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TMI Blog2013 (4) TMI 643X X X X Extracts X X X X X X X X Extracts X X X X ..... he contract or the binding case law cited before the authorities. 2.1 The learned AO has erred in making an addition of Rs. 1,07,71,888 by treating such IT support services as chargeable to tax in India. 2. The facts which revealed from the record are as under. The assessee is a non-resident company incorporated in Australia. The assessee filed the return of income for the A.Y. 2007-08 declaring nil income. The return filed by the assessee was selected for scrutiny by issuing notice u/s.143(2) of the Act. The A.O. has observed that the assessee company is a tax resident of Australia as per the treaty between India and Australia. The assessee received the payment of Rs. 1,05,83,086/- from Sandwich Asia Ltd., and Rs. 1,88,802/- from Walter Tools India Pvt. Ltd. So far as the payment received from Sandvik Asia Ltd., and Walter Tools India Pvt. Ltd., the assessee stated before the A.O. that the said payment is not received to make available technical knowledge, skill, know-how or process and the same do not fall within the ambit of royalty under Article 12 of the Treaty (DTAA) between India and Australia. Assessee also contended that as assessee is not having ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cal plan or technical design. In the opinion of the A.O., the assessee has created global basic infrastructure to provide the global functional services. He further held that the services rendered by the assessee are in the nature of the technical services to its Indian affiliates. The assessee opposed the conclusion of the A.O. that the services rendered to Indian affiliates are in the nature of technical services by taking the stand that the payment for the services rendered by the assessee is not in the form of the royalty income and nor it is FTS. Assessee further contended that assessee has not made available any technical knowledge, experience, skill and know-how. The assessee also relied on the decision in the case of Kotak Mahindra Primus Ltd. v. Dy. CIT [2007] 11 SOT 578 (Mum.), Skycell Communications Ltd. v. Dy. CIT. The A.O. did not accept the contention of the assessee that the services rendered by the assessee are not the technical services and hence the payment received by it from its Indian affiliates cannot be treated as FTS. The A.O. also held that so far as the taxability of the payment received by the assessee from its Indian affiliates is concerned, the same is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ared to transfer such knowledge to the receiving party". 5.2 It is clear from the above that in the contract itself, there is a provision for transfer of knowledge and thus making it available to the other contracting party. Further, technical knowledge, experience and skills have been made available to the assessee and the assessee has rendered the IT support services. In view of these facts and circumstances, the assessee's case is taxable u/s.9(1)(vii) of the I.T. Act and also it falls within royalty/fee for technical services within the meaning of Article 12 of DTAA between India and Australia. Hence, the panel is of the view that the A.O. is justified in holding that the receipts are taxable in India and therefore, the Panel declines to interfere." 4. As per the directions of the DRP, the Assessing Officer passed the assessment order bringing to tax the entire amount received by the assessee from its two affiliates in India. Now the assessee is in appeal before us. 5. The ld. Counsel for the assessee vehemently submitted that the services rendered by the assessee are not only limited to its affiliates or group companies in India but the same are for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered by assessee company to the Sandvik Asia Ltd. His main thrust of the argument is that assessee is only rendering IT support services but is not imparting any technical knowhow or knowledge to its Indian affiliates and unless and until the technical know-how is imparted, the same cannot be taxable in India in view of the DTAA more particularly Article 12. Ld. Counsel took us to Article 12 of the India Australia Treaty more particularly sub-para 3(g) and submits that it is clear from the language used in the Treaty that unless the services are made available to the person acquiring the services, the same cannot be taxed in the contracting State. He placed his reliance on the decision of the Hon'ble High Court of Karnataka in the case of CIT v. De Beers India Minerals (P.) Ltd.. Finally he concluded that there is a difference between rendering the services and to make available the services. In case of the first category of the services, the services are rendered to give the end results without imparting any technical know-how or its knowledge and the issues are sorted out. But in case where the services are made available, in that case it is open to the recipient of the services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reaty, as no services are "made available", hence, the same cannot be taxed in the sourced country. The assessee is providing help desk and user administration services, i.e., IT support and advisory services for solving any IT related problems faced by the users as well as user administration services such as addition of new user/deletion of any existing users in the system. It is further claimed by the assessee company that it also provides IT help desk services in connection with any problems faced by the users in the usage of Lotus Notes i.e., Notes Domino Administration. Assessee also provides S&C based services which are in the nature of IT help desk services in connection with any problems faced by the users in operating various application softwares. Assessee provides networking services which comprise provision of routers and networking lines for connection to the global servers. Assessee also contended that the routers, network lines, WAN and other hardware devices are owned and maintained by the assessee. Assessee also provides data centre services. AS400 software application is stored on the centralised server of the assessee in Sydney. As per the agreement, assessee is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... also be taxed in the Contracting State in which they arise, and according to the law of that State, but the tax so charged shall not exceed: (a) in the case of : (i) royalties referred to in sub-paragraph (3)(b) ; (ii) payments or credits for services referred to in sub-paragraph (3)(d), subject to sub-paragraphs (3)(h) to (l), that are ancillary and subsidiary to the application or enjoyment of equipment for which payments or credits are made under sub-paragraph (3)(b); or (iii) royalties referred to in sub-paragraph (3)(f) that relate to equipment mentioned in sub-paragraph (3)(b) ; 10 per cent of the gross amount of the royalties; and (b) in the case of other royalties : (i) during the first 5 years of income for which this Agreement has effect : (a) where the payer is the Government or a political sub-division of that State or a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or services that are ancillary and subsidiary, and inextricably and essentially linked, to a sale of property; (i) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships or aircraft in international traffic; (j) for teaching in or by an educational institution; (k) for services for the personal use of the individual or individuals making the payments or credits; or (l) to an employee of the person making the payments or credits or to any individual or firm of individuals (other than a company) for professional services as defined in Article 14. 4. The provisions of paragraphs (1) and (2) shall not apply if the person beneficially entitled to the royalties, being a resident of one of the Contracting States, carries on business in the other Contracting State, in which the royalties arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the property, r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... O. We find that the expression "making available" is very much important to decide in which contracting state the amount received for rendering the services relating to the technical know-how is to be taxed. The expression "make available" is used in the context of supplying or transferring technical knowledge or technology to another. It is different than the mere obligation of the person rendering the services of that persons own technical knowledge or technology in performance of the services. The technology will be considered as made available when the person receiving the services is able to apply the technology by himself. 14. The expression 'make available' has come for consideration before the Hon'ble High Court of Karnataka in the case of De Beers India Minerals (P.) Ltd. (supra). In the said case, the Treaty between India and Netherlands was for the consideration of their Lordships. The assessee in that appeal was a providing company engaged in the business of prospecting and mining for diamonds and other minerals. They have been granted licences (Reconnaissance Permits) by the State Government of Karnataka, Andhra Pradesh and Chhattisgarh. During the early stage, variou ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nical nature if such services make available technical knowledge, experience, skill, know how or processes which enables the person acquiring the service to apply technology contained therein. Though this provision is not contained in India Netherlands Treaty, but virtue of Protocol in the agreement, Clause (iv)(2) reads as under: "If after the signature of this convention under any Convention or Agreement between India and third State which is a member of the OECD India should limit its taxation at source on dividends, interests, royalties, fees for technical services or payments for the use of equipment to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said items of income, then as from the date on which the relevant Indian Convention or Agreement enters into force the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under this Convention." 14. Therefore the Clause in Singapore agreement which explicitly makes it clear the meaning of the word 'make available', the said clause has to be applied, and to be read int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 service provider. In other words, to fit into the terminology 'making available', the technical knowledge, skills, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered 'made available' when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within ..... X X X X Extracts X X X X X X X X Extracts X X X X
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