2022 (12) TMI 1269 - AT - Income Tax

TDS u/s 195 - Scope of make available - payment made by the assessee to its non-resident group company as Fees for Technical Services FTS by concluding that services make available technology knowledge skill know-how or processes to the assessee as per Article 13 of India-UK DTAA DTAA - AO noticed that the assessee has paid an amount to its holding company CPP Limited UK but has not deducted tax at source claiming that Information Support System Services availed by the assessee company do not fall under the definition of FTS under Article 13 of the DTAA - HELD THAT - As in order to invoke make available clauses technical knowledge and skill must remain with the person receiving the services even after the particular contract comes to an end and the technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Intellectual property is with the supplier UK based company . Facts of the case in hand clearly show that there is no transfer of skill or technical services. The recipient assessee has not been enriched by receiving the services and making it capable to face similar challenges in future on its own and acquiring skills to deal with the issues. Rendition of these services by the UK company does not enable the recipient assessee to provide similar services without recourse to the service provider in future. Merely incidental benefit or enrichment is not sufficient. Assessee is unable to make use of the said technology only by itself in its business or for its own benefit without recourse to the UK company. We find that neither the AO nor the ld. CIT(A) has made any attempt to discuss the judicial decisions relied upon by the assessee but has only referred to a single decision of the co-ordinate bench in the case of HJ Heinz supra wherein the assessee was availing support services from group company in the area of human resources strategic planning and marketing finance and information systems. The concept of make available which requires that fruits of services should remain unavailable to the service recipients in some concrete shape such as technical knowledge experience skill etc and service recipient has to make use of such technical knowledge skill etc by himself in his business and for his own benefit. Whereas the facts of the case in hand show that the assessee does not gain any technical knowledge experience or skill as it is not involved in the process that service provider is following while rendering the services. The IT support services are rendered by CPP UK from UK itself and these services are rendered for the entire group and not just for CPP India. The agreement between CPP group services and the assessee is perpetual and such services are provided by CPP group on recurring basis to the assessee and if the technical knowledge skill etc. is being made available to the assessee then there would be no need for the assessee to take recourse to the CPP UK for these services. Thus IT support services do not satisfy the make available test as no technical know-how skill etc were transferred to the assessee. Considering the facts of the case in totality in light of judicial decisions discussed hereinabove we direct the Assessing Officer to delete the disallowance - Appeal of assessee allowed.

Summary

Issues Involved:
1. Whether the payment of Rs. 5,46,31,534/- made by the assessee to its non-resident group company qualifies as Fees for Technical Services (FTS) under Article 13 of the India-UK DTAA.
2. Whether the services provided by the non-resident group company "make available" technology, knowledge, skill, know-how, or processes to the assessee.
3. Applicability of Section 40(a)(i) of the Income Tax Act due to non-deduction of tax at source on the said payment.

Detailed Analysis:

Issue 1: Qualification of Payment as Fees for Technical Services (FTS)
The primary grievance of the assessee was that the CIT(A) erred in considering the payment of Rs. 5,46,31,534/- as Fees for Technical Services (FTS) under Article 13 of the India-UK DTAA. The assessee argued that the Information Support System Services availed do not fall under the definition of FTS since they do not fulfill the "make available" clause of Article 13(4)(c) of the DTAA. The Assessing Officer, however, held that the nature of services availed by the assessee company did fulfill the "make available" criteria, thus qualifying as FTS.

Issue 2: "Make Available" Clause
The Assessing Officer opined that the phrase "make available" does not need to be expressly mentioned in the description of the services availed. He argued that the Standard Operating Procedures (SOPs) provided by the UK company to the Indian company constituted making available technical processes and plans. The assessee contended that no such SOPs were envisaged in the agreement, and the services rendered did not enable the assessee to provide similar services without recourse to the service provider.

The Tribunal examined the terms of the agreement and the relevant clauses of the DTAA. It concluded that unless the recipient of the services is enabled to provide the same services without recourse to the service provider, the services cannot be said to have made available the recipient of services. The Tribunal emphasized that mere incidental advantage to the recipient of services is not enough; there must be a transfer of technology or skills that remain with the recipient even after the contract ends.

Issue 3: Applicability of Section 40(a)(i)
The Assessing Officer held that the assessee was liable to withhold tax while making the payment and failing to do so attracted the provisions of Section 40(a)(i) of the Income Tax Act. The Tribunal, however, found that the services provided did not satisfy the "make available" test, as no technical know-how, skill, etc., were transferred to the assessee. The Tribunal directed the Assessing Officer to delete the disallowance of Rs. 5,46,31,534/-.

Judicial Precedents:
The Tribunal relied on the decisions of the Hon'ble Delhi High Court in the case of Guy Carpenter and the Hon'ble Karnataka High Court in the case of De Beers India Minerals (P) Ltd. Both cases emphasized that for services to qualify as "made available," the recipient must be enabled to apply the technology or skills independently in the future without recourse to the service provider.

Conclusion:
The Tribunal concluded that the IT support services provided by the UK company did not make available any technical knowledge, skill, or processes to the assessee. Thus, the payment did not qualify as FTS under Article 13 of the India-UK DTAA, and the provisions of Section 40(a)(i) were not attracted. The appeal of the assessee was allowed, and the disallowance of Rs. 5,46,31,534/- was directed to be deleted.