TMI Blog2009 (6) TMI 24X X X X Extracts X X X X X X X X Extracts X X X X ..... u/s 195. - 786 OF 2008 - - - Dated:- 30-6-2009 - Hon'ble Mr. Mr. Justice P.V. Reddi (Chairman), Mr A. Sinha (Member) and Mr. Rao Ranvijay Singh (Member) Present for the Department Mr. Narendra Kumar, Addl. DIT (Intl. Taxation), Bangalore Present for the Applicant Mr. N. Venkatraman, Sr. Advocate RULING (By Mr. A. Sinha ) - This application has been filed under section 245Q(1) of the Income-tax Act, 1961 (the Act) by Cable Wireless Networks India Private Limited. The applicant is a company incorporated in India and is a part of the Cable and Wireless Groups of Companies. It is engaged in the business of providing international long distance and domestic long distance telecommunication services in India. The applicant proposes to enter into an agreement with another group company, namely M/s Cable and Wireless UK (C W UK) with a view to providing end to end international long distance telecommunication services to its Indian customers. C W UK is stated to be a leading international telecom company which has a well established international network. The applicant submits that the Indian customers of the applicant would want to transmit their voice/dat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or not? If the answer is in the negative, would such payments by the Applicant suffer withholding tax under section 195 of the Income Tax Act, 1961, or not, and if yes, at what rate? 3. The applicant has filed a copy of the agreement which it proposes to enter into with C W UK. This agreement is called 'Service and Revenue Share Agreement'. It is stated in the recitals that the parties wish to provide to each other on reciprocal basis national and global telecommunications services. Article 1 of the agreement states that the parties shall provide services to each other through bandwidth connectivity and other similar facilities. The bandwidth service will comprise international leased circuit, managed private leased services, managed private lines, etc. Article 3 requires the parties to interconnect their respective networks at Network Access Points. The expression 'Network Access Points' has been defined to mean physical points at which the networks of the parties are to be connected. As per article 5, the party availing the service shall pay fees to the party providing the service. The payment shall be on mutually agreed revenue share basis, which shall be calculated with ref ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i, which provides telecommunication networking services, designing and maintaining networks, etc. The Commissioner states that the address of its registered office given by the applicant is the same as that of the branch office of the said UK Company. The Commissioner raises doubt that the applicant may take over the functions of this branch office. On the question of technical services, however, the Commissioner concedes that the services in question cannot be regarded as 'technical services' under article 13(4) of the treaty, since no transfer of technology is involved. He further states that the payments made by the applicant to C W UK would be in the nature of royalty, both under section 9(1)(vi) of the Act as well as article 13 of the treaty. According to the jurisdictional Commissioner the services provided by C W UK are not in the nature of standard facility as these use secret process. The applicant thus pays for using secret process. The jurisdictional Commissioner relies on Asia Satellite Communication's case for this proposition. He also submits that as the actual service has not yet started, it cannot be said what equipment will be installed and where and this needs to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices' under the Act or under the treaty. Explanation 2 to para (vii) of section 9(1) defines 'fees for technical services' to mean any consideration paid for rendering any managerial, technical or consultancy services, including provision of services of technical or other personnel. In the present case, in carrying telecom signals from Marseilles to other countries, C W UK is not providing any managerial, technical or consultancy services, nor is it providing the services of its technical or other personnel to the applicant. C W UK performs this part of service itself without the involvement of the applicant. The applicant has thus rightly urged that the fees paid by it to C W UK is not in the nature of fees for technical services under the Act. So far as article 13(4) of DTAA is concerned, the first part of it defines 'technical services' in a manner similar to Explanation 2 to section 9(1)(vii), but it further qualifies this expression in clauses (a), (b) (c). Clause (c) is relevant for the present consideration. This clause requires that the technical service in question should make available technical knowledge, experience, skill, know-how or process, or consist of the develo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill ; (iva) the use or right to use any industrial, commercial or scientific equipment but not including the amounts referred to in section44BB;]" xx xx xx xx xx xx xx xx xx The relevant provisions of Article 13 of the treaty are as under: "ARTICLE 13 -Royalties and fees for technical services - 1. xx xx xx xx xx xx xx xx xx xx (2) However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the law of that State; but if the beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State, the tax so charged shall not exceed : xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx 3. For the purposes of this Article, the term "royalties" means : (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, including cinematography films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aty between India and USA, which is materially similar to the provisions of article 13(3) of the treaty between India and UK. The Authority held - "14. Whether the payment made by the applicant to BTA is in the nature of royalty falling under clause (iii) of Explanation 2 and/or Article 12(3) of the Treaty? 14.1. It is one of the contentions of the Revenue that the applicant makes use of or is conferred with the right to use a 'process' within the meaning of clause (iii) to Explanation (2) to Section 9(1) of the Act. That clause speaks of "the use of any patent, invention, model, design, secret formula or process or trade mark or similar property". It is contended, relying on the decision of ITAT in the case of Asia Satellite Telecommunications Company Ltd. vs. Deputy Commissioner of IT (ITA No.166/DEL/2001* dated 1.11.2002) that the word 'secret' only qualifies the expression 'formula' and cannot be read before the word 'process'. On such interpretation, it is submitted by the Revenue in its comments that the services provided to the applicant are clearly in the nature of a process and not in the nature of standard facility and the applicant has used and has been conferred wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he pleadings and averments of the applicant that C W UK will be providing telecom services to the applicant outside India. The network of the applicant will inter-connect with the network of C W UK at Marseilles in France. Thus the telecom signal will move on the network of the applicant from India to Marseilles. It is beyond Marseilles that the network and equipment of C W UK will be used for transmission of the signal. We also notice from the draft agreement that there is neither any stipulation for provision of any equipment nor payment of any fee for the same. On the basis of the records placed before us, we are of the view that no case is made out to presume that any equipment will be installed by C W UK at the premises of the applicant in India and the applicant will pay for the same. The averment of the Commissioner is based merely on the doubt entertained by him for which he has not shown any basis. The affidavits filed by the applicant after first hearing clarify the factual position in this regard. In the light of the view taken by us, it is not necessary to examine the TAG report. 8.3 The Revenue has thus failed to show how the payments made by the applicant will be r ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
