TaxTMI 
TaxTMI 
2009 (6) TMI 24
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....nt with another group company, namely M/s Cable and Wireless UK (C &W UK) with a view to providing end to end international long distance telecommunication services to its Indian customers. C&W UK is stated to be a leading international 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 af....
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....anaged private lines, etc. Article 3 requires the parties to interconnect their respective networks at Network Access Points. The expression 'Network Access Points' has been defined to mean physical points at which the networks of the parties are to be connected. As per article 5, the party availing 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 Preven....
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....ture of royalty, both under section 9(1)(vi) of the Act as well as article 13 of the treaty. According to the jurisdictional Commissioner the services provided by C&W UK are not in the nature of standard facility as these use secret process. The applicant thus pays for using secret process. The jurisdictional Commissioner relies on Asia Satellite Communication's case for this proposition. 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 clarif....
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....ged that the fees paid by it to C&W UK is not in the nature of fees for technical services under the Act. So far as article 13(4) of DTAA is concerned, the first part of it defines 'technical services' in a manner similar to Explanation 2 to section 9(1)(vii), but it further qualifies this expression in clauses (a), (b) & (c). Clause (c) is relevant for the present consideration. This clause requires that 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 iss....
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....o be taxed in the Contracting State in which they arise and according to the law of that State; but if the beneficial owner of the royalties or fees for technical services is a resident of the other Contracting State, the tax so charged shall not exceed : xx xx xx xx xx xx xx xx xx xx xx xx xx xx xx 3. For the purposes of this Article, the term "royalties" means : (a) 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, including cinematography 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" Accordi....
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....ithin the meaning of clause (iii) to Explanation (2) to Section 9(1) of the Act. That clause speaks of "the use of any patent, invention, model, design, secret formula or process or trade mark or similar property". It is contended, relying on the decision of ITAT in the case of Asia Satellite Telecommunications Company Ltd. vs. Deputy Commissioner of IT (ITA No.166/DEL/2001* dated 1.11.2002) that the word 'secret' only qualifies the expression 'formula' and cannot be read before the word 'process'. On such interpretation, it is submitted by the Revenue in its comments that the services provided to the applicant 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 ....
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....ssion of the signal. We also notice from the draft agreement that there is neither any stipulation for provision of any equipment nor payment of any fee for the same. On the basis of the records placed before us, we are of the view that no case is made out to presume that any equipment will be installed by C&W UK at the premises of the applicant in India and the applicant will pay for the same. The averment of the Commissioner is based merely on the doubt entertained by him for which he has not shown any basis. The affidavits filed by the applicant after first hearing clarify the factual position in this regard. In the light of the view taken by us, it is 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 compan....