TaxTMI 
TaxTMI 
2022 (7) TMI 1396
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....amount of Rs 4,84,44,048 received by the appellant during the year under consideration as fabrication charges as 'fees for technical services' ". 5. Briefly stated, the relevant material facts are like this. The assessee before us is a company incorporated in, and fiscally domiciled in, the Republic of Singapore. During the relevant previous year, the assessee company provided bushing and fabrication services to its Indian affiliate by the name of Own Corning (India) Pvt Ltd (OCIPL, in short) and received fabrication charges aggregating to Rs 4,84,44,048. OCIPL is engaged in the business of manufacturing and sale of glass fibres, and it uses bushings, which are made of precious metals, i.e. platinum and rhodium, in the process of manufacturing glass fibres. These bushings are electrically heated crucibles containing numerous tiny holes through which glass, liquified by heat, is drawn at a very high speed into extremely fine glass filaments, which are simultaneously cooled. While this process does manufacture the required glass fibre, the tiny holes in the bushings, through which liquified glass passes, get enlarged and damaged. As a result, these bushings are required to....
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....nderstood as under: It is understood that in order for a service fee to be considered 'ancillary and subsidiary' to the application or enjoyment of some right, property, or information for which a payment described in Para 3(a) or (b) is received, the service must be related to the application or enjoyment of the right or property or information. In addition the clearly predominant purpose of the arrangement under which the payment of the service fee and such other payment are made must be in alignment to the right property, services rendered or information described in Para 3 stated herein above. The question of whether the service is related to the application or enjoyment of the right property or information or services rendered described in para 3 and whether the clearly predominant purpose of the arrangement is such application or enjoyment must be determined by reference to the facts and circumstances of each case. Factors that may be relevant to such determination include: a) The extent to which the services in question facilitate the effective application or enjoyment of the right property or information described in Para 3 b) The extent t....
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....ng India Pvt Ltd and Owens Corning Industries India Pvt Ltd. Without prejudice to the above, the service provider viz the assessee company is providing service with an overall arrangement which includes the receiver of the FTS Owens Corning Pte Singapore, and Owens Corning USA-the supplier of the main ingredient 'ALLOY' in the re-fabrication of the hushing and the payers of the FTS viz Indian subsidiaries, Owens Corning India Pt Ltd and Owens Corning Industries India Pvt Ltd who send the Bushings for re-fabrication to the assessee and to whom Owens Corning Inc has leased out the asset. As discussed, this arrangement between Owens Corning Singapore, Owens Corning Inc and Indian entities is a colorable device for tax planning and the corporate veil has to be lifted. 13. In the light of the above observations, the fees for technical services construes to be an income of the nonresident entity and is therefore deemed to or arise in India under Section 9(1) (vi) r.w.s. Explanation 2 of the Income Tax Act 1961. The assessee company is provided with the damaged busing and the alloy necessary to re-furnish it and the services rendered by the assesse company is only to re-fabri....
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....d Services' should be ancillary or subsidiary to the application or enjoyment of the right or property or information for which a payment described in Para - 3. (b) Also the services rendered by the company do not make available any technical knowledge, skills, experience etc. either to OCIPL or to Owens Corning Industries India Pvt. Ltd. and hence does not fall within the definition of 'fees for included services' as per Article - 12(4) (b) of the DTAA" The assessee's explanation was considered by the A.O. and stated that it was not acceptable for the following reasons. The assessee's receipts are in the nature of FTS as per Article 12(4) (a) of DTAA between India and Singapore. The Article - 12(4)(a) is reproduced as follows: "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 paragraphs 3(a) or (b) is received. Thus para - 4(a) includes technical and consultancy services that are ancillary and subsidiary to the application or enjoyment of an intangible for which a ....
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....be enjoyed by the recipient of the right only if the corresponding services are rendered. The extent to which such services are customarily provided in the ordinary course of business arrangements involving royalties as described in para - 3. These services rendered are a continuous process and the assessee company continually receives bushings and alloys every 250 days for re-fabrication of the BUSHINGS provided in the ordinary course of business arrangements involving royalty. Whether the party providing the services is the same one, as or as a related person, to the party receiving the royalties described in para - 3, these parties are considered related if their relationship is described in Article - 9 (Associated Enterprises) or if the party providing the service is doing so in connection with an overall arrangement which includes the payer and recipient of the royalties. The service providing party, in this case the 'assessee company' is the related person as per Article - 9 (Associated enterprise). In short the assessee M/s. Owens Corning Singapore is a related party or the Associated Enterprise of Owens Corning India Pvt. Ltd. and....
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....(4)(a) of the India Singapore Double Taxation Avoidance Agreement. The assessee is aggrieved, and is in appeal before us. 8. We have heard the rival contentions, perused the material on record, and duly considered the facts of the case in light of the applicable legal position. 9. Let us first take note of the related provisions of the India Singapore Double Taxation Avoidance Agreement [(1994) 209 ITR (Stat) 1; Indo Singapore tax treaty, in short], which were, at the relevant point of time, as follows: Article 9- ASSOCIATED ENTERPRISE Where- (a) an enterprise of a Contracting State participates directly or indirectly in the management, control or capital of an enterprise of the other Contracting State, or (b) the same persons participate directly or indirectly in the management, control or capital of an enterprise of a Contracting State and an enterprise of the other Contracting State, and, in either case, conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises, then any profits which would, but for those conditions, ha....
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.... service shall be deemed to include an agent, nominee, or transferee of such person. 5. Notwithstanding paragraph 4, "fees for technical services" does not include payments : (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in paragraph 3(a) ; (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic ; (c) for teaching in or by educational institutions ; (d) for services for the personal use of the individual or individuals making the payment; (e) to an employee of the person making the payments or to any individual or firm of individuals (other than a company) for professional services as defined in Article 14 ; (f) for services rendered in connection with an installation or structure used for the exploration or exploitation of natural resources referred to in paragraph 2(j) of Article 5 ; (g) for services referred to in paragraphs 4 and 5 of Article 5. 6. The p....
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....pute that once the provisions of the applicable tax treaty are more beneficial to the assessee, the provisions of the Indian Income Tax Act, 1961 cannot be pressed into service. Therefore, as things stand now, everything hinges on the application of the provisions of article 12, dealing with fees for technical services, coming into play. There is also no dispute that refurbishing of bushes does not amount to "making available any technical knowledge, experience, skill, know-how or process" as there is no transfer of technology inherent in the process of rendition of these services, and, it is not even, therefore, the case of the authorities below that the fees received by the assessee can be taxed under article 12(3)(b) of the Indo Singapore tax treaty; their case is confined to the application of Article 12(4)(a) of the Indo Singapore tax treaty which provides that "(t)he term "fees for technical services" as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through technical or other personnel) if such services......are ancillary and subsidiary to t....
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....nyway. Such an approach is too far-fetched and is neither supported by a plain reading of the treaty provision or by any logical rationale, nor by any commentary or even academic literature. The OC US and the assessee, a Singapore-based entity, are distinct entities and, they have distinct legal existences. The mere fact that these entities are part of the same multinational group does not require, or justify, ignoring the distinct identities of these entities, or the fact that the operations of these entities are in different jurisdictions. It is also not even the case of the revenue authorities that the refurbishing work is not carried out in Singapore. While a lot of emphases is paid by the revenue authorities on the fact that on the same transaction the assessee had paid taxes in India in the immediately preceding year, and the fact that it is part of overall common arrangements that the leasing is done from one jurisdiction and the refurbishing or bushing is done is another jurisdiction. Nothing, however, turns on these arguments also. The acceptance of tax liability in one year does not constitute estoppel against the assessee for the other years, and it is for the group to o....