COMMISSIONER OF INCOME TAX Vs. DE BEERS INDIA MINERALS (P.) LTD

JUDGEMENT

(1.) As the question involved in these three appeals is identical, they are taken up for consideration together and disposed of by this common order. The assessees in these appeals are private companies engaged in the business of prospecting and mining for diamonds and other minerals. They have been granted licences (Reconnaissance Permits) by the State Government of Karnataka, Andhra Pradesh and Chhattisgarh for mineral reconnaissance activities. Reconnaissance is the early stage of exploration. During the early stage, various techniques are employed. For the purpose of carrying out geophysical survey, the assessees entered into an agreement with M/s Fugro Elbocon B.V. Netherlands (hereinafter referred to as 'Fugro'). Fugro had a team of experts who are specialized in performing air borne geophysical services for clients, process the data acquired during the survey and provide necessary reports. The services are engaged to conduct the air borne survey for providing high quality, high resolution, geophysical data suitable for selecting probable kimberlite targets. For the technical services rendered by them the assessees had paid consideration. The Assessing Officer treated the consideration paid to Fugro under the agreement as falling within the definition of fees for technical services under Article 12 of the Indo-Netherlands Double Tax Avoidance Agreement (DTAA) read with Section 90 of the Income-tax Act, 1961, for short, hereinafter referred to as the 'Act'. Alternatively, he has also held that payment in question was for development and transfer of a technical plan or technical design. Thus he held that the assessees had failed to deduct tax on the payments made to Fugro and hence treated the assessees as assessees in default. He levied tax under Section 201(1) and interest under Section 201(1A) of the Act, for all the three assessment years. Aggrieved by the said order, the assessees preferred appeals to the Commissioner of Income-tax (Appeals).

(2.) The appellate authority held that services rendered by Fugro to the assessees and the payments made for it are not covered by Article 12(5) of the DTAA between India and Netherlands. He further held that the Fugro has not imparted any technology to the assessees and they have just used the technology and have gone back with the same. He also observed that in future if the assessees require geological survey of a different area, they will have to engage the services of technical experts like Fugro again. He concluded that no technology has been made available to the assessees by Fugro and therefore the consideration paid does not fall within the definition of Article 12(5) of DTAA between India and Netherlands. On the issue whether the payment was for the development and transfer of a technical plan or a technical design, he held that it cannot be described as plan or design and it was only raw data that was supplied. Therefore he upheld the contention of the assessee that no tax was deductible on the payments made to Fugro. Aggrieved by the said order, the Revenue preferred appeals to the Tribunal.

(3.) The Tribunal, after referring to various provisions of the agreement, judgments rendered by various Courts and also looking into the provisions of DTAA between India and Netherlands, held that the payment in question for the services rendered would not fall within the definition of fees for technical services under Article 12(5) of the DTAA between India and Netherlands. Fugro has surveyed, collected and processed the data on behalf of the assessees. There is no doubt that Fugro performed the services using technical knowledge and expertise but such technical experience, skill or knowledge has not been made available to the assessees. In so far as the second question, the Tribunal held that Fugro compiles the data and processes them for error correction and delivers it to the assessees in a computer readable media. Using the raw input data provided by Fugro, the assessees using further process in software technology, which are not owned or provided by Fugro, generates a report to determine probable targets. Thus the payments to Fugro cannot be considered as the payments for technical, plan and design much less, for the development and transfer of them. Fugro is engaged in providing services relating to collection and processing of data which always belong to the assessees. The purpose of agreement is, for provision of services and not for supply or transfer of technical plan or design. The reports and maps are only an additional mode of report of data and cannot be construed as technical plan or technical design. Fugro has not developed or transferred any technical plan or design to the assessees so as to attract Article 12(5)(b) of the India and Netherlands DTAA. Accordingly they dismissed the appeals. Aggrieved by the said order, the Revenue is in appeals.