AI Drafter - (New and Powerful) 
Generate professional replies, appeals, opinions to Show Cause Notices, assessment orders, audit objections, and other legal communications using TaxTMI's AI Drafter. 
TaxTMI 
TaxTMI 
2022 (12) TMI 1269
X X X X Extracts X X X X
X X X X Extracts X X X X
.... of Rs. 1,14,58,940/- which was revised on 23.08.2018 at the same income. Return was selected for complete scrutiny under CASS and, accordingly, statutory notices were issued and served upon the assessee. 4. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has paid an amount of Rs. 5,47,90,000/- to its holding company CPP Limited, UK but has not deducted tax at source claiming that Information Support System Services availed by the assessee company do not fall under the definition of FTS under Article 13 of the DTAA. 5. Accordingly, a show cause notice was issued asking the assessee to show cause as to why provisions of section 40(a)(i) should not be attracted and the amount of Rs. 5,47,90,000/- be added back to the total income. 6. In its reply, the assessee gave break-up of payment of Rs. 5,47,90,000/- stating that an amount of Rs. 5,46,31,543/- was paid to CPP Limited, UK for availing IT support system services and Rs. 1,58,278/- was paid as reimbursement of telephone server AMC charges. 7. The assessee further contended that IT Support System Support Services do not fall under the definition of FTS under Article 1....
X X X X Extracts X X X X
X X X X Extracts X X X X
....46,31,534/- and failing to do so attracted the provisions of section 40(a)(i) of the Act and added back the expenditure of Rs. 5,46,31,534/-. 14. The assessee carried the matter before the ld. CIT(A) but without any success. 15. Before us, the ld. counsel for the assessee vehemently stated that the Assessing Officer has grossly erred in not appreciating the facts in true perspective and further erred in drawing support from the decision of the co-ordinate bench. It is the say of the ld. counsel for the assessee that relevant clauses of the agreement make it clear that the assessee has no right over the Intellectual Property Right and is simply using the services of CPP UK which cannot be termed as "make available' any technical knowledge or experience as each time the assessee has to approach the system provided by CPP UK to redress the grievance of its customers. 16. The Hon'ble Jurisdictional High Court in the case of Guy Carpenter [supra] and also the co-ordinate bench in the case of Mitsubishi Electric India Ltd ITA No. 3336/DEL/2018. The ld. counsel for the assessee also drew support from the decision of the Hon'ble Karnataka High Court in the case of De Beers....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 3.3 Any processing by the Supplier of Personal Data on behalf of the Customer in connection with the provision of the Services shall be carried out in accordance with a separate data processing agreement in place between the Supplier and the Customer." INTELLECTUAL PROPERTY 5.1 The Supplier and its licensors shall retain ownership of all Supplier IPRs. The Customer and its licensors shall retain ownership of all Intellectual Property Rights in the Customer Materials, 5.2 The Supplier grants the Customer, or, subject to Clause 5.3, shall procure the direct grant to the Customer of, a fully paid-up, worldwide, non-exclusive, royalty-free, licence to copy and modify the Supplier IPRs for the purpose of receiving and using the Services and the Deliverables in the Customer's business. 5.3 Where the Supplier IPRs include a third party's Intellectual Property Rights and the Supplier cannot procure the direct grant to the Customer of a fully paid-up, worldwide, non-exclusive, royalty-free, licence to copy and modify the relevant third party's Intellectual Property Rights in accordance with Clause 5.2, the Supplier shall procure for the Customer the....
X X X X Extracts X X X X
X X X X Extracts X X X X
....mer to understand requirements and facilitate communication between all relevant parties accordingly. Telephony The Supplier will provide technical support for any technical infrastructure incidents alongside third paity providers. The Supplier will design, cost and implement infrastructure solutions for new technologies and systems in support of infrastructure refresh/improvement work, business projects or Customer user requests, Database administration The Supplier will administer maintenance to the Supplier's Oracle databases and troubleshoot production and other database environments to ensure a reliable and robust service provision for the Customer, Licences/hosting/maintenance Where appropriate, Supplier will contract with third parties to provide licences for the use of software and hardware, hosting services to meet the Customer's data requirements and maintenance services in respect of the Customer's systems. Business Intelligence The Supplier will generate MI reports on operational activity, financial reporting and productivity for the Customer, The Supplier will also maintain data warehouse ....
X X X X Extracts X X X X
X X X X Extracts X X X X
....ved by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic. - For the purposes of paragraph 2 of this Article, and subject to paragraph 5, of this Article, the term "fees for technical services" means payments of any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which: a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received; or c) make available technical knowledge, experience, skill know-how or processes, or consist of the development and transfer of a technical plan or technical design." 23. Having considered the terms of the agreement [supra], in light of Article 13(4) of the DTAA, we are of the considered view that unless the recipient of the services is enabled to provide same services without recourse to the....
X X X X Extracts X X X X
X X X X Extracts X X X X
.... 10. The Tribunal examined the evidence available on record in order to return a finding on the issue as to whether the payments received by the assessee from the insurance companies operating in India would fall within the expression 'fees for technical services' as appearing in article 13(4)(c) of the DTAA read with section 9(1)(vii) of the said Act. XXXXX 11. The Tribunal also noted the process by which the transaction takes place. It has been pointed out that the originating insurer in India would contact J.B. Bodal M.B. Boda for placing identified risks/ class of risks with international reinsurers. J.B. Boda, in turn, would contact one or more international firm(s) of reinsurance broker(s) like the assessee for competitive proposals from the international reinsurer. Then, the international reinsurance brokers like the assessee would contact other primary brokers and various syndicates in the Lloyds market for competitive proposals. Based on the various offers or proposals given by the international reinsurance brokers, like the assessee, to J.B. Boda, the latter would present various options to the originating insurer in India, which would take a....
X X X X Extracts X X X X
X X X X Extracts X X X X
....w how or processes. To attract the tax liability, that technical knowledge, experience, skill, know-how or process which is used by service provider to render technical service should also be made available :it is open to the recipient of the services, so that the recipient also acquires technical knowledge, experience, skill, know -how or processes so as to render such technical services. Once all such technology is made a a able it is open to the recipient of the service to make use of the said technology. The tax is not dependent on the use of the technology by the recipient. The recipient after receiving of technology may ~*use may not use the technology. It has no bearing on the taxability aspect is concerned. When the technical service is provided, that technical service is to be made use of by the recipient of the service in further conduct of his business. Merely because his business 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 utilizes for rendering technical services. The crux of the matter is after rendering of such technical services by the service....
X X X X Extracts X X X X
X X X X Extracts X X X X
....f paragraph (4)(b ). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. 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." 29. In light of the aforementioned judicial decisions, we are of the considered view that the assessee is unable to make use of the said technology only by itself in its business or for its own benefit without recourse to the UK company. 30. We find that neither the Assessing Officer nor the ld. CIT(A) has made any attempt to discuss the judicial decisions relied upon by the assessee but has only referred to a single decision of the co-ordinate bench in the case of HJ Heinz [supra] wherein the assessee was availing support services from group company in the area of human resources, strategic planning and marketing, finance and information systems. 31. It was further held that the concept of make available which requires that fruits of services should remain unavailable to the service recipients in some concrete....