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TMI Blog2023 (6) TMI 173X X X X Extracts X X X X X X X X Extracts X X X X ..... sessee to have his say. As examining the nature of services rendered under the IT and SAP Service Agreement and the Technical Collaboration Agreement, we are convinced that the services rendered under IT and SAP Services Agreement are not ancillary and subsidiary to the services rendered under the Technical Collaboration Agreement. Moreso, when the IT and SAP Services Agreement was in existence much prior to the Technical Collaboration Agreement. The receipts in dispute cannot be treated as FTS under Article 12(4)(a) of India Portugal DTAA and made taxable at the hands of the assessee in India. Accordingly, the disputed additions in both the assessment years are deleted. Assessee appeal allowed. - Shri G.S. Pannu, Hon ble President And Shri Saktijit Dey, Judicial Member For the Appellant : Sh. Salil Kapoor, Advocate, Sh. Ananya Kapoor, Advocate And Sh. Vibhu Jain, Advocate For the Respondent : Sh. Vizay B. Vasanta, CIT(DR) ORDER PER SAKTIJIT DEY, JM: Captioned appeals by the assessee arise out of two separate orders of learned Commissioner of Income Tax (Appeals)-43, New Delhi, pertaining to assessment years 2014-15 and 2015-16. 2. The only common issue arising for consideration ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... knowledge, know-how, skill etc, the receipts cannot be treated as FTS. The Assessing Officer, however, did not accept the submission of the assessee. He observed, the MFN clause under the Protocol to India Israel DTAA will not be available to the assessee unless and until the Government of India issues a notification specifically stating that more restricted definition/scope of India Portugal would be applicable to India Israel DTAA. The Assessing Officer observed, in absence of such notification, the make available condition under India Portugal DTAA cannot be automatically imported to India Israel DTAA. Thus, ultimately, he held, since, Article 13 of India Israel DTAA does not contain any make available condition and the services for which the amounts were received, fall within the ambit of Article 13(3) of India Israel DTAA, the receipts would be taxable in India. Accordingly, he brought to tax the receipts under the IT and SAP Service Agreement by treating it as FTS in terms with Article 13 of the treaty. The assessee contested the aforesaid addition before learned Commissioner (Appeals). After taking note of the submissions of assessee and the ratio laid down in certain judic ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... IT and SAP Service Agreement was entered into only because the Technical Collaboration Agreement was signed. On the contrary, he submitted, IT and SAP Service Agreement existed prior to the Technical Collaboration Agreement, which clearly demonstrates that two agreements have no connection with each other. He submitted, before invoking Article 12(4)(a) of India Portugal DTAA, the first appellate authority has never disclosed his mind to the assessee, nor sought any explanation from the assessee on the applicability of Article 12(4)(a) of India Portugal treaty. Thus, he submitted, the receipts under IT and SAP Service Agreement cannot come within the ambit of Article 12(4)(a) of India Portugal DTAA. However, in absence of fulfillment of make available condition, such receipts cannot be made taxable in India under Article 12(4)(b) of the treaty. Learned counsel for the assessee submitted, in assessee s own case in assessment years 2010-11 and 2011-12, the Tribunal vide order dated 20.02.2023 passed in ITA No.1427/Del/2015 and ITA No.975/Del/2016 has held that the receipts under IT and SAP Service Agreement cannot come within the ambit of FTS under Article 12(4)(b) of India Portugal ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... l DTAA. Though, the Assessing officer has rejected the application of more restricted definition of FTS under India Portugal DTAA by holding that in absence of a specific notification of Government of India, such restricted definition of FTS cannot be imported to the India Israel DTAA, however, learned Commissioner (Appeals) has diverged from the view taken by the Assessing Officer and has held that the benefit of MFN clause in the Protocol to India Israel DTAA would be available to the assessee. Hence, the more restricted scope of FTS under India Portugal DTAA would apply. Admittedly, against the aforesaid decision of learned Commissioner (Appeals), the Revenue has not filed any appeal. 9. That being the factual position, we have to proceed on the footing that the taxability of the disputed receipts would be governed by the definition of FTS as provided under Article 12(4) of India Portugal DTAA. It is a fact on record that learned first appellate authority has held that the receipts under IT and SAP Services Agreement, being ancillary and subsidiary to the royalty income, would be covered under Article 12(4)(a) of India Portugal DTAA. Hence, the make available condition under Art ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... of the technical collaboration agreement, know-how shall mean, documentation, drawings, standards and specification relating to patents, inventions, designs for extrusion and assembly of the products, material specifications, product specifications and safety data sheets, operational and maintenance manual/instructions therefore, including, without limitations, any such data pertaining to the extraction processes in connection with the products. As per the Technical Collaboration Agreement, patent shall mean any patent (including utility model) or patent application in any jurisdiction which relates to the products or any improvement and which during the validity of the agreement may be owned by or licensed to the assessee. The product is defined to mean pressure compensated or non-pressure compensated driplines and other items specified in the agreement. 12. Thus, as could be seen from the scope and ambit of the Technical Collaborated Agreement, the royalty is paid to the assessee by the Indian subsidiary for providing technical knowhow, training and skill etc. relating to drip irrigation products/system. 13. Undisputedly, learned first appellate authority has invoked Article 12( ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ayment of royalty. 15. At this stage, we must observe, learned first appellate authority, while coming to the conclusion that the services rendered under IT and SAP Services Agreement are ancillary and subsidiary to royalty agreement, has completely misconceived the facts, as, he was under an impression that the Technical Collaboration Agreement existed prior to IT and SAP Service Agreement. Whereas, factually, it is not so. As discussed earlier, IT and SAP Service Agreement was existing between the parties from 1st April, 2009. Whereas, the Technical Collaboration Agreement came into effect from 1st April, 2011, after two years. 16. It appears, learned first appellate authority fell into such factual error because while invoking Article 12(4)(a) of India Portugal DTAA, he did not afford any opportunity to the assessee to have his say. Had the first appellate authority given a proper opportunity of rebuttal to the assessee, the conclusion could have been different. 17. Be that as it may, after factually examining the nature of services rendered under the IT and SAP Service Agreement and the Technical Collaboration Agreement, we are convinced that the services rendered under IT and ..... X X X X Extracts X X X X X X X X Extracts X X X X
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