9911796707
TMI Blog2016 (5) TMI 1534X X X X Extracts X X X X X X X X Extracts X X X X ..... Sweden. During the period relevant to the assessment years under appeal, the assessee received a sum of Rs. 32,40,082/- in assessment year 2007-08 towards service fees for use of CAD/CAM software from its M/s. Sandvik Asia Private Limited, its Associate concern (hereinafter referred to as 'SAPL'). The Assessing Officer held that the assessee company has given user rights to exploit the CAD/CAM software designed according to its own business utility. The license fees for use of customized CAD/CAM software received by the assessee from its Indian Associate partakes the nature of Royalty. The Assessing Officer after detailed discussion on various aspects relating to taxability of license fees under DTAA, definition of term 'Royalty' and the legislative intent to bring into tax net payment of such nature within the ambit of 'royalty' held that the amount received by the assessee is liable to be taxed in India. 2.1 The Assessing Officer further made addition of Rs. 25,92,070/- on account of payments received by assessee from M/s. Sandvik Asia Private Limited (SAPL) towards installation charges of Dematek Lifting Crane, upgradation of operating system of laser machine and service cost ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... p. The assessee is responsible for maintaining the software and upgrading the same. The ld. AR contended that the Sandvik Group companies all over the world are given limited user right to this system to enable them design the products in an efficient and cost effective manner. The group companies do not own the license but are granted access to the software. The user companies can only input data and obtain final design related to the products. The right to upgrade the software, edit the software, and maintain the software lies with the assessee. 4.1 The ld. AR further contended that CAD/CAM services are of two kinds : (i) Special Manufacturing tools; and (ii) Standard Manufacturing tools. Specified employees of each group companies are given access to this software. Each group company is annually charged a support fee based on the number of users at each site. In the period under consideration SAPL had 6 users for the Special Manufacturing tools and 5 users for the Standard Manufacturing tools. Further, support services relating to these CAD/CAM software was provided by the assessee. The support fee is charged for the following services; i. General support for the use of UG. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... provisions of Income Tax Act or the DTAA signed by India with various countries. Thus, in the absence of the definition of make available under the Act, the term 'make available' has to be understood in general terms from dictionary or other legal enactments. The ld. DR referred to the assessment order wherein the term 'make available' has been defined after taking cue from various websites. The ld. DR submitted that the words 'make available' used in the treaty if read with reference to the meaning in the dictionary as well as available on websites would suggest that the services rendered by the assessee are in the nature of technical knowledge, experience, skill etc. and the payments received in lieu thereof are clearly in the nature of 'fees for technical services'. In respect of ground no. 2 raised by the assessee, the ld. DR contended that the assessee has not given any details with regard to modification carried out to the basic program/software allegedly purchased from third party either before the Assessing Officer or DRP. The ld. DR strongly defended the findings of Assessing Officer and DRP and prayed for dismissing the appeal of the assessee. 6. We have heard the subm ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ntext of supplying or transferring technical knowledge or technology to another. It is different than the mere obligation of the person rendering the services of that persons own technical knowledge or technology in performance of the services. The technology will be considered as made available when the person receiving the services is able to apply the technology by himself. 14. The expression 'make available' has come for consideration before the Hon'ble High Court of Karnataka in the case of M/s.De Beers India Minerals Pvt. Ltd. (supra). In the said case, the Treaty between India and Netherlands was for the consideration of their Lordships. The assessee in that appeal was a providing company engaged in the business of prospecting and mining for diamonds and other minerals. They have been 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rtue of Protocol in the agreement, Clause (iv)(2) reads as under: "If after the signature of this convention under any Convention or Agreement between India and third State which is a member of the OECD India should limit its taxation at source on dividends, interests, royalties, fees for technical services or payments for the use of equipment to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said items of income, then as from the date on which the relevant Indian Convention or Agreement enters into force the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under this Convention." 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 i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available', the technical knowledge, skills, 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, skills, 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 test of rendering services and making technical knowledge available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... xation and the prevention of fiscal evasion with respect to taxes on income and on capital, the undersigned have agreed that the following shall form an integral part of the Convention : With reference to Articles 10, 11 and 12 : In respect of Articles 10 (Dividends), 11 (Interest) and 12 (Royalties and fees for technical services) if under any Convention. Agreement or Protocol between India and a third State which is a member of the OECD, India limits its taxation at source on dividends, interest, royalties, or fees for technical services to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said items of income, the same rate or scope as provided for in that Convention, Agreement or Protocol on the said items of income shall also apply under this Convention." 11.1 An MFN clause refers to a situation wherein two non-resident tax payers are given impartial treatment by the concerned country. In DTAAs, MFN clause find place when countries are reluctant to forego their right to tax some elements of the income. An MFN clause can direct more favourable treatment available in other treaties only in regard to the same subject matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n India. In the decision relied upon by the assessee in the case of Raymond Ltd. vs. Dy. CIT (supra), it was held that no technical knowledge, experience, skills, know-how or process etc. was made available to the assessee company by the non-resident managers of the GDR issue within the meaning of art. 13(4)(c) of the DTAA. Likewise, decisions in the cases of Skycell Communications Ltd. (supra) and NQA Quality Systems Registrar Ltd. (supra) are distinguishable on facts, hence, are not applicable to the facts of the assessee's case." 11.3 It is also worthwhile to refer to the ruling given in the case of Authority for Advanced Ruling (AAA) in the case of Poonavala Aviations reported in 343 ITR 381 though it is having persuasive value which reads as under : "16. In his introduction to Double Taxation Conventions (Third Edition), Klaus Vogel, has clarified the role of a protocol and its role in interpreting a treaty. He says, "Protocols and in some cases other completing documents are frequently attached to treaties. Such documents elaborate and complete the text of a treaty, sometimes even altering the text. Legally they are a part of the treaty, and their binding force is equal t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Sweden. It is not a case where the users can modify the program. The users have limited accessibility to the program for using it without any further modification. 10. The ld. AR of the assessee in support of his contentions has placed reliance on the decision of Co-ordinate Bench of the Tribunal in the case of Sandvik Australia Pty. Ltd. Vs. Deputy Director of Income Tax (International Taxation-II, Pune (supra). The issue before the Tribunal in the said case was : "1.1 The Learned Deputy Director of Income-tax, (International Taxation)-II, Pune, i.e., Assessing Officer (AO) has erred in holding that the IT support services rendered by the Appellant are in the nature of Royalty/FTS within the meaning of article 12 of the India-Australia treaty and/or Section 9(1)(vii) of the Income Tax Act, 1961." The Tribunal held : "8. We have heard the rival submissions of the parties and perused the record. The assessee is a non-resident company. The assessee is providing the IT support services to its group companies in the Asiapacific region. So far as the issue before us is concerned, two group companies from India, i.e., Sandvik Asia Ltd. and Walter Tools India Pvt. Ltd., have made ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ount received by the assessee cannot be taxed in India. 10. The assessee has filed the copy of the agreement with the Sandvik Asia Ltd. dated 19.12.2006. It is placed in the Paperbook (page Nos.1 to 10). We find that in the said agreement the parties have described the nature of the services which the assessee company is to provide to the recipient company i.e., Sandvik Asia Ltd. The DRP has placed his emphasis in the recital of the said agreement where it is stated as under: "Providing Party is prepared to transfer such knowledge to the Receiving Party and to provide the receiving parties with information technology, consultancy and data process services." 11. Though the agreement is to be read as a whole and cannot be read into piece-meal basis but what we find as per operative clauses in respect of the contractual obligation of the assessee company nowhere it is suggested that assessee has to make available the required technical know-how for solving the problems faced by the Sandvik Asia Ltd. in their IT related problems." 11. It has been contended before us that the assessee has not given the details of the modifications carried out by the assessee either before the Ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... as well with similar directions. Accordingly, ground no. 1 raised in the appeal for assessment year 2009-10 is allowed for statistical purpose. 14. In ground no. 2 the assessee has assailed the addition of Rs. 3,97,875/- on account of fees for technical services in respect of product inspection charges. The ld. AR of the assessee submitted that the product inspection charges do not qualify the test of make available. Therefore, the addition made on account of fees for technical services is bad in law. The ld. AR submitted that the issue is similar to ground no. 1 raised in the appeal for the assessment year 2007-08. The ld. DR has not controverted the contention of the ld. AR. Since, this issue has been dealt with in detail in the appeal for assessment year 2007-08 and after placing reliance on the decision of Co-ordinate Bench of the Tribunal in the case of Sandvik Australia Pty. Ltd. Vs. Deputy Director of Income Tax (International Taxation-II, Pune (supra), we allow this ground of appeal of the assessee on similar terms. Accordingly, the appeal of the assessee for assessment year 2009-10 is partly allowed in the aforesaid terms. 15. In the result, the appeals of the assessee a ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
