TaxTMI 
TaxTMI 
2025 (7) TMI 1123
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.... 2. The Assessee had preferred the said appeals before the Tribunal 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....
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....red into between OB10 Limited [OB10] - an entity which was subsequently acquired 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 DTAA^1. 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 uph....
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.... Article 13 of the India-UK DTAA". ANALYSIS 12. At the outset, it would be relevant to examine the nature of the services rendered by 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 ....
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....x C (Fees for the OB10 Services), unless agreed otherwise by the parties on a case by case basis. 2.6 The Partner has discretion over the price at which it resells the OB10 Services." 17. It is apparent 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 pot....
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....OW. For the avoidance of doubt, Partner shall only be entitled to rely on any service levels or claim any service credits from OB10 where the same service levels or service credits have been passed onto an End User." 20. Paragraph 7.2 of the MPA also specifically provides that the Partner would be solely 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 t....
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....tions. The OB10 PM will provide templates of communication packs used for previous successful campaigns with other organisations. These templates are available in various European languages. The Project Manager will offer advice and guidance about the type of message required in order to obtain the maximum success of the Supplier enrolment campaign OB10 can also assist in any press release that 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 r....
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....ains responsible for ensuring that they have satisfactory Harmful Code detection technology and firewall technology implemented and operating to protect the integrity of their systems, environment and data and OB10 shall not be responsible for any damage or loss caused by any failure on their part to do so. 9. Partner may (at its option) elect to accept the delivery by OB10 of attachments from Suppliers. If Partner elects to do so, Partner accepts and acknowledges that attachments 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 ....
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....ute technical services within the scope of Article 13 of the India-UK DTAA. Article 13 of the India-UK DTAA is set out below: "ARTICLE 13 ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to the law of that State; but if the beneficial owner 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 ....
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....perty, other than property described in paragraph 3(a) of this Article; (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships, or aircraft in international traffic; (c) for teaching in or by educational institutions ; (d) for services for the private use of the individual or individuals making the payment ; or (e) to an employee of the person making the payments or to any individual or partnership for professional services as defined in Article 15 (Independent personal services) of this Convention. 6. The provisions of paragraphs 1 and 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 serv....
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....TS under Double Taxation Avoidance Treaties [DTAA] if the same is inconsistent with the meaning of the said expression in the said treaty. The definition of FTS under Article 13 of the India-UK DTAA is considerably narrower. Thus, the question whether the consideration received by the Assessee for rendering the services fall within the meaning of FTS under Article 13 of the India-UK DTAA, would necessarily have to be construed in accordance with the meaning of FTS under the India-UK DTAA and not with reference to FTS as defined in Explanation 2 to Section 9(1)(vii) of the Act. 29. We may refer to the decision of the Supreme Court in Engineering Analysis Centre of Excellence (P) Ltd v. Commissioner of Income Tax (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 Ind....
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.... If it was not the intention of the legislature to make a departure from the general principle of chargeability to tax under Section 4 and the general principle of ascertainment of total income under Section 5 of the Act, then there was no purpose in making those sections "subject to the provisions of the Act". The very object of grafting the said two sections with the said clause is to enable the Central Government to issue a notification under Section 90 towards implementation of the terms of DTACs which would automatically override the provisions of the Income Tax Act in the matter of ascertainment of chargeability to income tax and ascertainment of total income, to the extent of inconsistency with the terms of DTAC." (emphasis supplied) 30. 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 "copyr....
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....-how or processes, or consist of the development and transfer of a technical, plan or technical design." 35. As is apparent from the above, Clause (b) of Paragraph 5 of Article 12 of the said India -Netherlands DTAA is materially similar to Clause (c) of Paragraph 4 of Article 13 of the India-UK DTAA. In the aforesaid context, the Karnataka High Court had held as under: "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, know-how 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 "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 servic....
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....ices of a managerial, technical or consultancy nature (including the provision of such services through 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, which enables the person acquiring the services to apply the technology contained therein ; or (c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. For the purposes of (b) and (c) above, the person acquiring the service shall be deemed to include an agent, 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 ....
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....al findings and, therefore, according to us, no substantial question of law arises for our consideration, particularly, because the learned counsel for the Revenue was unable to point out any perversity in the recording of such findings. As such no substantial question of law arises for our consideration. The appeal is dismissed. There shall be no order as to costs." 40. It is also relevant to refer to the decision of this Court in Commissioner of Income-tax (International Taxation)-1 v. Bio-Rad Laboratories (Singapore) Pte. Ltd. (2023) 459 ITR 5. In the said decision, this Court concurred with the decision of the Tribunal to the effect that technical knowledge and skill would necessarily have to remain with the person receiving the services even after the contract for the said services had come to an end if the consideration for services were to qualify as FTS. 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 ....
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.... contract comes to an end and 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." 15. We tend to agree with the analysis and conclusion arrived at by the Tribunal." 41. The aforesaid view also resonated with the Coordinate Bench of this Court in Commissioner of Income-tax, International Taxation v. RELX Inc. [2024] 160 taxmann.com 109 (Delhi). This court referred to the decision in the case of Commissioner of Income-tax (International Taxation)-1 v. Bio-Rad Laboratories (Singapore) Pte. Ltd. (supra) and held as under: "15. Similarly, in order for that income to fall within the ambit of 'fees for included services', it was imperative for the Department to establish that the assessee was rendering technical or consultancy services and which included making 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 techn....
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....e rendering of service involves a clear and demonstrable transfer of technical skills, expertise or know-how to the recipient. It must involve a transfer of capabilities and not just the temporary use of the provider's knowledge, expertise or skill. 94. This leads us to the definitive conclusion that the rendering of technical and consultancy services has to be read alongside and in conjunction with "make available" as that phrase appears in the aforesaid paragraph. On a plain textual reading of article 13 it becomes apparent that both the rendering of service and the skill, knowledge and expertise being made available are conditions which must be concurrently and cumulatively satisfied. What we seek to emphasize is that article 13 in unambiguous terms creates an enduring, unfading and imperishable link between the furnishing of service and a transmission or conferment of technical expertise, knowledge and skill. 95. It is also important 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 sub....
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....core also fail to bear in mind that IMG came to be engaged by the Board of Control for Cricket in India principally in the light of its expertise, special abilities, experience and capabilities of conceptualising sporting leagues. IMG was tasked with creating the IPL based on the special knowledge, skill and experience that it possessed in the curation of sporting leagues. A reading of the various obligations that were placed upon IMG clearly establish that all facets of the IPL and the entire gamut of activities connected with the proposed league were not only to be created by it, IMG was also tasked with managing and administering all commercial and media rights of the Board of Control for Cricket in India. As is evident from a reading of clause 4.2 of the services agreement, IMG was called upon to prepare and execute marketing strategies, management of future tendering processes, craft the league handbook and discharge various other functions enumerated therein. The enumeration 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....
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....t is, (i) the same are ancillary or subsidiary to the application or enjoyment of the right, property or information for which royalty within the definition of Clause (a) of Paragraph 3 of Article 13 of the India-UK DTAA, is received; or (ii) the services are ancillary or subsidiary application to the enjoyment of the property for which royalty within the meaning of Paragraph 3(b) are received; or (iii) the services rendered make available technical knowledge, experience, skill, know how, or process or consist of development and transfer of technical plan or technical design. 44. If the services rendered do not qualify any of the three clauses of Paragraph 4 of Article 13 of the India-UK DTAA, the consideration received would not qualify as FTS for the purposes of India-UK DTAA. Notwithstanding, such consideration may fall within the definition of FTS under Explanation 2 to Section 9(1) (vii) of the Act. 45. Additionally, under Paragraph 4 of Article 13 of the India-UK DTAA, FTS would 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 a....
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.... also considered by the Division Bench of the Kerala High Court in US Technology Resources (Pvt.) Limited v. CIT (2018) 407 ITR 327. The Kerala High Court concurred with the view of the Karnataka High Court in CIT v. De Beers India Minerals (P.) Limited (supra) and found that the subject payments could not be considered as fees for included services as there was no transfer of technical knowhow. The relevant extract of the said decision is set out below:- "12. The specific services availed of by the assessee-appellant from the US company is covered under clause 4 of article 12 of the DTAA is the finding of the lower authorities. In the context of a definition for "fees for included services" not being available under the Income-tax Act, we have to necessarily look at the definition as available under the DTAA. The "fees for included services" as defined under the DTAA would take in payment of any kind in consideration for the rendering of any technical or consultancy services, which services are quite distinctly defined under sub-clauses (a) and (b) of paragraph 4 of article 12 of the DTAA. This is different from the "technical and consultancy services" as defined under se....
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....ancy services could make technology available in a variety of settings, activities and industries. Such services may, for example, relate to any of the following areas: 1. bio-technical services; 2. food processing; 3. environmental and ecological services; 4. communication through satellite or otherwise; 5. energy conservation; 6. exploration or exploitation of mineral oil or gas; 7. geological surveys; 8. scientific services; and 9. technical training. The MOU and the narrow definition given to "included services" takes the services availed of by the appellant herein, out of the "included services" as per the DTAA. 15. We would also refer to certain examples provided in the MOU to further substantiate the view taken by us. The facts in one of the examples refer to an Indian vegetable oil manufacturing company desiring to produce cholesterol-free oil with the know-how for refining cholesterol out of the oil as available with an American company. The Indian company thus contracts with the US company for the purpose of transfer of know-how by which the cholesterol in the oil would be e....
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....finition in the Income-tax Act, even by section 90(3) the definition in the DTAA is to be adopted to decide taxation or its avoidance. 17. The decision of the Karnataka High Court referred to by the Tribunal is reported in CIT v. De Beers India Minerals (P.) Ltd. (2012) 346 ITR 467 (Karn) ; (2012 208 Taxman 406 (Karn). Therein the Indian company had sought for assistance of a Netherlands company to conduct air borne survey for providing high quality, high resolution, geophysical data to identify probable kimberlite targets. The non-resident company did not transfer any technological know-how to the Indian company and merely carried out the survey by equipment brought by them into India and supplied the necessary details to the Indian company. The Division Bench of the Karnataka High Court found that there was no transfer of technology and the foreign company merely carried out a survey, collected data and processed it to identify the probable mining sites. The mere transfer of such data, including maps and photographs, cannot be considered as a transfer of technology was the finding. 18. We are conscious of the fact that the DTAA as relevant in the present case, i....
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....e interpretation of the provisions of the DTAA, we have to find that the services availed of by the Indian company, the appellant herein, from the US company are not technical and consultancy services as defined under the DTAA, clarified by the MOU, which forms part of the notification issued by the Central Government on the double taxation avoidance agreement between the Governments of United States and India. The remuneration received by the US company for the services offered to the Indian company being not a technical or consultancy service as defined under the DTAA, would also not be a fee for included services. The remuneration so obtained by the US company definitely being an income accruing within India would not, hence, be taxable in India under the DTAA. We do not agree with the argument advanced by the learned standing counsel that the best evidence available for avoiding taxation within India is the tax paid within the United States of America. The non-payment of tax in the U.S cannot automatically enable taxation in India. As we noticed, with respect to fees for included services, the same being business profits, would be taxable in the US and also in India ; however, ....
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....e same. Thus, whilst the Assessee renders services and grants access to its e-platform as part of its services, it does not make available any technical experience, skill, knowhow or process to GIPL or its client GSK. Thus, the services rendered by the Assessee do not satisfy the Clause (c) of Paragraph 4 of Article 13 of the India-USA DTAA. 52. Mr Aggarwal, learned counsel for the Revenue referred to Paragraph 2.3, Articles 5A and 5B of the MPA in support of the stand that the services rendered by the Assessee makes available the technical skill and knowhow to GIPL. He contended that Paragraph 2.3 of the MPA expressly grants right to the 'Partner (GIPL)' and, therefore, there is a transfer of rights. 53. We find no merit in the said contention. A plain reading of Paragraph 2.3 of the MPA indicates that the license granted by the Assessee is to use "OB-10 services". The Paragraph 2.3 does not indicate any transfer of intellectual property right or technology, but only a license to use the services rendered by the Assessee. 54. Mr Aggarwal's contention that in terms of Articles 5B and 5A, the Assessee provides training to the employees of GIPL and the same would amount to m....
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....echniques and skills ("soft" intellectual property, if it can be called as such) required for the operation of a business. The skills and knowledge required to ensure that the task entrusted to CIOP - quality control - is carried on diligently certainly falls within the broad ambit of article 12." 58. In SFDC Ireland Limited v. Commissioner of Income Tax & Another (2024) 465 ITR 471., this Court had considered a similar contention with regard to the training imparted to the Indian entity in connection with the sale of certain products referred to in the relevant agreement and the said decision as 'SFDC products'. This Court had rejected that the training imparted in the context of the said products would render the remittance made by the Indian entity chargeable to tax as FTS. In the given facts, the Court had observed: "41. The technical assistance and training imparted to SFDC India staff appears to be aimed at enabling them to understand the various attributes and capabilities of SFDC Products so as to be informed when interacting with prospective customers in the territory. The technical assistance and training which is spoken of in Section 4.3 of the Reseller Agree....
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....orbing technology that enables the trainees to use the technical knowhow and the skill, which is central to the technical services that are rendered, on their own; the 'make available' condition would stand satisfied. This is because such training would result in the transfer of the technical skill, knowhow and the technical knowledge. However, if the training does not entail transfer of the technology or the technical skill or knowhow involved in rendering the services, the same would not qualify the 'make available' condition, which as noted above, is essential for the consideration to be construed as FTS under Clause (c) of Paragraph 4 of Article 13of the India-UK DTAA. 61. In the facts of the present case, the training imparted to GIPL's employees for using the software or e-platform, does not transmit the technical knowhow or the process for rendering the services of generating electronic invoicing. The said service is performed by the Assessee by the use of its proprietary software and the e-platform operated by it. The training to use the said platform does not transfer the knowledge or transfer the technology, which would enable GIPL to absorb the technology to generate ....