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TMI Blog2018 (7) TMI 2214X X X X Extracts X X X X X X X X Extracts X X X X ..... Sec.195 of the Act on the foreign remittances made to Aditya Acquisition Company Limited, Israel. 2. The Id. CIT(A) has erred in law and on facts of the case in admitting the appeal U/s.248 of the Act though the Assessee had neither deducted tax at source u/s.195 of the Act at the time of credit of remittances nor paid any taxes to the Government Account, as such this appeal was not maintainable. 3. The Id. CIT(A) has erred in law and on facts of the case in deciding the appeal U/s.248 of the Act without providing opportunity of being heard to the Assessing Officer and in admitting the additional evidences in contravention of Rule 46A(3) of the I.T. Rules, 1962. 4. The Id. CIT(A) has erred in law and on facts of the case in accepting the contention of the Assessee that the services provided by Aditya Acquisition Company Limited, Israel had not resulted in imparting and making available technological skill, know-how to the Assessee, merely considering the contract period of 5 years. 5. The ld. CIT(A) has erred in law and on facts in holding that Aditya Acquisition Company Limited, Israel merely provided supervisory and managerial services whereas terms of Agreement clea ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Addl DIT [(2006) 106 ITD 521 (Bom)]. In this decision, it was held that unless there is an order holding assessee liable for deduction of tax at source under section 195, there is no occasion to appeal under section 248. That was a case in which the assessee had filed an appeal under section 248 on the ground that the Chartered Accountant issuing certificate with respect to ascertainment of tax withholding liability from payment made to non-resident entities had held that the assessee was liable to withhold taxes at source. Denying this liability, assessee carried the matter in appeal before the CIT(A), and, thereafter, before this Tribunal. On these facts, the co-ordinate bench, speaking through one of us, declined to consider the appeal and observed that If we are to uphold CIT(A)'s stand, whenever an assessee tax deductor is aggrieved of the stand taken by a chartered accountant, while certifying the withholding tax liability of the assessee tax deductor, the assessee can file an appeal against the said certificate, on the ground of 'denying liability to deduct tax at source', under s. 248 of the Act. The office of the AO is thus completely bypassed. Sec. 248 of the Act does p ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... thus covers only such persons making the payments who, under an agreement or other arrangement, are bear the tax deductible on any income paid to the nonresident. In other words, unless a person bears the tax liability of the recipient, by agreement or otherwise, he does not have a right to appeal under section 248. In the present case, however, it is an undisputed position that the appellant before us, under clause 4.3 of the agreement under which the services were received from the non-resident entity, had the obligation to bear the tax liability, if any, of the recipient. 8. The other aspect of the matter is that "such person (i.e. the person making the payment who has an obligation, under an agreement or otherwise, to bear the tax deductible) having paid such tax to the credit of the Central Government, claims that no tax was required to be deducted on such income". The language now employed by Section 248 is a departure from the earlier reference to the person making payment "having, in accordance with the provisions of ss. 195 and 200, deducted and paid tax in respect of any sum chargeable under this Act". What was earlier thus the condition precedent for invoking Section 24 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... (A) has granted the impugned relief by invoking Most Favoured Nation (MFN) clause read with Article 13, dealing with fees for technical services) and by holding that the services rendered by the Israeli entity did not "make available technical knowledge, experience, skill, know-how or processes ....... which enables the person acquiring the services to apply the technology contained therein", in substance, the stand of the learned Departmental Representative is that (a) the MFN clause in the Indo Israeli tax treaty is only an enabling provision and cannot, in the light of another DTAA entered into subsequently by an OECD Member jurisdiction i.e. Portugal in this case, automatically alter the FTS clause in the said treaty; and that (b) the services rendered by the Israeli entity did in fact make available technical knowledge, experience, skill and know how. Learned representatives fairly agree that it is our take on these two questions that will eventually decide outcome of the appeal. The nature of payments: 11. The assessee before us is a large pharmaceutical company. The assessee has made payments to an Israel based entity, i.e. Aditya Acquisitions Company Ltd (AACL, in Short) ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt of the gross amount of the fees for technical services. 3. The term "fees for technical services" as used in this Article means payments of any kind received as a consideration for services of a managerial, technical or consultancy nature, including the provision of services by technical or other personnel, but does not include payments for services mentioned in Article 16 of this Convention. 4. The provisions of paragraphs 1 and 2 shall not apply if the beneficial owner of the fees for technical services, being a resident of a Contracting State, carries on business in the other Contracting State in which the fees for technical services arise, through a permanent establishment situated therein, or performs in that other State independent personal services from a fixed base situated therein, and the right, property or contract in respect of which the fees for technical services are paid is effectively connected with such permanent establishment or fixed base. In such case, the provisions of Article 7, or Article 15, as the case may be, shall apply. 5. Fees for technical services shall be deemed to arise in a Contracting State when the services are rendered in that State and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... rce on Royalties or Fees for Technical Services or Interest or Dividends to a rate lower or a scope more restricted than the rate or scope provided for in this Convention, 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". It is pointed out that the said Indo Israel tax treaty, as also the protocol, were signed on 29th January 1996, and subsequent to the said date, the India Portugal Double Taxation Avoidance Agreement has come into force vide Notification No. GSR 542(E), dated 16-6-2000 which provides as follows: ARTICLE 12- ROYALTIES AND FEES FOR INCLUDED SERVICES 1. Royalties and fees for included services arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State. 2. However, such royalties and fees for included services may also be taxed in the Contracting State in which they arise and according to the laws of that State, but if the beneficial owner of the royalties and f ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by the CIT(A). The Assessing Officer is, therefore, in appeal before us. 16. 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. Our analysis 17. It is only elementary that a protocol is an integral part of a tax treaty and when protocol provides for a most favoured nation (MFN) clause, the same is to be given due effect. In our considered view, it is settled position in law that protocol is an indispensable part of the treaty with the same binding force as the main clauses therein. The provisions of the aforesaid DTAA are, therefore, required to be read with the protocol clauses and are subject to the provisions contained in such protocol, including the one reproduced above. In the present case, the protocol clause puts into place a MFN treatment prospectively as it provides that in the event of India entering into any tax treaty, after 1st January 1995, India restricts its source taxation of, inter alia, fees for technical services "to a rate lower or a scope more restricted than the rate or scope provided for" in the Indo Israel tax treaty, the same rate or scope as prov ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... such lower or nil rate to profits of the same kind derived under similar circumstances by enterprises of both Contracting States". The effect of these MFN clauses is thus negotiations and review by the parties so as to bring the parity in the provisions, rather than brining the parity in the provisions. In the present case, the MFN clause brings the parity into effect. 18. The definition of fees for technical services, under the Indo Portuguese tax treatyextracts from which have been reproduced above, covers rendition of only such "technical or consultancy services (including through the provisions of services of technical or other personnel)" as " (a) are ancillary and subsidiary to the application or enjoyment of the right, property or information for which a payment described in paragraph 3 is received", or as "(b) make available technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or technical design which enables the person acquiring the services to apply the technology contained therein". This is a typical "make available clause" with respect to the fees for technical services in the tax treaties. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... whether the assessee can be said have received any services which makes available any "technical knowledge, experience, skill, know-how or processes or consist of the development and transfer of a technical plan or technical design which enables the person acquiring the services to apply the technology contained therein" in the sense that there is a transfer of technology. We find that it is an ongoing contract that the assessee has entered into with the service provider, i.e. Israeli entity, and the thrust of the arrangement is essentially for supervisory and consultancy services. These services cannot, by any stretch of logic, be considered to have transferred the technology in the sense that the recipient of service can be said to have been enabled to perform these services, without recourse to the service provider, on its own. In any event, supervisory and consultancy services are inherently of such nature that theses cannot be said to be covered by the 'make available clause' in the tax treaties for the simple reason that while these services, on facts of a particular case, may require technical inputs, mere rendition of these services does not, by itself, result in transfer o ..... X X X X Extracts X X X X X X X X Extracts X X X X
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