TaxTMI 
TaxTMI 
2016 (11) TMI 666
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....apply with equal force for the Asst Year 2011-12 also as the issue involved therein is identical except with variance in figures. 3. The brief facts of this issue is that the assessee company is a tax resident of Finland and is engaged inter alia in the business of providing innovative and environmentally sound solutions for a wide variety of customers in metals and mineral processing industries. The assessee filed a NIL return for the Asst Year 2010-11 on 28.3.2012. During the year under consideration, the assessee earned revenue from management support and other services. These services are provided to its group company Outotec India Pvt Ltd and the revenue earned was Rs. 82,22,381/-. The ld AO proposed to bring this amount to tax as 'Fee for Technical Services (FTS)' . The assessee contended before the ld AO that the services provided by it are managerial services and these services fall outside the definition of FTS under India -Finland DTAA. The assessee also contended that no services have been made available so as to tax the amount as FTS. 4. The ld AO did not accept the contentions of the assessee and held that these services constituted FTS and passed the draft asses....
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....n tax matters, human resource services, advises in HR, legal services, making available developing and maintaining agency and marketing company network for the group companies, making market area reports for the group companies quarterly etc. It observed that the above nature of services clearly indicate that :- (a) These services fall under the category of consultancy services. (b) The services with regard to IT Infra set up fall under the category of technical services which was also admitted by the assessee. (c) The reports on marketing, HR services are definitely useful for the Indian group company which definitely can use on its own later which satisfy the make available clause. (d) The training services amount to provision of manpower services and the citus of manpower provision is not relevant. 4.2. Accordingly, it held that the services rendered by the assessee company to be FTS and accordingly upheld the action of the ld AO in taxing the same in the sums of Rs. 82,22,381/- and Rs. 1,66,45,061/- for the Asst Years 2010-11 and 2011-12 respectively. 5. Aggrieved, the assessee is in appeals before us on the following grounds:- ....
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....sed in the definition of 'FTS' provided under Article 13(4) of the DTAA (as applicable during the FY 2010-11 and FY 2011-12) and hence such services do not fall under the ambit of FTS. Wherever the intention of all the countries is to include managerial services, the same has been expressly provided, such as India-Singapore DTAA, India -France DTAA etc. In the amended India -Finland DTAA which has come into force w.e.f. 1.4.2011, the word 'managerial' has been included under the definition of FTS, which itself proves that under the old DTAA , such services were not included. Secondly, the services rendered to Outotec India Pvt Ltd and other Indian parties for Asst Year 2010-11 do not 'make available' technical know-how, skills to the recipients. The meaning of word 'make available' has not been defined in India -Finland DTAA and hence the ld AR placed reliance on the Protocol to the India -USA DTAA which has a similar provision to determine the meaning of 'make available'. He argued that the ld AO contended that the meaning of 'make available' from India-US treaty cannot be drawn into India -Finland treaty by relying on the decision of Authority of Advance Rulings (AAR) in the case....
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.... the ld DRP. He placed reliance on the decision of the Chennai Tribunal in the case of Foster Wheeler France S.A. vs DDIT reported in (2016) 67 taxmann.com 120 (Chennai Trib) dated 5.2.2016 and the decision of Cochin Tribunal in the case of US Technology Resources (P.) Ltd. v. Asstt. CIT reported in (2013) 39 taxmann.com 23 (Cochin Trib) in support of his arguments. 8. We have heard the rival submissions and perused the materials available on record. We find that the essence of the arguments of the assessee before the lower authorities and by ld AR before us are two fold:- (i) The services under the agreement are not technical or consultancy in nature and (ii) The services are not made available by the assessee The arguments of the ld DRP and ld DR before us could be briefly summarized as under:- (i) The services rendered by the assessee are technical in nature and make available technical knowledge, skill, process etc since the services are capable of being replicated by Outotec India Pvt Ltd through its own personnel (ii) The meaning of the term 'make available' cannot be drawn from the India - US protocol as treaty with one country canno....
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....le is received; or (c) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design." In our considered view, in order to be covered by the provisions of Article 13(4) of the India -Finland DTAA, not only the services should be of technical in nature but such as to result in making the technology available to the person receiving the technical services. We also agree that merely because the provision of the service may require technical input by the person providing the service, it cannot be said that technical knowledge, skills, etc are made available to the person purchasing the service. As to what are the connotations of 'making the technology available to the recipient of technical services' , as is appropriately summed up in protocol to Indo -US DTAA , "generally speaking, technology will be considered 'made available' when the person acquiring the service is enabled to apply the technology". Reliance in this regard has been rightly placed by the ld AR on the third member decision of the co-ordinate bench of this tribunal in the case of CESC Ltd vs DCIT reported in 8....
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....A between India and USA, a description concerning fees for included services in Article 12 and paragraph 4 (in general) have been given. Examples of services intended to be covered within the definition of included services and those intended to be excluded have been given. The Memorandum explains how Paragraph 4(b) of Article-12 has to be understood. The Memorandum explains that Article 12(4)(b) refers to technical or consultancy services that make available to the person acquiring the services, technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plant or technical design to such person. The Memorandum explains category of services referred to Article 12(4)(b) as 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. It further explains that generally speaking, technology will be considered made 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 t....
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....ke available to the Indian company technical knowledge, skill and processes. Example 4 Facts : A U.S. manufacturer operates a wallboard fabrication plant outside India. An Indian builder hires the U.S. company to produce wallboard at that plant for a fee. The Indian company provides the raw materials, and the U.S. manufacturer fabricates the wallboard in its plant, using advanced technology. Are the fees in this example payments for included services ? Analysis : The fees would not be for included services. Although the U.S. company is clearly performing a technical service, no technical knowledge, skill, etc., are made available to the Indian company, nor is there any development and transfer of a technical plant or design. The U.S. company is merely performing a contract manufacturing service. Example 5 Facts : An Indian firm owns inventory control software for use in its chain of retail outlets throughout India. It expands its sales operation by employing a team of travelling salesmen to travel around the countryside selling the companys wares. The company wants to modify its software to permit the salesmen ....
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....5 of Article 12 describes several categories of services which are not intended to be treated as included services even if they satisfy the tests of paragraph 4. Set forth below are examples of cases where fees would be included under paragraph 4, but are excluded because of the conditions of paragraph 5." 12.2.1. The Memorandum of understanding is a tool to understand as to what meaning was intended to be conveyed in the DTAA between countries. Since the wording of Article 12(4) and 13(4) of the treaty with Singapore and UK respectively and Article 12(4)(b) of the DTAA between India and US are identical, the MOU to the Indo-US treaty can be looked into to see what meaning India and Singapore / UK (as the case may be) would have contemplated in the treaty. The law is settled that a DTAA with one country can be compared with the DTAA with another country in case of ambiguity and in order to understand the true scope and meaning of the concerned DTAA. The Hon'ble Karnataka High Court in the case of A.E.G. Telefunken v. CIT [1998] 231 ITR 129 compared the DTAA with German Democratic Republic with the DTAA with Finland towards this end. 12.2.2. The Mumbai Ben....
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....ingapore and UK Subsidiaries to the assessee made available to the assessee , such services , for its future use or utilization on a reasonably permanent basis. Hence the consideration paid thereon by the assessee would not fall under the ambit of fees for technical services as per the treaty. 8.4. Similar views were expressed by the Hon'ble Karnataka High Court in the case of CIT & Ors vs De Beers India Minerals (P) Ltd reported in (2012) 346 ITR 467 (Kar) wherein it was held that :- if the assessee is able to carry on his business in future without the technical service of the service provider in respect of services rendered then, it would be said that technical knowledge is made available - Furgo has not made available the technical knowledge with which they rendered technical service - Though Furgo rendered technical services as defined under section 9(1)(vii) Explanation 2, it does not satisfy the requirement of technical services as contained in DTAA - Liability of tax is not attracted - The case on hand does not fall in the second part of the 'Fee for technical services' clause in DTAA dealing with development and transfer of plans and designs - Both the substant....
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...., when the specifications and other procedures are made available to the assessee-company and the foreign company is reviewing and tracking the execution plans periodically, not only the execution but also the project budget and client satisfaction, it was held by the Tribunal that Foster Wheeler USA has made available its technical knowledge, expertise, knowhow in execution of the contract by the assessee in India. The company was receiving technical services like specifications, procedures, project management, etc. and it was utilizing the same in the project undertaken with Reliance Petroleum Limited. The specifications, technical knowledge, advice received from Foster Wheeler France S.A was vey much available with the assessee- company and it can be used in execution of the engineering and contract with other clients. In the instant case before us, as already stated , what was rendered was only managerial services without any transfer of technology, knowhow, skills etc and it is a recurring service year after year. Hence the case relied upon by the ld DR is not applicable to the facts of the instant case. 8.7. Similarly the decision of Cochin Tribunal in the case of US Techn....