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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 ..... SECTION 9 (1) (vii) EXCEPTION 109 - 119 J. CONCLUSIONS 120 - 124 K. DISPOSITIF 125 A. PREFACE 1. This set of appeals instituted by the International Management Group (UK) Limited [hereinafter to be referred as "IMG"], impugn the decisions rendered by the Income Tax Appellate Tribunal [ITAT] on appeals spanning Assessment Years [AY] 2010-11 to 2018-19. The appeals had been formally admitted on the following three principal questions of law: - "(i) Did the ITAT err in holding that the business income was divisible under the India-UK DTAA, though it arose out of a single contract having regard to Articles 7 and 13 of India-UK DTAA? (ii) Whether the ITAT erred in holding that services provided by IMG to BCCI under the Service Agreement dated 24.9.2009 qualify as fee for technical services in terms of Article 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d Kingdom Double Taxation Avoidance Agreement [DTAA]. It appears to have been asserted that only such of the receipts as would be attributable to a Permanent Establishment [PE] in India would be taxable. It appears to have been the admitted position between the parties that IMG had a Service PE as contemplated under Article 5 (2) (k) of the DTAA in all the relevant AYs'. The attribution of income to the PE was explained by way of the following table: - "AY ITA No. Total Receipts Receipt attributed to PE Treated as FTS (INR) Amount (INR) % 2010-11 218/2017 33,00,00,000 9,22,49,819 28 23,77,50,181 2011-12 986/2018 27,00,00,000 19,58,26,586 73 7,41,73,414 2012-13 993/2018, 28,00,00,000 21,48,45,495 77 6,51,54,505 2013-14 1013/2018 28,00,00,000 20,99,17,301 75 7,00,82,699 2014-15 1055/2018 28,00,00,000 21,16,65,921 76 6,83,34,079 2015-16 381/2019 27,00,00,000 17,00,87,645 63 9,99,12,355 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... our mind even a bare perusal of the provisions of the agreement supra will show that the requirements of Article 13 are more than met as spelled out in greater detail hereunder. i) IMG having carried out the research has advised the BCCI in connection with the formation and governance of the League and IPL, thus making available to it technical knowledge, experience, skill know-how or processes. ii) IMG has assisted the BCCI in connection with and made available to it technical knowledge, experience, skill, know-how or processes for formulating the structure of the League; the League rules and regulations; the Franchise agreements and any necessary franchise regulations; the League implementation budget; and the Media Rights agreements. All of these have made available technical knowledge, experience, skill, know-how or processes and even after the agreement lapses they would continue to be available to and available with the BCCI for such use as they deem appropriate. iii) The IMG 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 Fra ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... stance in connection with the Player contracts; * the establishment and maintenance of the Player registration system; * the management of the annual Player trading window; (v) Advice and assistance in connection with Anti-Doping and WADA Compliance Regulations; Assistance in the creation / development of new intellectual properties relating to the League and all such properties created will be the sole property of BCCI; and will vest with BCCI. (vi) Carrying out research in consultation with BCCI each year to ascertain improvements in various areas of management and execution of the League; Development of the strategic brand framework for BCCI and manage brand IPL working with the BCCI team; and bringing in global best practices in building and evaluating sporting properties and related aspects and delivering a post event report at the end of each season. Yet again it bears reiteration that all of these aforementioned technical/consultancy services have made available tangible, technical knowledge, experience, 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 regulati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es of taxation. 11. Insofar as this aspect is concerned, the DRP observed as follows:- "2.7 Whether Services being performed by non-resident taxpayers outside India and having been rendered from outside India are taxable as FTS Taxpayers Arguments 1. However, the Hon'ble DRP made a patent error of low by attributing such receipts to the PE though the same to pertained to work outside India. Further, the taxation of the receipts as FTS was only directed on a protective basis in the direction passed by the Hon'ble DRP. 2. While dealing with the interpretation of Article 7 of the India-UK DTAA, the Special Bench of Income 1ox Appellate Tribunal Mumbai in the case of Clifford Chance {33 taxamann.com 200} {2013} has held that the receipts for work done outside India cannot be attributed to the PE under Article 7 of the India-UK DTAA. 3. It is submitted that the receipts of INR 7,00,82,699 for work done outside India cannot be attributed to the PE on account of the following reasons: - The attribution to the PE has been 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 intern ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... payer GVK Industries Ltd contended that the NRC was an independent unit and was, in a way, subsidiarised by ABB. That apart, merely because expert advice was obtained, it could not be said that it pursued the application for loan/financial assistance on behalf of NRC and further the advisory services were rendered from outside India. The assessee also contended that 'the NRC did not render any technical or consultancy service to the company but only rendered advise in connection with payment of loan by it and hence, it would not amount to technical or consultancy service within the meaning of Sec. 9 (1) (vii) (b). * The High Court (HC) in GVK Industries Ltd held that assessee was not entitled to the NOC. Referring to the decision in case of 'Electrical Corporation of India Ltd Vs CIT', the HC dismissed the writ petition. Aggrieved, assessee preferred an appeal before the Apex Court. Referring to the Principles in decisions in case of 'C.I.T. V. Aggarwal and Company'[(1965) 56 ITR 20], 'C.I.T. v. TRC [(1987) 166 ITR 1993] and 'Birendra Prasad Rai V. ITC (1981) 129 ITR 295], Supreme Court (SC) noted that the singular question that remained to be answered ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e extra-territorial aspect or cause and something in India or related to India and Indians, beyond the constitutional requirement that it be real and not fanciful, then the courts would have to enforce such a requirement in the operation of the law as a matter of that law itself, and not of the Constitution. Hon'ble SC also relied on co-ordinate bench ruling in 'CIT. vs. Aggarwal and Company' ((1965) 56 ITR 20], CIT vs. TRC [(1987) 166 ITR 1993] and Birendra Prasad Rai vs. ITC [(1981) 129 ITR 295]. SC further relied on 'the Introduction in Klaus Vogel on Double Taxation Convention, South Asean, Reprint Edition (2007)] wherein it was mentioned that what was prohibited by international taxation law was imposition of sovereign act of a State on a sovereign territory and the said principle of formal territoriality applied to acts intended to enforce internal legal provisions abroad. Applying Supreme Court decision in GVK Industries Ltd & Anr [TS-61-SC-2015] the receipts from services rendered abroad are taxable and jurisprudence relied upon is superceded by this SC decision and the rationale laid down regarding FTS is also applicable ie taxpayer has itself submitted that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uted INR 9,22,49,819/- to the Indian PE and a net profit of INR 3,28,04,660/- computed in accordance with the transfer pricing regulations was asserted to be attributable to the Indian PE and offered to tax. 15. The AO while drawing up a draft order, however, held that the balance receipt of INR 23,77,50,181/- was liable to be taxed as FTS. It was the aforesaid order which was assailed before the DRP. While dealing with those objections, the DRP held that the aforesaid revenue was liable to be taxed as FTS. This is evident from Para 5.6 of its directions, which is extracted hereinbelow: - "5.6 In addition and consequent to the "MOU" dated 13.09.2007, the assessee and BCCI also entered into a separate, service agreement, on 24.09.2009 for Representation Period consisting of nine IPL seasons starting from 01.01.2009 (Clause 1.11(q) of the service agreement). This service agreement was entered after the end of IPL season of 2009 with retrospective date from 01.01.2009. The annual charge of Rs 33.00 crores received during the year is for all services, rendered by the assessee anywhere in the world (Clause 1.1 (x) and 6.2 of the service agreement) and it is in the nature of FTS as it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... fied and the case of the assessee is not covered by the exceptions." 17. It ultimately came to hold that the income although constituting FTS would be liable to be taxed as business income in terms of Article accepting the contention based on Article 13 (6) of the DTAA. However, it also proceeded to direct the AO to frame an order treating the said income as FTS on protective basis. It was the final assessment order drawn pursuant to those directions which led to appeals being filed by both IMG as well as the Income Tax Department. 18. Dealing with the aforesaid appeals, the Tribunal identified the principal issues to be whether receipt of INR 23,77,50,181/- was chargeable to tax in India at all and the second question being whether the same was liable to be treated as FTS. The Tribunal firstly reviewed the terms and conditions as contained in the MoU as well as the Services Agreement. It also took into consideration the nature of functions performed by the UK office of IMG and its Indian PE, as were recorded in the transfer pricing study report. Proceeding further, it firstly took up for consideration the argument of IMG based on Article 13 (6) and whether FTS could be said to b ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ding party i.e. assessee, should 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 should 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 th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sis such attribution of the profit 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." 19. The Tribunal while ruling on the interplay between Articles 7 and 13 of the DTAA, held as follows:- "39. Further now coming to the interplay between article 7 and article 13 of the Double Taxation Avoidance Agreement gives an insight that first there has to be an existence of the permanent establishment through which the business is carried out and further existence of 'effective connection' between such PE and the rights properties and contracts in respect of which the fees for technical services are paid. That would mean that only such fees for technical services are excluded from the scope of article 13 (6) as are 'attributable' to th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... for technical services are paid is effectively connected with that permanent establishment or fixed base. Then only the provisions of article 7 related to business profit shall apply. Therefore the above article provides for twin conditions, (1) that the royalty or fees for technical services should arise through a permanent establishment situated in the other State and (2) the right property or contract in respect of the royalty or fees for technical services are paid is effectively connected with the such permanent establishment or fixed base. In the present case the benches raised a specific query that how the activities carried on by the UK office of the appellant are arise through the permanent establishment and how the contract is effectively connected with such permanent establishment. The Ld. authorized representative responded by submitting that it is with respect to the contract which should be effectively connected to the permanent establishment or fixed base. However with respect to the evidence of activities carried on by the overseas head office of the appellant and how they are connected or arising through the permanent establishment has, not been responded to. Desp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Tribunal on due examination of the rival contentions further held that the 'make available' stipulation comprised in Article 13 of the DTAA also stood satisfied. This becomes evident from the following findings which came to be rendered: - "43. Now the next contention raised by the appellant is that as there is no 'make available' test satisfied in case of the services provided by the appellant, hence, according to article 13 (4) which defines the fees for technical services means payments of any kind of any person in consideration for the rendering of any technical or consultancy services which make available technical knowledge, experience, skill know-how or processes, or consist of development and transfer of a technical plan technical design. According to the assessee as clause C of article 13 (4) is not satisfied the balance cannot be charged to tax as fees for technical services. In the present case the services are already described in the previous paragraphs and there cannot be two opinion about that that mere provision of services or technical services is not sufficient, it is essential that services should be "make Available" technical knowledge, experience, sk ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... entation 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 appellant in future. It is too naïve to say that in absence of IMG services BCCI on its own IPL tournament cannot hold. Merely because the BCCI has entered into a contract for conducting further 9 events does not lead to the conclusion that the information documentation, agreements, contracts etc cannot be said to be 'made available' to the appellant. In fact according to us it is. In view of this we reject the contention of the appellant that the sum of Rs. 237750181/-cannot be taxed as fees for technical services as it does not satisfy 'make available' condition provided in article 13 (4) (9)(c) of the DTAA." 21. The Tribunal with respect to applicability of Section 9 (1) (vii) of the Act drew the following conclusions: - "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 and shall be chargeable to tax u/s. 5 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d to be taxed only to the extent of income attributable to the Indian PE of IMG. Mr. Vohra submitted that it was the undisputed position that pursuant to the nature of services performed in India coupled with the visits of IMG employees to the country, the prescriptions of Article 5 (2) (k) of the DTAA stood satisfied and that consequently a Service PE had come into existence. Mr. Vohra underlined the fact that Article 5 (2) (k) applies only where services other than those taxable under Article 13 are furnished. It was in the aforesaid backdrop that learned senior counsel submitted that once the revenue had accepted the existence of a Service PE and the taxability of INR 9,22,49,819/- being income attributable to the Service PE, it was clearly not open for the respondents to hold that the balance receipts from BCCI were liable to be taxed as FTS. 24. According to learned senior counsel, the respondents clearly stood estopped from contending that receipts from BCCI to the extent not attributable to the admitted Service PE, would be taxable under Article 13. The submission, in essence, was that once the respondents had accepted the constitution of a Service PE as well as the attribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ore, 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 technical knowledge, experience, skill, know-how or processes so as to render such technical services. Once all such technology is made available it is open to the recipient of the service to make use of the said technology. The tax is not dependent on the use of the technology by the recipi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as "fee for technical/included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied" 27. Our attention was also drawn to the decision of the Kerala High Court in US Technology Resources (Pvt.) Ltd. vs. Commissioner of Income Tax, where the phrase "make available" was explained to indubitably envisage a transfer of technology or know-how. We deem it apposite to extract the following paragraphs of that decision: - "7. There can be no dispute that the income generated by the US company under the agreement entered into with the Indian company as remuneration for the services provided is brought within the scope of total income under section 5 (2) of the Act. Section 9 speaks of "income deemed to accrue or arise in India" and clause (vii) of sub-section (1) of the aforesaid provision, as is relevant for our consideration, is extracted hereunder: "(vii) income by way of fees for technical services payable by-. (c) a person who is a non-resident, whe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... more similar to the present facts. Herein also there is no technology transfer; nor is there a plan or strategy relating to management, finance, legal, public relations or risk management transferred to the appellant. The services promised by the non resident company is only to advice on such aspects as are specifically referred to in the agreement. The non-resident company only assists the Indian company in making the correct decisions on such aspects as is specifically referred to in the agreement, 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." 28. Our attention was also drawn to the following pertinent observations as appearing in the judgment handed down by our Court in CIT (IT) v. Bio-Rad Lab (Singapore) Pte. Ltd. 2023 SCC OnLine Del 67 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider." (emphasis is ours) 15. We tend to agree with the analysis and conclusion arrived at by the Tribunal." 29. Mr. Vohra in support of his submission that the fundamental requirements of the applicability of Article 13 of the DTAA were not met also relied upon two recent decisions rendered by this Court in Commissioner of Income Tax (International Taxation) vs. Relx Inc 2024 SCC OnLine Del 1314 and Commissioner of Income Tax-International Taxation-3 vs. Salesforce.com Singapore ITA 144/2023. 30. Proceeding further on this aspect, Mr. Vohra contended that the sine qua non for Article 13 being attracted would be the transfer of technical knowledge, experience, skill, know-how or processes in a manner which would have enabled BCCI itself to conduct the IPL on its own without any advice or assistance of IMG. According to learned senior counsel, the fact that the Services Agreement with BCCI continued for more than ten years and saw IMG being involved on a yearly basis to provide assistance in the conduct of the IPL is itself evidence of no trans ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of being effectively connected with the Service PE of the appellant. According to Mr. Vohra, Article 13 (6) requires one to examine whether the contract is 'effectively connected' to the PE and if the answer to the above be in the affirmative, the receipts being liable to be taxed only to the extent as envisaged under Article 7 of the DTAA. According to learned senior counsel, since IMG admittedly had a Service PE and the source of revenue was only one contract, it must consequently be held that the same was effectively connected with the PE. Accordingly, and in view of the above, it was his submission that the entire receipt from BCCI would go out of the ambit of Article 13 and become taxable as income under Article 7 to the extent attributable to the PE. 33. According to learned senior counsel, this aspect stands answered in favour of the appellant by the Supreme Court in Ishikawajma Harima Heavy Industries Ltd. vs. Director of Income Tax, Mumbai (2007) 3 SCC 481 and where it was observed as follows: - "79. Since the appellant carries on business in India through a permanent establishment, they clearly fall out of the applicability of Article 12 (5) of DTAA and into the ambit ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hs which provide that, where the shareholding, indebtedness, etc., is "effectively connected with the permanent establishment, art. 7 should apply. According to paragraph 35 of the Commentary, such payments may then be regarded as ''profits" of the permanent establishment within art. 7 and may be attributed to the permanent establishment or they can be taxed separately but without the limits contained in the specific Articles. The order of priority is thus as follows. First, it is necessary to decide whether an item of income falls within one of the specific Articles - dividends, royalties, etc. If it does, then that Article applies unless the enterprise has a permanent establishment in that state and the income is effectively connected with that permanent establishment. In that event, art. 7 will apply and the income will be taxed as a profit of the permanent establishment or separately." In view of the aforesaid and in light of Article 13 (6) of the DTAA, Mr. Vohra would submit that the view taken by the Tribunal that the revenue was liable to be taxed as FTS is rendered wholly untenable. 36. Proceeding further to address submissions on the additional ground based on Se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n, a detailed Note of Submissions had also been tendered under the pen of Mr. Zoheb Hossain, the learned senior standing counsel. Mr. Hossain's note rightly identifies the two principal questions with arise as being whether the services rendered by the assessee would qualify as technical or consultancy services and whether the furnishing of those services would fall within the scope of the 'make available' requirement as appearing in Article 13 (4) of the DTAA. 38. In order to appreciate the issues that arise, Mr. Hossain firstly drew our attention to the principal obligations placed upon IMG UK and which have also been extracted in the order of the Tribunal for AY 2010-11. The Tribunal had in this regard relied upon the following stipulations as appearing in the Services Agreement: - "4. IMG's Obligations IMG shall during the Representation Period provide the services set out in Clauses 4.1 and 4.2 (the "Services") it being acknowledged that a significant proportion of the Services constitutes advice provided to the BCCI from outside India using IMG's international expertise and resources. 4.1 Having carried out research and advised the BCCI in connection with the forma ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ers; (l) the creation of and advice and assistance with the "look and feel" elements in relation to the BCCI Marks generally and, in particular, at any relevant Stadia; (m) the provision of hospitality guidelines in relation to the League and implementation of hospitality in the latter "case in a latter case in manner to be mutually discussed and agreed; (n) the provision of a League handbook; (o) advice and assistance in connection with the Player contracts; (p) the establishment and maintenance of the player registration system (q) the management of the annual Player trading window; (r) provision of the requisite manpower that is required to carry out such activities as are within IMG's control in connection with the successful naming of the League and Matches including the provision of a CUIH staffed, office to do the same, at the sole cost of MG; (s) the hiring of whatever resources are required to fully perform IMGs obligations under this Agreement at the sole cost of IMG; (t) advice and assistance in connection with Anti Doping and WADA Compliance Regulations; (u) assistance in the creation / development of new intellectual properties relating to the l ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... olicies/ procedures and work plan relating to management of the franchise tender process in India 8. Formulation of policies/ procedures and work plan relating to management of the sales process in respect of the various aforementioned rights in India 9. Preparation of and offshore assistance in negotiation of contracts with sponsors, media, successful franchisees etc. 10. Preparation of television production specifications 11. Formulating policies/ procedures and work plan relating to running of the event in India, including setting out the logistics, manpower etc. Requirements along with IMG India PE 12. Development of best practice match day guidelines for franchisees and for the IPL along with IMG India PE 13. Development of best practice match day media guidelines along with IMG India PE 14. Undertaking offshore market/ industry analysis and supervision of research activities undertaken in India for identification of prospective sponsors along with IMG India PE 15. Advice and assistance in connection with the rules and regulations relating to the registration, auction and trading of Players 16. Development of the strategic brand framework for BCCI and managin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... match locations are in line with the desired IMG UK guidelines; providing/ managing logistics, manpower support in India relating to running of the event and undertaking related administrative support activities, assistance in negotiation of contracts with sponsors, media, successful franchisees etc.; undertaking market/ industry research to assist IMG UK in identification of prospective sponsors in India. The logistic activities essentially involved 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 u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or the purposes of this Article, subject to paragraph 6, fees for technical services shall be deemed to arise in a Contracting State if the payer is a resident of that State or if the person paying the fees, whether that person 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 pay the fees was incurred, and such fees are borne by the permanent establishment or fixed base. 6. For the purposes of this Article, fees for technical services shall be deemed not to arise in a Contracting State if the payer is a resident of that State and carries on business in the other Contracting State through a permanent establishment situated in that other State or performs independent personal services through a fixed base situated in that other State and such fees are borne by that permanent establishment or fixed base. 7. Where, by reason of a special relationship between the payer and the beneficial owner of the fees for technical services or between both of them and some other person, the amount of the fees, having regard to the services for which they are paid, exceeds the amount which ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... taken by the appellant largely involved researching and advising, the same would clearly fall within the meaning of technical and consultancy services. In order to expand upon the aforesaid submission, the respondents also relied upon a decision of the Madras High Court in Regen Powertech Pvt. Ltd. vs. Deputy Commissioner of Income Tax (2019) SCC OnLine Mad 39086 and which was concerned with remittances made by the Indian payer to a non-resident for conducting a market study. While dealing with the aforesaid that High Court had held as follows: - "10. There are three issues raised before us in this appeal. First relates to payments made by the assessee to M/s. WFPL, Srilanka, the second relates to payment made to M/s. WRS, Germany and the third relates to payment made to M/s. Ernst and Young, United Arab Emirates. The result to be arrived in this appeal wholly revolves upon the terms and conditions of the contract entered into between the assessee and the three foreign entities. The Assessing Officer has examined the terms and conditions minutely and has assigned reasons in support of his conclusion as to why the assessee should have deducted tax at source while effecting such pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is no error in the said conclusion especially when it has been rendered on appreciation of the scope of work based on the documents placed by the assessee before the Assessing Officer. Therefore, we find that the conclusion arrived at by the two authorities and the Tribunal on all the three issues does not call for interference." 44. The respondents contended that three fact finding authorities had on an analysis of the documentary evidence placed before them, come to the conclusion that the services performed by IMG would fall within the scope of FTS as defined under Article 13 of the DTAA. According to the respondents, the mere fact that Article 13 (4) does not speak of managerial services would clearly not advance the case of the appellant any further since the services rendered would, in any case, fall within the ambit of technical or consultancy services. In view of the above, the fact that those services are not concerned with the control or administration of the conduct of the commercial enterprise would be of little relevance. 45. The respondents argued that once it is found that the services performed would qualify as technical or consultancy services, all that need be f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he mere fact that the agreement spanned or spread over a period of ten years by itself would not be a factor relevant for determining whether the make available condition had been met. In support of the aforenoted submission, the respondents placed reliance upon the following observations as appearing in Centrica India Offshore Pvt. Ltd. vs. Commissioner of Income Tax & Ors. 2014 SCC OnLine Del 2739. "32. The mere rendition of service is not an "included service" that triggers tax liability. Instead, the enterprise must "make available" the skill behind that service to the other party, i.e., the Indian recipient. The definition, as it appears, is more restricted that in the India-UK DTAA. The question is whether the higher threshold, is met in this case. The service provided by the secondees is to be viewed in the context in which their secondment or deputation was necessitated. The overseas entities required the Indian subsidiary, CIOP, to ensure quality control and management of their vendors of outsourced activity. For this activity to be carried out, CIOP required personnel with the necessary technical knowledge and expertise in the field, and thus, the secondment agreement w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here cannot be two opinion about that that mere provision of services or technical services is not sufficient, it is essential that services should be "make Available" technical 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 w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d since there was no effective connection between the contract and the PE. Reliance was firstly placed upon the following observations as appearing in the transfer pricing study report:- "4.4.2. Functions performed by IMG India PE As part of the execution of the contract, a certain set of activities were required to be undertaken in India. Accordingly, some of the discussions/ negotiation processes between BCCI and various other parties (like franchises, sponsors, media partners, etc.) happened in India since the 2009 event was scheduled to take place in India. For this purpose, IMG UK employees came to India from time to time for short term visits. Further, few freelancers were appointed/ engaged by IMG UK for undertaking the on-ground implementation and related supervision activities in India. *** The activities undertaken by the Branch include: liaison/ coordination support in dealing with the client/ BCCI, media partners, sponsors, franchisees, player auction process, etc. in India; organizing the implementation of the event in India viz. coordinating with various third parties in India to ensure that facilities/ arrangements at the match locations are in line with the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y, there cannot be any overlapping in the scope of article 11 vis-à-vis article 7 or vis-à-vis article 14, and, unless there is such an overlapping of the treaty provisions, there is no occasion for exclusion of one of the overlapping treaty provision by article 11 (6). In other words, the taxability under article 7 or article 14 is a sine qua non for triggering the exclusion clause under article 11 (6). There is no finding to, or even indication of, that effect. Unless the Assessing Officer gives that finding, excluding interest income from gross basis taxation under article 11 (6) cannot come into play. In any event, triggering of exclusion under article 11 (6) does not, by itself, result in taxation of interest income at the normal rate of tax-unless the interest income is taxable under article 7 (1) or under article 14 (1)." 51. The respondents then sought to draw sustenance from the commentary pertaining to the OECD Model Convention to drive home their contention that the effective connection test was not met. It becomes relevant to note that Article 12 (3) of the OECD Model Convention reads as follows: - "3. The provisions of paragraph 1 shall not apply if th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the permanent establishment. This will be the case where the remuneration paid to the person providing the services is borne by the permanent establishment or fixed base in the State in which the fees arise. 107. Where paragraph 4 applies, fees for technical services are taxable by the State in which the fees arise as part of the profits attributable to the permanent establishment in accordance with Article 7 or the income attributable to the fixed base in accordance with Article 14. Thus, paragraph 4 relieves the State in which the fees for technical services arise from the limitations on its taxing rights imposed by Article 12A." 54. Viewed in light of the above, the respondents submitted that the Indian PE cannot be recognized to have undertaken activities which would fall within the meaning of technical or consultancy services and that more fundamentally the economic ownership over the contractual rights also did not rest in the Indian PE. It was thus urged that since the functions performed by the Indian PE were confined to 'subcontracted support services', the prerequisites for the invocation of Article 13 (6) were not satisfied. 55. It was then submitted that merely beca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... in Article 1 which is reproduced hereinbelow: - "1. IMG Services IMG has been appointed on a sole and exclusive basis to provide the following services in connection with the IPL (the "Services") 1.1 IMG shall conduct research in respect of the appropriate structure for the IPL and make recommendations to BCCI accordingly (it being acknowledged that the final decisions in respect thereof are BCCI's). 1.2 IMG shall research and provide appropriate presentation documentation in respect of the following: (a) the meetings in Singapore on 2nd and 3rd September 2007. (b) the IPL presentation and press conference which is scheduled to take place in New Delhi on 13 September (including the preparation of marketing collateral and press packs in association with BCCI's PR agency) and (c) any other appropriate events. 1.3 Once BCCI has decided upon the most appropriate structure for the IPL under advice from lMG, IMG shall conduct research into and prepare the following IPL foundation documentation in connection with it including: (a) the constitution of the IPL (b) the authority of the Governing Council of the IPL; (c) the structure of the tournament; (d) the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g on 1 January 2009 and concluding on the date of the conclusion of the ninth complete Season thereafter or, if shorter, the period from the signature of this Agreement until its termination in accordance with the provisions hereof;" 60. The word "territory" was defined in terms of Clause 1.1(x) as follows: - ""Territory" means the world." 61. Clause 2.1 of the agreement read thus: - "2.1 BCCI hereby appoints IMG as BCCI's preferred agent and representative to advise and assist in the exploitation of the Rights and the provision of the Services throughout the Territory during the Representation Period." 62. Of equal significance were Clauses 3.1, 4, 4.1 and 4.2 which are extracted hereinbelow: - "3. Exploitation of Rights 3.1 IMG is hereby granted the right and authority to assist BCCI in exploiting the Rights 'during the Representation Period including without limitation making arrangements for agreements in respect of the Rights, provided that IMG does not have the power to bind or commit BCCI to any agreement or arrangement relating to the Rights. xxxx xxxx xxxx 4. IMG's Obligations IMG shall during the Representation Period provide the services set o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the finance which may be necessary in connection therewith and, jf requested, the introduction to the BCCI of third parties who are involved In the redevelopment of stadia; (k) advice and assistance in connection with the rules and regulations relating to the registration, trading and auction of players; (l) the creation of and advice and assistance with the "look and feel" elements in relation to the BCCI Marks generally and, in particular, at any relevant Stadia; (m) the provision of hospitality guidelines in relation to the League and implementation of hospitality in the latter "case in a latter case in manner to be mutually discussed and agreed; (n) the provision of a League handbook; (o) advice and assistance in connection with the Player contracts; (p) the establishment and maintenance of the player registration system (q) the management of the annual Player trading window; (r) provision of the requisite manpower that is required to carry out such activities as are within IMG's control in connection with the successful naming of the League and Matches including the provision of a CUIH staffed, office to do the same, at the sole cost of MG; (s) the hirin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the Services which are provided in India and in respect of those of the Services which are provided from outside India and IMG shall after the end of each Season inform BCCI of such allocation. 6.3 All sums payable by BCCI to IMG shall be paid together with any service tax which is chargeable thereon and less any deduction for withholding tax that is required to be made by law. In the event that any payment is made net of withholding tax, BCCI shall deliver to IMG a certificate of deduction of tax paid in respect of the payment as soon as practicable after such payment is made." 65. 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndia. E. THE ARTICLE 5 (2) (k) QUESTION 67. As noticed hereinabove, it had been urged on behalf of IMG that once the Service PE had admittedly come into existence and the income attributable to that establishment subjected to tax, it would be impermissible for the respondents to assert that income other than that attributable to the Service PE would be liable to tax under Article 13 of the DTAA. Essentially, it had been contended that the respondent not only stood estopped from taking that position but they could also not have legally bifurcated the composite consideration earned by IMG into Business Profits and FTS. Mr. Vohra had vehemently argued that the respondents having accepted the income attribution to the Service PE, they stood precluded from treating the residual revenue as FTS and imposing tax under Article 13. This submission had proceeded in the backdrop of Article 5 (2) (k) speaking of furnishing of services other than those taxable under Article 13. The submission was founded on the premise that once the revenue was accepted to fall within the ambit of Article 5 (2) (k), it would be impermissible for the respondents to treat that service as being FTS under Article ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ed from the PE's activities. 71. 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 tax under the separate and individual Articles of the DTAA. All that Article 5 (2) (k) regulated was whether a Service PE could be said to have been in existence in the relevant assessment year. The characterization of income, the extent to which it was attributable to the PE and the Article under which it was liable to be taxed were issues which were clearly open for examination. In our considered view, merely because IMG chose to treat the same as Business Profits, the respondents were neither estopped nor restrained from examining the issue independently and uninfluenced by the action of IMG offering a part of the revenue to tax albeit under the head of Business Income. F. BIFURCATION OF INCOME-WHETHER SUSTAINABLE? 72. The argument of bifurcation of income being impermissible, a submission which w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ofits of a permanent establishment, there shall be allowed as deduction expenses which are incurred for the purposes of the business of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere, which are allowed under the provisions of and subject to the limitations of the domestic law of the Contracting State in which the permanent establishment is situated. 6. Where the law of the Contracting State in which the permanent establishment is situated imposes a restriction on the amount of the executive and general administrative expenses which may be allowed, and the restriction it relaxed or overridden by any Convention between that Contracting State and a third State which is a member of the Organisation for Economic Cooperation and Development or a State in a comparable stage of development, and that Convention enters into force, after the date of entry into force of this Convention, the competent authority of that Contracting State shall notify the competent authority of the other Contracting State of the terms of the relevant paragraph in the Convention w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g more than one facet. There could be numerous contingencies in which mixed contracts may envisage separate and distinct obligations and sources of revenue. Contracts could comprise of more than one object and in which case one may be obliged to discern different elements constituting part of the composite bargain and splitting of those elements. While that may hypothetically and in practice require one to examine whether sources of income are separate and distinct or identifying the dominant source of income, that is not an issue which merits an authoritative declaration insofar as the present appeals are concerned. All that we seek to emphasize is of the potentiality of multiple streams of revenue or income embodied within a single contract and each of which may warrant separate consideration for the purposes of tax characterization. The rationale for our conclusions as articulated in the preceding discussion would be further elucidated in the detailed analysis which follows. 74. It is pertinent to note that Article 7 is clearly not intended to be an overriding, a non obstante or an umbrella provision which would eclipse all other independent Articles of the Convention. This is ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... graph 2 of Article 21). 74. The question, however, could arise with respect to other types of income and it has therefore been decided to include a rule of interpretation that ensures that Articles applicable to specific categories of income will have priority over Article 7. It follows from this rule that Article 7 will be applicable to business profits which do not belong to categories of income covered by these other Articles, and, in addition, to income which under paragraph 4 of Articles 10 and 11, paragraph 3 of Article 12 and paragraph 2 of Article 21, fall within Article 7. This rule does not, however, govern the manner in which the income will be classified for the purposes of domestic law; thus, if a Contracting State may tax an item of income pursuant to other Articles of this Convention, that State may, for its own domestic tax purposes, characterise such income as it wishes (i.e. as business profits or as a specific category of income) provided that the tax treatment of that item of income is in accordance with the provisions of the Convention. It should also be noted that where an enterprise of a Contracting State derives income from immovable property through a per ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ome of the special Articles contain specific provisions giving priority to a specific Article (cf. paragraph 4 of Article 6, paragraph 4 of Articles 10 and 11, paragraph [4] of Article 12[, paragraph 4 of Article 12A, paragraph 8 of Article 12B) and paragraph 2 of Article 21). 62. It has seemed desirable, however, to lay down a rule of interpretation in order to clarify the field of application of this Article in relation to the other Articles dealing with a specific category of income. In conformity with the practice generally adhered to in existing bilateral conventions, paragraph [6] gives first preference to the special Articles on dividends, interest etc. It follows from the rule that this Article will be applicable to business profits which do not belong to categories of income covered by the special Articles, and, in addition, to dividends, interest etc. which under paragraph 4 of Articles 10 and 11, paragraph [4] of Article 12, paragraph 4 of Article 12A, paragraph 8 of Article 12B) and paragraph 2 of Article 21, fall within this Article [...]. It is understood that the items of income covered by the special Articles may, subject to the provisions of the Convention, be ta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... llowing passages from the aforenoted seminal work (at page 604): - "F. Article 7(4) OECD MC and Article 7(6) UN MC I. The Models 1. Rule Based on Article 7 (7) of the pre-2010 OECD MC, the subsidiarity rules laid down in Article 7(4) OECD MC and, literally identical, in Article 7(6) UN MC clarify the relation between Article 7 OECD and UN MC and other distributive rules. According to this rule, the provisions of other Articles of the respective MC shall not be affected by the provisions of Article 7 OECD and UN MC where profits include items of income which are dealt with separately in those other Articles. With regard to the prerequisites and the function of this rule, Article 7(4) OECD MC and Article 7(6) UN MC show similarity to Article 21(1) OECD and UN MC. This goes for both the use of the terms 'items of income' (infra m.no. 179), dealt with [separately]' (infra m.no. 180) and 'in [other] Articles' (infra m.no. 181). 2. 'Items of Income' The language used by Article 7(4) OECD MC and Article 7(6) UN MC makes clear that the umbrella term 'profits' means the aggregate of two or more 'items of income', and that the subsidiarity ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... peaks of Business Profits, is not intended to function as an overarching, all-encompassing provision that subsumes all forms of income or revenue irrespective of their intrinsic character. It is in fact intended to operate within a clearly defined scope respecting the distinct treatment accorded to various categories of income under the different Articles of the DTAA. The explanation provided by the commentaries on the OECD/UN Model Conventions as well as the authoritative texts noticed by us hereinabove reinforces this interpretative approach. 80. The aspect of splitting of elements of a composite contract and the characterization of distinct heads of income have been succinctly explained by Vogel when it observes that the word "profits" would mean the aggregate of two or more items of income and the subsidiarity rule affecting those singular items. It proceeds further to pertinently observe that while Business Profits and which is the subject of Article 7 is a concept pertaining to income generation, the special Articles of the Convention lay emphasis on the economic character of a transaction. It is in the aforesaid backdrop that it advocates the position that distributive rule ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... duce 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. G. THE FTS ISSUE 84. That takes us to the principal question which arises and concerns itself with whether the services rendered by IMG could be validly classified as FTS. As we view Article 13 of the DTAA, it becomes apparent that the expression "Fee for Technical Services" stands defined as being consideration received for the rendering of any technical or consultancy services. However, and as would be evident from a close reading of Para 4 thereof, the mere rendition of technical or consultancy service would in itself be insufficient. This since Para 4(c) places an added condition of the furnishing of such service, ultimately leading to technical knowledge, experience, skill, know-how or processes being made available. 85. Article 13 of the DTAA reads as under: - "1. Royalties and fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received ; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received ; or (c) make available technical knowledge, experience, skill know-how or processes, or consist of the development and transfer of a technical plan or technical design. 5. The definition of fees for technical services in paragraph 4 of this Article shall not include amounts paid : (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property, other than property described in paragraph 3(a) of this Article; (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in connection with the operation of ships, or aircraft in international traffic; (c) for teaching in or by educational institutions ; (d) for services for the private use of the individual or individuals making the payment ; or (e) to an employee of the person making the payments or to any individual or partnership fo ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nical services are paid to take advantage of this Article by means of that creation or assignment." 86. It is therefore apparent that the mere rendition of technical or consultancy service would not lead to revenue, income or profits being placed under the broad head of FTS unless the taxing authority additionally finds that technical knowledge, skill, know-how or processes were made available. What we seek to emphasize is the impetrative of the 'make available' condition being met and the imperative of the knowledge, skill, know how being made available to the payer. 87. The authoritative Commentary on the UN Model Convention while explaining the ambit of Article 12A carries the following instructive exposition on the meaning to be ascribed to the words "technical" and "consultancy": - Paragraph 3 "61. This paragraph specifies the meaning of the phrase "fees for technical services" for purposes of Article 12A. The definition of "fees for technical services" in paragraph 3 is exhaustive. "Fees for technical services" are limited to the payments described in paragraph 3; other payments for services are not included in the definition and are not dealt with in Article 12A (see t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdance with paragraph 2 irrespective of the fact that the services arc 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 paragraph 2 of Article 14. Services performed by other professionals, such as pharmacists, and other occupations, such as scientists, academics, etc. may also constitute technical services if those services involve the provision of specialized knowledge, skill and expertise. 66. The ordinary meaning of "consultancy" involves the provision of advice or services of a specialized nature. Professionals usually provide advice or services that fit within the general meaning of consultancy services although, as noted in paragraphs 63 and 64 above, they may also constitute management or technical services. 67. The terms "management", "technical" and "consultancy" do not have precise meanings and may overlap. Thus, for example, services of a technical nature may also be services of a consultancy nature and management services may also be considered to be services of a consultancy nature." 88. Vogel explains the concept of technical services in the following terms (at pa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... #39; or 'consultancy nature". aa. Different Definitions of Technical Service in the Divergent Country Practice of Article 12 MCs. While Article 12A UN MC is a stand alone article, it has been developed from the divergent country practice of including fees for technical services in Article 12 MC. This historic development leads to a contextual bond between Article 12 UN MC and Article 12A UN MC that explains some of the peculiarities of the definition of Article 12A UN MC and aids in its interpretation. Further context is scarce: The term 'service' can also be found in other provisions dealing with different types of services like Articles 5(3)(1), 14, and 19 UN MC. Article 14(2) suggests that any activity suffices, but there is no general definition. The General Agreement on Trade in Services also does not contain a definition (no. 83 UN MC Comm. on Article 12A). The category of technical services has developed from the problematic delimitation between IP licensing and service contracts. While the protected information that constitutes IP has to be divulged to the licensee as part of the licensing contract, there is often the need for further training of the license ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t decision, excluding almost fully automatized standard procedures. bb. The Definition of Article 12A UN MC. While the headline of Article 12A UN MC still reads 'technical services', its structure shows that it follows a wide understanding and, in principle, covers every professional service that is imbued with expertise. The introduction of the category of 'technical services of a consultancy nature' besides the 'technical services of technical nature' shows that consulting that is not related to the traditional field of technique should also be covered. The UN Model Commentary confirms this wide understanding by defining services as activities carried out by one person for the benefit of another person in consideration for a payment whereas the manner of providing services was not decisive (no. 84 UN MC Comm. on Article 12A). Examples in the commentary also follow the wide understanding by, e.g., including a heart surgeon (no. 89 UN MC Comm, on Article 12A). Traditionally, technical services have been defined by the provisions of Special Knowledge, skill, and expertise to make statements on the special issues of the customer. The UN MC apparently draws ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion of the conduct of a commercial enterprise or organization (no. 63 UN MC Comm. on Article 12A). The UN MC Comm. on Article 12A provides two examples: firstly, payments by an enterprise for management services in cases when the management of all or significant parts of the enterprise are contracted out to other persons, and these persons are not related to the enterprise (not directors, officers, employees) and, secondly, payments in consideration for advice of consultants related to the management or business of an enterprise. dd. Services of Technical Nature. "Technical services involve the application of specialized knowledge, skill, or expertise with respect to a particular art, science, profession, or occupation (no. 64 UN MC Comm. on Article 12A). The UN Comm. further refers to regulated professions such as law, accounting, architecture, medicine, engineering, and dentistry as examples covered by Article 12A (3) UN MC. These examples are not exhaustive." 89. It becomes apparent upon a consideration of the views expressed above that the word "technical" is no longer liable to be understood in its archaic sense as being confined to the traditional sciences. What authoriti ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ogy is made available it is open to the recipient of the service to make use of the said technology. The tax is not dependent on the use of the technology by the recipient. 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. 14. The learned Additional Solicitor General relied on three judgments ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered "made available" when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as "fee for technical/included services" only if the twin test of rendering services and making technical knowledge available at the same time is satisfied." 91. Of equal significance are the observations of the Kerala High Court in US Technology Resources when their Lordships laid emphasis on the transfer ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owing extracts forming part of that work (at page 1140):- "4. The Contract Type/Scope of Transfer (Use/information/Alienation) Article 12 OECD and UN MC contain up to three contract types. They distinguish themselves by the different extent to which all or part of the property rights are transferred to the royalty payer. The main type are contracts that transfer 'the use or the right to use' to the payer. The payer himself can use the property, but does not get the full ownership rights of it. As the case may be, the owner might grant the use' to different persons at the same time. The IP is 'lent' (no. 1 OECD MC Comm. on Article 12) or 'rented out'. A special type are contracts in which the payment is for information concerning experience. This special case of property is also known as a 'know-how' contract. Its specific attribute is the lack of legal protection as an absolute right. When know-how is shared, it cannot be taken back and its use cannot be prohibited (at least to third persons, the receiver of know-how might be bound by contractual injunctive reliefs). Therefore, the transfer of the use cannot be distinguished from a transfer of full ownership. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available" as that phrase appears in the aforesaid paragraph. On a plain textual reading of Article 13 it becomes apparent that both the rendering of service and the skill, knowledge and expertise being made available are conditions which must be concurrently and cumulatively satisfied. What we seek to emphasize is that Article 13 in unambiguous terms creates an enduring, unfading and imperishable link between the furnishing of service and a transmission or conferment of technical expertise, knowledge and skill. 95. It is also important to bear in mind that the mere usage or utilisation of technical or consultative material in aid of business would not be sufficient to attract Article 13 of the DTAA. If we were to accept the submission that handing over of research or advisory work were sufficient for the purposes of Article 13, it would render the "make available" condition comprised in Para 4 (c) wholly redundant and otiose since the mere rendering of service would have sufficed. As De Beers correctly holds "The tax is not dependent on the use of technology by the recipient." The make available prescription bids us to make a conscious distinction between a mere service provision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... from a reading of Clause 4.2 of the Services Agreement, IMG was called upon to prepare and execute marketing strategies, management of future tendering processes, craft the league handbook and discharge various other functions enumerated therein. The enumeration of functions in Clause 4.2(a) was merely illustrative as that clause used the expression "including, without limitation:". 98. Of equal significance was the obligation of IMG to provide the requisite manpower to carry out activities connected with the league so as to ensure successful running of the league and the matches which were to be held. This obligation which stands incorporated in Clause 4.2 (r) also required it to establish a fully staffed office at its own cost. The Services Agreement required IMG to carry out research each year to ascertain improvements warranted in various areas pertaining to the management and execution of the league as well as the development of BCCI's brand framework. 99. On an overall consideration of all of the above, we come to the firm conclusion that there was no expertise, skill or know-how which could be said to have been made available to BCCI. The various functions which IMG was ca ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by virtue of Para 6 thereof. It would be pertinent to recall that Para 6 stipulates that where the FTS arises through a PE which exists and the right, property or contract in respect of the same is effectively connected with such PE, Article 13 would cease to apply and the income would then be taxable in accordance with Articles 7 or 15 of the DTAA, as the case may be. It was in the aforesaid context that learned counsels had addressed elaborate submissions on the meaning to be ascribed to the phrase "effectively connected". Mr. Vohra had contended that it is the contract which must be found to be effectively connected as opposed to the activity that may have been undertaken by the PE. It was in the aforesaid backdrop that Mr. Vohra had relied upon the following observations as appearing in the decision of the Supreme Court in Ishikawajima Harima:- "79. Since the appellant carries on business in India through a permanent establishment, they clearly fall out of the applicability of Article 12 (5) of DTAA and into the ambit of Article 7. The Protocol to DTAA, in para 6, discusses the involvement of the permanent establishment in transactions, in order to determine the extent of in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... otherwise effectively connected with that establishment. In that case, paragraph 3 relieves the State of source of the royalties from any limitations under the Article. The foregoing explanations accord with those in the Commentary on Article 7. 21. It has been suggested that the paragraph could give rise to abuses through the transfer of rights or property to permanent establishments set up solely for that purpose in countries that offer preferential treatment to royalty income. Apart from the fact that such abusive transactions might trigger the application of domestic anti-abuse rules, it must be recognised that a particular location can only constitute a permanent establishment if a business is carried on therein and, as explained below, that the requirement that a right or property be "effectively connected" to such a location requires more than merely recording the right or property in the books of the permanent establishment for accounting purposes. 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 p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s from a fixed base situated in that other State, and the fees for technical services are effectively connected with: (a) such permanent establishment or fixed base, or (b) business activities referred to in (c) of paragraph 1 of Article 7. In such cases the provisions of Article 7 or Article 14, as the case maybe, shall apply. 5. For the purposes of this Article, subject to paragraph 6, fees for technical services shall be deemed to arise in a Contracting State if the payer is a resident of that State or if the person paying the fees, whether that person 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 pay the fees was incurred, and such fees are borne by the permanent establishment or fixed base. 6. For the purposes of this Article, fees for technical services shall be deemed not to arise in a Contracting State if the payer is a resident of that State and carries on business in the other Contracting State through a permanent establishment situated in that other State or performs independent personal services through a fixed base situated in that other State and su ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... basis of all the relevant facts and circumstances of each case. In general, fees for technical services would be considered to be effectively connected with a permanent establishment or fixed base if the technical services are closely related to or connected with the permanent establishment or fixed base. Also, fees for technical services would be effectively connected with business activities referred to in paragraph l (c) of Article 7 where the technical services are provided by an enterprise as part of that enterprise's business activities carried on in a Contracting State where a permanent establishment of that enterprise is situated and these activities are of the same or similar kind as the business activities performed through that permanent establishment. 107. Where paragraph 4 applies, fees for technical services are taxable by the State in which the fees arise as part of the profits attributable to the permanent establishment in accordance with Article 7 or the income attributable to the fixed base in accordance with Article 14.Thus, paragraph 4 relieves the State in which the fees for technical services arise from the limitations on its taxing rights imposed by Ar ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... State, Article 12A does not apply to the fees for technical services unless the payer has a permanent establishment or fixed base in the Contracting State and there is a clear economic link between the technical services and the permanent establishment or fixed base. Otherwise there would be, in effect, a force-of-attraction principle for fees for technical services, which would be inconsistent with other provisions of the United Nation Model Tax Convention. 111. Paragraph 5 is subject to paragraph 6, which provides an exception to the source rule in paragraph 5. Paragraph 6 deems fees for technical services paid by a resident of a Contracting State not to arise in that State where that resident (the payer) carries on business through a permanent establishment in the other Contracting State or performs independent personal services through a fixed base in the other Contracting State and the fees for technical services are borne by that permanent establishment or fixed base. As a result, in these circumstances, the Contracting State in which the payer is resident is not allowed to tax the payments for technical services under paragraph 2. 112. The phrase "borne by" must be inter ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Service PE was undoubtedly not a separate legal entity which could have been possibly called upon to satisfy the test of economic ownership as suggested. While Conventions do accord an independent identity upon a PE, they do so for the purposes of taxation alone. A PE, however, need not in all circumstances be a juridical entity as is recognised in law. It is perhaps these and other limitations which constrained Vogel to express the following reservations with respect to the test of "economic ownership" (at page 893):- "The effectively connected rule is not based on the force of attraction rule (no. 31 OECD MC 2014 Comm. on Article 10; no. 24 OECD MC 2014 Comm. on Article 11; no. 20 OECD MC 2014 Comm. on Article 12; no. 15 UN MC 2011 Comm. on Article 10). This means that dividends, interest and royalties flowing to a resident of a Contracting State from a source situated in the other State must not, by a kind of legal presumption, or fiction even, be related to a PE or a fixed base, as the case may be, which that resident may have in the source State, so that this State would not be obliged to limit its tax jurisdiction in such a case. The shares, debt claims, rights or property ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hares, debt claims, rights or property form part of the assets of a PE if the 'economic' ownership of these is allocated to that PE (no. 32.1-32.2 OECD MC 2014 Comm. on Article 10; no. 25.1-25.2 OECD MC 2014 Comm. on Article 12; no. 21.1-21.2 OECD MC 2014 Comm. on Article 12). 'Economic' ownership means the equivalent of ownership for income tax purposes by a separate enterprise, with the attendant benefits and burdens, such as the right to the dividends, interest or royalty attributable to the ownership of a holding, debt claim, right or property, as the case may be, and the potential exposure to gains or losses from the appreciation or depreciation of that holding, debt claim, right or property. In the opinion of this author, the term 'economic' ownership is not appropriate for the allocation of assets to a PE. A PE itself can never be owner of an asset because it is not a separate legal entity. As a result, it can never be the 'economic' owner of an asset as well. The term is therefore misleading. It also guides away attention from what is actually relevant for answering the question of what assets must be allocated to a PE: The significant people's f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tside India or for the purposes of making or earning any income from any source outside India; or (c) a person who is a non-resident, where the fees are payable in 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 1.-For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date. 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, assem ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nical services payable by a person who is resident to a non-resident shall be deemed to accrue or arise in India and shall be chargeable 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 I ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... yalty and fees for technical services, by creating a legal fiction in section 9, even in cases where services are provided outside India as long as they are utilized in India. The source rule, therefore, means that the situs of the rendering of services is not relevant. It is the situs of the payer and the situs of the utilization of services which will determine the taxability of such services in India. This was the settled position of law till 2007. However, the Hon'ble Supreme Court, in the case of Ishikawajima-Harima Heavy Industries Ltd., vs. DIT (2007) [288 ITR 408], held that despite the deeming fiction in section 9, for any such income to be taxable in India, there must be sufficient territorial nexus between such income and the territory of India. It further held that for establishing such territorial nexus, the services have to be rendered in India as well as utilized in India. This interpretation was not in accordance with the legislative intent that the situs of rendering service in India is not relevant as long as the services are utilized in India. Therefore, to remove doubts regarding the source rule, an Explanation was inserted below sub-section (2) of section ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... here 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 utilized: * for the purposes of a business of profession carried on by such person outside India, or * for the purpose of making or earning any income from any source outside India. Both these eventualities are not cumulative but are in the alternative to each other and therefore, on non satisfaction of any one, the deeming fiction shall come into play in the case. The issue for consideration is the meaning of the expression 'such person' appearing in section 9 (1) (vii) (b). In this context reference is made to the decision of the Hon'ble Delhi High Court in the case of CIT vs. Havells India Ltd 352 ITR 376 wherein Hon'ble High Court held that in order to fall within the exception provided in section 9 (1) (vii) (b) the source of income, and not the receipt, should be situated outside India. Regarding the exception of section 9 (1) (vii) (b) the Hon'ble Court held that in order to get the benefit of first exception it is necessary for the taxpayer (resident) to show that the technical services were utilized i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur 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, 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 those two events were clearly utilized outside India and were availed of for the purposes of earning income from a source outside India. The geographical shift meant that the services rendered by IMG were utilized outside India and were integral to earning income from sources outside India. The Tribunal clearly glossed over the significance of this relocation and which had fundamentally altered the context in which IMG's services were availed. The Tribunal thus clearly erred in failing to appreciate the significance of the event itself having shifted out of India and the services thus coming to be utilized in the nations noticed above and the same being indelibly connected to the earning of income from a source outside India. 116. In our considered opinion, the Explanation which has come to be incorporated in Section 9 neithe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vision 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) 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 India; or (c) a person who is a non-resident, where the fees are payable in 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 1.-For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals ap ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hat 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 stated about the "source rule", it is necessary to appropriately appreciate how the concept has developed. At the time of formation of "League of Nations" at the end of 1920, it comprised of only 27 countries dominated by the European States and the United States of America. The United Nations that was formed after the Second World War, initially had 51 members. Presently, it has 193 members. With the efflux of time, there has been birth of nation States which enjoy political independence and that has led to cross-border and international trade. The State trade eventually has culminated in formulation of principles pertaining to international taxation jurisdiction. It needs no special emphasis to state that the said taxation principles are premised to promote international trade and to allocate taxation between the States. These rules help and further endeavour to curtail possibility of double taxation, tax discrimination and also ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , 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 utilised. 29. From the aforesaid, it is quite vivid that the concept of income source is multifaceted and has the potentiality to take different forms [See Klans Vogel, World-wide v. Source Taxation of Income - Review and Revision of Arguments (1988)]. The said rule has been justified by Arvid A. Skaar in Permanent Establishment; Erosion of Tax Treaty Principle on the ground that profits of business enterprise are mainly the yield of an activity, for capital is profitable to the extent that it is actively utilised in a profitable manner. To this extent, neither the activity of business enterprise nor the capital made, depends on residence." 119. Of equal significance are the following conclusions which were rendered by the Supreme Court in Ishikawajima:- "90. Section 9 (1) (vii)(c) of the Act states that: "9. (1) (vii) (c) a person who is a non-resident, where the fees are payable in respect of services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ted 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 with India so as to furnish a basis for imposition of tax. Whereas a resident would come within the purview of Section 9 (1) (vii) of the Act, a non-resident would not, as services of a non-resident to a resident utilised in India may not have much relevance in determining whether the income of the non-resident accrues or arises in India. It must have a direct live link between the services rendered in India, when such a link is established, the same may again be subjected to any relief under DTAA. A distinction may also be made between rendition of services and utilisation thereof. 94. Section 9 (1) (vii) (c) clearly states "where the fees are payable in respect of services utilised in a business or profession carried on by such person in India". It is evident that Section 9 (1) (vii), read in its plain, same envisages the fulfilment of two conditions: services, which are source ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ices 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 the impugned decision of the Tribunal which is extracted hereunder:- "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 4.4.2 ~e 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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 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 c ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 attributable to that entity was correctly offered to tax under Article 7 of the DTAA. This since the Revenue was concerned with revenue earned from the rendering of services in India and which services, concededly, fell outside the ambit of Article 13. Insofar as the revenue attributable to the UK office is concerned, we have already found that the same does not qualify for taxation under Article 13 since the "make available" test does not stand fulfilled. We consequently and on an overall analysis of all of the above, find no justification to interfere with the exercise undertaken by the Tribunal in this regard. K. DISPOSITIF 125. We accordingly allow the present appeals and set aside the impugned orders of the Tribunal. While we answer Question (i) in the negative and against the appellants, Questions (ii) and (iii) are answered in their favour. The appellant ..... X X X X Extracts X X X X X X X X Extracts X X X X
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