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TMI Blog2018 (10) TMI 415X X X X Extracts X X X X X X X X Extracts X X X X ..... naktiedolaget LM Ericsson AB, Sweden. It set up a branch office in India to carry out its business activity. The Branch Office commenced its operations in March, 1995. The assessee is engaged in the field of telecommunication and mobile telephony. In 1995-96, the assessee was awarded contracts by Indian telecom companies for installing GSM mobile telephone network. Such companies included RPG Cellular Services Ltd., Bharti Cellular Ltd., JT Mobiles Ltd. and Birla AT&T Communications Ltd. In 1996, the installation contracts with Indian companies referred to hereinabove, were assigned to Ericsson Communications Pvt. Ltd., which is an Indian company, but a wholly owned subsidiary of the parent company (LM Ericsson AB). Thereafter, all the installation contracts concerning setting up of mobile telephone systems were carried out by Ericsson Communications Pvt. Ltd. (ECI), now known as Ericsson India Ltd. (EIL). The assessee filed its return declaring business loss of Rs. 3.27 crore for the year under consideration. During the course of assessment proceedings, it was observed by the Assessing Officer that the assessee had three streams of income, namely, gross fees for technical services ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Indian companies should deduct tax @ 30% from the gross receipts payable to the assessee. The Assessing Officer elaborately discussed the findings returned by the AAR in its Ruling and, eventually found that the same was applicable in letter and spirit to the facts of the instant case. This is how, he invoked the provisions of section 44D of the Act, which prohibit any deductions to a foreign company in computing the income by way of fees for technical services received from Indian concerns in pursuance of an agreement made by the foreign company with the Indian concerns after 31.03.1976. In this backdrop of facts, the Assessing Officer held that no deduction could be allowed from the gross fees earned by the assessee from the Indian concerns amounting to Rs. 12.72 crore. Applying the tax rate of 20% as given u/s 115A of the Act on such fees for technical services amounting to Rs. 12.72 crore, he found out the amount of tax at Rs. 2.54 crore. No relief was allowed in the first appeal. The assessee is aggrieved against the view reiterated by the ld. CIT(A) on the above issue. 4. The following additional grounds, which are relevant to the point under consideration, have been raise ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... g such contentions, the Authority held that the receipts of the assessee were in the nature of 'fees for technical services' within the meaning of Article 13 of DTAA. It further held that in terms of Article 7(3), though the fees for technical services should be treated as `business profits' and expenses incurred to earn the same are to be deducted, but, in view of section 44D(6), no deduction could be allowed where the agreement was entered into after 31.03.1976. It was, ergo, held that the gross receipts, and not the net income, should be subjected to tax in the hands of the assessee. 6. On a pertinent query, the ld. AR admitted that the Ruling rendered by the AAR has attained finality inasmuch as the same was not challenged by the assessee. In view of the fact that the decision rendered by the AAR has become final, it assumes the character of binding nature on the assessee as well as the Revenue in terms of section 245S(1) and the same cannot be challenged in other appellate proceedings. However, sub-section (2) of section 245S provides that : `The advance ruling referred to in sub-section (1) shall be binding as aforesaid unless there is a change in law or facts on the basis o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ith 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 tax 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. 4. With reference to Article 25: The taxation in India of permanent establishments of Swedish companies, shall in no case differ more from the taxation of similar Indian companies than is provided by the Indian law on the date of signature of this Convention." 8. In so far as para 3 of the Protocol having the most favoured nation (MFN) clause is concerned, it has been graphically set out that it also applies on Article 12 dealing, inter alia, with fees for technical services as is the case under consideration. It provides that if India has entered into a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... h Ruling was rendered, has been substituted as discussed supra. In such circumstances, the prescription of section 245S(2) gets attracted, which requires consideration of the arguments of the assessee in the light of the substituted DTAA along with its Protocol to the facts of the instant case. Such new DTAA and the Protocol have not been considered by the Assessing Officer, who has simply gone by the Ruling rendered by the AAR. As such, we are of the considered opinion that the ends of justice would meet adequately if the impugned order on this score is set aside and the matter is remitted to the file of Assessing Officer. We order accordingly and direct him to decide the issue afresh by considering the effect of alterations, introduced in the new DTAA of 1998 along with the Protocol, if any, on the Ruling given by the AAR in the assessee's own case. In other words, if the new DTAA and the Protocol really impact the ruling given by the AAR against the assessee on the issue, then, the Ruling should be applied in the light of such amendments. The decision on issues decided by the Authority, which remain unaltered by the DTAA of 1998 or the Protocol, will have to be applied as such. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... elevant material on record. It is observed that the assessee booked proportionately more expenses as its share in ECI's expenses. When the Assessing Officer required the assessee to produce final accounts of ECI for the year, the assessee failed to comply with the same and gave figures only for a period of nine months. Other necessary details as called for were also not fully provided. This led to the allocation of expenses on the basis of turnover. It is, but, natural that in the absence of any worthwhile details furnished by the assessee, the Assessing Officer could have no other rational basis to apportion the expenses. The ld. AR submitted that the assessee has got necessary details which can be produced before the authorities below. Taking a holistic view of the matter, we set aside the impugned order on this score and remit the matter to the file of Assessing Officer for deciding this issue afresh as per law, after allowing a reasonable opportunity of being heard to the assessee.
14. No other issue was argued before us.
15. In the result, the appeal is allowed for statistical purposes.
The order pronounced in the open court on 04.07.2018. X X X X Extracts X X X X X X X X Extracts X X X X
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