TaxTMI 
TaxTMI 
2016 (11) TMI 65
X X X X Extracts X X X X
X X X X Extracts X X X X
....nder section 143(3) read with section 144C (13) of the Income Tax Act (the Act) assessing the income of the appellant at Rs. 117350220/- instead of return income of Rs. 32804655/- is bad in law. 2. That in facts and circumstances of the case and in law the Hon'ble Dispute Resolution Panel (DRP) erred in not appreciating that once it is held that the receipts from service outside India amounting to Rs. 237750181/- are to be taxed as business income then the same is to be taxed to the extent the receipts are attributable to Permanent Establishment (PE) in India in view of the provisions of Article 5 read with 7 of the India UK Double Taxation Avoidance Agreement (DTAA of Tax Treaty) 3. That in the facts and circumstances of the case and in law, the Hon'ble DRP misinterpreted the attribution law and grossly erred in not appreciating that the attribution to the PE has already been examined and verified by the ld Transfer Pricing Officer (TPO) and the same has been accepted by the ld AO and accordingly, nothing more than that can be contributed to the PE. 4. That even otherwise the Hon'ble DRP ought to have held the receipts for the activities carried outside India cannot be at....
X X X X Extracts X X X X
X X X X Extracts X X X X
....cumstances of the case and in law, the Ld. DRP was correct in holding that the receipts for work done outside India will be governed by Article 7 and not by Article 13 of the Double Taxation Avoidance Agreement even though such receipts pertain to services rendered outside India and have no nexus with PE? 2. Whether on the facts & circumstance of the case and in law, the Ld. DRP was correct in holding that the receipts for work done outside India should be assessed as 'FTS' on protective basis and not on substantive basis?" 4. The brief facts are that International Management Group UK Ltd. is a tax resident of United Kingdom in terms of Article 4 of Indo-UK Double Taxation Avoidance Agreement. It is engaged in the business of event management and talent representation activities in sports events such as golf, tennis, football etc. It primarily and its main activities are event creation, client representation and consultation. The Board of Control for Cricket in India [hereinafter referred to as 'BCCI'] entered into a Memorandum of Understanding for assistance in establishment, commercialization and operation of the India Premier League in September 2007 [herein after ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... adding mark up thereto of 25% making it to Rs. 81449819/- and further adding thereto a sum of Rs. 10800000/- attributable to the permanent establishment on account of commission of the Citibank N.A. on account of sponsorship. Therefore from the gross receipt attributable to the PE of Rs. 92249819/-, deduction of expenses of Rs. 65159856/-was claimed and net profit of Rs. 32804660/- has been offered to tax at the rate of 42.23% on net basis as per section 44DA of the Income Tax Act 1961. Therefore in nutshell out of the gross receipt of Rs. 33,00,00,000/- , appellant stated that only gross receipt of Rs. 92249819/- is attributable to the Indian permanent establishment of the assessee and consequent profit of Rs. 32804660/- is the income of the assessee under the head business income chargeable to tax under the provisions of section 44 DA of the Income Tax Act 1961. 6. During the course of assessment proceedings the Ld. AO asked the assessee about the taxability of remaining receipt of Rs. 23,77,50,181/- (being Rs. 33,00,00,000/- - Rs. 9,22,49,819/- ) stating that such balance amount is Fees for Technical Services [ hereinafter referred to as 'FTS'] considering the fact that the ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....re it was stated that the claim of exception to provisions of section 9(1)(vii) (b) of the act cannot be accepted. He further submitted that though the applicability of the Double Taxation Avoidance Agreement is not denied but the term 'make available' has not been defined and further the benefit of protocol relied upon by the appellant is also misplaced . He further relied on ruling of the advance authority in case of Shell India Markets Private Limited and submitted that the BCCI would be able to equip itself to carry on the IPL events subsequently and therefore in fact the appellant has 'made available' the procedures, the protocols ,the agreements etc for organizing the Indian Premier league. He further stated that merely because the services are being provided it is 'made available' to the assessee. According to the Ld. AO it is difficult to accept the contention of the assessee for the simple reason that merely the assessee has been engaged on regular basis cannot be construed to mean that it does not enable the BCCI adequate skill in case it desire to do so to organize the independent event on its own basis without the help of the appellant .Therefore according to the Ld. A ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ome of the appellant alternatively treating the nature of the receipt of Rs. 237750181/- as fees for technical services considering the nature of the services being rendered by the assessee and upheld by the Ld. the DRP. Therefore, he computed the income of the appellant at Rs. 270554840/- considering the receipt of Rs. 237750181/- as fees for technical services over and about the returned income of the assessee of Rs. 32804660/- on protective basis. 9. The above order of the Ld. AO incorporating the direction of the Ld. DRP is challenged by both the parties. Against the assessment order under section 143 (3) assessee has filed an appeal against the addition of Rs. 84545561 being the profit on the above mentioned gross receipt of Rs. 237750181/- as further profits attributed to the permanent establishment of the appellant and also against the protective assessment of sum of Rs. 237750181/- as fees for technical services. Revenue has also filed an appeal against the order of the Ld. DRP challenging that that such income of Rs. 237750181/-is chargeable to tax under article 7 and not under article 13 of the Double Taxation Avoidance Agreement even though such receipts pertain to se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....eated a permanent establishment in India in the current year for IPL 2009 even then for the future events in the subsequent year. Further as per article 7 of the DTAA income as is attributable to the PE can only be taxed in India. He further stated that out of the total receipt of Rs. 33 crores the receipt of Rs. 9.22 crores is attributed to the permanent establishment under article 7 of the DTAA applying the Transactional net marginal method (TNMM) based on FAR analysis and activities carried out in India therefore the balance of Rs. 23.77 crores pertains to the work done outside India and is not taxable in India as per the provisions of the article 13 and article 7 of the DTAA. For this proposition he relied on the decision of the Hon'ble Supreme Court in the case of Ishikawajima Harima Heavy industries limited (288 ITR 408). It was further submitted that that once a portion of the FTS attributed to the permanent establishment as business profit than the balance fees cannot be taxed in the hands of the assessee as fees for technical services. For this he relied upon the decision of the Mumbai tribunal in case of Nippon Kaiji Kyokoi (2011 - TII - 115 - ITAT - MUM - INTL ). He furt....
X X X X Extracts X X X X
X X X X Extracts X X X X
....purchasing the services within the meaning of paragraph 4 (b) and similarly the use of a product which embodies technology shall not be considered to ' make technology available. In his arguments, main thrust was that that the BCCI has entered into this agreement for 9 subsequent events to be conducted of IPL and therefore had these technical expertise been obtained by the BCCI there was no need to award the contract to the appellant for such a long substantial period. He submitted that the services provided by the appellant are of highly specialized nature and do not make available technical know-how, skill etc to the BCCI. He relied on the decision of coordinate bench in case of NQA quality systems registrar Ltd versus Deputy Commissioner of Income Tax (2005) 2 SOT 249 (Delhi). He further referred to the several decisions on 'make available' concept. He further relied on the decision of the Hon'ble Delhi High Court in case of Guy Carpenter and company 346 ITR 504 on this concept. He further submitted that the reliance by the Ld. AO on the decision of the Supreme Court of India in case of Oberoi Hotels India private limited and on the decision of authority of advance ruling are mi....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng to him the balance of Rs. 23 crores shall be chargeable to tax as fees for technical services since assessee himself says that the amount of Rs. 33 crores is fees for technical services out of which Rs. 9 crores is falling within the provisions of article 13(6) of the act therefore obviously the balance amount of Rs. 23 crores is chargeable to tax as fees for technical services. He further submitted that whatever is covered under article 13 (6) that amount only changes the characteristics from the fees for technical services to the royalty and the balance shall always remain as fees for technical services chargeable to tax. He further submitted that it is not mandate of the law as well as the Double Taxation Avoidance Agreement that full sum which is fees for technical services, the moment it is found to be ' Effectively connected' to the Permanent Establishment, article 13 (6) of DTAA triggers, even if the small amount is charged to tax under article 7 of the DTAA , the balance amount is not to be taxed. 17. He further referred to the audited accounts of the company referring to page No. 47 of the paper book which is the profit and loss account for the year ended 31st of Mar....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ise and assist in connection with the rules and regulation relating to the registration, trading and auction of the players, hospitality guidelines in relation to the league, provision of legal handbooks, advise and assist in connection with the player contracts, management of the annual player trading window and assist in the creation or development of new intellectual properties relating to league and all such properties created will be the sole property of the Board of control for Cricket in India. Appellant shall also provide by bringing in global best practices in building and evaluating sporting properties and related aspects. He further referred to the clause No. 6 of the agreement which talks about the consideration being paid to the appellant of Rs. 33 crores as the payment, which is related to the consideration for the IPL 2009. In view of this, he submitted that all these are written documents and therefore they are made available to the BCCI. It is further submitted that all the intellectual property rights also belong to the BCCI and therefore nothing is left with the appellant. By citing all these clauses of the agreement, he submitted that the recipient has to be ena....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ervices stated at para No. 4, 5, 6, 10, 13, 14 all other services are being provided separately by the UK office to the BCCI in which there is no role of the Indian permanent establishment of the appellant. Therefore there has to be some amount of income which requires to be attributed to the such activities carried out by the head office which has no connection with the income which is attributed to the permanent establishment. Therefore he submitted that there is much more which should be charged to tax in India over and above whatever is attributed by the appellant himself to the permanent establishment of the appellant in India. Therefore he assailed that the argument of the appellant that if the amount is attributed to the PE there is no further attribution which is required to be done in case of the appellant. He submitted that for all the services other than those mentioned above which are specifically listed at page No. 5 of the assessment order only 5 to 6 activities are required to be carried out with the assistance of the permanent establishment whereas the balance activities are required to be carried out by the appellant from outside India independently. He further sta....
X X X X Extracts X X X X
X X X X Extracts X X X X
....herefore submitted that the argument of the appellant that as the Ld. TPO has considered the international transaction at arm's length does not have any relevance with respect to taxability of the balance sum over and above Rs. 9 crores. 23. He further submitted that there cannot be an overemphasis on MOU between India and the USA Double Taxation Avoidance Agreement. He further referred to para No. 5.2 to 5.4 of the order of the Ld. DRP wherein it has been held that in order to fall within the exceptions provided under section 9 (1) (vii) (b) that it is the source of income which needs to be considered and not the receipt which should be situated outside India. In the present case, he submitted that that in order to get the benefit of the exception it is necessary for the taxpayer to show that the technical services were utilized in a business carried outside India by the payer. He therefore submitted that source of the income of the appellant resides in India and merely because the event has been held outside India in South Africa the sources of receipt is irrelevant. He stated that the source of such income is BCCI who is hosting an IPL event and is residing in India. 24. H....
X X X X Extracts X X X X
X X X X Extracts X X X X
....tion of the revenue that the agreements have not been submitted by the assessee as stated in the para No. 7.5 of the agreement and the assessee may be directed to produce all such agreements to determine the correct nature of income of the appellant. 27. On the subsequent date of hearing the clarification was sought from the parties with respect to the services rendered by the permanent establishment of the assessee and services which are rendered by the head office of the assessee which are directly provided to the appellant and how they are effectively connected with the PE of the assesse, whether the issue of Rs. 23.77 crores was available before the Ld. transfer pricing officer while framing the order on the aspect of arms length price, further evidences were sought regarding details of services rendered by United Kingdom company to examine 'make available' concept and taxability or otherwise as per Indo UK DTAA of Rs. 23.77 Crores . 28. In response to this the Ld. authorized representative submitted a detailed reply dated 30 /06/2016. With respect to the query that how the services rendered by UK company to BCCI were effectively connected with the PE in India with respec....
X X X X Extracts X X X X
X X X X Extracts X X X X
....they do not constitute the fees for technical services as the 'make available' concept fails. He further submitted that had the technical know-how skill etc were made available to the BCCI it would not have given any contract to the assessee for 9 subsequent IPL events commencing from IPL 2009 event , therefore, that itself suggests that there is no satisfaction of 'make available' concept in the services rendered by the UK head office of the appellant. On query from the bench about the status of the subsequent assessment years he submitted that in subsequent years also the revenue has taken similar stand where over and above the attribution of profits to the permanent establishment accepted by the Ld. TPO , Ld. AO has taxed balance receipt taxable as fees for technical services. He further added that these issues are pending with the various authorities. 29. In the rejoinder to the submission dated 30/06/2016 of the appellant, Ld. Departmental Representative submitted that admittedly the Ld. TPO has held that no further income is required to be attributed to the PE and Ld. assessing officer has accepted by not attributing any further income to the permanent establishment of the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 7 and article 13 of DTAA , but off course there cannot be double taxation of the same receipt under the two articles and that is not the case here. He submitted that what is attributable to a permanent establishment and chargeable to tax under article 7 will get the benefit of deduction of expenses whereas in case of the article 13 it is chargeable to tax on grass basis. In view of above he vehemently supported the order of the ld AO. 30. We have carefully considered the rival contentions and perused the relevant material placed before us. We have also considered various judicial pronouncements cited by the parties before us. The short controversy involved in the present case is that appellant company has received Rs. 33 crores as remuneration in terms of a contract entered into with Board of control for Cricket in India (BCCI). Out of which assessee has contended that gross receipt of Rs. 92249819/-has already been offered for taxation claiming it attributable to its permanent establishment in India with respect to functions and activities carried out by its permanent establishment in India. Accordingly appellant offered resultant income as business income of Rs. 32804660/- af....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rgeable to tax in India as fees for technical services. Against this the claim of the revenue is that such amount shall be chargeable to tax as fees for technical services as under the article 7 only Rs. 9.22 crores have been held to be attributable to the activities of the permanent establishment and balance sum of Rs. 23.77 crores still remains the fees for technical services and it is further submitted that it satisfies 'make available' test and hence same is chargeable to tax under article 13 of the Double Taxation Avoidance Agreement. 31. The basic edifice of the controversy is based on 2 documents entered into between the board of control for Cricket in India as well as the appellant. The 1st is the memorandum of understanding between the 2 parties dated 13/09/2007 and service agreement dated 24/09/2009. According to the memorandum of understanding it has been agreed between the parties that appellant shall provide services by conducting research in respect of the appropriate structure for the IPL and make cut recommendations to BCCI. Further the appellant shall provide appropriate presentation documentation in the research on various presentations to be made based upon wh....
X X X X Extracts X X X X
X X X X Extracts X X X X
....conduct research into and prepare the following IPL foundation documentation in connection with it including: (a) the constitution of the IPL; (b) the authority of the Governing Council of the IPL (c) the structure of the tournament; (d) the IPL tournament rules and regulations (e) the franchise tender document (f) the franchise agreement and any necessary franchise regulations (g) the IPL implementation budget 1.4 In addition to the matters referred to in paragraph 1.1 to 1.3 above IMG shall carry out/ provide (as appropriate) the following: (a) the development of a rights management process in respect of the commercial rights and assets of any kind arising out of the IPL including, without limitation • Franchise rights • Media rights  Sponsorship rights • Official suppliership rights • Licensing and merchandising rights • Stadium signage rights Together the Rights (b) advice in respect of those of the Rights which may be 100% owned centrally and the division of the Rights between BCC1 and the Franchisees; (c) the preparation and execu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....bligation of the IMG was to provide the services set out in clause No. 4.1 and 4.2 of the service agreement and it is acknowledged between the parties that a significant portion of the services constitutes advice provided to the BCCI from outside India using appellant's international expertise and resources. Precisely the obligation of the appellant are as under:- "4. IMG's Obligations IMG shall during the Representation Period provide the services set out in Clauses 4.1 and 4.2 (the "Services") it being acknowledged that a significant proportion of the Services constitutes advice provided to the BCCI from outside India using IMG's international expertise and resources. 4.1 Having carried out research and advised the BCCI in connection with the with the formation and governance of the League and IPL, IMG shall continue to advise and assist BCCI in connection with, the following: (a) the structure of the League; (b) the League rules and regulations; (c) the Franchise agreements and any necessary franchise regulations: (d) the League implementation budget; and (c) the Media Rights agreements. i 4.2 the addition to the matte....
X X X X Extracts X X X X
X X X X Extracts X X X X
....idelines in relation to the League and implementation of hospitality in the latter "case in a latter case in manner to be mutually discussed and agreed; (n) the provision of a League handbook; (o) advice and assistance in connection with the Player contracts; (p) the establishment and maintenance of the player registration system (q) the management of the annual Player trading window; (r) provision of the requisite manpower that is required to carry Out such activities as are within IMG's control in connection with the successful naming of the League and Matches including the provision of a CUIH staffed, office to do the same, at the sole cost of MG; (s) the hiring of whatever resources are required to fully perform IMGs obligations under this Agreement at the sole cost of IMG; (t) advice and assistance in connection with Anti Doping and WADA Compliance Regulations; (u) assistance in the creation / development of new intellectual properties relating to the league. All such properties created will be the sole prop of BCCI (v) carrying out research in consultation with BCCI each year to ascertain un ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....IPL foundation documents, including: rules and regulations, franchisee tender documents, franchisee agreements, franchisee regulations, IPL implementation budget, drafting tender documents relating to media and sponsorship rights, etc. 4. Assistance in respect of development of and advise relating to commercial rights management process with respect to franchise rights, media rights, sponsorship rights, licensing and merchandising rights, stadium signage rights, official vendor rights etc. 5. Formulation/ preparation of marketing strategies for franchise tender 6. Formulation/ preparation of marketing strategies for media rights, sponsorship rights, official supplier rights, licensing rights, etc. 7. Formulation of policies/ procedures and work plan relating to management of the franchise tender process in India 8. Formulation of policies/ procedures and work plan relating to management of the sales process in respect of the various aforementioned rights in India 9. Preparation of and offshore assistance in negotiation of contracts with sponsors, media, successful franchisees etc. 10. Preparation of television production specifications 11. Formulating policies/ procedur....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ertise by working on similar contracts in the past and is well acknowledged in the Industry for its experience/ knowledge in assisting clients in the management of sports/ cricket events. 4,4.2, Functions performed by IMG India PE As part of the execution of the contract, a certain set of activities were required to be undertaken in India. Accordingly, some of the discussions/ negotiation processes between BCCI and various other parties (like franchises, sponsors, media partners, etc.) happened in India since the 2009 event was scheduled to take place in India. For this purpose, IMG UK employees came to India from time to time for short term visits. Further, few freelancers were appointed/ engaged by IMG UK for undertaking the on-ground implementation and related supervision activities in India. However, for reasons explained earlier in the report, the event was finally hosted/ held in South Africa. The announcement of the event location shifting from India to South Africa was made on March24, 2009, till which time the on ground preparations for the event were being done in India. Accordingly, for the 2009 event, IMG India PE was involved in performing the following act....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rs, franchisees, player auction process, etc. in India; organizing the implementation of the event in India viz. coordinating with various third parties in India to ensure that facilities/ arrangements at the match locations are in line with the desired IMG UK guidelines; providing/ managing logistics, manpower support in India relating to running of the event and undertaking related administrative support activities, assistance in negotiation of contracts with sponsors, media, successful franchisees etc.; undertaking market/ industry research to assist IMG UK in identification of prospective sponsors in India. The logistic activities essentially involved making arrangements for travel bookings, room bookings, commuting of IMG staff, etc. As mentioned earlier, IMG UK/ IMG India PE sub contracted certain routine services relating to on-ground implementation/ running of the event to IMC India Branch. IMG India PE was involved in/ responsible for overseeing and managing the liaisoning and implementation support activities undertaken by IMC India Branch. All these aforesaid activities were undertaken by IMG India PE under the framework, guidelines and policies prepared by IMG UK ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the BCCI Marks generally and, in particular, at any relevant Stadia; 10. Along with IMG UK, development/ customization of League handbook and creation of the IPL match schedule; 11. Assistance in connection with Anti-Doping and WADA Compliance Regulations: 12. Development of the strategic brand framework for BCCI and manage brand IPL working with the BCCI team, 13. Dealing with the Stadia authorities and vendors/ suppliers, etc for management and implementation of an accreditation system relating to entry/ exit of players, franchisees etc into the stadia, etc; and 14. Assistance in preparation of hospitality guidelines in relation to the league and implementation of hospitality." 35. Based on the above FAR analysis of the Indian permanent establishment of the assessee, the Ld. TPO passed order under section 92CA (3) on 31/12/2013 wherein he has examined the transfer pricing documentation of the assessee with respect to fees for technical services amounting to Rs. 92249819/- , event management expenses of Rs. 11909828/- and reimbursement of expenses of Rs. 53430529/- totaling in all to Rs. 157590176/- pertaining to the transaction ent....
X X X X Extracts X X X X
X X X X Extracts X X X X
....he revenue has resulted into the exercise of attribution of profit to the permanent establishment and taxation of income of the appellant to that extent on net basis after deduction of the expenses. It is interesting to note that in the present case there is only a service PE which has come into existence only because of the on- ground implementation and related event management and supervision activities in India by deputation of staff and appointing third parties. It does not talk about the services which have been rendered by the IMG UK directly from the head office to the board of control for Cricket in India. On specific query by the bench that how the services rendered by the United Kingdom company to BCCI were effectively connected with the permanent establishment in India the appellant has given an answer stating that the contract is in all circumstances is effectively connected with the permanent establishment and therefore the conclusion that the instant case only article 7 will apply. The Ld. appellant further stated that the effective connection has to be read in relation to the contract and not in relation to the services rendered and during the year assessee has only ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....sequent years, 15 per cent of the gross amount of such royalties or fees for technical services; and (b) in the case of royalties within paragraph 3(b) of this Article and fees for technical services defined in paragraph 4(b) of this Article, 10 per cent of the gross amount of such royalties and fees for technical services. 3. For the purposes of this Article, the term "royalties" means : (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, including cinematography films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic. 4. For the purposes of paragraph 2 of this Article, ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 15 (Independent personal services) of this Convention, as the case may be, shall apply. 7. Royalties and fees for technical services shall be deemed to arise in a Contracting State where the payer is that State itself, a political sub-division, a local authority or a resident of that State. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the obligation to make payments was incurred and the payments are borned by that permanent establishment or fixed base then the royalties or fees for technical services shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated. 8. Where, owing to a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties or fees for technical services paid exceeds for whatever reason the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In that cas....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... establishment to those transactions bears to that of the enterprise as a whole shall be treated for the purpose of paragraph 1 of this Article as being the profits indirectly attributable to that permanent establishment. 4. Insofar as it has been customary in a Contracting State according to its law to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraphs 1and 2 of this Article shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as may be necessary; the method of apportionment adopted shall, however, be such that the result shall be in accordance with the principles laid down in this Article. 5. Subject to paragraphs 6 and 7 of this Article, in the determination of the profits of a permanent establishment, there shall be allowed as deduction expenses which are incurred for the purposes of the business of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere, which are all....
X X X X Extracts X X X X
X X X X Extracts X X X X
..... Where profits include items of income which are dealt with separately in other Articles of this convention, then the provisions of those Articles shall not be affected by the provisions of this Article." 38. Now the issue arises is whether the whole contract is 'effectively connected' with the permanent establishment or part of the services are 'effectively connected' with the permanent establishment. On reading of the above two agreements and the transfer pricing study report submitted by the assessee, more specifically at para number 4.4.2 are the functions performed by the permanent establishment of the appellant in India and para number 4.4.1 shows what are the functions performed by the IMG UK. It is further mentioned in the transfer pricing study report that certain routine services relating to on ground implementation and running of the event was subcontracted to the IMC India branch. The IMG India PE was involved in/responsible for overseeing and managing the liasonsing and implementation support activities undertake taken by the IMC India branch. It is also important to note that how this functions were performed it was stated in the transfer pricing study report of t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....n concerned with the functioning of the permanent establishment therefore in our view only the activities which are performed by the permanent establishment are effectively connected with the permanent establishment and activities which are not carried on by the permanent establishment but are carried out by the head office of the appellant are not 'effectively connected' with the permanent establishment. We are also of the view that the term 'effectively connected' should not be understood to mean the opposite of 'legally connected' but rather something in the sense of 'really connected'. Therefore the activities mentioned in the contract should be connected to the permanent establishment not only in the form but also in substance. It is also interesting to note that the permanent establishment of the assessee has been admitted by the appellant only because of the reason that some of the employees of the appellant came to India from time to time for short visit and further certain freelancers were appointed for undertaking the own ground implementation related supervision activities in India. Therefore according to us there are minimum activities performed by the PE of appellant i....
X X X X Extracts X X X X
X X X X Extracts X X X X
....refore according to us the taxability under article 13 shifts to the taxability of article 7 only in respect of fees for technical services which are 'attributable' to the PE in question. Therefore the article 13 (6) of the Double Taxation Avoidance Agreement shall apply only to the extent of the activities carried on by the appellant through its permanent establishment. In view of this we are of the view that activities carried out by the appellant which are not at all connected with the activities of the permanent establishment are not covered by article 7 or 15 of the Double Taxation Avoidance Agreement between India and United Kingdom and same shall remain as fees for technical services under article 13 only. Therefore natural corollary that follows is that whatever is income excluded by the applicability of article 13 (6) and goes back to article 7 is the same amount. 40. Our this view is also supported by the provision of article 13 (6) of the DTAA which provides as under :- (6) . The provisions of paragraphs 1 and 2 of this Article shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries o....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... the permanent establishment of the appellant. We are of the view that activities carried on by the foreign office of the assessee are not at all arising through the permanent establishment of the appellant in India. Therefore one of the condition of the about twin conditions also failed in case of the appellant. Once again we would like to reiterate that for the purpose of applicability of article 13 (6) with respect to the fees for technical services one has to apply the activity test of the permanent establishment in the source country is held by the coordinate bench in case of the Nippon Kaiji Koyokoi V ITO ( supra). 42. Therefore we reject the contention of the assessee that out of 33 crores Rs. 9 crores are effectively connected with the permanent establishment of the appellant, the balance 22 crores cannot be taxed in India under article 13 as fees for technical services. Our one more reasons for holding such a view is that according to us there is no distinction between the two phrases used into two different articles of the Double Taxation Avoidance Agreement. These two phrases are (1) "attributable to ' in article 7 of the Double Taxation Avoidance Agreement, and (2) '....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... is used in the sense of one person supplying or transferring or imparting technical knowledge or skill or technology to another and technology is considered 'made available' only when the services receiver is enabled to absorb and apply the technology contained therein. If the services do not have any technical knowledge the fees paid for it do not fall within the meaning of fees for technical services as per the article 13 of the India UK DTAA.. The services receiver is able to make use of the technical knowledge etc by himself in his business or for his own benefit and without recourse to the service provider in future and for this purpose the transmission of the technical knowledge, experience, skill, etc from the service provider to the services CP is necessary. In other words the technical knowledge, experience, skill etc must remain with the service recipient even after the rendering of the services has come to an end and the services receiver is at liberty to use the technical knowledge skill know-how and processes in his own right. In the present case the assessee has hired for conducting research in respect of the appropriate structure for the IPL and makes recommendation....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... different. In the present case the services of the head office which are directly provided from the United Kingdom are no way related to the services of the permanent establishment of the appellant. In view of this we reject the contention of the assessee that issue is covered by the above decision of the coordinate bench. In view of this we also disagree with the direction of the Ld. Dispute resolution panel to the Ld. assessing officer to assess fees for technical services as business income on substantive basis by applying the formula of gross receipts with respect to the expenditure. 46. Further with respect to ground No. 7 and 8 of the appeal of the appellant saying that receipt of Rs. 237750181/-fall under the exception provided under section 9(1) (vii) (b) of the Income tax act as the services have been rendered outside India and the income is generated in the hands of the BCCI outside India. The provisions of section 9 (1) ( vii) are as under :- . (vii) income by way of fees for technical services^55 payable by- (a) the Government ; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or ....