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TMI Blog2014 (4) TMI 249X X X X Extracts X X X X X X X X Extracts X X X X ..... the clause seems to be that requirements of “make available” in the tax treaty is met if the technology, knowledge or expertise can be applied independently by the person who obtained the services - the applicant merely took assistance of the Holding company in its business activities outside India and there is no material to suggest that the technical know-how, skill, knowledge and expertise are transferred to the applicant so as to enable the applicant to apply this technical know-how etc. independently – thus, the requirement of the ‘make available’ clause in the Article 12(5) of the India-Netherlands Tax Treaty is not satisfied and hence the payment for the services rendered by Endemol BV will not come under ‘fees for technical services’ under the ‘Tax Treaty’. The payments made by the applicant to Endemol Holding for availing the services under the terms of the Consultancy Agreement is not in the nature of Fees for Technical Services (FTS) under Article 12 of the India-Netherlands Tax Treaty because the services rendered by the non-resident company do not meet the requirements of ‘make available’ under the treaty – thus, the payment will not be treated as business income ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... has adopted a lean organization structure and relies on the concept of centralized shared services which provide services to group companies across the world. The applicant EIPL also has a lean organization in India and requires assistance from Endemol Holding to carry out its business efficiently and in a profitable manner and for that purpose entered into an agreement, hereafter referred to as Consultancy Agreement, with Endemol Holding on 10.01.2011 to be effective from 1st January, 2011. The agreement was for procuring certain consultancy services from Endemol Holding. The agreement would allow the applicant to consult Endemol Group on various issues. As per the Schedule 1 of the agreement, Endemol Holding will provide the following services to the applicant:- (a) General Management (b) International Operations (c) Legal advisory (d) Tax Advisory (e) Controlling and Accounting reporting (f) Corporate Communications (g) Human Resources (h) Corporate Development, Mergers Acquisitions 4. Projecting aforesaid facts and circumstances of the case, the applicant seeks ruling from the Authority for Advance Rulings on the following questions:- 1) Whet ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur knowledge. The above statement is certified on the understanding that the same is required to proceed with the advance ruling as stated above and is provided on the specific request of the Authority for Advance Rulings and in no manner whatsoever, will impact any existing contractual obligations between Endemol Holding B.V and Endemol India Private Limited or create any other liability whatsoever under any other existing agreements. 6. The main submission of the applicant is that the payment made by it to Endemol Holding is for utilizing its administrative services under the Consultancy Agreement which does not fall within the purview of Article 12 of the India Netherlands Tax Treaty. It was stated that the term Fees for Technical Services (in short FTS ) has been defined both in the Explanation 2 to section 9(1) (vii) of the Act as well under Article 12(5) of the India and Netherlands Tax Treaty. Though the definition in the explanation 2 to section 9(1)(vii) of the Act and that under Article 12(5) of the India-Netherlands Tax Treaty are more or less similar, make available clause is included in the definition of FTS in Article 12(5) of the Tax Treaty. It was submitte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 77) (AAR), M/S Invensys System Inc. (317 ITR 438),(AAR) Intertek Services (307 ITR 416) (AAR), Anapharma Inc. (305 ITR 394) (AAR), Ernst Young (P) Ltd (323 ITR 184 (AAR) 8. The Revenue on the other hand submitted that the services rendered by Endemol Holding was not merely administrative but technical in nature. It was stated that as per clause (b) of General part of consultancy agreement between Endemol Holding BV and the applicant, the applicant will be provided certain consultancy services as described in schedule 1 of the consultancy agreement. This shows that the services availed by the applicant are consultancy services and are squarely covered under the definition of Fees for Technical Services even as per the Article 12 of the India-Netherland Tax Treaty. It was contended that as per its own admission, the holding company is making available technical knowledge, experience, skill, know-how and administrative processes which clearly fall within the definition of Fees for Technical Services . This was disputed by the Ld. Counsel of the applicant. The Revenue further argued that the price of services is calculated by apportioning the budget cost to pro-rata part of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nteractive productions, and has established as one of its tasks to disseminate such experience, knowledge and expertise in other operating companies within the Endemol Group. Operating company is not sufficiently staffed and equipped to carry out certain activities deemed necessary for efficient and profitable conduct of its business and therefore requires assistance from the holding company in relation to the services and the holding company is willing to render the services to the operating company on a regular basis. Article 1 of the consultancy agreement clearly shows that it is the considerable experience, knowledge and expertise of the holding company that is to be rendered and for which payments are to be made. It is also made clear that the services that are provided are certain consultancy services as described in Schedule 1 as shown in para 3 above. The definition of Fees for technical Services in Explanation 2 to section 9(1)(vii) of the Act, contains three elements, namely managerial, technical or consultancy. The consideration paid for the services rendered by the non-resident company in this case is covered by the broad definition of Fees for Technical Services in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rmination of the actual nature of service were not given by the applicant. In such circumstance, we have to go by the services mentioned in the Consultancy Agreement between the applicant and the non-resident company. Nature of the services listed in Schedule 1 to the Management Consultancy Agreement require technical knowledge, experience, skill, know-how or processes. They can not be termed as merely administrative and support services as tried to be made out by the applicant. It is noticed that several attempts were made in the past to interpret the meaning of technical services and also the make available clause in Tax Treaties. This is apparent from the case decisions cited by both the applicant and the Revenue in this very case. Broad consensus of the interpretation relate to services that require special expertise, skill and knowledge which are not in possession of ordinary person. This being the case the services rendered by Endemol BV to the applicant cannot but be technical in nature. We, therefore, hold that the services rendered in this particular case are technical services both under the provision of the Income-tax Act and under the India-Netherlands Tax Treaty su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n is not what may be supposed and has been intended but what has been said. This position was elaborately stated by a Constitution Bench of the Hon ble Supreme Court in Padma Sundara Rao (dead) and Ors. V. State of T.N. and Ors. (2002)3 SCC 533. 15. We have considered the arguments in relation to details as available on record. There is no dispute about the profit arising out of the transaction in the hands of Endemol Holding BV. There is also no dispute about the services rendered outside India for which payments were made by the applicant to Endemol Holding. The applicant is an Indian enterprise and for its business activities outside India, the services on Endemol Holding were utilized. There is no material to show that Endemol Holding has any presence in India. Payments for the services were received by Endemol Holding outside India. There is also no material to suggest that the applicant is fully dependent on Endemol Holding BV. In such circumstances we hold that the company Endemol Holding BV does not have any PE in India. As regards the arguments of the Revenue, we have already held that the payments do not come under Fees for Technical Services for the reasons stated i ..... X X X X Extracts X X X X X X X X Extracts X X X X
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