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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 ..... ssessee”. While on this issue, we may also take note of the landmark Special Bench decision in the case of Motorola Inc. vs. Dy. CIT [2005 (6) TMI 226 - ITAT DELHI-A] 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. - Decided in favour of assessee. TDS liability on reimbursement of expenses under the cost sharing arrangement for regular preventive maintenance - taxable as fees for technical services under section 9(1)(vii) - Satisfy the requirements of ‘make available’ clause - Held that:- 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 the service providers. The tests laid down by Hon’ble Court in DIT Vs Guy C ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 on business in India through PE situated in India and th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ve 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 considered and applied . Ho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate. 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 Sta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is not 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 taxab ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nc. vs. Dy. CIT [(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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... icer, however, proceeded to hold that the assessee should have deducted tax at source as these amounts were taxable as fees for technical services under section 9(1)(vii), and, even there was any doubt, the assessee should have filed an application under section 195(2). With this analysis, the Assessing Officer held the assessee liabile to have deducted tax at source, and, accordingly 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... counsel rightly puts it, its not simply the rendition of a technical service which is sufficient to invoke the taxability of technical services under the make available clause. Additionally, there has to be a transfer of technology in the sense that the user of service should be enabled to do the same thing next time without recourse to the service provider. The services provided by non residents did not involve any transfer of technology. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the cost of repetition, that under article 90(2) where the Government has entered into a tax treaty with any tax jurisdiction, in relation to the assessee to whom such treaty applies, the provisions of this (i.e. Income Tax) Act shall apply to the extent they are more beneficial to that assessee . When the amounts are not taxable under the provisions of the respective tax treaties, there cannot be any occasion to deal with the provisions of the Income 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 ₹ 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) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sing Officer, and rightly so, that make available requirement in the article dealing with taxation of fees for technical services is satisfied in the present case. In this view of the matter, and for the detailed reasons set out in our analysis dealing with the immediately preceding ground of appeal- which apply mutatis mutandis in this context as well, we uphold the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter. 24. Ground no. 4 is also thus dismissed. 25. 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 Techn ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... the payment is not towards the cost of any machinery as it is only for providing the services of installation and commissioning after the supply of machinery . He further observed that a purchase contract terminates when the goods are delivered and the installation/ commissioning takes place after the goods are purchased, and technical skills of the individuals are utilized by the FIPL to install the machinery and its successful functioning, without imparting the technical knowledge of the functioning of the machinery, the same cannot operated by FIPL and put to use for production The Assessing Officer also observed that only because the supplier has agreed to undertake installation of the machinery, the payments cannot taken as towards sale of machinery . Relying upon the ruling given by the Authority for Advance Ruling, in the case of HESS ACC Systems BV, In Re [(2012) 349 ITR 532 (AAR)], the Assessing Officer concluded that the payments made fall under the category fees for technical services as per Explanation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... es' means payment of any kind in consideration for the rendering of any managerial, technical or consultancy services including the provisions of services by technical or other personnel but does not include payments for services mentioned in Articles 14 and 15 of this Convention . With reference to Articles 10, 11 and 12: In respect of Articles 10 (Dividends), 11 (Interest) and 12 (Royalties and fees for technical services) if under any Convention. Agreement or Protocol between India and a third State which is a member of the OECD, India limits its taxation 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 [Emphasis by underlining etc supplied by us] 32. Under the protocol provision, therefore, in case India limits its taxation 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n installation or structure used for the exploration or exploitation of natural resources referred to in paragraph 2(g) 1 of Article 5; (g) for services referred to in paragraph 3 of Article 5. 33. It is also not in dispute that, unlike in many other treaties, such as Indo Swiss tax treaty and Indo Philippines tax treaty, the benefit of MFN clause is not dependent on any other steps required to be taken by the contracting states. The provisions of Indo Portuguese tax treaty must stand imported in Indo Swedish tax treaty as well even without any specific notification to that effect. A coordinate bench of this Tribunal, in the case of DCIT Vs ITC Ltd [(2002) 82 ITD 239 (Kol)] , had approved this approach, and, while doing so and speaking through one of us, observed as follows: . in our considered view, the benefit of lower rate of or restricted scope of 'fees for technical services' under the Indo-French DTAA is not dependent on any further action by the respective Governments, unlike the situation envisaged in, for example, para 4 of protocol to Indo-Philippines DTAA or para 3 of protocol to Indo-Swiss. We leave it at that. .we are of the consider ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is of the Protocol were given effect by Notification only. We do not see any reason as to why different treatment will be given in the present case. Tax Treaties are between two sovereign nations and every country has a particular relation with another countries and same treatment are not given to all the countries. Say, for example, definitions of fees for technical services are more restrictive with some countries than the others. Every Treaty has particular purpose depending on the relationship between the two countries. While agreeing with various judgments that ordinary meaning of the Treaties should be given while interpreting the provision of the Tax Treaties and even to the extent of liberal interpretation of the Treaty, we cannot import any clause like 'make available' in the Treaty that is not there so as to change tax complexion of the Treaty provision. Protocol or Memorandum of Association can be made use for interpreting provision of the Treaty, it will not be correct/proper to import words, phrases or clause that is not available into the Treaties between two Sovereign nations, on the basis of Treaties with another countries. In this particular case, it may be ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of fee for technical services occurring in Article 13(4) of the Indo-UK DTAA clearly excludes managerial services. What is being provided by Steria France to the Petitioner in terms of the Management Services Agreement is managerial services. It is plain that once the expression 'managerial services' is outside the ambit of fee for technical services , then the question of the Petitioner having to deduct tax at source from payment for the managerial services, would not arise. It is, therefore, not necessary for the Court to further examine the second part of the definition, viz., whether any of the services envisaged under Article 13(4) of the Indo- UK DTAA are made available to the Petitioner by the DTAA with France. 20. Mr Ganesh , learned Senior Counsel made a reference to the decision of the ITAT in DCIT v. ITC Ltd. (2002) 82 ITD 239 (ITAT Kolkata), where the Protocol separately executed between the India and France which formed part of the DTAA between the two countries was interpreted. It was held by the ITAT, and in the view of this Court correctly, that the benefit of the lower rate or restricted scope of fee for technical services under the Indo-French DTAA ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... treated to have a permanent establishment in India. However, as an exception to this general principle in the above cases, in the case of Belgian and UK tax residents, even when threshold time limit is not crossed but where the charges payable for these services exceeds 10% of the sale value of the related machinery or equipment, the profits attributable to this activity can also be brought to tax. As a corollary to this legal position, even in the case of Belgian and UK tax residents, profit relatable to installation or assembly project or supervisory activities connected therewith, which do not cross threshold time limit of six months, cannot be brought to tax unless it is demonstrated that the consideration for such services is more than 10% of the sale value. There is nothing on record to establish, or even suggest, that this condition is satisfied in the cases before us. It is well settled in law, as we have noted earlier in our discussions, that the onus is on the revenue authorities that the conditions for permanent establishment coming into existence are satisfied, and that onus is clearly not discharged. The assessee s contention is that no part of the income embedded ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... presence, but also very active and laudable contribution, from India. In this view of the matter, the views so expressed in the UN Model Convention Commentary, particularly in the absence of any specific reservations by India, can be reasonably construed to be acceptable to the Indian tax administration as well. It would, therefore, appear that it is a conscious decision of India, being a party to a double taxation avoidance agreement based on the UN Model Convention, that even though construction, assembly and similar activities could, as a result of modern technology, (may) be of very short duration and still result in a substantial profit for the enterprise and even though the period during which foreign personnel remain in the source country is (perhaps) irrelevant to their right to tax the income , the right to tax will not vest in the source country unless time limit threshold is satisfied as the reason for the time limit (indeed for the permanent establishment threshold more generally) is to encourage businesses to undertake preparatory or ancillary operations in another State that will facilitate a more permanent and substantial ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... he FTS or FIS clause in the respective tax treaty are specifically excluded as these clauses refer to the furnishing of services, other than included services as defined in Article 12 (Royalties and fees for included services), within a Contracting State by an enterprise through employees or other personnel and the furnishing of services including managerial services, other than those taxable under Article 13 (Royalties and fees for technical services), within a Contracting State by an enterprise though employees or other personnel respectively. There is no such exclusion clause in the PE article dealing with construction, installation and assembly activities, including supervision activities relating thereto. It is also not in dispute, as has been stand of the revenue all along, that the construction, installation and assembly activities are de facto in the nature of technical services. To that extent, and unlike in the case of the provisions relating to Service PE, there is indeed overlapping effect of Article 5 and Article 12 or Article 13, so far as such services are concerned. As to what should be done in such a situation, we find guidance from the observa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, installation and assembly projects if such activities, whether cross the threshold time limit or not, are taxable in the source state anyway. If we are to proceed on the basis that the provisions of PE clause as also FTS clause must apply on the same activity, and even when the project fails PE test, the taxability must be held as FTS at least, not only the PE provisions will be rendered meaningless, but for gross versus net basis of taxation, it will also be contrary to the spirit of the following observations in the UN Model Convention Commentary, as reproduced earlier in this order in paragraph 40 above. As we have noted so earlier, it appears to be a conscious decision of India, being a party to a double taxation avoidance agreement based on the UN Model Convention, that even though construction, assembly and similar activities could, as a result of modern technology, (may) be of very short duration and still result in a substantial profit for the enterprise and even though the period during which foreign personnel remain in the source country is (perhaps) irrelevant to their right to tax the income , the right to tax will not vest in the source country u ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of tax treaties between various counties, constitute contemporanea expositio inasmuch as the meanings indicated by various expressions in tax treaties can be inferred as the meanings normally understood in, to use the words employed by Lord Radcliffe, international tax language developed by bodies like OECD and UN. 48. When we put it to the learned Departmental Representative as to what is the purpose of an installation PE clause in Article 5, if PE or no PE, the consideration for installation and assembly project, or supervisory activities in connection therewith, are to be taxed anyway as FTS or FIS, he pointed out that the assessee has on its own accepted the taxability under the FTS clause and withheld tax, on that basis, while making specific remittances for independent payments for the installation and commissioning charges. It could thus not be possible for the assessee to take an about turn now and claim that such payments are not taxable anyway. Learned counsel for the assessee, on the other hand, fairly submitted that the taxability of such payments as FTS or FIS was taken as granted, without appreciating this nuance of the matte ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is taxable under art. 12 in the source country as well. Article 12(3)(a) and (b) only define as to what constitutes royalties and art. 12(2) provides that royalties and fees for included services arising in a Contracting State and paid to the resident of the other Contracting State may also be taxed in the Contracting State in which they arise, i.e., in the source country, though subject to certain restriction on the rate of tax. It is thus clear that when the principal sale itself is subjected to tax in the source country, the services which are ancillary and subsidiary, as well as inextricably and essentially linked, to the sale of a property, are also subjected to tax in the source country. The said principle is also implicit in art. 12(4)(a) which provides that consideration for rendering any technical or consultancy services, where such services are ancillary and subsidiary to the application or enjoyment of the right, property or information which is covered by the definition of royalty in art. 12(3), is also includible in the fees for technical services and accordingly liable to be tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n look at the language employed in the FTS and FIS clauses of related tax treaties the taxability as FTS or FIS arises at the point of time when the payment is actually made for technical services arising in a Contracting State and paid to a resident of other Contracting State . The event triggering the taxability under the tax treaties is the payment and not accrual. In any event, it is also beyond dispute that the provisions of Section 195 come into play at the time of payment or credit, whichever is earlier, and not on the basis of accrual method of accounting- as has been so vigorously canvassed in the orders of the authorities below. Holding so, a coordinate bench of this Tribunal, in the case of C J International Hotels Ltd Vs ITO [79 ITD 506 (2001)] and speaking through one of us (i.e. the Accountant Member), has observed as follows: We find that the lower authorities have proceeded on the fallacy that taxability in the hands of the foreign company and TDS liability of the tax deductor are not one and same thing. It is, however, well settled that tax deduction at source is only one mode of recovery of the taxes due on recipient of that i ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... or any intendment... . Since s. 195 specifically provides for deduction of tax at source at the time of payment or crediting the payee s account, whichever is earlier, we are unable to approve the stand of the Revenue regarding deduction of tax at source on the basis of accrual of income. In this view of the matter, we are of the considered opinion that the TDS liability, under s. 195, arises only when the income is credited to the account of the payee or on actual payment of the same, whichever is earlier. We further hold that mere accrual of income in the hands of the foreign company cannot be a sufficient proximate reason for tax deductor s liability under s. 195 of the Act. In view of this legal position, as also bearing in mind the fact that the AO has raised the impugned demand under ss. 201(1) and 201(1A) on the basis of taking TDS liability at the point of accrual of income in the hands M/s Societe Des Hotels Meridien, we cancel the impugned orders, hold that these orders are indeed contrary to the scheme of the Act, and restore the matter to the file of the AO(TDS) for passing fresh orders, if necessary, in accordance with the law and after giving due oppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (2)(b), given the facts of this case, is wholly academic. These provisions could have been pressed into service when these could have been more beneficial to the assessee, but now that these payments have no tax implications at all in India under the scheme of the relevant tax treaties under section 90(2), there is no occasion for the assessee to look at the provisions of the Income Tax Act, 1961, for more beneficial a treatment. 37. The above line of reasoning apart, in Birla Corp s case (supra) also, it was noted that so far as treaties with make available clause are concerned, the payments made for installation and commissioning charges, for that reason alone, cannot be taxed as fees for technical services. 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 installation threshold limit. These amounts cannot be taxed as business profits either. There is no other treaty provision under which these amounts can be brought to tax in India under the respective tax treaty. The law is well settled, we may add at the cost of repetition, that under article 90(2) where th ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r, agree. He was of the view that since these payments are in the nature of fees for technical services, and since, in any event, the assessee did not file residency certificates of these entities, the assessee ought to have deducted tax at source. He also noted that the assessee should have at least approached the Assessing Officer under section 195(1) of the Act. Aggrieved, assessee carried the matter in appeal but without any success. The assessee is not satisfied and is in further appeal before us. 40. 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. 41. As learned representatives fairly agree, the issue, so far as US based recipient is concerned, in favour of the assessee by a coordinate bench decision in the case of ITO Vs Susanto Purnamo [(2016) 73 taxmann.com 108 (Ahd)], even as the learned Departmental Representative nonetheless relied upon the stand of the authorities below. In the case of Susanto Purnamo (supra), the coordinate bench, speaking through one of us, has inter alia observed as follows: 5. There is no dispute that the assessee before has the pr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r included services in all other cases; and (ii) during the subsequent years, 15 per cent of the gross amount of royalties or fees for included services; and (b) in the case of royalties referred to in sub-paragraph (b) of paragraph 3 and fees for included services as defined in this Article that are ancillary and subsidiary to the enjoyment of the property for which payment is received under paragraph 3(b) of this Article, 10 per cent of the gross amount of the royalties or fees for included services. 3. The term royalties' as used in this Article means : (a) payments of any kind received as a consideration for the use of, or the right to use, any copyright of a literary, artistic, or scientific work, including cinematograph films or work on film, tape or other means of reproduction for use in connection with radio or television broadcasting, any patent, trademark, design or model, plan, secret formula or process, or for information concerning industrial, commercial or scientific experience, including gains derived from the alienation of any such right or property which are contingent on the productivity, use, or disposition thereof; and (b) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... services), as the case may be, shall apply. 7. (a) Royalties and fees for included services shall be deemed to arise in a Contracting State when the payer is that State itself, a political subdivision, a local authority, or a resident of that State. Where, however, the person paying the royalties or fees for included services, whether he is a resident of a Contracting State or not, has in a Contracting State a permanent establishment or a fixed base in connection with which the liability to pay the royalties or fees for included services was incurred, and such royalties or fees for included services are borne by such permanent establishment or fixed base, then such royalties or fees for included services shall be deemed to arise in the Contracting State in which the permanent establishment or fixed base is situated. right to use, the right or property, or the fees for included services relate to services performed, in one of the Contracting States, the royalties or fees for included services shall be deemed to arise in that Contracting State. 8. Where, by reason of a special relationship between the payer and the beneficial owner or between both of them and some other p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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) , once an amount is found to be of such a nature as can be covered, in an appropriate case, by article 15, the same shall stand excluded from the ambit of article 12. As we take note of this treaty provision, we may mention that the learned CIT(A) has referred to article 12(6) in support of this proposition, and to that extent he is not right because article 12(6) refers to a situation in which the services are rendered through the fixed base or through the permanent establishment, and the consequent taxability arises under article 15 or article 7 respectively. The dispute, in such a situation, is essentially confined to the taxability on under article 12, on one hand, or under article 15 or article 7, on the other hand. That is not an issue which is relevant in the present context. Learned CIT(A) s reliance on article 12(6) is, therefore, certainly incorrect but his conclusions are correct because of the impact of article 12(5)(e). 7. The crucial question, therefore, is as to what constitutes in ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . The school of thought thus emerging from these deliberations is that, broadly speaking, a profession will imply any vocation carried on by an individual, or group of individuals, requiring predominantly intellectual skills, dependent on individual characteristics of the person(s) pursing that vocation, requiring specialized and advanced education or expertise. [Emphasis, by underlining, supplied by us now] 8. There is no change in the legal position; nothing contrary to the decision so rendered has been brought to our notice. Viewed in the light, software development service rendered by an individual, which essentially requires predominantly intellectual skill, dependent on individual characteristics of the person pursuing software development, and based on specialized and advanced education and expertise, is also a professional service. As regards the objection of the Assessing Officer that software development is not specifically covered by article 15(2), as evident from the opening words of this provision to the effect the term professional services' includes (emphasis, by underlining, supplied by us) , the specific professions set out therein are ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... dered agreement with this analysis in the UN Model Convention Commentary. We are thus of the considered view that, in a situation like the one that we are in seisin of, i.e. in which specific provisions for professional services or independent personal services or included services exist under art. 15, when services are rendered by the enterprise, art. 5(2)(k) will come into play, and when services are rendered by an individual, art. 15 will find application . 9. The applicability of article 15, therefore, is also substantially influenced by the status of the recipient- i.e. whether he is an individual or whether he is a corporate entity. In the light of all these discussions, in our considered view, the services rendered by the assessee are in the nature of professional services but then since the conditions set out in article 15(1) are admittedly not satisfied on the facts of this case, the taxability under article 15 does not arise. As a corollary to our finding that the services in question are in the nature of professional services, and by the virtue of exclusion clause in article 12(5)(e), which provides that the income from professional services rendered by an ind ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... character in that State. 3. The term professional services includes independent, scientific, literary, artistic, educational or teaching activities as well as the independent activities or physicians, surgeons, lawyers, engineers, architects, dentists and accountants . 44. As the related provisions are materially similar, even in the case of the UK based person, the payments made for the professional services cannot be taxed as fees for technical services, and these payments cannot be taxed as independent personal services either as the conditions set out in Section 15(2) are not satisfied. As regards the requirement of tax residency certificate, referred to in the impugned order, we are unable to see any legal basis for this observation. We reject the same. In view of these discussions and bearing in mind entirety of the case, we uphold the grievance of the assessee in respect of UK based receipt as well. The Assessing Officer will delete this tax withholding demand as well. 45. Ground no. 3 is thus allowed. 46. In ground no. 4, the grievance raised by the assessee is as follows: 4 Data processing charges paid to Ford Espana treated as Fees for Technical serv ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ces) after a period of five years from the date of its entry into force. However, if under any Convention or Agreement between India and a third State which is a Member of the OECD, which enters, into force after 1st January, 1990, India limits its taxation at source on 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 incomes, 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 with effect from the date on which the present Convention comes into force or the relevant Indian Convention or Agreement, whichever enters into force later [Emphasis, by underlining etc, supplied by us] 50. There is no dispute that in the Indo Spanish DTAA, vide article 12(4), 4.the term fees for technical services is defined as payments of any kind to any person other than payments to an employee of the person making the payments and to any individual for independent personal services mentioned in Article 15 (Independent Personal Services), in consideration for the services of a technical or consultan ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... sfied. It cannot also be treated as payment for use of equipment as the payment is for processing of data as a service package and not for the control and use of the equipment on which data is processed- a proposition duly supported by the coordinate bench decision in the case of Kotak Mahindra Primus Ltd Vs DDIT [(2006) 11 SOT 578 (Mum)]. Accordingly, the tax withholding demand in respect of this payment of ₹ 10,58,295 must also stand deleted. 52. Ground no. 4 is thus allowed. 53. In the result, the appeal of the assessee is allowed. 54. We now move to the appeal filed by the Assessing Officer for the assessment year 2012-13. 55. Ground no. 1 is general and does not call for any specific adjudication. 56. In ground no. 2, the Assessing Officer has raised the following grievance: 2. 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 of payments made by the assessee to following parties :- S.No. Name of the Party Amount Nature of payment ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 Corporate Employee Insurance USA 2,27,754 Fire protection Engineering services 2. Ford Group Philippines Philippines 10,56,462 Everest media ride and drive reimbursement of expenses 3. Ford Motor Company USA 25,97,283 Fire protection Engineering services 4. Ford Motor Company USA 26,84,142 Reimbursement of actual costs on environmental resources management ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 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 domestic law provisions as the case of the revenue failed on the treaty provisions itself. In view of these discussions, as also referring to the detailed discussions in respect of ground nos 2 and 3 in Assessing Officer s appeal for the assessment year 2011-12, we uphold the relief granted by the CIT(A) and decline to interfere in the matter. 64. Ground no. 3 is thus dismissed 65. In the result, the appeal of the Assessing Officer for the assessment year 2012-13 is dismissed. 66. We now take up the appeal filed by the assessee for the assessment year 2012-13. 67. Ground no. 1 is general and does not call for any adjudication. 68. In ground no. 2, the assessee has raised the following grievance: 2. Installation and commissioning charges paid to non-residents treated as Fe ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ssee. 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 installation threshold limit. These amounts cannot be taxed as business profits either. There is no other treaty provision under which these amounts can be brought to tax in India under the respective tax ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e charges paid would not qualify as Fees for technical services / Fees for included services under the respective articles of the DTAA. 72. Learned representatives 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 Office ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f. Klaus Vogel, in his oft referred book 'Klaus Vogel on Double Taxation Conventions', had observed that, the treaty acts like a stencil that is placed over the pattern of domestic law and 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 s ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... r decision on this issue, because even without this benevolence of the learned Departmental Representative, we will still come to the same conclusion. The reason is this. There are at least two non-jurisdictional 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. bu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... owed for any expenditure being royalty, fees for technical services and other sum chargeable under the Act, if it is payable outside India, or in India to a non resident, and on which tax is deductible at 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 Dep ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... uary provisions of Article 23 either. The interpretation canvassed by the learned Departmental Representative, if accepted, will render allocation of taxing rights under a treaty redundant. In any case, to 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 f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e not dealt with under article 7. The expression 'deal with' is a comprehensive expression having different shades of meaning. In the New Chambers Thesaurus, the meanings of'deal with' are given 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 betw ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ching the residuary income clause, in a case in which the FTS tests fail, is covered by the decision of Hon ble jurisdictional High Court, it is not even necessary to deal with how other Hon ble High Courts have dealt with the issue. 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... kill is provided to the company in installing software and for maintaining the same without break which falls under the category fees for technical services as per section 9(1)(vii) of the Income Tax Act. Hence, it is held that the assessee should have deducted tax at source from the remittances made to the above parties at 10% of the amount paid. 82. Aggrieved, assessee carried the matter in appeal before the CIT(A) but without any success. In a brief order, the CIT(A) upheld the action of the Assessing Officer 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... make available under the respective treaty provisions for taxability of fees for technical services. The assessee has nevertheless filed the detailed submissions in support of his stand, which, as noted above, none of the authorities below have dealt with at all. 88. In this view of the matter, in our considered view, the matter should be restored to the file of the Assessing Officer for adjudication de novo by way of a speaking order, in accordance with the law as explained earlier in this order, and after giving a fair and reasonable opportunity to the assessee. We order so. We also make it clear that unless the Assessing Officer can make out a case as to how the services, in consideration of which the impugned payments are made, satisfy the requirements of make available clause in Indo US and Indo Australia tax treaties, there cannot be any occasion to hold the assessee responsible for non-deduction of tax source from these payments. 89. Ground no. 6 is also thus allowed, though for statistical purposes. 90. In the result, the appeal of the assessee for the assessment year 2012-13 is thus allowed. 91. To sum up, the appeals filed by the Assessing Officer are dis ..... X X X X Extracts X X X X X X X X Extracts X X X X
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