2018 (3) TMI 1917 - AT - Income Tax

Fee for technical services - services provided by the assessee to Sandvik Asia Ltd. and Walter Tools India Pvt. Ltd . - Article 12 of Double Taxation Avoidance Agreement (DTAA) between India and Portuguese Republic - HELD THAT - We find that the additions on this count were made by Assessing Officer in earlier assessment years as well. The matter travelled to the Tribunal for the first time in assessment year 2007-08. The Tribunal after analyzing the facts of case, DTAA between India and Portuguese Republic, Protocol to the Tax Treaty between India and Sweden and various case laws held that the payments received by assessee on account of management services fee from Sandvik Asia Ltd. and technical services fee from Walter Tools India Pvt. Ltd. cannot be brought to tax in view of principle of the most favoured nation (MFN) clause in the tax treaty. It is an undisputed fact that the nature of payments received by assessee in assessment year under appeal is identical to the one received in earlier assessment years. We find that no merit in the appeal by the Department. Accordingly, the impugned order is upheld and the appeal of the Revenue is dismissed.

Summary

Issues:
1. Interpretation of "Fees for Technical Service" under DTAA
2. Meaning of "make available" in the context of technical services
3. Taxability of services under India-Portuguese DTAA
4. Application of MFN clause in tax treaty

Issue 1: Interpretation of "Fees for Technical Service" under DTAA
The Revenue appealed against the assessment order, arguing that the services provided did not qualify as Fees for Technical Service under the Double Taxation Avoidance Agreement (DTAA) between India and Portuguese Republic. The dispute resolution panel had granted relief to the assessee based on previous tribunal decisions in the assessee's favor for earlier assessment years. The Tribunal noted that similar issues had been raised in previous years and held that the payments received by the assessee for management and technical services could not be taxed under the MFN clause in the tax treaty.

Issue 2: Meaning of "make available" in the context of technical services
The Revenue contended that the term "make available" in relation to technical services meant supplying or transferring technical knowledge or technology. However, the Tribunal, after analyzing the facts, the DTAA between India and Portuguese Republic, and various case laws, upheld the assessee's position that the services provided did not fall within the ambit of "fee for technical services" under the DTAA.

Issue 3: Taxability of services under India-Portuguese DTAA
The Revenue raised concerns about the taxability of services provided by the assessee to its Indian subsidiaries under the India-Portuguese DTAA. The Tribunal, based on previous decisions and the principle of the most favored nation clause in the tax treaty, concluded that the services rendered by the assessee for management and technical services were not taxable in India.

Issue 4: Application of MFN clause in tax treaty
The Tribunal emphasized the application of the most favored nation (MFN) clause in the tax treaty to determine the taxability of the services provided by the assessee. Citing previous tribunal decisions and case laws, the Tribunal dismissed the Revenue's appeal, upholding the relief granted to the assessee by the Dispute Resolution Panel. The Tribunal found no merit in the Revenue's arguments and upheld the impugned order, ultimately dismissing the appeal of the Revenue.

In conclusion, the Tribunal upheld the relief granted to the assessee, emphasizing the application of the MFN clause in the tax treaty to determine the taxability of the services provided, and dismissed the Revenue's appeal.