India-UK DTAA | Consideration For Availing Services That Require Technical Expertise Not FTS Unless Recipient Absorbs Technology: Delhi HC

The Delhi High Court has made it clear that consideration paid for merely availing services that require technical expertise would not qualify as 'Fees for Technical Service' under Article 13 of the India-UK DTAA.A division bench of Justices Vibhu Bakhru and Tejas Karia observed that unless the recipient absorbs the technology and exploits it independently, it cannot qualify as 'FTS' which is taxable in India for the service provider. It observed,“The services rendered must entail, the service recipient acquiring the right to use the technical knowledge, experience, skill and the know-how involved in rendering the services. Merely availing of services that may require technical expertise, technical inventions or technology would not qualify the consideration paid for such services as FTS under Article 13 of the India-UK DTAA.”The development comes in an appeal preferred by UK-based Tungsten Automation England, which runs an e-invoicing platform.The company was aggrieved by assessment orders passed against it for allegedly evading tax on income derived from services offered to Genpact India.The company claimed that the amounts were its business income and were not chargeable to tax as it did not have any permanent establishment [PE] in India.However, according to the AO, the said amounts were required to be treated as FTS within the scope of Article 13 of the India-UK DTAA.The High Court noted that Tungsten had granted a non-exclusive license to Genpact for using its cloud hosted platform, on principal basis.The agreement specifically provided that Genpact would be solely responsible for entering into a direct contractual relationship with all End Users, outlining its responsibilities to the End User. It was also stipulated that the ownership of the intellectual property would vest with the respective parties.On examining the nature of the services, the High Court noted that Genpact had not acquired any right, title or interest in the platform operated by Tungsten, let alone exploiting the same on its own. The Court then observed that for the receipts in question to be construed as FTS under Article 13 of the India-UK DTAA, the services must be such that “make available technical knowledge, experience, skill know-how or processes, or consist of the development and transfer of a technical plan or technical design.”In the instant case, it noted that Tungsten is the proprietor and Genpact did not acquire any right in the source code of the software operated by it. Gepact's role was limited to ensuring provision of the Assessee's services to the End User by onboarding customers.“The licence granted to GIL/GIPL to use the Assessee's platform or its services, is limited to the term of the license. Neither GIPL nor GIL are granted any right to technology or source code of the software which would enable them to absorb the technology and independently exploit the same. Thus, whilst the Assessee renders services and grants access to its e-platform as part of its services, it does not make available any technical experience, skill, knowhow or process to GIPL or its client GSK. Thus, the services rendered by the Assessee do not satisfy the Clause (c) of Paragraph 4 of Article 13 of the India-USA DTAA,” Court held.It clarified that mere fact that the services rendered by the service provider requires a high degree of technical knowledge is not sufficient to qualify the services that 'make available technical knowledge' if the same do not result in the service recipient absorbing the same and enabling it to use the same on its own. “The expression 'make available' entails service recipient acquiring technical knowledge…or the process as involved in rendering the services…The ability of the service recipient to perform the services or use the technical knowledge as involved in rendering of the services on its own in future, is vital and the 'make available' condition is sine qua non for FTS under the India-UK DTAA,” the Court held.It also clarified that merely because training is imparted by the service provider does not necessarily satisfy the 'make available' condition. “It is important to bear in mind the purpose for which the training is imparted to the employees…if the training imparted results in the service recipient absorbing technology that enables the trainees to use the technical knowhow…which is central to the technical services that are rendered, on their own; the 'make available' condition would stand satisfied…However, if the training does not entail transfer of the technology…involved in rendering the services, the same would not qualify the 'make available' condition,” it said.As such, the petition was allowed and reassessment orders were quashed.Appearance: For the Appellant : Mr Deepak Chopra and Ms Priya Tandon, Advocates. For the Respondent : Mr Sunil Agarwal, SSC with Mr Shivansh B. Pandya, Mr Viplav Acharya, Ms Priya Sarkar and Mr Utkarsh Tiwari, Advocates.Case title: Tungsten Automation England...

India-UK DTAA | Consideration For Availing Services That Require Technical Expertise Not FTS Unless Recipient Absorbs Technology: Delhi HC

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