TaxTMI 
TaxTMI 
2004 (8) TMI 103
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.... Applicant for funding a 'feasibility study' on the proposed CNS / ATM project in India . TDA will make disbursement of the grant funds directly to a "Contractor" selected to carry out the said feasibility study. The "Contractor", will be a US entity. As per clause 12 of the Grant Agreement, the grant funds shall not be used to pay any taxes, tariffs, duties, fees or other levies imposed under the laws in force in India . ii. The grant funds will be directly disbursed by TDA to the Contractor in USA. The applicant will not, at any point of time, receive any money from TDA or disburse the money to the Contractor. Further, the Applicant will not, directly or indirectly, receive any goods or services from the Contractor. The advantage to the Applicant appears to be that if the Applicant desires to set-up / update CNS / ATM system, it will have a list of US companies which can provide goods & services for that purpose and also a broad idea of the work and the companies which can execute the same satisfactorily. iii. In pursuance to the Grant Agreement, the applicant entered into a 'Contract for Technical CNS / ATM Transition Plan (hereinafter referred to as 'Contract') on 19.02.2....
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.... or scientific experience. It has been further stated that the payment is also not for the use or right to use any industrial, commercial or scientific equipment. It has also been contended that the payment can not be termed as fees for included services because it is neither a payment for services which could be considered as incidental to royalty nor for making available any technical knowledge and experience or skill. iii. It has also been argued that the payment to be received by the contractor cannot be termed as "business profits" as defined in Art. 7(7) of the DTAA. It has also been contended that the contractor has no permanent establishment (PE) in India. In this regard the applicant has relied upon Art.5 of the DTAA defining PE. The applicant has specifically invited attention to para 3(e) of Art.5 which excludes certain establishments from the purview of the PE. iv. The applicant has also contended that the activities of the contractor in India are totally out of the purview of the section 9 of the Income-tax Act, 1961 because no part of the income can be reasonably attributed to the Indian operations of the contractor. It has been stated that as per section 9, the....
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...., it has been argued that so far as the application of section 9(1)(vi) & (vii) is concerned, the present case is covered. vi. It has also been argued that the payments to the contractor are also covered under Art.12 (3) and 12(4) of the DTAA. The feasibility report to be submitted by the contractor falls under this category for information concerning industrial, commercial or scientific experience. The contractor is making available technical knowledge and skill in the field assigned to it by the applicant. It has been pointed that the Memorandum of Understanding attached with the DTAA clarifies that para-4 (b) of Article 12 refers to technical or consultancy services which consider the development and transfer of a technical plan or technical design. The feasibility report to be submitted by the Contractor actually includes contents regarding the technical plan or technical design which would be utilized by the applicant for putting in place a new system of CNS/ATM proposed by them. Therefore, it has been argued that the payment made to the contractor should be considered covered under DTAA as well. vii. It has been submitted that the payments made by the applicant to the c....
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....e by way of royalty or by way of fees for technical services is deemed to accrue or arise in India, if it is payable by - • the Government; or • a person who is resident, except where the benefit of right, property or information is used or services are utilized for the purposes of a business or profession carried on by such person outside India or for earning any income from source outside India; or • a person who is a non-resident, where the benefit of right, property or information is used or services are utilized for the purposes of a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India . 6. The first question for consideration, therefore, is that the royalty or fees for technical services is 'payable' by whom? The jurisdictional commissioner has pleaded that the amount is payable by AAI in pursuance of a contract between AAI and Innovative Solutions, and the feasibility report is to be utilized in the business of AAI in India, therefore, income is deemed to accrue or arise in India under section 9(1)(vi) or 9(1)(vii) of the Act. As already stated that in the contract between AAI....