TaxTMI 
TaxTMI 
2024 (11) TMI 1385
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....erseas associated enterprise (Ciena Communications Inc., a company incorporated in Delaware, having its principal place of business in Maryland - hereafter referred to as Ciena, US) was liable to be disallowed by virtue of Section 40(a)(i) of the Income Tax Act, 1961 (hereafter the Act), on the ground that the Assessee had not deducted tax at source on the payments made to Ciena, US. These payments (Rs. 8,09,63,299/- in FY 2011-12, Rs. 3,92,82,982/- in FY 2012-13 and Rs. 3,99,09,962/- in FY 2014-15) were accordingly added to the declared income of the Assessee for the previous years relevant to the Assessment Years in question. The said addition was premised on the assumption that the payments made to Ciena, US were chargeable to tax, under Section 9 (vii) of the Act, being fees for technical services. The Assessing Officer (hereafter the AO) also proceeded on the basis that the benefit of Article 12 of the India-USA Double-Taxation Avoidance Treaty Agreement (the DTAA) would not be available, as the services rendered, for which the aforesaid payments were made, included the element of "make available" of technology to the Assessee. 3. For the purpose of considering the present ....
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....eroi (India) (P.) Ltd., 97 Taxmann 453 (SC), it was held that services provided by hotel consultants and specialists to a Foreign Hotel was 'technical service'. "Make Available" 3.5 The term 'make available' came under the examination by the AAR in its' ruling in the case of Shell India Markets Pvt. Ltd. (order dated 12.1.2012 in AAR No. 833 of 2009). In this case, the foreign company provided industry specific expertise to the assessee which was applied in running business. This way the assessee's employees would be equipped to carry on that business/ service on their own without reference to the service provider, when the service agreement comes to an end. It has been stated that it was not a per-requisite for applicability of "make available" clause that the right to continue the practice put into effect and adopted under the service agreement on its expiry should be conveyed specifically. It was found that while describing the services, the term 'advise/advice' has been uses repeatedly and the services are themselves called 'support services'. This itself indicates that while providing General BSS, foreign company works ....
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....ng that Ciena, US had made available technical knowledge/ experience to the Assessee, resulting in this said service being chargeable to tax in India, in terms of Section 9 (1) (vii) of the Act and falling within the exclusionary clause of Article 12 of the DTAA. 6. It is relevant to refer to Section 9 (1) (vii) of the Act and Article 12 of the DTAA, which are set out: "Section 9 (1) (vii) Section 9 (1): The following Incomes shall be deemed to accrue or arise in India :- *** **** *** (vii) Income by way of fees for technical services payable by- (a) the Government ; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India. Article 12 of DTAA ARTICLE 12 - Royalties and fees for ....
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....d as consideration for the use of, or the right to use, any industrial, commercial, or scientific equipment, other than payments derived by an enterprise described in paragraph 1 of Article 8 (Shipping and Air Transport) from activities described in paragraph 2(c) or 3 of Article 8. 4. For purposes of this Article, "fees for included services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received ; or (b) make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. 5. Notwithstanding paragraph 4, "fees for included services" does not include amounts paid : (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in paragraph 3(a) ....
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....es or fees for included services shall be deemed to arise in that Contracting State. 8. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties or fees for included services paid exceeds the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the payments shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of the Convention." 7. The Assessee unsuccessfully appealed the said assessment order before the learned Commissioner of Income Tax (Appeals) [hereafter CIT(A)] and the appeal was dismissed by an order dated 08.12.2017 passed under Section 250 of the Act. In the aforesaid context the Assessee filed an appeal before the learned ITAT. 8. The learned ITAT had found that the fundamental premise that the Assessee had made payments for technical services, which included an element for making available technical knowledge and experience or skill to the Assessee, was not sustainab....
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....rt to Mr Agarwal, the learned counsel appearing for the Revenue that, whether the present appeal was sustainable if the learned ITAT's finding that the services rendered by the Ciena, US did not contain an element of make available of the technology and experience was accepted; the learned counsel had responded in the negative. 13. However, Mr Agarwal submitted that a plain reading of the Agreement entered into between the Assessee and the Ciena, US would establish that the findings of the learned ITAT regarding the nature of services were erroneous. He also submitted that there was no other material before any of the authorities other than the Agreement (agreement dated 01.04.2010), and therefore, the authorities had drawn their conclusions on the basis of the said Agreement alone. 14. It is relevant to refer to Article 2 and Paragraphs 4.2 and 4.3 of the Agreement. The same are set out below: "2. APPOINTMENT Ciena India hereby appoints Ciena USA, and Ciena USA hereby agrees, to carry out and perform equipment repair and maintenance support services (remote on call support as well as physical repair of defective equipments/parts thereof sent outside India) ....