9911796707
TMI Blog2018 (8) TMI 1264X X X X Extracts X X X X X X X X Extracts X X X X ..... ribunal ought to have held that the management fees paid by the appellant to UST Global, cannot be taxed in India, in the absence of a permanent establishment for UST Global in India? iii. Ought not the Appellate Tribunal have held that since the payments termed as "management fees" effected connected cases by the appellant to UST Global is not chargeable to tax in India, there is no requirement for the application of Section 195, for withholding tax in respect of those payments? iv. Ought not the Appellate Tribunal have held that management services are not included/covered within the ambit of "Fee for included services" under the India- USA DTAA, prescribed under Article 12 of the said DTAA? v. Ought not the Appellate Tribunal have held that there is no services "made available" by UST Global to the appellant, going by the definition of "make available" as per the India-USA DTAA? vi. Is not the finding of fact by the Appellate Tribunal erroneous and perverse, in the light of the factual and legal aspects involved? 2. The appellant is before us on concurrent findings of the lower authorities that the assessee is liable to deduct tax at source for the payments made by ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 9; for short) entered into by the two Governments concerning 'fees for included services' in Article 12 was specifically referred. However, relying on the Andhra Pradesh decision, it was held that the same is applicable in the case of the assessee in so far as the US Company facilitated the Indian Company to take decisions in the managerial, financial and risk management aspects by providing their knowledge, expertise etc. to the Indian Company. It was using this knowledge transferred by them that the decisions were taken by the Indian Company and hence there is a transfer of specific technology for the purpose of decision making. 5. Sri.P.Gopinath Menon, learned Counsel appearing for the appellant-assessee, submits that though the technical and consultancy services as defined by the Income Tax Act includes any services even of the nature of a management or financial service offered, the DTAA read with the MOU would indicate that the specific services as per the agreement between the Indian and US Company were excluded. Reference is made to Section 90 to contend that the DTAA entered into with the foreign company is a statutory document recognized under the Income Tax Act ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ht within the scope of total income under Section 5(2) of the Act. Section 9 speaks of 'income deemed to accrue or arise in India' and sub-clause (vii) of sub-section (1) of the aforesaid provision, as is relevant for our consideration, is extracted hereunder: "(vii) income by way of fees for technical services payable by - xxx xxx xxx (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India: Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government. xxx &nbs ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uded professional services. In Dean, Goa Medical College, the question was whether the medical colleges would fall under the expression "technical institutions", which was answered in the affirmative; but with a rider that every professional service would not amount to a technical service. Going by the precedents as also the words employed in the Explanation, we respectfully bow to the precedents and find the services availed of by the Indian Company to come within the definition available in Explanation 2 under section 9(1) (vii) of the IT Act. However, the moot question would be whether the definition in the IT Act would be relevant in the context of the definition of 'included services' in the DTAA. 9. The issue then arises as to whether the income generated from such services could be exempted under the DTAA entered into between the Governments of USA and India. We were provided with a copy of the DTAA notified as Notification No.G.S.R.990(E) dated 20.12.1990. Article 7 deals with 'business profits', which obviously is the income generated by virtue of the services offered by the US Companies. The business profits of an enterprise of a Contracting State shall b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s 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". 12. The specific services availed of by the assessee-appellant from the US Company is covered under Clause 4 of Article 12 of DTAA is the finding of the lower authorities. In the context of a definition for 'fees for included services' not being available under the IT Act, we have to necessarily look at the definition as available under the DTAA. The 'fees for included services' as defined under the DTAA would take in payment of any kind in consideration for the rendering of any technical or consultancy services, which services are quite distinctly defined under sub-clauses (a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ral services; and 3. computer software development. Under paragraph 4(b), technical and consultancy services could make technology available in a variety of settings, activities and industries. Such services may, for example, relate to any of the following areas: 1. bio-technical services; 2. food processing; 3. environmental and ecological services; 4. communication through satellite or otherwise; 5. energy conservation; 6. exploration or exploitation of mineral oil or gas; 7. geological surveys; 8. scientific services; and 9. technical training". The MOU and the narrow definition given to 'included services' takes the services availed by the appellant herein, out of the 'included services' as per the DTAA. 15. We would also refer to certain examples provided in the MOU to further substantiate the view taken by us. The facts in one of the examples refer to an Indian vegetable oil manufacturing company desiring to produce cholesterol-free oil with the know-how for refining cholesterol out of the oil as available with an American Company. The Indian Company thus contracts with the US Company for the purpose of transfer of know-how ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... inclusive definition in the IT Act, even by Section 90(3) the definition in the DTAA is to be adopted to decide taxation or its avoidance. 17. The decision of the Karnataka High Court referred to by the Tribunal is reported in (2012) 208 Taxman 406 (Kar) [CIT v. De Beers India Minerals (P) Ltd]. Therein the Indian Company had sought for assistance of a Netherlands Company to conduct air borne survey for providing high quality, high resolution, geophysical data to identify probable kimberlite targets. The non-resident Company did not transfer any technological know-how to the Indian Company and merely carried out the survey by equipments brought by them into India and supplied the necessary details to the Indian Company. The Division Bench of the Karnataka High Court found that there was no transfer of technology and the foreign company merely carried out a survey, collected data and processed it to identify the probable mining sites. The mere transfer of such data, including maps and photographs, cannot be considered as a transfer of technology was the finding. 18. We are conscious of the fact that the DTAA as relevant in the present case, is not applicable even in the case of D ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... TAA, we have to find that the services availed of by the Indian Company, the appellant herein, from the US Company are not technical and consultancy services as defined under the DTAA, clarified by the MOU, which forms part of the notification issued by the Central Government on the double taxation avoidance between the Governments of United States and India. The remuneration received by the US Company for the services offered to the Indian Company being not a technical or consultancy service as defined under the DTAA, would also not be a fee for included services. The remuneration so obtained by the US Company definitely being an income accruing within India would not, hence, be taxable in India under the DTAA. We do not agree with the argument advanced by the learned Standing Counsel that the best evidence available for avoiding taxation within India is the tax paid within the United States of America. The nonITA. 38 of 2014 & - 21 - connected cases payment of tax in the U.S cannot automatically enable taxation in India. As we noticed, with respect to fees for included services, the same being business profits, would be taxable in the US and also in India; however, in India at a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
