TaxTMI 
TaxTMI 
2009 (8) TMI 973
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....ource 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 order dated March 17, 2006 in Appeal Nos. 204 and 205/R19/CIT(Appeals)-IV/04-....
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....d 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 technical in nature. The only point of dispute is whether the technical services provided are such as would enable the appellant to apply the technol....
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....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 the services rendered by the Asia Logistic Centre in Singapore are pursuant to article 2 which refers to the engagement of contractor as per the logistic agreement between....
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.... 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 services of a managerial, technical or consultancy nature, if such services: (a) are ancillary and subsidiary to the enjoyment of the right, property or information for which the payment is received ; or (b) make available techni....
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.... 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 memorandum in respect of the Double Taxation Avoidance Agreement between India and USA in interpreting similar provision of the Double Taxation Avoidance Agreement between India and UK. In this connection it is pertinent to point out that the Double Taxation Avoidance Agreeme....
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....ient. 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 Singapore and therefore are liable to tax in terms of article 7 of the India-Singapore treaty. Since Sun Singapore does not have a permanent establishment in India, hence, such payments cannot be brought to tax in India. 13. On the other hand, the learned Departmental representative in....
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....rprises 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, Robertson and Kirsten Consulting Engineers and Scientists v. CIT [1998] 230 ITR 206 (AAR) in which it has been held that statutory test for determining the place of accrual of income is not the place where the services are rendered but the place where those services are utilized. In t....
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....ce. 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 Indo-French Double Taxation Avoidance Agreement, did not include fees for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property'." 17. The Special Bench, Mumbai in the case of Mahindra and Mahindra Ltd. v. Deputy CIT [2009] 313 IT....
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....ows 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 bring on record that they could have utilised the experience gained by themselves. Thus, there is no evidence on record that the agreement for logistics services in fact made available the technical knowledge, experience and skill to the appellant for use by themselves. 19. The Authority for Advance Ruling....