TaxTMI 
TaxTMI 
2011 (5) TMI 205
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.... in Sri Lanka and only about 20% of the services are rendered in India. For rendering services in India, engineers are deputed at short intervals on the project site at Hoogly river basin. The applicant also outsourced part of the services relating to investigative assessment to another independent contractor, Indomer Coastal Hydraulic (P) Ltd (ICHPL). 3. For the services, WAPCOS will pay a fee of US$ 13,33,500 in a phased manner to the applicant on a milestone basis as specified in the contract. Out of the above fee, the applicant is to pay US$ 2,95,000 to ICHPL for the services outsourced and another 5% of the contract price by way of representative fees to an Indian company Mantec Consultants (P) Ltd. (Mantec). 4. WAPCOS remitted a sum of US$ 6,66,750 to the applicant and withheld taxes under section 195 of the Income Tax Act,1961 (Act) by treating the receipts as under section 9(1)(vii) of the Act. The applicant had approached the assessing officer for a „nil withholding tax certificate under section 197 of the Act, but decided to withdraw it. 5. On these facts, the applicant desires to know whether the payments received from WAPCOS are liable to tax in India as per pr....
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.... the Act. The second contention of the Revenue is that the software is not sold. It is only licenced. The licence is to use the copyright. Therefore the nature of the consideration is Royalty under section 9(1)(vi) of the Act. Regarding the applicants stand that the consideration for provision of service is business receipt and cannot be taxed in India in the absence of a PE, the revenuecontended that the presence of applicants employees for less than 183 days is not ascertainable. On that basis, it cannot be determined whether the applicant has a PE or not. Further, as a portion of the work was contracted out to two Indian entities ICHPL and Mantec, it cannot be denied that instructions were given by the applicant to ICHPL and Mantec. Once the instructions were given by the applicant to ICHPL the services rendered are controlled and then ICHPL and Mantec constitute dependent agency of the applicant. It is also not substantiated that the ICHPL and Mantec do not provide similar services to other concerns and hence it cannot be concluded that these two concerns are independent agencies and do not constitute dependent agent. The applicant therefore has a PE in India and the services ....
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.... that under the contract between LHI and WAPCOS, LHI will not outsource any part of the work relating to surveys and investigation and modeling. Under Section 193 of Indian Contract Act, where an agent has no authority to delegate work to another/ appoint a sub-agent, he becomes responsible for the acts of such sub-agent. As the services have been partially sub-contracted to ICHPL, the duration of time spent by ICHPL employees should also be taken into account in determining the creation of service PE of LHI in India. 9. The learned Advocate clarified that the constitution of a Service PE of a Sri Lankan entity in India is covered by Article 5(2)(i) of the Tax Treaty, which reads as follows:- "The term "permanent establishment" shall include especially: (i) The furnishing of services, including consultancy services, by an enterprise through employees or other personnel, where activities of that nature continue within the country for a period aggregating more than 183 days within any twelve month period." It is stated that in the present case, the services to LHI were provided by ICHPL in its independent capacity as a service provider. ICHPL has the expertise and has performed s....
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....and support and maintenance for at least two years and training of KoPT/CWPRS/WAPCOS personnel. The facts stated in the application are that a tender was floated by WAPCOS for "Mathematical Model Studies For River Regulatory Measures For Improvement of Drafts in Hugli Estuary". Quotations were invited for the work of software supplies, installations, modeling, field data collection, transfer of on-job training/technology, maintenance, monitoring, handover of software, designs and submissions of reports, etc. LHI appointed Mantec as its representative in India and utilized its services to win the tender for an agreed representative fee of 5% of the contract price. WAPCOS communicated the award of the said project to LHI for an amount of US$ 14,98,321 inclusive of all taxes and duties. LHI was informed to make preliminary arrangements to commence work and to sign the agreement. It may be stated that in the letter of award, it was made clear to LHI that the: "award of the project is considered based on your quote and confirmations about utilization of Mike software packages developed by DHI Water Environment Health, Denmark and making available all necessary support of DHI in various....
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....ain best possible studies to improve the channel depth and restrict the quantity of dredging. The studies would result in providing know-how to WAPCOS on long term basis. The scientific experience in hydrology possessed by LHI to study and adopt the required model is what is intended in the tender. The ancillary activities carried out by Indomer in collecting the data is a part of the exercise of the model studies. Therefore, what has been provided to WAPCOS is not an off-the-shelf product which is sold to it but scientific equipment for its perpetual use. The ownership in the core of the product, that is to say, the software, is not sold. It is thus the use of the equipment or of such a product which in essence is the technology transfer that is envisaged in the tender document. The nature and form of technology is transferred by means of field data collection and by desk study of the data available to arrive at the best mathematical model by making use of the software. The software is the heart and soul of the technology transferred by LHI. The intellectual property rights in the software are not transferred. The accumulated fund of knowledge acquired by years of observation, sea....