TaxTMI 
TaxTMI 
2019 (10) TMI 431
X X X X Extracts X X X X
X X X X Extracts X X X X
....officer in treating the GSA receipts amounting to Rs. 189,243,151 as 'fees for included services' as per Article 12 of the tax treaty between India and USA. (2) Without prejudice to the above ground of appeal, the learned CIT(A) erred in not directing the assessing officer to apportion and treat as not taxable, some portion of the total receipts towards services, which by their very nature do not make available any technical knowledge, experience, skill, "know-how to the Indian entities (in terms of the tax treaty between India and USA). (3) The learned CIT(A) erred in not adjudicating the ground that ld DCIT erred in computing the interest under section 244A of the Act. 2. Brief facts of the case are that the assessee is a tax resident of USA. The assessee is a group company of AC Neilson Group which is one of world leading business, management and market research companies. The assessee group is represented in India through its two legal entity i.e. AC Neilson Org-Marg Private Ltd (ACNOM) for customised research services and retails measurement services and Act Neilson Research Private Ltd. (ACNRS). During the relevant period for the Assessment Year u....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... asked the assessee to provide the service agreement and explain the nature of advisory services. The assessee filed its reply dated 19.12.2013 and also provided the details of the services rendered under the general service agreement. The assessing officer recorded the submissions of the assessee in para 6 of his order. However, the explanation furnished by the assessee was not accepted by the assessing officer. The assessing officer treated the receipt in the nature of fee for included services (FIS). The assessing officer also concluded that FIS has been defined in Article 12(4) of India-US DTAA, according to which the payment in consideration for rendering of any consultancy services, which consist of provision of services for technical or other personnel, if such services inter alia make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. It was further concluded that Memo of Understanding attached with India-US DTAA, the term 'make available' means that the person acquiring the services is enabled to independently apply the technology. The facts that the services are 'cont....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ted 20-12- 1990. Article 12 of DTAA between India and USA deals with royalties and fees for included service. Fee for included service is defined in clause 4 of Article 12 of DTAA. For the purpose of appreciation, clause 4 of Article 12 of the DTAA between India and USA is extracted below: "4. For the purposes of this Article, "fees for included services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through 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 paragraph 3 is received; or (b) Make available technical knowledge, experience, skill, knowhow, or processes, or consist of development and transfer of a technical plan or technical design." 13. As per the above definition in DTAA, fees for included services means payment of any kind to any person in consideration for rendering of any technical or consultancy services. We have noted that the term "managerial service" as prescribed in Explanation 2 to se....
X X X X Extracts X X X X
X X X X Extracts X X X X
....rangement is such application or enjoyment must be determined by reference to the facts and circumstances of each case. 15. From this Memorandum of Understanding, it is obvious that as provided in clause 4(b) of Article 12 of the India USA DTAA, that if the technical or consultancy services made available are technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design are considered to be technical or consultancy services. It is also clarified that consultancy services not of technical nature cannot fall under "included services". In view of this Memorandum of Understanding between two sovereign countries, the consultancy services which are technical in nature alone are to be included as technical and consultancy services for the purpose of fees for included services as per sub clause 4(b) of Article 12 of DTAA between India and USA. 16. In view of the above provisions of the India USA DTAA, we have seen the service agreement executed between the assessee and the service provider. The services provided by the assessee consist of development and determination of short and long te....
X X X X Extracts X X X X
X X X X Extracts X X X X
....r rendering of any technical services only, if such services make available technical knowledge, expertise, skill, know-how or processes. If the technical knowledge expertise, skill, know how or process is not made available by the service provider, who has rendered technical service for the purpose of Article 12 of DTAA it would not constitute fees for technical services. To that extent the definition of fee for technical services found in the agreement is inconsistent with the definition of fees for technical services provided in Explanation 2 to Clause (vii) of sub Section (1) of Section 9. In view of Section 90 the definition of fees for technical services contained in the agreement overrides the statutory provisions contained in the Act. In fact, the latest agreement between India end Singapore further clarifies this position, where they have explained the meaning of the word 'make available'. According to the aforesaid definition fees for technical service means payments of any kind to any person in consideration for services of technical nature if such services make available technical knowledge, experience, skill, know how or processes, which enables the person acqu....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ss is dependent on the technical service which he receives from the service provider, it does not follow that he is making use of the technology which the service provider utilises for rendering technical services. The crux of the matter is after rendering of such technical services by the service provider, whether the recipient is enabled to use the technology which the service provider had used. Therefore, unless the service provider makes available his technical knowledge, experience, skill, know how or process to the recipient of the technical service, in view of the Clauses in the DTAA the liability, to tax is not attracted. 15. The learned Additional Solicitor General relied on 3 Judgments to point out that was the earlier view. Now there is a departure supporting the department. The first Judgment on which reliance is placed is, the Judgment of the Advance Ruling Authority in the case of Perfetti Van Melle Holding B.V., In re [2012] 204 Taxman 166/[2011] 16 taxmann.com 207 (AAR-New Delhi) where it was held as under:- "The expression 'make available' only means that the recipient of the service should be in a position to derive an enduring b....
X X X X Extracts X X X X
X X X X Extracts X X X X
....AAR-New Delhi) where also the Authority For advance Ruling held relying on findings recorded in Perfetti Marketing case where it was held that "the expression 'make available' only means that the recipient of the service should be in a position to derive an enduring benefit and be in a position to utilise the knowledge or know-how in future on his own." Here, the industrial specific expertise is provided to the Indian entity which is applied in running its business. The employees of the Indian Company get equipped to carry on their business, market or service market on their own without reference to the service provider when the service . Agreement comes to an end. It is a case of making available the technical knowledge. The recipient of the service was conveyed specifically the right to continue the practice put into effect and adopt it under the agreement on its expiry. 18. From the aforesaid statement of law it is clear the test is whether the recipient of the service is equipped to carry on his business without reference to the service provider, if he is able to carry on his business in future without the technical service of the service provider in respect of....
X X X X Extracts X X X X
X X X X Extracts X X X X
....s in this background we have to look at the facts of this case, in order to find out whether the service provider has made available the technical knowledge to the assessee so as to foist the liability of payment of tax. 22. What is the meaning of "make available". The technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology "making available", the technical knowledge, skill?, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can ....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... technical plan or technical design The services provided by BT Canada were simply management support or consultancy services which did not involve any transfer of technology. It is not even the case of the Assessing Officer that the services were such that the recipient of service was enabled to perform these services on its own without any further recourse to the service provider. It is in this context that we have to examine the scope of expression 'make available'. 16. As for the connotations of make available clause in the treaty, this issue is no longer res integra. There are at least two nonjurisdictional High Court decisions, namely Hon'ble Delhi High Court in the case of DIT v. Guy Carpenter & Co Ltd [2012] 346 ITR 504/207 Taxman 121/20 taxmann.com 807 and Hon'ble Karnataka High Court in the case of CIT v. De Beers India Minerals (P.) Ltd [2012] 346 ITR 467/208 Taxman 406/21 taxmann.com 214 in favour of the assessee, and there is no contrary decision by Hon'ble jurisdictional High Court or by Hon'ble Supreme Court. In De Beers case (supra), Their Lordships posed the question, as to "what is meaning of make available", to themselves, and pro....
X X X X Extracts X X X X
X X X X Extracts X X X X
....FTS are classified as two different connotations, i.e. 9(1)(vi) and 9(1)(vii). So far as Article 12 is concerned, FTS is included in the term "royalty" for the purpose of deciding in which contracting state the income from the same is to be taxed. Clause (g) in Article 12(3) goes to the roots of the issue. Main thrust of the argument of the Ld. Counsel is that it is not only sufficient to render the services but the same should be made available to the recipient and this particular important aspect is missed by the DRP/TPO. We find that the expression "making available" is very much important to decide in which contracting state the amount received for rendering the services relating to the technical know-how is to be taxed. The expression "make available" is used in the context of supplying or transferring technical knowledge or technology to another. It is different than the mere obligation of the person rendering the services of that persons own technical knowledge or technology in performance of the services. The technology will be considered as made available when the person receiving the services is able to apply the technology by himself. 14. The expression 'mak....