TaxTMI 
TaxTMI 
2025 (7) TMI 1123
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....unal impugning separate assessment orders dated 12.03.2024 passed by the Assessing Officer [AO] under Section 147 read with Section 144 of the Act in respect of AYs 2016-17 and 2017-18. The final assessment orders were passed pursuant to directions issued by the Dispute Resolution Panel [DRP] under Section 144C(5) of the Act by separate orders dated 22.02.2024 passed in respect of each of the relevant AYs 2016-17 and 2017-18. 3. The Assessee is a company incorporated under the laws of the United Kingdom [UK] and is a tax resident of the UK. The Assessee is a wholly owned subsidiary of Tungsten Corporation Plc, which is also a company incorporated in the UK. The Assessee had not filed its return of income for the relevant assessment years as, according to the Assessee, it did not have any income which was taxable under the Act. The AO received information to the effect that the Assessee had received certain amounts during the financial years relevant to the assessment years in question - an amount of Rs. 2,93,92,810/- during the previous year relevant to AY 2016-17 and a sum of Rs. 3,31,98,980/- during the previous year relevant to AY 2017-18 - from Genpact India Pvt. Ltd. [GIPL] b....
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....quired by the Assessee - and Genpact International Inc. [GIL]. GIPL is an affiliate of GIL. The Assessee claimed that the amounts received for rendering services under the said agreements were its business income and were not chargeable to tax under the Act as it did not have any permanent establishment [PE] in India. 7. The AO did not accept that the amounts received by the Assessee from GIPL were not chargeable to tax under the Act. According to the AO, the said amounts were required to be treated as "fees for technical services" [FTS] within the scope of Article 13 of the India-UK DTAA1. 8. Accordingly, the AO issued separate draft assessment orders under Section 144C(1) of the Act dated 31.05.2023 in respect of AYs 2016-17 and 2017-18. In terms of the said orders, the AO assessed the Assessee's income for AY 2016-17 at Rs. 2,93,92,810/-, and Rs. 3,31,98,980/- in respect of AY 2017-18. 9. The Assessee filed its objections to the draft assessment orders before the DRP contesting the proposed assessments. The DRP disposed of the said objections in terms of separate orders dated 22.02.2024 upholding the AO's view that the amounts received by the Assessee from GIPL were cha....
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....the Assessee resulting in the receipts, which are held to be taxable. And, whether the said services fall within the scope of FTS under Article 13(4)(c) of the India-UK DTAA. 13. The Assessee claims that it carries on the business of providing electronic invoice deliveries through its secure e-invoicing platform. It claims that the said platform enables the businesses supplying products and services to automatically generate e-invoices instead of creating and printing them manually. The Assessee has granted a non-exclusive license to GIPL for using its cloud hosted platform. During the relevant period, GIPL had used the platform to render services to GlaxoSmithKline Services Unlimited [GSK], a company which is not a tax resident in India. 14. The terms and conditions on which the license was granted to GIPL are contained in the Master Partner Agreement dated 13.01.2009 [MPA] entered into between OB10 and GIL. As noted above, OB10 was acquired by the Assessee and there is no dispute that the Assessee had stepped into its shoes. 15. The recitals of the MPA are relevant and are set out below: "(A) OB10 is the operator of OB10 Services, the global e-invoicing network and wishes to....
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....t from the above that in terms of MPA, the Assessee (OB10) had granted a "non-exclusive, non-transferable licence for the Term to recommend market and/or sell the OB10 Services to End Users in the Territories". Paragraph 2.3 of the MPA also expressly indicates that the license is granted to the Partner (GIL) for use of itself or its affiliates (in this case - GIPL). 18. Paragraph 2.4 of the MPA also expressly provides that the 'Partner' would act as a principal and no obligations will be created for OB10 towards the 'End Users'. 19. Articles 5A and 5B of the MPA set out the respective obligations of the parties to the MPA. The said Articles are set out below: "5(A) Partner Obligations 5.1 The Partner shall use all reasonable efforts to: (a) inform and collaborate with OB10 to market, promote the use of OB10 Services through co-operation with it's sales force and OB10's sales force and business to business channels to its existing on any potential End Users; provided that the Partner shall not be obligated to sell or promote the use OB10 Services for all of its existing or potential End Users. (b) ensure that its sales force and other personnel who promote and market the u....
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....olely responsible for entering into a direct contractual relationship with all End Users, outlining its responsibilities to the End User. It was also agreed that the parties would discuss and agree upon the specific services to be rendered as well as other terms and conditions. Paragraph 7.2 of the MPA is set out below: "7.2 Re-Sale Model. (a) Subject to the terms of this Master Partner Agreement, the Partner shall be solely responsible for entering into a direct contractual relationship with all End Users outlining its responsibilities to the End User including those in any SOW between Partner and OB10. (b) The parties will discuss and agree (i) which specific OB10 Services (ii) the duration of those OB10 Services and (iii) the amount Transactions that the End User shall require and their payment profile and (iv) other terms and conditions that will apply to that End User (other than those already highlighted in Annex B (Terms and Conditions for the OB10 Services). Such provisions shall be incorporated into an SOW for that End User. A sample SOW is appended to this Master Partner Agreement as Annex D (Sample SOW)." 21. It is also relevant to refer to Article 12 of the MPA, ....
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....at may be issued. e. Managed campaigns. Each Supplier in a Managed Campaign is allocated an OB10 enrolment professional who is responsible for working with the Supplier to assist with any queries, to explain the options, persuade them where possible, and when the Supplier progresses, to ensure they use the service correctly. The Supplier can choose to send invoices as a data file, or using the web-portal. If the Supplier chooses to use the integrated service (to send a data file) they will also work with the supplier implementation team in order to create and test a unique profile on OB10. f. Direct Campaigns: Each supplier in a direct campaign will be added to the OB10 Network so that they can use the web-portal g. Reporting: OB10 will provide Buyer with reports at regular agreed intervals showing the status of each active campaign for supplier enrolment. The PM will discuss the results shown by these reports and provide ideas to improve the take up if needed h. Data Cleanse: OB10 can assist with projects to enhance supplier data, to update contact information for suppliers, subject to the fees in the agreement. All data that is enhanced this way is provided to Buyer. l.....
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....achments from Suppliers are transmitted by OB10 on an "as is" basis and are not subject to any Harmful Code interrogation. Minor Changes to Partner Profile 10. Minor changes notified to OB10 by Partner in writing (i.e. changes that are within the parameters of the OB10 Network and can be implemented by OB10 support, such as changes to Partner information, contact details or PO ranges) will be implemented within five (5) days of receipt of all relevant information at no additional charge File Restoration (Due to OB10 Default) 11. If Data is lost or corrupted due to a default of OB10 under the terms of any SOW, OB10's sole liability and Partner's sole remedy shall be for (i) OB10 to reconstruct any such Data free of charge; or (ii) if the Data cannot be restored, for OB10 to provide Partner with a credit for the fees received by OB10 in respect of the collection, processing or storage of such data. (subject in the case of each of (i) and (ii) to the cap on liability contained in any SOW. OB10 Support Desks 12. OB10 supports the availability of the OB10 Services by providing a support desk from 8 a.m to 6 p.m UK Monday to Friday (excluding UK public holidays)." 23. The MP....
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....ner of the royalties or fees for technical services is a resident of the other Contracting State, the tax so charged shall not exceed : (a) in the case of royalties within paragraph 3(a) of this Articles, and fees for technical services within paragraphs 4(a) and (c) of this Article,- (i) during the first five years for which this Convention has effect ; (aa) 15 per cent of the gross amount of such royalties or fees for technical services when the payer of the royalties or fees for technical services is the Government of the first-mentioned Contracting State or a political sub-division of that State, and (bb) 20 per cent of the gross amount of such royalties or fees for technical services in all other cases; and (ii) during subsequent years, 15 per cent of the gross amount of such royalties or fees for technical services; and (b) in the case of royalties within paragraph 3(b) of this Article and fees for technical services defined in paragraph 4(b)of this Article, 10 per cent of the gross amount of such royalties and fees for technical services. 3. For the purposes of this Article, the term "royalties" means : (a) payments of any kind received as a consideration for....
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.... 2 of this Article shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 (Business profits) or Article 15 (Independent personal services) of this Convention, as the case may be, shall apply. 7. Royalties and fees for technical services shall be deemed to arise in a Contracting State where the payer is that State itself, apolitical sub-division, a local authority or a resident of that State. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the obligat....
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....ax (2022) 3 SCC 321., wherein the Supreme Court authoritatively explained as under: - "30. ...... Importantly, under section 5(2) of the Income Tax Act, the total income of a person who is a non-resident, includes all income from whatever source derived, which accrues or arises or is deemed to accrue or arise to such person in India during such year. This, however, is subject to the provisions of the Income Tax Act. Certain income is deemed to arise or accrue in India, under section 9 of the Income Tax Act, notwithstanding the fact that such income may accrue or arise to a non-resident outside India. One such income is income by way of royalty, which, under section 9(1)(vi) of the Income Tax Act, means the transfer of all or any rights, including the granting of a licence, in respect of any copyright in a literary work. 31. That such transaction may be governed by a DTAA is then recognized by section 5(2) read with section 90 of the Income Tax Act, making it clear that the Central Government may enter into any such agreement with the government of another country so as to grant relief in respect of income tax chargeable under the Income Tax Act or under any corresponding law in....
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....The Supreme Court had proceeded to hold as under :- "111. Also, any ruling on the more expansive language contained in the explanations to section 9(1)(vi) of the Income Tax Act would have to be ignored if it is wider and less beneficial to the assessee than the definition contained in the DTAA, as per section 90(2) of the Income Tax Act read with explanation 4 thereof, and Article 3(2) of the DTAA. Further, the expression "copyright" has to be understood in the context of the statute which deals with it, it being accepted that municipal laws which apply in the Contracting States must be applied unless there is any repugnancy to the terms of the DTAA. For all these reasons, the determination of the AAR in Citrix Systems (AAR) (supra) does not state the law correctly and is thus set aside." 31. Undisputedly, for the receipts in question to be construed as FTS under Article 13 of the India-UK DTAA, the services must be such that "make available technical knowledge, experience, skill know-how or processes, or consist of the development and transfer of a technical plan or technical design." 32. The Revenue contends that the consideration received by the Assessee for rendering the s....
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....thout the aid of the service provider. In other words, to fit into the terminology "making available", the technical knowledge, skill?, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. 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 the future without depending upon the provider. Technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph 4(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as "fee for technical / included s....
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....nt, nominee, or transferee of such person." 38. Clauses (b) and (c) of Paragraph 4 of Article 12 of the said treaty makes the meaning of "make available" explicitly clear that the consideration for services would be construed FTS only if it enables the service recipient to apply the technology contained in the services. 39. In Director of Income-tax v. Guy Carpenter & Co. Ltd. [2012] 20 taxmann.com 807 (Delhi)., this court considered the question whether the consideration for services rendered by Guy Carpenter & Co. Ltd. - a tax resident of UK - to Indian insurance company in the process of reinsurance of risk would amount to FTS under the India-UK DTAA. According to the Revenue, the reinsurance brokerage / commission paid by the insurance companies operating in India to the Assessee was chargeable to tax as FTS within the meaning of Section 9(1)(vii) of the Act. However, the learned Tribunal found that reinsurance brokerage and commission were not chargeable as FTS as it did not qualify the condition as stipulated under of Clause (c) of Paragraph 4 of Article 13 of the India-UK DTAA. In this context, the Court concurred with the interpretation of Clause (c) of Paragraph 4 of Art....
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..... The 'make available' condition would be satisfied only if the receiver can deploy the similar technology and techniques in the future without depending upon the provider. The relevant extract of the said decision is set out below: "13. The Tribunal, in concluding that services offered by the respondent/assessee to its Indian affiliates did not come within the purview of FTS, as reflected in Article 12(4)(b) of the Indo- Singapore DTAA, concluded that they did not fulfil the criteria of 'make available' principle. 14. According to the Tribunal, the agreement between the respondent/assessee and its Indian affiliate had been effective from 01.01.2010, and if, as contended by the appellant/revenue, technical knowledge, experience, skill, and other processes had been made available to the Indian affiliate, the agreement would not have run its course for such a long period. 14.1 Notably, this aspect is adverted to in paragraphs 17 to 23 of the impugned order. For convenience, the relevant paragraphs are extracted hereafter: "17. A perusal of the aforementioned provision shows that in order to qualify as FTS, the services rendered ought to satisfy the 'make available' test. Ther....
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....ing available technical knowledge, experience, skill, know-how or processes. As has been found by the Tribunal, the access to the database did not constitute the rendering of any technical or consultancy services and in any case did not amount to technical knowledge, experience, skill, know-how or processes being made available." 42. In International Management Group (UK) Ltd. v. Commissioner of Income Tax (International Taxation) (2024) 466 ITR 514., the Coordinate Bench of this Court had the occasion to consider the scope of expression 'make available' as used in of Clause (c) of Paragraph 4 of Article 13 of the India-UK DTAA in the context of services rendered by the International Management Group (UK Limited) [IMG] to the Board of Control of Cricket in India [BCCI]. In terms of the memorandum of understanding, the BCCI had appointed IMG to provide certain services in connection with the establishment, commercialization and operation of India Premier League [IPL] of cricket matches. In the context of Clause (c) of Paragraph 4 of Article 13 of India-UK DTAA, the Coordinate Bench observed as under:- "93. As we read article 13(4)(c) of the Double Taxation Avoidance Agreement, it....
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....nt to bear in mind that the mere usage or utilisation of technical or consultative material in aid of business would not be sufficient to attract article 13 of the Double Taxation Avoidance Agreement. If we were to accept the submission that handing over of research or advisory work were sufficient for the purposes of article 13, it would render the "make available" condition comprised in para 4(c) wholly redundant and otiose since the mere rendering of service would have sufficed. As CIT v. De Beers India Minerals P. Ltd., (2012) 346 ITR 467 (Karn) correctly holds "The tax is not dependent on the use of technology by the recipient". The make available prescription bids us to make a conscious distinction between a mere service provision and the impartation of lasting expertise. The offer of service or advise does not fundamentally alter the recipient's capabilities. These services, while potentially valuable, do not endow the recipient with new skills or knowledge which could be independently deployed in the future. The kernel of "make available" must therefore be recognised to be a transfer of technology or skills rather than a temporary reliance on external support. 96. It ....
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....numeration of functions in clause 4.2(a) was merely illustrative as that clause used the expression "including, without limitation:". *** *** *** 99. On an overall consideration of all of the above, we come to the firm conclusion that there was no expertise, skill or know-how which could be said to have been made available to the Board of Control for Cricket in India. The various functions which IMG was called upon to discharge was to be aided by the appellant drawing upon its expertise and special knowledge in the creation and conduct of leagues of the stature of the IPL. There was no discernible intent on the part of the Board of Control for Cricket in India to absorb or internalise IMG's unique skills and knowledge in the curation of sporting leagues. No part of that knowledge or skill stood transferred to the Board of Control for Cricket in India. Merely because research material would have been shared with the Board of Control for Cricket in India or the service rendered by it been put to use and utilised cannot possibly lead one to conclude that the payer stood enabled or equipped with the special knowledge underlying the technical and consultancy service which was ex....
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.... also exclude the amounts paid for services that are referred to in Paragraph 5 of the India-UK DTAA. 46. The expression 'make available' entails service recipient acquiring technical knowledge, expertise, skills, know how or the process as involved in rendering the services. It must entitle the service recipient to use the technology, technical skills or experience as involved in rendering of the technical services on its own. The ability of the service recipient to perform the services or use the technical knowledge as involved in rendering of the services on its own in future, is vital and the 'make available' condition is sine qua non for FTS under the India-UK DTAA. The consideration paid for development and transfer of technical plan or technical design should also transfer the right to use the technical plans or design, which is provided by service provider, to the recipient. 47. Clause (c) of Paragraph 4 of Article 13 of the India-UK DTAA is similarly worded as the Clause (b) of Article 12 of the India-USA DTAA2 which inter alia, entitles the contracting State to tax 'fees for included services' arising in a contracting state and paid to the other contracting state, to be....
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....d (b) of paragraph 4 of article 12 of the DTAA. This is different from the "technical and consultancy services" as defined under section 9(1)(vii) of the Income-tax Act. At the risk of reiteration it is to be observed that the services which come under the "included services", meaning a technical and consultancy service as understood by the DTAA, have further been elaborated in sub-clauses (a) and (b) of paragraph 4 under article 12. We are concerned with sub-clause (b) of article 12(4), which speaks of technical knowledge, experience, skill, know-how, or processes, or consist of development and transfer of a technical plan or technical design. The same has to be read along with the MOU which has been entered into on May 15, 1989 and is a part of the notified DTAA. 13. In the MOU, paragraph 4(a) (hereinabove termed clause) of DTAA was clarified and agreed to be understood in order for a service fee to be considered "ancillary and subsidiary" to the application or enjoyment of the right, property, or information; only with respect to a service related directly to such application or enjoyment. The predominant nature of the arrangement should be the application or enjoyment of the ....
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....l would be eliminated and to train the Indian company in applying the new formula. This was held to be an "included service" and remuneration received by the American company coming within the ambit of "fees for included services", since technical know-how is made available to the Indian company, based on which the Indian company carries out the manufacturing activity. However, when a vegetable oil manufacturing firm having mastered the process of manufacturing cholesterol-free oil, hired an American marketing company to advice it on marketing strategies, the same would be taken out of the "included services" and any remuneration received would have to be relieved of taxation under the Income-tax Act. 16. We have to look at the Andhra Pradesh and Karnataka decisions with the above understanding of the DTAA and MOU in our mind. GVK Industries Ltd. v. ITO (2015) 371 ITR 453 (SC) was a case in which the Indian company, formed for generation and sale of electricity, entered into an agreement with a company at Zurich, Switzerland for help in raising finance. On the basis of the non-resident company's advice regarding processing of loans, the Indian company obtained finances, both ....
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....licable even in the case of De Beers India Minerals (P.) Ltd. where the non-resident hailed from Netherlands. However, on facts we are of the opinion that when the definition clause in DTAA read along with the MOU specifically refers to transfer of technologies, the facts as available in the Karnataka decision are more similar to the present facts. Herein also there is no technology transfer; nor is there a plan or strategy relating to management, finance, legal, public relations or risk management transferred to the appellant. The services promised by the non-resident company is only to advice on such aspects as are specifically referred to in the agreement. The non-resident company only assists the Indian company in making the correct decisions on such aspects as is specifically referred to in the agreement, as and when such advice is required. There is no transfer of technology or know-how, even on managerial, financial, legal or risk management aspects; which would be available for the Indian company to be applied without the hands-on advice offered by the US company. The advice offered on such aspects would have to be on a factual basis with respect to the problems arising at ....
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....ate than as available under the Income-tax Act. The said reduced rate also would not be applicable to the appellant herein with respect to the amounts paid as remuneration to the US company for the specific services as is seen from the agreement, for it being not an included service as per the DTAA. The tax having been exempted fully, there is no obligation on the assessee-appellant to deduct it at source and the non-compliance of the provisions of section 195(1) of the Income-tax Act cannot be alleged against the appellant for reason of such obligation not existing in law. The questions of law raised as (i) and (ii) are answered against the Revenue and in favour of the assessee." 50. In the present case, the Assessee is the proprietor of an e-invoicing software and provides the services of generating electronic invoices compliant with local laws through its secure platform. The services entail automatically generating the e-invoices instead of creating and printing the same manually. The Assessee has provided the license for using its e-portal to GIPL in connection with the services rendered to GSK, which is a non-resident company. The invoices generated pertained to GSK's Europe....
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....nd knowhow to GIPL, is also unmerited. 55. In terms Paragraph 5.6 of the MPA, OB10 is obligated to "provide training to full time employee of the Partner to enable them to promote and use the OB10 Services". The training contemplated is only for the purpose of using the platform and software in terms of the license granted by the Assessee. The training is not for imparting technical knowhow or knowledge which is involved in rendering the services. As noted above, the Assessee provides the access of its e-portal and uses the software for generating the e-invoices. The training as contemplated in Paragraph 5.6 is for using the software and e-platform, and not for the transfer of any technology, knowhow or source code of the software, which would enable the service recipient (GIPL) or its employees, who had received training to use the software, to continue rendering the services of generating of e-invoices after its license is terminated. There is neither the transfer of knowhow nor any training that makes available the technical knowledge, skill, knowhow or process used or involved in rendering the technical services. 56. Mr Aggarwal, also relied upon the decision of this Court in....
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....onferral of specialised or exclusive technical service. In any case, the training and assistance proffered by SFDC was a concomitant to the sale of its principal products in the territory and fundamentally aimed at readying SFDC India to undertake the marketing of those products. The technical assistance and training did not constitute either the core or the foundational basis of the consideration which was received by SFDC Ireland. 42. Insofar as the products for SFDC India's internal use were concerned, they stood restricted to those which would enable SFDC India to demonstrate the functionality of SFDC products in trade shows and exhibitions, to train its customers and employees on the use of those products and products to administer and manage customer accounts. None of these aspects would appear to be imbued with a technical hue. Imparting training or educating a person with respect to the functionality and attributes of a software or application would clearly not amount to the rendering of technical service under the DTAA. More importantly, the technical assistance and training which the petitioner proposed to provide was confined to marketing, distribution, support and sal....