TaxTMI 
TaxTMI 
2008 (11) TMI 751
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....tek 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 nature of services provided under the GMSA by the UK comp....
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....nder 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 provided by ITM, UK are concerned, Divisio....
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.... 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; Advice and explanation/interpretation of accounting policies; Design of divisional reporting systems and provision of updates by local currency for local management use; Provision of accounting and financial services, where required and control pro....
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....ax 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. At the outset, we may mention that an objection has been raised by the Department that the question raised by the applicant is the subject-matter of pending appeals before CIT(A)-X, Mumbai in respect of the assessment years 2003-04 and 2004-05, and therefore, the application is not maintainable in view of the proviso to section 245R of the Income-tax Act, 1961. It is seen from the assessment orders ....
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....ts 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 10-10-2006 is between ITM London and the Subsidiaries ('and together with ITM, the Intertek Group'). The term 'subsidiaries' is defined to mean, excluding ITM, such subsidiary companies of Intertek Group Plc., London, as are identified in Schedule-I. In the list of subsidiaries in Schedule 1, the name of the applicant and its Labtest division is mentioned. The background for entering into the ....
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....levant 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 sample invoices were filed by the applicant covering the period January to July 2006 and July to December, 2006. A consolidated amount with the description 'management fee' is found therein. In order to explain the basis on which the cost is allocated to the various Group companies as per the formula set out above, the applicant has filed the cost analysis statement along w....
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....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 scope of "fee for technical services" ('FTS') by using the expression "make available" whereas as per Explanation 2, mere rendering of specified service is sufficient to attract the definition of FTS. Article 13.4(c) says that the services rendered should make available technical knowledge, experience, skill, know-how, etc. On an analysis of article 13.4 read with clause (c) it follows that FTS is consideration p....
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....e 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 observe that it is not any or every professional service that amounts to technical service. Professionalism and an element of expertise should be at the back of such services. There is a decision of Andhra Pradesh High Court in which the ambit of expression 'technical service' was considered. In G.V.K. Industries Ltd. v. ITO [1997] 228 ITR 564 (AP), SSM Qu....
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....ure 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 receiver can deploy similar technology or techniques in future without depending on the provider. Taking some examples, the training given to a commercial aircraft Pilot or training the staff in particular skills such as software development would fall within the ambit of the said expression in clause (c). Supposing, a prescript....
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....ng 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 plant which produces oil normally containing cholesterol. An American company has developed a process for refining the cholesterol out of the oil. The Indian company contracts with the U.S. company to modify the formula which it uses so as to eliminate the cholesterol and to train the employees of the Indian company in ap....
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....ical 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 reach this conclusion does not enable the applicant's client to derive requisite knowledge to conduct the tests or to develop the technique by itself. The mere fact that the tests in question are highly technical in nature will not make a difference... From the perusal of the relevant agreements, we have not found any provision which w....
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....rvices 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 information for improving accounting skills, advice on tax planning, developing IT related systems design, implementation of global IT policies and systems, provision of accounting policies manual. There are some services which stand on a border line, e.g., design of regional reporting systems, advice on "Production....
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....anagement' 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 from the nomenclature used in the invoice i.e., 'management fee', it cannot be inferred that all the services under the agreement rendered to the applicant are managerial services. The label given in the invoice is not important, much less decisive. In fact, the expression 'management fee....
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.... 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 taxable as FTS under Article 13.4 of Treaty. There are also services which can be categorized as managerial. There are some which do not fall under either of the three categories. We have given sufficient indication of all such services, on a broad analysis. 16.1 It is made clear that nothing in this ruling s....