Fees for Technical service | Case Laws| Part-2

Hello Folks,

In this edition of Tax-o-phile Case Laws series, we shall be sharing Part 2 of Fees for Technical Services case laws. The Part 1 case be accessible from the link under:

Part 2 Important Case Laws:

1. Measurement Technology Limited – (2015) 123 DTR (AAR) 34

The Authority for Advanced Rulings (‘AAR’) held that business guidance and procurement services provided by a company situated in the UK to an Indian company could not be classified as technical or consultancy services and moreover it did not ‘make available’ any technical knowledge and therefore could not be classified as FTS.

2. Cummins Ltd In re - [2016] 65 taxmann.com 247 (AAR - New Delhi) [India - UK DTAA]

The AAR held that fees received by the UK based applicant on account of supply management services such as ensuring market competitive pricing from suppliers, maintaining contract supply agreement with suppliers after identifying products availability, competitive pricing, provided to its Indian Group company could not be treated as fees for included services as the same did not impart any technical knowledge and expertise to its Indian Group company such that the Indian company could make use of it in the future, failing the condition of making available the technology as contained in Article 13 of the India UK DTAA. Further since managerial services were excluded from the ambit of Fees for technical services, the payment was not subject to tax.

3. Measurement Technology Ltd. United Kingdom,- (2015) 60 taxmann.com 1

The AAR held that services generally related to human resource matters, cost control, fund management, quality and design reviews, etc., are routine managerial activities and cannot be classified as technical or consultancy services. By providing such services, it cannot be said that foreign company is making available any technical knowledge of enduring benefit which would enable Indian company to apply them on their won in future. Further after amendment effective from 11.02.1994 to DTAA between India and UK, managerial services are not covered in definition of FTS

4. Adani Welspun Exploration Ltd v ITO - TS-249-ITAT-2016 (Ahd) [India - UK DTAA]

The Tribunal held that payments made by the assessee for 3D Seismic Data Interpretation services were not FTS under Article 13 of India- UK DTAA as services did not "make available" technical expertise, skill or knowledge and hence not liable for withholding tax under section 195 of the Act. It observed that the assessee had provided the initial data and the non-resident was only required to provide the interpretation report of such data and therefore held that the AO erred in treating maps/designs given by the non-resident to the assessee as technical plan or design since the said maps/designs were nothing but a way to interpret the data and could not be equated to development and transfer of technical maps and designs as contemplated by the AO. Further, it held that the payment was made for providing analysis of data and the conclusion provided by the non- resident did not enable the assessee to apply such knowledge or undertake survey independently without any assistance.

5. Torrent Pharmaceuticals Ltd. [TS-609-ITAT-2016(Ahd)] (ITA No.451/Ahd/2012) (India – Swiss DTAA)

The Tribunal held that technical/consultancy service payments made by the assessee to a Switzerland based company, constituted fees for technical services under India-Swiss DTAA and it rejected the assessee’s contention that by virtue of Protocol to the India-Swiss DTAA, the restrictive FTS provision in a subsequent DTAA between India and other OECD country should be read into the Indo-Swiss treaty and therefore the make available clause, though not present in Swiss treaty, but contained in India-Portuguese DTAA could be invoked as no technical knowhow was made available. It clarified that the Protocol only provided for re-negotiation of the clauses in India- Switzerland Treaty in case of more liberal subsequent agreements with other OECD countries, and thus, until it was actually re- negotiated and approved, the ‘make available’ limitation in India- Portugal DTAA treaty could not apply to Swiss remittances.

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