2013 (11) TMI 276 - AT - Income Tax

TDS u/s 195 - payment to non residents for Maintenance Charges during warranty period - Applicability of section 9(1)(vii) - Fee for Technical Services (FTS) Explanation to section 9 which is inserted with retrospective amendment - scope the term make available - Held that - CIT(A) has completely ignored the fact that the service agreements have real genesis in the purchase agreement qua the equipment ie Dense Wave Division Multiplexing equipment The impugned Service agreements, as amended from time to time, are required to be studied in conjunction with the purchase agreement of the equipment if the services which are rendered constitutes extended warranty with additional payments by way of AMC From the point of view of the provisions of Article 12(4)(b), it is a case of mere attending to the services by the Sycamore Networks Inc, USA to the complaints / troubleshooting of the assessee/assessee s customers through online requests. As such nothing is brought on record by the DR to counter the findings of the CIT (A) with regard to his conclusions on the applicability of the provisions of Article 12(4)(b) to the extent analysed and adjudicated. Thus, for the limited purpose of examining the (i) applicability of Article 12(4)(a); and (ii) the Article 12(4)(a) to the extent of make available of the processes mentioned therein, we remand the matter to the files of the CIT(A) for fresh examination and adjudication after obtaining the relevant facts Decided in favor of Revenue for statistical purpose. TDS u/s 195 - payment for repair charges - whether constitute Fee for Technical Services (FTS) - scope of section 9(1)(viii) Held that - Following the decision in the case of M/s. BHEL-GE-Gas Turbine Servicing (P)Ltd. 2012 (8) TMI 199 - ITAT HYDERABAD , the payments for the repairs should not be subjected to TDS as the said payments outside the scope. - No TDS - Decided in favor of assessee.

Summary

Issues Involved:
1. Whether the payments made by the assessee towards Annual Maintenance Charges (AMC) and repairs to Sycamore Networks Inc., USA, constitute Fees for Technical Services (FTS) under section 40(a)(i) of the Income Tax Act and under the India-US DTAA.

Detailed Analysis:

1. Nature of Payments and Applicability of Section 40(a)(i):
The assessee, engaged in broadband services, made payments to Sycamore Networks Inc., USA, for AMC and repairs without deducting TDS. The Assessing Officer (AO) disallowed these payments under section 40(a)(i) of the Income Tax Act, considering them as FTS. The CIT(A) deleted the disallowance, holding that these payments do not constitute FTS under Article 12(4) of the India-US Treaty. The Tribunal examined the services provided under the agreement, which included online technical support, problem diagnosis, and troubleshooting without transferring technical knowledge to the assessee's employees. The Tribunal upheld the CIT(A)'s decision, noting that the services were routine maintenance and did not involve imparting technical knowledge or skills.

2. Examination of AMC Payments:
The Tribunal analyzed the AMC payments made for the periods October 2004 to March 2005 and the subsequent year. The services provided included telephone technical support and web-based services for troubleshooting. The Tribunal found that these services did not involve any transfer of technical knowledge or skills to the assessee or its employees, thus not constituting FTS under the Treaty. The Tribunal emphasized that the CIT(A) correctly concluded that these payments were not for "making available" technical knowledge or skills as per Article 12(4)(b) of the Treaty.

3. Applicability of Article 12 of the India-US DTAA:
The Tribunal discussed the provisions of Article 12 of the India-US DTAA, which defines "fees for included services" and the conditions under which such fees are taxable. The Tribunal noted that the CIT(A) primarily focused on Article 12(4)(b) but did not adequately consider Article 12(4)(a), which pertains to ancillary and subsidiary services related to the enjoyment of rights or property. The Tribunal remanded the matter to the CIT(A) to analyze whether the AMC services were ancillary and subsidiary to the application or enjoyment of the equipment purchased and to examine the purchase agreement and subsequent service agreements.

4. Distinguishing Precedents and Further Examination:
The Tribunal distinguished the cited precedents, noting that the facts in those cases involved transfer of technical knowledge and training of employees, which was not applicable in the present case. The Tribunal directed the CIT(A) to re-examine the agreements and the nature of services provided to determine if the payments constituted FTS under Article 12(4)(a) and to ensure a comprehensive analysis of the "make available" clause.

Conclusion:
The Tribunal remanded the matter to the CIT(A) for a fresh examination of the applicability of Article 12(4)(a) of the India-US DTAA and to verify if the services rendered were ancillary and subsidiary to the enjoyment of the equipment. The Tribunal upheld the CIT(A)'s decision regarding the non-applicability of Article 12(4)(b) but required further analysis on the ancillary services aspect. The appeals were allowed for statistical purposes, directing the CIT(A) to obtain relevant facts and adjudicate accordingly.