TaxTMI 
TaxTMI 
2018 (11) TMI 1604
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....law, the AO/ Dispute Resolution Panel ("DRP") has erred in holding that the IT services provided/rendered by the Appellant qualify as fees for technical services as per the India - Belgium tax treaty (read with India-Portugal tax treaty), since such services fall within the meaning of 'make-available' prescribed in the tax treaty. 3. That the AO/ DRP did not discuss in detail as to how the group IT services rendered by the Appellant from Belgium qualify the test of "makeavailable" under the tax treaty. 4. That on the facts and circumstances of the case and in law, the AO has erred in holding the entire income earned by the assessee as taxable in India, thereby denying the refund claimed. 5. That without any prejudiced to above, while calculating the demand, the A.O has erred in apply the surcharge and cess on the gross treaty rate of 10% applicable on fees for technical services. 6. That without any prejudice to above, the AO has erred in computing interest under section 234A the Act. 7. That on the facts and circumstances of the case, DRP has erred in not examining the validity of such initiation of penalty proceedings u/s 271(1)(c) of ....
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....as fees for technical services (FTS). The assessee filed objections before the DRP and the DRP vide directions dated 27.08.2014 dismissed the objections. The Assessing Officer made addition on fees for technical services in respect of royalty for Rs. 1,78,10,592/-. 5. Being aggrieved by the assessment order, the assessee filed present appeal. 6. The Ld. AR submitted that the assessee company was incorporated and registered under the laws of Belgium and is engaged in providing support services to its group companies. During the year under consideration, the assessee company provided Information Technology ("IT") support services in India to Magotteaux Industries Private Limited ("MIPL"/"AE"). The assessee company entered into an agreement dated December 3, 2008 with MIPL (effective from January 1, 2008) for rendering IT support services. The assessee company filed its return of income for the present assessment year on March 20, 2013 declaring Nil income. The case was selected for scrutiny and notice under section 143(2) of the Income-tax Act, 1961 was issued on August 12, 2013. The Assessing Officer proposed an addition amounting to INR 1,78,10,592 holding that the amount rec....
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....d to be taxed in accordance with the provisions of the India- Belgium DTAA to the extent they are more beneficial. The term FTS is defined under Article 12(3)(b) of the India-Belgium DTAA and includes all kinds of payments in the nature of managerial, technical and consultancy. Further, the protocol to the India-Belgium DTAA provides for taxation of FTS in accordance with the provisions of DTAA between India and a member of OECD entered into after January 1, 1990, where such provisions provide for a lower rate or restrictive scope of taxation, commonly known as most favored nation clause. In this regard, the Ld. AR submitted that the DTAA between India-Portugal (an OECD member country), entered into on April 30, 2000, under Article 12 provides for a restricted scope for taxation of amounts as FTS by laying down the makeavailable condition. The Ld. AR submitted that the IT support services rendered by the assessee company to its AE may qualify as FTS only if they satisfy the make available condition. In other words, the amounts received as consideration for provision of IT support services may not be taxed under Article 12 of the DTAA if the IT services do not 'make available....
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....ecommendations and direction in the field of Information and Communication Technology ("ICT"). * A wide range of services in the fields of IT and communication such as purchase, implementation, maintenance and technical support of internally developed software applications (Data Warehouse, Quote Manager, etc ..) and services as well as commercial ones (e.g. operating systems, productivity applications, server/network, antivirus, corporate websites), hardware (e.g. Desktops, laptops, servers, data center, network and disaster recovery), ERP system (BaaN), infrastructure, and date telecommunication (e.g. Lotus Notes, telephone, fax, Internet, website, mobile phones). The mark-up is set at 6%." 12. The Ld. AR submitted that the IT support services consists of defining the group IT policy, setting up general IT guidelines, and ensuring data integrity and systems availability. The services would involve providing recommendations and direction in the field of information and communication technology, purchase, implementation, maintenance and technical support of internally developed and commercial software applications and services, hardware, ERP system, infrastructu....
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....R further relied upon the following AAR rulings wherein similar intra group services were provided and the AAR held that dissemination of information, furnishing guidelines and suggesting plans of action aimed at uniformity and seamless quality in business dealings of participating group entities do not per se amounts to making available technical knowledge and experience: -Ernst & Young (P.) Ltd. [2010] 323 ITR 184 (AAR) -Invensys Systems Inc. [2009] 317 ITR 438 (AAR) 13. The Ld AR further submitted that the assessee company renders the IT support services from outside India and no personnel of the assessee company visits India in connection with the provision of such services to MIPL. Additionally, the Ld. AR submitted that no employee of MIPL is being trained in the course of rendering these services to MIPL. The Ld. AR further submitted that the AO/DRP did not specify as to how the IT support services "makeavailable" knowledge, experience etc. to the recipient and has also not examined as to how the employees of MIPL could have utilized the experience gained by them. Thus, there was no evidence on record that the services rendered by the assessee qualify th....
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....earing in pages 110 to 112 of the paper book are in the nature of "Consultancy" Services. 15. The Ld. DR submitted that the services were described as "Information Technology Services" and described in Article 2.4 of the General agreement. The details of the service rendered as per agreement and as reproduced by the Assessment Order in page 3 of the order. The Ld. DR submitted that the language of Article 2.4 of the general terms of service agreement dated 01.01.2008, the services provided by the assessee to its Indian AE consists of the following services : I. Services to "Define the group IT Policy" (for the AE recipient) - The term 'Policy' has been defined in the Collins Dictionary as "a set of ideas or plans that is used as a basis for making decisions, especially in politics, economics, or business a plan of action adopted or pursued by an individual, government, party, business, etc" Therefore, 'defining the policy' must necessarily involve and mean the process of "Formulation of appropriate IT Policy" for the AE (with reference to and in accordance with the IT Policy of the group). II. Services to "Set-up guidelines" - Once a policy has ....
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....ting up", "recommendations", "directions", services for identifying and purchasing appropriate "software" and "hardware" etc. clearly denote something which have been "made available" to the recipient. It cannot be said that the recipient will continue to depend upon the service provider for the formulation of its IT Policy or the guidelines and system apparatus for the implementation of such policy. Once the policy is developed it is for the recipient to follow it and modify it, if needed. Once guidelines and directions have been devised and formalized, the recipient of such guidelines need not seek the continual service of the service provider for it. It can issue or modify such guidelines and directions itself in future depending upon the situation and circumstances without depending upon the service provider. Similarly, once system apparatus involving the appropriate hardware and software have been identified, procured, installed and integrated for the effective implementation of the IT Policy of the recipient, the Indian AE need not depend upon the service provider for the same in future. It can itself procure/purchase/assemble the specified hardware or commercial software and....
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.... assessee company is engaged in the business of providing Information Technology Support Services to various group entities. In India, it rendered such services to Magotteaux Industries Private Limited (MIPL). These facts were not disputed by the Revenue at any point of time. section 90(2) of the Act provides that the provisions of the Act or the DTAA, whichever is beneficial to the taxpayer shall apply. The assessee company is a tax resident of Belgium and therefore, is entitled to be taxed in accordance with the provisions of the India- Belgium DTAA to the extent they are more beneficial. The term FTS is defined under Article 12(3)(b) of the India-Belgium DTAA and includes all kinds of payments in the nature of managerial, technical and consultancy. Further, the protocol to the India-Belgium DTAA provides for taxation of FTS in accordance with the provisions of DTAA between India and a member of OECD entered into after January 1, 1990, where such provisions provide for a lower rate or restrictive scope of taxation, commonly known as most favored nation clause. In this regard, the DTAA between India-Portugal (an OECD member country), entered into on April 30, 2000, under Article 1....
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.... evidence on record that the services rendered by the assessee qualify the test of "make-available". In this regard, the Ld. AR relied upon the decision of Linklaters LLP vs. DCIT [2017] 185 TTJ 525 (Mumbai) wherein it is held that the view taken by the Revenue was not a plausible one since they were not able to point out as to how there was transfer of technical knowledge, skill, experience or know-how, etc., in such manner that the recipients were able to utilize and perform these tasks again on their own without falling back on the assesse for its assistance. It was held similarly in the following cases that since it has not been established by the Department that while rendering the services, technical knowledge, knowhow, skill etc. has been made available so as to enable the recipient to apply them independently, the services cannot be held taxable as fees for technical services: -Endemol India (P.) Ltd. [2014] 361 ITR 340 (AAR) -Exxon Mobil Company India (P.) Ltd. vs. ACIT ITA No. 6708 (Mum) of 2011 Thus, these services do not make available any know-how or skill and do not fall within the ambit of FTS as defined in Article 12 of the India-Belgium DTAA re....
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....se of India : (i) the income-tax including any surcharge thereon, and (ii) the surtax, (hereinafter referred to as "Indian tax")" The Ld. AR submitted that the expression 'tax' is defined in Article 2(2) of the DTAA to include 'income tax' and 'surcharge' thereon, so far as India is concerned Article 2(3) further extends the scope of 'tax' to also cover any identical or substantially similar taxes which are imposed after the date of signature of the Agreement in addition to, or in place of, existing taxes. The Ld. AR submitted that when Article 2 states that surcharge is included in income tax and the tax rate of 10% for fee for technical services is prescribed in Article 12 shall have to be deemed to include surcharge and since cess is nothing but an additional surcharge, the tax prescribed under DTAA at the rate of 10% shall be deemed to included surcharge and education cess. The Ld. AR relied upon the decision of Elektrobit Automotive GmbH vs. DCIT ITA No. 678/Del/2013 wherein the Tribunal held that education cess is only a surcharge as clarified by the Finance Act and surcharge is only a tax clarified by the Hon'ble Apex Court in case of CIT vs. K.....