HCL Comnet Ltd. ("the Assessee"), a company
incorporated in India is engaged in the business of designing,
delivering, installation and commissioning of networking solution
and providing professional services for management and maintenance
of networking solution. During the relevant assessment year, the
Assessee made payments under annual maintenance contracts (AMC) to
various foreign companies without deducting taxes at source. The
payment for AMC contract comprised payment for warranty charges and
extended warranty charges, which were in the nature of repair/
replacement of equipment. As per the terms of the contract,
equipment was sent outside India for any repair/ replacement and
was re-imported in India after the repair work was done.
During the course of assessment, the Assessing Officer held that
deduction of the said payment could not be allowed to the Assessee
as no taxes were withheld by the Assessee on the said payments. The
decision of the Assessing Officer was dismissed by the CIT(A)
stating that no taxes were required to be deducted and accordingly,
the payments should be allowed as a deduction. Aggrieved the
Assessing Officer filed an appeal before the Tribunal. In this
decision, the Tribunal has stated that routine maintenance repair
will not tantamount to 'make available' of technical
knowledge, skill, experience, know how etc and hence, would not be
taxable in India in the absence of a permanent establishment. Since
the amount is not taxable in India, no taxes are required to be
deducted by the Assessee.
In this decision, the Tribunal has examined India Israel treaty
and provided benefit of limited definition of 'fees for
technical services' as per the most favored nation clause in
the Protocol to India Israel treaty. By virtue of the said clause,
the scope of definition of 'fees for technical services'
was restricted to 'make available' of technical knowledge,
skill, experience, know how etc which proved to be beneficial in
case of the Assessee.
[Source: ITA Nos 321/Del/2002]
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Cummins Inc. is a foreign company, rendering services in respect of desktop/laptop software license and internet mail facilities to its Indian associated enterprises, i.e. CIL and CSSL which were paying IT charges provided by the taxpayer.
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