TaxTMI 
TaxTMI 
2009 (8) TMI 973
X X X X Extracts X X X X
X X X X Extracts X X X X
.... in holding that the appellant is liable to deduct tax at source under section 195(1) of the Income-tax Act from the payments made to Sun Microsystems Pte Ltd., Singapore. (iii) That the appellant denies its liability to deduct tax at source on the payments made to Sun Microsystems Pte Ltd., Singapore in terms of the logistics services agreement with the said company. (iv) That on the facts and in the circumstances of the case, the learned Commissioner of Income-tax (Appeals) has erred in concluding that the nature of services rendered by Sun Microsystems Pte Ltd., Singapore, are such that it makes available technical knowledge, experience, skill, know-how and processes to the appellant and also enables it to apply the technology contained therein." 3. The assessee filed an appeal before the learned Commissioner of Income-tax (Appeals) under section 248 of the Income-tax Act. The appeal is filed under section 248 when the assessee denies its liability to deduct tax at source. However, such appeal can be filed after deducting tax at source and depositing the same. The learned Commissioner of Income-tax (Appeals) while disposing of this appeal has followed his or....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e the appellant to apply the same on its own in the future. It was pointed out that the said agreement is still in force. Had the appellant absorbed the technical knowledge and expertise from Sun Singapore then it would have enabled it to perform such functions on its own. In the instant case, both the appellant and the associated company are engaged in marketing and trading of products of a group company and in performing related services. The terms of the agreement provide for making available : (i) inventory physical movement and control processes (clause a), (ii) applications and tools to enable inventory transaction and management reporting (clause b), and (iii) business planning to address service levels relevant to the local business and customer needs (clause 9). 5. The assessee is also getting the following services from Sun Singapore : (a) spares planning services, (b) defective repair services, (c) technical consultation and supply chain management, (d) distribution, management and logistics services. From the above, the learned Commissioner of Income-tax (Appeals) concluded that such services are techn....
X X X X Extracts X X X X
X X X X Extracts X X X X
....arketing support services; and (c) Enterprise services which provides knowledge services, support services including annual maintenance and warranty services and professional services. 7. The software development and marketing services are provided to its associated enterprises. The appellant entered into a logistics services agreement dated July 1, 1998 with Sun Microsystems Pte Ltd., Singapore (Sun Singapore). In terms of the agreement, Sun Singapore is required to provide distribution management and logistics services to Sun India. Such services include providing spare management services, provision of buffer stock, defective repair services, managing local repair centres, business planning to address service levels, etc. The learned authorised representative drew our attention to letter dated October 18, 2007, from Sun Microsystems Pte Ltd. to Sun India, copy of which is available at pages 8 and 9 of the paper book filed on August 6, 2008. In this letter, Sun Microsystems Pte Ltd. has clarified the query of the appellant regarding the nature of services rendered for the Asia Logistic Centre charges debited to Sun India by Sun Singapore. It was also confirmed that th....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ned authorised representative further submitted that since the payments were made to an associated concern, therefore, taxpayer profile was filed during the course of transfer pricing assessment. Sun Singapore is not having any place of business or permanent establishment in India. The entire services were rendered by Sun Singapore from outside India. The Sun Singapore is not engaged in the business of providing logistics services in India. 9. The Additional Director, transfer pricing in the tax payer profile has stated that Sun Microsystems Pte Ltd., Singapore is the Asian Headquarters for procurement and redistribution of spares. Sun India avails of the services of Sun Singapore for which a service fee is paid. The learned authorised representative drew our attention to page 24 of the paper book filed on August 6, 2008 in which the Additional Director, Transfer Pricing has observed that profit split method is appropriate in the instant case because the case does not involve either the transfer of unique intangible or multiple inseparable international transactions. Fees for technical services are considered to mean as payment of any kind to any person in consideration for serv....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ces received. The learned authorised representative referred to the decision of the Mumbai Bench in the case of Raymond Ltd. v. Deputy CIT [2003] 86 ITD 791 in which the meaning of the term "make available" has been analysed. "Make available" does not mean mere rendering of services. The technical knowledge, experience, skill, etc., must remain with the person utilising the services even after the rendering of the services has come to an end. There should be transmission of the technical knowledge, experience, skill, etc., from the person rendering the services to the person utilising the same. Thereafter, the learned authorised representative drew our attention to the decision of the 'ble Kolkata Tribunal in the case of C.E.S.C. Ltd. v. Deputy CIT [2005] 275 ITR (AT) 15 ; [2003] 87 ITD 653 in which the Tribunal has considered article 13(4)(c) of the India-UK treaty. Article 13(4)(c) of India-UK treaty is in pari materia with the article 12(4)(b) of India-US treaty. In that case the Tribunal held as under (page 49 of 275 ITR (AT)) : "A pertinent question that remains to be considered is as to whether it is permissible to derive any benefit from the explanatory memorand....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ercial experience so that it is taxable under article 12 of the India-Singapore Double Taxation Avoidance Agreement. The High Court quoted as under : "The High Court concluded by holding that `In our opinion, there is no imparting of its experience in favour of the client. What the client receives is the report where the GIA uses its commercial or technical knowledge to give a report to the client. Illustrative example would be a lawyer giving advise to his client, a doctor giving his medical opinion, a laboratory submitting blood analysis report and the like. These cannot be said to be imparting of information by the person who possesses such information'. What such person does is uses his experience and technical know-how for a consideration without parting with that information. In our opinion, therefore, considering the definition of royalty under article 12 of the Double Taxation Avoidance Agreement, there is no parting or rendering of technical services either of managerial, technical or consultancy nature or industrial, commercial or scientific experience." 12. The payments made by the assessee are in the nature of business income in the hands of Sun Singapor....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e associated enterprise. Hence, there is no case that logistics services were basically related to spare parts. 14. In respect of the issue of making available the technology, the learned Departmental representative submitted that the agreement was between the two associated enterprises and the appellant was never willing to use that technology of its own for the reasons best known to the appellant. If there was no willingness to take the technology then it should not be held that the technology was not made available. The appellant willingly did not use the technology which was available as it would have affected future payments by the appellant to its associated enterprises and disturbed longterm transfer pricing strategy. The Additional Director, Transfer Pricing has mentioned that PSM is not used and there is no finding that there was no intangible/technical services involved. Article 2 of the services agreement provided for rendering of logistics services. In the age of electronic commerce, it is not necessary to cross the geographical boundary for delivery of the services. The learned Departmental representative drew our attention to the decision in the case of Steffen, Ro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....of this expression in Indo-French Double Taxation Avoidance Agreement, shall also apply under Indo-French Double Taxation Avoidance Agreement, with effect from the date on which the IndoFrench Double Taxation Avoidance Agreement or such other Double Taxation Avoidance Agreement enters into force. As all the three Double Taxation Avoidance Agreements discussed above came into force on a date earlier than the commencement of the previous year 1995-96, the scope of technical services, for the purpose of IndoFrench Double Taxation Avoidance Agreement, could not be broader than that envisaged in the above Double Taxation Avoidance Agreements. In this view of the matter, the `fees for services that are ancillary and subsidiary, as well as inextricably and essentially linked to the sale of property' are outside the scope of technical services, so far as Indo-French Double Taxation Avoidance Agreement is also concerned, even though no such specific exclusion clause is incorporated directly in the treaty itself right from the time Indo-French Double Taxation Avoidance Agreement came into force. Accordingly, in the year in appeal, the `fees for technical services ; for the purpose of Ind....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the benefit therefrom by use. Even the use of such technical services by the recipient for once only will satisfy the test of making available the technical services to the assessee. If the non-resident uses all the technical services at its own end, albeit the benefit of that directly and solely flows to the payer of the services, that cannot be characterised as the making available of the technical services to the recipient." The Special Bench thereafter held that management and selling commission cannot be taxed in India as article 13 of the Double Taxation Avoidance Agreement with UK does not apply. In the instant case, the facts are in pari materia with the facts which were before the Special Bench. 18. Before us, the learned Departmental representative has argued that the technical knowledge, experience and skill was made available to the appellant but the appellant was not willing to utilise the same for the reasons best known to them. However, as on argument it may look attractive but there is nothing on record to suggest that the appellant acquired the necessary skill for using the experience. The Revenue has not examined any of the employees of the appellant to b....