TaxTMI 
TaxTMI 
2026 (9) TMI 233
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....tance and our findings thereon shall apply to the corresponding grounds for assessment year 2004-05, subject, however, to the separate amounts and factual variations which shall be noticed at the appropriate places. 2. The assessee, General Electric Company, is a company incorporated and fiscally domiciled in the United States of America and is entitled to the benefits of the Double Taxation Avoidance Agreement between India and the United States of America ("India-USA DTAA"). During the relevant assessment years, it entered into various transactions with its associated enterprises and other General Electric group entities in India. These transactions, insofar as material for the present appeals, comprised international connectivity services arranged through independent foreign telecommunication service providers; testing and quality-control activities in relation to electric motors; recovery of visa and immigration-related expenditure; soft-skills and management training programmes; supply of standardized or shrink-wrapped software; installation and commissioning services; and lease of certain aircraft engines to a US associated enterprise. Transfer-pricing adjustments were als....
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....on the footing that the assessee had not furnished the dates of recovery. In respect of the lease transaction, the onward rental charged by GE Packaged Power Inc. to Larsen & Toubro Ltd. was treated as a comparable uncontrolled price and an adjustment was consequently proposed. 5. The learned CIT(A), after examining the nature of the respective receipts and the provisions of the India-USA DTAA, granted substantial relief to the assessee. He deleted the additions relating to international connectivity charges, testing and quality-control receipts, reimbursement of visa-related expenses and soft-skills and management training charges. The consequential transfer-pricing adjustments pertaining to the underlying receipts were also deleted, except the component attributed to interest on delayed recovery. The adjustment made on account of lease rentals was deleted on the ground that the underlying lease receipts between the two US entities were not chargeable to tax in India. The levy of interest under section 234B was also deleted, holding that the income sought to be assessed in the hands of the non-resident was subject to deduction of tax at source under section 195. However, the le....
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.... 1 International connectivity charges Ground No. 1 - Rs.9,92,14,998 Ground No. 2 - Rs.5,03,07,976 2 Testing and quality-control charges Ground No. 2 - Rs.8,60,35,052 Ground No. 1 - Rs.12,21,81,257 3 Visa-related expense reimbursements Ground No. 3 - Rs.10,90,789 Ground No. 3 - Rs.24,85,020 4 Soft-skills and management training Ground No. 4 - Rs.69,56,190 Ground No. 4 - Rs.97,25,632 5 Lease-rental transfer-pricing adjustment Ground No. 5 Not applicable 6 Interest under Section 234B Ground No. 6 - Rs.1,93,04,618 Ground No. 5 - Rs.84,80,880 9. While dealing with the lease-rental issue, the figures require some care. The difference between the rental received by the assessee from GE Packaged Power Inc. and the onward rental charged by the latter to Larsen & Toubro Ltd. was quantified by the Transfer Pricing Officer at Rs.31,38,167. After adding the interest component, the total adjustment was determined at Rs.33,61,698. The learned CIT(A), while deleting the lease-rental adjustment, separately sustained an amount of Rs.43,029 as interest. We shall, therefore, deal with the constituent components independently so th....
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.... though determined under the transfer-pricing provisions, must still satisfy the condition of chargeability under the relevant treaty Article. Thus, while we shall examine every adjustment on its own facts and shall not treat non-taxability as an automatic consequence merely because the amount has originated from a transfer-pricing exercise, the final enquiry must necessarily remain whether the income, in its properly identified character, falls within the taxing jurisdiction allocated to India under the Act read with the India-USA DTAA. 9.4. The second recurring question concerns the expression "make available" appearing in Article 12(4)(b) of the India-USA DTAA. The Memorandum of Understanding dated 15 May 1989 accompanying the Treaty makes it clear that the mere rendering of a technical or consultancy service, or the employment of technical expertise by the service provider, is not sufficient. The service should transmit technical knowledge, experience, skill, know-how or processes in such a manner that the recipient is enabled to apply the technology independently in future without continued recourse to the service provider. At the same time, this test cannot be applied in t....
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....d be taxable under Article 11 of the India-USA DTAA. 11. Before us, learned counsel submitted that the adjustment is entirely notional and has been made without identifying any invoice which remained unpaid beyond the contractual credit period. No interest was paid, credited, received or acknowledged as payable by any associated enterprise. It was contended that, even if an arm's-length amount could be determined under Chapter X, the same could not be taxed as interest under Article 11 unless it was actually paid or placed at the disposal of the assessee. Reliance was principally placed upon the decision of the coordinate bench in Volkswagen Aktiengesellschaft v. DCIT (International Taxation) [2025] 177 taxmann.com 312 (Mumbai-Trib.) and the decision of the Delhi Bench in DCIT v. TMW ASPF I Cyprus Holding Ltd. [2019] 111 taxmann.com 212 (Delhi-Trib.). Learned Departmental Representative, on the other hand, relied upon Article 9 of the India-USA DTAA and submitted that profits which would otherwise have accrued to an enterprise may be included in its profits where conditions between associated enterprises differ from those which would have prevailed between independent enterprise....
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....ricing adjustment representing purely notional interest could not be taxed where no interest was in fact paid or placed at the disposal of the non-resident. The Tribunal also noticed the principle enunciated by the Hon'ble Bombay High Court in DIT v. Siemens Aktiengesellschaft that where the treaty provision predicates taxability upon payment, the domestic concept of accrual or a computation based upon a deeming fiction cannot displace the treaty stipulation. A similar view, in the context of hypothetical interest, was taken in DCIT v. TMW ASPF I Cyprus Holding Ltd. (supra). 12.2. We are unable to accept the Revenue's contention that Article 9, by itself, concludes the issue of taxability. Article 9 permits determination of the profits which would have accrued under arm's-length conditions; it does not obliterate the character of the income so determined or displace the specific treaty Article applicable to that category of income. Once the adjustment has been characterised and sustained by the learned CIT(A) as interest, its chargeability has to satisfy Article 11. Article 9 and Article 11 operate at distinct but complementary stages: the former concerns an arm's-length recompu....
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.... software constituted a secret process because the source code was not made public. Before us, learned counsel submitted that this reasoning no longer survives in view of the decision of the Hon'ble Supreme Court in Engineering Analysis Centre of Excellence (P.) Ltd. v. CIT [2021] 432 ITR 471 (SC). It was further pointed out that Engineering Analysis Centre of Excellence Pvt. Ltd., one of the Indian entities whose withholding obligation was considered by the Hon'ble Supreme Court, had also made software payments to the present assessee. Reliance was also placed upon GE India Industrial (P.) Ltd. v. ACIT [2022] 145 taxmann.com 335 (Hyderabad-Trib.), wherein similar payments for GE-group software, including Pro-E software, were held not to constitute royalty. 15. We have examined the invoices and the nature of the rights stated to have been made available under the software arrangements. The software was commercially available and was procured from independent vendors. The Indian affiliates obtained a non-exclusive and restricted end-user facility to operate the programmes for their intended business functions. There is nothing in the material referred to by the lower authorities ....
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....[2024] 165 taxmann.com 85 (Delhi) has reiterated that derivation of a benefit from a service or process cannot, without conferral of an effective right over the underlying process or equipment, be equated with its use or the right to use it. 15.3. The decision of the Hyderabad Bench in GE India Industrial (P.) Ltd. v. ACIT (supra) furnishes an additional factual reinforcement, since it concerned acquisition of software, including Pro-E, from a GE-group entity under a non-exclusive and non-transferable licence. Following Engineering Analysis, the Tribunal held that restricted use of such software did not amount to transfer of copyright. We would, however, rest our conclusion primarily upon the nature of the rights actually conveyed in the present transactions and the law declared by the Hon'ble Supreme Court. The lower authorities have not identified any proprietary right contemplated under section 14 of the Copyright Act which stood transferred to the Indian affiliates. The receipts of Rs.10,79,38,420 for assessment year 2003-04 and Rs.8,90,51,678 for assessment year 2004-05 cannot, therefore, be characterised as royalty either under Article 12(3) of the India-USA DTAA or under ....
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....ecommunication providers; that the services were standard facilities available to customers willing to pay the prescribed tariff; and that neither the assessee nor the Indian entities acquired any right in the network or the underlying process. In the absence of a permanent establishment of the assessee in India, he treated the receipts as business income not chargeable to tax in India and deleted the additions. 18. Learned Departmental Representative relied upon the technical processes involved in data transmission and supported the reasoning of the Assessing Officer. Learned counsel, on the other hand, submitted that the Revenue had conflated the use of a telecommunication service with the use of the process employed by the service provider. It was submitted that the Indian entities did not possess, operate or control any part of the network and were merely recipients of connectivity. Reliance was placed upon Telefonica UK Ltd. v. DCIT (International Taxation) [2023] 154 taxmann.com 475 (Mumbai-Trib.), DIT v. New Skies Satellite BV [2016] 382 ITR 114 (Delhi) and CIT (International Taxation) v. Telstra Singapore Pte. Ltd. [2024] 165 taxmann.com 85 (Delhi). 19. We find no inf....
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....ind merit in the learned CIT(A)'s finding that the assessee substantially acted as a central coordinating and cost-recovery entity. The Revenue has not shown that the assessee owned the underlying infrastructure, licensed any intellectual property or transferred any process to the Indian affiliates. Even assuming that the expression "process" under the domestic law was subsequently enlarged by Explanations 5 and 6 to section 9(1)(vi), such unilateral amendment cannot, in the absence of a corresponding treaty amendment, be read into Article 12 of the India-USA DTAA. This principle stands explained in DIT v. New Skies Satellite BV (supra) and has been approved by the Hon'ble Supreme Court in Engineering Analysis Centre of Excellence (P.) Ltd. (supra). The receipts are, therefore, consideration for standard connectivity services and not royalty. Since the existence of a permanent establishment of the assessee in India has not been asserted or established, such business receipts cannot be brought to tax under Article 7. We accordingly uphold the order of the learned CIT(A) and dismiss Ground No.1 in ITA No.1340/Mum/2009 and Ground No.2 in ITA No.1341/Mum/2009. 20. We now take up Gro....
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....o carry out the testing independently thereafter. Reliance was placed upon the decision of the Hon'ble Delhi High Court in PCIT (International Taxation) v. Goodrich Corporation [2025] 175 taxmann.com 177 (Delhi), wherein receipts for repair and maintenance of aircraft equipment outside India were held not to satisfy the "make available" condition in Article 12(4) of the India-USA DTAA. 20.3. The expression "make available" requires something more enduring than the mere provision of a service or communication of its result. The recipient must acquire the technical knowledge, experience, skill, know-how or process in such a manner that it can apply the same independently in future without having to seek the service provider's assistance for substantially the same function. The Memorandum of Understanding accompanying the India-USA DTAA clarifies that the fact that the service provider has employed technical knowledge in rendering a service does not, by itself, establish that such knowledge has been made available. The distinction is between a service which is technically performed and a service through which technical capability is transmitted. 20.4. In the present case, the ma....
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.... a taxing right upon India under Article 7. The interest component has already been adjudicated while deciding Ground No.2 in the assessee's appeals. We accordingly uphold the order of the learned CIT(A) and dismiss Ground No.2 in ITA No.1340/Mum/2009 and Ground No.1 in ITA No.1341/Mum/2009. 21. Ground No.3 in both the Revenue's appeals concerns reimbursement of visa and immigration-related expenses amounting to Rs.10,90,789 for assessment year 2003-04 and Rs.24,85,020 for assessment year 2004-05. The assessee had initially incurred expenditure through independent immigration and visa consultants, including Fragomen, Del Rey, Bernsen & Loewy LLP, for processing visa applications, immigration documents, work permits and travel-related formalities of employees of the Indian General Electric entities who were required to travel outside India for business purposes. The corresponding expenditure was recovered from the concerned Indian affiliates without any mark-up. The sample invoices and the profile of the service providers placed in the paper book show that the underlying activities related to immigration filings, visa processing, regulatory permissions, relocation assistance and ....
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....an thereafter apply independently. These are administrative and professional support activities performed upon the requirements of each employee and each jurisdiction. The fact that an immigration professional may possess specialised experience does not mean that such experience stands transferred to the person for whom a visa application is processed. 21.4. In US Technology Resources (P.) Ltd. v. CIT [2018] 97 taxmann.com 642 (Ker.), the Hon'ble Kerala High Court explained, in the context of the India-USA DTAA and its Memorandum of Understanding, that Article 12(4) does not extend to every managerial or advisory service and is confined to technical or consultancy services satisfying the treaty conditions. Likewise, in InterContinental Hotels Group (Asia Pacific) Pte. Ltd. v. ACIT [2021] 133 taxmann.com 99 (Delhi-Trib.), services that included assistance in obtaining visas, work permits and defining relocation requirements were held not to satisfy the "make available" condition. We, therefore, find that the learned CIT(A) reached the correct conclusion. The receipts represent reimbursement of expenditure without any established income element and, independently, do not constitut....
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....22.3. It is possible for specialised technical training to transmit technology or a technical process capable of future independent application. Hence, no general proposition can be laid down that training services would invariably fall outside Article 12(4)(b). The character of each programme must be determined from its contents and the capability transmitted. Here, the subjects comprise leadership development, business communication, writing and presentation skills, managerial effectiveness, project orientation and behavioural competencies. The Revenue has not identified any scientific or technological knowledge, technical design, specialised process or know-how transferred to the participants. Improvement in managerial or interpersonal ability is qualitatively different from the transfer of technical capability contemplated by the Treaty. Our conclusion is confined to the programmes and training material placed before us and should not be understood as laying down that specialised technical training can never fall within Article 12(4)(b). 22.4. In Russell Reynolds Associates Inc. v. DCIT [2022] 137 taxmann.com 443 (Delhi-Trib.), training and workshops conducted for newly recr....
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....owever, separately sustained Rs.43,029 as an interest component by applying 1.28%. 24. The assessee's contention that the transaction between it and GEPP does not constitute an international transaction merely because both parties are non-residents cannot be accepted. Section 92B applies to a transaction between two or more associated enterprises where either or both are non-residents. A transaction between two non-resident associated enterprises can, therefore, fall within the statutory definition. However, the ability to determine an arm's-length price and the chargeability of the resulting income in India are separate questions. Chapter X can substitute an arm's-length quantum for the consideration recorded between associated enterprises, but such substitution does not relieve the Revenue of establishing that the income, so computed, is chargeable to tax in India under the Act read with the applicable DTAA. 24.1. The transaction under consideration is the lease between GEC and GEPP. The payer under that transaction is GEPP, a resident of the United States, and the recipient is the assessee, also a resident of the United States. Article 12(7)(a) of the India-USA DTAA provid....
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....stment of Rs.33,61,698 had itself been derived after incorporating an interest element over the rental difference of Rs.31,38,167. A further application of 1.28% to the composite adjustment would result in an unexplained duplication. More fundamentally, no invoice-wise delay, agreed credit period, date of recovery or enforceable liability to pay interest has been identified in relation to this lease transaction. For the reasons already recorded while deciding Ground No.2 in the assessee's appeals, such a notional interest component cannot be sustained. To the extent the amount of Rs.43,029 forms part of the interest adjustment challenged by the assessee for assessment year 2003-04, it shall stand deleted. The Assessing Officer is directed to ensure that neither the base lease-rental difference of Rs.31,38,167 nor any interest loading forming part of the stated total of Rs.33,61,698, nor the further sum of Rs.43,029, is retained while giving effect to this order. 26. Ground No.6 in the Revenue's appeal for assessment year 2003-04 and Ground No.5 in its appeal for assessment year 2004-05 challenge the deletion of interest levied under section 234B amounting to Rs.1,93,04,618 and R....