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TMI Blog2022 (6) TMI 1382X X X X Extracts X X X X X X X X Extracts X X X X ..... as the Act ) as per the grounds of appeal on record. 2. That on perusal of the grounds of appeal and as submitted by the ld. Counsel for the assessee, Grounds No. 1 2 pertains to whether income from Information Technology Support Services and income from Management Services would amount to royalty or Fees for Technical Services (FTS). According to the ld. A.R, these incomes are neither royalty nor FTS. The ld. D.R.P has observed this issue at page 59 para 2.3.21 onwards of their order and at page 67 in para 2.3.32.4 has given findings that such income constitutes royalty and similarly held at page 64 para 2.3.31.4 that they are also FTS. The ld. A.R at the time of hearing submitted that in assessee‟s own case similar issues were addressed and answered in favour of the assessee by Pune Tribunal‟s decision in ITA No. 784/PUN/2015 for A.Y. 2011-12, order dated 08- 07-2019, wherein it was observed and held as follows: 7. Briefly stated, the facts of this additional ground are that the assessee received a sum of Rs.2,66,72,222/- from Faurecia India towards provision of Global Information Support services. The same was not offered to tax. On being called upon to exp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Company (i.e. the Indian entity) with the definition of strategic plans for Faurecia Interior Systems (opening of new markets, long range development of products etc.). It also assists the Company in the development of existing and new markets in other regions. It promotes the Company s interests towards worldwide car manufacturers. It helps the Company to identify and negotiate the acquisition of businesses that reinforce the Company s existing businesses and/or enable it to enter new markets. It can be seen that the assessee is looking after several fields of Faurecia India s business, which even extend to negotiations and acquisition of new businesses as well. Under the head of `Sales and Marketing services:, `the service provider assists the Company in monitoring the market for Faurecia Interior Systems. It helps the Company to produce brochures on surveys, market share, sales techniques etc. for the use of the Company It also provides the Company with assistance in the field of the sale of Interior Systems . The service provider consults on behalf of the Company the car manufacturers and/or their subcontractors and it advises the Company on the pricing strategy regarding ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ment states that: the service provider helps the Company to reach the high level of performance and competitiveness at a worldwide level. .. It assists the Company in the fields of efficiency in production The service provider helps the Company to go through the three steps of production, .. production preparation; production control; and production execution . Under the head `Quality services , it can be seen that: The service provider helps the Company to improve quality of Faurecia Interior Systems . by specially designing Global actions and by standardizing methodological tools and by preparing communications on HSE topics . 10. A perusal of the services referred to in the Exhibit to the Agreement reveals that these cater to various facets of business operations, such as, Management, Marketing, Accounting and finance, Human resources, Purchasing, Manufacturing and Quality, which fall in the overall realm of Managerial services. 11. In addition to the above, the assessee has also rendered IT support services that have been set out in paras 1.8 and 1.9 of the Services Agreement. Para 1.8 with the caption `General Management of Information System Organisation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Fees and Purchase Fees . Though this invoice relates to the next year, the ld. AR admitted that the nature of services rendered by the assessee during the year under consideration were on the same lines as depicted in the above referred invoice. It, therefore, emerges that the assessee rendered to the Indian entity not only IT support services, which outnumber others, but also some part consists of managerial services. 14. The AO has characterized receipt of fees for the above services both as Royalty as well as Fees for technical services under the Act as well as the DTAA. 15.1. We will first examine if the receipt can be considered as Royalty ? Section 9(1)(vi) of the Act deals with income by way of Royalty payable, inter alia, by a resident. The term `Royalty has been defined in Explanation 2 which has six clauses. The case of the AO is that the assessee received Royalty in terms of clause (iv) of Explanation to section 9(1) of the Act, which provides that any consideration for (iv) the imparting of any information concerning technical, industrial, commercial or scientific knowledge, experience or skill shall be considered as Royalty. On going through the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of section 9(1)(vi) of the Act, there is no need to examine the relevant provision under the DTAA. We, therefore, hold that the amount received by the assessee is not in the nature of Royalty. 16. Next we proceed to examine if the payment received by the assessee can be considered as `Fees for technical services ? Section 9(1)(vii) deals with income by way of `Fees for technical services payable, inter alia, by a resident. Definition of the expression `Fees for technical services has been extracted in an earlier part of this order. On going through such provision, to the extent it is relevant for our purpose, it deciphers that fees for technical services means any consideration for rendering managerial, technical or consultancy services excluding any consideration for construction, assembly, mining etc. It is nobody s claim that the case is covered under the exception. We have hereinabove discussed the nature of services rendered by the assessee to the Indian entity and held these to be technical as well as managerial services. That being the position, the transaction is caught within the scope of `fees for technical services u/s.9(1)(vii) of the Act. 17. Section 9 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yee of the person making the payments and to any individual for independent personal services mentioned in Article 15, in consideration for services of a managerial, technical or consultancy nature. 18.2. On going through the mandate of para 4 of Article 13 defining the term `Fees for technical services , it becomes plain that the same refers to a consideration for services of managerial, technical or consultancy nature. It turns out that definition of the expression `Fees for technical services under Article 13 of the DTAA is by and large similar to that given in section 9(1)(vii) of the Act to this extent, which does not directly support the case of the assessee. 18.3. At this stage, it would be relevant to refer to the Protocol, which for all practical purposes, is considered as a part and parcel of the DTAA. Relevant part of para 7 of the Protocol dated 29-09-2012 between India and France, reads as under:- `In respect of Articles 11 (Dividends), 12 (Interest) and 13 (Royalties, fees for technical services and payments for the use of equipment), if under any Convention, Agreement or Protocol signed after 1st Sept., 1989, between India and a third State which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in paragraph 3(b) of this article is received; or (c) make available technical knowledge, experience, skill, knowhow or processes, or consist of the development and transfer of a technical plan or technical design . 18.6. On going through Article 13(4) of DTAA with the UK, it can be seen that the term Fees for technical services has three constituents. Clauses (a) and (b) deal with payment for services which are ancillary and subsidiary to the enjoyment of right, property or information for which payment has been described under paras 3 (a) and (b) of this Article. Para 3 of Article 13 defines `Royalties to mean payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic or scientific work etc. or any industrial, commercial or scientific equipment etc. Thus, it is seen that clauses (a) and (b) of para 4 of the DTAA with the UK are not relevant for our purpose. Then there is clause (c) of para 4 which states that the term fees for technical services means payment of any kind for rendering any technical or consultancy services which make available technical knowledge, experience, skill, knowhow or proc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the DTAA with UK. Case of the AO rests on treating consideration for such services as `Royalty or `Fees for technical services only. Resultantly, payment for the Managerial services cannot be brought within the scope of the term `Fees for technical services under Article 13 of the DTAA with France as read in conjunction with the DTAA with the UK. 18.8. As far as the remaining Technical services rendered by the assessee to Faurecia India are concerned, it is seen that these are of coordinating the Information system and assisting Faurecia India in computerisation of systems, office automation and utilisation of personal computers which fall into the aforesaid three categories namely, Operations, Technical support and Studies. On going through the nature of such services, it is manifested that these do not result in making available any technical knowhow etc. to the Faurecia India. 18.9. The term make available has come up for consideration before the Hon ble Karnataka High Court in CIT Vs. De Beers India Minerals Pvt. Ltd. (2012) 346 ITR 467 (Kar.) in which it has been held that this term means that the payer of the services should be able to utilise the acquire ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices in India. In the instant appeal, the issue is whether the services rendered by the assessee fall within ITA the definition of `Royalties or `Fees for technical services u/s 9(1)(vi) or (vii) of the Act. We have held that section 9(1)(vi) is not attracted. Albeit section 9(1)(vii) is attracted, but the amount ceases to be `Fees for technical services in the light of the DTAA. Thus, there is no quarrel on whether or not the assessee has a place of business or business connection in India or it has rendered services in or outside India. The position would have been otherwise if the assessee had been covered u/s 9(1)(vi) or (vii) and not getting immunity under the DTAA and then claiming that no income on this score should be included in its total income as either it had no place of business in India etc. or the services were not rendered in India. As such, the reliance of the ld. AO on the Explanation below section 9(2) of the Act, for fortifying his point of view that the amount in question be charged to tax, is pointless. 20. As the extant payment received by the assessee can neither be construed as `Royalty u/s 9(1)(vi) of the Act nor as `Fees for technical services ..... X X X X Extracts X X X X X X X X Extracts X X X X
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