Loading judgment…
No AI summary yet for this case.
Detected automatically from the text. The count shows how many other judgments on BharatTax rely on the same authority.
Income Tax Appellate Tribunal, DELHI BENCHE ‘F’, NEW DELHI
Before: Sh. Bhavnesh Saini & Sh. N. S. Saini
IN THE INCOME TAX APPELLATE TRIBUNAL DELHI BENCHE ‘F’, NEW DELHI Before Sh. Bhavnesh Saini, Judicial Member And Sh. N. S. Saini, Accountant Member Asstt. Year : 2010-11 Outotec India Pvt. Ltd., Vs Dy. Commissioner of Income 507, 5th Floor, Copia Corporate Tax, Circle-13(1), Suites, 9, Jasola Commercial New Delhi-110002 Complex, Jasola, New Delhi-110025, Delhi (APPELLANT) (RESPONDENT) PAN No. AAACO9433A Assessee by : Sh. G. C. Srivastava, Adv. & Sh. Suvinay Kumar Dash, Adv. Revenue by : Sh. Surender Pal, Sr. DR Date of Hearing : 12.03.2019 Date of Pronouncement : 27.03.2019 ORDER Per N. S. Saini, Accountant Member:
This is an appeal filed by the assessee against the order of ld. Commissioner of Income Tax (Appeals)-7, Delhi dated 30.04.2015.
2. The assessee has raised following grounds of appeal: “1.0 That in the facts and circumstances of the case and in law, the Ld. Commissioner of Income Tax (Appeals) [hereinafter referred to as Ld. CIT(A)] erred in upholding the action of Ld. Deputy Commissioner of Income Tax [hereinafter referred to as Ld. AO] in making disallowance u/s 40(a)(i) of the Income Tax Act, 1961 (‘Act’) amounting to Rs. 2 Outotec India Pvt. Ltd. 95,95,363/- representing payment of management service fees to Outotec Oyj. 1.1 That in the facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO in concluding that the payment of management service fees of Rs. 95,95,363/- to Outotec Oyj would come within the purview of technical services as per Article I3(4)(c) of the Indo Finland Tax Treaty (‘Tax Treaty’). 1.2 That in the facts and circumstances of the case and in law, the Ld. CIT(A) as well as Ld. AO erred in misinterpreting the make available clause as present in Article I3(4)(c) of Tax Treaty and concluding that the management services received by Appellant from Outotec Oyj would be taxable as fee for technical services (‘FTS’) under the Tax Treaty without providing any cogent reasons to support the same. 2.0 That in the facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of Ld. AO in making disallowance u/s 40(a)(i) of the Act amounting to Rs. 6,89,025/- and Rs. 4,81,308/- representing payment of consultancy fees to International Project Services OY (‘IPS’) and Outotec Research OY (‘ORY’) respectively. 2.1 That in the facts and circumstances of the case and in law, the Ld. CIT(A) erred in upholding the action of the Ld. AO in concluding that the payment of consultancy fees of Rs. 6,89,025/- and Rs. 4,81,308/- to IPS and ORY respectively would come within the purview of technical services as per Article 13(4)(c) of the Tax Treaty. 2.2 That in the facts and circumstances of the case and in law, the Ld. CIT(A) as well as Ld. AO erred in misinterpreting the make available clause as present in Article 13(4)(c) of Tax Treaty and concluding that the consultancy services received by Appellant from IPS and ORY would be taxable as FTS under the Tax Treaty without providing any cogent reasons to support the same.
3. That the appellant craves leave to add, amend, modify, rescind, supplement or alter any of the grounds stated hereinabove either before or at the time of hearing the appeal.”
3 Outotec India Pvt. Ltd.
The Assessing Officer has made the disallowance by observing as under: “3. Disallowance of Service Fees Paid to Ouotec Ovi and Consultancy charges paid to International Projects Services OY and Outotec Research OY:- During the assessment proceedings, it was observed that the assessee has paid an amount of Rs. 95,95,363/- to Outotec Oyj as service fees to company. Further the assessee company has made payments to International Projects Services OY and Outotech Research OY amounting to Rs. 6,89,025/- and Rs. 4,81,308/- respectively and booked the above expenses under consultancy charges. The assessee was required to show whether tax was deducted at source on such payment. In response to this the assessee submitted in its reply dated 19th March 2013 that Tax was not deducted on these payments. Further in the same letter the assessee company also filed a detailed submission providing reasons for non deduction of tax. The relevant portion of the submissions are reproduced as under: …………………………………………………………………………………………. "I have considered the arguments and submission of the assessee and they are not acceptable on following grounds:- a. The assessee's contention that the service rendered by Outotec OyJ, is not taxable in India as the services did not satisfy the definition of fees for technical services as per Article 13 of India Finland Treaty is not acceptable because the services provided by Outotec Oyj, international projects services OY and Outotec Research OY is very well covered under the fee for technical services as defined in the India-Finland Treaty. The meaning of the phrase "make-available" used in the India Finland Treaty was imported by the assessee from the India USA DTAA and so I am of view that by doing so the assessee is trying to get away with the liability under section 195 of the Income Tax Act The DTAA are country specific and 4 Outotec India Pvt. Ltd. the Import of the meaning from DTAA treaties made with other countries is not permissible. b. Further the assessee is contention that as per provisions of section 90 (2) of the Act Outotec Oyj, international projects services OY and Outotec Research OY are allowed to take the benefit of the beneficial provisions of DTAA also does not hold good. As it is explained in the preceding paragraph that the service provided to the assessee company is falling within the purview of the definition of technical services as envisaged in Article 13 of the DTAA and as per India Finland DTAA the tax on such services would be levied @20%. c. Section 195 of the I.T Act states that any person responsible for paying any non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provision of this Act (not being income chargeable under the head "Salaries") shall, at the time of credit of such Income to the account of the payee or at the time of payment thereof in cash or by the Issue of a cheque or draft or by any other mode, whichever is earlier, deduct income tax thereon at the rates in force. The payments made to Outotec Oyj, international projects services OY and Outotec Research OY are fee for technical services and such services are chargeable to tax as per source rule within the meaning of section 9 of the Act. Therefore the assessee was liable to deduct TDS on this payment under the provision of section 195 of the Act. In view of the foregoing discussion it is clear that the payment of Rs 95,95,363 made to Outotec Oyj, Rs. 6,89,025/- to International Projects Services OY and Rs. 4,81,308/- to Outotec Research OY are chargeable to tax in India and is liable for TDS under the provisions of section 195. The assessee has failed to deduct TDS u/s 195 of the I.T Act therefore the provisions of section 40a(i) are hereby invoked,. So the aforesaid expenditure is disallowed under the provision of section 40a(i) read with section 9 and 5 Outotec India Pvt. Ltd. section 195 and added back to the income of the assessee."
4. On appeal, before the Commissioner of Income Tax (Appeals), the assessee submitted as under: "Ground No. 1 (a), (b), (c) These grounds are directed against disallowance of Service Fees paid amounting to Rs.95,95,363/- u/s 40(a)(i). 3.0 Our Submission 3.1 The allegations of the AO may be rebutted as under: 3.2 The appellant company was set up in the financial year 2007-08, for the purpose of providing supervisory services to various Indian parties. The management of the company felt that the company should adopt the global practices and standards in its business operations. With such an aim the appellant company entered into an agreement with Outotec Oyj effective from July 1, 2009. As per the terms of the agreement, Outotec Oyj will provide assistance to the appellant company in areas that include communications; finance and treasury, tax, accounting, human resource, legal, business development, business intelligence, marketing development, support services etc. 3.3 Outotec Oyj over a period of time has developed certain standard practices for efficient business operations. Thus, for the purposes of achieving global standardization of operations and assisting the appellant Company so as to better carry out its business operations, during the financial year (“FY") 2009-10, the appellant company entered into an agreement with Outotec Oyj. Further, Outotec Oyj has highly experienced personnel and knowledge for providing such services.
6 Outotec India Pvt. Ltd. 3.4 No services were rendered by Outotec Oyj to the appellant to enable the appellant to conduct such activity in future without recourse to Outotec Oyj. 3.5 For the purpose of determining the taxability of a non-resident in India, covered by a tax treaty; there are two approaches that can be adopted. The first approach is to decide whether the income of the non-resident is taxable under the provisions of the Act. If the income is found to be taxable under the provisions of the Act, then one needs to look at the provisions of the tax treaty to consider the taxability of the income under the treaty. The result which is more favourable then needs to be adopted. 3.6 Alternatively, before proceeding to consider taxability of a non-resident, covered by the provisions of a tax treaty, in terms of the provisions of the domestic tax laws of the source jurisdiction, it may be useful to first check whether source jurisdiction has a right to tax that income at all. In case such right is so established then one can proceed to examine whether or not the domestic tax laws of the source country provide for taxation of such an income, and if so, to what extent and in what manner. If the right to tax income under the treaty is not established, there is no further requirement to examine the provisions of the domestic law. This approach of first determining the taxability of income under the provisions of the tax treaty has been affirmed in the case of Hon'ble Jabalpur ITAT in the case of Birla Corporation vs ACIT(TDS) [I.T.A. No.: 251 and 252/JAB/13]. 3.7 Although both the approaches would yield the same result, the second approach however appears to be much more logical especially when in this case, the AO himself has first examined the previsions of the India-Finland DTAA before examining the provisions of the Act. 3.8 Needless to say, if the income of the non- resident is not taxable under the provisions of the tax treaty, there would be no requirement to 7 Outotec India Pvt. Ltd. examine the taxability of such payments under the provisions of the Act. Similarly, if the income is taxable, then the provisions under the Act would be required to be examined, where the payments would be considered as "fees for technical services" and hence be liable to tax withholding. 4.0 Taxability under the India-Finland DTAA 4.1 The appellant humbly wishes to submit that the DTAA between India and Finland was first notified vide Notification No. G.S.R. 786(E) dated November 20, 1984 reported in 152 ITR 57 (Statutes). Copy of the notification is enclosed herewith and marked as Annexure 1. This DTAA was then amended vide Notification No. G.S.R. 495(E), dated 13th August, 1998, where certain clauses including the clause relating to Article 13 - Royalties and fees for technical services was amended. Thereafter, this DTAA was revised vide Notification No. 36/2010, dated 20-5-2010where again there were changes in various clauses including Article 13. 4.2 Since, at this moment, the issue revolves around applicability of Article 13, the definition of "fees for technical services” is reproduced below as notified at various stages: Vide Notification No. G.S.R. 786(E) dated November 20, 1984 reported in 152 ITR 57 (St) The term "fees for technical services” as used in this Article means payments of any kind to any person, other than payments to an employee of the person making the payments and to any individuals for independent personnel services mentioned in Articles 15, in consideration for services of a managerial, technical or consultancy nature, including the provision of services of technical or other personnel." (Emphasis Supplied) Vide Notification No. G.S.R. 495(E), dated 13th August, 1998, reported in 233 ITR 84 (St)
8 Outotec India Pvt. Ltd. For the purposes of paragraph 2, and subject to paragraph 5, the term "fees for technical services means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including the provision of services of technical or other personnel) which: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in sub-paragraph (a) of paragraph 3 is received; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in sub-paragraph (b) of paragraph 3 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. ………………………………….” Vide Notification No. 36/2010, dated 20-5- 2010, w.e.f 01.04.2011 (b) The term "fees for technical services" as used in this Article means payments of any kind, other than those mentioned in Articles 14 and 15 of this Agreement as consideration for managerial or technical or consultancy services, including the provision of services of technical or other personnel." (Emphasis Supplied) 4.3 On perusal of the above, it can be said that for the assessment year under consideration, for a payment to qualify as fee for technical services under the India - Finland DTAA, two conditions need to be satisfied (a) the services should be of a "technical nature" and (b) such services should "make available" technology to the person acquiring the services. 4.2 From a perusal of the Service Agreement, it can also be noted that majority of the services rendered by the appellant are primarily "managerial" in nature including but not limited to providing:
9 Outotec India Pvt. Ltd. a. Internal, external and marketing communication services: drafting and publishing internal announcements / press releases globally, collecting customer feedback, preparing marketing presentations & marketing material; b. Financial and treasury functions: consulting group companies in their financial risks, assistance in evaluation of funding alternatives, hedging and other transaction services etc.; c. Tax and Accounting Services; assistance in local tax audit processes / in tax matters, accounting services including book keeping, accounts receivables and payables; d. Human resource arid Legal services: establishment of global recruitment process, conduct employee satisfaction and other surveys, assistance and coordination of local legal compliance; e. Business Development and Business Intelligence services: providing strategic tools, templates and guidelines, promotion of sales, introducing new products in business portfolio; market, customer & competitor reviews on a monthly basis; f. Market development services: development of sales and marketing strategies, making market area reports, etc. 4.3 Taking the above-mentioned services into consideration, it can be observed that the services rendered to the appellant in terms of the Service Agreement are primarily 'managerial' in nature since the purpose of entering into the Agreement is to standardize the practices globally of the group companies as a whole so that they adopt the standard procedures with the object of achieving global standardization for the group as a whole and hence these services fall outside the scope of the definition of FTS provide under the India- Finland DTAA since the word managerial has been specifically excluded from the said definition.
10 Outotec India Pvt. Ltd. 4.4 The appellant would also like to bring to your goodselfs attention that it was the intent of the countries to specifically exclude "managerial services" from the purview of the definition of FTS in the India-Finland Treaty. It is pertinent to note that wherever the intention of the countries has been to use the term "managerial" the same has been explicitly used in the respective DTAAs, for instance, the India-France DTAA or the India-Singapore DTAA. A copy of the extract of the India-France DTAA and India-Singapore DTAA where the term "managerial" has been specifically used has been reproduced below for your ready reference:- India-France DTAA "ARTICLE 13 - Royalties and fees for technical services and payments for the use of equipment - 1. Royalties, fees for technical services and payments for the use of equipment arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other Contracting State. 2 ………….. 3 …………… 4. The term "fees for technical services" as used in this Article means payments of any kind to any person, other than payments to an employee of the person making the payments and to any individual for independent personal services mentioned in Article IS, in consideration for services of a managerial, technical or consultancy nature. …………………………….."(Emphasis Supplied) India-Singapore DTAA "ARTICLE 12 : ROYALTIES AND FEES FOR TECHNICAL SERVICES - 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 ………………… 3 ………………… 11 Outotec India Pvt. Ltd.
The term "fees for technical services" as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services through 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; or (c) consist of the development and transfer of a technical plan or technical design, but excludes any service that does not enable the person acquiring the service to apply the technology contained therein.” …………………..(Emphasis Supplied) 4.5 Further, on reading of the revised DTAA between India and Finland, which has come into force with effect from April 1, 2011, it can observed that the said DTAA also mentions the term "managerial" in the revised definition of FTS. Extract is reproduced below again for your perusal: "Article 12 : ROYALTIES AND FEES FOR TECHNICAL SERVICES - 1.Royalties or 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 ………………………. 3.(a) ……………….. (b) The term "fees for technical services" as used in this Article means payments of any kind, other than those mentioned in Articles 14 and 15 of this Agreement as consideration for managerial or technical or consultancy services, including the provision of services of technical or other personnel." (Emphasis Supplied)
12 Outotec India Pvt. Ltd. 4.6 In this regard, we would like to draw support from the ruling given by Hon'ble AAR in the matter of Invensys Systems Inc. Vs DIT [183 Taxman 81 (AAR)] wherein AAR on a substantially similar set of facts have held that the services do not qualify as 'technical' services since the same are 'managerial' in nature. The relevant extracts of the Ruling are reproduced here-under: "8. On an analysis of the nature of functions that are enumerated in the Agreement, it is fairly dear that many or most, of them are managerial in nature. The learned Counsel for the applicant has drawn our attention to the dictionary meanings of the word 'manage'. In Intertek Services, In re (2008) 307 ITR 418 this Authority observed: "First, about the connotation of the term "managerial". The adjective "managerial" relates to manager or management. Manager is a person who manages an industry or business or who deals with administration or a person who organizes other people's activity. As pointed out by the Supreme Court in R. Dalmia vs. CIT [1977] 106 ITR 895, "management" includes the act of managing by direction, or regulation or superintendence. Thus, managerial service essentially involves controlling, directing or administering the business." In some DTAAs, apart from the terms 'technical' and 'consultancy', 'managerial' is also included within the FTS clause. 8.1. The contention of the learned counsel for the applicant is that almost all the services to be carried out by the applicant under the Agreement are not technical but are managerial nature and therefore they are out of purview of FTS provision. Learned counsel submits that the purpose of the activities undertaken under the Agreement is to give direction or guidance to the group companies as a whole so that they will adopt or follow standard procedures or templates in various matters. By virtue of such managerial intervention, common benefit accrues to 13 Outotec India Pvt. Ltd. the affiliated companies and their level of performance will consequently improve. 8.2. I find force in the contention of the learned counsel that the services are not really technical or consultancy services. No doubt, the expression "technical services" cannot be construed in a narrow sense as held by this Authority in Intertek Testing Services India Pvt. Ltd 317 ITR 418. It was observed therein that the term "technical" ought not to be confined only to technology relating to engineering, manufacturing or other applied sciences. Professional service imbued with expertise could be regarded as technical service It was further pointed out In Intertek that consultancy services could also be regarded as 'technical' in nature and the two expressions "technical" and "consultancy" cannot be placed in water-tight compartments. Though some of the services required to be performed under the agreement have the trappings of technical or consultancy services, looking at the substance and the predominant nature of the services, they primarily fall under the category of 'managerial'. (Emphasis supplied by us) 4.7 Thus, in light of the overall submission and the judicial precedents, it is clear that the intention of the countries as per the earlier India-Finland DTAA, as applicable in the case of the appellant for the year under consideration, was not to include managerial services within the purview of the definition of FTS. Therefore the observation of the AO that the services are covered under the definition of technical servicers envisaged in the India Finland Tax Treaty does not hold good. 4.8 Further, assuming that even if the management services / functions can be brought within the definition of technical or consultancy services, yet the same will not be taxable as FTS as the other element in clause (c) of Article 13(4) of the DTAA viz., "make available" is not satisfied in the instant case which has been explained in detail in the paragraphs mentioned here in below.
14 Outotec India Pvt. Ltd. 4.9 It is submitted that the India-Finland DTAA has hot defined what constitutes as 'make available technical knowledge, experience, skill etc'. However, the term has been explained by way of examples in the Protocol to the India-US DTAA (which has a similar provision). The Protocol attached to arid forming part of the India-US DTAA confirms that the MOU is intended to give guidance to both the tax payers and tax authorities (of both the contracting states) in interpreting Fees for Technical Services. The MOU states as under: "Generally speaking, technology will be considered 'made available1 when the person acquiring the same 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." 4.10 Therefore, some of the important rules laid out in the interpretation of make available as evident from Protocol to the India-USA DTAA are as under: Usually technology will be considered to be "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. Mere rendering of services does not "make available" the technology unless the person utilizing the services 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 performer of the services in future. The technical knowledge, experience, skill, etc.
15 Outotec India Pvt. Ltd. must remain with the person utilizing the services even after the rendering of the services has come to an end. 4.11 Reference may also be made to the example 4 as contained in the said MoU: Facts: A U.S. manufacturer operates a wallboard fabrication plant outside India. An Indian builder hires the U.S. company to produce wallboard at that plant for a fee. The Indian company provides the raw materials and the U. S. manufacturer fabricates the wallboard in its plant, using advanced technology. Are the fees in this example payments for included services? Analysis: The fees would not be for included services. Although the U. S. company is clearly performing a technical service, no technical knowledge, skill, etc., are made available to the Indian company, nor is there any development and transfer of a technical plan or design. The U. S. company is merely performing a contract manufacturing service." 4.12 There are a plethora of case decisions where the concept of "make available" has been explained. The appellant would like to sight before your honour a few of the case decisions on this point. 4.13 The Hon'ble Karnataka High court in case of De Beers India Minerals (P.) Limited [2012] (346 ITR 467), had the occasion to deal with the concept of 'make available' which was explained as under: "It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that 16 Outotec India Pvt. Ltd. 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." 4.14 it is respectfully submitted that the issue was also examined by the Authority for Advance Rulings ("AAR”) In the case of Intertek Testing Services India Pvt. Ltd. (175 Taxman 375). The AAR was examining the scope and meaning of the definition of the term FTS as contained in Article 12 of the DTAA between India and UK. While examining the issue the AAR held as follows- "Rendering technical or consultancy service is followed by a relative pronoun "which” and it has the effect of qualifying the services. That means the technical or consultancy service rendered should be of such a nature that "makes available” to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting the technical knowledge, etc. so that the payer of service could derive an enduring benefit and utilize the knowledge or know-how in future on his own without the aid of service provider. By making available the technical skills or know-how, the recipient of service will get equipped with that knowledge or expertise and be able to make use of it in future, Independent of the service provider. In other words, to fit into the terminology "make available”, the technical knowledge, skills etc. must remain with the person receiving the services even after the particular contract comes to an end. The services offered may be the product of intense technological effort and lot of technical knowledge and experience of the service provider would have gone into it. But, 17 Outotec India Pvt. Ltd. that is not enough to fall within the description of services which make available the technical knowledge, etc. 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 future without depending on the provider.” 4.15 Further, the connotations of expression ‘make available' were considered by the Hon'ble Income Tax Appellate Tribunal ("Tribunal”) in the case of Raymond Ltd. vs. Dy. CIT (2003) 86 ITD 791 (Mumbai). The Tribunal, after elaborate analysis of ail the related aspects, observed that "Thus, the normal, plain and grammatical meaning of the language employed, in our understanding, is that a mere rendering of services not roped in unless the person utilizing the services is able to make use of technical knowledge, etc., by himself in his business and or for his own benefit and without recourse to the performer of services, in future". In Raymond's case (supra), the Tribunal also held that rendering of technical services cannot be equated with making available the technical services. Later, in the case of CESC Ltd. vs. Dy. CIT (2003) 87 ITD 653 (Cal.)(TM) also, the question regarding the scope of expression 'making available' came up for the consideration. In that case also the view was that "not only the services should be of technical in nature but such as to result in making the technology available to the person receiving the technical services. We also agree that merely because the provision of the service may require technical input by the person providing the service, it cannot be said that technical knowledge, skills, etc. are made available to the person purchasing the service". 4.16 The Hon'ble Delhi High Court in case of Guy Carpenter and Co. (ITA NO. 202/2012 dtd. 23.04.2012) has dismissed the revenue's appeal and agreed with the finding of Delhi Tribunal that "make available" condition has not been satisfied in as much as no technical knowledge, experience, skill, know-how, processes, have been made available by 18 Outotec India Pvt. Ltd. Assessee to the insurance companies operating in India. 4.17 The Hon'ble Delhi Tribunal in the case of NQA Quality Systems Registrar Ltd. v. Dy. CIT reported in 2 SOT 249 (Del) while discussing the clause “make available" held that when the said term is used, if technology is transferred through the technical service then alone it is taxable. Using technical input In order to provide consultancy service will not to making available technical knowledge, skill, expertise or know-how. The Hon'ble at Para 15 of the judgment also held that- “In construing the provisions of India-UK DTAA, it Is possible to make a reference to provisions of the analogous provisions in the India-US DTAA and this is a permissible aid to interpretation of treaties as held by the Hon'ble Mumbai Tribunal in the case of Raymond Ltd v DOT [2003] 86 ITD 791." 4.18 The Hon’ble Delhi Tribunal in case of Romer Labs Singapore Pte. Ltd. (ITA No. 3883/Del/2009 dated 24.01.2013) has also placed the reliance on judgments of AAR in case Anapharm Inc. (305 ITR 394), Raymond Ltd. (supra) and Delhi High Court in case of Guy Carpenter and Co. (supra) and held that the amount received by the Company is not taxable in India as FTS since service rendered by Company do not make available technical knowledge, experience, skill, know how etc to assessee in above sited case so as to enable it to apply the technology contained therein. 4.19 The appellant wishes to place reliance on the following further judgements in support of "make available" as have been decided by various Judicial Authorities from time to time: (a) Mckinsey& Co., Inc. (Philippines) v. Asstt. DIT [2006] (99 ITD 549) (Mum. Tribunal) (b) Worley Parsons Services Pty. Ltd [2008] (301 ITR 54) (AAR)
19 Outotec India Pvt. Ltd. (c) ISRO Satellite Centre [2008] (307 ITR 59)(AAR) (d) DCIT vs Boston Consulting Group Pvt. Ltd. [2005] (94 ITD 31) (Mumbai Tribunal); (e) National Organic Chemical Industries Ltd. vs DCIT [2006] (96 TTJ 765) (Mumbai Tribunal); and (f) Bharat Petroleum Corporation Ltd vs JCIT [2007] (111 TTJ 375) (Mumbai Tribunal) 4.20 In view of the above discussion, it is humbly submitted that the payment made by the appellant to Outotec Oyj being not taxable in India, there was no liability on the part of the appellant to deduct tax from such payments and accordingly the same cannot be disallowed u/s 40(a)(i) of the Act. 5.0 Without prejudice to the aforesaid, the appellant further wishes to submit before your kindself that on perusal of the assessment order, it appears that the AO has not disputed the concept of "make available" vis-a-vis services rendered as contended by the appellant. However, the AO is of the view that the meaning of the phrase "make- available" used in the India-Finland Treaty which has been imported by the appellant from the India USA DTAA is not correct and therefore the disallowed the expense on this ground. 5.1 In this regard, the appellant humbly wishes to submit before your kindself that the India-Finland DTAA has not interpreted the meaning of ”make- available" and for this reason the appellant company has resorted to MOU of India US DTAA where in the word "make- available" has been explicitly dealt with. The assessing officer has objected the reference made to India US DTAA by the appellant company stating that the meaning assigned to the word "make-available" in the India-US DTAA-cannot be used to used to interpret the meaning of "make available" in India Finland Treaty. 5.2 The appellant would like to submit that none of the services received from Outotec OYJ under the Services Agreement make available any technology, know-how, process etc., since, Outotec India will not 20 Outotec India Pvt. Ltd. be able to perform these services without recourse to the Outotec Oyj. The objective of the Agreement Is only to render services to Outotec India to adopt the standard practices with the object of achieving global standardization for the group as a whole and thus, it is submitted that the Outotec Oyj has not transferred any such technical knowledge etc to the recipient during the course of provision of these services. 5.3 The Assessing Officer has alleged that the meaning of the term "make available“ cannot be imported from India-US Treaty as each treaty Is country specific. In this connection reference may be made to the Special Bench decision of the Hon'ble Kolkata Tribunal in the case of CESC Ltd v DCIT(supra). In this case the appellant had made payments to a foreign party in connection with rendition of engineering services in India. The foreign party was a tax resident of United Kingdom. The appellant contended that the amount paid to such foreign party was not taxable in India in view of the Article 13(4)(C) read with the definition of "make available" contained in the Memorandum of Understanding between India-US Treaty. The Tribunal while deliberating on the issue whether the MOU in India-US Treaty could be applied while interpreting the provisions of India-UK Treaty, held at para 18 as under "A pertinent question that remains to be considered is as to whether it is permissible to derive any benefit from the explanatory memorandum in respect of the DTAA between India and USA in interpreting similar provision of DTAA between India and U.K. In this connection it is pertinent to point out that the DTAA between India and USA is dated 20- 12-1990, i.e., prior to DTAA between India and U.K. dated 11th February, 1994 in 206 ITR (St.) 235. It is well- settled principle of law that when an expression of doubtful meaning has received an authoritative interpretation from any Court of law and when the Legislature adopts the same word or expression, subsequently, It must be held that the Legislature 21 Outotec India Pvt. Ltd. was conscious of the interpretation given by the Courts of such expression of doubtful meaning." 5.4 Reference in this connection could also be made to the decision of the Hon'ble Mumbai Tribunal in the case of Raymond Ltd v DCIT(supra), In this case as well while interpreting the term "make available" as per India-UK Treaty, the Tribunal held as under: "94. The Memorandum of Understanding appended to the DTA with USA and the Singapore DTA can be looked into as aids to the construction of the UK DTA. They deal with the same subject (fees for technical services, referred to in the US agreement as "fees for included services"). As noted earlier, it cannot be said that different meanings should be assigned to the US and UK agreements merely because of the MOU despite the fact that the subject matter dealt with is the same and both have been entered into by the same country on one side (India). The MoU supports the contention of the assessee regarding the interpretation of the words "make available". The portions of the MoU explaining para 4(b) of the relevant article, which we have extracted earlier in our order while adverting to the contentions of the assessee, fully support its interpretation. Example (4) given in the MoU also supports it This is of a US company manufacturing wallboard for the assessee using assessee's raw material but using its own plant. No technical knowledge, experience, skills, plan or design is held to have been made available in such a case. However, in contrast, example (5) is of a US company rendering certain services In connection with modifying the software used by the Indian company to suit a particular purpose. A modified computer software programme is supplied by the US company to the Indian company. It is therefore held that there Is a transfer of a technical plan (i.e., computer software) which the US company has developed and made available to the Indian company. The fees are chargeable. These examples affirm the position taken by the 22 Outotec India Pvt. Ltd. assessee- company before us as to the interpretation of the words "make available"
Article 12.4(b ) of the DTA with Singapore was relied on by both sides — by Mr. Dastur to show that the words used therein, viz. "if such services........make available technical knowledge, experience, skill, know-how or processes, which enables the person acquiring the services to apply the technology contained therein..." merely make it explicit what is meant by “make available" while Mr. Kapila contended that these words being absent in the DTA with UK, it indicates that the assessee-company need not be In a position to apply the technology for its own use in future without recourse to the person rendering the services. On a careful consideration of the matter, we are of opinion that the addition of these words in the Singapore DTA merely make it explicit what is embedded in the words "make available" appearing in the DTA with UK and USA. The MoU under the US DTA and the examples given thereunder, to which we have already referred, make it clear. The meaning of those words were expressly incorporated in the Singapore agreement by adding the necessary words. What would be the use of coining the words "make available” if it is not intended, as contended by Mr. Kapila, that the person utilizing the services should be in a position to apply the technology for his own use in his business in future without recourse to the person rendering the services? Would it not be a contradiction in terms to say that though the technical knowledge etc. are "made available", the person to whom they are made available cannot apply the same for his benefit? The treaties, in our opinion, could not have intended such a result. What was therefore implicit in the concerned articles in the UK and US DTAs was made explicit by adding the necessary words in the Singapore agreements. As Mr. Dastur rightly remarked, It is a process of evolution guided by experience and what started in 1990 — the DTA with the US — as a MoU gradually crystallised and got incorporated in the article itself in the DTA with Singapore."
5.5 In most of the cases cited above, the relevant treaty for which the decision has been en is a treaty other than the USA treaty. Few other cases where the treaty interpretation has been followed are: - Deputy Director of Income-tax vs. Preroy A.G. [2010] 39 SOT 187 (MUM.) - Permasteeiisa (India) (P.) Ltd. vs DCIT [2014] 51 taxmann.com 502 (Bangalore - Trib.) 5.6 In view of the above, the contention of the AO that the concept of "make available" is limited to the USA DTAA and cannot be used to interpret other DTAAs is not tenable. Ground No. 2(a), (b), (c) These grounds are directed against disallowance of Consultancy Charges amounting to Rs 6,89,025 and Rs 4,81,308 paid to International Projects OY and Outotec Research Oy respectively. 6.2 Submission 6.3 In this connection it is submitted that the appellant company was set up in the financial year 2007-08, for the purpose of providing supervisory services to various Indian parties. However in the initial stage, it did not have enough technical expertise to supervise and undertake such large scale supervision as it was in the process of recruiting the experts from India. Accordingly it was slowly building its market presence in India and hence did not want to risk in such a big project which could tamper the image, if something went wrong. Therefore keeping in mind these commercial benefits and to better its brand Image in India, the project supervisory assignment was sub-contracted to IPS and ORY, residents of Finland who were experts in handling such large-scale integrated project. The fees were settled at an hourly rate for weekly mandays of services actually rendered by the companies in India along with travelling and other 24 Outotec India Pvt. Ltd. cost. Accordingly an agreement was entered Into by appellant company and IPS on 1st November 2008, to render supervisory services and execute the assignment on behalf of the appellant company as per the terms of the agreement with Sterlite Industries Ltd and the appellant. No similar agreement was entered between the appellant company and ORY. 6.4 No part of the assignment was executed to the appellant which could have enabled the Indian company to learn and execute similar projects on its own in future. 6.5 The appellant further wishes to submit before your kindself that on perusal of the assessment order, it appears that the AO has not disputed the concept of "make available" vis-a-vis services rendered as contended by the appellant. However, the AO is of the view that the meaning of the phrase "make-available" used in the India-Finland Treaty which has been imported' by the appellant from the India USA DTAA is not correct and therefore the disallowed the expense on this ground. [For detailed submission on "make available concept, please refer to the arguments taken under ground 1(a), (b) and (c)] 6.7 In this regard, the appellant humbly wishes to submit before your kindself that the India-Finland DTAA has not interpreted the meaning of "make- available" and for this reason the appellant company has resorted to MOU of India US DTAA where in the word "make- available" has been explicitly dealt with. The assessing officer has objected the reference made to India US DTAA by the appellant company stating that the meaning assigned to the word "make-available" in the India-US DTAA cannot be used to used to interpret the meaning of "make available" in India Finland Treaty. 6.8 In this connection reference is invited the decision of the Hon'ble Kolkata Tribunal in the case of CESC Ltd v DCIT (supra) where in it is specifically stated that India-US treaty could be applied while 25 Outotec India Pvt. Ltd. interpreting the provisions of, India UK treaty. A similar decision was also rendered by the Hon'ble Mumbai Tribunal in the case of Raymond Ltd v DCIT (Supra). 6.9 So in view of the above discussion and also the judicial precedence deliberated above it is humbly submitted that the payment made by the appellant company to IPS and ORY being not taxable in India, there was no liability on the part of the appellant to deduct tax from such payments and accordingly the same cannot be disallowed u/s 40(a)(i) of the Act. 7.0 On going through the submission of the appellant, it is amply clear that the concept of "make available" would be applicable under the treaty provisions not requiring the appellant to withhold tax. Hence, the appellant humbly prays that the additions made by the AO be deleted."
5. The Commissioner of Income Tax (Appeals) confirmed the order of the Assessing Officer by observing as under: 5. Ground No. 1 & 2 are in respect of addition of Rs.1,07,65,696/-. This amount was in respect of consultancy/management expenses claimed by the appellant. The AO had applied 40(a)(ia) stating that no TDS was deducted u/s 195 on these payments and therefore the appellant could not claim these as a deduction. 5.1. During the year the appellant was engaged in the business of marketing, supervising and support services for the mining, metallurgical A metals, mineral A chemical processing industry. The company had paid Rs.95,95,363/- to Outotec Oyj as service fees, Rs.6,89,029/- to International Project Services OV A Rs.4,81,308/- to Outotech Research OY as consultancy charges. 5.2. The appellant stated that these services given were in the nature of managerial services and do not make available any technical knowledge or skill.
26 Outotec India Pvt. Ltd. 5.3. The AO however stated that the services provided by Outotec Oyj, OY and Outotec Research OY were fees for technical services as defined in Article 13 of the India Finland Treaty. 5.4. The AO further stated that the make available clause was not present in the India Finland treaty and was incorporated from India USA DTAA. Therefore, the appellant was required to deduct TDS u/s 195 on these payments. I have perused Article of the India Finland Treaty. As per Article 13 of the India Finland DTAA: Royalties and fees for technical services -
1. 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…………………….. 3……………………..
4. For the purposes of paragraph 2, and subject to paragraph 5, the term “fees for technical services” means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including the provision of services of technical or other personnel) which: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in sub-paragraph (a) of paragraph 3 is received: or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in sub-paragraph (b) of paragraph 3 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. 5.6. I have perused the agreement between the appellant and Outotec Oyj. Some services which the 27 Outotec India Pvt. Ltd. service provider is required to provide are given below: 10. Information Technology services— • IT Infrastructure services - Wide Area Network - Outotec Active Directory - Anti Virus Control - Mail Lotus Notes - Internet Access - Remote Access - Dial-up and Wireless service - Push Mail - Partner Virtual Private Network (VPN) - PC support for the Finish group companies located at Espoo campus • IT Infrastructure special services - Disk space for Outotec Minerals Oy - Wide Area Network (WAN) acceleration systems for the group companies - Client administration system (CMS) service - Virtual private network hardware site connection (VN HW site connection) • IT Application services - SAP and SAP related services including licences for the use of SAP server hosting and maintenance obtained from a third party - Project data administration systems including document administration and project collaboration and their maintenance - Design applications support, such as CAD tools for the group companies' product data administration (PDM) and engineering data administration (EDM) systems - Lotus Notes databases and application development and support for the Finnish group companies - Development and support of customer relationship administration (CRM) systems • IT asset administration and purchasing services for the Finnish group companies - IT asset purchasing services, such as purchases of hardware and software - Telephone services, which are acquired from a third party 11. Research and Technology Development (RTD) services - Research and technology development services for the group companies - Improving and developing existing technologies and new technologies for the group companies - Boosting and improving technology innovation processes and ways of working - Informing other group companies about RTD activities within the group companies - Obtaining of external funding for research projects - Cooperation with universities and research institutes (e.g. cooperation agreement with Geological Survey of Finland, frame agreement with universities) - Coordination of quality systems (e.g. ISO 9001), environmental, health and safety systems and sustainability analysis - Funding and administering of explorative projects for the group companies - Funding and administering of generic competences for the group companies - Providing and funding of common tools, software applications and databases for the group companies - Maintaining and coordinating technology portfolio (own technologies, competitors) for the group companies - Development of new business concepts (acquiring of new technologies) for the group companies - Provision of Innomanager tool for the group companies 29 Outotec India Pvt. Ltd. - Funding of annual fees in training and quality organizations - Searching and activating cross divisional RTD cooperation (e.g. RTD Committee) for the group companies - Arranging Technology Awards rewarding for the group companies 12. After Sales services - Developing new and long-term service concepts and solutions for the group companies - Increasing share of after-sales services sold globally - Training of after-sales personnel - Developing common global processes and tools, such as customer relationship administration (CRM), product data administration (PDM) and e- catalog 5.7. There is no doubt that the service provider is making available technical know-how. From a perusal of the services to be rendered by Outotec OY, I am of the view that they are covered by clause 4 (c) of Article 13 of the India Finland DTAA. A perusal of services to be rendered makes it very clear that technical knowledge has been made available to the appellant. 5.8. Some services rendered are quite clearly in the nature of technical services and technical knowledge made available for use by the recipients. As can be seen, the service provider was to "develop maintain intranet platform". This certainty cannot be termed as management or consultancy service. It is in the nature of technical service. Further the service provider was to support and develop the technologies……..by participating in IPR committee and Research and Technology Development Committee. These are definitely technical in nature. 5.9. Definition of the term “Fees for Technical Services" (FTS) has been a matter of controversy for quite some time because different interpretations 30 Outotec India Pvt. Ltd. have been given by various courts with regard to the true scope and meaning of FTS. 5.10. It is very important to decide whether the services rendered fall within FTS or not. This is because in case the service rendered by the foreign party is covered under FTS, then the foreign party shall be subject to tax in India irrespective of its Permanent Establishment (PE) in India. 5.11. On the other hand, if the services rendered are not FTS, then it would be taxable in India only if the foreign party has any PE or fixed base in India. 5.12. The expression "Fees for Technical Services" is defined in Explanation 2 to section 9(1)(vii) of the Income-tax Act as under: “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)." 5.13. A perusal of the aforesaid definition clarifies that the term FTS would include service of the following three types: • Managerial • Technical • Consultancy 5.14. Therefore, in order to decide whether the service will fall within FTS or not, it is necessary to determine the scope of the aforesaid three terms. 5.15. In the above context, reference may be made to a recent decision of the Mumbai Tribunal in the case of TUV Bayren (India) Ltd. dated 06.07.2012 in ITA No 4944/Mum/2002. 5.16. The Hon'ble Delhi High Court in the case of CIT vs. Bharti Cellular Limited (2009) 319 ITR 139 held that the "technical services" would have reference to only technical services rendered by 31 Outotec India Pvt. Ltd. a human; it would not include any service provided by machine or robots. 5.17. Likewise, the scope of "managerial service" and "consultancy service" is that such services can be covered under FTS when the service is provided in the context of running and management of client’s business. 5.18. In the case of CIT vs. De Beers India Minerals (P) Ltd., the Hon'ble High Court of Karnataka observed as under: “22 What is the meaning of “make available". The technical or consultancy service rendered should be of such a nature that it "make 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, skill?, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the service 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 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 32 Outotec India Pvt. Ltd. if the twin test of rendering services and making technical knowledge available at the same time is satisfied.” 5.19. In the case of Director of Income-tax vs. Guy Carpenter & Co. Ltd., the Hon’ble Delhi High Court observed 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." 5.20. In the case of NQA Quality Systems Registrar Ltd. vs. DCIT, the Hon'ble ITAT Delhi, Bench 'F’ observed as under: "15. A perusal of the aforesaid MoU together with the example cited in the said memorandum clearly reveals that for a fee to be called fee for technical services rendered, it is essential that technical knowledge, skill, know-how should be made available to the assessee and the assessee should be at liberty to use them in his own right. In construing the provisions of Indo-UK DTAA, it is possible to make a reference to provisions of the analogous provisions in the Indo-U5 DTAA and this is a permissible aid to interpretation of treaties as held by the Hon'ble Mumbai Bench in the case of Raymond Ltd. v Dy. CIT : (2003) 86 ITD 791…...” 5.21. In case of Worley Parsons Services Pty. Ltd., the Hon'ble Court observed as under:
“5 The relevant clause is clause (g). It has no application in the present case in as much as no technical knowledge, experience, skill or know-how is 'made available' to GAIL on account of rendering the services. Mere rendering of services is not sufficient to attract clause (g), but those services should result in technical knowledge, etc. being made available to the other contracting party.“ 5.22. It is clear from the above decisions that the person to whom fees for technical services are paid make available not only technical knowledge but also skills, experience, process, know-how. 5.23. I shall now discuss Section 5 of the I. T. Act which talks of what the total income of a person who is a resident and non-resident is:- "(1) Subject to the provisions of this Act, the total income of any previous year of a person who is a resident includes all income from whatever source derived which – (a) is received or is deemed to be received in India in such year by or on behalf of such person: or (b) accrues or arises or is deemed to accrue or arise to him in India during such year: or I accrues or arises to him outside India during such year: Provided that, in the case of a person not ordinarily resident in India within the meaning of sub-s. (6) of s. 6, the income which accrues or arises to him outside India shall not be so included unless it is derived from a business controlled in or a profession set up in India. (2) Subject to the provisions of this Act, the total income of any previous year of a person who is a non-resident includes all income from whatever source derived which – 34 Outotec India Pvt. Ltd. (a) is received or is deemed to be received in India in such year by or on behalf of such person; or (b) accrues or arises or is deemed to accrue or arise to him in India during such year.“ Explanation 1:- Income accruing or arising outside India shall not be deemed to be received in India within the meaning of this section by reason only of the fact that it is taken into account in a balance sheet prepared in India. Explanation 2:- For the removal of doubts, it is hereby declared that income which has been included in the total income of a person on the basis that it has accrued or arisen or is deemed to have accrued or arisen to him shall not again be so included on the basis that it is received or deemed to be received by him in India." 5.24. In view of this section therefore the payment made by the appellant to the non-resident was income as it was received and deemed to accrue in India. 5.25. I shall also now quote section 195: "195. Other sums.-(1) Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct income-tax thereon at the rates in force. Provided that in the case of interest payable by the Government or a public sector bank within the meaning of clause (23D) of section 10 or a public financial institution within the meaning of that clause, deduction of tax shall be made only at the 35 Outotec India Pvt. Ltd. time of payment thereof in cash or by the issue of a cheque or draft or by any other mode. Provided further that no such deduction shall be made in respect of any dividends referred to in section 115-O. Explanation.—For the purposes of this section, where any interest or other sum as aforesaid is credited to any account, whether called "Interest payable account" or "Suspense account" or by any other name, in the books of account of the person liable, to pay such income, such crediting shall be deemed to be credit of such income to the account of the payee and the provisions of this section shall apply accordingly. (2) Where the person responsible for paying any such sum chargeable under this Act **(other than salary) to a non-resident considers that the whole of such sum would not be income chargeable in the case of the recipient, he may make an application to the Assessing Officer to determine, by general or special order, the appropriate proportion of such sum so chargeable, and upon such determination, tax shall be deducted under sub-section (1) only on that proportion of the sum which is so chargeable. (3) Subject to rules made under sub-section (5) any person entitled to receive any interest or other sum on which income-tax has to be deducted under sub- section (1) may make an application in the prescribed form to the Assessing Officer for the grant of a certificate authorising him to receive such interest or other sum without deduction of tax under that sub-section, and where any such certificate is granted, every person responsible for paying such interest or other sum to the person to whom such certificate is granted shall, so long as the certificate is in force, make payment of such interest or other sum without deducting tax thereon under sub- section (1). (4) A certificate granted under sub-section (3) shall remain in force till the expiry of the period specified 36 Outotec India Pvt. Ltd. therein or, if it is cancelled by the Assessing Officer before the expiry of such period, till such cancellation. (5) The Board may, having regard to the convenience of assessees and the interests of revenue, by notification in the Official Gazette, make rules specifying the cases in which, and the circumstances under which, an application may be made for the grant of a certificate under sub-section (3) and the conditions subject to which such certificate may be granted and providing for all other matters connected therewith. “ 5.26. The main components of the section are that 1. any person 2. making payment of interest or any other sum (not being salary). 3. to a non resident or to a foreign company. 4. shall at the time of payment. 5. by any mode 6. deduct income tax. 5.27. The section applies to all person's resident or non-resident and the persons may or may not have residence or place of business in India or any other presence in any manner in India. The section is squarely applicable on the appellant as it has made a payment to a non resident foreign company. 5.28. Further, I am of the view that the payment made by the appellant is for technical services made available to it and is covered by Article 13 of the DTAA. 5.29 The appellant was required to deduct TDS on the payments, which was not done. The addition made by the AO by invoking section 40(a)(ia) is confirmed. The grounds of appeal are thus ruled against the appellant.”
6. Before us, the Authorized Representative of the assessee submitted that the issue is covered in favour of the assessee 37 Outotec India Pvt. Ltd. by the decision of Delhi ‘E’ Bench of the Tribunal in the case of the assessee itself for assessment year 2009-10 reported in (2015) 41 ITR(T) 449 (Del.) and by the decision of Kolkata Bech ‘C’ of the Tribunal in the case of Outotec Oyj Vs DCIT(IT)-2(1), Kolkata reported in 162 ITD 541 (Kolkata-Trib).
The Departmental Representative relied on the orders of the lower authorities.
We find that in the assessment year 2009-10, the Tribunal held as under: “2. The only issue raised in this appeal is against the confirmation of disallowance made by the Assessing Officer (AO) for non-deduction of tax at source in terms of section 195 of the Income-tax Act, 1961 (hereinafter also called 'the Act') on expenses incurred by the assessee amounting to Rs.1,92,86,815/- to International Project Services Oy. (IPS) 3. Briefly stated, the facts of the case are that the assessee, an Indian company, is engaged in the business of providing marketing, supervision and support services for the mining metallurgical as well as metals, minerals and chemical processing industry. A sum of Rs.1,92,86,815/-was claimed as deduction under the head 'Supervision charges.' On being called upon to explain as to why no deduction of tax at source was made in respect of such payments credited to non-resident, the assessee stated that such amount was not chargeable to tax in the hands of the recipient as per Article 13 of the Double Taxation Avoidance Agreement between India and Finland (hereinafter called 'DTAA') and as such there was no obligation to deduct tax at source. At the same time, the assessee admitted the taxability of the amount in the hands of the payee in terms of section 9 of the Act. The AO observed that the assessee started deducting tax at source after 1.4.2011 on payments made to this resident of 38 Outotec India Pvt. Ltd. Finland, for similar services at the applicable rates of tax. The assessee's contention that deduction of tax at source was started after 1.4.2011 because of the later amendment in the DTAA, did not persuade the AO. In the final analysis, the AO came to hold that the amount of Rs.1.92 crore incurred for supervisory services was deemed income accruing or arising in India to the resident of Finland and, hence, was chargeable to tax. In the absence of the assessee deducting tax at source u/s 195 of the Act, the AO held that the provisions of section 40(a)(i) were attracted. He, therefore, made an addition for the said sum of Rs.1.92 crore. The assessee reiterated similar submissions before the ld. first appellate authority in support of the contention that such expenses incurred by it were not chargeable to tax in India as income in the hands of IPS in terms of Article 13 of the DTAA. The ld. CIT(A) examined the Agreement dated 21.11.2008 between the assessee and M/s Sterlite, pursuant to which the assessee was to render supervisory services for erection, commissioning and training for the Dore metal plant of Sterlite in Tuticorin. He required the assessee to produce the Agreement dated 1.11.2008 with IPS under which the services required to be rendered to Sterlite were outsourced from IPS for a consideration of Rs.1.92 crore. The ld. CIT(A) went through the Agreement between the assessee and Sterlite and noted the scope of services to be provided. He also took into consideration a copy of the so-called Agreement dated 1.11.2008 between the assessee and IPS, under which the assessee claimed to have outsourced such services from IPS to be provided to Sterlite. A copy of such four-page document claimed as Agreement, produced before the ld. CIT(A), had first two pages which did not bear any signature, stamp or seal of the parties. He required the assessee to produce the original Agreement, which the assessee failed to comply with. The ld. CIT(A) observed that the main terms and conditions of the Agreement were appearing on the first two pages, which were unsigned plain papers without any page number, date, seal or stamp. He, therefore, refused to accept the authenticity and genuineness of such Agreement. The assessee was called upon to furnish 39 Outotec India Pvt. Ltd. the weekly time sheets in respect of the services rendered by IPS, Finlay, which was supposed to be approved by the assessee. In view of the fact that such weekly time sheets were the only pieces of evidence of rendering of actual services, the ld. CIT(A) insisted on its production, which the assessee failed to submit. Then, the assessee was required to furnish the details of payments made to IPS as per the terms of the so-called Agreement, which stipulated for the release of payment within 15 days from the date of receipt of invoice. The assessee submitted that no payment was made to IPS and the entire amount of Rs.1.92 crore was outstanding at the end of the year. In view of the fact that the so-called agreement provided for realizing payment within 15 days from the date of receipt of invoices and there was no payment whatsoever made by the assessee to IPS throughout the year, the ld. CIT(A), prima facie, inferred that there was no evidence of rendering of any services by IPS. Then, the ld. CIT(A) required the assessee to furnish copies of its correspondence with IPS about the requirement of services to be rendered, nature of services rendered and the correspondence during and after the rendition of services. The assessee admitted that no such correspondence was available. The ld. CIT(A) noticed that the aspect of rendition of actual services by IPS was not examined by the AO. He further noticed an inconsistency in the date of the so-called Agreement between the assessee and IPS, being 1.11.2008, which was prior to the Agreement between the assessee and Sterlite dated 21.11.2008 for providing the supervisory services. The ld. CIT(A) wondered as to how an Agreement between the assessee and IPS could be made much in advance on 1.11.2008 for outsourcing the services which were to be rendered in pursuance of Agreement with Sterlite, which itself was dated 21.11.2008. Under such circumstances, he refused to accept the genuineness of the Agreement with IPS and treated it as a camouflage. The contention of the assessee that the invoices were raised by IPS and hence the assessee was absolved from discharging the burden cast upon it to establish that the services were rendered by IPS, was also held to be of no substance. Considering the totality of the facts, it was 40 Outotec India Pvt. Ltd. held that a copy of the so-called Agreement between the assessee and IPS was not genuine and it was simply a make-believe arrangement aimed at defrauding the Revenue. During the course of hearing before the ld. CIT(A), the assessee submitted a copy of the Certificate issued by IPS containing names of five engineers who were claimed to have been sent by it to Sterlite for rendering supervisory services. This certificate, again undated, was held to be self serving and hence unreliable. In the backdrop of such facts, the ld. CIT(A) reached a conclusion that no services were provided by IPS. However, from the weekly time sheets issued by the assessee and approved by Sterlite and the invoices raised by the assessee on Sterlite, he observed that the services were rendered by these five engineers, residents of Finland, from 24.11.2008 to 24.04.2009. The factum of rendering of actual supervisory services by the above five engineers from Finland and the absence of any services given by IPS, led the ld. CIT(A) to conclude that the services given by five engineers from Finland were in the nature of 'Independent personal services' covered under Article 15 of the DTAA. As the services were performed by these engineers in India by remaining present from 24.11.2008 to 24.04.2009, being a period of more than 90 days, the ld. CIT(A) held that such income was chargeable to tax in India in their hands under Article 15 of the DTAA. As the income was chargeable to tax in India, the assessee was held to be liable for withholding of tax at source. In view of the non-deduction of tax at source, the ld. CIT(A) held that the provisions of section 40(a)(i) were attracted and, consequently, the disallowance of Rs.1.92 crore was upheld. The assessee is aggrieved against the sustenance of this addition.
4. We have heard the rival submissions and perused the relevant material on record. The short controversy in this appeal is the sustainability or otherwise of disallowance of Rs.1.92 crore made u/s 40(a)(i) of the Act. The factual matrix in a nutshell is that the assessee received a sum of Rs.2.41 crore from Sterlite Industries (I) Ltd., for rendering of supervisory services in connection with erection, commissioning and training for their plant in 41 Outotec India Pvt. Ltd. Tuticorin. Such services were provided by the assessee by outsourcing the same and a sum of Rs.1.92 crore was paid for that. The assessee claimed deduction for Rs.1.92 crore, which the AO disallowed u/s 40(a)(i) as, in his opinion, the amount so paid was chargeable to tax in the hands of the recipient and, on the failure of the assessee to deduct tax at source in terms of section 195 of the Act, the disallowance was called for u/s 40(a)(i).
At this juncture, it is relevant to note the mandate of section 40(a)(i), which provides that notwithstanding anything to the contrary in sections 30 to 38, no deduction shall be allowed to an assessee in the computation of income under the head 'Profits and gains of business or profession' in respect of interest, royalty, fees for technical services or other sum chargeable under this Act, which is payable outside India or in India to a non-resident, not being a company or to a foreign company, on which tax is deductible at source under Chapter XVII- B and such tax has not been deducted or after deduction, has not been paid during the previous year or in the subsequent year before the expiry of the time prescribed u/s 200(1) of the Act. Clause (B) of the Explanation to this provision states that: 'Fees for technical services' shall have the same meaning as in Explanation 2 to clause (vii) of sub-section (1) of section 9. The crux of this provision is that if any interest, royalty, fees for technical services or any other sum chargeable under this Act is payable outside India or in India to a non-resident on which tax has not been deducted at source, etc., then, no deduction for such expenditure shall be allowed in the computation of Business income of the payer.
Section 195(1) provides that: 'Any person responsible for paying to a non-resident, not being a company, or to a foreign company, any interest ….. or any other sum chargeable under the provisions of this Act (not being income chargeable under the head "Salaries") shall, at the time of credit of such income to the account of the payee or at the time of payment thereof in cash or by the issue of a cheque or draft or by any other mode, whichever is earlier, deduct 42 Outotec India Pvt. Ltd. income-tax thereon at the rates in force….'. A conjoint reading of sections 40(a)(i) and 195 brings to the fore that it is a duty of the person responsible for paying, to deduct income-tax at source from any amount paid/payable to a non-resident or a foreign company which is 'chargeable under the provisions of this Act.' If the person responsible fails to deduct tax at source on any such amount paid/payable to a non- resident or to a foreign company without deduction of tax at source or fails to deposit the same after due deduction, then, the amount of expenditure incurred by such person responsible, ceases to be deductible in the computation of his total income under the head 'Profits and gains of business or profession.' 7. Coming back to the facts of the instant case, it is observed that the assessee did credit a sum of Rs.1.92 crore payable outside India without deduction of tax at source for which the AO invoked the provisions of section 40(a)(i) of the Act. The claim of the assessee is that the expense so incurred payable in Finland is not chargeable to tax in the hands of IPS. On the other hand, the AO has made out a case that the amount in question is income of the Finland resident by way of 'fees for technical services' in terms of section 9(1)(vii) read with section 5 of the Act. In order to appreciate the rival claims, it is befitting to take note of the prescription of section 9(1)(vii) of the Act, which provides that any income by way of fees for technical services payable, inter alia, by: '(b) a person who is a resident, except where the fees are payable in respect of services utilized 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' shall be deemed to accrue or arise in India. Explanation 2 to section 9(1)(vii) gives meaning to the expression 'fees for technical services', as under:— '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, 43 Outotec India Pvt. Ltd. technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head "Salaries".' 8. On circumspection of Explanation 2 to section 9(1)(vii), it transpires that 'fees for technical services' means any consideration for the rendering of any managerial, technical or consultancy services. When we consider the nature of services provided to Sterlite by the non-resident, being the 'supervisory services for erection, commissioning and training' for setting up a plant of M/s Sterlite Industries, it becomes patent that such services fall within the ambit of Explanation 2 to section 9(1)(vii), thereby making the payment of Rs.1.92 crore as 'fees for technical services' covered u/s 9(1)(vii) of the Act. Once an Indian enterprise pays fees for technical services to a non-resident, the amount so paid becomes chargeable to tax in the hands of such non- resident and the failure to withhold tax from such payment magnetizes the disallowance u/s 40(a)(i) of the Act. The ld. AR was fair enough to candidly concede that the amount payable by the assessee to the non-resident is in the nature of 'fees for technical services' as per section 9(1)(vii) of the Act. He, however, contended that there was no liability of the assessee to deduct tax at source from such amount because of the applicability of DTAA which immunes from tax the amount towards fees for technical services as paid in the present circumstances to the non-resident.
9. Sub-section (1) of section 90 of the Act provides that the Central Government may enter into an agreement with the Government of any other country for the granting of relief of tax in respect of income on which tax has been paid in two different tax jurisdictions. Sub-section (2) of section 90 unequivocally provides that where the Central Government has entered into an agreement with the Government of any country outside India under sub- 44 Outotec India Pvt. Ltd. section (1) for granting relief of tax or for avoidance of double taxation, then, in relation to the assessee to whom such agreement applies, 'the provisions of this Act shall apply to the extent they are more beneficial to that assessee'. The crux of sub-section (2) is that where a DTAA has been entered into with another country, then the provisions of the Act shall apply only if they are more beneficial to the assessee. In simple words, if there is a conflict between the provisions under the Act and the DTAA on a point, the assessee will be entitled to be subjected to the more beneficial provision out of the two. If the provision of the Act on a particular issue is more beneficial to the assessee vis-a-vis that in the DTAA, then such provision of the Act shall apply and vice versa. The Hon'ble Supreme Court in the case of CIT v. P.V.A.L. Kulandagan Chettiar [2004] 267 ITR 654/137 Taxman 460 has held that the provisions of sections 4 and 5 are subject to the contrary provision, if any, in DTAA. Such provisions of a DTAA shall prevail over the Act and work as an exception to or modification of sections 4 and 5. Similar view has been taken by the Hon'ble Bombay High Court in CIT v. Siemens Aktiongesellschaft [2009] 310 ITR 320/177 Taxman 81. In the light of the foregoing discussion it is discernible that if the provisions of the Treaty are more beneficial to the assessee vis-a-vis its counterpart in the Act, then the assessee shall be entitled to be ruled by the provisions of the Treaty.
10. Now, the question arises as to whether the 'fees for technical services' payable by the assessee to the resident of Finland is chargeable to tax under the DTAA? Article 13 of the DTAA deals with 'Royalties and fees for technical services.' The relevant part of the Article is reproduced hereunder:— ARTICLE 13 Royalties and fees for technical services 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 technical services may also be taxed in the Contracting State in which they arise and according to the laws of that State, but the tax so charged shall not exceed........ 3. ** ** ** 4. For the purposes of paragraph 2, and subject to paragraph 5, the term "fees for technical services" means payments of any kind to any person in consideration for the rendering of any technical or consultancy services (including the provision of services of technical or other personnel) which: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in sub-paragraph (a) of paragraph 3 is received; or (b) are ancillary and subsidiary to the enjoyment of the property for which a payment described in sub- paragraph (b) of paragraph 3 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 definitions of fees for technical services in paragraph 4 shall not include amounts paid: (a) to (d) ** ** ** (e) to an employee of the person making the payments or to any individual or partnership for professional services as defined in Article 15". 6. ** ** ** .' 11. A perusal of the above Article deciphers that 'fees for technical services' arising in India and paid to a resident of Finland may also be taxed in India. The term 'fees for technical services', which is relevant for Article 13, has been defined in para 4 of the Article to mean payment in consideration for 46 Outotec India Pvt. Ltd. rendering of any technical or consultancy services which: '(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.' It is not the case of the Revenue that clauses (a) and (b) of para 4 of Article 13 are attracted in this case. The above definition of 'fees for technical services' for the purposes of the DTAA makes it vivid that it refers to payment of any kind for rendering of any technical or consultancy services which make available technical knowledge, skill or know how, etc. to the payer.
The expression 'make available' in the context of 'fees for technical services' contemplates that the technical services should be of such a nature that the payer of the services comes to possess the technical knowledge so provided which enables it to utilize the same thereafter. The Hon'ble Karnataka High Court in the case of CIT v. De Beers India Minerals (P.) Ltd. [2012] 346 ITR 467/208 Taxman 406/21 taxmann.com 214 has dealt with the concept of 'make available' in the context of fees for technical services. It has been held that : "The expression 'make available' only means that the recipient of the service should be in a position to derive an enduring benefit and be in a position to utilise the knowledge or know- how in future on his own. By making available the technical skills or know- how, the recipient of the same will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service provider …….". From the above enunciation of law by the Hon'ble Karnataka High Court, it is palpable that the technical knowledge will be considered as 'made available' when the person acquiring such knowledge is possessed of the same enabling him to apply it in future at his own. If the services are consumed in the provision without leaving anything tangible with the payer for use in future, then it will not be characterized as 'making available' of the technical services, notwithstanding the fact that its benefit flowed directly and solely to the payer of the services,. The Special bench of the tribunal in Mahindra & Mahindra Ltd. v. Dy. CIT [2009] 122 TTJ 47 Outotec India Pvt. Ltd. 577 (Mum.) has discussed the concept of 'make available'. In that case, the lead managers had rendered technical, managerial or consultancy services in the GDR issue, which services were not made available to the assessee inasmuch as the payer only derived the benefit from the technical services provided by the lead managers without getting any technical knowledge, experience or skill in its possession for use in future. In that view of the matter, it was held that the 'management and selling commission' could not be taxed in India as per the DTAA because nothing was made available to the payer. It follows that in order to be covered within the expression 'make available', what is necessary is that the service provider should transmit the technical knowledge etc. to the payer so that the payer may use such technical knowledge in future without involvement of the service provider.
Adverting to the facts of the instant case, we find that the technical services provided by the non- resident are simply in the nature of supervisory services by the engineers for erection, commissioning of the plant of M/s Sterlite in Tuticorin. By rendering such services, nothing has been made available by the payee to the assessee/Sterlite, which could be used in future without involvement of such residents of Finland. Once the plant is erected and commissioned, the supervisory engineering services rendered by the Finland residents during the course of such erection and commissioning get consumed in the process and there remains nothing capable of any use in future. Going by the scope of Article 13 vis-à- vis the nature of actual services provided by the payees, it is manifested that such technical services do not fall within the purview of the definition of 'fees for technical services' as given in para 4 of this Article, as nothing has been 'made available' by the rendition of technical services for any future use. If the provisions of Article 13 of DTAA are exhausted and it is not the case of the AO that the amount be considered under any other Article of the DTAA, it would mean that albeit the amount is chargeable to tax in the hands of the non-residents as per section 9(1)(vii) read with section 5(2) of the Act, but, the 48 Outotec India Pvt. Ltd. chargeability will be waived because of the inapplicability of Article 13 of the DTAA, which is a more beneficial provision than section 9 read with section 5 of the Act. In that view of the matter, the assessment order considering payment of Rs.1.92 crore to M/s IPS Finland for technical services as violating the provisions of section 195, thereby resulting into disallowance u/s 40(a)(i), cannot be countenanced.
It is noticed that when the matter was carried by the assessee in appeal before the ld. CIT(A), the latter opined that there was no genuine agreement between the assessee and the IPS Finland. In view of the fact that the assessee did incur Rs.1.92 crore to certain persons which was duly confirmed by M/s Sterlite, the ld. CIT(A) attributed the amount to the five engineers of Finland, covered under Article 15 of the DTAA.
In principle, we do not find any infirmity in the order of the ld. CIT(A) in examining the genuineness of the Agreement with IPS Finland and then finally holding the amount payable by the assessee to the five engineers as covered under Article 15 of the DTAA, thereby changing the point of the view of the AO on the same issue. It goes without saying that the powers of the CIT(A) are co-terminus with that of the AO inasmuch as he, while hearing an appeal against the assessment order, has all the powers which vest with the AO on the issue before him. The Hon'ble Summit Court in Jute Corpn. of India Ltd. v. CIT [1991] 187 ITR 688/[1990] 53 Taxman 85 (SC) has held so. Even otherwise, section 251 dealing with the powers of the CIT(A) provides through sub-section (1) that : 'In disposing of an appeal, the Commissioner (Appeals) shall have the following powers— (a) in an appeal against an order of assessment, he may confirm, reduce, enhance or annul the assessment…..'. As such, we do not see any embargo on the power of the CIT(A) in approaching the issue before him in a different manner from that of the AO.
49 Outotec India Pvt. Ltd.
As the assessee has assailed the findings given by the ld. CIT(A) with regard to the credibility of the Agreement with IPS, it becomes imperative for us to decide about the genuineness or otherwise of the so- called Agreement between the assessee and IPS, a copy of which has been placed on pages 119 to 122 in the paper book. It can be observed that this document running into four pages is on plain papers. First two pages of this document do not bear signature of any party. These pages, in fact, define the scope of services and all other major terms and conditions. Going by this so-called Agreement, Clause 3 with the caption 'Terms of payment' provides that: "All payments shall be released within 15 days from the date of receipt of invoice." On a specific query, it was accepted by the ld. AR that IPS Finland is a non-related party. Despite there being a specific Clause for making payment within 15 days from the date of receipt of invoice, the assessee admitted before the authorities below that no amount was paid to IPS during the whole of the year and the entire amount of Rs. 1.92 crore was payable. Page 153 of the paper book is a copy of a certificate allegedly issued by IPS Finland stating that five of its employees were sent to India at the instance of the assessee. This document has been purportedly signed by one Mr. Erkko Virrankoski, the President of IPS, Finland. When we compare the signature on this supposed certificate with the signatures made on pages 3 and 4 of the so-called agreement, it can be easily deduced that both the signatures are entirely different. Apart from that, if IPS was to render services on a regular basis to Sterlite at the instance of the assessee, it is but natural that the assessee would have assigned some duties in specific and monitored regularly by interacting with the Finland concern. As against that, the assessee miserably failed to place copies of any correspondence whatsoever with IPS. The assessee admitted before the ld. CIT(A) that no such correspondence in the form of letters or e-mails was available. We are at loss to appreciate as to how is it possible that a party to whom the assessee was to allegedly pay a sum of Rs.1.92 crore, did not correspond at all on any aspect of the work assigned or to ascertain the progress of the work on a periodic basis. There is another interesting aspect of the matter. The assessee entered into Agreement with M/s Sterlite for providing supervisory services for erection and 50 Outotec India Pvt. Ltd. commissioning of their plant. There is no reference whatsoever in this Agreement with Sterlite that the services to be provided by the assessee could be sub- contracted or outsourced from some third party. If such services in erection and commissioning of plant were actually to be provided by IPS to Sterlite, then, there should have been some tripartite agreement amongst the assessee, Sterlite and IPS, which is actually not the case. There is one more aspect. The so-called four- paged Agreement between the assessee and IPS is dated 1.11.2008. We are at loss to comprehend as to how the assessee could enter into agreement with IPS for rendering supervisory services on 1.11.2008, when the agreement with Sterlite was itself signed, much later, on 21.11.08. The ld. AR was specifically asked if he could produce Agreement with IPS in original, which was responded in negative. To be precise, there is no documentary evidence divulging the rendering of services by IPS Finland in the erection and commissioning of plant of Sterlite. The above discussion leads us to an irresistible conclusion that IPS was nowhere involved in providing supervisory services to Sterlite for and on behalf of the assessee. The view canvassed by the ld. CIT(A) on this aspect of the matter is, ergo, upheld.
Be that as it may, there is no denial of fact that the assessee, in fact, caused to be provided services to M/s Sterlite for which it received a sum of Rs.2.41 crore. Discussion in the immediately preceding para divulges that no services were rendered by IPS. From the weekly time sheets issued by the assessee and approved by M/s Sterlite, it is clear that the services were rendered by five engineers from Finland during the period 24.11.08 to 24.4.2009. Once it is established that certain individuals from Finland rendered engineering supervisory services in the erection and commissioning of the plant in Tuticorin, the amount payable to such residents of Finland falls for consideration under Article 15 of the DTAA, which reads as under:— ARTICLE 15 (Sic) Independent personal services 1. Income derived by a resident of a Contracting State in respect of professional services or other independent 51 Outotec India Pvt. Ltd. activities of a similar character may be taxed in that State. Such income may also be taxed in the other Contracting State if such services are performed in that other State and if: (a) he is present in that other State or a period or periods aggregating to 90 days or more in the relevant fiscal year; or (b) he has a fixed base regularly available to him in that other State for the purpose of performing his activities; but in each case only so much of the income as is attributable to those services.
The term "professional services" includes especially independent scientific, literary, artistic, educational or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants.' 18. On going through the mandate of Article 15 of the DTAA, it can be seen that it covers professional services or other independent activities of similar character. The term 'professional services', inter alia, includes independent activities of engineers. Five engineers from Finland rendered engineering services in the erection and commissioning of the plant of Sterlite. Such services fall within the domain of the 'Professional services' of Article 15 of the DTAA.
The ld. AR contended that since the services contracted for the by the assessee with non-residents fall within the meaning of Article 13 but get excluded because of not 'making available' any technical knowledge etc., then such services cannot be once again considered under Article 15. This argument was countered by the ld. DR by contending that the amount in question directly falls under Article 15 and hence the same should be retained here alone.
The argument of the ld. AR though looks attractive at the first blush but falls to the ground on a closer examination. The precise question is that which of the two Articles, namely, 13 or 15, should have primacy in the facts and circumstances as are instantly prevailing?
52 Outotec India Pvt. Ltd. In our considered opinion, the answer to this question is not too far to seek. Relevant part of Para 5 of Article 13, as reproduced above, unambiguously states that the definition of fees for technical services in paragraph 4 shall not include amounts paid '….. (e) to any individual ….for professional services as defined in Article 15". When we read para 5 of Article 13 in conjunction with Article 15, there remains absolutely no doubt that the amount payable by the assessee to certain individual residents from Finland is covered only under Article 15 and not Article 13 of the DTAA.
Delving into the mandate of para 1 of Article 15 of the DTAA, we find that the income derived by a resident of Finland in respect of professional services or other independent activities of a similar character performed in India can be taxed in India if he is present in India for a period or periods aggregating to 90 days or more in the relevant fiscal year or has a fixed base regularly available to him in India for the purpose of performing his activities. It is noticed that the ld. CIT(A) has computed the period of 90 days by considering the presence of these persons in India from 24.11.2008 to 24.4.2009. The ld. AR contended that the ld. CIT(A) has considered total period of stay of all the five persons taken together without considering it on individual basis. We find force in the submission of the ld. AR in this regard. Once it is held that five individuals from Finland were not representing IPS and, in fact, there was no valid agreement between the assessee and IPS, then, what remains to be examined is such five residents of Finland on individual basis. The amounts payable to each of such five persons satisfying the duration test on individual basis would enable the ultimate triggering of Article 15 of the DTAA. In other words, only those Finland residents out of such five persons who independently and individually satisfy the condition about their presence in India for a period of 90 days or more in the relevant fiscal year or having a fixed place regularly available to them in India for the purpose of performing the supervisory functions, can be brought within the purview of Article 15. If, however, this condition is found wanting qua some individuals, then the amount payable to such individual residents of Finland, would cease to be chargeable to tax in terms of Article 15 of the DTAA notwithstanding its taxability under section 9(1)(vii) read with section 5 of the Act.
53 Outotec India Pvt. Ltd. Since the relevant information for ascertaining the duration of stay of such residents of Finland in India is not available on record and, further, it is not clear whether they had a fixed base regularly available to them in India for performing such services, we cannot forthwith ascertain whether or not such a pre-requisite condition is fulfilled. Under such circumstances, we set aside the impugned order and remit the matter to the file of the ld. CIT(A) for deciding this aspect of the matter and, thereafter, determining the question of disallowance u/s 40(a)(i) of the Act. Needless to say, the assessee would be allowed a reasonable opportunity of hearing in such proceedings.”
Facts being identical, respectfully following the precedent, we set aside the orders of the lower authorities and remand the matter back to the file of the Assessing Officer for adjudicating the same afresh in the light of the aforesaid decision of the Tribunal in the case of the assessee itself for assessment year 2009-10.
In the result, the appeal of the assessee is allowed for statistical purposes. (Order Pronounced in the Open Court on 27/03/2019)