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2023 Supreme(Kar) 1326
KARNATAKA HIGH COURT
P.S. DINESH KUMAR, C.M. POONACHA, JJ.
The Commissioner of Income Tax and Ors. - Appellants
Versus
M/s. ABB INC C/o ABB Limited. – Respondent
Income Tax Appeal No. 688 of 2015
Decided On : 27-03-2023
For the Appellants : Shri. K.V. Aravind, Senior Standing Counsel.
For the Respondent:Shri. T. Suryanarayana, Senior Advocate for Ms. Tanmayee Rajkumar, Advocate.
Headnote:(A) Income Tax Act - Article 12(4) of DTAA - The Tribunal deleted an addition made by the assessing officer regarding fees for technical services, finding no satisfaction of the 'make available' clause. This arose from services provided by the respondent involving technical knowledge in power and automation technologies. (Paras 1, 3, 7, 8)
(B) Taxation - Interpretation of DTAA - The distinction between technical and consultancy services under Article 12 was a pivotal point, with the Tribunal asserting both types of services could qualify as 'included services.' (Para 9, 10)
(C) Concept of 'make available' - Court found that the fee for services was for project-specific risk evaluation and could not be construed as 'made available' knowledge, shutting down the Revenue's argument for taxation in India based on perceived availability of services. (Paras 13, 14)
Facts of the case:
The Revenue appealed against a Tribunal decision that dismissed a tax addition relating to fees for services rendered by an American firm to its Indian affiliate, based on interpretation of DTAA and taxation rules.
Findings of Court:
The court ruled that the services in question did not 'make available' technical knowledge for indefinite use.
Issues: The primary issue was whether services rendered amounted to 'included services' under the DTAA.
Ratio Decidendi: The court held that for services to fall under the 'make available' clause, they must be usable in perpetuity, which was not the case here.
Result: Appeal dismissed.
| Table of Content |
|---|
| 1. jurisdiction of the court and appeal details. (Para 1) |
| 2. revenue's stance on the technical services and taxation. (Para 3 , 4) |
| 3. assessee's defense regarding the nature of services. (Para 5 , 9 , 10) |
| 4. interpretation of article 12(4) of dtaa. (Para 6 , 7 , 8 , 11 , 13) |
| 5. assessment of project-specific services. (Para 12) |
| 6. dismissal of the appeal. (Para 14) |
JUDGMENT :
(P.S. Dinesh Kumar, J.)
This appeal by the Revenue directed against order dated July 30, 2015 in ITA No.1613/Bang/2012 for the A.Y.2009-10 passed by the ITAT Income Tax Appellate Tribunal, Bengaluru, has been admitted to consider following question of law;
"Whether on the facts and in the circumstances of the case, the Tribunal is right in law in deleting the addition made by assessing officer with regard to fee received by assessee for technical services rendered by it to its Associated Enterprises in India by holding that is no transfer of technology in the case of assessee as the 'make available' clause is not satisfied when assessee has provided services which involve knowledge of technology in the areas of power and automation technologies for utility and industry customers and a person without the technical knowledge cannot provide these services?"
2. Heard Shri K.V.Aravind, learned Senior Standing Counsel for the Revenue and Shri T.Suryanarayana, learned Senior Advocate for the assessee.
3. Shri Aravind for the Revenue submitted that
ABB USA tenders technical and consultancy services to the assessee (M/s.ABB Inc.,), an Indian company;
The AO, based or the details furnished by the assessee, has rightly held that the services were 'made available' and therefore, income in the hands of the assessee is deemed to have accrued in India;
Para 6.7 of DRP order (Annexure-A) makes it clear that the results of the activities are made available for the benefit to ABB USA and other units within ABB group. Therefore, once the technical or consultancy services is made available, it does not get the benefit of Article 12(4)(b) of DTAA Double Taxation Avoidance Agreements between India and USA. Therefore, the income in the hands of assessee must be deemed to have accrued in India.
4. Assailing the impugned order passed by the ITAT, he submitted that it is contrary to the records and particularly, the agreement between the parties and prayed for allowing this appeal.
5. Shri Suryanarayana for the assessee submitted that the DRP has captured the exact nature of the services rendered by the assessee to ABB India. Adverting to Para 6.4 of DRP's order (Annexure-A), he submitted that before submitting any bid, the Indian company approaches the assessee for risk evaluation of a proposed project and prospective steps to be taken in the bidding process. The Indian entity seeks the opinion of the assessee for review on the risk factors involved in the project and this aspect has been correctly understood by the DRP. However, while issuing the directions to the AO, the DRP has misconstrued the scope of the agreement and the applicability of Article 12 of DTAA and on the other hand, the ITAT having correctly appreciated the facts has allowed the appeal applying the law laid down in Commissioner of Income-tax, Central Circle v. De Beers India Minerals (P.) Ltd. [2012] 21 taxmann.com 214 (Kar). With these submissions, he prayed for dismissal of this appeal.
6. We have carefully considered rival contentions and peruseo records.
7. The point of difference between the Revenue and the assesses is with regard to interpretation of Article 12(4) of the DTAA. In terms of Article 12, royalties and fees for 'included services' arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other state. At the same time, it may also be taxed in the Contracting State within the parameters mentioned in the clause 2(a) of Article 12.
8. The relevant portion of the Article 12 necessary for this case reads as follows:
"Article 12
4. For the purpose
