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TMI Blog2007 (10) TMI 452X X X X Extracts X X X X X X X X Extracts X X X X ..... not be called to be the fees for the included services to make it chargeable to tax in India. We have also examined the judgment referred to by the assessee in the case of Raymond Ltd.[ 2002 (4) TMI 891 - ITAT MUMBAI] in which the Tribunal has taken a similar view that although the services rendered by the lead manager and other managers of a foreign company in connection with GDR issue of the assessee company are managerial or consultancy service and falls within the definition of technical services under section 9(1)( vii ) read with Explanation 2 thereto, said payments do not fall within the definition of fees for technical services under article 13 4( c ) of the DTAA with UK which is applicable to the facts of the case and were not taxable in India. Thus, we are of the considered view that remittance made in the instant case are not in the nature of fees for included services as such are not taxable in India. We, therefore, of the view that the assessee cannot be held to be responsible/liable for deduction of tax u/s 195 of the Act. We accordingly, set aside the order of CIT(A). In the result, appeal of the assessee is allowed. - SUNIL KUMAR YADAV AND R.K. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... with the contentions of the assessee and he noted that assessee was carrying on its business activities in India and not making payment from any source outside India and, therefore, looking to the nature of transaction on the basis details made available, assessee s case was covered by the provisions of section 9(1)( vii )( b ) of the Act, which deals with fee for technical services. Therefore, assessee s case is not covered under article 7 of the DTAA which deals with the business profits. The Assessing Officer further observed that since these are technical services, the assessee s case is covered by article 12 of the DTAA. He accordingly held that the payments requires withholding of tax at the normal rate applicable in this case. 4. Aggrieved, the assessee preferred an appeal before the CIT(A) with the submission that undisputedly Mody s is a non-resident in India and the income accrues or arises only in USA and not in India in terms of section 9 read with section 5 of the Act. It was further contended that they did not carry on any business or profession in India nor rendered any technical services to the assessee and the fee of US$ 45,000 was paid to Moody s outside Indi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... USA? The learned counsel for the assessee contended that the rating fee is in the nature of business income of the Moody s and do not fall under the definition of "fees for included services" as defined in article 12 of the Treaty. It was further contended that the rating is required to be done as per international practices for the benefit of investors and no technical skill or process was transferred to the assessee. The learned counsel for the assessee has invited our attention to article 12 of DTAA between USA and India. It was further argued that even if the services required includes technical input by a person but if the person acquiring the same does not receive any technical expertise, it does not fall under the head "fees for included services". The learned counsel for the assessee has placed heavy reliance upon the order of the Tribunal in the case of Raymond Ltd. ( supra ) and the order of the Tribunal in assessee s own case in ITA No. 293/M/2001. Reliance was also placed on the following decisions : ( i ) Wockhardt Life Science Ltd. [IT Appeal No. 3625 (Mum.) of 2000] ( ii ) Gujarat Ambuja Cements Ltd. v. Dy. CIT [2005] 2 SOT 784 (Mum.) ( iii ) Bajaj A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of any technical or consultancy services if such services : ( a ) are ancillary and subsidiary to the application or enjoyment of a right, property or information for which payment described in paragraph 3 is received or ( b ) make available technical knowledge, experience, skill, know-how, or process or consist of the development and transfer of a technical plan or technical design. In the instant case, commercial information with regard to ratings as per international practice was supplied to the assessee and since it is not an ancillary and subsidiary to the application or enjoyment of a right/property or information, clause ( a ) of this paragraph 4 does not attract. The scope of applicability of clause ( b ) is to be examined to determine whether the remittance for obtaining this commercial information falls within the purview of fees for included services. For bringing the remittance or fees within the definition of fee for included services , it should be against the availability of technical knowledge, expertise, skill, know-how or process or consist of the development and transfer of a technical plan or technical design. Unless and until the non-resident made these ite ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... isory service whether or not expertise in a technology is required to perform it. Under paragraph, technical and consultancy services are considered included services only to the following extent: (1) as described in paragraph 4( a ), if they are ancillary and subsidiary to the application or enjoyment of a right, property or information for which a royalty payment is made; or (2) as described in paragraph 4( b ), if they make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. Thus, under paragraph 4( b ), consultancy services which are not of a technical nature cannot be included services." 12. Through this memorandum it is further explained that paragraph 4( b ) of article 12 refers to technical or consultancy services that, make available to the person acquiring the service technical knowledge, expertise, skill or know-how or process, or consist of the development and transfer of a technical plan or technical design to such person. This category is narrower than the category described in para 4( a ) because it excludes any service that does not make technology availab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gies. Are the fees paid to the U.S. company for included services? Analysis: The fees would not be for included services. The American company is providing a consultancy service which involves the use of substantial technical skills and expertise. It is not, however, making available to the Indian company any technical experience, knowledge or skill, etc., nor is it transferring a technical plan or design. What is transferred to the Indian company through the service contract is commercial information. The fact that technical skills were required by the performer of the service in order to perform the commercial information services does not make the service a technical service within the meaning of paragraph 4( b )." 14. Having given a close look to the facts of the case in the light of definition of fees for included services given in DTAA and the Memorandum of Understanding alongwith example, we find that the assessee has obtained the commercial information of rating from Moody s and the remuneration was paid outside India. Now it is to be seen whether the assessee acquired any technical skill or technology on the basis of which commercial information was prepared. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Only such technical and consultancy services are covered by article 12(4) as either ( a ) are ancillary and subsidiary to the application or enjoyment of the right, property or information referred to in article 12(3), or ( b ) make available technical knowledge, experience, skill, know-how, etc. It is not even revenue s case, nor could it have been so on the facts of the situation that the appellant s case have anything to do with article 12(3). In order to attract the taxability of an income under article 12(4)( b ), not only the payment should be in consideration for rendering of technical or consultancy services, but, in addition to the payment being consideration for rendering of technical services, the services so rendered should also be such that make available technical knowledge, experience, skill, know-how, or processes or consist of the development and transfer of a technical plan or technical design. It is difficult to understand as to on what basis the Assessing Officer comes to the conclusion that article 12(4)( b ) visualizes a situation in which there is a provision of service which the provider of service undertakes to use the customary skills of his calling t ..... X X X X Extracts X X X X X X X X Extracts X X X X
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