9911796707
TMI Blog2019 (11) TMI 1110X X X X Extracts X X X X X X X X Extracts X X X X ..... y. It is for this reason that Explanation 6 to Section 9(1)(vi), in our humble understanding, has no role, under article 3(2) of the treaty, in explaining the expression process , in the context of defining royalty under the Indo Singaporean tax treaty. This statutory provision, under the domestic law, is relevant only when the definition of royalty under section 9(1)(vi) of the Income Tax Act, 1961, is subject matter of consideration, as it specifically states that said definition is for the purpose of for the purpose of this clause [i.e. Section 9(i)(v)] . Additional test that is required to be put, while adopting the ambulatory interpretation in such a situation, is whether the amendment is domestic law ends up unsettling a conclusion arrived at under the pre domestic law amendment position i.e. reversing the judicial rulings in favour of the residence jurisdiction, and, if the answer is in the positive, the ambulatory interpretation is to be discarded because that approach would patronise, and legitimise, a unilateral treaty override, and the outcome of ambulatory interpretation in such a case will be incompatible with the fundamental principles of treaty interpretation un ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ow 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)(b) of India Singapore tax treaty. As regards the taxability under article 12(4)(c), it is nobody s case that there is any development and transfer of a technical plan or technical design, and, therefore, this provision does no come into play either. Once we come to the conclusion that the payment for these services is not taxable as fees for technical services under article 12(4), it is immaterial whether it could be taxable under section 9(1)(vii) for the simple reason that this being a treaty situation, the provisions of the Income Tax Act, 1961, could come into play only when favourable to the assessee. We approve the conclusions arrived at by the learned CIT(A) on this issue as well. We, therefore, confirm the stand of the learned CIT(A) and decline to interfere in the matter. - Revenue appeal dismissed. - ITA Nos. 6331 to 6334/Mum/2018 - - - Dated:- 15-11-2019 - ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... se' and 'process' in Article 12 of the India-Singapore DTAA in relation to royalty, Article 3(2) of the said DTAA allows for taking recourse to the meaning contained in the domestic law of the State applying the Treaty (that is, India)? 3. Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in not considering Explanation 5 and 6 to section 9(1)(vi) of the Act in relation to payment made by the assessee to RJIPL Singapore for bandwidth services in light of direct mandate provided by Article 3(2) of the India-Singapore DTAA? 4. Whether on the facts and circumstances of the case and in law, Ld. CIT(A) has erred in not considering Explanation 5 and 6 to section 9( 1 )(vi) of the Act as being declaratory and clarificatory amendments explaining the law as existing from 01.06.1976 onwards as they satisfy the conditions laid down by a Constitution Bench of Hon'ble Supreme Court in the case of Commissioner of Income Tax (Central)-1, New Delhi vs Vatika Township Pvt Ltd (Civil Appeal No. 8750 of 2014 arising out of SLP (C) No. 540 of 2009 for being as such? 3. Grievance of the assessee, ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ch Bandwidth Services. All infrastructure and process required for provision of Bandwidth Services was always used and under the control of RJIPL and same was never given by RJIPL to the Appellant or to any person who are availing the Bandwidth Services from RJIPL. Further, relying on the various decisions of the Indian courts as cited by the Appellant, I am of the view that if the process involved to provide the service is not secret i.e. the IPR in the process is not owned / registered in a specific owner's name but is a standard commercial process followed by the industry players, then the same cannot be classified as secret process as required under the India-Singapore DTAA for the payments to constitute Royalty. I am also of the view that amendments in the Act cannot be read into treaty provisions without amending the treaty itself. Therefore, the arguments cited by the Appellant would still hold good under the India - Singapore DTAA even pursuant to the amendments made by the Finance Act 2012 and the meaning of the term process as defined in the Act is for limited purpose of section 9(l)(vi) and cannot be read into the DTAA. Further, based on terms o ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ndwidth services to RJIPL did not constitute royalty and was its business profits . Admittedly, as the revenue has not assailed the observations of the CIT(A) that the payments made by the assessee to RJIPL cannot be held as FTS, therefore, we confine ourselves to the issue to the extent the same has been assailed by the revenue before us. As is discernible from the record, the assessee pursuant to the terms of the 'agreement' had only received standard facilities i.e bandwidth services from RJIPL. In fact, as observed by the CIT(A), the assessee only had an access to services and did not have any access to any equipment deployed by RJIPL for providing the bandwidth services. Apart there from, the assessee also did not have any access to any process which helped in providing of such bandwidth services by RJIPL. As a matter of fact, all infrastructure and process required for provision of bandwidth services was always used and under the control of RJIPL, and the same was never given either to the assessee or to any other person availing the said services. We are persuaded to subscribe to the observations of the CIT(A) that as the process involved to provide the We have he ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... s into service Explanation 6 to Sec. 9(1)(vi), in order to drive home his contention that the payment made by the assessee to RJIPL for availing the bandwidth services would fall within the sweep of royalty is concerned, we are unable to persuade ourselves to accept the same. In our considered view, the amendment in Sec. 9(1)(vi) will not have any bearing on the definition of royalty as contemplated in the India-Singapore DTAA. Our aforesaid view is fortified by the order of the Hon'ble High Court of Bombay in the case of The CIT v. Reliance Infocomm Ltd. (IT Appeal No. 1395 of 2016, dated 05.02.2019). The Hon'ble High Court in its aforesaid judgment had after referring to the judgments of the Hon'ble High Court of Delhi in the case of DIT v. New Skies Satellite BV [2016] 382 ITR 114/238 Taxman 577/68 taxmann.com 8 and CIT v. Siemens Aktiongesellschaft [2009] 310 ITR 320 (Bom)] had after deliberating on the amendment made available on the statute by the Explanation 6 to Sec. 9(1)(vi), observed that mere amendment in the I-T Act would not override the provisions of DTAA treaties. In the backdrop of our aforesaid observations, we shall now further deliberate on the de ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n our considered view, the amendment in Sec. 9(1)(vi) will not have any bearing on the definition of royalty as contemplated in the India-Singapore DTAA. Our aforesaid view is fortified by the order of the Hon'ble High Court of Bombay in the case of The CIT v. Reliance Infocomm Ltd. (IT Appeal No. 1395 of 2016, dated 05.02.2019). The Hon'ble High Court in its aforesaid judgment had after referring to the judgments of the Hon'ble High Court of Delhi in the case of DIT v. New Skies Satellite BV [2016] 382 ITR 114/238 Taxman 577/68 taxmann.com 8 and CIT v. Siemens Aktiongesellschaft [2009] 310 ITR 320/177 Taxman 8/(Bom.) had after deliberating on the amendment made available on the statute by the Explanation 6 to Sec. 9(1)(vi), observed that mere amendment in the I-T Act would not override the provisions of DTAA treaties. In the backdrop of our aforesaid observations, we shall now further deliberate on the definition of royalty‟ as contemplated in the India-Singapore tax treaty. In our considered view there is substantial force in the contention advanced by the ld. A.R that though the term royalty as used in Article 12 of India-Hungary DTAA takes within its swee ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e bench to refer the matter for the consideration of a larger bench, or, in a fit case, hold that the judicial precedent, for the specific reasons set out, is not a binding judicial precedent. Let us also not lose sight of the fact that, as pointed out by the learned Departmental Representative, there is a direct decision of Hon ble jurisdictional High Court in the case of CIT Vs Siemens Aktiongesellschaft [(2009) 310 ITR 320 (Bom)] , upholding ambulatory approach to domestic law meaning of undefined terms under article 3(2), and, if the same approach is adopted in the present case for certain expressions appearing in the definition in the royalty, the plea of the revenue, at least on the face of it, does not seem to be totally devoid of legally sustainable merits. In any event, even though the decision relied upon refers to the aforesaid decision, it does not at all deal with the interplay of domestic law definitions, under article 3(2), with undefined treaty expressions. Of course, that is only one of the aspects of the matter and there are many other nuances of the matter which need to be taken note of, analysed and taken a conscious call on. Let us, in this backdrop, neatly id ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... echnology, whether or not such process is secret, is covered by the definition of royalty under article 13(3)(a) of the Indo Singapore tax treaty, and since the bandwidth services, on the facts of this case, are transmitted by satellite, cable, optic fibre or other similar technology, the bandwidth services constitutes royalty for the purpose of article 13(3)(a). As for the reference to Vatika Township decision (supra) , it is contended, as stated in so many words in the fourth ground of appeal, the insertion of Explanation 5 and 6, though by the virtue of Finance Act 2012, is only a declaratory and clarificatory amendment explaining the law as existing from 01.06.1976 . A lot of emphasis has been placed on the interplay of article 3(2) with domestic law meaning of a term used in, but not defined in, the Indo Singapore tax treaty. The thrust of learned Departmental Representative s argument is that in such a situation, i.e. when a term used in a treaty is not defined in the treaty, domestic law meaning of the term must prevail. The expression process , on the basis of this argument and on the strength of article 3(2) of treaty itself, is claimed to cover transmission by sa ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ion to ourselves, does the expression process , in its own right, has any relevance for the tax treaties or can process to be said to be a term employed in tax treaties? The answer is in negative. If at all the expression process has any relevance, it is in defining a treaty term i.e. royalty . To look for statutory definitions of each word employed in a definition of the treaty term, and then construct the definition of treaty term as an assembly of the statutory definitions of all these words taken together will be too hyper technical an approach, and, in any case, beyond the mandate of article 3(2). That does not appeal to us. It is even more inappropriate because process is judicially explained but the statutory definition is being invoked, under article 3(2), to dislodge the judicial interpretation. Quite clearly, therefore, but for the binding force of article 3(2), this statutory definition does not come to the rescue of Assessing Officer s case, and it is this binding force of article 3(2) which does not come into play in explaining the word process used in definition of a treaty term i.e. royalty. Of course, royalty is a treaty term but since it is well defined ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... y under section 9(1)(vi) of the Income Tax Act, 1961, is subject matter of consideration, as it specifically states that said definition is for the purpose of for the purpose of this clause [i.e. Section 9(i)(v)] . 14. Even if we proceed on the basis that process can be treated as an undefined treaty term, which, in our humble understanding, it is not, and that Explanation 6 to Section 9(1)(vi) can have a role in assigning domestic law meaning to the expression process , the next fundamental question, however, that we must consider is whether, on the facts and in the circumstances of this case, assignment of the domestic law meaning under article 3(2), to an undefined treaty term, is to be done by way of static interpretation or by way of dynamic or ambulatory interpretation. In plain words, the meaning to be assigned to the undefined treaty terms should be given in the light of the law as it stood at the point of time when treaty was entered into or the law as it stands at the point of time when related taxes are levied. If the static interpretation is to be given, it does not come to the rescue of the revenue s case. The expression process was not, at the ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the provisions of this agreement in one of the territories any term not otherwise defined in this agreement shall, unless the context otherwise requires, have the meaning which it has under the laws in force in that territory (emphasis, by underlining, supplied by us now) relating to the taxes which are the subject matter of this agreement , and these words were slightly different than the words employed in the Indo Singapore tax treaty, that we are dealing with, which are as follows: As regards the application of the Agreement by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have, the meaning which it has under the law of that State concerning the taxes to which the Agreement applies . While in the former, there is emphasis on laws in force , which is what Their Lordships have taken very careful note of, in the latter it simply refers to meaning which it has under the law of that State without making any specific reference to the laws in force or the laws as they prevailed at any other point of time. We may also add that Their Lordships were dealing with Old German (i.e. India- Federal Republic of Germany) tax tr ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... an tax treaty that we are concerned with. 18. Of course, even without the words meaning which it has under the laws of that State from time to time in force , one could still justify the ambulatory interpretation in the normal course of interpretation- though without the binding force of judicial precedents, but then, for the reasons we will set out now, there is a strong conceptual basis for not adopting the ambulatory interpretation on peculiar facts of this case. 19. While it is indeed true, as held by Hon ble jurisdictional High Court in the case of Siemens Aktiongesellschaft s, that the rule of referential incorporation or incorporation cannot be applied when we are dealing with a treaty (DTAA) between two sovereign nations because it is open to a sovereign legislature to amend its laws , Their Lordships have put in a word of caution by suggesting an element of reasonableness in construing the treaty superiority vis- -vis the domestic law by observing that a DTAA entered into by the Government in exercise of the powers conferred by section 10(1) [sic- section 90(1)] while considering section 10(2) [sic- section 90(2)] has t ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... n becomes taxable in source jurisdiction post domestic law amendment. Undoubtedly, legislation is a sovereign function and it is indeed open to any jurisdiction to amend, even retrospectively, its domestic laws to bring new incomes to taxability in the source jurisdiction, but so far as the source jurisdiction taxability under the treaty provisions is concerned, legal amendments so as to influence the taxability even under the treaty situation, by the source jurisdictions unilaterally, are impermissible. That is a classic case of a subtle unilateral treaty override. While, in India, the expression treaty override is often loosely used for the situations where the provisions of tax treaty prevails over any inconsistent provisions of domestic law, this approach seems to be at variance with the international practices wherein connotations of treaty override refer to a situation in which domestic legislation of a treaty partner jurisdiction overrules the provisions of a single treaty or all treaties hitherto having had effect in that jurisdiction. That will be the end result of a domestic law amendment of an undefined treaty term, in departure from the current position, and import ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... case will be incompatible with the fundamental principles of treaty interpretation under the Vienna Convention. The approach is justified on the first principles on the ground that when two approaches are possible for incorporation of domestic law provisions in the tax treaties and one of these approaches is compatible with Article 26 of the VCLT while the other is incompatible with the same, the approach compatible with the VCLT provisions is to be adopted. 22. In view of these discussions, and bearing in mind entirety of the case, we find no legally sustainable merits in the grievances raised before us. The arguments raised before us do not lead us to a different conclusion either. Concurring with the coordinate bench decisions, therefore, we approve the conclusions arrived at by the learned CIT(A) and decline to interfere in the matter. As we hold so, we may add that these observations regarding ambulatory or dynamic approach being inappropriate in the context of article 3(2) is confined to the peculiar facts discussed above, and, are not, therefore, of general application. 23. Ground nos. 1 to 4, as common to all the appeals, are, therefore, dism ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Act. I also agree with the Appellant's contention that the payments / credits under the Agreement by the Appellant to RJIPL for the O M services also cannot be regarded as FTS under Article 12 of the India - Singapore DTAA since the O M services do not make available technical knowledge, experience, skill, know-how or processes, which enables the Appellant to apply the technology contained therein. Article 12(4) of the India-Singapore DTAA defines fees for technical services as: The term fees for technical services as used in this Article means payments of any kind to any person in consideration for services of a managerial, technical or consultancy nature (including the provision of such services of technical or other personnel) if such services: ( a) ..... ( b) make available technical knowledge, experience, skill, know-how, or processes, which enables the person acquiring the services to apply the technology contained therein. ( c) ..... It would be worthwhile 10 refer to the jurisdictional Tribu ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... The Appellant is only interested in availing the bandwidth services and is not concerned or obliged in any manner with the infrastructure deployed by RJIPL. Thus, in view of the facts of the case and relying on the above decisions, I am of the view that the provision of O M services by RJIPL to the Appellant cannot be regarded as Fees for Technical Services under the Indie - Singapore DTAA as there is no transfer of technical knowledge, experience, skill, know-how, or processes from RJIPL to the Appellant. In light of the above discussion. I hold that the payments made by the Appellant to RJIPL for rendition of O M services will be in the nature of business profits and cannot be classified as Fees for Technical Services either under the Act or the India- Singapore DTAA. Further, in absence of RJIPL's business connection or a PE in India, the business profits will not be taxable in India. 26. The Assessing Officer is aggrieved of the relief so granted by the CIT(A) and is in appeal before us. 27. We have heard the rival contentions, perused the material on record and duly considered facts of the case in the light of the appli ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... vices which did not involve any transfer of technology. In response to our specific question, learned DR could not enlighten us about what was the nature of technology transferred under these arrangements. The amounts received by RJ-S could not, therefore, be taxed as 'fees for technical services either. 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) 346 ITR 504 (Del)] and Hon'ble 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 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)(b) of India Singapore tax treaty. As regards the taxability under article 12(4)(c), it is nobody s case that there is any development and transfer of a t ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
