2023 (6) TMI 90 - HC - Income Tax

Income deemed to accrue or arise in India - make available clause - Fee received by assessee for technical services rendered to its Associated Enterprises in India - interpretation of Article 12(4) of the DTAA - Whether no transfer of technology in the case of assessee as the make available clause is not satisfied ? - HELD THAT - As fee paid is for the evaluation of risk factor by the assessee company which is based in USA. As argued that the results of such activities are made available to the other entities with ABB group, we may record the explanation given that the word made available used in portion of the agreement extracted of DRP s directions refers only to the results which the entities in the group companies may use and the same cannot be interpreted or equated to any other technical design or consultancy, the benefit of which the ABB India can derive in perpetuity. He is right in his submission because the services rendered by the assessee is project specific and terminates with submission of bid by the ABB India after making necessary changes or corrections in the bid based on the evaluation report. If the agreement permits the assessee to make available the results for guidance to other entities in the group, the same cannot be attributed as services made available which could be used in perpetuity. The contention urged on behalf of the revenue that opinion tendered by the assessee falls within the parameters made available must fail. - Decided in favour of the assessee.

Summary

Issues involved:
The interpretation of Article 12(4) of the Double Taxation Avoidance Agreement (DTAA) between India and USA regarding the taxation of fees for included services paid to a resident of the other Contracting State.

Summary of the Judgment:

Interpretation of Article 12(4) of DTAA:
The dispute between the Revenue and the assessee centered around the interpretation of Article 12(4) of the DTAA. The clause defines "fees for included services" as payment for technical or consultancy services that make available technical knowledge, experience, skill, know-how, or processes. The argument presented by the Revenue was that the clause referring to 'make available' is limited to technical knowledge and excludes consultancy services. On the other hand, the assessee contended that the DTAA allows for fees for included services to cover both technical and consultancy services as the term 'or' is used between them. The court examined the provision and noted that the term 'services' in plural encompasses both technical and consultancy services. The judgment highlighted that the fee paid was for evaluating risk factors by the assessee company based in the USA for a specific project, and the results were not intended for perpetual use by other entities within the group. Therefore, the contention that the services fell within the 'make available' parameters was deemed invalid.

Decision and Order:
The court dismissed the appeal by the Revenue and ruled in favor of the assessee. It was held that the services provided were project-specific and did not meet the criteria of being 'made available' for perpetual use. Consequently, the questions of law were answered in favor of the assessee, and no costs were awarded in the matter.