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TMI Blog2009 (9) TMI 686X X X X Extracts X X X X X X X X Extracts X X X X ..... the payment as Fees for Technical Services . The Commissioner of Income-tax (Appeals) ought to have appreciated that undertaking various tests related to interior-chassis-body and the whole vehicle testing through their laboratories is the business of M/s. LTC Ltd., and hence ought to have held the payments as their Business Profits which are not taxable in India since M/s. LTC Ltd. does not have a permanent establishment in India." 3. In this appeal the assessee, M/s. LTC Ltd., UK, is a company incorporated in United Kingdom, and its returns of income, for assessment years 2001-02 and 2002-03, were filed by M/s. TVS Motor Company Ltd. (TVS Suzuki Ltd.) in the capacity of representative assessee within the meaning of section 160(1)( i ), read with section 163(1)( c ) of the Act. 4. TVS Motor Company Limited is an Indian company, engaged in the business of manufacturing motorcycles, and LTC Ltd., UK (LTC) has extensive experience of product development, including the use of experimental and analytical techniques to improve the dynamic behaviour of vehicle system. Therefore, LTC was appointed by TVS Motor for carrying out an appraisal of the motorcycles manufactured by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Services) of the DTAA; u that in terms of Article 7 of the DTAA, the business profits of LTC, U.K. is taxable only in UK, as LTC does not have a permanent establishment in India and that the entire services were rendered in UK only. 7. Shri B. Srinivas, the learned DR supported the orders of the Assessing Officer and the CIT(A). He vehemently argued saying that the order of the CIT(A) needed to be upheld. The submissions made by the learned DR are summarized below : u that the impugned payments were covered by paragraph 4( c ) of Article 13 of the DTAA between India and UK; u that LTC made available to the TVS Motors, technical knowledge, experience, skill, know-how and processes, as was clear from the Objectives and Project Scope Technical Content of the recitation of the agreement; u that he took us through the contents of the contract No. TS 0102 to substantiate this point. 8. We have considered the rival submissions in the light of material on record and the precedents cited. It is seen that TVS Motors appointed LTC, UK for carrying out an appraisal of the motorcycles manufactured by it, reviewing certain aspects of ride, handling, vibration etc., vi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e or paid in advance, where it is so deductible or payable under any provision of this Act." 10.1 The section 4 imposes income-tax upon a person in respect of his income. The tax is not made a charge on the income upon which it is levied. It is a tax on a person in relation to his income. The principles emerging from this section are : ( i )income-tax is to be charged at the rate fixed for the year by the annual Finance Act; ( ii )This charge is on every person including those enumerated in section 2(31); ( iii )The income which is to be taxed is of the previous year and not of the year of assessment; ( iv )The levy is on the total income of the assessee computed in accordance with and subject to the provisions of the Act. 10.2 The total income , referred to in section 4(1) is defined in section 2(45) as under : "2. Definitions. In this Act, unless the context otherwise requires, ****** (45) total income means the total amount of income referred to in section 5, computed in the manner laid down in this Act;" 10.3 The scope of the total income , referred to in section 4 and in section 2(45) is dealt with in section 5 of the Act, which reads as unde ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ( a ) income received or deemed to be received in India by or on behalf of the assessee ( a ) income received or deemed to be received in India by or on behalf of the assessee ( a ) income received or deemed to be received in India by or on behalf of the assessee ( b ) income which accrues or arises or is deemed to accrue or arise to him in India ( b ) income which accrues or arises or is deemed to accrue or arise to him in India ( b ) income which accrues or arises or is deemed to accrue or arise to him in India ( c ) income which accrues or arises to him outside India ( c ) income which accrues or arises to him outside India, only in case if it is derived from a business controlled in or a profession set up in India 10.6 The ambit of the expression is deemed to accrue or arise to him in India used in section 5 has been explained and defined in section 9. The relevant part of section 9 is reproduced below : "(1) the following incomes shall be deemed to accrue or arise in India, ( vii )income by way of fees for technical services payable by ( a )and ( b )****** ( c )a person who is a non-resident ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... any kind to any person in consideration for the rendering of any technical or consultancy services (including the provision of services of technical or other personnel) which : ( a )are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3( a ) of this Article is received; or ( b )are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3( b ) of this Article is received; or ( c )make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design." 13. It was pointed out by Shri R. Vijayaraghavan that the provisions of the DTAA, entered into by the Government of India with a foreign Government, prevail over the provisions of section 9 of the Act. In other words, he argued, for the present case the relevant definition of fees for technical services is that which appears in paragraph 4 of Article 13 of the DTAA between India and UK, and not that given in section 9 of the Act. He placed stress on the expression make available in clause ( c ) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessment year 2002-03. 15.1 In our considered opinion, the payment aggregating to Rs. 30,28,320 in respect of TS 0102 represented fees for technical services within the meaning of paragraph 4 of Article 13 of the DTAA between India and UK, for the reasons discussed in the following paragraphs. 16. The Objectives of the Project, vide TVS 0102, as appearing at page 15 of the paper book, reads as under : "2. Objectives 2.1 To create a 2 dimensional ADAMS model of a prototype machine and a competitor identified by TVS Suzuki, that may be used to identify and predict the dynamic ride behaviour. 2.2 To provide training for TVS Suzuki s engineering staff in the test techniques and procedures used to create and validate the ADAMS model." 17. And, the Project Scope and Technical Contents of the above document, appearing at page 16 of the paper book reads as under : "4. Project Scope Technical Content 4.1 Based on their knowledge of the Indian Market, TVS Suzuki have identified Honda machine as the prime competitor for the ST 110 prototype machine and this will be used as the comparator for this project. 4.2 The scope of the work to be undertaken by LTC ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ject No. TS 0102. Therefore, the assessment orders of the Assessing Officer, in relation to the payments of Rs. 6,79,794 and Rs. 23,48,526, made by TVS Motor to LTC, UK, during the previous years relevant to assessment year 2001-02 and assessment year 2002-03, respectively, are upheld. In other words, the assessment order for assessment year 2001-02 is confirmed. Project No. TS 0105 ( Rombo motorcycle) 19. We have also perused the Project/Purchase Order, vide TVS 0105, relating to TVS "Rombo" Motorcycle. The total amount payable in respect of TS 0105 was Rs. 4,53,675, which was paid during the previous year relevant to assessment year 2002-03. The Objective of this project was merely to provide an independent evaluation of the Rombo motorcycle prior to its launch. There was no provision for making available any technical knowledge, experience, skill, know-how processes to TVS Suzuki, within the meaning of paragraph 4( c ) of Article 13 of the DTAA between India and UK, in relation to the Project No. TS 0105. Therefore, in respect of this payment the contention of the learned AR is accepted, and the addition of Rs. 4,53,675 made in assessment year 2002-03 is deleted ..... X X X X Extracts X X X X X X X X Extracts X X X X
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