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TMI Blog2016 (3) TMI 964X X X X Extracts X X X X X X X X Extracts X X X X ..... thereto as well as under section 9(1)(vii) of the Income-tax Act, 1961 (the 'Act'). The Appellant prays that the receipts for management services amounting to Rs. 4,85,82,800/- are not taxable in India and hence, the addition in this regard be deleted. 2. Ground 2: Without prejudice to Ground 1, should the receipts be held taxable, the Ld. CIT(A) has erred in upholding the action of the Ld.AO levying interest under section 234B of the Act without appreciating that entire income of the Appellant is subject to TDS. The Appellant prays that the interest charged by the Ld.AO and confirmed by the Ld.CIT(A) be deleted. 3. The learned Authorized Representative for the assessee at the outset pointed out that the issue raised in the present appeal is squarely covered by the orders of Tribunal in assessee's own case relating to assessment years 2007-08 and 2008-09. It was pointed out by the learned Authorized Representative for the assessee that similar issue arose before the Tribunal in the above said appeals and the issue was decided in favour of the assessee. Our attention was drawn to the grounds of appeal raised before the Tribunal and the issue has been deliberated upon ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the amount received by the assessee as per the said agreement with SAL was clearly in the nature of fees for technical services and therefore, was taxable in India. Another aspect noted by the Assessing Officer was whether the nature of services rendered by the assessee to SAL 'makes available' any technical knowledge, experience, skills, know-how, etc. After considering the issue at length and taking note of the clauses of agreement and the correspondence between the parties, the Assessing Officer held that the amount was received by the assessee company for providing services as per the management services agreement dated 08.11.2002, which was covered not only by the definition of technical services as laid down in DTAA between India and Sweden but was also covered by the aforesaid decision as laid down in subsequent DTAA entered into by India with Netherland, USA, Portugal, etc. hence, same was taxable in the hands of assessee. But since the assessee was the actual beneficial owner of the fees for technical services, the tax was charged @ 10% as per DTAA of gross amount. 6. The CIT(A) was of the view that as per DTAA between India and Sweden, the amount received by the assessee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... assessee from its Indian subsidies is taxable in India under normal provisions of Act more particularly u/s. 9(1)(vii) r.w.s. 5(2) of t he Income-tax Act. The main plank of the argument of the Ld. Counsel is that when the assessee is covered by the beneficial clauses in the treaty entered into as per the provisions of Sec. 90 (2) of the Income-tax Act then even if the assessee's income is taxable in the normal provisions still he can claim the exemption from the tax as per the clauses applicable in the treaty. 8.1 Ld. Counsel argues that the above payment received by the assessee company is not taxable in India in view of the beneficial provisions of the tax treaty between India and Sweden read with the protocol which is integral part of said treaty. He submits that the provisions of tax treaty between India and Sweden read with the protocol relating to the scope and taxation of fees for technical services being more beneficial than the correspondence provisions of the Income-tax Act hence, the assessee may be given the benefit of the treaty between India-Portugal on the basis of Protocol. He submits that without admitting even if the amount received by the assessee is in the n ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tered into the treaty with Portuguese republic which was notified vide notification no. GR F42/E dated 16th June, 2000. In the said Treaty, mode of taxation of the fees for technical services (FTS) between two countries is also provided in the Article 12 but instead of fees for technical services the expression used is "fees for included technical services". As per the Article 12(4) fees for included services means payment of fees of any kind other than those mentioned in article 14 and 15 of the said treaty, to any person in consideration of the rendering of any technical or consultancy services (including through the provisions of services of technical or other personal) if such services - (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment describe in para no. 3 is received or (b) make available technical knowledge, expressions, skill, knowhow or process, or consist of the development and transfer of technical plan or technical design which enables the person acquiring the services to apply the technology contained therein. The main plank of the argument of the Ld. Counsel is that considering the pri ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ars of income: 15 per cent of the gross amount of the royalties. 3. The term "royalties" in this Article means payments or credits, whether periodical or not, and however described or computed, to the extent to which they are made as consideration for : (a) the use of, or the right to use, any copyright, patent, design or model, plan, secret formula or process, trade mark or other like property or right; (b) the use of, or the right to use, any industrial, commercial or scientific equipment; (c) the supply of scientific, technical, industrial or commercial knowledge or information; (d) the rendering of any technical or consultancy services (including those of technical or other personnel) which are ancillary and subsidiary to the application or enjoyment of any such property or right as is mentioned in sub-paragraph (a), or any such equipment as is mentioned in sub-paragraph (b) or any such knowledge or information as is mentioned in sub-paragraph (c); (e) the use of, or the right to use : (i) motion picture films; (ii) films or video tapes for use in connection with television; or (iii) tapes for use in connection with radio broadcasting; (f) total or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the permanent establishment or fixed base, then the royalties shall be deemed to arise in the State in which the permanent establishment or fixed base is situated. 6. Where, owing to a special relationship between the payer and the person beneficially entitled to the royalties, or between both of them, and some other person, the amount of the royalties paid or credited, having regard to what they are paid or credited for, exceeds the amount which might have been expected to have been agreed upon by the payer and the person so entitled in the absence of such relationship, the provisions of this Article shall apply only to the last-mentioned amount. In that case, the excess part of the amount of the royalties paid or credited shall remain taxable according to the law, relating to tax, of each Contracting State, but subject to the other provisions of this Agreement. 13. We are concerned with para No.3 of Article 12, which defines the term Royalty. Under the IT Act, the term royalty and expression FTS are classified as two different connotations, i.e. 9(1)(vi) and 9(1)(vii). So far as Article 12 is concerned, FTS is included in the term "royalty" for the purpose of deciding in wh ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rdships explained the expression as under: "13. Under the Act if the consideration paid for rendering technical services constitute income by way of fees for technical services, it is taxable. However, Article 12 of the aforesaid India-Netherlands Treaty defines fees for technical services for the purpose of Article 12 which deals with royalties and fees for technical services. The fees for technical services means the payment of any amount to any person in consideration for rendering of any technical services only, if such services make available technical knowledge, expertise, skill, know-how or processes. If the technical knowledge expertise, skill, know how or process is not made available by the service provider, who has rendered technical service for the purpose of Article 12 of DTAA it would not constitute fees for technical services. To t hat extent the definition of fee for technical services found in the agreement is inconsistent with the definition of fees for technical services provided in Explanation 2 to clause (vii) of sub-section (1) of Section 9. In view of Section 90 the definition of fees for technical services contained in the agreement overrides the statutor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the service to make use of the said technology. The tax is not dependent on the use of the technology by the recipient. The recipient after receiving of technology may use or may not use the technology. It has no bearing on the taxability aspect is concerned. When the technical service is provided, that technical service is to be made use of by the recipient of the service in further conduct of his business. Merely because his business is dependent on the technical service which he receives from the service provider, it does not follow that he is making use of the technology which the service provider utilises for rendering technical services. The crux of the matter is after rendering of such technical services by the service provider, whether the recipient is enabled to use the technology which the service provider had used. Therefore, unless the service provider makes available his technical knowledge, experience, skill, know how or process to the recipient of the technical service, in view of the Clauses in the DTAA, the liability to tax is not attracted." 11. Now, the next question is whether the assessee is entitled for the benefits of DTAA between India -Portuguese as se ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ol is an indispensable part of the treaty with the same binding force as the main clauses therein, as protocol is an integral part of the treaty and its binding force is equal to that of the principal treaty. The provisions of the aforesaid DTAA are, therefore, required to be read with the protocol clauses and are subject to the provisions contained in such protocol. Examined in the light of DTAAs between India and UK, USA and Switzerland, we find that in the case before us the assessee had not purchased any property from UTAC France. Therefore, none of the fees i.e., impact testing fees or fee paid for test reports is ancillary and subsidiary as well as inextricably and essentially linked to the sale of a property. Therefore, the decision of the Tribunal, Calcutta Bench in the case of Dy. CIT vs. ITC Ltd. (supra) relied upon by the assessee is not applicable to the facts of the case. In this case the assessee had purchased machines from UK and payments were made to foreign party for installation and commissioning of the machines. The foreign party did not have any PE in India to which such income could be attributed. In this view of the matter it was held that the payments made to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... etween the India and Sweden the assessee can claim the benefit of the conditions imposed for bringing to tax the fees for technical services in the treaty between the India and Portuguese. We, therefore, hold that on the principle of the most favoured nation (MFN) clauses the payment of Rs. 5.93 Crores received by the assessee company from its Indian subsidies cannot be brought to tax. We, therefore, allow the grounds taken by the assessee on the above reasons." 9. The Tribunal further in assessment year 2008-09 vide order dated 22.05.2015 followed its earlier order. Following the above said parity of reasoning, where the issue raised is identical in assessment years 2007-08 and 2008-09, which was adjudicated by the Tribunal vide separate orders and in view of the CIT(A) placing reliance on the observations of DRP in assessment year 2007-08, we hold that the issue is squarely covered by the separate orders of Tribunal in assessee's own case relating to assessment years 2007- 08 and 2008-09. Following the same parity of reasoning, we reverse the order of CIT(A) and allow the claim of the assessee and hold that on the principle of most favoured nation clauses, the payment of Rs. 4, ..... X X X X Extracts X X X X X X X X Extracts X X X X
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