TMI Blog2003 (4) TMI 223X X X X Extracts X X X X X X X X Extracts X X X X ..... s. 201(1) and 201(1A) of the Act whereby he held that the appellant-company had committed a default in not deducting tax at source in terms of s. 195 of the Act in respect of payments to companies such as AT T, Worldcome, Singtel and BT. etc., for downlinking and transmitting the data to the appellants customers located outside India in course of appellant's business of export of services and provision of services outside Inida. In this regard the payment made by the company amounting to US $ 18,52,117.45 for asst. yr. 1999-2000, US $ 8,12,071.05 for asst. yr. 2000-2001 and GBP 77,664.16 and US $ US $ 4,996.16 for asst. yr. 2001-02. On this basis the income-tax liability for TDS and interest for various years was worked out and levied as under: Asst. yr. 1999-2000 2000-2001 2001-2002 Rs. Rs. Rs. Amount paid 7,87,14,992 3,57,57,076 1,68,83,487 Grossed up under s. 195A 9,26,05,872 4,20,67,148 1,98,62,925 Tax on the same @ 15% 1,38,90,880 63,10,072 29,79,438 Add interest under s. 201(1A) 63,89,800 18,93,021 3,12,849 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tside India are all similar and are largely standard offering to any willing user. Insofar the telecom facility provided by VSNL, there is no tax dispute at all as the same is regarded as a utility service and there is no issue on this. However, the same facility provided by the foreign telecom companies outside India is treated by the AO as provision of technical services within the meaning of s. 9(1)(vii) of the IT Act. 3.3. Before dealing with the issue, we have perused certain agreements and invoices and peculiarities of the transactions. The appellant has entered into separate agreements with VSNL/STPI, AT T, World Com, etc. for each CBC. These agencies raise separate invoice for each CBC. With service providers such as AT T and Worldcom the agreement is standard and universal and discounted rates are offered with reference to standard tariff rates. Worldcom raises separate invoice for each CBC. AT T raises consolidated invoice for all CBCs. British Telcom facilitates the communication links to UK customers. They have a fixed tariff table depending on the capacity. 3.4. General Electric of USA (GE) is one of the largest customer of the appellant and as per the agreement wi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services within the scope of s. 9(1)(vii) of the Act. 2. Whether DTAA between India and USA in particular art. 12(4) would render such services taxable in India. 3. Whether the payment for above service could be regarded as royalties within the scope of s. 9(1)(vi) of the Act. 4. Having regard to the facts and circumstances can it be said that the services were utilised by the appellant-company in a business carried on outside India so as to qualify the exception provided under cl. (b) of s. 9(1)(vii) of the Act. 5. Whether any liability for tax arises in India under s. 195 of the IT Act. Each of the above issues are discussed separately and findings are recorded. 5.1. Whether provision of customer based circuits by the foreign companies' amounts to provision of technical services within the scope of s. 9(1)(vii) of the Act. 5.2. Sri K.R. Pradeep appearing for the appellant submitted that first of all the services utilised by the appellant-company and provided by the telecom companies are standard service offered to any one who is willing to pay. While offering such utility service there is no transfer of technology or technical service nor there any requirement for s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ambit consideration paid for construction, assembly, or mining or like project undertaken by the recipient, as also consideration which would constitute income of the recipient chargeable under the head 'Salaries'. Thus, while stating that 'technical service' would include managerial and consultancy services, the legislature has not set out with precision as to what would constitute 'technical' service to render it 'technical service'. Having regard to the fact that the term is required to be understood in the context in which it is used. 'Fees for technical services' could only be meant to cover such things technical as are capable of being provided by way of service for a fee. The popular meaning associated with 'technical' is 'involving or concerning applied and industrial science'. 'Technical service' referred in s. 9(1) contemplates rendering of a 'service' to the payer of the fee. Mere collection of a fee for use of a standard facility provided to all those willing to pay for it does not amount to the fee having been received for technical services. When a person decides to subscribe to cellular telephone service in order to have the facility of being able to communicate with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e actual user and the other the provider. In contrast the facts in the present case under consideration operate in different field in which the operation starts by uplinking the signals from the earth stations by the TV channels to the assessee in satellite and then after undergoing various processes in the satellite, as noted above, the signals are downliked so as to be made available to the cable operators who in turn provide these to the public. In the chain before us, first is the relation between the TV channels and the assessee, second is the relation between assessee and the cable operators and the third between cable operator and public. In the light of the difference between the use of 'facility' and 'process' as noted above, we find that the relation between the cable operators and the public is that of use of 'facility', whereas the first relation between the TV channels and the assessee is for the use of the 'process' as a result of which the programme uplinked by TV channels become fit for being relayed. The decision of the Hon'ble Madras High Court is in the context of the third relation in the context of our facts namely, the cable operators and the public. It was ex ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on from electrical signal to light signals and vice versa. The satellite technology is very sophisticated and all these services are utilised in proceeding the bandwidth to the appellant. Further, the appellant when offered with the bandwidth are also imparted with the knowledge in such bandwidth environment. Operating procedures are circulated to enable seamless utilisation of services. Such exposure to the technical environment would definitely mean offering of technical services. The comparison to the standard telephone is too simplistic to rely on. There are support services rendered by the telecom companies such as packet loss measurement, round trip delay measurement and measurement of service outage credits. Though these services amounts to technical services in nature, the invoices given by foreign telecom companies do not speak of rendering of technical services. These invoices and other contracts conceal the nature of services actually rendered to the appellant. The invoice and contract on the face of it are standard in nature and are given to all the users which gives a picture that it is a standard telecom facility offered to anyone willing to pay. However, the situatio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s payable by: (a) the Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India: Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government; Explanation 1.: For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposal approved by the Central Government before that date. Explanation 2.: For the purposes of this clause 'fees for technical services' means any consideration (including any lump sum consideration) for the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tilisation of telecom services. We find no document which evidences that the appellant was provided with any technology or technical services for encapsulation or amplification or conversion of light signal into magnetic signal or vice versa or any evidence for hiring or utilisation of satellite by the appellant. The Department is clearly confused on the nature of services rendered by the telecom companies to the appellant. Hence, we find no evidence to support any rendering of technical services to the appellant. The fact that the telephone service provider has installed sophisticated equipment in the exchange to ensure quality connectivity to its subscriber does not on that score make it as provision of technical service to the subscriber. The Hon'ble Madras High Court in the Skycells' decision has held that what applies to cellular mobile services is also applicable in fixed telephone service. Hence, the decision applies to the present case. Further, it is an undisputed fact that while uplinking the data from customers premises in India, VSNL offers similar services to the appellant. Such service is not regard as technical services under s. 9(1)(vii) so as to attract the TDS pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... been made available. Further, in the MOU between India and USA various examples are given explaining the scope of technical services. Example (4) therein explained as under: Example (4): Facts: A US manufacturer operates a wallboard fabrication plant outside India. An India builder hires the US company to produce wall board at that plant for a fee. The Indian company provides the raw materials and the US manufacturer fabricates the wallboard in its plant, using advanced technology. Are the fees in this example payments for included services? Analysis: The fees would not be for included services. Although the US company is clearly performing a technical service, no technical knowledge, skill, etc., are made available to the Indian company, nor is there any development and transfer of a technical plan or design. The US company is merely performing a contract manufacturing service. Perusal of Art. 12(4) clearly establishes a rule that unless the services are made available, this article would not apply. In this case factually it is clear that no technical services have been rendered to the appellant. The facts and analysis contained in the memorandum to the DTAA particula ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tate legislature, the Parliament alone has, notwithstanding Art. 246(3), the power to make laws to implement the treaty, agreement or convention or any decision made at any international conference, association or other body. In terms, the article deals with legislative power, thereby power is conferred upon the Parliament which it may not otherwise possess. But it does not seek to circumscribe the extent of the power conferred by Art. 73. If, in consequence of the exercise of executive power, rights of the citizens, or others are restricted or infringed, or law are modified, the exercise of power must be supported by legislation; where there is no such restriction, infringement of the right or modification of laws, the executive is competent to exercise the power." Mr. Amitabh Kumar further made a reference to consultation paper on Treaty Making Power Under Our Constitution by National Commission to Review. The Working of the Constitution and on various aspects of Constitutional law on the executive power to enter into treaties and its binding nature on the people of the country. The learned Departmental Representative argued that the treaty and the memorandum mentioned supra ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... far as services are rendered in other countries other than these two countries. To that extent the order suffers from incorrect application of DTAA provisions. Insofar as applicability of art. 12(4) it is clear from facts in Example No. 4 and the analysis to it in the memorandum, unless the technical service or a process is made available the article would not apply. In this case we have already given a finding that no technical service or process has been made available to the appellant. Hence, this article does not apply to this case. Accordingly, we hold that there is no liability against the appellant under DTAA between India and USA. We are also in agreement with the authorised representative that validity of treaty is not in question. Hence, there is no need to deal with the decision of the Supreme Court in AIR 1969 (SC) 783 or other related discussion. 7.1. Whether the payment for above service could be regarded as royalties within the scope of s. 9(1)(vi) of the Act. 7.2. This question was not raised by the appellant but was raised by the learned Departmental Representative while giving a reply. The authorities below have not raised any liability against the appellan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ny process or technical service from the telecom companies. What it has received is only a standard telecom service made available to anyone willing to pay. The appellant even after the use of the standard service is not aware of any process involved in rendering of such service. On other points and applicability of the decision of Tribunal Delhi 'C' Bench, the arguments against the liability under s. 9(1)(vii) was reiterated. 7.4. We have gone through the arguments. On merits, factually no process has been made available to the appellant, hence, applicability of s. 9(1)(vi) does not arise. Even the decision of the Delhi Tribunal is clear on this issue as mentioned in our findings above. Departmental Representative's extensive reference to the Tribunal decision is not extracted in detail as ex facie we find the decision of the Tribunal supports the contention of the appellant and as much as mentioned by the Tribunal in para 6.24, the case before the Delhi Bench was between the satellite company and the cable operator and whereas in this case it is between the telecom operator and the customer [third type of relation which the Tribunal says is covered by the decision of the Skycel ..... X X X X Extracts X X X X X X X X Extracts X X X X
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