(2009) 33 SOT 220 (Mum.)
Articles 7, 12, India-USA DTAA
A.Y. : 1998-99. Dated : 3-7-2009
Issue :
On facts, certain services rendered from outside India were
not made available and hence, the consideration was not FIS under Article 12.
Also, such offshore services could not be linked to PE in India for
determining income attributable to the PE.
Facts :
The appellant was a tax resident of USA. It had entered
into a VSAT Agreement with an Indian company to provide Satellite Network
Communication System together with the installation and commissioning services
associated with the initial installation. During the relevant year, the
appellant earned income from various sources. It furnished item-wise detail of
the income and also the reasons for taxability or non-taxability of such
income. The appellant contended that two items of income – Project Management
& Engineering Support and Factory Acceptance Tax (‘PMES&FT’) were not taxable
because they pertained to the provision of administrative and technical
services from outside India which were provided to facilitate timely execution
of the project. Further, although such services were technical they were not
‘fees for included services’ (‘FIS’) under Article 12 of India-USA DTAA as
they did not make available any technical knowledge, experience, etc. Hence,
the income from these services would qualify as ‘business income’ and would be
governed by Article 7. The appellant stated that even though it had PE in
India for rendering installation services, income from PMES&FT was not
attributable to that PE as the services were not performed in India.
The AO did not accept contentions of the appellant. After
discussing the nature of the services in his order, the AO held that these
‘hybrid services’ were performed by the appellant to provide Satellite Network
Communication System. He further observed that when a series of technical
works/services were performed to achieve a desired result, the nature of such
works/services should be analysed in connection with the end results. He held
that, alternatively, PMES&FT consisted of development and transfer of a
technical plan or technical design. The AO concluded that in either case, the
services were in the nature of FIS subject to Article 12 of India-USA DTAA and
taxable @15%.
In appeal, the CIT(A) held that: the appellant did not make
available technology, skill, etc.; the services were inextricably and
essentially linked to the supply of equipment and should therefore take the
same character as the supply of the equipment. He also noted that since PMES&FT
services were not FIS, the income would be ‘business income’ and under Article
7, only income relatable to PE could be taxed in India. Therefore, he held
that as the services were performed outside India, income from those services
was not attributable to the PE.
Held :
To understand scope and meaning of the term ‘make
available’, the Tribunal referred to the decisions in Intertek Testing
Services India P. Ltd., In re (2008) 307 ITR 418 (AAR) and Mahindra &
Mahindra Ltd. v. DCIT, (2009) 30 SOT 374 (Mum.) (SB) and observed that the
AO had interpreted ‘make available’ in an erroneous manner. It held that by
rendering PMES&FT services from outside India, the appellant did not ‘make
available’ any technical knowledge, skill etc. and as such Article 12 did not
apply. Hence, the consideration cannot be treated as FIS.
Where a taxpayer has a PE in India, under Article 7(1),
business profits can be taxed in India only to the extent they are
attributable to the PE in India. As the consideration was received for
rendering services outside no part of the services rendered from outside India
could be linked to the PE in India for determining income attributable to the
PE in India.
