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TMI Blog2017 (11) TMI 1543X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee : Shri H.P. Aggarwal, FCA Ms. Prashuka Jain, FCA For The Department : Shri Gaurav Dudaja, Sr. DR ORDER PER R. K. PANDA, AM : This appeal filed by the assessee is directed against the order dated 08.11.2013 of CIT(A)-XXIX, New Delhi relating to assessment year 2013-14. 2. The only effective ground raised by the assessee reads as under :- 1. The learned Commissioner of Income-tax (Appeals) erred on facts and in law in not accepting the claim of the assessee that the payments to be made to The MITRE Corporation under Agreement is not taxable in India and hence, no tax is required to be deducted at source at the time of making payment to MITRE. 2. The appellant craves leave to add to or modify the above grounds of appeal at or before the hearing of the appeal. 3. Facts of the case, in brief, are that the assessee i.e. Airports Authority of India filed an application u/s 195(2) of the I.T. Act regarding payments amounting to USD 1,577,000 to be made to The MITRE Corporation, USA. The Assessing Officer observed that Airports Authority of India has entered into an Agreement with MITRE on 16.09.2011 whereby MITRE is to provide technical s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch the tasks shall be said to be completed. Para 2.2 to Annex 1 to the agreement provide a detailed description of the tasks, a brief of the tasks to be performed by MITRE is as below: 1. Task 1 'Algorithm Performance Evaluation', requires MITRE to provide a report documenting the analysis of the results of the integrity monitor algorithm after review and provide recommendations for certification. The total payout to MITRE for this task shall be USD 315,4001-. 2. Task 2 'Draft Certification Plan for GAGAN, requires MITRE to provide a certification plan, including suggested timeframes and responsibilities. The value of this shall be USD 473,1001-. 3. Task 3 'Participation in the GAGAN Technical Review Team', requires MITRE's participation in the technical teams of GAGAN and provide reports summarizing the suggestions and comments on Operational Testing Evaluation ('OT E') procedures and test results. Payout for this task shall be USD 630,8001-, 4. Task 4 'Operational Testing Evaluation', under this task MITRE shall review the test procedures developed by AAI and will develop a high level schedule for the same. The ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... imb of the clause is concerned the assessee argued that this clause provides that the services shall be treated as Fees for included services, if it make available the technology or other expertise. Referring to various decisions it was argued that make available means when the person acquiring the technology is enabled to apply the technology. 5.4 Referring to the MOU of the DTAA between India and USA, it was argued that the Phrase make available has been explained as under :- Generally speaking, technology will be considered make available when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills etc., are made available to the person purchasing the service, within the meaning of paragraph 4(b). Similarly, the use of product which embodies technology shall not per se be considered to make technology available. 5.5 It was accordingly argued that in order to be covered by this provision, it is a necessary condition that the service provided should make available the technology which e ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... included services. In the instant case, it is clear from the agreement itself that no such plan or design will be provided by the specialists who will visit India. Therefore, this limb of the article is also not applicable in the instant case. 6.3 It was accordingly argued that the assistance and certification services provided by MITRE should not be treated as FTS as contained in Article 12 of the Indo-USA DTAA. Under the circumstances, such assistance can at the most fall within the meaning of Business Profits as contained in Article 7 of the DT AA. However, Article 7 provides that the sum will be taxable in India only in a case where the non-resident (i.e. the MITRE) has any permanent establishment in India. In the instant case, there is no doubt about fact that MITRE does not have any PE in India. 6.4 It was accordingly contended that the payments made to MITRE are not chargeable to tax in India and hence not subject to withholding tax U/S 195 of the Act. 7. However, the ld. CIT(A) was also not satisfied with the explanation given by the assessee. Relying on various decisions including the decision of the Hon ble Supreme Court in the case of GE India Technology Centre ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MITRE. Clause 2.2 of Annex 1 says that project comprises 4 tasks as under : Task 1 : Algorithm performance Evaluation MITRE will review the integrity monitor ionospheric estimation algorithm results for GAGAN, as well as any other results obtained from integrity monitor algorithm modification that is GAGAN specific. Deliverable: Report documenting the analysis of results of the integrity monitor algorithm after review and providing recommendation for certification of GAGAN, including the levels of service that can be safely supported by GAGAN. Task 2 : Draft Certification Plan for GAGAN MITRE will assist AAI and Director General of Civil Aviation (DGCA) with objective of ensuring that all elements needed for GAGAN based operation are in place in order to declare GAGAN operational. Deliverable : A draft certification plan, including suggested timeframes and responsibilities. Task 3 : Participation in GAGAN technical review Team MITRE will participate in GAGAN technical review tem (TRT) which will include participation from DGCA, AAI, and ISRO. Raytheon will provide input to team as required by its contract with ISRO. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nical design has been delivered. 5.4 In order to deal with these arguments, Article 12(4) of Indo-USA DTAA is reproduced as under : 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 of other personnel) if such services : ( a) are ancillary and subsidiary to the application or enjoyment of the right, properly or information for which a payment described in paragraph 3 is received ; or ( b) make available technical knowledge, experience, skill, know-how, or process, or consist of the development and transfer of a technical plan or technical design. The case of the appellant falls within purview of Clause (b) of Article 12(4). It is pertinent to note that said clause (b) consists of two limbs; make available technical knowledge, experience, skill, know-how, or process OR consist of the development and transfer of a technical plan or technical design. The requirement of make available goes with first limb only and not with second limb. This has been held so by Hon ble ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and by performing an independent review of proposed technical solutions and selected design documents and analysis reports submitted by Raytheon. MITRE will convey its observations and make recommendations to AAI representatives. The activities in this proposal are limited. MITRE will review documents submitted by Raytheon describing the difference between GAGAN and WAAS (US Wide Area Augmentation System) and provide recommendations to AAI on how to organize the certification of GAGAN in light of these differences. MITRE will not recommend an implementation nor support the certification of a GAGAN system that is not fully compliant and interoperable with the existing ICAO Standards and Recommended Practices. 13. Referring to page 16 of Paper Book, he referred to clause 2.2.1 i.e. Task 1: Algorithm Performance Evaluation, ld. counsel for the assessee submitted that MITRE will review the integrity monitor ionospheric estimation algorithm results for GAGAN as well as any other results obtained from integrity monitor algorithm modification that is GAGAN specific. MITRE will document the review and make recommendations regarding GAGAN implementation. 14. Referring to page 17 of t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n be said to make available technical knowledge etc. where such technical knowledge is transferred to the person utilizing the service (Le the appellant in the instant case) and such person is able to make use of the technical knowledge etc. by himself in his business or for his own benefit and without recourse to the performer of services (i.e. Olof Granlund) in the future. The mere fact that provision of service may require technical knowledge by the person providing the service would not per se mean that knowledge has been made available. 17. Referring to page 10 of the said order, ld. counsel for the assessee drew the attention of the Bench to the following observations of the Tribunal :- Additionally, it can be seen that under the provisions of Article 13 of India-Finland tax treaty, provision of services shall qualify as FTS where the same consist the development and transfer of a technical plan or technical design to the recipient of the services. For the services to qualify as FTS the provider must itself develop the technical profit and loss account or design and then transfers the same to the recipient of the services. 18. He accordingly submitted tha ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 21. Relying on various decisions, he submitted that the assessee is liable for deduction of tax. He accordingly submitted that the order of the ld. CIT(A) be upheld and the grounds raised by the assessee should be dismissed. 22. We have carefully considered the rival arguments made by both the sides, perused the orders of the Assessing Officer and the CIT(A) and Paper Book filed on behalf of the assessee. We have also considered the various decisions cited before us. A perusal of the assessment order shows that there was no proper submission made by the assessee before the Assessing Officer. Only before the CIT(A) the assessee made certain submissions based on which the ld. CIT(A) held that any payment made by the assessee to MITRE are in nature of FTS and chargeable in India under the Act and India USA DTAA. He, therefore held that the assessee is under obligation to withhold tax from these payments u/s 195 of the I.T. Act. In our opinion, the matter requires a re-visit to the file of the Assessing Officer with a direction to adjudicate the issue afresh in the light of the various submissions made before us and in the light of latest decisions on this issue. Needless to say ..... 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