2019 (7) TMI 1750 - AAR - Income Tax

Advance ruling - Fees for technical services or business income taxable in India - Payment receivable for various services in terms of the services agreement - chargeable to tax under the Act read with India-UK DTAA? - interpreting the term make available - Services rendered are included in the fees for technical services (FTS) or not? - rendering the services as per agreement did not make available the technical knowledge and the experience possessed by it - HELD THAT - The nature of services rendered in this case were corporate head office services ; divisional global services ; and divisional regional services which related to financial executive marketing and administrative matters. In view of the decision as given in this case this does not support the cause of the revenue. When we examine the facts of the present case on the above yardstick of make available as decided in the case of Intertek 2008 (11) TMI 9 - AUTHORITY FOR ADVANCE RULINGS it is found that the nature of services in this case are such that the technical knowledge skills etc. was not passed on and did not remain with the recipient of the service. Nature of services rendered in this case is found to be identical with the services rendered in the case of Ernst Young (P). Ltd. 2010 (3) TMI 108 - AUTHORITY FOR ADVANCE RULINGS relied upon by the Applicant. Applicant while rendering the services as per agreement did not make available the technical knowledge and the experience possessed by it. Thus we hold that the consideration paid for services rendered by the applicant is not covered by fee for technical services in terms of Article 13.4 of Indo-UK Tax Td. Ruling - Ques.1 The payment receivable by the Applicant from DTZ International Property Advisers Private Limited (hereinafter referred to as DTZ India ) for various services in terms of the services agreement dated 17th February 2011 is not in the nature of Fee for Technical Services under Article-13.4 of India-UK Tax Treaty as the services rendered by the non-resident company do not meet the requirement of make available under the Treaty. The payment will also not be treated as business income taxable in India in terms of India-UK Tax Treaty as the non-resident company does not have any PE in India. Que.2 As the answer to question No.1 is in negative DTZ India is not liable to deduct tax at source under section 195 of the Act on the amount payable to DTZ UK in terms of the services agreement dated 17th February 2011.

Summary

Issues Involved:
1. Taxability of payment received by DTZ UK from DTZ India under the India-UK DTAA.
2. Obligation of DTZ India to deduct tax at source on payments to DTZ UK.

Detailed Analysis:

Issue 1: Taxability of Payment Received by DTZ UK
Background:
DTZ UK, a UK tax resident, entered into a service agreement with DTZ India, an Indian subsidiary, to provide various intra-group services. DTZ UK claims it has no permanent establishment (PE) in India under the India-UK DTAA.

Applicant's Argument:
- DTZ UK does not have a PE in India as per Article 5 of the India-UK DTAA.
- Payments received should be considered business income under Article 7 of the DTAA and not taxable in India due to the absence of a PE.
- The services provided do not constitute "royalty" or "fees for technical services" (FTS) under Article 13 of the DTAA.
- The services rendered do not "make available" technical knowledge, experience, skill, know-how, or processes to DTZ India.

Revenue's Argument:
- The services provided by DTZ UK are technical and consultancy services, thus qualifying as FTS.
- The services rendered "make available" technical knowledge and skills to DTZ India, enabling them to perform tasks independently in the future.

Authority's Analysis:
- The services rendered by DTZ UK do not fall under the definition of "royalty" as per Article 13.3 of the India-UK DTAA.
- For services to qualify as FTS under Article 13.4, they must either be ancillary to royalty payments or "make available" technical knowledge, experience, skill, know-how, or processes.
- The services provided by DTZ UK do not "make available" technical knowledge or skills to DTZ India. The knowledge and expertise remain with DTZ UK and are not transferred to DTZ India for independent use.
- The nature of services rendered (e.g., IT support, marketing, human resources) involves providing solutions without transferring the underlying technical expertise.

Conclusion:
The payments received by DTZ UK from DTZ India do not qualify as FTS under Article 13.4 of the India-UK DTAA. As DTZ UK does not have a PE in India, the payments are not taxable in India.

Issue 2: Obligation to Deduct Tax at Source
Applicant's Argument:
- Since the payments are not taxable in India, DTZ India is not required to deduct tax at source under section 195 of the Income Tax Act.

Revenue's Argument:
- If the services qualify as FTS, DTZ India would be required to deduct tax at source.

Authority's Analysis:
- Given the ruling that the payments are not FTS and DTZ UK does not have a PE in India, there is no tax liability in India.
- Consequently, DTZ India is not obligated to deduct tax at source on payments made to DTZ UK.

Conclusion:
DTZ India is not liable to deduct tax at source under section 195 of the Income Tax Act on the payments made to DTZ UK as per the service agreement dated 17th February 2011.

Final Ruling:
1. The payments received by DTZ UK from DTZ India are not taxable in India as they do not qualify as "fees for technical services" under Article 13.4 of the India-UK DTAA, and DTZ UK does not have a PE in India.
2. DTZ India is not required to deduct tax at source on these payments under section 195 of the Income Tax Act.