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TMI Blog2022 (11) TMI 1342X X X X Extracts X X X X X X X X Extracts X X X X ..... directions issued by the Hon'ble Dispute Resolution Panel-3, Mumbai (hereinafter referred to as 'Hon'ble DRP'), dated 25 April 2022. The following grounds of appeal are independent of and without prejudice to one another. 1. Income from providing Information Technology (IT") Support Services and Management Services considered taxable as Fees from Technical Services ('FTS') 1.1 The Hon'ble DRP I Ld. AO has erred on facts & in law in treating the receipts from IT Support services and Management Services taxable as FTS" as per the provisions of Section 9(1)(vii) of the Act and as well as Double Taxation Avoidance Agreement ('DTAA') between India and France especially not considering the 'make available' clause in light of beneficial provisions of lndia-France tax DT AA read with India- UK DTAA. 2. Income from providing IT Support Services and Management Services considered taxable as Royalty 2.1 The Hon'ble DRP / Ld. AO has erred on facts and in law in treating the receipts from IT Support services and Management Services taxable as 'Royalty' as per the provisions of Section 9(1)(vi) of the Act and the provisions ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... mbled' and using such information, the personnel of the AE had actually performed these functions. Accordingly, it is inferred that that the payments received by the assessee from its AE in terms of the Services Agreement are covered by the definition of "Royalty" under Article 13(3) of the India-France DT AA. 4.1.5 The Global Information Support Services provided by the assessee to its AE in India include IT Support services, the description of which has been given in paragraphs 1.8 and 1.9 of the Services Agreement, which have been reproduced hereinabove. In para 1.8, it has been stated that the service provider (the assessee) coordinates the Information System actions and/or the execution of specific projects which are borne at a central level. In para 1.9, it has been stated that the service provided assists the company (the AE) in the computerisation of systems office automation and utilisation of personal computers adapted to the company and the Faurecia Automotive Holding. It helps the company to choose the equipment (software, hardware, networks). It also assists the company in the implementation of systems. The company might request help from the service. X x x x ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yet to attain finality by way of confirmation by the Hoh'ble Supreme Court. 4.3.17 In the light of the discussion in the preceding paragraphs, it is clear that the respective definition of 'Fees for technical services' INDIA-UK-DTTA cannot be imported to the INDIA-FRANCE-DTTA . In view of the above discussion, provisions of Income-tax Act, INDIA-FRANCE-DTTA and the absence of crucial details evidences from the assessee, receipts of Rs. 48,32,25,471/- will be chargeable to tax as 'Fees for Technical Services' under Article 13 of the INDIAFRANCE-DTAA" 3. The ld. D.R.P has discussed this issue at para 5.1 onwards of their findings. That, on their analyses and discussion which is on record, the ld. D.R.P has upheld the findings of the ld. A.O to bring the I.T. support services and management services fees to be taxed in the hands of the assessee as FTS/Royalty. 4. At the time of hearing, the ld. A.R of the assessee submitted that this issue has been consistently held in favour of the assessee by Pune Tribunal starting from A.Y. 2011-12 in ITA No. 784/PUNB/2015 in assessee's own case, order dated 08-07-2019, which was followed also and relief provided to the assessee by Pune Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, the same did not fall within the meaning of "Fees for technical services" under Article 13 of the DTAA with France read with para 7 of the Protocol. The assessee made further detailed submissions which have been incorporated in the impugned order. The AO analyzed the nature of services rendered by the assessee to Faurecia India. Considering retrospectively inserted Explanation below section 9(2) of the Act and clause (iv) of Explanation 2 to section 9(1)(vi), the AO opined that the amount received by the assessee was in the nature of Royalty. He further held that the amount received by the assessee was also `Fees for technical services' as per Explanation 2 to section 9(1)(vii) of the Act. The DRP did not interfere with the impugned order which has brought the assessee before the Tribunal. 8. Having heard the rival submissions and perused the relevant material on record, we consider it expedient to, first, discuss the nature of services rendered by the assessee to Faurecia India in terms of Services Agreement dated 3.1.2011, pursuant to which the services were rendered to the Indian entity. A copy of such Agreement has been placed at page176 onwards of the paper book. Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e provider assists the Company in the organization of accounting systems and in the implementation of procedures in compliance with the FCP standards. This assistance includes up-to-date costing accounting, inventories management systems, forecasting procedures etc..... This service also includes assistance for all tax matters related to the Company's business whether in the ordinary course of business, domestic, foreign ventures, or in specific projects such as investments, acquisitions or reorganizations, etc.' Narration of the above service indicates that the assessee is in full charge of the accounting, controlling and tax matters of Faurecia India, which also emerges from clause 1.7 of the Exhibit, which states that: "This department assists the Company with all legal matters (e.g. company law, commercial law, civil law or anti-trust law).' Then the next service is `Human resources' under which the assessee provides: "assistance to the Company in the staff management. It assists the Company in personnel evaluation, job descriptions, salary packages and pension schemes tailored for Faurecia Interior Systems. It also assists in the monitoring of the career management and success ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o the Company and the Faurecia Interior Systems. It helps the Company to choose the equipment (software, hardware, networks). It also assists the Company in the implementation of systems. The Company might request help from the service provider to design tailored programs. This service neither includes the licensing, nor the sale of software, nor computer programs. The services provided by the service provider fall into three categories: Operations, Technical support and Studies.' Then there is a detailed amplification of such services under the above three heads, as submitted before the AO, which is as under :- "a. Operations - FAH helps the Indian entity to run the IT operations, which includes the organization, management of the IT Infrastructure and of the applications available on IT Infrastructure, upgrade of current applications from project phase to delivery production. b. Technical Support - FAH provides local IT support to users on site to order, change or upgrade PC or local applications and infrastructure issues, core competence centres for dedicated applications and c. Studies - This includes studies undertaken to adapt information system to meet user's need i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scientific knowledge etc. Rather, it refers to imparting of information regarding some technical, industrial, commercial or scientific "knowledge, experience or skill". When we read the word `imparting' in the beginning of the provision in conjunction with "knowledge, experience, or skill" at the end of the provision, it becomes crystal clear that the same refers to providing some technical, industrial or commercial knowhow etc. to be used by the recipient and not consuming it as such as a service received. 15.2. At this stage, it is imperative to appreciate that we are dealing with the definition of the term `Royalty', which is primarily a consideration for use of intellectual properties, such as, patent, model or invention etc. or technical, industrial or scientific knowledge or specified types of industrial or commercial equipments etc. Placement of clause (iv) in the Explanation 2, which is a part of income by way of `Royalty', itself implies that the consideration referred to herein is for use of some right, property or information concerning technical, industrial or commercial knowledge etc. and not a mere rendering of services involving some technical expertise etc.. In ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r subsection (1) for granting relief of tax or for 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'. Crux of sub-section (2) is that where a DTAA has been entered into with another country, then the provisions of the Act shall apply only if they are more beneficial to the assessee. In simple words, if there is a conflict between the provisions under the Act and the DTAA, the assessee will be subjected to the more beneficial provision out of the two. If the provision of the Act on a particular issue is more beneficial to the assessee vis-a-vis that in the DTAA, then such provision of the Act shall apply and vice versa. The Hon'ble Supreme Court in the case of CIT v. P.V.A.L. Kulandagan Chettiar (2004) 267 ITR 654 (SC) has held that the provisions of sections 4 and 5 are subject to the contrary provision, if any, in DTAA. Such provisions of a DTAA shall prevail over the Act and work as an exception to or modification of sections 4 and 5. Similar view has been taken by the Hon'ble jurisdictional High Court in CIT v. Siemens Aktiongesellsch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s Convention, with effect from the date on which the present Convention or the relevant Indian Convention, Agreement or Protocol enters into force, whichever enters into force later.' 18.4. A careful circumspection of para 7 of the Protocol indicates that the same contains a Most Favoured Nation (MFN) clause, as per which, if India enters into a DTAA after 01-09-1989 with a third state which is a member of the OECD and the rate of taxation or scope of fees for technical services etc. under such other DTAA with a third state is narrower than para 4 of Article 13 of the DTAA with France, then such lower rate or restricted scope shall apply under the DTAA with France. Net effect of the MFN clause in the present context is that if India has entered into a DTAA with a third state which is a member of the OECD and the scope of the term "Fees for technical services" under such DTAA with a third state is limited vis-à-vis its scope given in the DTAA with France, then such limited scope as per the DTAA with the third state shall stand substituted in place of para 4 of Article 13 of DTAA with France. 18.5. In this connection, it is seen that India entered into a DTAA with the UK ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing two things emerge on going through the ambit of "Fees for technical services" under Article 13(4)(c) of the DTAA with the UK. First is that unlike Article 13(4) of DTAA with France defining "Fees for technical services" as "consideration for services of managerial, technical or consultancy nature", Article 13(4) of the UK DTAA defines "Fees for technical services" as payment for rendering of only `technical or consultancy services'. The term `managerial' is missing in so far as the scope of "Fees for technical services" under the DTAA with the UK is concerned. The second departure in the DTAA with the UK from the DTAA with France is that the `scope' of technical or consultancy services in the DTAA with the UK has been restricted to `make available' any technical knowledge, experience, skill, knowhow or processes etc. In fact, the reason for omission of the word `managerial' from the definition of the expression `fees for technical services' in the DTAA with the UK is comprehensible. It is so because the clause refers to making available the services. Unlike technical or consultancy services, managerial services cannot be made available for use in future. This appears to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h the above interpretation, it becomes palpable that in order to `make available' technical services, it is sine qua non that the payer of the services must acquire such technical know-how etc. which he can himself use in future without any assistance of the provider and the same is not any such act or service which vanishes or disappears on its provision by the payee itself. 18.10. When we advert to the nature of the Technical services rendered by the assessee, it gets axiomatic that no technical knowledge was made available by the assessee to Faurecia India for its use thereafter. Rather, it is a case of providing a service involving technical knowledge, which got consumed with its provision itself. Since such services simply involve use of technical knowledge and do not result into handing over some technical knowhow to Faurecia India, the same, in our considered opinion, cannot be termed as "Fees for technical services" under the DTAA. 18.11. Thus, it is overt that the total amount received by the assessee for rendition of services to Faurecia India, which is a mixed bag of Managerial and Technical services, does not eventually make available any technical knowledge, expe ..... X X X X Extracts X X X X X X X X Extracts X X X X
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