Friday, August 1, 2014

Payment made to foreign co. to conduct navigation studies at Indian port won’t satisfy ‘make available’ clause; no FTS

Payment made by assessee to foreign company for navigation studies at Indian port to determine pre-existing conditions could not taken as fee for technical services as per Article 13 of India-UK DTAA.


a)The assessee had entered into an agreement with a foreign company (Wallingford) for morphological studies, sedimentation assessment, navigation and mooring assessment in respect of a port.

b)The assessee did not deduct tax on payments made for said studies as it was of the view that said fee was not in the nature of ‘fee for technical services’ (FTS). However, the Assessing Officer opined that services provided by Wallingford were in nature of FTS.

c)On appeal, the CIT(A) reversed the order of Assessing Officer and held that the assessee would not be liable to withholding tax under section 195(1). The aggrieved-revenue filed the instant appeal.

The Tribunal held in favour of assessee as under:

1)Article 13 of India-UK DTAA provides that 'FTS' arising in a contract State and paid to a resident of other contracting State may be taxed in that other State if it is made available to the recipient.

2)In the case of Mahindra & Mahindra Ltd. v. Dy. CIT [2010] 122 ITD 216 (Mum.) (SB), the meaning of expression 'make available' had been analyzed by discussing decision of Intertek Testing Services India (P.) Ltd. In re [2008] 175 Taxman 375 (AAR - New Delhi) wherein it was held that the service had to be aimed at and results in transmitting the technical knowledge, etc., so that the receiver of service could derive an enduring benefit and utilize the knowledge or know-how in future on his own without the aid of the service provider.

3)It was undisputed that assessee was supposed to receive only a report on pre-existing condition in relation to port. There was a clause of confidentiality in the agreement, which provided that the report so prepared by Wallingford would not be transferable by the assessee.

4)The agreement further provided that the assessee couldn’t not use the know-how in performing services for any other client in future. Even the assessee was not entitled to sub-license any of the rights granted in the report.

5)Thus, in the instant case, the fees for technical services was not paid for making available the technical knowledge, experience and know-how to the assessee. Therefore, the payment made by the assessee was out of the ambit of the provisions of section 195. The view taken by CIT(A) was to be affirmed. – ITO (INTERNATIONAL TAXATION) V. ADANI PORT INFRASTRUCTURE (P.) LTD [2014] 47 17 (Ahmedabad - Trib.)