AI Drafter 
TaxTMI 
TaxTMI 
2013 (11) TMI 276
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....eting the disallowance of Rs. 23,73,621/- (sic 213,73,621'/-) being the payment towards annual maintenance charges paid to Sycamore Networks Inc., USA violating the provisions of section 40(a)(i) of the IT Act." 3. Briefly stated relevant facts of the case are that the assessee was earlier named as Tata Power Broadband Company Ltd and engaged in the business of providing 'broadband services under category IP-1, IP-II, ISP-VPN Licenses'. Assessee filed the return of income declaring the total loss at Rs. 8,78,20,100/-. Assessment was completed u/s 143(3) of the Act and the assessed loss under the normal provisions was determined at Rs. 3,48,32,052/-. AO also computed the book profits u/s 115JB of the Act determining the books profits at Rs. 11,64,67,098/-. While computing the income under normal provisions, AO made disallowance u/s 40(a)(ia) amounting to Rs. 23,73,621/- and the same was deleted by the CIT(A). Regarding this disallowance of Rs. 23,73,621/-, during the assessment proceedings, AO noticed that the assessee made payment to foreign parties towards Annual Maintenance Charges' (AMC) amounting to Rs 23.74 lacs without making TDS. In this regard, AO called for details and ....
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.... In para 6 of the CIT (A)'s order, there is reference to the decisions of the ITAT, Mumbai in the case of Raymonds Ltd. v. Dy. CIT 86 ITD 791 and in the case of Invensys Systems Inc. 317 ITR 438 for the proposition that the payments of this kind do not constitute FTS. Finally, CIT (A) held that these payments are not for imparting of technical knowledge or make available' of technical services to the assessee. Para 7 is relevant in this regard and the same reads as under. "7. I have perused the facts of the case including the agreement under consideration and the various services to be provided in terms of the agreement. I find that as far as the AMC is concerned, it is only restricted to online facility being provided to appellant, either telephonic or through the Internet. Further, as far as repairs are concerned, the repairs are undertaken only in USA and no portion of the technical service is made available' to appellant. Consequently, Article 12(4) of the India-US Treaty suggests that the payments made by appellant are not in the nature of fee for technical services requiring deduction of tax at source. Consequently, the action of the AO is not just....
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....national Taxation) [2010] 40 SOT 220 and mentioned that the fee paid for the technical services rendered in India should be taxed in India. Further, relying on the decision of the Authority for Advance Rulings (A.A.R) in the case of Perfetti Van Melle Holding B.V. 342 ITR 200 Netherlands, Ld DR mentioned that "payments of any kind to any person in consideration for the rendering of the any technical or consultancy services constitutes FTS". Ld DR also read out the last segment of para 7 appearing at page 7 of the said A.A.R decision which reads as under: "7...The applicant submits that Perfetti India "will not get equipped with the knowledge or expertise and would not be able to apply it in future, independent of Perfetti BV". This submission cannot be accepted. When one party provides support to the other through provision of knowledge and experience and assists the employees of the other, how can it be accepted that the recipient will not apply this knowledge and skill after the termination of the said agreement." 7. Further, Ld DR filed a copy of another ruling of the A.A.R in the case of AREVA T&D India Ltd. 346 ITR 456 Chennai and mentioned that ....
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..... He also mentioned that the A.A.R Rulings are distinguishable on facts i.e., the issues of support services' in the case of AREVA T&D India Ltd. (supra) and the 'imparting of technical knowledge' to the employees of the assessee in the case of Perfetti Van Melle Holding B.V (supra). Further, Ld Counsel filed an order of the ITAT, Hyderabad Bench in the case of Addl. DIT (International Taxation) v. BHEL-GE-Gas Turbine Servicing (P.) Ltd. ITA Nos. 976 to 981/Hyd/2011 for the AYs 2001-02 to 2006-07 dated 31.7.2012 [and brought our attention to the paras 15 & 16 and mentioned how the repair services cannot constitute technical services. As per the assessee, AMC services are one kind of technical services rendered by the foreign companies without imparting of technical knowledge to the assessee or its employees and therefore, they do not constitutes technical services or included services. In this regard, Ld Counsel filed a write up detailing particulars of purchase of MULTIPLEXUR and the service agreements as amended from time to time. Further, he stated that there is no issue about the applicability of the provisions of Article 12(4)(b) of the Treaty to the impugned payments to const....
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....s. The TAC shall be the single point of contract for diagnosing and resolving technical issues related to operations, performance, reliability and support of Sycamore products covered within the Service Description. Sycamore may at its sole discretion, dispatch a field service engineer (or its authorized representative) to Tata site in order to facilitate Sycamore's diagnosis and resolution. Web-based Services via Sycamore's Online Assistant Resources (SOLAR): Tata shall be entitled to access Sycamore's problem reporting database (SOLAR) twenty four hours per day, seven days a week. Depending on the product, information available to Tata may include but not be limited to (i) problem case submittal and status, (ii) access to online technical documentation, (iii) status review of know defects and workarounds: and (iv) Return Material Authorization (RMA) processing." The above list of services refers to TAC, telephone access 24 hours for all 7days including holidays, single point contact, web-based SOLAR, etc and they constitutes the catchwords. There is provision for dispatch of AR/Field Service Engineers too in suitable case....
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....nt Rs. 42,84,949/- Plus Repair and replacement Rs 8,96,147/- ..Total= Rs. 51,81,096." 10. From the above, it is evident that the assessee purchased an equipment (ie Dense Wave Division Multiplexing Equipment from M/s. Sycamore Networks Inc., USA) and there must exist some Warranty provided by the supplied. Of course, there are no details mentioned in the orders. There is some reference to "Service Agreement", which is claimed to have been amended and revised time to time. Revision was done to accommodate the undertaking of the repairs by the supplier of the equipment on repayment basis. No such repairs reported in the AY 2005-06. Whereas in the AY 2006-07, assessee paid to the M/s Sycamore, USA amounting to Rs 8,96,147/- towards such repairs. To start, we shall take up the issue relating to repairs payments made by the assessee to Sycamore, USA and if they need to be subjected to TDS. 11. Allowability of the payments of Rs 8,96,147/- towards such repairs: As discussed in the paragraphs of this order where the arguments of the AR are discussed, it is the case of the assessee that the payments for the repairs should not be subjected to TDS as the said payments outside the scope....
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....espect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India : Provided ...... Explanation[ 1... Explanation [2.]-For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries". .............................................. Expla....
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....d ; or (b) 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. Notwithstanding paragraph 4, "fees for included services" does 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 a sale described in paragraph 3(a) ; (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic ; (c) for teaching in or by educational institutions ; (d) for services for the personal use of the individual or individuals making the payments ; or (e) to an employee of the person ma....
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....o not constitute Fees for included/Technical Services (FTS) both under domestic law or under the Treaty provisions as there is no transfer relevant technical knowledge, skills, information etc to either to the assessee or to its employees. The services rendered by M/s Sycomore supra are merely attending to the trouble shootings relating to the use of the technology already supplied to the assessee. 17. Per contra, the case of the Revenue is that with no body examining the applicability of the domestic law and the provisions of paragraph 4(a) of the Treaty, it is too early to adjudge that the impugned payments do not constitute FIS/FTS. The Service Agreement also provide for sending of the representatives' by M/s sycamore, who is the supplier of the equipment ie Dense Wave Division Multiplexing equipment to the assessee. Impugned services vide the Service Agreement w e f April 2003 onwards with the clause of automatic extension, are rendered. Considering the examples given under the MOU annexed to the Treaty, the impugned payments shall constitute chargeable income includible in the total income of the assessee. There is need for examining the purchase deed, added on warranty pro....
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....f the Treaty and left the issues to like processes' and further of course, he ha not considered the provisions of Article 12(4)(a) of the Treaty entirely. He completely ignored the fact that the service agreements have real genesis in the purchase agreement qua the equipment ie Dense Wave Division Multiplexing equipment The impugned Service agreements, as amended from time to time, are required to be studied in conjunction with the purchase agreement of the equipment if the services which are rendered constitutes extended warranty with additional payments by way of AMC. Regarding the finding of the CIT(A) on the applicability of the provisions of Article 12(4)(b) of the Treaty, to the extent he adjudicated, the same do not need any interference subjected to the likely finding of the CIT(A) in the ensuing remand proceedings on if the processes' are not made available to the assessee and the online and web-based services do not constitutes making available to the assessee. As such, on perusal of the agreement between the assessee and Sycamore Networks Inc, USA in isolation, we found that the said provisions do not imply the transfer of technical knowledge or skills to the assessee or....