IT support services provided by foreign company using hardware in India taxable as business profits – AAR

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Re AREVA T&D India Limited (AAR)

The payments under the IT agreement were not in the nature of reimbursement as the preamble stated that the French company had the capacity and resources to provide and co-ordinate IT services. There was nothing on record from which it could be inferred that the transaction was in the nature of reimbursement. For providing services under both, the wide area network as well as the messaging system, some hardware was to be utilised. The payment made by the applicant included cost for depreciation and maintenance of hardware. As per the IT agreement, the French company may be hiring the equipment for providing services. Since the applicant had not furnished the relevant details, it was presumed that the French company may be owning the equipment. Even where it hires the equipment, it will be under exclusive control of the French company.A place of business means all tangible assets (e.g. premises, facilities, machinery, equipment or installations) used for carrying on business, whether or not they are exclusively used for business. It was observed that the Model Commentary stated that a PE may exist if the business of the enterprise was carried on mainly through automatic equipment and the activities of the personnel are restricted to setting-up, operating, controlling and maintaining such equipment. Therefore, there will be no contractual relation between the applicant and other service providers. All equipment under the IT agreement, whether owned or hired by the French company, will be at its disposal. Therefore, a PE of the French company will be formed in India if the proposed IT agreement is executed.The French company was to provide IT support services through a central team to the applicant and its worldwide subsidiaries. The support services by the French company would itself make available the technical knowledge and experience to the applicant. The AAR reiterated the principle laid down in the case of Perfetti Van Melle Holding B.V (AAR) wherein it was held that the expression ‘make available’ only means that the recipient of the service should be in a position to derive an enduring benefit and be in a position to utilise the knowledge or know-how in future on his/her own.IT relating to the design, engineering, manufacturing and supply of electric equipment that help in transmission and distribution of power, commissioning and servicing of the transmission and distribution system is provided to the applicant which is applied in running the business of the applicant. The employees of the applicant would get equipped to carry on these systems on their own without reference to the French company, when the IT agreement comes to an end. It is not as if for making available, the recipient must also be conveyed specifically the right to continue the practice put into effect and adopted under the IT agreement on its expiry. The French company had a PE in India. Therefore, the payments proposed to be made by the applicant would be taxed on a net basis.