AVION SYSTEMS INC., MUMBAI V. DDIT (IT)-I (1), MUMBAI

ITA 1745/MUM/2009

• Counselvise Citation: [2012] 140 COUNSELVISE.COM (IT) 62497 (ITAT-MUMBAI)
• Duration Of Justice: 3 year(s) 2 month(s) 13 day(s)
• Appeal Type: Income Tax Appeal
• Pronouncement Date: 30-05-2012
• Appeal Filed By: Assessee
• Order Result: Dismissed
• Bench Allotted: L
• Next Hearing Date: 03-04-2012
• Assessment Year: 2003-2004
• Appeal Filed On: 17-03-2009
• Result in Favour of: Revenue
• Court: TRIBUNAL
• Department Lawyers: NARENDRA KUMAR
• Keywords: Double taxation relief; Permanent establishment
• Section: 201(1)

Judgement Text

IN THE INCOME TAX APPELLATE TRIBUNAL MUMBAI BENCHES L , MUMBAI BEFORE :SHRI R.S.SYAL, AM & SHRI AMIT SHUKLA, JM ITA NO.1745 /MUM/2009 ASSESSMENT YEAR: 2003-2004 AVION SYSTEMS INC. C/O C.K.DHABALIA & CO. CAS, C- 501, RAMDEV COMM. COMPLEX, DR. DALVI RD. KANDIVALI(W), MUMBAI-67. PAN NO.AAECA6462F DDIT (IT)-I (1), MUMBAI. APPELLANT VS. RESPONDENT APPELLANT BY : MR. VIPUL JOSHI RESPONDENT BY : MR. NARENDRA KUMAR DATE OF HEARING : 4 TH APRIL 2012 DATE OF PRONOUNCEMENT : 30 TH MAY 2012 O R D E R PER AMIT SHUKLA (J.M.) : THE PRESENT APPEAL HAS BEEN PREF ERRED BY THE ASSESSEE AGAINST THE ORDER DATED 18-12-2008, PASSED BY THE CIT(A)-XXXI, MUMBAI FOR THE QUANTUM OF ASSESSMENT FOR T HE ASSESSMENT YEAR 2003-2004 ON THE FOLLOWING GROUNDS :- I. ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER IN TAXING THE FEES RECEIVED BY THE APPELLANT FOR LOCATING THE TECHNOCRATS AND DEPUTED TO LUCENT HINDUSTAN TECHNOLOGIES LIMITED (HEREINAFTER REFERRED TO AS LUCENT) ITA NO : 1745/MUM/2009 2 AS FEES FOR INCLUDED SERVICES IN TERMS OF ARTICLE 12 OF THE INDIA US TREATY. 2) ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCOME TAX (APPEALS) ERRED IN HOLDING THAT THE FEES RECEIVED AS FEES FOR TECHNICAL SERVICES IN TERMS OF ARTICLE 12 OF THE INDIA US TREATY DESPITE THE FACT THAT THE APPELLANT HAS NOT MADE AVAILABLE TECHNICAL SKILL, KNOWLEDGE ETC. TO LUCENT. 3) WITHOUT PREJUDICE TO STATED ABOVE, ON THE FACTS AND CIRCUMSTANCES OF THE CASE AND IN LAW, THE LEARNED COMMISSIONER OF INCO ME TAX (APPEALS) ERRED IN CONFIRMING THE ACTION OF THE ASSESSING OFFICER TO TAX THE ENTIRE GROSS RECEIPTS RECEIVED BY THE APPELLANT FROM THE LUCENT WITHOUT REDUCING THE AMOUNT DUE TO THE TECHNOCRATS WHICH WERE IN THE NATURE OF PURE REIMBURSEMENT AND SUCH AMOUNT WAS DIVERTED AT SOURCE AND HENCE NEVER CONSTITUTES THE RECEIPTS OF THE APPELLANT. 2. THE ENTIRE CONTROVERSY HERE IN THIS APPEAL REVOLVES AROUND THE SOLITARY ISSUE, WHETHER THE RECEIPTS OF ` .2,14,33,555/- RECEIVED BY THE ASSESSEE WHICH IS A NON-RESIDENT COMPANY FROM LUCENT TECHNOLOGIES HINDUSTAN (PVT.) LTD ( IN SHORT LUCENT), AN INDIAN COMPANY, IN LIEU OF SERVICES PROVIDED, IS TAXABLE IN INDIA IN TERMS OF ARTICLE 12 OF THE INDO- US DTAA OR NOT. THE FACTUAL MATRIX AS CULLED OUT FROM THE RECORDS ARE THAT THE ASSESSEE, M/S AVION SYSTE MS INC., WHICH IS A US BASED COMPANY IS SPECIALIZED IN PROVIDING HIGHLY QUALIFIED TECHNOCRATS AND TECHNOLOGY RELATING TO TELECOM SECTOR AND HIGHER SOLUTIONS IN TELECOM ENGINEERING SERVICES. IT HAD ENTERED INTO AN AGREEMENT WITH LUCENT , WHICH IS AN INDIAN BASED COMPANY, ENGAGED IN MANUFACTURING AND ITA NO : 1745/MUM/2009 3 COMMISSIONING OF TELECOM EQUIPMENT IN INDIA, FOR PROVIDING QUALIFIED TECHNOCRATS FOR ITS PROJECT IN INDIA. THE ASSESS ING OFFICER WITH A VIEW TO SCRUTINIZE THE TRANSACTI ONS BETWEEN THE TWO PARTIES AND TO EXAMINE, WHETHER THE ASSESSEE HA S SIMPLY SUPPLIED THE QUALIFIED PROFESSIONALS/TECHNOCRATS PERSONS OR IS JUST A BLANKET TO CHANGE NATURE OF INCOME FROM FEES FOR INCLUDED SERVICES (IN SHORT FIS) TO THAT OF BUSINESS PROFITS. AS THE FIS IS TAXABLE UNDER ARTICLE 12 OF INDO-US TREATY, WHEREIN BUSINESS PROFIT ARE NOT TAXABLE IN VIEW OF THE FACT THAT THE ASSESSEE DID NOT HAVE PERMANENT E STABLISHMENT (PE) IN INDIA. THE ASSESSING OFFICER FIRST OF ALL NOTED THE FOLLOWING IMPORTANT PROFILE FROM THE WEBSITE OF THE COMPANY, WH ICH ARE QUITE RELEVANT :- IN TECHNOLOGY, AVION HAS HELPED MANY CLIENTS WITH CUSTOM SOFTWARE DEVELOPMENT, WEB SITE CONSTRUCTION, PROJECT MANAGEMENT, BUSINESS INTELLIGENCE, AND IT INFRASTRUCTURES TO ONLY NAME A FEW. AVIONS TECHNOLOGY DIVISION RANGES FROM SIMPLE STAFF AUGMENTATION TO FULLY OUTSOURCED TURNKEY PROJECTS IN ORDER TO HELP CUSTOMERS MINIMIZE COST AND MITIGATE RISK IN TELECOM, AVION HAS PLAYED A CRITICAL ROLE IN HELPING TO IMPLEMENT NETWORK INFRASTRUCTU RES WORLDWIDE FOR COMPANIES SUCH AS SPIRIT, NORTEL, LUCENT, NOKIA AND MOTOROLA. AVION SYSTEMS WILL CONTINUE TO PLAY AN IMPORTANT ROLE BY HELPING COMPANIES AND NATIONS TO DEPLOY EMERGING THIRD GENERATION (3G) TECHNOLOGIES SUCH AS GPRS AND UMTS. X X X X X X X X X X X X IN TODAYS EVER-CHANGING TELECOMMUNICATIONS INDUSTRY, THE DEMAND FOR HIGHLY TRAINED SPECIALIZED PEOPLE IS ESSENTIAL FOR YOUR COMPANY TO SUCCESSFULLY COMPETE IN THE TELECOM ITA NO : 1745/MUM/2009 4 SECTOR. WE TAKE PRIDE WITH OUR ABILITY TO MATCH HIGHLY QUALIFIED STAFF WITH OUR CLIENTS REQUIREMENTS, BOTH IN THE DOMESTIC AND INTERNATIONAL ARENAS. AVION SYSTEMS OFFERS A WIDE RANGE OF TELECOM BUSINESS SOLUTIONS INCLUDING OUR EXPERTISE IN NETWORK DEPLOYMENT THAT ENCOMPASSES NETWORK DESIGN THROUGH FINAL ACCEPTANCE FOR BOTH WIRELINE NETWORKS AND WIRELESS NETWORKS. X X X X X X X X X X X X WHETHER YOU NEED TO AUGMENT YOUR CURRENT ENGINEERING STAFF OR HAVE YOUR TELECOM PROJECTS MANAGED AND EXECUTED IN AN OUTSOURCED CAPACITY, AVION SYSTEMS IS READY TO WORK FOR YOUR TODAY. WITH THE INCREASING COMPLEXITY OF TODAYS MULTIMILLION GATE SOC (SYSTEM ON A CHIP) DESIGNS, THE AGGRESSIVE TIME-TO- MARKET REQUIREMENTS ARE BECOMING TOUGHER TO MEET. AVIONS ASIC DESIGN EXPERIENCE CAN PROVIDE THE EXPERTISE NEEDED TO COMPLETE YOUR ASIC/COT DESIGNS WITH ABSOLUTE PRECISION, WHILE COMPLYING WITH STRICT TIME-LINE REQUIREMENTS. WHETHER ITS DEVELOPING SYNTHES IZABLE RTL OR ASSISTING IN THE VERIFICATION OF ACQUIRED IP (INTELLECTUAL PROPERTY), AVIONS VLSI ENGINEERS CAN PROVIDE THE ADDITIONAL BANDWIDTH THATS NEEDED TO REDUCE YOUR CHIPS DESIGN CYCLE-TIME. ALTERNATIVELY, OUR ENGINEERS CAN TAKE YOUR EXISTING DESIGNS AND CREATE RE-USEABLE CORE COMPONENTS THAT CAN BE LEVERAGED TO HELP REDUCE THE DESIGN CYCLES OF YOUR NEXT- GENERATION INITIATIVE. AVION SYSTEMS ALSO PROVIDES COMPLETE BACKEND SERVICES REQUIRED TO TAKE YOUR DESIGN FROM NETLIST-TO-GDS. OUR PHYSICAL DESIGN ENGINEERS ARE EXPERIENCED IN THE LAYOUT AND TIMING ISSUES ASSOCIATED WITH VDSM (VERY DEEP SUB- MICRON) TECHNOLOGIES. ITA NO : 1745/MUM/2009 5 THERE IS AN INCREASING NEED FOR FASTER, BETTER AND MORE RELIABLE NETWORKS, THUS INCREASING THE NEED FOR THE NEXT GENERATION OF NETWORKING HARDWARE AND SOFTWARE PRODUCTS. COMPANIES OF ALL SIZES ARE COMPETING TO DEVELOP AND PROVIDE BETTER NETWORKING SOLUTION FOR DEMANDING CUSTOMERS. SINCE AVIONS INCEPTION, WE HAVE BEEN SERVING THE TELECOMMUNICATIONS AND DATA COMMUNICATIONS INDUSTRY IN DIFFERENT AREAS OF DEVELOPMENT AND PORTING WITH EXPERIENCED ENGINEERS. IN TODAYS EVER-CH ANGING INDUSTRY, THE DEMAND FOR HIGHLY TRAINED, SPECIALIZED PEOPLE IS ESSENTIAL FOR YOUR COMPANY TO SUCCESSFU LLY COMPETE IN THE TELECOM SECTOR. WE OFFER A WIDE RANGE OF EXPERTISE IN DATA COMMUNICATIONS THAT ENCOMPASS EVERY KIND OF SOLUTIONS, INCLUDING NEW PRODUCT DEVELOPMENT AND THE ENHANCEMENT OF EXISTING PRODUCTS. WHETHER, YOU NEED TO AUGMENT YOUR CURRENT ENGINEERING STAFF OR MANAGE YOUR PROJECTS ON AN OUTSOURCED BASIS, AVION SYSTEMS IS READY TO WORK FOR YOU TODAY. AVION SYSTEMS CAN ASSIST WITH END TO END PRODUCT REALIZATION THROUGH LOW-LEVEL HARDWARE AND SOFTWARE DESIGN, DEVELOPMENT AND IMPLEMENT ATION WITH WIDE RANGING EXPERTISE IN: TAKING THE CLUE FROM SUCH A SOPHISTICATED PROFILE OF THE ASSESSEE- COMPANY, HE OBSERVED THAT THE AS SESSEE COMPANY IS ONE OF THE LEADER IN THE TELECOM ENGINEERING WHO HAS A FULL FLEDGED QUALIFIED ENGINEERS, WHO CAN DELIVER HIGHER SOLUTIONS IN THE RELATED TECHNOLOGY IN THE FIELD OF TELECOM SECTOR. 2.1 IT WAS IN PURSUANT OF SUCH A PROFILE OF THE ASSESSEE COMPANY THAT THE LUCENT HAD ENTERED INTO AG REEMENT FOR SUPPLYING OF HIGHLY ITA NO : 1745/MUM/2009 6 QUALIFIED TECHNOCRATS FOR ITS TELECOM PROJECT WHICH IT HAD RECEIVED UNDER A CONTRACT FROM RELIANC E TELECOM. IN THE ASSESSMENT ORDER, EXTENSIVE REFERENCE HAS BEEN MADE TO THE VARIOUS CLAUSES OF THE AGREEMENT TO DEDUCE THAT THE ASSESSEE HAD IN FACT MADE AVAILABLE TECHNOLOGY AND TECHNICAL PERSONNEL TO THE LUCENT AND, HENCE, THE PAYMENT RECEIVED BY THE LUCENT FALLS WITHIN THE AMBIT OF FIS. 2.2 BEFORE THE ASSESSING OFFICER THE MAIN CONTENTIONS OF THE ASSESSEE WERE THAT, THE SCOPE OF C ONTRACT VESTED TO THE ASSESSEE BY LUCENT WAS LIMITED TO LOCATE THE TECHNOCRATS OUTSIDE INDIA AND PROVIDE THESE TECHNICAL PERSONS TO THE LUCENT, WHO WOULD THEN WORK UNDER SUPERVISION AND CONTROL OF LUCENT. THE ASSESSEE ALSO RELIED UPON VARIOUS CLAUSES OF THE AGREEMENT AND SUBMITTED THAT THE ENTIRE AGREEMENT IS FOR PROVIDING TECHNI CAL MANPOWER WITHOUT HAVING ANY RESPONSIBILITY OR CONTROL OVER THES E PERSONS. THE SALARIES OF THESE TECHNICAL PERSONS WERE PAID BY T HE LUCENT TO THE ASSESSEE COMPANY WHICH WERE IN TURN DIRECTLY REIMBURSED TO THESE PERSONNEL ALONG WITH THE MARK UP OF 6% TO THE ASSESS EE OVER AND ABOVE THE REIMBURSEMENT OF THE SALARY. THUS, THE ENTIRE TRANSACTIONS OF THE ASSESSEE VIS--VIS LUCENT COMPANY DOES NOT FALL WITHIN THE AMBIT OF FIS AS STIPULATED UNDER ARTICLE 12(4)(B). 2.3 THE ASSESSING OFFICER REJECTED THE CONTENTION OF THE ASSESSEE AND AFTER CONSIDERING THE SUBMISSI ONS AND ANALYSIS OF THE VARIOUS ITA NO : 1745/MUM/2009 7 CLAUSES OF THE AGREEMENT REACHED TO THE FOLLOWING CONCLUSIONS WHICH IN BRIEF ARE NARRATED HEREUNDER :- I) THAT THE MANPOWER SUPPLIED BY THE ASSESSEE WAS TERMED AS TEMPORARY WORKE R, HOWEVER, ITS EFFECTIVE CONTROL, PAYMENT RESPONSIB ILITY, RETIREMENT BENEFITS, DEDUCTION OF TAX ETC. WERE VESTED WITH THE ASSESSEE AND HENCE, THEY ARE THE EMPLOYEES OF THE ASSESSEE COMPANY WORKING UNDER THE SUPERVI SION AND CONTROL OF THE ASSESSEE TO EXECUTE THE NEC ESSARY CONTRACT FOR THE LUCENT; II) THE CONTRACT BETWEEN THE TWO PARTI ES IS IN FACT NOT THAT OF SIMPLY SUPPLYING OF MANPOWER BUT FOR OUTSOURCING OF CONTRACT TAKEN BY LUCENT IN INDIA FOR COMMISSIONING OF TELECOM EQUIPMENT AND TECHNOLOGY FOR RELIANCE TELECOM. THIS CONCLUSION WAS DRAWN FROM THE FACT THAT NO LABOUR RELATED RESPONSIBILITY OR PAYMENT RELATED RESPONSIBILITY WERE TAKEN BY THE LUCENT AS PER THE AGREEMENT, RATHER IT WAS THE RESPONSIBILITY OF THE ASSESSEE; III) THE CONTRACT RELATED RESPONSIBILITY LIKE SELECTING THE MATERIALS REQUIRED FOR THE PROJECT AND ALSO THE GUARANTEE OF RAW MATERIAL SELECTED, R EPAIRS AND REQUIREMENT OF THE MATERIALS WERE ENTIRELY UPON THE ASSESSEE COMPANY ONLY. FURTHER, IF THE ASSESSEE IS UNABLE TO EXECUTE THE ITA NO : 1745/MUM/2009 8 CONTRACT IN A STIPULATED PERIOD, IT WILL BE SUBJECTED TO LIQUIDATED DAMAGES AND PENALTY. IV) FROM THE ATTACHMENTS ANNEXED TO THE AGREEMENT, HE INFERRED THAT THE CONTRACT RELA TED RESPONSIBILITY IS THAT OF THE ASSESSEE AND RIGHTS LIKE INTELLECTUAL PROPERTY BELONGS TO THE LUCENT. HENCE, THE CONCLUSION DRAWN BY THE ASSESSING OFFICER WAS THAT THE ENTIRE AGREEMENT AND TRANSACTIONS BETWEEN THE ASSESSEE AND THE LUCENT IS OF MAKING AVAILABLE TECHNI CAL KNOWLEDGE, EXPERTISE, SKILL AND NOWHOW, WHICH IS TAXABLE UNDER ARTI CLE 12 AS FIS IN INDIA. HE THEREFORE, TREATED THE ENTIRE RECEIPTS OF ` .2,14,33,555/- RECEIVED BY THE ASSESSEE AS TAXABLE INCOME IN INDIA UNDER ARTICLE 12 OF INDO-US DTAA. 3. IN THE FIRST APPEAL, THE CIT(A) CONFIRMED THE FINDINGS AND THE CONCLUSIONS DRAWN BY THE ASSESSIN G OFFICER. HE ALSO EXTENSIVELY REFERRED TO VARIOUS CLAUSES OF THE AGREEMENT AND ALSO ARRIVED AT THE INDEPENDENT CONCLUSION THAT PAYMENT RECEIVED BY THE ASSESSEE FROM LUCENT IS IN THE NATURE OF FIS ONLY, WHICH IS TAXABLE UNDER ARTICLE 12. LEARNED CIT(A) RELIED UPON THE EXAMPL ES 3 & 7 OF MEMORANDUM OF UNDERSTANDING CONCERNING FEES FOR IN CLUDED SERVICE UNDER ARTICLE 12 AS GIVEN IN INDO-US TREATY AND HELD THAT THE SAME ARE APPLICABLE ON THE ASSESSEE AND, THEREFORE, IT IS TAXABLE UNDER ARTICLE 12(4)(B). ITA NO : 1745/MUM/2009 9 4 . LEARNED AR ON BEHALF OF THE ASSESSEE MADE EXTENSIVE ARGUMENT AND TRIED TO REBUT THE FINDINGS AND CONCLUSION DRAWN BY THE ASSESSING OFFICER AS WELL AS CIT(A). HIS PRELIMINARY CONTENTIONS WERE THAT THE ASSESSEES MAIN BUSINESS ACTIVITY IS SUPPLY OF MANPOWER, I.T. STAFFING AND CONSULTANCY. THE AGR EEMENT BETWEEN THE ASSESSEE AND THE LUCENT WAS ON PRINCIPAL TO PRINCIPAL BASIS AND WAS MAINLY FOR SOURCING EXPERTS AND TECHNICAL PERSONNEL LOCATED OUTSIDE INDIA AND DEPUTING THEM FOR TEMPORARY EMPLOYM ENT TO LUCENT FOR ITS OPERATION IN INDIA. THE PERSONS DEPUTED TO LUCENT WERE NOT IN THE EMPLOYMENT OF THE ASSESSEE AND MOST OF THEM WERE EX-LUCENT RESOURCES, WHO HAD EARLIER WORKED ON VARIOUS PROJECTS FOR LUCENT. THESE TECHNICAL EXPERTS WERE LOCATED IN THE DIFFERENT PAR TS OF THE WORLD AND WHENEVER THERE WAS A NEED FOR ANY TECHNICAL PERSON BY LUCENT FOR ITS PROJECT, IT WOULD PLACE AN ORDER TO THE ASSESSEE BY FORWARDING THE RESUMES OF THESE PERSONNEL. LEARNED AR DREW OUR ATTENTION TO VARIOUS CORRESPONDENCE AND RESUMES ON SAMPLE BASIS OF SOME OF THE PERSONNEL ENGAGED BY THE ASSESSEE FOR LUCENT COMPANY, TO DEMONSTRATE THAT THE ASSESSEES JOB WAS MAINLY TO LOCATE THE REQUIRED PERSONNEL AND THEN SUPPLY THEM TO LUCENT. ALL THE VISA, TRAVELLING FORMALITIES UNDERTAKEN BY THE PERSONNEL WERE MOSTLY DONE WITH THE HELP OF THE LUCENT. HE FURTHER SUBMITTED THAT THE ASSESSEE WA S NOT INVOLVED IN SELECTION OR PERFORMANCE OF SUCH TEMPORARY PERS ONNEL AND EVEN THE TIME SHEETS OF WORKING HOURS WERE MAINTAINED BY THE LUCENT. SALARY OF THESE PERSONNEL WERE PAID TO THE ASSESS EE, ONLY TO REIMBURSE THEM ITA NO : 1745/MUM/2009 10 ACCORDING TO THEIR WORKING HOUR S AND WHAT THE ASSESSEE USED TO GET IN LIEU OF ALL THIS WAS 6% OF CHARGES ONLY. HE ALSO DREW OUR ATTENTION TO SAMPLE INVOICES WHIC H WAS RAISED TO THE LUCENT SHOWING THE REIMBURSEMENT OF PAYMENT ALONG WITH MARK UP OF 6%. HE STRONGLY RELIED UPON CERTIFICATE GIVEN BY T HE LUCENT GIVEN AT PAGE 75 OF THE PAPER BOOK TO SHOW THAT THE TECHNOC RATS WHICH WERE SUPPLIED BY THE ASSESSEE WERE ACTUALLY DEPLOYED BY THEM FOR THEIR CONTRACT WITH THE RELIANCE INFOCOM LTD. AND THEY HAVE WORKED UNDER THE CONTROL AND SUPERVISION OF THE LUCENT WITHOUT ANY CORRESPONDING REPORTING OBLIGATION TO THE ASSESSEE. FURT HER THE ASSESSEE WAS NOT INVOLVED DIRECTLY IN THE EXECUTION OF THE CONT RACT WITH RELIANCE INFOCOM LTD. OR PROVIDING ANY KIND OF TECHNICAL OR CONSULTANCY SERVICE DURING THE EXECUTION OF THE CONTRACT. AS REGARDS TO THE VARIOUS CLAUSES WHICH HAS BEEN REFERRED BY THE ASSESSING OFFICER, SPECIFICALLY CLAUSE 10 RELATING TO LEVY OF TAXES, CLAUSE 20 FOR COMPLIANCE WITH LAWS AND REGISTRATION FORMALITIES FOR BONUS, GRATUITY, PROV IDENT FUND ETC. HE SUBMITTED THAT THEY WERE MERE PAPER FORMALITIES AND THESE CLAUSES OF THE AGREEMENT WERE IN FACT REDUNDANT CLAUSES. ALTERNAT IVELY HE SUBMITTED THAT EVEN IF THESE TECHNICAL PERSONS WERE TO BE REGARDED AS EMPLOYEES OF THE ASSESSEE THEN ALSO ASSESSEE HAD NOT MADE AVAILABLE ANY TECHNOLOGY OF PROVIDING TECHNICAL SERVICES TO THE LUCENT AS STIPULATED IN ARTICLE 12(4) OF INDO-US DTAA. IN SUPPORT OF HIS CONTENTIONS, HE HAS RELIED UPON THE FOLLOWING JUDGMENTS :- ITA NO : 1745/MUM/2009 11 I) DDIT VS TEKMARK GLOBAL SOLUTIONS , [(2010) 38 SOT 7 (MUM)]; II) DIT VS. HCL INFOSYSTEMS LTD ., [(2005) 274 ITR 261 (DELHI)] III) IDS SOFTWARE SOLUTIONS LTD. VS.ITO, [(2009) 122 TTJ 410 (BANG)]; IV) INTERTEK TESTING SERVICES INDIA PVT. LTD. [(2008) 307 ITR 418 (AAR); V) WORLEYPARSONS SERVICES PTY.LTD ., [(2008 301 ITR 54 (AAR); VI) RAYMOND LTD. V/S DCIT [(2003) 86 ITD 791 (MUM)]; VII) CESC LTD. VS. DCIT , [(2003) 87 ITD 653 (KOL)]; VIII) DDIT VS. SCIENTIFIC ATLANTA INC . [(2009) 33 SOT 220 (MUM)]; IX) ADIT VS. BUREAU VERITAS , [(2010) 131 TTJ (MUM) 29] X) MAHINDRA & MAHINDRA LTD. VS. DCIT , [(2009) 122 TTJ (MUM)(SB) 577]. 7. PER CONTRA , LEARNED CIT DR TOOK US TO THE VARIOUS OBSERVATIONS AND THE FINDINGS OF THE ASSESSING O FFICER AS WELL AS CIT (A) AND ALSO EXTENSIVELY REFERRED TO THE VARIOUS CLAUSES OF THE AGREEMENT THAT HAS BEEN RELIED UPON BY THE ASSESSING OFFICER AS WELL AS CIT(A) AND SUBMITTED THAT THESE TECHNICAL PERSONNEL WERE EMPLOYEES OF THE ASSESSEE OR OTHERWISE WHEN THES E EXPATRIATES, WERE LUCENTS EX- EMPLOYEES THEN WHAT WOULD BE THE NEED FOR HIRING THEM THROUGH THE ASSESSEE. THE ARGUMENTS PLACED BY LEARNED AR WAS TO CAMOUFLAGE THIS FACT AS TO GET BENEFIT UNDER ARTI CLE 12. HE HAS STRONGLY RELIED UPON THE FINDINGS OF THE ASSESSING OFFICE R AS WELL AS CIT(A), ESPECIALLY THE EXAMPLE 3 OF MOU OF INDO-US DTAA FOR THE PURPOSE OF ARTICLE 124(B). ITA NO : 1745/MUM/2009 12 8. WE HAVE GIVEN OUR ANXIOUS CONSI DERATION TO THE RIVAL CONTENTIONS OF THE PARTIES, FINDINGS GIVEN IN T HE IMPUGNED ORDERS AND ALSO CAREFULLY PERUSED THE MATERIALS PLACES ON RECO RD. UNCONTROVERTED FACTS IN THIS CASE ARE THAT THE ASSESSEE, W HO IS A US BASED COMPANY, DOES NOT HAVE ANY PERMANENT ESTABLISHMENT IN INDIA, HAS ENTERED INTO A TRANSACTION WITH AN INDIAN COMPANY, LUCENT, FOR SUPPLY OF QUALIFIED TECHNICAL PERSONNEL FOR LUCENTS TE LECOM OPERATIONS IN INDIA, IN PURSUANCE OF ITS CONTRACT WITH RELIANCE TELECOM. IN RELATION TO THIS TRANSACTION, THE ASSESSEE HAS OPTED TO BE GOVERNED BY INDO-US (DTAA) AND HAS TOOK SHELTER UNDER ARTICLE 12, THAT THE PAYMENT WHICH HAVE BEEN RECEIVED FROM THE INDIAN COMPANY IS NOT INCLUDED IN FIS UNDER CLAUSE 4 OF ARTICLE 12, HENCE, IS NOT LIABLE TO BE TAXED IN INDIA. HERE WERE ARE BESIEGED WITH FIRSTLY , WHETHER THE TECHNICAL PERSONNEL SUPPLIED BY THE ASSESSEE TO LUCENT ARE EMPLOYEES OF THE ASSESSEE OR HAVE BEEN SIMPLY OUTSOURCED BY THE A SSESSEE FOR FACILITATING THEM IN THE EMPLOYMENT OF THE LUCENT AS THEIR TEMPORARY EMPLOYEES AND SECONDLY , IF THE TECHNICAL PERSONNEL AR E CONSIDERED TO BE EMPLOYEES OF THE ASSESSEE, THEN WHETHER THE SERVICES PROVIDED BY THE ASSESSEE COMES WITHIN THE PURVIEW OF FEES FOR INCLUDED SERVICES UNDER CLAUSE 4(B) OF ARTICLE 12 OF THE TREATY. TO EXAMINE THIS ISSUE, WE WILL FIRST ANALYZE THE VARIOUS CLAUSES OF THE AGREEMENT DATED 12-8-2002 ENTERED BETWEEN THE PARTIES. ITA NO : 1745/MUM/2009 13 8.1 THE PREAMBLE OF THE AGREEMENT IN BRIEF PROVIDES THAT THE LUCENT IS ENGAGED IN THE ACTIVITY OF MANUFACTURING, SUPPLYING, INSTALLING AND COMMISSIONING OF TELECOM EQUIPMENT IN INDIA AND IS EXECUTING VARIOUS CONTRACTS FOR INSTALLING AND COMMISSIONING TELECOM EQUIPMENT. TO HANDLE ALL THESE ACTIVI TIES OF INSTALLATION TESTING AND INTEGRATION OF TELECOM EQUIPMENT AT VA RIOUS SITES (SERVICES) IT DID NOT HAVE ENOUGH PERSONNEL, THEREFORE, IT REQUIRED THE SERVICES OF EXPERIENCED PERSONNEL FOR PERFORMING THE SERVICES. THE AVION (I.E THE ASSESSEE COMPANY) HAS REPRESENTED THAT THEY ARE HAVING REQUISITE EXPERIENCE PERSONNEL AND CAN PROVIDE SUCH SERVICES TO LUCENT FOR PERFORMING ITS CONTRACTUAL OBLIGATIONS UPON THIS OFFER. THE LUCENT IS THUS WILLING TO ACQUIRE SUCH PERSONNEL /SERVICES FROM AVION AS PER THE TERMS AND CONDITIONS. THE SCOPE OF THE CONTRACT HAS BEEN GIVEN IN CLAUSE 4, WHEREIN IT HAS BEEN PROVIDED THAT :- 4. SCOPE OF CONTRACT 4.1 UNDER THIS CONTRACT, AVION SHALL PROVIDE TO LUCENT PERSONNEL /SERVICES OF DESIR ED EXPERIENCE AND EXPERTISE IN ACCORDANCE WITH THE PROVISIONS OF THE CONTRACT NECESSARY FOR PERFUMING SERVICES. 4.2 AVION SHALL PROVIDE TO LUCENT THE PERSONNEL OF EXPERTISE AND EXPERIENCE REQUIRED BY LUCENT. 4.3 RESOURCES PROVIDED BY AVION SHALL UNDERGO SKILL/EXPERTISE EVALUATION BY LUCENT PROJECT DIRECTOR. 4.4 LUCENT SHALL ISSUE AN ORDER REQUISITIONING THE SERVICES OF SUCH PERSONNEL IN TERMS OF THIS AGREEMENT. 4.5 THIS CONTRACT IS FOR SUPPLYING PERSONNEL/SERVICES FOR PROJECT AND LUCENT INTERPRETATION WILL BE BINDING AND FINAL IN EVEN OF ANY AMBIGUITY. ITA NO : 1745/MUM/2009 14 9 . FROM THE PREAMBLE AND SCOPE OF C ONTRACT, IT IS INFERRED THAT THE LUCENT WHICH HAS A TELECOM CONTRACT FOR SUPPLYING, INSTALLING AND COMMISSIONING OF TELECOM EQUIPMENT, REQUIRED TECHNICAL PERSONNEL TO FULFIL ITS CONTRACTUAL OBLIGATIONS AS IT DOES NOT HAS REQUISITE AND ENOUGH PERSONNEL, THEREFORE, THE ASSESSEE WHO HAS REQUISITE EXPERTS AND TECHNICAL PERSONNEL OF DESIRED EXPERIENCE AND EXPERTISE IN TELECOM RELATED TECHNOLOGY HAS PROVIDED SUCH PERSONNEL TO LUCENT AS PER THE CONTRACT. FROM THIS, IT CAN BE FU RTHER DEDUCED THAT TECHNICAL PERSONNEL BELONG TO OR ARE EMPLOYEES OF THE AS SESSEE. TO SAY THAT THEY ARE NOT THE EMPLOYEES OF THE ASSESSEE AS PER THE CONTENTION OF THE LEARNED AR WILL NOT BE CORRECT INTERPRETATION OF THE TERMS AND CONDITIONS AND SCOPE OF THE AGREEMENT. THIS ASPE CT ALSO GETS ENDORSED BY VARIOUS OTHER CLAUSES OF THE AGREEMENT WHICH ARE NARRATED IN BRIEF FOR THE SAKE OF READY REFERENCE AND APPRECIATION :- (I) CLAUSE 6 DEFINES TEMPORAR Y WORKER WHICH SHALL MEAN THE PERSONS OR PERSONS EMPLOY ED BY AVION AND PROVIDED BY AVION TO THE LUCENT TO CARRY OUT TASKS REQUIRED BY THE LUCENT IN EXECUTION OF VARIOUS PROJECTS UNDERTAKEN BY THE LUCENT , ALL UNDER THE TERMS OF THIS CONTRACT. WORK SHALL MEAN THE JOB(S) FOR WHICH THE TEMPORARY WORKER(S) IS REQUIRED BY THE LUCENT. (II) CLAUSE 8 PROVIDES THAT OR DER PLACED BY THE LUCENT SHALL CONTAIN CERTAIN INFORMATION LIKE DATE OF JOINING OF THE ITA NO : 1745/MUM/2009 15 TEMPORARY WORKER, NAMES, ADDRESS ETC., PURSUANT TO WHICH TEMPORARY WORKERS WILL REPORT TO LUCENT MANAGER DURING THE COURSE OF WORK. (III) CLAUSE 9 PROVIDES FOR COMPENS ATION THAT LUCENT SHALL PAY TO AVION FOR THE SERVICES OF TEMPORARY WORKERS REQUESTED BY THE LUCENT AT THE RATES SET FORTH IN ATTACHMENT I . ATTACHMENT I PROVIDES THAT AVION WILL PROVIDE MANPOWER WITH VARIOUS SKILLSETS & EXPERIENCE WITH MINIMUM LEVEL CRITERIA WHICH HAVE BEEN DEFINED THEREIN AND RATE FOR EXPAT PAYROLL WOULD BE AS UNDER :- RATE : 1) FOR EXPAT PAYROLL BUSINESS LUCENT AGREES TO PAY AVION FOR THE EXPAT PAYROLL BUSINESS, FOLLOWING THE RECEIPT AND ACCEPTANCE BY LUCENT OF INVOICES FOR WORK PERFORMED HEREUNDER AS FOLLOWS : LUCENT WILL PAY TO AVION, UPON SUBMITTAL OF A VALID INVOICE TO LUCENT, THE INVOICE TOTAL OF SERVICES (SALARY OF EXPATS) PLUS A FEE OF SIX PERCENT (8%) OF THE INVOICE VALUE. IN CASE, LUCENT OR ITS CUSTOM ER IS TO TAKE CARE OF BOARDING AND LODGING OR OTHER EXPENSES SUCH AS TRAVEL EXPENSES OF EXPATS IT SHALL BE DIRECTLY PAID FOR. AVION TEMPORARY EMPLOYEES WILL BE PAID ONCE PER MONTH IN US DOLLARS ON THE 15 TH DAY OF EACH MONTH FOR SERVICES RENDERED FOR THE PRIOR MONTH. AVION WILL INVOICE LUCENT FO R SERVICES AND EXPENSES ON THE 1 ST DAY OF EACH MONTH FOR SERVICES RENDERED FROM THE PRIOR MONTH. A CONTRACTOR TIME SHEET WILL BE SUBMITTED WITH THE INVOICE. UPON APPROVAL BY LUCENT, TIMESHEETS CAN BE IN THE FORM OF MANUAL WITH LUCENT MANAGER SIGNATURE OR AN ELECTRONIC PRINTED TIMESHEET WITH LUCENT MANAGER AUTHORIZATION. LUCENT WILL REMIT PAYMENT TO AVION AT ITS US HEADQUARTERS IN US DOLLARS NO LATER THAN THE 12 TH DAY OF EACH MONTH AGAINST INVOICES ALONG WITH TIME SHEETS APPROVED BY LUCENT MANAGERS AND OTHER DOCUMENTS REQUIRED FOR MAKING THE PAYMENT SUCH AS ITA NO : 1745/MUM/2009 16 PASSPORT/VISA COPIES ETC. SUBMITTED BY AVION FOR PAYMENT ON THE 1 ST DAY OF EACH MONTH. ALL INVOICES REMAINING UNPAID AFTER 30 TH DAY OF EACH MONTH WILL BE ASSESSED INTEREST AT T HE RATE OF 12% PER ANNUM. LUCENT SHALL PAY WITHHOLDING TAX IN INDIA UNTIL SUCH TIME AS THE APPLICATION FOR THE WAIVER OF THIS TAX IS MADE AND AN EXEMPTION IS GRANTED BY THE INCOME TAX AUTHORITIES IN INDIA. ANY TAXES REFUNDED TO AVION SHALL ACCORDINGLY BE RETURNED TO LUCENT. ALL THE TAXES OUTSIDE INDIA SHALL BE BORNE BY AVION. ATTACHMENT 2 TO THE SAID AGREEMENT IS VERY RELEVANT FOR THE PURPOSE OF THIS ISSUE WHICH GIVES THE UNDERTAKING BY AN EMPLOYEE IN THE FOLLOWING MANNER :- AS A PRECONDITION TO RECEIVING THIS ASSIGNMENT, I, THE UNDERSIGNED, AN EMPLOYEE OF AVION INDIA, AGREE TO THE FOLLOWING : 1. I UNDERSTAND THAT I AM AN EMPLOYEE OF AVION AND NOT OF LUCENT AND THAT I WILL BE PAID DIRECTLY BY AVION . 2. I UNDERSTAND THAT ANY PROBLEMS OR COMPLAINTS I MAY HAVE REGARDING THE WORK ASSIGNMENT MUST BE DIRECTED TO MY AVION SUPERVISOR AND NOT TO THE LUCENT. 3. I UNDERSTAND THAT MY RA TE OF PAY FROM AVION MAY BE GREATER OR LESS THAN THAT RECEIVED BY OTHER INDIVIDUALS WHO ARE PERFORMING SIMILAR SERVICES FOR LUCENT, REGAR DLESS OF WHETHER THEY ARE EMPLOYEES OF LUCENT OR OTHER AGENCIES. 4. I UNDERSTAND THAT THERE HAVE BEEN AND WILL BE NO REPRESENTATIONS AS TO ANY ASSURANCE OR POSSIBILITY OF BEING HIRED AS A REGULAR EMPLOYEE OF LUCENT, AND THAT SINCE I AM NOT AN EMPLOYEE OF LUCENT, NO PROMOTIONS OR OTHER FORMS OF ADVANCEMENT OR TRANSFER BY LUCENT ARE AVAILABLE NOW OR IN THE FUTURE. 5. I UNDERSTAND THAT MY WORK ASSIGNMENT IS CONTINGENT UPON EXECUTI ON OF THE AGREEMENT REGARDING INTELLECTUAL PROPERTY AND CONFIDENTIAL INFORMATION AND I HAVE READ AND SIGNED THE SAME. (IV) CLAUSE 10 PROVIDES THAT AVION WILL HAVE FULL AND EXCLUSIVE LIABILITY FOR THE PAYM ENT OF ANY AND ALL TAXES, DUTIES ITA NO : 1745/MUM/2009 17 ETC. IN RESPECT OF PROVIDING TEMPORARY WORKERS TO LUCENT , IN CONNECTION WITH WAGES, SALARIES, COMPENSATION, STATUTORY DUES AND IT SHALL BE RESPONSIBLE FOR COMPLIANCE WITH APPLICATIONS AND RESTRICTIONS IM POSED BY THE LABOUR LAW AND ANY OTHER LAW AFFECTING THE EMPLOYEE AND EMPLOYER RELATIONSHIP . CLAUSE 10.3 PROVIDES THAT FO R PROVIDING SERVICE TO LUCENT, AVION SHALL REGISTER ITSELF AS AN EMPLOYER UNDER THE LAWS APPLICABLE . CLAUSE 10.5 PROVIDES THAT AVION SHALL COMPLY WITH THE LOCAL LABOUR LAWS AS APPLICABLE IN RESPECT OF DISCHARGING THEIR RESPECTIVE OBLIGATIONS UNDER TH IS CONTRACT AND WILL OBTAIN REGISTRATIONS UNDER VARIOUS AUTHORITIES FOR MAKING PAYMENT FOR SALARY, WAGES, BONUS, GRATUITY, PROVIDENT FUND, ESIS, ETC.. SIMILARLY CLAUSE 10.7 PROVIDES THAT AVION SHALL BE LIABLE TO COMPLY WITH ALL STATUTORY REQUIREMENTS AND LIABILITIES UNDER VARIOUS LABOUR LAWS. (V) IN CLAUSE 12 PROVISIONS OF INVOICING HAVE BEEN PROVIDED WHEREIN AVION SHALL SUBMIT M ONTHLY INVOICES FOR ALL THE SERVICES/TEMPORARY WORKERS PROVIDED UNDER THIS CONTRACT. CERTIFIED INVOICES FROM LUCENT SHALL BE SUBMITTED AT THE END OF EACH MONTH UPON THE INFORM ATION GIVEN BY AVION ABOUT SERVICES PROVIDED, MAN-DAYS OR MAN-HOURS PERFORMED ETC. (VI)CLAUSE 13 PROVIDES FOR TERMS OF PAYMENT MADE TO AVION. ITA NO : 1745/MUM/2009 18 (VII) CLAUSE 20 PROVIDES THAT COMPLIANCE OF LAWS WHICH HAS TO BE COMPLIED BY AVION AND THAT ALL THE PERSONS PROVIDED BY AVION SHALL COMPLY AT THEIR OWN EXPENSES WITH ALL APPLICABLE LAWS AND REGULATIONS ETC. AND AVI ON SHALL COMPLY WITH ALL THE LABOUR LAWS IN RESPECT OF DISCHARGING OBLIGATION FOR ITS CONTRACT AND WILL GET REGISTERED AS AN EMPLOYER WITH APPROPRIATE AUTHORITY FOR THE PURPOSE OF PAYMENT OF SALARY, WAGES, BONUS, GRATUITY, PROVIDENT FUND, ETC. (VII)CLAUSE 31 PROVIDES FOR QUALITY ASSURANCE OF THE TEMPORARY WORKERS BY THE AVION TO ENSURE CONSISTENT LEVEL OF QUALITY IN THE CONTRACT WORK. (VIII)CLAUSE 36 GIVES THE MEANING OF AVION EMPLOYEES WHICH MEANS ANYONE PERFORMING THE SERVICES/WORK FURNISHED BY AVION UNDER THIS CONTRACT AND LUCENT SHALL NOT EXERCISE ANY DIRECT CONTROL OR SUPERVIS ION OVER AVION EMPLOYEES . (IX)CLAUSE 39 PROVIDES TIME SCHEDULE OF PERFORMANCE. (X) CLAUSE 40 PROVIDES FOR PLANT RULES, WHICH PROVIDES THE CONDITIONS GOVERNING THE DELIVERY, RECEIPT AND STORAGE OR MATERIALS AT THE SITE OF THE WORK SO THAT AVION WILL NOT INTERFERE WITH LUCENTS OPERATIONS. (XI)CLAUSE 41 PROVIDES WARRANTY GI VEN BY AVION TO LUCENT FOR ANY MATERIALS PURCHASED AND SERVICES PROVIDED. (XII)ATTACHMENT 3 TO THE AGREEMENT PROVIDES THAT THE EMPLOYEES OF AVION DURING THE DISCHARGE OF ITS WORK WITH LUCENT WILL ITA NO : 1745/MUM/2009 19 ASSIGN ALL THE INTELLECTUAL PROPERTY RIGHTS AND PROVIDES TERMS AND CONDITIONS TO BE SI GNED BY THE EMPLOYEE WITH REGARD TO CREATION OF INTELLECTUAL PROPERTY RIGHTS, WHICH WOULD BELONG TO LUCENT ONLY. 10 . FROM THE COVENANTS GIVEN IN THE AGREEMENT CLEARLY SHOWS THAT FIRSTLY , TEMPORARY WORKERS ARE NOT THE EMPLOYEES OF THE LUCENT; SECONDLY , LUCENT WILL NOT TAKE ANY KIND OF RESPONSIBILITY OF ANY TEMPORARY WORKER PROVIDED BY AVION; THIRDLY , AVION WILL BE RESPONSIBLE FOR ALL THE PERSONNEL DEPLOYED TO T HE LUCENT AND ALL THE COMPLIANCE OF LAWS RELATING TO EMPLOYER-EMPLOYEE RELATIONSHIP, REGISTRATION, PAYMENT OF SALARY ETC., WILL BE UNDERTAKEN BY AVION, FOURTHLY , ATTACHMENT II CATEGORICALLY STIPULATES THAT ALL THE TEMPORARY WORKER/PERSONNEL ARE EMPLOYEES OF AVION WHO HAVE TO GIVE UNDERTAKING AS EMPLOYEES OF AVION AND LASTLY , THE PAYMENTS FOR THE PERSONNEL DEPLOYED SHALL BE GIVEN TO THE AVION BY THE LUCENT AS PER THE WORK S HEET ALONG WITH THE FEE OF 6% OF THE INVOICE VALUE. 10.1 DURING THE COURSE OF THE HEAR ING, LEARNED AR HAS REFERRED TO VARIOUS EXTRACTS OF EMAIL CORRESPONDENCES BETWEEN LUCENT AND THE ASSESSEE TO DEMONSTRATE THAT IT IS ONLY LUCENT WHO MAKES REQUISITION FOR PARTICULAR PERSONNEL TO WHICH THE ASSESSEE MAKES AN EFFORT TO LOCATE AND MAKE IT AVAILABLE TO THE LUCENT. HE ALSO REFERRED TO CERTAIN COPIES OF INVOICES OF 2 TO 3 EMPL OYEES, TO POINT OUT THAT NUMBER OF DAYS TO WHICH THEY WERE EMPLOY ED WITH LUCENT AND THE PAYMENT MADE TO AVION GOES TO SHOWS THAT ENT IRE MANAGEMENT AND CONTROL IS BY ITA NO : 1745/MUM/2009 20 LUCENT. THESE CORRESPONDENCE, FIRST OF ALL SHOWS THAT IN FEW CASES LUCENT HAS REQUESTED FOR CERTAIN TECHNOCRATS TO BE MADE AVAILABLE FOR THE PURPOSE OF THE CONTRACT, HOWEV ER, IT HAS NOT BEEN BROUGHT ON THE RECORD AS TO HOW MANY EMPLOY EES HAVE BEEN EMPLOYED BY THE AVION DURING THE ENTIRE YEAR TO LUCENT AND HOW THE RECORDS HAVE BEEN MAINTAINED FOR THE PAYMENT OF SA LARY/WAGES PAID TO SUCH EMPLOYEES DURING THE COURSE OF THE EMPLOYMENT OF THE WORKERS IN INDIA. ONE OR TWO FRAY INCIDENTS OF PREFERENCE OF TECHNOCRATS BY LUCENT WILL NOT LEAD TO A CONCLUSION THAT THESE TECHNICA L PERSONS WERE NOT THE EMPLOYEES OF THE ASSESSEE OR WERE UNDER THE CONTROL OF LUCENT. THE ENTIRE GAMUT OF TRANSACTION AND TERMS OF AGREEMENT HAS TO BE SEEN WHICH HEREIN IN THIS CASE CLEARLY GOES AGAINST THE CONTENTION OF THE ASSESSEE PUT FORTH BY THE LEARNED AR. THE ASSESSEE HAS NOT BEEN ABLE TO PRODUCE THE RECORDS TO SHOW THE TOTAL NUMBER OF EMPLOYEES EMPLOYED WITH LUCENT, AMOUNT OF SALARY PAID AND THE TERMS AND CONDITIONS BETWEEN THE EMPLOYEES AND THE ASSESSEE. IN ABS ENCE OF ANY DETAILS, WE DO NOT FIND ANY MERIT ON THIS ASPECT OF T HE MATTER THAT TECHNICAL PERSONNEL SUPPLIED BY THE ASSESSEE ARE NOT IT S EMPLOYEES, ESPECIALLY IN THE LIGHT OF THE AGREEMENT AS HAVE BEEN RE FERRED TO ABOVE WHICH CLEARLY NEGATES THE CONTENTION OF THE ASSESSEE. 11. NOW, COMING TO THE SECOND ASPECT OF THE MATTER WHETHER SERVICES PROVIDED BY T HE ASSESSEE COMES WITHIN THE PURVIEW OF FEES FOR INCLUDED SERVICES UNDER CLAUSE 4(B) OF ARTICLE 12. CLAUSE 4 OF ARTICLE 12 DEFINES FEES FOR INCLUDED SERVICES IN THE FOLLOWING MANNER :- ITA NO : 1745/MUM/2009 21 ARTICLE 12-ROYALTIES AND F EES FOR INCLUDED SERVICES : 1. X X X X 2. X X X X 3. X X X X 4. FOR PURPOSES OF THIS ARTI CLE, FEES FOR INCLUDED SERVICES MEANS PAYMENTS OF ANY KIND TO ANY PERSON IN CONSIDERATION FOR THE RENDERING OF ANY TECHNI CAL 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 (B) MAKE AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OR PROCES SES, OR CONSIST OF THE DEVELOPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. 11.1 . APPLICATION OF CLAUSE 4(A) IS RULED OUT IN THE INSTANT CASE. HOWEVER, WE HAVE TO EXAMINE WHET HER THE ASSESSEES CASE FALLS WITHIN THE CLAUSE (B) OF ARTICLE 12(4) , WHICH STATES THAT THE PAYMENT OF ANY KIND TO ANY PERSON IN CONSI DERATION FOR THE RENDERING OF ANY TECHNICAL OR CONSULTANCY SERVICES (INCLUDING THROUGH THE PROVISION OF SERVICES OF TECHNICAL OR OTHER PERSONNEL) IF SUCH SERVICES MAKE AVAILABLE TECHNICAL KNOWLEDGE, EX PERIENCE, SKILL, KNOW-HOW OR PROCESSES, OR CONSIST OF THE DEVEL OPMENT AND TRANSFER OF A TECHNICAL PLAN OR TECHNICAL DESIGN. THUS, UNDER CLAUSE 4(B) IT IS SINE QUA NON THAT SERVICES MUST RESULT INTO MA KING AVAILABLE TECHNICAL KNOWLEDGE, EXPERIENCE, SKILL, KNOW-HOW OF PROC ESSES. AS REFERRED IN EARLIER PART OF ITA NO : 1745/MUM/2009 22 THE ORDER, THE ASSESSING OFFICER NOTED THE PROFILE OF THE ASSESSEES COMPANY FROM THE WEBSITE THAT THE ASSESSEE IS IN TELECOM TECHNOLOGY BUSINESS AND PROVIDES TE CHNOLOGY AND HIGHER SOLUTIONS TO VARIOUS TELECOM INDUSTRIES, TO WHICH LEARNED AR HAS OBJECTED BEFORE US THAT SAME IS NOT RELEVANT AS W HAT HAS TO BE SEEN IS THE TRANSACTION BETWEEN THE TWO PARTIES. WE ARE UNABLE TO AGREE WITH THE CONTENTION OF THE AR FOR THE REASON T HAT THE PROFILE OF THE COMPANY DO GIVE INDICATION AS TO WHAT IS THE NATURE OF ITS A CTIVITIES AND WHY THE SERVICES OF THE ASSESSEE COMPANY WERE ENGAGED BY T HE LUCENT, NOT BECAUSE IT IS A RECRUITING AGENCY BUT BECAUSE THE ASSESSEE COMPANY IS ONE OF LEADERS IN THE TELECOM ENGINEERING, WHO HAS HIGHLY QUALIFIED TECHNICAL PERSONNEL, WHO CAN DELIVER HIGH SOLUTIONS IN TELECOM RELATED TECHNOLOGY. LUCENT WHICH FOR THE PU RPOSE OF ITS CONTRACT IN INDIA REQUIRED THE EXPERTISE OF TECHNI CAL PERSONNEL WHICH WERE MADE AVAILABLE BY THE ASSESSEE COMPANY. FROM THE VARIOUS CLAUSES OF THE AGREEMENT, ALSO IT IS EVIDENT THAT IT WAS A CONTRACT WITH LUCENT FOR PROVIDING TECHNICAL PERSONNEL AND MAKING AVAILABLE THE EXPERTISE OF THE ASSESSEE IN THIS FIELD ALSO FOR THE PURPOSE OF LUCENT S CONTRACT OF SETTING OFF AND COMMISSIONING OF TELECOM RELATED TECHNOLOGY FOR RELIANCE INFOCOM. 11.2 ILLUSTRATIONS OF MAKING AVA ILABLE TECHNICAL KNOWLEDGE OR EXPERIENCE, SKILL ETC. HAS BEEN GI VEN IN VARIOUS EXAMPLES TO MEMORANDUM OF UNDERSTANDING C ONCERNING FEES FOR INCLUDED SERVICES FOR THE PURPOSE OF ARTICLE 12 OF INDO-US TREATY, WHEREIN ITA NO : 1745/MUM/2009 23 EXAMPLE 3 CLEARLY CLINCHES THE ISSUE IN THIS CASE, WHICH FOR READY REFERENCE AND BETTER UNDERSTANDING IS INCORPORATED HEREIN BELOW :- EXAMPLE 3 FACTS: A U.S. MANUFACTURER HAS EXPERIENCE IN THE USE OF A PROCESS FOR MANUFACTURING WALLBOARD FOR INTERIOR WALLS OF HOUSES WHICH IS MORE DURABLE THAN THE STANDARD PRODUCTS OF ITS TYPE. AN INDIAN BUILDER WISHES TO PRODUCT FOR IT S OWN USE. IT RENTS A PLANT AND CONTRACTS WITH THE U.S. COMPANY TO SEND EXPERTS TO INDIA TO SHOW ENGINEERS IN THE INDIAN COMPANY HOW TO PRODUCE THE EXTRA- STRONG WALLBOARD. THE U.S. CONTRACTORS WORK WITH THE TECHNICIANS IN THE INDIAN FIRM FOR A FEW MONT HS. ARE THE PAYMENTS TO THE U.S. FIRM CONSIDERED TO BE PAYMENTS FOR INCLUDED SERVICES? ANALYSIS : THE PAYMENTS WOULD BE FEES FOR INCLUDED SERVICES. THE SERVICES ARE OF A TECHNICAL OR CONSULTAN CY NATURE; IN THE EXAMPLE, THEY HAVE ELEMENTS OF BOTH TYPES OF SERVICES. THE SERVICES MAKE AVAILABLE TO THE INDIAN COMPANY TECHNICAL KNOWLEDGE, SKILL AND PROCESSES. 11.3 . HERE ALSO THE ASSESSEE HAS REQUISITE AND TECHNICAL SKILLS IN PROVIDING SOLUTIONS IN TECHNOLOGY RELATING TO TELECOM SECTOR. THE LUCENT, AN INDIAN COMPANY WANTS TECHNICAL EXPERTS, WHO HAVE EXPERIENCE AND SKILL, WHICH HERE IN THIS CASE UNDOUBTEDLY BELONGS TO THE ASSESSEE, FOR ITS PURPOSE OF CONTRACT FOR COMMISSIONING AND SUPPLY OF TELECOM EQUIPMENTS IN INDIA. THES E SERVICES CLEARLY FALL WITHIN THE ILLUSTRATION GIVEN IN THE EXAMPLE 3 AND, HENCE, THE SERVICES RENDERED BY THE ASSESSEE FALLS WITHIN THE CLAUSE 4(B) OF ARTICLE 12 OF THE TREATY. THEREFORE, WE HOLD THAT THE PAYM ENT RECEIVED BY THE ASSESSEE FROM ITA NO : 1745/MUM/2009 24 LUCENT IS TAXABLE IN INDIA UNDER ARTICLE 12 AS FEES FOR INCLUDED SERVICES. 12 . LEARNED AR DURING THE COURSE OF ARGUMENT HAS REFERRED AND RELIED UPON VARIOUS CASES, HOWEVER, ONLY FOLLOWING CASES WHICH CAN BE SAID TO BE OF LITTLE RELEVANCE ARE DISCUSSED HEREIN IN BELOW :- I) DDIT VS TEKMARK GLOBAL SOLUTIONS , [(2010) 38 SOT 7 (MUM)]- IN THIS CASE, THE TRIBUNAL HAD OCCASION TO DEAL WITH ARTICLE 5(2)(1) OF INDO-US DT AA AND NOT ARTICLE 12. ONE TEKMARK GLOBAL SOLUTIONS, US BASED COMPANY HAD SENT TWO PERSONS TO INDIA FOR THE EMPLOY MENT WITH INDIAN COMPANY AND THE INDIAN COMPANY HAD ALL CONTROL AND THE RIGHTS TO REMOVE THE DEPUTED PERSONS FROM THE SERVICES . IN LIEU OF PROVIDING THESE TWO PERSONS, ACTUAL SALARY PAYABLE TO SUCH PERSONS WERE REIMBURSED TO THE ASSESSEE AND NO EXTRA CHARGES OR FEE WAS TO BE PAID. IN THIS CONTEXT, THE HON BLE ITAT HELD THAT OF NO INCOME HAD ARISEN TO THE ASSESSEE IN INDIA. THERE WAS ALSO A VERY CATEGORICAL FINDING BY THE ITAT THAT THERE WAS NO PROFIT ACCRUING TO THE ASSESSEE FROM THE ACTIVITI ES IN INDIA AS THE ASSESSEE WAS PAID ONLY THE ACTUAL SALARY PAID. HEREIN THIS PRESENT CASE, AS DISCUSSED ABOVE, THE FACTS AND ISSUES ARE QUITE DIFFERENT. II) IDS SOFTWARE SOLUTIONS LTD. VS.ITO, [(2009) 122 TTJ 410 (BANG)];- IN THIS CASE, THE ISS UE RELATED TO TDS ON PAYMENT TO NON-RESIDENT ON ACCOUNT OF REIMBURSEMENT OF SALARY PAID BY THE US COMPANY UNDER AN AGREEMENT. IN THIS CASE THE SALARY PAID ITA NO : 1745/MUM/2009 25 BY THE US COMPANY UNDER SECOND AGREEMENT TO MANAGING DIRECTOR WAS PAID BY THE US COMPANY AND SECONDED TO ITS INDIAN TERRITORY HAVING ALREADY SUFFE RED TAX AT SOURCE. IN SUCH A SITUATION, ITAT HELD THAT REIMBUR SEMENT OF SALARY BY ASSESSEE TO IDS NEED NOT SUFFERED TAX AT SOUR CE. HENCE, THIS CASE IS NOT APPLICABLE AT ALL. III) INTERTEK TESTING SERVICES INDIA PVT. LTD. [(2008) 307 ITR 418 (AA)- HERE IN THIS CASE, THE CRUX OF THE CONCLUSION DRAWN BY HE AUTHORITY WAS THAT AS PER ARTI CLE 13(4) OF DTAA BETWEEN INDIA AND UK, TO FIT INTO TERMINOLOGY MAKE AVAILABLE THE TECHNICAL KNOWLEDGE, SKILL ETC. MUST REMAIN WITH THE PERSON RECEIVING THE SERVICES EVEN AFTER PARTICULAR CONTRACT COMES TO AN END AND THE RECIPIENT OF KNOWLEDGE ETC. SHOUL D BE ABLE TO USE OF IT, IN THE FUTURE, INDEPENDENT OF THE SERVICE PROVIDER. IN THIS CASE, THE COURT HELD THAT IN THE ABSENCE OF DETAILS OF SERVIC ES RECEIVED BY THE ASSESSEE FROM UK COMPANY, NO DEFINITE OPINION WAS EXPRESSED AS TO WHETHER CONSTITU TED FEE FOR TECHNICAL SERVICE WITHIN THE MEANING OF ARTICLE 13( 4)(C) OF INDO-UK DTAA. IN THIS CASE, IN FACT GOES AGAINST THE ASSESSEE AS THE TECHNICAL SERVICES PROVIDED BY THE A SSESSEE COMPANY EVEN AFTER THE CONTRACT COMES TO AN END WILL REMAIN WITH THE LUCENT. IV) WORLEYPARSONS SERVICES PTY.LTD ., [(2008 301 ITR 54 (AAR);- HEREIN IN THIS CASE, CONCEPT OF PERMANENT ESTABLISHMENT (PE) WAS INVOLVED. ITA NO : 1745/MUM/2009 26 V) CESC LTD. VS. DCIT , [(2003) 87 ITD 653 (KOL)]; -HERE IN THIS CASE, ROLE OF NON-RESIDENT TECHNICAL ADVISOR WAS ONLY TO REVIEW AND TO GIVE OPINION RATHER THAN TO DESIGN AND DIRECT THE PROJECT AND WAS NOT DIRECTLY INVOLVED IN THE PROJECT. IN THIS BACKGROUND OF THE CASE, IT WAS HEL D THAT FEE PAID TO HIM DID NOT FALL WITHIN THE AMBIT OF THE FEE FOR TECHNICAL SERVICES AS PER DEFINITION GIVEN UNDER ARTICLE 13(4)(C) OF DTAA BETWEEN THE INDIA AND UK. VI) DDIT VS. SCIENTIFIC ATLANTA INC . [(2009) 33 SOT 220 (MUM)];- HERE IN THIS CASE, THE ASSESSEE PUT UP A CATEGORICAL CLAIM BEFORE THE ASSESSING OFFICER THAT THESE SERVICES WERE PROVIDED OVERSEAS TO FACILITATE TERMINAL REQUISITION OF THE PROJECT AND NO PART OF THE SERVICES WAS MADE AVAILABLE TO TDCL AND SUCH A SPECIFIC CONTENTION BEFORE T HE ASSESSING OFFICER WAS NOT CONTROVERTED BY HIM. FURTHER IN THIS CASE, THE ASSESSEE HAD PE IN INDIA AND NO PART OF SERVICES RENDERED AT OVERSEAS WAS LINKED WITH THE PE IN INDIA. IT WAS IN THIS CONTEXT, THE JUDGMENT WAS RENDERED. VII) MAHINDRA & MAHINDRA LTD. VS. DCIT , [(2009) 122 TTJ (MUM)(SB) 577].- THE HONBLE SPECIAL BENCH WAS BESIEGED WITH THE ISSUE WHETHER 201(1) APPLIES IN THE CASE OF NON- RESIDENT OF TAX AT SOURCE. WHETHER ANY TIME LIMIT IS PRESCRIBED FOR PASSING OF ORDER UNDER SECTION 201(1) AND NATURE AND PROCEEDINGS OF UNDER SECTION 201 AND REASONABLE TIME FOR ITA NO : 1745/MUM/2009 27 PASSING OF ORDER. THE ISSUES INVOLVED IN THE SPECIAL BENCH HAVE NO DIRECT CO-RELATION IN THAT OF ASSESSEES CASE. OTHER JUDGMENTS ARE NOT BEING REFERRED TO AS THE SAME APPARENTLY DID NOT APPLY AT ALL IN THE FA CTS OF THE PRESENT CASE. 13 . IN THE RESULT, APPEAL FILED BY THE ASSESSEE IS TREATED AS DISMISSED. ORDER PRONOUNCED ON THIS 30 TH DAY OF MAY, 2012. ( R.S.SYAL) ( AMIT SHUKLA ) ACCOUNTANT MEMBER JUDICIAL MEMBER MUMBAI, DT: 30 TH MAY, 2012 PKM COPY FORWARDED TO : 1. THE APPELLANT, 2. THE RESPONDENT, 3. THE C.I.T. 4. CIT (A) 5. THE DR, B - BENCH, ITAT, MUMBAI //TRUE COPY// BY ORDER ASSISTANT REGISTRAR ITAT, MUMBAI BENCHES, MUMBAI