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Income Tax Appellate Tribunal, “C” BENCH: KOLKATA
Before: Shri N. V. Vasudevan, JM & Shri M. Balaganesh, AM]
1 ITA No.558/Kol/2014 & 462/Kol/2015 Outotec Oyj, AY 2010-11 & 2011-12 IN THE INCOME TAX APPELLATE TRIBUNAL “C” BENCH: KOLKATA [Before Shri N. V. Vasudevan, JM & Shri M. Balaganesh, AM]
I.T.A Nos. 558/Kol/2014 Assessment Year: 2010-11 & I.T.A Nos. 462/Kol/2015 Assessment Year: 2011-12 Outotec Oyj (PAN: AABCO2957Q) Vs. Deputy Director of Income-tax,(I.T)-2(1) Kolkata. (Appellant) (Respondent)
Date of hearing: 22.09.2016 Date of pronouncement: 14.10.2016
For the Appellant: Shri K.M. Gupta, Advocate & Shri S. Roy Choudhury, FCA For the Respondent: Shri G. Mallikarjuna, CIT, DR
ORDER Per Shri M. Balaganesh, AM:
Both these appeals by assessee are arising out of separate orders of Dispute Resolution Panel, Kolkata dated 23.12.2013 and 30.12.2014 u/s. 144C(5) r.w.s. 144C(8) of the Income-tax Act, 1961 (hereinafter referred to as the “Act”. Since issues are identical and facts are common, we dispose of both these appeals by this consolidated order.
The first issue to be decided in these appeals is as to whether the services rendered by the non-resident assessee company to Indian company would fall within the ambit of ‘Fee for Technical Services (FTS)’ in the facts and circumstances of the case. The facts of Asst Year 2010-11 are stated herein and decision rendered thereon would apply with equal force for the Asst Year 2011-12 also as the issue involved therein is identical except with variance in figures.
The brief facts of this issue is that the assessee company is a tax resident of Finland and is engaged inter alia in the business of providing innovative and environmentally sound solutions for a wide variety of customers in metals and mineral processing industries. The assessee filed a NIL return for the Asst Year 2010-11 on 28.3.2012. During the year under
2 ITA No.558/Kol/2014 & 462/Kol/2015 Outotec Oyj, AY 2010-11 & 2011-12 consideration, the assessee earned revenue from management support and other services. These services are provided to its group company Outotec India Pvt Ltd and the revenue earned was Rs. 82,22,381/-. The ld AO proposed to bring this amount to tax as ‘Fee for Technical Services (FTS)’ . The assessee contended before the ld AO that the services provided by it are managerial services and these services fall outside the definition of FTS under India –Finland DTAA. The assessee also contended that no services have been made available so as to tax the amount as FTS.
The ld AO did not accept the contentions of the assessee and held that these services constituted FTS and passed the draft assessment order, against which the assessee preferred objections before the Hon’ble Dispute Resolution Panel (DRP). The ld DRP observed that the taxability of services rendered by the assessee to its group company requires to be examined in order to ascertain the true nature of the services going by the essence and substance of the service to determine the character of the income. It went to examine the service agreement entered by the assessee with the Indian group company and found that the following services were required to be rendered by the assessee as per the agreement :-
(i) Internal communication services (ii) External communication services (iii) Marketing communication services (iv) Finance and Treasury services (v) Tax services (vi) Accounting services (vii) Human resource services (viii) Legal services (ix) Business development services (x) Business intelligence services (xi) Marketing development services (xii) IT Infrastructure services (xiii) IT Infrastructure special services (xiv) IT Application services (xv) Research and technology services (xvi) After sales services
4.1. The ld DRP observed that the invoices furnished indicated that services have been provided by the assessee to its group company for IT Services, setting up of IT Infra and also other services which have been simply described as ‘service fee’. The ld DRP
3 ITA No.558/Kol/2014 & 462/Kol/2015 Outotec Oyj, AY 2010-11 & 2011-12 observed that the absence of specific nature of service fee in the invoices can lead to assumption that all the nature of services have been rendered by the assessee. The wide gamut of services includes creating correspondence letters, training the group companies editors to use the publishing tools so that the group companies can create own content on the global intranet, writing articles of the projects and technologies of the group companies for the web site and trade press, preparing company presentations for the group companies to be used for marketing purposes, consultancy of the group companies in their financial risk, negotiating and / or monitoring the group companies local external loan agreements and terms, consultation in home and host country tax matters, in local corporate tax, project tax and value added tax matters, assistance in local tax audit processes, training in tax matters, human resource services, advises in HR, legal services, making available developing and maintaining agency and marketing company network for the group companies, making market area reports for the group companies quarterly etc. It observed that the above nature of services clearly indicate that :- (a) These services fall under the category of consultancy services. (b) The services with regard to IT Infra set up fall under the category of technical services which was also admitted by the assessee. (c) The reports on marketing, HR services are definitely useful for the Indian group company which definitely can use on its own later which satisfy the make available clause. (d) The training services amount to provision of manpower services and the citus of manpower provision is not relevant.
4.2. Accordingly, it held that the services rendered by the assessee company to be FTS and accordingly upheld the action of the ld AO in taxing the same in the sums of Rs. 82,22,381/- and Rs. 1,66,45,061/- for the Asst Years 2010-11 and 2011-12 respectively.
Aggrieved, the assessee is in appeals before us on the following grounds:- “1. On the facts and in the circumstances of the case and in law, final assessment order passed in pursuance to the directions issued by the Learned Dispute Resolution Panel ('Ld DRP') is a vitiated order as the Ld. DRP has erred both on facts and in law in confirming the addition made by the Learned Deputy Director of Income-tax, (LT), 2(1), Kolkata ("Ld. AO") to the appellant's income.
4 ITA No.558/Kol/2014 & 462/Kol/2015 Outotec Oyj, AY 2010-11 & 2011-12 Taxability of income received from provision of services to Indian company 2(a) On the facts and in the circumstances of the case and in law, Ld AO erred in holding and Ld DRP erred in confirming that the revenue earned by the appellant in respect of management support and other services are taxable as Fees for Technical Services ("FTS") under the provisions of Article 13 of the India-Finland Double Taxation Avoidance Agreement as applicable for the subject year ("DTAA") 2 (b) On the facts and in the circumstances of the case and in law, Ld. AO/ DRP failed to appreciate that the services rendered by the appellant are pre-dominantly 'managerial' in nature and that the term "managerial" has specifically been excluded from the purview of the definition of FTS under Article 13 of the DTAA 2(c) On the facts and in the circumstances of the case and in law, Ld. AO/ DRP failed to appreciate that the services rendered by the appellant do not "make available" any technical knowledge, experience, skill, know-how or processes, based on the incorrect understanding of the nature of the services provided by the appellant. 2(d) On the facts and in the circumstances of the case and in law, Ld AO/ DRP erred in holding that the meaning of the term "make available" under the DTAA cannot be drawn from the protocol to the Double Taxation Avoidance Agreement entered into between India and United States of America. 2(e) On the facts and in the circumstances of the case and in law Ld. AO/DRP erred in holding that various judgments relied on by the appellant are distinguishable on facts and thus not applicable in the case of the appellant.”
Similar Grounds were raised by the assessee for the Asst Year 2011-12 which are not reproduced herein for the sake of brevity.
The ld AR argued that the nature of services provided by assessee to Outotec India Pvt Ltd is primarily ‘managerial’ in nature. The word ‘managerial’ has not been used in the definition of ‘FTS’ provided under Article 13(4) of the DTAA (as applicable during the FY 2010-11 and FY 2011-12) and hence such services do not fall under the ambit of FTS. Wherever the intention of all the countries is to include managerial services, the same has been expressly provided, such as India-Singapore DTAA, India –France DTAA etc. In the amended India –Finland DTAA which has come into force w.e.f. 1.4.2011, the word ‘managerial’ has been included under the definition of FTS, which itself proves that under the old DTAA , such services were not included. Secondly, the services rendered to Outotec India Pvt Ltd and other Indian parties for Asst Year 2010-11 do not ‘make available’ technical know-how, skills to the recipients. The meaning of word ‘make available’ has not been defined in India –Finland DTAA and hence the ld AR placed reliance on the Protocol to the India –USA DTAA which has a similar provision to determine the meaning of ‘make available’. He argued that the ld AO contended that the
5 ITA No.558/Kol/2014 & 462/Kol/2015 Outotec Oyj, AY 2010-11 & 2011-12 meaning of ‘make available’ from India-US treaty cannot be drawn into India –Finland treaty by relying on the decision of Authority of Advance Rulings (AAR) in the case of Perfettie Van Melle Holding B.V. reported in (2012- 342 ITR 0200 –AAR) wherein it was held that the Protocol to Indo-US treaty cannot be imported into India – Netherland treaty to understand the meaning of ‘make available’. The ld AR argued that this decision has been overruled by the Hon’ble Delhi High Court in the same case of Perfetti Van Melle Holding B.V. vs AAR reported in (2014) 52 taxmann.com 161 (Delhi) vide order dated 30.9.2014. Accordingly, by placing reliance on this Delhi High Court decision, the ld AR argued that the meaning of ‘make available’ as mentioned in Protocol to India –USA treaty could be used in India-Finland treaty. The ld AR also argued that the contention of the ld AO that reliance cannot be placed on India-USA DTAA to understand the meaning of ‘make available’ is in contravention with the third member decision of this tribunal in the case of CESC Ltd vs DCIT reported in (2003) 87 ITD 653 (Kol ITAT) (TM ) . The ld AR also placed reliance on the following decisions in support of this argument :- (a) Intertek Testing Services India (P) Ltd reported in (2008) 175 Taxman 375 (AAR-New Delhi) in A.A.R. No. 751 of 2007 dated 7.11.2008 (b) Raymond Limited vs DCIT reported in (2003) 86 ITD 791 (Mumb ITAT)
He argued that the make available test as stated in Article 13 of India –Finland DTAA is not satisfied in the instant case. He also placed reliance on the expression ‘make available’ being explained by way of examples in the Protocol to India –USA DTAA which has a similar provision in support of his contentions. He also placed reliance on the decision of the co-ordinate bench of this tribunal in the case of Batlivala & Karani Securities (India) (P) Ltd vs DCIT reported in (2016) 71 taxmann.com 142 (Kolkata-Trib) dated 8.7.2016.
In response to this, the ld DR argued that the meaning of ‘make available’ given by way of various examples in Protocol to Indo-US treaty should not be imported in the India- Finland Treaty. In support of which, he placed reliance on the decision of the Authority of Advance Rulings in the case of Perfettie Van Melle Holding B.V. reported in (2012- 342 ITR 0200 –AAR). He argued that in the instant case, the services rendered by the assessee squarely falls within the ambit of FTS as per the treaty and the technology is also made available to the Indian group company as has been held by the ld DRP. He placed reliance
6 ITA No.558/Kol/2014 & 462/Kol/2015 Outotec Oyj, AY 2010-11 & 2011-12 on the decision of the Chennai Tribunal in the case of Foster Wheeler France S.A. vs DDIT reported in (2016) 67 taxmann.com 120 (Chennai Trib) dated 5.2.2016 and the decision of Cochin Tribunal in the case of US Technology Resources (P.) Ltd. v. Asstt. CIT reported in (2013) 39 taxmann.com 23 (Cochin Trib) in support of his arguments.
We have heard the rival submissions and perused the materials available on record. We find that the essence of the arguments of the assessee before the lower authorities and by ld AR before us are two fold:- (i) The services under the agreement are not technical or consultancy in nature and (ii) The services are not made available by the assessee
The arguments of the ld DRP and ld DR before us could be briefly summarized as under:- (i) The services rendered by the assessee are technical in nature and make available technical knowledge, skill, process etc since the services are capable of being replicated by Outotec India Pvt Ltd through its own personnel (ii) The meaning of the term ‘make available’ cannot be drawn from the India – US protocol as treaty with one country cannot be interpreted in the light of the treaty with another country.
8.1. We find that the services rendered by the assessee squarely falls within the definition of ‘Fee for Technical Services’ as per the provisions of the Act, on which point there is no dispute by both the sides. The only dispute is whether the same would fall under FTS as per DTAA or not. Although various arguments were advanced by both the sides with regard to inclusion of the term ‘managerial’ in India Finland DTAA , to decide whether the services rendered would fall within the ambit of ‘fee for technical services’ , we deem it fit and appropriate to ignore the same and decide the issue before us by deciding on the basis of ‘make available clause ’ of any technical knowledge, skill etc by applying the DTAA. We find that the ld DRP is harping on the point that the expertise of the assessee which was used in the fields of marketing services which is in its own domain of metal industry will definitely be a technical and consultancy service. This observation is made because according to ld DRP, when marketing information, web content, customized software specific to the group concerns available through WAN –consideration for these payments
7 ITA No.558/Kol/2014 & 462/Kol/2015 Outotec Oyj, AY 2010-11 & 2011-12 will definitely be fees for technical services and the information made available to the Indian group concern is clearly capable of replicating the services through its own personnel. Accordingly, the ld DRP concluded that the make available clause is satisfied in the instant case.
8.2. At this juncture, it would be pertinent to get into the definition of FTS as per the India Finland Treaty which is reproduced hereunder:- Article 13 – Royalties and Fees for Technical Services “4. For the purposes of paragraph 2 of this Article, and subject to paragraph 5, the term ‘fees for technical services’ means payments of any kind of 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 of this Article 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 of this Article is received; or
(c) make available technical knowledge, experience, skill, know-how or processes, or consist of the development and transfer of a technical plan or technical design.”
In our considered view, in order to be covered by the provisions of Article 13(4) of the India –Finland DTAA, 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. As to what are the connotations of ‘making the technology available to the recipient of technical services’ , as is appropriately summed up in protocol to Indo -US DTAA , “generally speaking, technology will be considered ‘made available’ when the person acquiring the service is enabled to apply the technology”. Reliance in this regard has been rightly placed by the ld AR on the third member decision of the co-ordinate bench of this tribunal in the case of CESC Ltd vs DCIT reported in 87 ITD 653. It has been held by various judicial forums that the principle of parallel treaty interpretation is permissible where language of the two treaties is similarly worded and one
8 ITA No.558/Kol/2014 & 462/Kol/2015 Outotec Oyj, AY 2010-11 & 2011-12 treaty clarifies meaning of the terms (or language) used . Reliance is placed on the following decisions in this regard:- (a) National Organic Chemicals Industries Ltd vs DCIT reported in (2006) 5 SOT 317 (Mumbai ITAT) (b) DDIT vs Preroy A.G. reported in (2010) 39 SOT 187 (Mum ITAT) (c) Intertek Testing Services India (P) ltd In re reported in (2008) 307 ITR 418 (AAR – New Delhi) dated 7.11.2008 (d) ITO vs Nokia India (P) Ltd reported in (2015) 59 taxmann.com 120 (Delhi Trib) dated 8.7.2015 (e) Steria (India) ltd vs CIT reported in (2016) 386 ITR 390 (Del HC)
8.3. We find that the co-ordinate bench decision of this tribunal in the case of Batlivala & Karani Securities (India) (P) Ltd vs DCIT reported in (2016) 71 taxmann.com 142 (Kolkata-Trib) dated 8.7.2016 had held as under:- 12.1. We find that the moot question to be decided in this appeal is as to whether the payments made by the assessee to its foreign subsidiaries would fall under the ambit of ‘fees for technical services’ as per the DTAA. We find from the Article 12 of Singapore Treaty and Article 13 of the UK Treaty defining the term ‘fees for technical services’ , the consideration paid for rendering of managerial, technical or consultancy services would be covered under the said definition only if such services make available any technical knowledge, experience, knowhow, or processes. The nature of services rendered by the subsidiaries to the assessee were in respect of simple marketing services of introducing foreign institutional investors to invest in the capital markets in India so that the assessee would improve its business and income in India. We find that no technical service is being made available to the assessee by its subsidiaries and as a result, the payments made to subsidiaries would not fall within the definition of fees for technical services as admittedly no technical knowledge was made available to the assessee by the subsidiaries.
12.2. Article 12(4) and 13(4) of the Singapore and UK treaty respectively reproduced hereinabove is the same as Article 12(4)(b) of DTAA between India and USA. In the Memorandum of understanding to the DTAA between India and USA, a description concerning fees for included services in Article 12 and paragraph 4 (in general) have been given. Examples of services intended to be covered within the definition of included services and those intended to be excluded have been given. The Memorandum explains how Paragraph 4(b) of Article-12 has to be understood. The Memorandum explains that Article 12(4)(b) refers to technical or consultancy services that make available to the person acquiring the services, technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plant or technical design to such person. The
9 ITA No.558/Kol/2014 & 462/Kol/2015 Outotec Oyj, AY 2010-11 & 2011-12 Memorandum explains category of services referred to Article 12(4)(b) as narrower than the category described in paragraph 4(a) because it excludes any service that does not make technology available to the person acquiring the service. It further explains that generally speaking, technology will be considered made available when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc., are made available to the person purchasing the service, within the meaning of paragraph 4(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. The Memorandum further explains with examples as to how Article 12(4)(b) has to be understood as follows: “Typical categories of services that generally involve either the development and transfer of technical plants or technical designs, or making technology available as described in paragraph 4(b), include : 1. Engineering services (including the sub-categories of bio-engineering and aeronautical, agricultural, ceramics, chemical, civil, electrical, mechanical, metallurgical, and industrial engineering) ; 2. Architectural services ; and 3. Computer software development. Under paragraph 4(b), technical and consultancy services could make technology available in a variety of settings, activities and industries. Such services may, for examples, relate to any of the following areas : 1. Bio-technical services ; 2. Food processing ; 3. Environmental and ecological services ; 4. Communication through satellite or otherwise ; 5. Energy conservation ; 6. Exploration or exploitation of mineral oil or natural gas ; 7. Geological surveys ; 8. Scientific services ; and 9. Technical training. The following examples indicate the scope of the conditions in paragraph 4(b) :
10 ITA No.558/Kol/2014 & 462/Kol/2015 Outotec Oyj, AY 2010-11 & 2011-12 Example 3 Facts : A U.S. manufacturer has experience in the use of a process for manufacturing wallboard for interior walls of houses which is more durable than the standard products of its type. An Indian builder wishes to produce this product for its own use. It rents a plant and contracts with the U.S. company to send experts to India to show engineers in the Indian company how to produce the extra-strong wallboard. The U.S. contractors work with the technicians in the Indian firm for a few months. Are the payments to the U.S. firm considered to be payments for included services ? Analysis : The payments would be fees for included services. The services are of a technical or consultancy nature; in the example, they have elements of both types of services. The services make available to the Indian company technical knowledge, skill and processes. Example 4 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 plant or design. The U.S. company is merely performing a contract manufacturing service. Example 5 Facts : An Indian firm owns inventory control software for use in its chain of retail outlets throughout India. It expands its sales operation by employing a team of travelling salesmen to travel around the countryside selling the companys wares. The company wants to modify its software to permit the salesmen to assess the companys central computers for information on what products are available in inventory and when they can be delivered. The Indian firm hires a U.S. computer programming firm to
11 ITA No.558/Kol/2014 & 462/Kol/2015 Outotec Oyj, AY 2010-11 & 2011-12 modify its software for this purpose. Are the fees which the Indian firm pays treated as fees for included services ? Analysis : The fees are for included services. The U.S. company clearly performs a technical service for the Indian company, and it transfers to the Indian company the technical plan (i.e., the computer programme) which it has developed. Example 6 Facts : An Indian vegetable oil manufacturing company wants to produce a cholesterol-free oil from a plant which produces oil normally containing cholesterol. An American company has developed a process for refining the cholesterol out of the oil. The Indian company contracts with the U.S. company to modify the formulas which it uses so as to eliminate the cholesterol, and to train the employees of the Indian company in applying the new formulas. Are the fees paid by the Indian company for included services ? Analysis : The fees are for included services. The services are technical, and the technical knowledge is made available to the Indian company. Example 7 Facts : The Indian vegetable oil manufacturing firm has mastered the science of producing cholesterol-free oil and wishes to market the product world wide. It hires an American marketing consulting firm to do a computer simulation of the world market for such oil and to adverse it on marketing strategies. Are the fees paid to the U.S. company for included services ? Analysis : The fees would not be for included services. The American company is providing a consultancy service which involves the use of substantial technical skill and expertise. It is not, however, making available to the Indian company any technical experience, knowledge or skill, etc., nor is it transferring a technical plan or design. What is transferred to the Indian company through the service contract is commercial information. The fact that technical skills were required by the performer of the service in order to perform the commercial information service does not make the service a technical service within the meaning of paragraph 4(b). Paragraph 5
12 ITA No.558/Kol/2014 & 462/Kol/2015 Outotec Oyj, AY 2010-11 & 2011-12 Paragraph 5 of Article 12 describes several categories of services which are not intended to be treated as included services even if they satisfy the tests of paragraph 4. Set forth below are examples of cases where fees would be included under paragraph 4, but are excluded because of the conditions of paragraph 5.”
12.2.1. The Memorandum of understanding is a tool to understand as to what meaning was intended to be conveyed in the DTAA between countries. Since the wording of Article 12(4) and 13(4) of the treaty with Singapore and UK respectively and Article 12(4)(b) of the DTAA between India and US are identical, the MOU to the Indo-US treaty can be looked into to see what meaning India and Singapore / UK (as the case may be) would have contemplated in the treaty. The law is settled that a DTAA with one country can be compared with the DTAA with another country in case of ambiguity and in order to understand the true scope and meaning of the concerned DTAA. The Hon’ble Karnataka High Court in the case of A.E.G. Telefunken v. CIT [1998] 231 ITR 129 compared the DTAA with German Democratic Republic with the DTAA with Finland towards this end.
12.2.2. The Mumbai Bench of the Tribunal in the case of Raymond Ltd. Vs. DCIT 86 ITD 791 (Mum) had to deal with a case of payment of commission by an Indian company to a non resident in connection with Public Issue of Global Depository Receipts (GDR) for services rendered outside India. The question before the Tribunal was whether the commission so paid can be said to be “Fees for included services” i.e., Fees for Technical Services under Article 13(4)(c) of the Indo-UK DTAA which is the same as that of Article 12(4)(b) of the treaty between India and Singapore. After considering Article 12(4)(b) of the Indo-US DTAA (which are similar to Article 12(4) and 13(4) of the treaty between India and Singapore / UK (as the case may be)), and after referring to the Memorandum of understanding to the Indo-US DTAA, the Tribunal held as follows:
“ Whereas section 9(1)(vii) of the Act stops with the “rendering” of technical services, the DTAA goes further and qualifies such rendering of services with words to the effect that the services should also make available technical knowledge, experience, skills etc. to the person utilizing the services. These words are “which make available”. The normal, plain and grammatical meaning of the language employed, in our understanding, is that a mere rendering of services is not roped in 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. must remain with the person utilizing the services even after the rendering of the services has come to an end. A transmission of the technical knowledge, experience, skills etc. from the person rendering the services to the person utilizing the same is contemplated by the article. Some sort of durability or permanency of the result of the “rendering of services” is envisaged which will remain at the disposal of the person utilizing the services. The fruits of the services should remain available to the person utilizing the services in some concrete shape such as technical knowledge, experience, skills etc.”
13 ITA No.558/Kol/2014 & 462/Kol/2015 Outotec Oyj, AY 2010-11 & 2011-12
12.3. Applying the definition of FTS in the Treaty to the facts of the present case in the light of the various decisions referred to above, it cannot be said that the rendering of services by the Singapore and UK Subsidiaries to the assessee made available to the assessee , such services , for its future use or utilization on a reasonably permanent basis. Hence the consideration paid thereon by the assessee would not fall under the ambit of fees for technical services as per the treaty.
8.4. Similar views were expressed by the Hon’ble Karnataka High Court in the case of CIT & Ors vs De Beers India Minerals (P) Ltd reported in (2012) 346 ITR 467 (Kar) wherein it was held that :- if the assessee is able to carry on his business in future without the technical service of the service provider in respect of services rendered then, it would be said that technical knowledge is made available – Furgo has not made available the technical knowledge with which they rendered technical service – Though Furgo rendered technical services as defined under section 9(1)(vii) Explanation 2, it does not satisfy the requirement of technical services as contained in DTAA – Liability of tax is not attracted – The case on hand does not fall in the second part of the ‘Fee for technical services’ clause in DTAA dealing with development and transfer of plans and designs – Both the substantial questions of law answered in favour of the assessee and against the revenue – Appeal dismissed.
8.5. We find in the instant case , from the nature of services rendered by the assessee to the Indian group company, there is no technology or technical knowhow, skills etc that were made available by the assessee in order to enable the Indian group company to function on its own without the dependence of the assessee. It is not in dispute that the agreement entered between Outotec Oyj and Outotec India Pvt Ltd is for an indefinite period and such services are provided on recurring basis by the assessee to Outotec India Pvt Ltd. We find lot of force in the argument of the ld AR that had the technical knowhow, skills etc being made available by the assessee to Outotec India Pvt Ltd, then there would be no need for Outotec India Pvt Ltd to recourse to the recipient for these services. We also hold that the other services such as IT Infrastructure, IT administration (collectively referred to ‘IT Support Services’ ) also do not satisfy the ‘make available’ test as no technology , knowhow, skills etc were transferred to the recipient. We also hold that the repair and supervision services provided to few other Indian parties do not satisfy the make available test as these are routine repairs and supervisory services and there is no transfer of technology or skill or experience at the time of provision of such services by the assessee.
14 ITA No.558/Kol/2014 & 462/Kol/2015 Outotec Oyj, AY 2010-11 & 2011-12
8.6. We find that the reliance placed by the ld DR on the decision of Chennai Tribunal in the case of Foster Wheeler France S.A. vs DDIT reported in (2016) 67 taxmann.com 120 (Chennai Trib) dated 5.2.2016 is factually distinguishable from the facts of the instant case. In the facts of the case before the Chennai Tribunal, the foreign company reviewed the execution plans, emphasized on key milestones, provided the best practices available in the form of written procedures and specifications and details. When the procedures and specifications are provided to the assessee, which is also a specialized company in engineering and execution of construction, it is a case of providing specifications and details, execution of engineering and construction contract. These specifications and procedures made available to the assessee by foreign company can very well be used by the assessee-company for execution of other projects also. Moreover, when the specifications and other procedures are made available to the assessee-company and the foreign company is reviewing and tracking the execution plans periodically, not only the execution but also the project budget and client satisfaction, it was held by the Tribunal that Foster Wheeler USA has made available its technical knowledge, expertise, knowhow in execution of the contract by the assessee in India. The company was receiving technical services like specifications, procedures, project management, etc. and it was utilizing the same in the project undertaken with Reliance Petroleum Limited. The specifications, technical knowledge, advice received from Foster Wheeler France S.A was vey much available with the assessee- company and it can be used in execution of the engineering and contract with other clients. In the instant case before us, as already stated , what was rendered was only managerial services without any transfer of technology, knowhow, skills etc and it is a recurring service year after year. Hence the case relied upon by the ld DR is not applicable to the facts of the instant case.
8.7. Similarly the decision of Cochin Tribunal in the case of US Technology Resources (P.) Ltd. v. Asstt. CIT reported in (2013) 39 taxmann.com 23 (Cochin Trib) relied upon by ld DR is factually distinguishable in as much as in that case, the information, expertise and training provided by US Technology Resources had been absorbed by the taxpayer in its decision making process and utilized for the purpose of business and therefore it was held that the expertise and technology was made available by US entity and accordingly held as
15 ITA No.558/Kol/2014 & 462/Kol/2015 Outotec Oyj, AY 2010-11 & 2011-12 FTS within the meaning of Article 12(4)(b) of tax treaty. In the instant case before us, the services rendered are only managerial in nature and there is no transfer of any technology, knowhow, skills , processes etc so as to fall under the ambit of ‘make available clause’ as per the treaty. As stated above, the services rendered are recurring in nature and does not enable the Indian group company to function on its own based on the technology, knowhow, skills etc, if any, transferred previously. Hence this case relied upon by the ld DR is not applicable to the facts of the instant case.
8.8. In view of the aforesaid facts and findings and respectfully following the judicial precedents relied upon hereinabove, we hold that the amounts received by the assessee from Outotec India Pvt Ltd does not qualify as FTS as per the DTAA. Accordingly, the grounds raised by the assessee in this regard are allowed for both the Asst Years.
The next ground to be decided in these appeals is with regard to chargeability of interest u/s 234A and 234 B of the Act which is only consequential in nature and does not require any adjudication.
The next ground to be decided in these appeals is with regard to initiation of penalty proceedings u/s 271(1)(c ) of the Act which is only consequential in nature and does not require any adjudication.
The last ground raised in both the appeals are general in nature and does not require any adjudication.
In the result, both the appeals of the assessee are allowed. Order pronounced in the open court on 14.10.2016
Sd/- Sd/- (N.V. Vasudevan) (M. Balaganesh) Judicial Member Accountant Member Dated : 14th October, 2016
Jd.(Sr.P.S.)
16 ITA No.558/Kol/2014 & 462/Kol/2015 Outotec Oyj, AY 2010-11 & 2011-12
Copy of the order forwarded to: APPELLANT – Outotec OYj, C/o Outotec India Pvt. Ltd. 12th Floor, 1. South City Pinnacle, Plot No.-XI, Block EP, Sector-V, Salt Lake, Kol-91. Respondent –DDIT (IT)-2(1), Kolkata. 2 The CIT(A), Kolkata 3. 4. CIT , Kolkata 5. DR, Kolkata Benches, Kolkata /True Copy, By order,
Asstt. Registrar.