2007 (2) TMI 577 - AT - Income Tax

Prospecting and mining for diamonds and other minerals - Exploration over a large area carried out by geophysical methods - Company entered into an agreement for performing airborne geophysical services process the data acquired during the survey and provide necessary reports - Consideration paid under the agreement as falling within the definition of fees for technical services ? - Liable to deduct TDS? - Deemed to permanent establishment in India - DTAA between India and Netherlands - HELD THAT - There is no doubt that Fugro performed the services using substantial knowledge and expertise but such technical experience skill or knowledge has not been made available to De Beers . As stated as per the protocol signed between India and Netherlands the memorandum of understanding entered into between India and USA would apply mutatis mutandis to article 12 of Indo Netherlands Double Taxation Avoidance Agreement. Thus we concur with the findings of the first appellate authority and answer the first sub-question in favour of the assessee and against the Revenue by holding that the payment made for fees for technical services does not fall within the ken of article 12(5)(b) of the Double Taxation Avoidance Agreement between India and Netherlands for the reason that Fugro has not made available technical knowledge experience skill know-how or process to De Beers while providing the service. Thus this question is answered in the negative in favour of the assessee and against the Revenue. In the present case Fugro compiles the data and process them for error correction and deliver it to De Beers in a computer readable media. Using the raw input data provided by Fugro the recipient assessee i.e. De Beers using further process in software technology (which are not owned or provided by Fugro ) generates a report to determine probable targets. Thus the payments to Fugro cannot be considered to the payments for technical plan and design much less for the development and transfer of them. Fugro is engaged in providing services relating to collection and processing of data which always belonged to De Beers . The purpose of agreement is for provision of services and not for supply or transfer of technical plan or design. The reports and maps are only an additional mode of report of data and cannot be construed as technical plan or technical design. The payments made to Fugro cannot be considered as fees for technical services as such payments are not in consideration for the development and transfer of technical plan and technical design. The agreement between De Beers and Fugro the ownership of all information and data was always with De Beers and Fugro is bound by confidential clause. When the ownership of data is always with De Beers there cannot be transfer of property from Fugro to De Beers . Fugro has not developed or transferred any technical plan or design to De Beers so as to attract article 12(5)(b) of the India and Netherlands Double Taxation Avoidance Agreement. Thus on this issue also we agree with the findings of the first appellate authority. Thus we answer the second question is in the negative in favour of the assessee and against the Revenue. In the result all the appeals of the Revenue are dismissed.

Summary

Issues Involved:

1. Whether the payments made by the assessee-company to Fugro for services rendered can be considered as "fees for technical services" within the meaning of Article 12(5)(b) of the Double Taxation Avoidance Agreement (DTAA) between India and Netherlands.
2. Whether the payment to Fugro was for the development and transfer of a technical plan or technical design to De Beers.

Issue-wise Detailed Analysis:

1. Fees for Technical Services:

The main question was whether the payments made by the assessee-company to Fugro for services rendered could be considered as "fees for technical services" under Article 12(5)(b) of the DTAA between India and Netherlands. The tribunal noted that the services provided by Fugro involved substantial technical knowledge and expertise, but such technical experience, skill, or knowledge was not made available to De Beers. The tribunal relied on precedents, including the C.E.S.C. Ltd. v. Deputy CIT, which clarified that technology is considered "made available" when the person acquiring the service is enabled to apply the technology independently. In this case, Fugro conducted the survey, collected, and processed the data, but did not transfer any technical knowledge or skill to De Beers that would enable them to perform similar surveys independently in the future. Thus, the tribunal upheld the first appellate authority's finding that the payment did not fall within the term "fees for technical services" under Article 12(5)(b) of the DTAA.

2. Development and Transfer of Technical Plan or Design:

The tribunal examined whether the payment to Fugro was for the development and transfer of a technical plan or design. It analyzed the definitions of "plan" and "design" and concluded that the services provided by Fugro involved collecting and processing data, which always belonged to De Beers. The tribunal noted that Fugro did not develop or transfer any technical plan or design to De Beers. The agreement between De Beers and Fugro specified that the ownership of all information and data was with De Beers, and Fugro was bound by a confidentiality clause. Therefore, there was no transfer of property from Fugro to De Beers. The tribunal agreed with the first appellate authority's finding that the payments made to Fugro could not be considered as "fees for technical services" for the development and transfer of a technical plan or design.

Conclusion:

The tribunal dismissed the Revenue's appeals, concluding that the payments made by the assessee-company to Fugro did not fall within the definition of "fees for technical services" under Article 12(5)(b) of the DTAA between India and Netherlands, and were not for the development and transfer of a technical plan or design.