; which would be available for the Indian Company to be applied without the hands-on advise offered by the US Company. The advise offered on such aspects would have to be on a factual basis with respect to the problems arising at various points ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ts of India and USA have not been correctly carried out by the Tribunal. We, hence, set aside the orders of the lower authorities answering the questions of law (iii) and (iv) against the Revenue and in favour of the assessee. In view of the answers already given by us, we are of the opinion that questions of law raised at (v) and (vi) need not be answered. In I.T.A.No.38 of 2014, the orders are set aside and the AO is directed to consider the claim of expenditure afresh without looking at the application of Section 195(1), which is not applicable. There is no requirement, as found by us, to deduct tax at source. In all the other appeals, the proceedings under Section 201 of the IT Act are set aside. 20. All the contentions raised by the ld. DR have been answered by the Hon'ble High Court of Kerala High Court [supra] and, therefore, need no explanation. Global Service Agreement is effective from 01.01.2009 and we are in Assessment Years 2018-19 and 2019-120. In our considered opinion, if the assessee had enabled the service recipient to apply the technology on its own, then why would the service recipient require such service year after year every year since 2009? 21. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. It has been pointed out that the originating insurer in India would contact J.B. Bodal M.B. Boda for placing identified risks/ class of risks with international reinsurers. J.B. Boda, in turn, would contact one or more international firm(s) of reinsurance broker(s) like the assessee for competitive proposals from the international reinsurer. Then, the international reinsurance brokers like the assessee would contact other primary brokers and various syndicates in the Lloyds market for competitive proposals. Based on the various offers or proposals given by the international reinsurance brokers, like the assessee, to J.B. Boda, the latter would present various options to the originating insurer in India, which would take a final decision in the matter. Based on the decision of the originating insurer in India, the policy terms would then be agreed upon and the risk would be placed with the international reinsurer. It was also pointed out that as per the normal industry practice, the reinsurance premium net of brokerage of 10% as per the policy contract is remitted to the assessee, i.e., reinsurance brokers, for onward transmission to international reinsurers. The intermediation f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ice to make use of the said technology. The tax is not dependent on the use of the technology by the recipient. The recipient after receiving of technology may use may not use the technology. It has no bearing on the taxability aspect is concerned. When the technical service is provided, that technical service is to be made use of by the recipient of the service in further conduct of his business. Merely because his business is dependent on the technical service which he receives from the service 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, knowhow or process to the recipient of the technical service, in view of the clauses in the DTAA, the liability to tax is not attracted. From the aforesaid discussion it is clear that test is whether the recipient of the service is equipped to carry on his business w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee is unable to make use of the said technology only by itself in its business or for its own benefit without recourse to the assessee year after year. 27. The Revenue has relied upon the decision in the case of Shell India Markets (P.) Ltd.(342 ITR 223. This decision was also used in the case of Linklaters LLP vs Deputy Commissioner of Income-tax [2017] 79 taxmann.com 12 and while deciding the appeal of Linklaters LLP(supra), the co-ordinate bench at Mumbai has observed as under: 14 Similarly reliance placed by AO on another judgement of AAR in the case of Perfetti Ben case (supra) is misconceived since this ruling has been set aside by Hon'ble Delhi High Court in the judgement reported at 52 Taxmann.com 161. Similarly, reliance on the judgement of Shell India Markets (P.) Ltd., In re [2012] 342 ITR 223/205 Taxman288/l8 taxmann.com 46 (AAR - New Delhi) is also of no use since in this case also earlier ruling in the case of Perfetti was followed which has been set aside by Hon'ble Delhi High Court. Thus, impliedly, the said judgment gets overruled by the judgement of Hon'ble Delhi High Court. Similarly, decision in Dy. DIT (IT) v. Tata Iron Steel Co Lt ..... X X X X Extracts X X X X X X X X Extracts X X X X
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