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TMI Blog2007 (2) TMI 577X X X X Extracts X X X X X X X X Extracts X X X X ..... amond mines. Mining grades of diamond pipes are usually about 0.5 to 1 carat per tonne, which is equivalent to 0.5 to 1 part per million (one carat = 0.2 gram, or 5 grams to the carat) 5. Diamond exploration is carried out in a variety of ways, depending upon the location and the type of diamond deposit sought. Exploration over a large area can be carried out by sampling the streams or loam sampling the surface soils looking for indicator minerals or by geophysical methods where surface sampling would not be effective exploration tool or would be too expensive. 6. Regional diamond exploration entails the search over hundreds of square kilometers (or miles) seeking an economic diamond deposit. The manner in which this exploration is carried out depends upon the surface geology and topography of the area to be explored. Where there is good stream development, usually in hilly or undulating terrain, the main exploration method has been by sampling the stream sediments for "kimberlitic indicator minerals" (KIM). These KIM are special minerals that occur in kimberlite and lamprolite and due to their high specific gravity, tend to be concentrated in "trap sites" along with other heavy ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on is eight years. 13. For the purposes of carrying out geophysical survey. De Beers India Minerals Pvt. Ltd. (hereinafter referred as "De Beers" ), the assessee company entered into an agreement with M/s. Fugro Elbocon B.V. Netherlands (hereinafter referred to as "Fugro" ). "Fugro" had a team of experts who specialised in performing airborne geophysical services for clients, process the data acquired during the survey and provide necessary reports. The services are engaged to conduct the airborne survey for providing high quality, high resolution, geophysical data suitable for selecting probable kimberlite targets. The important points that emerge from the agreement are as follows : (i) "Fugro" conducted the airborne survey using its specialised equipment. (ii) The helicopter for the survey was hired by "De Beers" . (iii) All the logistics of the survey, such as flight schedule, re-flights survey lines, control lines, positioning etc. were set by "Fugro" . (iv) "Fugro" deputed technical personnel for conducting the survey and (v) The data collected from the survey was provided to "De Beers" in a particular format which is called the acquisition and processing report. 1 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lands. The Commissioner of Income-tax (Appeals) has erred in holding that only the data has been supplied and no plan or design has been supplied. Further, the Commissioner of Income-tax (Appeals) has held that maps cannot be described as plan or designs. In this regard reliance is placed on a decision of the Supreme Court reported in [2002] 253 ITR 274 in the case of Commissioner of Customs v. Parasrampuria Synthetics Ltd. The learned Commissioner of Income-tax (Appeals) erred in holding that the non-resident company has supplied only raw data. The Commissioner of Income-tax (Appeals) failed to appreciate the objective of the agreement which is to get' suitable data', as per the agreement. Further, the specially developed equipment is meant to collect and process the data towards a particular end." 17. Shri B. Chattaraj, learned Departmental representative argued on behalf of the Revenue and Shri K. R. Shekar, learned counsel represented the assessee. Mr. Chattaraj supported the order of the Assessing Officer whereas Mr. K. R. Shekar relied on the order of the Commissioner of Income-tax (Appeals). The assessee filed a paper book consisting of annexures 1 to 13. Shri B. Ch ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the fact that the Indo-Netherlands Double Taxation Avoidance Agreement are on the same lines as the Double Taxation Avoidance Agreement between India and USA. In fact, the protocol to the Double Taxation Avoidance Agreement signed between the parties, states that the memorandum of understanding between India and USA would apply mutatis mutandis to article 12 of the Indo-Netherlands Double Taxation Avoidance Agreement (Ref. Notification No. S. O. 693(E) dated August 30, 1999). 21. On these facts and circumstances of the case, we formulate the following question for consideration : (a) Whether, on the facts and circumstances of the case, the payments made by the assessee-company "De Beers" to "Fugro", for services rendered by them can be said to be a payment for "fees for technical services" within the meaning of article 12(5)(b) of the Double Taxation Avoidance Agreement between India and Netherlands ? 22. The main question can be, for convenience sub-divided as follows : (a) Whether "Fugro" has made available technical knowledge, experience, skill, know-how or process to "De Beers" . (b) Whether payment to "Fugro" was for the development and trans fer of a technical plan or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween India and USA which is in pari materia with article 13(4)(c) of the Double Taxation Avoidance Agreement between India and U.K." 25. In the case of Raymond Ltd. v. Deputy CIT [2003] 80 TTJ 120 (Mum)- (a) it was held that mere rendering a service is not included unless the person utilising the service is able to make use of technical knowledge, etc., by himself in his business or for his own benefit and without recourse to the performer by the services, in future. (b) There should be a transmission of technical knowledge, experience, skill, etc. from the person rendering the services to the person utilising the same. 26. In the case of Nqa Quality Systems Registrar Ltd. v. Deputy CIT [2005] 92 TTJ 946 (Delhi), the Tribunal discussed the clause "make available" and held that when the same is used, if technology is transferred through the technical service then alone it is taxable. Using technical input in order to provide consultancy service will not amount to making available technical knowledge, skill, expertise or know-how. 27. In the case of Mckinsey and Co. Inc. (Philippines) v. Asst. Director of Income-tax (International Taxation) [2006] 284 ITR (AT) 227 (Mum), it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion to maintain the level of data quality. Furthermore, it is understood that the logistical operation of the sur vey (that is flight planning, fuel requirements etc.) is the responsibility of the contractor unless expressly stated otherwise in this contract. The client will provide logistical support where applicable and when mutually agreed upon in writing with the contractor (either within the contract or as an addendum to it). III. Final products : Within 30 days following delivery of preliminary products the following products will be made available to the client : Final products Media Quantity All analog flight records Paper 1 Flight logs (flight to be included in digital form along with final report) Digital 1 Final data archive as specified in appendix 12.2 Digital 5 Black and white contour maps of magnetics as specified in appendix 12.3 Paper 5 Black and white contour maps of themed frequency co-planner resistively as specified in appendix 12.3 Paper 5 Final report (includes as appendices, tests and calibration report, logistics report) Report digital 5 It is imperative that the final data be fully checked and validated before shipment to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n India and USA would apply mutatis mutandis to article 12 of Indo- Netherlands Double Taxation Avoidance Agreement. Example 7 given in the memorandum of understanding between India and USA is relevant and is extracted below for ready reference : Example 7 Facts : The Indian vegetable oil manufacturing firm has mastered the science of producing cholesterol-free oil and wishes to market the product world wide. It hires an American marketing consulting firm to do a computer stimulation of the world market for such oil and to advice it on marketing strategies. Are the fees paid to the US 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 skill 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 ser ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... I page 1168. 36. The Supreme Court in the case of Commissioner of Customs v. Parasrampuria Synthetics Ltd. [2002] 253 ITR 274, has analysed the meaning of plan and design as follows (page 276) : "Let us first analyse as to the true grammatical meaning of the words included in serial No. 15 to wit :' plan, drawings and designs',' plan' in common acceptation means' a drawing or diagram made by projections on horizontal plane' . The Law Lexicon attributes it to be a design or a sketch and is a draft or form of representation and its synonyms are sketch and design. Corpus Juris Secundum (vol. 70) attributes a meaning in similar vein as' a draft or form or representation of a horizontal section of anything, as of machinery ; a map . . . a scheme ; a project ; also a method of action, procedure or arrangement.' . . . . expression, viz.,' design' in popular parlance is used as a synonym with plan and includes a sketch. Some times it has also been held to be synonymous with' figure' . The expression' design' has within its ambit many facets including a criminal design which connotes an evil desire. Obviously the exemption notification cannot possibly mean and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r provision of services and not for supply or transfer of technical plan or design. The reports and maps are only an additional mode of report of data and cannot be construed as technical plan or technical design. 41. The payments made to "Fugro" cannot be considered as "fees for technical services" as such payments are not in consideration for the development and transfer of technical plan and technical design. 42. Meanings of the words "development" and "transfer" - 43. The term "development" has been defined in the Advanced Law Lexicon to mean : "The act, process or result of developing or growing or causing to grow ; the state of being developed happening. The word' transfer' means the passage of a right from one individual to another. According to the ordinary dictionary meaning as appearing in Murrays' Oxford Dictionary, Volume II page 257 transfer means' to convey or make over title, right or property by deed or legal process' ." 44. Under section 2(47) of the Act, the term "transfer", in relation to a capital asset, includes ; "(i) the sale, exchange or relinquishment of the asset ; or (ii) the extinguishment of any rights therein ; or (iii) the comp ..... 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