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TMI Blog2024 (7) TMI 287X X X X Extracts X X X X X X X X Extracts X X X X ..... ilable requirement as appearing in Article 13 (4) of the DTAA? According to the respondents, the services provided by IMG UK involved provision of specialized knowledge and skill with respect to researching into structuring, organizing and commercially exploiting sporting leagues and as submitted that since the work undertaken by the appellant largely involved researching and advising, the same would clearly fall within the meaning of technical and consultancy services - HELD THAT:- Both the MoU as well as the Services Agreement unequivocally acknowledge the expertise of IMG to curate and conceptualize sporting leagues. Taking into account the requisite expertise required for conducting a sporting league of this magnitude, BCCI charged IMG with conducting research into and preparing the foundational charter which would inter alia cover the constitution of the IPL, the structure of the tournament, the rules and regulations for the league, franchisee agreements as also the estimated implementation budget. Besides these core responsibilities, IMG was also obligated to prepare a comprehensive outline for the exploitation of commercial rights and assets. This included franchise agreemen ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ticle 5 (2) (k), the moment a resident of a Contracting State were to furnish services including managerial services within the other Contracting State through employees or other persons who had stayed in that State for a period or periods aggregating more than 90 days within a twelve month period, a Service PE would come into existence. DTAA characterizes profits and income under various independent Articles which form part of the Convention. This is evident from a perusal of Article 6 which defines the principles for taxation of income derived from immovable property, Article 7 which speaks of Business Profits, Articles 8 and 9 which deal with profits derived from the operation of aircrafts and ships, Article 11 which covers the subject of dividends and Article 13 which regulates the taxation regime with respect to royalties and FTS. We are thus of the firm opinion that merely because a part of the revenue earned by IMG was attributable to functions performed by the Service PE which came into existence by virtue of Article 5 (2) (k), the respondents were clearly not estopped in law from examining whether revenue other than that attributable to the Service PE could be subjected to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... potentially lead to inappropriate tax treatment. As apparent that by virtue of Article 7 (9) of the DTAA, it was incumbent upon the respondents to ascertain the true character of the income earned by IMG and the mere fact that it had chosen to offer up the revenue attributable to the Service PE as Business Profit was clearly not conclusive of the question which arose. The mere categorization of revenue by the taxpayer does not definitively resolve the issue of tax treatment. The authorities were clearly empowered and under an obligation to accurately determine the real nature and classification of income of IMG. Para 9 clearly envisages contingencies where profits earned may comprise of more than one item of income and which would consequently require the taxing authority to deduce and identify the most appropriate Article under which the item of income would be liable to be categorized. We thus find ourselves unable to sustain the submissions of the appellant addressed on this score. FTS - Whether the services rendered by IMG could be validly classified as FTS? - Mere rendition of technical or consultancy service would not lead to revenue, income or profits being placed under the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ered opinion the scope of Article 13 (6) is an aspect which need not be answered or conclusively pronounced upon in these appeals bearing in mind the conclusions that we have arrived at on the issue of FTS. The phrase effectively connected , as would be evident from the preceding discussion, has been the subject of divergent and varying interpretations with different authorities and commentaries offering distinct perspectives on what would constitute a sufficient connection between income and PE or fixed base for tax purposes. However, in the context of these appeals, we find it unnecessary to delve into or definitively resolve the intricacies of Article 13 (6) given our determination on FTS and which sufficiently addresses the taxation issue. We consequently leave Article 13 (6) to be considered in a more appropriate case and where its interpretation and application may be central to the adjudicatory process. Section 9 (1) (vii) exception - Undisputedly, IPL in 2009 and 2014 though originally slated to be held in India, was, for exceptional reasons, shifted out and ultimately held in South Africa and UAE respectively. The services which were rendered by IMG in connection with thos ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d is concerned we have, in light of our findings on FTS, desisted from expressing any final opinion. However and in light of the reservations expressed in the body of the judgment, this decision is not liable to be construed as an affirmation of the view in law as expressed by the Tribunal. Business income as divisible under the DTAA even though it arose out of a single contract - Tribunal has founded its decision on what appears to be an admitted dichotomy between the functions performed and services rendered by the IMG UK as distinguished from those discharged by its Service PE. However, the Tribunal has while dealing with the functions performed by IMG UK linked it to the issue of effectively connected which was relevant for the purposes of Article 13 The issue became further obfuscated with the appellant alternating between Articles 7 and 13 of the DTAA. In our considered opinion, the respondents while evaluating the attribution of income to the Service PE question were necessarily constrained to tread down this path and bear in consideration the nature of services rendered by IMG UK as distinguished from those discharged by the Service PE. In fact even the appellant does not a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icle 13 (4) (c) of the DTAA between India and UK? (ill) Alternatively, in case answer(s) to above two questions are in negative; whether the income determined as FTS can be deemed to accrue or arise in India in terms of Section 9 (vii) (b) of Income Tax Act, 1961, especially when services provided by IMG, during the relevant year, were utilized by BCCI outside India? 2. The said questions as they arise in this batch have been set out succinctly in a tabular statement which forms part of the written submissions tendered by the appellant and is extracted hereinbelow:- S.No. AY ITA No. Relevant Question of law IPL Event venue 1 2010-11 218/2017 Para 9 (i), (ii) and (iii) above South Africa 2 2011-12 986/2018 Para 9 (i) and (ii) above India 3 2012-13 993/2018, Para 9 (i) and (ii) above India 4 2013-14 1013/2018 Para 9 (i) and (ii) above India 5 2014-15 1055/2018 Para 9 (i) and (ii) above India 6 2015-16 381/2019 Para 9 (i), (ii) and (iii) above United Arab Emirates 7 2016-17 997/2019 Para 9 (i) and (ii) above India 8 2017-18 175/2021 Para 9 (i) and (ii) above India 9 2018-19 4/2023 Para 9 (i) and (ii) above India 3. As would be manifest from a perusal of the aforesaid table, the solita ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5 2016-17 997/2019 27,00,00,000 20,54,26,724 76 6,45,73,276 2017-18 175/2021 34,54,98,001 26,87,40,992 78 7,67,57,010 2018-19 4/2023 27,90,95,068 22,13,61,792 79 5, 77,33,276 6. The Dispute Resolution Panel [DRP] as well as the Tribunal, however, have essentially come to hold that quite apart from the income which was attributable to the Service PE of IMG, the balance receipts would be liable to tax under Article 13 of the DTAA being Fee for Technical Services [FTS] . It is in the aforesaid backdrop that we had admitted these appeals on the questions of law extracted hereinabove. 7. As would be evident from the record of ITA 1013/2018 for IPL 2012, IMG had received INR 28,00,00,000/- from BCCI. Adopting the profit split method prescribed under the Indian Transfer Pricing Regulations, it had attributed revenue of INR 20,19,17,301/- to the Indian PE. The net income of INR 7,83,66,521/- attributable to activities undertaken in India had been offered to tax on net income basis in accordance with the provisions of Section 44DA of the Act read along with the provisions of Article 7 of the DTAA. 8. The remaining revenue of INR 7,00,82,699/-, according to IMG, pertained to work done outsid ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... MG have also made available technical knowledge, experience, skill, know-how or processes for the ongoing execution of the management in respect of the Rights of BCCI and advice in connection with Franchise Rights; Media Rights; sponsorship rights; official supplier ship rights licensing and merchandising rights; stadium signage rights; and any other rights in relation to the league that may come-up for leverage by BCCI in the future. In framing the Franchisees and rights agreements, and preparation and execution of marketing strategies for and advice in connection with any ongoing tender process in respect of Franchise Rights; IMG have made available technical. knowledge, experience, skill, know-how or processes. Yet again it bears reiteration that all of these technical/consultancy services will be available to BCCI even after the agreement lapses and they would continue to be available to BCCI in the form of Franchise, Media, sponsorship, official supplier ship, licensing and merchandising rights stadium signage rights and available with the BCCI for such use as they deem appropriate for all times to come. iv) IMG assists BCCI in the preparation of a television production specif ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nce, skill, know-how or processes, and in some cases technical plans which will be available to BCCI even after the agreement lapses in the form of the rules and regulations relating to the registration, trading and auction of Players; the creation of BCCI Marks and look and feel of relevant Stadia, the provision of hospitality guidelines in relation to the League and the League handbook, the Player contracts frameworks; the establishment and maintenance of the Player registration system; the management of the annual Player trading window; and the Anti-Doping and WADA Compliance Regulations; the development of new intellectual properties relating to the League and all such properties are the sole property of BCCI; and they would continue to be available to and available with the BCCI for such use as they deem appropriate for all times to come. (vii) Provision of the requisite manpower that is required to carry out such activities as are within IMG's control in connection with the successful running of the league and Matches including the provision of a fully staffed office to do the same, at the sole cost of IMG; the hiring of whatever resources are required to fully perform IM ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... done by the assessee on the basis of a transfer pricing report capturing the Functions, Assets and Risk analysis and is in accordance with the international principles of attribution. - The Ld. AO has also referred the matter to the Ld TPO and the LD. TPO has accepted that the receipts attributed to the PE are at arm's length. Given this aspect, the question of attributing the receipts of INR 7,00,82,699 for work done outside India to the PE does not arise at all. The taxpayer has relied heavily on the decision in the case of Clifford Chance. In Clifford Chance's own case in a previous year the Bombay High Court (HC) had held that the rendition of services in India was an essential condition for its taxability in India. After a retroactive amendment in the Income Tax Statute whereafter income by way of fee for technical services could be taxed in India even if the services were rendered from outside India (Finance Act (FA) 2010 introduced an Explanation in the deeming provisions of the Indian Tax Lows (ITL) retroactively from 1 June 1976 that income from interest, royalty or fee for technical services (FTS) earned by a non-resident (NR) would be taxable in India irrespecti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 39;Birendra Prasad Rai V. ITC (1981) 129 ITR 295], Supreme Court (SC) noted that the singular question that remained to be answered was whether the payment or receipt paid by the appellant to NRC as success fee would be deemed to be taxable in India u/s. 9 (1) (vii). The Hon'ble Supreme Court observed that clause (b) of sec. 9 (1) (vii) lays down the principle of what was basically known as the source rule i.e., income of the recipient to be charged or chargeable in the country where the source of payment is located, to clarify, where the payer is located. Therefore, deduction of tax at source when made applicable, it had to be ensured that this principle was not violated. SC noted that the two principles, namely, Situs of residence and Situs of source of income had witnessed divergence and difference in the field of international taxation. The principle Residence State Taxation gave primacy to the country of the residency of the assessee. The SC referred to the Delhi HC ruling in 'CIT vs. Bharti Cellular Limited and others' wherein it - was held that consultancy meant giving professional advice or services in a specialized field. SC also referred to the dictionary mean ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and the rationale laid down regarding FTS is also applicable ie taxpayer has itself submitted that it has the skill, acumen and knowledge in the specialized field, Over the years, IMG UK has gained vast experience of working on event management and talent representation activities, across golf, tennis, football, etc. sporting events. The nature of contracts/ activities undertaken by the Company primarily Includes event creation, client representation, Consultation services, etc, IMG UK and the Board of control for Cricket in India [ BCCI ] entered into a Memorandum of understanding ( MOU ) for assistance in establishment, commercialization and operation of the Indian Premier League ( IPL ) In September 2007. In addition and consequent to the initial contract, the parties entered into a separate service agreement dated September 24, 2009 in relation to the second season and subsequent seasons for IPL events. Extract from Transfer Pricing Report para 4.3 Page 17 BCCI awarded the original contract of 2007 to IMG UK because of the vast knowledge and experience of IG UK, which has been developed by the UK entity over the years as a result of working on similar assignments in the field o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 1.1 (x) and 6.2 of the service agreement) and it is in the nature of FTS as it is already determined irrespective of the places where the services are rendered. Basically the income from franchisees, broadcasters, etc. received by the BCCI is not as peer the above agreement but by separate agreements with them and income there from thus accrues and received in India and it has nothing to do with the places where IPL matches are played. In present case, the position of the AO is that income of the assessee is deemed to accrue or arise in India. Section 9 of the Act provides for incomes which shall be deemed to accrue or arise in India. Therefore, if an income accrues or arises directly or indirectly through or from a business connection in India, it shall be deemed to accrue or arise in India and hence such income of non-resident becomes taxable in India. It means that existence of business connection in India of non-resident is prerequisite under the Income Tax Act for bringing business income to tax in India. Under DTAA, however, higher threshold level in form of existence of PE in India is required for bringing business income of non-resident to tax in India. The assessee has no ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of IMG based on Article 13 (6) and whether FTS could be said to be effectively connected with its PE. The aforesaid contention was ultimately answered as under:- 38. Now the issue arises is whether the whole contract is 'effectively connected' with the permanent establishment or part of the services are 'effectively connected with the permanent establishment. On reading of. the above two agreements and the transfer pricing study report submitted by the assessee, more specifically at para number 4.4.2e the functions performed by the permanent establishment of the appellant in India and para number 4.4.1 shows what are the functions performed by the IMG UK. It is further mentioned in the transfer pricing study report that certain routine services relating to on ground implementation and running of the event was subcontracted to the IMC India, branch. The IMG India PE was involved in/ responsible for overseeing and managing. The liasonsing and implementation support activities undertake taken by the IMC India branch. It is also important to note that how this functions were performed it was stated in the transfer pricing study report of the appellant that IMO UK employee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ncerned with the functioning, of the permanent establishment therefore in our view only the activities which are performed by the permanent establishment are effectively connected with the permanent establishment and activities which are not carried on by the permanent establishment but are carried out by the head office of the appellant are not 'effectively connected' with the permanent establishment. We are also of the view that the term 'effectively connected' should not be understood to mean the opposite of 'legally connected' but rather something in the sense of 'really connected'. Therefore the activities mentioned in the contract should be connected to the permanent establishment not only in the form but also in substance. It is also interesting to note that the permanent establishment of the assessee has been admitted by the appellant only because of the reason that some of the employees of the appellant came to India from time to time for short visit and further certain freelancers were appointed for undertaking the own ground implementation related supervision activities in India. Therefore according to us there are minimum activities perfo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e of article 13 (6) as are 'attributable' to the permanent establishment of the assessee through which the business is carried on by the appellant. Therefore according to us the taxability under article 13 shifts to the taxability of article 7 only in respect of fees for technical services which are 'attributable' to the PE in question. Therefore the article 13 (6) of the Double Taxation Avoidance Agreement shall apply only to the extent of the activities carried on by the appellant through its permanent establishment. In view of this we are of the view that activities carried out by the appellant which are not at all connected with the activities of the permanent establishment are not covered by article 7 or 15 of the Double Taxation Avoidance Agreement between India and United Kingdom and same shall remain as fees for technical services under article 13 only. Therefore natural corollary that follows is that whatever is income excluded by the applicability of article 13 (6) and goes back to article 7 is the same amount. 40. Our this view is also supported by the provision of article 13 (6) of the DTAA which provides as under :- (6). The provisions of paragraphs 1 a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stablishment has, not been responded to. Despite this we have pursued the relevant activities performed by the foreign office of the appellant as well as the permanent establishment of the appellant. We are of the view that activities carried on by the foreign office of the assessee are not at all arising through the permanent establishment of the appellant in India. Therefore one of the condition of the about twin conditions also failed in case of the appellant. Once again we would like to reiterate that for the purpose of applicability of article 13 (6) with respect to the fees for technical services one has to apply the activity test of the permanent establishment in the source country is held by the coordinate bench in case' of the Nippon Kaiji Koyokoi V ITO (supra). 42. Therefore we reject the contention of the assessee that out of 33 crores Rs. 9 crores are effectively connected with the permanent establishment of the appellant, the balance 22 crores cannot be taxed in India under article 13-as fees for technical services. Our one more reasons for holding such a view is that according to us there is no distinction between the two phrases used into two different articles o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... al knowledge, experience, skill, know-how or process. The expression make available has far-reaching significance since it limits the scope of technical and consultancy services. Generally this expression 'make available' is used in the sense of one person supplying or transferring or imparting technical knowledge or skill or technology to another and technology is considered 'made available' only when the services receiver is enabled to absorb and apply the technology contained therein. If the services do not have any technical knowledge the fees paid for it do not fall within the meaning of fees for technical services as per the article 13 of the India UK DTAA. The services receiver is able to make use of the technical knowledge etc by himself in his business or for his own benefit and without recourse to the service provider in future and for this purpose the transmission of the technical knowledge, experience, skill, etc from the service provider to the services CP is necessary. In other words the technical knowledge, experience, skill etc must remain with the service recipient even after the rendering of the services has come to an end and the services receiver ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ble to tax u/s. 5 of the Income Tax Act in the hands of a non-resident. The claim of the appellant is that receipt of Rs. 237750181/- falls within the exception provided under clause (b) of the above section which says that where the fees for technical services are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purpose of making or earning any income from any source outside India, it shall not be considered as fees for technical services as income deemed to accrue or arise in India in terms of the provisions of section 9 (1) (vii) (b) of the Income Tax Act. The main reason to say so by the appellant is that the IPL 2009 event has been held outside India and therefore the BCCI has utilized those services outside India and therefore they fall into the exception and cannot be taxed in India. We have carefully considered the rival contentions and reject the contention of the appellant for the reason that to fall within the exception the assessee must be carrying out business outside India and such services must be utilized in that business by a person who is a resident in India and who pays income by way of fees fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s the attribution of income thereto, they could not thereafter have turned around to assert that receipts to the extent not attributable to the PE were liable to be treated as FTS. This more so since, as per the appellants, the applicability of Article 5 (2) (k) was itself dependent upon it being found that the services rendered were other than those which would fall within the ambit of Article 13. 25. It was Mr. Vohra s submission that the receipts received from BCCI by IMG flowed from one singular contract and which envisaged the furnishing of composite services relating to assistance in establishment, commercialization and operation of the IPL. Mr. Vohra highlighted the fact that neither the Services Agreement nor the DTAA empowers the Respondent to bifurcate the composite consideration received between business profits and FTS. Apart from the above, Mr. Vohra further submitted that a bare perusal of the obligations placed upon IMG and which can be discerned from the MoU and the Services Agreement would evidence that the revenue received by IMG cannot possibly be held to fall within the ambit of FTS under Article 13 of the DTAA. This since, according to learned senior counsel, I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ient. The recipient after receiving of technology may use or 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 utilises 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. xxxx xxxx xxxx 21. What is the meaning of make available . The technical or consultancy service rendered should be of such a nature that it makes available to the recipient technical knowledge, know-how and the like. The service should be a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India: Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.. Explanation 2. For the purposes of this clause, 'fees for technical services' means any consideration (including any lump-sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head 'Salaries'. There can also be no dispute as per the extracted Explanation that the services offered by the US company to the Indian company comes under the said definition. The services offered, as is seen from the terms of the agreement which are specifically termed by the first appellat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the respondent-assessee and its Indian affiliate had been effective from January 1, 2010, and if, as contended by the appellant-Revenue, technical knowledge, experience, skill, and other processes had been made available to the Indian affiliate, the agreement would not have run its course for such a long period. 14.1 Notably, this aspect is adverted to in paragraphs 17 to 23 of the impugned order. For convenience, the relevant paragraphs are extracted hereafter (page 463 of 33 ITR (Trib)-OL) : A perusal of the aforementioned provision shows that in order to qualify as fees for technical services, the services rendered ought to satisfy the 'make available' test. Therefore, in our considered opinion, in order to bring the alleged managerial services within the ambit of fees for technical services under the India-Singapore Double Taxation Avoidance Agreement, the services would have to satisfy the 'make available' test and such services should enable the person acquiring the services to apply the technology contained therein.. .. .. . agreement is effective from January 1, 2010 and we are in the assessment years 2018-19 and 2019-20. In our considered opinion, if the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pect was sought to be highlighted with the identification of some of the key activities undertaken by IMG and whether the same could be said to satisfy the requirement of make available . Mr. Vohra referred to the following comparative table in this respect: - Nature of activities Whether Make Available Conducting research in respect of making recommendation to BCCI on the appropriate structure for all aspects of the IPL. Since, recommendations are made every year for the modifications in the structure due to the participant's changes, the review of the guidelines etc. by the Appellant does not make available the knowledge to BCCI. Formulating policies/procedures and work plan relating to running of the event in India, including setting out the logistics, man powers etc. Every year requirements are different and accordingly logistics, man powers and work plans need to be changed. No make available. Development of best practice match day media guidelines For every IPL the media guidelines and best practices need to drafted. No make available. Identification of prospective sponsors Yearly activity. No Make available. Advice and assistance in connection with rules and regulations ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sactions, in order to determine the extent of income that can be taxed. It is stated that the term directly or indirectly attributable indicates the income that shall be regarded on the basis of the extent appropriate to the part played by the permanent establishment in those transactions. The permanent establishment here has had no role to play in the transaction that is sought to be taxed, since the transaction took place abroad. 34. Mr. Vohra in this context also relied upon the following observations as appearing in a ruling handed down by the Authority of Advanced Ruling in Worley Parsons Services [2009] 312 ITR 273 (AAR):- 13.2 There is one more aspect which will have some relevance in understanding the observations referred to supra. In the DTAA between India and Japan, the terminology of article 12 is somewhat different. The phraseology used in article 12.5 is the right, property or contract in which the royalties or fees for technical services are paid is effectively connected with the PE . In such a case, article 7 will apply. Instead of the word 'services' occurring in the Treaty with which we are concerned, the expression 'contract' is used therein. In v ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... w of the above, it was submitted that the case of the appellant would clearly fall within the ambit of Section 9 (1) (vii) (b) of the Act since the fee so earned would be liable to be viewed as being in respect of services utilized by BCCI outside India or for that matter enabling it to earn income from a source outside India. It was in the aforesaid backdrop that Mr. Vohra submitted that in the years the IPL event was hosted outside India, the services rendered by IMG to the extent not attributable to its PE, were utilized by BCCI for earning income from a source outside India. This since the sources of income were gate receipts, in stadia advertisements, telecasting rights and others, and all of which were earned from the singular fact of the event itself having taken place in South Africa and UAE. In view of the above, Mr. Vohra had contended that the aforesaid income cannot possibly be deemed to accrue or arise in India and consequently held to be taxable. This issue according to learned senior counsel, in any case, stands answered in favor of the appellants by the Supreme Court in GVK Industries Ltd. vs. Income Tax Officer and Anr. 2015 SCC OnLine SC 136 where the scope of Sec ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ague; (b) the League rules and regulations; (c) the Franchise agreements and any necessary franchise regulations; (d) the League implementation budget; and (e) the Media Rights agreements. 4.2 In addition to the matters referred to in Clause 4.1 above, IMG shall continue its work in carrying out or providing (as appropriate) the following; (a) the ongoing execution of the management in respect of the Rights of BCCI and advice in connection therewith including, without limitation:- (i) Franchise Rights; (ii) Media Rights; (iii) sponsorship rights; (iv) official suppliership rights; (v) licensing and merchandising rights; (vi) stadium signage rights; and (vii) any other rights in relation to the League that may come up for leverage by BCCI in the future (b) the preparation and execution of marketing strategies for and advice in connection with: (i) any ongoing tender process in respect of Franchise Rights; (ii) the Media Rights; and (iii) the commercial Rights; (c) advice and assistance in the management of any future Franchise tender process; (d) advice and assistance in the management, of the sales processes in respect of the Rights; (e) the ongoing preparation and negotiation, sub ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the strategic brand framework for BCCI and marriage brand IPL working with the BCCI team; (x) bringing-in global best practices in building and evaluating sporting properties and related aspects; (y) delivering a post event report at the end of each season and be subject to review on the performance and delivery of services rendered to BCCI. 39. Mr. Hossain also sought to draw a distinction between the services and functions performed by the UK office of IMG as also those which were undertaken by the PE. The UK office functions were discerned from the transfer pricing study report and relevant parts whereof are reproduced hereinbelow:- IMG UK was responsible for conceptualization, strategy formulation, development of framework for IPL event, etc from UK. To this end, the activities undertaken by the UK team from completely outside of India include: 1. Conducting research in respect of, and making recommendations to BCCI on, the appropriate structure for all aspects of the IPL 2. Preparation of the core/ key strategic framework for the IPL, including: constitution of the IPL, devising the structure of the tournament, creation of the sporting model to be adopted for IPL, devising/ ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er contracts 20. Establishment and maintenance of the Player registration system 21. Creation of the IPL match schedule along with IMG India PE 22. Advice and assistance in connection with Anti-Doping and WADA Compliance Regulations along with IMG India PE 23. Development assistance in creation of new intellectual properties relating to the League 24. Carrying out research in consultation with BCCI to ascertain improvements in various areas of management and execution of the League 25. Bringing-in global best practices in building and evaluating sporting properties and related aspects 26. Delivering a post event report at the end of each season 27. Preparation of marketing collaterals, press packs and appropriate presentation documentation for meetings/ events conducted in this regard. Accordingly, the conceptualization, strategy formulation, core process and know-how development, creation of framework for IPL, etc was done by IMG UK from the UK. 40. The functions of the India office were also noticed in the said report and the parts thereof which are relied upon by the respondents are extracted hereunder:- 4.4.2. Functions performed by IMG India PE As part of the execution of the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... clearly fall within the ambit of technical and consultancy services. The note of Mr. Hossain, while seeking to expound upon the terms technical and consultancy occurring in the DTAA relies upon Article 12A of the UN Model Convention which reads as follows: - 1. 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, notwithstanding the provisions of Article 14 and subject to the provisions of Articles 8, 16 and 17, fees for technical services arising in a Contracting State may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the fees is a resident of the other Contracting State, the tax so charged shall not exceed per cent [the percentage is to be established through bilateral negotiations] of the gross amount of the fees. 3. The term fees for technical services as used in this Article means any payment in consideration for any service of a managerial, technical or consultancy nature, unless the payment is made: (a) to an employee of the person making the payment; (b) for teaching in an educational ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nvention. 42. The note then draws our attention to the following passages as appearing in the commentary of the UN Model Convention: - 64. The ordinary meaning of the term technical involves the application of specialized knowledge, skill or expertise with respect to a particular art, science, profession or occupation. Therefore, fees received for services provided by regulated professions such as law, accounting, architecture, medicine, engineering and dentistry would be fees for technical services within the meaning of paragraph 3. Thus, if an individual receives payments for professional services referred to in Article 14, paragraph 2 from a resident of a Contracting state, those payments would be fees for technical services. If the payments arise in that Contracting State because they are made by a resident of that State or borne by a permanent establishment or fixed base in that State, the payments would be subject to tax by that State in accordance with paragraph 2 irrespective of the fact that the services are not performed in that State through a fixed base in that State. 65. Technical services are not limited to the professional services referred to in Article 14, paragrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee has not raised such a ground in this appeal but seeks to assail the findings of the Tribunal, vis-a-vis the interpretation given to the type of contract/arrangement between the assessee and the three foreign entities. Therefore, we are not expected to reappreciate the factual position to arrive at a conclusion in the matter. Nevertheless, we noted the findings of the Assessing Officer as affirmed by the Commissioner of Income-tax (Appeals) and the Tribunal as well as the work order issued by the assessee to M/s. WFPL, Srilanka dated March 25, 2013. The assessee in their reply to the show-cause notice dated February 8, 2016 contended that they took the assistance of M/s. WFPL, Srilanka for construction scope to be performed in Srilanka. If we examine the terms and conditions mentioned in the work order, more particularly the scope of work and the various clauses contained therein, we have no hesitation to hold that the nature of activity done in Srilanka is not mere construction or assembly or mining like project. Admittedly, the installation of wind turbine is a highly skilled and technical work. The various clauses in the work order clearly demonstrates the scope of work ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sion of those services, BCCI was made available technical knowledge in the form of findings from research carried out by IMG UK, know-how relating to commercial rights, structuring, organizing and management of a sports league or processes in the form of league structure and work-flow as well as experience in conducting and organizing a large scale sports league. According to them, all of the above would have enabled BCCI to eventually organize the league on its own. 46. According to the respondents, the FTS Clause in the DTAA requires that the technical knowledge and skill remain with the person who was recipient of the services even after a particular contract had come to an end. This prescription, according to them, is also fulfilled since the technical knowledge comprised in the research would remain with the BCCI even after the contract had come to an end. Similar would be the position relating to know-how pertaining to commercial rights or for that matter structuring, organizing and management of a sports league. Viewed in light of the above, it was their submission that the make available requirement erected by Article 13 clearly stood fulfilled. It was further argued that m ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... their technical expertise and know-how on to the other regular employees of CIOP. Indeed, it is admitted by CIOP that the reason for the secondment agreement was to provide support for the initial years of operation, till the necessary skill-set is acquired by the resident employee group. The activity of the secondees is thus to transfer their technical ability to ensure quality control vis-a-vis the Indian vendors, or in other words, make available their know-how of the field to CIOP for future consumption. The secondment, if viewed from this angle, actually leads to a benefit that transmits the knowledge possessed by the secondees to the regular employees. Indeed, any other reading would unduly restrict article 12 of the DTAA, which contemplates not only a formal transfer of intellectual property but also other techniques and skills ( soft intellectual property, if it can be called as such) required for the operation of a business. The skills and knowledge required to ensure that the task entrusted to CIOP quality control is carried on diligently certainly falls within the broad ambit of article 12. 48. The respondents in this behalf also drew our attention to the following obse ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es recommendation to BCCI accordingly. It is required to provide the Constitution of the IPL, the authority of the governing Council, the structure of IPL, tournament rules and regulation, the franchisee tender document, the franchisee agreement, necessary franchisee regulation and the IPL implementation budget. According to the para No. 9 of the agreement that intellectual property rights remains with the board of control for Cricket in India. Even before us Ld. authorized representative could not point out that why 'make available test' has not been satisfied in this even by providing all the rules and regulations of IPL, standard operating procedures of matches, copies of the franchisee agreement, various documentation/contracts etc which shall remain with the BCCI. Therefore in the present case according to us the BCCI is enabled to absorb and apply the information and the advice provided by the appellant to it for conducting such sporting events. According to us when all this documentation and material is provided to the BCCI it is able to use such know-how and documentation generated from provision of the services of the appellant independent of the services of the ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... volved making arrangements for travel bookings, room bookings, commuting of IMG staff, etc. As mentioned earlier, IMG UK/ IMG India PE sub contracted certain routine services relating to on-ground implementation/ running of the event to IMC India Branch. IMG India PE was involved in/ responsible for overseeing and managing the liaisoning and implementation support activities undertaken by IMC India Branch. All these aforesaid activities were undertaken by IMG India PE under the framework, guidelines and policies prepared by IMG UK (from outside India). Any significant divergence or variation from the framework required specific approval from the Project leader, who was based in UK. Further, it must be noted that all the activities were undertaken in India purely as a sub contracted support service to IMG UK and India was not responsible for its services to the end client/ BCCI. 50. It was thus sought to be emphasized that the Indian PE s role, quite apart from undertaking functions distinct from those performed by IMG UK, was essentially confined to subcontracted support service . The respondents argued that the purpose underlying Article 13 (6) is to exclude from the scope of FTS ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entary renders the following observations: - 21.1 A right or property in respect of which royalties are paid will be effectively connected with a permanent establishment, and will therefore form part of its business assets, if the economic ownership of that right or property is allocated to that permanent establishment under the principles developed in the Committee s report entitled Attribution of Profits to Permanent Establishments [PE] (see in particular paragraphs 72-97 of Part I of the report) for the purposes of the application of paragraph 2 of Article 7. In the context of that paragraph, the economic ownership of a right or property means the equivalent of ownership for income tax purposes by a separate enterprise, with the attendant benefits and burdens (e.g. the right to the royalties attributable to the ownership of the right or property, the right to any available depreciation and the potential exposure to gains or losses from the appreciation or depreciation of that right or property). 53. It would be pertinent to note that the expression effectively connected also occurs in Article 12A (4) of the UN Model Convention. The commentary on that Convention explains the scop ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purposes of its applicability by qualifying the services which would fall within that Article as being those which are otherwise not covered by Article 13. The submission in essence was that Article 5 (2) (k) is concerned with services furnished in a contracting state and which may be other than technical or consultancy. Viewed in that light, it was submitted that merely because an entity provided technical or consultant service from outside the territory of India, it would not mean that Article 5 (2) (k) would not apply to technical or consultant services performed or carried out from within. The respondents argued that the mere fact that they accepted the position of a Service PE having come into existence cannot possibly be viewed as an admission with respect to taxability of revenue earned from services performed from outside. 56. The written submission tendered by the respondents further asserts that the services provided by the appellant through its Service PE though performed in India were not of the nature envisaged by Article 13. In view of the above, they argued that the mere acceptance of the same cannot be viewed as services provided by IMG UK from outside India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hich may be 100% owned centrally and the division of the other Rights between BCCI and the Franchisees; (c) the preparation and execution of marketing strategies for: the Franchise tender the media Rights the sponsorship Rights the official supplier Rights the licensing Rights any other Rights; (d) the management of the Franchise tender process; (e) the management of the sales processes in respect of the Rights; (f) the preparation and negotiation of the contracts with: the successful Franchisees sponsors the media all other entities which acquire or may be interested in any of the Rights such contracts being, for the purposes of this MOU , Rights Agreements and all income of any kind generated therefrom being Income (g) the implementation and management of the centrally controlled/owned Rights on behalf of the relevant third parties (sponsors etc.) (h) the preparation of a television production specification; (i) the development of best practice match day guidelines for Franchisees and supervision in respect of their execution; (j) the development of best practice match day media guidelines and supervision in respect of their execution; (k) advice and assistance in connection with ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... and (e) the Media Rights agreements. 4.2 In addition to the matters referred to in Clause 4.1 above, IMG shall continue its work in carrying out or providing (as appropriate) the following; (a) the ongoing execution of the management in respect of the Rights of BCCI and advice in connection therewith including, without limitation:- (i) Franchise Rights; (ii) Media Rights; (iii) sponsorship rights; (iv) official suppliership rights; (v) licensing and merchandising rights; (vi) stadium signage rights; and (vii) any other rights in relation to the League that may come up for leverage by BCCI in the future (b) the preparation and execution of marketing strategies for and advice in connection with: (i) any ongoing tender process in respect of Franchise Rights; (ii) the Media Rights; and (iii) the commercial Rights; (c) advice and assistance in the management of any future Franchise tender process; (d) advice and assistance in the management, of the sales processes in respect of the Rights; (e) the ongoing preparation and negotiation, subject to the final decision of the BCCI, of (i) contracts with the successful Franchisees; (ii) the Rights Agreements and any other contracts with Rights ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ating sporting properties and related aspects; (y) delivering a post event report at the end of each season and be subject to review on the performance and delivery of services rendered to BCCI. 63. The consideration for the provision of services by IMG was set out in Clause 6.1 which is extracted hereinbelow: - 6. Consideration 6.1 In consideration of the provision of the Services, BCCI will pay to IMG the sum of: (a) in respect of the 2009 IPL Season the sum of Rs 23 crores being the invoiced and as yet unpaid balance of the total sum of Rs 33 crores which the parties acknowledge is due and payable in respect of said Season pursuant to the MOU (as varied by the parties), which sum shall be paid immediately upon signature of this Agreement in accordance with said invoices; and : (b) Rs 27 crores in respect of the 2010 IPL Season and each subsequent Season during the Representation Period provided that such sum shall increase by Rs 1 core in respect of each Season in which there are nine or 10 Teams and a further Rs 1 crore per team in respect of each Season in which there are more than 10 Teams. This annual sum shall be paid in respect of 2010 to 25% on each of 1 October 2009, 1 J ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fically acknowledging that a significant proportion of the service which IMG was to render constituted advice to be provided to BCCI from outside India using ..IMG s international expertise and resources . Clause 4.1 significantly records that while IMG had carried out research and broadly advised the BCCI in connection with the formation and governance of the IPL, it would continue to advise and assist BCCI on areas enumerated therein. 66. It is thus manifest that it was the technical expertise, specialized knowledge and extensive know-how available with IMG which formed the basis for the services which were extended to BCCI for the purposes of exploitation of the rights as defined and the provision of services throughout the territory and which as per Clause 1.1(x) of the MoU was not confined to India but covered the globe in its entirety. It was in furtherance of the aforesaid contractual obligations that IMG appears to have established its India office and which came to constitute a Service PE in terms of Article 5 (2) (k) of the DTAA. This was also in light of the obligation of the IMG to depute adequate number of personnel for the purposes of effective administration of the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t of a Contracting State were to furnish services including managerial services within the other Contracting State through employees or other persons who had stayed in that State for a period or periods aggregating more than 90 days within a twelve month period, a Service PE would come into existence. 69. It is pertinent to note that the DTAA characterizes profits and income under various independent Articles which form part of the Convention. This is evident from a perusal of Article 6 which defines the principles for taxation of income derived from immovable property, Article 7 which speaks of Business Profits, Articles 8 and 9 which deal with profits derived from the operation of aircrafts and ships, Article 11 which covers the subject of dividends and Article 13 which regulates the taxation regime with respect to royalties and FTS. 70. In the view of the Court, Article 5 serves a specific and clearly delineated purpose within the DTAA framework. It is concerned solely with the conditions under which a Service PE would be deemed to have existed and clause (k) thereof focusing on the duration and nature of services provided by the resident of a Contracting State within the other. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in, the profits which that permanent establishment might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment shall be treated for the purposes of paragraph 1 of this Article as being the profits directly attributable to that permanent establishment. 3. Where a permanent establishment takes an active part in negotiating, concluding or fulfilling contracts entered into by the enterprise, then, notwithstanding that other parts of the enterprise have also participated in those transactions, that proportion of profits of the enterprise arising out of those contracts which the contribution of the permanent establishment to those transactions bears to that of the enterprise as a whole shall be treated for the purpose of paragraph 1 of this Article as being the profits indirectly attributable to that permanent establishment. 4. Insofar as it has been customary in a Contracting State according to its law to determine the profits to be attributed to a permanent establishment on the basis of an apportionment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... establishment; nor shall account be taken in the determination of the profits of a permanent establishment of amounts charged (otherwise than towards reimbursement of actual expenses) by the permanent establishment of the head office of the enterprise or any of its other offices, by way of royalties, fees or other similar payments in return for the use of patents or other rights, or any way of commission, for specific services performed or for management, or, except in the case of a banking enterprise, by way of interest on monies lent to be head office of the enterprise or any of its other offices. 8. No profits shall be attributed to permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise. 9. Where profits include items of income which are dealt with separately in other Articles of this convention, then the provisions of those Articles shall not be affected by the provisions of this Article. 73. As is manifest from a reading of Article 7 (9), profits , if otherwise classifiable or being found to have been separately dealt with by the other Articles of the DTAA, would move out of the ambit of Article 7 whic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Model Convention which reads as follows: - 4. Where profits include items of income which are dealt with separately in other Articles of this Convention, then the provisions of those Articles shall not be affected by the provisions of this Article. Explaining the underlying intent of Article 7(4) of the OECD Model Convention, the official Commentary observes as follows: - 71. Although it has not been found necessary in the Convention to define the term profits , it should nevertheless be understood that the term when used in this Article and elsewhere in the Convention has a broad meaning including all income derived in carrying on an enterprise. Such a broad meaning corresponds to the use of the term made in the tax laws of most OECD member countries. 72. Absent paragraph 4, this interpretation of the term profits could have given rise to some uncertainty as to the application of the Convention. If the profits of an enterprise include categories of income which are dealt with separately in other Articles of the Convention, e.g. dividends, the question would have arisen as to which Article should apply to these categories of income, e.g. in the case of dividends, this Article or Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of Article 7 of the 2008 OECD Model Tax Convention. The Committee considers that the following part of the Commentary on paragraph 7 of Article 7 of the 2008 OECD Model Tax Convention is applicable to paragraph 6 of Article 7 of the United Nations Model Tax Convention (the modifications that appear in italics between square brackets, which are not part of the Commentary on the OECD Model Tax Convention, have been inserted in order to provide additional explanations or to reflect the differences between the provisions of the OECD Model Tax Convention and those of this Model): 59. Although it has not been found necessary in the Convention to define the term profits , it should nevertheless be understood that the term when used in this Article and elsewhere in the Convention has a broad meaning including all income derived in carrying on an enterprise. Such a broad meaning corresponds to the use of the term made in the tax laws of most OECD member countries 60. This interpretation of the term profits , however, may give rise to some uncertainty as to the application of the Convention. If the profits of an enterprise include categories of income which are treated separately in other Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ses of receipts such as income from the alienation or the letting of a business or of movable property used in a business. In this connection it may have to be considered whether it would be useful to include also additional rules for the allocation of such special profits. 64. It should also be noted that, whilst the definition of royalties in paragraph 2 of Article 12 of the 1963 Draft Convention and 1977 Model Convention included payments for the use of, or the right to use, industrial, commercial, or scientific equipment , the reference to these payments was subsequently deleted from that definition in order to ensure that income from the leasing of industrial, commercial or scientific equipment, including the income from the leasing of containers, falls under the provisions of Article 7 rather than those of Article 12, a result that the Committee on Fiscal Affairs considers to be appropriate given the nature of such income. 78. Explaining the purpose of Article 7 (7) as it forms part of the OECD Model Convention, Klaus Vogel [Klaus Vogel on Double Taxation Conventions [Fifth Edition] explains it to be representative of subsidiarity rules . It explains the intent of Articles 7( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n Other Articles' All other distributive rules that cover (exclusively or next to private investment or service income) entrepreneurial income qualify as other Articles in the sense of Article 7(4) OECD MC and Article 7(6). Most notably, this goes for Articles 6,8-12 and 17. 5. Legal consequences Article 7(4) OECD MC and Article 7(6) UN MC makes clear that the provisions of other Articles of the respective MC shall not be affected by the provisions of Article 7 OBCD and UN MC. This wording indicates that there is no strict exclusivity between Article 7 OECD and UN MC on the one hand and the special distributive rules on the other hand. 79. It is thus evident that the authoritative commentaries of both the OECD as well as the UN Model Conventions explain the objective of Article 7 pertaining to Business Profits and the protective clause comprised therein as being relevant to clarify the extent of its application coupled with the width and the avowed objective of conferring precedence upon those special Articles as opposed to placing all earnings and income under the broad rubric of Business Profits. It is in the aforesaid light that Article 7 (9) of the DTAA must be interpreted ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... der distinct heads of income reflects a sophisticated understanding of the economic realities of transactions. This approach acknowledges that a single contract may encompass multiple revenue streams each with its own tax implications. By adhering to this method, tax authorities can ensure that the appropriate tax treatment is applied to each type of income, aligning with the principles of fairness and transparency in international taxation. This nuanced interpretation and application of Article 7 highlights the importance of recognizing the economic character of transactions and ensuring that each type of income is taxed according to its specific attributes. It prevents the oversimplification of tax classifications and upholds the detailed and structured approach intended by the DTAA. 83. It is thus apparent that by virtue of Article 7 (9) of the DTAA, it was incumbent upon the respondents to ascertain the true character of the income earned by IMG and the mere fact that it had chosen to offer up the revenue attributable to the Service PE as Business Profit was clearly not conclusive of the question which arose. The mere categorization of revenue by the taxpayer does not definitiv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ) during subsequent years, 15 per cent of the gross amount of such royalties or fees for technical services; and (b) in the case of royalties within paragraph 3(b) of this Article and fees for technical services defined in paragraph 4(b) of this Article, 10 per cent of the gross amount of such royalties and fees for technical services. 3. For the purposes of this Article, the term royalties means : (a) 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, including cinematography films or work on films, tape or other means of reproduction for use in connection with 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; and (b) payments of any kind received as consideration for the use of, or the right to use, any industrial, commercial or scientific equipment, other than income derived by an enterprise of a Contracting State from the operation of ships or aircraft in international traffic. 4. For the purposes of paragraph 2 of this Article, and subject to paragrap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nd fees for technical services shall be deemed to arise in a Contracting State where the payer is that State itself, a political sub-division, a local authority 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 obligation to make payments was incurred and the payments are borned by that permanent establishment or fixed base then the royalties or fees for technical services shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated. 8. Where, owing to a special relationship between the payer and the beneficial owner or between both of them and some other person, the amount of the royalties or fees for technical services paid exceeds for whatever reason the amount which would have been paid in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In that case, the excess part of the payments shall remain taxable according to the law of each Contracting State, due r ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olves the application of knowledge, skill or expertise in the control or administration of the conduct of a commercial enterprise or organization. Thus, if the management of all or a significant part of an enterprise is contracted out to persons other than the directors, officers or employees of the enterprise, payments made by the enterprise for those management services would be fees for technical services within the meaning of paragraph 3. Similarly, payments made to a consultant for advice related to the management of an enterprise (or of the business of an enterprise) would be fees for technical services. 64. The ordinary meaning of the term technical involves the application of specialized knowledge, skill or expertise with respect to a particular art, science, profession or occupation, therefore, fees received for services provided by regulated professions such as law, accounting, architecture, medicine, engineering and dentistry would be fees for technical services within the meaning of paragraph 3. Thus, if an individual receives payments for professional services referred to in paragraph 2 of Article 14 from a resident of a Contracting State, those payments would be fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 'consultancy' of Article 12A (3) UN MC have an autonomous meaning in the UN MC. b. Any Payment The term 'payment' has a broad meaning that is comparable to 'paid to' in Articles 10, 11, and 12 UN MC. It is defined as 'fulfilment of the obligation to put funds at the disposal of the service provider in the manner required by contract or custom' (no. 40 UN MC Comm. on Article 12A referring to no. 3 UN MC Comm. on Article 10 and no. 6 UN MC Comm. on Article 11 quoting no. 7 OECD MC on Article 10 and no. 5 OECD MC on Article 11). For detailed information, see supra m.no. 252. c. In Consideration For The payments must be made in consideration for any service of a managerial, technical, or consultancy nature. Comparable to Article 12 UN MC, any economic exchange connection is sufficient including, i.e., payments for damages (see supra m.no. 89). .. d. Any Service (Managerial, Technical or Consultancy Nature) Article 12A UN MC is not applicable to every payment in consideration for services. The services have to be of a managerial, technical, or consultancy nature as the services qualify as 'technical services' only in these cases. The attribute te ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... this tradition in including services of managerial and consulting services. This raises the issue of whether these additions form a separate category that does not need a link to the traditional technical nature in the context of Article 12. In that wide understanding, any 'applied science in whatever field or, even further, any 'professional service imbued with expertise qualifies for a 'technical service' under Article 12A UN MC. From this perspective, almost every consulting service would be deemed as 'technical'. Yet, if this was the intention, the Contracting States should have chosen 'consulting' or another more general term instead of 'technical service'. Furthermore, the context of Article 12 strongly suggests that technical assistance refers to industrial IP rights and industrial secrets and know-how that dominate the catalogue of Article 12 OECD and UN MC. Therefore, to take the title of 'technical services' seriously, all 'technical services', even those of a 'managerial nature' or 'consultancy nature, need a link to the traditional field of technique to 'applied and industrial science or 'engin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ess to some databases according to the established needs of clients is equivalent to the creation of a custom database and can thus also be qualified as a technical service. Financial services such as payment and transmission services, banker's drafts, foreign exchange, debt and credit card services, and negotiable instruments are general products that are routinely made available to clients by financial institutions (no. 95 UN MC Comm. on Article 12A). Payments for services rendered to a specific customer upon request in addition to transaction processing services such as warning bulletin fees for listing invalid or fraudulent accounts, cardholder service fees, fees for programme management services, account and transaction enhancement services fees, hologram and publication fees, and fees for advisory services are not a standard facility and constitute fees for technical services. If the financial institution provides, e.g., advice to a company that is resident in the other Contracting State with respect to a potential merger or acquisition involving this company, then Article 12A UN MC is applicable (no. 96 UN MC Comm. on Article 12A). .. cc. Services of Managerial Nature. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... pal issue of disputation was whether the make available test was satisfied. 90. We find that the most lucid enunciation of the meaning to be assigned to the phrase make available appears in the decision of the Karnataka High Court in De Beers and where the High Court had held:- 13. Therefore, the clause in the Singapore agreement which explicitly makes it clear the meaning of the words 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 is enabled to apply the technology. The service provider in order to render technical services uses technical knowledge, experience, skill, know-how or processes. To attract the tax liability, that technical knowledge, experience, skill, know-how or process which is used by the service provider to render technical service should also be made available to the recipient of the services, so that the recipient also acquires tech ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n end. It is not as if for making available, the recipient must also be conveyed specifically the right to continue the practice put into effect and adopted under the service agreement on its expiry. xxxx xxxx xxxx 17. From the aforesaid statement of law it is clear the 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 business in future without the technical service of the service provider in respect of services rendered then, it would be said that technical knowledge is made available. xxxx xxxx xxxx 21. What is the meaning of make available . The technical or consultancy service rendered should be of such a nature that it makes available to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could 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 making available , the technical knowledge, skills, etc., must remain with the person rece ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... eement, as and when such advice is required. There is no transfer of technology or know-how, even on managerial, financial, legal or risk management aspects ; which would be available for the Indian company to be applied without the hands-on advice offered by the US company. The advice offered on such aspects would have to be on a factual basis with respect to the problems arising at various points of time and there cannot be found any transfer of technical or other know-how to the Indian company. 92. While on the subject of make available, it would be beneficial to refer to Vogel s explanation of contract types and the expression use or right to use as it appears in Article 12 of the OECD and UN Model Conventions. The treatise firstly refers to three perceivable contractual scenarios of which one could involve the transfer of know-how. Emphasis is yet again laid upon a transfer of ownership or alienation being the primary criterion for answering the question of whether a right to use had been conferred. However, of significance is the caveat which is entered with respect to contracts where the property or the know-how is not transferred to the payer who merely receives the goods o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the services rendered entails equipping the recipient with skill and evidencing an apparent conferment, alienation or transfer of skill, knowledge or know-how. This transfer of knowledge or skill is a pivotal factor in determining whether the consideration received can be classified as FTS. The make available stipulation ensures that only those services that impart lasting technical benefits are classifiable as FTS. It was on a consideration of the aforesaid that this Court in Bio-Rad had held that the real test would be the transfer of technical knowledge, the knowledge and skills and expertise of the provider being absorbed by the payer and who would then have the capability to deploy that knowledge or skill without reference to the original provider. This reinforces our view that the make available condition would be satisfied only if the rendering of service involves a clear and demonstrable transfer of technical skills, expertise or know-how to the recipient. It must involve a transfer of capabilities and not just the temporary use of the provider s knowledge, expertise or skill. 94. This leads us to the definitive conclusion that the rendering of technical and consultancy se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . No provision of the MOU or the Services Agreement would warrant such an assumption being made or conclusion drawn. Equally fallacious was the submission that by virtue of the services furnished by IMG, BCCI was made available experience in conducting and organizing a large-scale sports league. The contentions noticed above are neither borne out from the evidence which exists on the record, they are additionally rendered wholly unsustainable when one views the various contractual stipulations forming part of the MOU and the Services Agreement. 97. The submissions addressed on this score also fail to bear in mind that IMG came to be engaged by BCCI principally in light of its expertise, special abilities, experience and capabilities of conceptualising sporting leagues. IMG was tasked with creating the IPL based on the special knowledge, skill and experience that it possessed in the curation of sporting leagues. A reading of the various obligations that were placed upon IMG clearly establish that all facets of the IPL and the entire gamut of activities connected with the proposed league were not only to be created by it, IMG was also tasked with managing and administering all commer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or consultancy services had been made available. We also bear in consideration the undisputable fact that the contractual arrangement contemplated a continued engagement and ongoing reliance on IMG s expertise without any transfer of know-how or skills to BCCI. 101. The reliance placed on the decision of the Madras High Court in Regen Powertech is clearly misplaced since the same came to be rendered in the context of the India-UAE DTAA which admittedly does not embody a FTS provision. We are also unpersuaded by the decision in Centrica India Offshore which was principally concerned with whether the secondment of employees had led to the creation of a Service PE. In any event, we find ourselves unable to interpret or countenance the MOU or the Services Agreement as embodying any element of hand holding as was suggested. The decision thus is clearly distinguishable on facts and does not carry the case of the respondents any further. H. ARTICLE 13 (6) AND EFFECTIVE CONNECTION 102. That only leaves us to notice the argument of Mr. Vohra who had canvassed a submission in the alternative that if we were to hold that services rendered by IMG amounted to FTS, the revenue earned would stan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er:- 20. Certain States consider that dividends, interest and royalties arising from sources in their territory and payable to individuals or legal persons who are residents of other States fall outside the scope of the arrangement made to prevent them from being taxed both in the State of source and in the State of the beneficiary s residence when the beneficiary has a permanent establishment in the former State. Paragraph 3 is not based on such a conception which is sometimes referred to as the force of attraction of the permanent establishment . It does not stipulate that royalties arising to a resident of a Contracting State from a source situated in the other State must, by a kind of legal presumption, or fiction even, be related to a permanent establishment which that resident may have in the latter State, so that the said State would not be obliged to limit its taxation in such a case. The paragraph merely provides that in the State of source the royalties are taxable as part of the profits of the permanent establishment there owned by the beneficiary which is a resident of the other State, if they are paid in respect of rights or property forming part of the assets of the p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s for technical services arising in a Contracting State may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the fees is a resident of the other Contracting State, the tax so charged shall not exceed per cent [the percentage is to be established through bilateral negotiations] of the gross amount of the fees. 3. The term fees for technical services as used in this Article means any payment in consideration for any service of a managerial, technical or consultancy nature, unless the payment is made: (a) to an employee of the person making the payment; (b) for teaching in an educational institution or for teaching by an educational institution; or (c) by an individual for services for the personal use of an individual. 4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the fees for technical services arise through a permanent establishment situated in that other State, or performs in the other Contracting State independent personal services fro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s paragraph 8 of Article 12B. Thus, if a resident of one Contracting State provides technical services through a permanent establishment or fixed base located In the other Contracting State, the fees received for those services will be taxable by the State in which the permanent establishment or fixed base is located in accordance with Article 7 or Article 14, rather than in accordance with Article 12A. 105. Since Article 7 of the United Nations Model Tax Convention adopts a limited force-of-attraction rule, which expands the range of income that may be taxed as business profits, paragraph 4 also makes paragraphs I and 2 inapplicable if the fees for technical services are effectively connected with business activities in the State in which the fees arise that are of the same or similar kind as those effected through the permanent establishment. 106. The paragraph does not define the meaning of the expression effectively connected . As a result, whether fees for technical services are effectively connected with a permanent establishment, fixed base or business activities similar to those carried on through a permanent establishment must be determined on the basis of all the relevant ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ent establishment or fixed base. It is not necessary for the services to be provided in the Contracting State in which the payer is resident or has a permanent establishment or fixed base. Whether a person is a resident of a Contracting State for purposes of Article 12A is determined in accordance with the provisions of Article 4 of the Convention. 109. Where there is an obvious economic link between technical services being provided and the permanent establishment or fixed base of the payer to which the services are provided, the fees for technical services are considered to arise in the Contracting State in which the permanent establishment or fixed base is situated. This result applies irrespective of the residence of the person to which the permanent establishment or fixed base belongs, even where that person resides in a third State. 110. Where there is no economic link between the technical services and the permanent establishment or fixed base, the payments for technical services are considered to arise in the Contracting State in which the payer is resident. If the payer of fees for technical services is not a resident of a Contracting State, Article 12A does not apply to t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... deductibility of the fees for technical services provides an objective standard for determining that the payments have a dose economic connection to the State in which the permanent establishment or fixed base is situated. 106. As is evident from the above, Article 12A and more particularly Paras 5 and 6 thereof introduce the concept of FTS being borne by the permanent establishment or fixed base. The passages of the respective commentaries which were relied upon are liable to be appreciated bearing in mind the distinctive language in which Article 12A stands couched. While the OECD Commentary speaks of economic ownership , the UN Commentary asserts that the payment must have a dose of economic connection to the State in which the permanent establishment or fixed base is situate. Those commentaries thus do not strike an identical position. 107. We also bear in mind the submission of Mr. Vohra who had laid stress upon the MOU and the Services Agreement being an indivisible contract and constituting a singular source of the income in question. Undisputedly, the income was earned by and was liable to be remitted to IMG. The Service PE was undoubtedly not a separate legal entity which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he head office's business activities carried out in the PE State consist of managing or trading shares, granting loans or licensing. However, it does not apply if the head office's or the PE's activities consist only of disposing of capital by buying shares or depositing funds into bank accounts. Such activities are not the business activities referred to in Article 7 (1)(c) UN MC. The risk that the PE proviso may be abused through the transfer of shares, debt claims, rights or property to a PE set up solely to benefit from privileged tax regimes in the PE State may be remote (no. 32 OECD MC 2014 Comm. on Article 10; no. 25 OECD MC 2014 Comm on Article 12; no. 21 OECD MC 2014 Comm. on Article 12). First of all, a PE can only be identified if a business is carried on therein. Secondly, the condition that the shares, debt claims, rights or property must be effectively connected to such a location requires more than merely recording these assets in the books of the PE for accounting purposes. Next to this, the OECD believes that domestic anti-abuse rules can be an adequate weapon. According to the OECD, shares, debt claims, rights or property form part of the assets of a P ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... what would constitute a sufficient connection between income and PE or fixed base for tax purposes. However, in the context of these appeals, we find it unnecessary to delve into or definitively resolve the intricacies of Article 13 (6) given our determination on FTS and which sufficiently addresses the taxation issue. We consequently leave Article 13 (6) to be considered in a more appropriate case and where its interpretation and application may be central to the adjudicatory process. I. THE SECTION 9 (1) (vii) EXCEPTION 109. The appellants had, additionally, and insofar as AYs 2010-11 and 2015-16 were concerned, placed reliance upon the provisions comprised in Section 9 (1) (vii) of the Act. The said provision reads as under:- 9. Income deemed to accrue or arise in India. ( 1) The following incomes shall be deemed to accrue or arise in India xxxxx xxxxx xxxxx vii) income by way of fees for technical services payable by (a) the Government; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... which would be deemed to have accrued or arisen in India. While ordinarily income earned by way of FTS payable by a resident Indian would, by virtue of the deeming provision become taxable, it creates an exception in cases where FTS is payable in respect of services utilized in a business of profession outside India or for purposes of earning income from any source outside India. It is in the aforesaid context that the appellants had argued that the income earned from BCCI would fall in the exception not only since the event was held outside India but also since the service was availed of for earning income from a source outside India. 113. The respondents, on the other hand, had sought to contend that the rendering of services in India no longer remains a statutory requirement by virtue of the Explanation which came to be added to Section 9 with retrospective effect from 01 June 1976. It becomes pertinent to note that the Tribunal had in this regard held as follows: - 48. According to provisions of section 9 (1) of the Income tax Act the income by way of fees for technical services payable by a person who is resident to a non-resident shall be deemed to accrue or arise in India an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e in India under clause (v) or clause (vi) or clause (vii) of sub-section (1) and shall be included in the total Income of the non-resident, whether or not,- (i) the non-resident has a residence or place of business or business connection in India; or (ii) the non-resident has rendered services in India. 5.1 For the purposes of understanding the reasons for the change, it is relevant to refer to the Explanatory Memorandum to the Finance Bill 2012, which is reproduced hereunder: Section 9 provides for situations where income is deemed to accrue or arise in India. Vide Finance Act, 1976, a source rule was provided in section 9 through insertion of clauses (v), (vi) and (vii) in sub-section (1) for income by way of interest, royalty or fees for technical services respectively. It was provided, inter alia, that in case of payments as mentioned under these clauses, income would be deemed to accrue or arise in India to the non-resident under the circumstances specified therein. The intention of introducing the source rule was to bring to tax interest, royalty and fees for technical services, by creating a legal fiction in section 9, even in cases where services are provided outside India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ause (vi) or clause (vii) of sub-section (1) of section 9 and shall be included in his total income, whether or not, (a) the non-resident has a residence or place of business or business connection in India; or (b) the non-resident has rendered services in India. This amendment is proposed to take effect retrospectively from 1st June, 1976 and will, accordingly, apply in relation to the Assessment year 1977-78 and subsequent years. (Emphasis supplied) 5.2 From the above, it is now clear that the provisions of the Income Tax Act have been amended to include income in the hands of non-resident on accrual basis in India u/s 9 (1) (v)/(vi)/(vii) whether or not the non-resident has a residence or place of business or business connection in India or the non-resident has in India. The issue has to be decided in the context of the law as applicable. 5.3 The Ld. ARs have also referred to provisions of clause (b) of section 9 (1) (vii). According to the said sections, Royalty/FTS payable by a resident are deemed to accrue or arise in India where the royalty/fee is payable to a non-resident except where these are payable in respect of any right, property or information used or services utiliz ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... India. 16.3 The expression fees for technical services has been defined to mean .. 16.4 The aforesaid amendment has come into force with effect from 1-6-1976, and will apply in relation to the assessment year 1977-78 and subsequent years. 5.4 In view of the above, it is evident that the intention of the legislature clarified by the Explanatory circular on the introduction of the amendment in the Income Tax Act has been to consider such person appearing in section 9 (1) (vii) (b) with reference to the resident payer for the said amount because the expression if the payment is relatable to a business or profession carried on by him outside India refers to the business or profession carried out by him viz. resident payer in this context and not the non-resident payee. In view of the clear disposition of the relevant provisions of the I.T. Act, we hold that the provision of section 9 (1) (vii) (b) are also satisfied and the case of the assessee is not covered by the exceptions. 115. In our considered opinion, this question is clearly liable to be answered in favor of the appellant for reasons which follow. Undisputedly, IPL in 2009 and 2014 though originally slated to be held in India ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion. The conclusion of the High Court in this regard is absolutely defensible in view of the principles stated in CIT v. R.D. Aggarwal and Co. [ CIT v. R.D. Aggarwal and Co., (1965) 56 ITR 20 (SC)], CIT v. T.I. and M. Sales Ltd. [CIT v. T.I. and M. Sales Ltd., (1987) 3 SCC 132 : 1987 SCC (Tax) 240 : (1987) 166 ITR 93] and Barendra Prasad Ray v. ITO [Barendra Prasad Ray v. ITO, (1981) 2 SCC 693 : 1981 SCC (Tax) 149 : (1981) 129 ITR 295]. That being the position, the singular question that remains to be answered is whether the payment or receipt paid by the appellant to NRC as success fee would be deemed to be taxable in India under Section 9 (1) (vii) of the Act? As the factual matrix would show, the appellant has not invoked Double Taxation Avoidance Agreement between India and Switzerland. That being not there, we are only concerned whether the success fee as termed by the assessee is fee for technical service as enjoined under Section 9 (1) (vii) of the Act. The said provision reads as follows: 9. Income deemed to accrue or arise in India. ( 1) The following incomes shall be deemed to accrue or arise in India *** (vii) income by way of fees for technical services payable by (a) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he purposes of this section, where income is deemed to accrue or arise in India under clauses (v), (vi) and (vii) of sub-section (1), such income shall be included in the total income of the non-resident, whether or not the non-resident has a residence or place of business or business connection in India. 25. The principal provision is sub-clause (b) of Section 9 (1) (vii) of the Act. The said provision carves out an exception. The exception carved out in the latter part of sub-clause (b) applies to a situation when fee is payable in respect of services utilised for business or profession carried out by an Indian payer outside India or for the purpose of making or earning of income by the Indian assessee i.e. the payer, for the purpose of making or earning any income from a source outside India. On a studied scrutiny of the said clause, it becomes clear that it lays down the principle what is basically known as the source rule , that is, income of the recipient to be charged or chargeable in the country where the source of payment is located, to clarify, where the payer is located. The clause further mandates and requires that the services should be utilised in India. 26. Having st ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... at is, developing nations. Here comes the principle of nexus, for the nexus of the right to tax is in the source rule. It is founded on the right of a country to tax the income earned from a source located in the said State, irrespective of the country of the residence of the recipient. It is well settled that the source based taxation is accepted and applied in international taxation law. 28. The two principles that we have mentioned hereinabove, are also applied in domestic law in various countries. The source rule is in consonance with the nexus theory and does not fall foul of the said doctrine on the ground of extra-territorial operation. The doctrine of source rule has been explained as a country where the income or wealth is physically or economically produced. [See League of Nations, Report on Double Taxation by Bruins, Einaudi, Saligman and Sir Josiah Stan (1923)]. Appreciated on the aforesaid principle, it would apply where business activity is wholly or partly performed is a source State, as a logical corollary, the State concept would also justifiably include the country where the commercial need for the product originated, that is, for example, where the consultancy is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s receipt or accrual of income, as would be evident from a plain reading of Section 5(2) of the Act. The legal fiction created although in a given case may be held to be of wide import, but it is trite that the terms of a contract are required to be construed having regard to the international covenants and conventions. In a case of this nature, interpretation with reference to the nexus to tax territories will also assume significance. Territorial nexus for the purpose of determining the tax liability is an internationally accepted principle. An endeavour should, thus, be made to construe the taxability of a non-resident in respect of income derived by it. Having regard to the internationally accepted principle and DTAA, it may not be possible to give an extended meaning to the words income deemed to accrue or arise in India as expressed in Section 9 of the Act. Section 9 incorporated various heads of income on which tax is sought to be levied by the Republic of India. Whatever is payable by a resident to a non-resident by way of fees for technical services, thus, would not always come within the purview of Section 9 (1) (vii) of the Act. It must have sufficient territorial nexus ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e conclusions of the Tribunal on Section 9 (1) (vii) (b) of the Act. 121. Insofar as Article 13 (6) and the issue of effectively connected is concerned we have, in light of our findings on FTS, desisted from expressing any final opinion. However and in light of the reservations expressed in the body of the judgment, this decision is not liable to be construed as an affirmation of the view in law as expressed by the Tribunal. 122. That only leaves us to consider Question (i) as framed. It becomes apposite to note that the question is introduced with the appellant seeking our opinion on whether business income was divisible under the DTAA even though it arose out of a single contract having regard to Articles 7 and 13 of the Convention. We note that the Tribunal has founded its decision on what appears to be an admitted dichotomy between the functions performed and services rendered by the IMG UK as distinguished from those discharged by its Service PE. However, the Tribunal has while dealing with the functions performed by IMG UK linked it to the issue of effectively connected which was relevant for the purposes of Article 13. This becomes apparent from a reading of paragraph 38 of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uld establish that PE is engaged in the performance of all those services or should be involved in actual rendering of such services, or (2) it shou1d arise as a result of the activities of the PE, or (3) The PE should, at least, facilitate, assist or aid in performance of such service irrespective of the other activities PE performs. Therefore according to article 7, for attribution of the profits to the permanent establishment the activity carried out by the permanent establishment is important and to that extent only the profits can be attributed to that particular permanent establishment. However if there are other activities, which are also incorporated in the agreement, which are not at all carried on with the help of, or through, or by, or under the control, or under the supervision of the permanent establishment such activities and income arising there from cannot be said to be 'effectively connected' with the permanent establishment and article 7 cannot be applied to those services. In the present case certain activities are carried out by the appellant which are not even concerned with the functioning . of the permanent establishment therefore in our view only the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fit is considered to be at arm's length by the assessee and as well as by the transfer pricing officer, it cannot be said that the balance sum of Rs. 90 crores be taxed in India as the whole contract was 'effectively connected' with the permanent establishment created by the petitioner of some staff for performing some of the activities and crossing the threshold duration. We do not subscribe to such a view and we are also of the view that such is the case of the assessee before us. 123. The issue became further obfuscated with the appellant alternating between Articles 7 and 13 of the DTAA. In our considered opinion, the respondents while evaluating the attribution of income to the Service PE question were necessarily constrained to tread down this path and bear in consideration the nature of services rendered by IMG UK as distinguished from those discharged by the Service PE. In fact even the appellant does not appear to have seriously questioned the fact that a part of the advisory work was undertaken by its UK office without the involvement of the Service PE. 124. In light of the admitted position of a Service PE existing in the relevant AYs , the income attributabl ..... X X X X Extracts X X X X X X X X Extracts X X X X
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