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TMI Blog2011 (12) TMI 17X X X X Extracts X X X X X X X X Extracts X X X X ..... her Group Companies or third parties and will invoice the cost incurred for providing such services on cost to cost basis without charging any mark up. The employees and other personnel engaged by the Applicant for providing these services will not visit India. 2. Applicant submits that being a tax resident of the Netherlands, the provision of India-Netherland Double Taxation Avoidance Convention (DTAC) will apply to the extent they are more beneficial when compared to the provisions of the Income-tax Act, 1961 (Act). Under para 5(b) of Article 12 of the DTAC, any service to qualify as fees for technical services (FTS), the service should be technical or consultancy in nature and the services should 'make available' technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. The definition of FTS under the DTAC is more restrictive than under the Act and hence being invoked. Applicant submits that the term 'make available' has not been defined under the DTAC, but an inference may be drawn from India-USA DTAC which has an identical definition in paragraph 4(b) of Article 12 for defining "fees for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he question of service PE for the services to be rendered by the Applicant does not arise. 5. Referring to the description of the services rendered by the Applicant, the Revenue argued that these services equip Perfetti India to manage its services efficiently based on the reports, codes and procedures without further help from the Applicant. It is not required that Perfetti India should know how such reports, codes, procedures are prepared. What is required merely is that the fruits of the services should remain available to the person utilizing the services in some concrete shape such as technical knowledge, experience skill etc. Such benefits are available to Perfetti India in the shape of market research reports, accounting policy manuals and procedures etc. Therefore, the services would fall within the purview of FTS as the knowledge the users in India are utilizing is the expertise of the applicant in the business. Revenue pleaded that the specified services under the Service Agreement are in the nature of managerial and consultancy services and unlike for technical services, the phrase 'make available' would have no application. The applicant's reliance on MFN clause does n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s to Perfetti India. It was held in Intertek Testing Services, in re [2008] (307 ITR 418), by this Authority that the expression "technical services" cannot be construed in a narrow sense. It has been observed therein that the term "technical" ought not to be confined only to technology relating to engineering, manufacturing or other applied sciences. Professional service imbued with expertise could be regarded as technical service. In G.V.K. Industries (228 ITR 564), it was held that advice given by a financial consultancy firm on the modalities of procuring loans shall be regarded as technical and consultancy service. We must appreciate the law in the light of the facts before us. Hence, these services giving knowledge and experience of the confectionary industry to Perfetti India are technical in nature. More so, in view of the fact that the Agreement clearly brings out the intention of the parties to assist Perfetti India by applying the experience of its sister concerns and group companies. We cannot agree with the submission that they are not technical in nature. This leaves us to examine whether the services are "made available" by the Applicant. The services are provided ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... le to the person utilizing the services in some concrete shape such as technical knowledge, experience, skills, etc." The Applicant submits that Perfetti India "will not get equipped with the knowledge or expertise and would not be able to apply it in future, independent of Perfetti BV". This submission cannot be accepted. When one party provides support to the other through provision of knowledge and experience and assists the employees of the other, how can it be accepted that the recipient will not apply this knowledge and skill after the termination of the said agreement? 8. While we read Article 12.5 of the DTAC with Netherlands, we notice that the phrase "make available" has reference to technical knowledge, experience skill know-how or process and is not affixed and read with the phrase "consist of the development and transfer of a technical plan or design", as reading it with 'make available' would mean that the person for whom technical plan or the technical design is being developed would also have to be enabled to develop such technical plan or technical design of its own volition. Even reading without affixing the phrase "make available", the word "transfer" occurring ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the confectionary industry and are renowned manufacturers, distributors and marketers of several high quality products. It was then agreed to provide specified services, rendering of which require use of proprietary knowledge and processes belonging to Perfetti Group. It is obvious that the agreement in the form of use of trademark and manufacturing process relating to manufacturing of confectionary items has also to be perused. We have found that under the TTLA it is agreed between the parties that the applicant will provide the following to Perfetti India: (a) Licence to manufacture and sell products (b) Licence to use technological, technical marketing and commercial know-how in the manufacturing, sales, advertisement and promotion of the products (c) Offer technicians, marketers, salesman, in-house legal counsel and any other of the experienced employees to assist in the activities mentioned above, Under the Service Agreement following services are being rendered by the applicant: a. Specified services requiring the use of proprietary knowledge and processes belonging to Perfetti Group b. Specified services are: Accounting, budgeting, sales, marketing, forex management, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... to the trademark, legal support, developing strategies to enhance sales, etc. larger is the enjoyment of the rights conferred through TTLA. Thus one agreement gives the right to manufacture and the other agreement brings the efficiency in such manufacture. It is not a case where rights are given and the recipient is free to exploit them in the manner one likes. The recipient is bound to apply the specified services to optimize the profits to give maximum royalty amount which is based on the sales turnover. That apart, we also notice that in the Technology and Trademarks License Agreement between the mother company of the PVM group i.e. PVM Italy and Perfetti India, which came into effect from July 2005, PVM Italy was entitled to a royalty of 5% on domestic sales and 8% on export sales in respect of products manufactured and sold by Perfetti India. However, under the present agreement i.e. TTLA, the royalty payable on the products manufactured and sold by Perfetti India has been reduced to 2.5%, 2%, and 1.5% on various products. 11. Under Exhibit A it is stated that 'The Agreement covers provision of following services, but is not limited to (emphasis supplied)' .The scrutiny of th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... significance of the fact that such a Memorandum or a similar Memorandum of Understanding does not supplement the convention with Netherlands cannot also be lost sight of. One possible inference is that India did not want the situation arising out of the Memorandum of Understanding accompanying the India-US Double Taxation Avoidance Convention to prevail in the interpretation of its Convention with Netherlands. I am, therefore, not persuaded to accept the argument that the India-Netherlands Convention should be interpreted with the aid of the Memorandum of Understanding accompanying the India-US Convention. Article 12.5 of the Convention between India and Netherlands has to be interpreted on its terms, at best with reference to the protocol that accompanied that Convention. 2. The expression 'make available' only means that the recipient of the service should be in a position to derive an enduring benefit and be in a position to utilise the knowledge or know-how in future on his own. "By making available the technical skills or know-how, the recipient of the same will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service ..... X X X X Extracts X X X X X X X X Extracts X X X X
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