2016 (11) TMI 666 - AT - Income Tax

Services rendered by the non-resident assessee company to Indian company - whether would fall within the ambit of Fee for Technical Services (FTS) - DTAA - Held that - As find from the nature of services rendered by the assessee to the Indian group company, there is no technology or technical knowhow, skills etc that were made available by the assessee in order to enable the Indian group company to function on its own without the dependence of the assessee. It is not in dispute that the agreement entered between Outotec Oyj and Outotec India Pvt Ltd is for an indefinite period and such services are provided on recurring basis by the assessee to Outotec India Pvt Ltd. Lot of force in find in the argument of the ld AR that had the technical knowhow, skills etc being made available by the assessee to Outotec India Pvt Ltd, then there would be no need for Outotec India Pvt Ltd to recourse to the recipient for these services. We also hold that the other services such as IT Infrastructure, IT administration (collectively referred to IT Support Services ) also do not satisfy the make available test as no technology , knowhow, skills etc were transferred to the recipient. We also hold that the repair and supervision services provided to few other Indian parties do not satisfy the make available test as these are routine repairs and supervisory services and there is no transfer of technology or skill or experience at the time of provision of such services by the assessee. The amounts received by the assessee from Outotec India Pvt Ltd does not qualify as FTS as per the DTAA. - Decided in favour of assessee

Issues Involved:
1. Taxability of services rendered by the non-resident assessee company to the Indian company under the ambit of 'Fee for Technical Services (FTS)'.
2. Whether the services rendered by the assessee make available technical knowledge, experience, skill, know-how, or processes to the Indian company.
3. Chargeability of interest under sections 234A and 234B of the Income-tax Act.
4. Initiation of penalty proceedings under section 271(1)(c) of the Income-tax Act.

Detailed Analysis:

1. Taxability of Services as 'Fee for Technical Services (FTS)':
The first issue was whether the services rendered by the non-resident assessee company to the Indian company fall within the ambit of 'Fee for Technical Services (FTS)'. The assessee, a tax resident of Finland, provided various services to its group company in India and earned revenue. The Assessing Officer (AO) proposed to tax this revenue as FTS under the India-Finland Double Taxation Avoidance Agreement (DTAA). The assessee contended that the services were managerial and did not fall under FTS as per the DTAA. The Dispute Resolution Panel (DRP) upheld the AO's view, categorizing the services as consultancy and technical services, thus taxable as FTS.

2. 'Make Available' Clause:
The core argument revolved around whether the services made available technical knowledge, experience, skill, know-how, or processes to the Indian company. The assessee argued that the services were managerial and did not make available any technical knowledge or skills. The DRP and the AO believed that the services enabled the Indian company to replicate the technology independently, thus satisfying the 'make available' clause. The Tribunal, however, noted that for services to be considered as making technology available, the recipient must be able to apply the technology independently. The Tribunal cited various judicial precedents, including the case of CESC Ltd vs DCIT, to support the interpretation that merely providing services does not amount to making technology available unless the recipient can use the knowledge independently. The Tribunal concluded that the services rendered did not make available any technology, know-how, or skills, and hence, did not qualify as FTS under the DTAA.

3. Chargeability of Interest under Sections 234A and 234B:
The issue of chargeability of interest under sections 234A and 234B was deemed consequential and did not require separate adjudication.

4. Initiation of Penalty Proceedings under Section 271(1)(c):
Similarly, the initiation of penalty proceedings under section 271(1)(c) was also considered consequential and did not require separate adjudication.

Conclusion:
The Tribunal held that the amounts received by the assessee from the Indian company did not qualify as FTS under the DTAA, thus allowing the appeals. The issues of interest chargeability and penalty proceedings were deemed consequential and did not require further adjudication. The appeals were allowed in favor of the assessee.

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