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Income Tax Appellate Tribunal, DELHI ‘D’ BENCH,
Before: SHRI N.K. BILLAIYA, & SHRI YOGESH KUMAR
PER N.K. BILLAIYA, ACCOUNTANT MEMBER:-
These two separate appeals by the assessee are preferred against two separate orders dated 30.03.2022 framed u/s 143(3) r.w.s.
144C(13) of the Income-tax Act, 1961 [hereinafter referred to as 'The Act'] pertaining to Assessment Years 2018-19 and 2019-20.
2. The common grievance involved in both the appeals were heard together and are disposed of by this common order for the sake of convenience and brevity.
3. The common grievance in both the appeals is that DRP/Assessing Officer erred in concluding that the receipts, according to the assessee, on account of provision of information technology and other administrative services to its affiliate in India are in the nature of Fees for Included Services [FIS] under the India – USA Double Taxation Avoidance Agreement [DTAA] and thus are liable to taxation in India.
Briefly stated, the facts of the case are that the assessee is incorporated under the laws of USA and is engaged in the manufacture and supply of life science research, healthcare, analytical chemistry and other markets with broad range of products and systems. The assessee also provides business support services to its group companies. Being a tax resident of USA, the assessee is entitled to the beneficial provisions of the DTAA. The assessee also has a copy of tax resident certificate. The assessee does not have any presence in India either in form of an office, a branch or a factory, a warehouse or any other fixed place of business.
5. During the year under consideration the assessee has cross charged to its affiliate in India for rendition of information technology and other administrative services. Such services were rendered pursuant to the General Services and Cost Allocation Agreement entered into between the members of the Bio-Rad Group.
6. In both the years under consideration, the Assessing Officer concluded by holding that the services in the nature of managerial services provided by the assessee to its Indian AE and such technical knowledge, experience, skill, know-how etc. were made available by the assessee to the Indian affiliate and, therefore, they are in the nature of FTS being taxable @ 10% under the provisions of the DTAA.
7. Objections were raised before the DRP but were of no avail and in line with the DRP directions.
Before us, the ld. counsel for the assessee vehemently stated that the assessee had rendered information technology and certain other administrative services to its Indian affiliate pursuant to the Service Agreement. The ld. counsel for the assessee submitted that the Bio-Rad Group operates globally and has a number of manufacturing and trading companies in various countries and in order to provide certain general administrative services to the group and its affiliates, it has set up two tier service level companies (a) a company that services the requirements of entire group companies all over the world and (b) a company that services the requirements of specific continent i.e. Asia-Pacific region. It was explained that the assessee is a service provider of the Asia-Pacific region provides general administrative services to the group companies situated therein.
9. Referring to various clauses of the agreement, the ld. counsel for the assessee referred to Article 12 of the DTAA and stated that the term ‘make available’ has not been defined either in the Act or in the India-USA DTAA but has been explained by various courts across jurisdictions in India.
10. Specific mention was made to the decision of the Hon'ble Karnataka High Court in the case of De Beers India Minerals (P.) Ltd. [2012] 346 ITR 467 and the decision of the Hon'ble Jurisdictional High Court in the case of DIT Vs. Guy Carpenter & Co. Ltd 346 TR 504.
11. It is the say of the ld. counsel for the assessee that from the nature of services, it is evident that the assessee has not made available any technical knowledge, skill, etc., rather, the services are given on a continuous year-on-year basis. Therefore, the impugned income can neither be brought to tax under the Treaty nor under the provisions of the Act.
12. Per contra, the ld. DR strongly supported the assessment order and read the operative part of the assessment order and operative directions of the DRP relying upon the very same judgments which have been referred to by the Assessing Officer in his assessment order.
The ld. DR has heavily relied upon the Explanatory Notes to the MOU.
13. We have given thoughtful consideration to the orders of the authorities below and have carefully considered the judicial decisions relied upon by both the representatives. We have also considered the relevant documentary evidences brought on record in light of Rule 18(6) of ITAT Rules.
General Services and Cost Allocation Agreement is effective from 01.01.2010 by which it was, inter alia, agreed that the service providers are willing to use their personnel, expertise and faculties to provide such services on the terms and conditions set forth herein and the parties acknowledge that the costs and expenses incurred with respect to the services benefit certain or all the members of the Bio- Rad Group in their efforts to conduct the business and to promote, sell or support the products.
15. The description of the services are as under:
“1. Information Technology Services. Services related to the provision of information technology, including without limitation the provision of networks. nelpdesk, information technology education; data center operations; assessment of computer and other automated data processing system requirements, their acquisition, and the proper functioning of such systems; and other information technology services.
Marketing Services. Services related to sales of products, including without limitation the provision of warranty, and non-warranty service, assistance with the development of local business plans, sales promotion planning, providing sales promotion materials, package design, advice concerning advertising production costs, and advertising research.
3. Finance and Accounting Services. Services related to finance and accounting, including without limitation the provision of business management systems; assistance in creating procedures and policies for accounting purposes; assistance in budgeting, financial forecasting and planning, general accounting, cost control and other similar related finance services.
4. Human Resources. Services relating to human resources, including without limitation assistance with personnel recruitment; performance management and improvement systems; organization development; employee relations; company-wide committee facilitation; company employee and community communication; employee benefit plan obligations; compensation and benefits administration (including stock plans); employee safety, welfare, wellness and health; expatriate support; employee orientation, development, and training; organizational and space planning; policy development and documentation; charitable giving, and employee sendees and counseling.
Regulatory and Quality Assurance Services. Services relating to regulatory and quality assurance, including without limitation the preparation of applications for permits and other authorization forms; filings and reports with governmental agencies; quality assurance matters; and other services as may be required for the conduct of business activities.
Legal Services. Legal services, including without limitation legal services relating to corporate governance issues; protection of corporate assets, including patents and intangible property; product liability claims, compliance with employment laws and regulatory requirements; contracts; and other legal issues.
Education and Training Services. Services provided in connection with the education and/or training of a Party's customers and employees, including without limitation the provision of trainers to hold training classes at Party’s or customer’s site and attendance at trainings held at Service Provider’s site.
8. Treasury Services. Services relating to treasury services, including without limitation the management of the following: cash and its equivalents, investments, stock plans, hedging, foreign currency exchange risks; and other treasury-related executive and administrative services.
Materials Management. Procurement, and Logistics Services. Services relating to materials management, procurement, and logistics, including without limitation services provided in connection with inventory, product, and component handling; transport; inventory; warehousing; packaging; materials; and other related services.
10. General. Administrative, and Other Services. Genera!, administrative and other services snail include any services not otherwise specified in this Agreement.
Article 12(4) of the DTAA reads as under:
“4. Fees for included services" as used in this Article means payments of any kind to any person in consideration for rendering of any technical or consultancy services (including through the provision of such services of technical or other personnel) if such services:
(a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill know- how or processes, which enables the person acquiring the services to apply the technology contained therein;”
Notwithstanding paragraph 4, "fees for included services" does 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 a sale described in paragraph 3(a);
(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) far teaching in or by educational institutions ;
(d) for services for the personal use of the individual or individuals making the payments ; or (e) to an employee of the person making the payments or to any individual or firm of individuals (other than a company for professional services as defined in Article 15 (Independent Personal Services).
17. A perusal of the aforementioned provision shows that in order to qualify as FTS, the services rendered ought to satisfy the ‘make available’ test. Therefore, in our considered opinion, in order to bring the alleged managerial services within the ambit of FTS under the India-USA DTAA, the services would have to satisfy the ‘make available’ test and such services should enable the person acquiring the services to apply the technology contained therein.
18. The ld. DR chose written submissions and the relevant part read as under:
“Applicability of India-US DTAA : Explanatory notes to MOU
During the course of hearing the revenue pointed out the subtle difference in Article 12(4) of India-US DTAA vis-a-vis India - Singapore DTAA. In India-US DTAA Article 12(4) has three sub paragraph i.e. 12(4)(a) and 12(4)(b). In 12(4)(b), the second clause i.e. " Consist of the development and transfer of a technical plan and technical design" does not require satisfaction of make available clause. On the other hand, Article 12(4) of India-Singapore Treaty has a separate sub paragraph i.e. 12(4)(c) which implicitly necessitates make available clause in regard to the phrase "Consist of the development and transfer of a technical plan and technical design". This enabling provision of India-US DTAA has larger scope of application to technical services, as has been enumerated in the Explanatory Note (India- US MOU dated 12-09-1989) on paragraph 4(b) which is reproduced below:
Paragraph 4(b) of Article 12 refers to technical or consultancy services that make available to the person acquiring the services, technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plant or technical design to such person. (For this purpose, the person acquiring the service shall be deemed to include an agent, nominee, or transferee of such person). This category is narrower than the category described in paragraph 4(a) because it excludes any service that does not make technology available to the person acquiring the service. Generally speaking, 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 may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc., are 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.
Typical categories of services that generally involve either the development and transfer of technical plants or technical designs, or making technology available as described in paragraph 4(b), include:
1. Engineering services (including the sub-categories of bio- engineering and aeronautical, agricultural, ceramics, chemical, civil, electrical, mechanical, metallurgical, and industrial engineering) ;
2. Architectural services; and
3. Computer software development
Under paragraph 4(b), technical and consultancy services could make technology available in a variety of settings, activities and industries. Such services may, for examples, relate to any of the following areas:
Bio-technical services; 2. Food processing; 3. Environmental and ecological services; 4. Communication through satellite or otherwise; 5. Energy conservation; 6. Exploration or exploitation of mineral oil or natural gas; 7. Geological surveys; 8. Scientific services; and 9. Technical training.
In regard to the examples of MOU relied by the assessee, it is mentioned that the bouquet of services provision by the assessee to its Indian AE including IT services, sales and marketing services, regulatory affairs and quality assurance services and finance and accounting services pre dominantly involves make available of technical knowledge and skill which enables the Indian entity for performance of such services seamlessly being fully compatible with the SOPs prescribed by the assessee in respect of each of these service streams. To buttress this point the following examples are being reproduced from the India-US DTAA, rebutting the contention of the assessee.
Example 5 around the countryside selling the company's wares. The company wants to modify its software to permit the salesmen to assess the company's central computers for information on what products are available in inventory and when they can be delivered. The Indian firm hires a U.S. computer programming firm to modify its software for this purpose. Are the fees which the Indian firm pays treated as fees for included services ?
Analysis:
The fees are for included services. The U.S. company clearly performs a technical service for the Indian company, and it transfers to the Indian company the technical plan (i.e., the computer programme) which it has developed.
Example 6
Facts:
An Indian vegetable oil manufacturing company wants to produce a cholesterol-free oil from a plant which produces oil normally containing cholesterol. An American company has developed a process for refining the cholesterol out of the oil. The Indian company contracts with the U.S. company to modify the formulas which it uses so as to eliminate the cholesterol, and to train the employees of the Indian company in applying the new formulas. Are the fees paid by the Indian company for included services ?
Analysis:
The fees are for included services. The services are technical, and the technical knowledge is made available to the Indian company.
Facts :An Indian firm owns inventory control software for use in its chain of retail outlets throughout India. It expands its sales operation by employing a team of travelling salesmen to travel.
In view of the above position the provision of services by the assessee to its affiliate in India are in the nature of FIS under India-US DTAA and are liable to taxation in India”
We find that the Hon'ble High Court of Kerala in the case of US Technology Resources Pvt Ltd 407 ITR 327 had the occasion to consider the fees for included services as defined under clause (iv) of Article 12 as per the DTAA. The relevant findings read as under:
“11. The fees for included services is defined under Clause 4 of Article 12 as per the DTAA, which is extracted hereunder:
'4. For purposes of this article, "fees for included services" means payments of any kind to any person ir consideration for the rendering of any technical or consultancy services (including through the provision oi services of technical or other personnel) if such services: are ancillary and subsidiary to the application or (a) enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or make available technical knowledge, experience, skill, (b) know-how, or processes, or consist of the development and transfer of a technical plan or technical design'.
12. The specific services availed of by the assessee-appellant from the US Company is covered under Clause 4 o: Article 12 of DTAA is the finding of the lower authorities. In the context of a definition for 'fees for included services' not being available under the IT Act, we have to necessarily look at the definition as available under th< DTAA. The 'fees for included services' as defined under the DTAA would take in payment of any kind it consideration for the rendering of any technical or consultancy services, which services are quite distinctly defined under sub-
clauses (a) & (b) of Clause 4 of Article 12 of the DTAA. This is different from the 'technical and consultancy services' as defined under Section 9(1) (vii) of the IT Act. At the risk of reiteration it is to bi observed that the services which come under the 'included services', meaning a technical and consultancy services as understood by the DTAA, have further been elaborated in sub- clauses (a) and (b) of Clause 4 under Article 12 We are concerned with sub-clause (b) of Article 12(4), which speaks of technical knowledge, experience, skill know-how, or processes, or consist of development and transfer of a technical plan or technical design. The same has to be read along with the MOU which has been entered into on May 15, 1989 and is a part of the notified DTAA.
13. In the MOU, paragraph 4(a) (herein above termed clause) of DTAA was clarified and agreed to be understood in order for a service fee to be considered "ancillary and subsidiary" to the application or enjoyment of the right, property, or information; only with respect to a service related directly to such application or enjoyment. The predominant nature of the arrangement should be the application or enjoyment of the right, property or information described in paragraph 3. It was also agreed that the question as to whether such services is related to the application or enjoyment would be determined by reference to the facts and circumstances of each case. Paragraph 4(b) was agreed to be narrower than the category described in paragraph 4(a), since it excludes any service that does not make technology available to the person acquiring this service. Technology would be considered to be 'made available' only when the person acquiring the service is enabled to apply the technology. So there should clearly be a transfer of technology with the transferee applying it to its business. The mere fact that the provision of a service may require technical input by the service provider does not per
se mean that the technical knowledge, skills, etc. are made available to the person availing such services.
14. The typical category of services were also specifically referred to as:
"1. engineering services (including the sub-categories of bio- engineering and aeronautical, agricultural, ceramics, chemical, civil, electrical, mechanical, metallurgical, and industrial engineering);
2. architectural services; and
computer software development. Under paragraph 4(b), technical and consultancy services could make technology available in a variety of settings, activities and industries. Such services may, for example, relate to any of the following areas: 1. bio-technical services; 2. food processing; 3. environmental and ecological services; 4. communication through satellite or otherwise; 5. energy conservation; 6. exploration or exploitation of mineral oil or gas; 7. geological surveys; 8. scientific services; and 9. technical training".
The MOU and the narrow definition given to 'included services' takes the services availed by the appellant
We would also refer to certain examples provided in the MOU to further substantiate the view taken by us. The facts in one of the examples refer to an Indian vegetable oil
manufacturing company desiring to produce cholesterol-free oil with the know-how for refining cholesterol out of the oil as available with an American Company. The Indian Company thus contracts with the US Company for the purpose of transfer of know-how by which the cholesterol in the oil would be eliminated and to train the Indian Company in applying the new formula. This was held to be an 'included service' and remuneration received would have to be relieved of taxation under I.T. Act.
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The decision of the Karnataka High Court referred to by the Tribunal CIT v. De Beers India Minerals (P.) Ltd. f2012l 21 taxmann.com 214/208 Taxman 406. Therein the Indian Company had sought for assistance of a Netherlands Company to conduct air borne survey for providing high quality, high resolution, geophysical data to identify probable kimberlite targets. The non-resident Company did not transfer any technological know- how to the Indian Company and merely carried out the survey by equipments brought by them into India and supplied the necessary details to the Indian Company. The Division Bench of the Karnataka High Court found that there was no transfer of technology and the foreign company merely carried out a survey, collected data and processed it to identify the probable mining sites. The mere transfer of such data, including maps and photographs, cannot be considered as a transfer of technology was the finding.
We are conscious of the fact that the DTAA as relevant in the present case, is not applicable even in the case of De Beers India Minerals (P.) Ltd. (supra), where the non-resident hailed from Netherlands. However, on facts we are of the opinion that when the definition clause in DTAA read along with the MOU specifically refers to transfer of technologies, the facts as available in the Karnataka decision are 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 advise 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 advise 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 advise offered by the US Company. The advise 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.
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20. On the above interpretation of the provisions of the DTAA, we have to find that the services availed of by the Indian Company, the appellant herein, from the US Company are not technical and consultancy services as defined under the DTAA, clarified by the MOU, which forms part of the notification issued by the Central Government on the double taxation avoidance between the Governments of United States and India. The remuneration received by the US Company for the services offered to the Indian Company being not a technical or consultancy service as defined under the DTAA, would also not be a fee for included services. The remuneration so obtained by the US Company definitely being an income accruing within India would not, hence, be taxable in India under the DTAA. We do not agree with the argument advanced by the learned Standing Counsel that the best evidence available for avoiding taxation within India is the tax paid within the United States of America. The non-payment of tax in the U.S cannot automatically enable taxation in India. As we noticed, with respect to fees for included services, the same being business profits, would be taxable in the US and also in India; however, in India at a reduced rate than as available under the IT Act. The said reduced rate also would not be applicable to the appellant herein with respect to the amounts paid as remuneration to the US Company for the specific services as is seen from the agreement, for it being not an included service as per the DTAA. The tax having been exempted fully, there is no obligation on the assessee/appellant to deduct it at source and the non- compliance of the provisions of Section 195(1) of the IT Act cannot be alleged against the appellant for reason of such obligation not existing in law. The questions of law raised as (i) and (ii) are answered against the Revenue and in favour of the assessee.
We have already held that the services offered by the US Company would not come under the definition of 'included services' as available under the DTAA and as a consequence, the remuneration received by the US Company would not be 'fees for included services'. We have to find that the interpretation of the provisions of the DTAA between the Governments of India and USA have not been correctly carried out by the Tribunal. We, hence, set aside the orders of the lower authorities answering the questions of law (iii) and (iv) against the Revenue and in favour of the assessee. In view of the answers already given by us, we are of the opinion that questions of law raised at (v) and (vi) need not be answered. In I.T.A.No.38 of 2014, the orders are set
aside and the AO is directed to consider the claim of expenditure afresh without looking at the application of Section 195(1), which is not applicable. There is no requirement, as found by us, to deduct tax at source. In all the other appeals, the proceedings under Section 201 of the IT Act are set aside.”
All the contentions raised by the ld. DR have been answered by the Hon'ble High Court of Kerala High Court [supra] and, therefore, need no explanation. Global Service Agreement is effective from 01.01.2009 and we are in Assessment Years 2018-19 and 2019-120. In our considered opinion, if the assessee had enabled the service recipient to apply the technology on its own, then why would the service recipient require such service year after year every year since 2009?
21. This undisputed fact in itself demolishes the action of the Assessing Officer/DRP. Facts on record show that the recipient of the services is not enabled to provide the same service without recourse to the service provider, i.e, the assessee.
In our humble opinion, mere incidental advantage to the recipient of services is not enough. The real test is the transfer of technology and on the given facts of the case, there is no transfer of technology and what has been appreciated by the Assessing Officer/ld.
CIT(A) is the incidental benefit to the assessee which has been considered to be of enduring advantage.
In our understanding, in order to invoke make available clauses, technical knowledge and skill must remain with the person receiving the services even after the particular contract comes to an end and the technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider.
The Hon'ble Delhi High Court in the case of Guy Carpenter 346 ITR 504 [supra] on similar circumstances held as under:
“9. A plain reading of Article 13(4)(c) of the DTAA indicates that 'fees for technical services' would mean payments of any kind to any person in consideration for the rendering of any technical or consultancy services which, inter alia, "makes available" technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design. According to the Tribunal this "make available" condition has not been satisfied inasmuch as no technical knowledge, experience, skill, know-how, processes, have been made available by the assessee to the insurance companies operating in India. It also does not consist of the development and transfer of any technical plan or technical design.
The Tribunal examined the evidence available on record in order to return a finding on the issue as to whether the payments received by the assessee from the insurance companies operating in India would fall within the expression 'fees for technical services' as appearing in article 13(4)(c) of the DTAA read with section 9(1)(vii) of the said Act.
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The Tribunal also noted the process by which the transaction takes place. It has been pointed out that the originating insurer in India would contact J.B. Bodal M.B. Boda for placing identified risks/ class of risks with international reinsurers. J.B. Boda, in turn, would contact one or more international firm(s) of reinsurance broker(s) like the assessee for competitive proposals from the international reinsurer. Then, the international reinsurance brokers like the assessee would contact other primary brokers and various syndicates in the Lloyds market for competitive proposals. Based on the various offers or proposals given by the international reinsurance brokers, like the assessee, to J.B. Boda, the latter would present various options to the originating insurer in India, which would take a final decision in the matter. Based on the decision of the originating insurer in India, the policy terms would then be agreed upon and the risk would be placed with the international reinsurer. It was also pointed out that as per the normal industry practice, the reinsurance premium net of brokerage of 10% as per the policy contract is remitted to the assessee, i.e., reinsurance brokers, for onward transmission to international reinsurers. The intermediation fee which is another word for brokerage is paid separately by the originating insurance in India to J.B. Boda, the international reinsurance brokers like the assessee and other intermediaries, based on a mutually agreed ratio which accounts for their relative contribution in the reinsurance process.
Based on this manner of transacting, the Tribunal came to a conclusion that the payment received by the assessee could not be regarded as 'fees for technical services'. Further, more, the Tribunal also held that such receipts would not amount to fees for technical services as the "make available" clause contained in article 13(4)(c) had not been satisfied in the facts and circumstances of the present case.
In our view, the Tribunal has arrived at these conclusions purely on assessing the factual matrix of the case at hand. The findings are in the nature of factual findings and, therefore, according to us, no substantial question of law arises for our consideration, particularly, because the learned counsel for the Revenue was unable to point out any perversity in the recording of such findings.”
Similarly, the Hon'ble High Court of Karnataka in the case of De Beers India Minerals [P] Limited 346 ITR 467 has, inter alia, held as under;
“Therefore the clause in USA agreement which explicitly makes clear the meaning of the word 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 t 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 service provider to render technical service should also be made available :it is open 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 a a able 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 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 utilizes 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.
From the aforesaid discussion it is clear that test is whether the recipient of the service is equipped to carry on his business without reference to the service provider. If he is able to carry on his business in future without the technical service of the service provider in respect of services rendered then, it would be said that technical knowledge is made available. [Para 18]
It is in this background one has to look at the facts of this case, in order to find out whether the service provider has made available the technical knowledge to the assessee so as to foist the liability of payment of tax. [Para 21]
What is the meaning of 'make available'. The technical or consultancy service rendered should be of such a nature that it 'makes available' to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology 'making available', the technical knowledge, skills, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone 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 « edge, 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.”
In light of the aforementioned judicial decisions, we are of the considered view that the service recipient of the assessee is unable to make use of the said technology only by itself in its business or for its own benefit without recourse to the assessee year after year.
The Revenue has relied upon the decision in the case of Shell India Markets (P.) Ltd.(342 ITR 223. This decision was also used in the case of Linklaters LLP vs Deputy Commissioner of Income- tax [2017] 79 taxmann.com 12 and while deciding the appeal of Linklaters LLP(supra), the co-ordinate bench at Mumbai has observed as under:
“14 Similarly reliance placed by AO on another judgement of AAR in the case of Perfetti Ben case (supra) is misconceived since this ruling has been set aside by Hon'ble Delhi High Court in the judgement reported at 52 Taxmann.com 161. Similarly, reliance on the judgement of Shell India Markets (P.) Ltd., In re [2012] 342 ITR 223/205 Taxman288/l8 taxmann.com 46 (AAR - New Delhi) is also of no use since in this case also earlier ruling in the case of Perfetti was followed which has been set aside by Hon'ble Delhi High Court. Thus, impliedly, the said judgment gets overruled by the judgement of Hon'ble Delhi High Court. Similarly, decision in Dy. DIT (IT) v. Tata Iron &Steel Co Ltd. [2009] 34 SOT 83 (Mum.) was in context of provisions of section 9(i)(vii) of the Act and does not deal with the provisions ofDTAA. Further it was given on altogether different facts.”
Further, the Assessing Officer has also relied upon the decision in the case of CBDT vs Oberoi (India) (P) Ltd. 97 Taxmann 453 (SC) wherein services were provided to a non-resident and the decision is in connection with not granting approval u/s 80-O of the Act and is inapplicable to the facts of the case.
Further, we find that the Assessing Officer has referred to various decision which are based upon the decision of the Authority for Advance Rulings in the case of Perfetti Van Melle Holding B.V. which has subsequently been reversed by the Hon'ble High Court of Delhi in 52 Taxmann.com and hence is no longer a good law.
Considering the facts of the case in totality, in light of the judicial decisions discussed hereinabove, we are of the considered view that the receipts of the assessee on account of provision of information technology and other administrative services to its affiliate in India are not in the nature of Fees for Technical Services under the India USA Double Taxation Avoidance Agreement and we, accordingly, direct the Assessing Officer to delete the same.
In the result, the appeals of the assessee in & 996/DEL/2022 are allowed.
The order is pronounced in the open court on 30.12.2022.