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TMI Blog2014 (12) TMI 388X X X X Extracts X X X X X X X X Extracts X X X X ..... ee has received payment of Rs. 5,50,33,677/- from Sandvik Asia Pvt. Ltd. (in short "SAPL") and Rs. 42,64,242/- from Walter Tools India Pvt. Ltd. (in short "WTIPL"). The assessee stated before the authorities below that i.e. AO/DRP it has provided various management services to SAPL and WTIPL and towards the said services the assessee has received the above amount from the two companies i.e. SAPL and WTIPL. The assessee filed the copy of Agreement before the authorities below with SAPL. The A.O. has reproduced part of the agreement with SAPL which is in respect of the description of the services provided by the assessee company to it's Indian Subsidiaries. 3. After examining the nature of the services, in the opinion of the Assessing Officer the assessee has provided the technical support and guidance to its customers and hence, the nature of the services rendered by the assessee to SAPL is a technical in nature but not a managerial service as claimed by the assessee. The Assessing Officer held that as per the provisions of Sec. 5(2) r.w.s. 9(1)(i) the nature of the services rendered by the assessee is a technical service and hence, the payment received by the SAPL to the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ervice will not look again to him when these services are again needed in future. Teaching / educational services have separately dealt elsewhere in the treaty. In view of above the meaning of expression 'Make available' has to be read in the present context. In the present case, service provider has provided or made accessible the services of its technical knowledge, experience..... 'Enabled to apply' phrase used in same MOU does not mean that service provider also has to teach technology embedded in the service provided. A small example can explain this contention if someone is enabled to apply / use Microsoft windows programme in its work, it does not mean that one has been taught about source code or technology of creating windows software. He has been enabled merely to use window programme without understanding technology / know-how behind it. 6.3 In OECD commentary on Article 12 in para. 11.3, while distinguishing transfer of know-how from provision of services it is mentioned "in the case of contracts for the provision of services, the supplier undertakes to perform services which may require the use, by the supplier, of special / knowledge, skill and expertise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h is clearly taxable under both Income Tax Act and under the provisions of DTAA." 5. The assessee filed the objection before the DRP against the draft assessment order but without success. The main thrust of the argument of the assessee before the Dispute Resolution Panel (in short "DRP") is that the assessee has received the fees towards rendering the management services and not for the fees for technical services within the meaning of Article 12 of the India-Sweden DTAA and the Assessing Officer should have allocated the total fee between FTS and managerial service specially when he has not disputed the nature of services provided by the assessee which comprises of administration, marketing and HR support. The assesse submitted before the DRP that the protocol to India-Sweden DTAA provides that in case India enters into any Agreement or Convention with a third state, which is a member of OECD and India limits its taxation at source on dividends, interest, royalties, or fees for technical service to a rate lower or a scope more restricted than the rate or scope provided for in this convention on the said items of income, the same rate or scope as provided for in that Convention, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tates and in 'Copyright Infringement Act' of USA. On later act number of decisions has come up regarding meaning of expression 'make available' which means "offer or make available or provide for" in the contexts. If these words are substituted in sub para-4(b) of article-12 of India US treaty (where first time word make available was used in treaty context), it will be as under - If such services offered/supply technical knowledge, experience, skills, know-how or processes...... it makes perfect sense. A person having such technical knowledge/ experience/ skills/ know-how will not be offering through its services these technical knowledge/ experience/ know how to the recipient of the services for the price of only services. If that be the case such services would be covered as royalties under para-3(a) of article-12 of India USA DTAA. Para 49b) of article-12 deals with provision of services to the recipient through use of one's technical knowledge/experience, etc. and not for transfer of such technical knowledge/ experience to the recipient of services. These agreements are for provision of services and do not contain provision for transfer of related experienc ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... able personnel is referred to as the recipient." (Website reference-http;www.belastingdienst.nl/variabellb u itenland/en/business taxpayers/business) 6.5 The meaning of above expression was also searched on the Internet and it was found in the free dictionary by Farlex that 'Make Available' is the meaning of the word 'offer' and this meaning clearly fits into in para-4 of article- 12 of India - Sweden. 6.6 The Assessing Officer has also tried and has made efforts to search the meaning of above expression i.e. 'make available' on the google search on the Internet and it was found that the other persons are using this expression 'make available' in the sense of 'making accessible/supply things in the context; 6.7 The Assessing Officer has discussed all the case laws and tax notes in detail and two of the above cases are rulings of 'authority for advance ruling', which does not have precedent value for other cases. The other cases decided on the issue of 'make available' have not been accepted by the department as these are not based on correct interpretation of 'make available'. These cases have not discussed all example ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... available' in US courts. In view of above the meaning of expression 'Make available' has to be read in the above context. In the present case, service provider has provided or made accessible the services of its technical knowledge/ experience.... 'Enabled to apply' phrase used in same protocol does not mean that service provider also has to teach technology embedded in the service provided. In view of above, we are of the view that there is no need of any interference in the assessment order of the A.O on this issue." 7. As per the directions of the DRP u/sec. 144C(5) of the Act the Assessing Officer finally brought to tax the entire amount under the provisions of the I.T. Act . Now, the assessee is in appeal before us. 8. We have heard the rival submissions of the parties and have also considered the written submissions and the precedents and decisions relied on by both the parties. The assessee is tax resident of Sweden. It is claimed that that it does not have a permanent place of business in India (PE). The dispute is in respect of the payment of Rs. 5.9 Crores received by the assessee company from its Indian subsidies i.e. Sandvik Asia Pvt. Ltd. (SAPL) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... that the tax treaty between India-Portugal can be applied to the assessee more particularly in the context of the protocol attached to the India and Sweden treaty. There is condition for beginning to tax the fees for technical services (FTS) in the DTAA between India and Portuguese i.e make available and if said condition is not fulfilled in source Country FTS cannot be taxed. The assessee is to be given the benefit of the India-Portuguese treaty on principle of MFN clause which is well recognized in international taxation. He submits that the identical issue has come for the consideration by the ITAT, Pune in the case of Sandvik Australia Pty. Ltd. Vs. D.D.I -International Tax-II, Pune in ITA No. 93/PN/2011 and the assessee's case is squarely covered on the interpretation of a expression-"make available". Per contra, the Ld. DR relied on the written submissions. 9. In this case the only issue to be considered by us is whether the assessee can be given benefit of India-Portuguese treaty on principle of MFN clause? The India entered into DTAA with the Sweden which was notified vide notification no. GR 705/E dated 17.12.1997. Article 12 of the India-Sweden DTAA provides the mode of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... cess or consists of development and data of technical plan or technical design. In view of the above rendered by the assessee company to its Indian affiliates are in the nature of FTS or royalties and same is taxable in India. We reproduce herein under the relevant part of Article 12: ARTICLE XII - Royalties - 1. Royalties arising in one of the Contracting States, being royalties to which a resident of the other Contracting State is beneficially entitled, may be taxed in that other State. 2. Such royalties may also be taxed in the Contracting State in which they arise, and according to the law of that State, but the tax so charged shall not exceed: (a) in the case of : (i) royalties referred to in sub-paragraph (3)(b) ; (ii) payments or credits for services referred to in sub-paragraph (3)(d), subject to sub-paragraphs (3)(h) to (l), that are ancillary and subsidiary to the application or enjoyment of equipment for which payments or credits are made under sub-paragraph (3)(b); or (iii) royalties referred to in sub-paragraph (3)(f) that relate to equipment mentioned in sub-paragraph (3)(b) ; 10 per cent of the gross amount of the royalties; and (b) in the case of other royal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (k) for services for the personal use of the individual or individuals making the payments or credits; or (l) to an employee of the person making the payments or credits or to any individual or firm of individuals (other than a company) for professional services as defined in Article 14. 4. The provisions of paragraphs (1) and (2) shall not apply if the person beneficially entitled to the royalties, being a resident of one of the Contracting States, carries on business in the other Contracting State, in which the royalties arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the property, right or services in respect of which the royalties are paid or credited are effectively connected with such permanent establishment or fixed base. In such a case, the provisions of Article 7 or Article 14, as the case may be, shall apply. 5. Royalties shall be deemed to arise in a Contracting State when the payer is that State itself or a political sub-division or local authority of that State or a person who is a resident of that State for the purposes of its tax. Where, however, the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e available when the person receiving the services is able to apply the technology by himself. 14. The expression 'make available' has come for consideration before the Hon'ble High Court of Karnataka in the case of M/s.De Beers India Minerals Pvt. Ltd. (supra). In the said case, the Treaty between India and Netherlands was for the consideration of their Lordships. The assessee in that appeal was a providing company engaged in the business of prospecting and mining for diamonds and other minerals. They have been granted licences (Reconnaissance Permits) by the State Government of Karnataka, Andhra Pradesh and Chhattisgarh. During the early stage, various techniques were employed for the purpose of carrying out geophysical survey, the assessee entered into agreement with M/s.Fugro Elbocon B.V. Netherlands, who had a team of experts specialised in air borne geophysical services for clients. For the technical services rendered by them the said assessee had paid consideration. The Assessing Officer applied Article 12 of the Indo-Netherlands Treaty and held that the same was taxable in the hands of the Netherlands Company. As the wordings of Article 12 in the Indo-Netherlands Treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or technical services or payments for the use of equipment to a rate lower or a scope more restricted than the rate or scope provided for in this Convention on the said items of income, then as from the date on which the relevant Indian Convention or Agreement enters into force the same rate or scope as provided for in that Convention or Agreement on the said items of income shall also apply under this Convention." 14. Therefore the Clause in Singapore agreement which explicitly makes it clear the meaning of the word 'make available', the said clause has to be applied, and to be read into this agreement also. Therefore, it follows that for attracting the liability to pay tax not only the services should be of technical in nature, but it should be made available to the person receiving the technical services. The technology will be considered 'made available' when the person who received service is enabled to apply the technology. The service provider in order to render technical services uses technical knowledge, experience, skill, know how or processes. To attract the tax liability, that technical knowledge, experience, skill, know how or process which is used by service provider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vided for in this Convention on the said items of income, the same rate or scope as provided for in that Convention, Agreement or Protocol on the said items of income shall also apply under this Convention." 11.1 An MFN clause refers to a situation wherein two nonresident tax payers are given impartial treatment by the concerned country. In DTAAs, MFN clause find place when countries are reluctant to forego their right to tax some elements of the income. An MFN clause can direct more favourable treatment available in other treaties only in regard to the same subject matter, the same category of matter or the same clause of the matter. The protocol attached to the treaty take care of a situation where in cases either of the contracting states enter into a bilateral agreement into the nature of DTAA with the another sovereign state and where the same subject matter has been given more favourable treatment by way of a definition or mode of tax then the parties can claim the benefit on the recognized principle of MFN clause. In his introduction to 'Double Taxation Conventions' (Third Edition) Klaus Vogel has explained the role of the protocol and its role in interpreting the treaty. T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r Advanced Ruling (AAA) in the case of Poonavala Aviations reported in 343 ITR 381 though it is having pursuasive value which reads as under : "16. In his introduction to Double Taxation Conventions (Third Edition), Klaus Vogel, has clarified the role of a protocol and its role in interpreting a treaty. He says, "Protocols and in some cases other completing documents are frequently attached to treaties. Such documents elaborate and complete the text of a treaty, sometimes even altering the text. Legally they are a part of the treaty, and their binding force is equal to that of the principal treaty text. When applying a tax treaty, therefore, it is necessary carefully to examine these additional documents". A protocol is said to be a treaty by itself that amends or supports the existing treaty. We cannot also forget the observations of the Supreme Court in Union of India vs. Azadi Bachao Andolan (2003) 184 CTR (SC) 450 : (2003) 263 ITR 706 (SC) at p. 751 that "An important principle which needs to be kept in mind in the interpretation of the provisions of an international treaty, including one for double taxation relief, is that treaties are negotiated and entered into at a politic ..... X X X X Extracts X X X X X X X X Extracts X X X X
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