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Case nº A.A.R. No. 966 of 2010 of AAR Cases, Wednesday July 29, 2015 (case In Re: Measurement Technology Limited Vs)

Judgment Cited in Precedent Map Related
JudgeFor Appellant: S.K. Aggarwal, Gaurav Chandok and Bhuwan Rudra, CAs
PresidentV.S. Sirpurkar, J. (Chairman) and A.K. Tewary, Member (R)
Resolution DateWednesday July 29, 2015
Issuing OrganizationAAR Cases

Judgment:

A.K. Tewary, Member (R)

  1. Measurement Technology Ltd. (the applicant) is a company incorporated in UK and engaged in the development and supply of intrinsic safety explosion protection devices, field bus and Industrial networks, lightning and surge protection and gas analysis equipment. It is a wholly owned subsidiary of MTL Instruments Group Ltd., UK.

  2. MTL Instruments Private Limited ('MTL India') is an Indian company, incorporated under the Companies Act, 1956. It is also a subsidiary of MTL Instruments Group Ltd., UK and is engaged in the business of manufacturing industrial control equipment's used for process control in hazardous environments. The applicant entered into two service agreements with MTL India for providing certain services. The applicant has sought ruling on the following questions arising in respect of these two service agreements:-

    "(1) On the facts and in the circumstance of the case, whether the amount received/receivable by Measurement Technology Limited (hereinafter referred to as "Applicant" or "MTL UK" from MTL Instruments Private Limited ('MTL India'), for services rendered, as per Schedule 2 to 'MTL Instruments Intra-Group Agreement for Products and Services' effective April 1, 2005 [subsequently substituted by 'MTL Instruments Intra-Group Agreement for Products and Services' effective April 1, 2005 (hereinafter collectively referred to as 'Agreement#1'), is chargeable to tax in India as per the provisions of Double Taxation Avoidance Treaty entered into between India and United Kingdom ('India UK Tax Treaty')?

    (2) In case of Ruling of the Hon'ble AAR to Question (1) above is yes, what is the rate of tax applicable for computing the amount of income tax chargeable in manner and respect of aforesaid amount received/receivable by the Applicant?

    (3) On the facts and in the circumstances of the case, whether the amount received/receivable the Applicant from MTL India, for services rendered, as per Intercompany Service Agreement effective March 16, 2009 (hereinafter referred to as Agreement#2'), is chargeable to tax in India as per the provisions of UK Treaty?

    (4) In case the Ruling of the Hon'ble Authority for Advance Ruling (Authority') to Question (3) above is yes, what is the rate of tax applicable for computing the amount of income-tax chargeable in manner and respect of aforesaid amount received/receivable the Applicant?"

  3. The first agreement between the applicant and MTL India is MTL instruments Intra Group agreement for products and services according to which the nature of services provided by the applicant is as under:-

    "• Strategy and direction of business development of MTL India;.

    • Attendance in person or by phone at regular operational meetings to discuss progress of activities, both financial and operational;

    • Management of personnel including conducting staff interviews, setting individual targets and carrying out performance appraisals; and

    • Any other services related to the above."

  4. The above mentioned services are provided through one of the employees of the applicant based in UK and designated as Group Operations Director (GD) by means of telephone calls, e-mails, occasional visits to India for review of operations of MTL India and giving general guidance. As part of such services, GD provides general guidance as regards the business of MTL India. While sitting in the UK, he monitors financial and operational progress of activities of MTL India. GD also renders services as regards human resource matters of MTL India such as hiring new personnel, setting up individual performance targets, assisting in performance appraisal etc. He is also involved in Quality and Design reviews.

    As per Schedule 2 of Agreement #1, MTL India shall compensate the Applicant for providing the "Management Services" at cost plus 5% and for this purpose only 50% of the cost (total remuneration of the GD) is allocated by MTL UK. Therefore, MTL UK recovers only 50% of cost of GD plus 5% as consideration for providing "Management Services" to MTL India as per Agreement No. 1.

  5. The second agreement is called Intercompany Services Agreement (Procurement Services) for providing procurement services with a view to reduce cost and to avoid duplication of procurement efforts within MTL Group. As per the agreement, the applicant has constituted a procurement team in the UK to look into the global sourcing requirements of raw materials within MTL Group including MTL India. The Procurement team travels to different countries to visit suppliers and distributors to determine the best price that would be available to MTL group. Their services include setting up material supply chain, logistics support and providing support to resolve technical issues with...

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