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2015 (7) TMI 678
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....imited and ABB Global Industries & services Limited are taxable as fees for included services under Article l2(4)(b) of the India-USA tax treaty, without considering the fact that the services do not make available technical knowledge, experience, skill etc. (b) On the facts and in the circumstances of the case, the learned AO has erred in law and facts in holding that when ABB Limited and ABB Global Industries & Services Limited have deducted taxes on the payments made to the appellant, then the appellant cannot take a different view its Income tax return. 2. Holding ABB Global Industries & Services Limited as Permanent Establishment ('PE') of the appellant in India (a) The Honorable Dispute Resolution Panel ('DRP') erred in law and facts in holding that ABB Global Industries & Services Limited would constitute a dependant PE of ABB Inc in India in view of the agreement entered into between ABB Inc and ABB Global Industries & Services Limited. (b) The DRP erred in law in not providing the appellant an opportunity of being heard as per the provisions of section 144C(11) of the Act before passing directions holding ABB Global Industries & Services Limited....
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....ed to reject the claim by observing, inter alia, that "although it appears that services rendered by the ABB Inc might have rendered services to its AEs, what appears to be unconvincing is the contention that the services rendered by the ABB Inc donot make available any technical knowledge, experience, skill, know how or processes". He further observed that, "whether a service rendered by a non resident company results in making available technical knowledge, experience, skill, know how or processes etc is both a question of fact and law, and without submitting facts, ABB Inc's contention regarding 'make available' clause fails". However, it seems that this observation about non submission of the facts was with respect to contention regarding "make available" clause, as is evident from the Assessing Officer's following observations: 6.2 The agreements of ABB Inc with ABB Ltd and AGISL clearly indicate that services rendered by ABB Inc with ABB Ltd and AGISL clearly indicate that services rendered by ABB Inc fall under section 9(1)(vii) of the Income Tax At,1961. This fact has been admitted by ABB Inc in its submissions dated 2nd September 2011 and 17th November 2....
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.... Indian company to the assessee has to be attributed to the assessee company as "Profit and Gains from Business" and has to be taxed as Business Income. 6.31 Taking the sum totality of the facts before it, the Panel is of the view that a case as this with income accruing/arising in India through the dependent agent in view of the agency PE, it will serve good purpose to bring to tax the same as profits of the business. In this regard, it may also be clarified that so much of the profit which is attributable to the operations in India are to be brought to tax by the AO. This has to be computed in accordance with Article 7 of the DTAA read with Rule 10 of the Income-tax Rules, 1962. This objection is disposed off as per the directions as above. 5. It was in this backdrop that the Assessing Officer proceeded to bring to tax an amount of Rs. 11,04,11,826 in the hands of the assessee as fees for technical services., and a further sum of Rs. 4,37,161, in accordance with the DRP directions, as business profits on account of dependent agent permanent establishment's estimated profits. The assessee is aggrieved and is in appeal before us. 6. We have heard the rival contentions,....
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....endering services and making technical knowledge available at the same time is satisfied. 8. We, therefore, hold that unless there is a transfer of technology involved in technical services extended by the US based company, the 'make available' clause is not satisfied and, accordingly, the consideration for such services cannot be taxed under Article 12(4)(b) of India US tax treaty. The Assessing Officer has taken pains to hold that the services are technical services in nature but what is really the decisive factor, so far taxability of its consideration in the Indo US tax treaty is concerned, is not the fact of training services per se but the position that training services being of such a nature that it results in transfer of technology. That is not the case here. It is not even suggestion of the Assessing Officer that there was a transfer of technology in this case so as to bring the services within the ambit of services which "make available" technical knowledge, experience, skill and know how etc. The authorities below have been swayed by normal connotations of the expression 'make available' but then this expression has specific legal connotations, as hel....
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....;s length remuneration of services rendered by the Indian affiliate, which is treated as the DAPE, is paid an arm's length remuneration, in the light of the settled legal position in the case of SET Satellite (Singapore) Pte Ltd v. DDIT [(2009) 307 ITR 205 (Bom)] ,nothing remains to be brought to tax. Their Lordships have, in this case inter alia observed as follows: 12. We may now consider the judgment in Director of IT (International Taxation) v. Morgan Stanley & Co. Inc. (supra). The appeals dealt with the DTAA between India and United States. That treaty advocated application of the arm's length principle or provided a mechanism for avoiding double taxation on income. The issue involved, Morgan Stanley and Company (for short, "MSCo") and one of the group companies of Morgan Stanley, Morgan Stanley. Advantages Services (P) Ltd. (for short "MSAS"). An agreement was entered into for providing certain support services to MSCo. MSCo. outsourced some of its activities to MSAS. MSAS was set up to support the main office functions in equity and fixed income research, account reconciliation and providing income-tax enabled services such as back office operations, data process....
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.... there should be no additional profits attributable to the applicant or to MSAS in India. After considering the various methods by which arm's length price can be determined the Court observed as under : "As regards determination of profits attributable to a PE in India (MSAS) is concerned on the basis of arm's length principle we have quoted art. 7(2) of the DTAA. According to the AAR where there is an international transaction under which a non-resident compensates a PF at arm's length price, no further profits would be attributable in India. In this connection, the AAR has relied upon Circular No. 23 of 1969 issued by the CBDT. This is the key question which arises for determination in these civil appeals." After discussing the various issues the Court in its conclusion held as under : "As regards attribution of further profits to the PE of MSCo. where the transaction, between the two are held to be at arm's length, we hold that the ruling is correct in principle provided that an associated enterprise (that also constitutes a PE) is remunerated on arm's length basis taking into account all the risk-taking functions of the multinational enterprise. In....