2009 (8) TMI 973 - AT - Income Tax

TDS u/s 195 - Liability to deduct tax at source - make available clause - DTA Agreement for logistics services - Nature of services - Whether logistics services agreement is fees for technical services' as per article 12(4) of the Double Taxation Avoidance Agreement between India and Singapore - whether the assessee was liable to deduct tax at source in view of the logistics services agreement entered between the assessee and Sun Singapore - appellant entered into an agreement for availing of the logistics services from Sun Singapore - all the payments were in respect of spare parts only - CIT (A) held that the nature of services are such that it makes available technical knowledge, experience, skill, know-how and processes to the appellant and also enables it to apply the technology contained therein. The services are therefore covered under article 12(4) of the Double Taxation Avoidance Agreement and therefore, the payment is fees for technical services liable for tax deduction. HELD THAT - Following the decision of the Bangalore Bench in the case of ITO v. Cepha Imaging P. Ltd. 2009 (7) TMI 1277 - ITAT BANGALORE and other decisions referred, we hold that the interpretation of the word make available as given in memorandum of understanding between India and USA treaty can be applied in the instant case and as per the facts on record, it has not been established by the Revenue that the technology, experience or skill has been made available to the assessee. Hence, as per article 12(4) of the DTA Agreement between India and Singapore, the payments made by the assessee were not liable to be taxed under the head Fees for technical services . Sun Singapore is not having any permanent establishment and therefore, the payments which were required to be taxed under the head Business were not taxable in view of article 7 of the DTA Agreement between India and Singapore. The Hon'ble jurisdictional High Court in the case of Jindal Thermal Power Co. Ltd. v. Deputy CIT (TDS) 2009 (3) TMI 401 - KARNATAKA HIGH COURT held that rendering of services and utilisation should be both in India and the Explanation to section 9(2) does not dilute such requirements as laid down by the apex court in Ishikawajima-Harima Heavy Industries Ltd.'s case 2007 (1) TMI 91 - SUPREME COURT though the Explanation has been introduced subsequently. It was held that technical services provided off-shore does not require any deduction of tax at source. In the instant case, the services have been rendered off-shore though these are utilised in India and as per the decision of the jurisdictional High Court, no TDS was required to be made. It is true that through e-commerce, the services can be rendered in India without any geographical boundary but no facts have been put before us to establish that Sun Singapore provided such services in India. When the income of the recipient is not taxable in India then the appellant was not required to deduct tax at source. Hence, it is held that the appellant was not required to deduct tax at source u/s 195. In the result, both the appeals of the assessee are allowed.

Summary

Issues Involved:
1. Classification of payments as 'fees for technical services' under Article 12(4) of the Double Taxation Avoidance Agreement (DTAA) between India and Singapore.
2. Liability of the appellant to deduct tax at source under section 195(1) of the Income-tax Act.
3. Nature of services rendered by Sun Microsystems Pte. Ltd., Singapore, and whether they make available technical knowledge, experience, skill, know-how, and processes to the appellant.

Issue-wise Detailed Analysis:

1. Classification of Payments as 'Fees for Technical Services':
The learned Commissioner of Income-tax (Appeals) classified the charges paid by the appellant to Sun Microsystems Pte. Ltd., Singapore, as 'fees for technical services' under Article 12(4) of the DTAA between India and Singapore. This article defines 'fees for technical services' as payments for managerial, technical, or consultancy services that make available technical knowledge, experience, skill, know-how, or processes enabling the recipient to apply the technology. The appellant argued that the services provided were mere logistics services and did not make available any technical knowledge or skills that the appellant could apply independently in the future.

2. Liability to Deduct Tax at Source:
The appellant denied its liability to deduct tax at source on payments made to Sun Microsystems Pte. Ltd., Singapore, under the logistics services agreement. The Commissioner of Income-tax (Appeals) held that the appellant was liable to deduct tax at source under section 195(1) of the Income-tax Act. The appellant filed an appeal under section 248 of the Income-tax Act, which allows an appeal after deducting and depositing the tax at source. The Commissioner of Income-tax (Appeals) relied on a previous order and concluded that the services rendered were technical in nature and enabled the appellant to apply the technology, thus falling under 'fees for technical services' liable for tax deduction.

3. Nature of Services Rendered:
The services provided by Sun Microsystems Pte. Ltd., Singapore, included inventory management, spares planning, defective repair services, technical consultation, and supply chain management. The Commissioner of Income-tax (Appeals) concluded that these services were technical and made available technical knowledge and processes to the appellant. The appellant argued that the services did not enable it to perform these functions independently, as the agreement was still in force and the appellant had not absorbed the technical knowledge.

Tribunal's Findings:
The Tribunal examined whether the services rendered made available technical knowledge, experience, skill, or know-how to the appellant. It referred to various legal precedents and interpretations of similar terms in other DTAA agreements, particularly the India-US treaty. The Tribunal noted that 'make available' means providing something that the recipient can use independently. The Tribunal found no evidence that the appellant acquired the necessary skills to use the technical knowledge independently. The services were rendered off-shore, and Sun Microsystems Pte. Ltd., Singapore, did not have a permanent establishment in India. Therefore, the payments were not taxable in India under Article 7 of the DTAA between India and Singapore.

Conclusion:
The Tribunal concluded that the payments made by the appellant to Sun Microsystems Pte. Ltd., Singapore, were not liable to be taxed under 'fees for technical services' as per Article 12(4) of the DTAA between India and Singapore. Consequently, the appellant was not required to deduct tax at source under section 195 of the Income-tax Act. Both appeals of the assessee were allowed.