TaxTMI 
TaxTMI 
2007 (10) TMI 452
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....een India and USA were 'made available' to the appellant and thus no tax was required to be deducted under section 195 of the Act." 2. Though the assessee has raised various grounds but they relate to a moot question whether the remittance of US $45,000 towards rating fees to Moody's Investors Service is an income in the hands of the recipient and is assessable to tax in India and whether the assessee is liable to deduct tax under section 195 of the Act on such remittance? 3. The facts in brief borne out from the orders of the authorities below are that the assessee bank had appointed Moody's Investors Service, a credit rating agency for the purpose of ratings its floating rate euronotes issue amounting to US $ 150,00,000. The fees charged by Moody's Investors Service for rendering analytical services in connection with counter party rating of the issue amounted to US $ 45,000. Assessee did not deduct any TDS on this remittance and raised a claim before the Assessing Officer that no withholding of the tax is required to be done for this transaction because of the provisions of section 5 read with section 9 of the Income- tax Act. It was further contended before the Assessing Offi....
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.... the country with which the DTAA exists, tax should be deducted at the rate provided in the Finance Act or the rate provided in the DTAA whichever is beneficial to the assessee. 5. The CIT(A) re-examined the issue but was not convinced with it. Before the CIT(A) reference was also made to the orders of the Tribunal in the case of Raymond Ltd. v. Dy. CIT [2003] 86 ITD 791 (Mum.) in order to explain the scope of the words "fees for technical services". While rejecting the claim of the assessee the CIT(A) has held that the payment received by Moody's falls under the definition of services under article 12(4) and, therefore, tax deduction is to be as per provisions of DTAA in connection with the fee for included services. 6. Being aggrieved with the order of the CIT(A) assessee has preferred an appeal before the Tribunal with the submission that CIT(A) has erred in holding that the payments received by Moody's falls under the definition of included services under article 12(4) of the DTAA with the USA and, therefore, tax deduction is to be done as per provisions of DTAA in connection with the fee for included services. 7. During the course of hearing the learned counsel for the asse....
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....e made available to the assessee for its use and as such the payment made for it certainly falls within the definition of fees for included services as per article 12 of the DTAA. 10. Having heard the rival submissions and from a careful perusal of record we find that undisputedly Moody's were not carrying on any business or profession in India and they do not have even a permanent establishment in India. Whatever commercial information were gathered, it was collected by use of technical expertise outside India and the commercial information were provided to the assessee. Now the moot question raised before us is whether the remittance of US $ 45,000 for such service of providing commercial information by Moody's amounts to a 'fee for included services' defined in article 12 of the DTAA with USA? Since the Moody's do not carry on any business or profession in India nor did they have any permanent establishment in India, the business profits earned by them is not assessable to tax in India. Meaning thereby for taxing this remittance provisions of article 12 can only be invoked if remittance made by the assessee company falls within the definition of 'fees for included services'. To....
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....included services in article 12 issue on 15-5-1989 through Notification No. 8786 available at page Nos. 18 to 24 of the compilation. According to this Memorandum of Understanding article 12 includes only certain technical consultancy services. Technical service is defined to be services requiring expertise in a technology. Likewise consultancy service is in the context of advisory service. Categories of technical and consultancy services are to some extent overlapping because consultancy service can also be technical service. However, the category of consultancy service also includes advisory service, whether or not expertise in technology is required to perform it. Under paragraph 4, technical and consultancy services are considered to be included services only to some extent. For the sake of reference we extract the relevant portion of the MOU to understand as to what type of payment can be called to be fees for included services :- "Article 12 includes only certain technical and consultancy services. By technical services, we mean in this context services requiring expertise in a technology. By consultancy services, we mean in this context advisory services. The categories of t....
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....o include an agent, nominee, or transferee of such person.) This category is narrower than the category 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." 13. In this Memorandum of Understanding, various examples are given to understand as to under what circumstances the fees paid can be called to be fees for included services. For reference we extract example 7 which is akin to the fact of the instant case, as under :- "Example (7): Facts: The Indian vegetable oil manufacturing firm has mastered the science of producing cholesterol-free oil and wishes to market the product w....
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....managers of a foreign company in connection with GDR issue of the assessee company are managerial or consultancy service and falls within the definition of technical services under section 9(1)(vii) read with Explanation 2 thereto, said payments do not fall within the definition of fees for technical services under article 13.4(c) of the DTAA with UK which is applicable to the facts of the case and were not taxable in India. Consequently assessee-company was not liable to deduct tax from the payment and cannot be treated as an assessee in default under section 201. 16. Similar was the position in other cases referred to by the assessee. In the case of McKinsey & Co. Inc. (Phillippines) (supra) the Tribunal has discussed the words "make available" in detail in the light of various orders of the Tribunal. In this case also geographical specific data and information inputs were supplied by assessee company, a resident of US, to the Indian branch of Group companies which was considered to be in the nature of commercial and industrial information and, therefore, the consideration received for supply of information was not to be treated as fees for included services and is not to be tax....