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2019 (11) TMI 1110 - AT - Income TaxTDS u/s 195 - royalty - fees for technical services (FTS) - payment made by the assessee to Reliance Jio Infocomm Pte Limited, Singapore (RJIPL) for availing bandwidth services - whether it did not amount to income of the payee by way of royalty u/s 9(1)(vi) of the IT Act, 1961 read with Article 12 of India-Singapore DTAA? - definition of the terms 'use of or right to use' and 'process' in Article 12 of the India-Singapore DTAA in relation to royalty - CIT-A held that tax was not required to be deducted at source - HELD THAT - When the expression royalty is a defined expression under the applicable tax treaty, there cannot be any occasion to invoke article 3(2) for further dissecting the issue and explore the domestic law meaning of each expression used in this definition for coming at the conclusions about connotations of royalty. It cannot, therefore, be open to invoke article 3(2) to import domestic law meaning, even partly, when the treaty term has received a definition under the treaty. It is for this reason that Explanation 6 to Section 9(1)(vi), in our humble understanding, has no role, under article 3(2) of the treaty, in explaining the expression process , in the context of defining royalty under the Indo Singaporean tax treaty. This statutory provision, under the domestic law, is relevant only when the definition of royalty under section 9(1)(vi) of the Income Tax Act, 1961, is subject matter of consideration, as it specifically states that said definition is for the purpose of for the purpose of this clause i.e. Section 9(i)(v) . Additional test that is required to be put, while adopting the ambulatory interpretation in such a situation, is whether the amendment is domestic law ends up unsettling a conclusion arrived at under the pre domestic law amendment position i.e. reversing the judicial rulings in favour of the residence jurisdiction, and, if the answer is in the positive, the ambulatory interpretation is to be discarded because that approach would patronise, and legitimise, a unilateral treaty override, and the outcome of ambulatory interpretation in such a case will be incompatible with the fundamental principles of treaty interpretation under the Vienna Convention. The approach is justified on the first principles on the ground that when two approaches are possible for incorporation of domestic law provisions in the tax treaties and one of these approaches is compatible with Article 26 of the VCLT while the other is incompatible with the same, the approach compatible with the VCLT provisions is to be adopted. In view of these discussions, and bearing in mind entirety of the case, we find no legally sustainable merits in the grievances raised before us. The arguments raised before us do not lead us to a different conclusion either. Concurring with the coordinate bench decisions, therefore, we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter. As we hold so, we may add that these observations regarding ambulatory or dynamic approach being inappropriate in the context of article 3(2) is confined to the peculiar facts discussed above, and, are not, therefore, of general application. Payments made by assessee to RJIPL Singapore for providing Operations and Maintenance (O M) services - whether is not in the nature of fees for technical services under section 9(1)(vii) of the Act read with Article 12 of the India-Singapore DTAA? - HELD THAT - As regards the scope of article 12(4)(b) is concerned, it can indeed be invoked for the payments for fees of technical services but, even it is a condition precedent that the services should enable the person acquiring the services to apply technology contained therein, but then it is nobody's case that services rendered by RJ-S were such that the assessee was enabled to apply technology contained therein. The services were simply maintenance services which did not involve any transfer of technology. In response to our specific question, learned DR could not enlighten us about what was the nature of technology transferred under these arrangements. The amounts received by RJ-S could not, therefore, be taxed as 'fees for technical services either. There are at least two non-jurisdictional High Court decisions DIT Vs Guy Carpenter Co Ltd 2012 (5) TMI 31 - DELHI HIGH COURT and CIT Vs De Beers India Pvt Ltd 2012 (5) TMI 191 - KARNATAKA HIGH COURT , in favour of the assessee, and there is no contrary decision by Hon'ble jurisdictional High Court or by Hon'ble Supreme Court. We bow before higher wisdom of Hon'ble Courts above and hold that unless there is a transfer of technology involved in technical services extended by Singapore company, the 'make available' clause is not satisfied and, accordingly, the consideration for such services cannot be taxed under Article 12(4)(b) of India Singapore tax treaty. As regards the taxability under article 12(4)(c), it is nobody s case that there is any development and transfer of a technical plan or technical design, and, therefore, this provision does no come into play either. Once we come to the conclusion that the payment for these services is not taxable as fees for technical services under article 12(4), it is immaterial whether it could be taxable under section 9(1)(vii) for the simple reason that this being a treaty situation, the provisions of the Income Tax Act, 1961, could come into play only when favourable to the assessee. We approve the conclusions arrived at by the learned CIT(A) on this issue as well. We, therefore, confirm the stand of the learned CIT(A) and decline to interfere in the matter. - Revenue appeal dismissed.
Issues Involved:
1. Tax withholding obligation under section 195 of the Income Tax Act, 1961. 2. Interpretation of the term "royalty" under Article 12 of the India-Singapore DTAA. 3. Applicability of Explanation 5 and 6 to Section 9(1)(vi) of the Income Tax Act in the context of the India-Singapore DTAA. 4. Taxability of payments for Operations and Maintenance (O&M) services under section 9(1)(vii) of the Income Tax Act and Article 12 of the India-Singapore DTAA. Detailed Analysis: 1. Tax Withholding Obligation Under Section 195: The primary issue was whether the assessee was legally obligated to withhold tax on payments made to Reliance Jio Infocomm Pte Ltd, Singapore (RJIPL) for bandwidth services. The CIT(A) held that the payments did not constitute "royalty" under section 9(1)(vi) of the Income Tax Act, 1961, nor under Article 12 of the India-Singapore DTAA. Thus, the assessee was not required to withhold tax. The Tribunal upheld this view, noting that the payments were for access to services, not for the use of any equipment or process, and thus did not qualify as royalty. 2. Interpretation of "Royalty" Under Article 12 of the India-Singapore DTAA: The Tribunal examined whether the payments for bandwidth services constituted "royalty" under Article 12 of the India-Singapore DTAA. It was determined that the definition of "royalty" in the DTAA is narrower than in the Indian Income Tax Act. The Tribunal agreed with CIT(A) that the payments were for standard telecom services and not for the use of any industrial, commercial, or scientific equipment or process. Thus, the payments were classified as business profits, not royalty, and were not taxable in India in the absence of a Permanent Establishment (PE). 3. Applicability of Explanation 5 and 6 to Section 9(1)(vi): The Tribunal deliberated on whether Explanation 5 and 6 to Section 9(1)(vi) of the Income Tax Act, which define "process" to include transmission by satellite, cable, optic fibre, etc., should be applied in the context of the India-Singapore DTAA. The Tribunal concluded that these explanations, being part of domestic law, cannot override the treaty provisions. It was noted that the amendments in the Income Tax Act were intended to clarify the law retrospectively but could not alter the treaty's interpretation without a corresponding amendment in the treaty itself. 4. Taxability of Payments for O&M Services: The Tribunal also addressed the issue of whether payments for Operations and Maintenance (O&M) services constituted "fees for technical services" under section 9(1)(vii) of the Income Tax Act and Article 12 of the India-Singapore DTAA. The CIT(A) had held that these payments were routine maintenance services and did not "make available" any technical knowledge, experience, skill, or know-how to the assessee. The Tribunal agreed with this view, noting that the services did not involve any transfer of technology and thus did not meet the criteria for "fees for technical services" under the DTAA. Consequently, these payments were also classified as business profits and not taxable in India in the absence of a PE. Conclusion: The Tribunal dismissed all the appeals, upholding the CIT(A)'s decisions that the payments for bandwidth services and O&M services were not subject to tax withholding in India under the provisions of the India-Singapore DTAA and the Income Tax Act. The Tribunal emphasized that treaty provisions take precedence over domestic law amendments unless the treaty itself is amended.
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