Authority For Advance Rulings (Income Tax) New Delhi
Steria (India) Ltd., In Re
Section : 9, 195
Justice Dr. Arijit Pasayat, Chairman And T.B.C. Rozara, Member
A.A.R. No. 1055 Of 2011
May 2, 2014
RULING
1. The applicant, Steria (India) Ltd. (hereafter referred to as Steria India), is a public limited company registered under the laws of India and is a leading provider of IT driven business services for its client’s core business processes. The applicant is regularly assessed to tax as resident in India.
2. Groupe Steria SCA (hereafter referred to as Steria France), is a partnership firm, incorporated on March 11, 1988 as per the laws of France having its registered office at 12 Rue Paul Dautier – 78140 Velizy Villacoublay, France, Registered at Versailles companies trade register with the Number 344 110 655. It centralizes technical skills to carry on management functions such as legal finance, human resources, communication risk control, information systems, controlling and consolidation, delivery and industrialization, technology and the management information services etc. Steria France, for the purpose of the Act, is a non resident in India (as control and management of its affairs is situated wholly outside of India) and tax resident of France. Steria France does not have any office, presence or personnel based in India so as to constitute a permanent establishment in India in terms of the provisions of Article 5 of the Double Taxation Avoidance Agreement between India and France.
3. The applicant has entered into a Management Services Agreement with Steria France whereby Steria France provides various management services to the Applicant with a view to rationalize and standardize the business conducted by the applicant in India in accordance with the international best practices. As per the terms of the Management Services Agreement (MSA), the services provided to the applicant by Steria France are broadly grouped under :A.General Management, B. Corporate Communications, C. Finance, D. Group Marketing, E.Internal audit, F. Human Resources, G. Information System, H. Controlling and Consolidation, I. Legal, J. Group Global Operations, K. Group Efficiency, L. Group Information Services, M. People One and N. Management Information Services. The services, as referred above, are provided by Steria France through telephone, fax, e-mail etc. and no personnel of Steria France would visit India for provision of such services.
4. The relationship between Steria India and Steria France is that of independent contractors and nothing contained in Management Services Agreement shall:
(a) give either party the power to direct and control the day-to-day activities of the other in any manner; or
(b) constitute the parties as partners, agent, joint ventures, employer and employee, co-owners or otherwise as participants in a joint undertaking.
Services provided by Steria France are not binding on the Applicant and the Applicant shall have the right to engage any other person to render any services that are similar to or duplicative of the services rendered by Steria, France by virtue of this agreement.
Only the Applicant is intended to get benefit from these services and such services are procured and utilized by the applicant for its own business purposes and not for the benefit of any of its customers.
5. Total amount charged by the Steria France from Steria India is based on the total cost incurred by the Steria France in providing these services (as increased by a mark up of 5%) apportioned to various affiliates (group entities) to which such services are provided on the following basis:
(a) Revenue Basis – While apportioning the marked up total cost incurred by Steria France to various group entities (including Steria India) a 75% weightage is given to the proportion of revenue derived by each affiliates to total revenue derived by all affiliates put together.
(b) Number of head counts Basis – A 25% weightage is assigned to number of employees of each affiliate to total personnel employed by affiliates put together.
6. Presenting the above facts, the applicant seeks ruling of the Authority on the following questions:—
1. On the facts and circumstances of the case whether the payment made by Steria (India Limited (‘the applicant’/ ‘Steria India’) for the management services provided by Groupe Steria SCA (‘Steria France’) will not be taxable in India in the hands of Steria France as per the provisions of the Double Taxation Avoidance Agreement (‘DTAA’) entered into between India and France?
2. On the facts and circumstances of the case, if the consideration for management services is not subject to tax in the hands of Steria France in India, whether the applicant will be liable to withhold tax as per the provisions of Section 195 of the Income-tax Act, 1961 from the payments made / to be made to Steria France under the Management Services Agreement?
7. It is submitted that Steria France being a non-resident in India and tax resident of France, is entitled to be governed by the provisions of India-France Double Taxation Avoidance Agreement as per provision of Section 90(2) of the Act, to the extent they are more beneficial as compared to the provisions of the Act. The main thrust of the argument of the learned counsel for the applicant is that the ‘make available’ clause is not satisfied in the case and hence the services will not fall under the technical services as per the India-France Treaty. It was stated that though there is no ‘make available’ clause in the India-France Treaty, the make available clause in the India-UK DTAA, which was signed much after 1st September, 1989, is applicable in the India-France DTAA by virtue of the protocol signed between India and France. The restricted scope of FTS in the India-UK DTAA will, therefore, be applicable in the applicant’s case. In absence of such ‘make available’ of the technical knowledge, experience, skill, know-how or processes, the services rendered by Steria France will not fall under the definition of technical services and hence will not be subjected to tax in India.
8. The Revenue on the other hand submitted that fees for technical services includes fees for managerial, technical or consultancy nature and the services rendered by Steria France falls under the broad definition of technical services as per provision of the Act and India-France DTAA. There is no requirement of ‘make available’ under Article 13 of the DTAA between India and France. It is also not correct to say that the non-resident company does not make ‘make available’ technical knowledge to the resident company. The two companies interact through their employees. Employees of resident company (applicant) will get benefitted from the consultancy provided by the employees of the non-resident company. The knowledge/skill of employees of applicant company is improved through interaction, consultation, training etc. provided by the non-resident company. Thus the knowledge/skill/know-how is made available to the applicant. It is also contended that the Steria France has a PE in India and the income is taxable under Article 7 of the Convention between India and France.
9. We have considered the rival contentions of the applicant and the Revenue along with the documents available before us. At the time of hearing the learned counsel for the applicant did not dispute the services rendered being technical services as defined in the Act and the Tax Treaty. This has been confirmed in the written submission filed on 24.2.2014 which reads:
“The provision of Section 9.1(vii) defined ‘fees for technical services’ to mean the consideration for the rendering ‘of any managerial, technical or consultancy services’. The services being managerial may be liable to tax in India under the domestic law”.
Again on page 2 of the written submission it is stated as follows:—
“Article 13 of India-France DTAA deals with ‘Fees for Technical Services’ (FTS). Article 13(4) of the India-France DTAA reads as under ‘The term Fees for Technical Services as used in this Article means payments of any kind to any person either the payments to employee or person making the payment or to any individual for independent personal services mentioned in Article 15, in consideration for services of managerial, technical or consultancy nature’. Hence going merely by scope of the above definition, the services rendered to the applicant by Steria France, being managerial in nature, would have been liable to tax in India”.
10. Relevant portion of the Protocol to the Tax Treaty between Indian and France on the basis of which the learned counsel made his arguments reads as under:—
” 7. In respect of Article 11 (Dividends), 12 (Interest) and 13(Royalties, fees for technical services and payments for the use of equipment), if under any Convention, Agreement or Protocol signed after 1-9-1989, between India and a third State which is a member of the OECD, India limits its taxation at source on dividends, interest, royalties, fees for technical services or payments for the use of equipment to a rate lower or a scope more restricted than the rate of scope provided for in this Convention on the said items of income, the same rate or scope as provided for in that Convention, Agreement or Protocol on the said items income shall also apply under this Convention, with effect from the date on which the present Convention or the relevant Indian Convention, Agreement or Protocol enters into force, whichever enters into force later.”
11. In the case of Perfetti Van Melle Holding B.V., In re [2012] 342 ITR 200/204 Taxman 166/16 taxmann.com 207 (AAR – New Delhi), this authority considered whether the Memorandum of Understanding in the Tax Treaty between India and the USA can be utilized in interpreting the Tax Treaty of India and Netherlands, it was stated,
“A Convention is a treaty entered into by two sovereign States relating to rights and duties of subjects or citizens of the respective States in one another’s possessions (see Ramanatha Aiyar – Law Lexicon). A treaty is negotiated and entered into at political level and have several considerations as their base (see Azadi Bachao Andolan – 263 ITR 706). A treaty is unique for the two nations that are parties to it. So how can a treaty with one country, be interpreted in the light of the treaty with another country, subject to bargain and mutual give and take with reference to the relationship with that particular country? If so, how can a Memorandum of Understanding accompanying a treaty with another country, be used as an aid to interpret the treaty with a different country? I am of the view that the use of the Memorandum of Understanding accompanying or supplementing the India-US Tax Convention cannot be used as an aid to understand the terms of the India-Netherlands treaty. The significance of the fact that such a Memorandum or a similar Memorandum Understanding does not supplement the convention with Netherlands cannot also be lost sight of. One possible inference is that India did not want the situation arising out of the Memorandum of Understanding accompanying the India-US Double Taxation Avoidance Convention to prevail in the interpretation of its Convention with Netherlands. I am, therefore, not persuaded to accept the argument that the India-Netherlands Convention should be interpreted with the aid of Memorandum of Understanding accompanying the India-US Convention. Article 12.5 of the Convention between India and Netherlands has to be interpreted on its terms, at best with reference to the protocol of that Convention.”
12. A Protocol cannot be treated as the same with the provisions contained in the treaty itself, though it may be an integral part of the Treaty. According to Article 7 of the Protocol, ‘India limits its taxation at source on dividends, interests, royalties, fees for technical services or payments for the use of equipment to rate lower or a scope more restricted than the rate of scope provided for in the Convention on the said items of income, the same rate or scope as provided for in that Convention, agreement or Protocol ………………’.
13. What is stated by the Protocol is for India to limit its taxation at source for the detail items mentioned therein. The restrictions are on the rates and ‘make available’ clause cannot be read in the items. On the basis of the Protocol, notification No.9602 [F.No.501/16/80-FTD], dated 6.9.1994 as amended by Notification No. SO 650(E), dated 10.7.2000. was issued by Govt. of India. The said Notification does not include anything about the ‘make available’ provision. Had the intention of the Protocol or the Government is to include ‘make available’ clause in the Tax Treaty between India and France, it should have been done so in the said Notification. We have taken note of the Notification issued in the case of India Netherland Tax Treaty whereby the Protocol was given effect to. The changes in the Treaty on the basis of the Protocol were given effect by Notification only. We do not see any reason as to why different treatment will be given in the present case. Tax Treaties are between two sovereign nations and every country has a particular relation with another countries and same treatment are not given to all the countries. Say, for example, definitions of fees for technical services are more restrictive with some countries than the others. Every Treaty has particular purpose depending on the relationship between the two countries. While agreeing with various judgments that ordinary meaning of the Treaties should be given while interpreting the provision of the Tax Treaties and even to the extent of liberal interpretation of the Treaty, we cannot import any clause like ‘make available’ in the Treaty that is not there so as to change tax complexion of the Treaty provision. Protocol or Memorandum of Association can be made use for interpreting provision of the Treaty, it will not be correct/proper to import words, phrases or clause that is not available into the Treaties between two Sovereign nations, on the basis of Treaties with another countries. In this particular case, it may be stated at the most that India is under obligation as per the terms of the Protocol to limit its tax rate or rate of scope as was done in the notification as mentioned above but such type of action will not be within the purview of this Authority.
14. The services being accepted as technical services under the Act and the Tax Treaty, the payment for the services will be covered by ‘fees for technical services’ chargeable under the Act. The submission of the applicant that the services being managerial which was omitted in the definition of fees for technical services in the revised DTAA between India – UK entered into in the year 1993, the managerial services rendered by the applicant will also automatically be omitted in the definition of fees for technical services under the Tax Treaty between India-France by application of the Protocol, is also not acceptable for the reasons discussed above regarding application of the Protocol in the Treaty. The payment for services rendered by the applicant will therefore, falls under the definition of fees for technical services even under the Tax Treaty between India-France. In summary, the payments made by the applicant for the services rendered comes under the definition of fees for technical services both under the Act and the Treaty and is liable to tax in India.
15. The questions are, therefore, answered as under:—
(1) The payment made by Steria (India) Limited for the management services provided by Groupe Steria SCA will be taxable as Fees for Technical Services.
(2) As the consideration for the services is held to be taxable in India, the applicant will be liable to withhold tax as per the provision of Section 195 of the Income-tax Act, 1961 from the payments made/to be made to Steria France.
[Citation : 364 ITR 381]
