9911796707
TMI Blog2015 (9) TMI 957X X X X Extracts X X X X X X X X Extracts X X X X ..... This appeal filed by the assessee is directed against the order dated 27-10-2012 passed u/s.143(3) r.w.s.144C(13) of the DDIT (IT)-II, Pune relating to Assessment Year 2008-09. 2. Facts of the case, in brief, are that the assessee (Sandvik AB) filed its return of income on 30-09-2008 declaring NIL total income. The Assessing Officer referred the matter to the DCIT (Transfer Pricing-IV), Pune u/s.92CA(1) of the I.T. Act for computation of the Arm s Length Price in respect of the international transactions. The TPO vide order dated 31-10-2011 passed u/s.92CA(3) accepted the computation of the Arm s Length Price and did not disturb the TP study of the assessee. 3. The Assessing Officer during the course of assessment proceedings noted that the assessee is a non-resident company incorporated in Sweden. During the impugned assessment year it has received Management Service Fee of ₹ 7,20,33,841/- from Sandvik Asia Pvt. Ltd., and ₹ 1,39,68,410/- from Walter Tools India Pvt. Ltd. In the draft assessment order passed on 26-12-2011 u/s.143(3) r.w.s.144C addition of ₹ 8,60,02,251/- was made by treating the amount received on rendering management services taxable ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ew of the protocol to DTAA between India and Sweden on Article 12. This protocol provides that incase India enters into any agreement, convention or protocol 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 services to a rate lower or a scope more restricted then 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 or protocol on the said items of income shall also apply under this convention. 4.5 The assessee further stated that in view of the above, the income will not be taxable as DTAA between India and Portugal is more restricted in scope of FTS. Article 12 on fees for technical services in India-Portugal DTAA has make available clause. The services provided by the assessee company were managerial in nature and hence are non-technical. In this connection, the assessee relied on the decision of DCIT Vs Boston Consulting Group Pvt. Ltd 2005 93 TTJ 293 (Mum) wherein it was held that devising, marketing and sales strategies , business strategy and portfolio strategy etc. are not covered under Articl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y be amended from time to time by the agreement of the parties . 5.2 They also reproduced the schedule-2 of the agreement which reads as under : As specification of the Services provided and of the principles for allocating the costs of such services to the Receiving Party will be updated annually and will be distributed and/or be made available at Sandik s Intranet to the contact persons indicated in Schedule 1 above. All information distributed or made available in pursuance to this Schedule 2 constitute Restricted Information. 5.3 The contention of the assessee before the DRP that the nature of the services provided were of managerial services was not accepted by the DRP on the ground that the contention of the assessee is not borne out from the terms of the agreement. Although the title of the agreement is of managerial service agreement, however, the DRP noted that the nomenclature given by the parties is not determinative of real nature of the transactions. Since the agreement according to the DRP does not list any services provided by the assessee so as to treat the same as managerial service, therefore, the DRP did not accept the contention of the asses ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the addition made by the Assessing Officer should be deleted. 9. The Ld. Departmental Representative on the other hand while supporting the order of the Assessing Officer fairly conceded that the Tribunal has decided the issue in favour of the assessee. 10. We have considered the rival arguments made by both the sides, perused the orders of the Assessing Officer/ DRP and the and the Paper Book filed on behalf of the assessee. We find the Tribunal in assessee s own case in the immediately preceding assessment year while deciding an identical issue has held that on the principle of most favoured nation clause the payment received by the assessee company from its Indian subsidiaries cannot be brought to tax. The relevant observation of Tribunal from para 8 to 13 of the read as under : 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 ₹ 5.9 Crores received by the assessee company from it ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... submits that Assessing Officer has impliedly accepted 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make available technical knowledge, experience, skill, know-how or process 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 subparagraph (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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion with the operation of ships or aircraft in international traffic; (j) for teaching in or by an educational institution; (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-d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he services of that persons own technical knowledge or technology in performance of the services. The technology will be considered as made 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 Trea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n India and third State which is a member of the OECD India should limit its taxation at source on dividends, interests, royalties, fees for 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on at source on dividends, interest, royalties, or fees for technical services 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, 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 intro ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... acts, hence, are not applicable to the facts of the assessee s case. 11.3 It is also worthwhile to refer to the ruling given in the case of Authority for Advanced Ruling (AAA) in the case of Poonavala Aviations reported in 343 ITR 381 though it is having persuasive 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 interp ..... X X X X Extracts X X X X X X X X Extracts X X X X
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