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2014 (5) TMI 629 - AAR - Income TaxPayment made for management services DTAA between India and France - the term make available is not figuring in the treaty - Whether the payment made by Steria for the management services provided by Groupe Steria SCA will not be taxable in India in the hands of Steria France and whether the applicant will be liable to withhold tax as per the provisions of Section 195 of the Act from the payments made / to be made to Steria France under the Management Services Agreement Held that - The said Notification does not include anything about the make available provision. Had the intention of the Protocol or the Government is to include make available clause in the Tax Treaty between India and France, it should have been done so in the said Notification. We have taken note of the Notification issued in the case of India Netherland Tax Treaty whereby the Protocol was given effect to. The changes in the Treaty on the basis of the Protocol were given effect by Notification only. We do not see any reason as to why different treatment will be given in the present case. Relying upon Perfetti Van Melle Holding B.V. 2011 (12) TMI 17 - AUTHORITY FOR ADVANCE RULINGS - A Protocol cannot be treated as the same with the provisions contained in the treaty itself, though it may be an integral part of the Treaty - Tax Treaties are between two sovereign nations and every country has a particular relation with another countries and same treatment are not given to all the countries - ordinary meaning of the Treaties should be given while interpreting the provision of the Tax Treaties and even to the extent of liberal interpretation of the Treaty, any clause cannot be imported like make available in the Treaty that is not there so as to change tax complexion of the Treaty provision. The services being accepted as technical services under the Act and the Tax Treaty, the payment for the services will be covered by fees for technical services chargeable under the Act - The submission of the applicant that the services being managerial which was omitted in the definition of fees for technical services in the revised DTAA between India UK entered into in the year 1993, the managerial services rendered by the applicant will also automatically be omitted in the definition of fees for technical services under the Tax Treaty between India-France by application of the Protocol, is also not acceptable. The payment for services rendered by the applicant will falls under the definition of fees for technical services even under the Tax Treaty between India-France - the payments made by the applicant for the services rendered comes under the definition of fees for technical services both under the Act and the Treaty and is liable to tax in India thus, the payment made by Steria (India) Limited for the management services provided by Groupe Steria SCA will be taxable as Fees for Technical Services - as the consideration for the services is held to be taxable in India, the applicant will be liable to withhold tax as per the provision of Section 195 of the Income-tax Act, 1961 from the payments made/to be made to Steria France Decided against the assessee.
Issues Involved:
1. Taxability of payments made by Steria (India) Ltd. to Groupe Steria SCA under the Double Taxation Avoidance Agreement (DTAA) between India and France. 2. Obligation of Steria (India) Ltd. to withhold tax under Section 195 of the Income-tax Act, 1961, from payments made to Groupe Steria SCA. Issue-wise Detailed Analysis: 1. Taxability of Payments under DTAA: The applicant, Steria (India) Ltd., is a public limited company in India, and Groupe Steria SCA (Steria France) is a partnership firm in France. Steria India entered into a Management Services Agreement (MSA) with Steria France for various management services. The applicant sought a ruling on whether payments for these services would be taxable in India under the India-France DTAA. The applicant argued that the "make available" clause from the India-UK DTAA should apply to the India-France DTAA by virtue of a protocol signed between India and France. They contended that since the services did not "make available" technical knowledge, they should not be classified as technical services under the DTAA. The Revenue countered that the services provided by Steria France fell under the broad definition of technical services as per the Act and the India-France DTAA. They emphasized that there was no "make available" requirement under Article 13 of the DTAA between India and France. The Revenue also argued that the knowledge and skills were made available to Steria India through employee interactions and consultations. The Authority considered the arguments and noted that the applicant did not dispute the services being technical services as defined in the Act and the Tax Treaty. The Authority referred to the Protocol to the Tax Treaty, which did not include the "make available" clause. They concluded that the Protocol's intent was to limit taxation rates, not to alter the scope of technical services. The Authority ruled that the services provided by Steria France were technical services under both the Act and the India-France DTAA. Consequently, the payments made by Steria India for these services were taxable as fees for technical services in India. 2. Obligation to Withhold Tax under Section 195: Given the ruling that the payments for management services were taxable in India, the next issue was whether Steria India was required to withhold tax under Section 195 of the Income-tax Act, 1961. The Authority concluded that since the payments were taxable as fees for technical services, Steria India was obligated to withhold tax as per Section 195 from the payments made to Steria France. Summary: 1. The payment made by Steria (India) Ltd. for the management services provided by Groupe Steria SCA will be taxable as Fees for Technical Services under the India-France DTAA. 2. As the consideration for the services is held to be taxable in India, Steria (India) Ltd. will be liable to withhold tax as per the provisions of Section 195 of the Income-tax Act, 1961, from the payments made/to be made to Groupe Steria SCA. The ruling was pronounced on May 2, 2014.
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