2022 (9) TMI 1447 - AT - Income Tax

Income taxable in India - fees for technical services (FTS) - services in the nature of support services - importing of make available test from the India UK tax treaty read with the protocol - whether support services rendered by the assessee are excluded from the ambit of FTS since the make available clause under the India- France DTAA even after amendment notification So No. 650 (E). dated 10.07.2000? - as per CIT-A support services rendered by the assessee are excluded from the ambit of FTS - HELD THAT - In our understanding of the law the protocol to a tax treaty is an indispensable part of a tax treaty with the same binding force as the main clauses of the tax treaty. In our considered opinion the provisions of the tax treaty are, therefore, required to be read with the protocol and are subject to the provisions contained in such protocol without there being a need of a separate notification for enforcing the provisions of the protocol, this has been settled by the decision of Steria (India) Ltd 2016 (8) TMI 166 - DELHI HIGH COURT The term FTS has a more restrictive scope in so far as the absence of the term managerial and further existence of the make available condition are embedded therein. In our understanding under the India UK tax treaty for a payment to quality as FTS both the following conditions need to be cumulative satisfied (i) The services need to be technical or consultancy in nature. (ii) The services need to make available technical knowledge, experience, skill, know-how or processes, which enables the persons acquiring the services to apply the technology contained therein. No infirmity in the findings of the CIT(A) which need interference. Decided against revneue. CIT(A) has admitted additional evidences in violation of rule 46 A of the Income Tax Rules 1962 - We do not find any merit in this contention of the revenue because the CIT(A) invoking the powers conferred upon him u/s. 250 (4) called for certain information/ documents and based his findings on such information / documents. In the light of section 254 (4) of the Act the CIT(A) is free to conduct the enquiry to dispose of the appeal as he deems fit. We, therefore, decline to interfere with the findings of the CIT(A). The appeal filed by the revenue is dismissed.

Summary

Issues:
1. Interpretation of "make available" clause under India-France DTAA.
2. Applicability of "most favoured nation" provision in protocol 7 of India-France DTAA.
3. Validity of passing a speaking order by CIT(A).
4. Opportunity to examine additional evidence under Rule 46A of Income Tax Rules.

Analysis:
1. The main issue in this case was the interpretation of the "make available" clause under the India-France Double Taxation Avoidance Agreement (DTAA). The Revenue contended that the support services provided by the assessee should be considered as Fees for Technical Services (FTS) and taxed accordingly. However, the CIT(A) held that the services did not satisfy the "make available" test from the India-UK tax treaty, which had been imported into the India-France treaty. The CIT(A) concluded that the amount received for management support services was not taxable as FTS under the tax treaty.

2. Another issue raised was the applicability of the "most favoured nation" provision in protocol 7 of the India-France DTAA. The assessee claimed the benefit of this provision, arguing that it restricted the scope of taxation of FTS under the treaty. The CIT(A) considered the relevant documentation provided by the assessee and found in favor of the assessee, ruling that the services were not taxable as FTS under the treaty.

3. The Revenue also raised concerns about the CIT(A) not passing a speaking order and not discussing the main issue in detail. However, the ITAT held that the CIT(A) had the authority to call for additional information and documents under Section 250(4) of the Income Tax Act to make a well-informed decision. Therefore, the ITAT declined to interfere with the CIT(A)'s findings.

4. Lastly, the Revenue argued that the CIT(A) did not provide a reasonable opportunity to examine additional evidence submitted by the assessee, which was a violation of Rule 46A of the Income Tax Rules, 1962. The ITAT disagreed with this contention, stating that the CIT(A) had the discretion to conduct inquiries and make decisions based on the information available to him. Consequently, the ITAT dismissed the appeal filed by the Revenue.

In conclusion, the ITAT upheld the CIT(A)'s decision, ruling in favor of the assessee regarding the taxability of the management support services under the India-France DTAA. The ITAT emphasized the importance of considering the protocol as an integral part of the tax treaty and affirmed that the CIT(A) had the authority to call for additional information to reach a fair decision.