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TMI Blog2024 (3) TMI 216X X X X Extracts X X X X X X X X Extracts X X X X ..... he declaration provided by SIPCL that it does not have permanent establishment in India and in any case that was not the issue before AAR. There is no discussion or finding pertaining to the status of SIPCL [non-resident group company] as having permanent establishment in India in terms of Article 5 of the DTAA. Hence, determination by the AAR on this issue remains inconclusive. A perusal of the list of services relate to managerial services not involving anything of a technical nature. The AAR has discussed the services appearing in the CCA and has concluded that these activities in a retail business are at the core of retail marketing and hence advice tendered in taking a decision of commercial nature is a consultancy service. AAR has further considered the definition of the word Consultancy as defined in the Oxford English dictionary and has observed that a consultant is a person who gives professional advice or services in a specialized field. However, the AAR failed to appreciate that the word Consultancy appearing in the Article is to be interpreted in the context of consultancy which makes available technical knowledge, etc. and not of managerial nature. The reading of the A ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by Petitioner seeking such determination, the Authority for Advance Rulings (Income Tax), New Delhi ( AAR ), by its Order dated 17th January 2012 held that payments made by Petitioner to SIPCL towards BSS under the CCA constitutes income in the hands of SIPCL being in the nature of fees for technical services within the meaning of Article 13.4 (c) of the Double Tax Avoidance Agreement ( DTAA ) between India and UK and is chargeable to tax in India. Consequently, AAR held that Petitioner is under obligation to withhold tax under section 195 of the Income Tax Act, 1961 ( the Act ). 3. Aggrieved by this Order, Petitioner, by way of the present petition, challenges the validity and legality of the said Order passed by the AAR. 4. Petitioner is a company registered in India under the Companies Act, 1956 and engaged, inter alia, in the business of operating chain of retail fuel stations in India. Respondent No.1 is the Union of India, Respondent No. 2 is the AAR and the other Respondents are the various officials concerned of the Income Tax department. 5. By way of a CCA dated 1st April 2009 executed between Petitioner and SIPCL, Petitioner avails of BSS provided by SIPCL to all operatin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the declaration provided by SIPCL that it does not have a permanent establishment in India in terms of Article 5 of the India-UK Tax Treaty, whether the payments received by SIPCL would be chargeable to tax in India? If the answer is in the affirmative, would the payments made by the Applicant to SIPCL suffer withholding tax under section 195 of the Act and at what rate? 7. Although none representing the Revenue Department appeared before the AAR, a notice dated 2nd December 2009 was received by Petitioner from the Assistant Director of Income Tax, (International Taxation)-2(1) Mumbai seeking certain clarification including details of the nature of services availed by it. Petitioner provided the required details vide its reply dated 23rd December 2009. Further details were sought by another notice dated 21st January 2010 issued by the Deputy Director of Income Tax, (International Taxation)-2(1), Mumbai. Petitioner provided additional details as well by letter dated 27th January 2010, which included following information: i. Details regarding nature of services covered by CCA. ii. The costs of certain services availed by SIPLC from its third party vendors in relation to corporate a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the group entities as part of their group business strategy at standardizing and carrying out global quality business in a cost effective manner. ii. Services availed by Petitioner are neither intended nor result in placing Petitioner in a position where it could independently carry on services without SIPCL. iii. Services that make available technical knowledge, skill, know how etc., are distinct from services shared under the CCA which may involve technology/industry expertise but neither can be construed as technical services nor satisfy the requirement of making available technical knowledge as commonly understood. iv. The CCA represents sharing of cost amongst the cost sharers pursuant to which Petitioner becomes co-owner of any expertise arising out of the arrangement. v. The AAR has totally disregarded the authentic technical commentary-protocol in India-USA DTAA which is similarly worded and involves determination of similar technical aspects relating to the 'make available' condition. vi. The AAR has interpreted the requirements to be satisfied for 'make available' requirement based on its own general notion of the said term and thereby reached an errone ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Beers India Minerals (P) Ltd (2012) 21 taxmann.com 214 (Karnataka) b. Director of Income Tax v. Guy Carpenter Co. Ltd. (2012) 20 taxman.com 807 (Delhi) c. US Technology Resources (P) Ltd. v. Commissioner of Income Tax Thiruvanthapuram (2018) 97 taxmann.com 642 (Kerala). d. Commissioner of Income Tax (International Taxation and Transfer Pricing v. Timken Company (2023) 149 taxman.com 251 (Calcutta). e. Commissioner of Income Tax (International Taxation)-1 Delhi v. M/s Bio-rad Laboratories (Singapore) Pte. Ltd. ITA 564 of 2023 (Delhi High Court) decided on 3.10.2023. f. Director of Income Tax (IT)-1 v. A.P. Moller Maersk-AS Supreme Court Civil Appeal No.8040 of 2015 decided on 17.2.2017. g. Director of Income Tax, (IT)-1 v. WNS Global Services (UK) Ltd. (2013) 32 taxmann.com 54 (Bombay) 13. Mr. Suresh Kumar submitted as follows: (I) The AAR has dealt with in detail the submissions of Petitioner regarding the definition of the term Fees for Technical Services and has rightly concluded that the transactions contemplated under CCA involve rendering services of technical nature which fall within the scope of Article 13 of the India-UK DTAA. (II) Petitioner is able to use the know-how/int ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ined that the payment made by Petitioner to SIPCL for availing the General BSS under the CCA is in the nature of fees for technical services within the meaning of Article 13.4(c) of the DTAA and hence, constitutes income in the hands of SIPCL. It has thus ruled that Petitioner is under obligation to deduct tax at source under Section 195 of the Act. The AAR has not gone into but prima facie has accepted the declaration provided by SIPCL that it does not have permanent establishment in India and in any case that was not the issue before AAR. There is no discussion or finding pertaining to the status of SIPCL as having permanent establishment in India in terms of Article 5 of the DTAA. Hence, determination by the AAR on this issue remains inconclusive. 15. Be that as it may, the crux of the matter lies in ascertaining whether the finding of the AAR that services availed by Petitioner from SIPCL or payments made by Petitioner to SIPCL are of/for technical/ consultation services and secondly, whether such services are made available to Petitioner. Article 13 of DTAA reads as under: ARTICLE 13 ROYALTIES AND FEES FOR TECHNICAL SERVICES 1. Royalties and fees for technical services arising ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (including the provisions of services of technical or other personnel) which: (a) are ancillary and subsidiary to the application or 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. 16. From the bare words of the Article, it is clear that income of SIPCL will be chargeable to tax in India only if the payment by Petitioner is towards fees for technical services . Under Article 13(4), the term fees for technical services means payments of any kind in consideration for the rendering of any technical or consultancy services. Sub-para (c) to Article 13(4) further restricts the meaning of the term to only that which makes available technical knowledge, experience, skill, know-how or processes, or consists of the development or transfer of a technical plan or technical design. 17. The principle of no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t and transfer of a technical plan or technical design. Thus, a harmonious reading of the provision of Article 13 in its entirety, clearly establishes the intent of the DTAA in making income chargeable to tax only if the services availed pertain to technical services or consultancy services. Technical services in this context mean services requiring expertise in a technology. By Consultancy Services, in this context, would mean advisory services. The categories of technical and consultancy services are to some extent, overlapping. Under paragraph 4, technical and consultancy services are considered included services only to the following extent: (1) as described in paragraph 4(a), if they are ancillary and subsidiary to the application or enjoyment of a right, property or information for which a payment described in paragraph (3)(a) of Article 13 is received; (2) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph (3)(b) of Article 13 is received; or (3) as described in paragraph 4(c), if they make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s movement is rendering a technical service to the person who uses the automobile. Similarly, when a person travels by train or in an aeroplane, it cannot be said that the railways or airlines is rendering a technical service to the passenger and, therefore, the passenger is under an obligation to deduct tax at source on the payments made to the railway or the airline for having used it for travelling from one destination to another. When a person travels by bus, it cannot be said that the undertaking which owns the bus service is rendering technical service to the passenger and, therefore, the passenger must deduct tax at source on the payment made to the bus service provider, for having used the bus. The electricity supplied to a consumer cannot, on the ground that generators are used to generate electricity, transmission lines to carry the power, transformers to regulate the flow of current, meters to measure the consumption, be regarded as amounting to provision of technical services to the consumer resulting in the consumer having to deduct tax at source on the payment made for the power consumed and remit the same to the Revenue. 15. The use of the internet and the world wide ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ld derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology make 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, 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 ot ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ke make available clauses, technical knowledge and skill must remain with the person receiving the services even after the particular contract comes to an end and 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. [Emphasis is ours] 15. We tend to agree with the analysis and conclusion arrived at by the Tribunal. (emphasis supplied) 23. Therefore, even if it is fees for technical or consultancy services, it can be only where fees are paid in consideration for making available technical knowledge, experience etc. Thus the view of the AAR that SIPCL works closely and advises the employees of Petitioner and hence makes available the services is not correct. This view in fact suffers from fallacy since the agreement continues to operate till date. If the view of AAR is to be held as correct then the contract must stand concluded as once the services and the know how, skill etc is transferred to Petitioner, the need of continuing to render said services must end. This is factually not so as the CCA is in effect till date. 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X
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