TaxTMI 
TaxTMI 
2011 (5) TMI 351
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....Global Document Solutions Group Limited (RRD, UK) effective from November 14, 2006, for efficient discharge of its services to customers. RRD, UK is a foreign company and is a tax resident of the UK. It is engaged in the business of communications management-delivering creative and presentation services, pre-media, print management, transactional print and mail, warehousing, logistics and distribution and data processing. 3. The services to be rendered by RRD, UK are specified in schedule I to the agreement with which we will deal in subsequent paragraphs. As per article 2.2(a) of the agreement, RRD India shall pay to RRD, UK consideration for such services (collectively, the "fees") based on the invoices raised by RRD, UK in accordance with article 2.2(e) of the agreement. RRD, UK shall issue a monthly invoice to RRD India, setting forth the fees (itemized by service) and any applicable taxes payable by RRD India for such calendar month. Fees shall be paid in full by RRD India within 90 days following receipt of an invoice from RRD, UK. 4. In the light of the above facts, the applicant seeks the ruling of this Authority on the following questions : "(....
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....h batch (created by application type. To allocate each batch with a batch number. To scan each batch of applications using document scanner to produce document images. To ensure the clarity of the scanned documents through a quality control check. To transmit the scanned documents to RRD India for further processing in India. To create batch files of the completion information. The batch file is loaded in a compact disc and sent to the client as per the client's specifications. 7. The learned counsel for the applicant argues that the question is whether the payment given to RRD, UK for such services is for technical and managerial service and chargeable to tax in India. According to the learned counsel, the payment given is not for technical services and as such not exigible to tax in India. Further, he has also quoted article 13 of the Indo-UK agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion. According to him, the services rendered by RRD, UK should be made available to the recipient RRD India and then only it can be said to be technical services. We quote below article 13 of the Indo-UK agreement for better app....
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....ional traffic. (4) For the purposes of paragraph (2) of this article, and subject to paragraph (5) of this article, the term 'fees for technical services' means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph (3)(a) of this article is received ; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph (3)(b) of this article is received ; or (c) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. (5) The definitions of 'fees for technical services' in paragraph (4) of this article shall not include amounts paid : (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property, other than property described in paragraph ....
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.... in the absence of such relationship, the provisions of this article shall apply only to the last-mentioned amount. In that case, the excess part of the payments shall remain taxable according to the law of each Contracting State, due regard being had to the other provisions of this Convention. (9) The provisions of this article shall not apply if it was the main purpose or one of the main purposes of any person concerned with the creation or assignment of the rights in respect of which the royalties or fees for technical services are paid, to take advantage of this article by means of that creation or assignment." 8. The Revenue in its written submission has admitted that the applicant is an Indian company and it has entered into a data processing services agreement with RRD, UK. According to it, the personnel of RRD, UK visit India for rendering managerial and technical services periodically do not stay for more than 30 days and, hence, no permanent establishment exists. But at the same time draws our attention to the Explanation to sub-section (2) of section 9 of the Income-tax Act, 1961, which is inserted with retrospective effect by the Finance Act, 2010 : ....
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....vider. In other words, to fit into terminology 'make available', the technical knowledge, skills, etc. must remain with the person receiving the services even after the particular contract comes to an end . . . At this juncture, it is apposite to quote some of the passages in Anapharm Inc., In re [2008] 305 ITR 394 (AAR), 405 : 'It is, thus fairly clear that mere provision of technical services is not enough to attract article 12(4)(b). It additionally requires that the service provider should also make his technical knowledge, experience, skill, know-how, etc., known to the recipient of the service so as to equip him to independently perform the technical function himself in future, without the help of the service provider, in other words, payment of consideration would be regarded as "fee for technical/included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied'." 10. The ruling of this Authority in Intertek Testing Services India P. Ltd., In re [2008] 307 ITR 418 (AAR) was followed in Invensys Systems Inc., In re [2009] 317 ITR 438 (AAR). Paragraph (4) of article 13 ....
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....tion paid towards managerial and technical or consultancy services attracts the domestic law for imposing tax. Explanation 2 to clause (vii) of section 9(1) of the Act is already mentioned supra. Now, we are to examine the nature of services undertaken by RRD, UK. In the instant case, pursuant to the agreement, the following services are undertaken : (i) RRD, UK will receive the hard copy applications from the client and sort the applications as per the client's requirements. (ii) To review the hard copy applications for basic completeness of details. (iii) To return the applications to the client which are badly damaged and that cannot be processed further. (iv) To securely destroy blank documents. (v) To scan the unidentifiable applications. Such scanned files to be sent to the client for identification of requisite information. (vi) To create batch file comprising 25 applications in each batch. To allocate each batch with a batch number. (vii) To scan each batch of applications using document scanner to produce document images. (viii) To ensure the clarity of the scanned documents through a quality c....