2015-VIL-02--DT

Equivalent Citation: [2015] 376 ITR 461 (AAR)

AUTHORITY FOR ADVANCE RULINGS

A.A.R. No 966 of 2010

Date: 29.07.2015

IN RE : MEASUREMENT TECHNOLOGY LIMITED

Vs

For the Petitioner : Shri S.K. Aggarwal, CA, Shri Gaurav Chandok, C.A , Shri Bhuwan Rudra, CA
For the Respondent : Shri Munesh Kumar, CITDR(AAR) , Shri Kanv Bali, Dy CIT- Circle, Gurgaon,

BENCH

Mr V.S. Sirpurkar & Mr. A.K. Tewary, Member, JJ.

JUDGMENT

What is the meaning of “make available”. The technical or consultancy service rendered should be of such a nature that it “makes available” to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without and 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 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 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. In other words, payment of consideration would be regarded as “fee for technology/included services” only if the twin test of rendering services and making technical knowledge available at the same time is satisfied.

9. Besides this for the same view on the concept of ‘make available’ the applicant had relied on the following judgements:-

 Guy Carpenter & Co Ltd 346 ITR 504 (Der)

 Endemol India Private Limited [2014] 361 ITR 340 (AAR – New Delhi)

 Worley Parsons Services Pvt Ltd 313 ITR 74 (AAR)

 Shell Technology India Private Limited [(2012) 345 ITR 206(AAR)]

 DIT vs WNS Global Services (UK) Ltd [ITA No. 1130 of 2012, Mumbai HC]

 Wokhardt Ltd vs ACIT [(2011) 10 Taxmann.com 208 (Mum ITAT)]

 Sandvik Australia Pty Ltd vs DDCIT [ITA No.93/PNB/2011 (Pune ITAT)]

 RR Donnelley India Outsource Private Limited [AAR No.883 of 2010]

 Joint Accreditation System of Australia and New Zealand [2010-TII-28-ARA-INTL]

10. In respect of agreement No. 2 also the applicant is of the view that procurement services do not meet the criteria of ‘making available’ and are not taxable as FTS. The procurement team in the UK, as part of procurement services, looks into the global sourcing requirements of all the raw materials within MTL India. It identifies the best material for MTL India at the best available prices. Such services do not provide any enduring benefit to MTL India or ‘make available’ any technical knowledge, experience, skills, know-how and processes etc.

11. As regards PE, the applicant has mentioned that it does not have any fixed place of business in India. As per Article 5(2)(k) of the India- UK Tax Treaty a services PE of a non-resident is constituted where managerial or other services not covered under Article 13 (Royalty and FTS) are furnished in India through its employees for aggregate period of 30 days in the case of associated enterprises within any 12 month period. The applicant has confirmed that the visit of GD for each of these management and procurement services separately has been for periods less than 30 days in a year. As regards visit of other employees of the applicant, it has been mentioned that it is a question of fact requiring determination of number of days of other visits to India and the Income Tax Department can in the course of assessment proceedings ascertain the facts and determine the applicability of ‘service PE’ under Article 5(2)(k) of India-UK Tax Treaty.

12. As regards royalty, the applicant has mentioned that the services provided under two agreements mentioned above are routine in nature and do not lead to creation of an intellectual property and, therefore, does not fall within the purview of information concerning industrial, commercial or scientific experience in order to qualify as ‘royalty’ as per the provision of Article 13 of India-UK Tax Treaty.

13. The Revenue has argued that the services provided are in the nature of assistance to MTL India and managerial services provided to manage day to day general and administrative functions. According to the Revenue the applicant is providing management consultancy through the analysis of existing organizational problems and development of plans for improvement. As the applicant is providing knowledge and experience of global standardization to MTL India, Revenue is of the view that such professional services imbued with expertise would be regarded as technical service. Revenue has relied on the ruling given in Intertek Testing Services, in Re (2008) (307 ITR 418) where it was held that the term ‘technical’ ought not to be confined only to technology relating to engineering, manufacturing or other applied sciences. Revenue has further relied upon GVK Industries (228 ITR 564) wherein it was held that the advice given by financial consultancy firm on the modalities of procuring loans shall be regarded as technical and consulting services. As regards applicability of ‘make available’ clause, the Revenue has stated that the applicant renders the consultancy services by analyzing the project and submitting a detailed report thereon which contain technical details and plans which are made available to MTL India.

14. As regards PE, the Revenue has offered no comments saying that it is a question of facts and such facts can be ascertained only during the course of assessment proceedings.

15. Without prejudice of the stand taken in respect of FTS as mentioned above, the Revenue has also mentioned that the strategy developed by the applicant and implemented by MTL India also partakes the character of royalties under Article 12(3)(a) being payment for the use of plan, or for information concerning industrial, commercial or scientific experience. According to the Revenue the information provided by the applicant (like accounting policies, HRD policies, market researches, bank information etc) is its proprietary information which the applicant would not share with any other person or is available in public realms.

16. We have carefully gone through the submissions made by the applicant and Revenue and the arguments put forward by them during the course of hearing. We have to consider whether services provided by the applicant to MTL India under the two agreements are in the nature of FTS or not under the India-UK Tax Treaty. We notice that India-UK Tax Treaty dated 11th November, 1981 was amended w.e.f. 11th February, 1994. Under Article 13(4) of the Treaty dated 11th November, 1981 the FTS meant 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 personnel services mentioned in Article 15 (Independent Personnel Services), in consideration for services of a managerial, technical or consultancy in nature, including the provision of services of technical or other personnel. The Treaty was amended w.e.f. 11th February, 1994 and ‘managerial services’ was taken out from the ambit of FTS and a clause relating to ‘make available’ was inserted saying that in order to qualify as FTS such services should make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or technical design. Therefore after the amendment effective from 11 February, 1994 managerial services are not covered in the definition of FTS and even the technical or consultancy services, if they do not meet the criteria of ‘make available’, cannot be treated as FTS. In this case the services provided by both agreements are managerial in nature only. The services under agreement No.1 relate to review by GD and general guidance given by him on financial, operational, human resource, setting up targets and performance appraisal related matters. GD is providing these services from the UK mainly, his visits during a year are generally for short duration having aggregate number of days of visit in a year never exceeding 30 days. The applicant has provided sample e-mails sent by GD to MTL India which show that his services generally related to human resource matters, cost control, fund management, quality and design reviews etc. These are routine managerial activities and cannot be classified as technical or consultancy services. This authority had ruled in the case of Invensys Systems (supra) that even though some of the services may have the trappings of technical or consultancy service, looking at the nature and the predominant nature of the services, they primarily fall under the category of managerial services. Similar is the case in respect of services provided by GD. Moreover, by providing such services he is not making available any technical knowledge of enduring benefit in nature which would enable employees of MTL India to apply them on their own in future.

17. We have also analyzed the procurement services provided through agreement No.2. The procurement team travels to different countries to visit suppliers and distributors to determine the best price that would be available to entire MTL Group including MTL India. These types of services can never be classified as technical or consultancy in nature and surely are not making available any technical knowledge, experience, know-how etc. The reliance of the Revenue on the rulings in the case of Intertek Testing Services (supra) and GVK Industries (supra) is misconceived and out of place.

18. As regards PE the Revenue has not offered any comments in the absence of facts but the applicant has stated that GD has never visited India for more than 30 days in a year and, therefore, his visit would not constitute a ‘service PE’. As regards visits by other employees, the applicant has also agreed that the Income-tax Department may ascertain the facts in the course of assessment proceedings and determine the applicability of Article 5(3)(k) of the India-UK Tax Treaty.

19. The Revenue has given an alternative argument that services provided may be covered under ‘Royalties’ because various services provided by the applicant are of commercial experience which involved confidential information or experience from commerce, business, science or industry. This is a very far-fetched argument because services provided under both agreements are general and routine in nature and do not create any intellectual property. It cannot even be imagined that rendering of such services would qualify as ‘Royalties’ as per the provisions of Article 13 of the India-UK Treaty.

20. After careful consideration of the issues involved we are of the view that the questions raised should be answered in favour of the applicant as under:-

(1) The amount received by the applicant for services rendered as per agreement No.1 is not chargeable to tax in India as per the provisions of the India-UK Tax Treaty.

(2) In view of answer to question No.(1) above, this question does not arise.

(3) The amount received for services rendered as per agreement No.2 is not chargeable to tax in India as per the provisions of the India-UK Treaty.

(4) In view of answer to question No.(3) above, this question does not arise.

The Ruling is accordingly given and pronounced on this day of 29th July, 2015.

 

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