TaxTMI 
TaxTMI 
TaxTMI 
2009 (6) TMI 24
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....telecom company which has a well established international network. The applicant submits that the Indian customers of the applicant would want to transmit their voice/data to places outside India. Under the proposed agreement the applicant would provide the Indian leg of the service by using its own network and equipments and network of other domestic operators, and the international leg of the service would be provided by C&W, UK, using its international infrastructure and equipments. In other words, whereas the applicant will carry the calls and data within the country, C&W UK will further carry those calls and data to the recipients outside India. The network and equipments of C&W UK will not be used in India and the applicant's network and equipments will not be used outside India. Thus in telecom parlance, domestic half circuit will be provided by the applicant and international half circuit will be provided by C&W UK. In respect of the aforesaid services rendered by C&W UK, the applicant will pay fees to the former. 2. It is in this factual background that the applicant seeks ruling of this Authority on the following questions: (1) Whether the amounts payable by the Appli....
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.... the service shall pay fees to the party providing the service. The payment shall be on mutually agreed revenue share basis, which shall be calculated with reference to the revenue billed by the party to the customers at the originating point. The revenue share shall be settled on monthly basis. Each party shall bill the other in sterling pounds. 4. The applicant submits that the service to be provided by C&W UK is a standard facility and is not technical in nature. So the payment made for availing this service would not amount to fee for technical services as stipulated in section 9(1)(vii)of the Act. According to the applicant the payment in question would not either be regarded as ' fee for technical services' under article 13(4) of the Convention between the Government of India and the Government of the United Kingdom for the Avoidance of Double Taxation and Prevention of the Fiscal Evasion with respect to Taxes on Income and Capital Gains (the treaty), as C&W UK does not make any technical knowledge, skill or experience available to the applicant. The applicant further submits that the payment made to C&W UK is not for the use of any intellectual property or equipment. Under....
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....position. He also submits that as the actual service has not yet started, it cannot be said what equipment will be installed and where and this needs to be verified. The last point raised by the jurisdictional Commissioner relates to PE. He submits that the contract between the applicant and its Indian customers indirectly binds C&W UK. As such, the applicant acts as an agent of C&W UK and so C&W UK has agency PE in India. He also states that it is not clear at this point of time whether C&W UK will be deputing some of its employees for providing connectivity, technical or maintenance support in India. The Commissioner urges that the question of PE may be left open at this stage. 6…… 6.1 The Authority, during the course of hearing, on 28.1.2009, directed the applicant to file affidavits clarifying certain technical details relating to the network/system by which connectivity is provided to the customers in India and any other factual information considered relevant by the applicant. The applicant filed two affidavits on 31.3.2009 - a technical affidavit and an affidavit explaining certain relevant factual details. 6.2 In the technical affidavit, the applicant gives the des....
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.... the technical service in question should make available technical knowledge, experience, skill, know-how or process, or consist of the development and transfer of a technical plan or technical design (emphasis supplied). From the description of service presented before us, we do not find that the requirements of clause (c) are fulfilled here. First, no technical service is rendered and secondly, there is no transfer of technology. The Revenue also concedes that this is not a case of payment of fees for technical services. 8. 8.1 The question whether the fees paid by the applicant to C&W UK are in the nature of royalty has been much debated. The revenue vehemently contends that it is royalty income -both under the Act as well as the treaty. Before dealing with the issue, we may extract the provisions of the Act as well as the treaty. The relevant provisions of section 9 read as under: "Income deemed to accrue or arise in India. 9. (1) The following incomes shall be deemed to accrue or arise in India :— (i) to (v) xx xx xx xx xx xx xx xx xx (vi) income by way of royalty payable by— (a) the Government ; or (b) a person who is a resident, except where the royalty is pay....
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....matography films or work on films, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic. xx xx xx xx xx xx xx xx xx xx" According to the applicant, in the proposed business model, no intellectual property rights are involved; C&W UK has not granted to it any right to use any intellectual property or any equipment. The Commissioner, on the other hand, states that the payment made by the applicant is clearly for using secret process. According to him the technology involved in the process of transmission of voice/data contains proprietary resources. It is not a case of mere rendition of service, but the quality of service and secrecy are also material. It is further stated that the services to be availed by the ....
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....ant are clearly in the nature of a process and not in the nature of standard facility and the applicant has used and has been conferred with the right to use such process. However, this contention has not been urged before us by the learned Counsel for the Department for the obvious reason that the language used in the relevant clause of the Treaty does not support any such interpretation. The expression in Article 12(3) (referred to at para 7.1 supra) is "for the use of or the right to use any copyright, patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience." It is thus clear that formula/process are part of the same group and the adjective 'secret' governs both. The reasoning of ITAT in the aforementioned case, based on the absence of comma after process and the impact of the immediately following word, 'trade mark', does not hold good in view of the clear language in Article 12(3) of the Treaty. It has been so pointed out very rightly by another Bench of ITAT in Panamsat International Systems Inc. vs. Dy. Commissioner Income-tax (ITA. No.1796/DEL/2001 dated 11.8.2006) at paragraph 6.18.....
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....s not necessary to examine the TAG report. 8.3 The Revenue has thus failed to show how the payments made by the applicant will be royalty income in the hands of C&W UK. 9. 9.1 We may now take up the last issue which relates to permanent establishment. As already pointed out, the Revenue has mentioned about the existence of another group company in India whose address is alleged to have been used by the applicant as its registered office. The applicant has submitted that the Cable and Wireless India Limited which is a company incorporated in UK, has set up a branch office in India under Reserve Bank of India (RBI) permission, a copy of which has been filed. This branch office performs ancillary telecom services, such as network designing , project implementation services and providing network management and maintenance services. This branch has not been granted any licence by the Department of Telecommunication to carry out NLD/ ILD services. The applicant also states that its registered office does not share the premises with the above branch office. We find that the applicant and the branch office of Cable and Wireless India Ltd. are separate legal entities which perform diff....