Section 90 of Income-tax Act – India-Australia DTAA : There is no transfer of any skills or technical knowledge or experience, or process or know-how to CABs (Conformity Assessment Bodies) on account of grant of accreditation by applicant to those entities for providing third party certification and/or inspection services

 

·        The fact that the CAB is apprised of its shortcomings and deficiencies, if any, and that the CAB is given an opportunity to rectify, if possible, does not reasonably lead to the inference of ‘making available’ the skills, technical knowledge etc. possessed by the applicant to the CAB; CAB will, of course, be benefited by the accreditation certificate issued by the applicant but that fact has hardly any bearing on the point whether “make available” criterion has been satisfied or not; viewed from any angle, it cannot be said that the applicant is imparting any knowledge or skills to the CABs which are utilized by the CAB in conducting its business; the nature of activity undertaken by the applicant clearly rules out any such inference

[2010] 6 taxmann.com 99 (AAR - New Delhi)

AUTHORITY FOR ADVANCE RULINGS (INCOME TAX), NEW DELHI

Joint Accreditation System of Australia and New Zealand, In re

A.A. R. No. 838/2009

August 6, 2010

 

FACTS

 

The applicant, Joint Accreditation System of Australia and New Zealand is a not for profit, self-funding organization established under the Treaty between Government of Australia and New Zealand on 30.10.1991. It has been accorded the status of an international organization by virtue of the law made by both the nations. The applicant is a tax resident of Australia and to confirm this, a certificate issued by the Australian Revenue Authority has been enclosed.

 

The applicant provides accreditation to CABs (Conformity Assessment Bodies) in several countries including India. The applicant accredits organizations which provide third party certification and/or inspection services. The main function of the applicant is to accredit, following the successful assessment, those bodies considered competent and impartial to provide an effective service in various spheres.

 

In consideration of the accreditation work done by the applicant, it receives fee from CAB in the form of application fee, programme fee, certificate fees and fee for conducting surveillance audit, witnessing audit and re-assessment visits. Sample invoices raised by the applicant for various activities as stated above have been enclosed to the application.

Having regard to the above facts presented by the applicant, the following questions are formulated in order seek advance ruling:

1. Whether the consideration received/receivable by Joint Accreditation System of Australia and New Zealand (applicant) from the Conformity Assessment Bodies (CAB’s) can be classified as ‘fees for technical services’ as defined under section 9(1)(vii) of the Income-tax Act, 1961 (‘Act’)?

2. If the answer to the above question is in the negative, whether Article 12 of the Double Taxation Avoidance Agreement between India and Australia (‘India-Australia Tax Treaty’) can impose a liability for taxation on the applicant?

3. If the answer to the first question is in affirmative, whether the services rendered by the applicant fall within the ambit of ‘royalties’ as defined under Article 12 of the India-Australia Tax Treaty?

4. If the answers to the first and third questions are in affirmative, whether the income of the applicant from Royalty or fees for technical service should be taxed in India according to the provisions of section 115A(1)(b)(AA) or (BB) (relatable to agreements made on or after 1st day of June of 2005) of the Act, in view of the provisions of Article 12(2) of the India-Australia Tax Treaty?

5. Whether the visits of the personnel of the applicant for conducting the On-site Assessment and Witness Audit constitutes/deems existence of applicant’s Permanent Establishment (“PE”) in India in accordance with the provisions of Article 5 of the India-Australia Tax Treaty?

6. Where the services rendered by the applicant are not in the nature of ‘royalties’ as defined under Article 12 of the India-Australia Tax Treaty and the applicant does not have a PE in accordance with Article 5 of the India-Australia Tax Treaty, are the payers required to withhold tax at source from the payments to be made to the applicant?

 

 

HELD

 

The contention of the applicant’s authorized representative is that the accreditation fee cannot be characterized as Fee for Technical Services (FTS) within the meaning of the expression in section 9(1)(vii) of the Act or as royalty within the meaning of the clause (g) of Article 12.3 of the Tax Treaty. With reference to FTS in the Act, it is contended that the applicant has not rendered any service to the customer (CAB). The job undertaken by the applicant is not in the nature of assistance provided to CAB and moreover the applicant does not act according to the instructions or modalities set by the recipient of the so called service. The issuance of the certificate after the applicant is satisfied that the CAB will be able to perform the relevant function (of certification and inspection) competently and independently and the discretion of the applicant to refuse the certificate for non-compliance with certain parameters would indicate that there is no contract of service between the applicant and the CAB.

Though we find considerable force in the above contention of the applicant, this Authority is inclined to rest its decision on the relevant treaty provision, i.e., Article 12.3(g) of the DTAA. If the case of the applicant does not fall under clause (g) of the Treaty dealing with the rendering of technical services, the applicant is entitled to take advantage of the same by reason of section 90(2) of the Act coupled with the well settled principle that the treaty provision in the DTAA would prevail over the provision in the domestic enactment. Therefore, it has to be seen whether the applicant can be said to have rendered technical service of the description falling under clause (g) of Article 12.3 of the DTAA by issuing accreditation certificate to CAB. If the answer is in negative, the liability to tax can also not be fastened on the applicant in the absence of a permanent establishment or business connection in India. Therefore, the only aspect to be considered is whether applicant can be said to have undertaken any activity of the nature described in clause (g) of Article 12.3. There is no other clause in Article 12.3 which can possibly be invoked by the Revenue.

On a deep consideration, we are of the view that the contention of the applicant has to be upheld and clause (g) of the Article 12.3 cannot be applied to the activity undertaken by the applicant. The scope and meaning of the Phrase “making available technical knowledge, experience, skill, etc. has been explained in more than one rulings of this Authority.

There is no transfer of any skills or technical knowledge or experience, or process or know-how to the CABs on account of grant of accreditation to those entities. The skills, expertise or know-how possessed by the applicant for the grant of accreditation certificate cannot be said to have been made available to the CAB who gets the accreditation. What the applicant does is to evaluate and assess the capabilities, competence, potential and infrastructure possessed by the CAB in the light of certain set standards and parameters. The fact that the CAB is apprised of its shortcomings and deficiencies, if any, and that the CAB is given an opportunity to rectify, if possible, does not reasonably lead to the inference of ‘making available’ the skills, technical knowledge etc. possessed by the applicant to the CAB. CAB will, of course, be benefited by the accreditation certificate issued by the applicant but that fact has hardly any bearing on the point whether “make available” criterion has been satisfied or not. Viewed from any angle, it cannot be said that the applicant is imparting any knowledge or skills to the CABs which are utilized by the CAB in conducting its business. The nature of activity undertaken by the applicant clearly rules out any such inference.