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TMI Blog2022 (12) TMI 1269X X X X Extracts X X X X X X X X Extracts X X X X ..... llectual property is with the supplier [UK based company]. Facts of the case in hand clearly show that there is no transfer of skill or technical services. The recipient [assessee] has not been enriched by receiving the services and making it capable to face similar challenges in future on its own and acquiring skills to deal with the issues. Rendition of these services by the UK company does not enable the recipient [assessee] to provide similar services without recourse to the service provider in future. Merely incidental benefit or enrichment is not sufficient. Assessee is unable to make use of the said technology only by itself in its business or for its own benefit without recourse to the UK company. We find that neither the AO nor the ld. CIT(A) has made any attempt to discuss the judicial decisions relied upon by the assessee but has only referred to a single decision of the co-ordinate bench in the case of HJ Heinz [supra] wherein the assessee was availing support services from group company in the area of human resources, strategic planning and marketing, finance and information systems. The concept of make available which requires that fruits of services should remain una ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee. 4. During the course of scrutiny assessment proceedings, the Assessing Officer noticed that the assessee has paid an amount of Rs. 5,47,90,000/- to its holding company CPP Limited, UK but has not deducted tax at source claiming that Information Support System Services availed by the assessee company do not fall under the definition of FTS under Article 13 of the DTAA. 5. Accordingly, a show cause notice was issued asking the assessee to show cause as to why provisions of section 40(a)(i) should not be attracted and the amount of Rs. 5,47,90,000/- be added back to the total income. 6. In its reply, the assessee gave break-up of payment of Rs. 5,47,90,000/- stating that an amount of Rs. 5,46,31,543/- was paid to CPP Limited, UK for availing IT support system services and Rs. 1,58,278/- was paid as reimbursement of telephone server AMC charges. 7. The assessee further contended that IT Support System Support Services do not fall under the definition of FTS under Article 13 of the DTAA since the nature of the services do not fulfill the "make available clause of Article 13(4)(c) of the DTAA. 8. Strong reliance was placed on the decision of the Hon'ble Jurisdictional Hi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... success. 15. Before us, the ld. counsel for the assessee vehemently stated that the Assessing Officer has grossly erred in not appreciating the facts in true perspective and further erred in drawing support from the decision of the co-ordinate bench. It is the say of the ld. counsel for the assessee that relevant clauses of the agreement make it clear that the assessee has no right over the Intellectual Property Right and is simply using the services of CPP UK which cannot be termed as "make available' any technical knowledge or experience as each time the assessee has to approach the system provided by CPP UK to redress the grievance of its customers. 16. The Hon'ble Jurisdictional High Court in the case of Guy Carpenter [supra] and also the co-ordinate bench in the case of Mitsubishi Electric India Ltd ITA No. 3336/DEL/2018. The ld. counsel for the assessee also drew support from the decision of the Hon'ble Karnataka High Court in the case of De Beers India Minerals {p} Ltd 346 ITR 467. 17. It is the say of the ld. counsel for the assessee that during the course of rendering of services, the assessee does not gain any technical knowledge, experience, skill etc. It is s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and its licensors shall retain ownership of all Supplier IPRs. The Customer and its licensors shall retain ownership of all Intellectual Property Rights in the Customer Materials, 5.2 The Supplier grants the Customer, or, subject to Clause 5.3, shall procure the direct grant to the Customer of, a fully paid-up, worldwide, non-exclusive, royalty-free, licence to copy and modify the Supplier IPRs for the purpose of receiving and using the Services and the Deliverables in the Customer's business. 5.3 Where the Supplier IPRs include a third party's Intellectual Property Rights and the Supplier cannot procure the direct grant to the Customer of a fully paid-up, worldwide, non-exclusive, royalty-free, licence to copy and modify the relevant third party's Intellectual Property Rights in accordance with Clause 5.2, the Supplier shall procure for the Customer the right to use the relevant third party Intellectual Property Rights for the purpose of receiving and using the Services and the Deliverables in the Customer's business, 5.4 Tire Customer grants the Supplier a fully paid-up, worldwide, nonexclusive, royalty- free, non-transferable licence to copy and modify the Customer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ement work, business projects or Customer user requests, Database administration The Supplier will administer maintenance to the Supplier's Oracle databases and troubleshoot production and other database environments to ensure a reliable and robust service provision for the Customer, Licences/hosting/maintenance Where appropriate, Supplier will contract with third parties to provide licences for the use of software and hardware, hosting services to meet the Customer's data requirements and maintenance services in respect of the Customer's systems. Business Intelligence The Supplier will generate MI reports on operational activity, financial reporting and productivity for the Customer, The Supplier will also maintain data warehouse and work to insure high data integrity and standardised reporting," 22. Article 13(4) of the India-UK DTAA reads as under: "Article 13 - 'Royalties and Fees for Technical Services' of India - UK Double Taxation Avoidance Agreement (DTAA) 1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received; or b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received; or c) make available technical knowledge, experience, skill know-how or processes, or consist of the development and transfer of a technical plan or technical design." 23. Having considered the terms of the agreement [supra], in light of Article 13(4) of the DTAA, we are of the considered view that unless the recipient of the services is enabled to provide same services without recourse to the service provider, the services cannot be said to have made available recipient of services. 24. In our humble opinion, mere incidental advantage to the recipient of services is not enough. The real test is the transfer of technology and on the given facts of the case, there is no transfer of technology and what has been appreciated by the Assessing Officer/ld. CIT(A) is the incidental benefit to the assessee which has been considered to be of enduring advantage. 25. In our understanding, in order to invoke make available ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... J.B. Bodal M.B. Boda for placing identified risks/ class of risks with international reinsurers. J.B. Boda, in turn, would contact one or more international firm(s) of reinsurance broker(s) like the assessee for competitive proposals from the international reinsurer. Then, the international reinsurance brokers like the assessee would contact other primary brokers and various syndicates in the Lloyds market for competitive proposals. Based on the various offers or proposals given by the international reinsurance brokers, like the assessee, to J.B. Boda, the latter would present various options to the originating insurer in India, which would take a final decision in the matter. Based on the decision of the originating insurer in India, the policy terms would then be agreed upon and the risk would be placed with the international reinsurer. It was also pointed out that as per the normal industry practice, the reinsurance premium net of brokerage of 10% as per the policy contract is remitted to the assessee, i.e., reinsurance brokers, for onward transmission to international reinsurers. The intermediation fee which is another word for brokerage is paid separately by the originating in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnology by the recipient. The recipient after receiving of technology may ~*use may not use the technology. It has no bearing on the taxability aspect is concerned. When the technical service is provided, that technical service is to be made use of by the recipient of the service in further conduct of his business. Merely because his business is dependent on the technical service which he receives from the service provider, it does not follow that he is making use of the technology which the service provider utilizes for rendering technical services. The crux of the matter is after rendering of such technical services by the service provider, whether the recipient is enabled to use the technology which the service provider had used. Therefore, unless the service provider makes available his technical knowledge, experience, skill, know-how or process to the recipient of the technical service, in view of the clauses in the DTAA, the liability to tax is not attracted. [Para 14] From the aforesaid discussion it is clear that test is whether the recipient of the service is equipped to carry on his business without reference to the service provider. If he is able to carry on his busi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... recourse to the UK company. 30. We find that neither the Assessing Officer nor the ld. CIT(A) has made any attempt to discuss the judicial decisions relied upon by the assessee but has only referred to a single decision of the co-ordinate bench in the case of HJ Heinz [supra] wherein the assessee was availing support services from group company in the area of human resources, strategic planning and marketing, finance and information systems. 31. It was further held that the concept of make available which requires that fruits of services should remain unavailable to the service recipients in some concrete shape such as technical knowledge, experience, skill, etc and service recipient has to make use of such technical knowledge, skill, etc by himself in his business and for his own benefit. 32. Whereas the facts of the case in hand show that the assessee does not gain any technical knowledge, experience or skill as it is not involved in the process that service provider is following while rendering the services. The IT support services are rendered by CPP UK from UK itself and these services are rendered for the entire group and not just for CPP India. 33. The agreement between ..... X X X X Extracts X X X X X X X X Extracts X X X X
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