2013 (10) TMI 751 - AT - Income Tax

Fee for technical services under Article 12(4) of the Double Taxation Avoidance Agreement between India and Singapore - Assessee made available technical knowledge, skill or know-how to Indian customer and as such, the payments made to it were to the nature of fee for technical services Held that - Reliance has been placed upon the judgment in the case of Raymond Ltd. v. Deputy CIT 2002 (4) TMI 891 - ITAT MUMBAI , wherein it has been held that word 'which' occurring in the article after the word 'services' and before the words 'make available' not only describes or defines more clearly the antecedent noun ('services') but also gives additional information about the same in the sense that it requires that the services should result in making available to the user technical knowledge, experience, skill, etc. Thus, the normal, plain and grammatical meaning of the language employed, in our understanding, is that a mere rendering of services is not roped in unless the person utilising the services is able to make use of the technical knowledge etc. by himself in his business or for his own benefit and without recourse to the performer of the services in future - The fruits of the services should remain available to the person utilising the services in some concrete shape such as technical knowledge, experience, skills, etc. In the present case, assessee provided testing services and issued test reports. These reports cannot be said to make available any technical knowledge, experience, skill, know-how or processes which enabled the Indian company to acquire the services to apply the technology contained therein. Therefore, these receipts cannot partake the fees for technical services as defined in the Double Taxation Avoidance Agreement with Singapore. The samples were sent by Indian company, M/s. Effem India for testing in Singapore. These samples were comprising of broken rice, maize, pet food, wheat gluten sodium caseinate, poultry meal, soya protein isolate, copra press cake, etc. These samples were tested to detect the presence of mycotoxin - No substantial question of law arises for our consideration, particularly, because Revenue was unable to point out any perversity in finding Decided in favor of Assessee.

Issues Involved:
1. Validity of the orders passed by the Assessing Officer (AO) and the Commissioner of Income-tax (Appeals) [CIT(A)].
2. Affirmation of the total income at Rs. 28,76,271 against nil income returned by the appellant.
3. Classification of services as "fees for technical services" under the Indo-Singapore Double Taxation Avoidance Agreement (DTAA).
4. Nature of testing services provided by the appellant.
5. Reliance on judicial precedent related to a different DTAA.
6. Taxability of payments for services rendered outside India.
7. Levy of interest under sections 234A, 234B, and 234C of the Income-tax Act, 1961.

Detailed Analysis:

1. Validity of the Orders:
The appellant challenged the validity of the orders passed by the AO and CIT(A), claiming they were "bad in law and void ab initio." The Tribunal did not find merit in this argument and focused on the substantive issues regarding the taxability of the income.

2. Affirmation of Total Income:
The CIT(A) affirmed the total income of the appellant at Rs. 28,76,271, which was contested by the appellant who had returned nil income. The Tribunal examined whether this income could be classified as "fees for technical services" under the DTAA between India and Singapore.

3. Classification as "Fees for Technical Services":
The core issue was whether the services provided by the appellant qualified as "fees for technical services" under Article 12(4) of the Indo-Singapore DTAA. The Tribunal noted that the services provided did not make available any technical knowledge, experience, skill, know-how, or processes to the Indian company that would enable it to apply the technology independently.

4. Nature of Testing Services:
The appellant provided testing services to Effem India P. Ltd., which involved analyzing samples for mycotoxin levels. The Tribunal concluded that these services did not involve the transfer of technical knowledge or a technical plan that could be used independently by the Indian company.

5. Reliance on Judicial Precedent:
The CIT(A) had relied on the judgment in SNC-Lavalin International Inc. v. Deputy DIT, which pertained to the India-Canada DTAA. The Tribunal highlighted that the definition of "fees for technical services" under the Indo-Singapore DTAA was different and thus the precedent was not directly applicable.

6. Taxability of Payments for Services Rendered Outside India:
The appellant argued that the payments received for services rendered outside India were not taxable in India. The Tribunal agreed, citing that the services did not meet the criteria of making technical knowledge available as required under the DTAA.

7. Levy of Interest:
The appellant contested the levy of interest under sections 234A, 234B, and 234C. Given the Tribunal's conclusion that the payments were not taxable as "fees for technical services," the basis for the interest levy was negated.

Conclusion:
The Tribunal concluded that the payments received by the appellant did not qualify as "fees for technical services" under the Indo-Singapore DTAA. Consequently, the income was not taxable in India, and the appeal was allowed in favor of the appellant. The orders of the AO and CIT(A) were set aside, and the levy of interest under sections 234A, 234B, and 234C was also negated.

← Previous Next →