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TMI Blog2012 (5) TMI 191X X X X Extracts X X X X X X X X Extracts X X X X ..... orts. The services are engaged to conduct the air borne survey for providing high quality, high resolution, geophysical data suitable for selecting probable kimberlite targets. For the technical services rendered by them the assessees had paid consideration. The Assessing Officer treated the consideration paid to Fugro under the agreement as falling within the definition of fees for technical services under Article 12 of the Indo-Netherlands Double Tax Avoidance Agreement (DTAA) read with Section 90 of the Income-tax Act, 1961, for short, hereinafter referred to as the 'Act'. Alternatively, he has also held that payment in question was for development and transfer of a technical plan or technical design. Thus he held that the assessees had failed to deduct tax on the payments made to Fugro and hence treated the assessees as assessees in default. He levied tax under Section 201(1) and interest under Section 201(1A) of the Act, for all the three assessment years. Aggrieved by the said order, the assessees preferred appeals to the Commissioner of Income-tax (Appeals). 3. The appellate authority held that services rendered by Fugro to the assessees and the payments made for it are not ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... lan or design. The reports and maps are only an additional mode of report of data and cannot be construed as technical plan or technical design. Fugro has not developed or transferred any technical plan or design to the assessees so as to attract Article 12(5)(b) of the India and Netherlands DTAA. Accordingly they dismissed the appeals. Aggrieved by the said order, the Revenue is in appeals. 5. Sri. Mohan Parasaran, the learned Addl. Solicitor General appearing for the Revenue contended that admittedly, the assessees have approached Fugro for technical services, who in turn has rendered technical services to the assessees. After conducting geophysical survey, the service provider has made available their technical knowledge to the assessees. The said knowledge and information which is made available to the assessees was used by the assessees to carry on its work on its own without reference to the service provider. The said technical know-how made available is of an enduring nature. The technical know-how which is made available has a direct nexus with the business which the assessees are carrying on. Therefore, it is not necessary that there should be a transfer of technology to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ng of the appellate authorities that the income received by M/s. Fugro Ellbocon B V Netherlands from the assessee for services to supply technical data including drawings, plans, maps etc., (geological survey) to identify the Kimberlite (mineral deposits) targets would not fall within Section 9(l)(vii) of the Income Tax read with Article 12(5) of the DTA agreement between India and Netherlands is perverse and arbitrary ? (2) Whether payment to Fugro was for the development and transfer of technical plan or technical design to the assessee?" 8. The answer to these questions is dependent on the interpretation to be placed on the statutory provisions as well as the terms as contained in the Double Taxation Avoidance Agreement. The relevant statutory provisions are contained in Section 9 of the Act. Section 9 deals with income deemed to accrue or arise in India. Section 9(1) reads as under:- "9(1) The following incomes shall be deemed to accrue or arise in India:- (vii) income by way of fees for technical services payable by- (a) the Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... bsp;(ii) the non-resident has rendered services in India 9. Article 12 of the DTAA between India and Netherlands reads as under: Article 12 - Royalties and Fees for Technical Services- 1. Royalties and fees for "technical services" arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for technical services may also he taxed in the Contracting State in which they arise and according to the laws of that State, but if the recipient is the beneficial owner of the royalties, or fees for technical services, the tax so charged shall not exceed 10 per cent of the gross amount of the royalties or the fees for technical services. 3. The competent authorities of the States shall by mutual agreement settle the mode of application of paragraph 2. 4. 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 use, any copyright of literary, artistic or scientific work including cinematograph films, any patent, trade mark, design or model, plan, secret formula or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rade and investment, or (b) for the avoidance of double taxation of income under this Act and under the corresponding law in force in that county or specified territory, as the case may be, or (c) for exchange of information for the prevention of evasion or avoidance of income tax chargeable under this Act or under the corresponding law in force in that country or specified territory, as the case may be, or investigation of cases of such evasion or avoidance, or (d) for recovery of income tax under this Act and under the corresponding law in force in that country or specified territory, as the case may be. and may, by notification in the Official Gazette, make such provisions as may be necessary for implementing the agreement. (2) Where the Central Government has entered into an agreement with the Government of any country outside India or specified territory outside India, as the case may be, under sub-section (1) for granting relief of tax, or as the case may be, avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, the provisions of this Act shall apply to the extent they are more beneficial to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tax is attracted. In the case on hand it is not in dispute that the nature of services rendered is technical in nature. Therefore, it is liable to tax. But this liability arises under the Double Taxation Avoidance Agreement. Section 90 which deals with the Double Taxation relief provides that the provisions of the DTAA overrides the provisions of the Income Tax Act in the matter of ascertainment of chargeability to Income-Tax and ascertainment of total Income-Tax. In fact, the Apex Court in the case of Union of India v. Azadi Bachao Andolan 263 ITR 706 dealing with this provision held as under:- "Taxation of foreign companies and other non-resident taxpayers: 43. Tax treaties generally contain a provision to the effect that the laws of the two contracting States will govern the taxation of income in the respective State except when express provision to the contrary is made in the treaty. It may so happen that the tax treaty with a foreign country may contain a provision giving concessional treatment to any income as compared to the position under the Indian law existing at that point of time. However, the Indian law may subsequently be amended, reducing the incidence of tax to a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ated powers of legislation, we are unable to see as to why a delegatee of legislative power in all cases has no power to grant exemption. There are provisions galore in statutes made by Parliament and the State Legislatures wherein the power of conditional or unconditional exemption from the provisions of the statutes are expressly delegated to the executive. For example, even in fiscal legislation like the Central Excise Act and Sales Tax Act, there are provisions for exemption from the levy of tax (see section 5A of the Central Excise Act, 1944, and section 8(5) of the Central Sales Tax Act 1956). Therefore, we are unable to accept the contention that the delegate of a legislative power cannot exercise the power of exemption in a fiscal statute." 13. Under the Act if the consideration paid for rendering technical services constitutes income by way of fees for technical services, it is taxable. However, Article 12 of the aforesaid India-Netherlands Treaty defines fees for technical services for the purpose of Article 12 which deals with royalties and fees for technical services. The fees for technical services means the payment of any amount to any person in consideration for ren ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing the technical services. The technology will be considered 'made available' when the person who received service is enabled to apply the technology. The service provider in order to render technical services uses technical knowledge, experience, skill, know how or processes. To attract the tax liability, that technical knowledge, experience, skill, know how or process which is used by service provider to render technical service should also be made available to the recipient of the services, so that the recipient also acquires technical knowledge, experience, skill, know how or processes so as to render such technical Services. Once all such technology is made available it is open to the recipient of the service to make use of the said technology. The tax is not dependent on the use of the technology by the recipient. The recipient after receiving of technology may use or may not use the technology. It has no bearing on the taxability aspect is concerned. When technical service is provided, that technical service is to be made use of by the recipient of the service in further conduct of his business. Merely because his business is dependent on the technical service which he rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... proprietary knowledge and processes belonging to Perfetti Group. Specified services such as Accounting budgeting, sales, marketing, forex management, loans, HR, legal support etc. and specified services are to be provided on continuous basis. Therefore, it was held in the aforesaid case, that the case falls within the purview of Article 12.5(a) of the DTAC on such service which are ancillary and subsidiary to the applicant or enjoyment of right property or information for which the payment prescribed in paragraph 4 of the Article is to be made. Therefore, it is a case of royalty and not fee for technical service. Even otherwise it is clear under the terms of the agreement the technical know-how in the manufacturing, sales, advertisement and promotion of the products is made available. Therefore, the aforesaid finding recorded is legal and cannot be found fault with. 17. Yet another Judgment relied on is in the case of Shell India Markets Private Ltd., where also the Authority For advance Ruling held relying on findings recorded in Perfetti Marketing case where it was held that "the expression 'make available' only means that the recipient of the service should be in a position to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... i) of the Act. The agreement clearly establishes that the applicant as to prepare for the installation at the fixed gateway sites for proper installation of equipment by France telecom. It is to act as bailee of the equipment which is under its control and use for its business. The use of equipment is with the usual condition of warranty and the network could be managed by the applicant. The equipment installed is to be integrated into Areva Net Global Network which is managed and controlled by the French Company for equipment installation at gateway sites in Noida and Chennai constitute PE in India as the equipment has been used by the French Company in the course of its business in providing technical data to the group companies. 21. Therefore from the aforesaid Judgments it is not possible to hold that there is a departure by the advance Ruling Authority in respect of its earlier views. It is in this background we have to look at the facts of this case, in order to find out whether the service provider has made available the technical knowledge to the assessee so as to foist the liability of payment of tax. 22. What is the meaning of "make available". The technical or consulta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... helicopter charges for the entire survey will be the responsibility and cost of the assessees. 24. The Fugro air borne services provides four varieties of applications of advanced geophysical mapping technologies. They are Electromagnetic, Aeromagnetic, Airborne Gamma-Ray Spectrometry, Airborne Gravity. In the instant case, Fugro air borne surveys helicopter borne time-domain EM system known as DIGHEM was adopted to carry out the survey. A copy of the survey report is also placed on record. The said report discloses that survey was conducted in 8 blocks. The particulars are clearly set out. It also sets out that the air borne data acquisition system utilized on the project consists of the sub-systems which are set out therein. A Bell 206L helicopter registration VT-DAK was used for the survey. The helicopter pilots and aircraft engineers were contracted from Deccan Aviation Pvt. Ltd., by the assessees. The DIGHEM compact system specifications are also provided. They have also set out the particulars such as EM Receiver and Logging Computer, GPS Receiver, Navigation System, Magnetometer, Altimeter, Radar Alitmeter and Barometric Altimeter. They also provided Ground Data Acquisitio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of which they were able to collect the data, which was passed on to the assessees as a technical service. In other words, Fugro has rendered technical service to the assessees. They have not made available the technical knowledge with which they rendered technical service. There is no transmission of technical knowledge, expertise, skill, etc., from Fugro along with technical services rendered by them. The assessees are completely kept in dark about the process and the technologies which the Fugro adopted in arriving at the information/data which is passed on to the assessees as technical service. The assessee is unable to make use of the said technical knowledge by itself in its business or for its own benefit without recourse to Fugro. In fact, the question whether along with rendering technical services, whether the technical knowledge with which that services was rendered was also made available to the assessees/customers is purely a question of fact which is to be gathered from the terms of the contract, the nature of services undertaken and what is transmitted in the end after rendering technical services. If along with technical services rendered, if the service provider al ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess in software technology, which are not owned or provided by Fugro, generates a report to determine probable targets. The reports and maps are only additional mode of representation of data and it is not a technical plan or design as understood in law. Para 1.15 of the agreement entered into between the assessees and the Fugro, makes it clear that the information and data to any site on which any work services are performed under the agreement shall belong exclusively to the assessees and its assigns and the Fugro shall keep such information strictly confidential. Therefore, the technical plan or design always belong to the ownership of the assessees. It never vested with Fugro. Under the terms of the agreement, the data collected is kept confidential under the supervision of the Government of India. Under the terms of the agreement, the ownership of the data collected or other documents vest with the assessees only and not with Fugro. Therefore the Fugro was never the owner of the said data and hence the question of transfer of such data does not arise. It is because the assessees were given the licence for prospecting under the provisions of Mines & Minerals (Development and R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... priate persons to whom the contractor may provide information. Further clause (16) provides that the contractor shall not grant entry to any data site or aircraft to any person other than those authorised by the assessees and the contractor shall exercise all due care to preserve the integrity of all information. 31. Therefore the assessees not being possessed with the technical know how to conduct this prospecting operations and reconnaissance operations, engaged the services of Fugro which is expert in the field. By way of technical services Fugro delivered to the assessees the data and information after such operations. The said data is certainly made use of by the assessees. Not only the said data and information was furnished in the digital form, it is also provided to the assessees in the form of maps and photographs. These maps and photographs which were made available to the assessees cannot be construed as Technology made available. Fugro has not devised any technical plan or technical design. Therefore the question of Fugro transferring any technical plan or technical design did not arise in the facts of these cases. The maps which are delivered are not of kind of any de ..... X X X X Extracts X X X X X X X X Extracts X X X X
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