The Delhi Bench of Income Tax Appellate Tribunal(ITAT) has held that the payment made by ONGC towards air injection equipment to non-residents could not be considered as FTS as per India- Canada DTAA.
The return of income was filed as Nil by ONGC Ltd in its capacity as the representative assessee of University of Calgary , Alberta , Canada . During the relevant previous year, ONGC had made payments to University of Calgary, Alberta, Canada (“non-resident”) for long term collaboration, participation , training , maintenance and service of air injection equipment.
The assessing officer, not satisfied with justification for not treating revenue received in lieu as “Fees for Technical Services”, taxed the amount u/s 9(1)(vii) of the Income Tax Act, 1961.
Mohd Farid, on behalf of the assessee submitted that under the India-Canada DTAA, the concept equivalent to “fees for technical services” was “fees for included services”. As per section 90(2) of the Income Tax Act, where a DTAA exists, the provisions of the Act continue to apply vis-a-vis those of the DTAA, to the extent they were more beneficial to the assessee . he further submitted that in the instant case, the non-resident was a tax resident of Canada and was, therefore, entitled to be governed by the provisions of DTAA between India and Canada, to the extent they were more beneficial than the provisions of the Act.
Mayak Kumar, on behalf of the revenue submitted that, it was evident that the contract was in the nature of AMC contract for maintenance and combustion tube testing which includes and was performed through joint participation under long term collaboration between ONGC and professionals of University of Calgary by undertaking collaborative research through the MOU between ONGC and assessee. The services were technical and consultancy in nature and in view of it being a joint participation under collaboration nature activity it could be easily said that the technical knowledge, experience, skill, know-how possessed by NRC had been shared and made available to ONGC personnel and ONGC institute.
He further contended that the University of Calgary, Canada had no permanent establishment in India, therefore the relevant provision of Article 12 of DTAA would not come to the aid of the assessee
The Bench of Kul Bharat, (Judicial Member) and B. R. R. Kumar (Accountant Member) held that the ONGC personnel and ONGC institute could not independently conduct the test in the absence of the research team from University of Calgary, Alberta, Canada and the invocation of make available clause was wrong on facts on record and in the absence of technical expertise , being made available by the non-resident assessee to ONGC in India , the payments could not be treated as FTS. The bench allowed the appeal observing that the ” fees for included services’ ‘ as defined in the said Article 12 had fulfilled the conditions.
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