TaxTMI 
TaxTMI 
TaxTMI 
2022 (7) TMI 1396
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....ant 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 be refurbished and refabricated. While the norma....
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.... 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 to which such services are customarily provided in the ordinary course of business arrangemen....
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....s 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-fabricate the same which is clearly in the form of FEES FOR TECHNICAL SERVICES. Those re- fabrication services make the bushings ready to be used by th....
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....vices 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 royalty is received under a licenses or sole as described in para-3(a)". The Article -12 on DTAA is understood as under: It is understood that in order for a service fee to be considered 'ancillary ....
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....ervices 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 Owens Corning Industries India Pvt. Ltd. Without prejudice to the above, the service provider viz. the assessee company is providing services with an overall arrangement which includes the receiver of the FTS Owens Corning Pte Singapore, and Owes Corning USA-the supplier of the ....
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....e 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, have accrued to one of the enterprises, but, by reason of those conditions, have not so accrued, may be included in the profits of that enterprise and taxed accordingly ARTICLE 12- ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the o....
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....idiary 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 provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or con....
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....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 the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received". On the facts of this case, it is also not in dispute that no such payments, were made to the assessee by its Indian affiliate, which will be covered by Article 12(3) of the Indo-Singapore tax treaty. Yet, taxability under Article 12(4)(a) is invoked, on the ground that one of the group companies, i.e. OC-US, has received such payments from ....
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....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 organize a multinational group to organize its activity, as long as it is a bonafide arrangement, in a manner as deemed commercially expedient. The question that we have to really consider is whether or not the activity leading to income was actually carried out in that jurisdiction, and there is no dispute on that aspect at all. The fact that an arrangement regarding situs of entities providing different facilities, in connection with a transaction of the multinati....