TaxTMI 
TaxTMI 
2018 (1) TMI 944
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....visages that PRG will furnish, on a turnkey 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 A....
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....nical services. In support, the applicant relies, inter alia, on the decision 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....
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....han those mentioned in Article 14 and 15 of this Convention, to any person in consideration 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 ....
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....jection at all of the applicant into the soil of India. It has also never been PRG's intention to stay in India to pursue 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 vind....
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.... of the services. This also meant that for the management of risks it was necessary for the applicant to be available at the 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 respo....
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....e state. Hence, the requirement of performance of business operation for months or years together is irrelevant. The time period for which the applicant is operating cannot be a deciding factor 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 pe....
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....a) Disclose all works to Delhi 2010 on creation. (b) Provide the original versions of the works to Delhi 2010 upon request by Delhi 2010. (c) Execute all documents and do all other things as reasonably required by Delhi 2010, 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....
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..... It is submitted that the case of Formula One World Championships as cited by the Revenue, was clearly distinguishable from the facts of the instant case, and in fact supports the case of the applicant, inasmuch as it did not have any or full control over the space provided to it by Delhi 2010, as referred 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 ca....
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....ing, insurance etc. 9.4 For carrying on the above business and related activities, over which it has full right and power to perform, as per Sch. 2, the Applicant has been provided among other facilities, office space as well as on-site space. Further it is seen from paragraph 5 of Sch. 4 that Delhi 2010 provided the Applicant and 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 precisio....
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....t length by the Hon'ble Supreme Court. The project per se and the nature of activities may be less cumbersome and complex as against the case of FOWC, but looking into the job assigned to the Applicant in the whole gamut of activities involved in conducting the Common Wealth games, the presence required would obviously be much lesser compared 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 ....
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.... even after installation, they are at its sole disposal and control so it could effectively and efficiently discharge its obligations of lighting etc. at the ceremonies. Goods are not ordinarily insured when lying at a third person's premises. 9.8.2 Similarly, the fact that it was mandatory for the applicant to acquire all authorizations, permits 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 I....
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....ting the tests. Hence, the payment received could not be termed as royalty. Citing Klaus Vogel, it was clarified that a contract for provision of know how was different from that of providing services. 10.3 Revenue has missed this vital distinction between a consideration received for assigning the rights for the use of the final product on the one hand, and 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") unde....
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....iving the service, but were complex and could not be availed without the assistance of highly trained technical personnel, as they were not routine and mechanical, as stated by the Applicant. Also, "rendering" does not necessarily imply going on forever. As long as the Applicant was present in India it was rendering these services, till the events, starting with the 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 Port....