AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2015 (7) TMI 476
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....ductor to apply and seek a certificate for lower withholding tax order so as not to invite the provisions of section 40(a). 3. Whether on the facts and circumstances of the case the CIT(A) has erred in adjudicating that the services rendered by Ms Olaf Grandlund OY Finland, as per Para 5 of the ITO TDS's order were not squarely covered in the definition of FTS under Article 13(4)(c) of the India Finland DTAA and S 9(1)(vii), without any requirement for "make available" conditionality. 4. Whether on the facts and circumstances of the case the CIT(A) has erred in adjudicating that the services rendered by Ms Olaf Grandlund OY Finland, as per "scope of work" laid down in its agreement with assessee dated 01.02.2005, was not squarely covered in the definition of FTS under Article 13(4)(c) of the India Finland DTAA by relying upon the terms of an agreement entered into with Leighton Contractors (India) P Ltd which agreement does not find any mention in ITO TDS's order and thus constituted fresh evidence under Rule 46A. 5. Without prejudice to the foregoing ground, whether the CIT(A) has erred in accepting ration decidendi of case laws that applied the MOU accompanying the Ind....
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....xplain as to why it should not be treated as an assessee in default under section 201 (1)and 1(A) of the Act for non deduction of tax u/s 195 of the Act in respect of the above payments made to the Olof Granlund Oy Finland. The respondent- assessee company responded to the show cause notice vide its letter dated 20th December, 2005 wherein the nature of services provided by M/s Olof to Nokia was brought to the notice of TDS Officer. The submissions made by the respondent- assessee company before the TDS Officer are as under : "Olof Granlund Qy, company tax resident in Finland, is providing design control and quality control services in relation to HVAC, Electrical and Fire protection systems to be installed in Nokia India's manufacturing facility in Chennai. These services are being rendered by Olof Granlund Oy primarily from outside India and its employees are required to make intermittent visits to India only to attend meetings with Nokia India. Justification for Non withholding of taxes on payments made to Olof Granlund Qy As per section 195 of the Act, taxes are required to be withheld on payments made to non-residents where such payments are chargeable to tax in India. Acco....
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....read with Article 5 of the DTAA in the absence of PE of Olof in India. However, the TDS Officer had not agreed with the above submissions and held that the services 6 rendered by Olof Granlund are in the nature of technical services and further held that the respondent-assessee company is deemed to be assessee in default u/s 201(1) for non deduction of tax at source u/s 195 of the Act at source u/s 195 of the Act and while coming to this conclusion the AO had placed heavy reliance on the basis of Hon'ble Supreme Court in the case of Transmission Corporation of AP Ltd. vs. CIT (1999) (239 ITR 587) and demanded a tax of Rs. 13,34,198/- + interest of Rs. 1,47,263/- u/s 201(IA) of the Act vide his order dated 28.11.2006. 6. Being aggrieved with the above order respondent-assessee filed an appeal before Commissioner of Income Tax -XXIX, New Delhi ,who vide his order dated 28th February, 2012 allowed the appeal. It was contended before the CIT(A) that the scope of services rendered by M/s. Olof Grandlund Oy, Finland is limited to design review and other related services and no technical knowledge skill, know how had been made available to the respondent-assessee company and further subm....
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.... Ltd. is Contractor's obligations. Combined reading of the relevant clauses of these two agreements indicate that designs and technical plans are provided by Leighton Contractors (India) Private Ltd. and design review services are provided by Olof Granlund Oy. Therefore, the nature of services provided by non- resident OlofGranlund Oy do not fall in second limb of article 13(4)(c). In the first limb of the said article, the words 'make available' qualify the technical services and unless this qualification is satisfied, the services which are otherwise technical in nature can not be termed as technical services under the said article of treaty. The meaning of the qualification i.e. make available has been provided by various case laws as relied upon by the appellant. I have gone through those case laws carefully. The ratio decidendi of various case laws as relied upon by the appellant and mentioned supra has been clearly laid in case of Rayrnond Ltd Vs DCIT reported in 86 ITD 761 (Mumbai) as below :- ..... mere rendering of services is not roped in unless the person utilizing the service is able to make use of the technical knowledge etc by himself in his business or f....
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....igh Court in the case of CIT vs. M/s. De Beers 10 India Minerals Pvt. Ltd. where the term "make available" was interpreted and he also placed heavy reliance on the orders of CIT(A). 8. We have heard the rival submissions and perused the material on record. The undisputed facts of the case are that the nature of services rendered by Olof Granlund Finland to the assessee respondent company are as under :- a) Review of systems description, diagrams, cost estimates, building designs etc. b) Review of preliminary system design and quality control c) Review of equipment list/selections, lay out proposals, conducting inspections etc. 9. Now we are called upon to examine whether the nature of above services fall within the scope of the 'fees for technical services'. Undisputedly the recipient of the payment is a resident of Finland. And therefore he is entitled to be governed by the provisions of DTAA of India with Finland. The Term fees for technical services was defined in Article 13 in DTAA to the extent relevant to the present case, is reproduced below :- "4. For the purpose of paragraph 2, and subject to paragraph 5, the term 'fees for technical services' means payments of any k....
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....or technical services, referred to in the US agreement as ''fees for included services''). As noted earlier, it cannot be said that different meanings should be assigned to the US and UK agreements merely because of the MOU despite the fact that the subject-matter dealt with is the same and both have been entered into by the same country on one side (lndia). The MOU supports the contention of the assessee regarding the interpretation of the words 13 "make available ". The portions of the MoU explaining para 4(b) of the relevant article, which we have extracted earlier in our order while adverting to the contentions of the assessee, fully support its interpretation. Example (4) given in the MOU also supports it. This is of a US company manufacturing wellboard for the assesee using assessee's raw material but using its own Plant. No technical knowledge, experience, skills, plan or design is held to have been made available in such a case. However, in contrast, example (5) is of a US company rendering certain services in connection with modifying the software used by the Indian company to suit particular purpose. A modified computer software programmme is supplied by t....
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.... know-how ....... . ..... in contrast, the criterion used to distinguish the provision of knowhow from rendering advisory services is the concept of 'imparting'. An advisor or consultant, rather than imparting his experience, uses it himself (BFH BstBl II 235 (1971),' Ministre des Relations exterieures, Response a M Bockel, 36 Dr. Fisc. Comm. 1956 (1984)). All that he imparts is a conclusion that he draws - inter alia - from his own experience. His obligation to observe secrets, or even his own interest in 16 retaining his 'means of production', will already prevent a consultant from imparting his experience. In contrast to a person using his own know-how in providing advisory services, a grantor of know-how has nothing to do with the use the recipient makes of it.. .... The term 'make available' had come for interpretation before Hon'ble Jurisdiction High Court in the case of Director of Income Tax vs. Guy Carpenter & Co. Ltd. ITA No. 202/2012 dated 23.4.2012 which held as under :- "9. A plain reading of Article 13(4)(c) of the DTAA indicates that 'fees for technical services' would mean payments of any kind to any person in consideration for the ren....
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....the services rendered, the assessee along with the other reinsurance brokers acting as an intermediary in the reinsurance process for New India Assurance Co. will be entitled to 10% brokerage. From the role played by the assessee in the re insurance process as discussed above, it is evident to us that the assessee was rendering only intermediary services while acting as an intermediary/facilitator in getting the reinsurance cover for New India Insurance Co. There exists no material or basis on the basis of which, it would be said that the assessee was rendering any kind of technicall consultancy service within the meaning of Article 13 of Indo-UK treaty. The consideration received by the assessee acting as an intermediary in the reinsurance process cannot, by any stretch of imagination, be qualified as a consideration received for rendering any financial analysis related consultancy services, rating agency advisory services, risk based capital analysis etc. as alleged by the A.O." The Tribunal also noted the process by which the transaction takes place. It has been pointed out that the originating insurer in India would contact J.B. Boda/ M.B. Boda for placing identified risks/ cl....
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....ia Minerals (P) Ltd. (2012) 346 ITR 467 (Kar.) had interpreted the term 'make available' as under :- "22. What Is the meaning of "make available". The technical or consultancy service rendered should be of such a nature that It "makes available" to the recipient. Technical knowledge, know-how and the like., The service should be aimed at and result in transmitting technical knowledge, etc ..so that the payer of the service could derive an enduring benefit and utilize the knowledge or know how on his own in future without the aid, of the service 19 provider. In other words, to fit into the terminology 'making available', the technical knowledge, skills, etc. must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered '....
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....to determine whether payments made by the appellant qualify as FTS under the provisions of India- Finland tax treaty. However, the learned assessing officer has erroneously relied on certain examples provided under the MoU to 21 conclude that payments made by the assessee qualify as FTS under provisions of India- Finland tax treaty. Further, the term 'make available' in the context of consultancy services has been subject matter of consideration before various appellate authorities, which have concurred with the above position. In this regard, the reliance can be made on the following decisions, which are squarely applicable to the case on hand:- * Mckinsey and Co. Inc. and Ors. Vs ADIT reported in 99 IT]) 549 (Mumbai) In the above case as well, Mckinsey and Co Inc was engaged in providing strategic consultancy services, the Honorable Tribunal has held as under: - "Merely because the assessee have rendered certain consultancy services to the McKinsey India does not by itself can be reason enough to conclude that the consideration (or such consultancy services is taxable in India under art. 12(4)(b) as 'fees for included services". " ... generally speaking. technolo....
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..... selections, layout proposals, conducting inspections etc; and d) Holding meetings in India and Finland, in connection with the above. As is evident from the above, Olof Granlund's services to the respondent were not driven towards imparting any technical knowledge or experience to the appellant that could be used by the respondent independently in its business and without recourse to Olof Granlund. These services were neither geared to nor did they 'make available' any technical knowledge, skill or experience to the respondent or consisted of development and transfer of a technical plan or technical design to the appellant. 24 Given that the term 'make available' envisages a situation where the service recipient (i.e the respondent) is able to make use of the technical knowledge inherent in the services provided to him independently in his business or for his own benefit and without recourse to the service provider (i.e Olof Granlund), payments made by the respondent to Olof Granlund for provision of above services do not constitute FTS under narrower provisions of Article 13 of the India- Finland tax treaty. Further, the services rendered by OlofGranlund a....
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....educt the tax at source on such payments. The issue is no more res integra and covered by the decision of Hon'ble Supreme Court in the case of GE India Technology Centre P. Ltd. Vs. CIT and another 327 ITR 456 (SC) wherein the Hon'ble Supreme Court held that if payment is not assessable to tax there is no question of tax at source being deducted. The relevant portion of the judgment is reproduced as under :- "If the contention of the Department that the moment there is remittance the obligation to deduct TAS arises is to be accepted then we are obliterating the words "chargeable under the provisions of the Act" in section 195(1). The said expression in section 195(1) shows that the remittance has got to be of a trading receipt, the whole or part of which is liable to tax in India. The payer is bound to deduct TAS only if the tax is assessable in India. If tax is not so assessable, there is no question of TAS being deducted. One more aspect needs to be highlighted. Section 195 falls in Chapter XVII which deals with collection and recovery. Chapter XVII-B deals with deduction at source by the payer. On analysis of various 27 provisions of Chapter XVII one finds use of different exp....
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....he charging provisions of the Income Tax Act form one single integral, inseparable code and, therefore, the provisions relating to TDS apply only to those sums which are " chargeable to tax" under the Income-Tax Act. It is true that the judgment in Eli Lilly (2009) 312 ITR 225 was confined to section 192 of the Income Tax Act. However, there is some similarity between the two. If one looks 28 at section 192 one finds that it imposes statutory obligation on the payer to deduct TAS when he pays any income "chargeable under the head salaries". Similarly section 195 imposes a statutory obligation on any person responsible for paying to a non-resident any sum " chargeable under the provisions of the Act". Which expression, as stated above, do not find place in other sections of Chapter XVII. It is in this sense that we hold that the Income Tax Act constitutes one single integral inseparable code. Hence, the provisions relating to TDS applies only to those sums which are chargeable to tax under the Income tax Act. If the contention of the Department that any person making payment to a non-resident is necessarily required to deduct TAS then the consequence would be that the Department wou....
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....s to fulfil the statutory obligation under section 195(1). If the payment does not contain the element of income the payer cannot be made liable. He cannot be declared to be an assessee-in-default. The above-mentioned contention of the Department is based on an apprehension which is illfounded. The payer is also an assessee under the ordinary provisions of the Income Tax Act. When the payer remits an amount to a non-resident out of India he claims deduction or allowances under the Income Tax Act for the said sum as an ' expenditure' . Under Section 40(a)(i), inserted, vide Finance Act, 1988, with effect from April 1, 1989, payment in respect of royalty, fees for technical services or other sums chargeable under the Income Tax Act would not get the benefit of deduction if the assessee fails to deduct TAS in respect of payments outside India which are chargeable under the Income-tax Act. This provision ensures effective compliance with section 195 of the Income tax Act relating to tax deduction at source in respect of payments outside India in respect of royalties, fees or other sums chargeable under the Income Tax Act. In a given case where the payer is an assessee he will definitel....