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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 ..... on the Ruling given by the AAR in the assessee’s own case. Discussion of the new DTAA or the Protocol above should not be construed as reflection of our opinion on its applicability or otherwise to the facts of the instant case. The AO should decide its implications independently on merits. The assessee will be allowed a reasonable opportunity of hearing in such fresh proceedings. Allocation of expenses - AO found that some of the expenses made by the assessee were not in accordance with the arm’s length principle - Held that:- 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 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d three streams of income, namely, gross fees for technical services earned from Indian concerns amounting to ₹ 12.72 crore; gross fees earned from foreign sources amounting to ₹ 13.36 crore; and interest income of ₹ 1.17 crore. Instantly, we are concerned with the dispute with regard to fees from technical services earned from Indian concerns. This fee was received by the assessee from its other associated enterprises (AEs) in India. On going through the relevant invoices raised by the assessee on its AEs, it was observed that these pertained to supply of technical personnel to such enterprises, who were engaged with the installation and maintenance of mobile network systems carried out by such AEs. The assessee made a combined Profit Loss Account incorporating revenues from all the streams, from which common expenses were deducted and net loss of ₹ 3.28 crore was computed. Computation of income was done with this figure of loss of ₹ 3.28 crore as a starting point. Certain additions and subtractions were made to/from it for determining total income at a loss at ₹ 3.27 crore for the year. The Assessing Officer opined that gross fees earned by t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... . 4. The following additional grounds, which are relevant to the point under consideration, have been raised:- 1. On the facts and in the circumstances of the case and in law, the order passed by the learned Assessing Officer and the learned Commissioner of Income Tax (Appeals) have erred in not granting the benefit available to the appellant under article 25 of the Convention between the Government of the Republic of India and the Government of the Kingdom of Sweden for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income and on capital, 1997 , read with its Protocol. 2. That without prejudice to the other grounds of appeal, on the facts and in the circumstances of the case and in law, the order passed by the learned Assessing Officer and the learned Commissioner of Income Tax (Appeals) have erred in not granting the carry forward and set-off of losses and unabsorbed depreciation of the past years against income of the current assessment year. 5. We have heard both the sides and perused the relevant material on record. The AAR gave its Ruling in the assessee s own case which has since been reported as Ericsson Telepho ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rred to in sub-section (1) shall be binding as aforesaid unless there is a change in law or facts on the basis of which the advance ruling has been pronounced . It thus transpires that a Ruling is binding on the assessee as well as the authorities under the Act save and except there is some change in the relevant provisions of the Act or Treaty afterwards. 7. The ld. AR submitted that the Ruling was delivered by the AAR on 20.06.1996. Such a Ruling was given by considering the provisions of DTAA between India and Sweden, which got notified on 27.03.1989. He stated that such DTAA between India and Sweden has undergone a change and the new Treaty has been notified on 17.12.1997, which governs the year under consideration. A copy of such DTAA has been placed on record. It is found that the definition of fees for technical services given under Article 12 of the new Treaty is similar to the definition of `fees for technical services given under Article 13 of the old Treaty notified on 27.03.1989, to the extent it is applicable to the facts of the instant case. The ld. AR fairly admitted this position. He, however, stated that the Protocol dated 24.06.1997 appended to the new Treat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... er alia, with fees for technical services as is the case under consideration. It provides that if India has entered into a Convention etc. with a third country, which is a member of the OECD, and in such Convention etc., India has limited its taxation rights in terms of rate or scope, which are more beneficial than that provided in the Convention with Sweden, then such lower rate or scope shall apply in preference to the rate and scope of fees for technical services encapsuled in the DTAA with Sweden. The ld. AR submitted that India has entered into DTAA with Finland, which is a Member of the OECD. Article 3 of the DTAA with Finland deals with `Royalties and fees for technical services and para 4 of Article 3 contains make available clause, which is absent in the DTAA with Sweden. He further submitted that the scope of nondiscrimination clause in Article 25 has also been expanded in the Protocol. 9. Indisputably, when the Hon'ble AAR rendered its Ruling in 1996, the new DTAA between India and Sweden notified on 17.12.1997 was not in vogue as it came into existence only after the Ruling. The assessment year under consideration is 2000-01. As per the ld. AR, the Protocol un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n issues decided by the Authority, which remain unaltered by the DTAA of 1998 or the Protocol, will have to be applied as such. It is made clear that discussion of the new DTAA or the Protocol above should not be construed as reflection of our opinion on its applicability or otherwise to the facts of the instant case. The AO should decide its implications independently on merits. Needless to say, the assessee will be allowed a reasonable opportunity of hearing in such fresh proceedings. 12. The next issue raised in this appeal is against allocation of expenses. The Assessing Officer found that some of the expenses made by the assessee were not in accordance with the arm s length principle. The assessee shared the General and Administration (G A) expenses borne by Ericsson Communication Pvt. Ltd. (ECI), an associated enterprise, in a ratio which had no relation with their turnovers and activities in India. The Assessing Officer took into consideration the Cost sharing agreement dated 01.10.1998. It was found that out of total expenses incurred (before sharing) amounted to ₹ 31.89 crore and the assessee was allocated expenses of ₹ 5.01 crore, which was claimed by it to ..... X X X X Extracts X X X X X X X X Extracts X X X X
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