R.S.Syal ( AM) :-This appeal by the assessee arises out of the order passed by the Assessing Officer on 18.10.2010 u/s 144C(13) read with section 143(3) of the Income-tax Act, 1961 (hereinafter also called 'the Act') in relation to the A.Y. 2007-08.
2. First ground of the appeal reads as under :-
"The learned AO has erred in law and in fact, in holding that the services rendered by the Appellant to Larsen and Toubro Limited for review of designs and documents fall within the scope of 'fees for included services' under Article 12 of the Double Taxation Avoidance Agreement between India and USA."
3. Briefly stated the facts of the case are that the assessee was incorporated in and is tax resident of USA. It is a consulting firm engaged in providing services to the power industry by providing diverse services such as operating power plants, decommissioning consulting, project solutions and other engineering based services. In the previous year relevant to the assessment year under consideration, the assessee received a sum of Rs. 2,22,16,154/- from L&T Limited for rendering consulting and engineering services in relation to Ultra Mega Power projects in Mundra and Sesan. The assessee appended the following note in the computation of total income, filed along with its return of income:
"Fees for consulting and engineering services of USD 499,106.66:
During the year, S& L has also received USD 499,106.66 as fees for consulting and engineering services from Larsen & Toubro Ltd. The same is not taxable as the services do not make available technical knowledge, experience, skill or know how within the meaning of FIS as per Article 12(4) of the DTAA between India & USA. Further, since the S& L does not have a PE in India, the said sum if not taxable as business income in India."
4. The assessee was called upon to explain as to why the amount received from L&T should not be treated as 'fees for technical services and taxed accordingly. The assessee submitted that the same did not fall within the scope of 'fees for included service' under Article 12 of the Double Taxation Avoidance Agreement between India and U.S.A (hereinafter also called DTAA). The Assessing Officer, vide the draft of assessment order u/s 144C(1) dated 22.12.2009, taking into consideration the submissions advanced on behalf the assessee and the facts necessary for the determination of the issue, held that the services rendered were in the nature of 'consulting and engineering services in preparation of the technical designs basis in the form of review of designs for Ultra Mega Power Projects at Mundra, Sasan and Krishnapatnam' in India to L&T. He, therefore, held the amount as covered u/s 9(i)(vii) of the Act. He also took up the assessee's contention about the non-taxability of the amount under the DTAA and finally took the view that the same was includible in the scope of 'Fees for included services' under Article 12 of the DTAA.
5. The assessee approached the Dispute Resolution Panel (DRP), who vide its order dated 28.09.2010 echoed the action of the Assessing Officer. In the final order passed u/s 144C(13) of the Act, the Assessing Officer included the sum of Rs.2.22 Crore in the total income of the assessee as a 'fees for technical services'. The assessee is in appeal in the terms as set out in the ground above.
6. We have heard the rival submissions and pursed the relevant material on record. At the outset, we want to make it clear that the Assessing Officer held the amount as taxable u/s 9(i)(vii) of the Act as 'fees for technical services' as well as falling within the scope of 'fees for included services' under Article 12 of the DTAA. From the very fact that the assessee has challenged the finding of the Assessing Officer only under Article 12 of the DTAA, it is manifest that the finding of the AO as regards the nature of services rendered by the assessee as technical services within the meaning of Section 9(i)(vii) of the Act has been accepted. The ld. AR also focused his attention on Article 12 of the DTAA by arguing that the services rendered by the assessee did not 'make available' any technical knowledge to L&T. As such we are restricting ourselves only in examining as to whether the technical services so provided by the assessee resulted in 'making available' any technical or consultancy services to L&T.
7. Before proceeding further it would be relevant to examine the Agreements entered into between the assessee and L&T. Two agreements with similar terms and conditions were entered into in respect of two different projects. As admittedly the terms and conditions of both the Agreements are similar, we are, therefore, taking up the Agreement dated 07.08.2006 (hereinafter called 'the Agreement'). The preamble of this agreement is as under:-
"Sargent & Lundy, L.L.C. (an Illinois limited company hereinafter "S&L"), proposes to provide consulting and engineering services required by Larsen & Toubro, Limited (hereinafter "L &T") in the preparation of technical design bases for the two of the Ultra Mega Power Projects known as Mundra and Sasan. These services will be provided in conjunction with services provided to under a separate agreement by Larson & Toubro - Sargent & Lundy (L&T-S&L)."
8. From the above preamble it is apparent that the assessee agreed to provide 'consulting and engineering services' required by L&T "in the preparation of technical designs" for Ultra Mega Power Projects. It is true that the mere nomenclature of 'consulting and engineering services' cannot be determinative of the real character of the services. The true nature of services can be culled out only from the examination of the duties assigned to and done by the assessee. The scope of the services is provided in para 1 of the Agreement, which reads as under :-
"The scope of services shall include consulting and engineering services, excluding construction management or the assignment of personnel in the field, in the preparation of technical design basis for two Ultra Mega Power Projects in India each having approximately 4000 MW capacity as described in the draft Power Purchase Agreements (PPAs) and Requests for Proposal (RFPs)."
9. It transpires from a cursory look at the above that the scope of the services provided by the assessee consisted of 'consulting and engineering services' in the preparation of the technical design bases for the Ultra Mega Power Projects in India. L&T was to bid for setting up power projects at Mundra, Sasan and Krishapatnam. It engaged the services of the assessee and LTSL (a joint venture of the assessee and L&T) for technical evaluation and preparation of necessary designs and documents. Exhibit I of the Agreement reveals 'Division of responsibility'. A perusal of such Exhibit divulges that apart from the General review of project documents and scope determination, the assessee was assigned the job of evaluation of several aspects including Boiler and Auxiliaries, Determine plant configuration, Design criteria for Cimney with Reference Specification, Electrical Single Line Diagram, Design parameters and data sheets for major outdoor electrical equipments, so on and so forth. All the above activities, without any hesitation, are in the realm of technical services for setting up power project. It is worth mentioning that several thousand man hours were spent by several technical people of the assessee in doing the job assigned, which translated into payment amounting to Rs.2.22 crore and odd. Having determined the nature of services, now we need to decide as to whether the consideration for such services can be construed as fees for technical services?
10. We have earlier noticed that the inclusion of services in the 'fees for technical services' u/s 9(1)(vii) of the Act is rightly not under challenge before us. The only controversy is as to whether such technical services can fall within the scope of the DTAA. Article 12 of the DTAA, inter alia, deals with 'fees for included services'. Para 4 of the Article defines this expression as :
" .......payments 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: ....... 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." It is not the case of the assessee that the payment is covered by para 5 of the Article 12, which states that "fees for included services" does not include amounts paid in respect of certain items enumerated therein. A brief resume of the services provided by the assessee to L&T as noticed above makes it abundantly clear that these are in the nature of 'technical or consultancy services' as per the main part of para 4 of the DTAA. To this extent the definition of 'fees for included services' given under the DTAA matches with that given in Explanation to section 9(1)(vii), which provides that : "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 .....". At the cost of repetition, we mention that that the assessee has not assailed the finding of the AO in treating the amount as covered under 'fees for technical services' as per section 9(1)(vii) of the Act. The arguments made before us revolve around the definition of 'fees for included services' as per Article 12 of the DTAA. In nutshell, there are two aspects of the definition of 'fees for included services' for our purpose, viz., first that there should be rendering of 'technical or consultancy services' and second that such services should be 'made available' to the payer of such services. On perusal of the details of the nature of work done by the assessee for L&T, we have held above that the consideration is for the rendition of 'technical or consultancy services'. The case of the assessee largely hinges on the second aspect of the definition, being 'making available' such technical or consultancy services. The ld. AR argued that the activities done by the assessee did not result into making available such technical or consultancy services to L&T.
11. In order to fortify his view that the amount in question cannot be considered as fees for included services as per Article 12 of the DTAA, the ld. AR relied on a decision dated 23.04.2009 of the Authority for advance ruling in Worly Paresons Services Privat -Ltd. in which it has been held that such technical services cannot be included within the scope of Article 12 as nothing is made available. In the opposition, the ld. DR relied on a later decision of the Authority for advance ruling in Perfetti Van Melle Holding B.V. Suffice to say both the decisions are based on their own facts. Sometimes even a minor significant factual variation makes one case distinguishable from the other, though both prima facie appear to be similar. The above decisions rendered by the Authority for advancing ruling are confined to their own facts and have no precedent value in other cases. As such, we will examine the facts of the present case for ascertaining as to whether the technical services were made available by the assessee to L&T.
12. The expression 'make available' in the context of 'fees for technical services' contemplates that the services are of such a nature that the payer of the services come to possess the technical knowledge so provided which enables it to utilize the same in future. Recently, the Hon'ble Karnatka High Court in the case of CIT & Ors. Vs. De Beers India Minerals Pvt. Ltd. [2012 (346 ITR 467) (Karn)] dealt with the concept of 'make available' in the context of fees for technical services. It has been held that : "The expression 'make available' only means that the recipient of the service should be in a position to derive an enduring benefit and be in a position to utilise the knowledge or know-how in future on his own. By making available the technical skills or know- how, the recipient of the same will get equipped with that knowledge or expertise and be able to make use of it in future, independent of the service provider .......".
13. From the above enunciation of law by the Hon'ble AP High Court, it is palpable that the technical knowledge will be considered as 'made available' when the person acquiring such knowledge is possessed of the same enabling him to apply it in future at his own. If the payee uses all the technical services at his end, albeit the benefit of that directly and solely flows to the payer of the services, that cannot be characterized as the making available of the technical services to the recipient. The Special bench of the tribunal in Mahindra & Mahindra Ltd. VS. DCIT (2009) 122 TTJ (MUM)(SB) 577 has discussed the concept of 'make available'. In that case, the lead managers had rendered technical, managerial or consultancy services in the GDR issue, which services were not made available to the assessee inasmuch as the payer only derived the benefit from the technical services provided by the lead managers without getting any technical knowledge, experience or skill in its possession for use in future. In that view of the mater, it was held that the 'management and selling commission' cannot be taxed in India as per the DTAA because nothing was made available to the payer. It follows that in order to be covered within the expression 'make available' what is necessary is that the service provider should transmit the technical knowledge etc. to the payer so that the payer may use such technical knowledge in future without involvement of the services provider.
14. Adverting to the facts of the extant case we find that the technical services provided by the assessee in the shape of technical plans, designs, projects, etc. are nothing but blueprints of the technical side of mega power projects. Admittedly such services are rendered at a pre-bid stage. It is quite natural that such technical plans etc. are meant for use in future alone if and when L&T takes up the bid for the installation of the power project. When the otherwise technical services provided by the assessee are of such a nature which are capable of use in future alone, we fail to comprehend as to how the same can be considered as not made available to L&T. In our considered opinion, there is no infirmity in the impugned order holding that the assessee received consideration for 'making available' technical services within the meaning of Article 12 of the DTAA. This ground is not allowed.
15. Second ground is about the levy of interest of Rs. 9,10,458/- u/s 234B of the Act. We have noticed above that the assessee is tax resident of USA. Its entire income is liable for deduction of tax at source in India. In that view of the matter, it is obvious that there can be no chargeability of interest u/s 234B of the Act. The decision of the Hon'ble Bombay High Court in the case of D.I (International Taxation) VS. NGC Network Asia Ltd. (2009) 222 CTR 86 (Bom) is authority for the proposition of non-charging of interest u/s 234B in case of non-residents. This ground is, therefore, allowed.
16. Last ground about the initiation of penalty proceedings u/s 271(1)(c) of the Act, is premature and hence does not require any adjudication.
17. In the result, the appeal is partly allowed.