Income Taxable Under FTS Requires Direct Enablement or Skill Transfer, Advisory Services Not Sufficient Without PE Connection

CA Sandeep Kanoi 08 Jul 2024 336 Views 0 comment Print Income Tax | Judiciary

Case Law Details

Case Name : International Management Group (UK) Limited Vs CIT (Delhi High Court)

Appeal Number : ITA 218/2017

Date of Judgement/Order : 03/07/2024

Related Assessment Year : 2010-11

Courts : All High Courts Delhi High Court

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International Management Group (UK) Limited Vs CIT (Delhi High Court)

In the case of International Management Group (UK) Limited vs. CIT (Delhi High Court), the court deliberated on several crucial aspects concerning the taxability of income derived by IMG UK from its activities in India under the Double Taxation Avoidance Agreement (DTAA). The case revolved around the interpretation of provisions related to business income and the existence of a Permanent Establishment (PE) in India.

The primary issue before the court was whether the income earned by IMG UK, arising from its consultancy and advisory services provided to the Board of Control for Cricket in India (BCCI), should be taxed in India. The Income Tax Department contended that IMG UK had a Service PE in India, thus making the income attributable to this PE taxable under Article 7 of the DTAA, which deals with business profits.

The Tribunal had previously held that IMG UK’s services enabled BCCI to absorb and apply advice, which according to them, satisfied the conditions for Fees for Technical Services (FTS) under Article 13 of the DTAA. However, the High Court disagreed with this interpretation. It emphasized that the mere utilization of technical or consultancy services does not necessarily constitute FTS under the DTAA. Instead, the services must involve transfer, transmission, or enablement of knowledge or skills, which the Tribunal failed to adequately distinguish.

Interpretation of DTAA Articles

Article 13(6): The High Court refrained from expressing a final opinion on whether the income could be effectively connected to the PE under this article, given its findings on FTS. It emphasized the need for a clear connection between the income and the activities conducted through the PE.
Article 7 and Business Income: The court analyzed whether the income derived from a single contract could be divisible under Articles 7 (Business Profits) and 13 (FTS) of the DTAA. It highlighted that while IMG UK’s activities were overseen by its Service PE in India, not all income could be attributed to the PE, particularly income derived from services not effectively connected with the PE.

The court noted a significant distinction between the functions performed by IMG UK itself and those carried out by its Service PE in India. It observed that certain routine services related to on-ground implementation were subcontracted to a local entity, which did not fall under the ambit of FTS or the activities of the Service PE.

Ultimately, the High Court allowed the appeal by IMG UK, setting aside the Tribunal’s decision. It concluded that while income attributable to the Service PE was taxable under Article 7 of the DTAA, the income derived directly by IMG UK did not qualify for taxation under Article 13, as it did not satisfy the “make available” test for FTS.

This case underscores the importance of correctly interpreting DTAA provisions concerning the taxation of income earned by foreign entities in India. It clarifies that for income to be taxable under FTS, there must be a direct enablement or transfer of skills or knowledge, which mere advisory or consultancy services might not fulfill unless such services are directly connected with a PE.

FULL TEXT OF THE JUDGMENT/ORDER OF DELHI HIGH COURT

A. PREFACE

1. This set of appeals instituted by the International Management Group (UK) Limited [hereinafter to be referred as “IMG”], impugn the decisions rendered by the Income Tax Appellate Tribunal¹ on appeals spanning Assessment Years² 2010-11 to 2018-19. The appeals had been formally admitted on the following three principal questions of law: –

“(i) Did the ITAT err in holding that the business income was divisible under the India-UK DTAA, though it arose out of a single contract having regard to Articles 7 and 13 of India-UK DTAA?

(ii) Whether the ITAT erred in holding that services provided by IMG to BCCI under the Service Agreement dated 24.9.2009 qualify as fee for technical services in terms of Article 13(4)(c) of the DTAA between India and UK?

(iii) Alternatively, in case answer(s) to above two questions are in negative; whether the income determined as FTS can be deemed to accrue or arise in India in terms of Section 9(vii)(b) of Income Tax Act, 1961, especially when services provided by IMG, during the relevant year, were utilized by BCCI outside India?”

2. The said questions as they arise in this batch have been set out succinctly in a tabular statement which forms part of the written submissions tendered by the appellant and is extracted hereinbelow:-

“S. No.	AY	ITA No.	Relevant Question of law	IPL Event venue
1	2010-11	218/2017	Para 9 (i), (ii) and (iii) above	South Africa
2	2011-12	986/2018	Para 9 (i) and (ii) above	India
3	2012-13	993/2018,	Para 9 (i) and (ii) above	India
4	2013-14	1013/2018	Para 9 (i) and (ii) above	India
5	2014-15	1055/2018	Para 9 (i) and (ii) above	India
6	2015-16	381/2019	Para 9 (i), (ii) and (iii) above	United Arab Emirates
7	2016-17	997/2019	Para 9 (i) and (ii) above	India
8	2017-18	175/2021	Para 9 (i) and (ii) above	India
9	2018-19	4/2023	Para 9 (i) and (ii) above	India”

3. As would be manifest from a perusal of the aforesaid table, the solitary distinctive feature concerning ITA 218/2017 and ITA 381/2019 is the fact that the Indian Premier League³ in those years had been held outside India and more particularly in South Africa and the United Arab Emirates respectively.

4. The issue itself arises in the backdrop of a Memorandum of Understanding⁴ entered into between IMG and the Board of Control for Cricket in India⁵ on 13 September 2007 and a separate Services Agreement dated 24 September 2009. Those agreements pertained to the advisory and managerial service to be provided by IMG for establishment, commercialization and operation of the IPL. For the purposes of brevity, we propose to notice the salient facts as they obtain in ITA 1013/2018 and which pertains to a year in which the league was held in India and ITA 218/ 2017 and which relates to the league held in South Africa. We do so since ITAs‘ 218/2017 and 318/2019 raise an additional aspect pertaining to Section 9(1)(vii)(b) of the Income Tax Act, 1961⁶ and which was invoked by the appellant in the backdrop of the event having been held outside India and thus, according to them, not being exigible to tax since it represented the rendering of service to an Indian payer outside the country.

5. The appellant had consistently taken the stand before the authorities below that the income earned by it and in terms of the Services Agreement would constitute business income and thus be taxable to the extent envisaged under Article 7 of the India United Kingdom Double Taxation Avoidance Agreement⁷. It appears to have been asserted that only such of the receipts as would be attributable to a Permanent Establishment⁸ in India would be taxable. It appears to have been the admitted position between the parties that IMG had a Service PE as contemplated under Article 5(2)(k) of the DTAA in all the relevant AYs‘. The attribution of income to the PE was explained by way of the following table: –

―AY	ITA No.	Total Receipts	Receipt attributed to PE		Treated as FTS (INR)
			Amount (INR)	%
2010-11	218/2017	33,00,00,000	9,22,49,819	28	23,77,50,181
2011-12	986/2018	27,00,00,000	19,58,26,586	73	7,41,73,414
2012-13	993/2018,	28,00,00,000	21,48,45,495	77	6,51,54,505
2013-14	1013/2018	28,00,00,000	20,99,17,301	75	7,00,82,699
2014-15	1055/2018	28,00,00,000	21,16,65,921	76	6,83,34,079
2015-16	381/2019	27,00,00,000	17,00,87,645	63	9,99,12,355
2016-17	997/2019	27,00,00,000	20,54,26,724	76	6,45,73,276
2017-18	175/2021	34,54,98,001	26,87,40,992	78	7,67,57,010
2018-19	4/2023	27,90,95,068	22,13,61,792	79	5, 77,33,276‖

6. The Dispute Resolution Panel⁹ as well as the Tribunal, however, have essentially come to hold that quite apart from the income which was attributable to the Service PE of IMG, the balance receipts would be liable to tax under Article 13 of the DTAA being Fee for Technical Services¹⁰. It is in the aforesaid backdrop that we had admitted these appeals on the questions of law extracted hereinabove.

7. As would be evident from the record of ITA 1013/2018 for IPL 2012, IMG had received INR 28,00,00,000/- from BCCI. Adopting the profit split method prescribed under the Indian Transfer Pricing Regulations, it had attributed revenue of INR 20,19,17,301/- to the Indian PE. The net income of INR 7,83,66,521/- attributable to activities undertaken in India had been offered to tax on net income basis in accordance with the provisions of Section 44DA of the Act read along with the provisions of Article 7 of the DTAA.

8. The remaining revenue of INR 7,00,82,699/-, according to IMG, pertained to work done outside India and thus not attributable to the PE and consequently not liable to be taxed. Aggrieved by the draft assessment order which was framed for that year and in terms of which the Assessing Officer¹¹ had taken the position that receipts of INR 7,00,82,699/- received for work done outside India was liable to be taxed as FTS, objections came to be filed before the DRP. It appears to have been principally contended that the aforesaid revenue would not constitute FTS and would even otherwise be liable to be examined in light of Article 13(6) of the DTAA. It becomes pertinent to note that Para 6 of Article 13 provides that Articles 13(1) and 13(2) would be inapplicable if FTS were received by a beneficial owner consequent to carrying on of business in the other Contracting State through a PE situate therein and the right, property or contract in respect of which FTS was earned is effectively connected with such a PE. In that event, FTS, as per Article 13(6) stands exorcised from that provision of the Convention and is liable to be taxed in accordance with Article 7 or Article 15 of the DTAA as the case may be.

9. Dealing with the aforesaid submissions, the DRP upon a consideration of the terms and stipulations comprised in the Services Agreement came to hold that the income of INR 7,00,82,699/- was liable to be treated as FTS. While dealing with this aspect, it held as under: –

” To our mind even a bare perusal of the provisions of the agreement supra will show that the requirements of Article 13 are more than met as spelled out in greater detail hereunder.

i) IMG having carried out the research has advised the BCCI in connection with the formation and governance of the League and IPL, thus making available to it technical knowledge, experience, skill1 know-how or processes.

ii) IMG has assisted the BCCI in connection with and made available to it technical knowledge, experience, skill, know-how or processes for formulating the structure of the League; the League rules and regulations; the Franchise agreements and any necessary franchise regulations; the League implementation budget; and the Media Rights agreements. All of these have made available technical knowledge, experience, skill, know-how or processes and even after the agreement lapses they would continue to be available to and available with the BCCI for such use as they deem appropriate.

iii) The IMG have also made available technical knowledge, experience, skill, know-how or processes for the ongoing execution of the management in respect of the Rights of BCCI and advice in connection with Franchise Rights; Media Rights; sponsorship rights; official supplier ship rights licensing and merchandising rights; stadium signage rights; and any other rights in relation to the league that may come-up for leverage by BCCI in the future.

In framing the Franchisees and rights agreements, and preparation and execution of marketing strategies for and advice in connection with any ongoing tender process in respect of Franchise Rights; IMG have made available technical. knowledge, experience, skill, know-how or processes. Yet again it bears reiteration that all of these technical/consultancy services will be available to BCCI even after the agreement lapses and they would continue to be available to BCCI in the form of Franchise, Media, sponsorship, official supplier ship, licensing and merchandising rights stadium signage rights and available with the BCCI for such use as they deem appropriate for all times to come.

iv) IMG assists BCCI in the preparation of a television production specification, the development of best practice match day guidelines for Franchisees and supervision in respect of their execution the development of best practice match day media guidelines and supervision in respect of their execution; advice, and assistance in connection with the development of any relevant stadia and the finance which may be necessary in connection therewith and, if requested, the introduction to the BCCI of third parties who are involved in the redevelopment of stadia;

In rendering the above technical/consultancy services taxpayer has made available technical knowledge, experience, skill, know-how or processes. The best practice match day guidelines, and match day media guidelines will be available to BCCI even after the agreement lapses for such use as they deem appropriate for all times to come and result in the transfer of a technical plan.

(iv) advice and assistance in connection with the rules and regulations relating to the registration, trading and auction of Players; the creation of and advice and assistance with the ―look and feel‖ elements in relation to the BCCI Marks generally and, in particular, at any relevant Stadia the provision of hospitality guidelines in relation to the League and implementation of hospitality in the latter case in a manner to be mutually discussed and agreed;

• the provision of a league handbook;

• advice and assistance in connection with the Player contracts;

• the establishment and maintenance of the Player registration system;

• the management of the annual Player trading window;

(v) Advice and assistance in connection with Anti-Doping and WADA Compliance Regulations; Assistance in the creation / development of new intellectual properties relating to the League and all such properties created will be the sole property of BCCI; and will vest with BCCI.

(vi) Carrying out research in consultation with BCCI each year to ascertain improvements in various areas of management and execution of the League; Development of the strategic brand framework for BCCI and manage brand IPL working with the BCCI team; and bringing in global best practices in building and evaluating sporting properties and related aspects and delivering a post event report at the end of each season. Yet again it bears reiteration that all of these aforementioned technical/consultancy services have made available tangible, technical knowledge, experience, skill, know-how or processes, and in some cases technical plans which will be available to BCCI even after the agreement lapses in the form of the rules and regulations relating to the registration, trading and auction of Players; the creation of BCCI Marks and look and feel of relevant Stadia, the provision of hospitality guidelines in relation to the League and the League handbook, the Player contracts frameworks; the establishment and maintenance of the Player registration system; the management of the annual Player trading window; and the Anti-Doping and WADA Compliance Regulations; the development of new intellectual properties relating to the League and all such properties are the sole property of BCCI; and they would continue to be available to and available with the BCCI for such use as they deem appropriate for all times to come.

(vii) Provision of the requisite manpower that is required to carry out such activities as are within IMG’s control in connection with the successful running of the league and Matches including the provision of a fully staffed office to do the same, at the sole cost of IMG; the hiring of whatever resources are required to fully perform IMG’s obligations under this Agreement at the sole cost of IMG which too is covered by Article 13 of the India UK DTAA which states that fees for technical services mean payments of any kind of any person inconsideration for the rendering of any technical or consultancy services including the provision of technical or other personnel.

It is thus that DRP has no hesitation in holding that the requirements of S 9(1)(vii) of the Act and Article 13 of the India UK DTC are more than met by the Services rendered under the Services Agreement dated 24.09.2009 for which the fees received are brought to tax as FTS by the assessing officer.”

10. It then proceeded to evaluate the contention of IMG and which appears to have asserted that since the services were rendered outside India, the revenue was not liable to be taxed as FTS. It appears to have urged that for the purposes of revenue being taxable in India, it was incumbent for the authorities to have found on fact that service had been rendered in India. The aforesaid argument, however, came to be negated by the DRP which took note of the Explanation which had come to be inserted in Section 9(1) by virtue of Finance Act, 2010 with retrospective effect from 01 June 1976 and which, according to it, had erased the requirement of actual rendition of service in India being a prerequisite for the purposes of taxation.

11. Insofar as this aspect is concerned, the DRP observed as follows:-

“2.7 Whether Services being performed by non-resident taxpayers outside India and having been rendered from outside India are taxable as FTS

Taxpayers Arguments

1. However, the Hon’ble DRP made a patent error of low by attributing such receipts to the PE though the same to pertained to work outside India. Further, the taxation of the receipts as FTS was only directed on a protective basis in the direction passed by the Hon’ble DRP.

2. While dealing with the interpretation of Article 7 of the India-UK DTAA, the Special Bench of Income 1ox Appellate Tribunal Mumbai in the case of Clifford Chance {33 com 200} {2013} has held that the receipts for work done outside India cannot be attributed to the PE under Article 7 of the India-UK DTAA.

3. It is submitted that the receipts of INR 7,00,82,699 for work done outside India cannot be attributed to the PE on account of the following reasons:

– The attribution to the PE has been done by the assessee on the basis of a transfer pricing report capturing the Functions, Assets and Risk analysis and is in accordance with the international principles of attribution.

– The Ld. AO has also referred the matter to the Ld TPO and the LD. TPO has accepted that the receipts attributed to the PE are at arm’s length.

Given this aspect, the question of attributing the receipts of INR 7,00,82,699 for work done outside India to the PE does not arise at all.

The taxpayer has relied heavily on the decision in the case of Clifford Chance. In Clifford Chance’s own case in a previous year the Bombay High Court (HC) had held that the rendition of services in India was an essential condition for its taxability in India. After a retroactive amendment in the Income Tax Statute whereafter income by way of fee for technical services could be taxed in India even if the services were rendered from outside India (Finance Act (FA) 2010 introduced an Explanation in the deeming provisions of the Indian Tax Lows (ITL) retroactively from 1 June 1976 that income from interest, royalty or fee for technical services (FTS) earned by a non-resident (NR) would be taxable in India irrespective of the place from where the services ore rendered) Tribunal in the case of Linklaters LLP held that owing to the retroactive amendment, the decision of the Bombay HC was no longer good law. The SB was therefore constituted to decide these – two issues viz impact of retroactive amendment to the assessment of the Taxpayer and the scope of attribution of income which is indirectly attributable to a permanent establishment (PE).The decision of the SB is thus limited to the two questions that were placed before it. It may not be considered to have ruled on controversies that may arise if income is considered as Fees for Technical Service. The decision of Clifford Chance supra is thus entirely irrelevant to the facts of this case. Nippon Kaiji Kyokoi is also distinguishable on fact.

This question regarding taxability of FTS rendered from abroad is now unequivocally answered in favour of Revenue by the Apex Court in Supreme Court decision in GVK Industries Ltd & Anr [TS-61-SC-2015]. Apropos the reliance placed by the taxpayer on the direction issued by the DRP is not only the subject matter of an appeal, as pointed out by the AO at para 13 of the Draft Assessment order but is superceded by the decision of the Hon’ble Supreme Court.

Taxpayers arguments in GVK Industries Ltd & Anr [TS-61-SC-2015]

In its affidavit, taxpayer GVK Industries Ltd contended that the NRC was an independent unit and was, in a way, subsidiarised by ABB. That apart, merely because expert advice was obtained, it could not be said that it pursued the application for loan/financial assistance on behalf of NRC and further the advisory services were rendered from outside India. The assessee also contended that ‘the NRC did not render any technical or consultancy service to the company but only rendered advise in connection with payment of loan by it and hence, it would not amount to technical or consultancy service within the meaning of Sec. 9(1)(vii)(b).

The High Court (HC) in GVK Industries Ltd held that assessee was not entitled to the NOC. Referring to the decision in case of ‘Electrical Corporation of India Ltd Vs CIT’, the HC dismissed the writ petition. Aggrieved, assessee preferred an appeal before the Apex Court. Referring to the Principles in decisions in case of ‘C.I.T. V. Aggarwal and Company'[(1965) 56 ITR 20], ‘C.I.T. v. TRC [(1987) 166 ITR 1993] and ‘Birendra Prasad Rai V. ITC (1981) 129 ITR 295], Supreme Court (SC) noted that the singular question that remained to be answered was whether the payment or receipt paid by the appellant to NRC as success fee would be deemed to be taxable in India u/s. 9(1)(vii).

The Hon’ble Supreme Court observed that clause (b) of sec. 9 (l)(vii) lays down the principle of what was basically known as the “source rule” i.e., income of the recipient to be charged or chargeable in the country where the source of payment is located, to clarify, where the payer is located. Therefore, deduction of tax at source when made applicable, it had to be ensured that this principle was not violated. SC noted that the two principles, namely, “Situs of residence” and “Situs of source of income” had witnessed divergence and difference in the field of international taxation. The principle “Residence State Taxation” gave primacy to the country of the residency of the assessee.
The SC referred to the Delhi HC ruling in ‘CIT vs. Bharti Cellular Limited and others’ wherein it – was held that consultancy meant giving professional advice or services in a specialized field. SC also referred to the dictionary meaning of ‘consultation’ in Black’s Law Dictionary, and discussed the meaning of the word ‘consultancy Services’. SC held that the NRC had the skill, acumen and knowledge in the specialized field i.e. preparation of a scheme for required finances and to tie-up required loans and the nature of service referred by the NRC would come within the ambit and sweep of the term ‘consultancy service’ and, therefore, it had been rightly held by HC that the tax at source should have been deducted as the amount paid as fee could be taxable under the head ‘fee for technical service’.

In arriving at its decision SC relied on the Constitution bench judgment in GVK [TS-69-SC-2011] wherein it was held that the Parliament is constitutionally restricted from enacting legislation with respect to extraterritorial aspects or causes that did not have, nor expected to have any, direct or indirect, tangible or intangible impact(s) on or effect(s) in or consequences for: (a) the territory of India, or any part of India; or (b) the interests of, welfare of, well-being of, or security of inhabitants of India, and Indians. SC also reiterated observations of the Constitution bench where the Constitution bench held that where Parliament itself posited a degree of relationship between the extra-territorial aspect or cause and something in India or related to India and Indians, beyond the constitutional requirement that it be real and not fanciful, then the courts would have to enforce such a requirement in the operation of the law as a matter of that law itself, and not of the Constitution.

Hon‘ble SC also relied on co-ordinate bench ruling in ‘CIT. vs. Aggarwal and Company‘ ((1965) 56 ITR 20], CIT vs. TRC [(1987) 166 ITR 1993] and Birendra Prasad Rai vs. ITC [(1981) 129 ITR 295].

SC further relied on ‘the Introduction in Klaus Vogel on Double Taxation Convention, South Asean, Reprint Edition (2007)] wherein it was mentioned that what was prohibited by international taxation law was imposition of sovereign act of a State on a sovereign territory and the said principle of formal territoriality applied to acts intended to enforce internal legal provisions abroad.

Applying Supreme Court decision in GVK Industries Ltd & Anr [TS-61-SC-2015] the receipts from services rendered abroad are taxable and jurisprudence relied upon is superceded by this SC decision and the rationale laid down regarding FTS is also applicable ie taxpayer has itself submitted that it has the skill, acumen and knowledge in the specialized field,

“Over the years, IMG UK has gained vast experience of working on event management and talent representation activities, across golf, tennis, football, etc. sporting events. The nature of contracts/ activities undertaken by the Company primarily Includes event creation, client representation, Consultation services, etc, IMG UK and the Board of control for Cricket in India [“BCCI”] entered into a Memorandum of understanding (“MOU”) for assistance in establishment, commercialization and operation of the Indian Premier League (“IPL”) In September 2007. In addition and consequent to the initial contract, the parties entered into a separate service agreement dated September 24, 2009 in relation to the second season and subsequent seasons for IPL events.

Extract from Transfer Pricing Report para 4.3 Page 17

“BCCI awarded the original contract of 2007 to IMG UK because of the vast knowledge and experience of IG UK, which has been developed by the UK entity over the years as a result of working on similar assignments in the field of sports (including cricket) prior to this contract. Accordingly, IMG UK possessed all the necessary technical shill, expertise and related Intangibles for the purpose of executing the BCCI contract.”

12. The DRP further held that the ‗make available‘ stipulation in Article 13 of the DTAA also stood satisfied. It then proceeded to examine the assertion of IMG based on Article 13(6) and which argument if were to be accepted, the revenue would have become liable to be taxed in terms of Article 7 as opposed to Article 13 of the DTAA. While dealing with this aspect, it held that the revenue in question could not be said to be effectively connected to the PE and consequently the same would not escape taxability under Article 13.

13. Pursuant to these directions of the DRP, a final assessment order came to be framed. IMG, thereafter, challenged the aforesaid assessment order before the Tribunal. The Tribunal dismissed the appeal essentially following its decision pertaining to AY 2010-11 and which forms the subject matter of ITA 218/2017.

14. Insofar as AY 2010-11 is concerned, it related to the revenues earned by IMG for the IPL event which was held in South Africa in 2009. For IPL 2009, IMG earned a total service fee of INR 33,00,00,000/-. Out of the aforesaid, it attributed INR 9,22,49,819/- to the Indian PE and a net profit of INR 3,28,04,660/- computed in accordance with the transfer pricing regulations was asserted to be attributable to the Indian PE and offered to tax.

15. The AO while drawing up a draft order, however, held that the balance receipt of INR 23,77,50,181/- was liable to be taxed as FTS. It was the aforesaid order which was assailed before the DRP. While dealing with those objections, the DRP held that the aforesaid revenue was liable to be taxed as FTS. This is evident from Para 5.6 of its directions, which is extracted hereinbelow: –

“5.6 In addition and consequent to the “MOU” dated 13.09.2007, the assessee and BCCI also entered into a separate, service agreement, on 24.09.2009 for Representation Period consisting of nine IPL seasons starting from 01.01.2009 (Clause 1.1l(q) of the service agreement). This service agreement was entered after the end of 1PL season of 2009 with retrospective date from 01.0l.2009. The annual charge of Rs 33.00 crores received during the year is for all services, rendered by the assessee anywhere in the world (Clause 1.l(x) and 6.2 of the service agreement) and it is in the nature of FTS as it is already determined irrespective of the places where the services are rendered. Basically the income from franchisees, broadcasters, etc. received by the BCCI is not as peer the above agreement but by separate agreements with them and income there from thus accrues and received in India and it has nothing to do with the places where IPL matches are played. In present case, the position of the AO is that income of the assessee is deemed to accrue or arise in India. Section 9 of the Act provides for incomes which shall be deemed to accrue or arise in India. Therefore, if an income accrues or arises directly or indirectly through or from a business connection in India, it shall be deemed to accrue or arise in India and hence such income of non-resident becomes taxable in India. It means that existence of business connection in India of non-resident is prerequisite under the Income Tax Act for bringing business income to tax in India. Under DTAA, however, higher threshold level in form of existence of PE in India is required for bringing business income of non-resident to tax in India. The assessee has not denied existence of its PE in India. The major source of revenue from the IPL matches played abroad is originated in India. In view of above and the reasoning given in the impugned order, we are of the considered view that the AO has rightly held Rs.23,77,50,181/-as FTS.‖

16. However, it took into consideration the admitted fact that the event had been held and hosted in South Africa and thus amounting to the rendition of service to BCCI outside India. It consequently came to hold that Section 9(1)(vii)(b) stood attracted as would be evident from the following conclusions: –

“5.4 In view of the above, it is evident that the intention of the legislature clarified by the Explanatory circular on the introduction of the amendment in the Income Tax Act has been to consider “such person” appearing in section 9(1)(vii)(b) with reference to the resident payer for the said amount because the expression “if the payment is relatable to a business of profession carried on by him outside India” refers to the business or profession carried out by him viz. resident payer in this context and not the non-resident payee. In view of the clear disposition of the relevant provisions of the I.T. Act, we hold that the provision of section 9(1)(vii)(b) are also satisfied and the case of the assessee is not covered by the exceptions.”

17. It ultimately came to hold that the income although constituting FTS would be liable to be taxed as business income in terms of Article accepting the contention based on Article 13(6) of the DTAA. However, it also proceeded to direct the AO to frame an order treating the said income as FTS on protective basis. It was the final assessment order drawn pursuant to those directions which led to appeals being filed by both IMG as well as the Income Tax Department.

18. Dealing with the aforesaid appeals, the Tribunal identified the principal issues to be whether receipt of INR 23,77,50,181/- was chargeable to tax in India at all and the second question being whether the same was liable to be treated as FTS. The Tribunal firstly reviewed the terms and conditions as contained in the MoU as well as the Services Agreement. It also took into consideration the nature of functions performed by the UK office of IMG and its Indian PE, as were recorded in the transfer pricing study report. Proceeding further, it firstly took up for consideration the argument of IMG based on Article 13(6) and whether FTS could be said to be effectively connected with its PE. The aforesaid contention was ultimately answered as under:-

“38. Now the issue arises is whether the whole contract is ‘effectively connected’ with the permanent establishment or part of the services are ‘effectively connected with the permanent establishment. On reading of. the above two agreements and the transfer pricing study report submitted by the assessee, more specifically at para number 4.4.2 ~e the functions performed by the permanent establishment of the appellant in India and para number 4.4.1 shows what are the functions performed by the IMG UK. It is further mentioned in the transfer pricing study report that certain routine services relating to on ground implementation and running of the event was subcontracted to the IMC India, branch. The IMG India PE was involved in/ responsible for overseeing and managing. The liasonsing and implementation support activities undertake taken by the IMC India branch. It is also important to note that how this functions were performed it was stated in the transfer pricing study report of the appellant that IMO UK employees came to India from time to time for short-term visits. Further few freelancers were appointed/engaged by IMO UK for undertaking the on- ground implementation and related supervision activities in India. As these functions performed, assessee has claimed that it has created a service PE in India and therefore the income should be chargeable to tax according to the article 7 of the Double Taxation Avoidance Agreement. Therefore according to us the above agreements and memorandum of understanding has two limb one. with respect to the performance of the activities performed by the permanent establishment in India and another limb deals with respect to the performance of the services by the IMG UK directly for which the India PE has nothing to do. Admittedly the issue is concerned with respect to the fees for technical services. It is also admitted position that while the effective connection of royalties with a permanent establishment has to be evaluated by applying the ‘assets test’ , and for the purpose of fees for technical services the ‘activity test? or ‘functional test’ should be applied as held in case of Nippon Kaiji Kyokoi V ITO 47 SOT 41 (Mum). Therefore to “effectively connect’ the whole income with the PE, contending party i.e. assessee, should establish that PE is engaged in the performance of all those services or should be involved in actual rendering of such services, or (2) it shou1d arise as a result of the activities of the PE, or (3) The PE should, at least, facilitate, assist or aid in performance of such service irrespective of the other activities PE performs. Therefore according to article 7, for attribution of the profits to the permanent establishment the activity carried out by the permanent establishment is important and to that extent only the profits can be attributed to that particular permanent establishment. However if there are other activities, which are also incorporated in the agreement, which are not at all carried on with the help of, or through, or by, or under the control, or under the supervision of the permanent establishment such activities and income arising there from cannot be said to be ‘effectively connected’ with the permanent establishment and article 7 cannot be applied to those services. In the present case certain activities are carried out by the appellant which are not even concerned with the functioning . of the permanent establishment therefore in our view only the activities which are performed by the permanent establishment are effectively connected with the permanent establishment and activities which are not carried on by the permanent establishment but are carried out by the head office of the appellant are not ‘effectively connected’ with the permanent establishment. We are also of the view that the term ‘effectively connected’ should not be understood to mean the opposite of ‘legally connected’ but rather something in the sense of ‘really connected’. Therefore the activities mentioned in the contract should be connected to the permanent establishment not only in the form but also in substance. It is also interesting to note that the permanent establishment of the assessee has been admitted by the appellant only because of the reason that some of the employees of the appellant came to India from time to time for short visit and further certain freelancers were appointed for undertaking the own ground implementation related supervision activities in India. Therefore according to us there are minimum activities performed by the PE of appellant in India. Hence just performing such minimum activities it cannot be said that whole of the revenue of Rs. 33 crores involved in the contract is ‘effectively connected’ with the activities of the permanent establishment in India. Hence we reject the contention of the assessee that the whole of the revenue involved in the contract should be considered as effectively connected with the permanent establishment of the appellant. We also give one more reason may be a hypothetical one which supports our view. Supposedly a contract of Rs. 100 crore is awarded to an overseas entity for rendering of the management services and if such: overseas entity establishes a permanent establishment by just deputing its staff for more than 90 days, it creates a service permanent establishment of that for an entity in India. On the basis of the minimum activities performed by that particular staff which 1s deputed in India 10% of the gross receipt say 10 crores is attributed to permanent establishment and after claiming deduction of expenses there from of say 60% of the income attributed, assessee offered balance amount as profit of the permanent establishment for taxation. In transfer pricing study report, based on FAR analysis such attribution of the profit is considered to be at arm’s length by the assessee and as well as by the transfer pricing officer, it cannot be said that the balance sum of Rs. 90 crores be taxed in India as the whole contract was ‘effectively connected’ with the permanent establishment created by the petitioner of some staff for performing some of the activities and crossing the threshold duration. We do not subscribe to such a view and we are also of the view that such is the case of the assessee before us.‖

19. The Tribunal while ruling on the interplay between Articles 7 and 13 of the DTAA, held as follows:-

“39. Further now coming to the interplay between article 7 and article 13 of the Double Taxation Avoidance Agreement gives an insight that first there has to be an existence of the permanent establishment through which the business is carried out and further existence of ‘effective connection’ between such PE and the rights properties a:hd contracts in respect of which the fees for technical services are paid. That would mean that only such fees for technical services are excluded from the scope of article 13 (6) as are ‘attributable’ to the permanent establishment of the assessee through which the business is carried on by the appellant. Therefore according to us the taxability under article 13 shifts to the taxability of article 7 only in respect of fees for technical services which are ‘attributable’ to the PE in question. Therefore the article 13 (6) of the Double Taxation Avoidance Agreement shall apply only to the extent of the activities carried on by the appellant through its permanent establishment. In view of this we are of the view that activities carried out by the appellant which are not at all connected with the activities of the permanent establishment are not covered by article 7 or 15 of the Double Taxation Avoidance Agreement between India and United Kingdom and same shall remain as fees· for technical services under article 13 only. Therefore natural corollary that follows is that whatever is income excluded by the applicability of article 13 (6) and goes back to article 7 is the same amount.

40. Our this view is also supported by the provision of article 13 (6) of the DTAA which provides as under :-

(6). The provisions of paragraphs 1 and 2 of this Article shall not apply if the beneficial owner of the royalties or fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties or fees for technical services arise through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the royalties or fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7 (Business profits) or Article 15 (Independent personal services) of this Convention, as the case may be, shall apply.”

[Underline supplied by us]

41. on reading of the above article it is apparent that the provisions of paragraph 1 and 2 of this article shall not apply if the beneficial owner of the royalty fees for technical service, being a resident of a contracting state, carries on business in other contracting State in which the royalties or fees for technical services arise through a permanent establishment situated therein, and the right property or contract in respect of which the royalty fees for technical services are paid is effectively connected with that permanent establishment or fixed base. Then only the provisions of article 7 related to business profit shall apply. Therefore the above article provides for twin conditions, (1) that the royalty or fees for technical services should arise through a permanent establishment situated in the other State and (2) the right property or contract in respect of the royalty or fees for technical services are paid is effectively connected with the such permanent establishment or fixed base. In the present case the benches raised a specific query that how the activities carried on by the UK office of the appellant are arise through the permanent establishment and how the contract is effectively connected with such permanent establishment. The Ld. authorized representative responded by submitting that it is with respect to the contract which should be effectively connected to the permanent establishment or fixed base. However with respect to the evidence of activities carried on by the overseas head office of the appellant and how they are connected or arising through the permanent establishment has, not been responded to. Despite this we have pursued the relevant activities performed by the foreign office of the appellant as well as the permanent establishment of the appellant. We are of the view that activities carried on by the foreign office of the assessee are not at all arising through the permanent establishment of the appellant in India. Therefore one of the condition of the about twin conditions also failed in case of the appellant. Once again we would like to reiterate that for the purpose of applicability of article 13 (6) with respect to the fees for technical services one has to apply the activity test of the permanent establishment in the source country is held by the coordinate bench in case’ of the Nippon Kaiji Koyokoi V ITO (supra).

42. Therefore we reject the contention of the assessee that out of 33 crores Rs. 9 crores are effectively connected with the permanent establishment of the appellant, the balance 22 crores cannot be taxed in India under article 13- as fees for technical services. Our one more reasons for holding such a view is that according to us there is no distinction between the two phrases used into two different articles of the Double Taxation Avoidance Agreement. These two phrases are (1) “attributable to in article 7 of the Double Taxation Avoidance Agreement, and (2) ‘effectively connected with ‘ in article 13 (6) the Double Taxation Avoidance Agreement, because lndo US DTAA uses the same term ‘attributable to’ in place of ‘effectively connected’ within article 12(6) of that agreement as under:-

[Underline supplied by us]”

20. The Tribunal on due examination of the rival contentions further held that the ‗make available‘ stipulation comprised in Article 13 of the DTAA also stood satisfied. This becomes evident from the following findings which came to be rendered: –

“43. Now the next contention raised by the appellant is that as there is no ‘make available’ test satisfied in case of the services provided by the appellant, hence, according to article 13 (4) which defines the fees for technical services means payments of any kind of any person in consideration for the rendering of any technical or consultancy services which make available technical knowledge, experience, skill know-how or processes, or consist of development and transfer of a technical plan technical design. According to the assessee as clause C of article 13 (4) is not satisfied the balance cannot be charged to tax as fees for technical services. In the present case the services are already described in the previous paragraphs and there cannot be two opinion about that that mere provision of services or technical services is not sufficient, it is essential that services should be “make Available” technical knowledge, experience, skill, know-how or process. The expression make available has far-reaching significance since it limits the scope of technical and consultancy services. Generally this expression ‘make available’ is used in the sense of one person supplying or transferring or imparting technical knowledge or skill or technology to another and technology is considered ‘made available’ only when the services receiver is enabled to absorb and apply the technology contained therein. If the services do not have any technical knowledge the fees paid for it do not fall within the meaning of fees for technical services as per the article 13 of the India UK DTAA.. The services receiver is able to make use of the technical knowledge etc by himself in his business or for his own benefit and without recourse to the service provider in future and for this purpose the transmission of the technical knowledge, experience, skill, etc from the service provider to the services CP is necessary. In other words the technical knowledge, experience, skill etc must remain with the service recipient even after the rendering of the services has come to an end and the services receiver is at liberty to use the technical knowledge skill know-how and processes in his own right. In the present case the assessee has hired for conducting research in respect of the appropriate structure for the IPL and makes recommendation to BCCI accordingly. It is required to provide the Constitution of the IPL, the authority of the governing Council, the structure of IPL, tournament rules and regulation ,the franchisee tender document ,the franchisee agreement, necessary franchisee regulation and the IPL implementation budget. According to the para No. 9 of the agreement that intellectual property rights remains with the board of control for Cricket in India. Even before us Ld. authorized representative could not point out that why ‘make available test’ has not been satisfied in this even by providing all the rules and regulations of IPL, standard operating procedures of matches, copies of the franchisee agreement, various documentation/contracts etc which shall remain with the BCCI. Therefore in the present case according to us the BCCI is enabled to absorb and apply the information and the advice provided by the appellant to it for conducting such sporting events. According to us when all this documentation and material is provided to the BCCI it is able to use such know-how and documentation generated from provision of the services of the appellant independent of the services of the appellant in future. It is too naïve to say that in absence of IMG services BCCI on its own IPL tournament cannot hold. Merely because the BCCI has entered into a contract for conducting further 9 events does not lead to the conclusion that the information documentation, agreements, contracts etc cannot be said to be ‘made available’ to the appellant. In fact according to us it is. In view of this we reject the contention of the appellant that the sum of Rs. 237750181/-cannot be taxed as fees for technical services as it does not satisfy ‘make available’ condition provided in article 13(4) 9c) of the DTAA.”

21. The Tribunal with respect to applicability of Section 9(1)(vii) of the Act drew the following conclusions: –

“48. According to provisions of section 9 (1) of the Income tax Act the income by way of fees for technical services payable by a person who is resident to a non-resident shall be deemed to accrue or arise in India and shall be chargeable to tax u/s. 5 of the Income Tax Act in the hands of a non-resident. The claim of the appellant is that receipt of Rs. 237750181/- falls within the exception provided under clause (b) of the above section which says that where the fees for technical services are payable in respect of services utilized in a business or profession carried on by such person outside India or for the purpose of making or earning any income from any source outside India, it shall not be considered as fees for technical services as income deemed to accrue or arise in India in terms of the provisions of section 9(1)(vii)(b) of the Income Tax Act. The main reason to say so by the appellant is that the IPL 2009 event has been held outside India and therefore the BCCI has utilized those services outside India and therefore they fall into the exception and cannot be taxed in India. We have carefully considered the rival contentions and reject the contention of the appellant for the reason that to fall within the exception the assessee must be carrying out business outside India and such services must be utilized in that business by a person who is a resident in India and who pays income by way of fees for technical services to a non- resident. It is an established fact that BCCI is carrying on business in India and not outside India. Further the source of income of the BCCI is in India and not outside India. Merely because the event is performed outside India it cannot be said that source of income of the BCCI is not in India. Therefore according to us the income of the appellant of Rs. 237055181/- is chargeable to tax as fees for technical services under section 9 (1) (vii) of the Income Tax Act as Fees for technical services.”

22. On an overall consideration of the above, the Tribunal proceeded to dismiss the appeal of IMG and allow the appeal of the Department holding that INR 23,77,50,181/- would be governed by Article 13 of the DTAA and liable to be taxed as FTS on a substantive basis.

B. IMG’S CHALLENGE

23. Appearing in support of the appeals, Mr. Vohra, learned senior counsel canvassed the following submissions for our consideration. Mr. Vohra submitted that a cumulative reading of the terms and conditions of the MoU as well as the Services Agreement would lead one to the irresistible conclusion that the receipts of IMG were liable to be viewed as business profits, and consequently entitled to be taxed only to the extent of income attributable to the Indian PE of IMG. Mr. Vohra submitted that it was the undisputed position that pursuant to the nature of services performed in India coupled with the visits of IMG employees to the country, the prescriptions of Article 5(2)(k) of the DTAA stood satisfied and that consequently a Service PE had come into existence. Mr. Vohra underlined the fact that Article 5(2)(k) applies only where services other than those taxable under Article 13 are furnished. It was in the aforesaid backdrop that learned senior counsel submitted that once the revenue had accepted the existence of a Service PE and the taxability of INR 9,22,49,819/- being income attributable to the Service PE, it was clearly not open for the respondents to hold that the balance receipts from BCCI were liable to be taxed as FTS.

24. According to learned senior counsel, the respondents clearly stood estopped from contending that receipts from BCCI to the extent not attributable to the admitted Service PE, would be taxable under Article 13. The submission, in essence, was that once the respondents had accepted the constitution of a Service PE as well as the attribution of income thereto, they could not thereafter have turned around to assert that receipts to the extent not attributable to the PE were liable to be treated as FTS. This more so since, as per the appellants, the applicability of Article 5(2)(k) was itself dependent upon it being found that the services rendered were other than those which would fall within the ambit of Article 13.

25. It was Mr. Vohra‘s submission that the receipts received from BCCI by IMG flowed from one singular contract and which envisaged the furnishing of composite services relating to assistance in establishment, commercialization and operation of the IPL. Mr. Vohra highlighted the fact that neither the Services Agreement nor the DTAA empowers the Respondent to bifurcate the composite consideration received between business profits and FTS. Apart from the above, Mr. Vohra further submitted that a bare perusal of the obligations placed upon IMG and which can be discerned from the MoU and the Services Agreement would evidence that the revenue received by IMG cannot possibly be held to fall within the ambit of FTS under Article 13 of the DTAA. This since, according to learned senior counsel, IMG had not made available any technical knowledge, experience, skill, know-how or processes to BCCI. In order to shed light on the meaning liable to be ascribed to the phrase ―make available‖ as appearing in Article 13, Mr. Vohra drew our attention to the Memorandum of Understanding appended to the India US DTAA and which, while dealing with the subject of FTS, employs similar language. Mr. Vohra relied upon the following passages as appearing in the said Memorandum of Understanding: –

“Generally speaking, technology will be considered ‘made available’ when the person acquiring the same is enabled to apply the technology. The fact that the provision of the service may require technical input by the person providing the service does not per se mean that technical knowledge, skills, etc, are made available to the person purchasing the service within the meaning of paragraph 4. Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. ‖

26. Mr. Vohra also relied upon the following pertinent observations as rendered by the Karnataka High Court in CIT v. De Beers India Minerals P. Ltd¹²:-

“13. Therefore, the clause in the Singapore agreement which explicitly makes it clear the meaning of the words “make available”, the said clause has to be applied, and to be read into this agreement also. Therefore, it follows that for attracting the liability to pay tax not only the services should be of technical in nature, but it should be made available to the person receiving the technical services. The technology will be considered made available when the person, who received service is enabled to apply the technology. The service provider in order to render technical services uses technical knowledge, experience, skill, know-how or processes. To attract the tax liability, that technical knowledge, experience, skill, know-how or process which is used by the service provider to render technical service should also be made available to the recipient of the services, so that the recipient also acquires technical knowledge, experience, skill, know-how or processes so as to render such technical services. Once all such technology is made available it is open to the recipient of the service to make use of the said technology. The tax is not dependent on the use of the technology by the recipient. The recipient after receiving of technology may use or may not use the technology. It has no bearing on the taxability aspect is concerned. When the technical service is provided, that technical service is to be made use of by the recipient of the service in further conduct of his business. Merely because his business is dependent on the technical service which he receives from the service provider, it does not follow that he is making use of the technology which the service provider utilises for rendering technical services. The crux of the matter is after rendering of such technical services by the service provider, whether the recipient is enabled to use the technology which the service provider had used. Therefore, unless the service provider makes available his technical knowledge, experience, skill, know-how or process to the recipient of the technical service, in view of the clauses in the DTAA the liability to tax is not attracted.

xxxx xxxx xxxx

21. What is the meaning of “make available”. The technical or consultancy service rendered should be of such a nature that it “makes available” to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technical knowledge, etc., so that the payer of the service could derive an enduring benefit and utilize the knowledge or know-how on his own in future without the aid of the service provider. In other words, to fit into the terminology “making available”, the technical knowledge, skills, etc., must remain with the person receiving the services even after the particular contract comes to an end. It is not enough that the services offered are the product of intense technological effort and a lot of technical knowledge and experience of the service provider have gone into it. The technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider. Technology will be considered “made available” when the person acquiring the service is enabled to apply the technology. The fact that the provision of the service that may require technical knowledge, skills, etc., does not mean that technology is made available to the person purchasing the service, within the meaning of paragraph (4)(b). Similarly, the use of a product which embodies technology shall not per se be considered to make the technology available. In other words, payment of consideration would be regarded as “fee for technical/included services” only if the twin test of rendering services and making technical knowledge available at the same time is satisfied”

27. Our attention was also drawn to the decision of the Kerala High Court in US Technology Resources (Pvt.) Ltd. vs. Commissioner of Income Tax, where the phrase ―make available” was explained to indubitably envisage a transfer of technology or know-how. We deem it apposite to extract the following paragraphs of that decision: –

“7. There can be no dispute that the income generated by the US company under the agreement entered into with the Indian company as remuneration for the services provided is brought within the scope of total income under section 5(2) of the Act. Section 9 speaks of “income deemed to accrue or arise in India” and clause (vii) of subsection (1) of the aforesaid provision, as is relevant for our consideration, is extracted hereunder:

“(vii) income by way of fees for technical services payable by—. ..

(c) a person who is a non-resident, where the fees are payable in respect of services utilised in a business or profession carried on by such person in India or for the purposes of making or earning any income from any source in India:

Provided that nothing contained in this clause shall apply in relation to any income by way of fees for technical services payable in pursuance of an agreement made before the 1st day of April, 1976, and approved by the Central Government.. ..

Explanation 2.—For the purposes of this clause, ‘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 consideration for any construction, assembly, mining or like project undertaken by the recipient or consideration which would be income of the recipient chargeable under the head ‘Salaries’.”

There can also be no dispute as per the extracted Explanation that the services offered by the US company to the Indian company comes under the said definition. The services offered, as is seen from the terms of the agreement which are specifically termed by the first appellate authority as “technical and consultancy services”, are (i) management decision-making, (ii) financial decision-making, (iii) legal matters and public relation activities, (iv) treasury services and (v) risk management services. Read with the Explanation, this definitely would come within the ambit of “technical and consultancy services” as defined under the Act. The first appellate authority has also relied on Continental Construction Ltd. v. CIT (1992) 195 ITR 81 (SC), CBDT v. Oberoi Hotels (India) P. Ltd. (1998) 231 ITR 148 (SC) ; (1998) 97 Taxman 453 (SC) and Dean, Goa Medical College v. Dr. Sudhir Kumar Solanki (2001) 7 SCC 645, wherein the ambit of the definition was examined by the hon’ble Supreme Court.

xxxx xxxx xxxx

18. We are conscious of the fact that the DTAA as relevant in the present case, is not applicable even in the case of De Beers India Minerals (P.) Ltd. where the non-resident hailed from Netherlands. However, on facts we are of the opinion that when the definition clause in DTAA read along with the MOU specifically refers to transfer of technologies, the facts as available in the Karnataka decision are more similar to the present facts. Herein also there is no technology transfer ; nor is there a plan or strategy relating to management, finance, legal, public relations or risk management transferred to the appellant. The services promised by the nonresident company is only to advice on such aspects as are specifically referred to in the agreement. The non-resident company only assists the Indian company in making the correct decisions on such aspects as is specifically referred to in the agreement, as and when such advice is required. There is no transfer of technology or know-how, even on managerial, financial, legal or risk management aspects ; which would be available for the Indian company to be applied without the hands-on advice offered by the US company. The advice offered on such aspects would have to be on a factual basis with respect to the problems arising at various points of time and there cannot be found any transfer of technical or other know-how to the Indian company.”

28. Our attention was also drawn to the following pertinent observations as appearing in the judgment handed down by our Court in CIT (IT) v. Bio-Rad Lab (Singapore) Pte. Ltd.¹³:-

“14. According to the Tribunal, the agreement between the respondent-assessee and its Indian affiliate had been effective from January 1, 2010, and if, as contended by the appellant-Revenue, technical knowledge, experience, skill, and other processes had been made available to the Indian affiliate, the agreement would not have run its course for such a long period.

14.1 Notably, this aspect is adverted to in paragraphs 17 to 23 of the impugned order. For convenience, the relevant paragraphs are extracted hereafter (page 463 of 33 ITR (Trib)-OL) :

“A perusal of the aforementioned provision shows that in order to qualify as fees for technical services, the services rendered ought to satisfy the ‘make available’ test. Therefore, in our considered opinion, in order to bring the alleged managerial services within the ambit of fees for technical services under the India-Singapore Double Taxation Avoidance Agreement, the services would have to satisfy the ‘make available’ test and such services should enable the person acquiring the services to apply the technology contained therein.. ..

.. . agreement is effective from January 1, 2010 and we are in the assessment years 2018-19 and 2019-20. In our considered opinion, if the assessee had enabled the service recipient to apply the technology on its own, then why would the service recipient require such service year after year every year since 2009 ?

This undisputed fact in itself demolishes the action of the Assessing Officer/Dispute Resolution Panel. The facts on record show that the recipient of the services is not enabled to provide the same service without recourse to the service provider, i. e, the assessee.

In our humble opinion, mere incidental advantage to the recipient of services is not enough. The real test is the transfer of technology and on the given facts of the case, there is no transfer of technology and what has been appreciated by the Assessing Officer/learned Commissioner of Income-tax (Appeals) is the incidental benefit to the assessee which has been considered to be of enduring advantage.

In our understanding, in order to invoke make available clauses, technical knowledge and skill must remain with the person receiving the services even after the particular contract comes to an end and the technical knowledge or skills of the provider should be imparted to and absorbed by the receiver so that the receiver can deploy similar technology or techniques in the future without depending upon the provider.” (emphasis is ours)

15. We tend to agree with the analysis and conclusion arrived at by the Tribunal.”

29. Mr. Vohra in support of his submission that the fundamental requirements of the applicability of Article 13 of the DTAA were not met also relied upon two recent decisions rendered by this Court in Commissioner of Income Tax (International Taxation) vs. Relx Inc¹⁴ and Commissioner of Income Tax- International Taxation-3 vs. Salesforce.com Singapore¹⁵.

30. Proceeding further on this aspect, Mr. Vohra contended that the sine qua non for Article 13 being attracted would be the transfer of technical knowledge, experience, skill, know-how or processes in a manner which would have enabled BCCI itself to conduct the IPL on its own without any advice or assistance of IMG. According to learned senior counsel, the fact that the Services Agreement with BCCI continued for more than ten years and saw IMG being involved on a yearly basis to provide assistance in the conduct of the IPL is itself evidence of no transfer of technical knowledge, experience or skill having taken place.

31. This aspect was sought to be highlighted with the identification of some of the key activities undertaken by IMG and whether the same could be said to satisfy the requirement of ‗make available‘. Mr. Vohra referred to the following comparative table in this respect: –

“Nature of activities	Whether Make Available
Conducting research in respect of making recommendation to BCCI on the appropriate structure for all aspects of the IPL.	Since, recommendations are made every year for the modifications in the structure due to the participant’ changes, the review of the guidelines etc. by the Appellant does not make available the knowledge to BCCI.
Formulating policies/procedures and work plan relating to running of the event in India, including setting out the logistics, man powers etc.	Every year requirements are different and accordingly logistics, man powers and work plans need to be changed. No make available.
Development of best practice match day media guidelines	For every IPL the media guidelines and best practices need to drafted. No make available.
Identification of prospective sponsors	Yearly activity. No Make available.
Advice and assistance in connection with rules and regulations relating to registration, auction and trading of players	Yearly activity. No Make available.
Advice and assistance in connection with Player Contracts	Yearly activity. No Make available.
Advice and assistance in connection with Anti- Doping and WADA Compliances Regulations	There has been lot of development as far as anti-doping laws are concerned and accordingly guidelines need to be reviewed consistently. No make available.
Creation of IPL match schedule	Yearly activity. No make available.
Bringing in global best practices in building and evaluating sporting properties and related aspects.	BCCI is not expected to be an expert in global best practices.”

32. It was then submitted by learned senior counsel in the alternative that even if one were to assume that the services rendered by IMG answer the description of FTS, the payments received by it would fall for consideration only under Article 7 of the DTAA since the same was indelibly connected to the contract that IMG had with BCCI, and which was concerned with the rendition of services and fees so received in consideration thereof being effectively connected with the Service PE of the appellant. According to Mr. Vohra, Article 13(6) requires one to examine whether the contract is “effectively connected” to the PE and if the answer to the above be in the affirmative, the receipts being liable to be taxed only to the extent as envisaged under Article 7 of the DTAA. According to learned senior counsel, since IMG admittedly had a Service PE and the source of revenue was only one contract, it must consequently be held that the same was effectively connected with the PE. Accordingly, and in view of the above, it was his submission that the entire receipt from BCCI would go out of the ambit of Article 13 and become taxable as income under Article 7 to the extent attributable to the PE.

33. According to learned senior counsel, this aspect stands answered in favour of the appellant by the Supreme Court in Ishikawajma Harima Heavy Industries Ltd. vs. Director of Income Tax, Mumbai¹⁶ and where it was observed as follows: –

“79. Since the appellant carries on business in India through a permanent establishment, they clearly fall out of the applicability of Article 12(5) of DTAA and into the ambit of Article 7. The Protocol to DTAA, in para 6, discusses the involvement of the permanent establishment in transactions, in order to determine the extent of income that can be taxed. It is stated that the term “directly or indirectly attributable” indicates the income that shall be regarded on the basis of the extent appropriate to the part played by the permanent establishment in those transactions. The permanent establishment here has had no role to play in the transaction that is sought to be taxed, since the transaction took place abroad.”

34. Mr. Vohra in this context also relied upon the following observations as appearing in a ruling handed down by the Authority of Advanced Ruling in Worley Parsons Services¹⁷:-

“13.2 There is one more aspect which will have some relevance in understanding the observations referred to supra. In the DTAA between India and Japan, the terminology of article 12 is somewhat different. The phraseology used in article 12.5 is “the right, property or contract in which the royalties or fees for technical services are paid is effectively connected with the PE”. In such a case, article 7 will apply. Instead of the word ‘services’ occurring in the Treaty with which we are concerned, the expression ‘contract’ is used therein. In view of this language of article 12(5), a view can be taken that the contract as a whole was effectively connected with the PE though the particular services (offshore services) were not so connected. Apparently, for this reason, their Lordships have proceeded on the premise that the offshore services forming part of the contract though rendered outside India were effectively connected to the PE, though the PE had no role in playing the actual rendering of such services.“

35. Our attention was also drawn to the following passage as appearing in Philip Baker’s treatise on “Double Taxation Conventions”: –

“Article 7(7): Specific articles override Article 7(1)

Article 7(7) concerns both of the situations covered by art. 7(1) (i.e. where the enterprise does or does not have a permanent establishment). Where an enterprise receives any type of income dealt with by any of the specific Articles of the Convention, the specific Articles are not affected by art. 7. Many of the other Articles specifically Artie] es 10(4), 11 (4), 12(3) and 21 (2) contain paragraphs which provide that, where the shareholding, indebtedness, etc., is “effectively connected with the permanent establishment, art. 7 should apply. According to paragraph 35 of the Commentary, such payments may then be regarded as “profits” of the permanent establishment within art. 7 and may be attributed to the permanent establishment or they can be taxed separately but without the limits contained in the specific Articles. The order of priority is thus as follows. First, it is necessary to decide whether an item of income falls within one of the specific Articles – dividends, royalties, etc. If it does, then that Article applies unless the enterprise has a permanent establishment in that state and the income is effectively connected with that permanent establishment. In that event, art. 7 will apply and the income will be taxed as a profit of the permanent establishment or separately.“

In view of the aforesaid and in light of Article 13(6) of the DTAA, Mr. Vohra would submit that the view taken by the Tribunal that the revenue was liable to be taxed as FTS is rendered wholly untenable.

36. Proceeding further to address submissions on the additional ground based on Section 9(1)(vii) of the Act, Mr. Vohra submitted that undisputedly in 2009 and 2014, the IPL event was hosted outside India. In view of the above, it was submitted that the case of the appellant would clearly fall within the ambit of Section 9(1)(vii)(b) of the Act since the fee so earned would be liable to be viewed as being in respect of services utilized by BCCI outside India or for that matter enabling it to earn income from a source outside India. It was in the aforesaid backdrop that Mr. Vohra submitted that in the years the IPL event was hosted outside India, the services rendered by IMG to the extent not attributable to its PE, were utilized by BCCI for earning income from a source outside India. This since the sources of income were gate receipts, in stadia advertisements, telecasting rights and others, and all of which were earned from the singular fact of the event itself having taken place in South Africa and UAE. In view of the above, Mr. Vohra had contended that the aforesaid income cannot possibly be deemed to accrue or arise in India and consequently held to be taxable. This issue according to learned senior counsel, in any case, stands answered in favor of the appellants by the Supreme Court in GVK Industries Ltd. vs. Income Tax Officer and Anr.¹⁸ where the scope of Section 9(1)(vii) was explained as follows: –

“25. The principal provision is sub-clause (b) of Section 9(1)(vii) of the Act. The said provision carves out an exception. The exception carved out in the latter part of sub-clause (b) applies to a situation when fee is payable in respect of services utilised for business or profession carried out by an Indian payer outside India or for the purpose of making or earning of income by the Indian assessee i.e. the payer, for the purpose of making or earning any income from a source outside India. On a studied scrutiny of the said clause, it becomes clear that it lays down the principle what is basically known as the ―source rule”, that is, income of the recipient to be charged or chargeable in the country where the source of payment is located, to clarify, where the payer is located. The clause further mandates and requires that the services should be utilised in India.”

C. CONTENTIONS OF THE RESPONDENTS

37. For the respondents while oral submissions were addressed by Mr. Kunal Sharma and Mr. Sanjeev Menon, a detailed Note of Submissions had also been tendered under the pen of Mr. Zoheb Hossain, the learned senior standing counsel. Mr. Hossain‘s note rightly identifies the two principal questions with arise as being whether the services rendered by the assessee would qualify as technical or consultancy services and whether the furnishing of those services would fall within the scope of the ‗make available‘ requirement as appearing in Article 13(4) of the DTAA.

38. In order to appreciate the issues that arise, Mr. Hossain firstly drew our attention to the principal obligations placed upon IMG UK and which have also been extracted in the order of the Tribunal for AY 2010-11. The Tribunal had in this regard relied upon the following stipulations as appearing in the Services Agreement: –

“4. IMG’s Obligations

IMG shall during the Representation Period provide the services set out in Clauses 4.1 and 4.2 (the “Services”) it being acknowledged that a significant proportion of the Services constitutes advice provided to the BCCI from outside India using IMG‘s international expertise and resources.

4.1 Having carried out research and advised the BCCI in connection with the formation and governance of the League and IPL, IMG shall continue to advise and assist BCCI in connection with, the following:

(a) the structure of the League;

(b) the League rules and regulations;

(d) the League implementation budget; and

(e) the Media Rights agreements.

4.2 In addition to the matters referred to in Clause 4.1 above, IMG shall continue its work in carrying out or providing (as appropriate) the following;

(a) the ongoing execution of the management in respect of the Rights of BCCI and advice in connection therewith including, without limitation:-

(i) Franchise Rights;

(ii) Media Rights;

(iii) sponsorship rights;

(iv) official suppliership rights;

(v) licensing and merchandising rights;

(vi) stadium signage rights; and

(vii) any other rights in relation to the League that may come up for leverage by BCCI in the future

(b) the preparation and execution of marketing strategies for and advice in connection with:

(i) any ongoing tender process in respect of Franchise Rights;

(ii) the Media Rights; and

(iii) the commercial Rights;

(d) advice and assistance in the management, of the sales processes in respect of the Rights;

(e) the ongoing preparation and negotiation, subject to the final decision of the BCCI, of

(i) contracts with the successful Franchisees;

(ii) the Rights Agreements and any other contracts with Rights Holders;

(f) the implementation and management of the sale and delivery of the Rights to Rights Holders;

(g) the preparation of a television production specification provided IMG Media is not a bidder for this service;

(h) the development of best practice match day guidelines for Franchisees and supervision in respect of their execution

(i) the development of best practice match day media guidelines and supervision in respect of their execution;

(j) advice and assistance in connection with the development of any relevant stadia and the finance which may be necessary in connection therewith and, jf requested, the introduction to the BCCI of third parties who are involved In the redevelopment of stadia;

(k) advice and assistance in connection with the rules and regulations relating to the registration, trading and auction of players;

(l) the creation of and advice and assistance with the “look and feel” elements in relation to the BCCI Marks generally and, in particular, at any relevant Stadia;

(m) the provision of hospitality guidelines in relation to the League and implementation of hospitality in the latter “case in a latter case in manner to be mutually discussed and agreed;

(n) the provision of a League handbook;

(o) advice and assistance in connection with the Player contracts;

(p) the establishment and maintenance of the player registration system

(q) the management of the annual Player trading window;

(r) provision of the requisite manpower that is required to carry out such activities as are within IMG’s control in connection with the successful naming of the League and Matches including the provision of a CUIH staffed, office to do the same, at the sole cost of MG;

(s) the hiring of whatever resources are required to fully perform IMGs obligations under this Agreement at the sole cost of IMG;

(t) advice and assistance in connection with Anti Doping and WADA Compliance Regulations;

(u) assistance in the creation / development of new intellectual properties relating to the league. All such properties created will be the sole prop of BCCI

(v) carrying out research in consultation with BCCI each year to ascertain un improvements in various areas of management and execution of the League

(w) development of the strategic brand framework for BCCI and marriage brand IPL working with the BCCI team;

(x) bringing-in global best practices in building and evaluating sporting properties and related aspects;

(y)delivering a post event report at the end of each season and be subject to review on the performance and delivery of services rendered to BCCI.”

39. Mr. Hossain also sought to draw a distinction between the services and functions performed by the UK office of IMG as also those which were undertaken by the PE. The UK office functions were discerned from the transfer pricing study report and relevant parts whereof are reproduced hereinbelow:-

“IMG UK was responsible for conceptualization, strategy formulation, development of framework for IPL event, etc from UK. To this end, the activities undertaken by the UK team from completely outside of India include:

1. Conducting research in respect of, and making recommendations to BCCI on, the appropriate structure for all aspects of the IPL

2. Preparation of the core/ key strategic framework for the IPL, including: constitution of the IPL, devising the structure of the tournament, creation of the sporting model to be adopted for IPL, devising/ suggesting the investment model (or the franchisee, creation of the media and sponsorship rights, key decisions relating to the event (like how many cities to be involved, no of matches), etc.

3. Preparation of the IPL foundation documents, including: rules and regulations, franchisee tender documents, franchisee agreements, franchisee regulations, IPL implementation budget, drafting tender documents relating to media and sponsorship rights, etc.

4. Assistance in respect of development of and advise relating to commercial rights management process with respect to franchise rights, media rights, sponsorship rights, licensing and merchandising rights, stadium signage rights, official vendor rights etc.

5. Formulation/ preparation of marketing strategies for franchise tender

6. Formulation/ preparation of marketing strategies for media rights, sponsorship rights, official supplier rights, licensing rights, etc.

7. Formulation of policies/ procedures and work plan relating to management of the franchise tender process in India

8. Formulation of policies/ procedures and work plan relating to management of the sales process in respect of the various aforementioned rights in India

9. Preparation of and offshore assistance in negotiation of contracts with sponsors, media, successful franchisees etc.

10. Preparation of television production specifications

11. Formulating policies/ procedures and work plan relating to running of the event in India, including setting out the logistics, manpower etc. Requirements along with IMG India PE

12. Development of best practice match day guidelines for franchisees and for the IPL along with IMG India PE

13. Development of best practice match day media guidelines along with IMG India PE

14. Undertaking offshore market/ industry analysis and supervision of research activities undertaken in India for identification of prospective sponsors along with IMG India PE

15. Advice and assistance in connection with the rules and regulations relating to the registration, auction and trading of Players

16. Development of the strategic brand framework for BCCI and managing brand IPL along with the BCCI team

17. Creation of the look and feel elements in relation to the BCCI Marks generally and, in particular, at any relevant Stadia

18. Creation of the League handbook along with IMG India PE

19. Advice and assistance in connection with the Player contracts

20. Establishment and maintenance of the Player registration system

21. Creation of the IPL match schedule along with IMG India PE

22. Advice and assistance in connection with Anti-Doping and WADA Compliance Regulations along with IMG India PE

23. Development assistance in creation of new intellectual properties relating to the League

24. Carrying out research in consultation with BCCI to ascertain improvements in various areas of management and execution of the League

25. Bringing-in global best practices in building and evaluating sporting properties and related aspects

26. Delivering a post event report at the end of each season

27. Preparation of marketing collaterals, press packs and appropriate presentation documentation for meetings/ events conducted in this regard. Accordingly, the conceptualization, strategy formulation, core process and know-how development, creation of framework for IPL, etc was done by IMG UK from the UK.‖

40. The functions of the India office were also noticed in the said report and the parts thereof which are relied upon by the respondents are extracted hereunder:-

“4.4.2. Functions performed by IMG India PE

As part of the execution of the contract, a certain set of activities were required to be undertaken in India. Accordingly, some of the discussions/ negotiation processes between BCCI and various other parties (like franchises, sponsors, media partners, etc.) happened in India since the 2009 event was scheduled to take place in India. For this purpose, IMG UK employees came to India from time to time for short term visits. Further, few freelancers were appointed/ engaged by IMG UK for undertaking the on-ground implementation and related supervision activities in India.

***

The activities undertaken by the Branch include: liaison/ coordination support in dealing with the client/ BCCI, media partners, sponsors, franchisees, player auction process, etc. in India; organizing the implementation of the event in India viz. coordinating with various third parties in India to ensure that facilities/ arrangements at the match locations are in line with the desired IMG UK guidelines; providing/ managing logistics, manpower support in India relating to running of the event and undertaking related administrative support activities, assistance in negotiation of contracts with sponsors, media, successful franchisees etc.; undertaking market/ industry research to assist IMG UK in identification of prospective sponsors in India. The logistic activities essentially involved making arrangements for travel bookings, room bookings, commuting of IMG staff, etc. As mentioned earlier, IMG UK/ IMG India PE sub contracted certain routine services relating to on-ground implementation/ running of the event to IMC India Branch. IMG India PE was involved in/ responsible for overseeing and managing the liaisoning and implementation support activities undertaken by IMC India Branch.

All these aforesaid activities were undertaken by IMG India PE under the framework, guidelines and policies prepared by IMG UK (from outside India). Any significant divergence or variation from the framework required specific approval from the Project leader, who was based in UK.

Further, it must be noted that all the activities were undertaken in India purely as a sub contracted support service to IMG UK and India was not responsible for its services to the end client/ BCCI.”

41.It was at the outset contended by the respondents that a plain reading of the scope of work assigned to IMG UK would establish that the services rendered by it would clearly fall within the ambit of technical and consultancy services. The note of Mr. Hossain, while seeking to expound upon the terms “technical” and “consultancy” occurring in the DTAA relies upon Article 12A of the UN Model Convention which reads as follows: –

“1. Fees for technical services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

2. However, notwithstanding the provisions of Article 14 and subject to the provisions of Articles 8, 16 and 17, fees for technical services arising in a Contracting State may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the fees is a resident of the other Contracting State, the tax so charged shall not exceed ___ per cent [the percentage is to be established through bilateral negotiations] of the gross amount of the fees.

3. The term ―fees for technical services‖ as used in this Article means any payment in consideration for any service of a managerial, technical or consultancy nature, unless the payment is made:

(a) to an employee of the person making the payment;

(b) for teaching in an educational institution or for teaching by an educational institution; or

4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the fees for technical services arise through a permanent establishment situated in that other State, or performs in the other Contracting State independent personal services from a fixed base situated in that other State, and the fees for technical services are effectively connected with:

(a) such permanent establishment or fixed base, or

(b) business activities referred to in (c) of paragraph 1 of Article 7.

In such cases the provisions of Article 7 or Article 14, as the case may be, shall apply.

5. For the purposes of this Article, subject to paragraph 6, fees for technical services shall be deemed to arise in a Contracting State if the payer is a resident of that State or if the person paying the fees, whether that person is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the obligation to pay the fees was incurred, and such fees are borne by the permanent establishment or fixed base.

6. For the purposes of this Article, fees for technical services shall be deemed not to arise in a Contracting State if the payer is a resident of that State and carries on business in the other Contracting State through a permanent establishment situated in that other State or performs independent personal services through a fixed base situated in that other State and such fees are borne by that permanent establishment or fixed base.

7. Where, by reason of a special relationship between the payer and the beneficial owner of the fees for technical services or between both of them and some other person, the amount of the fees, having regard to the services for which they are paid, exceeds the amount which would have been agreed upon by the payer and the beneficial owner in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In such case, the excess part of the fees shall remain taxable according to the laws of each Contracting State, due regard being had to the other provisions of this Convention.”

42. The note then draws our attention to the following passages as appearing in the commentary of the UN Model Convention: –

“64. The ordinary meaning of the term “technical” involves the application of specialized knowledge, skill or expertise with respect to a particular art, science, profession or occupation. Therefore, fees received for services provided by regulated professions such as law, accounting, architecture, medicine, engineering and dentistry would be fees for technical services within the meaning of paragraph 3. Thus, if an individual receives payments for professional services referred to in Article 14, paragraph 2 from a resident of a Contracting state, those payments would be fees for technical services. If the payments arise in that Contracting State because they are made by a resident of that State or borne by a permanent establishment or fixed base in that State, the payments would be subject to tax by that State in accordance with paragraph 2 irrespective of the fact that the services are not performed in that State through a fixed base in that State.

65. Technical services are not limited to the professional services referred to in Article 14, paragraph 2. Services performed by other professionals, such as pharmacists, and other occupations, such as scientists, academics, etc., may also constitute technical services if those services involve the provision of specialized knowledge, skill and expertise.

66. The ordinary meaning of “consultancy” involves provision of advice or services of a specialized nature. Professionals usually provide advice or services that fit within the general meaning of consultancy services although, as noted in paragraph 63 and 64, they may also constitute management or technical services.”

43. According to the respondents, the services provided by IMG UK involved provision of specialized knowledge and skill with respect to researching into structuring, organizing and commercially exploiting sporting leagues. It was submitted that since the work undertaken by the appellant largely involved researching and advising, the same would clearly fall within the meaning of technical and consultancy services. In order to expand upon the aforesaid submission, the respondents also relied upon a decision of the Madras High Court in Regen Powertech Pvt. Ltd. vs. Deputy Commissioner of Income Tax¹⁹ and which was concerned with remittances made by the Indian payer to a non-resident for conducting a market study. While dealing with the aforesaid that High Court had held as follows: –

“10. There are three issues raised before us in this appeal. First relates to payments made by the assessee to M/s. WFPL, Srilanka, the second relates to payment made to M/s. WRS, Germany and the third relates to payment made to M/s. Ernst and Young, United Arab Emirates. The result to be arrived in this appeal wholly revolves upon the terms and conditions of the contract entered into between the assessee and the three foreign entities. The Assessing Officer has examined the terms and conditions minutely and has assigned reasons in support of his conclusion as to why the assessee should have deducted tax at source while effecting such payments. The learned senior standing counsel for the Revenue is right in his submission that we cannot embark upon a fact finding exercise but we are required to answer the substantial question of law, if any arisen in this appeal. We would be well justified in interfering with the order of the Tribunal if the assessee contends that it suffers from perversity. The assessee has not raised such a ground in this appeal but seeks to assail the findings of the Tribunal, vis-a-vis the interpretation given to the type of contract/arrangement between the assessee and the three foreign entities. Therefore, we are not expected to reappreciate the factual position to arrive at a conclusion in the matter. Nevertheless, we noted the findings of the Assessing Officer as affirmed by the Commissioner of Income-tax (Appeals) and the Tribunal as well as the work order issued by the assessee to M/s. WFPL, Srilanka dated March 25, 2013. The assessee in their reply to the show-cause notice dated February 8, 2016 contended that they took the assistance of M/s. WFPL, Srilanka for construction scope to be performed in Srilanka. If we examine the terms and conditions mentioned in the work order, more particularly the scope of work and the various clauses contained therein, we have no hesitation to hold that the nature of activity done in Srilanka is not mere construction or assembly or mining like project. Admittedly, the installation of wind turbine is a highly skilled and technical work. The various clauses in the work order clearly demonstrates the scope of work and therefore, we cannot but hold that the Assessing Officer was right in concluding that the services rendered by M/s. WFPL is in the nature of fee for technical services. Similarly, with regard to the services rendered by M/s. WRS, Germany was stated by the assessee to be a repair work. The Assessing Officer after taking note of what is the type of repair work which would accrue in wind turbine, concluded that the repairs are not mundane repairs but require highly sophisticated techniques and accordingly held that it is in the nature of technical services. After analysing the type of services rendered by M/s. Ernst and Young at United Arab Emirates, the Assessing Officer held that the market study is in the nature of technical services and the remittance is to be treated as fee for technical services. We find that there is no error in the said conclusion especially when it has been rendered on appreciation of the scope of work based on the documents placed by the assessee before the Assessing Officer. Therefore, we find that the conclusion arrived at by the two authorities and the Tribunal on all the three issues does not call for interference.‖

44. The respondents contended that three fact finding authorities had on an analysis of the documentary evidence placed before them, come to the conclusion that the services performed by IMG would fall within the scope of FTS as defined under Article 13 of the DTAA. According to the respondents, the mere fact that Article 13(4) does not speak of managerial services would clearly not advance the case of the appellant any further since the services rendered would, in any case, fall within the ambit of technical or consultancy services. In view of the above, the fact that those services are not concerned with the control or administration of the conduct of the commercial enterprise would be of little relevance.

45. The respondents argued that once it is found that the services performed would qualify as technical or consultancy services, all that need be further established is those having been made available to the Indian payer. According to them, undisputedly the work performed by IMG UK consisted of conducting research, advising, consulting, developing strategies, preparation of contracts, rules, regulations as well as constitution of the governing body of the league itself. They contended that as a result of extension of those services, BCCI was made available technical knowledge in the form of findings from research carried out by IMG UK, know-how relating to commercial rights, structuring, organizing and management of a sports league or processes in the form of league structure and work-flow as well as experience in conducting and organizing a large scale sports league. According to them, all of the above would have enabled BCCI to eventually organize the league on its own.

46. According to the respondents, the FTS Clause in the DTAA requires that the technical knowledge and skill remain with the person who was recipient of the services even after a particular contract had come to an end. This prescription, according to them, is also fulfilled since the technical knowledge comprised in the research would remain with the BCCI even after the contract had come to an end. Similar would be the position relating to know-how pertaining to commercial rights or for that matter structuring, organizing and management of a sports league. Viewed in light of the above, it was their submission that the ‘make available‘ requirement erected by Article 13 clearly stood fulfilled. It was further argued that merely because the tenure of the Services Agreement spanned over ten years, the same would not detract from the ‘make available‘ condition being fulfilled since Article 13(4) does not prescribe a duration over the course of which knowledge, technical know-how, skill may be made available.

47. They further submitted that regard must also be had to the fact that a business in its formative years may inevitably require hand holding by a consultant and which may not be limited to a one-time provision of knowledge, skill, know-how, experience or processes. According to them, handholding could continue for elongated periods and till such time the recipient of service comes to acquire adequate knowledge, skill, know-how and experience and become enabled to function independently. Viewed in that light, they submitted that the mere fact that the agreement spanned or spread over a period of ten years by itself would not be a factor relevant for determining whether the make available condition had been met. In support of the aforenoted submission, the respondents placed reliance upon the following observations as appearing in Centrica India Offshore Pvt. Ltd. vs. Commissioner of Income Tax & Ors.²⁰

“32. The mere rendition of service is not an “included service” that triggers tax liability. Instead, the enterprise must “make available” the skill behind that service to the other party, i.e., the Indian recipient. The definition, as it appears, is more restricted that in the India-UK DTAA. The question is whether the higher threshold, is met in this case. The service provided by the secondees is to be viewed in the context in which their secondment or deputation was necessitated. The overseas entities required the Indian subsidiary, CIOP, to ensure quality control and management of their vendors of outsourced activity. For this activity to be carried out, CIOP required personnel with the necessary technical knowledge and expertise in the field, and thus, the secondment agreement was signed since CIOP—as a newly formed company—did not have the necessary human resource. The secondees are not only providing services to CIOP but rather tiding CIOP through the initial period, and ensuring that going forward, the skill set of CIOP’s other employees is built and these services may be continued by them without assistance. In essence, the secondees are imparting their technical expertise and know-how on to the other regular employees of CIOP. Indeed, it is admitted by CIOP that the reason for the secondment agreement was to provide support for the initial years of operation, till the necessary skill-set is acquired by the resident employee group. The activity of the secondees is thus to transfer their technical ability to ensure quality control vis-a-vis the Indian vendors, or in other words, “make available” their know-how of the field to CIOP for future consumption. The secondment, if viewed from this angle, actually leads to a benefit that transmits the knowledge possessed by the secondees to the regular employees. Indeed, any other reading would unduly restrict article 12 of the DTAA, which contemplates not only a formal transfer of intellectual property but also other techniques and skills (“soft” intellectual property, if it can be called as such) required for the operation of a business. The skills and knowledge required to ensure that the task entrusted to CIOP—quality control— is carried on diligently certainly falls within the broad ambit of article 12.”

48. The respondents in this behalf also drew our attention to the following observations as appearing in the order of the Tribunal: –

49. The stand taken by IMG in these appeals was then questioned on a more fundamental plane with the respondents arguing that Article 13(6) was clearly not attracted since there was no effective connection between the contract and the PE. Reliance was firstly placed upon the following observations as appearing in the transfer pricing study report:-

“4.4.2. Functions performed by IMG India PE

***

50. It was thus sought to be emphasized that the Indian PE‘s role,
quite apart from undertaking functions distinct from those performed by IMG UK, was essentially confined to ‗subcontracted support service‘. The respondents argued that the purpose underlying Article 13(6) is to exclude from the scope of FTS income which is otherwise attributable to a PE and thus chargeable under the head of ―business income”. This aspect of Article 13(6), according to the respondents, has been rightly enunciated by the Mumbai Bench of the Tribunal in DCIT vs. Marubeni Corporation²¹ where it had held: –

“7. In view of the above discussions, to term a connection of the interest income with the permanent establishment or the fixed base, as “effectively connected”, one has to see whether, by virtue of such a connection, the interest income in question is taxable as an income attributable to the permanent establishment or the fixed base in question. The effectiveness of connection thus lies in the taxability under article 7 or article 14. Unless that taxability comes into play, there cannot be any overlapping in the scope of article 11 vis-à-vis article 7 or vis-à-vis article 14, and, unless there is such an overlapping of the treaty provisions, there is no occasion for exclusion of one of the overlapping treaty provision by article 11(6). In other words, the taxability under article 7 or article 14 is a sine qua non for triggering the exclusion clause under article 11(6). There is no finding to, or even indication of, that effect. Unless the Assessing Officer gives that finding, excluding interest income from gross basis taxation under article 11(6) cannot come into play. In any event, triggering of exclusion under article 11(6) does not, by itself, result in taxation of interest income at the normal rate of tax-unless the interest income is taxable under article 7(1) or under article 14(1).”

51. The respondents then sought to draw sustenance from the commentary pertaining to the OECD Model Convention to drive home their contention that the effective connection test was not met. It becomes relevant to note that Article 12(3) of the OECD Model Convention reads as follows: –

“3. The provisions of paragraph 1 shall not apply if the beneficial owner of the royalties, being a resident of a Contracting State, carries on business in the other Contracting State in which the royalties arise through a permanent establishment situated therein and the right or property in respect of which the royalties are paid is effectively connected with such permanent establishment. In such case the provisions of Article 7 shall apply.”

52. Explaining the scope of that Article, the commentary renders the following observations: –

“21.1 A right or property in respect of which royalties are paid will be effectively connected with a permanent establishment, and will therefore form part of its business assets, if the “economic ownership of that right or property is allocated to that permanent establishment under the principles developed in the Committee‘s report entitled Attribution of Profits to Permanent Establishments1 (see in particular paragraphs 72-97 of Part I of the report) for the purposes of the application of paragraph 2 of Article 7. In the context of that paragraph, the “economic” ownership of a right or property means the equivalent of ownership for income tax purposes by a separate enterprise, with the attendant benefits and burdens (e.g. the right to the royalties attributable to the ownership of the right or property, the right to any available depreciation and the potential exposure to gains or losses from the appreciation or depreciation of that right or property).”

53. It would be pertinent to note that the expression ‗effectively connected‘ also occurs in Article 12A(4) of the UN Model Convention. The commentary on that Convention explains the scope of Article 12A(4) in the following terms:-

“106. The paragraph does not define the meaning of the expression “effectively connected.” As a result, whether fees for technical services are effectively connected with a permanent establishment, fixed base or business activities similar to those carried on through a permanent establishment must be determined on the basis of all the relevant facts and circumstances of each case. In general, fees for technical services would be considered to be effectively connected with a permanent establishment or fixed base if the technical services are closely related to or connected with the permanent establishment or fixed base or fit the business activities are similar to those carried out through the permanent establishment. This will be the case where the remuneration paid to the person providing the services is borne by the permanent establishment or fixed base in the State in which the fees arise.

107. Where paragraph 4 applies, fees for technical services are taxable by the State in which the fees arise as part of the profits attributable to the permanent establishment in accordance with Article 7 or the income attributable to the fixed base in accordance with Article 14. Thus, paragraph 4 relieves the State in which the fees for technical services arise from the limitations on its taxing rights imposed by Article 12A.‖

54. Viewed in light of the above, the respondents submitted that the Indian PE cannot be recognized to have undertaken activities which would fall within the meaning of technical or consultancy services and that more fundamentally the economic ownership over the contractual rights also did not rest in the Indian PE. It was thus urged that since the functions performed by the Indian PE were confined to ‗subcontracted support services‘, the prerequisites for the invocation of Article 13(6) were not satisfied.

55. It was then submitted that merely because some part of the income earned from the Services Agreement was attributed to the Indian PE and offered to tax as business income, cannot mean that the assessee would otherwise stand exempted from paying tax on FTS under Article 13. It was in this regard submitted that Article 5(2)(k) essentially deals with services rendered, furnished or performed within a Contracting State. According to the respondents, the said Article places an additional requirement for the purposes of its applicability by qualifying the services which would fall within that Article as being those which are otherwise not covered by Article 13. The submission in essence was that Article 5(2)(k) is concerned with services furnished in a contracting state and which may be other than technical or consultancy. Viewed in that light, it was submitted that merely because an entity provided technical or consultant service from outside the territory of India, it would not mean that Article 5(2)(k) would not apply to technical or consultant services performed or carried out from within. The respondents argued that the mere fact that they accepted the position of a Service PE having come into existence cannot possibly be viewed as an admission with respect to taxability of revenue earned from services performed from outside.

56. The written submission tendered by the respondents further asserts that the services provided by the appellant through its Service PE though performed in India were not of the nature envisaged by Article 13. In view of the above, they argued that the mere acceptance of the same cannot be viewed as services provided by IMG UK from outside India not being liable to tax under Article 13. The submission essentially was that merely because income attributable to the Indian PE had been taxed as business income does not mean that the assessee becomes exempt from paying tax on FTS under Article 13.

D. THE CONTRACT STRUCTURE

57. Before proceeding further to adjudicate upon the rival submissions noticed hereinabove, we deem it appropriate to consider the following salient provisions which stood encapsulated in the MoU and the Services Agreement.

58. The MoU records the intent of BCCI to appoint IMG to assist it in the establishment, commercialization and operation of the IPL. The core responsibilities and primary functions which were entrusted upon IMG stand incorporated in Article 1 which is reproduced hereinbelow: –

“1. IMG Services

IMG has been appointed on a sole and exclusive basis to provide the following services in connection with the IPL (the “Services‖)

1.1 IMG shall conduct research in respect of the appropriate structure for the IPL and make recommendations to BCCI accordingly (it being acknowledged that the final decisions in respect thereof are BCCI’s).

1.2 IMG shall research and provide appropriate presentation documentation in respect of the following:

(a) the meetings in Singapore on 2nd and 3rd September 2007.

(b) the IPL presentation and press conference which is scheduled to take place in New Delhi on 13 September (including the preparation of marketing collateral and press packs in association with BCCI’s PR agency) and

1.3 Once BCCI has decided upon the most appropriate structure for the IPL under advice from lMG, IMG shall conduct research into and prepare the following IPL foundation documentation in connection with it including:

(a) the constitution of the IPL

(b) the authority of the Governing Council of the IPL;

(d) the IPL tournament rules and regulations;

(e) the franchise tender document;

(f) the franchise agreement and any necessary franchise regulations;

(G) the IPL implementation budget.

1.4 In addition to the matters referred to in paragraph 1.1 – 1.3 above IMG shall carry out/provide (as appropriate) the following:

(a) the development of a rights management process in respect of the commercial rights and assets of any kind arising out of the IPL/ BCCI

(b) advice in respect of those of the Rights which may be 100% owned centrally and the division of the other Rights between BCCI and the Franchisees;

• the Franchise tender

• the media Rights

• the sponsorship Rights

• the official supplier Rights

• the licensing Rights

• any other Rights;

(d) the management of the Franchise tender process;

(e) the management of the sales processes in respect of the Rights;

(f) the preparation and negotiation of the contracts with:

• the successful Franchisees

• sponsors

• the media

• all other entities which acquire or may be interested in any of the Rights

such contracts being, for the purposes of this MOU, “Rights Agreements” and all income of any kind generated therefrom being “Income“

(g) the implementation and management of the centrally controlled/owned Rights on behalf of the relevant third parties (sponsors etc.)

(h) the preparation of a television production specification;

(i) the development of best practice match day guidelines for Franchisees and supervision in respect of their execution;

(j) the development of best practice match day media guidelines and supervision in respect of their execution;

(k) advice and assistance in connection with the development of any relevant stadia and the finance which may be necessary in connection therewith. “

59. As per the stipulations contained in the MoU, the term of engagement was prescribed to be ten years from the date of its execution and until the conclusion of the 10^th season of the IPL. In furtherance of the understanding so reached, a Services Agreement came to be executed thereafter on 24 September 2009. The Services Agreement defined the expression “Representation Period” as under: –

“”Representation Period” means the entire period of time (not being limited by reference to the duration of any Season) commencing on 1 January 2009 and concluding on the date of the conclusion of the ninth complete Season thereafter or, if shorter, the period from the signature of this Agreement until its termination in accordance with the provisions hereof;”

60. The word “territory” was defined in terms of Clause 1.1(x) as follows: –

“”Territory” means the world.”

61. Clause 2.1 of the agreement read thus: –

“2.1 BCCI hereby appoints IMG as BCCI’s preferred agent and representative to advise and assist in the exploitation of the Rights and the provision of the Services throughout the Territory during the Representation Period. “

62. Of equal significance were Clauses 3.1, 4, 4.1 and 4.2 which are extracted hereinbelow: –

” 3. Exploitation of Rights

3.1 IMG is hereby granted the right and authority to assist BCCI in exploiting the Rights ‘during the Representation Period including without limitation making arrangements for agreements in respect of the Rights, provided that IMG does not have the power to bind or commit BCCI to any agreement or arrangement relating to the Rights.

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4. IMG’s Obligations