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TMI Blog2010 (8) TMI 9X X X X Extracts X X X X X X X X Extracts X X X X ..... editation to CABs (Conformity Assessment Bodies) in several countries including India. The applicant accredits organizations which provide third party certification and/or inspection services. The main function of the applicant is to accredit, following the successful assessment, those bodies considered competent and impartial to provide an effective service in various spheres. The applicant offers accreditation mainly for the following programmes: "Management Systems Certification - AS/NZS ISO 9001, AS/NZS ISO 14001; Production certificate - codemark, watermark; Personnel certification; Inspection; and Greenhouse Gas validation and verification 1.3. The applicant has furnished a summary of the complete accreditation process as follows: Application Receipt and Processing Formal applications are received and processed Systems Assessment A review of the applicant's documentation is undertaken against the appropriate criteria Compliance Assessment Stages 1 & 2 An assessment to ensure that the documented procedures are being adhered to. Stage 1 - the assessment of the applicant's offices; and Stage 2 - the witnessing of an applicant undertaking activities for which they are seeking ac ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... wishes to get accreditation from the applicant it has to undergo the entire procedure as outlined above and the revenues would flow from such Indian CAB to the applicant. 2. Having regard to the above facts presented by the applicant, the following questions are formulated in order seek advance ruling: 1. Whether the consideration received/receivable by Joint Accreditation System of Australia and New Zealand (applicant) from the Conformity Assessment Bodies (CAB's) can be classified as 'fees for technical services' as defined under section 9(1)(vii) of the Income-tax Act, 1961 ('Act')? 2. If the answer to the above question is in the negative, whether Article 12 of the Double Taxation Avoidance Agreement between India and Australia ('India-Australia Tax Treaty') can impose a liability for taxation on the applicant? 3. If the answer to the first question is in affirmative, whether the services rendered by the applicant fall within the ambit of 'royalties' as defined under Article 12 of the India-Australia Tax Treaty? 4. If the answers to the first and third questions are in affirmative, whether the income of the applicant from Royalty or fees for technical service should be ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... son is competent to carry out specific tasks" The expression "assessment" means, all activities related to the accreditation of an organization to determine whether the organization meets all the requirements necessary for granting accreditation, and whether they are effectively implemented, including documentation review, accreditation audit, preparation and consideration of the accreditation audit report and other relevant activities necessary to provide sufficient information to allow a decision to be made as to whether accreditation shall be granted." 4.3. The objective is stated to be that the maintenance of a joint accreditation system will give users in Australia and New Zealand, confidence that goods and services certified by accredited bodies meet established standards. Another object is to undertake or provide for conformity assessment (in various countries). The Agreement spells out the composition of the bodies managing the joint accreditation system and the functions of those bodies. 5. The expression fees for technical services is defined in the Explanation to Section 9(1)(vii) of the Income Tax Act which reads as under: The term "fees for technical services" mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic; (j) for teaching or by an educational institution; (k) for services for the personal use of the individual or individuals making the payments or credits; or (l) to an employee of the person making the payments or credits or to any individual or firm of individuals (other than a company) for professional services as defined in Article 14." 6. The contention of the applicant's authorized representative is that the accreditation fee cannot be characterized as fee for technical services (FTS) within the meaning of the expression in Section 9(1)(vii) of the Act or as royalty within the meaning of the clause (g) of Article 12.3 of the Tax Treaty. With reference to FTS in the Act, it is contended that the applicant has not rendered any service to the customer (CAB). The job undertaken by the applicant is not in the nature of assistance provided to CAB and moreover the applicant does not act according to the instructions or modalities set by the recipient of the so called service. The issuance of the certifica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... other words, payment of consideration would be regarded as Fee For Technical/included services only if the twin test of the rendering services and making technical knowledge available at the same is satisfied". The relevant passages in Intertek Testing Services India (Pvt) Ltd.{307 ITR 418}. "Rendering technical or consultancy service is followed by a relative pronoun "which" and it has the effect of qualifying the services. That means, the technical or consultancy services rendered should be of such a nature that "makes available" to the recipient technical knowledge, know-how and the like. The services offered may be the product of intense technological effort and lot of technical knowledge and experience of the service provider would have gone into it. But, that is not enough to fall within the description of services which make available the technical knowledge, etc. 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 future without depending on the provider." "The definition of FTS in India-UK DTAA is similar to one contained in India-USA DTAA. Paragraph 4(b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... now-how to the CABs on account of grant of accreditation to those entities. The skills, expertise or know-how possessed by the applicant for the grant of accreditation certificate cannot be said to have been made available to the CAB who gets the accreditation. What the applicant does is to evaluate and assess the capabilities, competence, potential and infrastructure possessed by the CAB in the light of certain set standards and parameters. The fact that the CAB is apprised of its shortcomings and deficiencies, if any, and that the CAB is given an opportunity to rectify, if possible, does not reasonably lead to the inference of 'making available' the skills, technical knowledge etc. possessed by the applicant to the CAB. CAB will, of course, be benefited by the accreditation certificate issued by the applicant but that fact has hardly any bearing on the point whether "make available" criterion has been satisfied or not. Viewed from any angle, it cannot be said that the applicant is imparting any knowledge or skills to the CABs which are utilized by the CAB in conducting its business. The nature of activity undertaken by the applicant clearly rules out any such inference. 11. When ..... X X X X Extracts X X X X X X X X Extracts X X X X
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