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TMI Blog2013 (11) TMI 276X X X X Extracts X X X X X X X X Extracts X X X X ..... the provisions of Article 12(4)(b) to the extent analysed and adjudicated. Thus, for the limited purpose of examining the (i) applicability of Article 12(4)(a); and (ii) the Article 12(4)(a) to the extent of 'make available' of the 'processes' mentioned therein, we remand the matter to the files of the CIT(A) for fresh examination and adjudication after obtaining the relevant facts – Decided in favor of Revenue for statistical purpose. TDS u/s 195 - payment for repair charges - whether constitute Fee for Technical Services (FTS) - scope of section 9(1)(viii) – Held that:- Following the decision in the case of M/s. BHEL-GE-Gas Turbine Servicing (P)Ltd. [2012 (8) TMI 199 - ITAT HYDERABAD], the payments for the repairs should not be subjected to TDS as the said payments outside the scope. - No TDS - Decided in favor of assessee. - I.T.A. No. 7696,1676/M/2010 - - - Dated:- 25-9-2013 - B.R. MITTAL AND D. KARUNAKARA RAO , JJ. For the Appellant : Mrs. Neeraja Pradhan. For the Respondent : Kanchun Kaushal. ORDER:- PER : D. Karunakara Rao There are two appeals under consideration. Both the appeals are filed by the Revenue against the separate orders of CIT (A)-2, M ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... first appellate authority (ie the 'CIT(A)'), assessee submitted that the assessee paid the said amount to Sycamore Networks Inc, USA as part of the payments towards annual maintenance charges. It is the finding of the CIT (A) that under the provisions of Article 12(4) of the India-US Treaty, such payments made by the assesssee do not constitute FTS. Therefore, there is no need for making TDS when such payments are made by the assessee. In the process, he relied on his order for the AY 2006-2007, wherein the identical issue was decided in favour of the assessee. Referring to the said order of the CIT (A), Ld Counsel brought our attention to para 2 to 7 that order of the CIT(A) and mentioned that the CIT (A) discussed the agreement between the assessee and the Sycamore Networks Inc, USA and extracted the relevant provisions dealing with the details/nature of services rendered by the Sycamore Networks Inc, USA (ie "payee") to the assessee for which impugned amount of Rs. 23,73,621/- was paid in the year under consideration. In fact, in the subsequent assessment year 2006-2007, assessee paid an increased sum of Rs. 51,81,097/-, which was disallowed by the AO for the identical reasons. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he CIT (A), Ld DR read out the nature of the services offered by Sycamore Networks Inc, USA for which assessee received the sum of Rs. 23,73,621/- for the AY 2005-2006 and Rs. 51,81,097/- for the AY 2006-2007. She mentioned that the services offered are of technical support in nature therefore, said services constitutes technical services. She also emphasized that the technical assistance shall be at the single point in diagnosis and resolving the technical issues relating to operations, performance, reliability etc. In case the diagnosis reveals that fault is with the CORD, the same is sent to the M/s Sycamore for repairs, if any. She also mentioned that the services rendered are not limited to the ones specified in the last paragraph of the extract relating to the nature of services enlisted in the agreement. She further mentioned that the services are connected to Indian Territory and therefore, the on territorial nexus rule, the payments should suffer TDS. She is critical of the fact that the order of the CIT(A) should not categorized as a speaking order considering the cryptic few lines extracted above. Further, bringing to our attention to the order of the CIT (A), ld DR ment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rm either to the assessee or its employees. Further, the assessee has not become owner of any such technical knowledge or skills for which the impugned payments were intended from the assessee's point of view. Mr Kaushal explained that the assessee is owner of equipment procured from said Sycamore Networks Inc, USA and the impugned payments were made as part of the maintenance of the same. The dependent customers of the assessee receive the services from the Sycamore Networks Inc, USA as and when the trouble shooting is reported. In fact, the services are offered online and the troubleshooting are attended by the Sycamore Networks Inc, USA and there is no involvement of the employees of the assessee in the process of sorting out the problems reported online. Technical information, skills or knowledge are not transferred to the assessee or its employees directly or indirectly, therefore, the payments made by the assessee do not constitute FTS within the meaning of the Treaty with USA. He mentioned that the AO has not brought out any incidents to show that the Sycamore Networks Inc, USA has transferred ownership rights of any technical information or skills of the assessee. Bringing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent on account of Repair replacement of CORDs, is Rs 8,96,147/- . The total payment made in this year works out to Rs. 51,81,096/-. Therefore, we have deal with the situations ie (i) AMC payments and (ii) payments for repairs and replacements. We shall take up the AMC payments and they constitute chargeable payments and therefore the applicability of the provisions TDS and the section 40a(ia) of the Act. Considering the discussion in the orders of the revenue, we restrict ourselves to the applicability of the provisions of the Treaty with USA in general and the provisions of the Article 12 of the DTAA with USA, in particular. To start with we shall examine the nature of services enlisted in the extended Service Agreement. The extraction of the said list from impugned order, vide para 3, is inserted and the same read as follows, "3...During the extended term of the agreement, the following services shall be provided to customer. Services:First Line Telephone Technical support via Sycamore's Technical Assistance Center (TAC) as described below. Technical Support - 7x24x365 access to Technical Assistance Center. Tata Power Company Ltd [Tata] shall be entitled t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... camore, USA will charge sum of USD 96,050 p a. 4. As per the agreement, the invoices will be raised two times in a year, first on or about March 1 and second on or about September, 1. 5. In AY 2005-06, the Tata Power Ltd., and Tata Power Broadband Co. Ltd. Entered into a Business Transfer Agreement dated 16th August, 2004 for transfer of broadband division with effect from 1 July, 2004. 6. For the AY 2005-06, the first invoice was raised by Sycamore, USA on the Tata Power Co. Ltd. And the second invoice was raised by Sycamore on the Tata Power Broadband Co. Ltd. It is the subject matter of dispute in AY 2005-06 which dealt with the services rendered from October, 2004 till March, 2005. 7. On 16th November, 2004, Tata Power Broadband Ltd and Sycamore, USA amended the terms of the service agreement. Under the amended agreement, Sycamore, USA apart from the services that are mentioned in the revised Exhibit B-1 also agreed that the Tata Power Broadband Ltd can send the defective part of the machine to Sycamore, USA in USA on repaid and return basis. Sycamore will charge separately for the repaid services provided in USA. 8. Thus, the disallowance for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions, we are of the view that the impugned orders of the CIT (A), for the years under consideration, on this aspect of the matter, do not call for interference. Accordingly, the grounds raised in these appeals of Revenue are dismissed." 12. Therefore, so far as the repairs related payments are concerned, the claim of the assessee needs to be allowed and in favour of the assessee. An Maintenance Charges - if they are to be subjected to TDS provision: 13. We shall now take up the issue relating to AMC and it the payments made to M/s Sycamore, USA, the supplier of the equipment, for rendering the annual maintenance services - AMC in connection with the operation/functioning of the said equipment, vide the Service agreement, amended from time to time in succession of the said services rendered during the Warranty period. For this purpose, we need to examine the relevant provisions of the domestic law as well as the Treaty provisions. The provisions subsection (1)(vii) and the Explanation to section 9 of the Act are relevant and the same read as follows. (vii) income by way of fees for technical services payable by (a) the Government ; or (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xed in that other State. 2. However, such royalties and fees for included services may also be taxed in the Contracting State in which they arise and according to the laws of that State; but if the beneficial owner of the royalties or fees for included services is a resident of the other Contracting State, the tax so charged shall not exceed: . . 3. 4. For purposes of this Article, "fees for included 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 application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received ; or (b) Make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design. 5. Notwithstanding paragraph 4, "fees for included services" does not include amounts paid : (a) for services that are ancillary and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s (a) or (b) of Article-12 of Indo-USA DTAA. It is the case of the CIT(A), the impugned payments do not come under the ‗make available' provisions vide sub-paragraph (b) of Article 12(4) of the Treaty. But, it is a fact that CIT(A) has not gone into the applicability of the provisions clause (a) of the Article 12(4) of the Treaty. 16. Divergent Stands of the parties in dispute: The case of the assessee is that the payments made by the assessee towards Annual Maintenance Charges do not constitute Fees for included/Technical Services (FTS) both under domestic law or under the Treaty provisions as there is no transfer relevant technical knowledge, skills, information etc to either to the assessee or to its employees. The services rendered by M/s Sycomore supra are merely attending to the trouble shootings relating to the use of the technology already supplied to the assessee. 17. Per contra, the case of the Revenue is that with no body examining the applicability of the domestic law and the provisions of paragraph 4(a) of the Treaty, it is too early to adjudge that the impugned payments do not constitute FIS/FTS. The Service Agreement also provide for sending of the represen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... oyees were trained and there was transfer of knowledge and experience by the service providing company. Further, the decision in the case of in the case of AREVA T D India Ltd. (supra) on the applicability of provisions of section 9 of the Act; but not on the treaty provisions between India and France. Thus, these cases law are distinguishable. 20. Conclusions: Therefore, we find the CIT(A) restricted his enquiry and adjudication inadequately to the provisions of Article 12(4)(b) of the Treaty and left the issues to like processes' and further of course, he ha not considered the provisions of Article 12(4)(a) of the Treaty entirely. He completely ignored the fact that the service agreements have real genesis in the purchase agreement qua the equipment ie Dense Wave Division Multiplexing equipment The impugned Service agreements, as amended from time to time, are required to be studied in conjunction with the purchase agreement of the equipment if the services which are rendered constitutes extended warranty with additional payments by way of AMC. Regarding the finding of the CIT(A) on the applicability of the provisions of Article 12(4)(b) of the Treaty, to the extent he adjudica ..... X X X X Extracts X X X X X X X X Extracts X X X X
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