[2018] 92 taxmann.com 5 (Mumbai – Trib.)
Exxon Mobil Company India (P.) Ltd. vs. ACIT
I.T.A. NO. 6708 (MUM.) OF 2011
A.Y.: 2007-08
Date of Order: 21st February 2018
Facts
The Taxpayer was an Indian member-company of a global group. The
Taxpayer had an affiliate company in Singapore (“Sing Co”), which was providing
global support services to the group member-companies. During the relevant
year, the Taxpayer had made two kinds of payments to Sing Co. One, payment for
Global Information Services and two, global support service fee. Global support
service included management consulting, functional advice, administrative,
technical, professional and other support services.
The Taxpayer treated the first kind of payment as royalty and withheld
tax accordingly. The Taxpayer did not withheld tax from global support service
fee on the footing that Sing Co did not have a PE in India and since the
services were rendered outside India, the payment cannot be considered as
income deemed to accrue or arising in India u/s. 9(1)(i) of the Act.
The Taxpayer submitted that the payment made to Sing Co could not be
considered fees for technical services (“FTS”) and brought within the ambit of
section 9(1)(vii) of the Act. Further, under India-Singapore DTAA only payment
for services which result in transfer of technology could be considered FTS.
The AO observed that the payment made by the Taxpayer was in the nature
of FTS as defined in Explanation 2 to section 9(1)(vii) of the Act since Sing
Co had rendered services which were highly technical in nature and involved
drawing and research. Further, since Sing Co had earned such fees because of
its business connection in India, it was liable to be taxed in India. Hence,
the Taxpayer was required to withhold the tax.
The DRP confirmed the disallowance made by the AO.
Held
– The limited question was whether the payment
made was FTS in terms of Article 12 of India-Singapore DTAA.
– The AO treated the payment made as FTS on the
footing that Sing Co had ‘made available’ managerial and technical services to
the Taxpayer.
– The expression “make available”
also appears in Article 12(4)(b) of India-USA DTAA. It means that the recipient
of such service is enabled to apply or make use of the technical knowledge,
knowhow, etc., by himself and without recourse to the service provider.
Thus, “make available” envisages some sort of durability or
permanency of the result of the rendering of services.
– In CIT vs. De Beers India Mineral (P.)
Ltd. [2012] 346 ITR 467 (Kar.), Karnataka High Court has observed that
“make available” would mean that recipient of the service is in a
position to derive an enduring benefit out of utilisation of the knowledge or
knowhow on his own in future and enabled to apply it without the aid of the
service provider. The payment can be considered as FTS only if the twin test of
rendering service and making technical knowledge available at the same time is
satisfied.
– The agreement between the Taxpayer and Sing
Co had clearly mentioned provision of management consulting, functional advice,
administrative, technical, professional and other support services. There was
nothing in the agreement to conclude that by providing such services, Sing Co
had ‘made available’ any technical knowledge experience, skill, knowhow, or
process which enabled the Taxpayer to apply the technology contained therein on
its own in future without the aid of Sing Co.
– Accordingly, applying the aforesaid twin
tests laid down by Karnataka High Court to the facts of the present case, it cannot be said that the payment made by the Taxpayer was FTSs defined in Article 12(4)(b) of India-Singapore DTAA. 
