CIT Vs De Beers India Minerals Pvt. Ltd. (Karnataka High Court)
Technology will be considered to be “made available” only when the person requiring the service is enabled to apply for the same on his own resulting in some enduring benefit and that mere existence of the provision of the service by technical expert, would not mean that the same has been “made available” to the recipient.
Karnataka High Court recently decided on a tax dispute in CIT vs. De Beers India Minerals Pvt. Ltd., involving payments made by Indian companies to Fugro Elbocon B.V., Netherlands, for airborne geophysical surveys. The Income Tax Department classified these payments as “fees for technical services” under Section 9(1)(vii) of the Income Tax Act, 1961, and Article 12 of the India-Netherlands Double Tax Avoidance Agreement (DTAA). Consequently, the department held the assessees liable for failing to deduct tax at source. However, the appellate authorities ruled in favor of the assessees, prompting the Revenue to challenge the decision before the Tribunal and the High Court.
The appellate authorities, including the Income Tax Appellate Tribunal (ITAT), concluded that the services provided by Fugro did not involve the transfer of technical knowledge or skills. Fugro collected and processed geological data using its proprietary expertise but did not impart this knowledge to the assessees. The data provided was merely raw information without any technical plan or design. The Karnataka High Court agreed with this interpretation, emphasizing that the DTAA’s definition of “fees for technical services” requires the transfer of technology, which was absent in this case. Similar principles were upheld in DIT vs. Guy Carpenter & Co. Ltd. (2012) and CIT vs. De Beers India Minerals Pvt. Ltd. (2012) by the Supreme Court.
