Fees for technical services: DTAA between India and Netherlands art. 12 r/w. ss. 9 and 90: Indian company prospecting for minerals: Agreement with Netherlands company for conducting geophysical survey and providing data and maps to Indian company: Ownership of data and maps vesting with Indian company: Amount paid by Indian company not assessable in India.

The assesses were private companies engaged in the business of prospecting and mining for diamonds and other minerals. For the purpose of carrying out geophysical survey, the assessee entered into an agreement with a Netherlands company Fugro. For the technical services rendered by them, the assessee paid a consideration. The Assessing Officer treated the consideration as falling within the definition of fees for technical services under article 12 of the DTAA between India and Netherlands r.w.s. 90 of the Income-tax Act, 1961. Alternatively, he also held that the payment in question was for development and transfer of a technical plan or technical design. He, therefore, held that the assessee had failed to deduct tax on the payments made to Fugro and treated the assessee in default. He levied tax u/s. 201(1) and interest u/s. 201(1A) of the Act. The Tribunal allowed the assessee’s appeal and held that Fugro had not developed or transferred any technical plan or design to the assessee so as to attract article 12(5)(b) of the DTAA and that the amount was not assessable in India.

On appeal by the Revenue, the Karnataka High Court upheld the decision of the Tribunal and held as under:

 “i) In terms of the contract entered into with Fugro, Fugro had given the data, photographs and maps, but had not made available technical expertise, skill or knowledge in respect of such collection or processing of data to the assessee, which the assessee could apply independently and without assistance and undertake such survey independently. The technical services provided by Fugro would not enable the assessee to undertake any survey either in the very same area Fugro conducted the survey or in any other area. They did not get any enduring benefit from the survey. In view of the matter, though Furgo rendered technical services as defined under Explanation 2 to section 9(1)(vii), it did not satisfy the requirement of technical services as contained in the DTAA. Therefore, the liability to tax was not attracted.

ii) By way of technical services, Fugro delivered to the assessee the data and information after such operations. The data was certainly made use of by the assessee. Not only the data and information was furnished in the digital form, it was also provided to the assessee in the form of maps and photographs. These maps and photographs which were made available to the assessee could not be construed as technology made available. Fugro had not devised any technical plan or technical design. Therefore, the question of Fugro transferring any technical plan or technical design did not arise in the facts of the case.

 iii) Therefore, the cases did not fall in the second part of clause 15 dealing with development and transfer of plans and designs. Thus, the amount was not taxable in India.”