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TMI Blog2022 (7) TMI 1396X X X X Extracts X X X X X X X X Extracts X X X X ..... not carried out in Singapore. While a lot of emphases is paid by the revenue authorities on the fact that on the same transaction the assessee had paid taxes in India in the immediately preceding year, and the fact that it is part of overall common arrangements that the leasing is done from one jurisdiction and the refurbishing or bushing is done is another jurisdiction. Nothing, however, turns on these arguments also. The acceptance of tax liability in one year does not constitute estoppel against the assessee for the other years, and it is for the group to organize a multinational group to organize its activity, as long as it is a bonafide arrangement, in a manner as deemed commercially expedient. We are satisfied that so far as the income of the assessee from the refurbishing of the bushes is concerned, it is not taxable in India as the provisions of Article 12(3) cannot be invoked in this case, and that, so far as the provisions of Article 12(4)(a) are concerned, these provisions cannot be invoked as the assessee has not rendered these services in connection with the services for which a payment described in paragraph 3 is received by the assessee. As also bearing in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s, it is not uncommon that premature failures and damages also take place. When such refabrication is due, the bushings are sent by OCIPL to the assessee. The assessee melts the damaged bushings, adds additional alloy, to the extent required, and forms new bushing of the desired specifications. These additional alloys are supplied by Owens Corning Inc, USA (OC-US, in short), as and when, and to the extent, required. Upto July 2010, OCIPL used to send the bushings to OC-US for providing the metal and the refabrication, and duly paid for the alloys and the fabrication, but once the assessee started its operations in Singapore in July 2010, the bushings were sent to the assessee, and the assessee paid OC-US only for the alloys; the payment for fabrication charges were made to the assessee. While, in the first year, i.e. the financial year 2010-11 (assessment year 2011-12), the assessee offered income from such fabrication charges to tax in India, this year the claim of the assessee was that the fabrication charges received by the assessee from its Indian affiliate, i.e. OCIPL, were not taxable in India, as neither the assessee had a permanent establishment in India, nor such charges c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... scribed in Para 3. C) Whether the person performing the services is the same person, as or a related person, to the person receiving the royalties described in Para 3 for this purpose persons are considered related if their relationship is described in Article (Associated Enterprises) or if the person providing the service is doing so in connection with an overall arrangement which includes the payer and recipient of the royalties. 12. On the basis of the above criteria, an analysis of the services of the assessee namely Re-fabrication is done one by one. 12.1 The extent to which the services in question facilitate the effective application or enjoyment of the right property or information described in Para 3 12.1.1 In the absence of the services rendered by the assessee company that is 're-fabrication of the bushings', there will be no effective application or enjoyment of the right property. The bushings cannot be used in an interval of every 250 days for effective application. Thus the Licence or Right to use of Bushings can be enjoyed by the recipient of the right only if the corresponding services are rendered. 12.2 The extent to which s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Indian subsidiaries. 14. In view of the above discussion, the receipts of the assessee are by way of technical services that are ancillary and subsidiary to the application or enjoyment of any right, being intangible for which a royalty is received under a license for which a payment described Para 3(a) or (b) is received. 15. In view of the above discussion, the receipts of the assessee by way of Fabrication charges/Fees of Rs.4,84,44,048/- are in effect 'FEES FOR TECHNICAL SERVICES' and Taxable u/s 9(1) (vii) of the I.T.Act r.w.s. Article 12(4) (a) of the DTAA between India and Singapore. Penalty proceedings u/s 271(1)(c) of the I.T.Act are initiated for furnishing inaccurate particulars of income. Accordingly the Income of the assessee is worked out as under: FEES FOR TECHNICAL SERVICES Rs. 4,84,44,048/- (Fabrication Charges as per computation attached with ROI) 6. When the stand so taken by the Assessing Officer was put to the assessee, the assessee raised grievances before the Dispute Resolution Panel, but without any success. Learned DRP confirmed the action of the Assessing Officer, on the basis of the following reasoning: We have go ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fee to be considered 'ancillary and subsidiary' to the application or enjoyment of some right, property, or information for which a payment described in paras 3(a) or (b) is received, the services must be related to the application or enjoyment of the right or property or information. In addition the clearly predominant purpose of the arrangement under which the payment of the service fee and such other payment are made must be in alignment to the right property, services rendered or information described in Para - 3 stated herein above. The question of whether the service is related to the application or enjoyment of the right property or information of services rendered described in para-3 and whether the clearly predominant purpose of the arrangement is such application or enjoyment must be determined by reference to the facts and circumstances of each case. Factors that may be relevant to such determination include: (a) The extent to which the services in question facilitate the effective application or enjoyment of the right property or information described in para - 3. (b) The extent to which such services are customarily provided in the ordinary c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ns Corning Pte Singapore, and Owes Corning USA-the supplier of the main ingredient 'ALLOY' in re-fabrication of the bushing and the payers of the FTS viz. Indian subsidiaries, Owens Corning India Pvt. Ltd. and Owens Corning Industries India Pvt. Ltd. who send the Bushings for re-fabrication to the assessee and to whom Owens Corning Inc. has leased out the asset As discussed, this arrangement between Owens Corning Singapore, Owens Corning Inc and India entities is a coloarable device for tax planning and the corporate veil has to be lifted. In the light of the above observations, the fees for technical services construes to be an income of the non-resident entity and is therefore deemed to accrue or arise in India u/s.9(1) (vii) r.w.s. Explanation - 2 of the Income Tax Act, 1961. The assessee company is provided with the damaged bushing and the alloy necessary to re-furbish it and the services rendered by the assessee company is only to re-fabricate the same which is clearly in the form of FEES FOR TECHNICAL SERVICES. These re-fabrication services make the bushings ready to be used by the Indian subsidiaries. In view of the above discussion, the receipts of the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 for technical services may also be taxed in the Contracting State in which they arise and according to the laws of that Contracting State, but if the recipient is the beneficial owner of the royalties or fees for technical services, the tax so charged shall not exceed 10 per cent. 3. The term royalties as used in this Article means payments of any kind received as a consideration for the use of, or the right to use : (a) any copyright of a literary, artistic or scientific work, including cinematograph film or films or tapes used for radio or television broadcasting, any patent, trade mark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right, property or information ; (b) any industrial, commercial or scientific equipment, other than payments derived by an enterprise from activities described in paragraph 4( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 or Article 14, as the case may be, shall apply. 7. Royalties and fees for technical services shall be deemed to arise in a Contracting State when the payer is that State itself, a political sub-division, a local authority, a statutory body or a resident of that State. Where, however, the person paying the royalties or fees for technical services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for technical services was incurred, and such royalties or fees for technical services are borne by such permanent establishment or fixed base, then such royalties or fees for technical services shall be deemed to arise in the State in which the pe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e, which will be covered by Article 12(3) of the Indo-Singapore tax treaty. Yet, taxability under Article 12(4)(a) is invoked, on the ground that one of the group companies, i.e. OC-US, has received such payments from the Indian affiliate. OCIPL, which are covered by Article 12(3) of IndoSingapore tax treaty, and by invoking Article 9. The stand of the Assessing Officer and the DRP is that since the alloys are provided by the OC-US, which is an associated enterprise under article 9, one has to proceed on the basis that the alloys are provided by the assessee, and as the services are ancillary and subsidiary to the application or enjoyment of the right, property or information for which payment is made to OC-US, these services are taxable as fees for technical services. 11. As far as the role of Article 9 is concerned, it comes into play when conditions are made or imposed between the two enterprises in their commercial or financial relations which differ from those which would be made between independent enterprises and remains confined to bringing those profit for taxes which, but for such arrangements, an enterprise in the respective tax jurisprudence would have made. Th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rried out in that jurisdiction, and there is no dispute on that aspect at all. The fact that an arrangement regarding situs of entities providing different facilities, in connection with a transaction of the multinational group, is done in a tax-efficient manner, cannot be reason enough to disregard the arrangement. We are satisfied that so far as the income of the assessee from the refurbishing of the bushes is concerned, it is not taxable in India as the provisions of Article 12(3) cannot be invoked in this case, and that, so far as the provisions of Article 12(4)(a) are concerned, these provisions cannot be invoked as the assessee has not rendered these services in connection with the services for which a payment described in paragraph 3 is received by the assessee. In view of these discussions, as also bearing in mind the entirety of the case, we uphold the plea of the assessee, and delete the impugned addition of Rs 4,84,44,048. The assessee gets the relief accordingly. 12. Ground no. 1 is thus allowed. 13. Learned representatives fairly agree that in the event of the first ground of appeal being allowed, ground nos 2 and 3 will have to be dismissed as infructuous. As ..... X X X X Extracts X X X X X X X X Extracts X X X X
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