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TMI Blog2016 (3) TMI 722X X X X Extracts X X X X X X X X Extracts X X X X ..... of the assessee worked more than 180 days. The Ld. representative further submitted that the assessee entered into an agreement with Reliance Petroleum Limited for providing technical and engineering services with regard to delayed Coker Unit of Reliance Petroleum Limited. According to the Ld. representative, the entire services rendered at the premises of Reliance Petroleum Limited. For providing technical and engineering services to Reliance Petroleum Limited, the assessee in turn entered into another agreement with Foster Wheeler USA to monitor and review the work done by the assessee's employees on an agreed consideration. The Ld. representative further submitted that the matter was referred to the Transfer Pricing Officer. The Transfer Pricing Officer found that there was no requirement for any adjustment with regard to above said transaction. The Assessing Officer passed the draft assessment order by disallowing the payment made to Foster Wheeler USA Corporation to the extent of Rs. 3,34,99,151/- and Rs. 14,94,99,978/- under Section 40(a)(i) of the Income-tax Act, 1961 (in short 'the Act') for the assessment years 2008-09 and 2009-10 respectively. The assessee explai ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee master in the subject. The Ld. representative further submitted that when the assessee does not get equipped with knowledge or expertise, it cannot be said that the knowledge or expertise was made available to the assessee by the service provider. In such a case it cannot be said that technical service was made available to the assessee. 4. The Ld. representative for the assessee placed his reliance on the judgment of Karnataka High Court in CIT v. Dee Beers India Minerals (P) Ltd. (346 ITR 467) and submitted that Karnataka High Court interpreted the word "make available". The Ld. representative submitted that if the technical knowledge is not made available to the assessee along with technical service, this cannot be considered that technical service was made available. Therefore, it would not fall within the definition of "technical service" as provided in Double Taxation Avoidance Agreement. Therefore, the payment made by the assessee is not liable for taxation. 5. Referring to judgment of Delhi High Court in Guy Carpenter & Co. Limited (ITA No.202/2012), the Ld. representative submitted that once technical knowledge was not made available to the assessee, it cannot be co ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion Avoidance Agreement in case it is beneficial to it. Double Taxation Avoidance Agreement admittedly clarifies that the technical knowledge or expertise shall be made available to the assessee for considering payment as fee for technical service. The question arises for consideration is whether the payment made by the assessee to Foster Wheeler France USA is taxable in India or not? Referring to Explanation 2 to Section 9(1)(vii) of the Act, the Ld. D.R. submitted that when the assessee paid fee for technical service for utilizing service in the business or profession carried on in India for the purpose of earning income, then it is deemed that the recipient-company earned income from India. The Ld. D.R. placed his reliance in Section 9(1)(vii) of the Act. In this case, according to the Ld. D.R., the assessee received services from Foster Wheeler USA and utilized the same in the business carried on by the assessee in India. Therefore, the payment made by the assessee to Foster Wheeler France USA has to be construed as fee for technical service and the income accrued to Foster Wheeler France S.A in India. Hence, the income is taxable in India. The assessee is liable to deduct tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nto another agreement with Foster Wheeler USA, an associate of the assessee-company. The assessee paid Rs. 3,34,99,151/- for the assessment year 2008-09 and Rs. 14,94,99,978/- for the assessment year 2009-10 with regard to services rendered by Foster Wheeler USA, the associate concern of the assessee. The Assessing Officer referred the matter to the Transfer Pricing Officer under Section 92CA(1) of the Act to determine Arm's Length Price of the transaction between the assessee and Foster Wheeler USA. The Transfer Pricing Officer reported that no adjustment is considered necessary to the value of the international transaction entered into between the assessee and Foster Wheeler USA. Therefore, the Assessing Officer has not made any adjustment with regard to transaction between the assessee and Foster Wheeler USA, an associate concern at USA. While passing draft assessment order, the Assessing Officer found that the payment made by the assessee to the associate concern at USA was liable for deduction of tax at source under Section 195 of the Act. Since tax was not deducted, the Assessing Officer disallowed the entire payment made to Foster Wheeler USA, the associate concern by ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recepient or consideration which would be income of the recipient chargeable under the head "Salaries"." We have also carefully gone through Explanation 2 to Section 9(1) of the Act, which reads as follows:- "Explanation - For the removal of doubts, it is hereby declared that "business connection" shall include any business activity carried out through a person who, acting on behalf of the nonresident,- (a) has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the nonresident ; or (b) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident ; or (c) habitually secures orders in India, mainly or wholly for the nonresident or for that non-resident and other non-residents controlling, controlled by, or subject to the same common control, as that non-resident :" 11. A bare reading of Explanat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ineering software applications, Remote Infrastructure Management, Application maintenance, Custom application development, Systems Integration, package software implementation and support, IT & Management consulting." 14. It is an admitted position that the assessee-company also engaged in the business of engineering and construction contract, engineering equipment and power equipment supplier. For the purpose of carrying out the business in India, the assessee received the above services from Foster Wheeler USA. In fact, the assessee has received execution plans with schedules, specifications, etc. Foster Wheeler USA reviewed the working of the assessee in respect of its plans, execution and also provided time schedule with emphasis on key milestones. The assessee has also received systems for meeting the project budget and client satisfaction. The job specification was also given by the foreign company Foster Wheeler USA. 15. Let's examine whether Foster Wheeler USA, the associate company in USA, has made its technical knowledge, expertise, knowhow to the assessee-company in the course of its business activity. The assessee claims that the technical knowhow and expertise were n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l and risk management experts it may be difficult to select a right process for the growth of the company. It is not the case of the assessee that in a given set of facts / problem, the USA company gave its solution or advice. The solution or decision is admittedly taken by the assessee company on the basis of the advice, service rendered by the USA company. Therefore, it is obvious that the technical knowledge, experience, skill possessed by the USA company with regard to financial and risk management was made available in the form of advice or service which was made use by the assessee company in the decision making process not only in management but also in financial matters. Another aspect is risk management service. Risk management service is a highly complicated one in the financial sector. Unless, the technical expertise and knowledge gained by the USA company is made available to the assessee company, they may not be able to analyse the situation to avoid risk in the business. It is also necessary to note that apart from providing the input, service and advice, the USA company is also providing training to the employees of the assessee company. Therefore, this Tribunal is o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e pros and cons of various lending alternatives, both for local and the foreign borrowings, prepare a preliminary information memorandum to be used as the basis for placing the foreign and local debt, and that the responsibility of entering into correspondence as per the advice of the non resident company and pursuing the matter was that of the assessee company itself, and not that of the non resident company. Therefore, the office of the assessee company could not be treated as the place of business of the non-resident company. In those facts and circumstances, the Andhra Pradesh High Court found that the business connection between the assessee company and non resident company had not been established. However, it was found that the "success fee" would fall within the definition of 9(1)(vii)(b) of the Act. The Andhra Pradesh High Court found that advice given to procure loan to strengthen finances would be as much a technical or consultancy service, as it would be with regard to management, generation of power or plant and machinery. The "success fee" was chargeable under the provisions of the Income-tax Act, and therefore, the assessee was not entitled to no objection certificat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the definition of Article 12(5) between India and Netherlands. On further appeal by the revenue before the Tribunal it was held that the payment in question for services rendered would not fall within the definition of "fee for technical services" under Article 12(5) of the DTAA between India and Netherlands. The Tribunal found that Netherlands company has surveyed, collected and processed the data on behalf of the assessee. There is no doubt that Netherlands company performed the service using the technical knowledge and expertise, but such technical expertise, skill and knowledge has not been made available to the assessee. On those facts, the Karnataka High Court found that the assessee was not being possessed with technical know how to conduct the prospecting operation. The maps and photographs which were made available to the assessee cannot be considered as technology made available. Therefore, the question of Netherlands company transferring any technical plan or technical design does not arise in the facts of the case. 33. As observed by the Karnataka High Court, the Netherlands company surveyed the area, prepared plan and photographs which are made available to the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Mumbai Bench of this Tribunal, the Tribunal found that the services rendered by the lead managers and managers are managerial or consultancy services within the meaning of section 9(1)(vii) r.w.s. Explanation 2 of the Act and therefore the payment made to managers are income by way of fees for technical services deemed to accrue or arise in India. Referring to the DTAA between India and UK, the Tribunal found that no technical knowledge, experience, skill, know how or process, etc. was made available to the assessee company by the non resident managers to the Global Depository Receipts. However, considering the services rendered by the UK company, the Mumbai bench of this Tribunal found that the arrangement between the assessee and the managers of the Global Depository Receipt issued was for the purpose of engaging the service of the managers under the subscription agreement. The subscription agreement contained detailed clauses as to rights and liabilities of the assessee company and the managers. The Tribunal found that as per the agreement, the managers had undertaken to render service in connection with the issue of Global Depository Receipts for which they are entitled for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... umbai Bench of this Tribunal in the case of Wokhardt Ltd (supra). In the case before the Mumbai Bench of this Tribunal, the assessee company was incorporated in USA and as per the agreement, the said company sent one of its professionals to India for a period of two days to address conference on future strategy of the company. The assessee company paid US$ 80,000 for the services rendered by the USA company and no tax was deducted. The Tribunal found that the presentation made by the professional was essential in the nature of sharing management, experience and business strategy. Therefore, the Tribunal found that the services rendered by US company could not be termed as technical services in nature. In the case before us, it is not a case of sharing of experience and business strategy. It is a case of providing technical information for taking managerial and financial decision. The assessee also used that technology, information and expertise of USA company in management risk analysis. The information and expertise made available to the assessee company was very much available with them and it can be used in future whenever the occasion arises. Apart from the employees of the ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ing for diamonds and other minerals. In the course of its business activity, the assessee before Karnataka High Court entered into an agreement with Nethrland company to engage its services in airborne survey for high quality, high resolution, geophysical data suitable for selecting the available minerals. The Netherland company gave data, maps and photographs by air borne survey and located the exact area for mining. On the basis of survey made by Netherland company, the assessee excavated the mines. In the case before Karnataka High Court, the technology of locating the diamonds by air borne survey was not given to the assessee. Only the result of the survey was furnished by the Netherland company. In the case before us, the foreign company reviewed the execution plans, emphasis on key milestones, provided the best practices available in the form of written procedures and specifications and details When the procedures and specifications are provided to the assessee, which is also a specialized company in engineering and execution of construction, this Tribunal is of the considered opinion that the specifications and details provided by foreign company can very well be used in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e cover in conjunction with J.B. Boda and Alsford Page and gems Ltd. The assessee will act as a claim administrator and will submit claims advices to relevant market systems. For the services rendered, the assessee along with other reinsurance brokers acting as an intermediary in the reinsurance process for New India Assurance Co. will be entitled to 10% brokerage. The assesseecompany was rendering only an intermediary service while acting as a facilitator in getting the reinsurance cover for New India Insurance Co. The assessee is not doing any other work other than acting as an intermediary in the reinsurance process. In the case before us, It is not the case of the assessee that it is playing only an intermediary role. It is receiving technical services like specifications, procedures, project management, etc. and it is utilizing the same in the project undertaken with Reliance Petroleum Limited. The specifications, technical knowledge, advice received from Foster Wheeler France S.A is vey much available with the assesseecompany and it can be used in execution of the engineering and contract with other clients. Therefore, this Tribunal is of the considered opinion that the judgm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... reports, technical standards and quality management standards, provided systems for meeting project budget and client satisfaction. On the basis of the technical knowledge, information provided by Foster Wheeler USA, the assessee-company can implement the same in the project while executing the project with Reliance Petroleum Limited. Unless the assessee-company acquires the knowledge, expertise, technical standards, quality management, etc. provided by Foster Wheeler USA, the same cannot be adopted or implemented while executing the project with Reliance Petroleum Limited When the assessee-company absorbs the technical knowledge, expertise, quality management, etc. for the purpose of implementing project with Reliance Petroleum Limited, such knowledge is very much available with the assessee and the same can be implemented with other projects with other clients. It is to be remembered that the assessee is not a layman. The assessee company is expert in providing technical and engineering service. Therefore, the assessee is capable of observing the opinion / advice given by USA associate and implement the same vide their future project. Therefore, this Tribunal is of the considere ..... X X X X Extracts X X X X X X X X Extracts X X X X
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