9911796707
TMI Blog2021 (1) TMI 211X X X X Extracts X X X X X X X X Extracts X X X X ..... oint of the A.O. in this regard is ex consequenti vacated. Is Training fee a consideration for rendering Managerial services as claimed by the assessee? - case of the assessee before the authorities below has been that the Training fee is a consideration for `Managerial services and going by the Protocol to the DTAA read with the DTAA between India and Portuguese, the fee for managerial services does not fall within the scope of Article 12 - HELD THAT:- Acquainting someone in a formal manner with techniques to boost sales does not stand at par with rendering marketing services. Rendition of marketing services takes place when marketing activities are actually undertaken for and on behalf of an organization by practically plunging into the field or doing some activity concerning the marketing. In fact, doing the activity is synonymous with rendering of service of that nature. Simply equipping or enabling the others for doing an activity is a step anterior to rendition of such services. Coming to the context under consideration, the case of the assessee - that it imparted leadership training to three employees of SAPL, which, in turn, helped them in managing the affairs of SAPL in a ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e. We have held supra that the Training fee received by the assessee does not fall within the purview of Article 12 of the DTAA with Portuguese inasmuch as it is neither fees for managerial services on one hand nor consultancy or technical services on the other. Thus, the taxability of the same is required to be tested within the meaning of Article 7 read with Article 5 of the DTAA. Since such an exercise of examining the case under Article 7 has not been undertaken by the AO, we would have ordinarily remitted the matter to the AO for its de novo adjudication. Contention of the assessee that the provisions of Article 7 of taxing the business receipts in India do not apply as the company does not have a PE in India and consequently the profits from receipts from SAPL cannot be taxed as `Business Income is acceptable . Since the AO has himself accepted that the assessee did not have any PE in India, the amount of Training fee will also escape tax net as it cannot be taxed as Business profit under Article 7 in the absence of there being any PE in India in terms of Article 5. - Decided in favour of assessee. X X X X Extracts X X X X X X X X Extracts X X X X ..... specifically, he held the services to be technical in nature, which made available the technical knowledge. To sum up, he held the training fees received by the assessee from its Indian affiliate as "fees for technical services" taxable under Article 12 of the DTAA. He fortified such a view by relying on the decision taken by the Dispute Resolution Panel (DRP) in the assessee's own case for the immediately preceding assessment year, 2013-14. The DRP also did not provide any succour to the assessee by primarily relying on its order in the assessee's own case for the assessment year 2013- 14 and also holding on merits that the services relating to Training were in the nature of technical or consultancy, which satisfied the mandatory condition of "make available". That is how, a sum of ₹ 22,43,630/- was added by the AO to the assessee's total income in the final assessment order and taxed as fees for technical services at 10%. The assessee has come up in appeal before the Tribunal. 4. We have heard the rival submissions through Virtual Court and glanced at the relevant material on record. The controversy, in a nutshell, is that whereas the assessee is claiming that the Trainin ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... erpret a separate independent contract with another country. It also held that the Protocol attached to a treaty no doubt should be looked into for finding the meaning of an expression used in the treaty, but to refer to a treaty to which two countries are not parties, would not be appropriate. Similar view was reiterated by the AAR in Re Steria (India) Ltd. 2014 364 ITR 381 (AAR). The ruling in Steria (India) Ltd. was challenged by the assessee before the Hon'ble Delhi High Court in Steria (India) Ltd. Vs. CIT and another (2016) 386 ITR 390 (Delhi). Overturning the ruling of the AAR, the Hon'ble High Court held that Protocol is a part of the DTAA and there is no need for separate notification incorporating the beneficial provisions of the other DTAA as forming part of the DTAA to which the Protocol is attached. We still further note that the Ruling in Perfetti (supra) has also been overruled by the Hon'ble Delhi High Court in Perfertti Van Melle Holding. B.V. vs. AAR (2014) 52 taxmann.com 161 (Delhi). Thus, there is a substance in the contention of the ld. AR that once two sovereigns have added Protocol to the DTAA between India and Sweden, which contains the Most Favoured Nation ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e 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." 10. This part of the Protocol states that in respect of Article 12 (Royalties and fees for technical services), if India has, in a DTAA with another third State which is a member of the OECD, limited its taxation right on fees for technical services at a rate lower or a scope restricted than that in the India Sweden DTAA, then such restricted rate or scope shall apply to the DTAA. This is called the MFN clause. Portugal is a member of the OECD. India has entered into DTAA with Portuguese. Relevant part of para 4 of Article 12 of this DTAA, which is parallel of Article 12 of the DTAA between India and Sweden, reads as under: "4. For the purposes of this Article "fees for included services" means payments of any kind, other than those mentioned in Articles 14 and 15 of this Convention, to an ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... arted Sandvik Leadership Program (SLP) to the three employees of its Indian affiliate. The e-mail states that: "The ONE Sandvik Leadership program, ONE SLP, is a development program targeting experienced managers within Sandvik group…….". The Program serves as a general leadership program working with all 5 capabilities in the Sandvik Leadership model and the objectives of ONE SLP are `Support implementation of our business strategy and high performing organization; Support developing experienced individuals that lead others, managers/leaders or functions; Long term investment to enhance the leadership level and succession in Sandvik group; and To help building a ONE Sandvik culture.' It has further been mentioned that the Training program consists of four parts arranged at different intervals starting point with Webinar followed by Module 1 - `Me as a Leader working on ONE Sandvik' ; Module 2 - `Me as a Leader driving improvements while developing others'; and Module - 3 `Me as a Leader delivering result with ambition, speed and focus'. The above Webinar and Modules were conducted in December 2013, February 2014, May 2014 and October 2014. A copy of training presenta ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... DRP held that the services provided by the assessee relating to training were in the nature of technical or consultancy and the mandatory condition of "make available" was also satisfied as the very purpose of training was to impart knowledge etc., so as to enable the recipients to apply such knowledge etc., without recourse to the trainer. We have extracted above Article 12(4) of the DTAA between India and Portuguese, which defines the term "fees for included services". We also noted two striking dissimilarities between the language of the Indian DTAA with Sweden por una parte and Portuguese por otra parte and referred to the second dissimilarity of the Portuguese Convention containing a `make available' clause, which enables the person acquiring the services to apply the technology contained therein. This indicates that in order to fall within the purview of Article 12(4) of the DTAA between India and Portuguese, it is foremost important that the services rendered must not only be consultancy or technical in nature, but should also make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or techni ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... f the matter, it is held that the Revenue authorities were not justified in considering Training fee as a consideration for rendering Consultancy or Technical services within the meaning of Article 12(4)(b) of the DTAA between India and Portuguese. IV. If training fee is not FTS, does it become immune from taxation? 18. Having found that the Training fees received by the assessee is neither in the nature of consideration for managerial service as claimed by the assessee nor consideration for consultancy or technical services as held by the Revenue, the next question is would it consequently become non chargeable to tax? Simply because the amount does not fall within the purview of "fee for technical services" under Article 12 of the DTAA read with its Protocol, it cannot be said that its taxability is ousted. There are other Articles in the DTAA incorporating the basis for inclusion of a particular income in the total income. Article 7 with caption "Business profits" covers the profits of an enterprise of a contracting state. Para 1 of this Article states that the profits of an enterprise of a contracting state shall be taxable only in that State unless the enterprise carries on ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
