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TMI Blog2012 (2) TMI 173X X X X Extracts X X X X X X X X Extracts X X X X ..... ng necessary assistance to all its subsidiaries, the group companies, in the world. The support services would be: worldwide network for data transfer between all group companies which will connect to all global applications of the French Company and intranet and internet traffic; messaging system for all e-mail communication between the subsidiaries and vendors, customers etc. It is stated that all these services will be provided across the world from France and the consideration for availing these services will be apportioned to all subsidiaries. In some cases the French Company may sub contract these services either to third party service provider and/or to any other subsidiary of the group. The allocation key for determining the consideration would be based on the service provider's invoices, indirect cost based on IP Bandwidth license user rights and number of users per application for each of its subsidiary. The invoice for the consideration of the services will be on quarterly basis which will include the share in the aggregate amount of cost incurred in providing the whole of the services that is to say that it will include direct and indirect cost incurred under the agreem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat if the rate of tax or scope provided in a Treaty with a third state on 'royalties' and 'fees for technical services' is less restricted or lower than given in the Indo-French DTAA, then the scope so restricted in the said treaty with the third state shall apply to Indo-French DTAA as well. After India signed the treaty with France, it also signed a treaty with Sweden. Under Article 12 of Indo-Sweden DTAA, the definition of royalty does not include the payment made for the use of or right to use the equipment as given in the Indo-French DTAA. The scope available to tax the above payment is restricted to rendering of any managerial, technical or consultancy services and not for payment of use of equipment. Thus applying the restricted definition, the payment for wide area network, messaging system, license to use rights and application support cannot be called 'royalty' under the Indo-French DTAA. 6. Without conceding, the Applicant submits that the said payment cannot be construed as 'royalty' under the Act as it is use of the facility and not the use of the equipment. The equipments are not placed in the possession and control of the Applicant. The Applicant cannot modify the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and other group companies continuously upgrade designs, model and other engineering plans and formulae which are used by the Applicant for the purposes of its business. Therefore, the main objective of setting up an exclusive platform is not for providing information technology but for enabling the Applicant to use data in the form of design, plan, model and engineering formulae etc. in 2D and 3D form. The character of the payment is clearly 'royalty' as defined under Article 13(3) of DTAA as well as Explanation 2 to section 9(1)(vi) of the Act. 9. The Revenue is of the view that Article 13(4) of Indo-French DTAA is materially the same as the DTAAs with other OECD countries. In view of the facts now made available during the course of hearing, it seems that the Revenue's case is not that the payments are for use of process or equipment. The IT support services are not provided to the Applicant to enable it to provide IT services, but to enable it to use the engineering data for the purposes of the business of setting up transmission and distribution power projects undertaken in India. The IT services are not an end in itself. The exclusive and continuous availability of engineerin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns out, is the price list of the services as defined in Appendix-2 of the Agreement. Appendix -2 has also not been furnished whereas Appendix-1 does not clearly refers to reimbursement of cost of services. If the payment is by way of pure reimbursement of claim of actual expenditure without any mark-up of profit, there ought not be any requirement for a price list relating to the services. It cannot therefore be expected that the impugned payments are pure reimbursement of expenses incurred by the French Company on behalf of the Applicant for the purposes of the Applicants' business. 12. The basis of the present Application is the draft 'Information Technology Sharing Services Agreement' ("IT Agreement"). The IT Agreement is between French Company and the Applicant. Under the IT Agreement, the Service Provider shall mean any AREVA Group Subsidiary or any third party. There is no clear demarcation as to what services will be provided by the French Company and for which services the French Company will hire a Service Provider. The Applicant has no say and does not need to pre-approve any Service Provider under the IT Agreement. Hence the crux of the IT Agreement is that the French C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted in the clarifications, each gateway consists of a link and router and the same will belong and will be controlled by a Service Provider. 18. Under the IT Agreement, the French Company may be hiring/taking on rental the above mentioned equipment for providing services. U/s 245N(a)(ii) of the IT Act, 1961, determination by the Authority in relation to the tax liability of a non resident arising out of a transaction which has been undertaken or proposed to be undertaken by a resident applicant with such non-applicant, "...shall include determination of any question of law or of fact specified in the Application." However, the factual details of the proposed transaction have not been shared with us. There is a failure on part of the Applicant in sharing the details of what equipment is going to be used and whether or not and to what extent is the same going to be hired. Hence, we are free to presume that the French Company may either own the equipment and even where it hires the equipment, the same will be under exclusive control of the French Company. 19. Let us now examine whether this equipment that would be owned/hired by the French Company in India will amount to a Permanent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of Explanation 2 to section 9 of the Act. But taking benefit of the MFN clause in the protocol attached to the DTAA, mere rendering of technical or consultancy services is not sufficient to constitute FTS. Thus, the Applicant admits that the Services fall within the ambit of FTS and only states that since the services cannot be said to have been made available, the income is not taxable as FTS. Let us now examine whether the services are "made available". We have noted that under the IT Agreement, the French Company is to provide support services through a central team in the area of Information Technology to the Applicant and to its other subsidiaries in the world. The provision of support services by the French Company would itself make available, the technical knowledge/ experience to the Applicant. In Perfetti Van Melle Holding B.V AAR/869/2010 this Authority held the view that "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 utilize the knowledge or know-how in future on his own". Here, information technology relating to design, engineering, manufacturing and supply o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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