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2014 (12) TMI 388 - AT - Income TaxManagement Service Fees to be taxable as Fees for Technical Services or not Payment received from its Indian subsidies - Article 12 of India-Sweden DTAA Principle of Most Favored Nation - Whether the assessee can be given benefit of India-Portuguese treaty on principle of MFN clause - Held that - The assessee is tax resident of Sweden - the amount received by the assessee from its Indian subsidies is taxable in India under normal provisions of Act more particularly u/s. 9(1)(vii) r.w.s. 5(2) of the Income-tax Act in Sandvik Australia Pty. Ltd. Versus Deputy Director of Income-tax (International Taxation) II 2013 (4) TMI 643 - ITAT Pune wherein the decision in Commissioner of Income-tax Versus De Beers India Minerals (P.) Ltd. 2012 (5) TMI 191 - KARNATAKA HIGH COURT followed - the expression making available is very much important to decide in which contracting state the amount received for rendering the services relating to the technical know-how is to be taxed - The expression make available is used in the context of supplying or transferring technical knowledge or technology to another - It is different than the mere obligation of the person rendering the services of that persons own technical knowledge or technology in performance of the services. The recipient after receiving of technology may use or may not use the technology - It has no bearing on the taxability aspect is concerned - When the technical service is provided, that technical service is to be made use of by the recipient of the service in further conduct of his business - merely because his business is dependent on the technical service which he receives from the service provider, it does not follow that he is making use of the technology which the service provider utilises for rendering technical services - unless the service provider makes available his technical knowledge, experience, skill, know how or process to the recipient of the technical service, in view of the Clauses in the DTAA, the liability to tax is not attracted - on the basis of the protocol to the DTAA between the India and Sweden the assessee can claim the benefit of the conditions imposed for bringing to tax the fees for technical services in the treaty between the India and Portuguese - on the principle of the most favoured nation (MFN) clauses the payment of ₹ 5.93 Crores received by the assessee company from its Indian subsidies cannot be brought to tax Decided in favour of assessee.
Issues Involved:
1. Taxability of Management Service Fees (MSF) under the India-Sweden Double Taxation Avoidance Agreement (DTAA). 2. Interpretation of "Fees for Technical Services" (FTS) under Article 12 of the India-Sweden DTAA. 3. Application of the "make available" clause in determining the taxability of FTS. 4. Relevance of the protocol to the India-Sweden DTAA and its implications. 5. Application of the Most Favoured Nation (MFN) clause and comparison with the India-Portugal DTAA. Issue-Wise Detailed Analysis: 1. Taxability of Management Service Fees (MSF) under the India-Sweden Double Taxation Avoidance Agreement (DTAA): The assessee, a foreign company incorporated in Sweden, received payments from its Indian subsidiaries for providing management services. The Assessing Officer (AO) categorized these payments as taxable under the provisions of Section 9(1)(vii) of the Income-tax Act, 1961, and Article 12 of the India-Sweden DTAA, labeling them as "Fees for Technical Services" (FTS). The assessee contended that the services provided were managerial and did not fall under the definition of FTS as per the DTAA. 2. Interpretation of "Fees for Technical Services" (FTS) under Article 12 of the India-Sweden DTAA: The AO held that the services rendered by the assessee were technical in nature and thus taxable as FTS. The assessee argued that the services did not satisfy the "make available" condition, which is a prerequisite for categorizing payments as FTS under Article 12 of the India-Sweden DTAA. The AO rejected the assessee's reliance on various judicial decisions, asserting that the facts of those cases were distinguishable. 3. Application of the "make available" clause in determining the taxability of FTS: The AO and the Dispute Resolution Panel (DRP) interpreted the "make available" clause, concluding that the services provided by the assessee made technical knowledge accessible to the recipients, even if it did not involve transferring the core competency or expertise. The DRP supported the AO's view, citing various legal interpretations and examples to justify their stance that the services rendered were indeed technical and taxable as FTS. 4. Relevance of the protocol to the India-Sweden DTAA and its implications: The assessee argued that the protocol to the India-Sweden DTAA should be considered, which provides that if India enters into a more favorable agreement with another OECD member state, the same benefits should apply to the India-Sweden DTAA. The assessee referred to the India-Portugal DTAA, which restricts the scope of FTS to services that "make available" technical knowledge, thus seeking exemption from tax under the India-Sweden DTAA based on this protocol. 5. Application of the Most Favoured Nation (MFN) clause and comparison with the India-Portugal DTAA: The Tribunal examined the application of the MFN clause, which allows for more favorable treatment available in other treaties to be applied. The Tribunal referred to the India-Portugal DTAA, which includes a "make available" condition for FTS. The Tribunal concluded that the assessee could claim the benefit of the India-Portugal DTAA under the MFN clause, as the services provided did not "make available" technical knowledge, thus exempting the payments from being taxed as FTS in India. Conclusion: The Tribunal allowed the assessee's appeal, holding that the payments received from its Indian subsidiaries could not be taxed as FTS under the India-Sweden DTAA. The Tribunal emphasized the importance of the "make available" condition and the applicability of the MFN clause, granting the assessee the benefit of the more favorable provisions of the India-Portugal DTAA. The appeal was allowed, and the payments were exempted from tax in India.
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