TaxTMI 
TaxTMI 
2008 (11) TMI 751
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.... resources and skills available among the members of Intertek group so that the services could be provided to or received from the other members within the Group. Hence, the Global Management Services Agreement ('GMSA') was entered into between Intertek Testing Services Management Limited, U.K. and the subsidiaries of Intertek, specified in Schedule-1 to the Agreement on 6-10-2006. The applicant and its Labtest division find place in the list of subsidiaries in Schedule-I. The applicant states that one of the key central points for the provision of services is Intertek Group's head office in London. The applicant avers that within the framework of GMSA, the relevant services would be provided to the applicant by Intertek Testing Management Limited ('ITM') which is a subsidiary of Intertek Group Plc., UK. However, the applicant describes ITM as Group's corporate head office in London (vide Note attached to supplementary written submissions). It is stated that such services are provided either directly or by deputing personnel of any other group company subject to the control and supervision of ITM, UK. It is further stated in the application that broadly, the....
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.... to the service fee paid by the applicant to ITM, U.K. under GMSA relating to Corporate Head Office Services, Divisional Global and Regional Services "in the field of executive commercial, financial, marketing and administrative management system and technique". It is also made clear that the applicant is not seeking ruling in respect of payments made to any other company located outside UK. Apart from taking note of this statement, there is one more point to be clarified. Though in the application as well as in the written submissions dated 14-4-2008, the three categories of services mentioned in Schedule 2 to the Agreement are stated to have been performed by ITM, UK as per GMSA, it is doubtful whether "Divisional Regional Services" are also performed. It is clarified by the applicant's counsel that the global headquarters of the applicant's Lab test division is London whereas the regional headquarter is Hong Kong. 'Divisional Global Services' are provided to various divisions from the global headquarters of a division whereas the 'Divisional Regional Services' are provided from the regional headquarters of a division. If so, insofar as the services provid....
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....hures and other promotional material including corporate website and divisional/regional sub-sites. 4.1 Divisional Global Services are the following:- Executive Review of operating result, budgets, and market trends, and liaison with divisional Regional management on business strategy. Negotiation of global/regional contracts for the division and contract implementation advice to satisfy customers requirements; Review of business plans and capital expenditure projects in order to liaise with Corporate Head Office to facilitate support from Bankers, Investors, and other financial institutions of secure investment to finance working capital requirements; and Arrangement and co-ordination of global business sector initiatives to build upon group contacts and areas of expertise to drive success at the local level. All the above activities are for co-ordination amongst group companies within a region - Benefit to the applicant Co. is merely incidental, if any Stewardship activity. Financial Advising the Divisional regional management team on financial matters and the production of management accounts; Ad....
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....dget reviews and reviews of submitted financial information coupled with feedback for improving local reporting and accounting skills, deputing key employees to review internal controls and to train staff on the use of accounting software; providing treasury functions such as managing liquidity, planning cash requirements, managing foreign exchange and interest risk; tax services which include providing assistance regarding local and international tax compliance issues and tax audits, tax planning including issues relating to double taxation under treaties. Compliance The Central compliance team assists the management in the assessment of risks inherent in the trading activities, advise on contractual/commercial claims against the Company and providing significant support and co-ordination in relation to legal transactions. Information Technology Providing centralised services to the Group, managing and centralizing e-mail, video conferencing, developing system design and net works and updating desktop and internet standards. Also includes management of the global internet site in order to provide a key point of contact for new customers. 5. A....
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....erned, the said agreement was effective from 1-1-2005. The Agreement was not in force during the assessment year 2004-05. Testing and inspection services are not covered by it. That apart, the nature of services considered and the findings of the Assessing Officer with respect to the two disputed items have no direct bearing on the questions raised in the present application. Some similarity in facts or certain overlapping arguments on the issues involved is not sufficient to denude this Authority of the jurisdiction to deal with the question raised for advance ruling. In fact, the learned counsel for revenue though initially raised this objection has not seriously pursued it in the course of arguments. Moreover, the objection as to the maintainability was not taken at the time when the Commissioner was put on notice before passing an order under section 245R(2) of the Act. For all these reasons, we find no legal bar to give the ruling on merits. 6. We may also mention that the comments of the Commissioner are mostly devoted to pre-shipment inspection charges, which is not in issue here. 7. Now, the terms of the Agreement (GMSA) may be referred to. The agreement dated 10-10-2....
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....hird parties. Schedule-2 lists out the services under three broad heads. We have already set out the summary of services mentioned in the Agreement as well as the Note accompanying written submissions. Schedule-3 deals with the "Fee". Para (i) speaks of "service charge" and the same is extracted hereunder:- Service Charge: Service provided by the relevant Providing Party will be billed to the Receiving Parties [allocated where relevant between those Receiving Parties as set out in paragraph (ii) below] at a fee calculated at Cost plus a mark-up of 7.5 per cent. Services will be billed periodically but in any event not less than annually. The cost is calculated at the beginning of the financial year based on budgeted figures. If the difference between budgeted and actual cost is greater than 5 per cent then an additional charge or refund may be made by the Providing Party in the first quarter of the following year. Third party costs specifically incurred on behalf of a receiving party will be recharged at cost to that receiving party. Then, the formula for allocation of fee to various receiving parties/subsidiaries is given in para (ii). 8. Two sa....
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....hnical services is a resident of the other Contracting State, the tax so charged shall not exceed: (3) ****** (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 of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information from 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. 9.3 It may be noticed that the language in the definition contained in Explanation 2 to section 9(1)(vii) of the Act and article 13.4(c) of DTAA is not the same. Clause (c) of article 13.4 restricts the sco....
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.... Court observed that "the expression 'technical services' has a very broad connotation and it has been used elsewhere in the Statute also so widely as to comprehend professional services: vide section 9(1)(vii)". The relevant meanings of the word 'technical' given in the New Shorter Oxford Dictionary (Thumb Index Edition) are 1. Of a person: having knowledge of or expertise in a particular art, science, or other subject. 2. pertaining to, involving, or characteristic of a particular art, science, profession, or occupation, or the applied arts and sciences generally. In CBDT v. Oberoi Hotels India (P.) Ltd. [1998] 97 Tax. 453, the Supreme Court reiterated the view that the term 'technical services' included professional services. In the case of Dean, Goa Medical College v. Dr. Sudhir Kumar Solanki [2001] 7 SCC 645, the question was whether the expression technical institutions' takes within its fold the medical colleges. The Supreme Court observed that "the dictionary meaning of the word "technical" is also "professional" and is used in contradistinction with pure sciences to prepare the professionals in applied sciences". However, we would like to observ....
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....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 service provider. By making available the technical skills or know-how, the recipient of 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 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 make available the technical knowledge, etc. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the rec....
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.... specific context of Article 12.4(b) [corresponding to para 4(c) of article 13 of India-U.K. treaty], the following examples given in the MOU succinctly bring forth the true import of the expression 'make available'. (1) Facts: A US manufacturer has experience in the use of a process for manufacturing wallboard for interior walls of houses which is more durable than standard products of its type. An Indian builder wishes to produce this product for its own use. It rents a plant and contracts with the US company to send experts to India to show engineers in the Indian company how to produce the extra-strong wallboard. The US contractors work with the technicians in the Indian firm for a few months. Are the payments to the US firm considered to be payments for "included services" ? Analysis: The payments would be fees for included services. The services are of a technical or consultancy nature; in the example, they have elements of both types of services. The services make available to the Indian company technical knowledge, skill, and processes. (2) Facts: An Indian vegetable oil manufacturing company wants to produce cholesterol-free oil from a pl....
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....ken by the ITAT. 10.5 At this juncture, it is apposite to quote some of the passages in Anapharm Inc.'s case (supra) ruling: ... It is, thus, fairly clear that mere provision of technical services is not enough to attract article 12(4)(b). It additionally requires that the service provider should also make his technical knowledge, experience, skill, know-how, etc., known to the recipient of the service so as to equip him to independently perform the technical function himself in future, without the help of the service provider. In other words, payment of consideration would be regarded as 'fee for technical/included services' only if the twin test of rendering services and making technical knowledge available at the same time is satisfied. (p. 405) At para 26 it was observed: In the present case, the applicant renders bioanalytical services which, no doubt, are very sophisticated in nature, but the applicant does not reveal to Sandoz/Ranbaxy as to how it conducts those tests or the inputs that have gone into it, so as to enable them to carry out those tests themselves in future. A broad description or indication of the type of test carried out to....
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....are detailed below". If the applicant had spelt out clearly the nature of services rendered in the past and those normally expected to be rendered by ITM, UK in relation to the Indian office of applicant, this authority would have been in a better position to analyze and give a specific finding whether or not the particular services pointed out by the applicant would fall within the definition of FTS as per the Treaty. A wide-ranging, perhaps a roving enquiry, could have been avoided. In the circumstances, we are left with no option but to take an overall view after going through the long list of services set out in the agreement and the applicant's note. On a broad analysis, we find that majority of the services catalogued are in the nature of technical or consultancy services. But, most or many of them do not 'make available' to the applicant the technical knowledge, experience, skill, know-how etc. possessed by the provider of services. At the same time, there are some services which can be brought within the ambit of phrase "make available". They are training staff on the use of accounting software, feedback passed on to the subsidiary after review of financial info....
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.... controlling, directing or administering the business. Seemingly, some services can be classified either under managerial or some other head. In such a situation, the test to be applied is whether they are pre-dominantly managerial in nature. Whatever services are enumerated under the head 'Administrative management' cannot automatically be brought within the purview of the managerial services. In fact, many of them may not appropriately fall under managerial services. To give some examples, the maintenance of trade-marks register and arranging renewals, preparation and distribution of brochures and other promotional material, maintenance of central claims register or providing professional tax advice, are not predominantly managerial services. Yet, they were included under the head "Administrative management". To give few instances of managerial services, we may make mention of coordination of public relations issues and audit services and advice on global IT policies. Arrangement and coordination of global insurance can perhaps fall under this category, though in the absence of details, we do not want to express firm view. Another point we would like to clarify is that fr....
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....icant in spelling out the details of the actual services received by it from the payee of the fee, i.e. ITM, UK has given scope for this argument. The argument is evidently based on certain assumptions. It is not proper to proceed on the assumption that the ITM, UK is incapable of rendering any technical or consultancy services and that its role is merely that of a conduit, in the absence of definite material leading to such inference. The omission on the part of the applicant in furnishing the details of actual services cannot be stretched too far. On the basis of the facts appearing on the record, it is not possible to arrive at a finding in this proceeding that the beneficial owner of fee is someone else. 16. In view of the foregoing discussion, the first question defies a precise answer - either in the affirmative or negative. Many of the services catalogued in the agreement and in the note are technical/consultancy services which do not 'make available' technical knowledge, experience etc. and therefore do not fall within the ambit of clause (c) of Article 13.4. But, some of them satisfy the test of making available 'technical knowledge' etc. and therefore t....