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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 ..... corporate entity incorporated in Israel and a tax resident of Israel. Being a tax resident of Israel, the assessee opted to be governed by India - Israel, as, it is more beneficial to the assessee. Be that as it may, in the assessment years under dispute, the assessee filed its return of income offering to tax the royalty income received from Indian subsidiary towards transfer of technical know-how, skill etc. In course of assessment proceeding, the Assessing Officer noticed that, in addition to the royalty income, the assessee has also received certain fees/charges towards provision of IT support and SAP services under IT and SAP service agreement entered with the Indian subsidiary. However, the receipts from the Indian subsidiary under the IT and SAP service agreement have not been offered to tax by the assessee. When the Assessing Officer called upon the assessee to explain, why the amounts received under the IT and SAP service agreement should not be treated as FTS in terms of Article 13 of India - Israel DTAA, the assessee furnished a detailed submission stating that, though, the scope of FTS under Article 13 of India - Israel DTAA is much wider, however, as per the Protocol ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... A would be applicable to the assessee. 5. Having held so, learned Commissioner (Appeals) held that assessee's receipts under IT and SAP Service Agreement would fall under Article 12(4)(a) of India - Portugal DTAA as such fees were received with regard to services which are ancillary and subsidiary to the Technical Collaboration Agreement resulting in payment of royalty. In other words, learned Commissioner (Appeals) held that the fees received under IT and SAP Service Agreement is as a result of the royalty income. Thus, he held that since the receipts would fall under Article 12(4)(a) of India - Portugal DTAA, the 'make available' condition under Article 12(4)(b) of the said treaty would not apply. While coming to the conclusion that the receipts from IT and SAP Service Agreement is ancillary and subsidiary to royalty income, learned Commissioner (Appeals) observed that the IT and SAP Service Agreement was entered into due to the fact that a Technical Collaboration Agreement was initially signed. He observed, in case, the Technical Collaboration Agreement would not have been signed, the IT and SAP support would not be required. He observed, the SAP support is an additional suppor ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Vs. DCIT[2022] 137 taxmann.com 443 (Delhi - Trib.) iv. SCA Hygiene Products AB Vs. DCIT [2021] 123 taxmann.com 152 (Mumbai - Trib.) v. GRI Renewable Industries S.L. Vs. ACIT [2022] 140 taxmann.com 448 (Pune - Trib.) vi. Cotecna Inspection SA Vs. ITO [2022] 136 taxmann.com 368 (Delhi) vii. Steria (India) Limited Vs. CIT [2016] 72 taxmann.com 1 (Delhi) viii. CIT Vs. De Beers India Minerals (P.) Limited [2012] 346 ITR 467 (Kar HC) ix. DIT Vs. Guy Carpenter & Co. Ltd. [ITA No.202/2012 (Delhi HC)] x. Outotec Oyj Vs. DDIT [2016] 76 taxmann.com 33 (Kolkata Trib.) xi. Spencer Stuart International BV Vs. ACIT [2018] 94 taxmann.com 380 (Mumbai Trib.) 7. Strongly relying upon the observations of learned first appellate authority, learned Departmental Representative submitted, the services rendered under IT and SAP Service Agreement are ancillary and subsidiary to the Technical Collaboration Agreement. He submitted, the fact that receipts are in the nature of FTS, has not been disputed by the assessee. He submitted, IT and SAP Service Agreement was entered into in 2009, however, the duration of the agreement was for one year. He submitted, subsequently, the agreement has been ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ents under which the assessee had received IT support service charges and royalty income. On perusal of material placed before us, it is observed, the assessee has entered into IT and SAP Service Agreement with the Indian subsidiary in writing on 11th November, 2010. However, the recitals of the said agreement make it clear that such services were being provided to the Indian subsidiary through oral agreement w.e.f. 1st April, 2009, which was formalized in writing on 11th November, 2010. Thus, for all practical purposes, the IT and SAP Services Agreement was effective from 1st April, 2009. Under this agreement, basically, the assessee provides the following services: * Helpdesk, network, SAP basis and management * SAP infrastructure support * SAP license maintenance * Application based support 10. As could be seen from the terms of the agreement as well as the nature of services provided therein, the assessee provides IT and SAP support services to its group concerns and subsidiaries by initially incurring the cost itself, thereafter cross charges the cost from its subsidiary. IT and SAP Service Agreement has been entered into basically to provide day to day IT support req ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... 12(4) of India - Portugal DTAA, reproduced hereunder: "Article 12(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 any person in consideration of the rendering of any technical or consultancy services (including through the provisions of services of technical or other personnel) if such services: (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 (b) make available technical knowledge, experience, skill, knowhow 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 herein." 14. Presently, we are concerned with Article 12(4)(a). A careful reading of Article 12(4)(a) of India - Portugal Tax Treaty makes it clear that to qualify as FTS therein, two conditions have to be satisfied. Firstly, the services giving rise to the fees must be ancillary and subsidiary, and secondly, it must be connected to the application or enjoyment of ..... X X X X Extracts X X X X X X X X Extracts X X X X
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