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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 ..... r technical/included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied. Article 12 of the India-Netherlands Treaty defines fees for technical services for the purpose of Article 12 which deals with royalties and fees for technical services paid to any person in consideration for rendering of any technical services only, if such services make available technical knowledge, expertise, skill, know-how or processes - in terms of the contract entered into with Fugro data, photographs and maps are made available but they have not made available technical expertise, skill or knowledge in respect of such collection or processing of data to the assessees, which the assessee can apply independently and without assistance and undertake such survey independently excluding Fugro in future - Fugro has rendered technical service to the assessees. They have not made available the technical knowledge with which they rendered technical service - if the technology is not made available along with the technical services and what is rendered is only technical services and the technical knowledge is with-held, then, such a tec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f 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 covered by Article 12(5) of the DTAA between India and Netherlands. He further held that the Fugro has not imparted any technology to the assessees and they have just used the technology and have gone back with the same. He also observed that in future if the assessees require geological survey of a different area, they will have to engage the services of technical exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he 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 constitute fees for technical services as defined under Article 12 of the agreement. Example 7 of the India-US Agreement clearly applies to the facts of this case. As the information furnished is not of a commercial nature but purely of technical nature, it satisfies the requirement of Article 12(5)(b) and thus it attracts tax under the Act. The reasoning of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt 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 business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India; or ( c ) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 process, or for information concerning industrial, commercial or scientific experience. 5. For purposes of this Article, "fees for technical services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: ( a ) are ancillary and. subsidiary to the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oidance, 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 that assessee. (3) Any term used but not defined in this Act or in the agreement referred to in sub-section (1) shall, unless the context otherwise requires, and is not inconsistent with the provisions of this Act or the agreement, have the same, meaning as assigned to it in the notification issued by the Central Government in the Official Gazette in this behalf. Explanation 1. - For the removal of doubts, it is hereby declared that the charge of tax in respect of a foreign com ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 level lower than what has been provided in the tax treaty. 43.1 Since the tax treaties are intended to grant tax relief and not put residents of a contracting country at a disadvantage vis-a-vis other taxpayers, section 90 of the Income-tax Act has been amended to clarify that any beneficial provision in the law will not be denied to a resident of a contracting country merely because the corresponding provision in the tax treaty is less beneficial." The p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entral 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 rendering of any technical services only, if such services make available technical knowledge, expertise, skill, know-how or processes. If the technical knowledge expertise, skill, know how or process is not made available by the service provider, who has rendered technical service for the purpose of Article 12 of DTAA it would not constitute fees for technical services. To that extent the definition of fee f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der 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 receives from the service provider, it does not follow that he is making use of the technology which the service provider utilises for rendering technical services. The crux of the matter is after rendering of such technical services by the service provider, whether the recipient is enabled to use the technology which the service provider had used. Therefore, unless the service provider makes available h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y 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 derive an enduring benefit and be in a position to utilise the knowledge or know-how in future on his own." Here, the industrial specific expertise is provided to the Indian entity which is applied in running its business. The employees of the Indian Company get equipped to carry on their business, market or service market on their own without reference to the service provider when the s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the servic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Acquisition Equipment, GPS Base Station System, Magnetic Base Station System and Equipment Calibrations and Monitoring. Data from the air craft and base stations were transferred to the field processing computer by flash disk. Preliminary processing and quality was carried out on a daily basis. Data quality was verified by the assessees representative in the field on a daily ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l 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 also makes available the technology which they used in rendering services, then it falls with the definition of fee for technical services as contained in DTAA. However if the technology is not made available along with the technical services and what is rendered is only technical services and the technical knowledge is with-held, then, such a technical service would not fall w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Regulation) Act, 1957. By virtue of the aforesaid licence, the assessees were given the right to undertake reconnaissance, prospecting or mining operations in any area except under and in accordance with the terms and conditions of reconnaissance permit or of a prospecting licence as the case may be of a mining lease granted under the Act and the Rules made thereunder. R ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 developmental activity. As such, earlier the information which is furnished to the assessees by way of technical services in the digital form is also given in the form of maps. Therefore the case on hand do not fail in the second part of the aforesaid clause dealing with development and transfer of plans and designs. Therefore the second substantial question of l ..... X X X X Extracts X X X X X X X X Extracts X X X X
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