AI OCR 
TaxTMI 
TaxTMI 
TaxTMI 
2021 (11) TMI 1033
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....ed and disposed off. 3. The first quarrel revolves around treatment of receipts from Power Grid Corporation of India Limited [PGCIL, for short] in relation to the offshore maintenance and support services provided to PGCIL under the Long Term Service Agreement [LTSA] as taxable in India. 4. The second quarrel relates to the receipts from North Delhi Power Limited [NDPL] for offshore supply of software licenses taxable as royalty in India. 5. Representatives of both the sides were heard at length. Case records carefully perused and with the assistance of the learned counsel, we have considered the relevant documentary evidences brought on record in form of paper book. 6. Briefly stated, the facts of the case are that the assessee entered into an agreement with PGCIL on 29.12.2006 to provide offshore maintenance and support services. The assessee's broad scope of work under agreement is to provide remote troubleshooting, support and supply of some incidental spare parts in respect of Energy Management System [EMS] and Supervisory Control and Data Acquisition System [SCADA] installed at specified locations in the southern region of India. 7. The entire services for software and h....
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....DS W-1/lntf. Tax./2005-07/29 dt. 1704-2006 in which name of the payee was mentioned as "M/s GE Energy Management Services (formerly known as M/s GE Harris Energy Control Systems LEG) /GE Harris. Now, the assessee has pointed out vide letter dt. 27-06-2006 that the name of payee has inadvertently surfaced as "M/s GE Energy Management Services (formerly known as M/s GE Harris Energy Control Systems LLC) (GE Harris)" both in the application filed earlier by the assessee on 04-04-2006 as well as in the subject order issued by this office on 17-04-2006. Whereas, the correct name of the payee for this certificate had all along been "M/s GE Harris Energy Control Systems LLC (GE Hanris. The facts in this regard have been verified from records and it is clear that the contracts under reference for which payments are required to be made by M/s Power Grid Corporation of India Ltd. were infact executed by "M/s GE Harris Energy Control Systems LLC (GE Harris)". Due to this reason, earlier certificates issued u/s 195/197 of the I T. Act, 1961 by this office vide order dt. 16-06-2004, 03-122004 & 17-06-2005 respectively carried the correct name of payee which happens to be M/s GE Hams Energy ....
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....ears, vis-a-vis taxability of the offshore supply of software, offshore supply of hardware and portion of onshore services. We categorically reiterate our stand that the subject offshore supply of software, offshore supply of hardware and portion of onshore services are not taxable in India. However, given that the assessee does not have any presence in India by way of office or employees in India, the assessee wishes to avoid further litigation, additional cost and buy peace with the Income-tax Department. The assessee, therefore, requests your goodself to conclude the captioned assessment proceedings for AY 2006-07 based on the assessment proceedings already completed for AY 200506, u/s 143(3) of the Act. However, the assessee wishes to place on record that the conduct of the assessee of requesting your goodself to conclude the captioned assessment proceedings based on the assessment for AY 2005-06, should not be considered to be an acceptance by the assessee that offshore supply of software, offshore supply of hardware and portion of onshore services are chargeable to tax in India. Furthermore, based on our earlier discussions with your goodself in this regard, we understa....
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....UR KPTCL, SLDC K.SEB SLDC KALAMASEIR KSEB, SU>C K.SED SUB-LDC KANNUR KSEB, SLDC KSEB sub-ldc TRIVANDRUM KSEB, SLDC TNBB -SLDC CHENNAI 1NBB. sux: 1NGB SUB-LDC. ERODE TNliB, SLDC TNEB suimjx: MADURAI TNEB, Sf.DC UTP(PGBPD) set: PUDUCHERRY see Any support services described hereunder that describe services or work that is to occur inside of India shall not be included under this Agreement. Any such services may be procured in a separate contract. Such services are only set forth herein for purposes of describing such available service 22. The scope has been mentioned as under: Scope "The maintenance of the SCAOA-CMS System supplied by the GE shall be comprehensive, as set forth herein in nature and would broadly include but not be limited to diagnosis and rectification or the hardwore and software failures. The Scope also includes: * repair/replacement of defective equipment including that of Application Processor, Work Stations, FGPs, Splitters, UCC cards, power supply units. Routers, flubs, LAN cabling, SCSI cables, RAID Box, 1party products supplied by GP. (as set forth in the Agreement), internal/external hard disc, etc., * configuration of t....
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....tion below section 9(2) of the Act introduced by the Finance Act 2010 with w.r.e 01.06.1976. As mentioned elsewhere, the relevant clauses of the agreement have to be considered within the Article of Indo US Tax Treaty read with MOU/Protocol. The relevant article 12(4)(a) of the Indo USDTAA read as under: RELEVANT PROVISIONS: The relevant Article 12(4)(a) of the DTAA and the MOU/Protocol are reproduced herein below: "12.... 4.For 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" Relevant extracts of the MOU/Protocol are as under: "Paragraph 4(a) Paragraph 4(a) of Article 12 refers to technical or consultancy services that are ancillary and subsidiary to the application or enjoyment of any right, property, or information for which a payment described in paragraph 3(a) or (b) is received. Thus, par....
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....icle 9 (Associated Enterprises) or if the person providing the service is doing so in connection with an overall arrangement which includes the payer and recipient of the royalties]. 6. To the extent that services are not considered ancillary and subsidiary to the application or enjoyment of some right, property, or information for which a royalty payment under paragraph 3 is made, such services shall be considered "included services" only to the extent that they are described in paragraph 4(b). Example 2 Facts : An Indian manufacturing company produces a product that must be manufactured under sterile conditions using machinery that must be kept completely free of bacterial or other harmful deposits. A U.S. company has developed a special cleaning process for removing such deposits from that type of machinery. The U.S. company enters into a contract with the Indian company under which the former will clean the latter's machinery on a regular basis. As part of the arrangement, the U.S. company leases to the Indian company a piece of equipment which allows the Indian company to measure the level of bacterial deposits on its machinery in order for it to known when cleanin....
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....ided by the assessee PGCIL are not geared towards making available any technical knowledge, experience, skills, know how or processes to PGCIL. 29. Our view is supported by the fact that the term of the agreement is five years and services provided by the assessee are repetitive and ongoing in nature. This means that PGCIL is not able to apply technical or skill use by the assessee for rendering such services. Given that repetitive nature of the services, it would be factually incorrect to allege that the services make available any technical knowledge, expertise, skill, knowhow or processes to PGCIL. 30. The taxability of offshore software and hardware maintenance and support services has to be examined in terms of beneficial provisions of Article 12 of the tax treaty. The relevant article has been mentioned here in above. The term, make available, has been analyzed and explained in the following judicial precedents: "DIT V. Guy Carpenter & Co Ltd (ITA No. 202/2012) (Delhi High Court) In this case, the Delhi High Court concurred with the decision of Delhi 1TAT which relying on the case Raymond Limited V. DCIT (supra) held that "that once sec: 9(l)(vii) of the Income-tax Act....
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....ice 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 jit into the terminology "making available, the technical knowledge, skills, 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. deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fad that the provision of the service that may require technical knowledge, skills, etc., d....
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....T) The Hon'ble Mumbai Tribunal found that the nature of assessee's activities is furnishing of geographical specific data and information inputs which are commercial and industrial information in nature, it further noted that there is no material to suggest that the payment is for any such services which enable the recipients of these, services to apply the technology. The Tribunal, relied upon the decision of Raymond Limited (supra) and CESC Limited (supra). * Anapharm Inc. A.A.R. NO. 746 OF 2008 (2008-TIOL-14-ARA-IT) It is, thus fairly dear that mere provision of technical services is not enough to attract Article J2(4)(b). It additionally requires that the service provider should also make his technical knowledge, experience, skill, know-how etc., known to the recipient of the service so as to equip him to independently perform the technical function himself in future, without, the help of the service provider, in other words, payment of consideration would be regarded as fee for technical / included services' only if the twin test of rendering services and making technical knowledge available at the same time is satisfied (Emphasis supplied). * ISRO Satellite ....
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....e available' used in art. 12(4)(b) of the treaty." * Intertek Testing Services India (P) Ltd. (AAR) (307 ITR 418) "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 services 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 service provider. By making available the technical skills or know-how, the recipient of 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 even after the particular contract comes to an end. The services offered may be the product of intense technological effort and lot of technical knowledge and experi....
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....le". It was explained in the MOU." Further, reliance in this regard is placed on decision of Authority for Advance Ruling in case of Airport .Authority .of India (2004) 273. IT 437, " 31. If the afore-stated decisions are applied on the facts of the case in hand, we find that in the case in hand, the customer would not be able to apply technology on its own and the customer would continue to depend on the assessee for provision of software and hardware maintenance and support services in future as well. 32. The ld. DR, in his written submissions, has reiterated the findings of the DRP which, as mentioned elsewhere, were based on incorrect facts. Further, judicial decisions relied upon by the ld DR are not applicable on the facts of the case In hand qua the agreement under dispute. 33. Considering the facts of the case in totality, in light of the judicial decisions discussed here in above, we are of the considered view that the receipts from PGCIL do not qualify as 'Royalty' under Article 12(4)(a) and 12(4)(b) of the India US DTAA. The same is directed to be deleted. 34. We will now address to the NDPL contract. This is relevant only for Assessment Years 2010-11, 2011-1....