TaxTMI 
TaxTMI 
2022 (6) TMI 1382
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....heir order and at page 67 in para 2.3.32.4 has given findings that such income constitutes royalty and similarly held at page 64 para 2.3.31.4 that they are also FTS. The ld. A.R at the time of hearing submitted that in assessee‟s own case similar issues were addressed and answered in favour of the assessee by Pune Tribunal‟s decision in ITA No. 784/PUN/2015 for A.Y. 2011-12, order dated 08- 07-2019, wherein it was observed and held as follows: 7. Briefly stated, the facts of this additional ground are that the assessee received a sum of Rs.2,66,72,222/- from Faurecia India towards provision of Global Information Support services. The same was not offered to tax. On being called upon to explain as to why this amount was not declared as income, the assessee submitted that it provided assistance to run operations, giving technical support and providing studies for adaptation of Information System to meet users' needs, which did not make available any technical knowledge, experience, skill or knowhow etc. to Faurecia India and hence, the same did not fall within the meaning of "Fees for technical services" under Article 13 of the DTAA with France read with para 7 ....
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....the Company's existing businesses and/or enable it to enter new markets.' It can be seen that the assessee is looking after several fields of Faurecia India's business, which even extend to negotiations and acquisition of new businesses as well. Under the head of `Sales and Marketing' services:, `the service provider assists the Company in monitoring the market for Faurecia Interior Systems. It helps the Company to produce brochures on surveys, market share, sales techniques etc. for the use of the Company...... It also provides the Company with assistance in the field of the sale of Interior Systems.... The service provider consults on behalf of the Company the car manufacturers and/or their subcontractors and it advises the Company on the pricing strategy regarding the car manufacturers' purchases'. It can be seen from the Sales and marketing services that the assessee is in full control of the marketing activity of Faurecia India. Not only this, it is also laying foundation for the future marketing plans of Faurecia Interior Systems. The assessee is also providing `Accounting, Controlling and Tax' services. It has been mentioned that: "The service provider assists the Company in....
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....t can be seen that: "The service provider helps the Company to improve quality of Faurecia Interior Systems.... by specially designing Global actions and by standardizing methodological tools and by preparing communications on HSE topics'. 10. A perusal of the services referred to in the Exhibit to the Agreement reveals that these cater to various facets of business operations, such as, Management, Marketing, Accounting and finance, Human resources, Purchasing, Manufacturing and Quality, which fall in the overall realm of Managerial services. 11. In addition to the above, the assessee has also rendered IT support services that have been set out in paras 1.8 and 1.9 of the Services Agreement. Para 1.8 with the caption `General Management of Information System Organisation' states that: `The service provider (i.e. the assessee) coordinates the Information System actions and/or the execution of specific projects, which are borne at a central level'. Para 1.9 with the heading `Information System' states that the service provider assists the Company in the computerization of systems, office automation and utilisation of personal computers adapted to the Company and the....
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....me part consists of managerial services. 14. The AO has characterized receipt of fees for the above services both as "Royalty" as well as "Fees for technical services" under the Act as well as the DTAA. 15.1. We will first examine if the receipt can be considered as "Royalty"? Section 9(1)(vi) of the Act deals with income by way of Royalty payable, inter alia, by a resident. The term `Royalty' has been defined in Explanation 2 which has six clauses. The case of the AO is that the assessee received Royalty in terms of clause (iv) of Explanation to section 9(1) of the Act, which provides that any consideration for "(iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill' shall be considered as Royalty. On going through the prescription of clause (iv), it becomes pertinent to note that before the words "technical, industrial, commercial or scientific knowledge, experience or skill", the legislature has used the expression "imparting of any information concerning". The word "imparting" assumes significance in this context. This word does not connote rendering some services involving technical, ind....
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....ees for technical services' payable, inter alia, by a resident. Definition of the expression `Fees for technical services' has been extracted in an earlier part of this order. On going through such provision, to the extent it is relevant for our purpose, it deciphers that fees for technical services means any consideration for rendering managerial, technical or consultancy services excluding any consideration for construction, assembly, mining etc. It is nobody's claim that the case is covered under the exception. We have hereinabove discussed the nature of services rendered by the assessee to the Indian entity and held these to be technical as well as managerial services. That being the position, the transaction is caught within the scope of `fees for technical services' u/s.9(1)(vii) of the Act. 17. Section 90(1) of the Act provides that the Central Government may enter into an agreement with the Government of any other country for the granting of relief of tax in respect of income on which tax has been paid in two different tax jurisdictions. Subsection (2) of section 90 unequivocally provides that where the Central Government has entered into an agreement with the Gove....
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....eration for services of managerial, technical or consultancy nature. It turns out that definition of the expression `Fees for technical services' under Article 13 of the DTAA is by and large similar to that given in section 9(1)(vii) of the Act to this extent, which does not directly support the case of the assessee. 18.3. At this stage, it would be relevant to refer to the Protocol, which for all practical purposes, is considered as a part and parcel of the DTAA. Relevant part of para 7 of the Protocol dated 29-09-2012 between India and France, reads as under:- `In respect of Articles 11 (Dividends), 12 (Interest) and 13 (Royalties, fees for technical services and payments for the use of equipment), if under any Convention, Agreement or Protocol signed after 1st Sept., 1989, between India and a third State which is a member of the OECD, India limits its taxation at source on dividends, interest, royalties, fees for technical services or payments for the use of equipment to a rate lower or a scope more restricted than the rate of scope provided for in this Convention on the said items of income, the same rate or scope as provided for in that Convention, Agreement ....
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....hnical services" has three constituents. Clauses (a) and (b) deal with payment for services which are ancillary and subsidiary to the enjoyment of right, property or information for which payment has been described under paras 3 (a) and (b) of this Article. Para 3 of Article 13 defines `Royalties' to mean 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 etc. or any industrial, commercial or scientific equipment etc. Thus, it is seen that clauses (a) and (b) of para 4 of the DTAA with the UK are not relevant for our purpose. Then there is clause (c) of para 4 which states that the term "fees for technical services" means payment of any kind for rendering any technical or consultancy services which "make available" technical knowledge, experience, skill, knowhow or processes or consists of the development and transfer of a technical plan or technical design. This clause bears usefulness in so far as interpretation of Article 13(4) of the DTAA with France is concerned. In view of the MFN clause in the Protocol, Article 13(4) of the DTAA with the UK shall overshadow Article 13(4) of the DTAA w....
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....ion with the DTAA with the UK. 18.8. As far as the remaining Technical services rendered by the assessee to Faurecia India are concerned, it is seen that these are of coordinating the Information system and assisting Faurecia India in computerisation of systems, office automation and utilisation of personal computers which fall into the aforesaid three categories namely, Operations, Technical support and Studies. On going through the nature of such services, it is manifested that these do not result in making available any technical knowhow etc. to the Faurecia India. 18.9. The term "make available" has come up for consideration before the Hon'ble Karnataka High Court in CIT Vs. De Beers India Minerals Pvt. Ltd. (2012) 346 ITR 467 (Kar.) in which it has been held that this term means that the payer of the services should be able to utilise the acquired knowledge or knowhow at his own in future without the aid of service provider. The Authority for Advance Ruling in Production resources group, in Re (2018) 401 ITR 56 AAR has also held that "make available" connotes something which results in transmitting the technical knowledge so that the recipient could derive an....
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.... amount ceases to be `Fees for technical services' in the light of the DTAA. Thus, there is no quarrel on whether or not the assessee has a place of business or business connection in India or it has rendered services in or outside India. The position would have been otherwise if the assessee had been covered u/s 9(1)(vi) or (vii) and not getting immunity under the DTAA and then claiming that no income on this score should be included in its total income as either it had no place of business in India etc. or the services were not rendered in India. As such, the reliance of the ld. AO on the Explanation below section 9(2) of the Act, for fortifying his point of view that the amount in question be charged to tax, is pointless. 20. As the extant payment received by the assessee can neither be construed as `Royalty' u/s 9(1)(vi) of the Act nor as `Fees for technical services' under the DTAA, the same cannot be included in the total income of the assessee. Ex consequenti, we overturn the impugned order on this score and order the deletion of the addition. 21. In the result, the appeal is allowed." 3. Respectfully following the aforestated decision, we are of the con....