TaxTMI 
TaxTMI 
2018 (1) TMI 944
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....basis, lighting and searchlight services during the opening and closing ceremonies of the Commonwealth Games Delhi, 2010. As a consideration, OCCG agreed to pay fees of USD 3.5 million, inclusive of the withholding and service tax, in installments. Four invoices were raised, of which payments have been made against three after withholding tax at source, and issued a certificate under section 203, on 9 February 2011, in form number 16A. 3. PRG rendered the services in conformity with the agreement dated 09.07.2010 for two days, namely 3 October 2010, at the opening ceremony, and on 14 October 2010 at the closing ceremony. Its employees and equipments were in India for a period of only 66 days for preparatory, installation and dismantling of equipment from 2.8.2010 to 24.10.2010. 4. On the above facts, the applicant has raised following questions: 1. Whether on the facts and in the circumstances of the case, the payments received/to be received by the Applicant for rendering, lighting and searchlight services to the Organizing Committee, Commonwealth Games 2010, Delhi (hereinafter referred to as "ÖCCG") under the Agreement dated 9th July, 2010 would be taxable in India....
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....on of the Madras High Court in the case of Skycell Communication Ltd. v. CIT, 251 ITR 53. 5.3 It is submitted that if the said payments cannot be brought within a specific head, they cannot be brought to tax under any other general provision. In view of this position it is submitted that the said payments made to PRG are not taxable under the provisions of the Act. 5.4 With reference to question number 2, it is submitted in any case, even if rendering of lighting and searchlight services to OCCG were to be taxable in India under the provisions of the Act, the same would not be taxable in view of the Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion with respect to taxes on income, between the Government of India and the Government of Belgium, read with the Protocol between the Government of India and Kingdom of Belgium, read together with the Agreement for Avoidance of Double Taxation and Prevention of Fiscal Evasion between the Government of India and the Government of Portuguese Republic. 5.5 It is submitted that Article 12 of the DTAA between India and Belgium, bereft of the protocol, broadly has the same definition of fees for technical services as ....
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....on of the rendering of any technical or consultancy services (including the provision of services of technical or other personnel) if such services: (a) Are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in para 3 is received, 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 which enables the person acquiring the services to apply the technology contained therein. The Applicant has quoted the other provisions contained in the DTAA, regarding the exclusions, if earned through a PE, etc. 5.10 It is submitted that the phrase "make available" has been adjudicated and deliberated by the Hon'ble Authority for Advance Ruling in several judicial precedents. The crux of the aforementioned expression is that the mere rendering of service is not enough to attract Article 12, but it goes further and mandates that the service should be aimed at and result in transmitting the technical knowledge, etc. so that the payer could derive an enduring benefit and utilise the knowledge or know-how in futu....
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....ursue other business. Mere business relations with the enterprise or other customers is insufficient for the existence of a PE. In that view of the matter, the applicant urges that its activities, when tested on this foregoing anvil, does not give rise to a PE. Moreover, the import and purport of the phrase "Permanent Establishment" inherently and intrinsically carries with it the characteristics of continuity, regularity, stability and sufficient duration of an activity, and applying these yardsticks the transient presence of the Applicant cannot be regarded as a PE. Besides, none of the characteristics and ingredients mentioned in the various clauses of Article 5 of the DTAA is present in the case of the applicant so as to form and constitute a PE. Further, norms of place of business, power of disposition, permanence, location, business activity and business connection which cumulatively and collectively are the sinequa non for drawing an inference of the existence of a PE, are absent in the applicant's case. 5.13 Thus, the activities of the Applicant do not vindicate a finding that there is a PE. As such, the said payments would not be taxable in India under Article 7 of the DT....
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.... site throughout. 6.3 As per Schedule 2 of the said agreement, sub-paragraph (b) of para1of the Scope of Work, it is seen that the Delhi 2010 will supply a 3 phase supply with a line neutral voltage between 220 V and 250 V at a frequency of 50 Hz at each power distribution centre. The system will be powered by multiple synchronised generators for the ceremonies on a 24 hour basis. The applicant shall be responsible for supplying mains distribution, and mains cabling from the Delhi 2010 power supply locations to the equipment supplied by the service provider. Also, the service provider shall supply all appropriate wiring stalls,(including any necessary plugs or otherwise to suit the wiring locations), mains distribution, and mains cabling from the wiring or connection points to the fixtures and fittings as specified in the Schedule 2. Furthermore, the service provider shall provide a complete power turnkey solution for all areas of supply as detailed in this Scope of Works. 6.4 As mentioned above, as per Schedule 2, it is clear that the applicant is responsible for supplying mains distribution, and mains cabling from Delhi 2010 power supply locations to the equipment supplied alon....
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....tor for PE in such a scenario. The reliance has been placed on the decision of the Hon'ble Supreme Court in the case of Formula One World Championship Limited [2017] 80 taxman.com 347. 6.8 It is stated that in this case it was held, on the question whether fixed place of business in form of physical location was at the disposal of the assessee throughout, from which it conducted business, that a taxable event had taken place in India and the non-resident assessee was liable to pay tax in India on income it had earned in India, through the race track over which it had complete control during the period of the race. Whether the question of PE had to be examined keeping in mind the duration of the event, which was for limited days or for the entire duration, since it had full access to its personnel, hence, number of days for which access was there would not make any difference. 6.9 In view of the above contentions, it is the claim of Revenue that the applicant had a PE in India during the period under consideration. 7. Revenue has further submitted that as per clause 3 (a) of Article 12 of the DTAA between India and Belgium, the term 'Royalties' means payments of any kind received....
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....010, and (d) Not use the games IP or the works in any manner without the prior approval of Delhi 2010. It is stated that the above clauses clearly show that in fact intellectual property is created by way of specific design, patent, plan or process which is not known to others, and the same has been provided to the organisers of the games, i.e. Delhi 2010. 7.4 Further, in clause 6 of the Deed of Assignment, the applicant company warranted that: (a) It owns all rights, title, and interest, throughout the world in the intellectual property rights in the works; (b)...................... (c) ..................... (d) The use of the works by Delhi 2010 and/or its nominees will not be the intellectual property rights and/or moral rights of any third party. 7.5 As per clause 3 of Schedule 7 which is a form/instructions to on-site personnel it is seen that this is the kind of information given by the applicant company to its employees/personnel employed by it in connection with the Delhi 2010. The said clause reads as under: 4. Intellectual property "You acknowledged that Delhi 2010 shall own all existing and future intellectual property rights in any material created, gen....
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....ed to in paras 70 and 74 of this judgment. It is also submitted that the fact that it had an insurance cover in no way leads to the constitution of a PE. 8.2 With regard to the issue of Royalty, as claimed by the Revenue, the applicant has reiterated its earlier submissions, and also drawn attention to the case of Anapharm Inc. [(305 ITR 394)(AAR)]. 8.3 In response to the above the Revenue has again insisted that in terms of the decision in the case of Formula One, the space given to the applicant was fully controlled by it. Apart from this it had given subcontracts and taken insurance, which shows that it was doing its business from the space provided, and the same constituted a PE in India. MrIrani, however, submitted that fixing a light on a pole did not constitute a PE and the space provided to it was not in any way controlled by it. He has again drawn attention to the case of Visakhapatnam Port Trust, to make the case that the project undertaken by it was not an enduring one and was done on a turnkey basis for a short duration only, and hence no PE was established on the premises of the Delhi 2010. 9. We have considered the submissions of the applicant, the objections raise....
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....d its subcontractors' lockable space for storing its tools and equipments inside the Stadium. Thus it has, at its disposal, space which is "lockable", implying that it has access to and control over this space, to the exclusion of every other of the numerous other providers engaged by the Delhi 2010, and even of the Delhi 2010. This space is not merely for storage alone, but looking into the nature of business, it is for carrying out the business itself, and hence cannot be discarded or excluded. And, it is not far removed but in the JawaharLal Nehru Stadium precincts itself, where the fruits of its income generating efforts will be on display. Paragraph 9 of Sch. 4 also stipulates that Delhi 2010 will provide a covered area for storage of equipment and the required security at all times. Looking into the expensive equipment, the time lines, the precision involved and the highly technical nature of the work involved, it is inconceivable that such facility would not be at its disposal with exclusive right to access and under the control of the Applicant. The general Conditions also reveal that Delhi 2010 shall provide the Applicant "empty" workplace and covered area. The word empty....
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....ed to FOWC in its own context. The complexity and length of time in two different sporting events in itself cannot weaken the argument that for carrying out the assigned business, it had an identifiable place of business at its disposal, and the duration itself and the degree of permanence was for as much time as its business required. The length of time has to be necessarily tied to the nature and requirements of the business under consideration. And, in this case the nature of the project required a continuous effort till the games were over and even later. 9.7 As pointed out by the Revenue, with reference to Sch. 2, that the various clauses therein indicate the tasks performed by the Applicant, including providing 3 phase supply, multiple synchronized generators, mains distribution and mains cabling, till its equipments were handed over or shipped. All these were part of the turnkey project, and hence to say that it provided services only during the opening and closing services is incorrect. All these services were an integral part of the project, and covered a much longer period. In fact the project continued to a much later date, when all the facilities were either handed ove....
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....s and licenses is indicative of the fact that it had a definite place at its disposal, as it could otherwise not be made liable for any default in the absence of the same. Again, it is inconceivable, in fact impossible that the Applicant could have carried out fabrication, maintenance and repair functions, or even operate the same at the opening and closing ceremonies at / from a premises in someone else's control and custody. 9.9 In conclusion it has to be said that the Applicant had indeed met each of the criterion for establishing a PE, as enumerated by itself, namely place of business, power of disposition, permanence of location, business activity and business connection which cumulatively and collectively are the sine qua non of a PE. In view of this position, the Applicant's income arising from this PE was chargeable to tax in India as business income, and will be dealt with as per the provisions of Article 7 of the India Belgium DTAA. 9.10 The above income is also covered within the meaning of section 9(1)(i) of the Income tax Act 1961, since the same has arisen and accrued from a business connection, which is wider in scope than a PE, and from a source in India. 10. Sin....
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....d for assigning the rights to use the knowhow, technical experience, skill, processes and methodology, ie. the intellectual component involved in creating the final product on the other hand. Giving the right to use the final product would lead to business income, and not royalty. 10.3.1 In the case at hand, as per Sch. 2: Scope of Work, the Applicant is providing "services" of lighting/searchlight and also earns rental for the supplied items, installation, maintenance, dismantling etc. Vide the Deed of Assignment, clause 3, the Applicant assigns to Delhi 2010, all the rights, title and interest, etc. in (a) any materials, works and other subject matter created or supplied by it, and / or by its personnel for use in the Games; and also (b) the results and proceeds of all other activities (together known as the "Works") undertaken in connection with the games. Clause 4 allows Delhi 2010 to deal with the Works in any manner. In Clause 5 the Applicant agrees to disclose all the Works and provide the same to Delhi 2010, as also transfer the title to the same to Delhi 2010. 10.4 Thus what has been assigned are the rights to use the final product, the Works, ie. providing equipment and....
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....e preparatory work, since the laying of cables, switching systems etc. were also highly technical in nature, and were part and parcel of the project. Even if we consider the final product, and the lighting display itself, the same were highly technical, complex and not such that the Delhi 2010 officials and staff could operate them on their own. Hence, the services rendered were in the nature of technical services, as contemplated under the Act. 11.1 However, when we consider the Applicant's submission with regard to the provisions of the India Belgium DTAC, read with its Protocol and also read with the DTAC between India and the Portuguese Republic, an issue separately raised by it in question number 2, we cannot escape from limiting the scope of Article 12, as applicable in this case. Since the Treaty with Portugal speaks of " make available", in the context of the definition of "fees for technical services", the same needs to be imported into the India Belgium Treaty, and the definition of fees for technical services needs to be re-examined in this light. 11.2 In view of the above, we have to agree with the contention of the Applicant. Taking a restricted view of the term, it....