FOSTER WHEELER FRANCE S.A.,CHENNAI vs. DDIT, CHENNAI

आदेश /O R D E R

PER N.R.S. GANESAN, JUDICIAL MEMBER:

Both the appeals of the assessee are directed against the

respective orders of the Assessing Officer, consequent to the

direction of the Dispute Resolution Panel, pertaining to assessment

2 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15 years 2008-09 and 2009-10. Since common issue arises for

consideration in both the appeals, we heard these appeals together

and disposing of the same by this common order.

assessee, submitted that the assessee is a non-resident company

incorporated in France. According to the Ld. representative, the

assessee-company entered into an agreement for providing

technical and engineering services in India. During the assessment

years 2008-09 and 2009-10, the employees of the assessee worked

more than 180 days. The Ld. representative further submitted that

the assessee entered into an agreement with Reliance Petroleum

Limited for providing technical and engineering services with regard

to delayed Coker Unit of Reliance Petroleum Limited. According to

the Ld. representative, the entire services rendered at the premises

of Reliance Petroleum Limited. For providing technical and

engineering services to Reliance Petroleum Limited, the assessee

in turn entered into another agreement with Foster Wheeler USA to

monitor and review the work done by the assessee’s employees on

an agreed consideration. The Ld. representative further submitted

that the matter was referred to the Transfer Pricing Officer. The

3 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15 Transfer Pricing Officer found that there was no requirement for any

adjustment with regard to above said transaction. The Assessing

Officer passed the draft assessment order by disallowing the

payment made to Foster Wheeler USA Corporation to the extent of `3,34,99,151/- and `14,94,99,978/- under Section 40(a)(i) of the

Income-tax Act, 1961 (in short 'the Act') for the assessment years

2008-09 and 2009-10 respectively. The assessee explained before

the Assessing Officer that the assessee is not liable to deduct tax in

view of the Double Taxation Avoidance Agreement between United

States of America and India. Referring to the nature of work to be

performed by Foster Wheeler USA Corporation, the Ld.

representative submitted that sharing of best practices in

engineering services in the form of written procedure, forms,

specifications and details does not mean that technical knowledge

has been made available to the assessee. Merely because certain

procedures were given to the assessee in the form of

documentation it does not mean that the assessee could apply such

procedures in future without the aid of Foster Wheeler USA

Corporation. Referring to Section 195 of the Act, the Ld.

representative submitted that when the profit earned on a

transaction was chargeable to income-tax, the assessee required to

4 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15 deduct tax under Section 195 of the Act. Referring to Explanation 2

to Section 9(1)(vii) of the Act, the Ld. representative submitted that

the consideration paid for rendering managerial, technical or

consultancy service has to be construed as fee for technical

services. Referring to Double Taxation Avoidance Agreement, the

Ld. representative submitted that unless the technical knowledge,

expertise, skill, knowhow or process, etc. were made available to

the assessee and the assessee could independently apply such

technical knowledge, expertise, knowhow, etc. in future, the

payment made by the assessee cannot be construed as fee for

technical service. According to the Ld. representative, the key

difference between the definition of “fee for technical services” in

Indian Income-tax Act and Double Taxation Avoidance Agreement

is that the technical knowledge, expertise, skill, etc. should be made

available to the assessee. If such technical knowledge and skill are

not available to the assessee, then the payment made by the

assessee is not fee for technical services.

said to be made available to the assessee only when the person

acquiring the technical service is able to independently apply such

5 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15 knowledge without any further reference to the service provider.

Referring to the word “enable” used in Double Taxation Avoidance

Agreement, the Ld. representative submitted that the technical

service received by the assessee should make the assessee master

in the subject. The Ld. representative further submitted that when

the assessee does not get equipped with knowledge or expertise, it

cannot be said that the knowledge or expertise was made available

to the assessee by the service provider. In such a case it cannot be

said that technical service was made available to the assessee.

on the judgment of Karnataka High Court in CIT v. Dee Beers India

Minerals (P) Ltd. (346 ITR 467) and submitted that Karnataka High

Court interpreted the word “make available”. The Ld. representative

submitted that if the technical knowledge is not made available to

the assessee along with technical service, this cannot be

considered that technical service was made available. Therefore, it

would not fall within the definition of “technical service” as provided

in Double Taxation Avoidance Agreement. Therefore, the payment

made by the assessee is not liable for taxation.

6 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15 5. Referring to judgment of Delhi High Court in Guy Carpenter

& Co. Limited (ITA No.202/2012), the Ld. representative submitted

that once technical knowledge was not made available to the

assessee, it cannot be construed as fee for technical service. The

Ld. representative has also placed his reliance on the decision of

Pune Bench of this Tribunal in Sandvik Australia Pty. Ltd. v. DDIT

(ITA No.93/PN/2011) and submitted that at the best, the assessee

can be said to have been provided back-up services. The Ld.

representative has also placed his reliance on the decision of

Authority for Advance Ruling in Ernst & Young (P) Ltd. [2010-TIOL-

18-ARA-IT] and also on the decision of Mumbai Bench of this

Tribunal in Mahindra and Mahindra Ltd. v. DCIT (313 ITR 263). The

Ld. representative has also placed reliance on various other

decisions and submitted that when technical knowledge is

transferred through technical service, then alone the payment is

considered as fee for technical services and liable for taxation in

India. When the assessee was not made available any technical

knowledge or expertise of Foster Wheeler USA so that the

assessee could perform its function independently in future, it

cannot be said that what was paid by the assessee is fee for

technical service. Hence, according to the Ld. representative, in

7 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15 view of the Double Taxation Avoidance Agreement, the payment

made by the assessee cannot be construed as fee for technical

services. Therefore, the assessee is not liable to deduct tax in

respect of the payment made to Foster Wheeler USA.

the Act, the Ld. representative for the assessee submitted that the

assessee being a non-resident taxes on income chargeable have to

be deducted at source. Therefore, the tax on income will be NIL

after reducing the tax deducted at source. Therefore, the provisions

of Section 234A of the Act will not be applicable. Referring to

Section 234B of the Act, the Ld. representative submitted that since

the taxes on income chargeable to tax have to be deducted at

source, there is no requirement to pay advance tax. Hence interest

under Sections 234A and 234B cannot be levied. The Ld.

representative placed his reliance on the judgment of Madras High

Court in CIT v. Madras Fertilizers Limited (149 ITR 703).

Departmental Representative, submitted that “fee for technical

service”is defined in Indian Income-tax Act and in Double Taxation

Avoidance Agreement between India and USA. The assessee can

8 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15 take advantage of Double Taxation Avoidance Agreement in case it

is beneficial to it. Double Taxation Avoidance Agreement admittedly

clarifies that the technical knowledge or expertise shall be made

available to the assessee for considering payment as fee for

technical service. The question arises for consideration is whether

the payment made by the assessee to Foster Wheeler France USA

is taxable in India or not? Referring to Explanation 2 to Section

9(1)(vii) of the Act, the Ld. D.R. submitted that when the assessee

paid fee for technical service for utilizing service in the business or

profession carried on in India for the purpose of earning income,

then it is deemed that the recipient-company earned income from

India. The Ld. D.R. placed his reliance in Section 9(1)(vii) of the

Act. In this case, according to the Ld. D.R., the assessee received

services from Foster Wheeler USA and utilized the same in the

business carried on by the assessee in India. Therefore, the

payment made by the assessee to Foster Wheeler France USA has

to be construed as fee for technical service and the income accrued

to Foster Wheeler France S.A in India. Hence, the income is

taxable in India. The assessee is liable to deduct tax under Section

195 of the Act on the payment made to Foster Wheeler France

USA.

9 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15

between India and USA, the Ld. D.R. pointed out that in order to

classify a service as “technical service”, the expertise, skill or

knowledge shall be made available to the assessee. In this case,

according to the Ld. D.R., the assessee is executing engineering

projects for Reliance Petroleum Limited. The assessee received

best practices in different engineering specifications as well as

engineering details to be adopted in execution of the different

phases of the project. The engineering specifications, services,

which are the best in the world, were being provided to the

assessee by its USA associate. When the assessee-company

completes projects with Reliance Petroleum Limited, the assessee

would be well equipped and capable of executing identical project in

engineering in respect of the details and skill, expertise and

information provided by USA associate. According to the Ld. D.R.,

without the help of Foster Wheeler USA, the assessee-company

can provide similar service in future to other companies including

Reliance Petroleum Limited. Therefore, what was received by the

assessee is not only technical services but also the technical

knowledge, expertise and knowhow was made available to the

10 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15 assessee by Foster Wheeler USA. Once the technical knowledge,

expertise, knowhow were made available to the assessee,

according to the Ld. D.R., even under Double Taxation Avoidance

Agreement, the payment made by the assessee to Foster Wheeler

USA has to be construed as fee for technical services. Therefore,

according to the Ld. D.R., income accrued to Foster Wheeler USA

is taxable in India. Hence, the assessee has to necessarily deduct

tax under Section 195 of the Act. Since tax was not deducted, the

Assessing Officer has rightly disallowed under Section 40(a)(i) of

the Act and levied interest under Sections 234A and 234B of the

Act.

perused the relevant material on record. The assessee, a non-

resident company incorporated in France, entered into an

agreement with Reliance Petroleum Limited for providing technical,

engineering services in the premises of Reliance Petroleum Limited

in relation to delayed Coker Unit. For providing such services, the

assessee-company has entered into another agreement with Foster

Wheeler USA, an associate of the assessee-company. The assessee paid ` 3,34,99,151/- for the assessment year 2008-09 and

11 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15 ` 14,94,99,978/- for the assessment year 2009-10 with regard to

services rendered by Foster Wheeler USA, the associate concern of

the assessee. The Assessing Officer referred the matter to the

Transfer Pricing Officer under Section 92CA(1) of the Act to

determine Arm's Length Price of the transaction between the

assessee and Foster Wheeler USA. The Transfer Pricing Officer

reported that no adjustment is considered necessary to the value of

the international transaction entered into between the assessee and

Foster Wheeler USA. Therefore, the Assessing Officer has not

made any adjustment with regard to transaction between the

assessee and Foster Wheeler USA, an associate concern at USA.

While passing draft assessment order, the Assessing Officer found

that the payment made by the assessee to the associate concern at

USA was liable for deduction of tax at source under Section 195 of

the Act. Since tax was not deducted, the Assessing Officer

disallowed the entire payment made to Foster Wheeler USA, the

associate concern by applying provisions of Section 40(a)(i) of the

Act. On the objection filed by the assessee with regard to

disallowance made under Section 40(a)(i) of the Act, the matter was

referred to Dispute Resolution Panel. The main contention of the

assessee was that Foster Wheeler USA, the associate concern has

12 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15 not made available any technical knowledge, expertise, knowhow to

the assessee. Therefore, the payment made by the assessee

cannot be construed as fee for technical services under Double

Taxation Avoidance Agreement between India and USA. Therefore,

the recipient-company, namely, Foster Wheeler France S.A is not

liable to be taxed in India. Consequently, no tax needs to be

deducted by the assessee. Hence, there cannot be any

disallowance under Section 40(a)(i) of the Act. To appreciate the

contention of the assessee, let’s first examine whether the payment

made by the assessee is liable for taxation under the Indian

Income-tax Act. We have carefully gone through the provisions of

Section 9(1)(vii) of the Act which reads as follows:-

“ 9(1)(vii) income by way of fees for technical services payable by-- (a) the Government ; or (b) a person who is a resident, except where the fees are payable in respect of services utilised in a business or profession carried on by such person outside India or for the purposes of making or earning any income from any source outside India ; or (c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India: Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services

13 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15

payable in pursuance of an agreement made before the 1st day April, 1976, and approved by the Central Government. Explanation — 1. For the purposes of the foregoing proviso, an agreement made on or after the 1st day of April, 1976, shall be deemed to have been made before that date if the agreement is made in accordance with proposals approved by the Central Government before that date. Explanation — 2. For the purposes of this clause, "fees for technical services" means any consideration (including any lump sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recepient or consideration which would be income of the recipient chargeable under the head "Salaries".”

We have also carefully gone through Explanation 2 to Section 9(1)

of the Act, which reads as follows:-

“Explanation — For the removal of doubts, it is hereby declared that "business connection" shall include any business activity carried out through a person who, acting on behalf of the non- resident,-

(a) has and habitually exercises in India, an authority to conclude contracts on behalf of the non-resident, unless his activities are limited to the purchase of goods or merchandise for the non- resident ; or (b) has no such authority, but habitually maintains in India a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the non-resident ; or (c) habitually secures orders in India, mainly or wholly for the non- resident or for that non-resident and other non-residents

14 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15

controlling, controlled by, or subject to the same common control, as that non-resident :”

Explanation 2 to Section 9(1) clearly says that the payment made by

the assessee with regard to managerial, technical and consultancy

services is liable to be taxed in India since the services are utilized

in the business for earning income in India. Therefore, this Tribunal

is of the considered opinion that the income accrued to Foster

Wheeler USA, an associate concern of the assessee in India is

liable for taxation under the Indian Income-tax Act.

Agreement between India and USA. Under the Double Taxation

Avoidance Agreement, the beneficial clause is used by invoking the

concept of “make available”. Therefore, to consider the payment of

fee for technical services, the technical knowledge, expertise or

knowhow shall be made available to the assessee. The question

now arises for consideration is whether the technical knowhow,

expertise, etc. were made available to the assessee by Foster

Wheeler USA, the associate concern in USA.

15 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15 13. We have carefully gone through the service rendered by

Foster Wheeler USA. For the purpose of convenience, we are

reproducing the service rendered by Foster Wheeler USA, the

associate concern in USA, as reproduced by the Dispute Resolution

Panel.

“(1) Engineering Support Service in the nature of Sit Engineering, Structural Engineering, Soil Engineering, Architectural Engineering, Mechanical Engineering, Project Engineering, Electrical Engineering, Heat Transfer Engineering, Vessel Engineering, Piping Engineering, Control System Engineering, Design Technology Engineers, Materials Handling Engineers and Document Control Engineers.

The services in the nature of

Review and/or tracking execution plans and schedules with emphasis on key milestones.

Sharing best practices in the engineering services in the form of written practices, procedures, forms, specifications and details.

Review of information regarding technical reports, technical standards and quality management standards.

Review and provide systems for meeting the project budget and client satisfaction.

Review the work process and provide timely input for planned execution.

Review of standards and job specifications indicating technical content.

16 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15

(2) Information Technology (IT) Services in the nature of computer software, hardware, help desk, support services for email and engineering software applications, Remote Infrastructure Management, Application maintenance, Custom application development, Systems Integration, package software implementation and support, IT & Management consulting.”

engaged in the business of engineering and construction contract,

engineering equipment and power equipment supplier. For the

purpose of carrying out the business in India, the assessee received

the above services from Foster Wheeler USA. In fact, the assessee

has received execution plans with schedules, specifications, etc.

Foster Wheeler USA reviewed the working of the assessee in

respect of its plans, execution and also provided time schedule with

emphasis on key milestones. The assessee has also received

systems for meeting the project budget and client satisfaction. The

job specification was also given by the foreign company Foster

Wheeler USA.

company in USA, has made its technical knowledge, expertise,

knowhow to the assessee-company in the course of its business

activity. The assessee claims that the technical knowhow and

expertise were not made available to the assessee. The Ld.counsel

17 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15 for the assessee has placed reliance on various judgments of the

High Courts and decisions of this Tribunal. The majority of the

judgments cited by the Ld.counsel for the assessee was considered

by Cochin Bench of this Tribunal in US Technology Resources Pvt.

Ltd. v. ACIT in I.T.A. No.222/Coch/2013 dated 27.09.2013. On

identical set of facts, the Cochin Bench of this Tribunal found that

the foreign company made available the technical knowledge,

experience, experimentation to the assessee-cy. In fact the Cochin

Bench of this Tribunal has observed as follows:-

“28. Now the assessee here is admittedly making use of the advice, input, experience, experimentation and assistance rendered by the USA company in the decision making process of management, financial and risk management, etc. It is nobody’s case that the USA company is taking any decision on behalf of the assessee. On the basis of the input, advice, assistance and service provided by the USA company, the management decision is taken by the assessee company in India by selecting suitable solution after considering all the alternatives available. It is also to be remembered that the USA company is giving training to the assessee’s employees in making use of the inputs, experience, experimentation, assistance and advice rendered by them for taking a better and possible decision in order to achieve the desired objectives / goal. Therefore, in the context of professional management and decision making process, the advice and service rendered by the USA company which was made use by the assessee in managerial decision making process is in the nature of technical services which facilitate the assessee to take correct and suitable decision towards achievement of the desired objects and business goal. Therefore, it may not be correct to say that what was received by the assessee is only a managerial advice and not technical advice. The technological input acquired by the US

18 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15

company through experience and experiment was tested at various stages and process and further it was made available to the assessee so as to enable the assessee to apply / use the same in its decision making process.

19 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15

resident company includes financial structure and security package to be offered to the lender, study of various lending alternatives for the local and foreign borrowings, making an assessment of export credit agencies world-wide and obtaining commercial bank support on the most competitive terms, assisting the petitioner- company in loan negotiations and documentation with lenders and structuring, negotiating and closing the financing for the project in a co-ordinated and expeditious manner. For its services the assessee company paid 0.75% of the total debt financing as “success fee”. On the advice of the non-resident company at Zurich, the assessee approached the Indian finance institution for loan. The assessee also approached the International Finance Corporation, USA for a part of its foreign currency loan requirement. After successful rendering of service, the non resident Zurich company sent an invoice for payment of “success fee” to the extent of US$ 17,15,476.16 (Rs.5.4 crores). The assessee company approached the income-tax authorities in India for issuing a no objection certificate to remit the said amount claiming that the non resident company had no permanent establishment in India and all services were rendered from outside India. The Income-tax Officer refused to issue the certificate. On a writ petition before the High Court it was found that the scope of service / work undertaken by the non resident company was merely to draw up a scheme, advise on the terms and methods of negotiation and for documentation with the lender, evaluate the pros and cons of various lending alternatives, both for local and the foreign borrowings, prepare a preliminary information memorandum to be used as the basis for placing the foreign and local debt, and that the responsibility of entering into correspondence as per the advice of the non resident company and pursuing the matter was that of the assessee company itself, and not that of the non resident company. Therefore, the office of the assessee company could not be treated as the place of business of the non-resident company. In those facts and circumstances, the Andhra Pradesh High Court found that the business connection between the assessee company and non resident company had not been established. However, it was found that the “success fee” would fall within the definition of 9(1)(vii)(b) of the Act. The Andhra Pradesh High Court found that advice given to procure loan to strengthen finances would be as much a technical or consultancy

20 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15

service, as it would be with regard to management, generation of power or plant and machinery. The “success fee” was chargeable under the provisions of the Income-tax Act, and therefore, the assessee was not entitled to no objection certificate.

21 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15

the assessee and they have just used the technology and have gone back with the same. The CIT(A) further found that no technology has been made available to the assessee by the Netherlands company, therefore, the consideration paid does not fall within the definition of Article 12(5) between India and Netherlands. On further appeal by the revenue before the Tribunal it was held that the payment in question for services rendered would not fall within the definition of “fee for technical services” under Article 12(5) of the DTAA between India and Netherlands. The Tribunal found that Netherlands company has surveyed, collected and processed the data on behalf of the assessee. There is no doubt that Netherlands company performed the service using the technical knowledge and expertise, but such technical expertise, skill and knowledge has not been made available to the assessee. On those facts, the Karnataka High Court found that the assessee was not being possessed with technical know how to conduct the prospecting operation. The maps and photographs which were made available to the assessee cannot be considered as technology made available. Therefore, the question of Netherlands company transferring any technical plan or technical design does not arise in the facts of the case.

22 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15

the knowledge, expertise, experimentation which were made available by the USA company. Therefore, this Tribunal is of the considered opinion that the judgment of the Karnataka High Court in the case of De Beers India Minerals Ltd (supra) may not be applicable to the facts of this case.

23 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15

Receipts for which they are entitled for remuneration. The Tribunal found that the services of the managers for issue of Global Depository Receipt were utilized outside India for the purpose of carrying on its business in India. Since the arrangement is only for marketing the Global Depository Receipt outside India, the Tribunal found that the commission paid to UK company cannot be considered to be fee for technical service, therefore, there is no obligation on the part of the assessee to deduct tax u/s 195(1) of the Act. Therefore, it is obvious that only for marketing the GDR outside India, the service of managers are enjoyed. The decision to issue GDR was taken by Indian company without any assistance from managers. In the case before us, it is a clear case of using the technology, expertise of the foreign company in India for taking managerial, financial decision and risk management analysis. The expertise, analysis, technical knowledge supplied by the foreign company remains with the assessee for ever and it could be even used in future for the business of the assessee in the process of management decision, financial decision making and risk management analysis. Therefore, the decision of the Mumbai Bench of this Tribunal in the case of Raymond Ltd (supra) is also not applicable to the facts of the case.

24 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15

25 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15

similar technology or techniques in future without depending on the provider. In this case also, the information, expertise and training provided by the USA company was absorbed by the assessee company in their decision making process and it was utilized for the purpose of business. The USA company made available all the technical data, information, expertise to the assessee company which was absorbed and made use of by the assessee company in their managerial and financial decision making process and other decision in the development of the business. Therefore, the expertise and technology which was made available by the USA company is technical service within the meaning of Article 12(4)(b) of the DTAA between India and USA. Hence, this ruling of the Authority for Advance Ruling may not of any assistance to the assessee.” 16. We have also carefully gone through the judgment of the

Karnataka High Court in Dee Beers India Minerals (P) Ltd. (supra).

In fact, this judgment was also considered by the Cochin Bench of

this Tribunal in the case of US Technology Resources Pvt. Ltd. In

the case of Dee Beers India Minerals (P) Ltd. (supra), the assessee

engaged in the business of mining for diamonds and other minerals.

In the course of its business activity, the assessee before Karnataka

High Court entered into an agreement with Nethrland company to

engage its services in airborne survey for high quality, high

resolution, geophysical data suitable for selecting the available

minerals. The Netherland company gave data, maps and

photographs by air borne survey and located the exact area for

mining. On the basis of survey made by Netherland company, the

26 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15 assessee excavated the mines. In the case before Karnataka High

Court, the technology of locating the diamonds by air borne survey

was not given to the assessee. Only the result of the survey was

furnished by the Netherland company. In the case before us, the

foreign company reviewed the execution plans, emphasis 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, this Tribunal is of the considered opinion that the

specifications and details provided by foreign company can very

well be used in the business of engineering and construction. It is

not a case of air borne survey or providing guidelines for locating or

identifying the potential area to locate centres which could not be

done by the assessee. 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. But, in the case before

Karnataka High Court the air borne survey done by the Netherland

company can be used for locating diamonds and other minerals and

27 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15 technology adopted by the Netherland company for locating the

diamonds and other minerals was not transferred. Locating

diamonds cannot be done by the assessee-company independently.

The assessee-company before the Karnataka High Court is

expertise only in excavation and not in performing air borne survey

or locating the availability of the minerals. In this case, the

assessee is also an expertise company in engineering and

construction works. Therefore, 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, this Tribunal is of the considered opinion that

Foster Wheeler USA has made available its technical knowledge,

expertise, knowhow in execution of the contract by the assessee in

India. Therefore, this judgment of Karnataka High Court is not

applicable to the facts of the case.

High Court in Guy Carpenter & Co. Limited (supra). In the case of

Delhi High Court, the assessee-company was an international

reinsurance intermediary broker and was a tax resident of United

28 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15 Kingdom. The assessee before the Delhi High Court received

commission from various insurance companies operating in India.

The Assessing Officer found that the receipt of commission is fee

for technical services. While illustrating the transaction, the High

Court extracted the observation made by the Tribunal at para 11 of

its order. As per the illustrative transaction, New India Insurance

Co. Ltd. has entered into an agreement to reinsure on an excess

loss basis he catastrophe risk arising from its primary insurance

cover in conjunction with J.B. Boda and Alsford Page and gems Ltd.

The assessee will act as a claim administrator and will submit

claims advices to relevant market systems. For the services

rendered, the assessee along with other reinsurance brokers acting

as an intermediary in the reinsurance process for New India

Assurance Co. will be entitled to 10% brokerage. The assessee-

company was rendering only an intermediary service while acting as

a facilitator in getting the reinsurance cover for New India Insurance

Co. The assessee is not doing any other work other than acting as

an intermediary in the reinsurance process. In the case before us, It

is not the case of the assessee that it is playing only an intermediary

role. It is receiving technical services like specifications,

procedures, project management, etc. and it is utilizing the same in

29 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15 the project undertaken with Reliance Petroleum Limited. The

specifications, technical knowledge, advice received from Foster

Wheeler France S.A is vey much available with the assessee-

company and it can be used in execution of the engineering and

contract with other clients. Therefore, this Tribunal is of the

considered opinion that the judgment of the Delhi High Court is not

of any assistance to the assessee.

Testing Services India (P.) Ltd. the decision rendered by Authority

For Advance Rulings. The Authority For Advance Rulings found

that technical knowledge and experience of service provider should

be imparted and absorbed by the receiver so that the receiver can

deploy similar technology or techniques in future without depending

on the service provider. In this case also, the information, expertise,

execution plan, project budget, technical standards and quality

management standards provided by the service provider Foster

Wheeler USA is absorbed by the assessee-company and the

assessee-company is capable of deploying such technology in

future without depending on Foster Wheeler USA. Therefore, the

ruling rendered by Authority For Advance Rulings in Intertek Testing

30 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15 Services India (P.) Ltd. also may not be of any assistance to the

assessee.

this Tribunal in Sandvik Australia pty. Ltd. (supra). In the case

before Pune Bench, the assessee-company providing IT support

services to its group companies in the nature of help desk,

administrative and maintenance of IT support. The assessee

claimed before the Assessing Officer that the assessee was offering

only IT support services and not imparting any technical knowhow

and knowledge to its Indian companies. However, the Revenue

disputed the claim of the assessee. The case of the Revenue

before the Pune Bench is that the assessee-company not only

rendering back-up IT support service but also transferring

knowledge and other said services to Indian companies. After

analysing the agreement filed before it, the Pune Bench found that

the agreement entered into by the assessee-company and Sandvik

Asia Ltd. is not supporting the case of the Revenue. The Tribunal

found that the assessee has provided only IT back-up service for

solving IT related problems to its Indian subsidiary and not such

services are available to the Indian companies. In the case before

31 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15 us, what was provided by Foster Wheeler USA is the service in the

nature of tracking execution plans, schedules with emphasis on key

milestones, written practices, procedures, specifications and details

in execution of the project, furnished review of information regarding

technical reports, technical standards and quality management

standards, provided systems for meeting project budget and client

satisfaction. On the basis of the technical knowledge, information

provided by Foster Wheeler USA, the assessee-company can

implement the same in the project while executing the project with

Reliance Petroleum Limited. Unless the assessee-company

acquires the knowledge, expertise, technical standards, quality

management, etc. provided by Foster Wheeler USA, the same

cannot be adopted or implemented while executing the project with

Reliance Petroleum Limited When the assessee-company absorbs

the technical knowledge, expertise, quality management, etc. for the

purpose of implementing project with Reliance Petroleum Limited,

such knowledge is very much available with the assessee and the

same can be implemented with other projects with other clients. It

is to be remembered that the assessee is not a layman. The

assessee company is expert in providing technical and engineering

service. Therefore, the assessee is capable of observing the

32 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15 opinion / advice given by USA associate and implement the same

vide their future project. Therefore, this Tribunal is of the

considered opinion that the technical knowledge, expertise,

knowhow were made available to the assessee. Hence, the

decision of Pune Bench of this Tribunal in Sandvik Australia Pty.

Ltd. (supra) is not applicable to the facts of the case.

Advance Rulings in Ernst & Young (P) Ltd. (supra). The assessee-

company engaged in providing consultancy services as chartered

accountancy and management studies in India. The Authority For

Advance Rulings found that what was provided by EMEIA to the

assessee-company is information on various business by providing

support services like commercial matters, guidelines, templates,

best practices and strategies that could be adopted in various

spheres of their business which ultimately lead to protection of EY’s

image and client relationship. The Authority For Advance Rulings

found that dissemination of information, furnishing guidelines and

suggesting plans of action aimed at uniformity and seamless quality

in business dealings of participating group entities do not per se amount to making available the technical knowledge and

33 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15 experience possessed by EMEIA to a substantial extent. In the

case before us, the assessee-company received specification,

execution plans, schedules with emphasis on key milestones,

written practices, procedures, specifications and details. Apart from

that, the systems were reviewed periodically to meet the project

budget and client satisfaction for execution of specific project with

Reliance Petroleum Limited. Unless and until the specifications,

technical standards and quality management are made available to

the assessee, it cannot execute the project entered into with

Reliance Petroleum Limited. Therefore, this decision of Authority

For Advance Rulings also may not be of any assistance to the

assessee.

considered opinion that the technical knowledge, expertise,

knowhow, provided by Foster Wheeler USA were very much made

available to the assessee. Hence, the assessee is liable to deduct

tax while making payment. Therefore, the assessee is also liable to

pay interest under Section 234a and 234B of the Act. Accordingly,

this Tribunal do not find any reason to interfere with the order of the

lower authority and the same is confirmed.

34 I.T.A. No.774/Mds/14 I.T.A. No.641/Mds/15

Order pronounced on 5th February, 2016 at Chennai.

sd/- sd/- (ए. मोहन अलंकामणी) (एन.आर.एस. गणेशन) (A. Mohan Alankamony) (N.R.S. Ganesan) लेखा सद�य/Accountant Member �या�यक सद�य/Judicial Member

चे�नई/Chennai, �दनांक/Dated, the 5th February, 2016.

Kri.

आदेश क� ��त�ल�प अ�े�षत/Copy to: 1. अपीलाथ�/Appellant 2. ��यथ�/Respondent 3. DRP 4. CIT (International Taxation), Chennai 5. �वभागीय ��त�न�ध/DR 6. गाड� फाईल/GF.