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TMI Blog2017 (4) TMI 459X X X X Extracts X X X X X X X X Extracts X X X X ..... /s 201(1)/201(1A) of the Income Tax Act 1961 by the assessing officer on account of non deduction of tax at source in respect payments made by the assessee to following parties :- S.No Name of the Party Country Amount (Rs) Nature of service 1 Fuji Asia Co Ltd Thailand 5,36,550 Commissioning charges for tools & dies 2 Fuji Asia Co Ltd Thailand 2,45,250 Commissioning and Blanking die modification charges to add 3 holes 3 Auto Alliance Co Ltd Thailand 2,12,298 Reflash cost for stage 4pcms-Pull ahead - Business income - other than categories 2.1 The Id. CIT(A) failed to appreciate that the services rendered by the above parties to the assessee falls within the meaning of fee for Technical services(FTS) as per explanation 2 to Sec.9(1)(vii)of Income Tax Act, hence the assessee was liable to deduct tax on the same. 2.2 The Id. CIT(A) erred in holding that Article 12 of DTAA with Thailand provides only for taxation of royalty and the fee for technical services is not defined and therefore same was in the nature of "business profit" falls within the ambit of Article 7 of DTAA as per which business profit can be taxed in India only if the enterprises carries o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... appeal before us. 6. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 7. There is no dispute that there is no specific provision for taxation of fees for technical services in India Thailand tax treaty. There is also no dispute that Fuji Asia Co Ltd Thailand and Auto Alliance Co Ltd Thailand did not have any permanent establishments in India. 8. The stand of the Revenue, however, is that the income embedded in the amounts received by the assessee could anyway be taxed as 'other income' under the respective tax treaties. There is a decision of a coordinate bench of this Tribunal, in the case of DCIT VS TVS Electronics Ltd [(2012) 52 SOT 287 (Chennai)], which support this school of thought and holds that "Admittedly, Chapter III of DTAA between India and Mauritius did not provide for taxing any fees paid for technical services. Only for a reason that DTAA is silent on a particular type of income, we cannot say that such income will automatically become business income of the recipient. In our opinion, when DTAA is silent on an aspect, the provisions of the Act has to be consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . When, for example, article 5 provides that the income of resident of a contracting state, from carrying on business in the other contracting state, cannot be taxed in the source state unless such a resident has a permanent establishment in the other contracting state, i.e. source state, it cannot be open to the tax administration of source state to contend that even if it cannot be taxed as business income, it can be taxed as 'other income' nevertheless. It is important to bear in mind the import of expression 'not expressly dealt with in the foregoing articles'. Similarly, if independent personal services cannot be taxed in the source state as minimum threshold limit of fixed base is not satisfied, such a treaty concession cannot be nullified by invoking article 21. When a particular nature of income is dealt with in the treaty provisions, and its taxability fails because of the conditions precedent to such taxability and as specified in that provision are not satisfied, that is the end of the road for taxability in the source state. It is also important to bear in mind the fact that article 21 states that it applies to the "items of income of a resident of a Contracting State, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... t satisfied, it is an inevitable corollary of this finding that article 22 cannot be pressed into service in respect of the said income. As we hold so, we are alive to the fact that there is no specific taxability provision, under India Thailand tax treaty with respect to taxability of fees for technical services. Profits earned by rendering fees for technical services are only a species of business profits just as the profits any other economic activity. However, without the character of such receipts in the nature of business receipts being altered, the fee for technical services is dealt with separately in some treaties for the reason because, under those treaties the related contracting states proceed on the basis that even in the absence of the permanent establishment or fixed base requirements, the receipts of this nature can be taxed, on gross basis, at the agreed tax rate, and, to that extent, such receipts does not fall in line with the scheme of taxation of business profits under art. 7 and professional income under 14. It is interesting to note that the moment the threshold limits for permanent establishment or fixed base, as the case may be, is satisfied, the taxability ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... [(2005) 96 TTJ (Del)(SB) 1] wherein the Tribunal had, inter alia, observed that "DTAA is only an alternate tax regime and not an exemption regime" and, therefore, "the burden is first on the Revenue to show that the assessee has a taxable income under the DTAA, and then the burden is on the assessee to show that that its income is exempt under DTAA". Quite clearly, when there is no taxability under the respective treaty provisions, there cannot be any taxability under the provisions of the Income Tax Act either. 11 Ground no. 2 is thus dismissed. 12. In ground no. 3, the Assessing Officer has raised the following grievance: 3. The Id. CIT(A) erred in deleting the tax and interest levied u/s 201(1)/201(1A) of the Income Tax Act 1961 by the assessing officer on account of non deduction of tax at source in respect payments made by the assessee to following parties :- S.No Name of the Party Country Amount (Rs) Nature of service 1. Ford Motor Company FIPL USA 6,19,411 Reimbursement of expenses of plant fire protection engineering services fees on cost sharing basis 2. Ford Motor Company FIPL UK 92,578 Reimbursement of expenses for usage of application sharing system re ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ccordingly raised a demand under section 201 r.w.s 195. Aggrieved, assessee carried the matter in appeal before the CIT(A). Learned CIT(A) upheld the stand of the assessee and deleted the impugned tax withholding demands. Now Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us. 14. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 15. We have noted that even going by the case of the Assessing Officer, it is at best a case of payment of fees for technical services but then it is not even the case of the Assessing Officer that by rendition of these services, there was any transfer of technology in the sense that the recipient of service was enabled to render this service on his own without recourse to the service provider. There is no dispute that the recipient of these amounts are based in USA and UK and are entitled to the benefits of India US Double Taxation Avoidance Agreement [(1991) 187 ITR St 102; Indo US tax treaty, in short] and India UK Double Taxation Avoidance Agreement [(1994) 206 ITR (St) 235; Indo UK tax treaty, in short] ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... chnology. It is not even the case of the Assessing Officer that the services were such that the recipient of service was enabled to perform these services on its own without any further recourse to the service provider. It is in this context that we have to examine the scope of expression 'make available'. 17. As for the connotations of make available clause in the treaty, this issue is no longer res integra. There are at least two non-jurisdictional High Court decisions, namely Honble Delhi High Court in the case of DIT Vs Guy Carpenter & Co Ltd ([(2012) 346 ITR 504 (Del)] and Honble Karnataka High Court in the case of CIT Vs De Beers India Pvt Ltd [(2012) 346 ITR 467 (Kar)] in favour of the assessee, and there is no contrary decision by Honble jurisdictional High Court or by Honble Supreme Court. In De Beers case (supra), Their Lordships posed the question, as to "what is meaning of make available", to themselves, and proceeded to deal with it as follows: The technical or consultancy service rendered should be of such a nature that it "makes available" to the recipient technical knowledge, know-how and the like. The service should be aimed at and result in transmitting technica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... me Tax Act. We, therefore, approve the conclusions arrived at by the CIT(A) on this issue as well, and decline to interfere in the matter. 19. Ground no. 3 is also dismissed. 20. In ground no. 4, the Assessing Officer has raised the following grievance: 4. The Id. CIT(A) erred in deleting the tax and interest levied u/s 201(1)/201(1A) of the Income Tax Act 1961 by the assessing officer on account of non deduction of tax at source in respect payments made by the assessee Ford Motor Company (FIPL) USA of Rs. 11,00,000/- on account of insurance brokerage. 4.1 The Id. CIT(A) erred in holding the payment i.e. FIPL's share of brokerage paid to the USA broker, does not fall under the explanation 2 to Sec.9(1)(vii) and also not covered by Article 12 of DTAA between India and USA. 4.2 The Ld. CIT(A) failed to appreciate that no detail was produce by the assessee to substantiate their claim that Ford Motor FIPL USA had engaged Marsh USA for the services as claimed and the claim that cost is to be shared by the assessee and thus in absence of the same, the services were to be considered as managerial in nature income i.e. fees for technical services as per explanation (2) to sectio ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 5. In the result, appeal of the Assessing Officer for the assessment year 2011-12 is dismissed. 26. We now move on to the appeal filed by the assessee for the assessment year 2011-12. 27. Ground no. 1 is general and does not call for any specific adjudication by us. 28. In the ground no. 2, the assessee has raised the following grievances: 2. Installation and commissioning charges paid to non-residents treated as Fees for technical services and consequently held that such payments attract withholding tax liability. 2.1 The learned CIT(A) erred in holding that the following remittances in the nature of installation and commissioning charges qualify as Fees for Technical Services under the provisions of section 9(1)(vii) of the Income -tax Act, 1961 ('the Act'): Parties Country Amount (in INR) a) Cinetics Landis Ltd UK 1,40,98,343 b) Marposs Ltd UK 92,84,969 c) Royal Tool Control Ltd UK 75,96,835 d) Movomech International AB Sweden 64,43,896 e) Impco Machine Tools USA 17,15,746 2.2 The learned CIT(A) failed to appreciate that installation and commissioning was a part of the composite contract to purchase the imported machineries ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion 2 to Section 9(1)(vii), which prevails over the treaty where it is defined the services are inexplicably and essentially linked to the supply of goods". It was thus concluded that the assessee had an obligation to deduct tax at source from these payments and, accordingly, a tax withholding demand under section 201 r.w.s 195, was raised on the assessee. Aggrieved, assessee carried the matter in appeal before the learned CIT(A) but without any success. Learned CIT(A) held that "appellant is under an obligation to deduct tax at source in respect of payments made in connection with installation/ erection of machinery etc as installation is ancillary and subsidiary to use equipment or enjoyment of the right for such use". Aggrieved, the assessee is in second appeal before us. 30. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 31. We can dispose of this ground on the short point of scope of 'make available' clause in the respective FTS clauses which is clearly not fulfilled on the facts of this case It is not even the case of the revenue that installation PE threshold time limi ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion of fees for technical services to a lower rate or narrower scope with any OECD country, the same lower rate or narrower scope is to apply in respect of Indo Swedish tax treaty as well. It is not even a condition precedent that such a treaty should be a subsequent treaty or that any further steps are required to be taken by the contracting states. There are number of treaties with OECD countries, subsequent to Indo Swedish tax treaty as also prior to Indo Swedish tax treaty, that provide for a narrower scope of taxability by having a 'make available' clause in the FTS provision. India's Double Taxation Avoidance Agreement with Portuguese Republic (Indo Portugal tax treaty, in short), which is a subsequent treaty, for example, limits the definition of 'fees of fees for technical services' to a narrower scope- as is evident from the definition under article 12(4) and 12(5) of the said treaty. These provisions are reproduced below: 4.For the purposes of this Article, "fees for included services" means payments of any kind, other than those mentioned in Articles 14 and 15 of this Convention, to any person in consideration of the rendering of any technical or consultancy services (i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s DTAA or para 3 of protocol to Indo-Swiss. We leave it at that. ..........we are of the considered view that the same scope of 'fees for technical services' as provided for in the India DTAAs with UK, USA and Switzerland, which is far more restricted vis-a-vis scope of this expression in Indo-French DTAA, shall also apply under Indo-French DTAA, with effect from the date on which the Indo-French DTAA or such other DTAA enters into force, whichever enters into force later. As all the three DTAAs discussed above entered into force on a date earlier than the commencement of the previous year 1995-96, the scope of technical services, for the purpose of Indo-French DTAA, cannot be broader than that envisaged in the above DTAAs. In this view of the matter, we hold that the 'fees for services that are ancillary and subsidiary, as well as inextrically and essentially linked, to the sale of property' are outside the scope of technical services so far as Indo-French DTAA is also concerned, even though no such specific exclusion clause is incorporated directly in the treaty itself, right from the time Indo-French DTAA entered into force. 34. The Authority for Advance Ruli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tions, on the basis of Treaties with another countries. In this particular case, it may be stated at the most that India is under obligation as per the terms of the Protocol to limit its tax rate or rate of scope as was done in the notification as mentioned above but such type of action will not be within the purview of this Authority. 14. The services being accepted as technical services under the Act and the Tax Treaty, the payment for the services will be covered by 'fees for technical services' chargeable under the Act. The submission of the applicant that the services being managerial which was omitted in the definition of fees for technical services in the revised DTAA between India - UK entered into in the year 1993, the managerial services rendered by the applicant will also automatically be omitted in the definition of fees for technical services under the Tax Treaty between India-France by application of the Protocol, is also not acceptable for the reasons discussed above regarding application of the Protocol in the Treaty. The payment for services rendered by the applicant will therefore, falls under the definition of fees for technical services even under the T ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ricted scope of fee for technical services under the Indo-French DTAA was not dependent on any further action by the respective governments. It was held that the more restricted scope of fee for technical services as provided for in a DTAA entered into by India with another OECD member country shall also apply under the Indo-French DTAA with effect from the date on which the Indo-French DTAA or such other DTAA enters into force. 36. Quite clearly, in the light of the above discussions, even under Indo Swedish tax treaty 'make available' clause is to be read into. Accordingly, for the detailed reasons set out earlier in this order while dealing with ground no. 3 of the appeal filed by the Assessing Officer for the same assessment year, unless by rendition of the technical services there is a transfer of technology in the sense that the recipient of these services is enabled to perform these services in future without recourse to the service provider, the taxability under FTS does not come into play. As we have noted earlier, it is not even the case of the Assessing Officer that the assessee, i.e. recipient of services, was enabled to use these services in future without recourse to ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s contention is that no part of the income embedded in the impugned payments is in respect of the installation, assembly or commissioning activities of the plant, machinery and equipment purchased. There has to be something, apart from shallow prolixity, to even point in the direction that the consideration for installation or assembly project, or supervisory activities connected therewith, exceed 10% of the value of related plant, machinery or equipment. 40. These provisions with respect to permanent establishment on account on construction, installation and assembly activities, or supervisory activities connected therewith are broadly on the line of the model provisions in the 'UN Model Double Taxation Convention between the Developed and Developing Countries'. While elaborating upon this model provision and recognizing, while rejecting, the legitimate concerns about erosion of tax base by the developing countries, the UN Model Convention Commentary has observed as follows: 10. A few developing countries oppose the six-month (or 183 days) thresholds in subparagraphs (a) and (b) of paragraph 3 altogether. They have two main reasons: first, they maintain that construction, ass ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ut becoming immediately subject to tax in that State". In our considered view, therefore, it is plain on principle that as long as threshold time limit for PE is not satisfied, the consideration for such installation or assembly activities, or supervisory activities in connection therewith, cannot be brought to tax in the source country. During the course of hearing and at the instance of the bench, learned counsel for the assessee has filed details of the work carried on at the installation and assembly site in respect of all the transactions, as it did take place in the relevant financial period, and, as evident from even a cursory look at these details, in none of these cases the conditions for creation of PE are satisfied. 42. In view of the above discussions, even if a part of the income, embedded in the impugned payments made to non-resident vendors, can indeed be attributed to the installation, assembly or commissioning activities of the plant, machinery or equipment purchased, such an income, on the facts of this case, cannot be brought to tax as business income under article 7 read with article 5 of the respective DTAAs. ......... ......... 44. One common factor in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 331 (1965)] "If there is an apparent conflict between two independent provisions of law, the special provision must prevail." This principle is described in Sampat lyengar's Commentary on Law of Income-tax (9th Edn; Vol. 1, p. 48) as follows: "The general maxim is generalia specialibus non derogant, that is, general things will not derogate from special things. The maxim is also otherwise expressed as generalibus specialia derogant. A special provision normally excludes the operation of a general provision. ... It can be resorted to for deciding the competing claims of two provisions in the same enactment, one specific and other general with some overlapping between the two. The requisite conditions to attract this principle are: Firstly, both the general enactment and the particular enactment must be simultaneously operative, the general enactment covering larger field and particular enactment covering a limited field out of a larger field covered by the general enactment and, secondly, there must be nothing contained in the general provisions indicating the legislative intent to overrule or set aside the particular provision." 46. Similar views were also expressed in the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to encourage businesses to undertake preparatory or ancillary operations in another State that will facilitate a more permanent and substantial commitment later on, without becoming immediately subject to tax in that State". If we are to interpret the FTS and FIS clauses overlapping with PE clause in practice, and apply the FTS and FIS clauses when PE taxation cannot be invoked, the very purpose of PE provisions will stand defeated and it will be contrary to the UN Model Convention Commentary quoted earlier in this order, which, as a coordinate bench has held in the case of Graphite India Ltd Vs DCIT [6 ITD 384 (2002)], are in the nature of 'contemporanea expositio'. While holding so, the coordinate bench, speaking though one of us (i.e. the Accountant Member), had observed as follows: 17. The aforesaid interpretation is clearly in harmony with the OECD and UN Model Conventions' official commentaries, as elaborated in paras. 9 and 10 above. As the provisions of art. 15 of Indo-US DTAA, and corresponding provisions in these model conventions, are identical in material respects i.e., are in pari materia, the UN and OECD Model Conventions, and Commentaries thereon, have key role ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or would it imply that the a part of sale consideration can be fictionally treated as towards such services and then treated as FTS or FIS while the scope of such payments, under the tax treaties, is confined to amounts actually paid as FTS or FIS. We are unable to see legally sustainable merits in the stand of the learned Departmental Representative. The taxability of an income is to be decided on the basis of the provisions of law and not conduct of the parties. Just because the assessee has accepted a taxability in respect of some other transaction, no matter howsoever related, the legal remedies available to the assessee cannot be negated. There cannot be, and there is no, estoppel against the law. In view of the above discussions, in our considered view, in a situation in which there are specific PE clauses in relation to a particular type of services, which are covered in the scope of services covered by the scope of the 'fees for technical services' or 'fees for included services', the taxability of consideration for such services must remain confined to taxability of profits under the relevant specific PE clause. In our humble understanding, the provisions for taxability as ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such a transaction also give rise to the taxability of subsidiary transact ions in the source country. On the other hand, when principal transaction is such that it does not generally give rise to taxability in the source country, the transaction subsidiary and integral to such a transaction also does not give rise to taxability in the source country. In other words, the subsidiary and integral transactions have to take colours from the principal transaction itself and are not to be viewed in isolation. That is the intent and purpose, in our understanding, of the provisions of art. 12(5)(a) .................... 55. In view of these discussions, in our humble understanding, Installation, commissioning or assembly of a plant, machinery or equipment, or any supervision activity connected therewith, is ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of such a property i.e. plant, equipment or machinery. Therefore, for this short reason, any consideration for installation, commissioning or assembly activities, or supervision services in respect thereof, of a property, which obviously includes a plant, equipment or machinery, cannot be included in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e assessee', but the case before us does not relate to such assessment under Chapter XV and we are only in seisin of the issue regarding tax deduction at source liability of the tax deductor company. The only relevant question, therefore, is as to at what point of time tax deduction at source liability under s. 195 crystallises in the present case-at the time of payment of the franchise fees, at the time of crediting the same to the account of M/s Societe Des Hotels Meridien, or, as argued by the Revenue, at the time of the franchise fees accruing to the aforesaid company. The answer to this question is provided by the plain and unambiguous language of s. 195 itself which states that tax is to be deducted "at the time of credit of such income to the account of the payee or at the time of payment thereof............whichever is earlier". In our considered view, it is not open to the Revenue, for the purpose of determining TDS liability of an assessee tax deductor, to tinker with, or in anyway reject, the method of accounting employed by such assessee tax deductor. The judicial precedents relied upon by the authorities below deal with the issue of taxability in the hands of the forei ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s sought to be canvassed by the revenue, has no application in the matter. The business income can be taxed under article 7 read with article 5, and, as we have seen earlier in this order, the conditions precedent for taxability under article 7 r.w.a. 5 are not fulfilled on the facts of this case. In many of the cases, as noted in the orders of the authorities below, the related installation and commissioning services, and supervision services in connection therewith, have been rendered by the domestic entities and payments made to those entities have already been subjected to tax withholding under other provisions of chapter XVII D but, disregarding this reality, the CIT(A) has proceeded on the basis that "cost of services is also vested in the cost of material" whether such services are performed or not. When admittedly no such services were rendered, there not have been any occasion to bring fictional 'consideration' for those services to tax. 58. In view of the above discussions, in our considered view, under the scheme of allocation of taxing rights under the related tax treaties, India does not have the right to tax income, even if any, in respect of rendition of installati ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ect the Assessing Officer to delete the related disallowance. Ground no. 2 is thus allowed. 38. In ground no. 3, the assessee has raised the following grievance: 3. Fees for professional services paid to non-residents treated as Fees for technical services and consequently held that such payments attract withholding tax liability. 3.1 The learned CIT(A) erred in law and in facts and circumstances of the case by confirming that the amounts of 1NR 13,76,775 and INR 556.970 paid to Mr. Steve Lazenby, proprietor of Lazenby Construction Safety Services and Mr. Joe Oszvart respectively was in the nature of Fees for technical services and not fees for independent personal services under Article 15 of India-UK and India-US DTAAs. 3.2 The learned CIT(A) erred in law by holding That a tax residency certificate is required to be obtained from the respective revenue authorities of US and UK to demonstrate that the recipients were individuals and tax residents of the said countries. 3.3 Without prejudice to the above grounds, the learned CIT(A) failed to appreciate that the services had not been made available to the Appellant and consequently the charges paid would not qualify as Fees ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ort issue that we have to, therefore, examine is whether the assessee is liable to tax under the provisions of the Indo-US tax treaty. While the case of the Assessing Officer is that the assessee is taxable under section 12(4) of the Indo-US tax treaty, learned CIT(A) has granted the impugned relief on the basis that the assessee has rendered professional services which can be taxed, if at all, under article 15, but then since taxability under article 15 fails on the facts of this case, the income in the hands of the assessee cannot be taxed at all. Let us take a look at the relevant treaty provisions, i.e. article 12 and 15, which are reproduced below for ready reference: ARTICLE 12 Royalties and fees for included services 1. Royalties and fees for included services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for included services may also be taxed in the Contracting State in which they arise and according to the laws of that State; but if the beneficial owner of the royalties or fees for included services is a resident of the other Contracting State, the tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... if such services : (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received; or (b) make available technical knowledge, experience, skill, know- how, or processes, or consist of the development and transfer of a technical plan or technical design. 5. Notwithstanding paragraph 4, 'fees for included services' does not include amounts paid : (a) for services that are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of property other than a sale described in paragraph 3(a); (b) for services that are ancillary and subsidiary to the rental of ships, aircraft, containers or other equipment used in international traffic; (c) for teaching in or by educational institutions; (d) for services for the personal use of the individual or individuals making the payment; or (e) to an employee of the person making the payments or to any individual or firm of individuals (other than a company) for professional services as defined in Article 15 (Independent personal services). 6. The provisions of paragraphs 1 and 2 shall not appl ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the other Contracting State of professional services or other independent activities of a similar character shall be taxable only in the first-mentioned State except in the following circumstances when such income may also be taxed in the other Contracting State : (a) if such person has a fixed base regularly available to him in the other Contracting State for the purpose of performing his activities; in that case, only so much of the income as is attributable to that fixed base may be taxed in that other State; or (b) if the person's stay in the other Contracting State is for a period or periods amounting to or exceeding in the aggregate 90 days in the relevant taxable year. 2. The term 'professional services' includes independent scientific, literary, artistic, education or teaching activities as well as the independent activities of physicians, surgeons, lawyers, engineers, architects, dentists and accountants. 6. A careful look at the above treaty provisions would show that in the event of our coming to the conclusion that the services rendered by the assessee are in the nature of independent personal services under article 15, it is wholly academic whether o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... not defined in tax treaties or even official commentaries on UN and OECD Model Conventions. The meaning of this term is illustrated by some examples of typical liberal professions, and this enumeration of professions has only an explanatory character. 'The Law Lexicon' edited by Justice Y.V. Chandrachud (1997 Edition) defines 'profession', inter alia, as involving 'the idea of an occupation requiring either purely intellectual skill or if any manual skill, as in painting and sculpture or surgery, skill controlled by the intellectual skill of the operator, as distinguished from an occupation which is substantially the production or sale or arrangements for the production or sale of commodities'. This definition, barring the words "as distinguished from an occupation which is substantially the production or sale or arrangements for the production or sale of commodities" is incidentally the same as assigned by Scrutton, LJ in IRC vs. Maxse (1919) 1 KB 647 referred to in L.B. Curzon's Law Dictionary. Referring to Hon'ble Bombay High Court's judgment in the case of Sakharam Naryan Kherdekar vs. City of Nagpur Corporation AIR 1964 Bom 200, at p. 210, the Law Lexicon further ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Linklaters LLP Vs ITO [(2011) 9 ITR Tri 217 (Mum)], as follows: 105. Learned counsel has also contended that the professional services can only be taxed under the head art. 15 and in case chargeability under art. 15 fails, that is end of the road. It cannot be open to Revenue authorities to tax income from professional services under art. 7. It is contended that art. 15 applies only to individuals. As to the situations in which art. 5 will apply in respect of the professional services and the situations in which art. 15 of the India-UK tax treaty, which is in pari materia with art. 14 of the UN Model Convention, will apply, we find guidance from the following observations made in the UN Model Convention Commentary: "The Group discussed the relationship between art. 14 and subpara 3(b) of art. 5. It was generally agreed that remuneration paid directly to an individual for his performance of activity in an independent capacity was subject to the provisions of art. 14. Payments to an enterprise in respect of the furnishing by that enterprise of the activities of employees or other personnel are subject to arts. 5 and 7. The remuneration paid by the enterprise to the individual w ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n the Indo UK tax treaty are not any different either. These provisions are reproduced below for ready reference: Article 13(5) - Fees for technical services 5. The definition of fees for technical services in paragraph 4 of this Article shall not include amounts paid: ............ ............. .............. (e) to an employee of the person making the payments or to any individual or partnership for professional services as defined in Article 15 (Independent personal services) of this Convention. Article 15- Independent Personal Services 1. Income derived by an individual, whether in his own capacity or as a member of a partnership, who is a resident of a Contracting State in respect of professional services or other independent activities of a similar character may be taxed in that State. Such income may also be taxed in the other Contracting State if such services are performed in that other State and if : (a) he is present in that other State for a period or periods aggregating to 90 days in the relevant fiscal year ; or (b) he, or the partnership, has a fixed base regularly available to him, or it, in that other State for the purpose of performing his activitie ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e relevant material facts are as follows. During the relevant previous year, the assessee made a payment of Rs. 10,58,295 to Ford Espana Spain towards payment of data processing charges. The case of the assessee was that in view of the protocol to India Spain Double Taxation Avoidance Agreement [(1995) 214 ITR (St) 197; Indo Spanish tax treaty, in short], 'make available' requirement is to be read into the provisions for taxation of fees for technical services, and that rendition of data processing services do not make available any technical knowledge, skill etc. The Assessing Officer rejected this plea on the ground, inter alia, that 'protocol is not about incidence of taxability but about rate of tax' and also on the ground that, for the purpose of applying protocol benefits, only treaties entered subsequent to the signing of Indo Spanish tax treaty are to be taken into account. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. The CIT(A) rejected the plea and reiterated the stand of the Assessing Officer. The assessee is aggrieved and is in appeal before us. 48. We have heard the rival contentions, perused the material on record and du ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f any kind of any person in consideration for the rendering of any technical or consultancy services (including the provision of services of a technical or other personnel) which: (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3(a) of this article is received ; or (b are ancillary and subsidiary to the enjoyment of the property for which a payment described in paragraph 3(b) of this Article is received ; or (c) make available technical knowledge, experience, skill know-how or processes, or consist of the development and transfer of a technical plan or technical design. [Emphasis, by underlining, supplied by us] 51. We have noted that this protocol clause does not require any additional steps to be taken by the contracting states to give effect to such lower scope of the fees for technical services. In this view of the matter, and for the detailed reason set out in dealing with ground no. 2 of this appeal in respect of implementation of MFN clause in protocol as also scope of make available clause in tax treaties- which we need not set out again for the sake of brevity, the plea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he Circular No.333 dated 02/04/1982 of the CBDT as per which when there is no specific provision in the agreement ,it is basic law i.e. the Income Tax Act will govern the taxation of income 2.4 The Ld.CIT(A) failed to appreciate that as the services rendered by the non-resident in Thailand fall within the definition of fee for technical service as per Income tax Act, there is no requirement for PE in India and the same is taxable in India and hence the assessee ought to have deducted TDS on the said payments. 57. Learned representatives fairly agree that the material facts and circumstances of the case are the same as of the assessment year 2011-12 and whatever we decide for the assessment year 2011-12 on similar issue will also apply mutatis mutandis for this assessment year as well. Though there is difference in the name of the recipient but the nature of transaction as also the applicable tax treaty are the same. Therefore, following the view taken by us while dealing with similar ground earlier in this order, i.e. ground no. 2 in Assessing Officer's appeal for the assessment year 2011-12, we reject the grievance of the Assessing Officer and confirm the relief granted by the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... hnical service under section 9(1)(vii) and brought them to tax accordingly. 61. Aggrieved, assessee carried the matter in appeal before the CIT(A) and the CIT(A), following his order for the assessment year 2011-12 inn assessee's own case, upheld the contentions of the assessee. The Assessing Officer is aggrieved of the relief so granted and is in appeal before us. 62. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the applicable legal position. 63. We find that the Assessing Officer had completely lost sight of the fact that in the Indo US tax treaty there is 'make available' clause in the fees for technical services, which is termed as fees for included services in the said treaty, and it is not even the case of the Assessing Officer that the rendition of services resulted in any transfer of technology in the sense that recipient of service, even if any, as enabled to perform such a service on his own without recourse to the service provider. As for the India Philippines DTAA, we have noted that it does not provide for taxability of fees for technical services. There was thus no occasion to invoke the d ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ur order on this issue earlier in this order, and for the detailed reasons set out in this order earlier dealing with scope of make available clause in the related treaties, we uphold the plea of the assessee. It is not even the case of the Assessing Officer that the assessee, i.e. recipient of services, was enabled to use these services in future without recourse to the service providers. The tests laid down by Hon'ble Courts in Guy Carpenter (supra) and De Beers (supra) were clearly not satisfied. For this short reason alone, the amounts in question were not taxable as fees for technical services under the provisions of the respective tax treaties. It is not, and it cannot be, anybody's case that by rendering installation and commissioning services, the recipient of such services is enabled to perform the same task next time without recourse to the service provider. For this short reason alone, the plea of the assessee merits acceptance. We need not even deal with other contentions raised by the assessee which remain open. The income embedded in these payments are thus not taxable as FTS, and it is not even the case of the revenue that the installation period crossed the PE insta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... epresentatives fairly agree that the outcome of this ground will depend on what we decide, on the scope of MFN clause and scope of make available clause in tax treaties, in ground nos 3 and 4 in assessee's appeal for the assessment year 2011-12. Both these issues, as concluded earlier in this order, are decided in favour of the assessee. In view of these discussions earlier on the scope of MFN clause in the protocol, and decisions of a coordinate bench dealing with Indo French tax treaty in the case of DCIT Vs ITC Ltd [(2002) 83 ITD 249 (Kol)] as also the decision in assessee's own case in respect of Indo Swedish tax treaty in paragraphs 31 to 36 above, we find that the issue is covered in favour of the assessee inasmuch as 'make available' clause is required to be read into the relevant treaty provision for fees for technical service and since it is not even the case of the Assessing Officer that the rendition of services resulted in any transfer of technology, we uphold the plea of the assessee and direct the Assessing Officer to delete the tax withholding demands in question. The assessee gets the relief accordingly. 73. Ground no. 3 is thus allowed. 74. In ground no. 4, the a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d covers over certain parts". Dr. Vogel's perception on this issue quite appropriately sums up the legal position in India as well. A tax treaty essentially restricts the rights of the source state on taxation of an income arising therein, inasmuch as residence country generally has unqualified right to tax global income of its tax subjects anyway, and, therefore, it is useful to begin by examining, from a source country's perspective, whether the income in question can at all be taxed in the source state under the applicable tax treaty. Let us, therefore, begin by examining the taxability of consultancy fee paid to GMPL in the light of applicable tax treaty provisions. 7. We find that there is no dispute with the factual position that the GMPL did not have any permanent establishment in India, and with the legal principle laid down in the applicable tax treaty that, in the absence of the PE of GMPL, its business profits could not be taxed in India. The taxability under the source state under Article 7 of the applicable tax treaty, therefore, clearly fails. We further find that so far as taxability under Article 12, i.e. with respect to 'Royalties and fees for technic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... risdictional High Court decisions, namely Hon'ble Delhi High Court in the case of DIT Vs Guy Carpenter & Co Ltd (2012 TII 14 HC DEL INTL) and Hon'ble Karnataka High Court in the case of CIT Vs De Beers India Pvt Ltd (TS-312-HC-2012), 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) of India Singapore tax treaty. Learned Departmental Representative, however, proceeds to give a new twist to the case of the revenue. Learned Departmental Representative has now come up with the argument that even if the income embedded in payments to GMPL were not taxable in India under Article 7 (i.e. business profits) or under Article 12, these amounts were taxable under article 23 of the applicable tax treaty. He invites our attention to Article 23 which provides that " (i)tems of income which are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... source under Chapter XVII B and such tax has not been deducted", and it wa s in this context that the CIT(A) noted that though the fee paid to GMPL was not covered by fees for technical services, it could fall under the head 'other sum' but since the said other sum was not chargeable to tax in India, the assessee did not have any tax withholding obligation. This classification of income was not in the context of treaty classification but in the context of, what he believed to be, two categories of income referred to under section 40(a)(i), i.e. 'royalties and fees for technical services' and 'other sums chargeable to tax'. As the CIT(A) did so, he missed out the expression 'interest' appearing in Section 40(a)(i) but that is hardly material in the present context. What is material is that the expression 'other income' was used in the context of mandate of Section 40(a)(i) and not in the context of treaty classification of income. Learned Departmental Representative has clearly missed out this vital fact. Let us now turn to the provisions of Article 23 of the applicable tax treaty. As we have noted earlier, this treaty provision provides that ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... o suggest that consultancy charges, brokerage and commission can be taxed under article 23, as has been suggested by the learned Departmental Representative, overlooks the fact that these incomes can indeed be taxed under article 7, article 12 or article 14 when conditions laid down in the respective articles are satisfied. 9. It is also important to bear in mind the fact that article 23 begins with the words 'items of income not expressly covered' by provisions of Article 6-22. Therefore, it is not the fact of taxability under article 6-22 which leads to taxability under article 23, but the fact of income of that nature being covered by article 6-22 which can lead to taxability under article 23. There could be many such items of income which are not covered by these specific treaty provisions, such as alimony, lottery income, gambling income, rent paid by resident of a contracting state for the use of an immoveable property in a third state, and damages (other than for loss of income covered by articles 6-22) etc. In our humble understanding, therefore, article 23 does not apply to items of income which can be classified under sections 6-22 whether or not taxable under t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... iven thus: "1. deal with a situation, attend to, concern, see to, manage, handle, tackle, cope with, get to grips with, take care of, look after, sort out, process." In Collins Cobuild English Language Dictionary, it is stated thus: "If a book, speech, film etc. deals with a particular thing, it has that thing as its subject or is concerned with it." In Shorter Oxford Dictionary (Thumb Index Edn.) one of the meanings given is: "be concerned with (a thing) in any way; busy or occupied oneself with, esp. with a view to discuss or refutation." The following meaning given in the New Oxford American Dictionary may also be noted : "take measures concerning (someone or something) ....... take or have as a subject; discuss." .......................... 9.1 The applicant's counsel submitted that an item of income can be said to have been dealt with in an article of the Treaty only if it defines its scope as well as allocates the right to tax such income between the two Contracting States. Mere exclusion of shipping business profits from article 7 does not amount to dealing with that item of income. We find it difficult to accept this contention. Allocation of taxing right t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. In view of Hon'ble jurisdictional High Court's aforesaid decision on the issue, and in the absence of any Hon'ble Supreme Court decision to the contrary, the view so take by the coordinate bench decision holds good in law. Respectfully following the view so taken by the coordinate bench, which is also in harmony with Hon'ble Delhi High Court in the case of Guy Carpenter (supra), Hon'ble Karnataka High Court in the case of De Beers India (supra) and Hon'ble jurisdictional High Court decision on this issue in the case of Bangkok Glass Industries (supra), we uphold the grievance of the assessee. This tax withholding demand must also, therefore, stand deleted. We order so. 79. Ground no. 4 is thus allowed. 80. In ground nos. 5, the assessee has raised the following grievances: 5. Remittances to non-residents towards software installation and annual license fees treated as fees for technical services and consequently held that such payments attract withholding tax liability. 5.1 The learned CIT(A) erred in holding that the following remittances towards software installation, configuration and annual license fees qualifies as Fees for Technical services under section 9(1)(vii) of ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer and declined to interfere in the matter. The assessee is not satisfied and is in further appeal before us. 83. We have heard the rival contentions, perused the material on record and duly considered the facts of the case in the light of the applicable legal position. 84. We find that as far as software payments are concerned, as the law stands now in the light of Hon'ble jurisdictional High Court's judgment in the case of CIT Vs Vinzas Solutions India Pvt Ltd (TA No. 861 of 2016; judgment dated 4th January 2017), these payments are not taxable as royalty even under the provisions of the Income Tax Act. In any event, under the provisions of the Indo US tax treaty and as is held by a number of coordinate bench decisions, the use of copyrighted article cannot result in taxation of consideration for the same as royalty. As for the support services, this is not, and cannot be, anyone's case that these services resulted in any transfer of technology and thus satisfied the make available clause in FTS taxation provisions under the Indo US tax treaty. The authorities below have simply proceeded to apply the domestic law, in respect of FTS, without any regard to the overriding treaty ..... X X X X Extracts X X X X X X X X Extracts X X X X
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