By Geeta Jani, Dhishat B. Mehta
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Tribunal News
Geeta Jani, Dhishat B. Mehta
Chartered
Accountants
Part C : Tribunal & AAR International Tax Decisions
1. TVS Motor Co. Ltd. v. ITO
(2010) 35 SOT 230 (Chennai)
Articles 7, 13, India-UK DTAA
A.Ys. : 2001-02 and 2002-03
Dated : 18-9-2009
On facts, where technical knowledge, etc. was ‘made
available’, fees paid held taxable in terms of Article 13(4)(c) of India-UK DTAA.
Facts :
The appellant is an Indian company manufacturing
motorcycles. The appellant engaged a UK company (UK Co) for two projects.
Under first project, UK Co was to :
à
fully document and make available future design solutions to the appellant;
à encourage
active participation of engineers of the appellant and share relevant
information with them; and
à provide
specific training to engineers of the appellant in test techniques and
procedures.
Under the second project, UK Co was to carry out
appraisal of motorcycles manufactured by the appellant. UK Co had extensive
experience of product development, including use of experimental and analytical
techniques, to improve the dynamic behavior (ride, handling, vibration, etc.) of
vehicle system.
The appellant filed returns of income for UK Co as
a representative assessee and claimed that the fees for technical services
received by UK Co were exempt particularly in terms of provisions of India- UK
treaty. The AO rejected the claim and concluded that the income was taxable in
India. On appeal, the CIT(A) confirmed the AO’s order.
Before the Tribunal, the appellant contended that :
à UK Co did not
provide any technical know-how, plan or design;
à UK Co was in
business of testing vehicles and it did not have PE in India;
à the appellant
had sent the prototype machines to UK Co in UK;
à UK Co merely
carried out the tests and no technical knowledge, experience, skill,
know-how or processes were ‘made available’ (in terms of Article 13(4)(c) of
India-UK DTAA) by UK Co to the appellant;
à no ‘development
and transfer of a technical plan or design’ had occurred;
à the payments
were towards business income covered by Article 7 and not royalties or fees
for included services in terms of Article 13; and
à
in terms of Article 7, business profits cannot be taxed in India, if UK Co
does not have PE in India as the entire services were rendered only in UK.
The tax authorities contended that from perusal of
the contract between the appellant and UK Co, particularly ‘Objectives’ and
‘Project Scope and Technical Content’, UK Co had ‘made available’ technical
knowledge, experience, skill, know-how or processes to the appellant and hence,
the payments were covered by Article 13(4)(c) of India-UK DTAA.
As regards the first project, the Tribunal referred
to ‘Objectives’ and ‘Project Scope and Technical Content’ and observed that UK
Co was to provide training in test techniques and procedures to the appellant’s
staff. UK Co was also to undertake data collection, measurement of dynamic
properties of machineries and to fully document and make available the model to
enable the appellant to investigate future design solutions.
As regards the second project, the Tribunal
observed that UK Co was merely to provide an independent pre-launch evaluation
of the motorcycle.
Held :
On facts, the Tribunal held that in respect of the
first project where UK Co ‘made available’ technical knowledge, experience,
skill, know-how and processes, the payments were fees for technical services
within the meaning of Article 13(4)(c) and were taxable accordingly. As regards
the second project where UK Co merely provided pre-launch independent evaluation
of the motorcycle, no technical knowledge, experience, skill, know-how or
processes was ‘made available’ and hence, it was not taxable.
