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TMI Blog2012 (4) TMI 351X X X X Extracts X X X X X X X X Extracts X X X X ..... ant has also produced the agreement dated 30.12.2009 which is to come into effect on 1.1.2010, which is the agreement currently governing the relationship between the parties. The applicant and its parent company in France, are both in the business of manufacturing electrical components. The applicant is doing its business in Bangalore and Chennai for over a decade. 2. Under the services agreement, Mersen has undertaken to provide the applicant with services in the nature of assistance, professional and administrative consultation and training. The applicant has to pay the expenses incurred by Mersen for the services rendered to the applicant plus 5% of that amount. The invoice was to be in Euro and the money had to be remitted to a bank in Paris in France. The payment had to be made free of and without withholding taxes and duties and other charges and if such withholding was necessary, the same had to be borne by the applicant and there could be no deduction of the same from the amount to be paid to Mersen. The applicant had also entered into another agreement with Mersen wherein Mersen had undertaken transactions in the nature of E-Sourcing, Mail messaging, ERP maintenan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia and the United States, for satisfying the definition of included services in that Convention, it had also to be shown that the know-how was made available to the applicant before the payment for it could qualify as fees for included services under that Convention. It was also pointed out that managerial services were not included in the concept of "included services" under the India-US Convention and hence, the payments could be understood only as the business income of the French company and the payments to it could not be taxed in India in the absence of that company having a permanent establishment in this country. 5. On behalf of the Revenue it was contended that going by the definition contained in the Income-tax Act and the DTAC between India and France, payments made under the services agreement, would be fees for technical services and taxable as such. The exemption contained in section 9(1)(vii) of the Act did not apply and the transaction was liable to tax in India. In terms of the DTAC, what was inter alia being provided was consultancy services and the same fell within the concept of included services as now put forward. As regards the protocol, it is submitted th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lso to apply under the DTAC. 8. Learned counsel for the applicant submitted that the DTAC between India and the United States was entered into on 12.9.1989, a date later than 1.9.1989 referred to in clause 7 of the protocol and that the applicant was relying on the relevant clause of that Convention, which had a more restricted scope for taxation of such fees. He submitted that in Article 12 of the Convention between India and the US, what was taxable was fees for included services. He pointed out that paragraph 4 of Article 12 of that Convention, provides that fees for "included services" means payment of any kind in consideration for the rendering of any technical or consultancy services, if such services are ancillary and subsidiary to the application or enjoyment of the right, property or information for which the payment described as royalty is received or make available technical knowledge, experience, skill, know how or consists of the development and transfer of a technical plant or technical design. His submission was that even though the DTAC between India and the French Republic did not insist on the making available of the technical knowledge etc., by virtue of the pro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Convention between nations. Even such an approach does not appear to be capable of removing the confusion created by the circuitous process adopted, while entering into the Convention and signing the protocol with France. 10. Clause 7 of the protocol reads: "........................ India limits its taxation at source on dividends, interest, royalties, fees for technical services or payments for use of equipment to a rate lower or a scope more restricted than the rate of scope provided for in this convention on the said items of income the same rate or scope as provided...." (emphasis supplied) Can one take what is contained in the emphasized portion, a printer‟s devil? Or, is it deliberate to show that only provision for lower rate is intended to be applicable? The copy of the protocol provided by the applicant and the publications available in this Authority all show this expression. Counsel for the applicant submits that this is only a printing error, and the expression is really „rate or scope‟, and reading it so, will be consistent with the use of the expression in the other parts of the clause. The representative for the revenue submitted that on ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nts in consideration for „services of a managerial, technical or consultancy nature‟. So, managerial services are taxable under the DTAC as FTS and under paragraph 2 of Article 13 read with paragraph 7 thereof, the same can be taxed in India as provided therein. By the strength of the protocol it has also claimed the benefit of the India-US Convention. In respect of technical and consultancy services, it is entitled to insist on the „make available‟ requirement. This leaves out managerial services to be taxed under the DTAC between India and France. Managerial services are specifically dealt with under Article 13 of that DTAC. So, it is not possible to resort to Article 7 or Article 23 to look for a Permanent Establishment in this country before it being taxed. 14. Under Article 13, there is no stipulation that managerial services should be made available before the consideration paid for it can be taxed. In other words, mere rendering of managerial services to the applicant would invite the liability to be taxed in India for the consideration received for that service. 15. I will now briefly consider the services that are being provided or are to be provi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e DTAC, are provided by the French Company to the applicant for a consideration equivalent to the cost incurred by the French Company plus 5% thereof as mark up. 17. It is also clear from a reading of the obligations undertaken by the French Company under the agreement, that it is rendering consultancy services. The services rendered on marketing, on strategy and the training provided to optimize sales techniques all would come within the purview of consultancy services. Though on reading some of the items of advice and assistance, it may even be possible to say that technical services are also rendered, the predominant purpose of the services agreement appears to be to provide managerial and consultancy services. 18. I have already held that for taxing the payment made for managerial services under the India-France DTAC, it is not necessary to make available such services within the meaning of that expression as generally understood with reference to fees for technical services. On the terms of the agreement it is even possible to say that the services are made available so as to satisfy even that test. Suffice it to say, that payments made for managerial services are liable to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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