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TMI Blog2013 (11) TMI 317X X X X Extracts X X X X X X X X Extracts X X X X ..... cy services ( including provisions of services of a technical or other personnel) and thus, provisions of services of personnel is included in the definition of fees for technical services. ii. The services are covered under Article 13(4)(a) of Indo-UK Treaty and the chargeability of fees for technical services is wider in scope and nature u/s. 9(1 )(vii) read with explanation 2 of the Income Tax Act, 1961. iii. The 'make available' component is present with the receipt as in terms of latest Rulings in Perfetti Van Melle Holding SV. in AAR No. 869 of 2010 dated 09-12-2011, the expression 'make available' would mean that the recipient of the service should derive an enduring benefit and would be in a position to derive benefit from similar service independent of the party rendering the services." 3. The assessee company is a Joint Venture Co. between Marks & Spencer PLC and Reliance Retail Limited. The assessee entered into an agreement dated 31.07.2009 with Marks and Spencer PLC of U.K. based company whereby the assessee was provided personnel to carry out the functi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... gross revenue received by the payee being FTS is liable to tax and expenses can not be allowed as deduction. The learned DR has further contended that once the payment is fee for technical services then the theory of reimbursement of expenses does not apply. He has relied upon the order of the Assessing Officer and submitted that in case of payment to non-resident the assessee cannot take a unilateral decision that payments are not sum chargeable to taxes. The assessee could have obtained certificate under section 195(2) in this respect before making the remittance. The employee are provided to the assessee which were having requisite skills and experience to carry out functions of business development , preparing business strategies, sales strategies and advertising on retail matters in order to complete the preparatory necessary for the start of business of joint venture Co. The nature of the services provided by the payee through its employee is technical and expert's services in the field of management and other affairs therefore, the payment against such services falls under the definition of fees for technical service. 6. Learned DR has further contended that these pers ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... re not treated as reimbursement the same are not taxable in India as business profits in the absence of P.E in India. He has also relied upon the following decisions: * CIT Vs De Beers India Minerals (P.) Ltd. 346 ITR 467 (Kar.) * IT Vs Siemens Aktiongesellschaft 310 ITR 0320 * Utility Powertech Ltd. v. Asstt. CIT [IT Appeal No. 2561 (Mum.) of 2009, dated 19-4-2010] * ACIT Vs CMS (India) Operations & Maintenance Co. (P.) Ltd. 19 Taxman 139(Chennai) * Bhagyanagar Gas Ltd. Vs ACIT 29 Taxman 220 * Abbey Business Services (India) (P.) Ltd. Vs DCIT 23 Taxman 346 (Bang.) * ITO v. ISE Securities & Services Ltd. [IT Appeal No. 6391 (Mum.) of 2009, dated 30-12-2011] 9. We have considered the rival submission as well as relevant material on record. The assessee paid Rs. 4,86,6187/- to Marks and Spencer PLC towards salary expenditure of 4 employees deputed to the assessee for providing assistant in the area of management of setting of the business, retail operations, property selection & evaluation, production ma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... verned by a separate agreement and shall not constitute a M&S service or a Reliance Service. The cost of any employees of M&S or Reliance (as the case may be) that are seconded to or directly engaged by the Company will be charged to the Company without mark up or the Company shall directly compensate the seconded or engaged employee, unless otherwise agreed between M&S and Reliance." 11. Thus, it is clear from the clause 3.6 of the agreement that the parties will sign a seconded agreement without any mark up and therefore, the assessee shall directly compensate the seconded or engaged employees. The parties i.e. assessee and M&S PLC further signed a confirmation of understanding as agreed at the time of agreement vide confirmation letter dated 31st July 2009 whereby these employees which were provided by Marks & Spencer PLC to the assessee were retained as seconded employees. The assessee has claimed that the amount paid to the Marks & Spencer PLC UK is only the reimbursement of cost and since the same is not in the nature of FTS it is not taxable in India in the absence of any profit element as well as permanent establishment of the payee. As far as the claimed of reimbursement ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the underwriting commission is de hors the rendering of any managerial, technical or consultancy services and hence cannot fall within the definition of fees for technical services under s. 9(l)(vii). The last item is the reimbursement of expenses. The AD has not disputed that the sum of Rs. 1.68 crores is. In the nature of expenses reimbursed by the assessee to the lead managers. When a particular amount of expenditure is incurred and that sum is reimbursed as such, that cannot be considered as having any part of it in the nature of income. Any payment, in order to be brought within the scope of income by way of fees for technical services under s. 9(l)(vii), should be or have at least some element of income in it. Such payment should involve some compensation for the rendering of any services, which can be described as Income in the hands of the recipient. In other words the component of income must be present in the total amount of fees paid for technical services to constitute as an item falling under s. 9(l)(vii). Where the expenditure incurred is reimbursed as such without having am element of income in the hands of the recipient, it cannot assume the character of income deem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t agreeable with this argument. There is controversy on the legal position that the 'business profits' under art. 7 can charged to tax in India only if the non-resident has PE in India. There is no dearth of the judicial precedents laying down that in the absence of any PE in India the business profit of the nonresident cannot be taxed in India. But the real controversy before us is about the nature of payment made by the assessee the non-resident which is in the nature of 'fees for technical services' for which special article has been included in the convention. Clause (1) of art. 13 of this DTAA provides that the royalties and fees for technical services arising in a Contracting State and paid to resident of the other Contracting State may be taxed in that other State. On a glance at this article, it turns out that there is no precondition for taxing royalties and fees for technical services in India only to the extent which is attributable to the PE of the non-resident, as is there in relation to art. 7. So even in the absence of any P.C of the non-resident, art. 13 operates and royalties or fees 'for technical services paid to the resident of another Contra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9;business profits' cannot be considered for application with respect to the 'fees for technical services' which is subject-matter of art. 13 separately. We will thus ignore the general provision in art. 7 and consider the special provision as contained in art. 13 for our purpose. Clause (2) of art. 13 provides that the royalties and fees for technical services may also be taxed in the Contracting State in which they arise and according to law of that State; but f the beneficial owner of the royalties or fees for technical services is the resident of the other Contracting State, the tax so charged shall not exceed the limits set out therein. Article 13(4) defines the term "fees for technical services" to mean payments of any kind to any person in consideration for the rendering Of any technical or consuitancy services (including the provision of services of technical services or other personnel);which: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in para 3(a) of this article is received; or (b) are ancillary and subsidiary to the en ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... overed within its scope and mere provi4jng of such services without making them available to the assessee will not serve the purpose and hence will be outside the ambit of article. The assessee has ab initio contended before the authorities below that even if the services rendered by the lead managers were held to be technical services but those were not "made available the assessee. "Rendering of any technical or consultancy services" is followed by "which make available technical Knowledge, experience, Skill, know how". In this context is becomes imperative to understand the meaning of the expression "make available used in this article. Make available means to provide Something to one, which is capable of use by the other. Such use may be for once only or on a continuous basis. In our context to make available the technical services means that such technical information or advice is transmitted by the non-resident to the assessee, which remains at its disposal for taking the benefit therefrom by use. Even the use of such technical services by the recipient for once only will satisfy the test of making available the technical services to the assessee. If the nonresident uses all ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cial aircraft pilot or training the staff in particular skills such as software development would fall within the ambit of the said expression in cl. (c). Supposing, a prescription and advice is given by the doctor after examining the patient and going through the clinical reports. The service rendered by the doctor cannot be said to have made available to the patient, the knowledge and expertise possessed by the doctor. On the other hand, if the same doctor teaches or trains students on the aspects of diagnosis or techniques of surgery, that will amount to making available the technical knowledge and experience of the doctor." 19.20 Similar view has been taken in the case of Raymond Ltd. (supra). It, therefore, follows that making available the technical services to the recipient is sine qua non for treating consideration paid for it as fees for technical services under art. 13 of DTAA with UK. Adverting to the facts of the instant case we find that the lead managers had rendered technical, managerial or consultancy services in the GDR issue, but such services were not made available to the assessee inasmuch as the assessee only derived the benefit from t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ot be said to be technical services within the scope of treaty between India and U.K. and as explained by ITAT Mumbai in the case of Raymonds Ltd (supra). Further, from the above it also cannot be said that the services have been 'made available' to the appellant to be taxable in India. 4.8 Reference in this regard is made to the judgment of ITAT Bangalore 'A' Bench In case of IDS Software Solutions (India (P) Ltd. 122 ITJ (Bang) 410. In this case of an employee of U.S. Company was seconded to the Indian Company under an secondment agreement" to provide managerial services in the business of the Indian Company. The seconded employee was reportable and responsible to the Indian Company and was required to devote the whole of his time, attention and skills to the duties required by the secondment agreement. The Indian company had the right to approve or reject the employee and if necessary to request the US company to replace the employee if such employee is found not qualified to meet the requirements of the seconded arrangements. The seconded employee was required to act and serve as 'officers', authorized signatories, nominees and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and any other proprietary or business related information. Article VI which provides for indemnity, that is to say, the liability of the assessee company to indemnify the US company from all claims, demands, etc., consequent to any actor omission by the seconded employee is also inconsistent with the claim of the Department that this is an agreement for rendering technical services. The article further provides that nothing in the agreement shall be construed as a warranty of the quality of the seconded employee. It is not usual to find a stipulation in an agreement for rendering technical services." 4.9 Similarly in case of Asstt. CIT v. Louis Berger International Inc. Hon'ble Hyderabad ITAT in a case of reimbursement of expenses for providing consultancy services has held that such reimbursement of expenses is not taxable under India USA treaty and also under the Act. In case of United Hotels Ltd. v. ITO[2005] 2 SOT 267 (Delhi), the Hon'ble ITAT, Mumbai has considered the scope of fees for technical services and payment of salary to the employees on deputation for rendering various professional services, such as accounting, engineering etc. and h ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xperience, skill, know-how or process, or consist of development and transfer of technical plan or technical design shall be treated as fee for technical services. An identical issue has been considered by the Hon'ble Karnataka High court in case of De Beers India Minerals (P.) Ltd. (supra) in par 22 as under: "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 prayer of the service could derive on 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iance on the decision of Hon'ble Jurisdiction of High court in case of Siemens Aktiongesellschaft (supra), wherein the Hon'ble High Court. 17. In the case in hand, there is no dispute that the payment for salary to the employees deputed in India and subsequently absorbed is less than the actual amount of salary paid by Marks and Spencer PLC UK to the personnel in India. The details of payment are given by the CIT(A) in para 2.6 of the impugned order as under: "During the course of hearing it was noticed that TDS of Rs. 62,86,149/- has been done by Marks & Spencer India Pvt Ltd on a amount of Rs. 1,88,10,781/- including perquisite of Rs. 42,23,855/- paid to Mr. Spencer Sheen, one of the persons deputed by the U.K. Co. to the appellant. In this regard Learned Authorised Representative has explained that Mr. Spencer Sheen in addition to working with the joint venture company was also functioning as Director in Bangalore Company. Acknowledgement copies of the return of all the employees have been filed with the details as under: Name Gross Total Income Total tax paid (In Rs.) (In Rs.) 1 Spencer Timothy Sheen 1,88,10,781 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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