TaxTMI 
TaxTMI 
2012 (6) TMI 18
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.... services of the turbines. This contract for repair and overhaul services, was secured by the applicant pursuant to a tender floated by ONGC in that behalf and as per the notice of award dated 26.8.2009. The contract extends to a term of 5 years. The contract is for overhauling and repair of Solar Turbine Engines and Gear Boxes installed at its offshore location in Mumbai by ONGC. The contract itself was entered into on 14.09.2009. The contract specifies the scope of work including the technical specification of Solar Turbine Engines, the definition of overhauling, the powers and duties of the parties and the consideration payable. The applicant approached this Authority for a ruling on the question whether the amount received by it for fulfilling its obligations under the contract for overhauling and repair dated 14.09.2009, is chargeable to tax in India. In that context, the applicant raised 3 questions. 3. The Revenue sought to raise a contention that the questions now posed for ruling, were already pending before the Income-tax Authority and consequently the entertaining of the application was barred by the proviso to section 245R(2) of the Income-tax Act. On behalf of the app....
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....may be noted that the first element of inspecting and boroscoping the turbines is to be done at site in Mumbai by the experts of the applicant. In terms of the contract, the applicant has the obligation to furnish detailed drawings and data to ONGC and the agreement provides that it was granting the right to use the intellectual property by way of royalty free non-exclusive license to use the technical information that is specifically identified and purchased as a part of the order for ONGC's internal business purposes including the right to share such technical information with ONGC's contractors and their sub-contractors for the same purpose of providing services to the corporation itself based on execution of confidentiality agreements by the said contractors and the sub-contractors. In other words, ONGC could use the technical information for its turbines, but could not allow it to be used for the benefit of anyone else. 5. According to the applicant, the applicant has no business connection in India. It has also no Permanent Establishment. Hence, the payment received by it under the agreement in question cannot be taxed in India as its business income. The applicant submits t....
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....under the Act, even though the third component, that is, overhauling and repair, had not been offered for taxation. Inspection provided for in the present agreement, clearly invited taxation in this country. Since the applicant has to carry out inspection periodically, the applicant remains in constant touch with the position of the machines, their technical capability with regard to their performance at the specified level and then suggest and carry out the overhauling when a defect is noticed. It cannot be said that there is no connection between the overhauling services to be carried out and the contract for the supply, installation and commissioning. In view of the applicant making available the drawings and data in terms of clause 38 in the agreement, it has made available the technical specifications and engineering designed data to ONGC along with the overhauled machinery and has thus made available technical services to ONGC satisfying the requirement for taxability under Article 12 of the DTAC between India and USA. In terms of paragraph 2 of Article 12, fees for included services can be taxed in India where they arise, subject to the limitation contained in that paragraph....
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.... applicant was granting ONGC a royalty free, non-exclusive license to use the technical information solely for the use of ONGC. Admittedly the applicant has the intellectual property right over the engineering, design, data and specifications as asserted in that clause itself. When that intellectual right is licensed to ONGC for its use, the payment therefor, would be royalty in terms of the Act and in terms of Article 12 of the DTAC. Learned counsel for the applicant submits that this transfer, apart from being royalty free, only related to the replaced parts or upgradation of the machinery as contemplated by the agreement and this would form only a miniscule part of the transaction value and hence there is no occasion for going behind the assertion in clause 38 that it was royalty free, non-exclusive license. 9. An assertion in the agreement that the non-exclusive license was being granted royalty free, cannot estop the revenue from contending that a part of the transaction value must be ascribed to the grant of that license especially in the context of the entitlement of the revenue to tax the transaction by recourse to paragraph 2 of Article 12 of the DTAC at least as regards ....