Mere use of technical knowledge to provide services does not per se amount to transfer of technical knowledge

Brief of the case:

ITAT New Delhi in the case of ITO (TDS)  Vs. Nokia India P. Ltd. held that the payments made by the assessee company to Finland based as a consideration for review of design , construction and quality control plans from outside India are not in the nature of fee for technical services as defined in Article 13 of DTAA between India and Finland. Therefore, the said payments are not taxable in India.

Facts of the case:

• The assessee company was in the process of setting up a manufacturing facility at Chennai. It hired a contractor, Leighton Contractors P. Ltd for design and completion of manufacturing facilities.
• It also hired the services of Olof Granlund Oy, a Finland based company engaged in the business of providing consulting services in relation to HVAC, electrical and fire protection systems.
• The Finish company was hired to review the design, construction plans prepared by the Leighton Contractors India Pvt. Ltd. so as to get ensure that Nokia’s global standards for the manufacturing facility are met. The services by Finnish company to be provided outside India.
• The assessee made payment to Finnish company in lieu of its services without deducting tax at source under the belief that the same is not liable to tax in India under Double Taxation Avoidance Agreement (DTAA) entered between India & Finland.
• During the assessment proceedings assessee was considered as defaulter u/s 201(1) of the I.T Act, 1961 for not deducting tax u/s 195 as the services provided were technical services within the meaning of Sec 9(1) (vii) of the Act.

Contention of the Assessee:

• The services provided by the Finnish co do not come within the purview of Article 13(4) (c) of the DTAA between India and Finland as technical services because the there has been no transfer of technical knowledge to assessee from Finnish company.
• Finnish company has used its technical knowledge for review of construction & design plans and the same cannot amount to make available technical knowledge as there is no transfer of the same as such.
  

Contention of the Revenue:

• The services rendered by the Finnish company are in nature of technical services because in review of design, constructions and quality control plans there has been use of technical knowledge by the Finnish company.
• Therefore, the said payment is taxable under Article 13 of DTAA and liable to tax withholding u/s 195.

Held by ITAT New Delhi:

• As per Article 13(4)(c) of the DTAA between India and Finland fee for technical services (FTS) means payment of provision of services which ‘make available’ technical knowledge, experience, skill, know-how or processes and transfer of a technical plan or design.
• The services provided by the Finnish company cannot said to be making available such technical knowledge because there is no transfer of technical knowledge to the service receiver in as much that the said knowledge can be used by him in his business without recourse to service provider(Finish co.)
• Mere provision of service which may require technical knowledge by the person providing the service would not per se mean that knowledge has been made available.
• The nature of service has thus, failed to satisfy the test of make available, and, therefore, not a fees for technical services (FTS) and not covered by Article 13(4)(c) of DTAA.
• Further, the Finnish company has no Permanent Establishment(PE) in India , thereby the payment made is also not taxable as ‘Business Profits’ as defined in Article 7(1) of DTAA because Olof Granlund did not have any office/ place of business in India and services were performed from outside India.