2015 (7) TMI 678 - AT - Income Tax

Transfer pricing adjustment - Taxing fees received by ABB Inc from ABB Limited and ABB Global Industries & services Limited - Held that - The law is by now settled so far as the connotations of make available clause in the definition of fees for technical services in the contemporary tax treaties are concerned. It is held to be a condition precedent for invoking this clause that the services should enable the person acquiring the services to apply technology contained therein. Hon ble Karnataka High Court in the case of CIT v. De Beers India (P.) Ltd. 2012 (5) TMI 191 - KARNATAKA HIGH COURT approves this school of thought. We, therefore, hold that unless there is a transfer of technology involved in technical services extended by the US based company, the make available clause is not satisfied and, accordingly, the consideration for such services cannot be taxed under Article 12(4)(b) of India US tax treaty. The Assessing Officer has taken pains to hold that the services are technical services in nature but what is really the decisive factor, so far taxability of its consideration in the Indo US tax treaty is concerned, is not the fact of training services per se but the position that training services being of such a nature that it results in transfer of technology. That is not the case here. It is not even suggestion of the Assessing Officer that there was a transfer of technology in this case so as to bring the services within the ambit of services which make available technical knowledge, experience, skill and know how etc. In our opinion considering the judgment, if the correct arm s length price is applied and paid then nothing further would be left to be taxed in the hands of the foreign enterprise. As, in the light of the settled legal position as set out above, even if there is a DAPE on the facts of this case, it will have no taxable profits to be taxed in the hands of the assessee in the absence of the finding that the DAPE has been paid a remuneration less than arm s length remuneration. We, therefore, see no need to examine the aspect regarding existence of the DAPE. That aspect of the matter will be wholly academic. We are inclined to uphold the grievances of the assessee and delete the impugned additions in respect of the income of ₹ 11,04,11,826 under article 12(4)(a) as fees for technical services and also in respect of income of ₹ 4,37,161 under article 7(1) of the India US tax treaty. - Decided in favour of assessee.

Issues Involved:
1. Taxability of fees received by the appellant from ABB Limited and ABB Global Industries & Services Limited as fees for included services under Article 12(4)(b) of the India-USA tax treaty.
2. Determination of ABB Global Industries & Services Limited as a Permanent Establishment (PE) of the appellant in India.
3. Allegation of double taxation - taxing the same income as fees for included services and as business income through PE.

Detailed Analysis:

1. Taxability of Fees as Fees for Included Services:
The primary issue revolves around whether the fees received by the appellant from ABB Limited and ABB Global Industries & Services Limited are taxable as fees for included services under Article 12(4)(b) of the India-USA tax treaty. The appellant argued that the services provided do not make available technical knowledge, experience, skill, etc., and hence should not be taxed in India. The Assessing Officer (AO) rejected this claim, stating that the services rendered by the appellant do make available technical knowledge, experience, skill, or know-how to ABB India.

The tribunal referred to the Hon'ble Karnataka High Court's decision in CIT v. De Beers India (P.) Ltd., which clarified that for services to be considered as "making available" technical knowledge, they must enable the recipient to apply the technology independently in the future. The tribunal concluded that the services provided by the appellant did not result in the transfer of technology enabling the recipient to apply it independently. Therefore, the fees could not be taxed under Article 12(4)(b) of the India-US tax treaty.

2. Determination of Permanent Establishment (PE):
The Dispute Resolution Panel (DRP) held that ABB Global Industries & Services Limited constitutes a dependent agency PE (DAPE) of the appellant in India. This was based on the ongoing commercial relationship and the activities involving the purchase and sale of 'Harmony' products. The DRP concluded that the profits earned through the business of the appellant company are taxable in India as business income.

The tribunal found the logic of the DRP difficult to understand, noting that even if a PE exists, under Article 7(1) of the India-US tax treaty, only profits attributable to the PE can be taxed in India. Since the PE was related to trading transactions, no part of the earnings from services rendered could be attributed to the PE activities. The tribunal also referenced the case of SET Satellite (Singapore) Pte Ltd v. DDIT, which held that if the Indian affiliate (treated as DAPE) is remunerated at arm's length, no further profits would be attributable to the PE.

3. Allegation of Double Taxation:
The appellant contended that the AO erred in taxing the same income twice - once as fees for included services on a gross basis and again as business income through the PE. The tribunal, referencing the settled legal position, concluded that if the Indian affiliate has been paid arm's length remuneration, nothing remains to be taxed in the hands of the appellant. The tribunal found no need to examine the existence of the DAPE further, as it would be academic in the absence of a finding that the DAPE was paid less than arm's length remuneration.

Conclusion:
The tribunal upheld the grievances of the appellant and deleted the additions of Rs. 11,04,11,826 under Article 12(4)(a) as fees for technical services and Rs. 4,37,161 under Article 7(1) of the India-US tax treaty. The appeal was allowed, providing relief to the appellant in the terms indicated.

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