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TMI Blog2011 (4) TMI 548X X X X Extracts X X X X X X X X Extracts X X X X ..... the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it - there is no reason why that interpretation should be eschewed. It becomes a valuable aid in interpreting the phrase "make available" in the latter Agreement as well. The explanatory memorandum becomes a valuable aid in interpreting the phrase "make available". It reflects the Government of India's viewpoint on the true connotation of the expression - Decided against the assessee - ITA NO. 1793/MDS./2006 - - - Dated:- 19-4-2011 - ORDER Hari Om Maratha, Judicial Member: ‑ This appeal has been preferred by the assessee against the order of the ld. CIT(A)-XI, Chennai, dated 24-4-2006, pertaining to assessment year 2005-06. 2. In nut shell, the relevant facts of this case are that the appellant M/s. Wheels India Ltd. (in short 'WIL'), is engaged in the manufacture of steel wheels for commercial vehicles, passenger cars, utility vehicles, earthmoving and construction equipment, agricultural tractors and defense vehicles. The assessee entered into an agreement dated 10-12-2003 with (i) Advanced Metal Techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nted processes. For that matter, WIL entered into an agreement with MFM for developing the machine tools to manufacture the products as per their patented processes. For that, the assessee paid to MFM US $ 60,000 [equivalent to Indian 26,36,400] on 17-3-2004 in accordance with the agreement entered into with this party on 19-4-2004. Here again, for making the above payment, WIL did not deduct tax at source with similar reasons. 6. The Income-tax Officer (International Taxation)-II, Chennai, vide his letter dated 9-8-2004 had asked the assessee for furnishing the details for non-deduction of tax. In reply, vide letter dated 17-7-2004, the ITO rejected the explanation of the assessee and vide his letter dated 9-8-2004 considered the assessee as an assessee in default and proceeded to collect tax of Rs. 10,44,008 [Rs. 6,47,378 + Rs. 3,96,630]; and interest under section 201(1A) of Rs. 48,234 [Rs. 32,369 + Rs. 15,865] in respect of payments of Rs. 43,15,850 and Rs. 26,44,200 made to AMT and MFM respectively. Under section 201(1) of the Act, if any such assessee does not deduct or after deducting tax fails to pay the same, as directed by or under this Act, he shall be deemed to be the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llant but represent only validation charges for the process developed by the appellant. 1.6 The learned Commissioner of Income-tax (Appeals) failed to appreciate that carrying out testing works on various raw materials, supplied by the appellant to test the process developed by appellant outside India is not a technical consultancy. As the entire services were rendered outside India and the recipient of fees had no permanent establishments in India, the fees paid by the appellant is not taxable in India. 1.7 The learned Commissioner of Income-tax (Appeals) ought to have noted that the nature of work done amounted to "contract for work" in the form of carrying out work on the products manufactured by the appellant, and in which case, the services being rendered outside India, income accrued outside India to the recipient." 7. We have considered the rival submissions and have circumspected the entire evidence available on record in the light of the obtaining facts of this case. In short, the contention as put forth by the ld.AR Shri Vijayaraghavan, arguing on behalf of the assessee is that the assessee, WIL, has developed a new concept for manufacture of wheels and wheel rims. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd their services were essentially to develop the required tooling to validate the new process for manufacture of wheel-rim. It was stated that no technical know-how was passed on to WIL by these entities and the amount paid to them is only towards the cost of tooling they had to develop to validate the process and the time of their technical personnel. In the light of the above submissions, it was argued that the assessee cannot be treated as assessee in default and hence, no interest can also be levied. Per contra, the ld.DR has supported the orders of the authorities below. He has repeated the reasons given by the Assessing Officer and ld. CIT(A) to treat the appellant company as a assessee in default and also for levying interest under section 201(1A) of the Act. 8. The case of the assessee-company, as vehemently canvassed before us, is that WIL developed a new process for manufacturing steel wheel out of a single piece of steel material and for that matter WIL also applied for patent to the Government of India. Referring to the agreement, particularly its clauses (6) and (7), entered into between WIL and AMT Inc. USA and MFM Inc. USA on 12-12-2003, it was submitted that the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the above points, it was argued that both these foreign companies are interested in undertaking the work of developing and providing the new process with the required facilities at their disposal in the form of machineries and technical manpower (facilities) in its facilities situated in the United States. Therefore, as per Explanation to clause (vii) of sub-section (1) of section 9 of the Act "fees for technical services" means any consideration (including lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include, consideration for any construction, assembly, mining or like project undertaken by the recipient under the head 'salaries' . With reference to Article 12(4)(b) of the Double Taxation Avoidance Agreement (DTAA) with USA, the Assessing Officer has concluded that services provided by both the foreign companies would come under the purview of fees for technical services liable to be brought under tax in terms of section 9(1)(vii) and "fees for included services" under Article 12(4) of the DTAA with USA. The Assessing Officer has, thus, held the asse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent companies definitely fall under the purview of 'fees for technical services' and it was also 'made available' to the assessee-company as per the expression given in Indo-US Treaty document itself. The normal, plain and grammatical meaning of the language employed in DTAA, when the appellant is not able to utilize the services because it is unable to make use of the technical knowledge, etc. by itself, in its business without recourse to the borrowal of the service in future would amount to "make available". We are aware that time and again, it was submitted orally as well as through written submission on behalf of the assessee that the foreign companies have validated the work after testing it in USA and thereafter WIL did not pursue this agreement because the validation reported by the foreign companies were not upto WIL's satisfaction. The Internal Technical Memo of WIL detailing the work done in USA and its output provided to WIL along with reasons for discontinuation of agreement with AMT/MFM were also referred and relied on before us. To our mind, this very submission of the ld.AR goes against the interest of the assessee company. The appellant company got the test for val ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to develop the required tooling to validate the new process for manufacture of steel rim. But again, we are not in agreement with the ld.AR's above submission, rather this fact also goes to show that technical know-how was passed on to WIL by these two entities and that is why they have done all these activities in-house using the technical know-how which was passed on to the company by he foreign companies. 13. In the case of Intertek Testing Services India (P.) Ltd., In re, 307 ITR 418(AAR), it has been held as under: "It is well settled that the provisions of the Double Taxation Avoidance Agreement will prevail over the domestic law if they are more beneficial to the assessee. Under article 13(4)(c) of the Agreement for the Avoidance of Double Taxation between India and the U.K., the first requirement is that the payment is made by way of consideration for rendering technical or consultancy services(including the provision of services of technical or other personnel). The second requirement is that those services should make available technical knowledge, skill, etc., to the recipient of the services. The third part speaks of "development and transfer of a technical plan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lls of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Though the memorandum of understanding relating to the Double Taxation Avoidance Agreement relating to India and the U.S.A., does not apply to the Double Taxation Avoidance Agreement between India and the U.K., if a similar expression, e.g., "make available", found in the former is interpreted and explained in a particular manner consistent with the one shade of meaning that can be attributed to it, there is no reason why that interpretation should be eschewed. It becomes a valuable aid in interpreting the phrase "make available" in the latter Agreement as well. The explanatory memorandum becomes a valuable aid in interpreting the phrase "make available". It reflects the Government of India's viewpoint on the true connotation of the expression. It stands on a higher pedestal than the principle of contemporanea expositio. The Authority ruled, on the facts, (i) that, since the applicant had only given a general account of the relevant services that might be received in terms of the agreement and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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