2014 (6) TMI 1086 - HC - Income Tax

Income taxable in India - payments made by the assessee were liable to be taxed under the head fees for technical services or not? - whether technology, experience or skill has not been made available to the assessee as per Article 12(4) of DTAA between India and Singapore? HELD THAT - Sun Singapore has not made available to the assessee the technology or the technological services which is required to provide the distribution, management and logistic services. That is a finding of fact recorded by the Tribunal on appreciation of the entire material on record. When once factually it is held the technical services has not been made available, then in view of the law declared in the aforesaid judgment, there is no liability to deduct tax at source and therefore, the finding recorded by the Appellate Authority cannot be found fault with. In that view of the matter, the substantial question of law is answered in favour of the assessee and against the revenue.

Summary

Issues:
Interpretation of Article 12(4) of DTAA between India and Singapore regarding taxation of payments made for technical services.

Analysis:
The case involved the interpretation of whether payments made by the assessee to a Singapore-based company for logistic services were liable to be taxed under the head "fees for technical services" as per the Double Taxation Avoidance Agreement (DTAA) between India and Singapore. The agreement between the parties required the Singapore company to provide various logistic services to the Indian assessee, including spare management services, provision of buffer stock, defective repair services, and business planning. The Singapore company did not have a place of business in India and all services were rendered from outside India. The Tribunal held that since the Singapore company did not make available its technical knowledge, experience, or skill to the assessee, the payments were not taxable under the DTAA.

In a previous case, the court had established that the crucial factor in determining whether payments qualify as "fees for technical services" under the DTAA is whether the technology or technical knowledge used in rendering the services was made available to the recipient. If the service provider also imparts the technology along with the services, it falls under the definition of "fees for technical services." However, if the technical knowledge is not shared, then it does not constitute technical services under the DTAA.

The Tribunal in the present case found that the Singapore company did not provide the necessary technology or technical services to the assessee, which was a factual finding based on the evidence presented. As per the legal precedent, if technical services are not made available, there is no obligation to deduct tax at the source. Therefore, the Appellate Authority's decision was upheld, and the substantial question of law was resolved in favor of the assessee, leading to the dismissal of the appeal.

In conclusion, the judgment reaffirmed that for payments to be considered "fees for technical services" under the DTAA, it is essential that the technology or technical knowledge be made available to the recipient. In this case, since the Singapore company did not provide such knowledge to the Indian assessee, the payments were not subject to taxation under the DTAA.