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TMI Blog2018 (1) TMI 1537X X X X Extracts X X X X X X X X Extracts X X X X ..... eiver can deploy similar technology or techniques in future without depending on the provider. In this case also, the information, expertise and training provided by the USA company was absorbed by the assessee company in their decision making process and it was utilized for the purpose of business. The USA company made available all the technical data, information, expertise to the assessee company which was absorbed and made use of by the assessee company in their managerial and financial decision making process and other decision in the development of the business. Therefore, the expertise and technology which was made available by the USA company is technical service within the meaning of Article 12(4)(b) of the DTAA between India and USA. Hence, this ruling of the Authority for Advance Ruling may not of any assistance to the assessee. We do not find any infirmity in the order of the lower authority. Accordingly the same is confirmed - we are inclined to uphold the orders of the CIT(A) and sustain the additions on account of non deduction of TDS on account of management fees for the relevant assessment years. - Decided against assessee Amount remains unpaid in AY 201 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s and public relation activities, treasury service, risk management service and any other management support as may be mutually agreed between the parties. In pursuance of this agreement, the USA company provided its assistance, advice and support and the assessee company paid a sum of ₹ 85,22,743 in consideration of the services rendered by the USA company. Thus, the question arises for consideration is whether the payment made by the assessee company to USA company for the services rendered would be taxed in India or not? If it is taxable in India the assessee has to necessarily deduct tax at source at the time of making payment as provided in section 195 of the Indian Income-tax Act. The contention of the assessee before this Tribunal is that the managerial consultancy service has been specifically omitted in clause 4 of Article 12 of DTAA. Therefore, the managerial service provided by the USA company to the assessee company is not taxable in India. It is also the contention of the assessee before this Tribunal that at the best, the payment made by the assessee company to USA company may be considered as a business profit under Article 7 of the DTAA between India and USA a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e are reproducing below clause 4 of Article 12 of the DTAA between India and USA: 4. For the 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 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 development and transfer of a technical plan or technical design. 19. As per the above definition in DTAA, fees for included services means payment of any kind to any person in consideration for rendering of any technical or consultancy services. As rightly submitted by the Ld.counsel for the assessee, the term managerial service as found in Explanation 2 to section 9(1)(vii) of the Indian Income-tax Act, 1961 is not found in clause 4 of Article 12 of the DTAA between India and USA. Taking advantage of the absence of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o sovereign countries, the consultancy services which are technical in nature alone are to be included as technical and consultancy services for the purpose of fees for included services as per sub clause 4(b) of Article 12 of DTAA between India and USA. 22. With this background, let us now examine whether the service provided by USA company to the assessee company would be of service of technical nature as provided in clause 4(b) of Article 12 of DTAA between India and USA. Copy of the so-called management service agreement between the assessee and the USA company is not filed by the assessee before this Tribunal. Therefore, this Tribunal has to examine the services from the order of the CIT(A) where the relevant part of the management service agreement is extracted at paragraph 14 on page 22 of his order: WHEREAS, USTRPL (i.e. appellant) is in the business of developing world class information technology turnkey software solutions and innovative application development services. WHEREAS USTR (i.e. service provider) provides customer specified software development services and IT consulting services . WHEREAS, USTRPL and USTR now desi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the USA company. Therefore, it is obvious that the USA company provides highly technical services which are used by the assessee for taking managerial decision, financial decision, risk management decision, etc. 24. The next question arises for consideration is whether the above services could be considered as technical and consultancy services as provided in clause 4 of Article 12 of DTAA? As already discussed, only the services which are technical in nature, alone could be considered for included services. Therefore, This Tribunal has to examine whether the services rendered by the USA company are in the nature of technical services. Admittedly, the services rendered by the USA company are made use by the assessee company in management decision making, sales and business development, financial decision making, legal matters and public relations activity, treasury service, risk management service, etc. 25. Let us also examine whether the services provided by the USA company are technical in nature or not? Around 2500 years ago, the Tamil poet Thiruvalluvar in Thirukkural under chapter XLVII under the heading Action after Deliberations has elaborated ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... it is the core planning. Another expert by name, R Terry defines decision making as follows: Decision making is a selection of an alternative form from two or more alternative to determine a course of action. Yet another expert, Kenneth R Andrews defines decision making as follows: Decision making is a process involving information, choice of alternative options, implementation and evolution that is directed towards achievement of certain selected goals. 27. From the above definitions given by various experts, we may come to a simple and comprehensive meaning as follows: - Decision making is an act of selecting the suitable solution to the problems from various available alternative solutions to guide actions towards achievement of desired objectives. 28. Now the assessee here is admittedly making use of the advice, input, experience, experimentation and assistance rendered by the USA company in the decision making process of management, financial and risk management, etc. It is nobody s case that the USA company is taking any decision on behalf of the assessee. On the basis of the input, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 of the considered opinion that the service of technical input, advice, expertise, etc. rendered by the USA company are technical in nature as provided in clause 4(b) of Article 12 of the DTAA. 30. We have carefully gone through the judgment of the Andhra Pradesh High Court in the case of GVK Industries Ltd (supra). In the case before the Andhra Pradesh High Court, the assessee company constructed and erected power generating station designed to operate using industrial gas as fuel near Rajamundri. The assessee company intended to utilize the expert service of qualified and experienced professional who would prepare a scheme for raising the finances and tie up the required loan. A non resident company offered its services as a financial advisor to the petitioner company s project.. The services offered by the non resident company includes financial structure and security package to be offered to the lender, study of various lend ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ical 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 certificate. 31. During the course of hearing, the ld.counsel for the assessee was called upon to comment on the applicability of this judgment of the Andhra Pradesh High Court. The ld.counsel submitted that the Andhra Pradesh High Court had no occasion to consider the DTAA between India and USA. Therefore, the judgment of the Andhra Pradesh High Court is not applicable. No doubt, DTAA agreement between India and USA was not considered by the Andhra Pradesh High Court, but the ratio laid down by the Andhra Pradesh High Court clearly shows that advice given to procure loan to strengthen the finance would be managerial or technical or consultancy services for generation of power or plant and machinery. This finding of the Andhra Pradesh High Court is squarely applicable in respect of the service received by the assessee from USA company. Therefore, this Tribunal is of the considered opinion that advice / service said to be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 assessee company locating the exact area for mining. In fact, the Netherlands company located the exact area where diamonds were available after analyzing the photograph and the assessee company has nothing to do except mining the earmarked area for excavating diamonds. In fact, the technology of locating the diamond by aerial survey was not given to the assessee company. Only, the result of the survey was furnished by the Netherland company. Therefore, it is not a case of making available any technical expertise. In fact, the decision was taken by the Netherlands company fixing the location for mining. In the case on our hand, the facts are entirely on different set of facts. The decision was not taken by the USA company. The USA company facilitated the assessee company for making decision in the managerial, financial and risk management system by providing their knowledge ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ription 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 remuneration. The Tribunal found that the services of the managers for issue of Global Depository Receipt were utilized outside India for the purpose of carrying on its business in India. Since the arrangement is only for marketing the Global Depository Receipt outside India, the Tribunal found that the commission paid to UK company cannot be considered to be fee for technical service, therefore, there is no obligation on the part of the assessee to deduct tax u/s 195(1) of the Act. Therefore, it is obvious that only for marketing the GDR outside India, the service of managers are enjoyed. The decision to issue GDR was taken by Indian company without any assistance from managers. In the case before us, it is a clear case of using the technology, expertise of the foreign company in India for taking managerial, financial decision and risk management analysis. The ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ial 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 assessee company was also trained by USA company. Therefore, this Tribunal is of the considered opinion that the decision of the Mumbai Bench of this Tribunal in the case of Wokhardt Ltd (supra) also may not be of any help to the assessee. 37. We have also carefully gone through the decision of the Authority for Advance Ruling in Intertek Testing Services India (P) Ltd (supra). The Authority for Advance Ruling considered the DTAA between India and UK and found that rendering of service and making use of service go together. It was found that rendering of service and making use of the service are two sides of the same coin. After considering the word which the Authority for Advance Ruling found that rendering technical or consultancy service is followed by relative pronoun which and it has the effect of qualifying the services. The service o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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