Ita/688/2015 Of The Commissioner Of Income-Tax v. M/S Abb Inc

Digitally signedby ANUSHA VLocation: HIGHCOURT OFKARNATAKA IN THE HIGH COURT OF KARNATAKA AT BENGALURU DATED THIS THE 27 DAY OF MARCH, 2023 PRESENT THE HON'BLE MR. JUSTICE P.S.DINESH KUMAR AND THE HON'BLE MR. JUSTICE C.M. POONACHA INCOME TAX APPEAL NO. 688 OF 2015 BETWEEN: 1. THE COMMISSIONER OF INCOME TAX INTERNATIONAL TAXATION BMTC DIPO BUILDING 3 AND 4 FLOOR, KORAMANGALA BANGALORE-560 095. INTERNATIONAL TAXATION BMTC DIPO BUILDING 3 AND 4 FLOOR, KORAMANGALA BANGALORE-560 095. 2. THE DEPUTY DIRECTOR OF INCOME TAX INTERNATIONAL TAXATION CIRCLE-1(1), BMTC DIPO BUILDING 3 AND 4 FLOOR, KORAMANGALA INTERNATIONAL TAXATION CIRCLE-1(1), BMTC DIPO BUILDING 3 AND 4 FLOOR, KORAMANGALA BANGALORE-560 095. …APPELLANTS (BY SHRI. K.V. ARAVIND, SENIOR STANDING COUNSEL) AND: M/s. ABB INC. C/O ABB LIMITED 2 FLOOR, EAST WING KHANIJA BHAWAN 49 RACE COURSE ROAD BANGALORE-560 001. PAN: AAAFCA 9537L …RESPONDENT (BY SHRI. T. SURYANARAYANA, SENIOR ADVOCATE FOR Ms. TANMAYEE RAJKUMAR, ADVOCATE) Ms. TANMAYEE RAJKUMAR, ADVOCATE) THIS ITA IS FILED UNDER SEC.260-A OF INCOME TAX ACT 1961, ARISING OUT OF ORDER DATED:30/06/2015 PASSED IN ITA NO. 1613/BANG/2012, FOR THE ASSESSMENT YEAR 2009-2010, ANNEXURE-C, PRAYING TO FORMULATE THE SUBSTANTIAL QUESTIONS OF LAW STATED THEREIN, ALLOW THE APPEAL AND SET ASIDE THE ORDERS PASSED BY THE ITAT, BENGALURU IN ITA NO. 1613/BANG/2012 DATED:30/06/2015 ANNEXURE-C AND CONFIRM THE ORDER OF THE DRP CONFIRMING THE ORDER PASSED BY THE DEPUTY DIRECTOR OF INCOME TAX, INTERNATIONAL TAXATION, CIRCLE-1(1), BENGALURU. THIS ITA, COMING ON FOR FINAL HEARING, THIS DAY, P.S.DINESH KUMAR, J., DELIVERED THE FOLLOWING: JUDGMENT 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[1], 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 1Income Tax Appellate Tribunal 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; ABB USA tenders technical and consultancy services to the assessee (M/s.ABB Inc.,), an Indian company; The AO[2], based on 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; 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[3]’s 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 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 2 Assessing Officer 3 Dispute Resolution Panel Para 6.7 of DRP[3]’s 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 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 2 Assessing Officer 3 Dispute Resolution Panel 12(4)(b) of DTAA[4] 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, 4Double Taxation Avoidance Agreements 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 Vs. De Beers India Minerals (P.) Ltd.[5] With these submissions, he prayed for dismissal of this appeal. 6. We have carefully considered rival contentions and perused records. 7. The point of difference between the Revenue and the assessee 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. 5 [2012] 21 taxmann.com 214 (Kar) Para 22. 8. The relevant portion of the Article 12 necessary for this case reads as follows: “Article 12 4. For the purposes of this Article, “fees for included services” means payment of any kind to any person in consideration for the rendering of any technical or consultancy services (including through the provision of services of technical or other personnel) if such services: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received ; or application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received ; or (b) make available technical knowledge, experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design.” experience, skill, know-how, or processes, or consist of the development and transfer of a technical plan or technical design.” (Emphasis supplied) 9. Shri Aravind’s argument is that clause (b) which deals with ‘make available’ is referable only to the technical knowledge and it excludes consultancy services. 10. According to Shri Suryanarayana, the DTAA is unambiguous and clearly demonstrates that the fee for included services can be either for technical services or consultancy services because between the technical and consultancy services, the word ‘or’ has been used and the exclusion helps only if the said ‘services’ were made available. (Emphasis supplied) 9. Shri Aravind’s argument is that clause (b) which deals with ‘make available’ is referable only to the technical knowledge and it excludes consultancy services. 10. According to Shri Suryanarayana, the DTAA is unambiguous and clearly demonstrates that the fee for included services can be either for technical services or consultancy services because between the technical and consultancy services, the word ‘or’ has been used and the exclusion helps only if the said ‘services’ were made available. 11. We have carefully perused the above provision. It is applicable only if ‘services’ are made available. The word ‘services’ used is in plural and it is referrable to both technical and consultancy services. It is relevant to note that clause (b) which excludes fee for ‘included services’ is applicable to both technical and consultancy services. It is recorded by the DRP in Para 6.4 as follows: “The Indian company approaches the assessee company for risk evaluation of the proposed project and the prospective steps to be taken towards bidding process. Through a web based software “RISK REVIEW”, the Indian Company submits the details of the proposed project which include the name of the project, customer details, geography, end user, human resources, products and services to be rendered, time for execution etc.” 12. Assessee’s contention that the service rendered by the assessee is ‘project based’ is not disputed by the Revenue. Thus, in substance, the Indian entity seeks the opinion of its one of the group companies based in USA to review the risk factor involved in the particular project. The DRP has also recorded that Minutes of Meeting is circulated to the whole team which contains the issues discussed and action to be taken to mitigatetherisks involved in executing the project and based on such discussion, the working team of Indian company makes necessary changes in the proposed project and the bid is submitted to the proposed customer for evaluation. 13. Thus, it is clear that the fee paid is for the evaluation of risk factor by the assessee company which is based in USA. Though it was argued by Shri Aravind that the results of such activities are made available to the other entities with ABB group, we may record the explanation given by Shri Suryanarayana that the word ‘made available’ used in portion of the agreement extracted in Para 6.7 of DRP’s directions refers only to the results which the entities in the group companies may use and the same cannot be interpreted or equated to any other technical design or consultancy, the benefit of which the ABB India can derive in perpetuity. He is right in his submission because the services rendered by the assessee is project specific and terminates with submission of bid by the ABB India after making necessary changes or corrections in the bid based on the evaluation report. If the agreement permits the assessee to make available the results for guidance to other entities in the group, the same cannot be attributed as services ‘made available’ which could be used in perpetuity. 14. In view of the above, the contention urged on behalf of the revenue that opinion tendered by the assessee falls within the parameters ‘made available’ must fail. Resultantly, this appeal is devoid of merits and hence, the following; ORDER (i)Appeal is dismissed; (ii)Questions of law are answered in favour of the assessee and against the revenue. of the assessee and against the revenue. No costs. Sd/- JUDGE Sd/- JUDGE