2014 (10) TMI 100 - HC - Income Tax

Fees for technical services paid, taxable or not No Permanent Establishment in India - Whether the Tribunal was correct in holding that as technology, experience or skill has not been made available to the assessee as per Article 12(4) of DTAA between India and Singapore, the payments made by the assessee were not liable to be taxed under the head fees for technical services Held that - Assessee is engaged in marketing and support system of hardware and software products - The material on record do not disclose that Sun Singapore has made available to the assessee its technical knowledge, experience or skill - the Tribunal rightly held that, as Sun Singapore is not having any permanent establishment and that Sun Singapore has not made available the technical knowledge, experience or skill, the payments made by assessee to Sun Singapore were not required to be taxed under the head business and is not taxable in view of Article 7 of DTAA between India and Singapore relying upon Commissioner of Income Tax and others Vs. De Beers India Minerals (P) Ltd. 2012 (5) TMI 191 - KARNATAKA HIGH COURT when once factually it is held the technical services has not been made available, then, there is no liability to deduct tax at source the order of the Tribunal is upheld Decided against revenue.

Summary

Issues:
Interpretation of Article 12(4) of DTAA between India and Singapore regarding taxation of payments made for technical services.

Analysis:

Issue 1: Interpretation of Article 12(4) of DTAA
The case involved a dispute over the taxation of payments made for technical services under Article 12(4) of the Double Taxation Avoidance Agreement (DTAA) between India and Singapore. The appellant, engaged in marketing and support of hardware and software products, entered into an agreement with Sun Microsystems Singapore Private Limited (Sun Singapore) for logistic services. The services provided by Sun Singapore to the appellant included spare management, defective repair services, business planning, etc., all rendered from outside India as Sun Singapore had no permanent establishment in India. The Tribunal held that since Sun Singapore did not make available its technical knowledge, experience, or skill to the appellant, the payments made were not taxable under the head "fees for technical services."

Issue 2: Application of Legal Precedent
The Court referred to a previous judgment in the case of Commissioner of Income Tax Vs. De Beers India Minerals, which established that the crucial factor in determining taxation liability for technical services is whether the service provider makes available the technology used in rendering services. If the technology is not made available along with the services, the payments do not fall under the definition of "fees for technical services" in the DTAA and are not taxable. In the current case, it was found that Sun Singapore did not provide the technology or technological services necessary for the logistic services, as confirmed by the Tribunal based on the evidence presented.

Issue 3: Conclusion and Judgment
Given the factual finding that Sun Singapore did not make available the required technology or technological services to the appellant, the Court upheld the Tribunal's decision that the payments made were not liable to be taxed under the DTAA. Consequently, the substantial question of law was resolved in favor of the assessee, and the appeal was dismissed. The judgment reaffirmed the principle that the availability of technical knowledge or technology is essential for payments to be classified as "fees for technical services" under the DTAA, and the absence of such availability exempts the payments from taxation.

In conclusion, the judgment clarified the interpretation of Article 12(4) of the DTAA between India and Singapore regarding the taxation of payments for technical services, emphasizing the importance of the service provider making available the necessary technology or technical knowledge for such payments to be taxable.