Article 12(4) of India-USA DTAA; Explanation 2 to section 9(1)(vii) – as consideration received for rendering on call advisory services in the nature of troubleshooting, isolating problem and diagnosing related trouble and repair services remotely, without any on-site support, did not satisfy make available condition under DTAA, it was not taxable in India.

13. [2018] 98
taxmann.com 458 (Delhi) Ciena Communications India (P.) Ltd vs. ACIT Date of
Order: 27^th September, 2018 A.Ys.: 2012-13 to 2014-15

Article 12(4) of India-USA DTAA; Explanation 2 to section 9(1)(vii) – as
consideration received for rendering on call advisory services in the nature of
troubleshooting, isolating problem and diagnosing related trouble and repair
services remotely, without any on-site support, did not satisfy make available
condition under DTAA, it was not taxable in India.

Facts

Taxpayer, an
Indian company, was engaged in the business of providing Annual Maintenance
Contract (‘AMC’) services and installation, commissioning services for
equipment supplied by its associated enterprises (“AEs”) to customers in India.

In relation to
such services, Taxpayer entered into an agreement with its US AE. In terms of
the agreement, the US AE was required to provide remote on-call support
services and emergency technical support services to facilitate Taxpayer in the
maintenance and repair of the equipment supplied to the customers in India.
These services were rendered by the US AE remotely from outside India. In some
cases, the equipment supplied to the customers in India was also shipped to the
US by the Taxpayer for undertaking repairs by the US AE.

Taxpayer
contended that the services rendered by US AE did not make available any
technical knowledge or skill. Further, as the services were rendered outside
India, there was no PE of the US AE in India and hence the payment made to US
AE was not taxable in India. 

However, AO held that the services rendered by non-resident AE made
available technical knowledge, experience or skill and hence qualified as FTS
under the India US DTAA. 

Therefore, the
Taxpayer appealed before the CIT(A) which upheld AO’s order. Aggrieved, the
Taxpayer appealed before the Tribunal.

Held

·        
            Article
12 of India-USA DTAA provides that payment made for technical services
qualifies as fee for included services (FIS), if such services make available
technical knowledge and skill to the recipient of service, such that the
service recipient is enabled to use such knowledge/skill on its own.

·        
            Services
provided by AE to Taxpayer involved provision of assistance in troubleshooting,
isolating the problem and diagnosing related trouble and alarms and equipment
repair services. These services were provided remotely outside India and no
on-site support services were rendered in India. Although, the technical
knowledge or skill was used by the US AE for rendering of the services, it did
not make available any technical knowledge or skill to the Taxpayer.

·        
            Thus,
the amount paid by Taxpayer to the US AE did not qualify as FIS and hence, it
was not taxable in India as per Article 12 of India US DTAA.