TaxTMI 
TaxTMI 
2011 (4) TMI 548
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....s covered under (a) & (b) above are manufactured by welding the disc and rim part of the wheel together to form an integral wheel. The assessee has developed a concept of manufacturing a wheel out of a single piece of steel material which will result in reduction of input material and improvement in the strength properties by elimination of welding. The assessee has designed the product and also has drawn a set of processes for the manufacture of wheels using the new concept. For rim falling in clause (c) as above, technology already exists but the assessee has modified the design of the rim to bring about considerable reduction in weight. The assessee has applied for patents in India with the Government Patent Authorities in respect of wheels covered under (a) and (b) above. The assessee did not have know-how for designing the machine capable of manufacturing the product as per the patented processes. Therefore, WIL entered into an agreement with AMT for developing the machine tools manufacturing the products as per the patented processes. The assessee paid US $ 95,000 [equivalent to Indian Rs. 43,15,850] to AMT on 17-3-2004 by way of advance in accordance with the agreement. WIL ....
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....e on which such tax was deductible to the date on which such taxes is actually paid. The Assessing Officer has worked out this interest at Rs. 48,234, hence, a total of Rs. 10,92,242 has been demanded as tax by the ITO. Aggrieved, the assessee preferred appeal before the ld. CIT(A). He has confirmed the impugned additions. The assessee is further aggrieved and has raised the following grounds in its appeal: "1. The Income-tax Officer erred in treating the appellant as 'assessee in default' for an amount of Rs. 10,44,008 and levying interest of Rs. 48,234 under section 201(1A) of Income-tax Act. The learned Commissioner of Income-tax (Appeals) erred in confirming the above order. 1.2 The learned Commissioner of Income-tax(Appeals) failed to note that the appellant is already in the possession of Technical know-how of manufacture of (i) integrated flat based 5-degree steel truck wheel for tube application; (ii) integrated 15-degree drop centre steel truck wheel for tubeless application; (iii) 15-degree drop centre steel truck rim for tubeless application, and hence no new know-how or information is being supplied by the above parties. 1.3 The learned Commissioner of Income-t....
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....dent companies, had the required machinery/tooling capability with them for validating the process conceptualized by WIL and that was the reason for entering into contract with the above companies for developing the necessary tooling and validating the process in the machines available with them. WIL released the product drawing to MFM and MFM agreed to undertake the work relating to developing the process feasible for manufacturing the rim for commercial vehicle through spin form route by cold working with the help of machineries and tooling available with AMT. It was stated that MFM had developed the rim profile, partially by cold working - flange and rim base portion of the rim and partially by hot spinning - gutter portion of the rim and send the cut section of the same to WIL. It was further stated that since WIL was not interested in hot working route which WIL was doing already, it was decided not to proceed with further development under the agreement with MFM. No further payments were made to them and the contracts were closed. WIL, however, felt the need to change the process from a pure spinning process - complete cold working to hot forming cum spinning process - hot an....
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....04 a sum of US $ 95,000 equivalent to Indian Rs. 43,15,850 by way of advance in pursuance of the agreement. Similarly, it paid to MFM on 17-3-2004 a sum of US $ 60,000 equivalent to Indian Rs. 26,36,400 in pursuance of agreement dated 19-4-2004. Admittedly, on both these amounts, the assessee did not deduct tax at source on the reasoning that the payees were non-residents and that the entire services under the agreements were rendered outside India. So, when no income accrued or arose in India, there is no question of deducting tax at source. Per contra, the ld.DR has argued that after affording opportunity to the assessee to present its case, the Assessing Officer has meticulously examined the agreements between the assessee and AMT/MFM and has culled out the following facts: "It is stated in the agreement between M/s. Advanced Metal Forming Technologies, USA as under: WIL is interested in developing new process with the help of MFM for manufacture of the following products: (i) Flat base 5-degree with rim of 20" diameter. (ii) 5-degree semi-drop centre steel light truck rim of 16" diameter. Whereas, MFM is interested in undertaking the work....
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....e substance of transactions, the services provided by both the non-resident companies would come under the purview of fees for technical services and taxable under section 9(1)(vii) of the Act and fees for include services under Article 12(4) of DTAA with USA. Under Article 12(4)(b), two conditions are to be satisfied - (i) the payment should be a consideration for technical or consultancy services rendered; and (ii) the services so rendered should also be such that 'make available' technology, knowledge, experience, skill, know-how or processes or consists of the development or transfer of a technical plan or technical design. After considering various decisions, the ld. CIT(A) has come to the conclusion that both the above conditions were fulfilled in this case, hence, section 9(1)(vii) of the Act and Article 12(4) of the DTAA with USA become applicable. 11. Before us, the main thrust of ld.AR's argument was that although the services were rendered in foreign country but the same were not 'made available' to the assessee. In order to fall under the head "fees for included services", the ld.AR explained that the term 'make available' signifies transfer of the technical know-how....
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....turing the same articles now and that they have made agreements with any other foreign company for getting the test and validation of the process done which was to their satisfaction. When both these facts are construed judiciously, it becomes a definite case, which cannot be denied, that the technical know-how must have been transferred to the assessee. The discontinuance of agreement or non-pursuance of the agreement thereafter, may be a personal understanding between the parties for the reasons best known to them. Therefore, in our considered opinion, the payments made to these foreign companies definitely amount to 'fees for included services' and the amounts in question is taxable in India and hence, the assessee was liable to deduct tax at source. Having failed to do so, the assessee becomes assessee in default and therefore, the Assessing Officer has correctly passed order under section 201(1) and also under section 201(1A) of the Act. It has been further submitted that WIL felt the need to change the process from a pure spinning process, complete cold working to hot forming cum spinning process, hot and cold working so that the saving in input material can be achieved with ....
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.... services is not sufficient to attract the definition of "fees for technical services". Article 13(4)(c) requires that the services rendered should make available technical knowledge, experience, skill, know-how, etc. The offer of a standard facility to a number of customers such as telephone/cell phone users does not amount to rendering any "technical service" within the meaning of the definition. Skycell Communications Ltd. v. Dy. CIT [2001] 251 ITR 53 (Mad.) followed. It is not any or every professional service that amounts to technical service. Professionalism and an element of expertise should be at the back of such services. The expression "technical" ought not to be construed in a narrow sense or confined only to technology relating to engineering, manufacturing or other applied sciences. Consultancy services can also be technical in nature. The two expressions, consultancy services and advisory services are not to be treated as water tight compartments. Advisory services, which merely involve discussion and advice of a routine nature or exchange of information, cannot appropriately be classified as "consultancy services" under article 14(3). An element of exp....