TaxTMI 
TaxTMI 
2013 (1) TMI 421
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....e and Hyperion Business Tools) for which it made payments/remittances amounting to USD 1,65,253 (i.e. Rs.73,12,465) on 10.2.2007 without deducting tax at source thereon. In these circumstances, the Assessing Officer initiated proceedings under section 201(1) of the Income Tax Act, 1961 (herein after referred to as 'the Act') on the assessee as a defaulter for non-deduction of tax at source. The assessee submitted that the services rendered to it by M/s. IBM Corporation, USA were not in the nature of royalty as contemplated in the provisions of section 9(1)(vi) of the Act as per domestic law and also did not fall under the purview of the section of Article 12(3) of the India-USA-DTAA. It was also submitted by the assessee that the services rendered by M/s. IBM Corporation, USA, did not make available any technology, know how, knowledge, skills etc. and would not attract the provisions of Article 12(4)(b) of the India-USA, DTAA to constitute Fees for Technical Services (FTS). It was further contended that the services rendered are not in relation to development or transfer of any technical plan or technical design. These submissions of the assessee that the services rendered by M/s. ....
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....itute 'fees for technical services' under the provisions of section 9(1)(vii) of the Act. 4. The learned CIT (Appeals) has erred on facts and in law in holding that the payments made by the Appellant to IBM is in the nature of Fees for included Services ("FIS") under Article 12(4)(b) of the India-USA Double Taxation Avoidance Agreement ("DTAA"). 5. The learned CIT (Appeals) has erred in relying on the AAR Ruling in 325 ITR 71 (HMS Real Estate Private Limited) incoming to a conclusion that the subject payment to IBM is for a service in the nature of FIS. 6. The learned CIT (Appeals) has erred in not giving detailed reasons on applicability of the AAR Ruling to the subject payment. 7. The learned CIT (Appeals) has erred in upholding the conclusion of the Assessing Officer that the appellant was obliged to deduct tax at source under section 195 of the Act, and 8. The learned CIT (Appeals) has erred on facts and in law in upholding the amount determined by the Assessing Officer of Rs.731,244 as payable by the appellant under section 201(1) of the Act." 4.1 The learned counsel for the assessee reiterated the a....
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....ing carried on in India, entire income is from exports and therefore the export revenues constitutes 'source' of income, which is outside India. It is therefore submitted that the subject payment to IBM is towards earning income from sources outside India, which are excluded from the purview of 'FTS' under the Act. The following decisions are relied upon in support of this submission: * CIT v. Aktiengesellschaft (Mad HC) (262 ITR 513) (enclosed as Annexure A); and * Synopsys India Pvt Ltd v. ITO, TDS (Bangalore Tribunal) in ITA No 919 & 920/BANG/2002. Without prejudice to our aforesaid submissions that the subject payment would not amount to FTS under the Act and therefore there is no need for examination of the DTAA provisions, we wish to submit further as follows: 4.2. Reasons why the said payment does not amount to Fees for Included Services ("FIS") under the Double Taxation Avoidance Agreement ("DTAA") As per section 90(2) of the Act, where an assessee is a resident of a country with whom India has entered into a DTAA, the provisions of the DTAA or the Act, whichever is more beneficial to the assessee, will apply. IBM is a tax resi....
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....d the tax authorities of the two countries in interpreting certain aspects of Article 12 relating to the scope of included services. As regards paragraph 4 (b) of Article 12, the following clarification/interpretation is given in the MoU: "Paragraph 4(b) of article 12 refers to technical or consultancy services that make available to the person acquiring the service technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design to such person (For this purpose, the person acquiring the service shall be deemed to include an agent nominee, or transferee of such person.) This category is narrower than the category described in paragraph 4(a) because it excludes any service that does not make technology available to the person acquiring the service. Generally speaking, technology will be considered 'make available' when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc., are made available to the person purchasing the ....
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....do not result in the "development and transfer of technical plan or design" as the project deliverables always belonged to the assessee and therefore there is no transfer of any plan or design. (iii) Since as per the assessee the said payment to IBM Corporation, USA, is not taxable under the Act or the India-USA DTAA, there is no requirement for TDS under section 195 of the Act since there is no permanent establishment of the payee viz. M/s. IBM corporation, USA. 5.1 Per contra, the learned Departmental Representative supported the orders of the authorities below. In written submissions, the learned Departmental Representative submitted as under : "As per clause 1 & 2 of the Statement of Work of the agreement (SOW), it is clear that the Consultant (IBM's) onsite analyst has to continuously co-ordinate with the offshore team in developing the technical specifications related to the project. IBM will also participate in developing the required technical code and testing thereof. The deliverables are technical specifications, program code and unit test results. The technical specification includes functional overview, pseudo code or comparables, delimitation of programm....