SUM PAID TO UNITED STATE OF AMERICA BASED COMPANY . TO REVIEW DESIGN OF CRANES COULD BE ‘FTS’ IF MAJOR CHANGES WERE SUGGESTED IN ITS DESIGN

Gujarat Pipavav Port Ltd. v. ITO (International Taxation), [Mumbai ITAT] ITA No. 7877 of 2010, Date of Decision: August 31, 2015

FACTS OF THE CASE

The assessee is a resident Indian Company in terms of section 6 of the Act and is in the business of developing, constructing, operating and maintaining the port in Gujarat.

The assessee had entered into a contract for purchase of cranes from M/s ZPMC, China. These cranes were supposed to be manufactured in China itself and on completion, ought to be imported in India.

The assessee engaged M/s Liftech Consultants Inc., a company registered in USA, USA tax resident for review of design of the cranes which were to be supplied by the Chinese concern M/s ZPMC.

The assessee made payments to the said M/s ZPMC for supply of goods and services as per purchase contract for installation and commission.

It also paid for technical consultancy and engineering services availed from M/s Liftech Consultants Inc., USA with regard to quality control of the cranes.

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DECISION OF THE TRIBUNAL

The Appellate Tribunal held that the service to be performed by M/s Liftech Consultant Inc., USA was more of a reviewing the design.

The power of review is something more than the power of supervision. However, it is something less than the development and transfer of services and design.

If it is only suggestions given, then it will be review but if the M/s Liftech Consultant Inc., USA has forwarded to implement those suggestions on behalf of the assessee and have improvised the design or brought any major change in the design, then such suggestions would amount to transfer of technical services and design, which would be more than the power of review and would attract Article 12 of the India-US DTAA Treaty.

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