TaxTMI 
TaxTMI 
2011 (1) TMI 911
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.... no argument was forth-coming as to how the order of the Assessing Officer was without jurisdiction and, hence, this ground is dismissed as not substantiated. Ground No. 8 being a prayer, the same will be kept in view while disposing of the appeal. In the remaining grounds, the crux of the issue was confined to the effect that - "the CIT(A) erred in upholding the disallowance of fees for technical services paid to M/s. Filtrex Holding Pvt. Ltd., Singapore of Rs. 32.23 lakhs under section 40(a)(ia) of the Act." (ii) Likewise, for the assessment year 2006-07, the assessee had raised nine grounds, out of which, ground No. 1 being general with no specific issue involved, it doesn't survive for adjudication. In ground No. 2, it was alleged that the order of the Assessing Officer was without jurisdiction. As already pointed out, no argument was put-forth as to how the order of the Assessing Officer was without jurisdiction and as such, this ground of appeal is dismissed as not substantiated. In Ground No. 8, the assessee objects to charging of interest under sections 234B and 234D of the Act. In this regard, it is pointed out that, (a) charging of interest under section....
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....to the same assessment years, these appeals were heard, considered together and disposed off, for the sake of clarity and convenience, in this common order. Let us now address to the grievances of the assessee. 3. Briefly stated, the assessee was engaged in the manufacture of carbon blocks used in water filters for residential use. While concluding the assessment proceedings for the assessment years under dispute, the Assessing Officer had resorted to make certain additions for the reasons recorded in their respective impugned orders in respect of (i) fees for technical services paid to Filtrex Holdings Pte. Ltd., Singapore, (ii) professional fees paid to Final Touch Grafix, Singapore; and (iii) consultancy fees paid to Filtrex International Pte. Ltd., Singapore due to non-deduction of TDS on the amounts paid towards technical, professional and consultancy services rendered by the non-resident companies in violation of the provisions of section 40(a)(i) of the Act. 4. Aggrieved, the assessee took up the issues with the ld. CIT(A) for solace. After due consideration of the assessee's forceful submissions, diligent perusal of (i) Technology Transfer agreement entered into be....
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....ention that the formula for mixing was unique to different requirements and normally cannot be re-used and that such formula was given by the technology provider each time depending upon the quality of water as well as the client's requirements appears to be a mere misrepresentation of the factual position not substantiated by any corroborative proof. 3.8 The appellant has further claimed that the technology provider Filtrex Holdings Pte. Ltd. Singapore had subsequently applied for patenting technology on the following: (i) method for manufacturing carbon blocks, (ii) filter cartridge for gravity fed water treatment device; (iii) universal water purifier unit assembly device; & (iv) method to bond plastics end caps to porous filtration bodies. Mere application for patents does not tacitly imply that the said technology is unavailable to others or cannot be shared by the non-resident company with its sister concerns/other group entities. 3.9 In addition, the appellant has drawn attention to the non-disclosure clause contained in Article 6 of the Technology Transfer Agreement which reads as under: "Each of the parties will be bound to a non-disclosure obli....
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.... blocks using the above technology is obviously available with the appellant for its further use or utilization on a seemingly permanent basis. Further, it is apparent that there is a transmission of the technical knowledge, experience, skills, or processes to the payee and, hence, falls under the category of FTS. Under the circumstances, since the conditions laid down in the MOU to the DTAA have been completely fulfilled insofar as the concept of 'make available' is concerned and the criteria prescribed by the Mumbai Bench of Hon'ble ITAT [80 TTJ 120 & 86 ITD 791] wherein the concept of 'make available' has been elaborately discussed are also satisfied, the Assessing Officer has rightly concluded that the provision of services rendered by M/s. Filtrex Holdings Pte. Ltd., Singapore to the prayer squarely falls within the definition of 'included services' as contemplated in Article 12(4)(b) of the DTAA. In view of the foregoing analysis, I unhesitatingly dismiss the appellant's grounds on this issue for both assessment years 2005-06 & 2006-07." 5. Agitated, the assessee has come up with the present appeals. During the course of hearing, the forceful and lengthy arguments coupled ....
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.... Filtrex Holdings Pte. Ltd. each time depending on the quality of water as well as the client requirements; relies on the case laws: (a) Intertek Testing Services India (P.) Ltd., In re [2008] 307 ITR 418 (AAR) (b) Cable & Wireless Networks India (P.) Ltd., In re [2009] 315 ITR 72 (AAR) (c) Anapharm Inc., In re [2008] 305 ITR 394 (AAR) (iv) in the case of the assessee, there was as such no technology made available by Filtrex Holdings Pte. Ltd. to the assessee. Further, assuming without conceding that the knowledge was made available to the assessee by Filtrex Holdings Pte. Ltd., the same can be used by the assessee only during the currency of the agreement with Filtrex Holdings Pte. Ltd.; - relies on the case of ITO (Intl. Taxn.) v. De Beers India Minerals Pvt. Ltd. [2008] 113 TTJ (Bang) 101 - Article 6 of the agreement between the assessee and Filtrex Holdings Pte. Ltd also provides for such non-disclosure. Similar view was expressed in the case of Diamond Services International (P.) Ltd. v.....
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....qualify as fee for technical services as per the DTAA between India and Singapore? - The agreement so stated was a technology transfer agreement which inter alia contains Article 6 relating to non-disclosure clause 'each of the parties will be bound to a non disclosure obligation towards external third parties regarding all information which may have been communicated to this particular party by the other party or which may have been brought to the awareness of this party on the occasion of agreement implementation, and will also undertake to have this obligation respected by its management and employees.' The scope of the agreement as per Article 1 provides for the following: - A three stage gravity water purification system for home use to include sediment filtration, organic and inorganic removal and the removal of microbiological contaminates: (a) sediment filtration : Polymeric filter to be hydrophilic to reduce turbidity from 20 NTU to below 1 NTU. Provide the type of polymer with total specification. Proprietary know-how to surface modify to ....
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....sp; - That it was also relevant to note that since both the companies were in same line of business, the information provided was relevant to the extent as much as was the requirement of the recipient, if it does not want the product design there was no requirement for it to make payment for it which was happening in the present case. It cannot, therefore, be the assessee's case that since no product design was being passed on and that there was no transfer of technology. By doing so, the assessee was negating its own legally signed agreement and content's therein and, therefore, contradicting itself since it had already made the payment in pursuance of the said agreement; - Relies on the case laws: (a) Bovis Lend Lease (India) (P.) Ltd. v. ITO (International Taxation) [2010] 36 SOT 166 (Bang.) (b) International Hotel Licensing Co., In re [2007] 288 ITR 534/158 Taxman 231 (AAR - New Delhi) 6. We have carefully considered the forceful contentions of either party, meticulously perused the relevant case records and also the case laws on which the rival parties have placed their respective strong reliance. ....
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....act, the insertion of the clause points to the technology having been made available to the appellant thus requiring legal protection to ensure that the technology does not go beyond the appellant or its employees. 3.10 Finally, a perusal of the termination clause contained in Article 5 of the Agreement between the parties referred to supra, also points to the conclusion that the technology has in fact been made available to the appellant. The termination clause merely states that the agreement may be terminated in the event of either party not fulfilling its end of the bargain. The consequences of termination are only to the extent of the appellant having to pay the technology fee up to the termination date. There is no mention of return of any information or documents relating to the technology made available or any conditionality that the appellant, post-termination, is not entitled to use the technology etc., clearly, therefore, one can only conclude from this that the technology has been made available to the appellant." 6.3 Whereas the ld. A.R. during the course of hearing before us, had concentrated his arguments with regard to the deduction of tax at source under sect....
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....ent, if it does not want the product design there was no requirement for it to make payment for it which was happening in the present case. It cannot, therefore, be the assessee's case that since no product design was being passed on and that there was no transfer of technology. By doing so, the assessee was negating its own legally signed agreement and contents therein and, therefore, contradicting itself since it had already made the payment in pursuance of the said agreement; 6.5 A glimpse at the termination clause contained in Article 5 of the agreement between the parties concerned, as rightly highlighted by the ld. CIT(A), reveals, in essence, that the technology had, in fact, been made available to the assessee. The termination clause simply states that the agreement may be terminated in the event of either party not fulfilling its end of the negotiation. The consequences of termination were only to the extent of the assessee having to pay the technology fee up to the termination date, however, there was no mention of any information or documents with regard to technology made available or any condition whatsoever that the assessee, cessation of the said agreement, was no....
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....ted in the Singapore agreement by adding the necessary words. What would be the use of coining the words "make available" if it is not intended, as contended by Mr. Kapila, that the person utilizing the services should be in a position to apply the technology for his own use in his business in future without recourse to the person rendering the services? Would it not be a contradiction in terms to say that though the technical knowledge etc. are "made available", the person to whom they are made available cannot apply the same for his benefit? The treaties, in our opinion, could not have intended such a result. What was therefore implicit in the concerned articles in the UK and US DTAs was made explicit by adding the necessary words in the Singapore agreements. As Mr. Dastur rightly remarked, it is a process of evolution guided by experience and what started in 1990 - the DTA with the US - as a MOU gradually crystallized and got incorporated in the article itself in the DTA with Singapore." 6.8 What the Article 12(4)(b) of DTAA between India and Singapore says explicitly? "4. The term 'fees for technical services' as used in this Article means payments of any kind to any pers....
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....rovided by ITM, there is practical difficulty in actual application of the principle-There are some services which can be brought within the ambit of 'make available 'But, most or many of them do not 'make available' to the applicant the technical knowledge, experience skill, know-how etc., possessed by the provider of services-As regards managerial' services, which were omitted in the new DTAA from the company of 'technical' and 'consultancy' services, no endeavour was made either in the application or during arguments to demonstrate that particular services covered by the agreement fall within the scope of managerial services-Hence no firm view is expressed but broad guidelines given and actual classification left to be decided in appropriate proceedings-It is for the applicant to approach the competent authority to determine the issue of TDS by filing an application under section 195." With due respects, we would like to point out that though the AAR was pleased to advice the applicant to approach the competent authority to determine the issue of TDS, during the course of its conclusion it had held that (at the cost of repetition) "To fit into the terminology make availabl....
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....d case there was neither technical service rendered or the transfer of technology. (v) Anapharm Inc., In re [2008] 305 ITR 394/174 Taxman 124 (AAR - New Delhi) In this case, the applicant, a tax resident of Canada, providing only final results to its clients by using highly sophisticated bio-analytical know-how without providing any access whatsoever to the client to such know-how and that the handing over tested samples and test compounds to the Indian clients cannot be equated with making available the technology, know-how etc., to them and, therefore, it was concluded after duly analyzed the issue at length by the Hon'ble AAR that - "Applicant a resident of Canada only providing final results to its Indian clients by using highly sophisticated bio-analytical know-how, without providing any access whatsoever to the clients to such know-how, fee received by it is business income and not fee for technical/included services or royalty and applicant having no PE in India such income would not be taxable in India by virtue of relevant provisions of DTAA between India and Canada." With due respects to the ruling of Hon'ble AAR, we would like to point out the issue before th....
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....vide the following services: 1. to do all public relation activities to promote Filtrex in the Asian region; 2. to liaison with ad-agencies to finalise all print media advertisements for Filtrex in water magazines and journals in USA; 3. to liaison and co-ordinate filtrex participation to international trade shows, particularly aqua world and WQA; 4. preparation of all power point presentation material for their directors to present filtrex with overseas companies; 5. to develop cost effective communications media, to promote filtrex capabilities; and 6. to design all brochures and communication leaflets to be used in overseas markets In addition to the above, the service provider shall provide administrative support services to Filtrex-India either by itself or through third parties. 8.2 With regard to payment made to Filtrex International Pte. Ltd. [FIPL], Singapore: The assessee had entered into an agreement with FIPL with effect from 1-4-2005, according to which, FIPL had to provide the following services: 1. to devel....
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....ed that a payment of SGD 100000 was made to the service provider for 'development of concept drawings animation and page layouts of the web home page' & 'concept development for the carbon block advertisement' resulting in the Assessing Officer forming an opinion that services were made available by M/s Final Touch for promoting their business and that the same was covered under 'managerial services' as defined in the Income-tax Act. 4.1 however, it is apparent from the nature of services rendered being public relations activities liaison co-ordination and design of advertising material such as power-point presentation materials and leaflets etc. that they do not even remotely constitute rendering of any managerial, technical or consultancy services. Apart from resorting to sheer conjecture that administrative support services constitute managerial services, there is not even a shred of documentary evidence brought on record to back up the Assessing Officers opinion regarding the technical nature of the services rendered by M/s. Final Touch Grafix. I am, therefore, of the view that the Assessing Officer has at no point established that the foreign company viz., M/s. Final Touch ....
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....e course of hearing, the ld. D.R. had Vehemently argued, the substances of which are summarized as under: Issue of FTS on service agreement between FIPL and FTG: - the agreement so stated is a service agreement which inter alia contains article 6 relating to non-disclosure clause 'Each of the parties will be bound to a non-disclosure obligation towards external third parties regarding all information which may have been communicated to this particular party by the other party or which may have been brought to the awareness of this party on the occasion of agreement implementation and will also undertake to have this obligation respected by its management and employees'. - enlisting the scope of the assessee had entered into service agreement with FTG, Singapore for the services, reliance was placed on the case laws : (a) International Hotel Licencing Co. 288 ITR 534 (AAR) (b) Bovis Lend Lease (I) Pvt. Ltd. ITA Nos. 636, 637 & 665/B/2008 - that these case laws are clearly applicable given the facts that it deals with the issue of FTS and ....