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TMI Blog2009 (8) TMI 973X X X X Extracts X X X X X X X X Extracts X X X X ..... tion Avoidance Agreement and therefore, the payment is fees for technical services liable for tax deduction. HELD THAT:- Following the decision of the Bangalore Bench in the case of ITO v. Cepha Imaging P. Ltd.[ 2009 (7) TMI 1277 - ITAT BANGALORE] and other decisions referred, we hold that the interpretation of the word make available as given in memorandum of understanding between India and USA treaty can be applied in the instant case and as per the facts on record, it has not been established by the Revenue that the technology, experience or skill has been made available to the assessee. Hence, as per article 12(4) of the DTA Agreement between India and Singapore, the payments made by the assessee were not liable to be taxed under the head Fees for technical services . Sun Singapore is not having any permanent establishment and therefore, the payments which were required to be taxed under the head Business were not taxable in view of article 7 of the DTA Agreement between India and Singapore. The Hon'ble jurisdictional High Court in the case of Jindal Thermal Power Co. Ltd. v. Deputy CIT (TDS) [ 2009 (3) TMI 401 - KARNATAKA HIGH COURT] held that rendering of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f Income-tax (Appeals) has erred in concluding that the nature of services rendered by Sun Microsystems Pte Ltd., Singapore, are such that it makes available technical knowledge, experience, skill, know-how and processes to the appellant and also enables it to apply the technology contained therein. 3. The assessee filed an appeal before the learned Commissioner of Income-tax (Appeals) under section 248 of the Income-tax Act. The appeal is filed under section 248 when the assessee denies its liability to deduct tax at source. However, such appeal can be filed after deducting tax at source and depositing the same. The learned Commissioner of Income-tax (Appeals) while disposing of this appeal has followed his order dated March 17, 2006 in Appeal Nos. 204 and 205/R19/CIT(Appeals)-IV/04-05. Before the learned Commissioner of Income-tax (Appeals) it was contended that the assessee is not liable to deduct any tax in view of the fact that the payment is not covered by the definition of fees for technical services as defined in article 12(4) of the Double Taxation Avoidance Agreement between India and Singapore. Article 12(4) of the Double Taxation Avoidance Agreement between India an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... : (i) inventory physical movement and control processes (clause a), (ii) applications and tools to enable inventory transaction and management reporting (clause b), and (iii) business planning to address service levels relevant to the local business and customer needs (clause 9). 5. The assessee is also getting the following services from Sun Singapore : (a) spares planning services, (b) defective repair services, (c) technical consultation and supply chain management, (d) distribution, management and logistics services. From the above, the learned Commissioner of Income-tax (Appeals) concluded that such services are technical in nature. The only point of dispute is whether the technical services provided are such as would enable the appellant to apply the technology. It is expected that the Indian company will not forever be depending on the foreign company for the services referred to above but will develop its own expertise in the process and would be able to apply the technology inherent in the services over a period of time. The fact that it has not done so far is not relevant in as much as what is contemplated is that the nature of services provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices include providing spare management services, provision of buffer stock, defective repair services, managing local repair centres, business planning to address service levels, etc. The learned authorised representative drew our attention to letter dated October 18, 2007, from Sun Microsystems Pte Ltd. to Sun India, copy of which is available at pages 8 and 9 of the paper book filed on August 6, 2008. In this letter, Sun Microsystems Pte Ltd. has clarified the query of the appellant regarding the nature of services rendered for the Asia Logistic Centre charges debited to Sun India by Sun Singapore. It was also confirmed that the services rendered by the Asia Logistic Centre in Singapore are pursuant to article 2 which refers to the engagement of contractor as per the logistic agreement between Sun Singapore and Sun India. The learned authorised representative submitted that the following services were rendered by the Asia Logistic Centre to the group companies : (a) Amortisation : Sun Singapore procures defective spares from various countries, including India, and the same is accounted for at the full value, as is in the case of new spares. Global policy is followed wherein ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent and redistribution of spares. Sun India avails of the services of Sun Singapore for which a service fee is paid. The learned authorised representative drew our attention to page 24 of the paper book filed on August 6, 2008 in which the Additional Director, Transfer Pricing has observed that profit split method is appropriate in the instant case because the case does not involve either the transfer of unique intangible or multiple inseparable international transactions. Fees for technical services are considered to mean as payment of any kind to any person in consideration for services of a managerial, technical or consultancy nature, if such services: (a) are ancillary and subsidiary to the enjoyment of the right, property or information for which the payment is received ; or (b) make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein ; or (c) consists of the development and transfer of a technical plan or a technical design but excludes any service that does not enable the person acquiring the service to apply the technology contained therein. Hence, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sed representative drew our attention to the decision of the 'ble Kolkata Tribunal in the case of C.E.S.C. Ltd. v. Deputy CIT [2005] 275 ITR (AT) 15 ; [2003] 87 ITD 653 in which the Tribunal has considered article 13(4)(c) of the India-UK treaty. Article 13(4)(c) of India-UK treaty is in pari materia with the article 12(4)(b) of India-US treaty. In that case the Tribunal held as under (page 49 of 275 ITR (AT)) : A pertinent question that remains to be considered is as to whether it is permissible to derive any benefit from the explanatory memorandum in respect of the Double Taxation Avoidance Agreement between India and USA in interpreting similar provision of the Double Taxation Avoidance Agreement between India and UK. In this connection it is pertinent to point out that the Double Taxation Avoidance Agreement between India and USA is dated December 20, 1990, i.e., prior to the Double Taxation Avoidance Agreement between India and UK dated February 11, 1994, reported in [1994] 206 ITR (St.) 235. It is well-settled principle of law that when an expression of doubtful meaning has received an authoritative interpretation from any court of law and when the Legislature adopts ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... possesses such information'. What such person does is uses his experience and technical know-how for a consideration without parting with that information. In our opinion, therefore, considering the definition of royalty under article 12 of the Double Taxation Avoidance Agreement, there is no parting or rendering of technical services either of managerial, technical or consultancy nature or industrial, commercial or scientific experience. 12. The payments made by the assessee are in the nature of business income in the hands of Sun Singapore and therefore are liable to tax in terms of article 7 of the India-Singapore treaty. Since Sun Singapore does not have a permanent establishment in India, hence, such payments cannot be brought to tax in India. 13. On the other hand, the learned Departmental representative invited our attention to column 8(a) in paragraph C of the Tax Audit Report in Form No. 3CD for the assessment year 2005-06. In this column, the business description of the assessee has been given as establishing technical support and marketing and trading of Sun hardware and software products, computer related support services, installation, educational training ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he appellant to its associated enterprises and disturbed longterm transfer pricing strategy. The Additional Director, Transfer Pricing has mentioned that PSM is not used and there is no finding that there was no intangible/technical services involved. Article 2 of the services agreement provided for rendering of logistics services. In the age of electronic commerce, it is not necessary to cross the geographical boundary for delivery of the services. The learned Departmental representative drew our attention to the decision in the case of Steffen, Robertson and Kirsten Consulting Engineers and Scientists v. CIT [1998] 230 ITR 206 (AAR) in which it has been held that statutory test for determining the place of accrual of income is not the place where the services are rendered but the place where those services are utilized. In the case before the Authority for Advance Rulings, services were rendered outside India but its utilisation was made by the payee for his business and it was therefore held that the tax should have been deducted at source. The learned Departmental representative submitted that the decision of the 'ble jurisdictional High Court in the case of Jindal Thermal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is view of the matter, the `fees for services that are ancillary and subsidiary, as well as inextricably and essentially linked to the sale of property' are outside the scope of technical services, so far as Indo-French Double Taxation Avoidance Agreement is also concerned, even though no such specific exclusion clause is incorporated directly in the treaty itself right from the time Indo-French Double Taxation Avoidance Agreement came into force. Accordingly, in the year in appeal, the `fees for technical services ; for the purpose of Indo-French Double Taxation Avoidance Agreement, did not include fees for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property'. 17. The Special Bench, Mumbai in the case of Mahindra and Mahindra Ltd. v. Deputy CIT [2009] 313 ITR (AT) 263, had an occasion to consider the meaning of the word make available with reference to the Double Taxation Avoidance Agreement between India and UK, wherein the Tribunal at page 329 observed as under : We have considered the rival submissions in the light of material placed before us and precedents relied upon. We find that clauses (1) a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ri materia with the facts which were before the Special Bench. 18. Before us, the learned Departmental representative has argued that the technical knowledge, experience and skill was made available to the appellant but the appellant was not willing to utilise the same for the reasons best known to them. However, as on argument it may look attractive but there is nothing on record to suggest that the appellant acquired the necessary skill for using the experience. The Revenue has not examined any of the employees of the appellant to bring on record that they could have utilised the experience gained by themselves. Thus, there is no evidence on record that the agreement for logistics services in fact made available the technical knowledge, experience and skill to the appellant for use by themselves. 19. The Authority for Advance Rulings in the case of Intertek Testing Services India P. Ltd., In re [2008] 307 ITR 418 had an occasion to consider as to whether an expression interpreted in the memorandum of understanding relating to the India-US treaty can be applied to the Indo-UK treaty when the same expression is found to be used. The Authority for Advance Rulings observed at p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt and therefore, the payments which were required to be taxed under the head Business were not taxable in view of article 7 of the Double Taxation Avoidance Agreement between India and Singapore. 22. The 'ble jurisdictional High Court in the case of Jindal Thermal Power Co. Ltd. v. Deputy CIT (TDS) [2010] 321 ITR 31 (Karn) held that rendering of services and utilisation should be both in India and the Explanation to section 9(2) does not dilute such requirements as laid down by the apex court in Ishikawajima-Harima Heavy Industries Ltd.'s case [2007] 288 ITR 408 though the Explanation has been introduced subsequently. It was held that technical services provided off-shore does not require any deduction of tax at source. In the instant case, the services have been rendered off-shore though these are utilised in India and as per the decision of the jurisdictional High Court, no TDS was required to be made. It is true that through e-commerce, the services can be rendered in India without any geographical boundary but no facts have been put before us to establish that Sun Singapore provided such services in India. When the income of the recipient is not taxable in India t ..... 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