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TMI Blog2005 (2) TMI 450X X X X Extracts X X X X X X X X Extracts X X X X ..... re technical services; due to specific clauses of DTAA between U.K and India, income was not taxable. Moreover, since there is a specific clause included in article 12(4) of DTAA with the USA which defines the term fees for included services and further since the payment made under the agreement in the present case falls within the said definition, the assessee cannot get benefit of the decision of the Mumbai Bench which was rendered in the context of DTAA between India and U.K. On the contrary we find that the substance of the present agreement envisaged that the American company shall not only advice the Indian company but in fact it will prepare all the designs and drawings necessary for implementing the Water Features and also assist the Indian company in actual erection and commissioning of water features. We thus find that from the very inception of preparing schematic designs and drawings till the actual implementation and commissioning of the water features the American company was intimately connected with the project and in fact the whole project was intended to be conducted at the behest direction and supervision of the American company. In the circumstances the decision ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rican Company did not give rise to any income, which accrued in India. Referring to the Double Taxation Avoidance Agreement (DTAA) between India and the USA it was argued that article 12 thereof was not applicable, as scope of agreement with American company did not enable the appellant to apply technologies etc. received from the American company. The ld. CIT(A), however, after examining the agreement between the appellant and the American company dated 21-1-2003 noted that the American company had provided technical as well as consultancy services to the appellant to bring to fruit through its knowledge, experience, skill and know-how. The CIT(A) therefore held that the facts on record indicated that the payment made by the appellant to American company represented payment of fees for services rendered for providing technical plan, design and finalizing construction of the water systems. The CIT(A) therefore held that the payment made by the appellant to the American company was covered by article 12(4)(b) of DTAA between India and the USA. He accordingly held that the Assessing Officer was justified in directing the assessee to withhold tax @ 15% from the payments to be effected ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... article 12(4) of the agreement the country of source had right to tax the fees paid to the person resident of other contracting state @15%. He, therefore, urged that no interference is called for in the order of the CIT(A). 6. We have heard the arguments on behalf of rival parties, perused the agreement between the Non-Resident company and the appellant and also the DTAA between India and the USA. We have also carefully perused the appellate orders on which reliance was placed by the assessee. 7. In the present case the crux of the issue is whether amount received by the Non-Resident American company gives rise to income taxable in India and whether it was falling under article 7 or article 12 of DTAA. According to the assessee no income accrued in India since such income pertained to business profits. Further since there is no P.E. in India of the Non-Resident company, to which such income can be attributed, the income, if any, was not taxable in India. The assessee further argued that the amounts paid under the agreement did not fall within the definition of fees for included services within the meaning of article 12(4)(b) and therefore the payments effected under the agreement d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayout etc. The deliverables envisaged in this phase were Feature plan and sections. Piping and instrumentation diagram, Equipment room plan and sections, Electrical single line diagram and panel schedule and Piping specifications etc. 8c. In the Engineering and Construction Document phase, the American company was to prepare mechanical and electrical system engineering drawings and documentation required for construction and installation of water features. This phase envisaged release of the engineering documents by the American company for construction purposes. The deliverables envisaged in this phase included Feature finish plan and sections, Feature basin plan and details, Feature architectural details, Piping and instrumentation diagram, Basin equipment penetration and piping plan, Equipment room plan and sections. Feature mechanical details, Electrical single line diagram and panel schedule, Basin electrical wiring plan, Electrical details, Piping specifications etc. 8d. In the Construction and installation phase, the American company was to provide information appropriate for shop drawings, product data and samples. In this phase the American company was to provide Site insp ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d that since the assessee did not acquire the ownership rights nor he could transfer or alienate the designs or information to any third party the assessee got mere right to use for which payment was effected. For deciding the issue under article 12(4) it is not material as to whether the assessee acquired on outright basis any technical knowledge, know-how, technical plan or design. The said article 12(4) is attracted the moment a person resident of one State makes available technical knowledge, experience or transfers a technical plan or technical design to the person of other contracting state. From the agreement between the assessee and the American company it is apparent that the later was to deliver the technical drawings and designs to the former for its own use and benefit in India. The term transfer as used in article 12(4) does not refer to the absolute transfer of rights of ownership. It refers to the transfer of technical drawing or designs to be effected by the Resident of one State to the Resident of other State which is to be used by or for the benefit of Resident of other state. The said article 12(4)(b), in our opinion, does not contemplate transfer of all rights, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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