TaxTMI 
TaxTMI 
TaxTMI 
2024 (3) TMI 216
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....termination, the Authority for Advance Rulings (Income Tax), New Delhi ("AAR"), by its Order dated 17th January 2012 held that payments made by Petitioner to SIPCL towards BSS under the CCA constitutes income in the hands of SIPCL being in the nature of fees for technical services within the meaning of Article 13.4 (c) of the Double Tax Avoidance Agreement ("DTAA") between India and UK and is chargeable to tax in India. Consequently, AAR held that Petitioner is under obligation to withhold tax under section 195 of the Income Tax Act, 1961 ("the Act"). 3. Aggrieved by this Order, Petitioner, by way of the present petition, challenges the validity and legality of the said Order passed by the AAR. 4. Petitioner is a company registered in India under the Companies Act, 1956 and engaged, inter alia, in the business of operating chain of retail fuel stations in India. Respondent No.1 is the Union of India, Respondent No. 2 is the AAR and the other Respondents are the various officials concerned of the Income Tax department. 5. By way of a CCA dated 1st April 2009 executed between Petitioner and SIPCL, Petitioner avails of BSS provided by SIPCL to all operating companies in its g....
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.... Attachment III, and also in light of the declaration provided by SIPCL that it does not have a permanent establishment in India in terms of Article 5 of the India-UK Tax Treaty, whether the payments received by SIPCL would be chargeable to tax in India? If the answer is in the affirmative, would the payments made by the Applicant to SIPCL suffer withholding tax under section 195 of the Act and at what rate?" 7. Although none representing the Revenue Department appeared before the AAR, a notice dated 2nd December 2009 was received by Petitioner from the Assistant Director of Income Tax, (International Taxation)-2(1) Mumbai seeking certain clarification including details of the nature of services availed by it. Petitioner provided the required details vide its reply dated 23rd December 2009. Further details were sought by another notice dated 21st January 2010 issued by the Deputy Director of Income Tax, (International Taxation)-2(1), Mumbai. Petitioner provided additional details as well by letter dated 27th January 2010, which included following information: i. Details regarding nature of services covered by CCA. ii. The costs of certain services availed by SI....
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....ope and ambit of Article 13 of the India-UK DTAA. The AAR has failed to appreciate that the CCA is only an approach adopted by the group entities as part of their group business strategy at standardizing and carrying out global quality business in a cost effective manner. ii. Services availed by Petitioner are neither intended nor result in placing Petitioner in a position where it could independently carry on services without SIPCL. iii. Services that make available technical knowledge, skill, know how etc., are distinct from services shared under the CCA which may involve technology/industry expertise but neither can be construed as technical services nor satisfy the requirement of making available technical knowledge as commonly understood. iv. The CCA represents sharing of cost amongst the cost sharers pursuant to which Petitioner becomes co-owner of any expertise arising out of the arrangement. v. The AAR has totally disregarded the authentic technical commentary-protocol in India-USA DTAA which is similarly worded and involves determination of similar technical aspects relating to the 'make available' condition. vi. The AAR....
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....tation of the term 'technical' and 'consultancy' services as well as the meaning of the term 'make available' as they appear in the DTAA. a. Commissioner of Income Tax, Central Circle v. De Beers India Minerals (P) Ltd (2012) 21 taxmann.com 214 (Karnataka) b. Director of Income Tax v. Guy Carpenter & Co. Ltd. (2012) 20 taxman.com 807 (Delhi) c. US Technology Resources (P) Ltd. v. Commissioner of Income Tax Thiruvanthapuram (2018) 97 taxmann.com 642 (Kerala). d. Commissioner of Income Tax (International Taxation and Transfer Pricing v. Timken Company (2023) 149 taxman.com 251 (Calcutta). e. Commissioner of Income Tax (International Taxation)-1 Delhi v. M/s Bio-rad Laboratories (Singapore) Pte. Ltd. ITA 564 of 2023 (Delhi High Court) decided on 3.10.2023. f. Director of Income Tax (IT)-1 v. A.P. Moller Maersk-AS Supreme Court Civil Appeal No.8040 of 2015 decided on 17.2.2017. g. Director of Income Tax, (IT)-1 v. WNS Global Services (UK) Ltd. (2013) 32 taxmann.com 54 (Bombay) 13. Mr. Suresh Kumar submitted as follows: (I) The AAR has dealt with in detail the submissi....
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....also. In the event the Court opines in favour of Petitioner and holds the services not to be 'technical/consultation', the Department may be permitted to take necessary steps against Petitioner as permitted in law and the time spent during the pendency of this Petition be excluded for the purpose of limitation. ANALYSIS AND FINDINGS: 14. By the impugned order, the AAR has determined that the payment made by Petitioner to SIPCL for availing the General BSS under the CCA is in the nature of fees for 'technical services' within the meaning of Article 13.4(c) of the DTAA and hence, constitutes income in the hands of SIPCL. It has thus ruled that Petitioner is under obligation to deduct tax at source under Section 195 of the Act. The AAR has not gone into but prima facie has accepted the declaration provided by SIPCL that it does not have permanent establishment in India and in any case that was not the issue before AAR. There is no discussion or finding pertaining to the status of SIPCL as having permanent establishment in India in terms of Article 5 of the DTAA. Hence, determination by the AAR on this issue remains inconclusive. 15. Be that as it may, the crux of the matter l....
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....ind 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 4. For the purposes of paragraph (2) of this Article, and subject to paragraph (5), of this Article, the term "fees for technical services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including the provisions of services of technical or other personnel) which: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph (3)(a) of this Article is received; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph (3)(b) of this Article is received; or (c) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design." 16. From the bare words of the Article, it is clear that income of SIPCL wil....
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.... a decision of commercial nature is a consultancy service. The AAR has further considered the definition of the word 'Consultancy' as defined in the Oxford English dictionary and has observed that a consultant is a person who gives professional advice or services in a specialized field. However, the AAR failed to appreciate that the word 'Consultancy' appearing in the Article is to be interpreted in the context of consultancy which makes available technical knowledge, etc. and not of managerial nature. The reading of the Article clearly indicates that the consultancy service must be which makes available technical knowledge, etc. Sub-para (c) to Article 13(4) restricts such services to those which make available technical knowledge or consist of development and transfer of a technical plan or technical design. Thus, a harmonious reading of the provision of Article 13 in its entirety, clearly establishes the intent of the DTAA in making income chargeable to tax only if the services availed pertain to technical services or consultancy services. Technical services in this context mean services requiring expertise in a technology. By Consultancy Services, in this context, would mean....
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....ervice for a fee. The popular meaning associated with "technical" is "involving or concerning applied and industrial science". 10. In the modern day world, almost every facet of one's life is linked to science and technology inasmuch as numerous things used or relied upon in every day life is the result of scientific and technological development. Every instrument or gadget that is used to make life easier is the result of scientific invention or development and involves the use of technology. On that score, every provider of every instrument or facility used by a person cannot be regarded as providing technical service. 11. When a person hires a taxi to move from one place to another, he uses a product of science and technology, viz., an automobile. It cannot on that ground be said that the taxi driver who controls the vehicle, and monitors its movement is rendering a technical service to the person who uses the automobile. Similarly, when a person travels by train or in an aeroplane, it cannot be said that the railways or airlines is rendering a technical service to the passenger and, therefore, the passenger is under an obligation to deduct tax at sou....
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....BSS, SIPCL works closely with the employees of the applicant and supports/advises them. It is held that Petitioner is able to use the know how/intellectual property generated from the General BSS independent of the service provider and hence the services under the agreement are clearly made available to Petitioner. In order to understand the import of the words 'made available' as used in the context of Article 13(4)(c), it will be useful to refer to a decision of the Karnataka High Court in CIT, Central Circle v. De Beers (Supra). Paragraph 22 reads as follows: "22. What is the meaning of "make available". The technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, knowhow and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology "make available", the technical knowledge, skill?, etc., must remain with the person receiving the services eve....
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....ement is effective from 01.01.2010 and we are in Assessment Years 2018-19 and 2019-120.[sic.....20]. In our considered opinion, if the assessee had enabled the service recipient to apply the technology on its own, then why would the service recipient require such service year after year every year since 2010? 19. This undisputed fact in itself demolishes the action of the Assessing Officer/DRP. Facts on record show that the recipient of the services is not enabled to provide the same service without recourse to the service provider, i.e, the assessee. 20. In our humble opinion, mere incidental advantage to the recipient of services is not enough. The real test is the transfer of technology and on the given facts of the case, there is no transfer of technology and what has been appreciated by the Assessing Officer/ld. CIT(A) is the incidental benefit to the assessee which has been considered to be of enduring advantage. 21. In our understanding, in order to invoke make available clauses, technical knowledge and skill must remain with the person receiving the services even after the particular contract comes to an end and the technical knowledge or skills o....