TaxTMI 
TaxTMI 
2009 (4) TMI 16
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.... circumstances of the case, (a) the receipts of the applicant under Contract Nos. 1,2,3, & 4 with ONGC are not in the nature of royalties as defined in Article 12 of the DTAA between India and Australia? (b) The applicant does not have a PE in India in respect of this contract? (c) If answers to (a) & (b) above are in affirmative, the receipts from this contract are not taxable in India? Question No. 5 In Qn.No.5 - which relates to contract no.(5), (a) & (b) are the same as above. Qn.No.5 (c) reads thus: "If answers to (a) & (b) above are in affirmative, the receipts from this contract are chargeable @15%." Question No. 6 In Qn.No.6 - which relates to contract no.(6), (a) & (b) are the same as above. (c) and (d) are as follows : "(c) If answers to (a) & (b) above are in affirmative, only so much of such receipts as are attributable to the said PE are taxable in India as business profits? (d) The balance receipts of the applicant under this contract, as are not attributable to such PE are not taxable in India?" 2. The material facts relating to the contracts, as stated in the application, rejoinder and the affidavit filed along with it....
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....ntract were thus provided partly from Australia and partly in India in the year 2002-03. However, in the succeeding year, the work was carried out only from Australia. 2.3. Contracts No. 3 to 6 relate to Mumbai High South Offshore Field (for short 'MHS) development. ONGC prepared a scheme to implement seven separate packages for developing Integrated Process-cum-Gas Compressor Platform, several well platforms, drilling of new wells and new pipeline segments of 245 kms. Package I related to installation of ZA platforms and associated works. In connection therewith, Contract No. 3 was entered into. The applicant had to review the existing design philosophy, study the adequacy of existing processing facilities and also conduct study to arrive at optimum requirement of additional compression and other facilities. This involved review of the engineering documentation prepared by third party and based on the adequacy checks for optimization, the applicant was to give its recommendation and make the presentation to the senior management of ONGC. As the work required interaction with ONGC officials, the employees of the applicant were in India for 17 days in the year 2003-04 for the ....
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....ian operations is taxed in India. Though initially in the application the applicant conceded to pay tax at 15 per cent on the royalty income under Contract no. 5, the above contention was raised drawing support from the decision of the Supreme Court in Ishikawajima - Harima Heavy Industries Ltd. v. DIT [268 ITR 408]. 4. The Revenue has disputed the propositions advanced by the applicant and contends that the payments made by ONGC under Contract nos. 1 to 6 are in the nature of royalties within the meaning of clause (g) of Art. XII.3 of DTAA, and therefore, taxable in India in view of the Art. XII.2 read with Section 9(1)(vi)/(vii) of the Income-tax Act, 1961. It is also contended that all the contracts which pertained to the two projects of Mumbai High should be seen together in order to ascertain whether a service PE as contemplated by Art. V(3)(c) is attracted. The principle of force of attraction as embodied in Art. VII.3 has also been put forward in support of its stand. It is contended that the royalty income as a whole is liable to be taxed and it cannot be apportioned in the manner suggested by the applicant. The decision in Ishikawajima, it is pointed out, is distinguish....
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....r the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel). The concept of technical services liable to tax under the DTAA is not as wide as that contained in the corresponding provision in I.T.Act. There are two limbs in clause (g) Art.12.3 of DTAA: (i) rendering of services which make available (emphasis supplied) technical knowledge, experience, skills, know-how or processes, (ii) transfer of a technical plan or design. The question argued before us is whether one of the two limbs of (g) is attracted in the instant case. Of course, attention was focused more on the first part of clause (g). It is well settled that whenever there is conflict between the provision contained in the Treaty and the corresponding provision in the domestic law the provision in the Treaty will prevail unless the domestic law provision is more beneficial to the assessee. This is the specific principle embodied in Section 90(2) of I.T.Act. In the case of UOI vs. Azadi Bachao Andolan, the legal position in this regard has been stated by the Supreme Court thus: "A survey of the aforesaid cases makes it clear that the judicial....
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....hnical or consultancy service is followed by a relative pronoun "which" and it has the effect of qualifying the services. That means, the technical or consultancy service rendered should be of such a nature that "makes available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting the technical knowledge, etc., so that the payer of service could derive an enduring benefit and utilize the knowledge or know-how in future on his own without the aid of the service provider. By making available the technical skills or know-how, the recipient of the service will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service provider. In other words, to fit into the terminology "make available", the technical knowledge, skills, etc., must remain with the person receiving the services even after the particular contract comes to an end. The services offered may be the product of intense technological effort and a lot of technical knowledge and experience of the service provider would have gone into it. But that is not enough to fall within the description of services which m....
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....h Redevelopment Scheme. (MSW project) (ii) Package 4 (review of bid package of 5 well platforms) and (iii) Monitoring, vetting & incorporation of Brown-field bid package work (to be carried out by Indian Consultant JBTI) of Mumbai High South Redevelopment Scheme. CONTRACT NO. 6 Review the documents prepared by Hyundai Heavy Industries (HHI) for design and procurement stage of MHS Process Platform Project (MHS Project). 6.3. By undertaking such services, the applicant no doubt furnished to ONGC valuable information or inputs of technical nature in order to proceed with the work relating to the two projects. The reports/recommendations furnished by the applicant undoubtedly have a technical content which in turn helped ONGC in many ways. ONGC derived benefit from the use of end-product, namely, reports/recommendations provided by the applicant. From that it does not follow that technical knowledge of the applicant and the inputs deployed by the applicant for preparing those reports are acquired or applied by the applicant. It cannot be said that the recipient of the service, namely, ONGC will get equipped with the knowledge and expertise of the service provider and be able t....
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....rmation relating to the project and that the consultants shall not prepare articles or photographs relating to the services and/or the project or facilities or installations. Reliance has been placed on the decision of ITAT Bangalore Bench in the case of ITO vs. De Beers India Minerals (P) Ltd. In that case the question arose whether the respondent company was liable to deduct tax at source on the payments made to a foreign company for conducting air-borne geo-physical survey and providing report for locating the potentials parts for the exploration of diamonds. The learned members of the Tribunal observed thus: " 'Fugro' has surveyed, collected and processed the data on behalf of De Beers. There is no doubt that 'Fugro' performed the services using substantial knowledge and expertise but such technical experience, skill or knowledge has not been made available to 'De Beers'." The Tribunal also held that the payments to 'Fugro' cannot be considered to be payments for technical, plan and design much less, for the development and transfer of them. 'Fugro' is engaged in providing services relating to collection and processing of data which always belonged to 'De Beers'. The purp....
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....states and to carry on business through that PE if (a) ……………… (b) ……………… (c) it furnishes services, including managerial services and those mentioned in sub-paragraph (3)(h) to (k) of Article 12 but not those services in respect of which payments or credits that are royalties as defined in Article 12 are made, within one of the Contracting States through employees or other personnel, but only if those services are furnished within that State : (i) for a period or periods aggregating to more than 90 days within any 12-month period; 7.1 We are not concerned with sub-clause (ii). Clause (c) excludes from the purview of PE the services that give rise to royalties under Art.XII (other than those mentioned in sub-paragraphs (h) to (k)). Hence, Contract No.5 under which the payments received by the applicant were in the nature of royalties cannot be taken into account for the purpose of counting the number of days or for any other purpose under clause (c). It is the contention of the applicant that each contract should be viewed separately in order to judge the existence of deemed PE under clause (c) of art. XII.3. In any case, it is submitted that C....
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....egitimately include doing activities or operations which are integral or contributory to the provision of services. In fact, there is no dispute on this point. The point of controversy, as already noted, is whether the word 'services' should be confined to a single contract where there is more than one with the same party and the number of days specified in sub-clause (i) of clause (c) should be counted Contract-wise. On the facts of the present case, we do not find any warrant to understand the expression 'services' in such a truncated manner. Firstly, various contracts involving rendering of services in India were with one party, namely, ONGC. Secondly, the contracts related to redevelopment of Bombay High South and North off-shore Oil Fields aimed at stepping up the recovery of oil and gas. The activities in connection with the contracts were to be carried out in and around Mumbai. Moreover, broadly, the nature of work and services are of the same pattern. Thus, from geographical and commercial point of view, the services cannot be dissociated from each other for the purposes of Art.V.3(c). It is reasonable to take the view that the duration of the totality of services furnished....
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....In the light of the above discussion, a PE must be deemed to be in existence within the meaning of clause (c) of Art.V.(3) of DTAA in so far as Contracts 2 to 4 and 6 are concerned and the business income therefrom will have to be computed in accordance with Art.VII of DTAA. The receipts under Contract No.1 are not taxable at all in view of our finding that during the period of currency of Contract, there was no PE at all. 8. The learned Departmental Representative has endeavored to bring the case of the applicant within clause (b) of para 1 of Art.VII which declares inter alia that the profits attributable either to the PE or other business activities of the same or similar kind as those carried on through the PE are liable to be taxed. Clause (b) of Art.VII.1 gives effect to the principle of 'force of attraction' in a limited way. This argument which is raised as an alternative argument in case the existence of PE is ruled out, is pressed into service to attribute to the PE admittedly arising under contract No.6 not only the profits under the said Contract but also the profits attributable to other Contracts (other than Contract No.5). However in the view we have taken, there ....