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TMI Blog2011 (5) TMI 205X X X X Extracts X X X X X X X X Extracts X X X X ..... icant in India - The consideration received is for the use of scientific work, model, plan, and for the use of scientific equipment and scientific experience. The payment falls under the term royalties as per Art 12 of the Treaty - It is true that the treaty does not contain a specific article for the taxation of fees for technical services. In that event reference is to be made to Article 22 of the Tax Treaty - Ruling is given - A.A.R. NO.874 OF 2010 - - - Dated:- 16-5-2011 - JUSTICE P.K. BALASUBRAMANYAN, MR. J. KHOSLA AND MR. V.K. SHRIDHAR, JJ. RULING (By Mr. V.K. Shridhar) The applicant, Lanka Hydraulic Institute Limited (LHI), is a company incorporated under the laws of Sri Lanka and is a tax resident of Sri Lanka. It provides technical feasibility studies, preparation of coastal zone management plan, port and other water related engineering projects, etc. The applicant submits that it does not have any office or place of business in India. 2. The Kolkata Port Trust awarded a contract to Water and Power Consultant Limited (WAPCOS), a Public Sector Undertaking under the Union Ministry of Water Resources. WAPCOS further sub-contracted the work to the applicant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... performed by the Applicant under the contract with WAPCOS results in the constitution of permanent establishment ( PE ) of the Applicant in India, within the meaning of the term as defined in Article 5 read along with the protocol of the tax Treaty? (3) If the answer to Question 2 is in the negative, whether the consideration received by the Applicant under the contract with WAPCOS is liable to tax in India under Article 7 of the Tax Treaty? (4) If the answer to Question 1 is in the negative, whether based on facts and circumstances of the case, the consideration received by the Applicant under its Contract with WAPCOS is taxable in India, under any other Article of Tax Treaty and the taxability thereof? 6. The contention of the Revenue is that as FTS has not been specifically dealt with under the Treaty, taxing FTS under any Article of the Treaty other than under Section 9(1) (vii) of the Act would mean changing the character of the income. The OECD convention serves as a guideline to tax the payment under contract for services under Article 7 of the Treaty. In the absence of the breakup of the consideration it cannot be concluded whether the supply of software is incidenta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vice is business receipt. It does not have any fixed place of business or place of management, branch office in India. As per clause (i) of Article 5(2) of the Treaty, it can have a PE only if the furnishing of services is for a period exceeding 183 days in any 12 months period. Further, since most favoured nation clause has been inserted in the Treaty, the period gets relaxed to any period of longer duration in any of the DTAAs entered into by Sri Lanka. Since in the Treaty between Sri Lanka and Yugoslavia the period is 275 days, the period in Article 5 should be read as 275 hence it cannot be concluded that these two concerns are independent agencies and do not constitute dependent agent. The applicant therefore has a PE in India and the services rendered are taxable under Article 7 of the Treaty. Thus the case of the revenue is that the consideration should be chargeable under section 9(1)(vii) of the Act or under Royalties and not as business receipts under Article 7 of the Treaty. days in any 12 months. As only 20% of the work is rendered in India, the cumulative presence of employees in India from 26.1.2009 to 22.2.2010 was 193 days. Further deputation of employees would not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... shment only where the activities of that nature continue for a period aggregating to more than 183 or 275 days within any 12 months as averred by the applicant. Even if a payment to the applicant is not within the scope of section 9(1)(vii) of the Act, it makes no difference as the treaty would prevail over the Act. There is no incompatibility between recognizing the receipts as FTS and also looking upon it as the profit of the business. To that extent we agree with the contention put forth by the Learned Advocate. 11. Let us place the facts in a more comprehensive manner to answer the questions raised in the application. For the survival of Haldia Port, the channel depth is required to be improved and the quantity of dredging is required to be restricted. Model studies are proposed to evolve River Regulatory Measures (RRM) to improve the channel. WAPCOS expressed the necessity to bring global expertise to participate in the proposed study and to adopt technical collaboration of CWPRS with foreign consultancy having required software and experience in the field under its logistical support. The scope of the work for foreign consultant was divided into 3 parts: i) Field data co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... aintenance agreement is also mentioned in the offer. It is made clear that LHI is not entitled to any commission as the end client is based in India. The DHI software licence agreement is not an agreement for sale of software. It has given only limited rights to use the proprietary DHI software in object code form. The rights granted are non-transferable and non-exclusive right to use one or more copies of the software. For field data collection, LHI outsourced the work to ICHPL, Chennai, for a consideration of US$ 2,95.000. The scope of work involved measurement programmes on tides, currents, sediment load etc. in the channel area from Sagar Island to Hoogly point at a stretch of about 100 km upstream. A report is required to be submitted by ICHPL. 12. The term royalties as used in Article 12 of the Treaty with Sri Lanka is extracted below: Article 12 Royalties 3. The term royalties as used in this Article means payments of any kind received as a consideration for the use of or the right to the any copyright of literary, artistic or scientific work including cinematograph films, or tapes for television or broadcasting, any patent, trade mark, design or model, plan, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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