|CORAM:||A. T. Varkey (JM), R. S. Syal (AM)|
|SECTION(S):||Article 13(4), Article 15|
|GENRE:||Domestic Tax, International Tax|
|CATCH WORDS:||Fees for technical services, independent personal services, make available|
|DATE:||July 8, 2015 (Date of pronouncement)|
|DATE:||July 27, 2015 (Date of publication)|
|FILE:||Click here to download the file in pdf format|
|Articles 13 & 15 of DTAA: Law on whether if a sum cannot be assessed as "fees for technical services" under the "make available" clause of Article 13, it can still be assessed as "Independent personal services" under Article 15 explained|
(i) The expression ‘make available’ in the context of ‘fees for technical services’ contemplates that the technical services should be of such a nature that the payer of the services comes to possess the technical knowledge so provided which enables it to utilize the same thereafter. The Hon’ble Karnatka High Court in the case of CIT & Ors. Vs. De Beers India Minerals Pvt. Ltd. [2012 (346 ITR 467) (Karn)] has dealt with the concept of ‘make available’ in the context of fees for technical services. It has been held that : “The expression ‘make available’ only means that the recipient of the service should be in a position to derive an enduring benefit and be in a position to utilise the knowledge or know-how in future on his own. By making available the technical skills or know- how, the recipient of the same will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service provider …….”. From the above enunciation of law by the Hon’ble Karnataka High Court, it is palpable that the technical knowledge will be considered as `made available’ when the person acquiring such knowledge is possessed of the same enabling him to apply it in future at his own. If the services are consumed in the provision without leaving anything tangible with the payer for use in future, then it will not be characterized as `making available’ of the technical services, notwithstanding the fact that its benefit flowed directly and solely to the payer of the services,. The Special bench of the tribunal in Mahindra & Mahindra Ltd. VS. DCIT (2009) 122 TTJ (MUM)(SB) 577 has discussed the concept of `make available’. In that case, the lead managers had rendered technical, managerial or consultancy services in the GDR issue, which services were not made available to the assessee inasmuch as the payer only derived the benefit from the technical services provided by the lead managers without getting any technical knowledge, experience or skill in its possession for use in future. In that view of the mater, it was held that the `management and selling commission’ could not be taxed in India as per the DTAA because nothing was made available to the payer. It follows that in order to be covered within the expression ‘make available’, what is necessary is that the service provider should transmit the technical knowledge etc. to the payer so that the payer may use such technical knowledge in future without involvement of the service provider.
(ii) On facts, the technical services provided by the non-resident are simply in the nature of supervisory services by the engineers for erection, commissioning of the plant of M/s Sterlite in Tuticorin. By rendering such services, nothing has been made available by the payee to the assessee/Sterlite, which could be used in future without involvement of such residents of Finland. Once the plant is erected and commissioned, the supervisory engineering services rendered by the Finland residents during the course of such erection and commissioning get consumed in the process and there remains nothing capable of any use in future. Going by the scope of Article 13 vis-à-vis the nature of actual services provided by the payees, it is manifested that such technical services do not fall within the purview of the definition of ‘fees for technical services’ as given in para 4 of this Article, as nothing has been `made available’ by the rendition of technical services for any future use. If the provisions of Article 13 of DTAA are exhausted and it is not the case of the AO that the amount be considered under any other Article of the DTAA, it would mean that albeit the amount is chargeable to tax in the hands of the non-residents as per section 9(1)(vii) read with section 5(2) of the Act, but, the chargeability will be waived because of the inapplicability of Article 13 of the DTAA, which is a more beneficial provision than section 9 read with section 5 of the Act. In that view of the matter, the assessment order considering payment of Rs.1.92 crore to M/s IPS Finland for technical services as violating the provisions of section 195, thereby resulting into disallowance u/s 40(a)(i), cannot be countenanced.
(iii) The assessee’s contention that since the services contracted for the by the assessee with non-residents fall within the meaning of Article 13 but get excluded because of not `making available’ any technical knowledge etc., then such services cannot be once again considered under Article 15 is not acceptable. The precise question is that which of the two Articles, namely, 13 or 15, should have primacy in the facts and circumstances as are instantly prevailing? In our considered opinion, the answer to this question is not too far to seek. Relevant part of Para 5 of Article 13, as reproduced above, unambiguously states that the definition of fees for technical services in paragraph 4 shall not include amounts paid `….. (e) to any individual …. for professional services as defined in Article 15”. When we read para 5 of Article 13 in conjunction with Article 15, there remains absolutely no doubt that the amount payable by the assessee to certain individual residents from Finland is covered only under Article 15 and not Article 13 of the DTAA.
(iv) Delving into the mandate of para 1 of Article 15 of the DTAA, we find that the income derived by a resident of Finland in respect of professional services or other independent activities of a similar character performed in India can be taxed in India if he is present in India for a period or periods aggregating to 90 days or more in the relevant fiscal year or has a fixed base regularly available to him in India for the purpose of performing his activities. It is noticed that the CIT(A) has computed the period of 90 days by considering the presence of these persons in India from 24.11.2008 to 24.4.2009. The AR contended that the CIT(A) has considered total period of stay of all the five persons taken together without considering it on individual basis. We find force in the submission of the ld. AR in this regard. Once it is held that five individuals from Finland were not representing IPS and, in fact, there was no valid agreement between the assessee and IPS, then, what remains to be examined is such five residents of Finland on individual basis. The amounts payable to each of such five persons satisfying the duration test on individual basis would enable the ultimate triggering of Article 15 of the DTAA. In other words, only those Finland residents out of such five persons who independently and individually satisfy the condition about their presence in India for a period of 90 days or more in the relevant fiscal year or having a fixed place regularly available to them in India for the purpose of performing the supervisory functions, can be brought within the purview of Article 15. If, however, this condition is found wanting qua some individuals, then the amount payable to such individual residents of Finland, would cease to be chargeable to tax in terms of Article 15 of the DTAA notwithstanding its taxability under section 9(1)(vii) read with section 5 of the Act.