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TMI Blog2019 (10) TMI 431X X X X Extracts X X X X X X X X Extracts X X X X ..... s of its own without any further assistance of the assessee. - Decided in favour of assessee - ITA No. 7216/Mum/2017, ITA No. 7217/Mum/2017 And ITA No. 7218/Mum/2017 - - - Dated:- 22-7-2019 - SHRI G.S. PANNU, VICE-PRESIDENT AND SHRI PAWAN SINGH JUDICIAL MEMBER For The Appellant : Shri Madhur Agrawal (AR) For The Respondent : Sh. Nishant Samaiya (Sr. DR) ORDERUNDER SECTION 254(1)OF INCOME TAX ACT PER PAWAN SINGH, JUDICIAL MEMBER; 1. This group of three appeal by assessee under Section 253 of Income-tax Act is directed against the separate orders of ld. CIT(A)-55, Mumbai dated 18.09.2017, for Assessment Year 2004-05 to 2006-07 respectively. In all the appeals the assessee has identical grounds of appeals except variations of figure of additions, thus all the appeals were clubbed, heard and are decided by common order for the sake of convenience and to avoid the conflicting decisions. For appreciation of facts the grounds of appeal in appeal for AY 2004-05 are referred below: ( 1) The learned CIT(A) erred in confirming the action of the assessing ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed by assessee are covered in favour of assessee by the decision of Tribunal dated 22.05.2019, in assessee s group case in The Neilson Company US LLC in ITA No. 4362/Mum/2015 for Assessment Year 2010-11. The ld. AR of the assessee furnish the copy of decision of Tribunal dated 22.05.2019. 4. On the other hand, the ld. DR for the revenue after going through the contents of decision in assessee s group case in The Neilson Company US LLC in ITA No. 4362/Mum/2015 for Assessment Year 2010-11 submits that he strongly rely upon the order of lower authorities. 5. We have considered the submission of both the parties and have gone through the orders of lower authorities and the decision of Tribunal in assessee s group case in The Neilson Company US LLC in ITA No. 4362/Mum/2015 for Assessment Year 2010-11. We have noted that on similar set of fact, the co-ordinate bench of Tribunal while considering the similar ground of appeal passed the following order: 9. We have considered the submission of the parties and have gone through the orders of authorities below. During the assessment the assessee claimed that the receipt from service agree ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndian entities in the course of their business activities which are utilised for the betterment and improvement of their business model and other practices, which has ultimately reflected in the increase of profitability of Indian entity. The employees of Indian entity are highly qualified and educated. Therefore, the receipt of general service agreement was treated by assessing officer as fee for include services. The assessing officer also relied on the decision of AAR in Perfetti VAN Holding B.V (case No. AAR No.869 of 2010 dated 09.12.2011). 11. Before ld CIT(A) the assessee filed detailed written submissions as made before us. It was also specifically brought to the notice of ld CIT(A) that the decision rendered by AAR in Perfetti VAN Holding B.V (supra) relied by the assessing officer has already been set aside by Delhi High Court, directing AAR to pass the order afresh. The ld CIT(A) confirmed the order of assessing officer without giving any different finding. 12. We have also examined the service agreement dated 09.01.2009 between assessee and ACNOM. The assessee has agree to provide the services to ACNOM which we ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Paragraph 4(a) of Article 12 refers to technical or consultancy services that are ancillary and subsidiary to the application or enjoyment of any right, property, or information for which a payment described in paragraph 3(a) or ( b) is received. Thus, paragraph 4(a) includes a technical and consultancy services that are ancillary and subsidiary to the application or enjoyment of an intangible for which a royalty is received under a licence or sale as described in paragraph 3(a), as well as those ancillary and subsidiary to the application or enjoyment of industrial, commercial, or scientific equipment for which a royalty is received under a lease as described in paragraph 3(b). It is understood that, in order for a service fee to be considered ancillary and subsidiary to the application or enjoyment of some right, property, or information for which a payment described in paragraph 3(a) or ( b) is received, the service must be related to the application or enjoyment of the right, property, or information. In addition, the clearly predominant purpose of the arrangement under which the payment of the service fee and such other payments are made must be th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch and stock based compensation. We have noted that while undertaking the above services the assessee has not executed any contracted to make available any technical expertise so as to use those services independently by the licensee. All the services under taken by the assessee are either support services, IT enable services, coordination or tax services as referred above are not such which require transfer of technology, skill to the receipt company. 17. The Hon ble Karnataka High Court in CIT Vs De Beers India Minerals (P) Ltd. while considering the similar question of law while considering the provisions of India- Netherland Double Tax avoidance Agreement (India- Netherland DTAA), while considering the facts that where a Netherland Company rendered technical services to the assessee, without making available any technical expertise so as to enable assessee use those services independently in future, payment made for such services cannot be termed as fee for technical services , the relevant part of the decision is extracted below; 13. Under the Act if the consideration paid for rendering technical services constitutes income by way of fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 14. Therefore the Clause in Singapore agreement which explicitly makes it clear the meaning of the word 'make available', the said clause has to be applied, and to be read into this agreement also. Therefore, it follows that for attracting the liability to pay tax not only the services should be of technical in nature, but it should be made available to the person receiving the technical services. The technology will be considered 'made available' when the person who received service is enabled to apply the technology. The service provider in order to render technical services uses technical knowledge, experience, skill, know how or processes. To attract the tax liability, that technical knowledge, experience, skill, know how or process which is used by service provider to render technical service should also be made available to the recipient of the services, so that the recipient also acquires technical knowledge, experience, skill, know how or processes so as to render such technical Services. Once all such technology is made available it is open to the recipient of the service to make use of the said technology. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ce put into effect and adopted under the service agreement on its expiry. 16. In the aforesaid case, the applicant holding Company was to provide to its subsidiary Company in India the licence to manufacture and sell products, the licence to use technology, technical marketing and commercial know-how in the manufacture, sales and advertisement and promotion of the products, offer technicians, marketers, salesman, in-house legal counsel and the experienced employees to assist in the activities mentioned above. Under the Service Agreement, specifically the Service recipient require the use of proprietary knowledge and processes belonging to Perfetti Group. Specified services such as Accounting budgeting, sales, marketing, forex management, loans, HR, legal support etc. and specified services are to be provided on continuous basis. Therefore, it was held in the aforesaid case, that the case falls within the purview of Article 12.5(a) of the DTAC on such service which are ancillary and subsidiary to the applicant or enjoyment of right property or information for which the payment prescribed in paragraph 4 of the Article is to be made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the nature of fees for technical services and taxable under the DTAA as well as under the Act. 20. In the aforesaid case the business of the applicant being that of executing the projects for transmission and distribution of power on turnkey basis, it is the French Company and other Group Companies which continuously upgrade designs, model and other engineering plans and formulae which are used by the applicant for the purpose of its business. The main objective of setting up of an exclusive platform is not for providing information technology but for enabling the applicant to use data in the form of designs, plan, model and engineering formulae etc., in 2D 3D form. The character of the payment is clearly royalty as defined in Article 13(3) of DTAA as well as to Explanation 2 to Section 9(1)(vi) of the Act. The agreement clearly establishes that the applicant as to prepare for the installation at the fixed gateway sites for proper installation of equipment by France telecom. It is to act as bailee of the equipment which is under its control and use for its business. The use of equipment is with the usual condition of warranty a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of consideration would be regarded as fee for technical/included services only if the twin tests of rendering services and making technical knowledge available at the same time is satisfied. 18. The coordinate bench of Ahmedabad Tribunal while considering the provisions of India- Canada DTAA and following the decision of Hon ble Karnataka High Court in Dee Beers India (P) Ltd (supra) held that rendition of IT support services to assessee by a Canadian company, even if certain equipment were to be used, that by itself did not vest any right in assessee to use equipment and thus, payments made by assessee could not be viewed as payments for 'use or right to use' any industrial, commercial or scientific equipment. The relevant part of the order is extracted below; 15. We find that so far as taxability under Article 12, i.e. with respect to 'Royalties and fees for included services' is concerned, we find that Article 12(4) provides that, The term fees for technical included services as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consult ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available , the technical knowledge, skill?, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered made available when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skill, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as fee for technical/included services only if the twin tests of rendering services and making techni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... granted licences (Reconnaissance Permits) by the State Government of Karnataka, Andhra Pradesh and Chhattisgarh. During the early stage, various techniques were employed for the purpose of carrying out geophysical survey, the assessee entered into agreement with M/s.Fugro Elbocon B.V. Netherlands, who had a team of experts specialised in air borne geophysical services for clients. For the technical services rendered by them the said assessee had paid consideration. The Assessing Officer applied Article 12 of the Indo-Netherlands Treaty and held that the same was taxable in the hands of the Netherlands Company. As the wordings of Article 12 in the Indo-Netherlands Treaty are analogous to Article 12 of the India Australia Treaty, as expression 'make available' is also used while determining fiscal jurisdiction of the contracting state, the Hon'ble High Court explained the meaning of the expression 'make available' which was appearing in the Indo-Netherlands Treaty. 20. In view of the above factual and legal discussions, we hold that the assessing officer erred in taxing the service agreement receipt as fee for included services as per Articl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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