TaxTMI 
TaxTMI 
2021 (3) TMI 21
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....s including Aircom India, effective from 01st July, 2007 whereby the Applicant provides various Management Support Services to Aircom India with a view to rationalize and standardize the business conducted by Aircom India in India in accordance with the international best practices. The services as per the MSA are as under: • Establishment and set-up advice and services • General management advice and services • Group bulk purchasing arrangement • Group-led sales, marketing and business development services • General Treasury and financial management advice and services • Legal, Human Resource, Information Technology ('IT") services 3. The Applicant has filed the present application in connection with this MSA and the following questions have been raised in the application: (i) Whether based on the facts and circumstances of the case, the payments being made by Aircom India to the Applicant under the MSA for the services specified there under would be characterized as "fee for technical services "("FTS") under Article 13(4) of the convention between the Government of the ....
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....rocured and utilized by Aircom India for its own business purposes and not for the benefit of any of its customers. 5. The Ld. A.R. explained that Aircom India was making payment to the Applicant for specific global support services which were in the nature of general management, finance, information technology, marketing, sales, consulting and legal support services. The payment was being made to the Applicant's account in UK. The service fee payable was as per Schedule-2 to the agreement and the same was based on the total cost incurred by the Applicant in providing these services, as increased by a mark-up of 6%, and apportioned to various affiliates (group entities) to which such services were provided. 6. The Ld. A.R. submitted that as per Explanation 2 to Section 9(1)(vii) of the Act, fee for technical services ('FTS') is defined as consideration for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel). However, Article 13(4) of India-UK Tax Treaty defines FTS as payments of any kind to any person in consideration for the rendering of any technical or consultancy ....
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....erm "technical or consultancy services ", such managerial services do not make available technical knowledge or skill to Aircom India and thus would be outside the scope of taxability under Article 13(4) on FTS of the India-UK Treaty. Thus the contention of the Applicant was that the payment made by Aircom India to the Applicant was in respect of managerial services only. Further that the managerial services provided by the Applicant to Aircom India did not make available any technical knowledge, experience or skill. 9. The Ld. AR explained that the word 'managerial' was initially included in the original definition of FTS but was omitted by the revised DTAA between India and UK entered into in the year 1993. This shows that intention of the Treaty partners was to exclude the managerial services from the purview of the Article 13 of the treaty. The Applicant has placed reliance on the Memorandum of Understanding (MoU) entered into between India & USA. The MoU, on Article 12 of the India-US Treaty, which is akin to Article 13(4) of the India UK Treaty, has interpreted the definition of fee for included services (FIS) and has interpreted the meaning of the terms &....
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.... ITD 549) (vi) Raymond Ltd (86 ITD 791) (Delhi) (vii) National Organic Chemicals Industries Ltd (96 TTJ 765) (viii) Akamai Technologies Ink (404 ITR 495)(AAR) (ix) Bombardier Transportation Sweden AB(60 CCH 314) (x) US Technology Resources (P) Ltd. (407 ITR 327) (Kerala HC) (xi) CESC Vs CIT (80 TTJ 806) (CAL) (xii) Anapharm Inc. (AAR No. 746 of 2007) (xiii) Bharti AXA General Insurance Co. Ltd. (326 ITR 477) The Applicant thus contended that on the facts and circumstances of the case the payment received by it from Aircom India under the MSA was not liable to tax in India under the definition of FTS under Article 13.4 of the India-UK DTAA. 11. On the issue of royalty, the Ld. A.R. submitted that the payment made to the Applicant by Aircom India does not fall within the definition of 'Royalty' as per Explanation 2 to Section 9(1)(vi) of the Act or within the meaning of the term in Article 13 of India-UK Treaty. It was explained that the term 'Royalty' as defined in the Act necessitates the transfer of a right from the owner of such right to another person for commercial exploita....
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....dia to emphasize that the Applicant was providing technology and consultancy services to Aircom India. According to Revenue, Aircom India was engaged in providing consultancy and support services to wireless network operators in South Asian countries by offering end-to-end wireless solutions through a blend of software consulting and training services and the Applicant was helping Aircom India to render its functions, which were technical in nature. It was submitted that services in the nature of Software Testing Services, Software Consultancy Services, Software Deployment Service/Product Delivery and Software Trading Activity (Sub-licensing) were provided by Aircom India to its clients with assistance from the Applicant through the services specified in the MSA. 15. The Revenue contended that the services rendered by the Applicant under the MSA were not only in the nature of technical and consultancy services but they also 'made available' technology to Aircom India on many counts, as under: (i) The Functional Analysis provided in the Transfer Pricing Report for the FY 2013-14 shows that all functions right from Conceptualisation to Design Review to Marke....
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....of the Revenue. According to Revenue, though the services were nomenclatured as General Managerial, Legal, Finance, Sales, Marketing, IT Services etc. in MSA; what was being actually provided was software products, software services, technical consultancy services, legal consultancy services, technical training services etc. Further that the words 'Technical' and 'Consultancy' were carefully avoided in the MSA to take benefit of the amended provisions of India-UK DTAA where the "Managerial" services have been taken out of purview of "Fees for Technical Services". 17. The Revenue has drawn our attention to MoU concerning Article 12 (FIS) of India U.S Treaty, and explained that where an American company provides the formula of manufacturing to Indian entity, the test of "make available" was satisfied. Similarly, where American company sends experts to India to show engineers how to produce extra strong Wall Board, the make available test was satisfied. Similarly, make available test was also satisfied when an American consultant helps an Indian Company to arrive at its proper marketing strategy (instead of providing marketing strategies). On the contention of....
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....13(4)(b) of India -UK DTAA, definition of FTS included amounts paid as consideration for rendering of any technical or consultancy services including the provision of services of a technical or other personnel which were ancillary and subsidiary to the application or enjoyment of the right, property or information which was use or right to use of any information concerning industrial, commercial or scientific experience. According to Revenue, in the instant case, the Applicant was providing services which were technical in nature and which were made available to the subsidiary to enable them to function independently. The other services as mentioned in MSA were primarily in the nature ancillary and subsidiary to the technical information provided by the Applicant to Indian entity. 19. On the issue of royalty, the Revenue has submitted that payment by Aircom India to Applicant was for the use of information concerning industrial, commercial or scientific experience and hence it was covered within the ambit of 'Royalty' under India-UK DTAA. In support of this argument, the Revenue has submitted that the Applicant had passed on its experience in network planning, opti....
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....y twelve-month period, it will create service PE. The Revenue has contended that from the list of employees of the Applicant present in India submitted by the Applicant, it was evident that they were in India for more than 30 days in a twelve-month period and, therefore, there was service PE in India. Rebuttal of' the Applicant: 23. In the rejoinder the Applicant submitted that the Revenue had misunderstood the services rendered by the Applicant to Aircom India with the business operations of Aircom India. The Applicant reiterated that the services rendered were as per Schedule-3 of the MSA and the exact role of the Applicant and the benefit to subsidiary by availing those services was as under: (i) General management support services- • Strategic management support; target setting; • Direct customer negotiation; • Business review and consultation; • Key executive decision making; • Provision of central services for regional requirement. It has further been submitted that services under this head allow the entities of the Aircom Group (including Aircom India) to gain benefit of the skills, ....
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....rces; • Deciding the composition and benefits for the employees of Aircom India. It has been submitted that these services provide standard policies and processes in relation to compensation and benefits, • Providing pre-requisites or minimum criteria for recruiting personnel at various levels, performance evaluation, training and development etc. (vi) Information Technology (IT) services • Wide area network; • Server management; • Exchange systems; • Help desk; and • Direct technical advice, support and management including implementation. It has been submitted that the Applicant acts as a co-ordinating agency for the global software licences, servers and softwares procured for the operating systems from Microsoft, Blackberry etc. that are purchased from independent vendors and receives payments for the direct purchase cost of licences and the relevant services from its subsidiaries. (vii) Any other services- These include general support services in relation to insurance charges and strategic development and project team support (as required), project ....
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....ered under MSA were only managerial in nature and did not 'make available' any technology to Aircom India. In its supplementary legal paperbook, the Applicant has further relied on the following decisions in support of its contention that the services were 'managerial' in nature and did not 'make available' technology to Aircom India: (i) A.P. Moller Maersk AS (392 ITR- 186) (SC) (ii) SCA Hygiene Products AB (123 Taxmann.com 152)(Mumbai) dated 08/01/2021. (iii) Kotak Securities Ltd (388 ITR 1) (SC) (iv) DTZ Debenham Tie Leung Ltd. (AAR No. 1371/NCR/ 2012 dated 19/07/2019) . (v) John Deere Pvt. Ltd. (102 Taxmann.com 267) (ITAT Pune). (vi) Invensys Systems Inc. (3 17 ITR 438) (AAR). (vii) Intertek Services (307 ITR 418)(AAR). Findings and Ruling 28. We have carefully considered the facts of the case, the submissions of the Applicant, the objections raised by the Revenue and the material details brought on record in the course of this proceeding. The Applicant is engaged in development of software, network planning, optimization, open source soft....
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....sub-licensed these products to third party clients in India. According to the Applicant under each of these core services viz. Software Testing Services, Software Deployment Services, Consultancy Services etc, the Applicant was only providing necessary guidelines and instructions for rendering of the services by the Indian subsidiary, for which the costs incurred along with a mark up was being charged. Apart from these technical services Aircom UK was providing Management Support Services to all its affiliates including Aircom India. In the present application, we are concerned only with the services rendered under MSA and not with the core software related technical services. The contention of the Revenue is that the Applicant was providing technical inputs to Aircom India in the garb of various services rendered under MSA, which we have to examine. 30. The Revenue has referred to Clause 4 of the Agreement in respect of Intellectual Property Ownership and Schedule 2 regarding service fee payable and contended that the consideration being paid under MSA was for the use of the IPRs of the parent. According to the Revenue, the consideration had a direct reference to th....
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.... of the Revenue is not found acceptable and is rejected. 33. So far as taxability of the services under MSA is concerned there is no dispute that the services are taxable under section 9(1)(vii) of the I.T. Act. However, the definition of FTS is narrower under the India-UK DTAA than under the Act and the Applicant has sought to avail that benefit under Section 90(2) of the IT Act, which stipulates that provisions of the DTAA shall apply to the extent they are more beneficial to the assessee. Article 13 of Indo-UK DTAA defines royalties and fees for technical services. As per the definition in Article 13.3 of the convention the term "royalties" means: (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work, including cinematography films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and (b) payments of any kind received as consideration ....
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....d there was no stipulation of payment of any royalty. Further, the sub-licensed softwares were being traded by Aircom India and the Applicant was getting only a part of the turnover. The Revenue has also not brought on record any evidence that the Applicant was receiving any royalty from Aircom India. In the absence of any royalty payment, the clause (a) of Article 13.4 of the Treaty is also not getting attracted. This leaves us with clause (c) of Article 13.4 of the Treaty. On an analysis of Article 13.4 read with clause (c) it follows that FTS is a consideration paid for the rendering of technical or consultancy services, provided that those services 'make available' to the other party, the technical knowledge, experience, know-how, etc. There are two limbs to this Article, firstly, it is required to be established whether the consideration is for rendering of technical/consultancy services and secondly, whether those services 'make available' the technology to the recipient. 35. The Applicant has contended that the services rendered as per the MSA were not technical or consultancy services but were managerial in nature. However, it has not been demonstra....
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....ned only to technology relating to engineering, manufacturing or other applied sciences. Professional service imbued with expertise could be regarded as technical service. To reproduce from the order: What is meant by the expression technical' ? Should it be confined only to technology relating to engineering, manufacturing or other applied sciences? We do not think so. The expression 'technical' ought not to be construed in a narrow sense. It has received a wide interpretation in tune with its dictionary meaning in several cases. In Continental Construction Ltd. v. CIT [1992] 195 ITR 81 the Supreme Court observed that "the expression technical services' has a very broad connotation and it has been used elsewhere in the Statute also so widely to comprehend professional services: vide section 9 (1) The relevant meanings of the word 'technical given in the New Shorter Oxford Dictionary (Thumb Index Edition) are 1 . Of a person having knowledge of or expertise in a particular art, science, or other subject . 2 . pertaining to, involving, or characteristic of a particular art, science, profession, or occupation, or the applied arts and sciences gen....
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....r special knowledge on the part of the consultant is implicit in the consultancy services contemplated by Article 13.4 (c) . 37. We must appreciate the law in the light of the facts before us. When we apply the yardstick given in the above ruling, these services giving knowledge and experience of the telecommunication industry to Aircom India is not found to be managerial but rather mostly technical in nature. The list of services rendered under the agreement is enumerated in Schedule-3 of the MSA, which is claimed by the Applicant as managerial in nature. The Agreement explains the underlying objective of the Agreement is to rationalise and standardise the business conducted by Aircom India in accordance with the international best practices. Further, the MSA was aimed to facilitate the smooth business operations aligning it with the global standards of the Aircom Group. There are nine types of services categorized in Schedule 3 of the MSA and it was clarified that the Applicant did not render services related to the pricing of software consultancy services which are rendered by Aircom India to its third party customers. We have looked into the services detailed in the sc....
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....comprehended by a layman. Such services were not only technical but were rendered only by a technically competent person trained in the relevant field. The Revenue has also submitted that legal advice was not provided in the shape of a readymade solution from Aircom UK to Aircom India. Instead, Aircom UK had provided option A and option B by stating the implications of both options and thereby helped and enabled Aircom India to choose the most suitable option. Therefore, the legal advice or contract management or customer negotiations were invariably technical in nature as the predominant element of service was in respect of technical products and their comparative advantage. We find considerable force in the arguments of the Revenue. The nature of services rendered has already been mentioned earlier. The services rendered in setting-up and maintaining strategic management support, target setting, direct customer negotiation, business review and consultation, sales, marketing and business development services including vendor management, sales presentations, general treasury and financial management advice and services, legal services including contract management, contract negotia....
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.... Then he explains the significance of unlimited contractual liability and then he gives two options to Mr Akshat. Then on page 413, Mr Akshat accepts option ''B. Similar emails are on page 415 to 418 regarding assistance in finalization or purchase order. Other subsequent emails are also about finalization of purchase order/emails etc. Thus quite clearly, the Applicant is making available technical skill and experience of finalizing a purchase order, etc. It is not a case where finalized purchase order is given to Aircom India. The purchase orders are finalized by Aircom India using technical expertise of Applicant. The legal service rendered is consultancy in nature. However, the service is not being made available. 3 436-438 These emails are illustration as to how Mr Benjminand Mr Yewboon of Applicant are assisting/guiding Mr Somesh Mittal and Mr Akshat of Aircom India to finalise BTD sheet which is about engagement with Bharti Airtel. The guidance is provided as to what should be the price, how much resources should be committed, etc. Thus, quite clearly, the Applicant is making available technical skill and experience of finalzing a business stra....
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....his case the Applicant has made available technical consultancy services to Aircom India. In our support we would like to draw the attention of Hon'ble AAR to actual content of the email. The facts are that on page 454, Aircom India is requiring assistance in power tool/utility to convert TEMS LP/Pathloss data into Connect format. This power tool is supplied by the Applicant. Then there are subsequent discussion about use of this tool and Improvement of this tool. It then says at page 453 that "Bharti has not specified any requirement as of yet. They just wanted to know if it is feasible. Also they might be looking for direct import .p14 files from Pathloss to CONNECT. The utili we have is to convert pathloss reports in .csv & excel to XML files. We will discuss with them in details once we have some clarity on the deal and can try to convince on .csv format instead of .p14 files. ''Quite clearly these are resolution of technical query by Aircom India with the help of the Applicant through discussion and guidance. Strategies are also suggested. Thus, quite clearly, the Applicant is making available technical skill and experience of providing service to a client. It is n....
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....en that the trip to India was made for the purpose of giving technical assistance of employees of Aircom India in their project management including resolving issues regarding Aircom products. There is no doubt that advising/guiding employees of Aircom India in project management or for resolving issues is technical services. Further, since employees are provided with regular guidance, the technology is made available This correspondence is part of Information Technology Solutions service and explained to be pertaining to project management activities. In this case direct technical advice is found to be provided to employees of Aircom India. The solution to the problem faced by the client is provided through the employees of Aircom India which makes available the technical knowledge and expertise in this instance. 8 890 This email is an illustration as the Applicant has announced that enterprise v7.0 for the planning product has been launched. It was further mentioned in this email that it has a very high quality and an extensive features set. It is further mentioned that V7.0 is the largest product relapsed Aircom has ever done and it has various technology ....
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....s being monitored and after that they are being trained. This shows that the technical service is being made available to its client with the help of training and after monitoring the same This correspondence is part of Sales service. The monitoring of performance of sales engineers and requirement of their training needs discussed in this correspondence makes it neither a technical service nor the service is being made available. There is no conclusive evidence that training was imparted in this case by the Applicant. Rather an exit plan for non performing resource was to be worked out. The service cannot be better than consultancy 10 954 The assessee has given this email under the head sale while on perusal of this, it was noticed that it has the details of meeting with various persons and there mobile numbers and headset details. This shows that after conducting a meet or conference the skill is being transferred through training. It makes clear that it is nothing but training for the employees of the Aircom India so that they will be able to deal with the various things. In this way the make available clause is being satisfied. This corres....
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....oticed that it is a small cell case study where the prediction of 20 fold increase in data traffic growth over the next 5 year has been discussed and for this purpose a planning strategy to ensure capacity requirements were discussed. The case study was demonstration of how to plan the transport capacity for a small cell LTE layer on top of an existing UMTS/LTE Macro Cell and how to choose backhaul topology androuting. The above discussion shows that the planning and strategy is being discussed as well as transferred to various clients for inbuilt their decision making and help of policy making through case law. This case law study also pertains a part of training which the client make available for using the services received from the Applicant. It is further noticed that the above case study is not related to a common man. It is highly technical in nature it is specialized for the specific person. Though this is part of Marketing service the inputs were technical to plan strategies for future. The planning and strategies discussed through case studies may make it technical in nature but we don't find any inherent skill being made available. The case study wa....
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....rvice was rendered and make available condition not found satisfied. 41. The meaning and scope of the term 'make available' was interpreted by this Authority in the case of Intertek Trading Services India (P) Ltd.in re (2008) (307 ITR 418), as under: Rendering technical or consultancy service is followed by a relative pronoun "which" and it has the effect of qualifying the services. That means, the technical or consultancy service rendered should be of such a nature that "makes available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting the technical knowledge, etc. , so that the payer of service could derive an enduring benefit and utilize the knowledge or know-how in future on his own without the aid of the service provider . By making available the technical skills or know-how, the recipient of the service will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service provider. In other words, to fit into the terminology "make available" , the technical knowledge, skills, etc. , must remain with the person receiving the services ....
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.... d) Help Desk, and e) Direct Technical Advice, Support and Management including implementation. The first four functions were general in nature but the 'direct technical advice and support' was in respect of specific technical issue. It is found from the copy of correspondences made available that direct technical advice and support was in respect of the specific issue flagged by Aircom India. The technical advice in respect of the problem faced by the clients was rendered through the employee of Aircom India only. Thus, the services in the nature of "direct technical advice, support and management including implementation" were not only technical in nature but were also made available to Aircom India. Such advice was not in respect of any outage on the Aircom network or troubleshooting of malfunctions in the I.T. infrastructure; rather it was in respect of the specific technical problem faced by the clients of Aircom India, which was flagged to the Applicant for resolution and the solution of which was provided through the employees of Aircom India. Therefore, this service was not only technical in nature but was also made available. 44. ....
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.... services. In the case of A.P. Molar Maersk AS (supra), the issue involved was maintenance of global telecommunication facility which was vertically integrated communication system. It was an automated software-based communication system shared with various agents. On this specific fact it was held that the use of this facility was not a technical service and this finding was upheld by the Apex Court. In the case of SCA Hygiene Products A.B. (supra) consultancy service in the nature of hardware and software for various ERP system, CRM systems and other business systems were provided to Indian subsidiary at cost and it was held that the make available clause was not satisfied in this case. In the case of John Deere India Private Limited (supra) the payment was made for provision of I. T. support charges i.e., internet charges, use of e-mail charges, backup support services etc. On these specific facts, it was held that no technology was made available and further that in the web-based training no technical knowledge was imparted by the service provider and there was no transfer of technology. In the case of Invensys Systems Inc., the services rendered are found to be different in na....
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....case are distinct, the ratio of this decision cannot be applied to the present case. 49. The revenue has also relied upon the decision of Kochi ITAT in the case of US Technology Resources (P) Ltd. (supra). In this case the services offered by the US company to the Indian company were (i) management decision making, (ii) financial decision making, (iii) legal matters and public relation activities, (iv) treasury services and (v) risk management services; which were held as 'technical and consultancy services', by the ITAT, Cochin. The ITAT had also held that the clause of 'make available' was satisfied in this case. However, the Hon'ble Kerala High Court (407 ITR 327) has reversed this decision of the ITAT and held that the mere fact that the provision of a service may require technical input by the service provider does not per se mean that the technical knowledge, skills, etc. are made available to the person availing such services. 50. The decision of the Apex Court in the case of Oberoi Hotels (India) (P.) Ltd (231 ITR 148) was already referred in the decision of Intertek Trading Services India (P) Ltd., discussed earlier. In the case of And....
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.... Software License Agreement such that the services provided under MSA were ancillary and subsidiary to the services provided under the Software License Agreement. The Applicant on the other hand, has vehemently opposed the contention of the Revenue and submitted that the Revenue has misunderstood the scope of services as envisaged in the MSA and that the argument was based on the services being rendered by Aircom India, which was not the subject matter of this application. The Applicant has submitted that from the services rendered as per the Schedule in the MSA, it is apparent that the services of the Applicant were limited to information on various business and commercial matters, guidelines, templates, best practices and strategies for uniformity and seamless quality in business dealings of participating network entities, which amounted to mere provision of internal support services. Referring to Para 2 of OECD Commentary on Article 12, which is identical as in the case of Indo-UK Treaty applicable in the case, it was submitted that as know-how had not been transferred under the MSA, the services does not qualify as 'Royalty'. 53. We have considered the submissi....
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....ered by Article 13.3 of India-UK DTAA. Thus, we agree with the contentions of the Applicant in this regard. 55. The issue of IPR in the MSA has already been discussed earlier and held that the Applicant had only agreed under MSA for provision of various services to the subsidiaries and the clause regarding IPR had merely entitled the subsidiaries to enjoy the benefit of the services without violation of IPR rights of the Applicant. Further, the payment under the MSA was in respect of actual rendering of the services and not towards right to use the IPR. It was also held that only because the transfer pricing under the SLA was excluded from the 'total gross trading revenue' for the purpose of calculating the service fee payable under MSA, it did not establish that the services provided under MSA were ancillary and subsidiary to the services under SLA. We are, therefore, of the view that the amount received by the Applicant towards the services rendered under the MSA would not be in the nature of 'Royalty'. 56. In the case of Oncology Services India Pvt. Ltd. (supra) relied upon by Revenue, Oncology Service Europe had matured validated st....
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....s carried on in India. The Article 5(2)(k) of the Treaty reads as under: "'The term Permanent Establishment shall include specially: (k) the furnishing of services including managerial services, other than those taxable under Article 13 (Royalties and fees for technical services), within a Contracting State by an enterprise through employees or other personnel, but only if: (i) activities of that nature continue within that State for a period or periods aggregating more than 90 days within any twelve-month period; or (ii) services are performed within that State for an enterprise within the meaning of paragraph I of Article 10 (Associated enterprises) and continue for a period or periods aggregating more than 30 days within any twelve-month period" 60. We have considered the facts of the case and the rival contentions. In order to constitute a Service PE in India the services including managerial services must be furnished by the Applicant for a period or periods aggregating more than 30 days within any twelvemonth period in the case of an Associated enterprise. The Revenue has submitted that from the list of employees....