TaxTMI 
TaxTMI 
2021 (11) TMI 1033
X X X X Extracts X X X X
X X X X Extracts X X X X
....r 2010-11, the captioned appeals are considered 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....te u/s 195/197 of the I T. Act, 1961 was issued vide this office order No, ITO/TDS 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-....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ereafter. We wish to bring to your kind attention that the assessee does not accept the view taken by your goodself in the assessment orders for prior years, 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 su....
X X X X Extracts X X X X
X X X X Extracts X X X X
....RANSC SUB-fJ>C YDAYAWADA API ItANSCO, SLDC APTRANSC SUB-LDC CUDDAPAH APTRANSCO, SLDC AFTRANSC SUB-LDC WARANGAL AITRANSCO. SLDC KPTCL SLDC BANGALORE KPTCL, SLDC KPTCL sub-ldc guttur KPTCL. SLDC KPTC1. SUB LDC LANGSUGUR 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 fa....
X X X X Extracts X X X X
X X X X Extracts X X X X
....nd a comprehensive training component in the Agreement. Whereas, it has been specifically mentioned under the head 'Technical Training' that it is an optional item for which cost is to be quoted separately. 24. Referring to the afore-stated relevant clauses of the agreement, the DRP formed a belief that service provided by the assessee are squarely covered under section 9(1)(vii)(b) of the Act read with Explanation 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 app....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ments for the services and the right, property, or information described in paragraph 3; 4. Whether the payment made for the services and the royalty described in paragraph 3 are made under a single contract (or a set of related contracts) ; and 5. Whether the person performing the services is the same person as, or a related person to, the person receiving the royalties described in paragraph 3 [for this purpose, persons are considered related if their relationship is described in Article 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 ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e above explanation provided in the MOU that forms an integral part of tax treaty that service only, if it makes available technical knowledge, experience, skill, know-how or processes to the service recipient. The receiver of this service can be said to acquire the relevant skills used by service provider only if he acquires those skills in such a way that he can himself use them independently without getting any assistance or being dependent on the service provider in future. 28. The facts of the present case clearly show that the offshore maintenance and support services provided 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. ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ng the services in some concrete shape such as technical knowledge, experience, skills, know-how or processes. "(Para 29) * CIT V. De Beers India Minerals Pvt. Ltd. (ITA No. 549 of 2007) (Karnataka High Court) In this case, the HC observed that the services rendered by foreign company (Netherlands company) did not make available the technology to the service recipient in a manner that enabled it to apply the technology independently, as required under the India- Netherlands Double Taxation Avoidance Agreement (DTAA). "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 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 a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....de available to the person purchasing the service. As to what are the connotations of making the technology' available to the recipient of technical services, as is appropriately summed up in protocol, to Indo-US DTAA, "generally speaking, technology will he considered 'made available' when the person acquiring the service is enabled to apply the technology. " We are in considered agreement with the views expressed in the protocol to Inclo-USA DTAA which, as we have mentioned earlier, also represents views of the Government of India on this subject." * McKinsey and Co. Inc. V. Assistant Director of Income Tax (99 TTJ 857) (Mumbai ITAT) 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....
X X X X Extracts X X X X
X X X X Extracts X X X X
....e of the view that transmission of the technical knowledge, experience, skills, etc. from the person rendering the services to the person utilizing the. same is contemplated by the article. Further, some sort of durability or permanency of the result of 'rendering of services' is also envisaged which wilt remain at the disposal of the person utilizing the services. Thus, in the instant case, the 'know-how' or the technical knowledge or commercial experiences etc. cannot be said to have been 'made available' to the Indian company (CWl) merely by reason of customer referral, Consequently, it emerges that the referral fee paid by the Indian company is not FTS as per the phraseology 'make 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 resul....
X X X X Extracts X X X X
X X X X Extracts X X X X
....t cannot be characterized as the Invensys Systems Inc. vs DI.T (AAR) (317 ITR 438) In this case, the AAR relied on the case of Intertek Testing Services Pvt. Ltd (supra). The relevant Para of the ruling is reproduced below: ' Assuming that some of the services/functions can be brought within the definition of technical or consultancy services, yet the other ingredient in clause (b) of Art. 12.4. of DTAA viz. "make available" is not satisfied in the. instant case. The expression "make available" was construed in Intertek (supra) and Worley Parson (AAR/748/2007) (2009) 3J3 ITR 74. In understanding that expression, this Authority observed that the MOU appended to the India-USA DTAA succinctly explains the scope of the phrase "make available". 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 t....
X X X X Extracts X X X X
X X X X Extracts X X X X
....before us, is that the amounts paid by resident Indian end-users/distributors to nonresident computer software manufacturers/suppliers, as consideration for the resale/use of the computer software through EULAs/distribution agreements, is not the payment of royalty for the use of copyright in the computer software, and that the same does not give rise to any income taxable in India, as a result of which the persons referred to in section 195 of the Income Tax Act were not liable to deduct any TDS under section 195 of the Income Tax Act. The answer to this question will apply to all four categories of cases enumerated by us in paragraph 4 of this judgment. 170. The appeals from the impugned judgments of the High Court of Karnataka are allowed, and the aforesaid judgments are set aside. The ruling of the AAR in Citrix Systems (AAR) (supra) is set aside. The appeals from the impugned judgments of the High Court of Delhi are dismissed." 37. In light of the aforementioned decision of the Hon'ble Supreme Court, since the payment towards software license does not qualify as "Royalty" services even if connected with such software, do not qualify as FIS under Article 12(4)(a....