INTERNATIONAL MANAGEMENT GROUP (UK) LIMITED vs COMMISSIONER OF INCOME TAX-2 INTERNATIONAL TAXATION, NEW DELHI
* IN THE HIGH COURT OF DELHI AT NEW DELHI
% Judgment reserved on: 21 March 2024
Judgment pronounced on: 03 July 2024
+ ITA 218/2017
INTERNATIONAL MANAGEMENT GROUP
(UK) LIMITED ….. Appellant
Through: Mr. Ajay Vohra, Sr. Adv. with
Mr. Prakash Kumar, Ms. Rashmi Singh, Advs.
Versus
COMMISSIONER OF INCOME TAX-2, INTERNATIONAL TAXATION, NEW DELHI ….. Respondent
Through: Mr. Kunal Sharma, Senior
Standing Counsel with Ms
Zehra Khan, Mr. Shubhendu
Bhattacharyya and Mr. Ankit
Choudhary, Advocates
+ ITA 1013/2018
INTERNATIONAL MANAGEMENT GROUP
(UK) LIMITED ….. Appellant
Through: Mr. Ajay Vohra, Sr. Adv. with
Mr. Prakash Kumar, Ms. Rashmi Singh, Advs.
Versus
COMMISSIONER OF INCOME TAX-2 INTERNATIONAL TAXATION, NEW DELHI ….. Respondent
Through: Mr. Kunal Sharma, Senior
Standing Counsel with Ms
Zehra Khan, Mr. Shubhendu
Bhattacharyya and Mr. Ankit
Choudhary, Advocates
+ ITA 1055/2018
INTERNATIONAL MANAGEMENT GROUP
(UK) LIMITED ….. Appellant
Through: Mr. Ajay Vohra, Sr. Adv. with
Mr. Prakash Kumar, Ms. Rashmi Singh, Advs.
Versus
COMMISSIONER OF INCOME TAX-2, INTERNATIONAL TAXATION, NEW DELHI ….. Respondent
Through: Mr. Kunal Sharma, Senior
Standing Counsel with Ms
Zehra Khan, Mr. Shubhendu
Bhattacharyya and Mr. Ankit
Choudhary, Advocates
+ ITA 986/2018
INTERNATIONAL MANAGEMENT GROUP
(UK) LIMITED ….. Appellant
Through: Mr. Ajay Vohra, Sr. Adv. with
Mr. Prakash Kumar, Ms. Rashmi Singh, Advs.
Versus
COMMISSIONER OF INCOME TAX-2 INTERNATIONAL TAXATION, NEW DELHI ….. Respondent
Through: Mr. Kunal Sharma, Senior
Standing Counsel with Ms
Zehra Khan, Mr. Shubhendu
Bhattacharyya and Mr. Ankit
Choudhary, Advocates
+ ITA 993/2018
INTERNATIONAL MANAGEMENT GROUP
(UK) LIMITED ….. Appellant
Through: Mr. Ajay Vohra, Sr. Adv. with
Mr. Prakash Kumar, Ms. Rashmi Singh, Advs.
Versus
COMMISSIONER OF INCOME TAX-2, INTERNATIONAL TAXATION, NEW DELHI ….. Respondent
Through: Mr. Kunal Sharma, Senior
Standing Counsel with Ms
Zehra Khan, Mr. Shubhendu
Bhattacharyya and Mr. Ankit
Choudhary, Advocates
+ ITA 381/2019
INTERNATIONAL MANAGEMENT GROUP
(UK) LIMITED ….. Appellant
Through: Mr. Ajay Vohra, Sr. Adv. with
Mr. Prakash Kumar, Ms. Rashmi Singh, Advs.
Versus
COMMISSIONER OF INCOME TAX -2 INTERNATIONAL TAXATION, NEW DELHI ….. Respondent
Through: Mr. Kunal Sharma, Senior
Standing Counsel with Ms
Zehra Khan, Mr. Shubhendu
Bhattacharyya and Mr. Ankit
Choudhary, Advocates
+ ITA 997/2019
INTERNATIONAL MANAGEMENT GROUP
(UK) LIMITED ….. Appellant
Through: Mr. Ajay Vohra, Sr. Adv. with
Mr. Prakash Kumar, Ms. Rashmi Singh, Advs.
Versus
COMMISSIONER OF INCOME TAX-2, INTERNATONAL TAXATION, NEW DELHI ….. Respondent
Through: Mr. Zoheb Hossain, SSC with
Mr. Sanjeev Menon, Adv.
+ ITA 175/2021
INTERNATIONAL MANAGEMENT GROUP
(UK) LIMITED ….. Appellant
Through: Mr. Ajay Vohra, Sr. Adv. with
Mr. Prakash Kumar, Ms. Rashmi Singh, Advs.
Versus
COMMISSIONER OF INCOME TAX-2 INTERNATIONAL TAXATION, NEW DELHI ….. Respondent
Through: Mr. Zoheb Hossain, SSC with
Mr. Sanjeev Menon, Adv.
+ ITA 4/2023
INTERNATIONAL MANAGEMENT GROUP
(UK) LIMITED ….. Appellant
Through: Mr. Ajay Vohra, Sr. Adv. with
Mr. Prakash Kumar, Ms. Rashmi Singh, Advs.
Versus
COMMISSIONER OF INCOME TAX -2, INTERNATIONAL TAXATION, NEW DELHI ….. Respondent
Through: Mr. Zoheb Hossain, SSC with
Mr. Sanjeev Menon, Adv.
CORAM:
HON’BLE MR. JUSTICE YASHWANT VARMA
HON’BLE MR. JUSTICE PURUSHAINDRA KUMAR KAURAV
J U D G M E N T
YASHWANT VARMA, J.
S. No.
Particulars
Paragraph Nos.
A.
PREFACE
1 22
B.
IMGS CHALLENGE
23 36
C.
CONTENTIONS OF THE RESPONDENTS
37 56
D.
THE CONTRACT STRUCTURE
57 66
E.
THE ARTICLE 5(2)(k) QUESTION
67 71
F.
BIFURCATION OF INCOME- WHETHER SUSTAINABLE?
72 83
G.
THE FTS ISSUE
84 101
H.
ARTICLE 13(6) AND EFFECTIVE CONNECTION
102 108
I.
THE SECTION 9(1)(vii) EXCEPTION
109 119
J.
CONCLUSIONS
120 124
K.
DISPOSITIF
125
A. PREFACE
1. This set of appeals instituted by the International Management Group (UK) Limited [hereinafter to be referred as IMG], impugn the decisions rendered by the Income Tax Appellate Tribunal1 on appeals spanning Assessment Years2 2010-11 to 2018-19. The appeals had been formally admitted on the following three principal questions of law: –
(i) Did the ITAT err in holding that the business income was divisible under the India-UK DTAA, though it arose out of a single contract having regard to Articles 7 and 13 of India-UK DTAA?
(ii) Whether the ITAT erred in holding that services provided by IMG to BCCI under the Service Agreement dated 24.9.2009 qualify as fee for technical services in terms of Article 13(4)(c) of the DTAA between India and UK?
(ill) Alternatively, in case answer(s) to above two questions are in negative; whether the income determined as FTS can be deemed to accrue or arise in India in terms of Section 9(vii)(b) of Income Tax Act, 1961, especially when services provided by IMG, during the relevant year, were utilized by BCCI outside India?
2. The said questions as they arise in this batch have been set out succinctly in a tabular statement which forms part of the written submissions tendered by the appellant and is extracted hereinbelow:-
S.No.
AY
ITA No.
Relevant Question of law
IPL Event venue
1
2010-11
218/2017
Para 9 (i), (ii) and (iii) above
South Africa
2
2011-12
986/2018
Para 9 (i) and (ii) above
India
3
2012-13
993/2018,
Para 9 (i) and (ii) above
India
4
2013-14
1013/2018
Para 9 (i) and (ii) above
India
5
2014-15
1055/2018
Para 9 (i) and (ii) above
India
6
2015-16
381/2019
Para 9 (i), (ii) and (iii) above
United Arab Emirates
7
2016-17
997/2019
Para 9 (i) and (ii) above
India
8
2017-18
175/2021
Para 9 (i) and (ii) above
India
9
2018-19
4/2023
Para 9 (i) and (ii) above
India
3. As would be manifest from a perusal of the aforesaid table, the solitary distinctive feature concerning ITA 218/2017 and ITA 381/2019 is the fact that the Indian Premier League3 in those years had been held outside India and more particularly in South Africa and the United Arab Emirates respectively.
4. The issue itself arises in the backdrop of a Memorandum of Understanding4 entered into between IMG and the Board of Control for Cricket in India5 on 13 September 2007 and a separate Services Agreement dated 24 September 2009. Those agreements pertained to the advisory and managerial service to be provided by IMG for establishment, commercialization and operation of the IPL. For the purposes of brevity, we propose to notice the salient facts as they obtain in ITA 1013/2018 and which pertains to a year in which the league was held in India and ITA 218/ 2017 and which relates to the league held in South Africa. We do so since ITAs 218/2017 and 318/2019 raise an additional aspect pertaining to Section 9(1)(vii)(b) of the Income Tax Act, 19616 and which was invoked by the appellant in the backdrop of the event having been held outside India and thus, according to them, not being exigible to tax since it represented the rendering of service to an Indian payer outside the country.
5. The appellant had consistently taken the stand before the authorities below that the income earned by it and in terms of the Services Agreement would constitute business income and thus be taxable to the extent envisaged under Article 7 of the India United Kingdom Double Taxation Avoidance Agreement7. It appears to have been asserted that only such of the receipts as would be attributable to a Permanent Establishment8 in India would be taxable. It appears to have been the admitted position between the parties that IMG had a Service PE as contemplated under Article 5(2)(k) of the DTAA in all the relevant AYs. The attribution of income to the PE was explained by way of the following table: –
AY
ITA No.
Total Receipts
Receipt attributed to PE
Treated as FTS (INR)
Amount (INR)
%
2010-11
218/2017
33,00,00,000
9,22,49,819
28
23,77,50,181
2011-12
986/2018
27,00,00,000
19,58,26,586
73
7,41,73,414
2012-13
993/2018,
28,00,00,000
21,48,45,495
77
6,51,54,505
2013-14
1013/2018
28,00,00,000
20,99,17,301
75
7,00,82,699
2014-15
1055/2018
28,00,00,000
21,16,65,921
76
6,83,34,079
2015-16
381/2019
27,00,00,000
17,00,87,645
63
9,99,12,355
2016-17
997/2019
27,00,00,000
20,54,26,724
76
6,45,73,276
2017-18
175/2021
34,54,98,001
26,87,40,992
78
7,67,57,010
2018-19
4/2023
27,90,95,068
22,13,61,792
79
5, 77,33,276
6. The Dispute Resolution Panel9 as well as the Tribunal, however, have essentially come to hold that quite apart from the income which was attributable to the Service PE of IMG, the balance receipts would be liable to tax under Article 13 of the DTAA being Fee for Technical Services10. It is in the aforesaid backdrop that we had admitted these appeals on the questions of law extracted hereinabove.
7. As would be evident from the record of ITA 1013/2018 for IPL 2012, IMG had received INR 28,00,00,000/- from BCCI. Adopting the profit split method prescribed under the Indian Transfer Pricing Regulations, it had attributed revenue of INR 20,19,17,301/- to the Indian PE. The net income of INR 7,83,66,521/- attributable to activities undertaken in India had been offered to tax on net income basis in accordance with the provisions of Section 44DA of the Act read along with the provisions of Article 7 of the DTAA.
8. The remaining revenue of INR 7,00,82,699/-, according to IMG, pertained to work done outside India and thus not attributable to the PE and consequently not liable to be taxed. Aggrieved by the draft assessment order which was framed for that year and in terms of which the Assessing Officer11 had taken the position that receipts of INR 7,00,82,699/- received for work done outside India was liable to be taxed as FTS, objections came to be filed before the DRP. It appears to have been principally contended that the aforesaid revenue would not constitute FTS and would even otherwise be liable to be examined in light of Article 13(6) of the DTAA. It becomes pertinent to note that Para 6 of Article 13 provides that Articles 13(1) and 13(2) would be inapplicable if FTS were received by a beneficial owner consequent to carrying on of business in the other Contracting State through a PE situate therein and the right, property or contract in respect of which FTS was earned is effectively connected with such a PE. In that event, FTS, as per Article 13(6) stands exorcised from that provision of the Convention and is liable to be taxed in accordance with Article 7 or Article 15 of the DTAA as the case may be.
9. Dealing with the aforesaid submissions, the DRP upon a consideration of the terms and stipulations comprised in the Services Agreement came to hold that the income of INR 7,00,82,699/- was liable to be treated as FTS. While dealing with this aspect, it held as under: –
To our mind even a bare perusal of the provisions of the agreement supra will show that the requirements of Article 13 are more than met as spelled out in greater detail hereunder.
i) IMG having carried out the research has advised the BCCI in connection with the formation and governance of the League and IPL, thus making available to it technical knowledge, experience, skill1 know-how or processes.
ii) IMG has assisted the BCCI in connection with and made available to it technical knowledge, experience, skill, know-how or processes for formulating the structure of the League; the League rules and regulations; the Franchise agreements and any necessary franchise regulations; the League implementation budget; and the Media Rights agreements. All of these have made available technical knowledge, experience, skill, know-how or processes and even after the agreement lapses they would continue to be available to and available with the BCCI for such use as they deem appropriate.
iii) The IMG have also made available technical knowledge, experience, skill, know-how or processes for the ongoing execution of the management in respect of the Rights of BCCI and advice in connection with Franchise Rights; Media Rights; sponsorship rights; official suppliership rights licensing and merchandising rights; stadium signage rights; and any other rights in relation to the league that may come-up for leverage by BCCI in the future.
In framing the Franchisees and rights agreements, and preparation and execution of marketing strategies for and advice in connection with any ongoing tender process in respect of Franchise Rights; IMG have made available technical. knowledge, experience, skill, know-how or processes. Yet again it bears reiteration that all of these technical/consultancy services will be available to BCCI even after the agreement lapses and they would continue to be available to BCCI in the form of Franchise, Media, sponsorship, official suppliership, licensing and merchandising rights stadium signage rights and available with the BCCI for such use as they deem appropriate for all times to come.
iv) IMG assists BCCI in the preparation of a television production specification, the development of best practice match day guidelines for Franchisees and supervision in respect of their execution the development of best practice match day media guidelines and supervision in respect of their execution; advice, and assistance in connection with the development of any relevant stadia and the finance which may be necessary in connection therewith and, if requested, the introduction to the BCCI of third parties who are involved in the redevelopment of stadia;
In rendering the above technical/consultancy services taxpayer has made available technical knowledge, experience, skill, know-how or processes. The best practice match day guidelines, and match day media guidelines will be available to BCCI even after the agreement lapses for such use as they deem appropriate for all times to come and result in the transfer of a technical plan.
(iv) advice and assistance in connection with the rules and regulations relating to the registration, trading and auction of Players; the creation of and advice and assistance with the look and feel elements in relation to the BCCI Marks generally and, in particular, at any relevant Stadia the provision of hospitality guidelines in relation to the League and implementation of hospitality in the latter case in a manner to be mutually discussed and agreed;
the provision of a league handbook;
advice and assistance in connection with the Player contracts;
the establishment and maintenance of the Player registration system;
the management of the annual Player trading window;
(v) Advice and assistance in connection with Anti-Doping and WADA Compliance Regulations; Assistance in the creation / development of new intellectual properties relating to the League and all such properties created will be the sole property of BCCI; and will vest with BCCI.
(vi) Carrying out research in consultation with BCCI each year to ascertain improvements in various areas of management and execution of the League; Development of the strategic brand framework for BCCI and manage brand IPL working with the BCCI team; and bringing in global best practices in building and evaluating sporting properties and related aspects and delivering a post event report at the end of each season. Yet again it bears reiteration that all of these aforementioned technical/consultancy services have made available tangible, technical knowledge, experience, skill, know-how or processes, and in some cases technical plans which will be available to BCCI even after the agreement lapses in the form of the rules and regulations relating to the registration, trading and auction of Players; the creation of BCCI Marks and look and feel of relevant Stadia, the provision of hospitality guidelines in relation to the League and the League handbook, the Player contracts frameworks; the establishment and maintenance of the Player registration system; the management of the annual Player trading window; and the Anti-Doping and WADA Compliance Regulations; the development of new intellectual properties relating to the League and all such properties are the sole property of BCCI; and they would continue to be available to and available with the BCCI for such use as they deem appropriate for all times to come.
(vii) Provision of the requisite manpower that is required to carry out such activities as are within IMG’s control in connection with the successful running of the league and Matches including the provision of a fully staffed office to do the same, at the sole cost of IMG; the hiring of whatever resources are required to fully perform IMG’s obligations under this Agreement at the sole cost of IMG which too is covered by Article 13 of the India UK DTAA which states that fees for technical services mean payments of any kind of any person inconsideration for the rendering of any technical or consultancy services including the provision of technical or other personnel.
It is thus that DRP has no hesitation in holding that the requirements of S 9(1)(vii) of the Act and Article 13 of the India UK DTC are more than met by the Services rendered under the Services Agreement dated 24.09.2009 for which the fees received are brought to tax as FTS by the assessing officer.
10. It then proceeded to evaluate the contention of IMG and which appears to have asserted that since the services were rendered outside India, the revenue was not liable to be taxed as FTS. It appears to have urged that for the purposes of revenue being taxable in India, it was incumbent for the authorities to have found on fact that service had been rendered in India. The aforesaid argument, however, came to be negated by the DRP which took note of the Explanation which had come to be inserted in Section 9(1) by virtue of Finance Act, 2010 with retrospective effect from 01 June 1976 and which, according to it, had erased the requirement of actual rendition of service in India being a prerequisite for the purposes of taxation.
11. Insofar as this aspect is concerned, the DRP observed as follows:-
2.7 Whether Services being performed by non-resident taxpayers outside India and having been rendered from outside India are taxable as FTS
Taxpayers Arguments
1. However, the Hon’ble DRP made a patent error of low by attributing such receipts to the PE though the same to pertained to work outside India. Further, the taxation of the receipts as FTS was only directed on a protective basis in the direction passed by the Hon’ble DRP.
2. While dealing with the interpretation of Article 7 of the India-UK DTAA, the Special Bench of Income 1ox Appellate Tribunal Mumbai in the case of Clifford Chance {33 taxamann.com 200} {2013} has held that the receipts for work done outside India cannot be attributed to the PE under Article 7 of the India-UK DTAA.
3. It is submitted that the receipts of INR 7,00,82,699 for work done outside India cannot be attributed to the PE on account of the following reasons:
– The attribution to the PE has been done by the assessee on the basis of a transfer pricing report capturing the Functions, Assets and Risk analysis and is in accordance with the international principles of attribution.
– The Ld. AO has also referred the matter to the Ld TPO and the LD. TPO has accepted that the receipts attributed to the PE are at arm’s length.
Given this aspect, the question of attributing the receipts of INR 7,00,82,699 for work done outside India to the PE does not arise at all.
The taxpayer has relied heavily on the decision in the case of Clifford Chance. In Clifford Chance’s own case in a previous year the Bombay High Court (HC) had held that the rendition of services in India was an essential condition for its taxability in India. After a retroactive amendment in the Income Tax Statute whereafter income by way of fee for technical services could be taxed in India even if the services were rendered from outside India (Finance Act (FA) 2010 introduced an Explanation in the deeming provisions of the Indian Tax Lows (ITL) retroactively from 1 June 1976 that income from interest, royalty or fee for technical services (FTS) earned by a non-resident (NR) would be taxable in India irrespective of the place from where the services ore rendered) Tribunal in the case of Linklaters LLP held that owing to the retroactive amendment, the decision of the Bombay HC was no longer good law. The SB was therefore constituted to decide these – two issues viz impact of retroactive amendment to the assessment of the Taxpayer and the scope of attribution of income which is indirectly attributable to a permanent establishment (PE).The decision of the SB is thus limited to the two questions that were placed before it. It may not be considered to have ruled on controversies that may arise if income is considered as Fees for Technical Service. The decision of Clifford Chance supra is thus entirely irrelevant to the facts of this case. Nippon Kaiji Kyokoi is also distinguishable on fact.
This question regarding taxability of FTS rendered from abroad is now unequivocally answered in favour of Revenue by the Apex Court in Supreme Court decision in GVK Industries Ltd & Anr [TS-61-SC-2015]. Apropos the reliance placed by the taxpayer on the direction issued by the DRP is not only the subject matter of an appeal, as pointed out by the AO at para 13 of the Draft Assessment order but is superceded by the decision of the Hon’ble Supreme Court.
Taxpayers arguments in GVK Industries Ltd & Anr [TS-61-SC-2015]
In its affidavit, taxpayer GVK Industries Ltd contended that the NRC was an independent unit and was, in a way, subsidiarised by ABB. That apart, merely because expert advice was obtained, it could not be said that it pursued the application for loan/financial assistance on behalf of NRC and further the advisory services were rendered from outside India. The assessee also contended that ‘the NRC did not render any technical or consultancy service to the company but only rendered advise in connection with payment of loan by it and hence, it would not amount to technical or consultancy service within the meaning of Sec. 9(1)(vii)(b).
The High Court (HC) in GVK Industries Ltd held that assessee was not entitled to the NOC. Referring to the decision in case of ‘Electrical Corporation of India Ltd Vs CIT’, the HC dismissed the writ petition. Aggrieved, assessee preferred an appeal before the Apex Court. Referring to the Principles in decisions in case of ‘C.I.T. V. Aggarwal and Company'[(1965) 56 ITR 20], ‘C.I.T. v. TRC [(1987) 166 ITR 1993] and ‘Birendra Prasad Rai V. ITC (1981) 129 ITR 295], Supreme Court (SC) noted that the singular question that remained to be answered was whether the payment or receipt paid by the appellant to NRC as success fee would be deemed to be taxable in India u/s. 9(1)(vii).
The Hon’ble Supreme Court observed that clause (b) of sec. 9 (l)(vii) lays down the principle of what was basically known as the source rule i.e., income of the recipient to be charged or chargeable in the country where the source of payment is located, to clarify, where the payer is located. Therefore, deduction of tax at source when made applicable, it had to be ensured that this principle was not violated. SC noted that the two principles, namely, “Situs of residence” and “Situs of source of income” had witnessed divergence and difference in the field of international taxation. The principle “Residence State Taxation” gave primacy to the country of the residency of the assessee.
The SC referred to the Delhi HC ruling in ‘CIT vs. Bharti Cellular Limited and others’ wherein it – was held that consultancy meant giving professional advice or services in a specialized field. SC also referred to the dictionary meaning of ‘consultation’ in Black’s Law Dictionary, and discussed the meaning of the word ‘consultancy Services’. SC held that the NRC had the skill, acumen and knowledge in the specialized field i.e. preparation of a scheme for required finances and to tie-up required loans and the nature of service referred by the NRC would come within the ambit and sweep of the term ‘consultancy service’ and, therefore, it had been rightly held by HC that the tax at source should have been deducted as the amount paid as fee could be taxable under the head ‘fee for technical service’.
In arriving at its decision SC relied on the Constitution bench judgment in GVK [TS-69-SC-2011] wherein it was held that the Parliament is constitutionally restricted from enacting legislation with respect to extraterritorial aspects or causes that did not have, nor expected to have any, direct or indirect, tangible or intangible impact(s) on or effect(s) in or consequences for: (a) the territory of India, or any part of India; or (b) the interests of, welfare of, well-being of, or security of inhabitants of India, and Indians. SC also reiterated observations of the Constitution bench where the Constitution bench held that where Parliament itself posited a degree of relationship between the extra-territorial aspect or cause and something in India or related to India and Indians, beyond the constitutional requirement that it be real and not fanciful, then the courts would have to enforce such a requirement in the operation of the law as a matter of that law itself, and not of the Constitution.
Honble SC also relied on co-ordinate bench ruling in ‘CIT. vs. Aggarwal and Company ((1965) 56 ITR 20], CIT vs. TRC [(1987) 166 ITR 1993] and Birendra Prasad Rai vs. ITC [(1981) 129 ITR 295].
SC further relied on ‘the Introduction in Klaus Vogel on Double Taxation Convention, South Asean, Reprint Edition (2007)] wherein it was mentioned that what was prohibited by international taxation law was imposition of sovereign act of a State on a sovereign territory and the said principle of formal territoriality applied to acts intended to enforce internal legal provisions abroad.
Applying Supreme Court decision in GVK Industries Ltd & Anr [TS-61-SC-2015] the receipts from services rendered abroad are taxable and jurisprudence relied upon is superceded by this SC decision and the rationale laid down regarding FTS is also applicable ie taxpayer has itself submitted that it has the skill, acumen and knowledge in the specialized field,
“Over the years, IMG UK has gained vast experience of working on event management and talent representation activities, across golf, tennis, football, etc. sporting events. The nature of contracts/ activities undertaken by the Company primarily Includes event creation, client representation, Consultation services, etc, IMG UK and the Board of control for Cricket in India [BCCI] entered into a Memorandum of understanding (“MOU”) for assistance in establishment, commercialization and operation of the Indian Premier League (“IPL”) In September 2007. In addition and consequent to the initial contract, the parties entered into a separate service agreement dated September 24, 2009 in relation to the second season and subsequent seasons for IPL events.
Extract from Transfer Pricing Report para 4.3 Page 17
“BCCI awarded the original contract of 2007 to IMG UK because of the vast knowledge and experience of IG UK, which has been developed by the UK entity over the years as a result of working on similar assignments in the field of sports (including cricket) prior to this contract. Accordingly, IMG UK possessed all the necessary technical shill, expertise and related Intangibles for the purpose of executing the BCCI contract.
12. The DRP further held that the make available stipulation in Article 13 of the DTAA also stood satisfied. It then proceeded to examine the assertion of IMG based on Article 13(6) and which argument if were to be accepted, the revenue would have become liable to be taxed in terms of Article 7 as opposed to Article 13 of the DTAA. While dealing with this aspect, it held that the revenue in question could not be said to be effectively connected to the PE and consequently the same would not escape taxability under Article 13.
13. Pursuant to these directions of the DRP, a final assessment order came to be framed. IMG, thereafter, challenged the aforesaid assessment order before the Tribunal. The Tribunal dismissed the appeal essentially following its decision pertaining to AY 2010-11 and which forms the subject matter of ITA 218/2017.
14. Insofar as AY 2010-11 is concerned, it related to the revenues earned by IMG for the IPL event which was held in South Africa in 2009. For IPL 2009, IMG earned a total service fee of INR 33,00,00,000/-. Out of the aforesaid, it attributed INR 9,22,49,819/- to the Indian PE and a net profit of INR 3,28,04,660/- computed in accordance with the transfer pricing regulations was asserted to be attributable to the Indian PE and offered to tax.
15. The AO while drawing up a draft order, however, held that the balance receipt of INR 23,77,50,181/- was liable to be taxed as FTS. It was the aforesaid order which was assailed before the DRP. While dealing with those objections, the DRP held that the aforesaid revenue was liable to be taxed as FTS. This is evident from Para 5.6 of its directions, which is extracted hereinbelow: –
5.6 In addition and consequent to the MOU” dated 13.09.2007, the assessee and BCCI also entered into a separate, service agreement, on 24.09.2009 for Representation Period consisting of nine IPL seasons starting from 01.01.2009 (Clause 1.1l(q) of the service agreement). This service agreement was entered after the end of 1PL season of 2009 with retrospective date from 01.0l.2009. The annual charge of Rs 33.00 crores received during the year is for all services, rendered by the assessee anywhere in the world (Clause 1.l(x) and 6.2 of the service agreement) and it is in the nature of FTS as it is already determined irrespective of the places where the services are rendered. Basically the income from franchisees, broadcasters, etc. received by the BCCI is not as peer the above agreement but by separate agreements with them and income there from thus accrues and received in India and it has nothing to do with the places where IPL matches are played. In present case, the position of the AO is that income of the assessee is deemed to accrue or arise in India. Section 9 of the Act provides for incomes which shall be deemed to accrue or arise in India. Therefore, if an income accrues or arises directly or indirectly through or from a business connection in India, it shall be deemed to accrue or arise in India and hence such income of non-resident becomes taxable in India. It means that existence of business connection in India of non-resident is prerequisite under the Income Tax Act for bringing business income to tax in India. Under DTAA, however, higher threshold level in form of existence of PE in India is required for bringing business income of non-resident to tax in India. The assessee has not denied existence of its PE in India. The major source of revenue from the IPL matches played abroad is originated in India. In view of above and the reasoning given in the impugned order, we are of the considered view that the AO has rightly held Rs.23,77,50,181/- as FTS.
16. However, it took into consideration the admitted fact that the event had been held and hosted in South Africa and thus amounting to the rendition of service to BCCI outside India. It consequently came to hold that Section 9(1)(vii)(b) stood attracted as would be evident from the following conclusions: –
5.4 In view of the above, it is evident that the intention of the legislature clarified by the Explanatory circular on the introduction of the amendment in the Income Tax Act has been to consider such person appearing in section 9(1)(vii)(b) with reference to the resident payer for the said amount because the expression if the payment is relatable to a business of profession carried on by him outside India refers to the business or profession carried out by him viz. resident payer in this context and not the non-resident payee. In view of the clear disposition of the relevant provisions of the I.T. Act, we hold that the provision of section 9(1)(vii)(b) are also satisfied and the case of the assessee is not covered by the exceptions.
17. It ultimately came to hold that the income although constituting FTS would be liable to be taxed as business income in terms of Article accepting the contention based on Article 13(6) of the DTAA. However, it also proceeded to direct the AO to frame an order treating the said income as FTS on protective basis. It was the final assessment order drawn pursuant to those directions which led to appeals being filed by both IMG as well as the Income Tax Department.
18. Dealing with the aforesaid appeals, the Tribunal identified the principal issues to be whether receipt of INR 23,77,50,181/- was chargeable to tax in India at all and the second question being whether the same was liable to be treated as FTS. The Tribunal firstly reviewed the terms and conditions as contained in the MoU as well as the Services Agreement. It also took into consideration the nature of functions performed by the UK office of IMG and its Indian PE, as were recorded in the transfer pricing study report. Proceeding further, it firstly took up for consideration the argument of IMG based on Article 13(6) and whether FTS could be said to be effectively connected with its PE. The aforesaid contention was ultimately answered as under:-
38. Now the issue arises is whether the whole contract is ‘effectively connected’ with the permanent establishment or part of the services are ‘effectively connected with the permanent establishment. On reading of. the above two agreements and the transfer pricing study report submitted by the assessee, more specifically at para number 4.4.2 ~e the functions performed by the permanent establishment of the appellant in India and para number 4.4.1 shows what are the functions performed by the IMG UK. It is further mentioned in the transfer pricing study report that certain routine services relating to on ground implementation and running of the event was subcontracted to the IMC India, branch. The IMG India PE was involved in/ responsible for overseeing and managing. The liasonsing and implementation support activities undertake taken by the IMC India branch. It is also important to note that how this functions were performed it was stated in the transfer pricing study report of the appellant that IMO UK employees came to India from time to time for short-term visits. Further few freelancers were appointed/engaged by IMO UK for undertaking the on- ground implementation and related supervision activities in India. As these functions performed, assessee has claimed that it has created a service PE in India and therefore the income should be chargeable to tax according to the article 7 of the Double Taxation Avoidance Agreement. Therefore according to us the above agreements and memorandum of understanding has two limb one. with respect to the performance of the activities performed by the permanent establishment in India and another limb deals with respect to the performance of the services by the IMG UK directly for which the India PE has nothing to do. Admittedly the issue is concerned with respect to the fees for technical services. It is also admitted position that while the effective connection of royalties with a permanent establishment has to be evaluated by applying the ‘assets test’ , and for the purpose of fees for technical services the ‘activity test? or ‘functional test’ should be applied as held in case of Nippon Kaiji Kyokoi V ITO 47 SOT 41 (Mum). Therefore to “effectively connect’ the whole income with the PE, contending party i.e. assessee, should establish that PE is engaged in the performance of all those services or should be involved in actual rendering of such services, or (2) it shou1d arise as a result of the activities of the PE, or (3) The PE should, at least, facilitate, assist or aid in performance of such service irrespective of the other activities PE performs. Therefore according to article 7, for attribution of the profits to the permanent establishment the activity carried out by the permanent establishment is important and to that extent only the profits can be attributed to that particular permanent establishment. However if there are other activities, which are also incorporated in the agreement, which are not at all carried on with the help of, or through, or by, or under the control, or under the supervision of the permanent establishment such activities and income arising there from cannot be said to be ‘effectively connected’ with the permanent establishment and article 7 cannot be applied to those services. In the present case certain activities are carried out by the appellant which are not even concerned with the functioning . of the permanent establishment therefore in our view only the activities which are performed by the permanent establishment are effectively connected with the permanent establishment and activities which are not carried on by the permanent establishment but are carried out by the head office of the appellant are not ‘effectively connected’ with the permanent establishment. We are also of the view that the term ‘effectively connected’ should not be understood to mean the opposite of ‘legally connected’ but rather something in the sense of ‘really connected’. Therefore the activities mentioned in the contract should be connected to the permanent establishment not only in the form but also in substance. It is also interesting to note that the permanent establishment of the assessee has been admitted by the appellant only because of the reason that some of the employees of the appellant came to India from time to time for short visit and further certain freelancers were appointed for undertaking the own ground implementation related supervision activities in India. Therefore according to us there are minimum activities performed by the PE of appellant in India. Hence just performing such minimum activities it cannot be said that whole of the revenue of Rs. 33 crores involved in the contract is ‘effectively connected’ with the activities of the permanent establishment in India. Hence we reject the contention of the assessee that the whole of the revenue involved in the contract should be considered as effectively connected with the permanent establishment of the appellant. We also give one more reason may be a hypothetical one which supports our view. Supposedly a contract of Rs. 100 crore is awarded to an overseas entity for rendering of the management services and if such: overseas entity establishes a permanent establishment by just deputing its staff for more than 90 days, it creates a service permanent establishment of that for an entity in India. On the basis of the minimum activities performed by that particular staff which 1s deputed in India 10% of the gross receipt say 10 crores is attributed to permanent establishment and after claiming deduction of expenses there from of say 60% of the income attributed, assessee offered balance amount as profit of the permanent establishment for taxation. In transfer pricing study report, based on FAR analysis such attribution of the profit is considered to be at arm’s length by the assessee and as well as by the transfer pricing officer, it cannot be said that the balance sum of Rs. 90 crores be taxed in India as the whole contract was ‘effectively connected’ with the permanent establishment created by the petitioner of some staff for performing some of the activities and crossing the threshold duration. We do not subscribe to such a view and we are also of the view that such is the case of the assessee before us.
19. The Tribunal while ruling on the interplay between Articles 7 and 13 of the DTAA, held as follows:-
39. Further now coming to the interplay between article 7 and article 13 of the Double Taxation Avoidance Agreement gives an insight that first there has to be an existence of the permanent establishment through which the business is carried out and further existence of ‘effective connection’ between such PE and the rights properties a:hd contracts in respect of which the fees for technical services are paid. That would mean that only such fees for technical services are excluded from the scope of article 13 (6) as are ‘attributable’ to the permanent establishment of the assessee through which the business is carried on by the appellant. Therefore according to us the taxability under article 13 shifts to the taxability of article 7 only in respect of fees for technical services which are ‘attributable’ to the PE in question. Therefore the article 13 (6) of the Double Taxation Avoidance Agreement shall apply only to the extent of the activities carried on by the appellant through its permanent establishment. In view of this we are of the view that activities carried out by the appellant which are not at all connected with the activities of the permanent establishment are not covered by article 7 or 15 of the Double Taxation Avoidance Agreement between India and United Kingdom and same shall remain as fees· for technical services under article 13 only. Therefore natural corollary that follows is that whatever is income excluded by the applicability of article 13 (6) and goes back to article 7 is the same amount.
40. Our this view is also supported by the provision of article 13 (6) of the DTAA which provides as under :-
(6). The provisions of paragraphs 1 and 2 of this Article shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 (Business profits) or Article 15 (Independent personal services) of this Convention, as the case may be, shall apply.”
[Underline supplied by us]
41. on reading of the above article it is apparent that the provisions of paragraph 1 and 2 of this article shall not apply if the beneficial owner of the royalty fees for technical service, being a resident of a contracting state, carries on business in other contracting State in which the royalties or fees for technical services arise through a permanent establishment situated therein, and the right property or contract in respect of which the royalty fees for technical services are paid is effectively connected with that permanent establishment or fixed base. Then only the provisions of article 7 related to business profit shall apply. Therefore the above article provides for twin conditions, (1) that the royalty or fees for technical services should arise through a permanent establishment situated in the other State and (2) the right property or contract in respect of the royalty or fees for technical services are paid is effectively connected with the such permanent establishment or fixed base. In the present case the benches raised a specific query that how the activities carried on by the UK office of the appellant are arise through the permanent establishment and how the contract is effectively connected with such permanent establishment. The Ld. authorized representative responded by submitting that it is with respect to the contract which should be effectively connected to the permanent establishment or fixed base. However with respect to the evidence of activities carried on by the overseas head office of the appellant and how they are connected or arising through the permanent establishment has, not been responded to. Despite this we have pursued the relevant activities performed by the foreign office of the appellant as well as the permanent establishment of the appellant. We are of the view that activities carried on by the foreign office of the assessee are not at all arising through the permanent establishment of the appellant in India. Therefore one of the condition of the about twin conditions also failed in case of the appellant. Once again we would like to reiterate that for the purpose of applicability of article 13 (6) with respect to the fees for technical services one has to apply the activity test of the permanent establishment in the source country is held by the coordinate bench in case’ of the Nippon Kaiji Koyokoi V ITO (supra).
42. Therefore we reject the contention of the assessee that out of 33 crores Rs. 9 crores are effectively connected with the permanent establishment of the appellant, the balance 22 crores cannot be taxed in India under article 13- as fees for technical services. Our one more reasons for holding such a view is that according to us there is no distinction between the two phrases used into two different articles of the Double Taxation Avoidance Agreement. These two phrases are (1) “attributable to in article 7 of the Double Taxation Avoidance Agreement, and (2) ‘effectively connected with ‘ in article 13 (6) the Double Taxation Avoidance Agreement, because lndo US DTAA uses the same term ‘attributable to’ in place of ‘effectively connected’ within article 12(6) of that agreement as under:-
(6). The provisions of paragraphs 1 and 2 of this Article shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 (Business profits) or Article 15 (Independent personal services) of this Convention, as the case may be, shall apply.”
[Underline supplied by us]
20. The Tribunal on due examination of the rival contentions further held that the make available stipulation comprised in Article 13 of the DTAA also stood satisfied. This becomes evident from the following findings which came to be rendered: –
43. Now the next contention raised by the appellant is that as there is no ‘make available’ test satisfied in case of the services provided by the appellant, hence, according to article 13 (4) which defines the fees for technical services means payments of any kind of any person in consideration for the rendering of any technical or consultancy services which make available technical knowledge, experience, skill know-how or processes, or consist of development and transfer of a technical plan technical design. According to the assessee as clause C of article 13 (4) is not satisfied the balance cannot be charged to tax as fees for technical services. In the present case the services are already described in the previous paragraphs and there cannot be two opinion about that that mere provision of services or technical services is not sufficient, it is essential that services should be “make Available” technical knowledge, experience, skill, know-how or process. The expression make available has far-reaching significance since it limits the scope of technical and consultancy services. Generally this expression ‘make available’ is used in the sense of one person supplying or transferring or imparting technical knowledge or skill or technology to another and technology is considered ‘made available’ only when the services receiver is enabled to absorb and apply the technology contained therein. If the services do not have any technical knowledge the fees paid for it do not fall within the meaning of fees for technical services as per the article 13 of the India UK DTAA.. The services receiver is able to make use of the technical knowledge etc by himself in his business or for his own benefit and without recourse to the service provider in future and for this purpose the transmission of the technical knowledge, experience, skill, etc from the service provider to the services CP is necessary. In other words the technical knowledge, experience, skill etc must remain with the service recipient even after the rendering of the services has come to an end and the services receiver is at liberty to use the technical knowledge skill know-how and processes in his own right. In the present case the assessee has hired for conducting research in respect of the appropriate structure for the IPL and makes recommendation to BCCI accordingly. It is required to provide the Constitution of the IPL, the authority of the governing Council, the structure of IPL, tournament rules and regulation ,the franchisee tender document ,the franchisee agreement, necessary franchisee regulation and the IPL implementation budget. According to the para No. 9 of the agreement that intellectual property rights remains with the board of control for Cricket in India. Even before us Ld. authorized representative could not point out that why ‘make available test’ has not been satisfied in this even by providing all the rules and regulations of IPL, standard operating procedures of matches, copies of the franchisee agreement, various documentation/contracts etc which shall remain with the BCCI. Therefore in the present case according to us the BCCI is enabled to absorb and apply the information and the advice provided by the appellant to it for conducting such sporting events. According to us when all this documentation and material is provided to the BCCI it is able to use such know-how and documentation generated from provision of the services of the appellant independent of the services of the appellant in future. It is too naïve to say that in absence of IMG services BCCI on its own IPL tournament cannot hold. Merely because the BCCI has entered into a contract for conducting further 9 events does not lead to the conclusion that the information documentation, agreements, contracts etc cannot be said to be ‘made available’ to the appellant. In fact according to us it is. In view of this we reject the contention of the appellant that the sum of Rs. 237750181/-cannot be taxed as fees for technical services as it does not satisfy ‘make available’ condition provided in article 13(4) 9c) of the DTAA.
21. The Tribunal with respect to applicability of Section 9(1)(vii) of the Act drew the following conclusions: –
48. According to provisions of section 9 (1) of the Income tax Act the income by way of fees for technical services payable by a person who is resident to a non-resident shall be deemed to accrue or arise in India and shall be chargeable to tax u/s. 5 of the Income Tax Act in the hands of a non-resident. The claim of the appellant is that receipt of Rs. 237750181/- falls within the exception provided under clause (b) of the above section which says that where the fees for technical services are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purpose of making or earning any income from any source outside India, it shall not be considered as fees for technical services as income deemed to accrue or arise in India in terms of the provisions of section 9(1)(vii)(b) of the Income Tax Act. The main reason to say so by the appellant is that the IPL 2009 event has been held outside India and therefore the BCCI has utilized those services outside India and therefore they fall into the exception and cannot be taxed in India. We have carefully considered the rival contentions and reject the contention of the appellant for the reason that to fall within the exception the assessee must be carrying out business outside India and such services must be utilized in that business by a person who is a resident in India and who pays income by way of fees for technical services to a non- resident. It is an established fact that BCCI is carrying on business in India and not outside India. Further the source of income of the BCCI is in India and not outside India. Merely because the event is performed outside India it cannot be said that source of income of the BCCI is not in India. Therefore according to us the income of the appellant of Rs. 237055181/- is chargeable to tax as fees for technical services under section 9 (1) (vii) of the Income Tax Act as Fees for technical services.
22. On an overall consideration of the above, the Tribunal proceeded to dismiss the appeal of IMG and allow the appeal of the Department holding that INR 23,77,50,181/- would be governed by Article 13 of the DTAA and liable to be taxed as FTS on a substantive basis.
B. IMGS CHALLENGE
23. Appearing in support of the appeals, Mr. Vohra, learned senior counsel canvassed the following submissions for our consideration. Mr. Vohra submitted that a cumulative reading of the terms and conditions of the MoU as well as the Services Agreement would lead one to the irresistible conclusion that the receipts of IMG were liable to be viewed as business profits, and consequently entitled to be taxed only to the extent of income attributable to the Indian PE of IMG. Mr. Vohra submitted that it was the undisputed position that pursuant to the nature of services performed in India coupled with the visits of IMG employees to the country, the prescriptions of Article 5(2)(k) of the DTAA stood satisfied and that consequently a Service PE had come into existence. Mr. Vohra underlined the fact that Article 5(2)(k) applies only where services other than those taxable under Article 13 are furnished. It was in the aforesaid backdrop that learned senior counsel submitted that once the revenue had accepted the existence of a Service PE and the taxability of INR 9,22,49,819/- being income attributable to the Service PE, it was clearly not open for the respondents to hold that the balance receipts from BCCI were liable to be taxed as FTS.
24. According to learned senior counsel, the respondents clearly stood estopped from contending that receipts from BCCI to the extent not attributable to the admitted Service PE, would be taxable under Article 13. The submission, in essence, was that once the respondents had accepted the constitution of a Service PE as well as the attribution of income thereto, they could not thereafter have turned around to assert that receipts to the extent not attributable to the PE were liable to be treated as FTS. This more so since, as per the appellants, the applicability of Article 5(2)(k) was itself dependent upon it being found that the services rendered were other than those which would fall within the ambit of Article 13.
25. It was Mr. Vohras submission that the receipts received from BCCI by IMG flowed from one singular contract and which envisaged the furnishing of composite services relating to assistance in establishment, commercialization and operation of the IPL. Mr. Vohra highlighted the fact that neither the Services Agreement nor the DTAA empowers the Respondent to bifurcate the composite consideration received between business profits and FTS. Apart from the above, Mr. Vohra further submitted that a bare perusal of the obligations placed upon IMG and which can be discerned from the MoU and the Services Agreement would evidence that the revenue received by IMG cannot possibly be held to fall within the ambit of FTS under Article 13 of the DTAA. This since, according to learned senior counsel, IMG had not made available any technical knowledge, experience, skill, know-how or processes to BCCI. In order to shed light on the meaning liable to be ascribed to the phrase make available as appearing in Article 13, Mr. Vohra drew our attention to the Memorandum of Understanding appended to the India US DTAA and which, while dealing with the subject of FTS, employs similar language. Mr. Vohra relied upon the following passages as appearing in the said Memorandum of Understanding: –
Generally speaking, technology will be considered ‘made available’ when the person acquiring the same is enabled to apply the technology. The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc, are made available to the person purchasing the service within the meaning of paragraph 4. Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available.
26. Mr. Vohra also relied upon the following pertinent observations as rendered by the Karnataka High Court in CIT v. De Beers India Minerals P. Ltd12:-
13. Therefore, the clause in the Singapore agreement which explicitly makes it clear the meaning of the words “make available”, the said clause has to be applied, and to be read into this agreement also. Therefore, it follows that for attracting the liability to pay tax not only the services should be of technical in nature, but it should be made available to the person receiving the technical services. The technology will be considered made available when the person, who received service is enabled to apply the technology. The service provider in order to render technical services uses technical knowledge, experience, skill, know-how or processes. To attract the tax liability, that technical knowledge, experience, skill, know-how or process which is used by the service provider to render technical service should also be made available to the recipient of the services, so that the recipient also acquires technical knowledge, experience, skill, know-how or processes so as to render such technical services. Once all such technology is made available it is open to the recipient of the service to make use of the said technology. The tax is not dependent on the use of the technology by the recipient. The recipient after receiving of technology may use or may not use the technology. It has no bearing on the taxability aspect is concerned. When the technical service is provided, that technical service is to be made use of by the recipient of the service in further conduct of his business. Merely because his business is dependent on the technical service which he receives from the service provider, it does not follow that he is making use of the technology which the service provider utilises for rendering technical services. The crux of the matter is after rendering of such technical services by the service provider, whether the recipient is enabled to use the technology which the service provider had used. Therefore, unless the service provider makes available his technical knowledge, experience, skill, know-how or process to the recipient of the technical service, in view of the clauses in the DTAA the liability to tax is not attracted.
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21. What is the meaning of “make available”. The technical or consultancy service rendered should be of such a nature that it “makes available” to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology “making available”, the technical knowledge, skills, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered “made available” when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as “fee for technical/included services” only if the twin test of rendering services and making technical knowledge available at the same time is satisfied
27. Our attention was also drawn to the decision of the Kerala High Court in US Technology Resources (Pvt.) Ltd. vs. Commissioner of Income Tax, where the phrase make available was explained to indubitably envisage a transfer of technology or know-how. We deem it apposite to extract the following paragraphs of that decision: –
7. There can be no dispute that the income generated by the US company under the agreement entered into with the Indian company as remuneration for the services provided is brought within the scope of total income under section 5(2) of the Act. Section 9 speaks of “income deemed to accrue or arise in India” and clause (vii) of sub-section (1) of the aforesaid provision, as is relevant for our consideration, is extracted hereunder:
“(vii) income by way of fees for technical services payable by. ..
(c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India:
Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.. ..
Explanation 2.For the purposes of this clause, ‘fees for technical services’ means any consideration (including any lump-sum consideration) for the rendering of any managerial, technical or consultancy services (including the provision of services of technical or other personnel) but does not include consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head ‘Salaries’.”
There can also be no dispute as per the extracted Explanation that the services offered by the US company to the Indian company comes under the said definition. The services offered, as is seen from the terms of the agreement which are specifically termed by the first appellate authority as “technical and consultancy services”, are (i) management decision-making, (ii) financial decision-making, (iii) legal matters and public relation activities, (iv) treasury services and (v) risk management services. Read with the Explanation, this definitely would come within the ambit of “technical and consultancy services” as defined under the Act. The first appellate authority has also relied on Continental Construction Ltd. v. CIT (1992) 195 ITR 81 (SC), CBDT v. Oberoi Hotels (India) P. Ltd. (1998) 231 ITR 148 (SC) ; (1998) 97 Taxman 453 (SC) and Dean, Goa Medical College v. Dr. Sudhir Kumar Solanki (2001) 7 SCC 645, wherein the ambit of the definition was examined by the hon’ble Supreme Court.
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18. We are conscious of the fact that the DTAA as relevant in the present case, is not applicable even in the case of De Beers India Minerals (P.) Ltd. where the non-resident hailed from Netherlands. However, on facts we are of the opinion that when the definition clause in DTAA read along with the MOU specifically refers to transfer of technologies, the facts as available in the Karnataka decision are more similar to the present facts. Herein also there is no technology transfer ; nor is there a plan or strategy relating to management, finance, legal, public relations or risk management transferred to the appellant. The services promised by the non-resident company is only to advice on such aspects as are specifically referred to in the agreement. The non-resident company only assists the Indian company in making the correct decisions on such aspects as is specifically referred to in the agreement, as and when such advice is required. There is no tran